$ASO Q3 2022 Earnings Report
$ASO Long
Academy Sports and Outdoors is an American sporting goods store chain. One of the most interesting aspects of this company is its location. As shown in the picture below, the company currently operates 259 stores in 16 states. The main state is Texas, where the company was founded and from where it has expanded. As we can see, the company wants to highlight that almost a third of its stores are in the top fastest-growing metropolitan statistical areas. Due to this, the company expects its stores to deliver much better results compared to retailers that are in areas with slower demographics.
Another thing I really like about ASOs is that it still has plenty of room to grow in the United States considering the number of states they could be in. It is clear that in the environment we are in right now, the only thing investors care about is what the company has planned for the future. As the company reported in its 2020 Annual Report, it is starting to develop a smaller store format. In 2019, the company opened the first small format store (approx. 40,000 square feet) in Dallas, TX. It experienced 28% higher sales per square foot and 37% higher inventory turns than the average store ($311 per sq. ft. and 3.89x inventory turns). From this experiment, the company decided that this will be the format to open new stores in urban and less dense areas. This will open up new possibilities already in Texas and will enable the company to open more markets in different states. Increasing its store base is one of the main goals the company wants to pursue in order to grow and become the best sports and outdoor retailer in the country. During the pandemic, ASO stopped new store openings, but, in 2022, the company is back on track and it will have 8 new openings. As Ken Hicks, ASO's CEO, explained during the Q1 2022 earnings call, the company has a plan to grow in three different ways: “our current plan is to open at least eight new stores this fiscal year and 80 to 100 stores over the next five years. We view this growth in three distinct areas. First, is filling out existing markets to build scale like in Atlanta, where we just opened and plan to open another store later this summer. Second, expanding into adjacent markets like our planned opening in Lexington, Kentucky later this year. And third, opening in new markets. Our current store base is located in only 16 states and all states deserve academy stores. We will be opening our first stores in Virginia and West Virginia as we enter these two new states later this year. Each store is expected to have an average return on invested capital of at least 20%.” However, how much would it cost to open a new store? As ASO stated in its 2021 Annual Report, they expect capital expenditures for the fiscal year 2022 to be approximately $140.0 million. Investments in new stores and store relocations are expected to account for approximately 30% of the planned cash outflow. The company is planning to spend around $42 million to open 8 new stores. This means that each store costs approximately $5.25 million. Now, we have to compare this cost to the results a store can achieve. How much does a store earn? In 2020, net sales per store reached $22 million, with an average sales per square foot of $311 and an average EBITDA per store of $2.3 million (a 10% margin). In 2021, net sales per store reached $26.1 million and the average EBITDA per store was $3.9 million (a 15% margin). This means that the average sales per square foot reached $369. Now, we have to compare this cost to the results a store can achieve. How much does a store earn? In 2020, net sales per store reached $22 million, with an average sales per square foot of $311 and an average EBITDA per store of $2.3 million (a 10% margin). In 2021, net sales per store reached $26.1 million and the average EBITDA per store was $3.9 million (a 15% margin). This means that the average sales per square foot reached $369. As far as the future of this company goes, In the Q1 presentation, ASO gave its guidance for the fiscal year, claiming it should have net sales of around $6.5 billion, a 3% decline YoY. In my opinion, this is still really good considering the % of inflation and other operating costs. In any case, assuming that ASO will open 8 new stores, we would have net sales per store at $24.3 million. We could take an EBITDA margin of 12.5% right between the two from 2020 and 2021. This gives an average EBITDA per store of $3 million. This means that the EBITDA per new store is under 2, which means it will take ASO less than 2 years of EBITDA to make up for the opening cost.
Before its IPO, ASO had very high debt. The graph below shows that from 2017 to 2019 the company had already managed to reduce its net debt ratio from 5.2x to 4.1x. However, it is in 2020 that this ratio improves quickly, coming down to 0.7x due to a debt reduction of $1 billion when the company raised enough cash to pay most of its debt and strengthen its financial position.
Currently speaking, the company has $1.3 billion in net debt. With a 2021 EBITDA of $1 billion, the ratio is at 1.3x and any number below 3 is generally considered good for the company.
Another thing I really like about the company is that it is well diversified as per season exposure, brands sold, and goods categories. As shown below, no season accounts for more than 28% of annual sales, showing that the company merchandising creates a balanced sales mix. No category accounts for more than 32% of net sales and these are also evenly split apart between male and female customers. Meaning there aren’t any good or bad seasons like most other stocks have such as hotel companies.
