Academy Sports and Outdoors Inc (ASO) 2021 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Academy Sports + Outdoors Fourth Quarter Fiscal 2021 Results Conference Call. At this time, this call is being recorded. (Operator Instructions) I'll now turn the call over to Matt Hodges, Vice President of Investor Relations for Academy Sports + Outdoors. Matt, please go ahead.

Good morning, everyone, and thank you for joining the Academy Sports + Outdoors Fourth Quarter and Fiscal 2021 Results Call. Participating on the call are Ken Hicks, Chairman, President and CEO; Michael Mullican, Executive Vice President and CFO; and Steve Lawrence, Executive Vice President and Chief Merchandising Officer.

As a reminder, statements in today's earnings release and the comments made by management during this call may be considered forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the earnings release and in our 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 comparable GAAP measures are included in today's earnings release, which is provided on our Investor Relations website, investors.academy.com. I will now turn the call over to Ken Hicks, CEO. Ken?

Thank you, Matt. Good morning, and thank you all for joining us today. I'm very proud to announce that Academy Sports + Outdoors delivered extraordinary results in 2021. We were able to build on the momentum of 2020 and establish a new level of sales and profitability that will be our foundation for future growth. Our ability to meet our customers' needs and achieve record results came from our multiyear strategy that will drive long-term growth and sustainable profitability. In 2021, we achieved our highest sales and profits in the company's history, while successfully navigating what has been a very dynamic environment in retail.

We could not have achieved this level of success without the steadfast dedication of all the Academy Sports team members. So I want to thank and congratulate all of them for their accomplishments. Heading into the holiday quarter, we had a strong plan in place, but knew we would have to execute at a high level and be adaptable to win the quarter. Our team did just that, and delivered record sales with growth of 13.2% in the fourth quarter and 19.1% for fiscal 2021. Comparable sales for the fourth quarter were 13.1% and 18.9% for the full year. E-commerce sales grew 22.7% in the fourth quarter and 6.2% for the full year. All 4 geographical regions and our 4 major merchandise divisions, apparel, footwear, sports and recreation and outdoors, had positive growth during the fourth quarter and all posted double-digit sales growth for the full year.

We also grew market share across all of our regions as our stores continue to attract and retain a broader and more diverse customer base. Over the past 2 years, millions of people have purchased some fitness and outdoor equipment, such as bikes, pickleball, fishing rods, barbecue grills or they started hiking or camping. We believe that many people made lasting changes to their lifestyle priorities during the pandemic, and will continue to enjoy these new activities and hobbies they started for many years to come. They want to have more fun and fun is what we sell. In addition, as consumers get out to our stores and shop us more frequently, we are benefiting from the compounding effect as they discover and purchase different product categories from us. This behavior led to more transactions, higher ticket and ultimately, record sales.

This is confirmation that our broad selection, price and value offering and assortment of top brands and quality private-label products is attracting and retaining customers. Steve will discuss our divisional results in more detail later in the call. We also made tremendous progress against our 2021 key business priorities. I would like to highlight a few of our notable accomplishments. For omnichannel, we implemented improved search capabilities, increased checkout speed, added more payment options and launched a new mobile app. We focused on delivering a seamless and fully connected omnichannel experience via phone, mobile app and academy.com, in-store, curbside and buy-online-pick-up-in-store. The early results of these improvements have driven increased conversion and sales penetration rates. Approximately half of our e-commerce sales are buy-online-pick-up-in-store and 75% of all e-commerce sales are fulfilled through our stores, giving us a growing and profitable omnichannel business.

To enhance the customer shopping experience, we focused on better service, better looking stores and better products. We increased our proportion of customer-facing hours in stores, reset the store layout and improved assortments with more localized products with an emphasis on important categories and items. We also created more relevant targeted marketing ads to increase customer engagement. In addition, as a preferred partner for many great brands, we are able to offer a wide assortment of their best-selling items for the year.

Sales of each of our top 3 largest national brands grew approximately 25%. Overall, we increased the sales of 9 of our top 10 national brands double digits. These shopping enhancements led to our team members earning the highest customer service scores in Academy's history. We also continued to enhance our merchandise planning and allocation capabilities to increase our inventory efficiency and optimize our markdown strategy to increase sales, expand gross margin. We have seen significant results as over the past 2 years, our gross margin rate has increased by more than 500 basis points. The investments we've made in our data-driven learning systems will continue to improve our capabilities in the future for pricing and replenishment. In addition, we've taken measures to protect and strengthen our supply chain. Today, our supply chain is more flexible from stronger relationships with shipping companies and better processes that we've put in place, allowing us to get the right product in stock at the right time.

The enhancements we've made across the organization helped drive net earnings of $142 million in the fourth quarter and $671 million for fiscal 2021. During 2021, we also significantly improved our balance sheet by reducing our adjusted net leverage by 1 turn and decreasing our net share count by approximately 5% through $411 million in share repurchases. On March 3, 2022, we announced the initiation of a quarterly cash dividend. This marks a milestone for Academy resulting from our efforts to strengthen the balance sheet and the company's ability to generate sustainable cash flow. This dividend and existing stock repurchase program demonstrate the confidence that our board and management team have in our ability to support our growth initiatives and the future performance of our business as well as our commitment to increasing total shareholder value.

