Academy Sports and Outdoors Inc

NASDAQ:ASO

Good morning, and welcome to the Academy Sports and Outdoors Fourth Quarter Fiscal 2024 Results Conference Call. The call is being recorded [Operator Instructions].

I will now turn the call over to Dan Aldridge, Vice President of Investor Relations for Academy Sports & Outdoors.

Good morning, everyone, and thank you for joining the Academy Sports and Outdoors Fourth Quarter 2024 Financial Results Call. Participating on today's call are Steve Lawrence, Chief Executive Officer; and Carl Ford, Chief Financial Officer.

As a reminder, today's earnings release and the comments made by management during this call include 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 most recent 10-K and 10-Q 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. This morning, we will review our financial results for the fourth quarter and full year fiscal 2024, provide an update on our strategic initiatives and discuss our outlook for the year and share our guidance for the full year of fiscal 2025. After we conclude prepared remarks, there will be time for questions at the end.

With that, I'll turn the call over to our CEO, Steve Lawrence.

Thanks, Dan. Good morning to everyone, and thank you for joining us today. We finished 2024 with the business trending in the right direction. Net sales for the quarter were $1.68 billion, which represented a 6.6% decline. As most of you know, we're up against the 53rd week from last year, which means we're comparing 13 weeks of sales this year versus 14 weeks last year. Throughout my commentary, any comparisons that I make to last year will remove the extra week and compare 13 weeks this year versus the comparable 13-week time period for last year.

Looking at it this way, Q4 net sales were flat in total, and excluding the contributions of our new stores, comp sales ran a 3% decrease. This represented a sequential improvement versus our Q3 and first half trends. These results also exceeded our midpoint guidance for both net sales and adjusted earnings per share in the fourth quarter despite navigating a compressed holiday calendar that was coupled with a consumer whose spending power remain constrained throughout the holiday season.

Now I'd like to give you a little color around how the quarter played out. During our last call, we mentioned the first 2 weeks in November were soft, so that we saw a strong rebound later in the month when we had our largest Black Friday sales event in company history. This momentum continued throughout the remainder of the holiday season and into the first half of January. The team did a great job of thoughtfully planning out promotions while also ensuring we're in stock and at the right price on the key items and categories that over-indexed during holiday each year.

As a result of this work, every division ran a positive comp sales gain in the month of December. We did see a softening in the trend in the last 2 weeks of the quarter, which we would attribute from winter storms moving across our footprint, which suppressed sales.

Looking at the fourth quarter results by division. Outdoor was our best-performing category posting total net sales growth of plus 2% versus last year. We saw solid increases across our hunting, fishing and camping business. Key national brands such as YETI and Stanley drove the giftable business for us, for our private brands such as Monarch and Redfield, up with strong value messaging. Apparel was our second best performing category with net sales down 1% to last year. In our last call, we mentioned that this division was one of our weaker performers in Q3 driven by warmer temps that persisted throughout the quarter, which suppressed early sales and fall product. We saw a significant rebound in this business during holiday, driven by youth apparel, fleece and workwear. Key national brands, such as Nike and Carhartt, had strong performance for us during holiday.

Sports & Recreation net sales also improved versus our prior year-to-date trend with Q4 finishing down 1%. We had a well sought out promotional cadence in key giftable categories, which is kids' bikes, grills and ride-ons that really resonate with our consumers. It was also good to see our fitness business improve based on our focus on lower AUR giftable items.

We also saw improvement in our footwear business, which had net sales down 2% for the quarter, driven by key categories such as men's athletic and work footwear. From a brand perspective, ASICS, New Balance and Crocs all had strong performance for us during holiday.

Cutting across all the divisions was a strong growth that we saw in our portfolio of private brands. These brands represent the value end of our assortment, and the customer clearly sought out this product during the fourth quarter as they look to stretch their gift buying budget.

Turning to margin. In the fourth quarter, we reported a gross margin rate of 32.2%, a decline of 110 basis points versus last year. On a shifted 13-week basis, our merchandise margins were up 10 basis points. This was a little lower than we planned with the main drivers being an increased penetration of hardlines business to the total coupled with some additional markdown actions we took at the end of the quarter to ensure a more aggressive seasonal transition in apparel as we head into the spring season. This cleaner transition is important as we free up and allocate the additional space needed to aggressively launch the Jordan brand in Q1 of 2025. More on that in a minute.

Going back to look at the full year, while we faced several challenges in 2024, I believe that the team effectively navigated through them while simultaneously putting in place the building blocks for future growth for continued investment in the business. We made solid progress across our key long-range growth initiatives in 2024, and we believe that these investments will better position us to drive top line sales and expand our market share as we move forward. The accomplishments last year included, during the year, we opened up 16 new Academy stores, expanding our presence to 19 states. It is particularly exciting to see the stores we opened in the back half of the year, which when the first vintage fully incorporate our refined site selection model for all trending well ahead of our plans.

