Q4 2020 Academy Sports & Outdoors Inc Earnings Call
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Okay.
Good morning, ladies and gentlemen, and welcome to the Academy Sports and outdoors fourth quarter and fiscal year 2020 earnings Conference call.
At this time this call is being recorded and all participants are in a listen only mode. Following the prepared remarks, there will be a brief question and answer session.
Questions will be limited to analysts and investors. Please limit yourself to one question and one follow up too.
You asked your question during the call. Please press star one if you require any operator assistance during the conference. Please press Star zero.
Now I'll turn the call over to Michael Miller again.
The F O CFO of Academy Sports and outdoors, Michael Please go ahead.
Everyone before we get started I wanted to take a minute to introduce our new Vice President of Investor Relations, Matt Hodges.
Joined us in January and will oversee academies investor relations function and lead Investor and analyst Communications.
When it comes to Academy with more than 20 years of public company Finance experience with Fortune 500 companies, including JP Morgan and Gamestop Welcome to Academy Matt.
Thanks, Michael Good morning, everyone and thank you for joining Academy fourth quarter in 2020 results call today participating on the call are Ken Hicks, Chairman, President and CEO, Michael Mulligan Executive Vice President and CFO, Steve Lawrence Executive Vice President and Chief Merchandising Officer.
For reference the earnings release issued this morning is available at investors thought Academy Dot com.
And as a reminder, statements in today's earnings release, and the comments made by management. During this call maybe considered forward looking and are intended to be covered by the safe Harbor provisions under the federal Securities laws.
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 and in our filings with the SEC.
The company undertakes no obligation to revise any forward looking statements.
Today's remarks refer to certain non-GAAP financial measures reconciliations to the most directly comparable GAAP financial measures are included in today's earnings release.
I provided on our Investor Relations website.
But that said I will now turn the call over to Ken Hicks CEO.
Thank you Matt.
And good morning, everyone.
Thank you all for joining us today.
I want to start by thanking the entire Academy sports and outdoor team for the amazing work that they've done over the last year, taking care of our customers and moving the business forward. During this ongoing pandemic.
The record results, we reported today because of their hard work and dedication.
To our customers and Academy.
2020 was a year, where a broad selection of value based products resonated with customers as they work to stay say Sane and then shape.
The ongoing trends of at home fitness outdoor cooking and backyard games, along with socially distance outdoor recreation activities like biking, fishing and camping became even more popular trends.
Our stores and websites have been there to safely meet our customers' needs being open throughout the pandemic.
For any new options like buy online pickup in store.
And curbside pickup.
We expect customers to continue enjoying their newly discovered ways of having fun and being active well beyond the current environment.
As I.
Sure on the last earnings call I am pleased that the investments we made in our key initiatives before the pandemic have taken hold and have made us more competitive than ever.
Today, we reported the best fourth quarter and full year results in the company's history.
We have seen and will continue to see the benefits well into the future.
Total sales were $1 $6 billion from the fourth quarter.
And $5 six 9 billion for the year.
Both record highs with comparable sales up 16, 1% for both the quarter and the year.
We reported adjusted net income of $103 $1 million for the quarter.
And $311 $7 million for the full year also both record highs.
We have now achieved six consecutive quarters of positive comparable sales and profit growth dating back prior to the pandemic.
These results were driven by our continued efforts to improve our power merchandising omni channel and customer experience along with our efforts to increase the productivity of all of our assets.
For Academy.
Our merchandising means being the best retailer in the country and our most important product categories.
Having a broad localized value based selection in 2020, we delivered a double digit comp higher gross margins and higher inventory turns compared to 2019.
Our work to become the leading sports and outdoor retailer.
Put us in a position to grow as demand for our products.
It continues to increase due to shifts in consumer spending.
Regarding omni channel in the fourth quarter, our ecommerce sales increased 67%.
For the full year, our E Commerce sales grew 138% and the penetration rate was 10, 4% compared to five 1% in 2019.
Buy online pick up in store or brokers and curbside pickup represented approximately half of our total ecommerce sales for both the quarter and the year.
More than 95% of our total annual sales involved our stores, including ship from store ship to store both of us and in store retail sales demonstrating that we have truly created an omnichannel experience that is deepening our relationship with our customers.
Yeah.
With respect to.
Customer experience, we continue to make meaningful progress by creating an entertaining and interactive shopping experience both in stores and online having tailored local assortments.
Operating value added services, such as free assembly on certain items and hiring enthusiasm for customer engagement.
Our improvements to the customer experience have also been extended to Academy Dot Com, where we have invested to better search capabilities cart management enhanced personalization and exciting informative content.
We also made meaningful progress on our targeted marketing efforts throughout the year and we're building deeper customer loyalty through the Academy credit card program.
Card offers a bank funded 5% discount on every purchase and free shipping on most online orders of $15 or more.
Because cardholders shop, more often and spend more money than non cardholders. We know this is driving incremental sales and margin dollars.
Lastly, during the quarter, we significantly strengthened the balance sheet through two transactions.
Michael will talk about the details.
But we ended the year with twice as much cash and approximately half as much long term debt than at the end of 2019.
In 2021, our priority is for cashews are to remain financially strong and viable as we move forward and.
In the current market environment.
And to support current operations and fun projects intended to help deliver future growth.
I will now turn the call over to our CFO, Michael <unk> to review our financial results in more detail Michael.
Thanks, Ken good morning, everyone.
Despite all the challenges in 2020, we ended the year with record sales record gross margins and record earnings I'm going to walk you through the details of the quarter and the year and then discuss how we plan to build upon these results going forward.
In the fourth quarter net sales increased 16, 6% over Q4 2019 to a Q4 record one 6 billion sale.
