Good morning, and welcome to the Academy Sports and Outdoors Fourth Quarter Fiscal 2024 Results Conference Call. The call is being recorded and all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. Questions will be limited to analysts and investors. Please limit yourself to one question and one follow-up. [Operator Instructions] I will now turn the call over to Dan Aldridge, Vice President of Investor Relations for Academy Sports and Outdoors.

Good morning, everyone, and thank you for joining the Academy Sports and Outdoors fourth quarter 2024 financial results call. Participating on today's call are Steve Lawrence, Chief Executive Officer; and Carl Ford, Chief Financial Officer. As a reminder, today's earnings release and the comments made by management during this call include 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 most recent 10-K and 10-Q filings. The company undertakes no obligation to revise any forward-looking statements. Today's remarks also refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in today's earnings release, which is available at investors.academy.com. This morning, we will review our financial results for the fourth quarter and full year of fiscal 2024, provide an update on our strategic initiatives and discuss our outlook for the year, and share our guidance for the full year fiscal 2025. After we conclude prepared remarks, there will be time for questions at the end. With that, I'll turn the call over to our CEO, Steve Lawrence.

Thanks, Dan. Good morning to everyone, and thank you for joining us today. We finished 2024 with the business trending in the right direction. Net sales for the quarter were $1.68 billion, which represented a 6.6% decline. As most of you know, we're up against the 53rd week from last year, which means we're comparing 13 weeks of sales this year versus 14 weeks last year. Throughout my commentary, any comparisons that I make to last year will remove the extra week and compare 13 weeks this year versus the comparable 13 week time period for last year. Looking at it this way, Q4 net sales were flat in total, and excluding the contributions of our new stores, comp sales ran a 3% decrease. This represented a sequential improvement versus our Q3 and first half trends. These results also exceeded our midpoint guidance for both net sales and adjusted earnings per share in the fourth quarter. Despite navigating a compressed holiday calendar that was coupled with consumer whose spending power remain constrained throughout the holiday season. I'd like to give you a little color around how the quarter played out. During our last call, we mentioned the first two weeks in November were soft so that we saw a strong rebound later in the month, when we had our largest Black Friday sales event in company history. This momentum continued throughout the remainder of the holiday season and into the first half of January. The team did a great job of thoughtfully planning out promotions. While also ensuring we're in stock and at the right price on the key items and categories that over index during holiday each year. As a result of this work, every division ran a positive comp sales gain in the month of December. We did…

Thank you, Steve. fourth quarter net sales of $1.68 billion and comparable sales of negative 3% came in at the high end of our guidance. For the 13 weeks ended February 1st, 2025, compared to the 13 weeks ended February 3rd, 2024, sales were down 0.2%. Our fourth quarter comp transactions declined 5.9%, while comp ticket increased by 3.1% compared to last year. Overall, in the fourth quarter, Academy generated net income of $133.6 million and diluted earnings per share of $1.89. Fourth quarter adjusted net income, which excludes stock based compensation of $6 million was $139 million or $1.96 in adjusted diluted earnings per share. Throughout my following commentary, any comparison I make is comparing the fourth quarter and fiscal year 2024 versus the fourth quarter and fiscal year 2023, respectively. Gross margin of 32.2% in the fourth quarter was down 110 basis points versus last year. Driven by higher freight and distribution cost during the quarter and lower merchandise margins, 90 basis points of the decrease was driven by higher import freight expenses, driven by a strategic decision to mitigate potential port strikes and tariff risks as well as elevated distribution costs due to the remaining costs from a third quarter cleanup at the Georgia distribution facility. Our SG&A dollars as a percentage of sales increased by 110 basis points. While SG&A in total was down $7.5 million compared to the fourth quarter of last year. Excluding the $17 million in expense from the extra week last year, fourth quarter SG&A expenses increased $10 million, of which all was related to strategic investments that were partially offset by base expense control. Deleverage during the quarter was a result of investing in our growth initiatives, opening new stores, investing in the omnichannel business, maturing our customer data platform and…

Thank you. The company will now open up the call to your questions. [Operator Instructions] At the end of the question-and-answer session, CEO, Steve Lawrence will make closing comments. Thank you. Our first question comes from the line of Anthony Chukumba with Loop Capital. Please proceed with your question.