Throughout 2021, we continue to serve the communities we operate in by supporting local nonprofits and responding to crisises when needed such as providing essential supplies and monetary support when Hurricane Ida impacted communities in our footprint. We maximize our impact by supporting numerous partnerships with nonprofit and community-based organizations including first responders and military organizations, youth sports leagues, college and professional sports teams, major outdoor associations as well as our Academy Gives initiative. All this great work leads us into 2022 with a much higher foundation with very strong momentum as we begin an exciting new growth phase in our existing stores, omnichannel and adding new stores in new markets.

I will now turn it over to Michael to review our fourth quarter and full year financial results and to provide our outlook for 2022. Michael?

Thanks, Ken. Good morning, everyone. Academy Sports + Outdoors once again delivered another quarter and year of record financial results. Throughout 2021, we forecasted that we would drive sales and profit growth by successfully executing the strategic objectives that Ken just discussed, and we consistently delivered all year. In the fourth quarter, net sales grew 13.2% to a record $1.8 billion. Comparable sales were 13.1% on a 1-year comparison basis and 29.2% on a 2-year comparison basis. We have now delivered 10 consecutive quarters of positive comparable sales with the last 7 quarters showing double-digit growth. Our e-commerce sales grew 22.7% to $232 million for the quarter and increased 6.2% to $625 million for the year. E-commerce sales were 12.9% of merchandise sales in Q4 and 9.3% for the year. E-commerce growth accelerated to the back half of the year, and we expect that growth to continue as we further refine and improve the academy.com experience.

Our record growth is driving market share gains across our geographic footprint. These gains are attributable partially to the fact that many of our stores are located in the fastest-growing markets in the United States. However, we are also gaining share as a result of our ability to source on our pledged inventory more effectively than our competitors, our strong partnership status with major sports apparel and footwear brands, our investment in the outdoors consumer and the impact of certain vendors who have consolidated their wholesale distribution.

Moving to gross margin. For the quarter, our gross margin dollars were a record $584 million, and our margin rate expanded 110 basis points to 32.3%. This was a result of higher merchandise margins from more regular-price sales, fewer promotions and a favorable product mix, which more than offset an increase in freight costs.

For the full year, gross margin dollars were a record $2.4 billion, a 35.6% increase over 2020. Our gross margin rate of 34.7% highlights the outstanding planning, allocation and supply chain work that was accomplished in an extremely dynamic retail environment. We believe the majority of these margin rate gains are sustainable and have reset our margin rate to a new level. Our disciplined approach to expense management is also contributing to our record performance. Fourth quarter SG&A expenses were 21.3% of sales, which was 110 basis points lower than Q4 2020. For the full year, SG&A expenses were also 21.3% of sales or 180 basis points less than 2020. Over the last 2 years, we have reduced our SG&A as a percentage of sales by 460 basis points. When adjusted for the noncash equity-based compensation expenses and other nonrecurring charges, 2021 SG&A expenses were 20.5% of sales, 120 basis points lower than fiscal 2020.

Driven by strong sales growth and disciplined expense management, we achieved record fourth quarter pretax income of $188 million and $860 million in pretax income for the full year. This was more than double our income for the last fiscal year. Fourth quarter GAAP diluted earnings per share were $1.57, an increase of 62% over Q4 2020 when they were $0.97 per share. Adjusted diluted earnings per share were $1.61, an increase of 48% over Q4 2020 when they were $1.09 per share. Full year GAAP diluted earnings per share were $7.12, an increase of 88% compared to last year. Adjusted diluted earnings per share were $7.60, an increase of 98% compared to last year. If we look at 2021 store-level sales and profitability, sales per square foot grew 19% to $370 per square foot, which is higher than our closest competitors. EBIT per store grew 113% to $3.5 million per store. 100% of our stores are profitable and accretive to earnings, which gives us great confidence in our growth potential.

Looking at the balance sheet. We ended the fiscal year in a strong financial position with $486 million in cash and no outstanding borrowings on our $1 billion credit facility. We generated $141 million in adjusted free cash flow during the quarter and nearly $600 million for the full year. The ending inventory balance was $1.2 billion, an 18% increase compared to 2020, which puts us in a strong position to service our customers in 2022. We have significantly improved our balance sheet over the last 2 years through debt paydowns and repricings and we plan to use our improved position to drive long-term growth. As we have discussed before, returning cash to shareholders is a key part of our long-term capital allocation strategy, which is why we recently initiated a quarterly dividend. The company also repurchased and retired 1.6 million shares for $66 million during the fourth quarter and repurchased 10.6 million shares for $411 million for the full year.