A great example of this is our Meridian, Mississippi store, which opened in Q4 of 2024. We classy this store as a small to midsized market with a draw of roughly 120,000 customers who did not have a lot of alternatives to shop for sports and outdoors. When you look at the population, they also over index with the always game family who loves the hunt, fish and play sports. While still early in its life cycle, this store is significantly outperforming as planned and is tracking towards the high end of our year 1 expectations for new stores of $12 million to $16 million. And even more exciting, it has picked up roughly 25% of the sports and outdoor traffic share in this market. At the same time, the 2022 vintages stores, which moved into our comp base last year, outperformed our existing store base by running into the comp. As we head into the new year, the 2023 vintage will now start also feeding into our comp store base which we believe should help strengthen the tailwind at our new stores provide us.

We also rolled out our new warehouse management system to our Georgia distribution facility. While the integration presented its challenges, improving the productivity across our supply chain is a critical enabler to our long-term expansion plans. We're mostly past the integration challenges and believe we should see a tailwind from this facility moving forward. While we are still in early innings on our customer journey, we made tremendous progress last year, including a massive identity resolution project that almost doubled our addressable customer count. At the same time, we launched myAcademy Rewards and enrolled over 11 million customers during the year. Over the holidays, we saw a strong uplift in the spend from these loyalty members. We believe this should also be an additional tailwind for us moving forward.

Finally, we drove continued growth in our private brands, which for 2024, came in at roughly 23% of total net sales versus 22% in fiscal '23. We expected this growth to carry forward into 2025 as our core customer continues to gravitate towards value. Our consistent operational execution in 2024 also drove strong free cash flow for the 21st consecutive quarter. This strong cash generation continues to support our growth initiatives and also highlights the health of our business model. In 2024, we strategically invested an additional $140 million into our growth initiatives and returned over $396 million to shareholders through dividends and share repurchases. These investments are expected to yield strong returns for years to come.

Looking ahead to 2025, we're focused on both near-term goals and long-term objectives. As we've stated before, we have 3 major growth engines for our business. I'd like to now walk you through each one of them and highlight the opportunity that we see ahead of us this year.

First, new stores. Our plan is to open up 20 to 25 new stores this year. Earlier this month, we opened our first 3 with 2 in Pennsylvania in York and East Harrisburg, along with 1 in Hagerstown, Maryland. These stores took us to a couple of key milestones as we now have over 300 stores and have expanded our footprint from 19 to 21 states. More importantly, it's the first time over the past 4 years where we have opened up 3 stores in close geographic proximity to each other on a single weekend. This allowed us to better leverage our marketing assets in order to more broadly generate excitement and traffic for these grand openings. If you look at our investor site after this call, we've posted some content that was created during the grand opening at York, PA which marked store #300 for us.

Another key element of the strategy is to create a better balance in our store openings across the year as well as by geography. We've made good progress on both fronts with roughly half our new stores being infills in our existing footprint and the other half coming in new markets. While not quite at a 50-50 mix, we plan to have roughly 1/3 of the new stores opening in the first half of the year, versus prior years where store openings were primarily back half weighted. As we've covered before, most of these stores will be located in suburbs and exurbs of larger population centers along with midsized markets, both of which are target-rich with our core customer.

One of our key long-term growth drivers is getting our new store flywheel going with each successive vintage adding to the momentum. As we mentioned previously, the 9 stores from the 2022 vintage with the first vintage to enter comp base last year, and these stores in aggregate comp positive for the full year, outperforming our existing store base. We expect to continue to benefit from this in 2025 as we now add the 14 new stores that we opened up in 2023 to the total. By the end of the year, we'll also start seeing several of the 2024 vintage contributing to comps as well.

Shifting to our dot-com business. We remain bullish on the opportunities here. We did not make as much progress on this front as we hoped in 2024 with our penetration running flat versus the prior year at roughly 11%. As we head into 2025, we have a 3-pronged plan of attack to grow sales. First, we're going through a deep dive into site fundamentals, prioritizing an intuitive, inspiring and engaging online experience. The team is focused on dramatically improving the internal search and navigation on our site in order to offer a more enhanced personalized experience. We're also leveraging RFID more aggressively to improve inventory availability for BOPIS as well as to improve fulfillment rates on ship-to-home orders that originate from our stores, more on that in a minute.

A second component of this growth pillar will be a continued expansion of the endless aisle concept driving significant SKU growth online, particularly in categories such as firearms, footwear and licensed apparel. Finally, we plan to continue to expand fulfillment options and shorten our time to fill orders as we continue to focus on reducing friction and improving customer experience in our omnichannel ecosystem. The introduction of same-day delivery last year through both the DoorDash app and our own site helped us tap into customers who previously would not have shopped with us because we have lacked this capability. This was particularly helpful in the last 4 to 5 days heading into Christmas where traditional shipping methods would not have gotten some items into the customers' hands in time for holiday.

