Q3 2021 Academy Sports and Outdoors Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Academy Sports and outdoors third quarter of fiscal year 2021 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.
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I will now turn the call over to Matt Hodges, Our Vice President of Investor Relations for Academy Sports and outdoors, Matt. Please go ahead.
Good morning, everyone and thank you for joining the Academy sports and outdoors third quarter 2021 results call today.
Just depending on the call are Ken Hicks, Chairman, President and CEO, Michael Mulligan Executive Vice President and CFO.
Steve Lawrence Executive Vice President Chief Merchandising Officer.
As a reminder, statements in today's earnings release, and the comments made by management. During this call maybe considered forward looking statements.
These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections.
These risks and uncertainties include but are not limited to the factors identified in the earnings release and in our 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.
Reconciliations to the most comparable GAAP measures are included in today's earnings release, which was provided on our Investor Relations website Investor start Academy Dot Com.
I will now turn the call over to Ken Hicks CEO.
Thank you Matt.
Morning, and thank you all for joining us today.
I want to start the call by thanking all of the Academy sports and outdoor team members for their continued hard work and commitment to our vision and mission to become the best sports and outdoors retailer in the country by providing fun for all.
You have met our challenges and raised expectations for the company.
One year ago, we hosted our first earnings call as a public company.
Since that time, we've improved our balance sheet and made tremendous progress against our key business priorities of building a stronger omnichannel business enhancing the customer shopping experience in store and online improving our merchandise planning and allocation capabilities.
Increasing targeted marketing.
And strengthening our supply chain.
These efforts have resulted in enormous success in 2021, and we believe there is much more to come as we continue to improve our merchandize processes develop new capabilities and open new stores to drive growth and profits.
We appreciate your support as we continue on this exciting journey.
Now I'll provide a high level overview of the third quarter, and then Michael and Steve will present more details about the results and our expectations for the fourth quarter.
During the third quarter. The team was resilient and delivered record financial results in the face of numerous challenges, including supply chain constraints transportation bottlenecks and to severe storms in our market.
Consumer demand was strong across all of our major project product categories.
Our customers are still centered on making healthy lasting lifestyle changes and having fun experiences with friends and family.
We are well positioned to meet their needs with a broad and diverse assortment of high quality value products from leading brands.
Total sales for the third quarter increased 18, 1% to a record $1.59 billion with comparable sales of 17, 9%.
On a two year basis sales grew 39, 1%.
These outstanding results represent nine consecutive quarters of positive comparable sales and are a direct outcome of the work done against our priorities.
The quarter included a robust back to school season in August and broad based growth in September and October led by apparel field team sports and athletic footwear sales.
We saw continued strength in our existing customer base as they shop more frequently.
<unk> more categories and spend more per trip.
This resulted in growth in our transactions and average ticket size and selling price compared to last year.
Overall, each of our product divisions and regions grew more than 20% compared to.
Q3 2020.
And we gained market share in each of our four product divisions across our entire footprint.
Ecommerce sales grew 25, 9%, which was significantly faster than the stores.
On a two year basis E comm sales increased 146, 6%.
We continue to enhance the sites capabilities, both from a backend functionality and a consumer facing perspective.
And expect omni channel to continue to grow faster than the stores over time.
We're especially pleased by the early traction of our Academy.
Which is now available to both Apple and Android users, we feel the customer will further leverage this new feature over the holiday selling season.
By operating more efficiently and effectively.
Tempered promotional environment, we achieved record gross margin of $568 million like most retailers. We saw an increase in freight cost what we're able to absorb the majority of them with higher merchandise margins, while maintaining our everyday value proposition for our customers.
As a result of our efforts for the third quarter, we reported adjusted net income of $164 $1 million and adjusted earnings per share of $1 75.
A significant milestone during the quarter was KKR completing a secondary offering selling its remaining shares of academy sports and outdoors common stock.
As part of this offering we repurchased and retired $4 5 million shares for approximately $200 million as part of the company's $500 million share repurchase program.
We also purchased approximately $50 million worth of shares in the open market during the third quarter, which signifies that returning capital to shareholders is one of our capital allocation priorities. In addition to growing the business.
Year to date Academy has repurchased and retired $8 9 million shares for approximately $350 million.
Looking ahead to the fourth quarter the team's persistent hard work with our key vendors such as Nike Adidas under armour, the north face in Colombia has put us in a strong position to meet the expected demand for the holiday season.
We're also in good shape, and our private label business, which makes up roughly 20% of our total sales.
Overall, our inventory is 22, 4% higher than prior year quarter and up.
18, 9% from last quarter.
From a customer perspective, our stores and ecommerce platform are prepared for holiday shoppers, we've improved the in store shopping experience, making it more fun and engaging and easier to shop with more local tailored products and the appropriate staffing levels.
We've also added features and functionality to our website and mobile app to create faster more seamless transactions that improved conversion and customer satisfaction.
We're pleased with the results of the quarter, thus far but there's still a tremendous amount of business to be done over the next several weeks our store teams and websites are ready to serve our customers. During this final push to Christmas.
All together, our best in class team healthy inventory position convenient engaging sales channels paired with strong consumer demand.
Hannah rational promotional environment give us optimism about the fourth quarter.
Therefore, we are raising our full year sales and earnings guidance.
