Q1 2021 Academy Sports & Outdoors Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the Academy Sports and outdoors first quarter of fiscal year, 2020.1 earnings conference call.

And this time this call is being recorded in all parts of Smith aren't in a listen only mode.

Following the prepared remarks, there will be a brief question and answer session.

And as it will be limited to analysts and investors.

Please limit yourself to 1 question and 1 follow up can.

Ask your question during the call.

Press Star 1.

If you require any operators and starting to call. Please press star zero and.

I'll now turn the call over to Manhattan.

And as President and Investor Relations for Academy Sports and outdoors. Matt. Please go ahead. Thanks, operator, good morning, everyone and thank you for joining the Academy sports and outdoors first quarter 2020.1 results call today and participating on the call are Ken Hicks, Chairman, President and CEO, Michael Mulligan Executive Vice President and CFO.

And 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 statements and are intended to be covered by the safe Harbor provision and.

The federal Securities Law.

These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections.

These risks and uncertainties include but are not limited to the factors identified in the earnings release and in our filings with the SEC.

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.

And just provided on our Investor Relations website.

Now I'll turn the call over to Ken picks.

Thanks, Matt Good morning, everyone.

I'd like to start by thanking our Academy sports and outdoor team members for their hard work and commitment as we continue to navigate these challenging times.

I remain extremely proud of our team as we passed the 1 year mark of being fully open and back to work and our stores distribution centers and corporate offices.

It is remarkable what we have been able to achieve and the last year.

Our top priority remains customer and team member safety as we strive to be the best sports and outdoor retailer by providing funds fall through assortments value and experience.

Following the terrific fiscal 2020 critical 2021 is off to a strong start as we achieved another record quarter share.

Sales were $1.58 billion or 39, 1% increase over the prior year quarter comparable sales were 38, 9% and diluted earnings per share award dollars 84.

This is the seventh consecutive quarter of positive comparable sales and operating profit growth.

We continue to see strong demand across all product categories and geographic regions.

As we emerge from the pandemic are customers are coming back more often and shopping more areas on the store and sports and outdoors remain a meaningful part of their lives.

While sales did see a benefit from government issued stimulus checks. We believe there are other important long term drivers of our business such as.

The strategic actions taken over the last few years to increase operational efficiencies and improve margin rates.

A change and lifestyle that is driving a shift in consumer spending for sports and outdoors categories.

Clothing bikes, camping, and fishing, grilling and backyard and entertainment.

Existing customers shopping more often and discovering more product and a new.

And new categories.

Introducing millions of new customers to our brand over the past year, our customer base and strengthening because many of these new customers are more female younger and more diverse and our historical base.

These drivers have not only increased sales, but have also led to significant profit growth as the retail best practices. We put in place continue to drive margin dollar flow through.

In addition, we continue to enhance overall store experience importantly, this includes strengthening relationship with partners like Nike Adidas under armour, the north face Columbia and Yeti.

Together, we are making mutual investments to improve and store presentation, attracting new customers to their brands to refine the assortments and better storytelling and our stores and on our website.

And securing new product lines and investing in and training sales and sushi is love their products.

We're doing all these things to offer our customers the best shopping experience for the latest and greatest products from some of the world's best brands, including our own private label brands and Steve.

Steve will provide more color on our efforts to expand that business.

Additionally, in the quarter, we added more features to Academy Dot com.

Executed more targeted marketing campaigns, which have had a powerful impact on our marketing success and cost efficiency.

Kicked off our supply chain initiatives and continued our power merchandising work, we will continue to invest and all of these areas focusing on the customer to drive growth and existing stores online and in the future new stores and new markets as we plan 8 to 10, new stores and 22.

2.

Our financial results are evidence on what positive impact.

Ongoing activities are having on the business.

Based on the strong performance, we're increasing our full year 2021, comparable sales and EPS expectations and mindful of ever changing macroeconomic factors.

Michael will share more details about our updated 2021 outlook.

I also want to highlight 2 actions that demonstrate our commitment to being good stewards of your capital.

After the first quarter ended we participated in a secondary offering as a buyer of $100 million of our common stock. We felt it was a good opportunity to reduce the outstanding shares at a discounted market price. We also reduced the interest rate on our term loan by 125 basis points and paid down the outstanding Bal.

On slide 25% or $99 million.

Our momentum for 2020 has carried through the first quarter, we're focused on maintaining it by cultivating and strengthening our customer relationships and store and online to increase sales and profits and bring fun to at all.

I will now turn the call over to Michael for a review of the financials.

Michael.

Thanks, Ken Good morning, everyone. The first quarter exceeded our expectations as the demand we saw throughout 2020 continued and in fact accelerated into 2020.1.

First I want to highlight our record first quarter results, there and I will discuss our 'twenty 'twenty, 1 guidance, which we are increasing based on the continued strength of our business.