Moving over to the third leg of our growth strategy. We're laser focused on improving the performance and productivity of our existing store base. We know that strong execution on this front is foundational to moving back to comp store growth.

Now I'd like to run through the key drivers of the strategy that we plan to bring to bear in 2025. First, the customer has repeatedly demonstrated over the past couple of years a strong appetite for newness and our plan is to dramatically accelerate the flow of new items and brands in 2025. We're expanding our partnership with Nike. And in April of this year, we will do our biggest new brand launch in the company's history with the introduction of Jordan brand into 145 stores and online. We plan to launch the brand in late April with shops in men's, women's and kids that integrate apparel, shoes and accessories into a cross-merchandise shop. Our focus will be on sport product with the goal of extending the reach of the brand into underserved markets. Historically, this has been one of the most requested brands in both our stores and online, and we're excited that we can now bring the Jordan brand to the Academy customer. If you look at our investor site after this call, you'll see our first commercial for Jordan that teases the launch.

In addition to Jordan, we're increasing our investments with Nike and expanding our assortments into lifestyle and performance running shoes coupled with additional fashion apparel. To support both the addition of the Jordan brand and the expansion of Nike assortments we're freeing up space by downsizing and/or eliminating underperforming brands and categories.

Other brand additions for 2025 include key national brands such as Converse, which landed in all stores just after holiday and is off to a fast start, along with Osprey and Backpacks. We're also taking brands that perform well in limited doors last year and expanding them out deeper into the chain. Customers will see brands like BURLEBO that we've been incubating for the past 24 months and into all doors. Other brands that will see an acceleration in door count include more established brands like Ariat and Birkenstock. Along with emerging brands such as Waggle and golf apparel or Ninja in coolers and grills.

Another key focus for us is to ensure that we're leaning into our position as the value leader in our space. The macroeconomic data we see heading into 2025 indicates that the lower to middle income consumer is under pressure, and our goal remains to ensure that our customers get the best prices from us on a daily basis. Our plan is to hold prices across most of the large key items across our assortment to deliver deep value at an outstanding quality to our customers. As we navigate through the increased tariffs that have been levied, we're using our regular price optimization tool, coupled with a portfolio approach to help recommend places where we can offset cost increases and negate the margin impact while not raising prices on the big key items that drive large amounts of traffic and volume for the company.

Our portfolio of proprietary brands remains one of the main ways we deliver on value. We also plan to grow private brands at a faster pace than the average over the next year for new brand extensions. One key focus will be growing our Brazos brand, which has traditionally been focused on work boots with an expanded offering of the year-round workwear apparel and strong values relative to national brand alternatives.

We also recently launched an exclusive Jacob Wheeler line with the Magellan Outdoors. For those of you not familiar with Jacob, he is the goat of bass-fishing and has been an outstanding partner for us over many years. The product will be positioned at slightly higher prices than our current Magellan Outdoors assortment, but with the added features and benefits that we built into the line, it will be in a much sharper price versus similar products in the marketplace.

The third major driver of productivity in our existing store base is to leverage all the work we've done over the past year on our customer file. As I previously mentioned, we launched our myAcademy loyalty program over the summer last year, and I'm proud of the work the team did to enroll over 11 million customers. While we're still in the early innings of this initiative, we saw a strong engagement with the program over holiday, and we expect this to be a powerful driver of new customer acquisition and retention moving forward.

I'd also call out the work the team has done with our new customer data platform around improving customer identity resolution. Through this work, we've almost doubled our addressable customer file, which translates into more targeted communications moving forward. At the same time, we're getting better at leveraging customer insights coming from our CDP and loyalty program to help personalize and improve customer shopping experiences, both online and in store. The end result of all this work is that we're seeing improvements in both our marketing reach and effectiveness.

To help fuel this improved marketing efficiency will partner with a new advertising agency, McGarrah Jessee, based out of Austin, with deep experience in marketing outdoor brands such as YETI and Costa, coupled with helping regional brands such as Whataburger and Shiner Beer expand the region in new territories. We believe their work will help our brand to continue to resonate in our core geography while also helping us to build our brand awareness faster as we head into newer markets.

The first tranche of work is the Jordan introduction and then you will see a larger fully integrated campaign launch as we head into the summer months, which will lean into our position as the center of fun for all of the always game families we serve. The last driver of productivity for us that I'll cover today is around new technology that we plan to roll out in our stores and distribution centers.

