ASO - Academy Sports And Outdoors Aims For Faster Store Growth In 2023

2023-03-20 14:04:01 ET

Summary

• Academy Sports And Outdoors reported its FQ4 2023 financial results on March 16, 2023.
• The firm sells outdoor, sports and related goods online and through its growing store network in the U.S.
• ASO has improved same-store results and intends to increase its store-opening pace in 2023.
• My outlook on ASO is a Buy at around $63.00 per share.

A Quick Take On Academy Sports And Outdoors

Academy Sports And Outdoors ( ASO ) reported its FQ4 2023 financial results on March 16, 2023, missing revenue but beating EPS consensus estimates.

The firm sells sporting goods and outdoor recreation products in the United States.

Given management’s ambitious store opening forecast and its impressive store-level metric improvements in recent years, my outlook on ASO is a Buy at around $63.00.

Company & Technology

Katy, Texas-based Academy was founded in 1938 as a family business to sell outdoors goods and sporting products to consumers in the U.S.

Management is headed by president, CEO and Chairman Ken Hicks, who has been with the firm since May 2017 and was previously president and CEO of Foot Locker and has held senior roles in several consumer goods retailers.

ASO currently has hundreds of stores in numerous contiguous states in the Southern region of the U.S.

Its retail locations range from 40,000 to 130,000 square feet in size, with an average size of 70,000 square feet. Stores are not located in malls.

Academy also operates multiple distribution centers and also sells online via its e-commerce platform.

Market & Competition

According to a 2016 market research report by Grand View Research, the global sports equipment market was an estimated $66 billion in 2016.

The market is expected to grow at a CAGR of 3.5% from 2017 to 2025.

The main drivers for this expected growth are a rising awareness of the health benefits from consistent physical activity and improvements in sports equipment materials and technologies.

Also, below is a chart showing the historical and future forecast growth trajectories of various subcategories in the North American sports equipment market:

Major competitive or other industry participants include:

• Walmart ( WMT )

• Target ( TGT )

• DICK'S Sporting Goods ( DKS )

• Camping World ( CWH )

• Bass Pro Shops

• Big 5 Sporting Goods (Slight overlap)

• Numerous smaller retailers

• Online retailers

• Manufacturer direct sellers

ASO’s Recent Financial Results

• Total revenue by quarter has produced the following growth trajectory:

• Gross profit margin by quarter has remained relatively flat in recent quarters:

• Selling, G&A expenses as a percentage of total revenue by quarter have produced no discernible trend change:

• Operating income by quarter has also remained without an up or down trend:

• Earnings per share (Diluted) have fluctuated as shown below:

(All data in the above charts is GAAP)

In the past 12 months, ASO’s stock price has risen 70.7% vs. that of DICK’S Sporting Goods rise of 32.8%, as the chart indicates below:

As to its FQ4 2023 financial results, total revenue fell 3.4% year-over-year but gross profit margin rose 50 basis points.

Footwear and apparel produced rising revenue while outdoors and sports & recreation declined meaningfully.

Gross margin expanded due to lower freight costs and a shift in sales mix to higher margin soft goods.

Notably, during the year, the company repurchased $490 million in stock, made $24 million in dividend pay-outs and reduced debt by $100 million.

For the balance sheet, the firm finished the quarter with $337.1 million in cash and equivalents and $587.5 million in total debt.

Over the trailing twelve months, free cash flow was an impressive $443.7 million, of which capital expenditures accounted for $108.3 million. The company paid a relatively low $21.2 million in stock-based compensation in the last four quarters.

Valuation And Other Metrics For ASO

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha)

As a reference, a relevant partial public comparable would be DICK’S Sporting Goods; shown below is a comparison of their primary valuation metrics:

(Source - Seeking Alpha)

Future Prospects For ASO

In its last earnings call (Source - Seeking Alpha), covering FQ4 and full fiscal year 2023’s results, management highlighted the opening of nine new stores for the full year, the first new store openings since the start of the pandemic. It remodeled eleven stores.

The company has made significant progress in managing inventory and focusing on greater localization to improve sales.

Sales per square foot in 2022 were $340, a whopping 29% increase over 2019’s results.

Looking ahead, management’s primary goals are to expand its store base by up to 15 new stores, improve its omnichannel capabilities and grow productivity from its existing stores and employee base.

The company's financial position is quite strong, with ample cash and debt not due until 2027.

Regarding valuation, ASO is still valued at lower multiples than competitor DICK’S, although the multiple differentials have dropped in recent quarters.

The primary risk to the company’s outlook is softening consumer demand as we enter a potential macroeconomic slowdown and discretionary spending drops.

Leadership guided full-year 2023 (FYE Jan 2024) revenue to grow at 3.7% at the midpoint of the range and GAAP diluted earnings of $7.07 at the midpoint.

My discounted cash flow calculation indicates the stock may be undervalued at its current level, given the following assumptions:

Even with the potential for a slowing economy, ASO will likely produce growing revenue and profits ahead.

Given management’s ambitious store opening forecast and its impressive store-level metric improvements in recent years, my outlook on ASO is a Buy at around $63.00.

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