Academy Sports and Outdoors Inc (ASO) 2020 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Academy Sports + Outdoors Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. At this time, this call is being recorded. (Operator Instructions) Questions will be limited to analysts and investors. (Operator Instructions)

I will now turn the call over to Michael Mullican, CFO of Academy Sports + Outdoors. Michael, please go ahead.

Good morning, everyone. Before we get started, I want to take a minute to introduce our new Vice President of Investor Relations, Matt Hodges. Matt joined us in January and will oversee Academy's investor relations function and lead investor and analyst communications. Matt comes to Academy with more than 20 years of public company finance experience with Fortune 500 companies, including JPMorgan and GameStop. Welcome to Academy, Matt.

Thanks, Michael. Good morning, everyone, and thank you for joining Academy's Fourth Quarter and 2020 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.

For reference, the earnings release issued this morning is available at investors.academy.com.

As a reminder, statements in today's earnings release and the comments made by management during this call may be considered forward-looking and are intended to be covered by the safe harbor provisions under the federal securities laws. 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 today's 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 and are provided on our Investor Relations website.

With that said, I'll now turn the call over to Ken Hicks, CEO.

Thank you, Matt, and good morning, everyone. Thank you all for joining us today.

I want to start by thanking the entire Academy Sports + Outdoors team for the amazing work that they've done over the last year, taking care of our customers and moving the business forward during this ongoing pandemic. The record results we reported today are because of their hard work and dedication to our customers and Academy.

2020 was a year where a broad selection of value-based products resonated with customers as they worked to stay safe, sane and in shape. The ongoing trends of at-home fitness, outdoor cooking and backyard games, along with socially distanced outdoor recreation activities like biking, fishing and camping became even more popular trends.

Our stores and websites have been there to safely meet our customers' needs, being open throughout the pandemic by offering new options like buy online, pick up in store and curbside pickup. We expect customers to continue enjoying their newly discovered ways of having fun and being active well beyond the current environment.

As I shared on the last earnings call, I'm pleased that the investments we made in our key initiatives before the pandemic have taken hold and have made us more competitive than ever. Today, we reported the best fourth quarter and full year results in the company's history. We've seen and will continue to see the benefits well into the future.

Total sales were $1.6 billion in the fourth quarter and $5.69 billion for the year, both record highs, with comparable sales of 16.1% for both the quarter and the year. We reported adjusted net income of $103.1 million for the quarter and $311.7 million for the full year, also both record highs. We have now achieved 6 consecutive quarters of positive comparable sales and profit growth dating back prior to the pandemic. These results were driven by our continued efforts to improve our power merchandising, omnichannel and customer experience along with our efforts to increase the productivity of all of our assets.

For Academy, our merchandising means being the best retailer in the country in our most important product categories by having a broad yet localized and value-based selection in 2020. We delivered a double-digit comp, higher gross margins and higher inventory turns compared to 2019. Our work to become the leading sports and outdoor retailer has put us in a position to grow as demand for our products continues to increase due to shifts in consumer spending.

Regarding omnichannel, in the fourth quarter our e-commerce sales increased 60.7%. For the full year, our e-commerce sales grew 138%. And the penetration rate was 10.4% compared to 5.1% in 2019. Buy online pickup in store, or BOPIS, and curbside pickup represented approximately half of our total e-commerce sales for both the quarter and the year. More than 95% of our total annual sales involved our stores, including ship-from-store, ship-to-store, BOPIS, and in-store retail sales, demonstrating that we have truly created an omnichannel experience that is deepening our relationship with our customers.

With respect to customer experience, we continue to make meaningful progress by creating an entertaining and interactive shopping experience, both in stores and online, having tailored local assortments, offering value-added services such as free assembly on certain items and hiring enthusiasts for customer engagement. Our improvements to the customer experience have also been extended to academy.com where we have invested to better search capabilities, card management, enhanced personalization and exciting informative content. We also made meaningful progress on our targeted marketing efforts throughout the year. And we're building deeper customer loyalty through the Academy credit card program. The card offers a bank-funded 5% discount on every purchase, and free shipping on most online orders of $15 or more. Because cardholders shop more often and spend more money than non-cardholders, we know this is driving incremental sales and margin dollars.

Lastly, during the quarter we significantly strengthened the balance sheet through 2 transactions. Michael will talk about the details, but we ended the year with twice as much cash and approximately half as much long-term debt than at the end of 2019. In 2021, our priorities for cash use are to remain financially strong and viable as we move forward in the current market environment and to support current operations and fund projects intended to help deliver future growth.

I will now turn the call over to our CFO, Michael Mullican, to review our financial results in more detail. Michael?

Thanks, Ken. Good morning, everyone. Despite all the challenges in 2020, we ended the year with record sales, record gross margin and record earnings. I'm going to walk you through the details of the quarter and the year, and then discuss how we plan to build upon these results going forward.

In the fourth quarter, net sales increased 16.6% over Q4 2019 to a Q4 record $1.6 billion. Sales were driven by double-digit comparable sales in all 4 merchandise divisions, strong e-commerce growth and double-digit brick-and-mortar increases, including gains across every single market. We continue to see a significant portion of existing customers cross-shopping additional departments within the store and returning to those departments with greater frequency than in the past.

For the full year, net sales increased 17.8% over fiscal 2019 to a record $5.69 billion. Comparable sales increased 16.1% for the fourth quarter and the full year.