Sales were driven by double digit comparable sales in all four merchandise divisions strong ecommerce growth and double digit brick and mortar increases including gains across every single market.
We continue to see a significant portion of existing customers cross shopping additional apartments within the store and returning to those departments with greater frequency than in the past.
For the full year net sales increased 17, 8% over fiscal 2019 to a record 5.69 billion.
Comparable sales increased $16 one per cent for the fourth quarter and the full year.
In the fourth quarter gross margin was a record $499 1 million the margin rate increased 420 basis points, driven by fewer promotions and clearance sales, which offset an unfavorable merchandising mix shifts.
A constructive operational trend from the third quarter that continued into Q4 is that the company's gross margin rate expanded as comparable sales increased double digits and ecommerce sales grew by 67%, indicating that we are building and operating a profitable omnichannel business.
For the full year gross margin increased 21, 2% over 2019 to $1 73 billion.
Turning to SG&A in Q4, SG&A expenses were $358 million or 22, four percentage of sales, which was 160 basis points less than Q4 2019.
For the full year SG&A expenses were 1.31 billion or 23, one percentage of sales, which was 280 basis points less in fiscal 2019.
Yeah.
The improvement was primarily driven by leveraging our operational costs, such as advertising property and employee costs on increased sales led by the continued strong performance of stores opened a non legacy markets.
These stores many of which were opened from 2015 through 2019 are now outperforming the chain in terms of sales growth.
These improvements in addition to lower interest expense resulted in pre tax income of $121 6 million, a 552% increase over Q4, 2019, and $339 1 million for the full year, an increase of 176% over last year.
Net income in the fourth quarter was a Q4 record $91 5 million a 460 per cent increase over Q4 2019.
Pro forma adjusted net income, which excludes the impact of certain extraordinary items was $103 1 million an increase of 486% over adjusted net income in 2019.
And for the full year net income was $308 8 million also an all time high and an increase of 157 per cent compared to 2019.
Adjusted net income was $311 7 million, an increase of 311% over adjusted net income in 2019.
Diluted earnings per share for the fourth quarter were <unk> 97, a three.
304% increase compared to Q4 2019.
Pro forma diluted earnings per share, which excludes the impact of certain extraordinary items were $1.09.
374% increase compared to Q4 2019.
Diluted earnings per share for the full year were $3.79.
137% increase compared to fiscal 2019.
Pro forma diluted earnings per share, which excludes the impact of certain extraordinary items were $3 83.
275 per cent increase compared to fiscal 2019.
Moving to the balance sheet Academy ended the year with $377 6 million in cash and no borrowings under our credit facility.
Fiscal 2020, the company generated $1 billion in operating cash flow compared to $263 7 million in fiscal 2019.
As a reminder, the majority of the proceeds received in connection with our IPO were reported in the third quarter. However on November three 2020, the company issued and sold an additional one 8 million shares pursuant to the underwriters over allotment option, resulting in approximately $22 1 million of additional net proceeds.
As Kim mentioned, we completed refinancing activities to strengthen our balance sheet in November the company reduced its gross debt by approximately $630 million and refinanced and extended the remaining $800 million of debt through 2027.
We also extended our undrawn $1 billion revolving credit facility through 2025.
In terms of capital allocation due to the continued uncertainty caused by COVID-19, we were taking a measured approach on how we deploy capital with investing in growth and supporting our business as our top priorities.
We ended the year with $990 million of inventory, 10% lower than we began the year.
Our strong sales growth resulted in lower fresher inventory.
While there are certain products in which we would like to have more supply and the team is working diligently to replenish overall, we feel comfortable with our current stock position.
For fiscal 2020 capital expenditures totaled $41 million compared to $63 million in fiscal 2019.
That concludes my comments on 2020, I would like I would now like to move into commentary about business in 2021.
Academy has strong momentum heading into the year driven by the continued development of the initiatives, we launched over the last 12 to 18 months, both prior to and during the pandemic.
In 2021, there are four main opportunities that we believe can drive the business.
First we will work to capitalize from a shopping velocity of newly acquired customers.
Through chat through transaction level data mining and analysis, we know that many existing customers are shopping new categories.
Doing more than just buying new items from Academy, there are picking up new interest hobbies, and lifestyles, which should lead to incremental sales.
We also know that our academy credit cardholders shop at Academy more frequently and drive a bigger basket the non card holding customers.
By using this type of transaction level data, we can promote through more sophisticated personalized digital marketing channels, which will lead to increased sales and lower promotional costs.
Second we will work to assure that we are replenishing in growing categories that were inventory constrained through most of 2020, just ammunition certain fitness equipment and outdoor play equipment.
Third we are preparing for and poised to capitalize on numerous product categories that were challenged in fiscal 2020, but are positioned to benefit from the reopening of the economy.
While many of our categories benefited from the COVID-19 crisis several of our key businesses such as license apparel team sports equipment apparel and footwear and back to school were adversely impacted and should return to normal this year.
In addition to each of these businesses is driving sales growth. They are all margin accretive and should drive a return to a more traditional mix of sales.
Fourth.
We will improve our management of several seasonal categories, where there are not worldwide inventory shortages, but where our initial inventory buy in 2020 was not enough to meet the strong demand.
This year, we have modified our planning and allocation on products like grills and water sports to support additional sales compared to their normal trend line.
As we began 2021, we are confident that we can continue to deliver strong results because of our incredible team. The continued development of our key initiatives and a stronger deeper relationships, we have built with our customers.
The company is providing the following estimates for fiscal 2021.
Comparable sales are forecast to range from up 2% to down 2%.
