Good morning, ladies and gentlemen, and welcome to the Academy Sports + Outdoors Second Quarter of Fiscal Year 2021 Earnings Conference Call. At this time, this call is being recorded. [Operator Instructions] I will now turn the call over to Matt Hodges, Vice President of Investor Relations for Academy Sports + Outdoors. Matt, please go ahead.

Thanks, operator. Good morning, everyone, and thank you for joining the Academy Sports + Outdoors Second Quarter 2021 Results Call today. Participating on the call are Ken Hicks, Chairman, President and CEO; Michael Mullican, Executive Vice President and CFO; and Steve Lawrence, 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 may be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from 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 to the most directly comparable GAAP financial measures are included in today's earnings release, which is provided on our Investor Relations website, investors.academy.com. I will now turn the call over to Ken Hicks, CEO.

Thanks, Matt. Good morning, everyone. Let me start by saying that our thoughts and prayers go out to everyone impacted by Hurricane Ida. I'm very proud to say that thanks to the tremendous efforts of our stores, operations and supply chain team, that all of our stores in the impacted area are now open. We are assisting affected team members and their families get the help they need to recover as quickly as possible and also supporting our customers and our communities. We're working to get all of our stores in the impacted area fully stocked and staffed so that they can continue to support and serve their local community and customers. Now shifting to our second quarter results -- last quarter, I said we were focused on winning the summer season, especially the major holidays. I'm very pleased to share that we achieved the highest sales weeks in the company's history for Memorial Day, Father's Day and the 4th of July. This was primarily driven by our customers coming back more often, spending more, and shopping more areas of the store. The success of these events helped drive record second quarter sales of $1.8 billion, comparable sales of 11.4% and sales growth of 44.8% when compared to the second quarter of 2019. Academy has now posted 8 consecutive quarters of positive comparable sales and operating profit growth dating back to the third quarter of 2019. We also achieved record gross margin of $642.5 million driven by continued favorable product mix, less promotional activity and fewer markdowns. Our gross margin growth more than offset higher product and shipping cost increases, and we're still providing great value to our customers. In terms of labor costs, we've made market adjustments as needed to reward and retain employees, but have also implemented changes…

Thanks, Ken, and good morning, everyone. Our second quarter results set company records across key financial metrics, including revenue, gross margin, pretax income and net earnings. I will start by reviewing our record second quarter results, then discuss our updated 2021 outlook, which we are raising based on the continued strength of our business and healthy market trends. Net sales were $1.8 billion with comparable sales of 11.4% on top of last year's 27% comp. When compared to Q2 2019, sales increased 44.8%. As Ken mentioned, it is our eighth consecutive quarter of positive comparable sales, of which the last 5 have been double-digit increases. The growth was broad-based and is the third consecutive quarter that all 4 merchandise divisions have had positive comparable sales growth. The growth was driven by an increase in transactions, average unit retails and ticket size. Our differentiated value-based assortment and excellent service is resonating with our customers in a time where everyone is looking to have more fun. We are pleased with the progress of our e-commerce business. Sales were down slightly, minus 0.9% for the quarter. However, when compared to the second quarter of 2019, sales increased 207%. The sales penetration rate in Q2 2020 was 8.4% of sales, more than double the penetration rate in Q2 2019. The buy-online-pick-up-in-store sales exceeded 50% of e-commerce sales and continues to be a very effective and profitable way for us to transact with our customers. The investments being made in omnichannel, such as the July launch of our mobile app, more relevant product recommendations, enhanced ship-to-store capabilities and new search and checkout functionality will drive continued growth. In fact, Academy.com sales were positive for the last 7 weeks of the quarter, so the sales trajectory is encouraging. Merchandise margins were once again very strong. Similar…

