Academy Sports & Outdoors, Inc. Q1 2027 earnings call

Good morning, everyone, thank you for joining the Academy Sports + Outdoors Q1 fiscal 2026 financial results call. Participating on today's call are Steve Lawrence, Chief Executive Officer, and Carl Ford, Chief Financial Officer. As a reminder, today's earnings release, 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 today's earnings release, in our most recent Form 10-K and Form 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 on our website at investors.academy.com.

This morning, we will review our financial results for the Q1 of fiscal 2026, provide an update on our strategic initiatives, and discuss our outlook for the year. After we conclude prepared remarks, there will be time for questions. With that, I'll turn the call over to Steve.

Good morning, everyone, welcome to our Q1 2026 earnings call. Our plan this morning is to discuss our Q1 results while also updating you on the progress we're making against our long-term growth initiatives. Turning to our Q1 results, we were pleased to move back to comp store growth in Q1, with sales coming in at $1.44 billion, which was up 6.7% in total sales and translated into a 2.9% comp increase. Both the comp and total sales were on the high side of the range we communicated in our press release issued on April 7th, 2026, in advance of our Analyst Day, where we gave an update to our long-range plan and goals. These results were driven by a combination of a low single-digit positive traffic coupled with a high single-digit AUR increase.

Units per transaction were down slightly, which we would attribute to the increased AUR. Positive results were broad-based, with our dotcom business comping up 17% in all four of our divisions running increases for the quarter. Outdoor was our best performing category at up 12%, driven by strength in fishing and shooting sports categories. Beneath the surface, our ammo business, which was a headwind for us most of last year, turned positive in February and accelerated after the conflict in the Middle East began. Our firearms business also continues to be a bright spot, and utilizing NICS check data as a proxy, we have grown market share in this category for eight consecutive quarters.

To help build on the momentum in the shooting sports business, we launched the suppressors category into a limited door count during the Q1 with a goal to roll them out to over 100 stores by the end of the year. This is a rapidly growing category in the industry with a strong attachment rate to firearms and high AURs. Since suppressors are totally new to our assortment, this business should be 100% accretive and provide an additional tailwind for the shooting sports category throughout the remainder of this year and next. Sports and recreation was our second-best business at +6%, with the increase driven by solid gains in baseball, which fueled our team sports business during the Q1. We also saw a double-digit growth in our front-end business.

Normally, we don't call out front end. We're seeing rapid growth in this area driven by the collectible trading card business, which has benefited from our increased investment in this category. In addition, we continue to see solid improvements in our outdoor speakers business, driven by the leadership position we've taken in Turtlebox. Apparel sales were also positive at +5%, with particular strength in our outdoor and work businesses, supported by expanded assortments from Carhartt, BURLEBO, Levi's, and our own Magellan Outdoors brand. We will continue to lean into the Work Western lifestyle trend with the addition of roughly 100 Ariat shops in the back half of the year. On the athletic side of the business, gains were driven by continued momentum in the Nike and Jordan brand, coupled with double-digit increases in our better private brands of Freely and R.O.W.

In the Q2, we plan to add 55 Jordan brand shops on our apparel pads, which will take our Jordan brand shop count to 200 stores and continue to fuel the growth in this business. Footwear sales were up 3% for the quarter. Key drivers of growth in Q1 were our cleated business, driven by baseball, along with our summer seasonal businesses, driven by Crocs and Birkenstock. We also remain encouraged by the momentum we're seeing in the performance running category, fueled by key platforms such as the Nike Vomero, the Adidas Evo SL, the New Balance Ellipse, and the Brooks Glycerin. Our plan is to continue to build out our assortment and space devoted to this category as we progress throughout the remainder of the year.

Based on the solid start to the year, we saw growth in market share across all of our businesses, both for the quarter and on a rolling 12-month basis. We've also driven a positive comp over that same 12-month period. We would attribute the momentum we're building in the business and the market share gains to the continued progress we're making against our three core growth strategies, which I will now give you a brief update on. New store expansion remains our number one growth lever, and we're starting to build critical mass behind this strategy. We began the year with 39 stores from our 2022 through 2024 vintages in our comp base. This tranche of stores continues to perform well, with sales comping in the high single digits.