In the fourth quarter, gross margin was a record $499.1 million. The margin rate increased 420 basis points, driven by fewer promotions and clearance sales, which offset an unfavorable merchandise mix shift. A constructive operational trend from the third quarter that continued into Q4 is that the company's gross margin rate expanded as comparable sales increased double digits and e-commerce sales grew by 60.7%, indicating that we are building and operating a profitable omnichannel business. For the full year, gross margin increased 21.2% over 2019 to $1.73 billion.

Turning to SG&A. In Q4, SG&A expenses were $358 million or 22.4% of sales, which was 160 basis points less than Q4 2019. For the full year, SG&A expenses were $1.31 billion or 23.1% of sales, which was 280 basis points less than fiscal 2019. The improvement was primarily driven by leveraging our operational costs such as advertising, property and employee costs on increased sales, led by the continued strong performance of stores opened in non-legacy markets. These stores, many of which were open from 2015 through 2019, are now outperforming [the gain] in terms of sales growth.

These improvements, in addition to lower interest expense, resulted in pretax income of $121.6 million, a 552% increase over Q4 2019; and $339.1 million for the full year, an increase of 176% over last year.

Net income in the fourth quarter was a Q4 record $91.5 million, a 416% increase over Q4 2019. Pro forma adjusted net income, which excludes the impact of certain extraordinary items, was $103.1 million, an increase of 486% over adjusted net income in 2019. And for the full year, net income was $308.8 million, also an all-time high and an increase of 157% compared to 2019. Adjusted net income was $311.7 million, an increase of 311% over adjusted net income in 2019.

Diluted earnings per share for the fourth quarter were $0.97, a 304% increase compared to Q4 2019. Pro forma diluted earnings per share, which excludes the impact of certain extraordinary items, were $1.09, a 374% increase compared to Q4 2019. Diluted earnings per share for the full year were $3.79, 137% increase compared to fiscal 2019. Pro forma diluted earnings per share, which excludes the impact of certain extraordinary items, were $3.83, a 275% increase compared to fiscal 2019.

Moving to the balance sheet. Academy ended the year with $377.6 million in cash and no borrowings under our credit facility. During fiscal 2020, the company generated $1 billion in operating cash flow compared to $263.7 million in fiscal 2019. As a reminder, the majority of the proceeds received in connection with our IPO were recorded in the third quarter. However, on November 3, 2020, the company issued and sold an additional 1.8 million shares pursuant to the underwriters' overallotment option, resulting in approximately $22.1 million of additional net proceeds.

As Ken mentioned, we completed refinancing activities to strengthen our balance sheet. In November, the company reduced its gross debt by approximately $630 million and refinanced and extended the remaining $800 million in debt through 2027. We also extended our undrawn $1 billion revolving credit facility through 2025.

In terms of capital allocation, due to the continued uncertainty caused by COVID-19, we are taking a measured approach on how we deploy capital, with investing in growth and supporting our business as our top priorities.

We ended the year with $990 million of inventory, 10% lower than we began the year. Our strong sales growth resulted in lower but fresher inventory. While there are certain products in which we would like to have more supply, and the team is working diligently to replenish, overall we feel comfortable with our current stock position.

For fiscal 2020, capital expenditures totaled $41 million compared to $63 million in fiscal 2019.

That concludes my comments on 2020. I would now like to move into commentary about business in 2021.

Academy has strong momentum heading into the year, driven by the continued development of the initiatives we launched over the last 12 to 18 months, both prior to and during the pandemic. In 2021, there are 4 main opportunities that we believe can drive the business.

First, we will work to capitalize on the shopping velocity of newly acquired customers. Through transaction-level data mining and analysis, we know that many existing customers are shopping new categories. They are doing more than just buying new items from Academy; they are picking up new interests, hobbies and lifestyles, which should lead to incremental sales. We also know that our Academy credit card holders shop Academy more frequently and drive a bigger basket than non-cardholding customers. By using this type of transaction-level data, we can promote through more sophisticated, personalized digital marketing channels, which will lead to increased sales and lower promotional costs.

Second, we will work to ensure that we are replenishing and growing categories that were inventory-constrained through most of 2020, [ammunition], certain fitness equipment and outdoor play equipment.

Third, we are preparing for and poised to capitalize on numerous product categories that were challenged in fiscal 2020 but are positioned to benefit from the reopening of the economy. While many of our categories benefited from the COVID-19 crisis, several of our key businesses such as licensed apparel, team sports equipment, apparel and footwear and back-to-school were adversely impacted and should return to normal this year. In addition to each of these businesses driving sales growth, they are all margin rate-accretive and should drive a return to a more traditional mix of sales.

Fourth, we will improve our management of several seasonal categories where there are not worldwide inventory shortages, but where our initial inventory buy in 2020 was not enough to meet the strong demand. This year, we have modified our planning and allocation on products like grills and water sports to support additional sales compared to their normal trend line.

As we begin 2021, we are confident that we can continue to deliver strong results because of our incredible team, the continued development of our key initiatives, and the stronger, deeper relationships we have built with our customers. The company is providing the following estimate for fiscal 2021.

Comparable sales are forecast to range from up 2% to down 2%. This is an 18% to 14% increase on a 2-year stacked basis. As a reminder, Academy is an essential retailer and therefore had very limited store closures in 2020.

Diluted earnings per share are forecasted to range from $2.70 to $2.95. This assumes net interest expense of approximately $49 million, a tax rate of 25%, and diluted weighted average shares outstanding of approximately 98 million shares for the year. Capital expenditures are expected to range from $80 million to $85 million.