This is an 18% to 14 per cent increase on a two year stacked basis. As a reminder, our academy is an essential retailer and therefore had very limited store closures in 2020.
Diluted earnings per share are forecast to range from $2 70 to $2 95.
This assumes net interest expense of approximately $49 million a tax rate of 25 per cent and diluted weighted average shares outstanding of approximately 98 million shares for the year.
Capital expenditures are expected to range from 80 million to $85 million.
I'll now turn the call over to Chief Merchandising Officer, Steve Lawrence to discuss our quarter and full year category results Steve.
Thanks, Michael now I'd like to give you a little more color around our fourth quarter performance by Division where.
We're extremely pleased with a $16 one comp the total company, which translated into a strong double digit growth across each of our four major divisions.
Apparel sales rebounded versus the trend we saw in Q3, driven by the strong inventory position, we took in branded fleece.
With this rebound the apparel business posted a low double digit comp for the quarter, which aligns with our trend in footwear.
And outdoor many of the categories that started to search in the first half of 2020 carried this momentum into holiday with strong continued sales in fishing and camping.
We saw sales in the hunting business moderate during the quarter. This was more a function of limited supply versus a deceleration in demand.
With many of the macro trends that fuel the business in 2020, not showing any signs of letting up we anticipate that all of our outdoor categories will continue to see elevated demand as we turned the page into 2021.
The best performing business for the quarter sports, Iraq, which is home to many giftable categories, such as indoor and outdoor games bikes fitness equipment in outdoor cooking all of which performed very well during the quarter.
We reset the fitness floor prior to Q4 with the new assortment of connected fitness and all the equipments sold very well as people continue to build out their home gems expense.
Carry this momentum into 2021.
As I did a quick run through of our four major divisions, you'll realize that many products in each of these businesses are bulky items that are very expensive to ship.
As a result focus has become an increasingly popular option for our customers.
From 2020, we expanded our book is capabilities with the roll out of curbside pickup last spring and ship to store watching prior to Q4.
New capabilities were key in driving our ecommerce business to a plus six 7% increase for the quarter.
Over the course of 2020, we saw increasing growth and curbside bolt this with many of our customers love the convenience of being able to reach out and search for inventory online and securing the product without having to drive all of our time to find it and driving to pick it up without having to leave the safety of their own vehicle.
<unk> had been a ship to store allowed us to much better target inventory demand by holding the goods at our warehouses and then sending it out to the stores as the customer purchases.
A great example of this is black Friday weekend, where several stores sold over 200, trampoline Peach pasta, which cancer ball pits and utilize our ship to store capability.
As you know Trampolines are big bulky items to take up a lot of space in stores traditionally we would never consider sending over 200 trampling. So single store with our new capabilities, we're able to quantify the demand by store and pick up more customers. This way.
In terms of how sales flow across the quarter a couple of trends emerged.
First demand for several of our hot trend in product categories come into Q4 actually accelerated during the quarter.
Throughout most of the year, we saw customer man outstripped supply from any categories, such as bicycles and fitness equipment, creating scarcity in the marketplace for these high demand categories.
We aggressively replenish inventory throughout most of the year to be well positioned heading into holiday.
As we restocked, we saw the trend in some of these categories accelerated during Q4, signifying that even with all the work we did to get back in stock over the course of the year, we're still leading sales on the table.
This gives us confidence that if we can maintain good in stock levels in these high demand categories.
We should see the sales momentum continue into 2021.
Another change versus per holidays that we saw customers by giftable categories earlier than in previous years.
As we set some holiday categories, such as game room ride ons in early November we saw immediate strong selling versus traditionally seen them start to sell closer to Thanksgiving.
We attribute this to customers reacting to supply constraints in the marketplace and buying when there's availability.
Because of this we did not have to aggressively discount these categories during holiday, while still achieving a high rate of sale.
We anticipated this trend would carry into 2021 and are already seeing accelerated rates of sale at subsequent summer categories, such as water sports.
A third trend we saw was a smoothing out of sales crossed the weekdays as customers shop more frequently early in the week to avoid large crowds.
This was most pronounced during the Thanksgiving time period or the early part of the week was much stronger than prior years with lower traffic levels on Black Friday itself.
This trend has led us to rethink how we staff stores as well as timing of some of our marketing messages.
I've already touched on all of these trends contributed to a holiday that was less promotional than in previous years, we drove a $16 one comp in Q4 with pure promotions higher AUR and better regular price sell throughs.
The end result was that we finished the quarter with about half the level of clearance inventories and we've had a year ago.
Is this mix of strong regular price selling coupled with less clearance and allowed us to improve our gross margin rate by 420 basis points versus Q4 2019.
This also has a positive impact on margins in early 2021, because we had a lot less fall inventory declared during the February clearance cycle.
Connecting this back to inventory, while our total inventory was down roughly 10% at the end of the year, but half of that decrease is from having less clearance merchandise.
In order to be in a strong inventory position for spring, we worked hard to accelerate receipts prior to Chinese new year to ensure that our inventory composition was much more forward facing.
While there continues to be ongoing challenges in the supply chain in terms of just carrying containers and cargo space, our strong vendor partnerships, both domestically and overseas has allowed us to successfully navigate through all the challenges and as a result, we should be in the best inventory position, we've been in over the past year by the end of Q2.
This will position us well to drive business as we head into the summer months.
Hopefully as I went through many of the Q4 highlights you got a sense of how truly transformative year in 2020 was for Academy.
All the challenges and experiences that we went through has helped sharpen our strategies that made us better more nimble operators.
As we head into 2021, we believe that many of the trends in America emerged over the past year will carry forward and continue to fuel the business and that we are well positioned to capitalize on the opportunities.
One way to continue to fill these trends, while also attracting new customers through new product launches and brand introductions.