We anticipate this tailwind should accelerate as the 24 stores from our 2025 vintage start to flow into the comp base as we progress through the year. During the Q1, we opened up two new stores in Canton, Ohio, and Muskogee, Oklahoma, both of which support our strategy to grow in mid-size markets. These are underserved communities and tend to over-index with our core customer, the always-game family. During the Q2, we will open up three more stores with locations in Altoona, Pennsylvania, North Knoxville, Tennessee, and Morristown, Tennessee. The remaining 15-20 stores are expected to open in the back half of the year, with a heavy focus in legacy and existing markets. As we head into 2027 and beyond, we expect to have a more balanced mix of openings between the H1 and theH2 of each year.

Our second growth strategy is to improve the productivity of our existing businesses. There are multiple initiatives focused on driving comps in our legacy stores and improving the core business during the Q2. Initiatives that will have the biggest impact on our comp sales through the remainder of the year will be the relaunch of our My Academy Rewards program, which is being integrated into our loyalty ecosystem. The newly integrated program features a 3-tiered structure. The base tier is My Academy Rewards and does not require a credit card to access savings. The key element of the value proposition at this level includes both a $15 off welcome offer and birthday reward, a $25 off reward at a $500 spend threshold, and free shipping on all dotcom orders over $25.

The middle tier of My Academy Rewards requires an Academy private label credit card, which gives you access to 5% off your purchases at Academy. It's important to note that the customer gets these savings instantaneously at point of sale versus having to wait for a reward certificate that they can redeem against future purchases, which is the case with most of the competitive offers in the marketplace. This tier also qualifies for free shipping on all dotcom purchases with no minimum purchase requirement. The top tier is unlocked by our new co-branded My Academy Rewards Mastercard, which we call the official card of fun. Customers in this tier get all the benefits from the other tiers while also getting a higher credit limit coupled with a best-in-market 2% back on all spend outside of Academy in the form of rewards that can only be redeemed at Academy.

We're in the process of reissuing new cards to all of our current cardholders and plan to be complete by the end of June. We're already seeing an uplift in sales from this initiative, driven by increased enrollment and card utilization. We believe customers are leveraging our best-in-market value proposition as a way to offset the rising costs they're dealing with in their everyday lives. Enrollment in My Academy Rewards is up double digits year-over-year, with our goal being to add an additional two million new members this year, which will grow our total loyalty program to over 15 million members. As we shared before, summer is one of our prime selling seasons, and we're well positioned this year to help fuel the fun for our customers. Our in-stocks continue to run up over 200 basis points versus last year, driven by our expanded utilization of RFID.

In addition, we have several non-comp tailwinds this year, including the World Cup being played in venues across our footprint, coupled with America's 250th birthday. We're well stocked in World Cup gear, summer essentials, and all things red, white, and blue. We can maximize the opportunities ahead of us in the Q2. Shifting gears to our omni-channel business, we continue to make solid progress, which is evidenced by the 17% growth in sales and the 100 basis point expansion in penetration we experienced in Q1. We have two key focuses during the Q2. First, we're expanding our same-day delivery platforms to include Uber Eats and Instacart as a complement to our existing partnership with DoorDash.

Our research shows there is minimal overlap between the customer bases for each of these services. Expanding our online presence to include these additional same-day delivery platforms should be mostly accretive to expose our brand and product categories to a broader audience. In addition, we plan to migrate the search platform from our site to be powered by Google's AI Commerce Search and Gemini Enterprise customer experience as we turn the corner into back to school. We believe customers are increasingly utilizing AI agents to aid them as they shop online. Moving our search to be powered by AI is a natural evolution and will be intuitive for them. As we continuously evolve our online capabilities, we expect the sales momentum we've built over the past year in this business will continue to provide a strong comp tailwind for our overall sales.

Thanks, Steve. Net sales for the Q1 were $1.44 billion, an increase of 6.7%, with comparable sales up 2.9%. E-commerce remained a strength in the quarter, with over 17% growth, which accelerated versus fiscal 2025 levels. We expect e-commerce to remain a tailwind throughout the year as we continue to expand our endless aisle, enhance search functionality, and expand same-day delivery. As expected, gross margin for the quarter was 33.2%, down 71 basis points year-over-year. The decline was driven by tariffs and was partially offset by favorability in freight and shrink. We expect the Q1 to be the largest tariff impact for the year and for the pressure to subside as we move through 2026. SG&A was 28.1% of sales, an improvement of 77 basis points, primarily driven by the 2.9% comp.

