Academy Sports and Outdoors Inc
NASDAQ:ASO
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Academy Sports and Outdoors Inc
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Good morning, ladies and gentlemen, thank you for standing by. And welcome to the Academy Sports plus Outdoors Third Quarter 2020 Earnings Conference Call. Today is Thursday, December 10, 2020; and this call is being recorded. At this time all participants are in a listen-only mode. Following the prepared remarks, there will be brief question-and-answer session. Questions will be limited to analysts and investors, so please limit yourself to one question and one follow-up. [Operator Instructions]
I'd now like to introduce your host, Heather Davis, Senior Vice President of Accounting, Treasury and Tax. Heather, please go ahead.
Good morning, everyone. Thank you for joining our call today. On the call with me are Ken Hicks, Chairman, President and CEO; Michael Mullican, Executive Vice President and Chief Financial Officer; and Steve Lawrence, Executive Vice President and Chief Merchandising Officer. Before we get started, I want to go over some standard administrative matters. Our earnings release issued this morning is available in the Investor Relations section of our website at investors.academy.com. A replay of the audio webcast of this call will be archived on the Investor Relations section of our website for approximately 30 days.
As a reminder, statements in today's earnings, and some of them 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 words include, but are not limited to the factors identified in today's earnings release, and in our filings with the Securities and Exchange Commission, including our final prospectus dated October 1, 2020, and our most recent quarterly report on Form 10-Q. Any such forward-looking statements are based upon currently available information and our expectations, estimates, assumptions and projections as of today; I know are intended to be covered by the Safe Harbor provisions under the federal securities laws. The company assumes no obligation to update the forward-looking statements to reflect events or circumstances that occur after the statement is made or the occurrence of unanticipated events.
Today's earnings release and this call, also includes certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP financial measures are included in today's earnings and provided in the Investor Relations section of our website.
Now, I'd like to turn the call over to Ken.
Thank you, Heather. Good morning, everyone. And thank you for joining us today. This is an exciting day, as a result first time hosting our corporate earnings call as a public company. On October 2, 2020, Academy Sports and Outdoors started a new chapter as a result of the entire team's efforts from our 259 stores to the three distribution centers, and our home office that supports them. Over the years we've given our customers not just great products, but also great experiences, and we look forward to helping our customers have even more fun out there. We hope that you and your family are safe and healthy. I continue to be proud of our team members and their commitment to serve our customers and our communities during the COVID-19 pandemic.
All Academy stores, distribution centers, and the corporate office are currently open and have continued to operate within government safety recommendations and requirements, providing a safe environment for our customers and teammates. We've worked hard over the past several years to improve our competitive position as we move forward to our vision of being the best sports and outdoors retailer in the country. Our business has performed strongly during the past several quarters, beginning well before the COVID-19 pandemic. We've strategically invested in our key initiatives, including power merchandising, omnichannel, and are focused on the customer. We saw these efforts continue to pay off in the third quarter of 2020.
Now, moving to our financial results. As we announced earlier this morning, we had a remarkable third quarter with our fifth consecutive quarter of positive comparable sales increases. We achieved a record $1.35 billion of total net sales for the third quarter with a comparable sales increase of 16.5%. Our comp sales was driven by increases in transactions, units, and average unit retail. From a divisional perspective, sports and recreation, and outdoors were our best performing businesses. The sports and recreation division had a strong double digit comp increase; bicycles, outdoor games, outdoor cooking and fitness equipment purchases drove our sports and recreation division. Our outdoor division also experienced a strong double-digit comp increase, which was propelled by increases in our fishing, camping and hunting categories as our customers continue to participate in more outdoor activities.
Comp sales for the footwear division increased mid-single digits as a result of good sales in both, our Life and Work [ph] footwear. We saw a low-single digit decrease in the apparel division due to the decline in licensed apparel, as we anniversary-ied [ph] the strong sales from the Astros 2019 World Series appearance, as well as the impact from a change back to school environment. Our e-commerce experience continues to drive significant revenue and profit growth, as well as deeper customer relationships. We've made our website easier to navigate, improved our content, and added new services, all of which have improved the customer experience. E-commerce net sales increased 95.9% during the third quarter compared to the same period last year, and achieved a 7.5% penetration to total merchandise sales compared to a 4.5% penetration for the same period last year. Our buy online pickup in-store and curbside pickup program comprised approximately half of our overall e-commerce sales for both the quarter and the year-to-date, including our ship from store, buy online, pickup in-store and in-store retail sales; our stores were involved in over 95% of our total sales for the quarter.