I'll now turn the call over to Chief Merchandising Officer, Steve Lawrence, to discuss our quarter and full year category results. Steve?

Thanks, Michael. Now I'd like to give you a little more color around our fourth quarter performance by division.

We're extremely pleased with the 16.1% comp for the total company, which translated into strong double-digit growth across our 4 major divisions. Apparel sales rebounded versus the trend we saw in Q3, driven by the strong inventory position we took in branded fleece. With this rebound, the apparel business posted a low double-digit comp in the quarter, which aligned with our trend in footwear.

In outdoor, many of the categories started to surge in the first half of 2020 (inaudible) into holiday with strong continued sales in fishing and camping. While we saw sales in the hunting business moderate during the quarter, this is more a function of limited supply versus the deceleration in demand. With many of the macro trends to fuel the business in 2020 not showing any signs of letting up, we anticipate that all of our outdoor categories will continue to see elevated demand as we turn the page into 2021.

The best-performing business for the quarter is sports and rec, which is home to many giftable categories such as indoor and outdoor games, bikes, fitness equipment and outdoor cooking, all of which performed very well during the quarter.

We reset the fitness floor prior to Q4 with new assortment of connected fitness and all the equipment sold very well as people continue to build out their home gyms. We expect to carry this momentum into 2021.

As I did a quick run-through our 4 major divisions, you'll realize that many products in each of these businesses are bulky items that are very expensive to ship. As a result, BOPIS has become an increasingly popular option for our customers. Throughout 2020, we expanded our BOPIS capabilities with the rollout of curbside pickup last spring and ship-to-store launching prior to Q4. These new capabilities were key in driving our e-commerce business to a plus 60.7% increase for the quarter. Over the course of 2020, we saw increasing growth in curbside BOPIS, with many of our customers wanting the convenience of being able to reach out and search for inventory online and securing the product without having to drive all over town to find it, and then driving to pick it up without having to leave the safety of their own vehicle. The advent of ship-to-store allowed us to much better target inventory demand by holding the goods in our warehouses and then sending it out the the stores where the customer purchased it.

A great example of this was Black Friday weekend with several stores sold over 200 trampolines each, most of which came through BOPIS and utilized our ship-to-store capability. As you know, trampolines are big, bulky items that take up a lot of space in stores. Traditionally, we'd never consider sending over 200 trampolines to a single store. With our new capabilities, we're able to quantify the demand by store and take in more customers this way.

In terms of how sales flowed across the quarter, a couple of trends emerged. First, demand for several of our hot-trending product categories coming in Q4 actually accelerated during the quarter. Throughout most of the year, we saw customer demand outserve supply for many categories such as bicycles and fitness equipment, creating scarcity in the marketplace for these high-demand categories. We aggressively replenished inventory throughout most of the year to be well positioned heading into holiday. As we restocked, we saw the trend in some of these categories accelerating Q4, signifying that even with all the work we did to get back in stock over the course of the year, we are still leading sales on the table. This gives us confidence that if we can maintain good and stock levels in these high-demand categories, we should see the sales momentum continue into 2021.

Another change versus prior holidays is that we saw customers buy giftable categories earlier than in previous years. As we have set some holiday categories such as game room [or ride-ons] in early November, we saw immediate strong selling versus traditionally seeing them start to sell closer to Thanksgiving. We attribute this to customers reacting to supply constraints in the marketplace and buying when there's availability. Because of this, we did not have to aggressively discount these categories during holiday, while still achieving a high rate of sale. We anticipated this trend would carry into 2021 and are already seeing accelerated rates of sale of some spring/summer categories such as water sports.

The third trend we saw was a smoothing out of sales across the weekdays as customers shopped more frequently early in the week to avoid large crowds. This was most pronounced during the Thanksgiving time period, where the early part of the week was much stronger than prior years with lower traffic levels on Black Friday itself. This trend has led us to rethink how we staff stores as well as timing of some of our marketing messages.

I've already touched on all these trends contributing to the holiday that was less promotional than previous years. We drove a 16.1% comp in Q4 with pure promotions, higher AURs and better regular-price sell-throughs. The end result was that we finished the quarter with about half the level of clearance inventory than we had a year ago. This mix of strong regular-price selling, coupled with less clearance, has allowed us to improve our gross margin rate by 420 basis points versus Q4 2019. This also has a positive impact on margins in early 2021, and we had a lot less fall inventory cleared during the February clearance cycle.

Connecting this back to inventory, while our total inventory was down roughly 10% at the end of the year, about half of that decrease is from having less clearance merchandise. In order to be in strong inventory position for spring, we worked hard to accelerate receipts prior to Chinese New Year to ensure that our inventory composition was much more forward-facing. While there continues to be ongoing challenges in the supply chain in terms of securing containers and cargo space, our strong vendor partnerships, both domestically and overseas, has allowed us to successfully navigate through all the challenges. And as a result, we should be in the best inventory position we've been in over the past year by the end of Q2. This will position us well to drive business as we head into the summer months.

Hopefully, as I went through many of the Q4 highlights, you got a sense of how truly transformative year 2020 was for Academy. All the challenges and experiences that we went through have helped sharpen our strategies that made us better, more nimble operators. As we head into 2021, we believe that many of the trends that emerged over the past year will carry forward and continue to fuel the business and that we are well positioned to capitalize on the opportunities.