With the continued acceleration in the blending of physical stores, with the online business, customers continue to raise our expectations around inventory visibility and availability across channels. We have been piloting some use cases for RFID over the past couple of years and are now ready to roll it out more broadly. The plan is to have handheld scanners sent out to all stores during the first half of the year. We use these scanners to update counts weekly on national brands who currently RFID tag their products, such as Nike, Under Armour, Adidas and Columbia.

Based on our pilots, we expect to see a 20% to 25% improvement in inventory accuracy with RFID. We anticipate that this rollout will be a huge unlock in our ability to improve conversion, both in stores and online. We're pairing our RFID expansion with the roll out of new handheld devices for our store associates with all stores being fully rolled out this spring. These devices will have integrated point-of-sale functionality which will greatly improve our ability to save the sale with a customer who cannot find the item they're looking for in the store they are currently shopping in. We've also invested in the implementation of a new warehouse management system in our distribution centers that will allow us to improve labor management and continuously evaluate new capabilities.

Having worked in retail for over 35 years, over that time, I've encountered several truisms that I keep returning to. The one that comes to mind this morning is that hope is not a plan. I know that I covered a lot of ground this morning, but that was purposeful. The team has been diligently working on a comprehensive multipronged plan to move Academy back to top line growth in 2025. We've identified and are aggressively putting in place strategies to support and deliver against each of our growth pillars. These tactics have been tested and validated, and we're excited about what 2025 holds for us.

Now I'd like to turn it over to our CFO, Carl Ford, who will give you more color on how Q4 played out for us, along with providing guidance for 2025.

Thank you, Steve. Fourth quarter net sales of $1.68 billion and comparable sales of negative 3% came in at the high end of our guidance. For the 13 weeks ended February 1, 2025, compared to the 13 weeks ended February 3, 2024, sales were down 0.2%. Our fourth quarter comp transactions declined 5.9%, while comp ticket increased by 3.1% compared to last year. Overall, in the fourth quarter, Academy generated net income of $133.6 million and diluted earnings per share of $1.89.

Fourth quarter adjusted net income, which excludes stock-based compensation of $6 million was $139 million or $1.96 in adjusted diluted earnings per share. Throughout my following commentary, any comparison I make is comparing the fourth quarter and fiscal year 2024 versus the fourth quarter and fiscal year 2023, respectively. Gross margin of 32.2% in the fourth quarter was down 110 basis points versus last year, driven by higher freight and distribution costs during the quarter and lower merchandise margins. 90 basis points of the decrease was driven by higher import freight expenses, driven by a strategic decision to mitigate potential port strikes and tariff risks, as well as elevated distribution costs due to the remaining costs from a third quarter cleanup at the Georgia distribution facility. Our SG&A dollars as a percentage of sales increased by 110 basis points, while SG&A in total was down $7.5 million compared to the fourth quarter of last year.

Excluding the $17 million in expense from the extra week last year, fourth quarter SG&A expenses increased $10 million, of which all was related to strategic investments that were partially offset by base expense control. Deleverage during the quarter was a result of investing in our growth initiatives, opening new stores, investing in the omnichannel business, maturing our customer data platform and scaling and leveraging our supply chain. We remain confident in our continued investment in these areas as part of our long-range plan as we expect them to be instrumental to growing our business over the long term.

Q4 total SG&A per store was down modestly after adjusting for the extra week last year. The decrease in SG&A per store is driven from our relentless focus on expense control. To put our SG&A results into perspective, every incremental dollar we spend will be on growth initiatives and we will continue to tighten our core expenses.

As Steve mentioned earlier in the call, we were pleased with our performance throughout the holiday shopping season despite challenging weather to start and end the quarter. While our total fourth quarter store traffic decreased by low single digits, our performance during key shopping periods throughout December and the beginning of January are a testament to customers' perception of our compelling value proposition and robust assortment.

During the month of December, traffic growth accelerated by 700 basis points versus our October exit rate, which was supported by our ability to capture customers trading down and becoming more value conscious during the holiday shopping season amidst the continued challenging macro backdrop. In December, Academy gained roughly 40 basis points of store traffic share among households earning greater than $100,000 of annual income, with monthly traffic increasing by mid-single digits amongst this customer cohort versus last year. This trend continued throughout the month of January as we gained another roughly 20 basis points of store traffic share within this customer demographic. Throughout both periods, customers in the top quintile of household income drove outsized sales growth of high single digits.

These data points clearly show that we're beginning to see an uptick in traffic and our assortment and value is resonating not only with our core customer, but customers into upper income quintiles as well. Looking at the balance sheet. We ended the quarter with $289 million in cash. Our inventory balance was $1.3 billion, an increase of 9.6% compared to last year. Total inventory units increased by 2.6%, which includes an additional 16 stores compared to the end of Q4 2023.

