Academy Sports & Outdoors, Inc. Q4 2026 earnings call

Good morning, everyone, and thank you for joining the Academy Sports + Outdoors fourth quarter and fiscal year 2025 financial results call. Participating on today's call are Steve Lawrence, Chief Executive Officer, and Carl Ford IV, Chief Financial Officer. As a reminder, today's earnings release and the comments made by management during this call include forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the earnings release and in our most recent 10-K and 10-Q filings. The company undertakes no obligation to revise any forward-looking statements. Today's remarks also refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in today's earnings release, which is available at investors.academy.com.

This morning, we will review our financial results for the fourth quarter of fiscal 2025 and the full year, provide an update on strategic initiatives, discuss outlook for the year, and share guidance for the full year fiscal 2026. After we conclude prepared remarks, there will be time for questions. With that, I'll turn the call over to CEO Steve Lawrence.

Thanks, Dan, and good morning to everyone on the line today. On our call this morning, we plan to cover our fourth quarter and full year results for 2025, along with providing initial guidance for 2026. I will remind you that we also have an analyst day planned for April seventh in New York City, which will also be webcast, where we'll go into more detail on our long range plan and how the investments we've been making in 2025 and 2026 play into our multi-year strategy. I'll start with the fourth quarter, which played out largely as we'd forecasted, with sales coming in at $1.7 billion, which was a 2.5% increase versus last year and translated into a -1.6% comp decrease. These results were within our implied guidance range for the quarter.

As we shared on our last call, sales were strong over the Thanksgiving and Cyber Week time periods. Similar to prior years, we saw customer spending patterns soften in the second and third week of December and then surge during the week leading into Christmas, which continued into the last week of the month. January was softer than we anticipated, primarily driven by the large winter storms in the last 10 days of the month, which caused roughly half of our stores to be partially or fully shut down for 2-3 days. We saw the business rebound once our stores reopened. As we discussed on prior calls, the big unknown for us this holiday was how the customer was going to react to the inflationary pressures on pricing for goods that were imported from overseas.

Our forecast was for average unit retail to be up low double digits for the quarter. We delivered against that by raising our average unit retail up 10% through a combination of promotional optimization, growing sales in the better best end of our assortment, and some strategic AUR increases. All of these efforts helped improve our gross margin by 140 basis points versus last year. Pulling back to the full year, I'm proud of how our team executed in a choppy environment. We navigated through all of the challenges in 2025 while still growing top line sales to $6.05 billion, up 2%, which resulted in solid market share gains across our footprint. We also put in place many foundational building blocks, which should help drive sales in 2026 and beyond, some of which include.

First, I'm proud of how the team rallied mid-year to mitigate and offset the impact of the incremental tariffs that were levied in late Q1 and Q2 of last year. Team had to react mid-year after most of the merchandise was already purchased and managed to offset the increased expense through a combination of sourcing country diversification, inventory pull forward at lower costs, and pricing and promotional optimization work. The result of these efforts yielded an annual AUR increase of 6%, which translated into a gross margin rate of 34.8% or plus 90 basis points versus the prior year. As we embarked on this journey to raise AURs, we've also remained committed to not losing our reputation for having outstanding value by constantly monitoring pricing across the marketplace.

What we found through the ongoing customer research work we do is that we've managed to improve average unit retail across the full year while also improving our value perception with customers relative to key competitors. I can assure you that this was no easy feat. Another key accomplishment was the 13.6% growth we drove in our dot-com business. We put a lot of new players in place late in 2024, and they jumped in and quickly worked to improve core search site experience fundamentals. They also showed tremendous agility throughout the year as we incorporated emerging AI capabilities into our site for data enrichment on our items to help improve relevance in search, leveraging image generation capabilities on our private brand apparel, and finally, by introducing agentic AI onto our site for the first time, the launch of Scout prior to Christmas.

While we're still in the early innings on these efforts, we're excited about the initial results we're seeing on this front. Store expansion remains our number one growth opportunity. During the year, we successfully opened up 24 new stores, which in aggregate are tracking to exceed their year one performance. At the same time, stores that opened up in 2022 through 2024, which are now in the comp base, show mid-single-digit comp increases. We expect this tailwind to grow in 2026 as the 2025 vintage of new stores rolls into the comps as we progress throughout the year. Fourth, the team was laser-focused on improving in-stocks through a combination of assortment rationalization efforts, coupled with the rollout of RFID scanners to all of our stores in Q2.

