Academy Sports and Outdoors Inc

NASDAQ:ASO

Earnings Call Analysis

Q2 Performance and Outlook with Revised Guidance

Despite challenging economic conditions, including severe weather disruptions, Academy Sports & Outdoors reported Q2 sales of $1.55 billion, a 6.9% decrease in comparable sales. Net income for the quarter was $142.6 million. The company revised its full-year guidance, expecting net sales between $5.9 billion and $6.07 billion, with a gross margin rate of 34.3% to 34.7%. GAAP diluted earnings per share is projected to be between $5.45 to $6.20, while adjusted diluted earnings per share is forecasted to range from $5.75 to $6.50. Academy aims to open 12-14 new stores and leverage promotional efforts and new product initiatives strategically.

Navigating Challenges in Q2

In the second quarter, Academy Sports and Outdoors faced significant challenges that impacted sales, reporting $1.55 billion in revenue, a decline of 2.2% year-over-year. Comparable sales decreased by 6.9% on a shifted basis. Factors contributing to this downturn included a decline in store traffic and severe weather events, such as tornadoes in major markets like Houston and Dallas, along with Hurricane Beryl, which led to an estimated sales impact of $16 million during the quarter. The company also noted increased consumer caution, with many of its primary customers—earning between $50,000 and $150,000—exhibiting budget constraints due to persistent inflation and rising credit card debt.

Focus on Cost Management and Margins

Despite the sales decline, Academy managed to enhance its gross margin, which increased by 50 basis points to 36.1%. This improvement was largely attributed to effective inventory cost management and reduced freight expenses. However, selling, general, and administrative (SG&A) expenses rose by 150 basis points due to investments in growth initiatives, highlighting the company's commitment to long-term strategic goals. The EBIT margin remained strong at 12%, demonstrating effective cost control amidst the challenging sales environment.

Revised Guidance for Fiscal 2024

Given the economic landscape, Academy revised its fiscal 2024 guidance to account for the softer sales environment. The company anticipates net sales to fall between $5.9 billion and $6.07 billion, projecting comparable sales declines of 6% to 3%. Gross margin is expected to remain stable within a range of 34.3% to 34.7%, despite anticipated challenges. The adjusted net income forecast is set between $420 million and $480 million, with diluted earnings per share expected in the range of $5.75 to $6.50. This reflects a proactive approach in managing financial expectations amid ongoing consumer pressure.

Long-Term Strategic Initiatives

Academy is not just managing the present challenges but also investing in its future. The company is on track to open between 15 to 17 new stores this year, bolstering its presence in the market, including a recent opening in Ohio. It is also expanding its omnichannel strategy, evidenced by the rollout of the myAcademy loyalty program, which is currently exceeding sign-up expectations by threefold. This initiative is crucial as it aims to cultivate a loyal customer base capable of driving frequent purchases, thus improving overall sales.

Encouraging Signs and Sales Trends

Notably, Academy reported a positive comp in August, which hints at a potential rebound despite the weaker performance earlier in the year. This uplifting trend was particularly relevant during specific promotional periods, as consumers responded favorably during events such as Memorial Day and Independence Day. The strong performance in August was broad-based, with significant uplifts in footwear and apparel driven by back-to-school shopping. This positivity, coupled with strong early signs from the loyalty program, suggests that Academy's strategies may yield improved sales in the upcoming months.

Continued Focus on Value

As the economic situation unfolds, Academy is wisely focusing on delivering value to customers. The company is strategic in its approach during promotional periods, aiming to avoid margin erosion while driving traffic. Leadership highlighted a commitment to maintaining low prices across its private brands, appealing to value-conscious shoppers. Additionally, there are optimistic expectations towards enhancing inventory management practices, which are seen as crucial for sustaining profitability and improving customer satisfaction.

Conclusion: A Mixed Outlook

While Academy Sports and Outdoors has faced considerable headwinds in Q2, the proactive measures in cost management, strategic initiatives for growth, and positive momentum in sales during key periods provide a layered outlook for the future. With carefully recalibrated sales expectations and a strong emphasis on building customer loyalty, the company appears well-positioned to navigate through this challenging environment. Investors should monitor the effectiveness of these strategies and their impact on future performance as the year progresses.

Earnings Call Transcript 2025-Q2

[Operator]

Good morning, ladies and gentlemen, and welcome to the Academy Sports and Outdoors Second Quarter Fiscal 2024 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 and Outdoors. Matt, please go ahead.

[Matt Hodges, executive]

Good morning, everyone, and thank you for joining the Academy Sports and Outdoors Second 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 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 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?

[Steven Lawrence, executive]

Thanks, Matt. Good morning to everyone, and thank you for joining our second quarter 2024 earnings call. We truly appreciate your interest and support of Academy Sports and Outdoors.

Sales for the second quarter came at $1.55 billion, which was down 2.2% versus the second quarter of last year, and which translated into a negative 6.9% comp on a shifted basis. The active young families that we primarily serve remain under financial pressure. They are struggling with reduced spending power driven by price inflation, coupled with higher credit card debt and delinquencies, both of which remain well above pre-pandemic levels. We continue to see these factors constrain household spending on discretionary goods in the near term.

At the same time, we faced a very active storm season during the quarter, which included tornadoes in Houston and Dallas in May and Hurricane Beryl in July, both of which disrupted the business in some of our biggest markets for several weeks during the quarter. Hurricane Beryl was particularly impactful and left a few million people without power for multiple days. After making certain all of our team members were accounted for and safe, we started reopening stores as quickly as possible and began reaching out within the local communities to provide assistance where we could.

As part of the recovery effort, Academy donated nearly 200,000 bottles of water to help provide relief in the summer heat to those without power. We also provided financial assistance to more than 450 of our associates through our [ team member assistance ] program. I'm very proud of the team for their efforts to quickly deploy the supplies to help the communities we serve. We estimate that these events negatively impacted our sales for the quarter by approximately [ $16 million ] or roughly 100 basis points in comp.

