Ha Sports and Outdoor Academy

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Sports and Outdoor Academy Inc. (ASO, Financial) has room for improvement, according to Quo Vadis Capital founder and chairman John Zolidis. He said:

“A strong management team optimizing a business in a favorable demand environment that is trading below 10x P / E this year with room for improvement for estimates. It’s a very simple investment thesis, and it works. . “

On Tuesday, the company reported adjusted fourth-quarter earnings of $ 1.09 per share, beating FactSet’s consensus estimate of 50 cents. Sales reached $ 1.60 billion, up from $ 1.37 billion a year ago and topping the FactSet consensus for $ 1.58 billion.

For 2021, Academy expects earnings of $ 2.70 to $ 2.95 per share, ahead of analyst expectations of $ 2.39.

In a statement, President, President and CEO Ken Hicks said he was “very proud of all that the Academy Sports + Outdoors team members have accomplished in 2020 as they face considerable adversity and uncertainty due to the pandemic. “

“Through collaboration, dedication and innovation, the team has produced remarkable results and provided pleasure to millions of customers while laying the foundation for future success,” he said. “With our exceptional team, a strong balance sheet and by investing in our key initiatives, such as powerful merchandising and e-commerce capabilities, Academy is uniquely positioned to continue to drive long-term earnings growth and results as well as increase shareholder value. “

Wall Street appears to agree, pushing the company’s shares up nearly 10% during the regular trading session.

The Academy’s strong results follow similar results from other sporting goods retailers, including Dick’s Sporting Goods Inc.. (DKS, Financial) and Foot Locker Inc. (Florida, Financial).

The problem is, these peers have created little to no value for their shareholders lately. Dick’s Sporting Goods economic profit is 2.48%, while Foot Locker’s economic profit is -0.56%, meaning the retailer could suffer the same fate as growing competition puts pressure on its return to business. invested capital.

Society

ROIC

WACC

Economic profit (ROIC-WACC)

ASO

10.74%

6.1%

5.64%

DKS

11.24%

8.76%

2.48%

Florida

5.56%

6.12%

-0.56%

Meanwhile, investors shouldn’t be too excited about the Academy’s strong results and bullish outlook. The company has a short history on Wall Street, so there isn’t enough public financial data to apply the discounted cash flow model to estimate its intrinsic value. And the results may be positively skewed due to the Covid-19 pandemic and lockdowns, which have boosted demand for exercise equipment.

According to NPD retail data, sales of health and fitness equipment more than doubled to reach $ 2.3 billion for the period March to October 2020. Sales of treadmills jumped 135%, while sales of stationary bikes nearly tripled.

This trend is not expected to continue as the pandemic abates and people return to their daily lifestyles, meaning the Academy’s benefits may be limited.

Disclosure: No position.

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