Good morning. Thank you for taking my question. A lot of good information shared on the call. So I guess my question was on your gross margin guidance for 2025, specifically. I guess I was a little surprised, given the tariff impact that you are expecting that to be up 40 basis points at the midpoint. So I guess I was just wondering, what are expected to be the drivers of gross margin expansion in 2025? Thank you.

Hey, Anthony, it's Carl. Yes, I think some of it is recapturing the supply chain headwinds that we experienced in 2024, specifically around the Georgia distribution facility, but also some investments that we made associated with where we're bringing in import freight. That was a 30 basis points headwind in FY24. If you go beyond that, we expect soft lines to penetrate higher in 2025. That will be supported by Jordan and Nike that will not be the only thing, but a soft lines mix and then promotion effectiveness. We've got some tools that we're using on our pricing engine to be a little bit more scientific associated with promo effectiveness. And we think all of that taken in together would drive the midpoint guidance range that we put out there.

Got it. I'm sure there are a lot of other great questions on here, so I'll leave it at that. Thank you.

Our next question comes from the line of Christopher Horvers with JPMorgan. Please proceed with your question.

Thanks, guys, and good morning. So my first question is, as you think about the consumer, the great debate of how much is this weather versus how much is uncertainty weighing on the consumer. Can you share what you're seeing sort of quarter-to-date, how that makes you think about the whether -- it's a weather issue versus the consumer and would you expect the first quarter to be below the lower end of the annual comp guide range?

So it's an interesting question. I would tell you that as we talked about in the prepared remarks, we saw kind of a softening in the business at the tail end of January. We saw that continue into the start of February and at the time we were asking ourselves the same question. Is this weather or is this more macro pullback? I'll tell you a couple of things we did. We transitioned the floor much more cleanly this year to Spring goods, which we're very happy we did. Of course, that hit right as the temperatures got really cold at the tail end of January and February. But what we saw as we got past kind of that clearance cycle and the cooler temps as the weather warmed up, we've seen the business rebound and stabilize. We're pretty happy with the trend we saw coming out at the end of February and through the first couple weeks of March. Obviously we still have -- the majority of the quarter still ahead of us from a time period and from a volume perspective. But we really like the trend we've seen in the business, which would indicate that while the consumer is out there is still being cautious and we have that modeled into our guidance for this year, we also recognize that some of the strategies that we have in place and the value position we have in space thinks is -- going to allow us to win this year. So when you think about the year, I think we have encompassed in that guidance a continued softening or softness in the middle income to lower income consumer. That being said, we also believe though the initiatives that we have in place, whether it's new brand introductions, the technology…

Understood. And then on the snow in Houston and Dallas is quite unusual. Just think about January and February. As you think about what's embedded in the comp, it's sort of a two part question. One is, on the new stores. You talked about the 2022 vintage comping positively I guess normally year one, year two stores comp sort of in the double digit range. So how are you thinking about like -- how much did they contribute? What's your expectation on what new stores contribute to the comps in '25? And then related to that, any commentary on what's embedded for the Nike launch? Thanks so much.

Sure. So you're correct that we expect to see a growth candidly in the first five years of the new stores life cycle. They -- for the last year, the '22 vintages stores comp significantly better than the base stores did. So the spread relative to the base stores was about what we expected. I think what we didn't plan on obviously was the challenges of the base stores in terms of the negative trend they ran. That being said, the impact and we had nine of them that impacted the comps last year. This year, we have 14 stores from 2023 that start adding to that. So now got '23 stores feeling that base. And obviously as we get deeper into the year, some of the '24 vintage stores really start kicking in as well. And what was really exciting, we called this out in the call was the stores we opened up in the back half of '24 under this kind of new site selection criteria, are performing very, very well. And so we think as we get more of those in the base, we're going to see a continued acceleration. And so, we just got to get this waterfall going so far, 9 stores hasn't moved the needle this year '23 should start moving the needle. And as we move forward, this is just going to gain steam as we evolve these stores may mature. In terms of Jordan and the impact on the comps, we haven't disclosed that. I will tell you that it's going to launch as I said, at the tail end of April. So we're going to only have about three quarters of business on our belt this year. That being said, even through three quarters, it's going to be a top 20 brand for us. And candidly, as we go into '26 and beyond and have a full year of it and we see expansion there, it will probably be a top 10 brand for us. So it's a meaningful growth driver for us moving forward.