As Ken mentioned first quarter net sales were $1.5 8 billion with comparable sales of 38, 9%. Despite the firearms and ammo sales being lower than expected due to continued inventory challenges.

When compared to Q1 and 2019 sales increased 46, 8%.

Sales were strong across all product categories as well as across all markets. This is the second quarter in a row and all 4 merchandise divisions had double digit comparable sales growth.

Our ecommerce sales declined 21% over last year, as we anniversary, 405% growth and Q1 of 2020, when the Covid crisis began and cut.

<unk> shifted their buying preferences to digital channels.

When measured against Q1, and 2019, our E com sales grew 300% and the sales penetration rate increased to 7.4% versus 2.8%.

Because buy online pickup and store remains approximately 50% of total ecommerce sales, which reduces our overhead and shipping costs, we have been able to grow our ecommerce sales and our profitability.

In fact since 2019, the company's pretax income has increased 767% even as our Q1 comp sales have grown 300% highlighting the fact that we have a profitable omni channel platform.

Yeah.

We believe there's even more room for growth and improvement as we continue to increase our investment and academy dotcom to create a seamless omnichannel experience.

We are implementing solutions to improve our search and checkout capabilities to give our customers more personalized product recommendations and to provide them with more payment options like Apple pay.

During the first quarter gross margin dollars increased 89% to an all time Academy sports and outdoors record of $563.7 million.

The margin rate expanded by 950 basis points to 35, 7% driven by a more favorable merchandise mix better pricing management and fewer promotions and less clearance sales.

SG&A expenses were $324.6 million or 25 percentage of sales, which was 450 basis points less than Q1, 'twenty 'twenty and 750 basis points lower than Q1.2019.

These record results, let the pre tax income of $224.9 million compared to a loss of $9.5 million and Q1.2020.

The first quarter tax rate was 21%, resulting in net income of $177.8 million.

Yeah.

Pro forma adjusted net income, which excludes the impact of certain extraordinary items was $182.5 million compared to 440000 in Q1, 2020.

Q1 diluted earnings per share were $1.84 per share compared to a loss of <unk> 14 per share and Q1.2020.

Pro forma diluted earnings per share.

We're $1.89 per share compared to once it and Q1 and 2020.

Moving to the balance sheet, we ended the quarter with $593.3 million and cash and zero borrowings on on our credit facility.

We have reduced our net debt by 84% compared to last year, a decrease of over $1 billion at.

At the same time, we have increased our liquidity, including availability under our credit facility by 42%, which is an increase of over $400 million.

During Q1, the company generated $219.2 million and operating cash flow.

Compared to 98 million and Q1, 2020.

Ending inventory was $1.8 billion, which was 7% higher than Q1, and 2020 and 9% higher than at the end of Q4, 2020.

Steve will provide more insight on how his team has effectively managed tighter product availability, while driving tremendous sales growth.

As far as capital expenditures and the company still expects to spend $80 million to $85 million and fiscal 2021.

On our last earnings call I laid out for sales driving opportunities for 2021.

Those opportunities were first capitalizing on the shopping velocity of new and existing customers second.

And showing.

We are replenishing and growing categories, where inventory was constrained through most of 2020.

And third.

Capitalizing on several product categories that we're challenged in 2020.

And the benefit from the reopening of the economy and <unk>.

Lastly, and proving our management of several seasonal categories, where demand exceeded supply and 2020.

There are some indicators of how we were doing so far.

We continue to see an increase and the percentage of existing customers, who purchase and a new category and the last 12 months and then returned to that category again.

Our inventory levels and categories that saw shortages and 2020 like bikes and fitness equipment and it and a much better position than a year ago.

During the team sports apparel and footwear, all had record sales growth well above the company's total comparable sales after being challenged in Q1 and 2020.

Sales and categories, where we didn't have enough supply last year like water sports and outdoor cooking exceeded our Q1 comp.

Moving to our outlook for the remainder of 2021.

We are increasing our full year sales and earnings guidance.

While there is still uncertainty from the impact of COVID-19, and other external factors based on recent trends and the visibility we have for the remainder of 2021 full year comparable sales are now forecast to range from plus 6% to plus 9%.

Over the last 2 fiscal years this would represent growth of 22.

On the 25%.

Diluted earnings per share on now forecast to range from $4.15 per share to $4.57 per share based on $96.5 million diluted weighted average shares outstanding for the full year.

This range accounts with various market scenarios and possible outcomes for the remainder of the year hearing.

2% is this as it is today to a much more promotional and competitive environment.

In terms of year over year growth net income at the midpoint of this guidance and earnings per share using a normalized share count of 96 million shares or about 35% higher than fiscal 'twenty, and 'twenty and 248% higher and fiscal 2019.

With that I will turn the call over to Steve for more details around merchandising and operations Steve. Thanks.