Our third quarter sales were the result of our broad differentiated product offering which lends itself well to the ongoing trends of at home fitness, staycations, road trips, and outdoor activities like fishing, camping, hunting, and outdoor cooking and games. We offer fun for the whole family through a variety of products for many activities. Our everyday value also resonates during times of economic uncertainty. We offer customers a convenient and safe shopping experience, both in store and online. We're here for active families that love to make fun memories together, we also show up for our communities during difficult times when fun is harder to find. We are continuing to strengthen our balance sheet subsequent to the third quarter. In November, we've reduced our debt by approximately $630 million and refinanced and extended the remaining $800 million in debt through 2027. In addition, we extended our undrawn $1 billion ABL revolving credit facility through 2025. We believe these actions along with our continued strong performance this year has positioned us for ongoing financial stability.
Excuse me -- the results -- I think our sales [ph] just choked me up. Our inventory position, during the third quarter, have improved in almost all categories; firearms and ammunition will continue to be challenged for the foreseeable future. However, inventory continued to flow in all of our divisions during the quarter, allowing us to experience strong sales. We've been working collaboratively as a preferred retailer with all of our business partners, including our merchandise managers and logistics partners to improve our in-stock positions and merchandise flow.
While our third quarter performance was strong, we continue to work on our key opportunities to pave the way for the future. In our e-commerce environment, we've launched ship-to-store in advance to the holiday season and continue to focus on search and checkout optimization opportunities. In stores, we're focused on leveraging our systematic capabilities to further align team member schedules and responsibilities with the customer's traffic patterns. In the supply chain, we continue to focus on distribution incentive and logistics efficiencies by enhancing processes and systems optimization. In marketing, we continue to improve our targeted marketing capabilities to better communicate with our customers in a personalized fashion. In merchandising, our focus remains on continued advancements in our replenishment and allocation systems, as well as product placement within our store environments. With respect to our future outlook, due to the high level of uncertainty created by numerous external factors, including the pandemic, we will not be providing guidance at this time.
Before I turn it over to Michael, I would like to thank all of our team members in our stores, distribution centers, and home office for all their hard work and dedication during this challenging year which helped us to achieve the strong results.
Now, I'll turn it over to Michael to review our financial results in more detail. Michael?
Thanks, Ken. And good morning, everyone. Overall, net sales for the third quarter were $1.35 billion, which is an increase of 17.8% compared to the same period a year ago. As Ken mentioned, comparable sales for the third quarter increased 16.5%.
The gross margin rate was 32.7% of net sales, which was 110 basis points higher than the third quarter of 2019. This 110 basis point increase was driven by strategic merchandising actions such as lower markdown rates and lower clearance volumes, but partially offset by sales increase in hardline categories, which generally carry lower merchandising margin rates, but do have a higher ticket. Adjusted EBITDA increased 64.1% to a record third quarter performance of $145.7 million, up from $88.8 million in the third quarter of 2019. For the third quarter, SG&A was $359 million or 26.6% of net sales, which is 40 basis points well within the third quarter of last year. SG&A included approximately $32 million in non-cash and extraordinary items associated with October IPO. Excluding these charges, SG&A for the third quarter would have been $326.8 million or 24.3% of net sales; a 280 basis point improvement from the prior year.
Now looking at our bottom line; net income increased 109% to $59.6 million or $0.74 per diluted share versus net income of $28.6 million or $0.38 per diluted share in the third quarter of 2019. Pro forma adjusted net income, which excludes the impact of certain extraordinary items was $73.7 million or $0.91 per diluted share in the third quarter, which was an increase of 188% from $25.6 million or $0.34 per diluted share in the third quarter of 2019. The increase in free cash flow for the third quarter was driven primarily by net income and the vendor term changes were implemented in the first quarter of 2020. As a result, our adjusted free cash flow was an inflow of $83.7 million compared with an outflow of $30 million in the same period a year ago. On the balance sheet, we entered the third quarter with $869.7 million in cash and cash equivalents, and no borrowings under our $1 billion dollar ABL credit facility. Net of $21.1 million letters of credit, our available liquidity including cash was $1.7 billion at quarter end, which was $730 million higher at the end of the third quarter of 2019.
Most of the proceeds received in connection with our IPO in October are reflected in the quarter-end balance sheet. However, subsequent to the third quarter, on November 3, 2020, the company issued and sold an additional 1.8 million shares pursuant to the underwriters over allotment option, resulting in approximately $22.1 million on further net proceeds. Also as Ken mentioned, subsequent to the third quarter, on November 6, 2020, we completed a debt refinance transaction where we issued $400 million of senior secured notes and new $400 million term loan facility, both of which will mature in 2027. We utilized the net proceeds from the notes and the new term loan, as well as cash-on-hand to revamp full [ph] our $1.4 billion term loan facility, reducing our overall net debt -- reducing our overall debt by approximately $630 million. In addition, we extended our $1 billion ABL facility through 2025.
