Academy Sports (ASO)

Sporting goods retailer Academy Sports & Outdoor (NASDAQ:ASO) missed Wall Street’s revenue expectations in Q2 CY2025 as sales rose 3.3% year on year to $1.6 billion. On the other hand, the company’s full-year revenue guidance of $6.13 billion at the midpoint came in 0.6% above analysts’ estimates. Its non-GAAP profit of $1.94 per share was 9.1% below analysts’ consensus estimates.

Company Overview

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.

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.

Retailers offering sporting and outdoor goods include Dick’s Sporting Goods (NYSE:DKS), Sportsman’s Warehouse (NASDAQ:SPWH), and Hibbett (NASDAQ:HIBB).

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $5.97 billion in revenue over the past 12 months, Academy Sports is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Academy Sports’s sales grew at a sluggish 4% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts).

This quarter, Academy Sports’s revenue grew by 3.3% year on year to $1.6 billion, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.6% over the next 12 months, an acceleration versus the last six years. This projection is admirable and suggests its newer products will catalyze better top-line performance.

Number of Stores

A retailer’s store count influences how much it can sell and how quickly revenue can grow.

Academy Sports operated 306 locations in the latest quarter. It has opened new stores at a rapid clip over the last two years, averaging 5.8% annual growth, much faster than the broader consumer retail sector. This gives it a chance to become a large, scaled business over time.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales is an industry measure of whether revenue is growing at those existing stores and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Academy Sports’s demand has been shrinking over the last two years as its same-store sales have averaged 4.5% annual declines. This performance is concerning - it shows Academy Sports artificially boosts its revenue by building new stores. We’d like to see a company’s same-store sales rise before it takes on the costly, capital-intensive endeavor of expanding its store base.

In the latest quarter, Academy Sports’s year on year same-store sales were flat. This performance was a well-appreciated turnaround from its historical levels, showing the business is improving.

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

Academy Sports’s gross margin is slightly below the average retailer, giving it less room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged a 34.2% gross margin over the last two years. That means Academy Sports paid its suppliers a lot of money ($65.83 for every $100 in revenue) to run its business.

Academy Sports produced a 36% gross profit margin in Q2, in line with the same quarter last year but missing analysts’ estimates by 0.6%. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Academy Sports has done a decent job managing its cost base over the last two years. The company has produced an average operating margin of 9.3%, higher than the broader consumer retail sector.

Analyzing the trend in its profitability, Academy Sports’s operating margin decreased by 2.2 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Academy Sports generated an operating margin profit margin of 10.8%, down 1.5 percentage points year on year. Since Academy Sports’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Academy Sports has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.4% over the last two years, quite impressive for a consumer retail business.

Taking a step back, we can see that Academy Sports’s margin dropped by 2.7 percentage points over the last year. This decrease came from the higher costs associated with opening more stores.

Academy Sports’s free cash flow clocked in at $21.66 million in Q2, equivalent to a 1.4% margin. The company’s cash profitability regressed as it was 1.9 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Academy Sports’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 17.8%, slightly better than typical consumer retail business.

Academy Sports reported $300.9 million of cash and $1.84 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $667.4 million of EBITDA over the last 12 months, we view Academy Sports’s 2.3× net-debt-to-EBITDA ratio as safe. We also see its $18.33 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Academy Sports’s full-year EPS guidance beat analysts’ expectations. We were also glad its full-year revenue guidance slightly exceeded Wall Street’s estimates. On the other hand, its revenue missed and its EPS fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 7.7% to $49.45 immediately after reporting.

Updated: December 4, 2025 at 9:40 PM EST

Are you wondering whether to buy Academy Sports or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Academy Sports isn’t a terrible business, but it doesn’t pass our bar. To kick things off, its revenue has declined over the last three years. And while its new store openings have increased its brand equity, the downside is its shrinking same-store sales tell us it will need to change its strategy to succeed. On top of that, its gross margins make it more challenging to reach positive operating profits compared to other consumer retail businesses.

Academy Sports’s P/E ratio based on the next 12 months is 8.2x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $57.30 on the company (compared to the current share price of $49.31).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.