Thanks, Michael.

And I'd like to give you a little more color around our first quarter performance.

And so we already mentioned, we managed to deliver a 38, 9% comp. Unlike many of our competitors, who never close our stores last year and as a result, this quarter's call.

And from this on top of a 3.1% increase and 2020.

The early part of this quarter is negatively impacted by store closures during the winter storms in February.

Once we got past the weather disruptions, we saw a strong rebound in March and April fueled by our merchandize initiatives pent up demand consistently warm temperatures and of course, the governments and yours did not hurt.

Comp and our results by category apparel and footwear were our 2 strongest divisions.

High double digit comps during the quarter.

These categories, where the 2 hardest hit businesses last year when most of the country went into lockdown, So theyre generally up against softer comps.

Breaking it down by category apparel apparel sales were up 80% versus 2020 and plus 38%.

2019, while footwear was up 58% versus 2020, and plus 23% versus 2019.

All of our key national brands, such as Nike Adidas under armour, Columbia, and the North face had strong performance and based on improving inventory positions and better content.

We're pleased by the performance of our private brands with 1 of the key drivers being the.

Sent pursue new initiatives.

In February and we launched our new women's Athleisure brand called freely operating new products, and both apparel and footwear and a focus on bridging function with comfort and an outstanding value.

We also launched a better care and Magellan and outdoors with Magellan and outdoors pro focus on more technical fabrics and features.

Both initiatives got off to a strong.

I'll start and are tracking above plan.

As a reminder, our private brands account for roughly 20% of our sales and play a key role on our business by reinforcing our value message going and gasoline and occupied by National brands, while also being margin accretive.

Our sports and Rec division posted sales growth and plus 36%.

This is 1 of our.

Business is it really surge last year during the shutdown from Covid. So when you compare to 2019, we picked up 59% over the 2 year span.

The best performing categories team sports driven by the return on sports being played across all of our markets.

In addition, we saw strong growth and many of our outdoor recreation categories, such as Watersports outdoor cooking and furniture.

Because people were spending more time outside when the weather warmed up.

Another way during the quarter was a category that experienced huge surges during lockdown last year, such as fitness and bikes and should drive single digit comps despite being up against historic volume level from 2020.

And our outdoor division, we managed to drive a 13% increase when compared to 2000.

In the business has grown 61% over the last 2 years.

Key drivers were camping and fishing, which also benefited from people continuing to enjoy the outdoors.

During our fourth quarter call, we discussed a less promotional environment.

And this carried through and the first quarter and we continue to see strong regular price selling.

This coupled with a lower clearance levels.

And as we entered the quarter with helped drive our gross margin to 35, 7% were up 950 basis points versus last year.

As year progresses, we're anticipating that we'll see a more normalized promotional cadence our plan is to thoughtfully add back and promotions around key must win market share opportunities as needed.

Another big win for Us was.

Despite the unprecedented sales increase and all the disruptions and supply chain, we mentioned and the quarter with inventories up 7% to last year.

You may remember that we entered this quarter with inventories down 10%. So I'm sure you can tell that the merchants supply chain and stores did an outstanding job of working through all the challenges and I'll keep us in stock and set us up for the summer months.

The team has worked to ensure that we have a flexible flow receipts and should allow us to continue to keep up with demand going forward and protecting us against any downside risks.

And looking forward to updating our progress against all of our initiatives and our second quarter call and I'd like to turn it over to Ken.

Thanks, Steve.

Looking ahead as the country continues to reopen we are focused.

<unk> on winning this summer season, which started this past weekend was morial day and will continue through father's day, the fourth of July and the startup all team sports.

We want to be top of mind for consumers as they continue their newly found recreational lifestyles and resume some of the activities. They enjoy most.

Most like hosting family and friends backyard, Cookouts, and we're celebrating live sporting events.

And the coming months, we will continue to focus on executing on our priorities building a stronger omni channel business improving.

Improving our shopping experience.

Continuing our power merchandising work.

Cash and our targeted marketing.

And strengthening our supply chain.

These initiatives are instrumental to achieving our long range goals and delivering fund for all as we work towards being the best sports and outdoor retailer and the country.

Thank you and we'll now open the call to questions.

And the company will now open the call up for your questions, we will pause for a minute to wait for the Q2 flow.

Also I would remind you if you have a question you May press star 1 on your telephone keypad.

Okay.

Our first question is with Robert.

And as with Bank of America. Please proceed with your question.

Hey, good morning terrific quarter guys.

My question is really on.

I was hoping you guys could speak a little bit to the second quarter and how we should think about puts and takes obviously.

Comparisons should be a little bit harder and.

<unk> versus <unk>, and apparel and footwear and a lot of these other categories, maybe maybe just some thoughts on how we should think about that and then also.

The inventory levels.