Our merchandise inventory at the end of the third quarter was $1.1 billion which was $249 million or 19% lower than at the end of the third quarter of 2019. This reduction in inventory represents a significant self-through of inventories to support our exceptional sales growth of 18.3% year-to-date, leads us towards a better ongoing inventory against fresh [ph] inventory. While our current inventory position reflects the challenges of staying in stock uncertainty category, there hasn't been a high demand during the pandemic, we believe that our inventory position while in those categories and that we're in a good position to make improvements into the future as our supply chain continued to improve and support our sales velocity [ph]. Net capital expenditure for property and equipment were $8.1 million in the third quarter of 2020 compared to $20.8 million in the third quarter of last year with the decline driven by no new stores and fewer store remodels.
Moving on to year-to-date results. Net sales increased $633.4 million or 18.3% to $4.1 billion which included a 16.1% increase in year-to-date comparable sales. Year-to-date net income increased 112.3% to $217.2 million or $2.82 per diluted share from net income of $102.3 million or $1.37 per diluted share in the prior year. Year-to-date pro forma adjusted net income was $208.6 million, up 257.6% from year-to-date 2019; this resulted in pro forma adjusted earnings per diluted share of $2.70 compared to $0.78 per diluted share for the year-to-date 2019. Our 2020 year-to-date adjusted free cash flow increased significantly to $843.4 million compared to $43.2 million last year.
To conclude, we are pleased with our strong performance during the third quarter, excited about our accomplishments, and proud of our team members that is nothing short of an inspiring journey during these challenging conditions. I would like to reiterate Ken's thanks to our extraordinary team members for helping us achieve strong sales and earnings results.
This concludes our prepared remarks. We are very optimistic about our future as our key initiatives continue to drive strong results. We look forward to sharing our progress with you again, next quarter.
Now, we'll take your questions.
Thank you. [Operator Instructions] I'll take your first question from Bobby Holmes, Bank of America Securities. I can record securities. Go ahead.
Good morning, guys. And Ken, congrats on a great first quarter out of the box here. Actually, I have two questions. First question, just on athletic -- the sort of footwear and apparel comps; I was hoping you could give maybe a little more color on how the outlook is there. So, were there some things that happened this quarter that you think restrained footwear? And also on the apparel side, how much of an impact was there from the Astros last year? And maybe some color on how apparel looked excluding that? And maybe just some thoughts on the team sports side of that business as well, and how that looked and worked versus what you may think that could be next year?
Yes. The apparel business was not as strong as it had been, and we were up against some big comps, and it was both -- from the license to Astros, but it was also from a strong back to school last year. The Astros; we won't go into the details of what -- how much exactly it was but -- we would have had a positive comp if we not had the Astros. And on -- just the increase in Astros if there; so it would have been a positive comp without that. And also, in fact the store was a factor; it was more spread out, it was lighter, and it wasn't as big as it had been in the past. Both of those actually present good opportunities for next year because we would anticipate, particularly with the vaccine, and hopefully, things getting back more than normal, if there would be a regular back to school and we'd be able to take advantage of that. And also, licensed apparel will -- should be stronger because there will be teams playing sports and more fan interest.
So, we had a couple of factors; the increased or the good -- we're up against a good year, we're up against the championship. And as I say it wouldn't have been positive without the incremental Astros, and the back to school that -- you know, that gives us an uplift, and we still had a good quarter; so that should be a good plus for next year.
That's really helpful. Thanks. And then just a quick follow-up actually, maybe for Michael; the e-commerce penetration, could you just talk about the impact that had on gross margin year-over-year? And maybe just related to that, there is -- I guess, about 4% to 5% of sales is e-commerce that is not running through your stores. Can you give us some color on what kind of margin pressure you get from that portion of the e-commerce business?
Yes, I think we've done a lot there. Currently, from a profit standpoint that helped us manage the margins. I think, again, the big thing that happened this year with the introduction of outdoors [ph] for Academy, we get a bigger ticket with both of those [ph], we get more repeat trips, and of course, we don't bear the shipping costs with them. So we're happy with everything, that's strong, it will be a tailwind for gross margin, and it's customers are headed after that, we're happy with the progress there. Rob, one other thing I want to follow-up on your question about team sports; our team sports business was positive for the quarter, I mean it's a laid back to school moves and stuff but we're very happy with how that performed and most of our categories within teams worthwhile are positive.