The other challenge we faced had to do with some of the issues that arose as we converted our Georgia distribution center to our new warehouse management system. As we mentioned in our last call, the initial switchover went smoothly. The main issue we faced was that the ramp-up in productivity from the system scaling up could not keep pace with the accelerated throughput we needed to keep us fully in stock during the large volume weeks we experienced during the key summer months. Working through these sorts of issues is part of the course in these types of systems implementations. And at this point, we're now mostly caught up in this facility and believe it will be ready to take on the accelerated volume we'll see as we ramp up for the holiday season. Our estimate is that the out-of-stocks created by this issue cost us approximately $32 million in sales or roughly 200 basis points in comps.

We intend to apply the learnings from this go live to our [indiscernible] to help minimize any impact on our sales. At this point, we believe we will convert our next [ DC ] in Cookeville, Tennessee in early 2026.

While we're not satisfied with our Q2 results, we recognize that we continue to operate in a challenging retail environment for the Sports and Outdoor categories. Our goal remains to grow market share, and we're pleased that we continue to hold on to the lion's share of the business we picked up over the past 5 years, Q2 sales running up 25% versus pre-pandemic levels.

The trends we've cited in previous calls in terms of customer shopping patterns continue to hold true. We're seeing customers coming out to shop during the key moments on the calendar and then pulling back on spending during the [ lulls ]. Sales results during key events such as Memorial Day, Father's Day and the 4th of July were solid and in line with our expectations. The back-to-school business, which straddles Q2 and Q3 for us, was weaker than anticipated at the end of July. As we turn the corner into August, we saw that customers were compressing their shopping closer to the school start dates, which shifted some volume from late July into August. Looking at sales across both months, we're pleased with the overall results for back-to-school and the solid start to Q3 that it gave us.

Business outside of these key time periods was more challenging than anticipated, primarily driven by the aforementioned storms and DC conversion issues. When the customer does come off to shop during the key events on the calendar, we continue to see them gravitate towards value as well as the new and innovative items in our assortment.

We will continue to leverage these customer shopping behaviors by leaning into our position as the value leader in our space across all touch points. Our approach is to drive traffic with strong everyday pricing day in and day out while focusing our promotional efforts into the key shopping moments on the customers' calendar. At the same time, we will continue to incubate new ideas and roll them out aggressively as they resonate to ensure that we're delivering a steady diet of newness to our customer base.

In terms of performance across our different businesses, on a non-shifted sales basis, footwear was the best performing division with sales increasing 1% over last year. Kids and athletic were outperformed for the quarter, driven by increases in leading active brands such as Nike, Brooks, ASICS and New Balance. Work footwear was also a key contributor with strong sales in [ Ariat and Wolverine. ] We're also pleased with the momentum we're seeing in our casual business driven Birkenstock, Crocs and SKECHERS.

The outdoor division also ran a 1% increase during the quarter. We continue to see strength in hunting and fishing businesses. Drinkware also remains a strong trending category with YETI, Stanley and Owala, all consistently delivering a strong pipeline of newness.

Apparel sales were down 2% for the quarter. Within this division, our kids business were on a solid increase. Our adult outdoor and athletic businesses performed in line with the average for apparel. Across both adult and kids, we continue to see strong results from key national brands, such as Nike, [indiscernible] and Levi's, while also seeing solid growth in some of our newer private brands such as Freely and [indiscernible].

Similar to Q1, our licensed team sports business underperformed, primarily driven by slow starts by the key professional baseball teams in our region, including the Rangers and Astros. As a reminder, the bulk of this business is done in the back half of the year, and we remain optimistic about our ability to turn this business around as we head into college and pro football season.

Sports and recreation was our most challenged division with sales down 7% versus last year. We're encouraged by our team sports business, which had a modest increase during the quarter, primarily driven by baseball, football and pickleball, but that was not enough to offset the declines we continue to see in several of the big ticket, long replacement cycle businesses.

Certain sports and recreation categories such as pools, tampolines and fitness, along with kayak and power marine in our outdoor division continue to be some of our softer businesses.

To help manage through these slow sales trends, we've rightsized the inventory, floor space and marketing investments for these businesses to align with our current sales contribution. As I covered on the last earnings call, we also continue to invest in new ideas and brands as a way to spark demand and stabilize the trend lines in these categories. We've seen some early encouraging results with some of the new ideas in fitness and has started landing later in the quarter, such as walking pads, and we will need to continue to monitor progress here as we move forward throughout the fall.

At this point, we've made it through many of the key selling events for 2024, including a strong finish to back-to-school, which just wrapped up in August, and we're now more than halfway through the fiscal year. Year-to-date sales through August were down 2.9% to last year, which translates into a negative 5.4% comp on a shifted basis. We believe that most of the economic factors suppressing consumer spending on durable goods will continue throughout the remainder of the year.

Based on this and our year-to-date results, we believe it is prudent to revise and narrow our annual guidance. We now forecast sales for the full year to range from $5.9 billion to $6.07 billion, which would be a negative 4% to negative 1% decline in total sales versus last year and a negative 6% to negative 3% in comp sales. The team is laser-focused on aligning our expenses to see flows and inventory with this revised forecast.

From a profitability standpoint, our gross margin rate came in at 36.1% for the quarter or a 50 basis point increase versus last year. Despite the softer than anticipated sales trends, we remain focused on our inventory control disciplines, which we believe will enable us to achieve our full year gross margin rate guidance range of 34.3% to 34.7%. Carl will discuss our profitability performance and revised guidance in more detail in his comments later in the call.

Beneath the surface, we continue to see some green shoots in our business as our growth strategies for our long-range plan start to take root. As a reminder, those are opening new stores and expanding our store base, building a more powerful omnichannel business and driving greater productivity out of our existing businesses.

Now I'll give you an update on each. New store growth remains our primary sales driver, and for the second consecutive quarter, our 2022 vintage of new stores posted a positive comp despite the challenging economic backdrop. At the same time, we're continuously applying learnings from each new store opening to future vintages and we remain pleased with the sales trajectory we're seeing for both the '23 and 2024 vintages of stores.

During the quarter, we opened 1 new location in Zanesville, Ohio, and our [indiscernible] from the store is strong. This is our first store in Ohio, expanding the Academy brand to 19 states. As we've discussed previously, our goal is to quickly build density in these new markets after we enter them, so you'll see our second Ohio store open up this fall with several others planned for 2025 and 2026.