One way to continue to fill these trends while also attracting new customers is through new product launches and brand introductions. Our newest proprietary brand, FREELY, launched in February. The goal is to provide our customers with an athletic-inspired apparel and footwear brand that bridges function with comfort at an outstanding value. Freely is positioned at better price points and helps us bridge between our opening price BCG brand with the best brands in our athletic space such as Nike, adidas or Under Armour. The initial selling on Freely has been strong, and as a result, we plan to expand the brand into plus sizes in fall '21.

We're also launching a new better tier of our iconic outdoor brand, Magellan Outdoors. You'll find Magellan Outdoors Pro in all stores with a focus on more technical performance fabrics and features of apparel and footwear. We're also rolling out innovative new products such as in camping, where we're are now carrying a collection of pop-up tents that you can be set up by one person in 60 to 90 seconds. Hopefully, you agree that there are a lot of new exciting things going on here at Academy.

I'd like to turn the call back over to Ken.

Thanks, Steve.

While 2020 was a record year, our goal is to retain the market position that we have built and the new customers we have gained, so that in 2021, we'll continue to innovate and implement more tools that will drive our future growth. Our strategy is working, and I feel strongly that it will continue to work in future environments.

Our priorities for the year to drive our performance are:

One, building a stronger omnichannel business by improving the website experience, our navigation, search and checkout, by launching a mobile app and an e-gift card and improving customer fulfillment options.

Two, continuing to improve our shopping experience by enhancing store customer service and effectiveness by completing approximately 30 remodels, deploying improved labor management tools, and enriching merchandise presentation and customer experience.

Three, continuing our power merchandising work to improve merchandise planning and allocation capabilities by focusing on greater localization, delivering seasonal replenishment and improving promotional management and presentation in stores.

Four, increasing targeted marketing and customer communication by utilizing digital channels, creating a robust content library, and increasing our targeted message to our customer.

And five, strengthening efficiency and effectiveness of our supply chain by refining processes and systems optimization to increase the efficiency and effectiveness of our distribution centers and logistics.

While 2020 was a strong year, we know there are many challenges ahead of us. But we're focused on the future and feel confident, and we are well positioned for the long-term during and post pandemic.

In closing, our focus is on improving Academy by delivering fun for all as we work towards our vision of being the best sports and outdoor retailer in the country. Thank you.

(Operator Instructions) Our first question comes from the line of Christopher Horvers with JPMorgan.

Just my first question is on the guidance. Can you give us a sense of how you were thinking about the cadence from a top line perspective over the quarter? I know you're not guiding quarters specifically, but how you're thinking about that would be really helpful. And then related to that, any commentary of how you're thinking about gross margin versus SG&A during the year as well?

Yes, Chris. We're not -- as you said, we're not giving quarterly guidance, but the first quarter was -- last year was our -- probably our -- was our easiest quarter. We were up to 3% comp. Second quarter, very challenging, up 27%. And then the back 2 quarters were both up 16%.

So I think when you look at it that way, we're -- we feel that that's probably -- the inverse of that is our biggest opportunity. So early in the year, we've got less we're up against and the second quarter was a more challenging quarter. In the back part of the year, we feel we're well positioned there, too.

Yes, Chris, with respect to G&A and gross margin, on the G&A side, we did have some onetime expense savings last year that we probably won't repeat this year. When the pandemic was declared, we really prepared for a hibernate year, and winter never came. So we pulled back on advertising. We furloughed some employees. We frankly took our store labor force down to a level that, long-term, would make sense. So we won't repeat those.

On the gross margin side, we like where we're at, and we're not planning to give up that ground that we've gained. We've got a lot of machine learning that's still -- that we can still benefit from as these programs kind of progress and the initiatives progress. And then if you think about our mix of business, we should have a more normalized mix of business this year, which will help our gross margins.

Understood. So my follow-up to that is, so it sounds like -- if you just look at on the top line and the stack side, it sort of feels like you're saying that, obviously, 1Q, great. But as you get into the back half of the year, there could be an opportunity to be flat to up. And then on the gross margin front, you expect mix of business and better merchandising sophistication to essentially offset the lower promotions and clearance from 2020 and such that gross margin is flat?

Well, yes, I think mix of business is a big one. And we have some categories that were challenged this year that will all be margin rate-accretive next year. You think of certainly licensed apparel, team sports, footwear. So we're looking forward to those categories coming back to normal levels.

And as far as the cadence goes, who knows? It's a very difficult environment to read. We do know we've got strong demand across the business. And what we look at, are we taking share? We feel good about that, that across most of our categories, we're taking share. We're pleased with new customers.

Are our investments delivering what we expect them to deliver? We're happy with those. We're happy with the credit card. We're happy with the power merchandising initiatives. We're happy with some of the targeted marketing that we've begun to do.

Are we leveraging our costs? We feel good about that. Certainly compared to '19, I think everybody will like the progress that we're showing.

And are our customers returning and are they coming back and are they happy? And we see a lot of customers shopping new categories for the first time, existing customers shopping categories they've never shopped before and returning to those with greater velocity.

And that's across the store. It's apparel. It's outdoor cooking. It's on the outdoor side. So when we look at our initiatives, we're pleased with the progress. How it shakes out through the year, TBD, because there's just a lot of -- it's a very unusual environment as we all know.

Our next question comes from the line of Greg Melich with Evercore ISI.

Congrats, guys, on a great year.

Thanks, Greg.