I'll now turn the call over to Michael to review, our Q3 results and share our updated outlook Michael.
Thanks, Ken Good morning, everyone a record third quarter results clearly show that our business remains very strong academies customer proposition based on excellent customer service and a broad value based assortment that supports active healthy living continues to connect with new and existing customers.
Because of this connection this is the ninth consecutive quarter of positive comparable sales, including double digit increases for the last six quarters.
Also the fourth consecutive quarter that all four merchandising divisions achieved positive sales growth.
I'll review the record third quarter P&L, then discuss our updated 2021 guidance, which we are raising based on the strong results continued consumer demand and a healthier inventory position.
Net sales were 1.59 billion, an 18, 1% increase versus last year, and a 39, 1% increase compared to 2019.
Comparable sales were 17, 9% on top of last year's 16, 5% comp.
Our two year growth rate has been relatively consistent throughout the entire year.
Our business remains strong even with less stimulus dollars and the market fewer traveling dining restrictions and more retail competition compared to last year.
We believe theres been a lasting shifts in consumer spending and other sports and outdoor sector.
Blitzer Academy in good position to grow and increase market share because the products brands and value customers are looking for.
Customers are shopping more frequently across more categories and spending more than pre pandemic.
As a result, our transaction count and ticket size continued to grow in existing new and reactivated customer segments.
In fact, our transaction growth was significantly higher than our average ticket.
We are seeing the benefits of our targeted customer outreach such as direct marketing higher Academy credit card adoption and improved website personalization.
During the quarter. We also saw additional progress on our rapidly growing and profitable omni channel business.
Our ecommerce business grew 25, 9% when compared to Q3 2019 E comp sales increased 146, 6%.
The sales penetration rate was 8% compared to seven 5% in Q3, 2020, and four 5% in Q3 2019.
Buy online pick up in store remains a significant portion of our omni channel sales and continues to be a competitive differentiator for us.
As we have said before omni channel is a key strategic priority for us and we will continue to invest in this growth.
Based on current projections full year of 2021, Omnichannel sales are expected to be strong compared to 2020. This growth is expected to continue into 2022 as we expand our store footprint with eight to 10, new stores, which will complement our growing omnichannel business.
Yeah.
Like we have seen throughout 2021 merchandize margins were once again very strong led by disciplined pricing management margins benefited from less promotional activity and fewer markdowns.
This resulted in gross margin rate expansion of 250 basis points to 35, 2% and record third quarter gross margin of $568 million.
SG&A expenses were $344 7 million or 21, 6% of sales, which was 500 basis points lower than Q3, 2020, and 540 basis points lower than 2019.
Excluding costs related to the initial public offering from Q3 2020.
SG&A to get a proper comparison SG&A expenses decreased by 230 basis points, primarily attributable to workforce management advertising cost efficiencies and cross leverage from the strong sales growth.
Year to date SG&A expenses are 21, 3% of sales or 210 basis points below year to date 2020.
The record sales and margin results led to pre tax income up $205 3 million, a 250% increase compared to $2 $58 4 million last year.
GAAP net income for the quarter was $161 3 million.
GAAP diluted earnings per share increased 132, 4% to $1 72 per share compared to 74 per share in Q3 2020.
Pro forma adjusted net income, which excludes the impact of certain extraordinary items increased 122, 6% to $164 1 million.
Pro forma diluted earnings per share were $1 35 per share an increase of 92, 3% compared to 91 cents per share last year.
Looking at the balance sheet Academy ended the quarter in a healthy financial position with $400 million in cash and $982 million available under our credit facility during.
During the quarter, the company generated $84 million and adjusted free cash flow, while at the same time, improving our inventory position.
The ending inventory balance was $1 3 billion.
This is 22, 4% higher than the prior year third quarter. This is our strongest inventory positioned in two years and a testament to the entire academy team working together to keep product flowing despite the challenging environment.
Our supply chain is benefiting from academy status as a preferred vendor partner.
Our extensive vendor base and broad and diverse product assortment, our improved planning capabilities.
Our value for our valuable partnerships with the port of Houston, and Savannah, and our strong financial position and flexibility.
Okay.
Now onto our updated outlook for fiscal 2021.
Based on our third quarter results continued strong consumer trends and the visibility we have into Q4, we are raising our comparable sales forecast for the full year from up 14% to 17% to a range of about 17% to 18% on.
On a two year basis, this represents comp growth of 33% to 34%.
Our gross margin rate for the full year is expected to range from 33% to 34%.
Capital expenditures for full year expected to be approximately $90 million.
GAAP diluted earnings per share are now forecasted to range from $6.75 per share to $6 85 per share based on 94 5 million diluted weighted average shares outstanding for the full year.
Non-GAAP diluted earnings per share, which excludes the impact of certain extraordinary items are expected to range from $7.21 per share to $7.31 per share.
This guidance considers various outcomes for the remainder of the year given the uncertainty of the supply chain, the labor market, the impact of inflation and potentially more promotional and competitive marketplace.
While we are not providing fiscal 'twenty to fiscal 2022 guidance today, we are excited about our growth prospects and the continued performance of development of our sales and profit driving initiatives with that.
I will turn the call over to Steve for more details around merchandising and operations.
Thanks, Michael.
Michael did a great job of covering the financial highlights from the third quarter I'll now give you a little more color around our performance by category and by month as.
