Q4 2021 Academy Sports and Outdoors Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Academy Sports and outdoors fourth quarter and fiscal 2021 results conference call.
At this time this call is being recorded and all participants are in listen only mode.
Following his prepared remarks there'll be a brief question and answer session.
Questions will be limited to analysts and investors.
Please limit yourself to one question and one follow up.
I ask you a question during the call. Please press star one from your telephone keypad.
If you require any operator assistance during the call. Please press star zero.
I'll now turn the call over to Matt Hodges, 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 fourth quarter and fiscal 2021 results call.
Depending on the call are Ken Hicks, Chairman, President and CEO Michael <unk>.
Executive Vice President and CFO .
Steve Morris Executive Vice President and 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.
Conciliations to the most comparable GAAP measures are included in today's earnings release, which is provided on our Investor Relations website investors thought Academy Dot com.
I will now turn the call over to Ken Hicks.
Kim.
Thank you Matt.
And thank you all for joining us today.
I'm very proud to announce that Academy sports and outdoors delivered extraordinary results in 2021.
We were able to build on the momentum of 2020 and establish a new level of sales and profitability that will be our foundation for future growth.
Our ability to meet our customers' needs and achieve record results came from our multi year strategy that will drive long term growth and sustainable profitability.
In 2021, we achieved our highest sales and profits in the company's history, while successfully navigating what has been a very dynamic environment and retail.
We could not have achieved this level of success without the steadfast dedication of all of the Academy sports team members. So I want to thank and congratulate all of them for their accomplishments.
Heading into the holiday quarter, we had a strong plan in place, but knew we would have to execute at a high level and be adaptable to win a quarter.
Our team did just that and delivered record sales with growth of 13, 2% in the fourth quarter and 19, 1% for fiscal 2021 .
Comparable sales for the fourth quarter were 13, 1% and 18.9% for the full year.
E Commerce sales grew 22, 7% in the fourth quarter and six 2% for the full year.
All four geographical regions and our four major merchandise divisions apparel.
Footwear sports and recreation and outdoors had positive growth during the fourth quarter and all posted double digit sales growth for the full year.
We also grew market share across all of our regions as our stores continue to attract and retain a broader and more diverse customer base.
Over the past two years millions of people have purchased home fitness and outdoor equipment, such as bikes pickle ball fishing rods, barbecue grills or they started hiking or camping.
We believe that many people made lasting changes to their lifestyle priorities during the pandemic and we will continue to enjoy these new activities and hobbies. They started for many years to come.
They want to have more fun and fun is what we sell.
In addition, as consumers get out to our stores and shop us more frequently.
We're benefiting from the compounding effect.
They discover and purchase different product categories from us.
This behavior led to more transactions higher ticket and ultimately record sales.
This is confirmation that our broad selection price and value offering and assortment of top brands and quality private label products is attracting and retaining customers.
Steve will discuss our divisional results in more detail later in the call.
We also made tremendous progress against our 2021 key business priorities I would like to highlight a few of our notable accomplishments.
For Omni channel, we implemented improved search capabilities increased checkout speed.
Added more payment options and launched a new mobile app.
We focused on delivering a seamless and fully connected omnichannel experience via phone mobile App and Academy Dot Com in store curbside and buy online pick up in store for you.
Early results of these improvements have driven increased conversion and sales penetration rates.
Shortly half of our e-commerce sales, our buy online pick up in store and 75% of all E. Commerce sales are fulfilled through our stores, giving us a growing and profitable omni channel business.
To enhance the customer shopping experience, we focused on better service better looking stores and better products.
We increased our proportion of customer facing hours in stores reset the store layout and improve the assortments with more localized products with an emphasis unimportant categories and items.
We also created more relevant targeted marketing ads to increase customer engagement.
In addition, as a preferred partner for many great brands, we're able to offer a wide assortment of their best selling items for the year.
Sales of each of our top three largest national brands grew approximately 25%.
Overall, we increased the sales of nine of our top 10 national brands double digits. These shopping enhancements led to our team members, earning the highest customer service scores and academies history.
We also continued to enhance our merchandise planning and allocation capabilities to increase our inventory efficiency and optimize our markdown strategy to increase sales expand gross margin.
We have seen significant results as over the past two years, our gross margin rate has increased by more than 500 basis points.
The investments we've made in our data driven learning systems will continue to improve our capabilities in the future for pricing and replenishment.
In addition, we've taken measures to protect.
And strengthened our supply chain.
Today, our supply chain is more flexible from stronger relationships with shipping companies and better processes that we've put in place, allowing us to get the right product in stock at the right time.
The enhancements we've made across the organization helped drive net earnings of $142 million in the fourth quarter.
$671 million for fiscal 2021.
During 2021, we also significantly improved our balance sheet by reducing our adjusted net leverage by one turn and decreasing our net share count by approximately 5%.
Through $411 million in share repurchases.
On March three 2022, we announced the initiation of a quarterly cash dividend.
This marks a milestone for academy, resulting from our efforts to strengthen the balance sheet and the company's ability to generate sustainable cash flow.
This dividend and existing stock repurchase program demonstrates the confidence that our board and management team have in our ability to support our growth initiatives and the future performance of our business as well as our commitment to increasing total shareholder value.