Great, thanks very much. And congrats, again.
I'll take our next question from Seth Sigman at Credit Suisse. Please go ahead.
Hey, good morning, everybody. Thanks for taking the question and congrats on the quarter. Ken, can you talk about some of the incremental merchandising initiatives, as you look out into the fourth quarter, but more so into next year? Obviously, we all know that industry demand has been strong during this period, you're going to have to laugh at [ph], but there is also a lot of things within your control. So, how are you thinking about some of the key drivers for Academy, specifically, as you look out over the next 12 months?
Yes, I'll start and then I'll have Steve comment on some of it. One of the things and we've talked about this was our -- what we've done in planned allocation, and an assistance to get the right merchandise in the right store, in the right size, and the right quantity. And those systems are running systems; so they overtime continue to improve and enhance themselves. And so we get small and extra small in our border stores. We make sure we get the right type of grills, with the gas grills in the Midwest versus of wooden pallet [ph] in the South; and so those systems are very important. And we're also -- continue to work with our vendors and are adding important merchandise to our assortment and branding the -- particularly in our better and best categories while during there. And then the third thing that I would say is, what we're doing with our private labels, and continuing to build on the private label programs that we have. We've got some new ideas that will be coming there, but also strengthening the programs we have.
Steve, du want to add?
Yes, I'll just add a few things to what Ken covered. So, in terms of the planning an allocation, [indiscernible] is a big one which he mentioned. Obviously, markdown optimization there, we've been spending a lot of time getting our markdowns positioned in the right quarter, taking more markdowns in season versus post season, which ultimately is speeding up sell-through, improving return and proving margin long-term. Another thing we talked about is, how we're building out a true good, better, best assortment across a lot more categories; and we've always been pretty good at the good end of it. But you take a category that somebody had sort earlier in terms of team sports; we've gone in and built out better and best sources there so that we can take that -- that kid from kind of a beginner to an intermediate, traveling team to an advanced level. And so from that perspective, that's relatively new for us, and we've -- we having a lot of that work that was supposed to take effect this year, and with all the week shutdown we hardly can get all the benefit of that work, so that should provide a tailwind in the future.
Improve store presentation; we're working really hard to make our stores more engaging, easy-to-shop, better presentations within vendors, etcetera, that also ties into our website as well. So that will be another one. And then Ken touched a little bit on localization -- getting a lot better localization. So all those things I'd say we're currently improved on [ph].
Yes. I think the localization is one of the things that probably was one of our shortcomings. And while we have great assortments, people come to the store for product and product that's appropriate for them. And making sure -- and it's not just size, it's the type of product. With that localization is something that our merchants really are working hard onto to fit each of our markets. And one of the things as a result, we're seeing some of our new markets as we've implemented localization on our fastest growing markets.
Okay, that's all very helpful. If I could just follow-up quickly on the gross margin this quarter, very strong, up 110 basis points. And more importantly, they were stronger than prior quarters; so I'm guessing -- I'm curious, what was different in the third quarter versus prior quarters? You did have a mixed factor this quarter but I think he had that earlier in the year as well. So was mix less of a factor this quarter or the positive offsets just greater this quarter? Can you just give us a sense of what's going on within that. Thank you.
Seth, I'm glad you asked that. I think really what's happening is all the stuff that we've just talked about -- I mean, we've been had -- we've had nice gross margin expansion over the past quarter-over-quarter for the last few years because of all this stuff we're doing from a merchandising perspective that's allowing us to harvest our margin. So, I couldn't agree more. We are very pleased with the mixed shift that we've had, it's securing more partners more outdoor, not anniversary-ing those Astro sales without that gross margin expansion. We're really happy with it, and it's really attributable of all the merchandising issues that we talked about, which by the way, are still early stage to Ken's point.
Yes. And -- the Astro sales, that was all cold margin stuff. But really, you think about it, there is a couple of things that we've mentioned; what we've in dot.com has helped in looking at that; the approach that we've taken with the markdown optimization. And the third thing is, what we're doing with our private label where historically we were running our private label really as a loss leader and not a margin enhancer, and we've improved the products and what we're doing there; so that it depends to be margin accretive as opposed to margin dilutive.
As we look at that, we do have a couple of businesses that have been challenged; license is one of them, backpacks through back to school, those businesses will be margin accretive next year as we expect them to return to more normal level. So, a lot to look forward to.
I'll just add on that, we are less promotional right now. We have -- without rationality, certainly in a lot of the really -- in demand categories, it just doesn't make sense and particular when going to back to school. So, as we go forward in the next year that characterizes an opportunity to put maximum promotions we've pulled out. And at the same time, you should have an offset from the mix perspective of apparel and it's percent in the total.
