Academy Sports (NASDAQ:ASO) Misses Q3 Revenue Estimates, Stock Drops

Jabin Bastian /
2023/11/30 8:35 am EST

Sporting goods retailer Academy Sports & Outdoor (NASDAQ:ASO) fell short of analysts' expectations in Q3 FY2023, with revenue down 6.4% year on year to $1.40 billion. The company's full-year revenue guidance of $6.14 billion at the midpoint also came in 1.4% below analysts' estimates. It made a GAAP profit of $1.31 per share, down from its profit of $1.62 per share in the same quarter last year.

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Academy Sports (ASO) Q3 FY2023 Highlights:

  • Revenue: $1.40 billion vs analyst estimates of $1.44 billion (3% miss)
  • EPS: $1.31 vs analyst expectations of $1.50 (12.4% miss)
  • The company dropped its revenue guidance for the full year from $6.27 billion to $6.14 billion at the midpoint, a 2.1% decrease
  • Free Cash Flow of $15.13 million, down 20.7% from the same quarter last year
  • Gross Margin (GAAP): 34.5%, down from 35% in the same quarter last year
  • Same-Store Sales were down 8% year on year (miss vs. expectations of down 5.6% year on year)
  • Store Locations: 275 at quarter end, increasing by 7 over the last 12 months

"Our sales and net earnings for the third quarter came in below expectations, primarily driven by weakening consumer sentiment coupled with above normal temperatures that negatively impacted demand for Fall product. Over the past year we have seen customers change their shopping patterns and aggregate trips into the key shopping moments on the calendar and we expect to see this pattern continue this holiday season," said Chief Executive Officer, Steve Lawrence.

Founded in 1938 as a tire shop before expanding into fishing equipment, Academy Sports & Outdoor (NASDAQ:ASO) sells a broad selection of sporting goods but is still known for its outdoor activity merchandise.

Sports & Outdoor Equipment Retailer

Some of us spend our leisure time vegging out, but many others take to the courts, fields, beaches, and campsites; sports equipment retailers cater to the avid sportsman as well as the weekend warrior. Shoppers can find everything from tents to lawn games to baseball bats to satisfy their athletic and leisure needs along with competitive prices and helpful store associates that can talk through brands, sizing, and product quality. This is a category that has moved rapidly online over the last few decades, so these sports and outdoor equipment retailers have needed to be nimble and aggressive with their e-commerce and omnichannel presences.

Sales Growth

Academy Sports is larger than most consumer retail companies and benefits from economies of scale, giving it an edge over its competitors.

As you can see below, the company's annualized revenue growth rate of 6% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre , but to its credit, it opened new stores and expanded its reach.

Academy Sports Total Revenue

This quarter, Academy Sports reported a rather uninspiring 6.4% year-on-year revenue decline, missing Wall Street's expectations. Looking ahead, analysts expect sales to grow 6.8% over the next 12 months.

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Number of Stores

A retailer's store count is a crucial factor influencing how much it can sell, and store growth is a critical driver of how quickly its sales can grow.

When a retailer like Academy Sports keeps its store footprint steady, it usually means that demand is stable and it's focused on improving operational efficiency to increase profitability. Since last year, Academy Sports's store count increased by 7 locations, or 2.6%, to 275 total retail locations in the most recently reported quarter.

Academy Sports Operating Retail Locations

Over the last two years, the company has only opened a few new stores, averaging 2.2% annual growth in new locations. This sluggish pace lags the broader sector. A flat store base means that revenue growth must come from increased e-commerce sales or higher foot traffic and sales per customer at existing stores.

Same-Store Sales

Academy Sports's demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 0.8% year on year. This performance is quite concerning and the company should reconsider its strategy before investing its precious capital into new store buildouts.

Academy Sports Year On Year Same Store Sales Growth

In the latest quarter, Academy Sports's same-store sales fell 8% year on year. This decline was a reversal from the 7.2% year-on-year increase it posted 12 months ago. We'll be keeping a close eye on the company to see if this turns into a longer-term trend.

Key Takeaways from Academy Sports's Q3 Results

Sporting a market capitalization of $3.77 billion, Academy Sports is among smaller companies, but its more than $274.8 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

We struggled to find many strong positives in these results. Its same-store sales, revenue, and EPS unfortunately missed analysts' expectations. Guidance was also below expectations, and management gave cautious commentary about the holidays, saying that "weakening consumer sentiment coupled with above normal temperatures negatively impacted demand for Fall product. Over the past year we have seen customers change their shopping patterns and aggregate trips into the key shopping moments on the calendar and we expect to see this pattern continue this holiday season". Overall, the results could have been better. The company is down 5.3% on the results and currently trades at $47.89 per share.

Academy Sports may not have had the best quarter, but does that create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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