Now I'd like to talk about fiscal 2022 guidance. We have seen strong demand for sports and outdoor gear over the last 2 years and believe consumers have made a lasting and meaningful shift towards wellness, work-life balance and making time to enjoy experiences with friends and family. We believe this demand, together with the successful execution of our 2022 key priorities, will drive strong performance. There are some macroeconomic headwinds that we will need to manage through the year, including inflation, supply chain and stimulus overlaps. Our financial performance over the last 2 years makes clear that we can effectively navigate through any challenge and we thoughtfully weighed the effect of each when we created our full year plan. Given this, we have built our initial 2022 guidance to reflect a range of potential scenarios. For fiscal 2022, comparable sales are expected to range from down 4% to down 1%, with Q1 being the toughest comp of the year as we anniversary a 39% comp in Q1 of 2021, which was boosted from significant government stimulus.

Our gross margin rate for the full year is expected to range from 33% to 33.5%. This is 120 to 170 basis points less than fiscal 2021, but still 250 to 300 basis points higher than fiscal 2020. The decrease from last year is primarily due to the expected return to a more normal retail environment in 2022. We expect to have higher AURs, offset by elevated supply chain costs and increased level of promotion. GAAP diluted earnings per share are expected to range from $6.55 to $7.10 per share based on 90.5 million diluted weighted average shares outstanding for the full year.

This share does not include any potential future share repurchase. Non-GAAP diluted earnings per share, which excludes estimated stock comp expense of $20 million, are expected to range from $6.70 to $7.25 per share. We expect to generate $450 million to $500 million of free cash flow in 2022. In total, capital expenditures for 2022 are expected to be approximately $140 million. In terms of capital allocation in 2022, we plan to open 8 new stores, complete several store remodels, fund ongoing and new growth initiatives and maintain our current assets. We also expect to execute discretionary share repurchases in 2022 using the existing share repurchase program, for which there is $189 million remaining.

With that, I will now turn the call over to Steve for more details around merchandising and operations. Steve?

Thanks, Michael. Looking at it by month, the quarter started very strong as we saw demand accelerate in November where we ran our highest comp in the fourth quarter. There's considerable momentum in the first 3 weeks of the month, fueled by early holiday shopping. We finished on a high note with customers returning to stores for a record Black Friday week. December also had a strong comp fueled by maintaining in-stocks on key categories deeper into the selling season versus prior years, which allowed us to take advantage of last-minute gift shopping.

January sales were up low single digits, which we're pleased with in light of a reduced ownership in clearance while also lapping around the stimulus payments from a year ago. We had several new ideas that really shined during holiday, including new private brand initiatives such as introducing Freely women's plus sizes and Redfield in hunting. We also rolled out Yellowstone licensed apparel and Ooni pizza ovens to all our stores. Additionally, sales drivers for the quarter included significant growth in gift card sales, improved website personalization, continued adoption and use of the Academy credit card and better conversion from targeted customer marketing.

When you look at the fourth quarter sales performance by category, we had success across all 4 of our divisions. On the soft side of the business, apparel had the largest increase of plus 20%, while footwear was up 14% versus 2020. We also ran solid gains on the hard side of the business with outdoors up 10% versus 2020 and sports [direct] was up 8%.

Turning to margin. We're pleased to see that our improved allocation and localization efforts helped drive the gross margin rate to 32.3% or plus 110 basis points versus last year. Another key part of the equation was strategically reducing promotions. Sales accelerated in early November, which allowed us to pull back on both the number of promotions as well as the depth of the discounts offered during holiday and really lean into our everyday value messaging. With the strong regular-price sales we ran pre-Christmas, coupled with the work we've been doing around markdown optimization, we ended the season with less carryover than prior years, which translated into fewer clearance markdowns. The end result was we managed to drive solid increases in both AUR as well as transaction count for the quarter while still presenting a compelling value message to our shoppers. As we look forward, we're aware of the near-term headwinds in front of us but believe that we'll carry momentum forward into 2022 and continue to gain market share.

To build on the 2022 tailwinds that Ken listed, here is some additional color that we believe will help us be successful. First, consumer demand for sports and outdoors categories remain strong and all the inventory management and supply chain work we've done positions us to capitalize on this continued macroeconomic trend. We have better balance and depth of inventory across most categories. And even the areas where the supply is still somewhat constrained, we're in a much better position than we were all of last year. In addition, our customer has an appetite for new and innovative products. We have several new launches coming this spring, including rollouts of up and coming brands such as Chubbies and BURLEBO in apparel and Blackstone in outdoor cooking. We are also expanding some existing brands into new categories, such as our new Freely brand expanding into girls or fishing brands such as Bubba and Googan expanding into fishing rods and tackle.

Second, as key vendor partners continue to pull back on broad distribution and narrow their retail partners to only the strongest brands like Academy, this funnels more of their product as well as new customers into our stores. Third, as inflation impacts consumer spending, we like our positioning as the value player in our space. We believe that our everyday value price points help active young families stretch their dollars and participate in all the sports and outdoor activities that are important to them without breaking the bank.

Fourth, we're still in the middle innings in terms of harvesting all the benefits from our buying and planning and allocation initiatives. Improved localization efforts, coupled with better buy quantification and price optimization work, should allow us to continue to drive sales gains by protecting our price leadership position, while at the same time holding most of the margin gains from the past couple of years. Finally, we'll continue to refine and improve the overall effectiveness of our marketing spend through more targeted messaging. We're continuing our journey of migrating from a print and broadcast-centric marketing plan to a mix of digital spend that will allow for greater flexibility while also being much more targeted, personalized and efficient. This is having a profound impact on our ability to reactivate lapsed customers, which drove sales throughout 2021 and should continue into 2022. As you can tell, we have a lot of initiatives in place to carry our momentum forward. We're excited about the opportunities in 2022.