And to be and really good position do you think you benefited from smaller competitors not being able to get inventory and are you.

<unk> signs of that coming back on and is that.

You know why you guys are thinking about being thoughtfully more promotional so a long question, there, but really maybe some more color on the puts and takes on how we should think about <unk> and the rest of the year.

Yeah, Rob and thank you.

Really.

And don't care about.

And our.

Quarter guidance, but I will say.

We are up against the biggest quarter of the year last year up 27%.

And we are seeing what I will say is we're seeing on a 2 year stack basis.

No.

Okay.

On a comparison continued.

<unk>.

Performance as we did and the first half of the.

The first quarter.

Our business continues to do well.

With regard to inventory, where and what I would call and acceptable level, we're not back to where we are where.

We want to be we're probably still about $100 million short.

But overall, we are in a reasonable position. We've got a couple of areas that are still challenged that Steve mentioned and the call and we've got we don't have as the depth or the presentation quantities that.

We would like to have but overall, it's an acceptable level and it has allowed us to get the sales results that we've had I think that.

The supply chain is still very challenged and we're all working very hard and Steve's team along with share of <unk> and our head of supply chain has done a terrific job.

To get us the inventory that we need.

But.

It's a lot of work.

I think that some of the smaller competitors may be having challenges. They also.

Don't have some of the vendors that we have and that is providing an opportunity but.

John Paul.

And we feel comfortable where we are but not.

We know we have more room.

To go.

While we have the inventory, where we would like it to be.

Yes, Robbie it's Michael from a guidance standpoint, and a first off as a management team we want to do what we say.

And I'll do we want to make sure. We can do that as you called out and we're up against not only the big quarter next quarter, but really 3 pretty large quarters and the back half of the year of 3 quarters that came up roughly to a 20% comp last year, it's still a tough environment to read there is a lot of uncertainty and the environment. There is more competition for customers wallet.

And we're glad that you called out the supply chain is still a challenge on the labor pool is becoming more challenging the guidance that we provided contemplates those risks along with.

Potential for more promotions and we believe we can achieve it and if we do our job. We believe we can exceed it yes. The situation right now there is theirs.

Some.

Big headwinds as Michael called out and there is from <unk> back to school.

Back back to sports.

People continuing with their hobbies.

And.

And.

Teams, playing again and people are getting out.

But and the uncertainty and the environment.

And makes us continue to be cautious.

But we've got confidence that.

We will continue to do well.

That's very helpful. Thanks, so much guys.

Thank you.

Yeah.

And our next question.

Chris <unk> with Jpmorgan. Please proceed with your question.

Thanks, Good morning, guys.

And I had a follow up to that question. So.

As a reminder, I think July was pretty weak relative to the rest of the quarter last year given that you know many school systems went back later and Texas and there was this.

And from a back to school.

Is that fair to say that you know.

And May and June were a tough on months better months last year than July.

Yeah, I would say Thats fair I mean, certainly we.

A lot of our markets back to school and they're moving out are not happening for us and a lot of our markets for back to school time period starts.

Delayed at July time periods, and we certainly did see softer comps in the back half of the quarter versus the front half of the quarter last year debt that said when you're when you're up 27% quarter.

And every every month on.

On a more normalized basis was.

Pretty good but.

The the front half was.

And was stronger than the back half of the quarter.

And when we think about going forward and we talk about things that give us a little optimism going forward and I think that's 1 of them. You know Ken mentioned is and certainly we think back to school is going to be more normalized and better inventory position and we've been and probably in a year.

We think and see people returning to sports.

And then we saw a baseball get off to a fast start this year that gives us optimism about the football season, as we round the corner, we got over 5 million new customers.

Got all the past times and hobbies that our existing customers and picked up and are cross shopping more across our our category. So there's a lot of reasons to be optimistic despite some of the big comps that we're.

Are up against.

Understood.

And then maybe could you could you break down the.

The gross margin expansion, you know give us some sense on sort of the buckets of it and then longer term how are you thinking about the margin potential of the business I mean clearly.

And we promotions will eventually normalize, but you're a much better retailer and and you have the supply chain initiative coming as well.

From a gross margin standpoint, the big driver there was merch margin, but literally all elements of our gross margin were up with the exception of those related to freight and the supply chain.

And obviously, the merch margin performance more than offset that.

So from a merch margin just jumping in and obviously, we had a favorable mix within the quarter.

<unk> talked a lot about how last year.

Negative mix, where we're getting mixed down because outdoor and sports direct bigger.

Our business there are bigger contributions and the first half to hear that.

Reverse this year with apparel and footwear, so that certainly was.

A tailwind for us from a merch margin perspective, you talked about coming in to the quarter with less clearance and we talked about having less promotion ality.

We do expect the promotional environment will normalize going forward and we're going to have to thoughtfully add those things back and but we have a lot of initiatives that we talked.