Thanks, Michael. Now I'd like to give you a little more color around our second quarter performance. As we already mentioned, our growth trend continued, and we delivered an 11.4% comp versus 2020, which was up 44.8% when you compare it against 2019. We're pleased to see the momentum in the business carry into Q2 with all 4 divisions posting increases, which was significant since we're up against our largest comp from last year at plus 27%. Looking at the results by division. Apparel and footwear were once again our 2 strongest divisions during the quarter. Apparel sales were up 19% versus 2020 and 37% when compared to 2019. Footwear ran a 15% comp and was up 27% when compared against 2019. One common theme across both of these divisions was the strength we saw in our youth apparel and footwear businesses. Both of these categories outperformed, and I believe this demonstrates the continued strengthening of our position with young families, particularly in our newer markets. With a more normalized back to school this year, youth businesses should continue to be a growth driver for us into Q3 and beyond. I'd also note that our businesses with key national brands, such as Nike, adidas, Under Armour, Columbia and The North Face all had strong performance which would attribute to improving inventory positions, better content and more controlled distribution in the marketplace. Our partnerships with our key national brands are only getting stronger, which is helping us stay in stock while also delivering new innovative offerings that our customers love. We're also excited that our private brand business outperformed the total company comp. We saw continued momentum driven by our 2 new rollouts for 2021, the Magellan Outdoors Pro and Freely, both of which continued to outpace our original plans. We…

Thanks, Steve. The third quarter is off to a very strong start driven by a robust back-to-school and sports season as we are prepared and in stock on the most popular items, including backpacks, youth apparel, footwear and team sports equipment. With the fall sports season kicking off, our licensed apparel business is also experiencing a very good start to the quarter. Academy is entering a growth phase, and the team is focused on maintaining this positive momentum while retaining the gains achieved over the last year. Market and consumer trends remain strong, and we are in a favorable position to capitalize on a tremendous opportunity. Our goal remains the same: to be the best sports and outdoors retailer in the country. We will do this by executing our priorities, which are building a stronger omnichannel business, improving our in-store and online shopping experience, continuing our power merchandising efforts, increasing our targeted marketing, strengthening our supply chain and preparing for future store growth. Thank you. We will now open up the call for questions.

[Operator Instructions] And our first question is from Michael Lasser with UBS.

Your gross margin is on pace to be in the mid-30% range this year. That compares to 29.6% prior to the onset of the pandemic. Market seems to be struggling with what is the right ongoing run rate for your gross margin. How do you respond to that?

Yes, Michael, we've been gradually expanding our margins well before the pandemic began, and as you know, we've been working on a lot of initiatives to do that. If you think about the expansion, I'd say a large part of it has been because we've been able to take AURs up smartly. Again, as we think about our products, we've talked a lot about products that were accommodation items that we had priced too low, categories like bicycles that we were the lowest price in the market, but we were providing service that was stronger than our peers. That part of it should be pretty sticky. There will be probably some giveback as more promotions enter the environment. That being said, we still think the mix hasn't normalized. So there should be, I would say, 50, 60 basis points of improvement still to come as the mix returns back to normal. From a clearance standpoint, we don't expect to go back to clearance levels that we had in the past. Freight has been a headwind, as you know. That's why we've been tackling the supply chain initiatives to help offset that in the future. I think the days of us going back below 32, 32.5, those are well behind us. So somewhere between 32.5 and 35 where we're at today is where we would expect to be long term.

That's very helpful. My follow-up question is you're sitting on well over $0.5 billion in cash on your balance sheet. You just authorized a very large share repurchase program. You're setting the stage to deploy capital to open new stores in the coming quarters. How are you prioritizing this potential deployment of cash flow to create value? Your stock trades at a very low multiple on the earnings growth -- or the earnings guidance that you gave today, seems just you have a lot of opportunities to create value for shareholders.

Michael, I agree with that. And our priorities remain the same. First, to ensure the financial stability of the company, making sure that we have the proper amount of cash to run the business. Second is to pursue our substantial growth opportunities, starting with new stores, continuing our efforts in omnichannel, continuing to improve our operations with things like our -- the work we're beginning in our supply chain, continuing the efforts that we've got going on in our power merchandising with better systems and processes there, which have helped our margins. And we will continue to provide and ensure that we have adequate capital to support the significant growth that we have and will continue to have in stores, omnichannel and our operations. And then the third priority is making sure that we reward and recognize our stakeholders. The step we took today, I think, is a big nod to that. And we will continue to be good managers of the capital and provide for those 3 key priorities.

And our next question is from Kate Fitzsimons with Wells Fargo.

Congrats on the strong results. Michael, just one point of clarification on the EPS outlook of $5.45 to $4.80 (sic) [ $5.80 ]. I presume this is GAAP. Your year-to-date earnings are running about $0.40 above on a pro forma basis. Should we think about the updated guidance of about $5.85 to $6.20 on a pro forma basis? I'm just trying to rationalize the pro forma with the GAAP outlook.