Okay, that's great. Thanks again, for all the color and best of luck ahead.
I'll take your next question from John Zolidis at Quo Vadis Capital. Please go ahead.
Hi, good morning, and congratulations, and thanks for taking my question. So Ken, this is primarily a question for you but I'm interested in everyone else's thoughts as well. I think one challenge here is trying to separate out what's happening from a category demand perspective versus internal initiatives as a business. And maybe if you could provide us some perspective about how you were thinking about Academy before you took the role, the initiatives that were working to drive the positive inflection in same-store sales prior to the pandemic? And then, now with the accelerated consumer demand; has that accelerated the realization of the opportunity you saw or maybe you could tell us what inning perhaps you think we're in in terms of what's left to do? And what do you see going forward in terms of optimizing the business over the long-term? Thanks.
Thanks, John. Yes, when I got here, one of the things and -- I -- when I go to a company, when I go to a place where I think there is tremendous opportunity and I've been fortunate and having very strong teams that have helped capture that opportunity in the past and here; and I saw the opportunity here, we've built a strong team. And the thing that really quite frankly, we have started the turnaround a year ago before COVID hit, it seems like ancient history; but we started to see the results and I believe that we would still be seeing above average store-for-store growth without the tailwinds that we've got to some degree from the pandemic. And the reason I believe that is because the strategy that we've put in place, we've seen the results; that strategy actually really helped position us well, for example, during what we did with our dot.com, that was -- that was very fortuitous because we had a really crappy dot.com system.
During what we did with our system, so we could not just stay and stop the flow of the merchandise because flow -- because what's happened with inventories is so critical. We've got reduced inventories but we're moving in through the system so fast, that we're not seeing the impact of that as we probably would have before. So, I think -- and you said it, that what -- what this situation has done, it's accelerated our learnings; but I still believe the strategy that we have worked before it's worked during and it positions us even well because it's like -- running in the mud. Okay, we're running in the mud right now but I'd like to stop it [ph]. So when we get to solid ground, we'll be in even better shape to move forward and take advantage of that. And I think we will continue to have good solid growth, good solid profit growth going into the future after the pandemic. Hopefully, that answers your question.
Thanks very much. And happy holidays, everyone.
You too. Thanks.
I'll take our next question from Chris Horvers of JP Morgan. Please go ahead.
Thanks. Good morning, everybody. So a couple questions. First, you talked about a shift in timing of back to school, and I know there are some big districts in in Texas that pushed school back a few weeks or maybe even a month. So, can you talk a bit about the cadence of the quarters? And you also have the benefit of having Black Friday and Cyber Monday behind you; curious what you're seeing so far? And how do you think about the -- sort of risks and opportunity as you get into sort of cooler weather patterns? And how that could impact the overall momentum in the business that you're seeing?
Yes. The [indiscernible] there were three issues with back to school, three things that happened with the environment. One, it was lighter, as we've said; and -- so what normally wouldn't happen, probably in August, we started to see in September and October. The second thing was, that it was spread out because historically, the school districts will use Texas, since that's our largest state. It starts third -- normally, it would start by the third Monday, in August, and they actually spread out from the third Monday in August, all the way until the middle of October; so it's spread out. And the third part of it was, there was still a lot of parents who didn't go back to school because in many of the districts it was left to be a parent option; and in some districts, less than half the children went back to school, so they didn't have to buy all the books [ph] that they would normally buy and go back to school. And there also were teacher force that didn't startup. So, it was later more spread out and smaller than what it historically would have been without -- with a normal back to school which we would anticipate seeing next year.
What was the second part of your question?
Thoughts on quarter-to-date; have the big Black Friday and Cyber Monday…
Yes. Now we're not going to give any direction on the current quarter other than saying that the trends that we've seen in -- and the overall trend that we saw in the third quarter has continued into the fourth quarter.
Understood. And then on the balance sheet, obviously generated tons of cash; big deleveraging moment here in early November, which is great. How are you thinking about working capital into year-end? And how much a rebuild do you expect to be in 2021? Do you look at inventory per store per foot? And then related to that, your accounts payable; the inventory ratio is 2x, what had been fixed historically. How are you thinking about where that settles out and the ability to maintain such a high APV [ph] inventory ratio, because clearly, you're going to be sitting on a lot of cash and generate a lot of cash. And we understand you're committed to continuing to deep leverage the balance, so you just tried to think about the potential that next year and timing of that next year?
