Academy Sports Stock Could Keep Soaring as the Company Gets Stronger

In the past year,

Academy Sports and Outdoors

has scored something of a hat trick. Its stock price has nearly tripled from its October initial public offering. It delivered three straight quarters of better-than-expected sales and profits. It has lifted its full-year forecast. And there may be more to come for the sporting-goods retailer.

It would be easy to write off Texas-based Academy Sports (ticker: ASO) as a Covid-19 beneficiary. The company, which operates 259 sporting-goods stores in the Midwest and the South, got a lift as Americans embraced outdoor recreation and health and wellness. But it’s much more than a pandemic play. While the interest in staying active looks to be enduring even as the coronavirus wanes, the company is also benefiting from an economic reopening, while a slimmed-down balance sheet should help it expand nationally. In addition, Academy Sports boasts an all-star management team and a modest valuation. Put it all together and the company’s stock could have more upside despite shooting higher out of the gate.

“Academy Sports [has] a number of tailwinds at its back, all of which are coming together at the right time,” says Chris Terry, portfolio manager at Hodges Capital Management.

Key data
Headquarters Katy, TX
Recent Price $36.80
YTD Change 76{ac8e717143a10a5ee6a00f1f1b38bfdd890a90ce9e13e24babf4350f8831923a}
Market Value (bil) $3.4
2022E Sales (bil) $6.1
2022E Net Income (mil) $408
2022E EPS $4.17
2022E P/E 8.8

Note: Estimates for fiscal year ending January 2023. E=estimate

Source: Bloomberg

Academy Sports’ executive team is led by Ken Hicks, the former CEO of

Foot Locker

(FL), who spearheaded the sneaker seller’s successful turnaround. Hicks tells Barron’s that Academy Sports is in a sweet spot: Consumer interest in health and exercise has remained robust even as the Covid pandemic winds down in the U.S., while digital sales jumped 300{ac8e717143a10a5ee6a00f1f1b38bfdd890a90ce9e13e24babf4350f8831923a} year over year in the company’s first quarter, which ended on May 1. In 2020, e-commerce doubled to 10{ac8e717143a10a5ee6a00f1f1b38bfdd890a90ce9e13e24babf4350f8831923a} of total revenue from 5{ac8e717143a10a5ee6a00f1f1b38bfdd890a90ce9e13e24babf4350f8831923a} in 2019. The company continues to upgrade its website “on a weekly basis,” to keep that growth coming, Hicks says.

The company has the financial flexibility to do that, thanks to its lower level of long-term debt, which dropped to just over $781 million at the end of its first quarter from $1.9 billion the year before.

Michael Mullican, the company’s chief financial officer, says manageable debt will also allow Academy Sports to reaccelerate the expansion of its bricks-and-mortar footprint; it aims to open as many as 10 new locations next year. With stores in 16 states, there is “plenty of opportunity for our store base to grow.”

In addition to apparel, Academy Sports carries gear for everything from team sports to personal fitness to fishing and hunting. The product mix is one of the company’s strengths. It carries in-demand brands including



Under Armour

(UA), and

V.F. Corp.’s

(VFC) The North Face, but private labels account for 20{ac8e717143a10a5ee6a00f1f1b38bfdd890a90ce9e13e24babf4350f8831923a} of its sales. This lineup—including the recent launch of women’s apparel line Freely—generally starts at lower price points, which may entice shoppers as stimulus checks wane. And private-label brands generally have higher profit margins. Gross margins jumped a better-than-expected 9.5 percentage points, to 35.7{ac8e717143a10a5ee6a00f1f1b38bfdd890a90ce9e13e24babf4350f8831923a}, in the most recent quarter.

Academy Sports, like its peers, will face some difficult comparisons, given the year-ago pandemic boost. So far, though, that hasn’t been a problem. Fiscal first-quarter revenue of $1.6 billion, which was reported on June 8, edged past analysts’ estimates, while earnings per share of $1.84 were more than double the consensus. Same-store sales, meanwhile, grew a stronger-than-expected 38.9{ac8e717143a10a5ee6a00f1f1b38bfdd890a90ce9e13e24babf4350f8831923a}.

Academy Sports’ outlook appears bright: Analysts expect EPS to climb 21{ac8e717143a10a5ee6a00f1f1b38bfdd890a90ce9e13e24babf4350f8831923a} year over year to $4.64 in fiscal 2022, which ends next January, on an 8.2{ac8e717143a10a5ee6a00f1f1b38bfdd890a90ce9e13e24babf4350f8831923a} increase in sales to $6.2 billion.

“There will be some giveback in demand, but I think whatever the post-Covid normal looks like will be larger for the industry than pre-Covid,” says Stephens analyst Daniel Imbro, who believes the shares could trade to $46, up nearly 30{ac8e717143a10a5ee6a00f1f1b38bfdd890a90ce9e13e24babf4350f8831923a} from Friday’s close of $35.75. “The changes that management has made in the past few years have improved its competitive positioning, and we’re more confident that they are strengthening.”

The stock’s valuation looks compelling, too. Even after gaining some 75{ac8e717143a10a5ee6a00f1f1b38bfdd890a90ce9e13e24babf4350f8831923a} in 2021, Academy Sports trades for just nine times forward earnings; that compares with about 10 times for its smaller competitor


(HIBB) and more than 12 times for industry leader

Dick’s Sporting Goods

(DKS). Academy Sports may not have the scale or efficiency of Dick’s, but that represents an opportunity as it adds locations and optimizes its operations.

“The growth they’ve enjoyed has been broad-based, and the longer-term opportunity is that they’ll grow from a regional player to a national competitor,” says Hodges’ Terry.

Stephens’ Imbro thinks that the market may not be fully pricing in how much the company has reduced its leverage, or other cost savings initiatives that should allow for further multiple expansion. Academy CFO Mullican says first quarter “expenses were running at $324.6 million or 20.5{ac8e717143a10a5ee6a00f1f1b38bfdd890a90ce9e13e24babf4350f8831923a} of sales, 450 basis points [or 4.5{ac8e717143a10a5ee6a00f1f1b38bfdd890a90ce9e13e24babf4350f8831923a}] less than the first quarter of 2020 and 750 bps lower than the first quarter of 2019.”

For those keeping score at home, Academy Sports looks like it’s still ahead of the game.

Write to Teresa Rivas at [email protected]