Now I'd like to turn the call back over to Ken for some closing comments. Ken?

Thank you, Steve. As you've heard today, we believe we have significant long-term tailwinds that can be layered on to the structural operational improvements we've made over the last couple of years to continue to drive our business higher and upset some of the macroeconomic headwinds facing the retail sector. These tailwinds include a lasting shift in consumer demand for sports and outdoors merchandise, coupled with fewer retailers emphasizing the sports and outdoors category; having a broad assortment of best-selling national and private-label brands and products with strong values that appeal to a wide consumer base; significant growth opportunities through enhancing our overall store and omnichannel experience, along with opening new stores in the fastest-growing markets.

As we enter 2022, our vision remains the same: to be the best sports and outdoors retailer in the country. We will do this by focusing on our key priorities. First, creating a consistent and meaningful omnichannel business that delivers a true omnichannel experience for our customers; second, growing our store base to strengthen existing markets and enter new markets successfully, starting with 8 stores this year with a goal of opening 80 to 100 stores over the next 5 years. And third, providing a great customer experience across all of our points of contact to drive customer loyalty and long-term growth.

We will support our continued growth by maintaining and scaling our IT capabilities, strengthening the efficiency and effectiveness of our supply chain and developing and retaining an industry-leading retail team. We believe our strategic priorities will help us continue to drive productivity to increase sales and profits for years to come. We are excited and confident about the future. We have established a strong retail foundation by delivering record results. We have market momentum, and we are starting a new growth phase with the opening of our first new store in 2 years next month.

Thank you. And we'll now open up the call for questions.

(Operator Instructions) Your first question is coming from the line of Kate McShane with Goldman Sachs.

I wondered if I could ask about the promotional environment in 2022 and how you expect the cadence of that to be as we go throughout the year. And can you give us a picture as to what the store could look like when promotions do come back more in earnest and how it will differ from what we saw in 2019?

Yes. Kate, this is Steve. I'll try to answer that. So far, we haven't seen a return to kind of the promotional environment we saw several years ago. I mean we definitely last year saw a pullback. We haven't seen that change so far this year. We do anticipate as we get deeper into the year that it is possible for some more promotions to creep in. Hence, the guidance that Michael guided our gross margin this year is going to be somewhere between 33% to 33.5% implies about 120 basis points to 170 basis point decline. Some of that's supply chain, some of that's giving us a little bit of ability to promote. That being said, we still plan on holding on to the vast majority of the margin gains that we've made over the past couple of years. We've got improved allocation, better markdown optimization, lower clearance levels, all those things are helping us. Private brand is creeping up as a percent of total. So we really feel like we have a good basis with all the planning allocation and buy quantification work we've done to hold on to most of the gains, but we do have a little bit of promotions built in for this year.

Kate, this is Ken. We will continue to be the value player in our space, and we offer everyday values that are important. And we're not as promotional as some of the competition. And quite frankly, some of the more promotional competition has left or downplayed their position in the market.

The next question comes from the line of Chris Horvers with JPMorgan.

Can you talk a little bit about how you're thinking about the shape of the top line over the year? What are you seeing as you lap through stimulus? And are there any indications that inflation and uncertainty are impacting sales, whether that's trade down towards more opening price points, less big ticket sales or perhaps slowing growth CAGRs relative to 2019 -- March of 2019?

Chris, this is Steve. I'll start, and I'm sure Michael or Ken will jump in. I would tell you that the majority of the increase that we saw in the back half of the year really came from a combination of increased traffic and transaction. So the transaction and traffic count were up. We did see some AUR increase. That was primarily through reduced promotions, less clearance. As we get into this year in terms of how we think about it, I mean, obviously, we guided down 4% to down 1%. When you think about the shape of the year, you got to really kind of think about how last year played out. Q1 was the largest quarter. We had it up 39% from a gain perspective. Q2 was up 11%. Q3 was up 18%. Q4 was up 13%. So as we thought about this year, our performance year-to-date, it is implied in that guidance and would probably be based off of how we saw the business perform last year, knowing that this is probably the toughest quarter comp we're going to be up against.

I don't have a lot to add. I mean the weekly volume has been pretty consistent. We're obviously pretty deep in the quarter now. So we're very comfortable with the guidance that we've provided. More broadly with respect to your question on inflation, we've obviously done a lot in the business that have helped us manage here. We've made adjustments to our products that allow us to frankly charge a little more by adding value to the products. We've talked about that in the past. On the labor side, there's certainly inflation in the labor market. We've done a lot in our stores to manage labor, reducing noncustomer-facing hours and giving more hours to the customer. We feel like we're in a pretty good position there. And I think more importantly, in an inflationary environment, value is really important to customers, and we're known for value. So we feel like we're in a good lane, and we're comfortable with the guidance that we've provided.