As was already covered we drove a 17, 9% comp increase versus 2020.
Probably the greatest enabler of this growth is our improving inventory position.
We started the quarter with inventory up 24% versus last year and the team worked hard to keep receipts flowing so that we can deliver improved in stocks fueled our sales within the quarter, while ensuring we are well positioned heading into the holiday season.
The end result was that we started the fourth quarter of inventory up 22% versus last year.
More importantly, the content and overall quality of this inventory is much more balanced versus last year heading into our peak weeks.
We're back in stock in most categories and we believe that we're well positioned to take advantage of the fourth quarter holiday traffic.
We saw continued solid growth across all four of our major divisions, our soft goods business comprised of apparel and footwear once again had the highest growth.
Apparel posted a largest comp for the quarter and up 25% versus 2020 and up 24% versus 2019.
Footwear from 17 comp versus 2020 was up 25% compared with 2019.
Both of these businesses search in August driven by back to school timing, which normalized across our footprint versus the delayed starts from last year.
We are well prepared and came into the quarter with healthy inventory positions. Most of our key branded partners such as Nike Adidas and the north face, which set us up to drive double digit comps in each of these brands.
Our key private brands in apparel and footwear, such as BCG Magellan outdoors and freely also grew by double digits.
The combination of both of these factors helped propel August the largest increase in the quarter.
As we moved into September and October we saw a licensed business accelerated college and pro football kicked off.
While still positive comp soften a little bit in September as we Anniversaried last years later back to school.
So we got into October we saw the business accelerate again, driven by fleece and outerwear sales sparked when the weather is starting to break.
Shifting gears to hard the hard goods side of the storm our sports direct business also drove a strong comp and up 8% versus 2020, plus 46% versus 2019.
The team sports business also benefited from the return it back to school across our footprint.
We delivered a double digit crop comp across all major sports, including football baseball and soccer as participation rates increase in E sports being played across all of our markets.
Our outdoor business also generated solid growth during third quarter, and plus 18% versus 2020, plus 59% versus 2019.
Camping and field businesses, both generated double digit growth driven by increased interest in outdoor activities, coupled with improved in stocks.
This helped us drive strong double digit comps in many of our key national brands, including Yeti, well, some rawlings as well as our key private brands such as Magellan outdoors.
On the margin front, we achieved a 35, 2% gross profit rate during the quarter, which was plus 250 basis points higher than last year.
We covered many of the key factors that continue to drive our merchandize margin growth in last quarter's call.
Quickly recap them first we continue to refine our allocation strategies, which are driving better localization efforts. This has helped us improve inventory productivity, while driving higher <unk> through better regular price selling.
Second.
A stronger sell through at regular price when coupled with our markdown optimization strategy has helped reduce the amount of goods were taking a clearance along with driving higher <unk> and better margins on our clearance. We do have third we're operating in a less promotional marketplace. This has allowed us to scale back discounts from high traffic time period, such as back to school or same as carried through in the fourth quarter.
<unk>.
The combination of all these improvements is allowing us to raise AUR and gross margins to not only offset the rising product and shipping costs, but to also deliver continued long term gross profit improvement.
We believe that many of the factors that have driven sales growth and margin improvement through the first three quarters of the year will continue and carry forward and allow us to keep our met them going into the fourth quarter.
Consumer demand for the sports and outdoor categories remains elevated and we see this continue forward into the fourth quarter and beyond.
We worked hard to build back our inventories and improve in stocks and are well positioned to take advantage of increased consumer spending.
He's done a great job in navigating all the supply chain disruptions and has worked hard to develop a flexible and robust pipeline of inventory that will ensure we continue to fuel cells through fourth quarter and into next year.
Next many brands continue to tighten their distribution strategies and as a preferred partner. This leaves us well positioned to casualty increased demand for our categories. Therefore, gaining market share along with attracting new consumers to our brand.
Also we continue to focus on the launch of new and innovative products and brands that resonate with our core consumer.
A great example of this was our water Burger plus Magellan outdoors collaboration which launched in the third quarter and saw a lot of shortly after being delivered.
One of the new ideas, we're going out from Q4 as the rollout of Yellowstone apparel all stars.
One of the hottest shows on TV and customer demand for this product is high.
We're also growing our outdoor cooking business by expanding into new categories, such as outdoor pizza ovens early tests on this product were successful. So we quickly secured the inventory we needed to really go after this item during the holiday season.
Another positive is our dotcom growth is accelerating and we expect it to continue to be a tailwind for us on a long term basis.
Finally.
We continue to refine and improve the overall effectiveness of our marketing spend through more targeted messaging.
This is yelling harder higher conversion rates, which is driving top line sales, while improving our overall marketing productivity.
As you can tell we've got a lot of exciting things going on here at Academy.
And we believe we're well positioned to carry momentum into the fourth quarter and beyond now I'd like to turn the call back over to Ken for some closing comments.
Thanks, Steve Michael.
We are proud of our quarter and year to date results and believe this momentum will continue we've successfully navigated numerous challenges and believe we are capable of tackling the ongoing supply chain disruptions.
We've built a strong foundation for the company pre pandemic, which has only strengthened over the last year and a half.
We're excited about the growth ahead of us as we focus on further investing in Omnichannel.
The overall customer experience in stores and online.
