Academy Sports and Outdoors Inc (ASO) 2024 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Academy Sports and Outdoors first quarter fiscal 2024 results conference call.

At this time, this call is being recorded and all participants are in listen-only mode.

(Operator Instructions)

I will now turn the call over to Matt Hodges, Vice President of Investor Relations for Academy Sports and Outdoors.

Matt, please go ahead.

Good morning, everyone, and thank you for joining the Academy Sports and Outdoors first quarter 2024 financial results call.

Participating on the call are Steve Lawrence, Chief Executive Officer; and Carl Ford, Chief Financial 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.

These statements are subject to risk 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 SEC 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.

I will now turn the call over to Steve Lawrence for his remarks.

Steve?

Thanks, Matt.

Good morning to everyone, and thanks for joining our first quarter 2024 earnings call.

As always, we appreciate your interest and support of Academy sports and outdoors.

As you saw from our press release this morning, sales for Q1 came in at $1.36 billion which was a 1.4% decline versus the first quarter of last year.

As a reminder, we had a 53rd week in 2023 so we're using a shifted comp sales calculation, which compares weeks one throught 13 this year versus weeks two throught 14 last year.

Using this methodology, our comparable sales for the first quarter came in at down 5.7%.

As we expected, our customer remains challenged by the current macroeconomic environment.

Inflation is keeping prices at elevated levels, while personal savings have been depleted, causing our customers to be tight with their discretionary spending trends we've cited in previous calls in terms of customer shopping patterns held true in the first quarter as customer shopping episodically, while gravitating towards the value offerings in our assortment, along with new and innovative items.

What was encouraging was that we saw sequential improvement throughout the quarter with April being the best month of Q1.

The second quarter represents a good opportunity for us to show continued improvement with several national shopping events still ahead of us, such as Father's Day, July 4, and the beginning of back-to-school.

Beneath the surface, our .com business posted an 8% sales increase over last year and comprised 9% of total merchandise sales versus 8.2% last year.

BOPIS and ship-from-store represented more than 80% of total.com sales for Q1, which highlights a true omnichannel approach that we've taken to growing this business.

As, one of our long-range plan goals is to build a more powerful omni-channel business.

We are focused on engaging as many customers as possible across all of our channels because we know that an omnichannel shopper is our most valuable customer.

They shop more frequently, spend more per transaction, and are worth 3 times to 4 times more in sales per year and a non-omnichannel customer.

In terms of sales performance across our different divisions, the hard goods side of the business performed the best during the quarter.

On a non-GAAP basis, our strongest category within hard goods remains the outdoor division, which ran a 2% increase.

Camping continues to run significant gains driven by Stanley and YETI.

Strong field trend we saw in Q4 slowed down a little bit in Q1.

We expect this business to activate later in the year.

The hunting and fishing categories remain key differentiators for us, and both businesses are in the best inventory position we've been in over the past four years, which sets us up well heading into the summer months for fishing and then the fall for hunting season.

The other portion of the business.

We categorize hard goods is sports and recreation, which ran down 4%.

We saw strong performance in this division and team sports, which was led by continued growth in pickleball.

It also includes our outdoor cooking category, which has been a strong suit for us over the past couple of years, but had a challenging quarter, primarily driven by a crop shortage suppressed sales across the entire Gulf region.

We have seen this business rebound as we exited crossvision cooking season and people started preparing for summer outdoor grilling.

To help capitalize on this.

We also have a strong marketing plan for the summer to ensure we grow our market share.

We offer the broadest and most holistic assortment in the marketplace across cooking types and surfaces, Spices and Rubs, accessories, and premium fuels, making another key differentiator and traffic driver for Academy.

The most challenged business in sports and recreation remains fitness.

We continue to see softness in cardio equipment.

We'll talk about some plans to help improve this business a little bit later in my remarks.

On the soft goods side of the business, footwear sales were down slightly at negative 1%, which was a solid improvement over our Q4 trends.

Athletic Footwear had the strongest performance for the quarter, driven by increases in performance running brands such as Nike, Brooks and New Balance.

Casual footwear was the second best performing category with strong sales in Birkenstock's, Crocs and Skechers, driven by slip-ins.

We continue to partner with our existing footwear brands to gain expanded access to the innovation pipelines so we can ensure our customers have access to the newest styles.

At the same time, we continue to work with relevant brands to gain access to items and categories that are not already part of our current assortment.

Apparel sales were down 3% for the quarter.

Within this division, our kids and outdoor apparel business were the top performers.

We continue to see strong results from key national brands such as Nike, Carhartt and Levi's, while also seeing solid growth in some of our newer private brands such as freely and R.O.W.

Licensed apparel was the weakest segment of the business as we were lapping the release of the commemorative Astros World Series jerseys that launched last spring, along with the LSU women's basketball national championship from last year.

That being said, the majority of this business for us is done during the fall and the team has done a lot of great work around editing the assortment position us well for the kickoff to college and pro football later this year.

From a profitability standpoint, our gross margin rate came in at 33.4% for the quarter or a 40 basis points decline versus last year, primarily driven by an 80 basis points decline in merchandise margins.

The merchandise margin decline versus last year is primarily caused by sales mixing into lower margin hard goods businesses, coupled with some planned extra promotional activity this year.

We remain on track to achieve our full year gross margin rate guidance of 34.3% to 34.7%.

Carl will discuss our profitability performance in more detail in his comments later in the call.

As we forecast sales off for the remainder of the year, we expect that our customer base will remain under pressure and continue to moderate their spending combat this believing in the shopping trends, the customers clearly demonstrated over the past year, while also focusing on our long-range plan initiatives.

In regards to customer behavior for three primary sales drivers, newness, value driving traffic during the key time periods on the calendar.

In terms of newness, we continue to look for emerging and innovative brands to add to our assortment is another way to spark customer interest and drive traffic and sales.