Our newest proprietary brand freely Washington February.
The goal is to provide our customers with an athletic inspired apparel and footwear brand that bridges function with comfort at an outstanding value.
Really its position at better price points and helps US bridge between our opening price of BCG brand with the best brands in our athletic space, such as Nike data surrender armor.
The initial selling out really has been strong and as a result, we plan to expand the brand into plus sizes all 21.
We're also watching a new better tier of our iconic outdoor brand the Johnson outdoors.
You'll find Magellan outdoors pro in all stores with a focus on more technical performance fabrics and features in apparel and footwear.
We're also rolling out innovative new products such as in camping, we're now carrying a collection of toppled tends to be can be set up by one person in 60 to 90 seconds.
Hopefully you agree that there are a lot of new exciting things going on here at Academy.
I'd like to turn the call back over to Ken.
Thanks, Steve.
While 2020 was a record year our goal is to retain the market position that we've built.
The new customers, we have gained share.
And then in 2021, we will continue to innovate and implement more tools that will drive our future growth.
Our strategy is working and I feel strongly that it will continue to work in future environments.
The priorities for the year to drive our performance are one.
Building, a stronger omnichannel business by improving the website experience, our navigation search and checkout.
By launching a mobile app and in Egypt card and improving customer fulfillment options.
Two continuing to improve our shopping experience by enhancing store customer service.
And effectiveness.
By completing approximately 30, remodels deploying improved labor management tools, and enriching merchandise presentation and customer experience.
Free continuing our power merchandising work to improve merchandise planning and allocation capabilities by focusing on greater localization day.
A levering seasonal replenishment and improving promotional management and presentation in stores.
Four increasing targeted marketing and customer communications by utilizing digital channels, creating a robust content library and increasing our targeted message to our customer.
And five strengthening efficiency and effectiveness of our supply chain by refining processes and systems optimization to increase the efficiency and effectiveness of our distribution centers and logistics.
While 2020 was a strong year. We know there are many challenges ahead of us, but we're focused on the future and feel confident that we are well positioned for the long term during and post pandemic.
In closing.
Our focus is on improving academy by delivering funding for all as we work towards our vision of being the best sports and outdoor retailer in the country.
Thank you.
Yes.
The company will now open up for your questions if you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Christopher <unk> with Jpmorgan. Please proceed with your question.
Thanks, Good morning, everybody.
My question is on the guidance can you can you give us a sense of how you are thinking about the cadence from a top line perspective over the quarters, I know youre not guiding quarter, specifically, but how youre thinking about that.
It would be really helpful.
And then related to that any any.
Commentary of how Youre thinking about gross margin versus SG&A during the year as well. Thank you.
Yes, Chris.
As you said, we're not giving quarterly guidance, but the first quarter was.
Last year was our probably our was our easiest quarter, we're up to a three comp second quarter very challenging up 27% and then back to quarters were both up 16%. So I think.
When you look at it that way.
We are.
We feel that.
That's probably the inverse of that is our biggest opportunity so early in the year.
We've got less.
Les we're up against in.
Second quarter was a more challenging quarter in the back part of the year, we feel we're well positioned there too yes.
Yes, Chris with respect to G&A and gross margin on the G&A side, we did have some onetime expense savings last year that we probably won't repeat this year.
When the pandemic was declared we really prepared for to hibernate here in winter never came so we pulled back on advertising. We furloughed. Some employees. We are you know frankly took our store labor force down to a level that that long term would make sense. So we won't repeat dose on the gross margin side, we like where we're at and we're not planning to get background.
We again, we've got a lot of kind of machine learning that still that we can still benefit from it as these programs progress and the initiatives progress and then if you think about our mix of business. We should have a more normalized mix of business this year, which will help our gross margins.
Yeah.
Yes.
Understood. So my my my follow ups to that is it so it sounds like if you just look at on the top line in the stack side, it sort of feels like you're saying that obviously <unk>, great, but as you get into the back half of the year, there could be an opportunity to be flat to up and then on the gross margin front.
Do you expect.
Mix of business and better merchandise merchandising sophistication to essentially offsets.
Offset the lower promotions and clearance from 2020 and such that gross margins flat.
Well, yes, I think mix of business is a big one and then we have some categories that were challenged this year that'll all be margin rate accretive next year, you think of certainly license apparel team sports footwear. So we're looking forward to those categories coming back to normal levels and as far as the cadence goes who knows it's a very difficult environment to read what we do.
We've got strong demand across the business and what we look at are we taking share we feel good about that that across most of our categories. We're taking share we're pleased with new customers our investments delivering what we expect them to deliver we're happy with those we're happy with the credit card, we're happy with the the power merchandising initiatives, we're happy with some of the targeted marketing that we've begun to do.
Are we leveraging our cost we feel good about that certainly compared to <unk> 19.
I think everybody will like the progress that we're that we're showing in our customers. Returning it are they coming back another happy and we see a lot of customers shopping new categories for the first time existing customers shopping categories. It never shopped before in returning to those with greater velocity and that's across the store. It's apparel, it's outdoor cooking, it's on the outdoor side. So when we look at it.
Our initiatives, we're pleased with the progress how it shakes out through the year TBD because theres just a lot of it's a very unusual environment as we all know.
Our next question comes from the line of Greg Melick with Evercore ISI. Please proceed with your question.
Hi, Thanks, and congrats guys on a great year.
Thanks, Greg.
Maybe to follow up on the guidance a little bit.
Take the midpoint of it it looks like Youre expecting EBIT margins to be down maybe 40 or 50 bps for the year I just want to make sure I have that right.
There's sort of a follow up to Christian's question in it.