Got it. And then following up on Kate's question earlier, similarly, you would think that the freight pressures are worsening in the first half of the year, while you seem to be baking in the promotions more as the year progresses. So is there anything unique in terms of how you -- we should think about modeling that gross margin cadence over the year?

Yes, I don't think there's anything unique about it. We will -- we're planning on 120 to 170 basis points of gross margin deleverage. I would think of it roughly 1/3 of that's freight, and 1/3 -- and 2/3 of it contemplate some level of increased promotion. But again, in general, we're value orienting, and we'll be less promotional than our peers.

Yes. Just to be clear, Ken said this earlier. I mean we're the value provider in our space. And that was something that we really leaned into in the fourth quarter, and we're going to really watch this as we go through. And our goal is to not be the first person to add back in promotions. So far, we haven't seen the need to do that. And our goal would be to hold the powder and not lean into that too much.

Next question is coming from the line of Brian Nagel with Oppenheimer.

Congratulations on another nice quarter. So a couple of questions. First off, just I guess maybe a longer-term perspective. You talk a lot about just the efforts that have been undertaken -- the significant events that have been undertaken to really to enhance the business model. So as we think about, I mean, maybe not just '22, but beyond '22, '23, '24, is the Academy model now or the investments made in the repositioning done to drive sustained improvement over multiple years?

Yes, Brian. We have made a number of improvements in multiple areas. For example, our planning and allocation, we've made a lot of investments. We still continue to make investments in that. And the good thing about those from what I've seen in other places that I've been, those improve over time. So we will continue to get benefits, and we will continue to add capabilities. We just finished adding a major capability to our planning and allocation organization. Last week, we completed a project. We also are just now really starting on our efforts in supply chain. And that will take several years to work our way through all the processes and systems that we're looking to put in place there. So longer term -- that's an even longer term. And then in our dot-com business, we're putting in place a number of initiatives. And we literally, every week, we're adding a new capability or a new element to our dot-com to improve our performance there. And given the shifts and changes that occur in that business, we will continue to make investments in that.

So the good news is we're seeing the benefits of the things we're doing. The better news is that there are even more to come, and they will continue to add both to our capability and to our performance over the next several years. So this is a long-term approach. And one of the things that I said several years ago on one of the calls is, this is something that's going to take literally years for us to get to where we are. We're still -- they won't let me use checkers anymore. So I'll use innings. We're still in the -- probably in the third inning of all of the things that we want to do. So there's a lot of the game ahead of us. We've still got -- we haven't even batted through the whole -- we're just now batting through the order of the second time. So we've got a lot of capability ahead of us, and we're excited about the future.

The one thing that I'll take a second just to make sure -- when we talk about growth, and we have had 2 really tremendous years, when you look at where we are. This year is a year to stabilize at the very high foundation. We've gone from Galveston up into the Rocky Mountains. And we're at a new elevation. We're not going to go back to Galveston. I mean it's a great city. We've got a great store there. I was there this weekend. But we're not going back to Galveston. We're going to continue to go to even higher heights. And this year, we're building the foundation with our stores and our current business. We're going to see continued strong growth in our dot-com and we're implementing a whole new tool with the opening of stores this year, and we're excited about that. And as I said, when you look at the new store opportunity for us, we're just beginning with 8 stores this year. We'll have 80 to 100 over the next several years, and then there's more beyond that. There's a lot to your question, but hopefully I answered it.

Great. I appreciate it. That's great. I appreciate all the color. One follow-up question I have on a separate topic, and just a follow-up to -- a bit of follow-up to Kate and Chris' questions, too. But with respect to promotions. So as you look at the environment, I mean, I guess you're saying with the guidance, you've kind of baked in the potential for some return to promotions, you're not seeing it yet. But is -- what has potentially changed structurally from either your -- either the competitive landscape, your relationship with your key vendors that could keep -- could help to keep promotional activity more muted as we pull away from COVID, as we pull away from the supply chain that it had been historically?

I'll start, and then I'll let Steve fill in. There are several things that have changed. One is our capability with planning and allocation. We have -- we used to just load up the stores and really didn't pay much attention to the sell-throughs and when to take markdowns. We are marking down football cleats in the spring season when there's no market for football cleats in spring. So our planning and allocation has helped us. We don't call clearance necessarily promotion, but it is a promotion. The customer views it as a promotion. So our planning and allocation has helped us.

So systematically, we've done things there. Competitively, some of the people who were the heaviest promoters in the business have moved out, either because by choice, by the fact that they're out of business or because vendors have done a better job of managing their distribution. A third thing, I think, that's very important is that as you look at the current supply situation, there's just not enough goods to do as much promotion as historically people would have. And the assurance that you're going to have the merchandise isn't as good as it was.

That will work its way out over time. And that's one of the things, quite frankly, that Steve, when he talks about putting promotion in as the supply chain improves, that situation will change. But those are 3 big changes. And the fourth thing is something that I mentioned earlier, we are a value player. We -- our prices on many items are really good prices every day. That's not to say we still don't have our hot deals periodically, but our items and prices are really good prices every day for our customers, and they realize that. And that's why when you go to our stores, we have traffic every day and not just during promotional events. I don't know, Steve, if you want to...