Several of the new brands that we've added assortment over the last year, such as Birkenstock, NordicTrack and Fitness, and -- in apparel will be available in an expanded number of stores this year.

We also continue to bring in well-known brands that previously weren't part of our assortment such as Altra Trail Running Shoes for Chaco sandals.

In order to highlight our value offering.

Another place we've added newness is in our private brand portfolio, where we recently launched MacGregor Golf as a brick and mortar exclusive for Academy.

Initially, we're leaning into golf balls and clubs sets, but similar to Redfield on the outdoor side of the business, we think for our category expansion opportunities down the road.

The last, we're leveraging newness is to jump-start sales and lagging categories.

I mentioned earlier in my comments about the continued softness in the fitness business and our plan is to lean into newness and innovation as a way to help spark this business.

The first focus is to reenergize our cardio equipment assortment by capitalizing on emerging trends.

We're also leaning into value with items such as walking pads, which were essentially a simplified treadmill that works well for people who use standing desk or want a low impact aerobic workout at home.

Another addition is taking advantage of the CrossFit trend of being the first retailer to add salt fitness store brick and mortar assortment or a digitally native brand that is well known and respected within the CrossFit community.

Finally, within cardio, as I briefly mentioned earlier, we're expanding our Nordic Track Assortment out to all doors with additional styles.

Another growing fitness trend is focused on recovery or expanding into cold therapy with offerings from LifePRO and Hyperice sports nutrition as the third leg of the stool with several new brands launching in our stores, including Jacko and Podium.

On the value front, we continue to ramp up our focus by distorting the products, brands and categories we have clearly defined everyday value leadership on key private and national brand items.

You'll see these items heavily featured in marketing and primary position and signed in our stores and on our website.

While we remain firmly committed to our everyday pricing model.

We will also use promotions on seasonal categories as a way to take advantage of customers' episodic shopping patterns and drive traffic during the key milestones in the calendar.

As I mentioned earlier, we have several natural shopping events in the calendar in the second quarter, including Memorial Day, Father's Day, July 4, and the kickoff to back-to-school and football season with a strong slate of promotions focus in this time period with an emphasis on key summer categories such as grilling, patio furniture pools and fishing help ensure we win the driveway decision.

We also have several initiatives that are incorporated into our long-range plan strategies, which we expect to start paying dividends as we progress through the year.

Opening new stores remains the number one growth driver for us.

As we previously guided in 2024, we plan to open up 15 to 17 new stores.

During the quarter, we opened up two new stores with the first one in Knightdale, North Carolina, which is right outside of Raleigh, and the second in Greenwood, Indiana, which is south of Indianapolis.

We're excited that, just a couple of weeks ago, we opened up our third new store for this year in Zanesville, Ohio, expanding our presence from 18 to 19 states in our store count to 285.

The remaining 12 to 14 stores will open up in the second half of the year with a good balance of locations between new and existing markets.

During the first quarter, our '22 vintage of new stores ran positive comps, while the 2023 vintages not currently in the comp base are tracking to higher year one volume levels from that of the '22 vintage.

Our expectation is that the 2024 stores will be even stronger.

Our second core strategy is to have our .com business to 15% penetration over the next five years.

As I mentioned earlier, our sales in this channel are off to a strong start in Q1.

This is the second consecutive quarter of positive comps for the .com business.

Our core focus is on this front are to streamline and elevate the omnichannel shopping experience, offer, expanded assortments online and improve our fulfillment speed.

One key capability that will go live as we head into the remainder of the year as the ability to offer same-day delivery for many of our products, the partner with DoorDash to help us deliver this new level of same-day fulfillment.

We'll launch this capability across our entire footprint as we head into back-to-school.

Initially, customers will be able to order Academy products through the DoorDash app.

The next phase will be to integrate this functionality into our sites where customers can choose same-day delivery is another fulfillment option.

We believe that this added capability will help us reach new customers through the DoorDash app and drive incremental sales.

This new service, coupled with our strong focus offering, where we will focus on one, our fulfillment guarantee helps further simplify our customer shopping experience and better enable them to have fun out there in all of their sports and outdoor activities.

Another focus under the strategy is all the work you've heard us speak to in prior calls from driving a deeper connection with our customer through the use of data and analytics over the summer, we plan to launch our first ever loyalty program, which will be branded as My Academy.

To be clear, our Academy credit card will remain our primary loyalty tool for 5% off every purchase being the cornerstone of value propositions.

That being said, we have many customers who don't either qualify for the card or choose not to apply.

We plan to expand how we engage with non Academy credit card customers through My Academy.

The goal is to reduce andor eliminate friction for a loyalist while also expanding their buying power by offering targeted offers and promotions.

The elements of My Academy will include a welcome offer of 10% off your next purchase of up to $200.

Free shipping on purchases over $25 versus $50 for people who aren't in the program.

Faster checkout for both online and in our app insider access to personalize offers deals and products and a birthday reward.

Over time, as we test new features and benefits, our plan is to integrate the ones that resonate with our customers into this loyalty program.

At this point, our plan is to have the program fully rolled out prior to back-to-school.

Another one of our long-range plan initiatives is to leverage and scale our supply chain.

The Implementation of our new warehouse management system is one of several supply chain initiatives.

We should see increased productivity and service falls out of our Georgia distribution center as we move forward now that it has gone live.

Our management team has collectively been through many of these transitions at other companies, and we were all pleased with how smoothly the changeover to the new WMS has gone.

As a reminder, the implementation and rollout of the system is foundational to us achieving our new-store growth targets that we outlined in our long-range plan.

First of our three DCs that we will be converting over to the Manhattan WMS.

While we can't control the economy, we can control how we deliver value and newness for customers on a regular basis.

We can also control how we engage with our customer through marketing and the service levels we provide along with how we execute against the pillars of our long-range plan.

And that is what we're going to remain focused on.