Chain and out.

In terms of better marked on optimization decorated your price optimization, better inventory flow and management and we believe that those should give us some tailwind to kind of offset some of those headwinds we're going to be facing and still expect to see some margin expansion and certainly not at the level. We experienced in Q1, 1 point of clarification. There just just to be clear, we saw a more favorable mix shift.

<unk> talked about Q1 of last year, but we still believe there's an opportunity to have margin uplift from from from mix Yeah. The other thing and you.

You called it out Chris.

Chris was.

We are just literally just starting the supply chain opportunities that we have.

Compared to what we're doing the roadmap now and will begin those projects and we expect those to support and and.

And I will also say that as the company has.

And.

<unk> developed a culture and making sure that we manage our expenses thoughtfully and we will work hard.

The first.

It was.

And quite impressive and maybe.

A long term a bit of and stretch we see continued opportunity for development of of our margin overtime.

And Chris just to.

Tag onto that a little bit.

We're in this for the long term and on.

Quarter and is certainly to hit that double digit EBIT margins on a long term basis and sustain that and the things that we look at first are we taking share we look at NPD data, which I think is probably the best source and we can see that we are getting a bigger piece of a bigger pie.

2 are on investments working.

Certainly from.

Our plan on merch perspective, the credit card buy online pickup and store, we've had great growth on our and our dotcom business over 2 year basis. The ROIC seek that we're delivering we feel good that our investments are performing third or are we leveraging.

If you work your way down the P&L on the 30% and 9% comp we delivered margin.

And expansion of 89% increase net income up almost 2000%. So we're getting the leverage that we want to get fourth are our customers coming back we continue to see.

Existing customers shop, new categories and come back to those categories more and more so we're happy there and then lastly, how are we positioned to grow and we're building the platform.

From a power to grow.

And resumed the brick and mortar growth and continued to invest and dot com and we feel like all of those things when we look at them, we're happy with our progress.

Thanks, guys very helpful.

Sure.

Our next question is from Daniel <unk> with Stephens, Inc. Please proceed.

And with your question.

Hey, guys congrats on the quarter and this is Andrew Thank you Daniel.

And I have 1 for you on to ask 1 on firearms, obviously guns and ammo been really strong from most of you are now do you think that was on onetime bump is that sustainable and how is the team on annually and buying inventory for that category as we get into the back half.

Yes that.

Has not been a huge driver for us.

Because of the supply situation and I mean, it's in line with the performance of the store but.

And the supply situation has been and probably will continue to be challenged.

Historically as a company we would.

And be dependent on 1 element to drive the business that is not the case now.

Our.

<unk> performer as Steve said.

Footwear and apparel and we did have good performance and.

And outdoor but.

And it did not over.

<unk>, where we were so I don't want people to think that that was a driver for what we we had.

We our goal is to be the most responsible person.

Retailer and.

And the firearms area and we will continue to do that and we will make sure that.

We are and the business and support the business but.

And that take it beyond where it should be.

Great, Thanks, and I'm going to follow up too.

And by chain side can you talk about how you're handling this inflationary and freight backdrop, but what's the headwind and.

Yes.

Are you able to pass these through.

I will tell you that.

And the supply chain right now and you've probably heard this from everybody.

And there probably is not an element of it that's not under pressure starting from overseas to the docks overseas to the ships to the <unk>.

Truckers here.

And we are managing we are working with with our partners.

Looking at what we can do to.

And ensure that we get delivery that is first and foremost and then we get fair pricing, while we do that and so our team is working hard to manage.

And the cost and as best as we can within the <unk>.

Current environment.

And we also.

Looking at other areas at this point to offset.

And how we can do that for example, 1 of the things that we're doing is within our distribution.

<unk> centers, where we can control, we're actually getting more productivity.

And we put it in a paper flow for performance.

Element and that is that is showing dividends and our productivity and our Dcs has actually improved and helping offset some of those costs.

Perfect. Thank.

Our next question is from Michael Lasser with UBS. Please proceed with your question.

Good morning, and profit taking my question.

And people have a 25% increase and your sales per square foot or sales.

Per store this year compared to where it was.

In 2019.

And coming in and as you would the team had established through transformational roadmap Julien.

Julie you did not expect.

And as the pandemic and all of this sharp increase.

And demand for sporting goods.

And we look at this.

Increased and productivity EBIT.

At Cagny has already achieved 12 months.

And we could dimension how much of that has come from.

The information Thats already been achieved by Academy and.

And what is left.

On the horizon, such that EBIT, yes.

And in the marketplace flow.

Good.

Got it and can still make progress because of what it had in front of it.

Yes, 1 of the things that I've looked at and.

Prior opportunities that I've had and I've brought to Academy and retail there is really 3 main levers.

Sure.

Inventory.

And real estate and your people and.