Yes. I'll add a couple of things to that. So Ken talked about better markdown optimization and other key capabilities, better buy quantification. We are buying better, smarter upfront. So -- and we're allocating better upfront. So that means we have less carryover on the back end. We haven't normalized our mix. We talked a lot about the fact that we're about 50% hard goods, 50% soft goods. And we've been operating somewhere in that 55% to 56% range. The hard goods side of the business, which has a lower margin profile, has been a bigger percent of total.

But we think that's going to normalize over time. And as apparel and footwear creep back closer to more historical normalized mix, we think that there's some tailwinds there. And then targeted marketing, we really have done a fundamental change on our marketing, where we used to be very traditional broadcast print-centric, and we flipped that to be very digital and focused and that's allowing us to be a lot more targeted.

So even when we do offer discounts, we know which cohorts respond to discounts and which don't. We're being very selective in terms of how we market to both customers versus broad blasting discount messaging out there. So we think all those things in conjunction with what Ken talked about are going to help us sustain the margins.

Next question is from the line of Seth Basham with Wedbush Securities.

My first question is a follow-up on one of the points that you just made. In terms of the last 2 years and the gross margin improvement, can you quantify how much has been driven by improved allocation of key brands and more limited distribution of key brands?

I don't think we've broken that out. It's a mix of multiple things. It's -- I would say, certainly, the controlled distribution has helped. I mean it hasn't hurt us by any means. So having fewer people out there and candidly, the people who lost access to the brands, as Ken said, tended to be the people who discounted the brands, that definitely has helped. But I would tell you that we really -- when we look at it, believe that the lion's share of the gains have come through the better planning and allocation disciplines, through the better buy quantification, through the better price optimization work we've done. That's really where the gains have come.

Seth, the way that we look at it, if you compare back to '19, about 500 basis points gross margin is due to the things that Steve talked about. The bulk of which is lower promotion and I'd say probably another large percentage of it is price optimization.

Okay. That's helpful. And then as a follow-up, in terms of restricted distribution of key brands, do you see risk that ASO could lose any key brands as vendors think differently about the ways to distribute their products?

Actually, no. We don't have a lot of concerns on that. We're actually seeing the opposite of that, where brands are coming to us and wanting to open up distribution to us. I mean we talked about on the call, we're launching a couple of newer brands, Chubbies and BURLEBO this spring. We're launching Blackstone in grill. So we're actually having the opposite impact as the business has gotten stronger over the past couple of years, we've had more and more brands come to us. And I'll tell you our relationship with our key partners like Nike, Under Armour, adidas, North Face, Columbia, never been stronger, never been stronger. We're really happy with where we're sitting with those guys today.

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

So your stock right now is trading around 5x the midpoint of the guidance that you laid out for this year. So obviously, it's suggesting that it just doesn't have confidence in the long-term sustainability of your sales and margins. And if you look back in 2019, Academy generated adjusted operating income around $200 million last year that went up to more than $900 million. This year, it's going to be north of $800 million. Is there a number, a basic level of operating income, that this business can produce even if consumers were to see a full wallet share shift back to the categories that they had engaged in previously, if there was a tougher macroeconomic environment, just to provide some quantitative sense for all of these initiatives that you've already done and all the initiatives that you will do from here like the supply chain and like adding new stores? Is it $500 million? Is it $600 million? How do you think about that?

Let me start and then I'll turn the details over to Michael. But history, as you say in all your disclaimers, is not always the best predictor of the future. And we were a different company before this team came and all the changes that we've been talking about have happened. And those changes are long-term fundamental changes. And we've moved the company up and the foundation of the company, and that is what gives us the confidence that we can continue to grow and develop what we're doing. And the consumer has responded positively to those changes, and the business has responded positively. And I'll let Michael talk about some of the details on that.

No, Ken. Actually, I don't have a lot to add. Different company, different team, different environment. We've been successfully executing our initiatives before the pandemic. We successfully executed them during the pandemic and now we're anniversary-ing them post pandemic. It's our tenth straight quarter of delivering positive same-store sales. And there's still more to work on. I mean, I think that's the exciting thing is there's still a lot of stuff that we can still work on here to drive good results. It's tough to say what the floor is. I can tell you that our guidance contemplates a range of scenarios, and we're very comfortable with the guidance.

We've got a good strategy and a good plan ahead of us with the priorities for this year. And we are -- we will be looking at that strategy because we've -- we will have achieved the goals this year a year ahead of what the original plan was. And we'll be looking at it again this year. And I think that we feel good about where we are. There is some things we haven't even started to really work on like supply chain. So this is a long-term story. This is -- it's a good time to get in. It was a good time at 13%, it was a good time at 30%, it's a good time at 40% because we're going to continue to grow and develop the business, and we're excited about our future. And we put our money where our mouth is. We're investing in the business to grow.