During the year, we shifted to weekly counts and inventory updates on brands that are RFID labeled, which in aggregate represent roughly 25% of our annual volume. The end result was improvement in store in-stocks across the company by 500 basis points, which had a major impact on overall customer satisfaction along with improving conversion. We also believe that the merchants did a great job of leaning into emerging trends and brands, which helped reinforce our position as a key destination during gift-giving time periods such as Father's Day and Christmas, along with stock-up time periods such as back to school.

Adding in-demand brands such as Jordan and Converse to our assortment, coupled with expanding other hot trending items such as Birkenstock, Fila, Baseball Lifestyle 101, Turtlebox speakers, and Ray-Ban Meta helped us drive traffic into our stores during the key moments on our customers' calendars. This is another initiative that we'll continue to push on in 2026. Next, our My Academy Rewards loyalty program has continued to grow since we kicked it off in mid-2024. We now have over 13 million customers enrolled in this program. This is another initiative that we're still in the early innings on, and we have some exciting plans to accelerate growth on this front in 2026 that I'll share in a couple of minutes.

Finally, all these efforts combined to help us drive new customers into our stores, which was evidenced by the 10% growth we saw in consumers whose household income is over $100,000 a year. The increased traffic from this cohort is in effect helping us diversify and somewhat de-risk our customer base, with these higher income consumers now representing our largest and fastest-growing customer cohort. To be clear, we remain focused and committed to maintaining our position as the value provider in the sports and outdoor space. That being said, we believe layering on new trending brands and items targeted at the better, best end of the assortment is a good way for us to both expand our share of wallet with existing customers while also attracting new customers to shop with us. Shifting gears to 2026.

You saw in our press release earlier this morning that we're providing sales guidance for 2026 of +2% to +5% total growth, which translates into a -1% to +2% comp sales. The low end of our guidance contemplates a continued muted backdrop for discretionary consumer spending. Our belief is that most of the macroeconomic pressures the consumer faced in the back half of 2025 will carry into the first half of 2026. In particular, inflationary pressures on goods sourced outside of the U.S. should continue through the first half of the year. Assuming no additional dramatic changes in trade policy, we believe that as we lap the increased tariff costs in the back half of the year, prices should settle in at their new levels. That being said, there are also several tailwinds that should help us overcome some of these macroeconomic pressures.

The first three I'll mention are external events that we should benefit from. First, we're still early in the tax return cycle, but we believe consumers should see higher income tax refunds this year. In the past, we've seen categories such as firearms, gun safes, and work boots benefit from earlier and/or higher refunds during the tax season. It's hard to discern how much of an impact we're currently seeing from refunds, but I'll share with you through the first seven weeks of the quarter, we're running a positive comp, and we believe some portion of these results could be attributed to higher tax refunds. Second, as most of you are aware, the World Cup is coming to the U.S. this summer, and approximately 30 matches will be played in venues across our footprint.

We believe this should translate into increased tourism and foot traffic in the second quarter, which should provide a sales lift for our licensed team and tailgating businesses. Longer term, we've seen events such as this drive increased participation in youth soccer, which should help drive sales in our sporting goods business in the back half of the year and into 2027. Finally, 2026 is the 250th anniversary of the United States. We traditionally see strong selling over the summer in patriotic merchandise, and we believe this year will be even stronger when you couple the surge in national pride around our 250th birthday with all of the excitement for Team USA this summer. At the same time, we have multiple self-help initiatives we've put in place, which should also enable us to drive comp growth.

Thank you, Steve. Fourth quarter net sales were $1.7 billion, up 2.5%, and comparable sales were down 1.6%. Breaking down the comp, transactions were down 6.4%, while ticket was up 5.1%. In the fourth quarter, Academy generated net income of $133.7 million and diluted earnings per share of $1.98. Fourth quarter adjusted net income was $132.9 million or $1.97 in adjusted diluted earnings per share. Gross margin of 33.6% in the fourth quarter was up 140 basis points versus last year and exceeded our implied guidance.

The majority of the expansion was driven by efficiency gains in our supply chain and the lapping of costs incurred for port disruption from the prior year. Merch margin, inclusive of tariffs, was flat as we managed prices while managing alignment with our value pricing strategy. SG&A expenses came in at 23.7% of sales for the fourth quarter, an increase of approximately $21 million or 70 basis points. The increase was driven by growth initiatives totaling approximately 135 basis points, comprised of 115 basis points of new store growth as we've opened 24 new stores in the last twelve months and 20 basis points of technology investments to fuel our omni-channel growth. The acceleration in new store growth from 2022 to 2025 has had an outsized impact on SG&A expense growth.