Thank you. Have a great Spring.

Thanks.

Our next question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your question.

Hi, good morning.

Good morning.

So the first question, I want to follow-up a bit is on the launch of Jordan in your stores. There's a clearly -- I mean the way you're talking about this, this is a significant move for Academy. Is there any more color you can give us on just the number of products that are launching? Is it totally incremental? Are you replacing some product with Jordan? Has Academy sold Jordan anyway in the past? And then I think you touched on this in your prepared comments, but just with Nike in general, is this -- should we really view this launch of Jordan as a indication of just an overall strengthening relationship with Nike and expect more and more Nike products in your stores over time?

Yes, I'll start. The answer is, yes, it's to both. So I'll start with Jordan. Previously we had not had access to Jordan in any categories and so this is the first time we'll have it available to sell both in our stores and online. We're launching it in 145 stores plus online at the tail end of April. We're going to set up shops within men's, women's and kids that will cross merchandise categories together. So you're going to see apparel, footwear, accessories, sporting goods, merchandise together. We'll also have sporting goods outposted within sporting goods. So basketball, things like that with the rest of the goods, you'd expect to find them with socks, slides, all those kind of things are part of this launch. And we're really excited about it. It's been the most requested brand on our website, in our stores, from customers and really the angle we're taking with Jordan is sport. So when you think about it, we have -- we talk about our entry points of sport and how the youth sports players really start with us just kind of getting their gear and then how we take them through that journey through sport. We're going to be the place where you're going to buy your Jordan Jumpman Cleats or basketball shoes. We're not going to have some of the kind of retro limited edition release that drives some of the true sporting good -- I'm sorry, true shoe retailers, but we're going to have the sport product and we think that's the great place for us to be and we're going to help them take this brand out to underserved communities that currently they really weren't reaching with their current distribution. On the second piece of it from a Nike perspective, yes, it's two parts. So it's the launch of Jordan, but we're also expanding our footprint with Nike as well as access to more premium products there. So you're going to see like the 270s, which is a hot shoe for them over the past couple of years, expand out more rapidly into door count. We're going to have some new fashion and apparel. And so, when you walk into our stores at the end of March, you're going to see an expanded Nike footprint in adjacent to a Jordan shop. To free up that space, we're eliminating some underperforming brands and categories. One of the categories where we're downsizing, not that you guys would really care, it's called Power Marine. It's productive for us about three months out of the year. We're downsizing that and freeing up some space to create a seasonal pad on the perimeter, which ultimately takes pressure off the apparel pad. So I would tell you our partnership with Nike has never been stronger and the Jordan launch coupled with the expansion we're getting, we're really excited about what that holds for us is here.

That's very helpful. I appreciate all that color. And just a follow-up question with regard to tariffs, just given the focus of all of us on this topic. So it sounds -- with the comments you've made, your exposure to China is limited and getting more limited. You have no exposure to Mexico and Canada. So those are the countries that have been discussed most. But I guess the question I have is, if you look at that, the rest of the business. Is there anything hidden in there from a -- maybe from a -- just from a component standpoint that we could see some tariff impact that's not captured that China number or the commentary around Mexico and Canada?