Makes sense. My follow-up question is, there is so much focus on short-term indications around what is going to happen with the consumer. There's a lot of cross currents right now between lapping the stimulus, inflation, wallet share shift, geopolitical uncertainty. You've got a unique perch in understanding how some of these dynamics are going to unfold, especially on the heels of some data points that are suggesting that maybe the consumer is starting to change behaviors like Traeger Grills, who said they've seen changes in the last 3 weeks. Are there any data points, any indications by category price point to suggest that the consumer is starting to show some wavering in spending at least in certain areas? Or alternatively, because Academy does offer lower price points, you're seeing a trade down or trade around benefit that might be masking some of the underlying dynamics in the marketplace?

I think your last point is kind of one of the things that we anchor off of. You've heard us say multiple times in the call today, we're the value provider in our space. And we like that positioning. We believe we hit the broadest cross-section of America, active young families with the price points that we offer. And we believe that we're well positioned in times of uncertainty to grab share. I mean that certainly happened back during the recession in '08, '09. That were some of the -- those were some of the best years that Academy had. And as we went through the pandemic, everybody is worried about what was going to happen with all the uncertainty and, obviously, you know what happened there. We picked up a ton of share. So we really like where we're positioned with our consumer. And so far, we've managed to navigate all these uncertainties, stay in stock and satisfy the customer, and we like our odds of doing that in the future.

Just to add to that, the other thing that we offer is our breadth of assortment and breadth of merchandise. Where one part of the business may slow down, our breadth of offering allows us to serve the customer in another area. We also -- as Steve says, we offer that value customer the opportunity. We -- one of the things that Steve and his team has done is they have increased our level at that better and best also.

So we trade -- we can trade up during times but we can trade -- the customer can trade down with us. We've got businesses that offset other businesses, which is very important, whereas some of the competition is much more confined where they are, both in terms of the price points they serve and the customer segments they serve. We have that breadth that gives us the ability to weather some of the storm. Because to your point, there are businesses that have slowed down some, they will come back.

That said, we've got businesses that can offset them during the time that they're down and can help us weather through some of the challenging times. That's one of the reasons, quite frankly, this year is a little bit of that stabilization year. But with the new stores, with the dot-com and the things we're doing in our stores, we see them continuing to provide growth opportunities now and in the future.

Our next question is from the line of Daniel Imbro with Stephens.

Michael, I wanted to dig in. We've talked a lot about gross margin initiatives this morning, but we haven't really touched on SG&A. Obviously, you mentioned in your prepared remarks that wages are kind of a pressure, but how are you thinking about SG&A margin this year? And then what initiatives do you kind of have in the pipeline over the next couple of years to maybe improve that cost profile as we navigate this period of higher inflation?

We're planning to leverage G&A this year, and a lot of that's due to our store teams managing their labor more effectively. But even with the wage pressures, we're planning to lever there, largely because we're going to have the benefit of some nonrecurring stock comp and some other compensation that hit us this year, but we're planning to lever.

Yes. And there are things, initiatives that we have underway, for example, in our distribution centers, we put in a pay-for-performance that will allow our team members to make up to $1, $2 more, but we will benefit because we'll get more productivity out of them. I talked literally this morning to one of our general managers at our Twiggs distribution facility about the program and her belief in it and ways that we can make it even better. We -- the initiatives that we're looking at in the supply chain will help us with SG&A in some respects. But we have -- this is a company that is very expense-conscious and watches it very closely. Michael makes sure that we keep in line and we make sure that we're doing the right thing there and not letting it get ahead of the business.

And that's consistent with what we've been saying for a while, that we believe we could lever off a flat comp and even slightly negative. And so as the year is shaping up, we're very confident in that.

Yes. That's great to hear. And then just digging into -- you mentioned earlier, Ken, e-commerce continues to be somewhere you guys are iterating. I think you guys rolled out a new website redesign last year. Anything in the pipeline this year in terms of initiatives that are coming that could help drive those sales? And then maybe taking a step back, I mean, what percentage of the business is the right mix to be online in this industry? Is it going to be more buy-online-pickup-in-store? What do you think that looks like when we finish this?

I'm sorry, Daniel. Go ahead and finish that. We view -- we'll let the customers decide what the percentages are. We're not going to set a percentage. It probably will be in the high teens, 20% range. A lot of -- because of what we sell, a lot of that will be store related. Because of buy-online-pick-up-in-store, we've added ship-to-store to our capabilities. We're now also looking at store to store, so we can move inventory to get it to the customer. We implemented [4Pay]. We're putting in place a new search capability with new taxonomy. That's a new word I learned that's a cool word. And we're doing things -- literally, I sit down with Jamey Traywick who runs our dot-com business every week and we talk about the progress we're making on things to make it, one, more exciting and easier for the customer with new content and new capabilities; but two, better connect to the store. She and Sam Johnson, our Head of Stores, talk constantly and work to make sure that we are true omnichannel. When we talk about it, that's not lip service. We are a true omnichannel.

Our next question is from the line of Oliver Wintermantel with Evercore.

I assume the lower gross margin range corresponds with the negative 4% comp. But let's say the comp is lower than 4%. Is there anything that we should think of on promotions? Do you get more promotional to boost the comp? Or would you just let the comp drop further than the negative 4%? And then on the SG&A line, is there anything that you could offset to have that deleverage more?