While we currently only have 9 stores from the 2022 vintage in the comp base, as we lap the majority of the '23 stores in the back half of the year and into early next year, we expect the contribution from new stores to increase their impact on the total company comp sales trend. Year-to-date, we've opened up 3 new stores and are currently on track to hit our goal of 15 to 17 new stores this year.

In terms of our second growth initiative, our [indiscernible] business ran its third consecutive quarter of positive growth, and our penetration increased to 9.7% of total sales, which is 30 basis points over last year. While it is still early days and the contribution level is still low, we're encouraged by the performance of some of our new capabilities such as same-day delivery powered by Door Dash. Our initial analysis of the Door Dash data indicates that the business generated through this platform is accretive due to it attracting both a younger customer, along with customers who tend to live in more dense urban city centers where we don't have a large brick-and-mortar presence.

The third leg of our growth strategy is to drive greater productivity out of our existing business. We expect that a key contributor to this will be the work we're doing around expanding our customer base while also cultivating a deeper engagement with shoppers who are already in our ecosystem. During Q2, we launched myAcademy Rewards, which rolled out to all stores in early July. This is meant to supplement our Academy credit card, which remains the highest tier in our loyalty program. As a reminder, the key value propositions include: a welcome offer of up to 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 for both the reward and insider access to personalized offers, deals and products.

A great example of this last benefit was in an activation campaign we ran at the start of back-to-school. We worked with Stanley to procure an exclusive limited edition colorway in their iconic Adventure Quencher tumbler. This exclusive color was only available to members of our loyalty program for the first week. We saw it drive strong sign-up and engagement with our myAcademy Rewards program.

We just launched it, we're pleased with how our customers are embracing and actively signing up from myAcademy. To put some numbers around this activity, our daily sign-ups are over 3x what we previously saw from customers opting in to create an account with us and/or opting into target marketing efforts. Our original goal when we constructed the program was to have over 10 million members enrolled by the end of the year, and based off the early reads, we're confident we'll exceed this goal.

While getting customers to sign up is step one, the real value of loyalty will be to migrate customers from occasional shoppers to loyalists. We know that our best customers are omnichannel shoppers and they shop as 3x to 4x more frequently than a single-channel shopper. And then on an annual basis, they spend 4x as much with us.

To reiterate, we're not satisfied with the year-to-date results, but are encouraged by our performance during the key shopping moments in the calendar, including the strong finish to back-to-school. The team is moving with urgency across all fronts and is singlemindedly focused on improving our top line performance. While we cannot control many of the economic factors our customers are dealing with, we can control how we deliver and market value and newness to our customers on a consistent basis, which should lead to improving our top line performance while maintaining our bottom line profitability. Our focus remains on managing through the short term by growing market share while also planting seeds for the future, executing against our long-range growth platforms.

Now I will turn it over to Carl who will give you a deeper dive on our Q2 financials and our updated guidance for the full year. Carl?

[Earl Ford, executive]

Thanks, Steve, and good morning, everyone. Steve covered some of the numbers, but I am going to walk you through the results in more detail. The second quarter sales of $1.55 billion and comparable sales of negative 6.9% fell short of our expectations, primarily due to a decline in store traffic compared to last year. Our comp transactions declined 7.4%, while comp ticket increased by 0.5% compared to last year.

Our primary customers, those with annual incomes of between $50,000 and $150,000, remain very budget conscious and cautious, showing low consumer sentiment for certain discretionary categories. We also see an increase in credit card and buy now pay later's usage in conjunction with household debt continuing to reach multiyear highs. So while inflation has moderated, prices are still high, and that, along with an increase in personal debt, is impacting spend in our category.

During the quarter, we did see a sales trajectory lift during the major shopping events but it was not enough to offset the slow periods in between. Speaking to the trends of the quarter, May was impacted by tornadoes in our 2 biggest markets, Houston and Dallas Fort Worth. Sales improved in June, but weakened in July due to Hurricane Beryl hitting the Houston area, the impact of temporary outbound inventory issues at our Georgia distribution center and a compressed back-to-school shopping period.

Our gross margin rate in the second quarter was 36.1%, a 50 basis point increase compared to Q2 of last year, primarily driven by inventory cost management and lower freight expense. Shrink was 5 basis points better than last year as a percentage of sales.

Our second quarter SG&A expense of $368.6 million was $16 million or 150 basis points higher than Q2 of last year. All of the increase is attributable to spend on our growth initiatives, primarily for new stores and technology. We are confident in our long-range plan and are committed to investing in it, while also controlling our existing cost structure.

Overall, in the second quarter, Academy had a double-digit EBIT margin rate of 12% and generated net income of $142.6 million and diluted earnings per share of $1.95.

Adjusted net income, which excludes stock-based comp of $8 million, was $148.6 million or $2.03 in adjusted earnings per share.

Looking at the balance sheet, we ended the quarter with $325 million in cash. Our inventory balance was $1.37 billion, an increase of 4% compared to last year. Total inventory units were flat, and this includes having an additional 15 stores compared to the end of Q2 2023. On a per store basis, inventory units were down 5%. The merchandising team continues to do a great job of managing our inventory in sync with our sales.

In terms of capital allocation, our strategy remains the same to execute against our 3 pillars, which are: one, financial stability; two, self-funding our growth initiatives; and three, increasing shareholder returns through share repurchases and dividends. We believe these priorities will help drive future sales and earnings growth as well as increased shareholder value.

In Q2, we generated approximately $91 million in cash from operations. We invested $41 million in our growth initiatives, repurchased approximately 1.8 million shares for $99 million and paid out $8 million in dividends. Year-to-date, Academy has generated approximately $217 million of adjusted free cash flow compared to $136 million during the first half of 2023. This is a 60% increase, driven by strong retail operations across Academy.

Tangible examples include: one, disciplined inventory control, leading to a decline in units per store; two, managing promotions in a strained economy, resulting in 10 basis points of year-to-date gross margin rate expansion; three, controlling expenses while investing in growth initiatives; and four, reducing the amount of capital it takes to open new stores.

Finally, the Board recently approved a dividend of $0.11 per share payable on October 17, 2024, to stockholders of record as of September 19, 2024.