More targeted marketing and direct customer communication.
Enhancing our supply chain and opening stores.
Got it and he has a great future and we are prepared to execute to achieve it.
Well now open up the call for questions. Thank you.
The company will now open the call up for your questions to ask a question. Please press star one we will pause for a minute to wait for the question queue to fail.
Thank you. Our first question comes from the line of Ravi Owens.
Bank of America. Please proceed with your question.
Hi, good morning, guys.
Another great quarter really two questions I think Ken I know, you're not giving guidance on 2022, but could you maybe talk about.
You know, how we should think about puts and takes on things like stimulus rolling off.
What youre Anniversarying I know you've got a lot of momentum continuing into the fourth quarter here, but can you give us any thoughts.
Thank you said you are thinking about in terms of maybe how that first half back half might play out and then the second one maybe for Michael.
I think the guidance implies a little bit of a gross margin contraction in the fourth quarter could you kind of talk through.
Where the fourth quarter gross margin outlook or pressure versus last year, maybe different versus <unk>. Thanks.
Yes, Thanks Ravi.
You know next.
Next year well be like the last couple of years will be a challenging year. There are a number of.
Factors that will make it challenging.
Still continuous supply chain.
Issues at least through the first half.
We're seeing inflation.
However, usually inflation in the early period is a good thing for retail.
But you know the labor pressures and you know the consumer continues to be challenged that said, we feel that the programs that we've put in place position us well for the future. We've worked hard to ensure that we have the inventory to sell to overcome.
The supply chain issues, we're working hard to make sure that our product is priced properly and that we're giving the value to the consumer making sure that we really.
Chris on key items.
And key price points and at the same time, providing make improved making the product to me.
Make it worth whatever the customer may be paying more if they have to do that.
We feel that the.
Consumer will continue to want to be interested in their health and wellness and more importantly, fun. There's there's no doubt that it is.
Time in the world and we need more fun and Thats, what we deliver.
And then just the ability of the team to execute and achieve strong results. We have demonstrated that through a number of different.
Issues and challenges and I think we will continue to do that as we go forward. So we're very optimistic. We also have numerous significant growth opportunities will begin opening stores next year, we've got <unk>.
<unk> improvements in our Omnichannel business, and Youre seeing that grow faster than than the store and also faster than most of the competition and we are working hard on the other initiatives.
Have improved our operations such as supply chain, our planning allocation and our merchandising and targeted marketing. So we felt confident that we will be very competitive and have a have a strong future at.
At 2022 and beyond.
Thanks, that's really helpful. Yeah, Thanks, Michael Michael with respect to the.
The gross margin question in the fourth quarter look there are still challenges in the marketplace that we've got to consider certainly the supply chain has been tough we're winning there, but it's been a been a street fight to be quite Frank in the last quarter, we spoke about our ability to move the chips around the table with a diverse vendor base to get our products to our customers.
Products, they want and to our stores and we were able to do that not only the strong sales will build our inventory position that being said, it's still tough.
We also need to consider the impact of.
Inflation on consumer health and the potential for more promotion. The other thing that I'd add is the fourth quarter for us generally mixes more hard goods.
So there is a mix issue that that occurs in the fourth quarter that we tend to make up for throughout the remainder of the year.
Got it thanks, so much.
Thanks, Ravi I appreciate it.
Okay.
Our next question comes from the line of Greg Melick with Evercore ISI. Please proceed with your question.
Hi, Thanks.
Really two questions. One is on the gross margins if we look back over two years that the expansion just keeps getting larger.
Michael last quarter, you had talked about whether it be a a sort of normal settling rate a few hundred basis points lower could you could you frame that again, if any if your thoughts have changed on that in any way.
I don't think we have anything new to update there I mean, we are still thinking about it the same way and we're still seeing the same progress on our initiatives that would help drive that almost on a sustained basis. You know the one thing that that was a little different.
In the third quarter than we had planned as we didn't get the full benefit of the mix shift that we expected so that should help us going forward.
Got it and then the second is on capital allocation.
So we have the eight to 10 stores next year and I guess, you've done what 300 some million dollars of the 500 million buyback.
Do you expect that to become a more normal thing the buyback and how are you thinking about allocating the you know whatever it is $600 million of free cash flow now.
We'll continue to evaluate it and this deferral, it's 250 million that we've deployed so we still have about half of it left.
We'll continue to evaluate it as the business develops.
We will continue to make sure when financially stable.
We've got a number of investment opportunities one of them.
As stores and we see.
As we stated we're going to open.
Eight to 10 stores this year or this next year.
And we will evaluate that and the number could go up into in the future. We also are investing in.
Our dotcom business that that continues to be a good growth opportunity and as we build stores that will help us grow our dot com.
Seen store growth and dotcom growth go very much hand in hand, and work on things that will improve our operations such as supply chain and our planning and allocation systems and those will help both the topline and the bottomline.
Got it and I think as you start to do that eight to 10 stores a year, how should we think about the capex and P&L impact of that in terms of store opening costs in the P&L and obviously capital.
Well nothing I think due to update their prior to then we would discuss again the eight to 10 is our target for next year first store the vintage will be in Conyers, Georgia kind of helping round out our Atlanta market. So we're excited about it the one kind of <unk>.
<unk> nugget of information that we haven't previously provided is.