Looking at brand exposure, in its 2021 Annual Report, the company stated that sales of each of its top three largest national brands grew approximately 25%. Overall, sales of nine of its top 10 national brands grew by double digits. During the pandemic, ASO saw its online sales grow significantly to the point that from the first quarter of 2019 to the last Q1 of 2022 sales are up 375%. Most importantly, the company knows that 39% of eCommerce sales in 2020 came from new households that became new customers who had never bought anything from the company before. In Q1 2022, online sales were still up 18% YoY, showing that the company is still growing even after the pandemic. At the moment, 9.5% of the company's sales come from online sales.
In 2021, the company repurchased $411 million in common stock. In addition, during Q1 2022, the Board of Directors approved a three-year repurchase program of $600 million, bringing the total amount available for share repurchase programs to $700 million. I really like this as they are using their money to invest back into themselves and not trying to branch out into things they have never had any experience at. This also shows their strong cash balance.
Valuation: The stock trades currently at $46 per share close to its all-time high. However, if we look at the main metrics, the stock still appears very cheap. In fact, it trades at an fwd P/E of 6.5 and its fwd EV/EBITDA ratio is 5.5. Its fwd price/free cash flow ratio is 6, which is about 46% below the sector average.
Market Reaction: “I love this company a lot, during the last year it beat the SP500 and for the coming years we are waiting for tremendous growth and the company plans to open stores in 30 states, tomorrow the company will announce its reports.”.
“ASO has an attractive valuation and strong overall fundamentals.”
“ASO awaiting buy signal based off 17 signals.”
Spending on school items, including college, is expected this year to hit a record high of $111 billion, a 1% increase over last year, according to National Retail Federation data cited by Bank of America Institute economists led by Anna Zhou.
“ASO ads like crazy on SECnetwork” (they have been advertising a lot lately)
Its the first one listed on magic formula investing site currently. Anyone else had a look at this company? Seems undervalued, appreciate any thoughts. Answers: It’s one of my biggest conviction play along with Hibbett Sports right now. I have been in this company since $35 so to say if it’s undervalued or not i can’t say. What I love about Academy is the ceo. The ceo is the guy that made footlocker the company it is today until he left and they fell off.
In my attempt to find small cap value, I’ve gone through the msci global small cap index and ASO is one of the companies that came through the second round of screening. Still have to go pick apart its annual reports and make a qualitative assessment of the company to see if it’s truly value or just bait, but it’s looking promising. Added to my watchlist for further research. Peg ratio of under 0.5 is very attractive too. Company looks great. The only thing is it’s heavily shorted.
ASO seems so great on the surface to me, and the idea of growth. But for me, what I see mostly is lots of product that isn’t necessarily high end. Even though they have an online store, they still run large brick and mortar head to head against Dick’s which is larger. I also don’t like the idea that Nike is pulling product from retailers like they did recently with Hibbett. And I don’t like that Academy has to buy so much regional product (sports teams in different states). The stuff sends to sit and margin compression hits hard. ASO is not a buy for me, but maybe if it gets even cheaper I’ll look. I’d be interested around $35.
I agree it’s really cheap and a good business. But their biggest competitor is dicks sporting goods which is a much better business. ASO might have a better competitive advantage inside the state of Texas but that’s it. But dicks has made in roads in Texas too. With that said I think it’s a good business at a good price but they haven’t really been able to grow their footprint in a long time. It’s cheaper than dicks tho. All in all I think could be a decent investment I would just be scared of the BIG DICKS coming my way lol
The bad customer reviews on Trustpilot, and bad employee scores on Glassdoor seem like a big concern.
Clean stores, well organized, well stocked, knowledgeable and friendly employees Good strategy, good execution, good CEO/management team, strong balance sheet, cash flow machine, sustainable growth story.... Earnings will grow, PE ratio will expand....stock price winner...short and long term.
Academy Sports got good news when peer DICK'S Sporting Goods guided up for the year. The sporting goods sector forecasts negative comp sales this year, but the sector isn't giving back as much profit as feared. The stock is far too cheap trading at only 6x EPS targets that appear very solid now.
Market Cap:3,735,747,501 P/E Ratio:6.13 Initial reaction:Long Researched reaction:Long CEO: Time:Before open Estimate:+7%