No, good question. The guidance update we provided is GAAP EPS. So on a pro forma basis, yes, you wanted -- you'd add the $0.40.

Great. Great. Thanks for the clarification. Ken, I guess just on a higher level, your business has seen really remarkable consistency versus Q1 relative to 2019 levels. I guess just when you think about the category in general and the durability on the strength of the category, is there a view that we can continue to comp the comp when we look to 2022 and beyond? I think there is some fear that you're going to see -- that you're seeing a real pull forward right now in demand. So just curious, higher level, how you're thinking about the ongoing durability of the category, particularly maybe as some of these lower ticket categories start to normalize?

No. We feel very confident in the long-term durability of the business. We see people continue to come back with the things that they started both before and during the pandemic. We are at a much higher level. We've comped the comps and headed to comp the comped comps. And we're going to keep driving the business forward, as we stated in our script, that third quarter is off to a good start, and we're pleased with that. We have some pretty big hills ahead of us. But the customer continues to come. And at some point, people have to quit asking is this going to continue? Because it continues. And I think that that's important to understand that the business that we're in and what we're doing has really got some long legs and we've got expectations, great expectations for the future.

Yes, Kate, I would just tag onto that a little bit. We have absolutely, as an organization, leveled up operationally. Many initiatives that we put in place, they made a difference before the pandemic, they made a difference during the pandemic, and now we're anniversarying it in markets, frankly, that have been open largely for more than a year. Consumer demand is still very, very strong. And in the world, we read about this all the time, where people are looking to escape the rat race and live in the moment. That's what we do. We help people do that and have fun and be able to participate in a lot of these new activities. We are seeing our existing customers return more frequently. They're spending more when they return. That hasn't changed. And customers that are trying new categories that are new to a division, whether they're new or existing, they're spending more on that first visit, and they are coming back more than they did in the past. So all the trends in our business are very healthy right now. And I think we still have a lot to work on organizationally to help us capture that demand.

And our next question is from Greg Melich with Evercore ISI.

I had 2 questions. I wanted to start on SG&A. Thanks for calling out the nonrecurring part of it. I just wanted to see, should we get back to a clean point of if we can comp high single digits we're showing leverage? Or is there something unique about the year-over-year in the back half that we should be aware of?

No, no. If we get to that low single-digit comp, we'll continue to lever. That's certainly what we're planning to do. Good sales help you do that. We plan on having good sales.

And we work very hard to make sure that we manage the expenses, and so that we're capable of leveraging at, quite frankly, whatever sales level we're at.

Perfect. And the second question was on the capital allocation. So with the $500 million buyback, I mean it looks like your free cash flow is still -- is probably around that number, but I think the authorization is good for 3 years. If we continue at this rate, will it take 3 years to use that? Or what's your thought process in terms of allocating that capital to either building more cash, opening stores or executing the buyback?

We are not defining what the terms are of the $500 million buyback at this point. We also do foresee continued expansion in the growth. We're opening 8 to 10 stores next year, as we've stated. We plan on those stores being successful. We're working very hard to ensure that they are successful and that will give us the opportunity to continue to grow there. We will continue to invest in the omnichannel field, and we will continue to work to improve our operations. So the good news is that we are able to do all 3 of our priorities: ensure our financial security, provide for the significant growth -- you've heard me say before, I don't think there's another retailer that has the omnichannel, the organic, the operational and new store growth opportunities that we have -- and then recognize that we can support our investors at the same time.

And our next question is from Robby Ohmes with Bank of America.

Congrats on another great quarter. I was hoping that you could -- maybe Ken or -- and/or Michael, can you just remind us on the profitability e-commerce business and where that is today maybe versus 2019? And Ken, you're mentioning focusing on omnichannel initiatives. Can you give some more detail on where you think you can take omnichannel for Academy Sports from here? And what we should be looking for near term?

