Academy Sports + Outdoors bets on store expansion for growth

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Sporting goods chain Academy Sports + Outdoors is banking on its new stores to drive the company’s long-term growth.

After two years without opening new stores, the company is expanding its physical presence, with plans to open at least eight new stores this year. Academy said it plans to open 80 to 100 stores over the next five years. Currently, the company, which was originally founded as a tire store in 1938, has 260 stores in 16 states.

Despite tough comparisons to the previous year, in part due to the lack of stimulus payments, executives expressed optimism about the Academy’s growth strategy. First quarter net sales were down 7.1% year-over-year to $1.47 billion from $1.58 billion in 2021, and model sales were down 7.5%. Experts said that while executives were optimistic, opening stores in an operating environment plagued by supply chain issues and labor shortages comes with risks.

“Customers are drawn to our broad assortment of top national and private label brands with high quality and great everyday value,” CEO Ken C. Hicks said on the call. “We have an exceptional model with the highest store productivity in our peer group, making new stores our best investment for a high return on investment.”

The new stores will allow Academy to enter new markets and expand its presence in existing markets, executives said. For example, the company plans to open its first stores in Virginia and West Virginia later this year. The new stores will offer online in-store pickup and curbside pickup as well as in-store services like free grill and bike assembly.

Last year, the company benefited from increased demand for recreational and outdoor activities. In the first quarter of 2021, the company’s net sales increased by 39.1% compared to previous years. This quarter, Academy also posted the highest quarterly gross profit in its history, with a gross margin increase of 89.2% to $563.7 million.

The expansion of Academy’s footprint signals the untapped potential the company sees in different markets, said Charles Lewis Sizemore, Chief Investment Officer of Sizemore Capital.

“In a lot of the country, you know, there might not be a dedicated sporting goods store,” he said. “There are definitely sporting goods for sale, but there may not be that specialty retailer. And so there’s a lot of room for growth there and they’re just taking that opportunity.

In April, Academy opened its first new store since 2019 located in Conyers, Georgia. It showcases the company’s new store format, which includes high category margins, more efficient checkout and more localized inventory.

Ethan Chernofsky, vice president of marketing at Placer.ai, said the pandemic was a “stress test” for the strength of physical locations. While the pandemic in its early stages brought a lot of uncertainty for the future of brick-and-mortar stores, its benefits ultimately proved fruitful, especially from an omnichannel perspective, he said.

“Stores are an increasingly important part of the retail mix,” Chernofsky said. “If I have a larger network of stores, I can leverage those locations to reduce my logistics costs, my operational expenses, [and] improve my operational efficiency.

Executives said they plan to continually invest in technology to accelerate Academy’s omnichannel growth, but did not delve into specific details. First-quarter e-commerce sales rose 18.8%, which experts say is surprising given the return of in-store shopping. Executives expect its e-commerce business to continue growing as Academy continues to transform its website and make customers’ online shopping experience more seamless.

Like many retailers, however, Academy operates in a challenging environment, which could hamper its growth plans. The company’s gross margin rate of $521.4 million or 35.5% was down slightly from 35.7% last year. Executives said the second half of the year could potentially be more promotional.

Its big-box peers plan to roll out more promotions in a bid to liquidate excess inventory. Target said Tuesday it plans to take a more aggressive approach markdown approach to make room for more timely merchandise such as groceries and back-to-school supplies. walmarton the other hand, said he started to “be aggressive with throwbacks” in clothing.

Academy said the company has made structural changes to its business that have helped it meet industry-wide challenges. Thanks to the efforts of its supply chain team, executives said freight costs as a percentage of sales were down from the same period last year.

Even in a more benign environment, large store footprint expansions like Academy’s are already challenging, Sizemore said. But coupled with labor shortages, rising wages and supply chain issues, he said it makes the Academy’s growth plans even more difficult to execute.

“There are two main risks in finding labor at a reasonable price,” Sizemore said. “The second risk is simply the logistics of adding so many new stores at a time when supply chains are stretched.”

Given the macroeconomic headwinds, Academy has revised its outlook for the year. It now expects net sales to be $6.43-6.63 billion compared to its previous expectation of $6.6-6.8 billion. It also expects mockup sales to be down 6% on the low end from its previous forecast of 4%.

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