Throughout 2021 we continued to serve the communities we operate in by supporting local nonprofits and responding to crises when needed such as providing essential supplies and monetary support when hurricane Ida impacted communities in our footprint.
We maximize our impact by supporting numerous partnerships with nonprofit and community based organizations, including first responders and military organizations Youth Sports leagues College and professional sports teams.
Major outdoor associations as well as our Academy gives initiative.
All of this great work Lee Jackson to 2022 with a much higher foundation with very strong momentum as we began an exciting new growth phase in our existing stores, omnichannel, and adding new stores and new markets.
I will now turn it over to Michael to review, our fourth quarter and full year financial results and to provide our outlook for 2022 Michael.
Thanks, Ken.
Everyone Academy sports and outdoors, once again delivered another quarter and year of record financial results.
<unk> 2021 we forecasted that we would drive sales and profit growth by successfully executing the strategic objectives that Ken just discussed and we consistently delivered all year.
In the fourth quarter net sales grew 13, 2% to a record $1 8 billion.
Comparable sales were 13, 1% on a one year comparison basis and 29, 2% on a two year comparison basis.
We have now delivered 10 consecutive quarters of positive comparable sales with the last seven quarter showing double digit growth.
Our ecommerce sales grew 22, 7% to $232 million for the quarter and increased six 2% to $625 million for the year.
E Commerce sales were 12, 9% of merchandise sales in Q4, and nine 3% for the year.
e-commerce growth accelerated through the back half of the year and we expect that growth to continue as we further refine and improve the academy Dot com experience.
Our record growth is driving market share gains across our geographic footprint.
These gains are attributable partially to the fact that many of our stores are located in the fastest growing markets in the United States. However, we are also gaining share as a result of our ability to source and replenish inventory more effectively than our competitors.
Our strong partnership status with major sports apparel and footwear brands.
Our investment in the outdoors consumer and the impact of certain vendors, who have consolidated their wholesale distribution.
Moving to gross margin for the quarter, our gross margin dollars were a record $584 million and our margin rate expanded 110 basis points to 32, 3%.
This was a result of higher merchandize margins for more regular price sales fewer promotions and a favorable product mix, which more than offset an increase in freight costs.
For the full year gross margin dollars were a record $2 4 billion or 35, 6% increase over 2020.
Our gross margin rate of 34, 7% highlights the outstanding planning allocation and supply chain work that was accomplished in an extremely dynamic retail environment.
We believe the majority of these margin gains are sustainable and have reset our margin rate to a new level.
Our disciplined approach to expense management is also contributing to our record performance.
Fourth quarter SG&A expenses were 21, 3% of sales, which was 110 basis points lower than Q4 2020.
For the full year SG&A expenses were also 21, 3% of sales or 180 basis points less in 2020.
Over the last two years, we have reduced our SG&A as a percentage of sales by 460 basis points.
When adjusted for the noncash equity based compensation expenses and other nonrecurring charges 2021, SG&A expenses were 25% of sales a 120 basis points lower than fiscal 2020.
Driven by strong sales growth and disciplined expense management, we achieved a record fourth quarter pretax income of $188 million and $860 million in pre tax income for the full year.
This was more than double our income for the last fiscal year.
Fourth quarter GAAP diluted earnings per share were $1.57, an increase of 62% over Q4 2020, when they were <unk> 97 per share.
Adjusted diluted earnings per share were $1.61, an increase of 48% over Q4 2020, when they were $1.09 per share.
Full year GAAP diluted earnings per share were $7 12, an increase of 88% compared to last year.
Adjusted diluted earnings per share were $7 60, an increase of 98% compared to last year.
If we look at 2021 store level sales and profitability sales per square foot grew 19% to $370 per square foot, which is higher than our closest competitors.
EBIT per store grew 113% to $3 5 million per store.
100% of our stores are profitable and accretive to earnings which gives us great confidence in our growth potential.
Looking at the balance sheet, we ended the fiscal year and strong financial position with 486 million in cash and no outstanding borrowings on our $1 billion credit facility.
We generated $141 million and adjusted free cash flow during the quarter and nearly 600 million for the full year.
The ending inventory balance was $1 2 billion, an 18% increase compared to 2020, which puts us in a strong position to service our customers in 2022.
We have significantly improved our balance sheet over the last two years through debt pay downs and repricing and we plan to use our improved position to drive long term growth.
As we have discussed before returning cash to shareholders is a key part of our long term capital allocation strategy, which is why we recently initiated a quarterly dividend.
The company also repurchased and retired $1 6 million shares for $66 million during the fourth quarter and repurchased 10 6 million shares for $411 million for the full year.
Now I'd like to talk about fiscal 2022 guidance.
We are seeing strong demand for sports and outdoor gear over the last two years and believe consumers that made it a lasting and meaningful shift towards wellness work life balance and making time to enjoy experiences with friends and family.
We believe this demand together with the successful execution of our 2022 key priorities will drive strong performance.
There are some macroeconomic headwinds that we will need to manage through the year, including inflation supply chain and stimulus overlaps.
Our financial performance over the last two years makes clear that we can effectively navigate through any challenge and we thoughtfully weighed the effect of each when we created our full year plan.
Given this we have built our initial 2022 guidance to reflect a range of potential scenarios.
