DKS - Academy Sports And Outdoors: Why Earnings Challenged My Bull Case

2024-06-12 13:16:58 ET

Summary

• Academy's shares are down 70 percentage points year-to-date compared to DICK's Sporting Goods.
• Q1 2024 earnings showed net sales and comp sales decline, with concerns over new store performance.
• Despite underperformance, Academy's valuation remains attractive with potential for growth and recovery.

Academy's Shares Are Down

Being invested in Academy Sports and Outdoors ( ASO ) this year has not been fun. Things started getting worse starting in February, when Academy's main competitor, DICK'S Sporting Goods ( DKS ) literally went to the moon, leaving behind ASO shares. So, we have two sporting goods retailers doing business in the same environment whose performance has been the opposite and is separated by a staggering 70 percentage points year-to-date.

Three months ago, Academy's shares were trading above $75 until the company reported Q4 earnings. While Mr. Market and I were expecting a strong quarter with signs of a rebound after a tough year, Academy delivered weak top-line numbers, driven by negative comp sales. However, what caused some concern was hearing from Academy's management that Academy's newly opened stores were not performing as expected because, in markets where Academy was not previously present, customers are less familiar with the brand. As a result, Academy had to moderate its year-one sales expectations for new stores from $18 million to $12-$16 million....

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