The store format will mirror, what we did in 2019 for 2019 vintage that vintage even though it's in its infancy.
And Greg I know you and I have toured that store. So those are the most productive stores in the chain from a sales per square footage standpoint in the last 10 years. So we're very optimistic about them, we pick the location from a capital spend.
At least $3 $5 million.
Is is how to think of the per store.
We're on track not only for 2022, but we have about that many locations identified for 2023 and as Ken said, we're looking to deploy capital and accelerate that potentially.
Great well, everyone have a great holiday.
You too.
Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.
Good morning people up with my question.
Michael you outlined a bunch of factors that we're mindful of for the fourth quarter, which guy to your gross margin outlook for the period are you already starting to see some of those policies play out in the P&L.
Alternatively.
You just tried to tried to frame what a conservative expectation is for the for the fourth quarter and along those lines your guidance implies.
<unk> stepped down.
Multi year stack basis, what would be driving that.
Well, there's a lot of the quarter still to go and we still have half of the quarter still to go in there roughly 15% a year out there. So we're going to do what we've done in the past and intake.
Our cautious view with all of that is changing in the marketplace. I mean, three weeks ago, we weren't talking about the Delta variant and we were talking about inflation in a much different way so.
We were off to a strong start we like the way the quarter is started but we want to maintain a cautious outlook when there's still so much left to go.
My follow up question as you have seen any borrowings declined about $14 million in the third quarter, you're going into a lot of SG&A leverage in the fourth quarter.
Some of this is coming from a workforce management.
Can you describe what that is further in <unk>.
Given all of the significant growth in sales and customers you've had how do you ensure that you maintain a top customer experience while trying to manage your P&L. Thank you yeah, we've spoken I think.
Great New great faith about the initiatives that we've deployed over the past few years and the benefit we expected them to deliver and better labor management and talent development is one of them and I'll tell you in a very challenging environment, Sam Johnson and the operations team. They were able to ensure our stores are well staffed we have been able to take hours out of the store by reducing the number of.
Tasks that team members perform at the same time be fully staffed and we delivered the best customer service stores.
Service scores that the organization has delivered frankly that we've ever had so we're very confident in what we're doing there. We do think we've got the best team in the business the folks in the blue shirts, and Thats, what its all about so.
I'm glad you noticed it but the G&A leverage that we delivered was because we've been managing the workforce will better yes.
If you think about it there are several different things that we've done one is with our new.
Schedule labor scheduling system.
We are scheduling people when we need them, so we're able to.
Have people there.
And during the hours when we need them rather than just.
Storage scheduling process and quite frankly, we've also put in some things for.
For the team members that.
In terms of the notification time that they have and their ability to.
Adjust their shifts.
With other team members.
Like so the team members are.
Are happier about that we also as.
As Michael said with some of the operational things, we're doing by flowing merchandise better and by not Overstocking the stores.
To focus more of that labor on the force or on the customer.
And the other another thing that we've done it with our enthusiast program is have people who are.
Really experts in the different areas.
And also staff the key areas that require assistance in the stores more than we used to so we've got more customer facing hours at the right time.
Understood.
If I could add one more follow up question quickly.
Your stock trades at a pretty low valuation.
And that the market assumes your sales and earnings are going to be down maybe not just next year, but the year. After recognizing you don't want to outline.
Expectations for 2022 would you be surprised given stimulus lap that moving to other category would you be surprised if your sales are down 10% or more next year would that be a surprising outcome to you.
Well first of all.
Go back to the start of your question, we don't control. The P. What we control is our performance and our performance has demonstrated quarter after quarter after quarter, we've now comps the comps the comps.
We can deliver during difficult times and challenging times, we are working hard to make sure that we continue to move forward.
And.
We will be thoughtful in our plans and thoughtful in what we forecast.
So we don't overextend ourselves at the same time.
We don't like to give up territory that we've already captured and we're going to do our damnedest to make sure that we deliver the appropriate results each quarter going forward Michael a couple more things just as we think about 2022 first consumer demand in the sports and outdoor category remains very strong.
Long.
Second we're taking share we've been taking share for a while.
We're optimistic about what the future holds for US there and I think third and probably most importantly, we're very confident in our initiatives and how theyre developing and what they deliver and we've talked for several years about our ability to expand gross margins and operating margins due to better merchandise and planning functions.
Utilizing machine learning tools, more localized and relevant product mix.
Better clearance of markdown discipline, we've delivered those things that we expect to continue to look at them, we've talked about Omnichannel Kim spoke there I mean.
We've talked in the second quarter and the first quarter that we probably need to take a step back to take two steps forward and we were able to do that this quarter with the growth that we delivered an omni channel both on a one year basis and a two year basis.
You know we talked about the initiatives, we have lined up for next year, which we really haven't even started new stores more targeted marketing.
Our supply chain. So we've got a lot to look forward to and regardless of what happens in the macro environment. We've got a very resilient business model and the best performing years that the company had prior to the past few whereas 2008 2009 to 2010, where the consumer was strained. So we believe being on the value end of the equation is a good place to be.
All in all environments.
Yeah.
Thank you very much and have a good holiday.
Thanks, Michael Youtube.
Our next question comes from the line of Chris <unk> with Jpmorgan. Please proceed with your question.