And how much would comps need to be better than flat, so that EBIT margins would be down.
Yes, Greg I mean, you're in the ballpark there and again that's related to the G&A you frankly, the sum of those one time savings that we won't repeat.
Look again, I think we feel good about being able to expand our operating margins.
And again with the uncertainty we tried to do our best we want to be helpful. But there's just a lot of uncertainty out there that being said, we're happy with the initiatives. We're happy with the gross margin expansion. We think we're working on the right things to expand operating margins.
And certainly feel like there's a lot of there's a lot of there's upside to the guidance Greg.
Greg.
The challenge this year, Greg is is obviously the.
The ups and downs and flows of the businesses there were.
Businesses that started did grow well stopped another business picked up and so it makes it a little more challenging.
For Comparables that said in the long term not necessarily.
It's more challenging this year, but in the long term, we would look to be able to leverage low to mid single comps.
That's that's what we're working towards that's what.
I've done in the past and the team here quite frankly has done in the past in other locations and we believe that we're going to position ourselves to do that.
That's great and as my follow up Jim you to turn to the balance sheet and cash flow.
You said inventories down $100 million half of that is clearance.
But this year if I take the guidance you should be generating even with $80 million of Capex, maybe 350 $400 million.
Our free cash flow what should we expect you to do with that.
Our first priority is going to be ensuring the stability of the company.
It's still a challenging time theres a lot of uncertainty out there so we're going to make sure that.
The company is in a stable position in the second.
Is to invest.
And the initiatives that we have we still have a lot of work to do to continue to grow and expand the company online we're doing a number of Remodels. This year over 30 Remodels net.
Next year, we will start opening new stores.
So we're going to and we still have some systems work to do in Omnichannel and in our.
Planning and allocation so we're going to continue to invest in growth opportunities.
And as we go forward, we will evaluate options and how we can recognize and reward our investors.
Is the best way to do that at this time, our focus is on stability and growth.
Our next question comes from the line of Seth Sigman with Credit Suisse. Please proceed with your question.
Hey, Thanks for taking the question.
So on the follow up on the gross margin can barely hear you.
Okay. We'll try this again can you hear me now.
No that's not much better stuff.
And the whole member I was in the artillery mayors aren't as good as I used to be.
Yeah.
We'll try we'll try it this way.
Better.
Alright.
So I wanted to follow up on the gross margin specifically in the quarter.
420 basis points was a pretty big acceleration from what we've seen in recent quarters and its impressive considering you had a mix impact you had online which I assume was dilutive.
What is the difference versus prior quarters is there a way to frame what was environmental factors versus changes to your own process and how we should be thinking about those levers.
Yes, I'll, let Steve start with this one then I'll tag along but go ahead Steve.
Sure from a from a gross margin perspective, I think a lot of the work we had been doing have been getting on a on a more.
Logical markdown cadence getting our inventory more current and I think we're kind of playing catch up throughout most of the year as we're getting more concentrate play so that really kind of culminated in a strong Q4, where we were caught up on our markdown cadence.
Really good place I'd also say that better localization getting the right inventory in the right stores helps us get better natural sell throughs, so that would be more of a long term sustainable margin lift.
I would say as you noted it was not it was kind of an unusual holiday a little less promotional so we certainly did take the opportunity to back off of some of the promotions.
That also contributed but as Michael said earlier as we think about it going forward. We think the margin mix that we're going to get which is a tailwind for us will help offset any additional promotional Ali we have to put in one of the other things.
Seth.
We did see in the fourth quarter was of the resurgence of.
Apparel, and footwear, which which that mix helped.
As <unk>.
Compared to earlier in the year.
Yes, I think the other thing set that net.
Tap into as a look January at Academy, historically had been a lot of empty calories. So we traded off a lot of clearance sales for higher margin sales certainly the back half quarter, Yeah, My my line, which I understand.
Nickel sums.
Sometimes deals deal it a lot.
Shlomi Shlomi Good January I'll show you a bad December.
Show Me a bad January I'll show you a good December so we sold the what historically, we would have sold it a markdown in January we sold it.
More than a regular price in December and this when you buy and you allocate new flow goods correctly. That's what you can do from a margin standpoint, so again very still early innings on it but are happy with progress.
Okay.
And then just wanted to follow up on the opportunities in 'twenty. One on the top line you did mentioned the return or the potential return of a number of categories that lagged last year.
Can you just dig into that a little bit more and are there any early signs.
Pointing to that happening some of these categories recovering, especially as we start to head into team sports season here.
Yes, it's a great question, so definitely we saw.
It was literally a year ago right around now all these categories just literally stopped as matter of fact, we talked about a couple of times, we had some categories like fleets, where we had a day, where we had zero sales so.
Seasons that resumed we've definitely seen.
The team sports business come Roaring back to life on a T Y O y basis.
What's more helpful. There is for us to look at it versus 2019 versus last year.
But definitely a strong business.
We've seen other businesses that had been strong continued through when we talked about a little bit about water sports getting off to a fast start.
Fitness and some of those categories continue to be strong one category that we probably haven't seen a rebound yet and we anticipate will probably be a little bit later in the year will be the license business.
A lot of our licensed business is driven off of people either going to the advent are going to have an occasion, where they can washington that with France.
Things are starting to open up that business is getting better, but it's certainly not back to where it traditionally has done but we hope by the time, we get to football season things will normalize. Some other elements for example that we'll see as we go through the year will be.
A more normal father's day and mother's day back to school.
Those type of events that last year.
Non events will be.
Stronger this year than last year and as.
Steve.
Steve said.
No.
Our footwear and apparel business in the first.
Two quarters of the year actually the back half of the first in the second quarter.
We're not.