And to increase the productivity of all of those is very important and our strategy that we put forward 3 years ago really targeted efforts against all 3 of those and so I would say more of what we've done and seen.

And in terms of Av on.

Productivity for example, and in our real estate our sales per square foot were from initiatives. We got out of some businesses, we allocated space and the store we improved the presentation, we changed the way that we stock the stores.

Ours to make sure that we had a better flow of merchandise to allow for more productivity.

You did a lot of things to make the productivity of the stores better.

We set a goal of a long term goal of $350 a foot.

And the 5 years.

And if you go back and time and look at both foot locker and pennies. We did the same thing and then we reset the goal because we found that we could get the productivity up.

And by driving traffic by making the space more useful and more thoughtful we're doing the same thing with with store labor we are not.

Not planning to reduce the hours that face the customer, but we take out other tasks, we give our team members tools.

Such as handheld electronic devices, so that they can better serve the customer and make themselves more productive the flow of merchandise helps.

And our.

Our team members to be able to satisfy the customer and also helps us get better use of our inventory. We don't have trapped inventory. So the initiatives that we've got against all 3 of our biggest assets.

I think on really what's making it and we have.

As Robert Frost.

We have miles to go before we reach our goal.

And we've got a long way to go we're early in the second checker and.

And so I've got a lot of confidence that we can continue to grow all 3.

Productivity measures.

And 1 more thing.

Michael on the line we have.

Certainly and the finance department as a good fortune favors the prepared and we feel like we were working on all the right things prior to the pandemic.

And if you go back and look at our performance before the pandemic all the indicators, we're pointing on the right direction based on the initiatives Covid was really the accelerant to that we did learn a lot.

And through Covid as Ken said, but we feel like all of the efficiencies we can hang on to those.

Okay.

Mike.

It's helpful and it's a leading and my follow up question with your stock price.

Pretty muted reaction to these results, suggesting that a marketing question and sustain.

Cleanability.

Offered a lot of confidence on this call that you're seeing.

The margin performance can continue to improve.

Voting.

You can have a double digit operating margin you can get from gross margin expansion from here.

Is it going to move and a linear path or should we expect that.

And we're modeling out the next few quarters debt as you return.

<unk>.

2 promotion.

And maybe a step back before.

You are able to get a step forward and it is part of this discussion how are you thinking about redeploying some of the ample cash you have on.

On your balance sheet and buying back stock.

And.

I'll start.

Michael.

And the.

No trade growth straight to the Sky and there will be some ups and downs, but we feel that as you said, we've got good confidence we've got programs in place to allow us.

The grow and continue to grow.

And the productivity measures.

And which will result, and the profitability.

And we.

Don't do not think that.

This is anywhere near done.

But we know that.

The things that the team is working on and we've got a very strong team here.

We will allow us to.

We continue to see.

And it may not be exactly linear.

Debt.

There.

We planned and for example, our plan.

And for promotions and and if there are promotions and if they are not.

We can handle that if there are we can handle that.

Our goal is to plan for the contingencies and think about the what ifs and be prepared for them. So that when they happen, we don't panic and overreact, we take thoughtful action against.

Against.

And what what might we may face and driving forward and I think that's that's the history that debt.

This team has demonstrated and will continue to demonstrate I'll, let Michael talk to the other parts of your question not much to add on that I mean, we are in my opinion really scratching the.

The surface on what we can achieve we have large initiatives that we are just now starting to tap into targeted marketing is a certain example of that on the supply chain work that can discuss so I certainly feel like there is a lot more that we can work on and do and a lot of it's foundational we're still on that phase of of operating the business with.

With respect to the cash and reiterate what we said in the past are a priority of stability managing through that and the <unk>.

Certain times, making sure. We're stable second is to fund our growth initiatives and then lastly, we will look at ways to return value back. Obviously, we were opportunistic last quarter, we were able to participate on the secondary offering and get the underwriting discount.

Count, which if you look at the way the stock has performed was a good decision and then we use the $100 million to help.

<unk> interest on our term loans, we will continue to look at those opportunities.

Thank you very much.

Thank you Michael.

And our next question.

From John <unk> with Guggenheim. Please proceed with your question.

Let me start with the.

The higher <unk> right over the last year year and a half.

Does that has that changed the new store model match maturation curve and your opinion.

And does it now open up real estate opportunities that.

It might not have existed.

2 years or more ago.

Well the higher Adv is really a function of mix again, the more outdoor products that we're selling that that's from.

Most of it and then of course, there's been some some price increases that we've taken and certain categories, but most of it is mix related.

Steve I don't know if you want to and.

Terms of hiring and yesterday.

Is mix related but as Michael said, we did have some cost pressures you know that was 1 of the questions are allowed and we pass on.

But if you go back and we were doing the Roadshow, we were talking about the mix on our business traditionally has been and up $50.50 soft goods hard goods, if you look at where.

