In an interview with SGB ââExecutive, Steve Lawrence, Executive Vice President and Chief Merchandising Officer, Academy Sports + Outdoors, pictured below, discussed the chain’s record third quarter performance which marked its sixth straight quarter of double-digit gains, as well as optimistic outlook for the chain.
Comparable sales increased 17.9% in the third quarter from 16.5% last year, with strong demand in all major product categories. On a pro forma adjusted basis, profits jumped 122.6% to $ 164.1 million, or $ 1.75, well ahead of Wall Street’s consensus estimate of $ 1.11. The Texas-based chain has raised its forecast for the year again despite continuing supply chain challenges.
Sales growth was again led by clothing and footwear. What is driving these gains? A number of things. Consumer demand for health and wellness products like sportswear continues to be strong. It started during the pandemic, and we haven’t seen a slowdown. Second, when you think about it about a year ago, some of the softer companies were clothing and footwear and faced weaker but still strong compositions. Clothing increased 25% in the third quarter from a year ago and 24% from two years ago. Shoes are up 17.5% from 2020 and 25% from 2019. The third thing that helped during the quarter was going back to school, returning to a more normalized case. In our geography, the start of the school year traditionally begins at the end of July, passes through the first two weeks of August, and then falls. In 2020, some children never returned to school, and many school districts in our area have postponed it until September or even October in some cases. So having back to school on its normal time gave us a good start to the season. August was the best month of the quarter, and once the momentum built up it continued to roll throughout the quarter.
Did any brands stand out in the quarter? The usual suspects. Nike business remained strong, Adi business was really strong and UA was strong. North Face was particularly strong for us during the quarter. We had a great backpacking season and had some great North Face backpacks, which spread to every door, resonated. As part of shoe trends, kids were returning to sports, so much of the spike business was good. And then things that have been trendy all year round, like the field trend was good, the print trend was good, and running was good. The trends observed at the start of the year continued and the big brands continue to resonate with customers.
What won in durable goods in the third quarter? Outdoor camping activity was very strong during the quarter. We saw a strong team sports business so baseball, football, soccer etc were all strong. Categories like fitness, fishing and exercise equipment have slowed down from last year, but they’re still at the same level as two years ago, and it feels like they’re holding up. or flatten out to that new high level. These companies jumped a year ago, so while they’re not as strong as some of the other categories now, we’re happy with the performance. Bikes were another category that saw a big increase during COVID and slowed down a bit, but we are back in stock in bikes, and it certainly remains at a high level compared to 2019 and before.
How did the Academy manage to deal with the disruption in the supply chain? We have been living in this environment of high demand and supply chain disruption for 18 months. The team is very adept at ensuring that we have a flexible inventory pipeline that is large enough to support the sales trend. It’s about working with suppliers and making plans to ensure that we get all the goods we need, and if the business is not where we think it is, we try to cancel or postpone. Having a flexible pipeline is important. Being agile was also important. I don’t think any of us have experienced the supply chain disruptions the industry has experienced over the past year without being nimble. It used to be one thing at a time, like every three or four years, a strike in the ports or something like that. But with raw materials in short supply, the issues of factory space, containers, shipping space, and on-site truckers have all been difficult. The teams had to be nimble and flexible. They had to get creative and figure out how to get things done and have something to sell when we needed it, and that’s probably one of the biggest learnings we’ve had in the last 12-18 months. . It’s about being nimble, flexible, resilient and making sure we have the partnerships in place so that suppliers prioritize us to get us the products we need.
Are there any improving or worsening supply chain issues? There are a couple of things in there. First, the closure of Vietnam has created some challenges, especially on the branded footwear side. They were closed for almost two months. Depending on the supplier and the types of shoes they had in these factories, it will definitely impact this business. It will probably be spring before we see the impact. At this point, most of the vendors have spoken to us. We know what is coming and what is not. They have good visibility there. We took it into account and compensated where we can, and we feel good about it.
When it comes to supply chain disruptions, we’re probably in the eye of the hurricane now. There is a lot of pressure on us and everyone to get goods here for the holidays. And two weeks before Christmas, hopefully we have all our possessions here. Once you get through the holidays, it starts going up again for Spring Recipes. So the pressure may have eased a bit for some of the carriers, but it’s going to intensify after Christmas to get ready for spring, and frankly I think that’s going to stay contested for at least the first half. next year, if not all of next year.
Academy benefited from this as many brands continue to tighten their distribution strategies. What makes the Academy confident to stay on the positive side of the preferred partner equation? It brings customers to our store and helps us gain market share, but the brands, frankly, are very happy with our performance and the way we treat their brand in our stores, in our marketing and on our website. . And I can tell you that I don’t think our partnerships with our main partner brands have ever been stronger than they are today. We don’t foresee where something might be taken away from us. We feel good where we are sitting. What’s interesting is that you start to see stories where it’s not just strategically that they want to take the mark off because they don’t feel like someone is a good match. There have been a few stories recently where smaller stores, with one or two stores, were told by brands that they couldn’t afford to ship anything to them because they had a limited supply and had to. protect their main partners. And we certainly fall into that. It will be there for a while, and it helps from a demand perspective. It’s even more interesting that it helps from a price and margin perspective. Many of the types that brands ditched tended to be undifferentiated retailers who tried to compete on price and led the promotions in the market. We saw healthy margin expansion in the quarter, in part due to fewer promotions, more consistent selling prices and less liquidation. Overall, the industry is healthier because there is much less promotion and the demand is more natural. Instead of a push model, it is more of a pull model. And it’s good for us, and it’s good for the industry.
What is the impact of inflationary pressures on the Academy? The vast majority of the increase in our sales for the third quarter is due to more traffic than the increase in AUR (average unit retail). There was an increase in the AUR, but it came from a decline in promotions compared to the price increase. That said, we have had to adjust prices in some cases, and we have spoken about this publicly in recent earnings calls. We are very thoughtful about it. We’re very surgical about it. We believe that we are the provider of value in our states. Customers demand value from us. So we spend a lot of time before adjusting the price on anything, making sure that we have very competitive prices and that no one is going to beat us on it. There have been price increases and there probably will be as inflation increases, but we’re going to protect our market positioning on the value side, and we’re going to make sure we’re very competitive there. .
What are your prospects for spring sales? We were excited about the start of the vacation, and as spring approaches we are optimistic about our opportunities. We are facing a 38.9% increase in the year mix in the first quarter, but we are confident that we will be in a much better stock position than a year ago as spring approaches. It will be more balanced in the categories where we lacked last year and that does us good. We have a constant diet of new things, whether it’s new brands, extensions of existing brands into new categories, or new categories or new items, such as pizza ovens. We have a lot of things in the hopper for spring that we’re excited about and we’ve shown we’re resilient. Right now, we feel good about our direction.