Yes. From an inventory perspective, I'd say it's probably $150 million of inventory we'd rather have right now that we've been chasing like everybody else, let's just -- as you know, worldwide shortages in some categories that have been -- we're still selling -- we're still getting the product and selling it, we're just not getting back the minimum presentation quantities that we'd like to have; so that's how I think about inventory. From an AP standpoint, I think one of the really good things that came out of the pandemic was the strengthening of our vendor relationships. And it would generally help with that. As an essential retailer, we never closed, we were able to place orders, we were able to pay our vendors, we wanted to pay our landlords, and we were able to work with them on the strength of that relationship to help extend our terms. Really, we were behind our peers for a while there. We were -- and we've also have their treatment, I think we're in a fair place, and I would expect a lot of get back there going forward. That's how we think about those.
Yes. One of the other comments and it relates to your first question is, because we were open, and we saw what was happening, Steve and his team were able to place a lot of orders and merchandise that other people weren't; they were actually canceling goods and we were placing orders. So we feel, starting in the third quarter and going forward on a number of categories, we're probably in a better position than some of the competition because we did place those orders and are flowing right now and for next year.
Got it. Have a great holiday Christmas season.
Okay. Thanks, Chris.
We will take our next question from Tom Nikic at Wells Fargo. Please go ahead.
Good morning, guys. Thanks for taking my question. I wanted to ask, I know you've been trying to drive loyalty with the family branded [ph] credit card. So can you talk about what's been in there that [indiscernible] credit card corner? And if there is anything sort of interesting from the royalty perspective will be helpful.
Yes. We're really happy with these initiatives and how they progressed. We've added over 3 million new customers this year with specific -- specifically with the credit card program which we'd really designed to have a royalty feature to it. What happened with it -- I think in your call we were 4% penetrated as of the end of Q2; that number is running around at 6%. Currently, we're very happy with the growth of customers shopping more often, we get a nice basket uplift with them, and it's a great program that we think have a while when we're on run, and the customer gets 5% off their purchase every day, they don't have to wait for coupon in the mail, they don't have to accumulate points in the bank funds that didn't count. So it's a great program for us, it's growing nicely, and we're happy with it.
Okay, glad to hear that. Quick follow-up, more of sort of housekeeping items. With the $630 million reduction in debt early in Q4; Michael, can we also know I guess what the interest expense savings will be from that debt till now?
Well, let me -- it's about $30 million [ph].
Okay, got it. Thanks. All right, sounds good. All right, that's it for me. Happy Holidays, and I'll talk to you guys soon.
Okay. Thanks, Tom.
And we'll take our next question from Greg Melich at Evercore ISI. Please go ahead.
Hi, thanks and congrats on a nice opening quarter guys. On the comp breakdown, your list of transactions, so that means there was a majority of the comps in the quarter and if you could give us a little insight on how the trend on transactions was through the quarter?
No, we have all elements of the purchase, the transactions, the units per transactions, and the average ticket was all up for the quarter. And then, we don't have counters in all our stores but we have counters in some. But -- and the traffic that we saw was up, and it was well over the rest of the industry.
Got it. So, I think of it as the plurality [ph], traffic and transactions was a key part of it but it wasn't a majority of the comp?
Yes, exactly. If it was -- it was all the elements. When you're up 60%, you need everything.
Absolutely, we're working. So then on that front, they've been able to do that. I mean, how long can you keep growing like that with inventory still missing that, it was down 18% year-over-year? Or I think Michael, you mentioned, you wish you had $150 million more. So if we think about that, how long can you keep this up if you can't get that inventory?
We're like have it run as fast as we can. And really, we've kept it up now for a number of months. And the reason is, first of all, we're catching up in a number of businesses; so it's not as extreme as it was. But what's happening is, we are learning how to flow the merchandise much better. Michael used to tern properly, with the presentation standards aren't necessarily what we would like but the sales have continued because it literally, we'll go well of bikes on delivery to a store, and then a day or two they are all sold. And then two days later they get another load, and the customer has learned using online to find out what the inventory is.
And we think we're going to catch up as the customers are coming just as rapidly as we're getting them. So we're not able to present it the way we like but we're able to sell it the way we like it, it is steadily improving. I mean, we've improved week over week for the last several months of the year; so we are improving. But there is just -- the sales velocity in some of these categories.
Yes, the slow -- but it's really slow. It's what Steve mentioned earlier, swallowing [ph] is really critical. And to be quite frank, there is only about two or three businesses now that are really an issue; guns, ammo, and bicycles, and some parts of exercise dumbbells would be one. But other than that most of the others, we feel that -- we're not -- might not be exactly where we want but we're at an acceptable level.
