Academy Sports And Outdoors: Why Earnings Challenged My Bull Case

Core Viewpoint - Academy Sports and Outdoors (ASO) has faced significant challenges in 2024, with its stock performance lagging behind competitors like DICK'S Sporting Goods, leading to a year-to-date performance gap of 70 percentage points [2][4]. Financial Performance - Academy's Q1 2024 earnings report revealed a 1.4% decline in net sales and a 5.7% drop in comparable sales, following a 7.3% decrease the previous year [6]. - Net income fell by 18.6% to $76.5 million, and earnings per share (EPS) decreased by 15.1% to $1.01, despite the positive impact of share repurchases [6]. - The company moderated its year-one sales expectations for new stores from $18 million to a range of $12-$16 million due to underperformance in unfamiliar markets [4]. Competitive Landscape - DICK'S reported a 5.3% increase in comparable sales, contrasting with Academy's decline, indicating a stronger performance in transaction growth and average ticket size [7]. - Academy's management acknowledged a competitive environment where promotional activities are increasing, necessitating a focus on cost management and value propositions [6][10]. Expansion and Growth Strategy - Academy plans to open 15 to 17 new stores in 2024, which is a key growth driver, although newly opened stores are not included in comparable sales until they have been operational for 14 months [10]. - The average revenue per store is currently $22 million, and even if new stores do not meet initial sales targets, they are expected to contribute significantly to revenue in subsequent years [10]. Financial Health and Valuation - Academy's balance sheet remains strong, with a cash balance of $378.1 million, a 28% year-over-year increase, and a reduction in long-term debt to $484.1 million [8]. - The company has $574 million remaining on its share repurchase authorization, which could support stock price recovery [9]. - Academy's valuation metrics indicate a forward price-to-earnings (PE) ratio of 7.8 and a forward price-to-sales ratio of 0.6, suggesting that the stock may be undervalued compared to peers [10]. Market Outlook - Despite recent underperformance, macroeconomic trends may favor discretionary goods retailers, providing a potential rebound opportunity for Academy [8][11]. - The company’s growth grades have improved to a B+, reflecting optimism about its expansion strategy and market potential [11].