Yes, so at this point, what we've given color commentary around is the stuff that we're importer of records on, right. So obviously we have a pretty diversified sourcing base of people that we do business with from a national brand perspective. They make products all over the world and so in some cases they may be impacted by some of this. And what we know will happen is if they decide to pass costs along, it's not going to be just to us, it'll be to everybody. So far, I've seen most of the vendors try to hold costs as much as humanly possible. We've had a couple places here and there. We've seen some prices nudge up. But I believe that as we move forward the national brands are taking the same approach we do, right. Our first step when we saw these tariffs come across is work with our factory partners and see if they'll absorb some of that. And then second, you start looking for places where you might be able to offset some of the costs but not make it overt or noticeable to customers. So one of the things I think Carl mentioned on his prepared remarks is, we're the value provider in our space. We offer great items and a great everyday value. And we know certain categories over the summer months, like grills that we sell at $99.99 or kids bikes that we sell at $49.99. Customer looks to us for those and we're going to protect prices on those things and look for places for offsets where maybe the customer may not notice.

That's very helpful. I appreciate it. Thank you.

Our next question comes from the line of Kate McShane with Goldman Sachs. Please proceed with your question.

Good morning. Thanks for taking our question.

Good morning, Kate.

We wondered if we could -- Good morning. I wondered if we could ask for a little bit more context around the numbers you provided on the higher-income cohort that is Shopping Academy. We wondered if this was a meaningful change from what you were seeing in previous quarters. It sounds like maybe it was. And what do you think the driver of this -- what the driver of this is and now? And is there any insight you can give around the basket size and what that looks like with that customer versus your core customer?

Yes. So we started to see this in the third quarter and we commented on it then. Quintiles four and five, we are starting to see transact more with us and we're taking market share there. I would say it accelerated in the fourth quarter. It's pretty pronounced. What does it mean? I think they're seeking value. I think if you look at households that are generally making above $100,000 per year, they're seeking value. They're trying to afford a lifestyle that includes Sports and Outdoors and they need that from a value provider and they're turning to us. We thought that's what should have been happening all along. We really didn't start to see it until the third quarter and it has accelerated. As it relates to basket composition, we're seeing them transact with higher baskets, not just in those quintiles four and five, but overall, like there was a lot of discussion about big ticket items, things of that nature like we're seeing tickets over $200, tickets -- larger tickets for us are up and really it's just in that like $50 to $100 ticket that we're seeing the decline that drives those overall year-over-year sales down 0.2% in the fourth quarter. So it's real, it's accelerating. I like what I see. It's what I thought should have been happening before, didn't start to see until the third quarter.

Okay. Thank you.

Thanks, Kate.

Our next question comes from the line of Greg Melich with Evercore. Please proceed with your question.

Thanks. I had two questions. I wanted to start with a tariff follow-up and then get into the categories. On the tariffs, is it fair to think about the direct sourcing, the 8% would be, it's roughly a third of your private label of '23 if we were trying to think about what percentage of your product is coming -- is imported or from China, is that a fair ratio?

Yes, that's correct. And by the way, we started trying to diversify our sourcing base candidly pre-pandemic, right, when the first round of tariffs happened, I think it was in 2019 and we started on this journey. I think everybody did, right. And at the time, what really kind of stopped us or paused us was the pandemic. And then just getting access to product was what everybody's goal was. I think we, like a lot of other people, resume that journey post-pandemic and have been working this number down. That's why 10% last year is going to be closer to 8% this year. And we're going to continue to do that. I think the thing that you have to think about also though as these tariffs are getting levied is they're not all against China. So for example, the 25% that's on steel and aluminum is against any country, right. And so I think, where in the past maybe we thought having less exposure to China was the answer. I think having a diversified base is probably ultimately give me the better answer because you never know who is going to get hit with the next round of tariffs.

Got it. And then second, I'd love to go deeper into the -- some of the categories where you started to see a turn, particularly outdoor. I think you mentioned some of these bigger ticket areas, are starting to pick up. I'm just curious, are we fully down and have cycled the pull forward of COVID demand in a lot of those categories? Are we starting to see that in what, it be fitness or grills or you name it?