Additionally, we are lapping $7.5 million related to the Nike expansion and Jordan brand rollout from the prior year. The improvement was partially offset by a $3.6 million increase in stock compensation expense year-over-year. Operating income for the quarter was $74.7 million. Diluted earnings per share was $0.80, an increase of 17.6%, and adjusted earnings per share, which excludes stock compensation, was $0.93, an increase of 22.4%. From a balance sheet and cash flow standpoint, we remain in a position of strength. Our inventory has continued to improve versus last year, with total inventory dollars per store down 0.8% and units per store down 6.8%. We ended the quarter with strong liquidity and generated healthy free cash flow of $121.6 million, representing a 14.2% increase year-over-year. This allows us to continue investing in the business while returning capital to shareholders.

Our cash balance was $338 million at the end of the Q1, and we have an untapped $1 billion revolver. Our capital allocation philosophy has not changed. Approximately 50% of cash flow from operations is reinvested back into the business, and we expect to return the remainder to shareholders through dividends and share repurchases. During the Q1, we repurchased approximately 1.7 million of our shares, representing about 2.5% of our shares outstanding, paid $9.6 million in dividends, and continued to fund strategic investments, including new stores, omni-channel capabilities, and technology initiatives. At the end of the Q1, we had $338 million remaining on our share repurchase authorization. In May, we refinanced our outstanding long-term debt at a 5.875% rate and amended and extended our ABL, which will generate approximately $2.5 million in annual interest savings for the next five years.

The maturity date on each is 2031, and additional details were provided in our May 14th press release, which can be found on our investor relations site. Before getting into guidance, I wanted to share a few thoughts on the consumer and how ongoing trends played into how we think about the shape of the year. The consumer environment remains pressured as high gas prices largely offset the benefit of tax refunds in the Q1, particularly for lower-income households, which continues to weigh on discretionary spending. At the same time, we continue to see higher-income consumers, which are our largest and fastest-growing cohort, trade into Academy in search of value. During the Q1, trips from consumers who make over $100,000 grew by mid-single digits.

Consumer confidence remains bifurcated, with materially higher confidence levels among upper-income households versus lower-income cohorts, where there is less optimism about their future financial prospects. This dynamic continues the de-risking of our consumer base that began at the end of 2024 and reinforces confidence in Academy's value-driven positioning. Turning to guidance, we are updating select elements of our full year outlook to reflect the Q1 sales performance while also planning for higher gas and freight prices, tariff dynamics, and the timing of new store openings. We now expect sales to be in the range of $6.23 billion-$6.35 billion, or growth of 3%-5%, and comp sales of flat to up 2%. We are maintaining our gross margin rate guidance of 34.5%-35.0% for the year.

We are raising the midpoint of our net income guidance and now expect a range of $390 million-$415 million. We expect earnings per share of $5.95-$6.35, and adjusted earnings per share to be in the range of $6.40-$6.80. At the midpoint, we expect comp sales to be approximately 1%, gross margin to be roughly flat, and modest SG&A leverage for the full year, resulting in EPS growth of over 10% when compared to fiscal year 2025. This EPS guidance does not include any impact from future share repurchases. Looking at the shape of the year, we expect our strategic initiatives to drive positive sales.

As a reminder, we had no IEEPA tariff impact to gross margin in the Q1 of 2025, and costs attributable to tariffs increased throughout the year as we use the weighted average method of inventory accounting, with their full impact hitting average unit cost in the Q4 of 2025. We continue to expect modest gross margin pressure in the H1 of 2026, followed by modest expansion in the back half, resulting in approximately flat gross margin at the midpoint of our full-year guidance. On SG&A, we continue to expect leverage in the H1, with potential deleverage in the back half as new store openings accelerate, ultimately arriving at modest leverage for the full year at the midpoint of our outlook. To close, we continue to operate in a bifurcated consumer environment.

Higher-income consumers are increasingly trading into Academy in search of value, while lower-income consumers remain under pressure. Against this backdrop, we are executing a rock-solid plan with clear growth tactics, supported by our strong balance sheet, disciplined expense management, and relentless focus on value. Together, these position us well to navigate the current environment and drive long-term value for our shareholders. With that, we're ready for Q&A. Operator?