Maybe a follow-up on the guidance a little bit. If I take the midpoint of it, it looks like you're expecting EBIT margins to be down maybe 40 or 50 bps for the year. I just want to make sure I have that right, as sort of a follow-up to Chris' question. And how much would comps need to be better than flat, so that EBIT margins wouldn't be down?

Yes, Greg, I mean, you're in the ballpark there. Again, that's related to the G&A. Frankly, some of those onetime savings that we won't repeat. Look, again, I think we feel good about being able to expand our operating margins. And again, with the uncertainty, we tried to do our best. We want to be helpful, but there's just a lot of uncertainty out there.

That being said, we're happy with the initiatives. We're happy with the gross margin expansion. We think we're working on the right things to expand operating margins, and certainly feel like there's a lot of -- there's upside to the guidance.

Greg, on -- the challenge this year, Greg, is obviously the ups and downs and flows of the businesses. There were businesses that started, did real well, stopped. Another business picked up. And so it makes it a little more challenging for comparables.

That said, in the long term, not necessarily it's more challenging this year. But in the long term, we would look to be able to leverage low to mid-single comps. And that's what we're working towards. That's what I've done in the past and the team here, quite frankly, has done in the past in other locations, and we believe that we're going to position ourselves to do that.

That's great. And my follow-up, to me -- to turn to the balance sheet and cash flow, you said inventory is down 100 million. Half of that's clearance. But if this year, if I take the guidance, you should be, generating, even with $80 million of CapEx, maybe $350 million, $400 million of free cash flow. What should we expect you to do with that?

Our first priority is going to be ensuring the stability of the company. It's still a challenging time. There's a lot of uncertainty out there. So we're going to make sure that the company is in a stable position.

The second is to invest in the initiatives that we have. We still have a lot of work to do to continue to grow and expand the company online. We're doing a number of remodels this year, over 30 remodels. Next year, we'll start opening new stores. And so we're going to -- and we still have some systems work to do in omnichannel and in our planning and allocation. So we're going to continue to invest in growth opportunities.

And as we go forward, we will evaluate options and how we can recognize and reward our investors and what is the best way to do that. At this time, our focus is on stability and growth.

Our next question comes from the line of Seth Sigman with Crédit Suisse.

So I wanted to follow up on the gross margin.

Seth, we can barely hear you.

(technical difficulty)

So I wanted to follow up on the gross margin, specifically in the quarter. Up 420 basis points was a pretty big acceleration from what we've seen in recent quarters. And it's impressive considering you had a mix impact, you had online, which I assume was dilutive.

What was the difference versus prior quarters? Is there a way to frame what was environmental factors versus changes to your own process and how we should be thinking about those levers?

Yes, I'll let Steve start with this, and then I'll tag on. But go ahead, Steve.

Sure. From a gross margin perspective, Seth, I think a lot of the work we had been doing had been getting on a more logical markdown cases, getting our inventory more current. And I think we were kind of playing catch-up throughout most of the year as we were getting the markdowns in the right place. So that really kind of culminated in a strong Q4 where we were caught up on our markdown cadence in a really good place.

I'd also say that better localization, getting the right inventory in the right stores helped us get better natural sell-throughs. So that would be more of a long-term sustainable margin lift.

I would say, as you noted, it was not -- it was kind of an unusual holiday, a little less promotional. We certainly did take the opportunity to back off some of the promotions. That also contributed.

But as Michael said earlier, as we think about it going forward, we think the margin mix we're going to get, which is a tailwind for us, will help offset any additional promotionality we have to put in.

Yes. One of the other things, Seth, that we did see in the fourth quarter was the resurgence of apparel and footwear, which that mix helped as compared to earlier in the year.

Yes. I think the other thing, Seth, that happened is look, January at Academy, historically, had been a lot of empty calories. So we traded off a lot of clearance sales for higher-margin sales certainly in the back half of the quarter.

Yes. My line, which I understand Michael sometimes steals is...

I steal it a lot, Ken.

Show me a good January, I'll show you a bad December. But show me a bad January, I'll show you a good December. So we sold -- what historically we would have sold at a markdown in January, we sold it more at regular price in December.

And that's -- when you buy and you allocate and you flow goods correctly, that's what you can do from a margin standpoint. So again, very -- it's still early innings on it, but happy with the progress.

Okay, very helpful. And then just one follow-up on the opportunities in '21 on the top line. You did mention the return or the potential return of a number of categories that lagged last year. Can you just dig into that a little bit more? And are there any early signs pointing to that happening, some of these categories recovering, especially as we start to head into team sports season here?

Yes, it's a great question. So definitely, we saw literally a year ago right around now, all these categories just literally stopped. As a matter of fact, we talked about it a couple of times. We had some categories like fleece where we had a day where we had 0 sales.

So as seasons have resumed, we've definitely seen the team sports business kind of roaring back to life on a Y-o-Y basis. What's more helpful there is for us to look at it versus 2019 versus last year, but definitely a strong business.

We've seen other businesses that had been strong continue through. We talked a little bit about water sports getting off to a fast start. Fitness, in some of those categories, continue to be strong.

One category that we probably haven't seen a rebound yet, and we anticipate will probably be a little bit later in the year, will be the license business. A lot of our license business is driven off of people either going to the event or going to an occasion where they can watch the event with friends. And as things are starting to open up, that business is getting better, but it's certainly not back to where it traditionally has been. We hope by the time we get to football season, things will normalize.

Some other elements, for example, that we'll see as we go through the year will be a more normal Father's Day and Mother's Day.

Back to school.