Now turning to our outlook for the remainder of the year. Based on the current state of the consumer and our year-to-date results, we are revising our previous guidance for fiscal 2024. One note, in addition to GAAP measures and adjusted free cash flow, we are also providing guidance on 2 non-GAAP measures: adjusted net income and adjusted earnings per share.

Our revised guidance is as follows. Net sales are expected to range from $5.9 billion to $6.07 billion, with comparable sales of negative 6% to negative 3%. Let me provide a bridge between the low end and the high end of the comp range.

The low end of the range assumes that the economy does not improve meaningfully over the back half of the year and that there is no real change in our customers' behavior. The delta from the low end to the high end estimates that sales remain on the current August trend, and we benefit from some or all of the plans and tactics we are deploying to drive traffic and sales in our stores and online. These include: adding 12 to 14 new stores; focusing on promotional efforts around the key shopping events utilizing our customer data platform; being more pronounced with our value messaging; bringing in more new and innovative products; capitalizing on our resurgent outdoor business; growing the new myAcademy loyalty program; and finally, leveraging Door Dash, especially after the Christmas shipping cutoff dates.

Our gross margin rate is still expected to range from 34.3% to 34.7%. Our SG&A expense rate is now expected to be approximately 150 basis points higher than in 2023. GAAP net income of between $400 million and $450 million. Adjusted net income, which excludes certain estimated expenses, primarily stock-based compensation of approximately $27 million is forecast to range from $420 million to $480 million. GAAP diluted earnings per share of $5.45 to $6.20. And adjusted diluted earnings per share of $5.75 to $6.50. The earnings per share estimates are based on a revised share count of 73.5 million diluted weighted average shares outstanding for the full year. This amount does not include any potential future repurchase activity using our remaining $476 million authorization.

We also remain confident in the strength of our cash flows and still expect to generate between $290 million and $340 million of adjusted free cash flow, including $175 million to $225 million of capital expenditures. The reduction in CapEx guidance is primarily from the work of our real estate and construction team finding ways to open stores more efficiently and building those cost savings not only into 2024, but '25 and beyond.

We are proud of the value engineering work Sam Johnson and his real estate team have done in lowering the cost profile of our new stores. When we first restarted opening stores in FY '22, we were far from optimized. As we build our capabilities and leverage our scale, we have found a number of ways to optimize costs, inclusive of raw material procurement, construction services and landlord participation. This value engineering is also benefiting our store remodel program, allowing us to better serve our team members and customers for less.

Finally, as we focus on our growth strategy, we have elected to pursue fewer technical projects to focus on our biggest projects associated with omnichannel, our customer data platform, and our new WMS system.

Through the first half of the year, our sales were lower than expected, but we have prudently managed expenses, resulting in a double-digit EBIT margin. We also increased our adjusted free cash flow by 60% over last year, which we utilized to repurchase 3.8 million shares or 5% of the outstanding shares of the company. At the same time, we have self-funded the investments in the growth pillars of our long-range plan. We believe the actions we are taking to grow the business will drive future sales and earnings growth.

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

[Operator]

[Operator Instructions] And our first question today is from the line of Brian Nagel with Oppenheimer.

[Brian Nagel, analyst]

The first question I want to ask, it's a bit of a maintenance question, so I apologize. But just to understand better the sales trajectory in the business, and I want to make sure I understood this correctly. So in the prepared comments, you talked about -- I mean, it's essentially 300 basis points of comp impact from either the weather or the distribution center issues. And then I think you gave us a comp for August of a down 5 something. So I guess the question I'm asking is, how do we bridge that? Has the business strengthened? Did the business strengthen into August with the benefit of back-to-school kicking in?

[Steven Lawrence, executive]

Yes. So in terms of the trajectory, what ended up happening was, we talked about the events being strong, right? So we saw a strong Memorial Day. We saw a strong Father's Day. We saw a strong 4th of July. Business was impacted in early July with the onset of the Hurricane Beryl, that lasted for about 2 weeks where we felt that depressed business. And then towards the latter part of the month, I would think that's where some of the in-stocks hurt us from our Atlanta facility, right? So that probably suppressed a while a little bit, plus a little bit of trade-off volume in August. Business really rebounded in August. We actually ran a positive comp in the month of August, which we're pretty excited by. It's 1 month. We don't want to get too far ahead of ourselves. But it kind of bracketed, we had a positive comp for the 4th of July week, and then we had kind of some disruption in the business and came back to a positive comp in August.

So it feels like some of the initiatives that we're working on are kicking in. It's still early, right? We still have a lot of the back half ahead of us. The negative 5.4% that we cited was the year-to-date comp through 7 months. So not to be confusing, we were down about 6.4% through 6 months. Through 7 months, it was down 5.4%. We wanted to provide that data point because we get questions around, okay, the low end of your guidance is down 6%. We wanted to make sure people understood that we were within the low end of our guidance in that guidance that we gave you.

[Brian Nagel, analyst]

Got it. That's very helpful. So just to reemphasize, the comp and in August was positive.

[Steven Lawrence, executive]

Correct.

[Brian Nagel, analyst]

Okay. And the second question I have as a follow-up to that. I mean what you're saying today and we're hearing from a lot of other companies, is that consumers are showing up for events. It's just that there's incremental weakness and the lulls between those events. So I guess the question I want to ask, you've done a great job of maintaining gross margins, and you're looking at your guidance, you expect that to persist for the balance of the year. But is there any thought, given the state of the consumer, given how the consumer is behaving, to get more selectively promotional here to drive better sales?

[Steven Lawrence, executive]

Yes. We've tried a lot of different things over the past 12 months to try to stimulate sales, particularly in those lulls. And what we found is in those lulls, when the customer is really pulling back on spending, running extra promotions tends to erode our AUR. We don't get the unit uplift to offset the AUR erosion and we just give up margin. So the strategy we've landed on that really seems to work for us is draft off our everyday value proposition kind of in the lulls in between because we have really strong everyday value, whether it's in our private brands or national brands that we offer, and then really aggregate those promotions around those [ muscle in ] moments. And that really seemed to work for us, and I see that continuing as we move forward through the remainder of this year.

[Operator]

The next question is from the line of Anthony Chukumba with Loop Capital Markets.