Yes. With regard to the profitability, our omnichannel is profitable and not quite as profitable as the stores, but it is approaching that level. Our ability to serve our customers, both through shipping to their home, but also buy-online-pick-up-in-store has allowed us to have a profitable dot-com business. We couldn't have the increase that we've had over the last 2 years of over 200% in omnichannel with the increase in profitability if it wasn't profitable, and we continue to work to make it profitable. And so that's important. The second thing I think to the second part of your question, we are doing a lot of things with our omnichannel. We've talked about improving search payment capabilities. We've added new payment capabilities. And we'll continue to add things like that. We introduced a new app within the past month that's gotten off to a very good start. We will provide capabilities on the app that will, I think, get more customers to use it and be supportive of our customers. We are using new technology to communicate with our dot-com customers. We are going to continue to improve our customer database between the stores and omnichannel. So we still have a lot of work left. We were late to the game in omnichannel. And we will look to the customers to decide how big it should be. We haven't set -- it's got to be this percentage. But I would envision omnichannel is probably going to be over the next year or 2, 15%, 20% of our business. And the penetration will continue to grow. We doubled the penetration of our dot-com this year over 2019, and we will continue to see that improve. But one of the things we're working hard -- or 2 of the things we're working hard to do. One is ensure that it's connected with all of our customers to include our store customers, and that it's a profitable business and we aren't just trying to grow it to grow it.

That sounds great.

That was a mouthful. Hopefully, I got all your points covered. Thanks, Robby.

And our next question is from Daniel Imbro with Stephens Inc.

Ken, I want to start on the unit growth side. I think you talked about that in your remarks, obviously, with capital here, being able to start accelerating that. I think last year, you guys cited some really attractive unit economics with smaller format stores. How replicable do you think those kind of returns will be? And how do you envision the role maybe the small format maybe infill market? Is it more expansionary markets? How are you viewing that as we get into next year?

Two things. One that's an important point that Michael likes to have me call out is that all of our stores are profitable on a 12-month trailing basis. And so all of the formats that we've had in time. We have opened a 40,000-square-foot store. We see that as an opportunity as we look to fill in markets to go into some of the urban areas that we're backfilling to take advantage of existing locations that we may take over. So we know that's profitable, and it is as profitable as our larger store. We like the larger format more simply because it delivers more volume. So our preference is the larger store where we can. But where we see an opportunity to open a store, we will open that; we do have that capability to have a very productive 40,000-square-foot store in there as well as our standard store that's a little over 60,000 square feet.

Yes, Dan, we're pleased with the 40,000-square-foot format, but I would like to remind everybody that the larger 60,000, 62,000, 63,000 square foot format still has best-in-class productivity on a sales per square foot basis on a profitability per square foot basis. And back to Robby's earlier question about omnichannel, the best way to grow our omnichannel is to grow our fleet, because 75% of our e-commerce businesses is fulfilled from the store. We're only in 16 states. That leaves 30-plus states that have a chance to experience the Academy magic as we look to grow and bring our winning model outside of our current footprint.

And in many of those states, by the way, that we're in, we only have 1 or 2 stores. So we have, within our own market, some excellent fill-in opportunities. But there are -- it's a big country. And we know there's a lot of people that want and deserve Academy Sports + Outdoors.

Great. And then one follow-up on the gross margin outlook. That was a helpful answer to Michael's question earlier. But when you talk about the drivers of gross margin, merchandise is obviously strong today. I didn't hear a ton of discussion around the supply chain initiative, distribution initiatives we talked about, Michael. Are those still on to come? And can you provide any more color on what maybe the lowest-hanging fruit is on that supply chain side and what it could mean for earnings or margin?

Well, I'll take the, I guess, the middle part of the question about the gross margin. We do have significant continued opportunity with the planning and allocation initiatives that we've put in place, markdown optimization. Those are all learning systems that we'll continue to learn and develop, more localization that we're working very hard so that each store has the right assortment for it, whether that's a store that in outdoor grilling, it's a smoking or gas or pellet predominant market, whether it's a store that the work boots are important, and are those work boots more factory and service, or more for the oilfield. And so we are really working hard through our systems to tailor that assortment for each of our stores, which will improve the margin and reduce the markdowns. And so those initiatives are underway and continue to work. The supply chain initiative, we're literally just starting with this, and there is some low-hanging fruit that we're looking at. And I'll let Michael talk about some of those things that we're looking to deliver. But it, too, is a longer-term initiative that will continue to deliver over time.

Yes, I think that the gross margin builder is really 3 categories. The first is mix normalization in probably 50, 60 basis points to come there. All the inventory stuff that Ken talked about, plus clearance, better localization, getting the right product in the right place at the right time, that's the initiative that Steve and team have led. And we're still probably middle innings there. And then the last one is the supply chain that you mentioned. We are just beginning to take that on. And that is a multiyear project that will frankly deliver benefits throughout that time. I haven't quantified them yet, but there's some low-hanging fruit that we'll realize some benefit this year...