With that, I'll turn it over to Carl, who give you a deeper dive into our Q1 financials.

Carl?

Thanks, Steve.

Good morning, everyone.

Our top line in the first quarter did not meet our expectations given this, we work to manage our inventory levels and control our operating costs, resulting in Academy generating $200 million in cash from operations during the quarter.

Now let's walk through the details of our first quarter results.

Net sales came in at $1.36 billion, a 1.4% decline compared to the first quarter of last year.

With a comp of negative 5.7%.

Our comp ticket size decreased by 1%, while comp transactions declined by 5%.

Our omnichannel sales were 9% of total merchandise sales compared to 8.2% in the first quarter of 2023.

The investments we have made over the past couple of years upgrading the technical aspects of our website and the connectivity to the stores have solidified the back-end infrastructure to improve the customer checkout experience.

We are now focused on investing in new customer acquisition and driving more traffic to the site.

The gross margin rate in the first quarter was 33.4%, a 40 basis points decrease compared to Q1 of last year.

Merchandise margins declined by 80 basis points, primarily due to a higher sales mix of hard goods and more promotional activity versus last year.

This decline was partially offset by a 40 basis points improvement in freight costs and a 20 basis points improvement in shrink compared to Q1 of last year.

We remain on track to achieve our full year gross margin guidance of 34.3% to 34.7%.

Our SG&A dollars as a percentage of sales increased by 130 basis points or $12.5 million compared to Q1 of last year.

We deleveraged 30 basis points on existing store operations, primarily due to the decline in sales volume.

The other 100 basis points of deleverage was a result of Academy, investing in its primary growth initiatives, opening new stores, growing omnichannel scaling and leveraging our customer data platform and modernizing our supply chain.

We believe in our long-range plan and are committed to investing in it while also managing our existing cost structure.

Overall, in the first quarter, Academy generated net income of $76.5 million and diluted earnings per share of $1.01. Adjusted net income, which excludes stock-based compensation of $6.1 million and $449,000 of deferred loan costs was $81.6 million or $1.08 in adjusted earnings per share.

Looking at the balance sheet, we ended the quarter with $378 million in cash.

Our inventory balance was $1.36 billion, a decrease of 2% compared to Q1 of 2023.

Total inventory units were down 11%, and this includes having an additional 15 stores compared to the end of Q1 2023.

On a per-store basis, inventory units were down 11.5%.

In terms of capital allocation we continue to execute a balanced capital allocation strategy, focused on our three priorities.

One, maintaining adequate liquidity for financial stability to self-funding our growth initiatives, and three, increasing shareholder return through share repurchases and dividends.

In Q1, we generated approximately $200 million of cash from operations.

We invested $32 million in our growth initiatives, repurchased [124 million] worth of shares or 2.7% of the total outstanding shares of the company and paid out $8 million in dividends.

We are investing in future growth as well as shareholder value, particularly when it is discounted relative to the company's long-term growth potential.

Academy had $574 million remaining on its share repurchase authorization at the end of Q1.

Lastly, a couple of other notes.

Up from the quarter, we amended and extended our $1 billion credit facility through March of 2029 and the Board recently approved a dividend of $0.11 per share payable on July 18, 2024, to stockholders of record as of June 20, 2024.

Turning to guidance, we expect the economic environment to remain challenging.

Therefore, we will continue to efficiently run the business while also making investments to support our long term strategic opportunities.

We are reiterating our previous sales and net income guidance for fiscal 2024, while updating our EPS forecast to reflect the shares repurchased in the first quarter, net sales are still expected to range from $6.07 billion to $6.35 billion, with comparable sales of negative 4% to positive 1%.

Our gross margin rate is still expected to range from 34.3% to 34.7% and GAAP net income between $455 million and $530,000 million dollars.

GAAP diluted earnings are now expected to range from $6.05 per share to $7.05 per share based on our revised share count of approximately 75 million diluted weighted average shares outstanding for the full year.

This amount does not include any potential future repurchase activity.

SG&A expenses are still expected to be approximately 100 basis points higher than in 2023.

As a reminder, SG&A includes stock-based compensation expense of $30 million or approximately $0.30 of earnings per share.

We also remain confident in the strength of our cash flows and still expect to generate between $290 million to $375 million of free cash flow, including $225 million to $275 million of capital expenditures.

With that, we will now open it up for questions.

Thank you.

(Operator Instructions) Seth Basham, Wedbush Securities.

Thanks a lot and good morning.

My first question is just thinking about the balance of the year for your maintained full year guidance implies a material improvement in both the top line as well as gross margins.

Can you reiterate or help us better understand the key drivers of that improvement in the second quarter and beyond?

Yes.

So I'll start with when we talked in the last call, the how we described the kind of the sequence of the quarters and progression was that we thought Q1 would be the most challenging quarter for us.

We saw sequential improvement coming in Q2.

We saw the back half getting better than the first half of the year.

So that was how we described.

And we're sticking with that as kind of our thoughts on our quarterly progression goes.

In terms of the things that we have within our control that we're using to trying to drive the business in and start moving the needle.

Obviously, we talked about the customer behavior, right?

We said the customers clearly demonstrated in past years of focus on value newness and episodic shopping around those key moments in the calendar.

And so we've really aligned our assortments, our marketing and all of our promotions around that.

So you'll see very aggressive pushes for us across all fronts during this key time periods in the calendar, such as Father's Day, July 4, back-to-school and holiday.

And then I think you'll see us pull back a little different promotions on the gas with.

And so we've got a good a good game plan from that perspective.

We've got a couple of categories that are resurgent our outdoor business has been positive now for two quarters in a row.

So we're excited about that.

That had been a drag on the business for at least a couple of years going back to '22 and early part of '23.

So we feel good about that.

The .com business has had two back-to-back quarters positive growth as well.

We expect that continues to move through the year as we get deeper in the year.