Back to school. Those type of events that, last year, were nonevents, will be stronger this year than last year. And as Steve said, our footwear and apparel business in the first 2 quarters of the year -- or actually the back half of the first and the second quarter, we're not -- didn't perform well because people weren't buying apparel. And so we've got opportunity there as those normalize.

Our next question comes from the line of Robbie Ohmes with Bank of America.

Ken, I think it -- at the -- of course you guys are doing great. Listen, at the end of the third quarter, I think you guys said you acquired 3 million new customers. Can you give us an update on where you ended the year? And maybe remind us something about maybe the demographics of these new customers. And you mentioned some of the things you're doing to keep them, but any other color you can give there? And then I have a follow-up.

Yes, we picked up over 5 million new shoppers during the year. And things that we saw about them: one, there was a higher -- a greater increase in our non-heritage markets. So in places where we were not as strong, we became much stronger. They were younger, more female, more diverse in terms of ethnicity. And so we feel really good about this customer. More families. And so we feel good about who we pick -- the number we picked up and where we picked them up, and quite frankly who they were because they significantly add to our consumer base and broaden the base that we have.

We're also seeing them cross-shop more into other categories. That's kind of the key of gift-giving is they're not just sticking with the categories they initially get introduced into. They're broadly shopping across the store, which we think could be a tailwind going forward.

Which we're also seeing with our existing customer, that they're discovering new areas of the store. And that, obviously, is a good thing, which fits with one of our core strengths, which is the breadth of our assortment.

That's great. And then just a follow-up. Can you guys talk about how stimulus has impact -- how did stimulus impact you in the fourth quarter, and how much should we expect it to be helping this quarter?

Well, in general the trends that we saw very early on in the pandemic has continued throughout the year. The stimulus has obviously helped that.

How long it goes or how long we benefit from it, TBD. I mean, things are a lot different now. We do have -- there's more competition. There's more, I think not only from our direct competitors who were closed through the early part of the pandemic, but there's more competition for that wallet in general. But overall, it absolutely has helped our business.

Next question comes from the line of Daniel Imbro with Stephens.

Congrats on the strong quarter.

Thanks, Daniel.

Ken, I want to start one on the promotional kind of backdrop. You've mentioned a few times in here today, sales are good now. There's not a lot of clearance or promotional activity.

But when trends do slow, how quickly do you think competitors in the market look to use price to try to hold on to foot traffic? And if that does happen, does your every day low-value proposition become more valuable to customers since you're already every day low-value? Or how does Academy competitively fit into that dynamic as the market gets more price-dependent?

Yes, I think I'd answer kind of backwards. I think our every day low price resonates well with the customers all the time. And we have seen that, and it's been a good vehicle for us to both attract and retain customers. So I believe that the every day value -- because it's not every day low price, it's every day value because we do much more than price. So every day value is a strength of ours.

That said, we still do promote periodically on certain items, certain windows that some of our vendors offer and things like that. So we have vehicles that we can use to drive traffic and grow sales.

With regard to the coming back of promotions, I think right now, most retailers are seeing good business. So there's not the need to, one.

Two, there's not the ability, quite frankly, because inventories continue to be a challenge. We are in much better shape than we've been. The way I would determine it is we are an acceptable inventory position, but not the position that we want to be in. We don't need to -- and neither do our competitors need, at this point, to promote.

When they go back to promoting, we will still resonate value to the consumer. We won't need some of those promotions to drive the traffic and retain the consumers that some of our competitors might. But I think, quite frankly, it will be a while before we see some of the promotional intensity that we had seen in the past. There's less inventory. The consumer is excited and wants our product. And quite frankly, the -- there's not a need to at this point.

Yes. And I think -- I don't think we'll be leading the way here. We'll counterpunch when we need to, if we need to.

But the antidote to all of us is buying it right, buying it optimally, flowing it correctly and allocating it. And that, we've laid the groundwork to do that effectively in management. That's the offset to it, in addition to some of that supply chain work that we're beginning to take on.

Got it. That's really helpful color.

And then my follow-up question was just on the real estate and unit growth strategy. Michael, I think in your prepared comments, you noted stores opened in the last few years are actually outperforming the legacy market. Is there anything consistent in those markets as to why? Are there certain categories you're seeing relative to your legacy markets?

And then with that and the cost progress you've made probably ahead of schedule, how are you guys thinking about when you're going to start resuming the pace of unit openings or reopenings over the coming years?

I'd say the one thing that's consistent, it's really across the board in those legacy markets. And that's because we intentionally paused our store growth to get them right, to get them assorted correctly, to get the marketing right in those markets. And so it's really across the board in all the markets. They're leading the chain.

In terms of what the future looks like, we do want to begin growing again. As Ken said, that's how we prefer to use our capital to grow right now because there's plenty of opportunity to do that. We're only in 1/3 of the United States and have a lot of opportunity to grow. And we'll begin doing that in 2022 with 8 to 10 stores that we've communicated before.

And as we see those and our programs work, we are capable and able to step that up. But right now, those of you who know me know I like to be focused and thoughtful about what we do. And so we're going to do it in a thoughtful manner, but we also are going to take advantage of the opportunities as they present themselves.

We're also not just sitting still this year because we're not opening new stores. We do have about 30 remodels that we're doing.

And we're doing remodels a little differently than how we've done in the past. Where in the past, we'd spend probably way too much money to remodel a store and make them all look alike. We're really trying to be more thoughtful in the store, key areas in the store based off of more localized preferences in that community. So we've got 30 of those on the books, and we think that that's also going to be a really good investment for us this year.