On a per store basis, inventory units were down 2.9% and inventory dollars were up 3.7%. For the full year, we generated $528 million in cash from operations. We invested approximately $200 million back into ourselves, repurchased approximately 6.5 million shares for $365 million and paid out $31 million in dividends. In 2024, Academy generated approximately $342 million of adjusted free cash flow compared to $330 million in 2023. On a per share basis, this represents a year-over-year increase of approximately 10% versus 2023.

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

Fourth quarter dividends paid resulted in a dividend yield of approximately 84 basis points and share repurchases represented a total of 3% of our market cap. Combined, we have returned a total yield of approximately 3.8% to our shareholders in the fourth quarter.

Following the $91 million of share repurchases in the fourth quarter and subsequent repurchases, we now have approximately $566 million remaining on the repurchase authorization. Finally, we are pleased to announce the Board recently approved an 18% increase in our dividend, resulting in $0.13 per share payable on April 17, 2024 and to stockholders of record as of March 25, 2025.

As I wrap up, let me provide a little more detail on our 2025 guidance expectations. As mentioned earlier in the call, we are in a unique position among retailers with the current growth opportunities in front of our team, and we believe our path to returning to sales growth is clear and achievable. I'd like to share a few data points and assumptions that influence our 2025 guidance.

Net sales came in at the high side of guidance during the fourth quarter, but we did see softness in the shoulder months driven by weather and we feel macro uncertainty will persist during 2025. In addition, our gross margin rate declines for the full year were primarily driven from disruptions in our supply chain that we expect to become tailwinds throughout 2025, while the current macro environment makes it difficult to predict when the external pressures on our business will subside, we believe we have appropriately positioned our merchandise offering, marketing strategy and inventory levels to manage through the current cycle. We continue to prudently invest in our business for long-term growth and to create value for our shareholders.

With that said, we are taking a measured view of the sales environment, which assumes the continuation of the consumer behavior we saw in Q4, coupled with the internal initiatives within our business. Our guidance for 2025 is as follows: Net sales are expected to range from $6.1 billion to $6.3 billion with comparable sales of negative 2% to positive 1%. Our gross margin rate is expected to range from 34.0% to 34.5%. The contemplated within this guidance is the impact of two 10% tariffs placed on China in February and March and the 25% tariff on steel and aluminum. As we mentioned on the last call, our direct import exposure to China was 10%. And as we sit today is under 9% and trending towards 8% and as we continue to diversify our sourcing base.

We have virtually 0 exposure to Canada and Mexico. We have mitigated the pressure from the announced tariffs and we'll continue to work with our vendors and our price optimization teams to ensure we remain a valued leader for our customers. GAAP net income is between $375 million and $410 million. Adjusted net income, which excludes certain estimated expenses, primarily stock-based compensation of approximately $25 million, is forecasted to range from $400 million to $435 million. It's important to note that earnings in the fourth quarter of 2024 included approximately $22 million that we do not anticipate will reoccur in 2025. We have provided additional detail in the earnings release we issued this morning.

GAAP diluted earnings per share of $5.40 to $5.85, and adjusted diluted earnings per share of $5.75 to $6.20. The earnings per share estimates are based on a revised share count of 70 million diluted weighted average shares outstanding for the full year. These amounts do not include any potential future repurchase activity using our remaining $566 million authorization. We also remain confident in the strength of our cash flows and expect to generate between $290 million and $320 million adjusted free cash flow, including $220 million to $250 million of capital expenditures.

Looking at the shape of the year, we expect Q1 to be our most challenging quarter from a comp sales and earnings per share perspective and Q2 to be the strongest. The first quarter will be impacted by the opening of 5 new stores and the cost of the merchandising execution work to launch the Jordan brand in our stores as well as the expansion of Nike.

The benefits of these investments and our additional internal initiatives will not start to bear fruit until the second quarter. So we also expect the back half of the year to be better than the first half. The delta from the low end to the high end of the annual comp guidance will depend on the growth engines Steve outlined. One, drive new store growth, the '22 through '24 store vintages will continue to be a bigger contributor as they mature. Two, invest in e-commerce to focus on user experience, search and fulfillment options. Three, implement new technologies like RFID and associate handhelds that will increase accuracy, speed and conversion. Four, introduce new brands with compelling assortments like Jordan, Converse and Osprey. Five, grow private brands at a faster pace through new brand extensions like Magellan Outdoor Pro by Jacob Wheeler. And finally, grow our myAcademy loyalty program to reach more customers.

We also expect to see continued growth in the upper income quintiles of the consumer as they continue to trade into value. To conclude, we're cautiously optimistic as we head into 2025 and believe these initiatives and our relentless focus on marching towards positive comps will position us nicely.

With that, we will now open it up for any questions you might have.

Operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Anthony Chukumba with Loop Capital.