Some of the other initiatives start to kick in and obviously we talked about the '22 vintage of new stores are running a positive comp for Q1.

We expect those to continue to positive comp for us.

And then as the '23 vintages start feeding into the comps we believe that those that also inflected positive and then we start building up our 24 stores.

We only have three stores so far we opened up.

We guided 15 to 17 for the back end of the years where most of those stores are going to open up and start contributing.

So that's another driver for us.

Couple of the things you know, we've talked a lot about loyalty and our new CDP on the last couple of calls.

So I think as we're about a year into now, having that customer data platform in place.

We're getting smarter about how we how we leverage that in terms of targeted marketing to our customer.

I think the New Myer Academy Award that we're rolling out is an outgrowth of that and it gives us another tool to interact and engage with our customers, particularly those who haven't been using our credit card.

And then lastly, we've got an improving apparel and footwear business.

Both of those businesses were better in Q1 than they were in Q4, so we got those businesses moving in the right direction.

So those are all the reasons why we believe that we're going to start seeing steady improvement throughout the remainder of the year.

That's really helpful.

And as a follow-up on that last point apparel and footwear.

It's still lagging as categories seems like industry wise, they're doing better.

So opposite for you on other key initiatives are key brands that will help drive improvement in that business as we move through the year?

Yes.

So footwear for us was it was a drag in Q4.

It was actually one of the better businesses for us in Q1 there's certainly things going on in the performance running sector that we don't have access to a couple of those brands.

That being said, we're working with our core suppliers, the Nikes, the New Balance, the Adidas, the World, continues to get expanded access to premium footwear there.

We're also working with our other brands where, one of the things that's good about our businesses.

It's not just on active footwear, right?

We have a work boot business.

We have a casual shoe business are working with brands like Skechers to really drive the slip in case that working with our work with vendors to drive that piece of it.

And we continue to add new brands such as Park and stock, which has only been in the store about a year, we expanded the presentation and that amount into more doors.

We just added Ultra trail running shoes on for Q1, as well as Chaco sandal.

So it's a mixture of working with our existing brands to get access to the things that we currently haven't had access to for layering on new brands and expanding new brands rapidly as they prove successful, and that's how we're going to drive growth in flow work.

Thank you.

Justin Kleber, Baird.

Hey, good morning, everyone.

Thanks for taking the questions.

Steve, you mentioned the positive comp and new stores and hoping you could expand on that a bit.

How did the '22 vintage comp in aggregate, how does that compare to what you would anticipate from normal maturation?

Just trying to understand the comp benefit from new store maturation versus how your mature stores are performing.

Yeah, I would say it was in line with how we modeled it based off of.

If you remember, we talked a little bit about how on when we initially came forward with our forecast, and we were kind of looking at stores that had some influence from the pandemic.

So we went back and looked at stores in the '14, '15, '16 vintages to kind of get a sense of the year to look like and that's how we modeled it.

So I would say that they were in, mid single digits from a comp mid to low single digits.

From a comp perspective, it was significantly better than the remainder of the stores.

So we definitely saw an inflection there and our expectation would be that as the '23 then just start to mature and feet and we'd see similar behavior.

As a reminder, the '22 vintage was somewhat opportunistic and tested a lot of different things.

We applied those tests to the '23 vintage.

And as we've been tracking and they're tracking to a higher year, one volumes in the '22 vintage did and our expectation is we'll see the same thing with the '24 vintage.

So this is something that's going to take a while to build a little bit of that flywheel is we're trying to get it going.

It's encouraging to see the '22 vintages perform much better than the rest of the chain.

And as we get more of these vintages '23 and '24 feeding into that, I think it's just going to help accelerate our comps.

That's helpful.

Thanks.

And then maybe a question for Carl, just on gross margin.

Curious how 1Q came in relative to your expectations and if you just help us bridge the gap between the 1Q gross margin rate to the full year guide?

I know 2Q, 3Q historically have higher of our historically higher margin rate quarters, but just how you envision merch margins evolving over the balance of the year and what your assumptions are for freight within the full year guide?

Thanks.

Yeah.

So last year came in at 34.3% gross margin.

We guided to 34.3% to 34.7%.

So on the high side, 40 basis points of growth where we thought that would come from would be two to real places.

One would be on distribution center operations.

Steve mentioned that we went live with the Manhattan Active Product in our Twin County or Georgia distribution center, which is our least productive.

We're happy with what we're seeing coming out of there in terms of productivity.

And so we think that getting out of the end of the quarter of implementation, if you will, that there's upside potential associated with DC operations.

Second would be around merchandise margins of, call it, 20 basis points of upside potential associated with that.

Our inventories are pretty clean guys.

We're proud of how we manage inventory.

We're proud of how we manage promotions.

So clean inventory balance don't need to promote into things.

To clear it's what we would promote is on this key traffic driving time periods where we want to incentivize the customer to come in.

And as it relates specifically to Q1 gross margin was down 40 basis points.

That was 80 basis points of merch margin decline, 40 basis points of freight improvement year over year and 20 basis points of shrink improvement.

I would really expect on shrink to be flat for the year over year.

I think we've got opportunity areas and we're focused on it have come out of the gate 20 basis points better than last year on the inventories that we did, and I'm pleased with it.

But I would tell you to think about it as a flat opportunity.

And then freight overall, I think it will generally be flat for the year within our guidance.

We'll have some pressure associated with import.

We've got opportunities on the outbound side from a from a DC to store standpoint, I think diesel will generally be flat to upside potentials.

Our DC operations and March margin.

Yes, I would jump in and just say that the March margin coming in lower than last year, I think was really the effect of two things.

First, we talked about how outdoor performed better within the quarter, and that certainly has a lower margin profile.

Cement mixers is down a little bit now.

And then I'd also say that we're talking about the customers being under pressure and they're gravitating towards value early in the season.

One of the number one ways we deliver value is clearance.