Didn't perform well because people weren't buying apparel.
And so we've got we've got opportunity there so as those normalize.
Our next question comes from the line of Robbie Holmes with Bank of America. Please proceed with your question.
Oh, Hey, guys great quarter.
I think it's at the <unk>.
Force.
So you guys are doing great listen at the end of the third quarter. I think you guys said you acquired 3 million new customers can you give us an update on where you.
You ended the year, and maybe run out and remind us.
Something about maybe the demographics of these these new customers and you mentioned some of the things youre doing to keep them but.
Any any other color you can give there and then I had a follow up we picked up over $5 million.
New shoppers during the year.
And.
Things that we saw about them one.
There was a higher.
Greater increase in our non heritage markets. So in places where we were.
Not as strong.
We became much stronger they were younger.
More female.
Yes.
More diverse.
In terms of ethnicity.
And so we feel really good about this customer more families.
And so we feel good about who we pick the number we picked up <unk>.
And where we picked them up and quite frankly, who they were because they pay significantly add to our consumer base.
<unk> broadened the base that we have we're also seeing them cross shop more into other categories.
Well, you know kind of a gift that keeps giving as theyre not just sticking with the categories. Initially get introduced into their broadly shopping across the store, which we think could be a tailwind going forward, which we're also seeing with our existing customers that they are discovering new areas of the store.
And that obviously is a good thing which fits with.
One of our core strengths, which is the breadth of our assortment.
That's great and then just a follow up can you guys talk about how stimulus has impact how did stimulus impact you in the fourth quarter and how much should we expect it to be helping this quarter.
Well in general the trends that we saw very early on in the pandemic has continued throughout the year. The stimulus has obviously helped that.
You know how long it goes or how long we benefit from it TBD I mean things are a lot different now we do have theres more competition, there's more I think not only from our direct competitors who were closed through the early part of the pandemic, but theres more competition for that wallet in general, but overall, it's absolutely its helped our business.
Great. Thanks, so much.
Thanks Ravi.
Our next question comes from the line of Daniel <unk> with Stephens. Please proceed with your question.
Hey, good morning, guys and congrats on the strong quarter.
Thanks.
Ken Ken Warner start one non promotional kind of backdrop, you've mentioned a few times in here today sales are good now so there's not a lot of clearance and promotional activity, but winter induced low how quickly do you think competitors in our market looks to use price to kind of hold on to foot traffic and if that does happen.
Every day low value proposition become more valuable to customers since youre already every day low value or how does the academy competitively fit into that dynamic as the market gets more price competitive yeah I think.
And sure.
Kind of backwards I think our everyday low price resonates well with the customers all.
All of the time and.
We have seen that and it's been a.
Good vehicle for us to both attract and retain customers. So I believe that the everyday value because it's not everyday low price its everyday value because we do much more than the price. The everyday value is a strength of ours that said, we still do promote periodically on certain I.
Items certain windows that some of our vendors offer and things like that so we have vehicles that we can use to drive traffic and gross sales.
With regard to the coming back of promotions I think right now.
Most retailers are seeing good business. So there's not the need to one two there is not.
The ability quite frankly, because inventories continue to be a challenge we are in much better shape than we've been.
The way I would determine as we are unacceptable inventory position, but not the position that we want to ban.
We don't need to and neither do our competitors need at this point to promote when they go back to promoting.
We will still resonate value to the consumer we won't need some of those promotions to.
Drive the traffic and retained the consumers at some of our competitors.
But I think quite frankly, it'll be a while before we see some of the promotional intensity that.
We had seen in the past.
Less inventory with consumer is excited and once our product.
And.
No quite frankly.
<unk>.
There is.
There's not a need to at this point.
And I think you know I don't think will be leading the way here will counter punch when we need to if we need to but the antidote to all of all of this is buying it right.
Buying it optimally flowing it correctly and allocating it and that's we've laid the groundwork to do that effectively and management. That's the offset to it. In addition to some of that supply chain work that we're beginning to take off.
Got it that's really helpful color and then my follow up question was just in the real estate and unit growth strategy. Michael I think in your prepared comments you noted stores opened in the last few years are actually outperforming the legacy market is there anything consistent in those market as to why or certain categories, you're seeing relative to your leg.
The market and then with that and the cost progress you've made probably ahead of schedule. How are you guys thinking about when youre going to start resuming the pace of unit openings, we're reopening over the coming years. Thanks.
I'd say the one thing that's consistent it's it's really across the board on those legacy markets and that's because we intentionally paused our store growth to get them right to get out of sort of directly to get the marketing right in those markets and so it's really across the board at all of the markets that they're leading the chain in terms of what the future looks like we do want to begin growing again as Ken said that's always good.
Or to use our capital to grow right now because theres plenty of opportunity to do that we're all in one third of the United States and have a lot of opportunity to grow and we'll begin doing that in 2022 with the eight to 10 stores that we've communicated before and as we see those in and our programs work, we are capable enable to step that up.
Right now.
Those of you, who know me know I like to be.
The focused and thoughtful about what we do and so we're going to do it in a thoughtful manner, but we also are going to take advantage of the opportunities as they present themselves. We're also not just sitting still this year, because we're not opening new stores.
We do have about 30 remodels that were doing.
And we're doing Remodels, a little differently than how we've done in the past where in the past.
We spend.
Probably way too much money to remodel a store and make them. All look like we're really trying to be more thoughtful and distort key areas in the store based off of.
More localized preferences in that community.
We got 30 of those on the books and we think that that's also going to be a really good investment for us this year.
And the other thing quite frankly.
Our dot com business, we see a significant opportunity to continue to grow that and we're making.
<unk> in that and that supports.