We ended last year it was more like 57 and 43 hard goods.

Big ticket things and Theyre like kayak on say things like that that have driven that up and in terms of the real estate strategy. I mean look we're not we're not starving for places to grow I mean, we're only in 16 states. So we've got a lot of opportunity and our challenge is making sure we seek with just the right way and in a responsible way but.

We're.

We're not on organization, that's going to struggle to find good locations.

Within our existing markets and and and.

And new markets.

And maybe then as a follow up to that right. So.

Assuming the right the higher productivity holds for the most part.

And the only change.

Right and profitability would be normalization in promotions and.

And what's your point be that if I think about the supply chain opportunity, which sounds like it could be 50 to 100 basis points maybe.

That would equal or exceed.

Never you gave back on normalization and promotion is that does that.

Fair.

Sure.

<unk>.

I'd say, there's a couple of other puts and takes and there I mean, obviously, when we're talking about adding back and promotion Audi.

Whatever we would do would be thoughtful and probably wouldn't be going all the way back to where we were a year or 2 years ago at the same time at the same time there are cost pressures out there I mean, we talked about 2 and supply chain challenges with raw material shortages et.

Federer those are also creating.

Certainly mark.

Margin headwinds, we believe though that the initiatives that we have in place in terms of better planning allocation disciplines, better allocation and good better markdown management.

Better sales driving initiatives that are increased productivity of our stores and our inventory.

And all those things are going to be offsets to that increased promotion Allie should give us some margin headwinds, we just want to be careful and not set the expectation we're going to pick up 950 basis points on the next couple of quarters, that's probably not going on and again you still have.

The offset where we expect the merchandize mix to normalize over time, we're still a little heavy and.

The hard goods side of business right now.

Thank you.

Yes.

And our next question is from Greg <unk> with Evercore ISI. Please proceed with your question.

Thanks, Tom and 2 questions first on top line.

If.

If you look back 2 years, you're up I guess, 42%.

Is it fair to say that ticket and traffic both help that strongly or was there 1 that really dominated it.

It's a combination of both both average ticket and traffic are up and the actual number on a 2 year basis is up 47 per share all basket metrics are.

Oh, good metrics and up I imagine transaction accounts are also up double double digit versus a few years ago.

You'll transaction accounts are up yeah.

Okay.

But it was more average basket was a bigger part of the 47.

<unk> growth.

We haven't gone into detail on breaking it out we haven't broken it out like that.

Publicly but we had is as Michael said, all all of our measures.

Where we're up and and performing strongly again to get to get that kind of increase it takes you got to hit on all of them.

6 and you got to hit on all of <unk>.

And so I.

And I actually would have said hey, you.

Years ago, but nobody goes and 8 cylinder anymore. So.

So my second question is I think we got a lot on gross margin. It sounds like there's a lot here, that's foundational and still to come but the promotions are the biggest thing to go away. So I guess I wanted to go.

On SG&A on a little bit.

If you think about the flow through you got there. If you go back versus 2 years ago I have SG&A dollars up around 8% is that a fair kind of benchmark to think Ah and is there and it varied scenario, where SG&A dollars could be up 10, or 12% versus 2019 or.

It is about as high as it goes.

No I think you know on the SG&A side, there Theres nothing really there that's look we're benefiting from the leverage on the increased sales and then we're benefiting I think for me and a lot smarter with our labor scheduling and the stores and both of those things.

They're good and can stick around and yeah, we're making investments to.

To continue to make on.

And <unk>.

Our expenses more productive if you will.

Our labor scheduling system that we've put in place that will make our store labor and more productive.

And I'll talk.

We feel the paper.

Our productivity and our distribution centers the effort that we're putting in place with our roadmap to improve the efficiency of our supply chain.

We are.

The move that we're making and targeted marketing to make our marketing more efficient and.

And so.

And as we look at our expenses, we do not see the expenses growing as fast as our sales because we're going to make them more productive and elsewhere.

We're investing and yeah.

Another Great example, and our cost per unit to move things to the D. C is down.

Pretty significantly.

And if that's not happenstance, that's a function of your of the initiatives that we're working on there.

And so that substitutes and stick around.

And continue to improve because we're not through with it yet.

And Theres still room, there that's great. Thanks, and good luck guys. Thanks.

Thanks, Greg.

And that's the next question is from lavish on <unk>.

And he with credit Suisse. Please proceed with your question.

Hey, guys. Thank you for taking my question and my congrats on the quarter I had a follow up on the gross margin gross margin for the balance of the ear. So on the kind of get back on.

<unk> chain initiatives on a chest underway can.

Sure some update on the timing of these key initiatives through the year, especially as you lap all of these are not lap and in fact actually consider all of these incremental headwinds kind of basically persisting on the supply chain and site.

Yes, we are as I said, we are just now finishing up the roadmap and starting to.