And so we certainly saw a higher take rate on some of the clearance promotions that we ran early in the season, customer gravitating towards those.

That being said, I think we've got a solid plan and visibility to the gross margin and we think merch margins over the course would be roughly flattish, is how we're thinking about it.

Hi, guys.

Thanks for all the color and best of luck.

Thank you.

Michael Lasser, UBS.

Good morning.

Thank you so much for taking my question.

So it sounds like the consumer has been responding to some of the promotional activity and discounting that the Academy has been doing.

How aggressive is the Academy willing to be with it gross margin in order to drive sales, given what's happening in this environment?

Yeah, so Michael, I think what we shared with you in the past, and I think it's held true candidly, in terms of the behavior we've seen in the first quarter and the in periods where there's not a reason for the customer to shop promoting aggressively has not really driven incremental traffic.

It's just basically been an AUR erosion.

And so what our game plan has been and will remain is we know that the customers coming out shopping during those key moments on the calendar.

So we've got a couple of the big ones ahead of us.

I mean, we really activate over the summer, as you well know.

And as we get into Father's Day, which, as one of the larger weeks of the year for us and July 4, and back-to-school, we have promotions lined up and will be more promotional than last year.

That being said, it's an anticipated in our gross margin forecast.

We pulled back on kind of the gaps in between when the customer isn't showing as much on willingness to shop based off the discounts.

We've got it modeled in there, but you're going to see us be promotional during those key time periods and then pull back on the gaps in between.

And that's worked for us over the past 6, 12 months, and you're going to see us lean more into that.

My follow-up question is on the momentum you talked about in April, has that continued into the current quarter?

And Steve, there's a lot of skepticism on Academy's ability to hit it at the least the low end of the guidance for the rest of the year.

What's implied in that is that comps do make a meaningful improvement?

You outlined several factors that and you think will drive the improvement, if you don't see that improvement, what actions are you going to take in order to preserve the profitability and manage the business?

Thank you.

Yes.

So yes, I would have to tell you is that?

Yes, you're right.

If you look at the guidance, I mean, obviously, Q1 is down 5.7. It's outside the low end of the guidance so it does imply that we see improvement as we move forward.

The thing I'll point out is, and we really haven't had any of those major kind of customer shopping moments on the calendar in Q1.

We're not obviously a big Easter business.

There's not a lot of outdoor activities going on during that time period, et cetera.

So really our sweet spot.

And we've described this, I think in a lot of different venues is that kind of Memorial Day through back-to-school time period.

That 13-week period is very big time period for us that's we've lined up a lot of our marketing initiatives that we've lined up a lot of our promotions.

That's why we're launching a lot of new capabilities such as our new loyalty program, same-day delivery with DoorDash, things like that around that time period to really take advantage of that.

So our belief is we're going to see that inflection during that time period.

Back to the start of your question, I would tell you that the start of May was a little softer than we wanted.

I think it's been pretty well documented our that we had some pretty tough weather in a lot of our geographies with a lot of stores shut down for periods of time.

That being said, when we got to Memorial Day, and we've got some clean kind of weather.

We actually saw Memorial.

They behave as we thought it should.

And we were pretty happy with how Memorial Day inflected happening.

So we have a lot of volume still out of this.

This is a big week for us with the July is a big week for us.

And obviously back-to-school is a big week for us.

So we're going to lean into those things.

And then after we get through those time periods, we're going to assess where we're at and call Audible's based off what we're reading in the business from that point forward.

Thank you very much and good luck.

Thanks, Michael.

Simeon Gutman, Morgan Stanley.

Good morning, everyone.

My first question is on the new stores.

Can you talk about and like the newness in terms of the you said new vintages are comping positive.

Does that include all stores?

And then can you assess why the '24 class is or the '23 class, is comping well ahead or at higher levels like what how do you diagnose that?

And is there any is there any cannibalization happening across neighboring stores?

So first off, I want to be clear, we're talking about new stores comping positive.

The only ones we're referencing right now of the '22 vintages because the '23 vintage, candidly, most of them opened up in the back half of the year standing and lap themselves yet.

And so we're pleased that the '22 vintage, which are the first vintage seating and the comps are comping positive.

We've commented on as we've seen the '23, then just start off to a higher year one volume trajectory than the year two vintage.

And we would attribute that to the fact that and we took a lot of the learnings from the '22 vintage and apply them to the '23 vintage in terms of how we grand open RAN, the marketing cadence, a longer period upfront of seeding those stores longer sustainment time period.

Those kind of things have better localized merchandising, better staffing model.

So we just took the learnings, apply them.

We're seeing the payoff in that.

Our anticipation is that '24 is going to be off to a good start.

We've had three stores.

We've opened up this year.

One of the things we're really pleased with is two of them.

I think I called out in the comments at night, they'll North Carolina and same.

So which are, I would characterize as not in our current footprint.

Those are relatively new markets for us are both doing very well.

So I think it's taking some of those appliances.

Some of those learnings we've had as we've gone in new markets and applying most came off to a good start on.

And our belief is that the '24 vintages going to be off to a higher in volume in the '23 vintages.

And then a follow up regarding the cadence for the rest of the year, you said the customers being more discerning and you talked about promotion and then you have more newness and activities, I guess, initiatives as it goes on.

So I guess the question is, how do you balance the more discerning maybe more value oriented customer with the I guess, the slope now that's implied for the rest of the year to drive the events or to drive the comp?

So I would say a couple of things.

You're going to see us lean into value a couple of different ways.

First, we view ourselves as an everyday value price retailer, about 75% of what we sell is at regular price, right?

We've got great everyday value on our private label.

We've got everyday value in a lot of our national brand offerings.

And sometimes we're not sure we're being as overt as we should about that.

So you're going to see us really lean into that from a marketing message.

You're going to see us sign it more aggressively in stores, you're going to see it more prominently featured in our website and our marketing.