A lot of good information shared on the call. So I guess my question was on your gross margin guidance for 2025, Specifically, I guess I was a little surprised given the tariff impact that you are expecting that to be up 40 basis points at the midpoint. So I guess, I was just wondering what were going to be -- what are expected to be the drivers of gross margin expansion in 2025?

Anthony, it's Carl. Yes. I think some of it is recapturing the supply chain headwinds that we experienced in 2024, specifically around the Georgia distribution facility, but also some investments that we made associated with where we're bringing in import freight that was a 30 basis point headwind in FY '24. If you go beyond that, we expect soft lines to penetrate higher in 2025. That will be supported by Jordan and Nike that will not be the only thing, but soft lines mix and then promotion effectiveness. We've got some tools that we're using on our pricing engine to be a little bit more scientific associated with promo effectiveness and we think all of that taken together would drive the midpoint guidance range that we put out there.

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

My first question is, as you think about the consumer, the great debate of how much is this weather versus how much is uncertainty weighing on the consumer. Can you share what you're seeing sort of quarter-to-date, how that makes you think about the whether it's a weather issue versus a consumer? And would you expect the first quarter to be below the lower end of the annual comp guide range?

So it's an interesting question. I would tell you that as we talked about in the prepared remarks, we saw kind of a softening in the business at the tail end of January. We saw that continue into the start of February. And at the time we were asking ourselves the same question, is this weather? Or is this more macro pullback? I'll say a couple of things we did. We transitioned the floor much more cleanly this year to spring goods, which we're very happy we did. Of course, that hit right as the temperatures got really cold at the tail end of January and February.

But what we saw as we got past kind of that clearance cycle and the cooler temps as the weather warmed up, we've seen the business rebound and stabilize. We're pretty happy with the trends we saw coming out of the end of February and through the first couple of weeks of March. Obviously, we still have -- the majority of the quarter is still ahead of us from a time period and from a volume perspective. But we really like the trend we've seen in the business, which would indicate that while the consumer is out there is still being cautious, and we have that modeled into our guidance for this year. We also recognize that some of the strategies that we have in place and the value position we have in the space, I think allow us to win this year.

So when you think about the year, I think we have encompassed in that guidance, a continued softening or softness in the middle income to lower-income consumer. That being said, we also believe that the initiatives that we have in place, whether it's new brand introductions, the technology rollouts that we're putting out in the stores, the new store growth. We think all those things are going to be things that are going to help us counteract some of that softness in the economy and move back to growth as we go through the year.

From a sequencing, I think Carl said this in his commentary, we expect Q1 to be the most challenged we expect Q2 to be probably the best quarter candidly of the year as we see a lot of these initiatives really kick in. I mean, we talked about on the call, the Jordan launch really doesn't happen until the end of April. So most of the impact that you're going to see in Q2. We also have 5 new stores. A lot of the technology rollouts are fully rolled out by the time we get to Father's Day. And then that's when we start lapping our distribution conversion from last year. We saw kind of softness in those stores. So all those things lead us to believe that we're going to see Q2 be the best quarter probably of the year for us. And we see the back half of the year being better than the first half of the year.

Understood. And then on the -- yes, snow in Houston and Dallas is quite unusual. Just think about January and February. The -- as you think about like what's embedded in the comp, sort of a 2-part question. One is, on the new stores, you talked about the 2022 vintage comping positively. I guess, normally, year 1, year 2 stores comp sort of in the double-digit range. So how are you thinking about like how much did they contribute? What's your expectation on what new stores contribute to the comps in '25 and then related to any commentary on what's embedded for the Nike launch?

Sure. So you're correct that we expect to see a growth candidly, in the first 5 years of a new store's life cycle. For the last year, the 22 vintage stores comped significantly better than the base stores did. So the spread relative to the base stores was about what we expected. I think what we didn't plan on obviously was the challenges of the base stores in terms of the negative trend they ran. That being said, the impact, and we have 9 of them that impacted the comps last year. This year, we have 14 stores from 2023 that start adding to that. So now we've got 23 stores feeling that base. And obviously, as we get deeper into the year, some of the 24 vintage stores really start kicking in as well.

And what was really exciting, we called this out in the call was the stores we opened up in the back half of '24 under this kind of new site selection criteria, are performing very, very well, very, very well. And so we think as we get more of those in the base, we're going to see a continued acceleration. And so we just got to get this waterfall going so far and 9 stores hasn't moved the needle this year, 23 should start moving the needle. And as we move forward, this is just going to gain steam as we evolve these stores and they mature.

In terms of Jordan and the impact on the comps, we haven't disclosed that. I will tell you that it's going to launch, as I said, at the tail end of April. So we're going to only have about 3/4 of the business under our belt this year. That being said, even through 3 quarters, it's going to be a top 20 brand for us. And candidly, as we go into '26 and beyond and have a full year of it, and we see expansion there, it will probably be a top 10 brand for us. So it's a meaningful growth driver for us moving forward.