Yes, we believe so. I'll tell you, category like grills that you just mentioned was strong all the way through. We never saw kind of a pullback on that. But certainly fitness has had a rough couple of years, since 2022, '23, '24 were all negative comps for us. We saw that stabilize as we got into Q4. I think it was two pronged. I think first, maybe we're past a little bit of that pull forward. And then second, you know, we really focused on some really sharp pricing and giftable items still big ticket, maybe over $200, but really great value for what it was. And we saw that stabilized bikes was another business that had been really challenging for the past couple years. We saw that business really inflect back to positive, in Q4, we had a really good Christmas with kids bikes in particular. Categories like Fishing, which also saw a surge during the pandemic, really started coming back last year in the back half of the year. And outdoor has been one of our better performing businesses, candidly all year. The Firearms business has been pretty strong as well as the Fishing business that I just mentioned in Camping. Camping is a little more driven by some of the drinkware trends that are out there, but we're definitely starting to see some of these categories that surged during COVID start to come back.

Got it. Thanks and good luck.

Thanks.

Thank you.

Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.

Good morning. Thank you so much for taking my question. Understanding that it is a very uncertain time right now, the midpoint of your guidance embeds the expectation that you -- that Academy is going to comp negative this year despite all the initiatives that are at play, including the launch of Jordan, the trade down you're already starting to see and the contribution from the ramp of the new stores. So this begs the question, what type of environment, macro, or backdrop for the sporting goods industry would be necessary for Academy to drive a positive full-year comp? And then I have a follow-up. Thanks.

Yes, I'll take that one. So we've seen sequential comp improvement since starting in the second quarter of 2024. Third quarter was a little better than second, fourth quarter is a little better. We're expecting that to continue. And that's kind of inflected or represented in that low point. I think those initiatives that we talked about, self-help initiatives if you will, that Steve and I ran through, Nike, Jordan, the handhelds, RFID is a big deal for us and some of the E-commerce foundational and user experience types of things, those are real. We put a business case on those and we track against that. That's embedded within our guidance. But in terms of macro headwinds, when we looked at the Circana data for the categories that they cover in our footprint for the year, down about 2.5%. And so we're not expecting that to magically increase. We actually think tariffs will impose a more pressure on consumers, not just the Academy's business, but overall. So, we're really optimistic on our initiatives. We're really realistic associated with the macro environment that the consumer, there's health, if you will, at the top quintiles. They're seeking value more. We see that, but we don't think it's a rosy economic outlook for 2025.

Understood. My follow-up question is, on your gross margin outlook for the year, you laid out that the majority of your gross margin recapture will be driven by some of the supply chain and other factors that impacted your gross margin in 2024. With that being said, you do have what would probably be a lower margin vendor coming deeper into your assortment and the potential that tariffs will weigh on the profitability of the overall sector. So how did you incorporate those factors along with what is likely to be a very promotional environment if the consumer does take a step down into your gross margin expectations for the year? And can you also isolate how much exposure you have to reciprocal tariffs such that as those come in around April 2nd, that could create a little bit more pressure on Academy's profitability in 2025? Thank you very much.

That's a multi-pronged question. We'll try to tackle.

Sorry, Steve. Sorry.

So when you bring up the margin from the incoming vendor, I'm assuming you're talking about Jordan. Jordan actually would be accretive from a margin perspective. Apparel carries the highest margin mix of our business across the footprint. So having bigger, better apparel business mixes is up and provide margin tailwind. The other thing you have to think about is, and you've been doing this a while, you understand this, Michael. The first six months to 12 months you have a new brand on the floor. There's not a lot of cleanup markdowns, right. So we took a lot of those markdowns on the other side of the year. As you turn the page into this year, we're very clean from an inventory perspective. We're going to have all this new product that's going to sell primarily at higher prices at full margin. And so, we think it will actually provide a bit of a margin tailwind for us as we progress throughout the year. Other things that can also be offsets are, I think Carl brought up we see apparel growing at a faster rate this year. That's a margin tailwind for us. We've done some regular-price optimization, which we think will help offset a lot of the tariff impact. So we feel like we've got it appropriately modeled into our guidance as we move forward. Reciprocal tariffs, I think this is going to be a fluid situation. I think as we progress through the year, anybody who says they have a really good idea of how this is going to play out probably isn't being realistic, right. So what we've done is put in place a process where each month we get together. We see what the latest rounds of tariffs have been. We start looking at ways to offset them or deal with them and then we put that pricing action into place for the subsequent month. And I think that's how we're going to approach this all the way through and I think that's how we have to approach it.