Steve, you got that? The first one on...

Yes. I mean, we like we've got the appropriate level of promotions built into the forecast to cover the guidance and maybe even a little bit below that. Candidly, what we're hoping and believe could happen is that things continue to play out, scarcity in the marketplace, people not fully back in stock and not have to lean into that promotion. So I don't feel like there's more promotional upside than what we have baked in based off what we're seeing today.

On the G&A side, I'll just reiterate what I said a couple of minutes ago. I think we're pretty comfortable with the work that we've done there as an organization. Obviously, the big lever you have, if your sales decrease, you would manage your labor accordingly and our teams do that very, very well. Again, I'm very comfortable with the guidance that we provided, and we feel like we're not going to be in that position. But I think this company has proven it can be very nimble when it needs to be.

Very good. And just as a follow-up, quickly on the capital allocation side. The $400 million buyback last year, is that a level that you guys are comfortable with now with the dividend and the leverage ratio where it is? Or if you could just give us a little bit more details on the capital allocation for 2022.

Well, I think we're generating enough cash where we really believe we can have a do-everything approach to capital allocation, fund and accelerate our growth initiatives, as Ken talked about, 80 to 100 stores over the next 5 years, and we think we can placate many different constituents and broaden our shareholder base. We have $189 million remaining. We certainly plan to utilize it. We've used more cash to repurchase ASO stock in the past 18 months than we raised in the IPO. And as long as we're continuing to put big results on the board to generate cash, we will deploy the buybacks accordingly.

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

Just a few follow-ups. Just one on the product mix outlook for 2022, I might have missed it, but is product mix expected to be a gross margin tailwind in 2022? And would that mean that apparel and footwear is going to continue to lead in 2022?

We've actually planned the mix for 2022 exactly the way we planned it last year. So the benefit we would expect to receive in future years from the mix, but not from this year.

Got you. And then there's a debate out there about how low income your customer is. And can you just -- you answered it a little bit, but maybe a little bit more remind us. Is your -- do you have a lot of exposure to the lowest income consumer? Because I think that one of the concerns out there is that you do, and therefore, that may be the consumer that comes under the most pressure in this inflationary environment.

Yes. While we -- if the lowest income, the bottom quintile do buy sports and outdoors, it's probably from us, but they are not the majority of our customers. The majority of our customers are the middle quintiles. That's who we serve. Because the bottom quintile, quite frankly, they're just -- they're trying to survive. But the middle quintiles is where -- which is a -- obviously, it's the majority of the population. That 60% is really where we are and where our customers are. And they will feel the pressure with everyone else. But I think that if they want to participate or they're going to participate in their hobbies and pleasures, they will come to us. And some of -- at the top quintiles, they will feel pressure and they will buy from us, too. The richest of the rich, that's not our customer. You want to buy a Maserati, don't come to Academy. We wouldn't sell it anyway. But that's not our customer. Our customer is middle America, those really strong in those middle 3 quintiles.

We under-index in the bottom and the top.

So Rob, when you think of our customer, we describe them as active young families. In a lot of cases, dual-income families. And you think about when they're under pressure, the kids are still going to play sports, right? We've seen that all the way through. If they decide they don't have money for a vacation, they may go camping or they may build off their backyard. All those things play right into our favor. So we're really feeling like we're well positioned to take advantage of what's going on right now.

That's very helpful. One last quick one. Plus 8 stores this year, plus 20 stores in 2023?

Well, we've got the appetite to grow faster. We've got the capital to grow faster, and we certainly have the opportunity to grow faster given that most of the United States doesn't have an Academy store. And straight answer there is honestly as many as we can do responsibly. This is a little bit of an investment year for us as we refine and resume our opening process. That muscle atrophied a little bit. We need to build it back. So we've got a pipeline, we can accelerate it, and we'll do as many as we can think we can do well.

Our final question today will be coming from the line of Daniel Adam with Loop Capital Markets.

So as we're now almost 2 months into the first quarter, I'm just wondering if you've seen or expect to see any impact on store traffic specifically from higher gas prices in Q1. And if you have seen an impact, to what extent do you think e-commerce sales can offset any near-term traffic headwinds?

So we don't provide intra-quarter guidance, as we said. Our guidance this year is down 4% to down 1%. The results we've seen through the first couple of weeks of the quarter are built into that guidance -- first couple of months or 8 weeks. But so certainly, we've got that imputed into our guidance, and we feel pretty comfortable with where we're at right now.

Okay. Great. And then as an unrelated follow-up, I guess, this is also an intra-quarter question, but did you buy back any stock in February or March to date?

We don't provide intra-quarter update there. And all that color will be in the K.

At this time, I'll turn the floor back to the management for closing remarks.

Well, we thank everybody for participating on the call. As you've heard, we're excited about the future, proud of the results we had, but the future is really where we're looking. And I thank the team for all of their efforts to get us to where we are, but really do thank them for what they're going to do for us because we've got the team to deliver a very strong future for Academy. So thank you all very much. I hope you all have a great day.

This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.