[Anthony Chukumba, analyst]

What are you seeing in terms of the competitive landscape? I mean particularly, given the fact that as you mentioned, consumers are really kind of in a pressure right now. Is it just getting any more promotional out there? I mean, anything notable that you would point out there?

[Steven Lawrence, executive]

Yes, I think we see a continuation of trends that we've talked about on some previous calls where you had an [ Uber ] promotional environment, pre-pandemic. A lot of that went away during the pandemic. I think the further we get away from that, I think you see more promotions creep in each event. It's still -- we're nowhere near back to where it was pre-pandemic. Certainly, it felt like there was more promotions and more broad-based promotions during back-to-school, but still not back to where it was pre-pandemic.

So we have that modeled in and planned into our promotional cadence for the remainder of the year. We think we've got a pretty good beat on it. I would characterize it as a little more promotional in last year, but certainly not back to where it used to be.

[Earl Ford, executive]

Anthony, from a competitive landscape standpoint, I think you see promotions spike when retailers don't control their inventory. We feel good about where we are from an inventory discipline standpoint. Units per store were down 5% year-over-year. And looking at a lot of the earnings that I've seen come out thus far, it looks like inventories are relatively well controlled across the channel. That's just my viewpoint. But I think to the extent that people let inventory get out from under them, that will tend to inflect promotionality. And again, we're just going to lean into what Steve said on everyday value in the lulls and then win on the must-win time periods.

[Operator]

Our next question comes from the line of Seth Basham with Wedbush Securities.

[Seth Basham, analyst]

My first question is just thinking about the improving trend in August and expectations for the back half of the year. You gave some good color on the low end versus high end of the comp outlook. But if we think about some of the other drivers of potential improvement, perhaps you could give us some more color on things like contribution from new stores that are coming in the comp base? And how much do you expect from the loyalty program?

[Steven Lawrence, executive]

Sure. So when you think about the guidance that we gave, the low end contemplates that we see kind of the trends through the first 7 months of the year continuing forward. So the down 5.4%, the down 6% kind of brackets, that we don't see it getting much better. And I will add that, that down 5.4% through the first 7 months has some pretty tough weather events in it along with the slowdown in our Atlanta facility, which we believe mostly passed at this point. So hopefully, we don't have to deal with those going forward.

The high end implies that the trends that we saw in August continue to a certain degree through the remainder of the year. And there's a lot of things that we think would help contribute to keeping that trend sustaining.

First, we've talked about leaning into customer behavior, focusing on value and making sure we got the right prices during the key promotional time periods, and we need to win market share, winning in the newness and innovation as the customer really is buying that, almost agnostic of price. We've got to resurge in outdoor business, and we've seen an improving footwear and apparel business. One of the things that was really encouraging to see out of August was it wasn't just the back-to-school category. Certainly, we saw strength in our kids business in footwear and apparel, but we also saw adult apparel and footwear business would be strong. We also saw our outdoor business to be pretty strong.

We see new stores coming into the base. We talked about how the '22 vintage stores now have 2 back-to-back quarters of positive comps. And as we get deeper into this year, several of the 2023 stores start leaning into that base as well.

We've got our new loyalty program, which is early days, but we're seeing sign-ups there. people signing up about 3x faster than they did in the past for an account sign-up, and the more people we can get into that program, the more targeted marketing we can do. We can get that flywheel going. So we're pretty excited about that. And we're well on pace to be north of 10 million customers there by the end of the year and exceeding our goal there. So we're pretty excited.

You've got an election year that is always a wild card. So that could stimulate certain businesses, could also maybe impact other businesses to the negative. We got dotcom that is 3 quarters in a row of positive growth. And then new capabilities. We've got the same-day delivery that's powered by Door Dash that we talked about in the last call, and I touched on some of it in the prepared remarks. I mean that's a new capability for us where we didn't have that ability. And you think about, it's helping us reach people more in inner cities. So it's a new customer that's mostly accretive. And what I think we're really excited about is if you think about that holiday time period, you've been into that 18th or 19th of December, where people stop trying to ship those because they're not -- they're afraid that it's not going to get delivered on time. We now have the capability to offer same-day delivery on that. And I think it's really going to help us in those last 5 to 6 days heading into Christmas.

So those are the initiatives that I think get us from the low end of the guidance to the higher end of the guidance.

[Seth Basham, analyst]

That's really helpful color. And maybe just a follow-up on new stores. Could you provide some more information on how the 2023 class is performing relative to your expectations? And as you look to 2025, do you plan to materially accelerate the number of stores you're opening that year relative to 2024 to hit your medium-term guidance?

[Steven Lawrence, executive]

Yes. So I'll start with -- we're excited to see the '22 vintage stores post positive comps. We've taken the learnings from each vintage, applying it to the next vintage. So I will tell you that the '23 stores, although most of them are not in the comps at this point, they're performing better out of the gate than the '22 vintage did. And the 3 stores. We just opened up our fourth by the way, this past week and soft opening in Beckley, West Virginia. We expect those to be better than the '23 vintages. So we're seeing them steadily get better as we open up each vintage.

This year, our plan is to open up 15 to 17 new stores. Over the next 5 years, [ 160 to 180 ]. That does imply an acceleration next year. So our plan right now, we haven't given a guidance on what the exact number will be, it would be to be more stores than the 15 to 17 we're opening up this year.

[Operator]

Our next question is from the line of Simeon Gutman with Morgan Stanley.

[Simeon Gutman, analyst]

Following up on the prior question. Steve, if you look at the holistic spread between the comps of new stores and mature stores, however way you can segment them, is that spread roughly holding? Did it narrow, did it widen if you look first to second quarter?

[Steven Lawrence, executive]

I would say that the comp between new stores and existing stores was about the same first quarter to second quarter. The thing we're pleased by is when you think about our growth strategies, I mean, we talked about, obviously, new store growth is #1 platform for growth, and that's where we're going to get the biggest bang for our buck. The second one is dotcom. But implied in our long-range plan is to have flattish to slight comp increases in the base. We haven't had that. So the fact that the new stores are comping positive, that's a much bigger spread than we initially modeled between the base and the new stores. And our hope and belief is that as we see the base business starts to come back, that we'll see an even greater acceleration in the comp on a new store waterfall because if we can hold that same delta, that would be really, really a strong outcome for us.