[ Case ] back up [indiscernible] so we're touching less better dot-com...

More cross-stocking, more multi-stop delivery. It's not the sexy stuff like rolling out maybe a new private-label brand, but it's the stuff that sticks to your ribs and really matters from a profitability standpoint.

Which, by the way, you mentioned another, is we continue to develop our private label brands. We introduced the Freely, which has done very well, Magellan Pro in our outdoor area, and in apparel has done well. And new ideas. It was just a side comment in Steve's presentation about what we did with Whataburger, but we had over 1 million hits in the number of people we sold out that merchandise in a week. Those type of ideas that drive traffic, improve profitability and support a strong private label business that doesn't take away from the important brands that we have, but adds to the things Academy can provide its customers.

So we'll walk it back from where we're at today, that 35 and change. If you say the environment becomes more promotional and we give up 200 basis points, maybe 250, we still have, I think, 50 to gain from a mix standpoint. I still think there's probably 50, 60, who knows what it is on the supply chain? So ultimately, I think as we mature, we'll be in a pretty good spot.

And our next question is from Chris Horvers with JPMorgan.

Michael, can you provide a little bit of color on the cadence of the back half of the year, obviously implying about an 8.5% comp at the midpoint? Can you talk about how you're thinking about 3Q versus 4Q to the extent that you can on the top line? And then also on the margin front, you're implying about an 8% EBIT margin in the back half. That seems pretty low and pretty conservative. So any cadence color there? And when are you assuming perhaps promotion comes back into the mix?

I'll let -- I'll give a couple of brief comments, and I'll flip it over to Steve. I'd say, look, we are looking at it relatively conservatively. There's still a lot of the year left to go. There's just as much uncertainty today as there was 3 months ago, 6 months ago. We're up against 2 monster quarters in the back half of last year. The supply chain is challenged. The labor pool has been tough. And it looks like COVID is going to be with us for a while. That being said, business is still very strong today. And I'll let Steve talk about some of the other questions there.

Yes. So from a cadence perspective, what we're seeing right now is it's a more normalized cadence. Last year we saw back-to-school move out in our markets at least 30 to 45 days. This year, it's moved back. So us kind of heart of our back-to-school impact late July, early August time period. As Ken already mentioned, we're off to a really strong start there. We have a more normalized calendar the rest of the way through. We do expect a lot of the tailwinds that we've seen so far to continue through, one of which is we brought up scarcity of supply and the supply chain. That's going to remain a challenge for us and everybody going forward for the foreseeable future. One of the things we're pretty excited about is if you heard us talk about our inventory, we started the quarter with inventory up about 7% to last year. We ended the quarter with inventory up about 24% to last year. So what we've demonstrated is we've been operating in this kind of dysfunctional supply chain world for 12 to 18 months now, and I think we're operating pretty well against that. We've got good pipeline of inventory, strong visibility of what's coming in. We're doing a good job of prioritizing that, and we think we're going to be in a really good position for holiday. And what we think may happen this holiday, similar to what we saw last holiday, where there is a scarcity of supply out there in the marketplace. And hopefully, that means people buy earlier at full price, which should hopefully mitigate the need to promote as we get deeper into the holidays.

Yes. A couple of important points. The guidance that we provided contemplates all of these risks. We have the goods to achieve the sales targets that we provided. And we've got a diverse vendor base, which actually helps us offset some of the inventory challenges. Our vendor base is much more diverse than others. So as it sits today, we feel very comfortable with the guidance that we've provided. If we're able to kind of manage through the challenges in the way we have in the past, we certainly think we can exceed it.

Yes. As you look at it, we plan, and those of you who know me for a long time, know we plan for all the contingencies that are going to occur. We're overcoming a hurricane that impacted one of our major markets. We've got all of those stores open. The team has done just a phenomenal job there. We -- but the area is impacted for a while, and there are some costs as we recover. We've got the continuation of COVID. We have the uncertainty of the consumer. We have the supply chain challenges. All of those have been figured in. And what we've demonstrated, and hopefully that you saw with this past quarter and the quarter before that, is through all these challenges, we have been able to continue to perform strongly. But that said, we're going to make sure that we've got the contingencies planned, and we're able to capture the opportunity as we go forward. And I feel confident that with the team that we have here, we will be able to continue to deliver good results.