And the other thing, quite frankly, is our dot com business. We see a significant opportunity to continue to grow that, and we're making investments in that. And that supports the stores. There's -- we are really working to be true omnichannel. So as the dot com strengthens in those other markets, the non-heritage markets, we saw the stores grow and vice versa. And as we look to expand into other geographies, we will capitalize on the dot com to help us grow there.

Our next question comes from the line of John Heinbockel with Guggenheim Securities.

Congratulations, guys. Let me start with the stores that are in the non-heritage markets, right, and the stores that have opened in the last 5 years, at this point, you would think those can all be at the same level of profitability, right, of the core stores? Is that fair?

And then have you rethought, as COVID has kind of changed some of your capabilities, have you rethought the long-term profit margin targets of the business, right? Can it be fundamentally more profitable than you thought a year ago?

Yes. Let me start, and then I'll turn it over to Michael, that we probably, in our non-heritage markets, did not position ourselves so that those -- in some of those markets, particularly the larger markets, they could have the same capability as our heritage markets because of the way we entered and we were not, quite frankly, at optimal market position. That's one of the things that Michael and the real estate team are looking at now, is how we can strengthen those markets to get them to where we are positioned well in them as we go forward. Michael?

No, I think that Ken answered it well. I think the opportunity is in some of these markets we're operating subscale. So to maximize your profitability and leverage your fixed cost and leverage your DC assets when you've got 1 or 2 stores in a market that's really designed for 7 and 8. And then guess what? You've gone into another market with 1 or 2 stores in a market that's designed for 7 or 8.

So as we fill these markets out, absolutely, we think we can get them to profit parity. Some of the new markets have higher rent, which is a challenge. But overall they should be closer than they're at today, and we're optimistic that we can get them there.

And maybe as a follow-up to that, right, when you think about the expansion program going forward because you're -- there's a lot of white space. How do you think about, to your point, clustering, right? Do you want to do 3 or 4 in a market? Or is more the idea to spread it out over the next couple of years?

I think we learned from our history that being a butterfly doesn't work as well. We're going to be more of a hornet and make sure that we're powerful where we are. And so I think we will -- where appropriate when we enter new markets, we will make sure we enter in a reasonable position. It may not occur all at once, but in a much more concentrated time frame.

Our next question comes from the line of Daniel Adam with Loop Capital Markets.

Great quarter and strong finish to the year. First, drilling down on the down to up 2% comp guidance for the year, what do you have baked into that range for e-commerce growth versus in-store only?

We're not going to break it out by channel right now. But obviously e-com is getting a large piece of the company's investments, and we do expect it to grow even on the great year they had this year going forward. So we're not breaking it down by channel, but we expect e-com to drive -- be a sales driver.

Okay. Great. And then my follow-up is on working capital and inventory specifically. Inventory, both days and on an absolute basis, declined sequentially versus 3Q. How much catch-up inventory do you think there is at this point? If memory serves me, I think last quarter you alluded to 150 million of inventory that you'd like to have, but that was hard to get. And do you expect any supply chain disruption resulting from the Suez Canal blockage?

Yes, I'll take the number pretty quickly, and then I'll flip it over to Steve on the supply chain. But call it 100 million. I think we still have 100 million more that would support some sales there. And it's a very limited number of categories at this point. Overall, most of our categories are in an acceptable position.

And we're selling the stuff. We're just not getting back to these minimum presentation quantities. So we're turning the product. We're getting it. Frankly, we're selling it as fast as we get it. But 100 million is probably a good number.

We feel like by the end of Q1, we should be in good shape across the board, with the exception of maybe the firearms and ammo categories.

In terms of the Suez Canal, I actually looked at a recap this morning. It's minimal for us in terms of what's caught up in that. It really isn't -- it's a rounding error. it doesn't impact us.

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

Where does the profitability of the e-commerce channel stand today? Presumably, you've made big strides improving the margins there given that it's now less of an outlet, just for clearance, and you're seeing a lot of your sales being picked up in store.

Yes. Michael, you're right there. There's 2 things that have really been big drivers.

One is the first one that you mentioned. Selling a $19.99 T-shirt, half off and free shipping is a losing formula for e-com. And we've really got a differentiated experience where the customer can shop any way they want to pick up in store or at the curb. And that business skews more towards bulk large items, which we think is an advantage for us, particularly because we're off-mall.

The buy online, pick-up in-store program, as you know, we don't pay shipping on that. So it's elevated the profitability of the entire business to where it's close to margin parity. It will never get there just because the mix of business, again, skews more hard goods. But we like where it is. And it's -- again, we're able to operate it at a profit.

My follow-up is given the success that Academy has realized in the last couple of quarters, how has that improved the positioning with its major vendors, particularly considering they're pulling back on distribution? And can you give us any specific examples of products that are in the pipeline that Academy might get in the upcoming period, that it might not have gotten in the past?

Yes, we have very strong relationship with our vendors and stay in constant contact with them. And they have told us that we are a very valued account, and they also recognize what we do for them. We bring sport. We bring a mix of customers that they can't get in terms of age, families, ethnicity, the female customer that they have difficulty getting in other places. And so they've been very supportive of us.

Things like Nike Yoga, which is a new concept for them. They recognize our importance in women. We have Nike Yoga. We have Air. We've got North Face camping that we're adding to our stores this year.