So you're going to you're going to see it across every touch point at the same time, we also use promotions strategically during those key moments in the calendar like a Father's Day, like a back to school to drive traffic.

And so during those time periods, we're going to have a more a broader base promotions and somewhat deeper promotions in certain key categories to drive traffic and win the Driveway decision.

And of course, we've got that modeled into our margin.

And one of the things that's really been helpful with new customer data platform that we have is we can start seeing customer behavior.

So we know within our customers who the more value-based customers, and we're targeting a lot of that marketing towards that customer.

Conversely, we also have a customer who we can tell is more triggered by our activated by newness.

And so we're using our CDP. to really target them with more of the new offerings and some of the new brands that we're launching.

So that's really how we're going about it using CDP as a way to kind of target of those messaging and making sure we've got good fuel from a promotional perspective or a newness perspective to and to center those customers based off of what they're gravitating towards.

Thank you.

Good luck.

Thank you.

Christopher Horvers, JPMorgan.

Thanks.

Good morning.

So in terms of the improvement in the back half, can you talk a little more specifically about the categories and that you expect to turn positive.

To what extent is a MIX going to play out in the gross margin as it relates to that?

And to what extent are you still expecting maybe the hunt category to see some lift around the election.

Yes.

So you hit on the first one where you're asking which categories we expect to continue to drive for us drive sales.

I think certainly outdoors one of those, it's lapped itself in terms of some really tough comps and it's been now two quarters of pretty good performance and we'd expect that to continue through the year.

I think that would be broad based.

One of the things on the call we called out was done the camping category really fueled by Stanley and YETI.

We think that's going to continue through.

We also expect that the hunt business will be good as we turn the quarter into hunting, and we expect fishing to be good over the summer.

And so I think all those categories should continue to be drivers for us.

The impact of the election on.

It's hard to tell at this point in time, we really haven't modeled a ton of activity off of that.

We didn't know when we go back and look at election years that we see that business activate around those time periods, but we're not really banking on that.

If it happens, that would certainly be a positive.

I would expect the .com business continue to be positive and we expect the apparel and footwear business to steadily improve at the low end of our guidance.

So down four comp that include imply the customer remains under pressure and doesn't really improve in terms of how they're shopping and us leaning into our activities and focuses from a newness, value experience perspective, kind of get us below into the guidance if we can see some inflection from the hunting category based off election.

And we can see some of the newness in and value offerings really kick in from a pro forma perspective and those with deposits, that's how we get line of our guidance.

So that's why we didn't we didn't narrow the range at this point of time, where only 25% of the way through the year, we think we still have a lot of outcomes out of us that are undetermined.

And as we get deeper in the year.

We'll certainly share what we're seeing in the business once we get through Q2 because we've got a lot of key events right now in front of us.

And then just to clarify, so in the gross margin as supply chains or tailwinds shrinks flat, merchandise margin is flat, is that right?

Am I am I missing pieces and then that merch margin, are you expecting mix to be a positive and then essentially offset more promotions year-on-year?

So we're expecting I think you have the puts and takes, right.

We're expecting a flat merch margin.

We've modeled in some deleverage from the in the hard goods, big ticket side of the business, particularly outdoor, which has a lower margin profile.

But we expect that certainly the footwear and apparel margins going to be strong as we progress through the year.

Got it.

Thanks very much.

Thank you.

Kate McShane, Goldman Sachs.

Hi, good morning.

Thanks for taking our question.

Our first question was just on the My Academy loyalty program.

I just wondered if you could give us a little bit more detail on the timing of the rollout of that and end the guidance capturing any kind of upside potential from that or any kind of margin implications as a result of the promotions and offerings that go along with it?

Sure.

Good morning, Kate.

So I'd start with that from a timing perspective, it's going to roll out over the summer.

We want to have it in place prior to back to school.

As our back-to-school starts a little earlier.

So it starts kind of at the tail end of July.

So I'd expect we'll have it fully rolled out to all stores by the first or second week of July.

Really, the goal is we have a we have a pretty powerful loyalty program right now with our credit card.

On that being said, we have we have several customers who either don't want another credit card, or B, maybe in some cases, don't qualify for the credit card.

And so we wanted to offer them a lot of the same sort of values.

And so we talked on the call, that's the initial sign-up discount of 10% of all up to $200.

That's free shipping over $25.

That's targeted discounts.

So all those things that are kind of an endemic to a lot of little programs.

We're going to have the only thing you don't get with my Academy that you do give the credit card primarily the 5% off every day.

And we certainly believe that's going to be a sales driver for us.

We have that modeled in as part of our improvement.

That's one of the ways we see getting from the negative [5.7%] we had in Q1 to our guidance range of down four to up one from a margin erosion perspective, we've repurposed other discounts that we've been running towards this.

So it's not really from our perspective going to be initially gross margin accretive because we've offset other promotions to fund it.

And certainly over time, we're going to test how targeted offers work.

And if certain offers resonate more than others, we might add those into benefits hard benefits that will run going forward.

But we started off a little light and our goal would be to add to this over time as we test our way into offers to the customers responds.

Thank you.

And our second question just was around your comments around some of the key brands that you aren't currently carrying in footwear.

How much do you think this specifically is challenging traffic to the store?

Well, we certainly pay a lot of attention to market share data and what's going on in the brands.

We've been most questioned about on this call last time and certainly in other calls is there on Hoganon.

And if you look at those two brands, they've more than tripled their market share over the past two years.

So I think it's a meaningful driver out there for running footwear and not having it.

I think it's certainly something that we would love to have as part of our assortments that could help drive traffic for us.

That being said, we're not sitting around waiting for them to open us up.

We certainly are having dialogues with them and believe at some point we'll get access to that.

But it's all the work we're doing with our existing brands to get access to things we currently don't have access to that are more premium for them.

It's adding in new brands that help us complement our assortment.