[Simeon Gutman, analyst]

Okay. And then a quick follow-up. The gross margin performance and guidance looks good in light of what's happening in the backdrop. Does any of this year's gross margin gains preclude how it flows in '25? How much you can improve next year? I don't know if on DC side or inventory. Is there anything that you're kind of -- I don't know if you pull forward in any way, but how to think about that?

[Earl Ford, executive]

No. I would tell you no, it doesn't. In fact, I think with the Georgia distribution center as a bit of a headwind. I think we'll see improved performance from a distribution center standpoint. Reminder that, that DC productivity is housed within gross margin. And as we think about the longer-term 5-year plan, we had supply chain benefits in there. We had growth of about 150 basis points in gross margins there's nothing that we're seeing that makes us feel otherwise about that. So no, I don't think what we're -- the 50 basis points that were up in Q2 of this year, I don't think that takes away anything associated with the trajectory of 2025.

[Operator]

The next question is from the line of Justin Kleber with Baird.

[Justin Kleber, analyst]

First, just on gross margin. Steve and Carl, you mentioned inventory cost management. Can you comment just on how merchandise margins performed during 2Q and what your guidance assumes for merch margins across the back half of the year? .

[Earl Ford, executive]

Yes. So just in review, 50 basis points of gross margin in Q2, year-to-date up 10 basis points. My comments are on Q2. So that 50 basis points is a composition of about 20 basis points from a merchandising margin tailwind, slight tailwind associated with freight. Shrink was 5 basis points better. So nothing much to speak of there.

I think it's good old-fashioned like inventory management, to be honest with you, and leaning into promotions only during those key time periods and then leveraging [ EDV ] during the lulls. That's a bit of a composition.

[Steven Lawrence, executive]

So from a guidance perspective, we held guidance at 34.3% to 34.7%, implied in that is roughly a 40 basis point spread. That 40 basis points would be driven primarily by merchandise margin if we achieve the high side of that guidance.

[Justin Kleber, analyst]

Got it. Okay. Very helpful. And then just given last year's extra week and the fact each quarter this year starts 1 week later, what was the sales and EPS benefit here in 2Q? And can you provide just any color on what that calendar shift headwind will look like as it reverses across the back half of the year, just so we have our models calibrated appropriately? .

[Earl Ford, executive]

Yes. For Q2, it was about $35 million benefit to the second quarter. So that's how I comment a bit on the shift. That will reverse the bulk of that in third quarter, the remainder in fourth. I've heard a lot of commentary in the marketplace associated with that cadence. It's applicable to us. The magnitude is just a bit different based on our size and scale.

[Steven Lawrence, executive]

Just to be clear, that impacts the total number that we're reporting. The comp number is on a shifted basis. That's also a good way to think about the businesses that we have shifted and are comparing weeks 1 through 52 this year against weeks 2 through 53 of last year. So that does take into account any of these shifts when we report that number.

[Operator]

Our next question is from the line of Cristina Fernández with Telsey Advisory Group.

[Cristina Fernandez, analyst]

I wanted to ask about the improvement you saw in August. Were there specific categories that had more of a benefit? And can you talk about what the improvement mostly in traffic or conversion, just to understand what led to the better trend?

[Steven Lawrence, executive]

Yes, the primary improvement came through traffic. We also had some AUR uplift during the month as well. In terms of the performance, it was fairly broad-based. I would say initially, the first part of the month, it was more back-to-school driven. Obviously, footwear, apparel driving that. But that being said, our back-to-school is earlier. We don't have a lot of school districts in our geographies to draw back-to-school closer to Labor Day. So really back-to-school for us kind of straddles that last week or two of July into the first week or two of August. And we saw continued strength once we got past those first 2 weeks all the way through into Labor Day. And it was broad-based. It was apparel, it was footwear and it was our outdoor division.

So I think certainly, we saw an increased traffic from back-to-school, but it felt like it kind of sustained as we move through the month, which was encouraging to us.

[Cristina Fernandez, analyst]

And then my second question is on the private brands. Can you talk in more detail around the performance in -- are you seeing the consumer gravitate to those brands? Are you seeing trade down within categories? Just wanted to see the -- how is the consumer responding to your value offering? Are you seeing kind of like a shift from bigger ticket items to lower ticket within categories?

[Steven Lawrence, executive]

Yes. I mean we definitely do see that, particularly during some of the lulls in the calendar. When we talk about our everyday value proposition, the place where that's best expressed candidly is in our private brands, where we ticket these goods, we price them day in and day out at really sharp prices. One of the ones we're most proud of, we talk a lot about is our holding share that we saw for [ $5.99. ] It's been at that price now for going on 5 to 6 years and haven't raised price there. Customers certainly find those items in our assortment, and we see growth in those items and categories.

Private brand has been in growth for us over the past couple of years. Our goal ultimately is to get from around 20% pre-pandemic to around 25%. We're kind of in the mid 22%, 23% range from penetration. So we're making good progress there. I definitely think you do see some trade down there in the private brand, and we're very proud of the value proposition we offer there.

[Operator]

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

[Christopher Horvers, analyst]

So just wanted to follow up on the August comment. Can you maybe, back into like maybe a slightly positive comp. Like to what degree was August positive? And do you have an estimate of maybe how much the back-to-school shift helped August?

[Steven Lawrence, executive]

I'm not going to get into the quarterly comp progression. It was positive. We're excited about that. It was a significant trajectory change from what we saw obviously in July. I think some of it, you're probably right. We thought that at least the first week or two, it was some compression of back-to-school timing where people are buying closer to need. We certainly have seen that happen even if you go back to 4th of July or Memorial Day, where it used to be maybe a 5- to 7-day event, maybe it's a 3- to 4-day event now. So we see that compressed shopping pattern happen. And that's what we initially thought was happening in August. But the fact that it's sustained throughout the entire month, and we also saw a really strong Labor Day and that it was more broad-based outside of just the back-to-school categories, was encouraging.

That being said, we still have 9 weeks ahead of us throughout the quarter, so we don't want to get too far ahead of ourselves. It was an encouraging early sign to see kind of that sales trajectory flip during the back-to-school time period.

