Executive Summary / Key Takeaways

• Academy Sports and Outdoors (ASO) is strategically expanding its physical footprint and enhancing its omnichannel capabilities to drive long-term growth, targeting 160-180 new stores over five years and leveraging its value proposition to capture market share.
• Despite a challenging macroeconomic backdrop impacting consumer spending and resulting in recent comparable sales declines, ASO is seeing positive momentum from new store vintages, e-commerce growth, and key brand initiatives like the Jordan Brand launch.
• Significant investments in technology, including RFID and handheld POS devices, are improving operational efficiency, inventory accuracy, and the customer experience, providing a tangible competitive edge.
• The company maintains a strong balance sheet and robust free cash flow generation, enabling it to self-fund growth initiatives while consistently returning capital to shareholders through dividends and share repurchases, even during periods of softer sales.
• ASO's outlook for FY2025 anticipates a return to flat to slightly positive comparable sales, driven by strategic execution and potential benefits from trade-down behavior among higher-income consumers seeking value, though tariff uncertainty remains a key variable.

A Value-Focused Retailer Forging a Path to Growth

Academy Sports and Outdoors, Inc. (ASO) stands as a prominent full-line sporting goods and outdoor recreational retailer in the United States, rooted in a history stretching back to 1938. The company's enduring mission, "Fun for All," is underpinned by a localized merchandising strategy and a compelling value proposition designed to resonate with a broad consumer base, particularly active young families. Operating primarily through its subsidiary, Academy, Ltd., ASO has demonstrated resilience navigating various economic cycles, including the 2008-2009 financial crisis and the 2020 pandemic, experience that informs its current strategic approach in a volatile market.

The sporting goods and outdoor retail landscape is intensely competitive, featuring a mix of large national chains, specialized retailers, mass merchants, and a growing online presence. Competitors like Dick's Sporting Goods (DKS) often focus on premium brands and experiential retail, while mass merchants like Walmart (WMT) compete heavily on price for commoditized items. Specialized players like Big 5 Sporting Goods (BGFV) and footwear-focused retailers like Foot Locker (FL) also vie for specific customer segments. ASO differentiates itself through a broad assortment that spans beyond traditional sporting goods to include extensive outdoor gear, a strong portfolio of private label brands, and a localized approach tailored to regional preferences. While DKS may lead in premium brand access and digital innovation speed, ASO leverages its cost leadership and private brands to offer compelling value, achieving favorable margins relative to mass merchants and demonstrating robust cash flow generation even during downturns. The potential combination of DKS and FL and Nike's (NKE) increasing direct-to-consumer push represent evolving dynamics, but ASO believes its distinct positioning, off-mall locations, and focus on midsized markets allow ample room for growth and market share capture, particularly as consumers prioritize value.

Strategic Pillars and Operational Excellence

ASO's strategy for long-term growth is built upon three core pillars: expanding its physical footprint, enhancing its omnichannel capabilities, and driving productivity within its existing store base.

New store expansion is identified as the company's largest long-term growth engine. Since re-launching its program in fiscal year 2022, ASO has opened 44 new stores, reaching a total of 303 locations across 21 states by Q1 2025. This expansion includes entering new states like Ohio, Pennsylvania, and Maryland, strategically targeting off-mall locations in suburbs, exurbs, and underserved midsized markets rich with its core customer demographic. The company is applying learnings from each vintage of new stores, with those opened under a refined site selection model in late 2024 performing ahead of expectations. Crucially, the 2022 and 2023 vintages, now entering the comparable sales base, are contributing positive low single-digit comp growth, providing a tailwind to overall performance. ASO plans to open 20-25 new stores in FY2025, including five in Q1, marking its most active first quarter for openings. While the long-term goal of 160-180 new stores over five years remains, the pace of signing new leases for FY2026 is being moderated to assess the impact of potential tariffs on construction costs, aiming to maintain flexibility.

The second pillar focuses on accelerating the omnichannel business, recognizing the strong link between physical stores and e-commerce, particularly for Buy Online, Pickup In-Store (BOPIS), which fulfills approximately 50% of online orders. ASO is investing in its academy.com platform to improve the online experience through enhanced search functionality and navigation. Efforts are also underway to expand the endless aisle assortment via drop shipping and improve fulfillment speed. These initiatives contributed to a 10% increase in e-commerce sales in Q1 2025, with penetration growing by 100 basis points to over 10%. New capabilities like same-day delivery via DoorDash (DASH) are seen as attracting new, accretive customers, including younger demographics and those in denser urban areas.

