Academy Sports (ASO)

Sporting goods retailer Academy Sports & Outdoor (NASDAQ:ASO) fell short of the market’s revenue expectations in Q1 CY2025, with sales flat year on year at $1.35 billion. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $6.12 billion at the midpoint. Its non-GAAP profit of $0.76 per share was 14.7% 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 sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $5.92 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 3.8% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was sluggish.

This quarter, Academy Sports missed Wall Street’s estimates and reported a rather uninspiring 0.9% year-on-year revenue decline, generating $1.35 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 5.2% over the next 12 months, similar to its six-year rate. This projection is commendable and indicates its newer products will fuel better top-line performance.

Number of Stores

The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.

Academy Sports sported 303 locations in the latest quarter. Over the last two years, it has opened new stores at a rapid clip by averaging 5.3% annual growth, among the fastest in the 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 5.4% 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 same-store sales fell by 3.7% year on year. This decrease represents a further deceleration from its historical levels. We hope the business can get back on track.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

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 34.1% gross margin over the last two years. That means Academy Sports paid its suppliers a lot of money ($65.89 for every $100 in revenue) to run its business.

In Q1, Academy Sports produced a 34% gross profit margin, in line with the same quarter last year and exceeding analysts’ estimates by 2.3%. 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).

Operating margin is a key profitability metric because it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.

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 9.6%, higher than the broader consumer retail sector.

Looking at the trend in its profitability, Academy Sports’s operating margin decreased by 2.1 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 5.1%, down 2.4 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.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Academy Sports’s full-year EPS grew at an unimpressive 5.6% compounded annual growth rate over the last four years, worse than the broader consumer retail sector.

In Q1, Academy Sports reported EPS at $0.76, down from $1.08 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Academy Sports’s full-year EPS of $5.73 to grow 6.1%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

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 6.2% 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 3.4 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 $106.5 million in Q1, equivalent to a 7.9% margin. The company’s cash profitability regressed as it was 4.4 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, leading to short-term swings. Long-term trends carry greater meaning.

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).

Although Academy Sports hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 18.4%, higher than most consumer retail businesses.

Academy Sports reported $285.1 million of cash and $1.83 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 $687.4 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 $18.34 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 beat analysts’ gross margin expectations this quarter. On the other hand, its revenue, EPS, and EBITDA missed and it lowered its full-year guidance. Overall, this was a softer quarter. The stock remained flat at $44.50 immediately following the results.

Updated: June 23, 2025 at 10:29 PM EDT

Before investing in or passing on Academy Sports, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Academy Sports’s business quality ultimately falls short of our standards. For starters, its revenue growth was a little slower over the last six 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 mediocre EPS growth over the last four years shows it’s failed to produce meaningful profits for shareholders.

Academy Sports’s P/E ratio based on the next 12 months is 7.2x. 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 $54 on the company (compared to the current share price of $44.08).

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.