For fiscal 2022 comparable sales are expected to range from down 4% to down 1% with Q1 being the toughest comp of the year as we anniversary a 39% comp in Q1 of 2021, which was boosted from significant government stimulus.
Our gross margin rate for the full year is expected to range from 33% to 33, 5%.
This is a 120 to 170 basis points less in fiscal 2021, but still 250 to 300 basis points higher than fiscal 2020.
The decrease from last year is primarily due to the expected return to a more normal retail environment in 2022.
We expect to have higher AUR offset by elevated supply chain costs and increased level of promotion.
GAAP diluted earnings per share are expected to range from $6 55 to $7 10 per share based on 95 million diluted weighted average shares outstanding for the full year.
This share does not include any potential future share repurchases.
non-GAAP diluted earnings per share, which excludes estimated stock comp expense of 20 million are expected to range from $6 70 to $7 25 per share.
We expect to generate $450 million to $500 million of free cash flow in 2022.
And total capital expenditures for 2022 are expected to be approximately $140 million.
In terms of capital allocation in 2022, we plan to open eight new stores complete several store Remodels fund ongoing and new growth initiatives and maintain our current assets.
We also expect to execute discretionary share repurchases in 2022, using the existing share repurchase program for which there is $189 million remaining.
With that I will now turn the call over to Steve for more details around merchandising and operations Steve.
Thanks, Michael.
At it by month quarter started very strong as we saw demand accelerate in November where we ran our highest comp in the fourth quarter.
There is considerable momentum in the first three weeks of the month fueled by early holiday shopping.
Finished at a high note with customers returning to stores for a record Black Friday week.
December also had a strong comp fueled by maintaining in stocks on key categories deeper into the selling season versus prior years, which allowed us to take advantage of last minute gift shopping.
January sales were up low single digits, which we're pleased with in light of our reduced ownership in clearance will also lapping around a singles payments from a year ago.
We had several new ideas that really shine during holiday, including new private brand initiatives, such as introducing freely women's plus sizes and redfield in hunting.
Also rolled out Yellowstone licensed apparel, and only pizza ovens to all our stores.
Additionally, sales drivers for the quarter included significant growth in gift card sales improved website personalization continued adoption and use of the academy credit card and better conversion from targeted customer marketing.
When you look at the fourth quarter sales performance by category, we had success across all four of our divisions on.
On the SaaS side of the business apparel around the largest increase of plus 20%, while footwear was up 14% versus 2020.
We also ran solid gains on the hard side of the business and the outdoor is up 10% versus 2020 and sports direct was up 8%.
Turning to margin we are pleased to see that our improved allocation and localization efforts helped drive the gross margin rate to 32, 3% or plus 110 basis points versus last year.
Another key part of the equation was strategically reducing promotions.
Sales accelerated in early November , which allowed us to pull back on both the number of promotions as well as the depth of the discounts offered during holiday and really lean into our everyday value messaging.
With the strong regular price sales around pre Christmas coupled with the work we've been doing around markdown optimization. We ended the season with less carryover than prior years, which translated into fewer clearance markdowns.
The end result was we managed to drive solid increases in both AUR as well as transaction count for the quarter, while still presenting a compelling value message to our shoppers.
As we look forward, we're aware of the near term headwinds in front of us, but believe it will carry our momentum forward into 2022 and continue to gain market share.
Built on the 2022 tailwind that Ken listed here. Some additional color that we believe will help us be successful.
First consumer demand for sports and outdoors categories remained strong in all of the inventory management supply chain work, we've done positions us to capitalize on its continued macroeconomic trend.
Balanced in depth of inventory across most categories, even the areas where the supply is still somewhat constrained we're in a much better position than we were all of last year.
In addition, our customer has an appetite for new and innovative products with several new launches coming in the spring and clean rollouts of up and coming brands, such as <unk> and variable in apparel and Blackstone and outdoor cooking.
We are also extending some existing brands into new categories, such as our new freely brand expanding into girls, our fishing brands, such as bothering, Google expanding the fishing rods and tackle.
Second as key vendor partners continue to pull back on broad distribution and narrowed our retail partners, telling the strongest brands like Academy. This funnel is more of their product as well as new customers into our stores.
Third as inflation impacts consumer spending we like our positioning as the value player in our space.
We believe that our everyday value price points help active young families stretch their dollars and participate in all of sports and outdoor activities are important to them without breaking the bank.
Fourth we're still in the middle innings in terms of harvesting all the benefits from our buying and planning and allocation initiatives.
Localization efforts, coupled with better by quantification and price optimization work should allow us to continue to drive sales gains by protecting our price leadership position while at the same time holding most of the margin gains from the past couple of years.
Finally, we're continuing to refine and improve the overall effectiveness of our marketing spend through more targeted messaging.
Our journey of migrating from a print and broadcast centric marketing plan to a mix of digital spend that will allow for greater flexibility, while also being much more targeted personalized and efficient.
This is having a profound impact on our ability to reactivate lapsed customers, which drove sales throughout 2021 and should continue into 2022.
As you can tell we have a lot of initiatives in place to carry our momentum forward. We're excited about the opportunities in 2022.
I'd like to turn the call back over to Ken for some closing comments Ken.
Thank you Steve as you've heard today, we believe we have significant long term tailwind that can be layered onto the structural operational improvements. We've made over the last couple of years to continue to drive our business higher and upset some of the macroeconomic headwinds facing the retail sector.