Our next question comes from the line of Brian Nagel with Oppenheimer.

So the first question, I want to follow up a bit on the launch of Jordan in your stores. So clearly, I mean the way you're talking about this is a significant move for Academy. Is there any more color you can give us on just the number of products that are launching. Is it totally incremental? Are you replacing some product with Jordan? Has Academy sold Jordan in any way in the past? And then I think you touched on this in your prepared comments, but just with Nike in general, should we really view this launch of Jordan is indication of just an overall strength in relationship with Nike and expect more and more Nike product in your stores over time?

Yes, I'll start. The answer is yes, it's to both. So I'll start with Jordan. Previously, we had not had access to Jordan in any categories. And so this is the first time we'll have it available to sell both in our stores and online. We're launching in 145 stores plus online at the tail end of April. We're going to set up shops within men's, women's and kids that will cross-merchandise categories together. So you're going to see apparel, footwear, accessories, sporting goods, merchandise together, we'll also have sporting goods out posted within sporting goods. So basketball, things like that, with the rest of the goods, you'd expect to find them with socks, slides, all those kind of things are part of this launch. And we're really excited about it. It's been the most requested brand on our website and our stores from customers.

And really, the angle we're taking with Jordan is sport. So when you think about it, we talked about our entry point to sport and how the youth sports players really start with us is kind of getting their gear and then how we take them through that journey through sport. We're going to be the place where you're going to buy your Jordan Jumpman cleats or basketball shoes. We're not going to have some of the kind of retro limited edition release that drives some of the true sporting -- or I'm sorry, true shoe retailers, but we're going to have the sport product, and we think that's the great place for us to be and we're going to help them take this brand out to underserved communities that currently they really weren't reaching with their current distribution.

On the second piece, from a Nike perspective, yes, it's 2 parts. So it's the launch of Jordan, but we're also expanding our footprint with Nike as well as access to more premium products there. So you're going to see like the 270s, which is a hot shoe for them over the past couple of years, expand out more rapidly into door count. We're going to have some new fashion and apparel and so when you walk into our stores at the end of March, you're going to see an expanded Nike footprint and adjacent to Jordan Shop. Free up that space, we're eliminating some unperforming brands and categories. One of the categories we're downsizing, not that you guys would really care, it's called Power Marine. It's productive for us about 3 months out of the year. We're downsizing that and freeing up some space to create a seasonal pad on the perimeter, which ultimately takes pressure off the apparel pad. So I would tell you, our partnership with Nike has never been stronger. And the Jordan launch, coupled with the expansion we're getting, we're really excited about what that holds for us this year.

That's very helpful. I appreciate all that color. And just a follow-up question with regard to tariffs, just given the focus of all of us on this topic. So it sounds -- the comments you've made, your exposure to China is limited and getting more limited. We have no exposure to Mexico and Canada. So those are the countries that have been discussed most. But I guess the question I have is if you look at that the rest of the business, is there anything hidden in there from a -- maybe from a -- just from a component standpoint that we could see some tariff impact that's not captured that China number or the commentary around Mexico and Canada?

Yes. So at this point, what we've given color commentary around is the stuff that we're imported records on, right? So obviously, we have a pretty diversified sourcing base of people that we do business with from a national brand perspective. they make product all over the world. So in some cases, they may be impacted by some of this. And what we know will happen is if they decide to pass costs along. It's not going to be just to us, it will be to everybody. So far, I've seen most of the vendors try to hold costs as much as going to be possible. We've had a couple of places here and there where we've seen some prices nudge up.

But I believe that as we move forward, the national brands are taking the same approach we do, right? Our first step when we saw these tariffs come across is work with our factory partners and see if they'll absorb some of that. And then second, you start looking for places where you might be able to offset some of the costs, but not make it over a noticeable customers.

So one of the things I think Carl mentioned in his prepared remarks is we're the value provider in our space. We offer great items and a great everyday value, and we know certain categories over the summer months, like grills that we sell at $99.99 or kids bikes that we sell at $49.99 customer looks to us for those, and we're going to protect prices on those things and look for places for offsets where maybe the customer may not notice.

Our next question comes from the line of Kate McShane with Goldman Sachs.

We wondered if we could ask for a little bit more context around the numbers you provided on the higher income cohort that is shopping Academy. We wondered if this was a meaningful change from what you were seeing in previous quarters. It sounds like maybe it was. And what do you think the driver of this what the driver of this is and now? And is there any insight you can give around the basket size and what that looks like with that customer versus your core customer?

