Academy Sports chief marketer discusses Q1 outperformance and inflationary pressures


In an interview with SGB ​​Executive Steve Lawrence, executive vice president and chief merchandising officer, Academy Sports + Outdoors, explained the retailer’s progress in the first quarter, which saw earnings come in well above Wall Street consensus estimates. Commodity margins continued to improve and “inventory is at its best since the start of the pandemic,” Lawrence said.

SGB ​​conducted the interview last week, following the first quarter results released by the Academy.

Academy cut its outlook for the full year due to macroeconomic concerns, including inflationary pressures. Profits and sales were also down from a year ago as the Academy posted record results in the first quarter of 2021 with the help of government stimulus funds. Sales were well above pre-pandemic levels.

Here, Lawrence explains what drove the better-than-expected Q1 headwinds and tailwinds moving forward.

How would you sum up the quarter? Our sales decreased by 7.1% during the quarter. Normally that wouldn’t be something that would excite us, but given that we were up against 39% earnings in the quarter last year that had stimulus impact and the fact that if you compare it in the 2019 quarter, we were up 36%. We are generally satisfied with the results.

We also believe that our inventory is in good condition compared to what we see. Our inventory has increased by approximately 22% over last year. Frankly, we had expected it to be up because we knew we ran out of a lot of goods last year. So when you compare it to 2019, it’s up about 8.8% in dollars and down 8% in units. We apply a 36% increase compared to 2019 with 8% fewer units. It makes it look like the team has done a good job selling inventory, and we also have better content that is more aligned with customer demand. So we feel good there.

Can you highlight some trends across all categories during the quarter? We have divided our business performance into three tranches. To be up 36% from 2019, we had to have better performing companies than the average. Categories that grew or did relatively well during the quarter were camping, team sports, athletic shoes and cleats.

The second segment of goods was more difficult than average, but we believe this is due to a shift in demand. We have categories like grills, pools, and pool toys that we normally sell in the summer. If you go back to 2019 and previous years, almost all of the business in these categories was done in the second quarter after the summer breaks. For the past two years, however, we’ve sold these items in the first quarter because there was no supply and customers were buying them early because they didn’t think they would be there later. So we’ve seen huge growth in those categories over the last two years. This year we’re back closer to a normal sales cycle, and some of these categories started slower than last year and in 2020, and they’re still performing where they were in 2019. We’re seeing signs that these companies are going to ramp up in Q, and we’ll have the inventory this year.

The third bucket is for contested categories like fishing, fitness equipment, and bikes, where there was inflated demand during COVID. We expected these companies to decline from last year. That said, on average, they’re still where they were in 2019 by 20% across all three categories, and that’s below the 36% but still good.

Gross margins decreased by 20 basis points but increased by more than 600 basis points compared to the first quarter of 2019 and the merchandise margin improved by 20 basis points year over year other. Do you see any promotional pressures? We haven’t seen, at least in the categories we sell, a return to extreme promotions like in the market three or four years ago. That said, there has been a lot of press about retailers having heavy inventory and the potential use of promotions. We are in a healthy inventory position. We haven’t had to do that yet; however, we have guided revenue down for the remainder of the year, which implies that we will have in-app promotions. There will be targeted promotions around key periods of unavoidable market share. We think there could be promotions, and we are ready to do so. If the market stays clean and there aren’t as many promotions, we’re not going to dwell too much on that.

How does the Academy offset inflationary pressures? Inflation creeps into almost everything. We don’t sell gasoline and groceries, so we haven’t seen it as much as those sectors have. But we have certainly seen cost increases for some of the products we sell. We thought about where, how and when we raised prices. We have a price optimization tool, Revionics, which tells us what the elasticity is if we adjust prices. We thought that if we take a price increase, the customer won’t feel it or see it. We pay attention to this because we are the value player. We believe that one of the benefits of the environment we live in is that people will look to trade lower and there could be a flight to value due to inflation. We try to make sure the prices are correct. We’re reviewing it with that in mind for any price increases as we think about making adjustments.

E-commerce grew 18.8%, but you also just opened your first store in two years. Can you talk about future growth drivers? We are pleased with the growth of Our business has been strong throughout the second half of last year and this year. We are now at around 10% penetration in the total business. We know our competitors have much higher penetration than that. We therefore believe this indicates a continued opportunity to grow the business. We are also opening eight stores this year, including our new store in Conyers, GA, which opened in the first quarter. It was one of the best store openings in a long time, which bodes well for new stores this year. We anticipate between 80 and 100 new stores over the next five years. But beyond new stores and, we believe growth will come from being better operators. Better manage our existing boxes and be smarter in inventory management. We think those three things give us different growth opportunities, and we’re excited.

Photos courtesy of Sports + Outdoors Academy


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