These tail wins include a lasting shifts in consumer demand for sports and outdoors merchandised, coupled with fewer retailers emphasizing the sports and outdoors category.
Having a broad assortment of best selling national and private label brands and products with strong values that appeal to a wide consumer base.
Significant growth opportunities through enhancing our overall store and omnichannel experience, along with opening new stores in the fastest growing markets.
As we enter 2022, our vision remains the same to be the best sports and outdoor retailer in the country. We will do this by focusing on our key priorities first creating a consistent and meaningful omnichannel business that delivers a true omnichannel experience for our customers.
Second growing our store base to strengthen existing markets and enter new markets successfully starting with eight stores. This year with the goal of opening 80 to 100 stores over the next five years.
And third providing a great customer experience across all of our points of contact to drive customer loyalty and long term growth.
We will support our continued growth by maintaining and scaling our capabilities.
Strengthening the efficiency and effectiveness of our supply chain and.
And developing and retaining and industry leading retail team.
We believe our strategic priorities will help us continue to drive productivity to increase sales and profits for years to come.
We are excited and confident about the future.
We have established a strong retail foundation by delivering record results.
We have market momentum.
And we are starting a new growth phase with the opening of our first new store in two years next month.
Thank you and we'll now open up the call for questions.
Yeah.
Yes.
The company will now open the call for your questions.
So asking your question. Please press star one we'll pause for a minute to wait for the huge FL.
Okay.
Your first question is coming from the line of Kate Mcshane with Goldman Sachs.
Hi, good morning, Thanks for taking our question.
I Wonder if I could ask about the promotional environment in 2022, and how you expect the cadence of that to be as we go throughout the year and can you give us a picture as to what to work could look like when promotions do come back more in earnest and how it will differ from what we saw in 2019.
Yeah.
Hey, Kate this is Steve I'll try to answer that.
So far we haven't seen a return to kind of the promotional environment. We saw several years ago I mean, we definitely last year.
Saw a pullback we haven't seen that change so far this year, we do anticipate as we get deeper into the year that it is possible for some more promotions to creep N.
Hence the guidance Michael guided our gross margin. This year is going to be somewhere between 33 to 30 35 implies about 120 basis point to 170 basis point decline some of that supply chain some of thats, giving us a little bit ability to promote.
That being said you know we still plan on holding on to the vast majority of the margin gains that we've made over the past couple of years.
We've got you know improved allocations better markdown optimization.
Lower clearance levels, all those things are helping us private brand is creeping up as a percentage of total.
So we really feel like we have a good basis with all the planning allocation and by quantification of work we've done to hold on to most of the games, but we do have a little bit of.
Promotions built in for this year.
This is Ken.
We will continue to be the value.
Player in our space and we offer.
Everyday values. So they are important and we're not as promotional as some of the competition and quite frankly some of the more promotional competition has.
Laughter or downplay their position in the market.
Thank you.
The next question comes from the line of Chris Whoever's with J P. Morgan.
Thanks. Good morning, guys can you talk a little bit about.
How are you thinking about the shape of the top line over the year.
What are you seeing as you as you lap through stimulus and and are there any indications that inflation and uncertainty are impacting sales whether that trade down towards more opening price point, you know less big ticket sales are perhaps slowing growth CAGR you know relative to 2019.
<unk> 2019.
Hey, Chris This is Steve I'll start and I'm sure Michael can jump in.
I would tell you that the majority of the increase that we saw.
In the back half they really came from a combination of increased traffic and transactions. So are the transaction and traffic count.
We did see some AUR increase that was primarily through reduced promotions less clearance.
As we get into this year in terms of how we think about it I mean, obviously we guided.
But down four to down one when you think about the shape of the year.
You got to really kind of think about how last year played out Q1 was the largest.
The largest quarter, we added up 39% from a game perspective Q2 was up 11 in Q3 was up 18 Q4 was up 13, so as we thought about this year our performance year to date as is implied in that guidance and we'd probably be based off of how we saw the business perform last year. Knowing that this is probably the toughest quarter comp we're going to be up against.
Now I don't have a lot to add the weekly volume has been pretty consistent we're obviously pretty deep in the quarter. They also were very comfortable with the guidance that we've provided more broadly with respect to your question on inflation. We've obviously done a lot in the business that have helped us manage here, we've made adjustments to walk through our products that allow us to do frankly a charger.
Charge, a little more by adding value to the products, we've talked about that in the past on the labor side Theres certainly inflation in the labor market. We've done a lot in our stores to manage labor better reducing non customer facing hours in giving more hours to the customer we feel like we're in a pretty good position there and I think more importantly are in an inflationary environment.
Ironman value is really important to customers and we're known for value. So we feel like we're in a good lane and we're comfortable with the guidance that we've provided.
Got it and then in following up on Kate's question earlier. Similarly, you would think that.
The freight pressures are worse.
In the first half of the year, while you seem to be baking in the promotions more as the year progresses. So is there anything unique in terms of how we should we should think about modeling that gross margin cadence over the year.
No I don't think there's anything unique about it we will.
We're planning on 120 to 170 basis points of gross margin deleverage I would think of it roughly a third of that freight and a third and two thirds of it you know contemplate some level of increased promotion, but again.
In general.
Value oriented.