It's all those things that we're going to be focused on.

While we also simultaneously work with those brands, we don't have to gain access to them.

Thank you.

Robbie Ohmes, Bank of America.

Well, hey, thanks for taking my question.

Maybe for Carl, just some on the store opening cadence for the year.

Any thing you can tell us about how that may or may not pressure certain quarters pre-opening expense or just timing of store openings being back half weighted?

Yes.

So the balance of our stores that were opened are going to be in the second half of the year as you think about preopening costs, we really modeled those into the 100 basis points of deleverage that we that we put in the SG&A guide.

So that's really what's driving the year-over-year deleverage is our investments into new stores.

And we like the way that they're starting off.

We like the way they're comping once they get past that 14 month and we think this is a big driver for the long-range plan.

So we're going to continue to do that.

It will deleverage us in our average store to $22 million in sales volume last year.

And these new stores were guiding $12 million to $16 million in year one.

So there's deleverage associated with it, but that's what's essentially baked into the 100 basis points of deleverage that's embedded within our guidance.

Got it.

And then, Tom, can you walk us through the economics of the DoorDash deal?

Was that is very favorable to you guys?

How is that structured?

I can't obviously to divulge all the details of that, obviously from a contractual perspective, but basically they have a couple of different ways to model it in the initial phase for us.

The way it works is the customer can shop through the DoorDash app and find Academy product, a DoorDash or will actually physically come into store, find the product purchase it and we pay commission our after the fact on that.

Over time, we see this probably going to a model where it looks more like a bogus order for us where we pick the goods and deliver to the DoorDash person outside.

It has a slightly different rate associated with it.

And then longer term, the goal would be to on integrated, as we talked about in the call, into our into our website.

So you can take that as an option.

One of the things that that is we've been studying the customer behavior and seeing what's what they're reacting to what they're not reacting to all the time is one of those things.

They are voting for convenience and us not having this as an option.

I mean, we had both as we could pick it up, but think about the use case where customers at the field and they forgot their cleats for them off guard and they want to have it delivered to them while they're at the time that we can, we can now do that.

We couldn't do that before we looked at the customer overlap between their file in our file, mostly accretive.

There's not a lot of overlap there.

And so for all those reasons, we've decided to add this capability.

We think it's going to be a nice add for us.

Of course, DoorDash makes the delivery fee that that's embedded in their fee structure.

But like I said, we're pretty happy with it so far, it's really early days as we roll it out and we think it's going to help us reach across from what we haven't been reaching before.

Robbie, the only thing that I would add to that is obviously somebody is not going to DoorDash and guns for a tieback or some of these bigger ticket items that tend to be lower in margin rate.

So there is a there is a royalty and commission associated with it.

But the margin profile, the goods being sold should be elevated based off our holistic product assortments.

Got it.

Thank you.

Greg Melich, Evercore ISI.

Let's move to the next one.

Anthony Chukumba, Loop Capital Markets LLC.

Good morning.

Thank you so much for taking my question.

I want to add my I want to give my usual on and how quick question, given you've already been and cover.

So I guess I have to come up something else.

I guess my question and just on the competitive promotional environment.

I mean, you've been talking now for a while about the fact that you're not promoting, much if at all between big sale events, which makes a lot of sense.

And what are you seeing from your competitors?

I mean our competitors, are they doing a similar thing in terms of the timing of their promotions?

And how would you just sort of compare maybe just year over year or maybe now versus pre-pandemic, just kind of the all the overall competitive promotional environment.

Thank you.

Yeah, so I would I would characterize it similar to how we talked about in previous quarters, I mean, it's certainly not back to where it was pre-pandemic.

It seems that each year it's getting a little more promotional on that.

As I mentioned earlier, we don't have a ton of big events for us in the first half of the first quarter of the year.

We really start hitting that that time trade right around now Memorial Day, Father's Day, July 4, back-to-school early read so far is that it seems like it's a little more promotional last year, but certainly not crazy, not irrational.

It feels like people are promoting the categories, you'd expect them promote right now, a lot of the summer categories growing out of pools, things like that.

So I would characterize it as still very rational.

And candidly, I would say Q1, it wasn't terribly promotional outside of the current cycle that I think everybody went through.

Got it.

And then just one quick follow-up on you mentioned that your shrink was down 20 basis points year over year.

Is there anything in particular that that was driving that?

And do you expect continued shrink improvement over the remainder of the year?

Yes.

So shrink was just to be clear, shrink was up last year and so being 20 basis points off of 20 basis points better than being up year over year.

It's better.

The things that we're doing is we've deployed some technology solutions around license plate readers or dwell sensors, things that are in store that kind of give us a heads up on when something is not going well.

In certain cases where the product has been stolen and it's not available for sale or we're doing precautions like backing out product and putting a customer service button right there to help the customer.

And we partner closely with local law enforcement.

And we keep a bead on this overall cycle counts in April and physical inventories throughout the year.

The things that are driving it, I think fast is still up across the market.

I think this is a big retail issue.

I think you were taking issues to correct it, but you haven't addressed it, but it's not like it's suddenly dropped off of a cliff.

I would tell you that the Manhattan system within the distribution center space is a lot more methodical than our previous warehouse management system, and we do carry a fair amount of inventory in our distribution centers.

And so accounting for that correctly, that was a little bit of a source of goodness over of year-over-year, but 20 basis points, we're probably halfway through our physical inventories for the year now we feel like we've kind of been on where it's going.

We're happy with 20 basis points, but I would guide you that flat for the year got into up demand of the year.

Thanks.

John Kernan, TD Cowen.

Good morning.

Thanks for taking my question.

So Carl, just on the SG&A rate, looks like SG&A dollars were up about 4% in the first quarter.

And how should we think about SG&A dollars and rate into the back half of the year and in the different scenarios of comps that you laid out, that is a fairly wide range yet down Florida up once.