And to put in place some of them some actions against that we will see some early results, but we will not see a lot of impact from the project. This year and we will start to see more of it next year and the following year I would jump and though and say that we're further along.

On a lot of the merchandising initiatives.

Round better planning better allocation and we do think that those impacts will definitely be help us here and having being held over the past 2 years.

Got it on 1 other quick follow up on working capital on debt.

And being able to leverage has been pretty steady and that 80% range.

And so if I look at balance on your end and into next year. What is next on the right.

Number to think about going forward.

I'm sorry could you repeat your question, we Couldnt, we lost you there for a second.

Sorry. So my question is on working capital, especially on the payables leverage has been around that.

80% ish range for the last 4 quarters now.

I mean going forward into the back half of this year and into next year and what sort of the right number to look at there.

Yes, we wouldn't expect any any frankly change to the payables.

And it's not a substantial change substantial change yet.

Thank you.

Thank you and living.

Yeah.

And we do and ladies and gentlemen, we do have time for 1 more question. Our next and last question is from John.

And I would.

Guo innovative capital. Please proceed with your question.

Hey, guys. Thanks.

And.

Yeah.

I was just going to I have 2 questions. The first 1 is a clarification question I'm estimating that sales per square foot on a 2 year basis, we're up 44% in the first quarter and I think you mentioned, 47% for comps.

Did you mean to tell us that the second quarter is running at a similar rate to the first quarter 2 year.

So what we when I said, 47% that's a 2 year comparison.

2.2019, so that's comparing 21 sales.

It's 2019.

Ken's comment and we try not to and don't give commentary inter quarter around whats happening. We are anchoring this year candidly off of 2019, and you know what when we talked about how we plan. This year, we talked about using the shape of 2019, because it's a more normalized sales curve and distribution with the size from 2020.

So when we go back and look and comparisons against 2019, we've seen strong trends through Q1, and looking back on that same sort of lens, we see those trends continuing.

Yeah.

Okay. Thank you and then.

My second question is longer term and nature. If you think about the change in the consumer.

Or and also your financial position relative to 18 months ago does this unlock any objectives.

Our plans for the business that you wouldn't have considered previously and what might those things Steve.

Hi.

<unk> 1 first from a vendor perspective, you think about the vendor relationships that we have today versus where we were several years ago you know the.

You talked about the improved financial strength of the company that's certainly unlocked.

A lot of doors for vendors with us.

And I would say that our partnership is probably the best it's ever been.

And we see this manifest and a couple of different ways from a from an availability of product perspective, we're getting better product offerings from our vendors we're getting.

New brands that are coming into the space for us.

We're seeing the vendors want to invest mutually and building a better in store presentation, along with a better digital footprint on our site.

We're getting better allocation of inventories that certainly helped us build our inventory is up this year and in some cases, we're getting better terms. So I would certainly say thats been a pretty big impact on the performance. The other 1 would be certainly with <unk>, we're getting on investments and the way that our new markets newer markets have performed.

Thank.

Next year, we're committed to the 8 to 10 new stores, but after that we are certainly rethinking our ability to grow a little faster and accelerate that.

And our ability to invest and the opportunities to continue to invest and improving our dot com capabilities our ability to.

Invest and the supply chain to make it stronger obviously, it's manage the growth that we've had but what we think is coming we will need more capability there.

The other thing I think that's important as 1 of the 1 of our.

Our merchandising and objectives was to do more better and best and we are stepping up and team sports with better balls and bats, and our vendor structure.

Things like Nike yoga, or putting in north face and all stores north face.

Campaign, and I was and our store the other day and.

Couple of where and Theyre looking at the north face sleeping bags and they said yes.

We started campaign now and we.

Some of your Magellan bags, but now that we're going to be more active and campaign, we thought that.

North face might be a better bank for us.

So we're.

<unk> seen significant opportunities from the success that we've had and.

I appreciate.

And the customer as they've come to us and new customers who come to us.

And what they want is that assortment that we offer.

Beginner to enthusiast and.

The great value that we offer with those items.

And we have reached the end of our question and answer session.

Now I would.

From I'd, just like to recap and thank everybody for participating on the call and.

The interest that I think we had a good set.

Set of questions.

We are very proud of what we've done and the team has done a terrific job and the first quarter, but we have.

Much more ahead of us and significant opportunity to grow and develop.

And all of our aspects and in terms of our real estate in terms of our dot com and terms of our operational effectiveness and.

It's not always going to go straight up to the sky.

And with.

We are and the early phases and we appreciate all those who are.

Shareholders, who are participating with us as we move the business ahead.

And feel confident that we've got the team we've got the strategy and we have the capabilities.

And to really become.

The best and the business and want to thank all of you for your support.

And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

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Yes.

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Yes.

Thank you.

And.

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Yes.

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