And we will be less promotional interferes yeah, just to be clear Ken Ken said this earlier I mean, where what are the value provided in our space and that was something that we really leaned into in fourth quarter and we're going to really watch. This as we go through and our goal is to not be the first person to add back in promotion. So far we haven't seen the need to do that and our goal would be to hold the powder.
Not leaned into that too much.
Thank you very much.
Thanks, Chris.
The next question is coming from the line of Brian Nagel with Oppenheimer.
Hi, good morning, congratulations on another nice quarter.
Thank you.
So a couple of questions first off just I guess, maybe a longer term perspective can you talk a lot about just the efforts to it.
<unk> the significant effort has been undertaken to really to enhance the business model. So should we think about not just 'twenty two but beyond 'twenty two 'twenty three 'twenty four or is the is the academy bought model now the investments made in repositioning guide to drive sustain your sustained improvement over multiple years.
Yeah, Brian we have made a number of improvements in multiple areas for example.
Our planning and allocation we've made a lot of the investments we still continue to make investments in that.
And the good thing about those from what I've seen in other places said ive been those improve.
Improve over time, so we will continue to get benefits.
And we will continue to add capabilities.
Just finished.
Adding a major capability to their planning and allocation organization last week. We completed a project. We also are just now really starting on our efforts in supply chain.
And that will take several.
Several years to work our way through all the processes and systems that we're looking to put in place there so longer term, that's an even longer term and then in our dot.
Dot com business, we're putting in place a number of of initiatives and we literally every week, we're adding a new capability or a new element to our dot com to improve our performance there and given.
The.
Shifts and changes that occur in that business, we will continue to make investments in that so.
The good news is we're seeing the benefits of the things we're doing the better news is that they're even more to come and they will continue to add both to our capabilities.
And.
Our performance over the next several years. So this is this is a long term.
Approach and one of the things that.
I said.
Several years ago, one of the causes this is something that's going to take literally years for us to get to where we are we're still.
They won't let me use checkers anymore, so I'll use earnings.
We're still in the in the probably the third inning.
All of the things that we want to do so there's a lot of the game ahead of US we still got.
Haven't even embedded through the hole, we're just not adding through the the order. The second time. So we've got we've got a lot of capability.
Ahead of Us and we're excited about the future.
One thing that I would take a second just to make sure.
We talk about growth and we have had two really tremendous years.
You know when you look at where we are.
This year is a year or two as you know stabilize at the very high Foundation, we've gone from Galveston.
Two the Rocky Mountains, and where we're in a new elevation, we're not going to go back to Galveston.
It's a great city, we've got a great store there I was there this weekend, but we're not going back to Galveston, we're going to continue to.
To go to even higher heights.
<unk>.
This year, we are building the foundation with our stores in our current business, we're going to see continued strong growth in our dot com.
We're implementing a whole new tool.
With the opening of stores this year and we're excited about that and as I said when you look at the new store opportunity for us.
We're just beginning with eight stores. This year, we'll have 80 to 100 over the next several years and then there's more beyond that.
That's a lot.
To your question, but hopefully I answered it.
Great I appreciate it that's great I appreciate all the color there.
One follow up question I have on a separate topic as follow ups too.
It will fall to Kate Christmas question, too, but with respect to promotions. So as you look at the environment.
I guess youre, saying when the guidance you've kind of baked in the potential for some returned the promotions youre not seen it yet.
What what what does potentially change structurally.
Either the competitive landscape your relationship with your key vendors that could keep it could help to keep promotional activity more muted as we pull away from Covid Republic, we supply chain that had been historically.
I'll start and then I'll, let Steve fill in there there are several things that have changed.
One is our capability with planning and allocation we have.
You know we used to just load up the stores and really didn't pay much attention to.
The sell throughs and when to take markdowns were marking down football cleats and the spring season, and then there is no market for football cleats and spring. So our planning and allocation has helped US we don't call clear.
Clearance necessarily promotion, but it is a promotion the customer views it as a promotion. So our planning allocation has helped us so systematically we've done things there.
<unk> are some of the people who were the heaviest promoters in the business have moved out.
Either be cut by choice by the fact that they're out of business or because vendors have have done a better job managing the distribution of third.
Third thing I think that's very important.
Is that as you look it up.
The current supply situation, there's just not enough goods to do as much promotion as historically people would have and the assurance that you're going to have the merchandise isn't as good as it is it was that will work its way out overtime and Thats one of the things quite frankly.
You know, Steve when he talks about putting promotion in as a supply chain improves.
That situation will change, but those are three big changes.
And the fourth thing is something that I've mentioned earlier, we are a value player. We are prices on many items.
Really good prices every day and it's not to say, we still don't have our hot deals periodically, but our our items and prices are really good prices every day.
For our customers and they realize that and that's why when you go to our stores. We have traffic every day and not just during promotional events and I'll, Steve do you want to yeah, I'll add a couple of things to that Ken talked about better markdown optimization.
Key capabilities better by quantification, we are buying better smarter upfront.
And we're allocating better upfront so that means we have less carryover on the backend.
We havent normalized mix when we did the IPO, we talked a lot about the fact that we're about 50% hard goods, 50% soft goods and we'd been operating somewhere in that 55% to 56 range.