Thanks. Good morning, So I guess my my first question is as you talked about the ability to drive traffic just to rehash that how much did traffic drive of the total comp and you talked about a few different initiatives I don't know if you were going to wait those initiatives sort of in rank order in terms of.
Impac, how how would you how would you rate those.
Well the traffic.
Increased traffic was the major driver.
For for the results.
<unk> to more people, both new customers and existing customers, but we also have a lot of returning customers people, who hadn't shopped us for a while that's actually the groups that were.
Very excited about because they've come back.
And so we feel good about.
Traffic.
I would say probably first and foremost we got the product.
And products not only that they want that we're in stock much better start Steve talked about that on the call.
We're much better stock than we were last year at this time and last quarter. We also.
Our targeted marketing.
And is that that's been very helpful. The moves that we've made with our dot com business on both our site and the addition of the App has helped.
The addition of of operational capabilities both of us.
We now have shipped to store, we put that in place those those have helped.
The other search improvements on our site. So people can find things and know whether they're going to go to a store buy it online.
And the service level in the stores the stores are doing a great job as Michael mentioned, the highest service scores that we've ever had in a challenging environment.
<unk> really bringing the customer back so I think that there it's difficult to say this is the one is all of them working in concert to give our customers a great experience.
<unk> and assortment.
Got it and.
It sounds like you haven't are you know the consumer started earlier. This this holiday season to a prior question. It sounds like you're not seeing sort of this this big pull forward that maybe some other retailers are talking about would love to hear your comment on that.
Ken last year, he's sitting on a show me a good December and I'll show you a bad January I mean January you should have ran out of in stock in.
There was nothing to clear and you know what.
The comps really decelerated in the month of January so could you maybe contextualize.
How much of a slowdown in and how are you feeling given that you know so far the first half of the quarter. It sounds very good could we still have because we have a good January and a good December.
Yeah. This is Steve I'll try to jump in and answer that I mean, as we said on the call we're pretty pleased with how.
November started out you know it's a good start to Michael's point, we still have about a little over half quarter. I think still ahead of us so still a lot of a lot of game to be played but probably the difference between this year and last year was we were still dealing with some pretty big supply chain disruptions that youre going to not quite certain how high the demand was and what we have.
Proven I think over the last year as the team has been really resilient in building a.
The pipeline of inventory that allows us to flex up or flex down depending upon where the sales are so our anticipation would be heading.
Heading into next year, we're gonna be in a better inventory position. You know you think about categories like bikes for fitness equipment or fishing.
Those businesses surged in the summer last year, and then as we got back in stock for holiday sold out and we went into spring really broken out a lot of those categories, where we're really happy with our overall inventory levels and content and we think it's going to set us up well heading into spring and probably not have anywhere near the outs, we had last year.
And then any sort of cadence commentary as it played out could you remind us from last year.
I think you called it I mean last year in November December were strong January was a little it was probably the softest month of the quarter and it was really driven primarily by just running on fumes from an inventory perspective, our goal would be and we don't anticipate being in that same position this year.
That's great have a great holiday season, Thanks, guys Hi, Thank you very much Chris.
Yeah.
Our next question comes from the line of Kate Fitzsimons with Wells Fargo. Please proceed with your question.
Yes, hi, congratulations on the strong results and thanks for taking my question.
Just two quick ones I wanted to follow up on the supply chain commentary and just product availability comments that were just made.
And thank you feel good about future receipt, maybe looking ahead into 2022 in the spring season, maybe on the hard goods side, but just curious if you can give any read maybe on how you are feeling a bit more and perhaps on the athletic footwear side.
And then secondly, Ken just a higher level.
<unk>, obviously seen some outsized demand here through the pandemic ultimately when we see some sort of normalization in the category you know whatever that looks like in the end I guess in contrast.
I seem to have a lot of drivers on the productivity and margin front looking out. The next few years beyond 2022, just when you think about some of the key drivers that are under your control how would you frame them looking out the next three to five years. Thank you.
Hi, This is Steve I'll try to answer the first part and I'll, let Ken or Michael I'll answer the second part on supply chain I mean.
We're pretty pleased with our ability to manage through some of the disruptions I mean, obviously to start the quarter with inventory up around 24% ended up around 22%. We feel we're well positioned for holiday you know as you move forward to your point, probably the biggest challenge that was out there was Vietnam being shut down for almost two months.
Yeah, Yeah, I mean, you hit on it I mean, the categories that are most impacted that athletic footwear was the big one at this point, we've worked with most of our suppliers, we have really good visibility to what's coming what's not coming now.
That's really allowed us to go out and work with other alternative plans to try to make sure we've got the inventory to sales.
So we feel pretty good that we know what what is coming or not coming in we've got offsets.
I would also say, though that beneath the surface one of the things that's great about Academy is we have a we have a really balanced diversified portfolio of businesses and brands and so you know even in footwear.
We're a little light, where we'd like to be in athletic footwear, and we have a big workwear business, we have a big casual business. So we have other categories. We can lean into and then outside of footwear and apparel I mean, obviously, we had the hard goods category saline into so we feel confident we've got the pipeline of inventory to drive the sales and we're confident that we have enough offsets even if it's.
In a particular category or maybe a little light to have offset some other businesses. So right now we're feeling pretty good about that.
And again as a reminder, one of the things that we did see in the last quarter as the customer's willingness to trade between.