The stores there is.
We are really we're going to be true omni channel. So thats adopt common strengthens in those outer markets the non.
Non heritage markets, we saw.
The stores grow and vice versa.
As we look to expand into other geographies, we will capitalize on the dot com to help us flow there.
Our next question comes from the line of John <unk> with Guggenheim Securities. Please proceed with your question.
Gratulation guys, let me, let me start with.
The stores that are in the non heritage markets right in the stores that have opened in the last five years.
At this point you would think those can all be at the same level of profitability right.
The core stores is that fair.
And then have you re thought is.
Covid has kind of changed some of your.
Some of your capabilities have you rethought the long term.
Profit margin targets of the business can.
Can it be fundamentally more profitable than you thought a year ago.
Yes, let me start and then I'll turn it over to Michael.
That.
We probably in our non heritage markets did not position ourselves so that those summer in some of those markets, particularly the larger markets. They could have the same.
Capability is our heritage markets because of the way we entered.
And we were not quite frankly.
Optimal.
Sure.
Marketing market positions, that's one of the things that Michael in the real estate team are looking at now is how we can strengthen those markets to get them to where we are positioned well in them as we go forward.
Michael.
I think you answered it well I think.
You know the opportunity is in some of these markets where operating subscale. So it's tough to maximize your profitability I loved your fixed costs and leverage our D. C assets when you've got one or two stores in a market. That's really designed for seven and eight and then guess what you've gone into another market with one or two stores in a market. That's designed for seven or eight so as we flow. These markets out absolutely. We think we can get them to profit.
Some of the new markets of higher rent, which is a challenge, but overall there should be closer than they are at today and we're optimistic that we can get them there.
And maybe as a follow up to that right. When you think about the expansion program going forward to share. If there is a lot of white space. How do you think about to your point clustering right do you want do you want to do three or four in a market or.
More of the idea to spread it out over the next couple of years.
We learned from from our history.
Being a butterfly doesn't work as well we were going to be more of a.
Ah Hornack.
Make sure that were powerful where we are.
And.
So I think we will where appropriate when we enter new markets, we will make sure we enter.
In a reasonable position it may not occur all at once but in a much more cons.
Concentrated timeframe.
Our next question comes from the line from Daniel Adam with Loop capital markets. Please proceed with your question.
Hey, everyone, great quarter, and a strong finish to the year. Thanks for taking my questions. Thanks, David.
First drilling down on the down two to up 2% comp guidance for the year. What do you have baked into that range for e-commerce growth versus in store only.
Yeah, we're not going to break it out by channel right now, but obviously E. Com is getting a large piece of the company's investments and we do expect them to.
Expect it to grow even though on the great year. They had this year.
Going forward, so we're not breaking it down by channel but.
Expect E comm to drive.
Be a sales driver.
Okay, great. Thanks for that and then my follow up is on working capital and inventories specifically.
Inventory, both DS and on an absolute basis declined sequentially versus <unk>.
How much cash up inventory do you think there is at this point if memory serves me I think last quarter, you alluded to $150 million of inventory that you'd like to have but that was hard to get and do you expect any supply chain disruption, resulting from the Suez Canal blockage.
Take the day will take the number pretty quickly then I'll flip it over to the low supply chain, but you know call. It $100 million I think we'd still we still prefer to have 100 million more that would support from sales there and its been a very limited number of categories. At this point overall most of our categories are in an acceptable position and we're selling the stuff. We're just not getting back to these minimum presentation quantity. So we're turning the prop.
We're getting it frankly, we're selling it as fast as we get it but $100 million is probably a good number we feel like by the end of Q1, we should be in good shape across the board with the exception of maybe the firearms and ammo categories in terms of the Suez Canal I actually looked at a recap. This morning, it's it's an animal for us in terms of let's call it from that.
It really isn't it's a rounding error it doesn't impact us.
Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.
Good morning, Thanks, a lot from taking my question, where does the profitability of the E Commerce channel and do they presumably you've made big strides in improving the margins there given that it's now less of an outlet for clearance and you're.
Seeing a lot of your or a lot of your sales being picked up in store.
Yes, Michael you are right there theres two things that have really been big drivers. One is the first one that you mentioned.
Selling a 1999 T shirts hats off and free shipping is a losing formula for E Comm and we've really got a differentiated experience where the customer can shop anywhere they want to pick up in store at the curb in that business skews more towards bulk large items, which we think is an advantage for us, particularly because we are off mall.
The biologic of in store program as you know, we don't we don't pay shipping on that so it elevated the profitability of the entire business to where it's close to margin parity.
It'll never get there just because the mix of business against skews more hard goods, but we like where it is and its again, where we're able to operate at a profit.
Thank you.
Follow up is given the success that academy is realized from a couple of quarters, how has that improved positioning with its major vendors, particularly considering they're pulling back on distribution and can you give us any specific examples of products that are in the pipeline that academy might get in the upcoming periods.
And it might not have gotten in the past.
Yes.
Have very strong relationships with the vendors.
Stay in constant contact with them and they have told us that we are a very valued accounts.
And.
<unk>.
They also recognize what we do for them we bring.
Sports we bring.
Our mix of customers that they can't get in terms of age families ethnicity.
The female customer that day.
They have difficulty getting in other places and so they've been very supportive of us things like.
Nike.
Yoga, which is a new.
The concept for them they recognize our importance in women, we have Nike yoga, we have air we've got north face campaign that we're adding to our stores this year.
So.
The vendors.
Have their strategy.
We support them in their strategy and we think is an opportunity for us as some of these outlets go away and we become.
One of the few that are out there.
There are fewer that are out there, but we've got strong relationships. We've been good partners, we work hard with them. They continue to invest in us in both <unk>.