I'm just thinking how that rate might trend given the on the high and low end of the comp guide?

Yes.

It's a good question, and it's one that I'm kind of proud of the team on.

So SG&A dollars quarter over quarter, up $12.5 million or 130 basis points, and this is for Q4.

And as it relates to $12.5 million more than all of that was associated with the investment in new stores primarily but also some technology solutions around the customer database platform, e-com user experience and now the go live of the WMS system.

So that's what's driving more than all of the dollars and almost all of the leverage, I think we de-leverage and you're pretty modestly on the negative comp base the negative 5.7%.

And what John, what that shows is our responsiveness by the team.

We understand how to pull levers inside the quarter, and we're very responsive to what we're going to do and not do and how that plays out.

I would tell you customer satisfaction has never been higher.

The polls that we get, the overall satisfaction, the customer.

So we think, we're flexing with things that the customer still perceives that they're really getting good service as it relates to the balance of the year was really in the full year guide?

Yes, 100 basis points is how I would counsel you on the high end allow if we if we hit the low.

There'll be some more give-back associated with incentive comp and things of that nature.

And Hon Hai, we flex pretty well.

But as it relates to controlling promotions, controlling inventory and controlling the expense profile of the company.

The team is really United here what we are investing in as these new stores.

And we're offsetting internally in a way that the customer is not displeased with.

And Steve, just on the merchandising front, I think footwear has been the big driver of one of your big biggest peers.

Our comps recently what are you doing in terms of working with the vendors working with the in-store presentation within footwear?

Because it's the category that obviously has a lot of momentum right now on it's not all just with Avon and hope you have a big Nike business, New Balance and other.

So just what are you doing in terms of allocations as we get into the back half of the year?

Yes.

No, that's a good question.

So we continue to work with our existing partners.

Certainly Nike is our biggest vendor in the store to a large center in footwear and working with them to get access to better footwear.

So example 270s, within a limited door count last year.

It's going to be in over 150 doors this year.

We've done an elevated presentation for it in our store.

We're working with them on other footwear as they move forward to get access to that same conversations, candidly, with the union do balancing to do this as well.

But the thing that I want to also make sure that our land the point is it athletic is a big chunk of our business, but it's winning in the other categories, too.

Like I said, we do have big work boot business.

We did a big seasonal footwear business.

We did the casual business, so leaning into things like Birkin stock, which is an expanded door count for us this year, taking a brand last year like Coolibar and, that we had in a very limited door count, expanding that out more broadly this fall.

I think there are a lot of ways for us to win in footwear.

The team is really working broadly with the broad-based vendors to make sure we can do that.

And I'm optimistic about our opportunities in footwear as we move forward with all the newness that we're driving there.

That's great.

Thank you.

(Operator Instructions) John Heinbockel, Guggenheim.

It's due to tremendous related questions, right?

We've talked a lot about driving business in the episodic periods, but in the periods in between right, when you think about using CDP to go after heavy users for either whether it's sufficient or outdoor cooking, what do you see as that opportunity in those periods?

And then during the promotional periods you have to do, are you getting a better sense of promotional elasticity by customer, right such that your promotions are more effective than they were a year or two ago?

Yeah, I'll start with the first part of your question.

So one of the one of the new use cases we really started leaning into is we've done our traditional customer segmentation.

And so one of the customer segments that we've identified, for example, is a high value first time purchaser.

So think about somebody who came in and purchased a grill or an elliptical or something like that with their first purchase.

And we haven't really seen them shopped us before.

So we're using kind of those loans where we're targeting those types of customers to come in and drive whatever the attachment is.

In the case of the Grille, maybe is more fuel, some of the spices and herbs we sell or cover and turning those customers into kind of high value one-time shoppers into loyalists over time.

And so really leading the office during those time periods has been one of the things that use the CDP for.

I think your second question kind of observation is spot on as we've gotten deeper into the use cases on RCDP, I think we are getting a better sense of which types of promotions resonate with which customers.

And so I think that's something that we're just going to continue to refine and be sharper and sharper on in terms of are the types of promotions we deliver to the customers, delivering the right ones to the customers who activate against them.

As I mentioned earlier, some customers really gravitate towards value.

So leaning into promotions with them versus the customers who really more about newness.

So we maybe can be a little shallower with those customers in terms of the discounts we offer, but really focus and feature newness in those.

So it's still we're a year into this.

I think we're a lot smarter today than we were a year ago, we still have a lot of opportunities to continue to bring this out.

And I think that My Academy rewards program that we're launching is going to help us get even deeper and match with our customer in terms of them engaging with us and us engaging with them in ways that they really wanted the engagement.

Thank you.

Thank you.

Appreciate it.

Okay.

First, I want to say that I think the team has done a really good job of managing through the current economic environment while steadily executing against our long-range plan objectives.

We're committed to helping active young families that are under financial pressure, stretch their dollars and have fun out there by providing compelling assortments, coupled with an outstanding value proposition.

We still have three quarters of the year and most in our most important shopping seasons ahead of us.

We remain optimistic about the opportunities in front of us throughout the remainder of the year.

Beyond 2024, we're also investing in the business to drive long-term shareholder value.

These critical investments are linked to the strategies of our long-range plan, which are opening new stores growing omnichannel, driving our existing business by improving our connection to customers through improved merchandising and marketing and leveraging scale in our supply chain.

We believe that remaining true to this strategy will allow us to break through and deliver against our vision to be the best sports and outdoor retailer in the country.

In closing, I want to thank all 22,000 of our Academy team members for the hard work and effort we put in over the past quarter.

We continue to believe that our associates are the key ingredient to our secret sauce.

And I know that every one of them is committed to delivering an outstanding shopping experience to all of our customers.

Thanks for joining today and have a great rest of your day.

Ladies and gentlemen, and the call is now concluded.

Thank you for your participation.

You may now disconnect.