[Christopher Horvers, analyst]

Got it. Makes sense. And then just broadly, you mentioned the calendar shift as to the impact of sales. Any other cadence items just to think about in the balance of the year, whether it's timing of opens, maybe how gross margin, those gross margin drivers perhaps play out in the back half?

[Steven Lawrence, executive]

I think we'll tag team this one. I mean, certainly, we've got 9 stores that we've announced that are going to open up in Q3. The remainder of the new stores will open up early Q4, generally in early November.

The only other really big shift that's still ahead of us is that compressed holiday count. I know you guys are well aware of that. There's 5 fewer days between Thanksgiving and Christmas this year. So that certainly is going to be something we're going to have to navigate as we get into Q4, but everybody is faced with that challenge. And certainly, that's well documented out there.

[Earl Ford, executive]

Yes. The only other thing that I would talk about is with our -- some of the categories that we sell, the election does tend to have a bit of an impact on what a normalized like quarterly build would look like. So depending upon what people are talking about in the press and whatnot, that's a little bit different than what you would have seen looks like last year or the year before.

And then as it relates to the margin cadence, the only thing I would add is it really does start and end with inventory discipline. We're very comfortable with where we are, and we're beginning to see a little bit of inflection in the August sales. I think we pair both of those together and that makes for some margin opportunity.

[Steven Lawrence, executive]

Yes. I did leave one thing off the calendar, too. We're up against the [ Ranger's ] [indiscernible]. That obviously impacts 1 week. It tends to be a 1-week event for us. It does based off the calendar shift this year, fall in the tail end of Q3 versus last year. It was the first week of Q4. That would be the only other thing I can think of.

[Christopher Horvers, analyst]

Meaning that would affect the comp for 3Q because your report shifted?

[Steven Lawrence, executive]

It could. It could. Depending now. Look like the Astros are looking pretty strong right now. So we don't really -- we take those out of the plans each year when we make the plans, but that definitely is something that we're up against the last week of the quarter.

[Operator]

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

[Unknown Analyst]

This is [ Henry ] [indiscernible] on for Michael Lasser. I just want to clear up, so the $16 million headwind from the storms and the $32 million headwind from the out-of-stocks both occurred in [ 2Q ], and the out-of-stock issue isn't expected to impact in [ 4Q? ]

[Steven Lawrence, executive]

Yes, that's correct. I mean the statement is we're mostly caught up. What ended up happening there is we actually had anticipated some slowdown and we put goods into the stores and service providers. You see extra goods to help them get through the month of May all the way into Father's Day. The ramp-up of productivity was a little slower than we anticipated. So it did create some out-of-stocks as we got past Father's Day and the summer months.

The team, now that we'll pass that back-to-school surge, is chipping away at the backlog. And as I characterize it, we're mostly caught up at this point. It actually did impact us a little bit in August, but we offset that with the strength of the rest of the business. So positive comp that we had did have some impact to that. But as we move into September and beyond, we're kind of in a lull for the next probably 30 to 45 days until we see start to ramp up heading into holiday. So we don't anticipate it having any impact on our business heading into holiday.

[Unknown Analyst]

Okay. And just as a follow-up. So the gross margin was driven -- the strong performance in 2Q was driven by inventory management despite this out-of-stock headwind?

[Earl Ford, executive]

Yes, that's right. Yes. So when we quote like inventory per store or units per store, we're quoting the total inventory divided by the number of stores. Some of that inventory does happen to be in the distribution center at any given time. But yes, inventory management, units per store are down 5%. We like where that's at. Launching 9 new stores. So there was a little bit of inventory in there associated with stores that haven't opened yet. And then, yes, the composition of the gross margin, call it, 20 basis points, merchandising margin, a little bit of good news from a shrink, from a freight standpoint, a mix of other things.

We feel good about the composition of the margin. As we mentioned, I think this is a bit of a surprise to the external user because our gross margins were down 40 basis points in the first quarter. it was that over penetration to clearance. We feel like right now, with what we've got going on from an inventory composition standpoint, the newness, the freshness, the per store efficiencies, that's what's driving gross margin, and we feel good about that going into fall.

[Operator]

The next question is from the line of Robby Ohmes with Bank of America.

[Robert Ohmes, analyst]

As you guys look to the back half year and especially the holiday, can you talk a little bit about how you feel about the merchandising setup for the back half? Are you looking for better allocations from some of the key brands? Are you feeling like the YETI, the Stanley drinkware, et cetera? I mean, is that -- do you think you're going to have even a better setup for the back half than you did for the first half from Nike? Are there any other footwear brands that might be coming in for the back half that weren't there in the front half? Any kind of thoughts on that would be great.

[Steven Lawrence, executive]

Yes. So I'll say, in general, we feel very good about where we're positioned for holiday. I think that the team is really leaning into kind of both ends of that barbell we talk about. There's a ton of newness coming in. You're correct in your assumption that we're getting a lot better allocation of both Stanley and YETI. And candidly, Owala is coming up as a strong kind of third contender in that mix. And we feel really good about the inventory we have positioned in all of those brands. And the interesting thing is all 3 of them are performing very well for us. I think they're generating a steady diet of newness across all 3 of the brands. And I think that's going to really help us heading into holiday.

We continue to work with our existing vendors to get greater access to product. We continue to get expanded access, particularly within Nike, as you mentioned. Shoes like the [ 270 ] works in more doors, they add more colors. And so we're excited about that. We're taking some ideas we tested last year, and we talked about this on a previous call, where Birkenstock has done really well. We've expanded our distribution and our door count there. [indiscernible] was having them on last holiday. We carry [indiscernible]. That's going to be an expanded door count.

So we feel really good about on one end, the newness component and then the team is loaded for better on value. I mean, we've gone after a lot of these key categories. We saw a really strong trend in opening price point drilling over the summer. And so we're going to lean into that kind of an idea as we head into holiday. So we feel like we're well positioned. The only wild part really is just the compressed holiday calendar we're dealing with.

[Robert Ohmes, analyst]

Got you. That's helpful. And then a quick follow-up. Did you guys give the digital percent of sales for the quarter? And also related to that, is Door Dash expected to drive up digital penetration, the trajectory there for the back half?

