Academy Sports & Outdoors, Inc. Q2 FY2027 earnings call

• Consumer Behavior Shifts: Management observed a divergence in consumer spending, with traffic from households earning under $50K declining high single digits due to inflationary pressures, while traffic from households earning over $100K grew high single digits. Customers are shopping more episodically, aggregating purchases around key calendar events like Memorial Day and Back-to-School when promotions are sharpest.
• Strategic Pricing Reinvestment: The company is reinvesting proceeds from tariff refunds into improved pricing for customers, specifically targeting private brand items to restore pre-tariff price points. Examples include promoting grills at $99.99 and shirts at $19.99 to stimulate demand and drive traffic.
• New Store Expansion: Academy remains on track to open 22 to 24 stores in fiscal 2026. Q2 saw the opening of three new locations, with 11 planned for Q3. New stores opened between 2022 and 2025 are comping in the mid-single digits, providing a consistent tailwind to overall sales.
• E-commerce and Digital Innovation: The dot-com business continues to grow rapidly, supported by partnerships with Instacart and Uber Eats for same-day delivery. The company migrated its site search to AI-based semantic search and launched the Academy Retail Media Network (ARM), which is expected to become a significant revenue contributor starting next year.
• Loyalty Program Integration: The relaunch of the myAcademy loyalty program integrated with the credit card program has yielded strong results, with credit card applications up 15% and spend on Academy cards up approximately 20%. The program currently has over 15 million members, nearing the year-end goal of 16 million.
• Product Innovation and Assortment: Management highlighted successful launches and expansions of brands such as HOKA (running shoes), ChicknLegs (apparel), and Ariat (work/western wear). Additionally, the company is expanding its shooting sports assortment by rolling out suppressors to more stores and introducing private label Redfield hunting rifles.

Total net sales for the quarter were $1.6 billion, representing a 3% increase in total sales but a 0.4% decline in comparable (comp) sales. The e-commerce channel demonstrated strong momentum with double-digit growth of 12.8%, contributing to an overall digital penetration increase of 110 basis points year-over-year. In terms of departmental performance, Sports & Recreation was the top performer with sales up 6%, driven by sporting goods and fitness equipment like treadmills. The Outdoor division followed as the second-best performer, growing 4% due to strength in shooting sports, coolers, and camping gear. The Front-end department also performed well, benefiting from trends in trading cards and outdoor speakers. Conversely, Footwear was the weakest category, with sales down 1%, although the company noted it gained market share during this period. Apparel sales remained flat, though specific sub-categories like World Cup jerseys and work/western apparel showed strength.

• Sales Guidance: Management reaffirmed full-year sales guidance of $6.23 billion to $6.36 billion, representing growth of 3% to 5% compared to fiscal 2025.
• Comp Sales Guidance: Comparable sales guidance remains unchanged at flat to plus 2% for fiscal 2026.
• Gross Margin Guidance: Gross margin rate guidance was raised to 35.5% to 36.0% for the full year, reflecting benefits from tariff refunds despite reinvestment in pricing.
• Net Income Guidance: Net income guidance was affirmed in the range of $390 million to $415 million.
• EPS Guidance: Adjusted EPS guidance was raised to $6.50 to $6.90 (diluted EPS range adjusted to $6.05 to $6.45), accounting for a lower share count due to buybacks.
• Free Cash Flow: Adjusted free cash flow is expected to be in the range of $300 million to $350 million.

• Consumer Pressure: Continued macroeconomic uncertainty and inflationary pressures are limiting the spending power of lower-income households, leading to episodic shopping patterns and delayed purchase decisions.
• Tariff Impacts: While tariff refunds provided a short-term boost, future tariff changes or trade policies could impact costs and pricing strategies. The company has lapped most tariff-related disruptions, but ongoing supply chain volatility remains a risk.
• Competitive Environment: Increased promotional activity from competitors, particularly around peak shopping periods, may pressure margins and require aggressive discounting to maintain market share.
• Operational Execution: Risks associated with executing strategic initiatives, including store openings, technology integrations (e-commerce, RFID), and new brand rollouts, remain present if not implemented effectively.

Q: Chris Horvers asked about the cadence of sales in the back half of the year, specifically how tax-free weekend shifts affected Q2 and what the outlook is for Q3 vs Q4 comps.

A: Steve Lawrence explained that the shift of tax-free weekends in four states negatively impacted Q2 but helped Q3 start strong. He noted that without the shift, Q2 would have been essentially flat. For the back half, he expects consistent quarterly performance, with Q3 and Q4 facing negative comparisons from the prior year. He emphasized that long-term drivers like new stores, the credit card/loyalty integration, and new product launches (e.g., HOKA) provide confidence in hitting guidance despite consumer challenges.

Q: Jeff Lick inquired about how Academy’s performance differs from its largest competitor, particularly regarding merchandise diversity and customer demographics across income levels.

A: Steve Lawrence attributed Academy’s resilience to its diverse assortment, which includes outdoor, shooting sports, and hard goods alongside apparel, insulating it from pure footwear/apparel cycles. He highlighted that while the under-$50K demographic faces pressure, the over-$100K cohort is growing rapidly (approaching 40% of the customer base). This higher-income group is attracted by newness and breadth, trading broadly across categories rather than just seeking specific brands.

Q: Kate McShane asked about the impact of the World Cup on comps, potential cannibalization, and how Academy plans to offset the one-time lift next year.

A: Lawrence stated the World Cup aligned with Father's Day and partially cannibalized traditional gift purchases but hit plan expectations. To lap the event next year, Academy will rely on the Women's World Cup, improved localization in licensed apparel, and restored competitive pricing on private brands like BCG and Magellan. By returning prices to pre-tariff levels on key items, they aim to drive volume and offset the lack of a men's World Cup event.

Q: Simeon Gutman sought clarification on the implied comp growth for the back half of the year and whether new store waterfalls and newness guarantee positive comps.

A: Carl Ford confirmed the midpoint of guidance implies approximately 1% comp for the back half. Steve Lawrence reiterated that while internal drivers (credit card, new stores, newness) are strong, the 'wild card' is the uncontrolled consumer backdrop. He expressed confidence in staying within the guidance range but acknowledged that external economic factors make precise prediction difficult. He noted that FY27 long-range plans assume low-single-digit comps and double-digit EPS growth.

Q: John Heinbockel asked about the behavior of higher-income consumers versus lower-income ones and where Academy under-indexes with affluent shoppers.

A: Lawrence noted that lower-income shoppers are more episodic and price-sensitive, often buying out-of-season for deep discounts. Higher-income shoppers respond more to newness and premium offerings. Earl Ford added that Academy under-indexes with affluent customers in certain categories like work/western wear and running shoes. Initiatives like launching HOKA and expanding Ariat shops are designed to attract these demographics and increase wallet share among the over-$100K household segment.