Good side of the business, which has a lower margin profile has been a bigger percentage of total, but we think that's going to normalize over time and as apparel and footwear creep.
Creep back closer to more historical normalized mix, we think that there's some tailwind there and then targeted marketing we really have done a fundamental change on our marketing where we used to be very traditional broadcast print centric and we flip that to be very digital and focus and thats, allowing us to be a lot more targeted so even when we do offer.
Once we know which cohorts respond to discounts, which don't are being very selective in terms of how we market to those customers versus broad blasting discount messaging out there. So we think all of those things in conjunction with what <unk> talked about are going to help us sustain the margins.
Right.
That's very helpful. Thank you very much.
Next question is from the line of Seth Basham with Wedbush Securities. Please proceed with your question.
Thanks, a lot and good morning. My first question is a follow up on one of the points that you just made in terms of the last two years in that gross margin improvement.
You quantified how much has been driven by improved allocation in key brands and more limited distribution of key brands.
I don't think we've broken that out.
A mix of multiple things.
I would say certainly the controlled distribution has helped I mean that it hasn't hurt us by any means so having fewer people out there and candidly the people lost access to the brands as Kenneth said tended to be the people who discounted the brands that definitely has helped but I would tell you that we really when we look at it believes that the lion's share of the gains have come through better planning and allocation disciplines.
Through the better by quantification through the better price optimization work, we've done that that's really where the gains have come.
It's just the way that we look at it if you compare back to 19 about 500 basis points gross margin is due to.
The things that Steve talked about the <unk>.
Bulk of which is lower promotion and I'd say, probably another large percentage of it is price optimization.
Yeah.
Okay.
Okay. That's helpful and then as a follow up in terms of restricted distribution is key brands do you see a risk that a S. L could lose any key brands as our vendors think differently about the ways to distribute their products.
Actually no we don't have a lot of concern to that we're actually seeing the opposite of that where.
Brands are coming to us and wanted to open up distribution to us and we talked about on the call. We're watching a couple of newer brands Chubb is available this spring.
Watching Blackstone and grill, so we're actually having the opposite impact as the business has gotten stronger over the past couple of years.
We've had more and more brands come to us and I'll tell you our relationship with our key partners like Nike under armour, Adidas North face Columbia.
Never been stronger never been stronger, we're really happy with where we're sitting with those guys today.
Great to hear thanks, a lot and good luck.
Thank you.
Our next questions from them.
The line of Michael Lasser with UBS.
Good morning, Thanks, a lot for taking my question.
Since stock right now is trading around five times.
The midpoint of the guidance that you laid out for this year. So obviously.
Getting that it doesn't have confidence in the long term sustainability of your sales and margin and if you look back at 2019.
Academy generated adjusted <unk> adjusted operating income of around $200 million last year that went up to more than $900 million.
This year, it's going to be north of the $800 million.
Is there a number a basic level of operating income that this business can produce even if consumers were to.
E a full wallet share shift back to the categories that they had engaged in previously if there was a tougher macroeconomic environment.
To provide some quantity quantitative thing for all of these initiatives that you've already done and all of the initiatives that you will do from here like the supply chain and like adding new stores is it $500 million is at $600 million, how do you think about that.
Let me, let me start and then I'll turn the.
Details over to Michael.
You know history.
As you say you know your disclaimers is not always the best predictor of the future.
We were a different company.
You know before this team team and all of the changes that we've been talking about have happened and those changes are long term fundamental changes and we've moved.
The company up and the foundation of the company and that is what gives us the confidence that we can continue to grow and develop our what we're doing and the consumer has responded positively.
To those changes and the business has responded positively and I'll, let Michael talk about some of the details on that okay. It actually I don't have a lot that different companies different team different environment, we've been successfully executing our initiatives before the pandemic, we successfully executed on during the pandemic and now ready.
So we're going to post pandemic, it's our 10th straight quarter of delivering.
Positive.
Same store sales and there is still more to work on I mean, I think that's the exciting thing is there's still a lot of stuff that we can still work on here to drive.
Good results.
It's tough to say what the floor as I can tell you that our guidance contemplates a range of scenarios and we're very comfortable with the guidance.
Understood.
Got a good strategy.
Good.
Good plan ahead of us with the priorities for this year.
And we are we will be looking at that strategy, because we will have achieved the goals.
This year.
We're ahead of what the what the original plan was.
We'll be looking at again this year.
And I think that you know.
We feel good about where we are.
There are some things we haven't even started to really work on like supply chain.
So this this is this is a long term story. This is you know it's a good time to get in and it was a good time of 13. It was a good time.
30, it's it's a good time at 40, because we're going to continue to grow and develop.
The business and we.
We're excited about our future and you know.
Put our money, where our mouth is we're investing in the business to grow.
Makes sense my follow up question is there is so much focus on short term indications around what is going to happen with the consumer there's a lot of crosscurrents right now between lapping stimulated.
Inflation wallet share shift geopolitical uncertainty.
You've got a unique perch in understanding how some of them.
The dynamics are going to unfold, especially on the heels of some.
Data points that are suggesting that maybe the consumers starting to change behaviors like trigger grills.
He said they've seen a changes in the last three weeks.
Are there any data points any indications by category price point to suggest that the consumer is starting to show some wavering in spending at least in certain areas or alternatively because.