Between brands when we might have had in stock challenges and some brands from a footwear perspective that should help us.
Yeah with regard to you know.
So we feel that there will be challenge since there is no question in the first quarter of next year.
And in the second quarter for that matter.
But we feel that we are taking the appropriate steps to be best positioned and so one of the things I think it's important to understand is while they're there maybe.
Maybe.
Some pullback that doesn't necessarily mean, there will be a give back.
You know I I.
I'm old enough to remember when things didn't always grow in the high teens low twenties.
No.
He actually used to be a period of time, where they grew in the single digits.
And that that can be normal, but that's not bad that can still be good and we are well positioned for that to your question in looking at the long term.
The customers trend. This is a long term trend that will last for a long time in terms of health wellness fun experience. So we have that from the outside.
Physical <unk>.
Things that we're doing with the addition of stores we've got we're.
We're in 16 states with 259 stores, we haven't even in those 16 states several of the states only have 234 stores. So we have an opportunity for physical growth within our current footprint and then beyond and our format has proven as we've grown that this format works well.
Beyond just our core area we.
The dot com business that is underpenetrated that we see.
Being good growth of 100.
40% growth over the past two years.
But that as.
As we put more focus and make sure that we have a good site operational improvements in terms of making sure that we have the right staffing the right staff that we have the right goods in the right stores.
New operational methods like both us and ship to store and then communicating with the customers. We are in the early stages here of our targeted marketing in terms of the content and.
And how we talk to the customer what we talk to the customer and so when you look at the customer the physical opportunities. We have the operational improvements that we've put in place and our ability to communicate that with the customer.
You know I feel very very good about our future and what we're doing as a company.
And just as a reminder.
Okay.
Yes.
Ron that we're on and extend pre pandemic during the pandemic and now anniversarying the pandemic, where we've had consistent sales.
Earnings growth and margin expansion and we still have a lot to do to Ken's point and that's what we're excited about but certainly have big expectations for the future.
That's great best of luck for holiday.
You too.
Our next question comes from the line of Daniel Enbrel with Stephens. Please proceed with your question.
Yeah, Hey, good morning, guys. Thanks for taking my questions.
Kent I wanted to ask one on you mentioned, obviously some of the apparel companies are narrowing their distribution I'd be curious to hear your opinion on how that plays out longer term in this environment. When there's not enough inventory it seems like a great way to do it but do you think it's <expletive> as production improves and if the industry gets into an over inventory position. How do you think that plays out given the narrow.
Distribution.
Well I think it plays out well for us.
And we we.
We are benefiting and will continue to benefit both.
As they cut back on there.
You know some of their outlets because those outlets first of all don't present the proper.
<unk> as well as it should they don't have the customer base and in some cases they don't.
They have a tendency to be more promotional from our perspective, we will benefit from that and they view us as a an important outlet because we bring a different customer because we are the place where sports begins for so many people.
And you know longer term, whether they can reach their goals.
I'm, assuming that they're implementing the strategy. So they feel they can but from our perspective, we are.
Very happy to support them and grow with them.
And we're seeing good growth with our key branded vendors.
As they execute their strategy and I think they all realize they can't do it all themselves they need people like academy to support them to achieve their long range goals. There are others since they may not need but they know academy is important to them and we will work hard with them.
Steve and his team have developed great relationships.
And we will we will continue to grow and develop as they do for their strategy.
Can't answer for our strategy, we appreciate it.
That's helpful.
I guess a quick follow up on that Steve has the success of the Academy the last year and a half opened up in a new national brands that you can get in your store that maybe you couldn't previously and how is that changing your merchandising initiative, maybe private label versus national.
So yeah, I mean, obviously when.
Business is good people are.
More receptive to conversations I mean, we're always talking to new vendors I mean, a couple that we've launched this year I mean, when we spent some time earlier talking about was hydro flask that wasn't in our assortment before we added them in.
So we're pretty excited about that performance has been good we continue to talk to other brands out there I mean, some we'd probably aren't ready to share yet, but we will when we bring them in.
Allowed us to expand categories like.
Like North face, where it was unlimited stores to all stores and the more category. So it's definitely opening up doors for us and you know what what our customer has shown US is there is there is.
A robust appetite for newness new ideas, new things you know Thats why we call talked about our collaboration with lot of Burger.
Alan or we talked about you know getting <unk>.
Hello stone product out there or the only pizza ovens that we're selling right now.
It's definitely brought some of those brands, where things to the table and we'll continue to work on those.
In terms of shift between private label and National brands I mean, we decided the number it's right around 20% private brand, 80% National brand.
I don't see the percentage of private brand going down we've talked about maybe overtime. It settles in longer term in somewhere in that $75 25 ratio I don't see that changing.
In terms of anything that we've seen right now from an availability perspective, but we're always we're always going to be talking to new suppliers looking for new ideas and if its something that fits within our bookings makes sense for our customer will definitely bring it out.
Great. Thanks for all the color I'll stick to the one follow up rule and hop back in the queue. Thanks guys.
Thanks, Dan I appreciate it.
Okay.
Thank you, ladies and gentlemen, we have time for two more questions.
Our next question comes from the line of Seth Basham with Wedbush. Please proceed with your question.
Thanks, a lot good morning, Thanks for taking my question.