As we move through 2026, the number of new stores at 20-25 will be similar to FY 2025. Looking at the balance sheet, we ended the quarter with $330 million in cash, which was a 14% increase from the prior year. Our inventory balance was $1.5 billion, an increase of 15% compared to last year. On a per store basis, inventory dollars were up 6.3%, while inventory units were flat. For the full year, we generated $435 million in cash from operations, of which we reinvested $172 million back into the business to drive our growth initiatives.

These actions led to approximately $263 million of adjusted free cash flow, of which we returned $234 million to investors through $35 million in dividends and $199 million in share repurchases at an average price of $50.62. In terms of capital allocation, our strategy remains focused on generating cash flow to reinvest into our growth initiatives for the business and to return the majority of our free cash flow back to investors through dividends and stock repurchases. During the fourth quarter, we paid $8.6 million in dividends and repurchased approximately $100 million of our shares at an average share price of $54.03.

We are pleased to announce the board recently approved a 15% increase in our dividend, resulting in $0.15 per share payable on April 10th, 2026 to stockholders of record as of March 20th, 2025. Our guidance for 2026 is as follows. Net sales are expected to range from $6.18 billion to $6.36 billion, an increase of 2%-5% with comparable sales of -1% to +2% with a midpoint of +0.5%. I'd like to share the assumptions that influence our 2026 guidance. As we head into 2026, we expect the consumer to continue to face a challenging economic backdrop, but we are confident that our internal initiatives alone support the midpoint of our guidance.

The low end of our sales guidance contemplates a continued muted backdrop in discretionary consumer spending, and the high end represents an improvement in consumer health, aided by the macro events already mentioned. We also expect traffic to improve as our internal initiatives continue to resonate and prices stabilize throughout the year. Our gross margin rate is expected to range from 34.5%-35.0%. GAAP net income is between $380 million and $415 million. Adjusted net income, which excludes stock-based compensation of approximately $37 million, is forecasted to range from $410 million-$445 million. Our gross margin gains for the full year of 2025 were primarily driven from merch margin expansion as we expanded Nike and launched the Jordan brand.

While we don't anticipate the same level of expansion, we do see growth as we expand the Jordan brand shop concept into 55 more doors and expand soft line brands like BURLEBO. This, of course, will be partially offset by the impact of continued tariffs, especially in the first half of the year. In addition, we expect shrink to be a tailwind as we continue to roll out RFID to more national brands and private label apparel and footwear. We expect GAAP diluted earnings per share of $5.65-$6.15 and adjusted diluted earnings per share of $6.10-$6.60. The earnings per share estimates are based on an expected share count of 67 million diluted weighted average shares outstanding for the full year. These amounts do not include potential future repurchase activity.

Our current authorization had $437 million remaining at the end of fiscal 2025. We are also confident in the strength of our cash flows and expect to generate between $250 million and $300 million of adjusted free cash flow after investing $200 million-$240 million back into the business in the form of capital expenditures, primarily for our strategic growth initiatives. Looking at the anticipated shape of the year, our Q1 performance through the first seven weeks is off to a positive comp sales start, and we expect it to be our strongest quarter as we lap a -3.7% comp from 2025.

On the surface, the second quarter could appear the most challenging as we lap a positive comp, the launch of Jordan Brand, and the subsequent Nike assortment expansion. However, we're optimistic as we expect to see tailwinds from the launch of the new My Academy Rewards MasterCard, as well as the continued rollout of the Jordan brand shop concept into 55 doors this spring. Additionally, we expect to see a tailwind from the World Cup, increased tax refunds, and America's 250th anniversary. We expect the positive momentum in the first half to carry over into the second half of the year, but we're mindful that tariffs and any prolonged impact to gas prices could have a negative impact on the U.S. consumer.

It's also important to remember that the 20-25 new store openings in 2026 will be more back half weighted when compared to fiscal 2025 due to the initial pausing of signing new leases for 2026 when tariffs caused uncertainty in construction prices. We will provide updates to our guidance each quarter as conditions warrant. To conclude, we're optimistic as we head into the new fiscal year and believe we have made the right investments and strategic decisions. I look forward to speaking with you again during our Analyst Day on April 7th about our long-range plan. Operator, please open the line for questions.