And then, I guess, as a follow-up point to that, you held your 2-year CAGR very strongly here in the second quarter versus what you did in the first quarter. I mean, that's pretty outstanding, even in this consumer environment. You're not seeing that from a lot of retailers. And like Steve mentioned, you're a good portion of the way through back-to-school. So is it fair to assume that you're not seeing any impact from Delta, and that so far, 2-year trends have remained relatively constant?

I got a lot of grief last time on my comment where I said the quarter started off at the same level that the we've been performing at, and people -- what does that mean? And -- but it's true again. But we've got challenges. And I think that we will continue to see strong growth. Well, these numbers -- and at some point, we all have to come back to Earth a little bit. And everybody is spoiled by these huge growth numbers. That said, we continue to see good growth for the company. We are off to a good start this quarter. And we -- as Steve said, we've got the inventory and are positioned well for the back half. There are some things that could come up. But we feel confident. And the -- probably the biggest thing is the consumer continues to say, we like what you have, we want what you have, and we want to shop at Academy and buy from you.

Our next question is from Lavesh Hemnani with Credit Suisse.

Congrats on the strong quarter. I just had 1 long-term question. So if I look at just the unit growth outlook, right, for 2022, 8 to 10 stores, considering the business is showing strong growth, I mean there are structural changes in the consumer lifestyle trends that you highlighted, the strong free cash flow position. I mean is there a possibility that you could actually show growth, I mean, stronger than the 8 to 10 that you called out to accelerate those share gains?

I think, Lavesh, that for next year, 8 to 10 probably is a good number because of the capability. Beyond that, we have the financial wherewithal, we've got the market opportunities, and we are developing the organizational capability to expand beyond that and add more stores. But we want to do it right, and we will grow what is appropriate. But the 8 to 10 number is, I think, a good number for next year. Beyond that, it could be higher.

Yes. The only thing I'd add, just to make sure everybody is clear. We could add up to 100 stores without having to expand our distribution network. So there's plenty of capacity to grow with our existing network. When it costs you $3 million to build a store, and you can see the EBITDA, we're delivering; 100% of our fleet is profitable, you should build more stores. And so as Ken said, we're going to put the infrastructure in place and evaluate after 2022, what that came in.

Yes. And so we won't be -- have to wait and delay to build a distribution center first, one. And the second thing I think that's important, this is another point that Michael has made in the past, is one of our requirements is the stores in their first year are cash flow-positive. So we don't want to -- as we expand, it will not be a drain on our ability to continue expanding.

And our next question is from Daniel Adam with Loop Capital Markets.

Just one for me on capital allocation. I'm curious as to what the thought process was behind the buyback versus a dividend? And just given the balance sheet strength and strong free cash flow generation, do you see yourself as a dividend-yielding company, say, 1 year from now?

We will continue to explore what we think is best for the company and for our investors. Right now, given where the stock, quite frankly, is valued, a buyback makes the most sense. And we will evaluate all the options to make sure that we are giving our shareholders the adequate return.

And our next question is from John Heinbockel with Guggenheim.

Ken, maybe when you step back and look at the -- you've improved the strategic capabilities of the business in a lot of different areas. What -- other than supply chain, which we talked about, what areas would you still like to work on? And when I think about use of capital, you think about strategic M&A, are there capabilities that you don't have that might be interesting going down that path? Or you pretty much have what you need right now?

I think as -- you talked about things that we need to improve on. We've got continued opportunities in our merchandising. We have a lot of work to continue in our marketing. We have opportunities to, as you said, improve our supply chain, omnichannel. We talked about improving our stores and the service and what we're doing in our stores. So we've got a lot of things that we can do better. This is a company that, fortunately, has no shortage of opportunities for improvement. With regard to the capability, because we have the opportunities for growth, I don't think we have to take a risk in looking outside the company for opportunities or trying to think of what's a new idea that might work and may or may not work. We've got, within our bone structure, the capability to grow, to carry that extra weight, if you will, and still be just as fast and nimble as we were as opposed to having to take the risk and cost of spending money outside. And that is something that I think is very important as you look at a company, is are they growing things that you're pretty sure of that they know how to do, versus is it going to work or isn't it going to work?