Driving productivity in the existing store base is the third critical pillar. A key initiative is delivering newness and exciting brands. A significant development is the launch of the Jordan Brand in 145+ stores and online in late April 2025, described as the biggest brand launch in company history. This initiative focuses on sports products at accessible price points and is tracking ahead of initial sales plans, expected to become a top 20 brand by year-end. This is part of a broader expansion of the Nike offering and the introduction of other national and private brands. ASO is also leveraging its enhanced customer data platform, which has nearly doubled its addressable customer count, to improve targeted marketing and personalize the shopping experience. The My Academy Rewards loyalty program, launched in Q2 2024, is on track to exceed 11 million members by year-end FY2024, aiming to convert occasional shoppers into loyalists who shop more frequently and spend significantly more.

Technological Edge and Operational Efficiency

ASO is strategically investing in technology to enhance its operational efficiency, improve inventory management, and elevate the customer experience, providing a tangible competitive advantage.

A core technological rollout involves implementing RFID scanners across all stores, completed by the end of May 2025. This technology leverages embedded RFID chips in products from key brands like Nike, Jordan, and Adidas (ADDYY) to update store inventories weekly. Pilots demonstrated a 20-25% improvement in store-level inventory accuracy. The strategic goal is to expand RFID tagging to more national brands and most private label products in the future. The "so what" for investors is clear: improved inventory accuracy directly translates to better in-stock positions, which is expected to drive increased conversion rates both in physical stores and online by ensuring products are available where and when customers want them.

Complementing the RFID rollout are new handheld devices with integrated POS functionality for store associates, also fully deployed by spring 2025. These devices empower associates to "save the sale" by quickly locating items not available in their specific store elsewhere in the chain and arranging for them to be shipped to the customer's home or the nearest store for BOPIS pickup. Early usage of this technology has shown a remarkable 900% increase in stated sale revenue on average per store, highlighting its potential to capture otherwise lost sales and improve customer satisfaction.

Furthermore, investments in a new Warehouse Management System (WMS) in distribution centers, including the Georgia facility, aim to improve labor management and overall supply chain productivity. While the initial rollout in Georgia presented some challenges that impacted in-stock levels in Q2 2024, management believes these issues are largely resolved, and the WMS is expected to become a tailwind, supporting the increased volume from new stores and omnichannel growth. Plans are in place for the next DC conversion in Cookeville, TN, targeting early calendar 2026, applying lessons learned.

Finally, the Customer Data Platform (CDP) is a foundational technology enabling sophisticated customer segmentation and targeted marketing. The completion of an identity resolution project nearly doubled the identified addressable customer count, providing a larger base for personalized communications and offers through channels like the My Academy Rewards program. This technological capability enhances marketing effectiveness and is designed to deepen customer engagement and loyalty.

Collectively, these technological investments are not merely operational upgrades; they are strategic enablers that enhance ASO's ability to execute its growth strategies, improve efficiency in a competitive market, and deliver a better, more seamless experience for the customer across channels.

Financial Performance and Outlook

ASO's recent financial performance reflects the interplay of a challenging consumer environment and the initial impacts of its strategic investments. In the first quarter of fiscal 2025, net sales decreased slightly by 0.9% to $1.35 billion, primarily driven by a 3.7% decline in comparable sales. This comp decline was a result of a 5.2% decrease in transactions, partially offset by a 1.5% increase in average ticket. While all merchandise divisions saw lower sales, the Outdoors (-1.8%), Sports and Recreation (-0.6%), and Apparel (-0.5%) divisions experienced modest declines, while Footwear saw a slight increase (+0.1%).

New stores provided a partial offset, contributing $45.3 million in sales during the quarter.

Despite the sales pressure, gross margin improved by 60 basis points to 34.0%, driven by a 40 basis point favorability in merchandise margin (attributed to strategic pricing and newness) and a 10 basis point improvement from decreased inventory shrink (linked to RFID rollout). However, Selling, General, and Administrative (SGA) expenses increased by 290 basis points to 28.8% of sales, primarily due to strategic investments in new stores (150 basis points), technology, and the Jordan Brand launch (60 basis points). This led to a decrease in operating income to $69.3 million, down from $102.4 million in the prior year quarter. Net income for Q1 2025 was $46.1 million, resulting in diluted EPS of $0.68 and adjusted diluted EPS of $0.76.