Capital and product.
Thank you very much good luck. Thanks.
Thanks, Michael.
Our next question comes from the line of Tom <unk> with Wells Fargo. Please proceed with your question.
Hey, good morning, Thanks for taking my question.
I just want to.
So I just want to follow up on the E com.
I know you are not.
Breaking out stores versus E com or from the 2021 guidance, but.
Bigger picture longer term.
It would seem like.
The 10% penetration rate you had in 2020 still move meaningfully higher.
Given.
Some of the other penetration rates we've seen.
Out there in the industry.
So like how do you think about that like what.
Where's the opportunity here as I say, you know, 15% online business and a couple of years of 20% online business.
I think.
Let me color that we're allowing the customer to grow that and we went from five to 10, we had a long term goal of 10.
We beat that and so.
Jamie trailing crew who operates it.
Came back and she said okay now it's 15.
But we're not setting up this is the number we're looking for we're letting the customer move to it and because of what Michael said earlier.
<unk>.
We have.
Profitable dot com business with.
Margins are reasonably close we're agnostic as to how the customer shops. So we don't have a problem as the customer moves between stores and online and.
I'm not saying at some point e-commerce will be a much more significant element of our business, but we really truly are omnichannel as both Michael and Steve talked about because.
There's a lot of our product is very difficult to ship, a kayak or a treadmill or a trampoline.
We are able to support our customers who come in and pick that up.
And that's that's a big plus for us.
And so we provide that capability that a lot of our competition can't do and so that's that's one of our differentiating capabilities and I see dot com continuing to growth, but I'm not going to say, okay. When we hit 20, the games, one or we hit 25, I'm going to let the cash.
Customer determine that and so far they are saying, we're going to grow it and we like how you are managing it and we're going to invest.
And supporting that with.
New search capability new payment capabilities.
Better.
<unk> with things like focus and curbside and we're going to make sure that we're the one.
One of the best in the business at it and it's a big differentiator for us in the stores make it possible.
The key is the stores or are linked.
The hip with Dot Com candidly, that's that's where the store expansion I think helps with your own dot com business because they are from an hub for us and a.
<unk> 95 per cent of the goods that we sell basically at some point kind of originate from a store. We do we did the triple digit E. Comm comp this year, because we have stores and buy online pick up in store and fulfill from store.
Understood.
Yes.
One more quick one.
Sure It sounds like you're generally pleased with the start to the year.
I know last month, there were some pretty pretty wild weather.
In Texas.
While the non word for GAAP.
In the dark here in the office for four days.
And.
It was it was a hiccup.
Yeah.
More news more belch.
We.
But the team I continue to be impressed with the team. They did a great job. We had stores that were closed our Dcs we're <unk>.
Close for a period of time Dot Com was down four for a brief period of time.
But they overcame that and.
That's what I want to make it I want to make it a hiccup.
And.
I think.
Our goal is at the end of the quarter when we report.
You'll go where it was at.
Our next question comes from the line of John <unk> with <unk>.
<unk> capital. Please proceed with your question.
Hi, good morning.
Hi, John.
Hey.
Thanks for taking my question I know there has been a lot of conversation among investors about how the consumer has changed and speculation about her.
How long that might continue to be the case.
I know we've discussed it a bit here.
But I wanted to kind of flip the question a bit and I know you did touch on merchandising, but maybe you could focus for us.
A little bit on the vendors.
And specifically are you seeing.
Increased innovation from the vendors as a result of this environment are they are they going to be able to bring new products to those customers the new customers. So that when they come back to the stores.
They are excited they see new things they haven't seen in the past.
Could you just talk about the innovation pipeline youre seeing from the vendors.
Yes sure.
And if Ken wants to jump in.
Think we've necessarily seen that interrupted in this whole process.
I can I can talk firsthand in terms of some of the things we're working on internally and I mentioned them.
And some of my prepared remarks.
We have we have our own private brands and we've got some some really innovative product coming down the pike between Magellan pro and freely.
The same thing from the vendors candidly.
There are some cases, where last year, our business was interrupted like team sports.
So a lot of the newness that last year was delivered never even really candidly had a chance to sell from those cases I would say the newness. This year. That's the products are fairly similar.
The vendors that continue to ship the product all the way through have a continued died of newness and when we're seeing that we haven't seen a beginner yeah. I think I think you will continue to see one of the things for example is what's happening in fitness connected fitness.
As you know is.
And we've got tremendous capability with ice fit in with our with our equip.
Equipment vendors.
Vendors and fishing, there's there's new things coming out and phishing campaign.
One of the things.
Our pop up tent that you you alone.
To put up and.
Under a minute.
So in camping and footwear were seeing newness.
Some of the things in and team sports. So I'm actually excited I think that one of the things the vendors actually did.
During the hiatus, they were still developing but they didn't get it out so youll, probably see more things coming as Steve said as we go forward as they start to bring those things out that they werent there was a year, where they didn't bring as much newness out.
And so we're going to see compounding.
Hey, Thanks, and good luck.
Thanks, John Okay.
I appreciate.
Everybody on the call and the.
Participation.
We obviously feel.
Strongly about.
Where we are the team has done a great job and again I, thank them and we look forward to continually driving.
Towards our vision to be the best sports and outdoor retailer in the country by offering our mission on plan for all through assortment value and experience and.
We are well positioned for the future.
That said we're in it for the long run we are going to keep pushing and driving forward. We're not just.
A quarter at a time.
Although it is nice to have our sixth quarter of consecutive comps in the profit.
That said, we're in it for the long run and we appreciate your support and the support of all the investors who are on the call.
We think the team is working hard for you. So thanks again.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.