[Steven Lawrence, executive]

So dotcom penetration was up 30 basis points for the quarter. Right now, Door Dash is not feeding into the dotcom number, that's done externally through Door Dash. We will -- as we integrate Phase 2, which is having same-day delivery on our site, that will start powering into the dotcom console. So far, right now, it's not actually feeding into it.

[Operator]

Our next question is from the line of John Kernan with TD Cowen.

[John Kernan, analyst]

Helpful commentary on quarter-to-date and outlook for the back half of the year. I think 12 of the stores from the 2023 cohort are going to jump into the comp base pretty soon, and you had pretty bullish commentary on how they're performing versus the '22 cohort. How should we think about new store productivity as you start to ramp openings? It sounds like even beyond the 16 or the 15 to 17 you're doing this year?

[Earl Ford, executive]

Yes. From a new store productivity standpoint, we're still kind of operating within the framework of what we put out there, $12 million to $16 million year 1 sales, it's going to be towards the low end in the newer markets where brand awareness is lower. It's going to be at the higher end on existing markets or where there already is a brand awareness of what an Academy Sports and Outdoors is. Committed to 20% ROIC is a hurdle rate. Payback is typically in year 4 on a cash-on-cash basis.

We put out there $4 million to $5 million from a CapEx standpoint. I gave a little bit of commentary about what the real estate team is doing there. I think as we begin to scale this program more, they're finding more efficiencies, not only with how we're working with landlords, but also like raw materials and whatnot.

Yes, positive comp in second quarter row from a '22 standpoint. I think our first new store from 2023 has just entered the comp set. We're not going to speak on kind of like individual onesie, twosie stores. But obviously, from a comp waterfall standpoint, the more stores that we get into that waterfall that are in the aggregate providing comp sales, obviously, that lifts all boats from a comp trajectory standpoint. But with only 9 in there right now from '22 and the first one from '23 standpoint. Again, we'll kind of talk about all of our initiatives as we move forward, but we're pleased with what we're seeing, and it's operating within the framework that we put out there for you guys.

[John Kernan, analyst]

That's helpful. Shifting gears a little bit to SG&A. You've obviously given us very specific guidance about the back half of the year. There are -- the new stores are obviously ramping in the back half, which brings some more expenses on to the income statement.

As you shift to more -- to a faster unit growth perspective, maybe in 2025, how does that affect the overall SG&A rate? How we should be thinking about modeling SG&A dollars?

[Earl Ford, executive]

Yes, the [ LRP ] had 200 basis points of deleverage. It also had low single-digit comps, which we're not experiencing right now year-to-date. So I do want to brag on the team just a little bit, Q2 SG&A expense was up $16 million quarter-over-quarter, more than all of that was related to new stores and some technology stuff that we're doing with [ CDP ], omnichannel and WMS. So the only incrementality that we're spending is on these initiatives and the strategies that we really talked with you guys about. It's not fancy strategies. It's not building out something that's never been done before. We're just slowly and methodically doing this.

I think what you should expect from us is to continue to see incrementality associated with growth in those strategic initiatives. So an inflection in new store growth is going to drive more rent, more payroll. I think what the difference is, is those longer-term aspirations and what we're seeing with the consumer when that base stores begins to have that comp trajectory that we're expecting, I think you'll see leverage associated with that.

So again, the 150 basis points that we're talking about, I think it's within the framework of an LRP that is focused on 200 basis points of deleverage from an expense perspective, still getting to that 13.5% EBIT rate. But I think the difference will be not the strategies that we invest in, but the trajectory of the base comp stores.

[Operator]

We have time for one more question, which will come from the line of John Heinbockel with Guggenheim Securities.

[Unknown Analyst]

This is [ Anders Meyer ] on for John. Just one from me. Now that Robert has had more time with the company, can you provide an update on the timing of the realization of the 100 basis points in supply chain savings? And have you been able to identify any incremental opportunities?

[Earl Ford, executive]

Yes. So Rob Howell, he's been with us since January or February.

[Steven Lawrence, executive]

He's been with us February.

[Earl Ford, executive]

Yes, February. He's great. I love working with him. I think he's been instrumental in jumping on top of what we're seeing coming out of [indiscernible]. We talked about on the call, our next distribution center, we're targeting early calendar 2026. We just want to make sure that we digest all the learnings associated with the Georgia distribution facility and make sure that similar to kind of what we're doing with our stores, we're getting better based on the learnings that we're providing.

Yes, he is seeing other opportunities within the broader supply chain. I've talked previously about an existing state from an outbound transportation standpoint. We have 1 DC store, 1 DC door dedicated to 1 truck that services 1 store. That is not the norm in retail. It's more normal to have multi-stop deliveries, especially in a city where you have some level of synergies, like think about Houston or Dallas or Atlanta or Charlotte, we should be doing loops with those trucks. The WMS aids us in that and building out in advance the stores. There's opportunities there. And I think overall, as you look at the DCs, how we have them set up and how we operate with it, there's stuff outside of just the WMS that he's got his eye on.

Very pleased with him as a new add to the team, very pleased with some of the opportunities that he's going to bring to bear. I don't have any trepidation of 100 basis points of leverage along this long-range plan associated with the supply chain.

[Steven Lawrence, executive]

As we move into the back half of the year, we remain deeply committed to helping the active young families to serve have fun out there by expanding their spending power to providing a compelling assortment at an outstanding value. At the same time, we're also laser-focused on delivering value to our shareholders across multiple fronts, including our quarterly dividend while strategically repurchasing shares.

On a longer-term basis, we think Academy is one of the most compelling growth opportunities in retail, and we'll continue to thoughtfully invest in our long-term growth initiatives. Ultimately, we believe that remaining true to these strategies will allow us to break through the current short-term consumer malaise and deliver against our vision to be the best sport operator and retailer in the country.

I want to thank all 22,000 of our Academy team members for all the hard work and effort they put in so far during 2024. I know we have the right team in place to allow us to enter in the back half of the year, and the future for Academy is bright. Thanks, everybody, for joining us this morning, and have a great rest of your day.

[Operator]

Ladies and gentlemen, the call has now concluded. Thank you for your participation. You may now disconnect.