I'll just add that what's really interesting is, we don't know how long can we keep this up. I mean, certainly as we went through this, we looked at certain categories and said, well, you know, is this pull forward or is it not? And we had to put our best thinking cap on as we did that. As we've gotten back in stock, we've actually seen a lot of trends accelerate because we actually have inventory in some of these categories where other people haven't. So, it's -- not that we're not securing a lot of inventory and having the chasing and bringing it in, it's even accelerated some of these categories [ph].
And if I could cheat and sneak in one more. With the new customers, I know that's been the focus as you get new customers or reengaged customers. Could you give us an update on the things you're doing to make those customers sticky and maybe have them come back next month or next year?
Sure. We have a really good grip on who they are; I mean, how to reach them. We've been marketing to them digital, some print, delivered via mail; and have been talking regularly, and our goal is obviously to keep all the benefits -- all humanly possible. So -- but longer term what really is going to keep these customers and other customer shopping with us is, moving away from traditional kind of blast media, traditional media, that's a blog broadcast whether it's newsprint, broadcasts and more digital personalized messaging. So we've been evolving our marketing spend and how we communicate with customers across this channel. We're doing a lot more of that today than we were doing a year or two years ago, and we're going to get into more personalized going forward and talk to them about the things that they're purchasing, and make sure that we're speaking about things you're interested in.
So Greg, these 3 million new customers that are onbroad with Academy credit are very exciting. I think the most exciting thing that we have going on from a customer perspective is, we have a number of customers who have shopped with us for a long time, they knew the category of existing customers is growing greater than it has in the past. And what we're seeing is those customers shopping that new category of second and third time more than we've had in the years past. So that I think bodes very well for -- kind of some of these trends moving forward.
That's great. Well, have a great holiday.
Thanks, Greg.
Thanks.
I'll take your next question from Jonathan Wober [ph] at Guggenheim Partners.
Let me start with better invest; if people having more money to spend at home, is better invest selling sort of -- and this -- the flow-through of that versus good; are those stronger lines for you? And where are you in the build out of best invest? I don't know how you want to describe that but how much more to go is there on those lines?
Yes. I will start with kind of the principles on those street. I'll talk about some of the specifics. But in principle, we have a very strong position in goods, and so as a beginner or novice, we were there. And as people grew and developed, we probably didn't have as good an offer; we hadn't offer but that is as good as we would like in the fair invest for the enthusiast. The expert -- the person is going to sleep on a mountain cliff, on a hiking or camping trip, that's not us. But for a person who got up highly in this development, that's what we want. And so that was why we developed -- we got out of some categories which provided the inventory and space for it but the idea was not to reduce what we had with at their opening price for that initial customer because we're stronger, and we didn't want to run away from them, we want to continue to support them and allow them to grow with their house [ph].
And I'll let Steve talk about kind of where we are.
Sure. So, one thing I want to make sure I emphasize is that, one of our key strengths is our value position in the marketplace. So, I don't want anybody to mistake the fact that while we're trying to layer on a better recipe for offerings that were somehow even more good, that is foundational to who we are, and we really make sure that we address. Back to the tenth point, it's really different by category. So you go through and you think about a category like grills or outdoor cooking, where we've got a pretty established business there for a while, but further along in terms of building out that better best piece of the assortment. And what we're finding is, you know, customers who came to us for an opening price for six point burner grill are now stepping up to a trigger pellet grill. So, we're seeing growth in those categories, not at the expense of growth. I'd say fishing is another one, we're a little bit further on this journey in terms of having the better best out there. Other categories, like camping, as Ken mentioned, will probably be an early innings on camping, building out a better best considering [ph]. We're making some progress for next year, and as exporting to certain categories, we're a little and early I think there as well.
Great. And then maybe secondly, I mean, you guys think about how well the business is doing? The idea of maybe pulling forward your restart in store expansion, is that -- could you do that? And is that desirable? And then maybe along with that, thoughts on capital allocation; since the balance sheet has strengthened so quickly. Maybe for Ken, your thoughts on how you want to use free cash flow going forward?
Yes. To the first part of your question, the challenge with the new stores is just the time that it takes to make sure we find the size, and we have done that preliminary work but the detailed work. And then also, getting -- lining up the construction and things; that as you can imagine is reasonably challenging, during what's going on with COVID. So, if we find something that we can move quickly on next year, we will because we -- the challenge is just the time it takes to make sure we have a really good site because we don't want to compromise and then build it. And that is why we said 2022, what if the right opportunity came up and we could do it; we would do it in '21. With regards to capital; again, we're in unsure times, we'd probably will be a little more conservative now than what you might have seen in the past. So we'll be conservative there and make sure that when we -- how we think about capital in terms of what we do with the dividends or buybacks. That we're in very solid position; we will first make sure we're taking care of the business and our opportunities to grow and develop the business. And then, we do want to make sure that we recognize and reward our investors; but at this time, I think that the prudent thing to do is to be more conservative than less.