<unk> does offer a lower price point, youre seeing a trade down or treat around benefit that might be masking some of the underlying dynamics in the marketplace.
I think your last point is kind of one of the things that we anchor off of we you've heard us say multiple times on the call today.
Where the value provided in our space and we like that positioning.
We believe we hit the broadest cross section of America active young families with the price points that we offer and we believe that we're well positioned in times of uncertainty to grab share I mean that certainly happened back.
During the recession and <unk> nine that where some of those were some of the best years that Academy had.
And you know as we went through the pandemic everybody is worried about what was going to have with all the uncertainty and obviously you know what happened there we picked up a ton of share. So we really like where we're positioned.
With our consumer and so.
So far we've managed to navigate all these uncertainties stay in stock and satisfy the customer and we like our odds of doing that in the future.
Just to just to add to that the other thing that.
We offer is.
Our breadth of assortment and breadth of merchandise.
Well, we're one part of the business may slow down our breadth of offering allows us to serve the customer in another area. We also as Steve says, we we offer that value customer the opportunity one of the things that Steve and his team has done.
They haven't increased our level at that better and best also so we trade.
We can trade up during times of we can trade the customer can trade down with us.
We've got businesses that offset other businesses, which is very important whereas some of the competition is much more confined where they are both in terms of the price points. They serve and the customer segments. They serve we have that breadth gives us the ability to weather some of the storm because to your point.
There are businesses that.
Have slowed down some they will come back that said, we've got businesses that can offset them.
During the time that they are down and so.
Can help us weather through some of the challenging times. That's one of the reasons quite frankly this year is a little bit of that.
Stabilization year.
But with the with the new stores with the dotcom and the things we're doing in our stores, we see them continuing.
To provide growth opportunities now and in the future.
Okay. Thank you very much and good luck.
Thanks, Mike.
Our next question is from the line of Daniel <unk> with Stephens.
Yeah, Hey, good morning, guys. Thanks for taking the questions.
Michael I wanted to dig in and we've talked a lot about gross margin initiatives. This morning, but we haven't really touched on SG&A. Obviously, you mentioned in your prepared remarks that wages are kind of a pressure, but how are you thinking about SG&A margin. This year and then what initiatives you kind of have in the pipeline over the next couple of years to maybe improve that cost profile as we navigate this period of higher.
Inflation. Thanks.
We're planning to leverage G&A this year and a lot of that due to you know our store teams managing their labor more effectively but even with the wage pressures, we're planning to lever there largely because we're going to have the benefit of some nonrecurring stock comp and some other compensation.
That hit Us this year, but we're planning to lever.
And there are things initiatives that we have underway.
For example, in our distribution centers, we put in a pay for performance.
It.
We will allow our team members to make up to a $1 $2 more but we will benefit because we will get more productivity out of them I talked literally this morning to one of our general managers at our twigs distribution facility about the program and her belief in it in ways that we can make it even better.
The initiatives that we're looking at in the supply chain will help us with SG&A.
And some in some respects.
We have this is a company that is very.
<unk> expense conscious and watches it very closely Michael make sure we keep in line and we make sure that we're doing the right thing there and not letting it get ahead of.
Of the business and that's consistent with what we've been saying for a while that we believed we could lever off a flat comp and even slightly negative and so as the year is shaping up we were very confident about.
Yep, that's great to hear thanks for the update and then just digging into you mentioned earlier can you know E. Commerce continues to be somewhere you guys are reiterating I think you guys rolled out a new website redesign last year anything in the pipeline. This year in terms of initiatives that are coming that could help drive those sales and then maybe taking a step back I mean.
What percentage of the business is the right mix to be online in this industry is going to be more buy online pick up in store or what do you think that looks like when we you know finish this up I'm sorry, Daniel go ahead and finish out.
Go ahead of you.
We have we view I will let the customer decide what the percentages are we're not going to set a percentage it probably will be.
<unk>.
High teens, 20% range a lot of them because of what we sell a lot of that will be store related.
Because of buy online pick up in store, we've added a ship to store.
Two our capabilities. We're now also looking at a store to store. So we can move inventory to get it to the customer we implemented four pay we're putting in place a new search capability with new taxonomy.
It's a new word I I learned that says you know CUNA Award.
You know and where we.
We're doing things.
You know literally.
I sit down.
With with Jamie.
Trey week, who runs our dotcom business every week and we talk about the progress, we're making on things to make it one.
More exciting and easier for the customer with new content.
And new capabilities to better connect to the stores, she and Sam Johnson, our head of stores top constantly and work to make sure that we are true omni channel when we talk about it that's not lip service we are true omni channel.
Great. That's really helpful Best of luck guys.
Thank you. Thank you.
Yeah.
Our next question is from Atlanta, Oliver when tomato with Evercore. Please proceed with your question.
Yeah good morning.
I assume the lower gross margin range corresponds with a negative four comp, but let's say the comp is it is lower than four is there is there anything that we should think of on promotions do you get more promotional to to boost the comp or would you just about the comp drop.
Further than the negative four and then on the SG&A line do you see anything that you could offset to to to have debt to delever.
Deleverage more.
C J I'll take the first one yeah I mean, we feel like we've got the appropriate level of promotions built into the forecast.
To cover the guidance and maybe even a little bit below that.
Candidly, what we're what we're hoping and believe could happen is that things continue to play out scarcity in the marketplace.
