Release Date: September 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gross margin rate increased by 50 basis points to 36.1% despite softer sales trends.
- New store growth remains strong, with the 2022 vintage of new stores posting positive comps for the second consecutive quarter.
- Digital sales penetration increased to 9.7% of total sales, driven by new capabilities like same-day delivery powered by DoorDash.
- Academy Sports and Outdoors Inc (ASO, Financial) launched a new loyalty program, myAcademy Rewards, which has seen strong customer sign-ups.
- Inventory management remains disciplined, with inventory units per store down 5% year-over-year.
Negative Points
- Sales for the second quarter were down 2.2% year-over-year, translating to a negative 6.9% comp on a shifted basis.
- The company faced significant disruptions due to weather events, including tornadoes and Hurricane Beryl, impacting sales by approximately $16 million.
- Issues with the new warehouse management system at the Georgia distribution center led to out-of-stocks, costing approximately $32 million in sales.
- The primary customer base, with annual incomes between $50,000 and $150,000, remains budget-conscious and cautious, impacting discretionary spending.
- SG&A expenses increased by $16 million or 150 basis points year-over-year, primarily due to investments in new stores and technology.
Q & A Highlights
Q: Can you clarify the sales trajectory and the impact of weather and distribution center issues on the business?
A: The business was impacted by weather events and distribution center issues, which accounted for approximately 300 basis points of comp impact. Despite these challenges, the business rebounded in August, posting a positive comp, driven by strong back-to-school sales and improved inventory management. (Steven Lawrence, CEO)
Q: Given the current consumer behavior, is there any plan to become more promotional to drive sales?
A: While we have tried various strategies to stimulate sales during lulls, extra promotions tend to erode our average unit retail (AUR) without sufficient unit uplift. Our strategy is to leverage our strong everyday value proposition during lulls and focus promotions around key shopping events. (Steven Lawrence, CEO)
Q: What are you seeing in terms of the competitive landscape, especially given the current consumer pressures?
A: The competitive landscape remains more promotional than during the pandemic but not as much as pre-pandemic levels. We see promotions spike when retailers don't control their inventory. Our inventory is well-managed, which helps us maintain our promotional strategy. (Steven Lawrence, CEO; Earl Ford, CFO)
Q: Can you provide more details on the performance of new stores and the impact of the loyalty program?
A: The 2022 vintage of new stores posted positive comps, and the 2023 stores are performing better out of the gate. Our new loyalty program, myAcademy Rewards, is seeing strong sign-ups, which should drive targeted marketing and increased customer engagement. (Steven Lawrence, CEO)
Q: How did merchandise margins perform during Q2, and what are your expectations for the back half of the year?
A: Merchandise margins improved by 20 basis points in Q2, driven by inventory cost management and lower freight expenses. For the back half of the year, we expect merchandise margins to continue to contribute positively to our overall gross margin. (Earl Ford, CFO)
Q: What was the impact of the calendar shift on Q2 sales and EPS, and how will it affect the back half of the year?
A: The calendar shift provided a $35 million benefit to Q2 sales, which will reverse in Q3 and Q4. The comp numbers are reported on a shifted basis to account for these changes. (Earl Ford, CFO; Steven Lawrence, CEO)
Q: What drove the improvement in August, and were there specific categories that performed better?
A: The improvement in August was primarily driven by increased traffic and AUR uplift. The performance was broad-based, with strong results in back-to-school categories, adult apparel, footwear, and outdoor divisions. (Steven Lawrence, CEO)
Q: How are private brands performing, and are you seeing any trade-down within categories?
A: Private brands are performing well, with growth in penetration from 20% pre-pandemic to around 22-23%. We see some trade-down to private brands, particularly during lulls, as they offer strong everyday value. (Steven Lawrence, CEO)
Q: How should we think about new store productivity as you ramp up openings?
A: New store productivity remains within our framework of $12 million to $16 million in year-one sales, with a 20% ROIC hurdle rate and a four-year payback period. We expect new stores to continue contributing positively to our overall comp sales trend. (Earl Ford, CFO)
Q: Can you provide an update on the timing of the realization of the 100 basis points in supply chain savings?
A: We are on track to realize the 100 basis points in supply chain savings, with additional opportunities identified. Our new WMS system and other supply chain optimizations are expected to contribute to these savings. (Earl Ford, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