Thank you very much.
Thank you.
Thank you. I'll take our next question from Michael Lasser at UBS. Please go ahead.
Hi, this is Mike Schwartz on for Michael Lasser. Thanks for taking our question. You touched on it a bit earlier, but do have a sense of what portion of the growth that you're saying has been from [indiscernible] gain with existing customers versus attracting new customers? And looking forward, how do you think Academy in the sporting goods retail category more broadly, is division to last time with these wallet share gains in a normalizing environment?
I mean, we've captured 3 million new customers since the beginning of a pandemic. We are gaining share in many of our categories; I mean, footwear apparel is typically been gaining over the past few years. I think that there is a little bit of noise that we weren't -- we've had strong sustained results for the majority of the year where others were shut down; so with respect to share, I mean, there is a little bit of noise in there because we were open when others weren't. And I think -- Steve, I don't think you want to -- anything more [ph]?
Yes. So in terms of the share conversation; we've picked up a lot of share obviously, in Q2. We've looked at some categories and actually gave up a little bit of share in Q3, paid outflows [ph], being out of stock in certain categories that we've sold through candidates in Q2 that other people weren't considering close down. We're back in stock there and we feel very good about we're positioned for holiday and going forward.
And Michael, we are not -- at this time, we're not breaking down the amount of business we do with the new customers versus existing customers or for that matter, what Michael talked about which is important, existing customers shopping and other categories; we will say that they are all accretive. It's kind of like what I've said about the three components of sales: to get a 16% increase, you need all of them getting, and they're all getting. I think what we found in this was we carry a very broad assortment in our stores. And I think we found customers who're generally shoppers for one category, out of us growing category discovered that we carry a lot of the extra categories. And so we've seen that definitely be something that happened as the pandemic that's continued since then with them shopping more broadly across the store.
Thank you. That's helpful. And as a follow-up; are you seeing much variation in trends across different regions within your footprint during the performance differentiations between some of the legacy markets and some of your newer markets?
No. Michael, one of the things that's really good about what we're seeing is, as I mentioned earlier that our non-heritage markets are growing faster, but not that much faster than our traditional; we're seeing good growth across our entire footprint. And that's impressive because some of the areas are having their own challenges; be it the pandemic or industry issues or things like that. But we're seeing pretty consistent growth across the capital.
At a category level, I think the things that Ken pointed is, the newer markets, particularly the East Coast markets are outcompeting [ph] the change and that's where we've seen a great array of new customer acquisition. So it's been very, very exciting.
Thank you.
We have time for one more question?
Sure.
We have time for one more question. I will take our next question from Daniel Embro [ph] at Stephens. Please go ahead.
Good morning, everyone. This is Andrew on for Daniel. I just wanted to say really impressive quarter, and I kind of want to drill in on SG&A and what's kind of driving your leverage. Those two -- expenses are up about $18 million this quarter over last year excluding the non-recurring costs. So what's making up this delta? And what else is driving the rest of leverage this quarter? Thanks.
Well, good sales helped us to do that. And that's the one thing we've benefited. The other thing that's really happening is to the point I just made, in fact the newer market, they are achieving that scale that we expected to achieve. We leveraged the fixed costs that we have in that market. I think the update is the recovery that we learned is, how to operate a little bit more efficiently across the board. We've done a lot from a labor standpoint on stores, making sure that we're not cheating the customer on labor hours, but not doing things we don't need to do from a task perspective. And then, again, the other big one which is really a game changer from a P&L perspective due to COVID. Now we've doubled the size of our dot.com business, and now we're driving bigger baskets through the stores because we're shipping products from the DC or from the stores, that all accretive.
And we also give pace on [ph] some actions to improve our expense structure. As you know, turning through the things that we felt that we could save on, and that's also given us the opportunity to look at other areas where we can save; so we've got some work to do, while we're pleased with the improvement. We've got some work to do to continue to improve our SG&A.
Thanks, guys.
Thank you, Andrew. And thank you, operator, and every -- all the participants on the call. Hope that you all have a very safe and happy holidays; wish you all the best. And hope that you all will shop in or go online to shop in Academy, give great gift for your family and yourself. Happy Holidays.
This concludes today's call. Thank you for your participation. You may now disconnect.