People not fully back in stock.
And not have to lean into that promotion. So I don't feel like there's more promotional upside than what we have baked in based off what we're seeing today.
Yeah on the G&A side I'll, just reiterate what I said a couple of minutes ago, I think we're pretty comfortable with the work that we've done there as an organization obviously the big lever you have if your sales decrease you would manage your labor accordingly, and our teams do that very very well again.
Very comfortable with the guidance that we provided and we feel like we're not going to be in that position, but I think this company has proven it can be very nimble when it needs to be.
Very good and just as a follow up quickly on the capital allocation side at the 400 million buybacks last year is that a level that you guys are comfortable with now with the dividend and to leverage ratio, where it is or if you could just give us a little bit more details onto the capital allocation for 2022.
Well I think we're generating enough cash where we really believe we can have you do everything approach to capital allocation fund and accelerate our growth initiatives as Ken talked about 80 to 100 stores over the next.
Five years, and we think we can play many different constituents and broadened our shareholder base, we have $189 million remaining.
We certainly plan to utilize it.
We've used.
Used more cash to repurchase stock.
Stock in the past 18 months that we raised in the IPO.
And as long as we're continuing to put big results on the board to generate cash we will deploy the buybacks accordingly.
Got it thanks, very much and good luck.
Yeah.
Our next question is from the line of Ravi almost with Bank of America.
Oh, Hey, guys. Thanks for taking my questions. Just a few follow ups just one on the product mix outlook for 2022, I I might have missed it but is product mix expected to be a gross margin.
<unk> in 2022 and.
Would that mean that apparel and footwear is going to continue to lead in 2022.
We've actually planning the mix for 2022 exactly the way we planned it last year. So the benefit we would expect to receive in future years from from the mixed but not from this year.
Gotcha and then.
There's a debate out there about how low income your customer is and.
Can you just you answered it a little bit and maybe a little bit more remind us you know issue or do you have a lot of exposure to the to the lowest income consumer.
Because I think that one of the concerns out there is that.
You you you you do and therefore that may be the consumer that comes under the most pressure in this inflationary environment.
Yeah, well, while we.
If the lowest income the bottom quintile Dubai.
And you know sports and outdoors, it's probably from us, but they are not the majority of our customers. The majority of our customers are the middle Quintiles.
That's who we serve because the bottom quintile quite frankly, they're just they're trying to survive, but the middle Quintiles is is where which is you know obviously the majority of the population.
That 60% is really where we are and where our customers are and you know they will feel the pressure with everyone else, but I think.
That.
If they want to.
Participate there or they're going to participate in and their hobbies and and pleasures, they will come to us and some of it at the top quintiles. They will they will be feel pressure and they will buy from us too.
The richest of the rich.
That's not our customer you want to buy them on a variety don't come to Academy, we wouldn't sell it anyway, but that's.
That's not our customer our customer is middle America, those really strong in those middle three quintiles, we under index in the bottom and the top.
So Robert when you think of our customer. We described it is accurate young families and a lot of cases dual income families.
You know and you think about when they're under pressure. The kids are still going to play sports right. We've seen that all the way through yesterday decided I don't have money for a vacation. They may go camping or they may build up your backyard all those things play right into our favor.
So we're really feeling like we're well positioned to take advantage of what's going on right now.
That's that's very helpful. One last quick one plus eight stores this year plus 20 stores in 2023.
Well, we've got the appetite to grow faster and we've got the capital to grow faster and we would certainly have the opportunity to grow faster given that most of the United States doesn't have an academy store and straight answer there is honestly is as many as we can do it responsibly.
This is a little bit of an investment year for us as we refine and resume our opening process that muscle atrophy, a little bit and we need to build it back. So we've got a pipeline or we can accelerate it and we will we will do that as many as we can think we can do well.
Sounds great. Thanks, so much.
Hi.
Our final question today, it will be coming from the line of Daniel Adam with loop capital markets.
Hey, good morning, Thanks for squeezing me in.
So as we're now almost two months into the first quarter I'm, just wondering if you've seen or expect to see any impact on store traffic specifically from higher gas prices in Q1, and if you have seen an impact to what extent do you think e-commerce cells can offset any near term traffic headwinds.
So you know, we don't provide inter quarter guidance as we said.
Our guidance this year is down four to down one the results we've seen through the first couple of weeks of the quarter our belt into that guide months. My first couple of months of at eight weeks, but so certainly we've got that.
<unk> put it into our guidance and we feel pretty comfortable with where we're at right now.
Okay, Great and then as an unrelated follow up I guess this is also an intra quarter question, but did you buyback any stock in in February or March.
Did it.
Yeah, we don't provide inter quarter update there.
Okay.
Alright, thank you.
And all of that color will be in the K.
Okay. Thanks, so much.
Okay. Thank you.
Thank you at this time I'll turn the stuff, okay instrument for closing remarks.
Yes.
Thank everybody for participating on the call as you heard we're excited about.
Future proud of the results we had.
The future is really where we're looking and I. Thank the team for all of their efforts to get us to where we are but really do thank them for what they're going to do for us because we've got the team to deliver.
Very strong future for Academy. So thank you all very much I hope you all have a great day.
This will conclude today's conference you may disconnect your lines at this time and thank you for your participation.