Understood. That's very helpful, Steve and Carl, and welcome to Dan Aldridge. Good luck to you all.

Thank you, Michael.

Thank you. Our final question will come from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.

Good morning, team. My first question, Carl, you mentioned SG&A per store, I think, in the fourth quarter being well managed. Can you give us the 52 to 52 week, what's implied for SG&A per store for 2025? And then I have one follow-up.

Yes, it's deleverage at the midpoint. It's a little under 100 basis points. But I just want to reemphasize that deleverage is all from 20 to 25 new stores getting more into customer data, growing the.com business. It's not going to be on what we would consider base expenses. It's going to be on those seats for the future, but it's a little below 100 basis points implied within the midpoint of the '25 guidance.

Okay. And then the follow-up, it's also on the new stores or I guess, I think Steve mentioned the base, the base stores because if you take the estimated benefit from new classes of stores, I think you could get to something like a 1 point contribution of comp that's a rough math, it could be even higher, it could be a little lower, but it's certainly positive, which means the base is still implied to be negative. My question is on the base stores, mature stores. What's happening to the trend line there? Does it look similar to the ramping stores? And then what's happening to cash flows? Are cash flows stable, growing or deteriorating in some of these base stores that have had negative comps for a couple of years? Thanks.

I think Carl and I will tag team this one. So in terms of the base stores, I mean, obviously, they've been comping negative, but as we've seen the trend improve sequentially quarter-over-quarter during the back half of the year, we've seen the same thing happen with the base stores. And candidly, when we went through the prepared remarks, obviously, new stores, I think we understand the economics and know the value of those and it's our best way to grow market share and to grow our brand. But we know that we've got to get the base stores moving back. And that's why we spent the most time talking about the initiatives we have there, the new brand launches, the new technology rolling out the stores. The work we've done around marketing to drive increased traffic. I would tell you the preponderance to the strategies that we're banking on and working towards in 2026 and -- '25 and '26, I'm sorry, are really focused on turning the base store comp around.

Yes. And then I would say cash flow, I'm proud of our cash flow. If you look at cash flow from operations as a rate to sales, I think we're top quartile in retail. And I do that because I benchmark it all the time. Cash flow, we're managing well, we're managing inventory in those base stores well. If you look at free cash flow, if you will, it was up year-over-year on a negative 5% comp, negative 5.1% comp for the year. That is not Happenstance. We're pretty proud of how we're managing through this.

Okay. Thanks. Good luck.

Thanks, Simeon. Okay. As Carl and I outlined today, we remain confident in our long-range plan and business strategies. Over the past 20 months, we've strengthened and solidified our management team, and I was pleased to welcome our new SVP and Chief -- I'm sorry, EVP and Chief Information Officer, Sumit Anand earlier this month. We've also augmented our long range plan pillars with a strong tactical plan that we believe should move us back to top line growth in 2025. We've got multiple pathways to grow and a strong operating model that allows us to fund our growth investments while also consistently returning value to our shareholders. Finally, we have a beloved brand in our core geography with a lot of white space for expansion. The opportunity before us is clear and we're excited to pursue it. We believe that by staying true to our strategy, we can achieve our vision of becoming the best sports and outdoor retailer in the country. Before ending the call today, I want to thank our investors and analysts for joining us on the call. I also want to take a moment to acknowledge and recognize our 22,000 plus team members and their incredible efforts in consistently exceeding customer expectations during 2024. Our associates remain the key ingredient in our secret sauce, and I believe they're going to deliver a strong result in 2025. Have a great rest of your day.

The call is now concluded. You may now disconnect. Thank you.