Inventory levels saw a strategic increase, with units per store up 6.5% and dollars per store up 7.8% in Q1 2025. This included an $85 million pull-forward of domestic, evergreen inventory at pre-tariff prices, leveraging the company's strong balance sheet to mitigate potential future tariff impacts.

ASO continues to demonstrate strong cash flow generation. In Q1 2025, net cash provided by operating activities was $157.5 million, though lower than the prior year due to decreased net income and changes in working capital (increased inventory receipts offset by accounts payable timing). Net cash used in investing activities was $51.0 million, primarily for capital expenditures related to new stores and technology. Net cash used in financing activities was $110.3 million, including $99 million for share repurchases and $8.7 million for dividends. Adjusted Free Cash Flow for the quarter was $106.5 million. The company maintains a robust liquidity position with $285.1 million in cash and $989.2 million available under its ABL facility as of May 3, 2025. Capital allocation remains balanced, funding growth initiatives while returning capital to shareholders, with $536.5 million remaining under the share repurchase authorization.

For fiscal year 2025, ASO has provided guidance reflecting the uncertain environment and anticipated benefits from its initiatives. Net sales are expected to range from $5.97 billion to $6.26 billion, with comparable sales ranging from negative 4% to positive 1%. This range accounts for different tariff scenarios, with the low end assuming a reversion to higher tariffs and the high end assuming a more favorable tariff environment. Gross margin is expected to remain stable at 34.0% to 34.5%. Adjusted EPS is guided between $5.45 and $6.25. Adjusted Free Cash Flow is projected between $290 million and $320 million, with capital expenditures between $220 million and $250 million, reflecting continued investment in growth. Management anticipates Q1 2025 to be the most challenging quarter, with Q2 expected to be the strongest, and the back half of the year improving relative to the first half as strategic initiatives gain traction.

Risks and Challenges

Despite strategic momentum, ASO faces significant risks, primarily stemming from the macroeconomic environment and external factors. The fragile state of the U.S. consumer, characterized by inflation, high interest rates, increased debt, and episodic shopping, continues to pressure discretionary spending. This directly impacts sales and creates uncertainty in demand forecasting.

The evolving tariff landscape presents a notable risk. While ASO has proactively reduced its direct import exposure from China (now ~6% of private label costs) and implemented mitigation strategies (supplier partnerships, inventory pull-forward, pricing optimization), a significant increase in tariffs, particularly if China reverts to higher rates, could impact costs, potentially necessitating price increases that could further dampen consumer demand and pressure sales and margins. Management acknowledges the risk is felt more acutely in consumer spending power than solely on gross margins.

Competitive intensity remains high across various retail formats. While ASO's value proposition and broad assortment offer differentiation, competitors like DKS continue to invest in premium experiences and digital capabilities, while mass merchants leverage scale. The potential for increased promotional activity in a pressured consumer environment could also impact profitability.

Operational risks include potential disruptions in the supply chain, although management is applying learnings from the Georgia WMS rollout to mitigate future issues. The ability to successfully execute the numerous strategic initiatives simultaneously, including new store openings, technology rollouts, and brand launches, also carries execution risk.

Conclusion

Academy Sports and Outdoors is navigating a complex retail environment marked by cautious consumer spending and external uncertainties like tariffs. However, the company is not passively weathering the storm; it is actively executing a multi-pronged growth strategy focused on expanding its physical footprint, enhancing its digital capabilities, and driving productivity in its existing stores through new brands and technology.

The investment thesis for ASO rests on its ability to leverage its strong value proposition and localized assortment to capture market share, particularly as higher-income consumers trade down. The positive performance of new store vintages, the growth in e-commerce, and the early success of initiatives like the Jordan Brand launch and technology rollouts (RFID, handheld POS) provide tangible evidence that these strategies are gaining traction and are expected to drive a return to positive comparable sales trends. While macroeconomic headwinds and tariff risks necessitate a measured outlook and create near-term volatility, ASO's disciplined inventory management, focus on operational efficiency, and robust free cash flow generation provide a solid foundation. The company's commitment to self-funding growth while returning capital to shareholders underscores confidence in its long-term potential. Investors should monitor the execution of strategic initiatives, the trajectory of consumer spending, and the impact of the tariff environment as key indicators for ASO's path forward.