My first question is around inflation and just thinking about how much in placing contributed to the third quarter comp and how much do you expect to contribute to comps over the next couple of quarters.
So we said it on the call that the majority of the comp was driven by increased traffic to the stores.
We've also been very upfront I mean, I think it's widely publicized I mean, there are definitely cost increases.
The vendors are passed along to us or that were seeing on our own private brand, we're being very thoughtful.
Where and how we have taken price increases we view ourselves as a value provider in our space and we are very focused laser focused on making sure. We don't see that positioning and we make sure that we keep providing the customers a great quality and value that theyre looking for.
You know theres been some surgical moves we've taken a couple of items up here or there, but right now the vast majority of what we're seeing has come through traffic increases the places where we're actually getting AUR gains has been more from less promotions than anything else quite candidly I mean, the the pullback of the suppliers that was asked on an earlier call and <unk>.
Distribution is it really kind of rationalize the promotional environment out there.
And you know, we're seeing stronger sell throughs at regular price, which means less clearance.
And an overall healthier margin itself position for us. So that's what we're seeing in Canada most of the EUR increase.
Got it that's really helpful perspective, and just as a follow up to that can you mentioned that usually inflation in that early period.
The good thing for our retail when do you think the turning point might be.
Depends on how long and how high it gets [laughter].
Yes.
I think transitional has been taken out of the vocabulary.
But if it goes on for an extended period of time.
Like I said I'm old side.
We went through when it went for years.
That's a problem.
But we've had periods where we've had.
<unk>.
Let's call it intermediate inflation and that did not have a big impact that was actually.
Usually during a high growth period, so if it will really depend on how high and how long.
Fair enough. Thank you very much and happy holidays.
Thanks.
Our final question comes from the line of John <unk> with quell Datas capital. Please proceed with your question.
Hi, guys good morning, and thanks for taking.
Question.
I know this has been addressed a couple of ways, but.
As we sat here and we kind of think about academy in a simplistic view of it as a pandemic beneficiary and that therefore as the pandemic recedes, you get lower sales and margins and you've talked to.
A number of angles about why that might not be the case from.
Internal standpoint, and also what the vendors are doing from a distribution standpoint, and your customer I'm wondering if you could talk a little bit about specific innovation in categories.
That you think are coming down for.
For next year that you believe will drive customer excitement and repeat purchases are incremental purchases maybe specific categories that you think are.
We're going to help to drive business next year kind of irrespective of what goes on with the pandemic and the consumer thanks John.
John.
We were performing well before the pandemic, which is one of the reasons that gives us confidence and the other thing is it's a little more difficult for those who are outside of our market areas to see but.
If you've been to.
Our market and its not just Texas, or Florida, but you're in the Carolinas and in Arkansas.
Oklahoma, Mississippi, Alabama, they've for the most part have been opened.
And so they are I won't call them post pandemic because of the pandemic still here, but they are operating as they did before the pandemic and we're seeing significant growth in all of those areas. So that's one of the things that gives us confidence in terms of categories.
Things people are going to continue to build on the hobbies and habits and things that they've been doing and some of the new things that will help them and exercise equipment. We've got.
New connected exercise with I fit that's doing very very well.
And so that will bring in a new customer and also get a customer to upgrade and camping.
Steve mentioned.
North face we've added that in campaign and a number of stores, but we've also stepped up our efforts with Magellan and with Coleman that we will see more people who are going outdoors in camping and fishing, we've got a number of things that have improved.
Some of the fishing equipment, we have.
And so those areas and grilling.
Steve mentioned the.
Pizza oven you can cook a pizza in one minute.
You know I mean, so youre Cook in your state the kids have their pizza everybody's happy.
It's phenomenal phenomenal item, everybody, who has a grill should have a pizza oven and so those are some of the things that will drive big important categories as well as what we're seeing in apparel.
We continue to.
Some of the things vendors that Steve's working with it will be adding new apparel vendors are new freely private label, but also Nike yoga.
What we're doing with some of the new things from Adidas and under armour.
So I'm excited about what we've got in terms of newness and Steve.
Closer to it than I am no you hit on it I mean, we have a steady diet of newness coming from new brands.
Cross multiple categories brand expansions or extensions into new categories can brought up fishing, we've got some great brands like Google and Bubba blade, which are extending into other categories within fishing.
Got innovation and a lot of our private label, Ken mentioned some of the stuff, we're bringing in and camping outdoor cooking backyard living without a private brand mosaic, we're doing a whole brand relaunch on for spring.
We've got some new innovation coming in there. So that there is theres a lot of newness coming I think to really propel the business forward and keep the customer engaged with us.
Great. Thanks, very much for that answer and happy holidays to everyone.
Thanks, Sean.
Okay.
Well I appreciate the interest and the questions good questions.
Hopefully the the comments we gave you helped to answer those questions and we appreciate all the support from our shareholders and we look forward to.
As Michael said, we're off to a good start.
We anticipate that we will continue to have a good holiday season, and we've got a very bright future. We're in it for the long term and.
We've got a lot of good things working as I said I hope that everybody has a very very happy holidays, and a terrific new year.
You get a chance to shop at Academy, our Academy Dot Com. Thanks.
The holidays.
Thank you.
This concludes today's conference and you may disconnect your lines at this time.
Thank you for your participation and have a wonderful day.