So the vendors have their strategy, and I -- we support them in their strategy. And we think there's an opportunity for us, as some of these outlets go away and we've become one of the few that are out there or fewer that are out there. But we've got strong relationships. We've been good partners. We work hard with them. They continue to invest in us in both capital and product.

Our next question comes from the line of Tom Nikic with Wells Fargo.

So I just wanted to follow up on the e-com. And I know you're not obviously breaking out stores versus e-com for the 2021 guidance. But bigger picture longer term, it would seem like the 10% penetration rate you had in 2020 could still move meaningfully higher, given some of the other penetration rates we've seen out there in the industry.

So like how do you think about that? What -- where is the opportunity here? Is this a 15% online business in a couple of years, a 20% online business?

Yes. I think...

And -- yes. And any color there would...

We're allowing the customer to grow that. And we went from 5 to 10. We had a long-term goal of 10, and we beat that. And so Jamie (inaudible) who operates it, came back. And she said, "Okay. Now it's 15."

But we're not setting up, this is the number we're looking for. We're letting the customer move through it. And because of what Michael said earlier, that we have a profitable dot-com business with margins are reasonably close. We're agnostic as to how the customer shops. So we don't have a problem as the customer moves between stores and online.

And I'm not saying at some point, e-commerce will be a much more significant element of our business. But we really truly are omnichannel as both Michael and Steve talked about. Because there's -- a lot of our product is very difficult to ship: a kayak or a treadmill or a trampoline. We are able to support our customers who come in and pick that up, and that's a big plus for us.

And so we provide that capability that a lot of our competition can't do. And so that's one of our differentiating capabilities. And I see dot com continuing to grow.

But I'm not going to say, okay, when we hit 20, the game's 1 or we hit 25. I'm going to let the customer determine that. And so far, they're saying, "We're going to grow it and we like how you're managing it." And we're going to invest in supporting that with new search capability, new payment capabilities, better experience with things like BOPIS and curbside. And we're going to make sure that we're the -- one of the best in the business at it, and it's a big differentiator for us.

And the stores make it possible. I think that's the key.

Yes. The stores are linked at the hip with dot com.

Candidly, that's where the store expansion, I think, helps us grow our dot com business because they are fulfillment hubs for us. And 95% of the goods that we sell basically at some point kind of originate from the store.

Yes, we did the triple-digit e-com comp this year because we had stores and buy online, pick-up in-store and fulfillment for it.

Understood. If I can ask one more quick one.

Sure.

It sounds like you're generally pleased with the start to the year. But I know last month, there were some pretty wild weather in Texas. And...

Yes. Wild is one word for it.

Yes. I sat in the dark here in the office for 4 days. And we -- it was a hiccup and -- it was more a belch.

We -- but the team -- I continue to be impressed with the team. They did a great job. We had stores that were closed. Our DCs were closed for a period of time. Dot com was down for a brief period of time.

But they overcame that. And that's what I want to make it. I want to make it a hiccup. And I think our goal is at the end of the quarter when we report, you'll go, "Where was it?"

Our next question comes from the line of John Zolidis with Quo Vadis Capital.

I know there has been a lot of conversation among investors about how the consumer has changed and speculation about how long that might continue to be the case. I know we've discussed it a bit here.

But I wanted to kind of flip the question a bit, and I know you did touch on merchandising. But maybe you could focus for us a little bit on the vendors? And specifically, are you seeing increased innovation from the vendors as a result of this environment? Are they going to be able to bring new products to those customers, the new customers, so that when they come back to the stores, they're excited, they see things they haven't seen in the past. Can you just talk about the innovation pipeline you're seeing from vendors?

Yes, sure. I'll start, and if Ken wants to jump in. I mean I don't think we've necessarily seen that interrupted in this whole process. I can talk firsthand, in terms of some of the things we're working on internally, and I mentioned them in some of my prepared remarks.

We have our own private brands, and we've got some really innovative product coming down the pipe between Magellan Pro and Freely. We're seeing the same thing from the vendors, candidly.

There are some cases where last year, a business was interrupted like team sports. So a lot of the newness that last year was delivered, never even really candidly had a chance to sell. So in those cases, I would say the newness this year, the product is fairly similar. But the vendors that continued to ship this product all the way through have a continued diet of newness. And when we're seeing that, we haven't seen a big interruption.

Yes. I think you will continue to see. One of the things, for example, is what's happening in fitness. Connected fitness is growing. And we've got tremendous capability with iFit and with our equipment.

Vendors in fishing. There's new things coming out in fishing.

Camping, one of the things, a pop-up tent that you alone could put up in under a minute. So in camping.

In footwear, we're seeing newness. Some of the things in team sports.

So I'm actually excited. I think that one of the things the vendors actually did during the hiatus, they were still developing, but they didn't get it out. So you'll probably see more things coming, as Steve said, as we go forward as they start to bring those things out that they weren't -- there was a year where they didn't bring as much newness out. And so we're going to see a compounding.

Okay. Thanks, John. Okay. I appreciate everybody on the call and the participation. We obviously feel strongly about where we are. The team has done a great job. And again, I thank them. And we look forward to continually driving towards our vision to be the best sports and outdoors retailer in the country by offering our mission of fun for all through assortment, value and experience. And we are well positioned for the future.

That said, we're in it for the long run. We are going to keep pushing and driving forward. We're not just a quarter at a time, although it is nice to have our sixth quarter of consecutive comps in the comp profit. But that said, we're in it for the long run. And we appreciate your support and the support of all the investors who are on the call, and we think the team is working hard for you. So thanks again.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.