Okay. And then maybe as a follow-up to that, right, you talked about building a national brand. What -- I mean -- and it's a long way out, but you think about adjustments to how you go to market in the South, Northeast, West Coast. How do you think about -- maybe this is more for Steve. But how do you think about merchandising adjustments as you move to the northern part of the country? Or is that -- that's a pretty easy transition to make?

It's something that, quite frankly, we've learned, we're learning. We've got stores in Missouri and...

Illinois.

Illinois, which is, weather's different than Texas and Florida. And we -- that gets to the point I made earlier about the localization of lacrosse in North Carolina. They have different sports. They have different cooking. They have different seasons for apparel. And we -- those are things that -- when I talk about learning and merchandising, we're learning. And that localization, I think, will really help us as we go into new markets and understand what's important in a new market. And it's not something that, geez, this is foreign to us. It's the way that we operate.

Yes, I'd say that was a mistake we made in the past when we went into new markets and why they underperformed was -- and we talked about this, I think, with a lot of different conversations where we tried to take what worked in Texas and apply it here. We're not doing that anymore. So that's a new muscle from a localization from an assortment perspective that we've learned to exercise. Back to Michael's point earlier, the -- 100 stores were in the future, most of those would fit within our existing DC structure. So that keeps us still somewhat in the southern part of the geography of the United States. I think if we start pushing into the north, yes, we're going to have to add in some of the winter sports like hockey, maybe skiing at some point, but that's well into the future. I think what's more important is understanding all the local nuances, whether it's in cooking, whether they're grillers using smokers, whether it's propane, whether it be frying turkeys, it's all those other nuances, when the back-to-school timing is, that I think we've gotten a lot better at in terms of how...

One of the most localized things that we do is fishing. And...

Probably the most localized.

The most localized, because of bait; one market is very different. And that's something -- we've got a great team there and it's helping us apply that thought process to other parts of the store.

The last question would go to John Zolidis with Quo Vadis Capital.

Many questions have been answered. But I do have one question about the reasons you cited for confidence that trends on the top line and gross margin would continue. I think a lot of us understand the demand side of the equation. But a little bit more difficult to quantify and drill down on are some of the things that you mentioned, for example, distribution strategies of key vendors. I wonder if you could talk about that specifically. And then secondly, in the post-COVID environment, what's happened from a brick-and-mortar competitive standpoint?

I think we'll probably all take a chance in answering part of that question. But back to growth drivers, I mean, we already mentioned you brought up strong consumer demand. So that's clearly a tailwind for us. We brought up dot-com. Our dot-com business is accelerating. Traditionally been underpenetrated there. We -- obviously, as we were coming through the first half of the year and anniversary-ed some of the COVID surges, that business was flattening out a little bit, but it's back to growth for us. That's going to be a traffic and sales driver for us in the future. The improving inventory levels in content, we already talked about. We touched on marketing. We are shifting our marketing spend from a more traditional print-and-broadcast to a much more digital targeted and talking to the customer on a one-on-one basis. That is going to make us much more efficient and a better retailer. We talked about the underlying strategies that we have from a merchandising perspective, that really we put in place pre-COVID that were fueling the business. The better allocation, the better localizations, the better assortments, regular priced markdown optimization. And then you brought up the controlled distribution. That is definitely something that is happening in the market where vendors are controlling the distribution better. That's helping us in a couple of different ways. It's following more customers into our stores. It's protecting and making those brands more important. It's pulling and it's allowing us and a lot of retailers to pull back on I think some of the promotionality that differentiated retailers we're leaning into as a way to drive those brands going forward. So all those things, we think, in addition to the consumer demand behind our category, are drivers to growth.

Yes, you think, John, of literally the thousands of outlets that have been cut by several of the larger vendors, those customers didn't all of a sudden dislike that brand and they're looking to find it. And we're one of the key places where they -- in our markets, where they can find it, and they know they can get a real good selection of it.

And our partnerships there are just getting stronger. I mean a lot of -- there's been a lot of noise around these vendors moving to more of a digital space. But when you think about how much volume is still done in brick-and-mortar stores, and they really value the customers that we reach that they can't reach. We see that continuing to just strengthen our relationship with our key partners going forward.

Thank you very much, John. Thank you, everybody. We appreciate your interest and participation. We hope that you have a better understanding of the opportunities. And we -- as you heard on the call, we're all excited about what we're doing and where we're going. And we've got a great team working on it. And thank you for your support. Have a great day.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.