Yes. So we started to see this in the third quarter, and we commented on it then. Quintiles 4 and 5, we are starting to see transact more with us. and we're taking market share there. I would say it accelerated in the fourth quarter. It's pretty pronounced. What does it mean? I think they're seeking value. I think if you look at households that are generally making above $100,000 per year they're seeking value. They're trying to afford a lifestyle that includes sports and outdoors and they need that from a value provider and they're turning to us we thought that's what should have been happening all along, we really didn't start to see it until the third quarter, and it has accelerated.

As it relates to basket composition, we're seeing them transact with higher baskets, not just in those quintiles, 4 and 5. But overall, like there was a lot of discussion about big ticket items, things of that nature, like we're seeing tickets over $200, tickets -- larger tickets for us are up. And really, it's just in that like $50 to $100 ticket that we're seeing the decline that drives those overall year-over-year sales down 0.2% in the fourth quarter. So it's real. It's accelerating. I like what I see. It's what I thought should have been happening before, didn't start to see it until the third quarter.

Our next question comes from the line of Greg Melich with Evercore.

I had 2 questions. I want to start with a tariff follow-up and then get into the categories. On the tariffs, is it fair to think about the direct sourcing the 8% would be -- it's roughly 1/3 of your private label of '23, if we were trying to think about what percentage of your product is coming is imported from China. Is that a fair ratio?

Yes, that's correct. And by the way, we started trying to diversify our sourcing base, candidly, pre-pandemic, right? When the first round of tariffs happened, I think it was in 2019 and we started on this journey. I think everybody did, right? And at the time, what really kind of stopped us or paused us was the pandemic. And then just getting access to product was -- Academy's goal was, I think we, like a lot of other people resume that journey post-pandemic and have been working this number down. That's why 10% last year is going to be closer to 8% this year. And we're going to continue to do that. I think the thing that you have to think about also though, as these tariffs are getting levied is they're not all against China. So for example, the 25% that's on steel and aluminum is against any country, right? And so I think where in the past, maybe we thought having less exposure to China was the answer. I think having a diversified base is probably ultimately going to be the better answer because you never know who is going to get ahead with the next round of tariffs.

Got it. And then second, I'd love to go deeper into the -- some of the categories where you started to see a turn, particularly outdoor. I think you mentioned some of these bigger ticket areas are starting to pick up. I'm just curious, are we fully down and have cycled the pull forward of COVID demand in a lot of those categories? Are we starting to see that in whether it be fitness or grills or you name it?

Yes, we believe so. I'll tell you a category like grills that you just mentioned was strong all the way through. We never saw kind of a pullback on that. But certainly, fitness has had a rough couple of years since 2022, '23, '24 were all negative comps for us. We saw that stabilize as we got into Q4. I think it was two-pronged and first, maybe we're past a little bit of that pull forward. And then second, we really focused on some really sharp pricing and giftable items, still big ticket, maybe over $200, but really great value for what it was. And we saw that stabilize.

Bikes was another business that have been really challenging for the past couple of years. We saw that business really inflect back to positive. In Q4, we had a really good Christmas with kids bikes in particular. Categories like fishing, which also saw a surge during the pandemic really started coming back last year, in the back half of the year. And outdoor has been one of our better performing businesses candidly, all year. The firearms business has been pretty strong as well as the fishing business that I just mentioned in camping, which -- camping is a little more driven by some of the drinkwear trends that are out there. But we're definitely starting to see some of these categories that surged during COVID start to come back.

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

Understanding that it is a very uncertain time right now. The midpoint of your guidance embeds the expectation that Academy is going to comp negative this year despite all the initiatives that are at play, including the launch of Jordan, the trade-down you're already starting to see and the contribution from the ramp of the new stores. So this begs the question, what type of environment macro or backdrop for the supporting of the industry would be necessary for Academy to drive a positive full year comp? And then I have a follow-up.

Yes, I'll take that one. So we've seen sequential comp improvement since starting in the second quarter of 2024. Third quarter was a little better in the second and fourth quarter is a little better. We're expecting that to continue and that's kind of inflected represented in that low point. I think those initiatives that we talked about, self-help initiatives, if you will, that Steve and I ran through, Nike, Jordan, the handhelds, RFID is a big deal for us and some of the e-commerce foundational and user experience types of things, those are real. We put a business case on those, and we track against that. That's embedded within our guidance.

But in terms of macro headwinds, when we looked at the Circana data, for the categories that they cover in our footprint for the year, down about 2.5%. And so we're not expecting that to magically increase. We actually think tariffs will impose more pressure on consumers, not just the Academy's business, but overall. So we're really optimistic on our initiatives we're really realistic associated with the macro environment that the consumer -- there's health, if you will, at the top quintile, they're seeking value more. We see that, but we don't think it's a rosy economic outlook for 2025.

Understood. My final question is on your gross margin outlook for the year. You laid out that the majority of your gross margin recapture will be driven by some of the supply chain and other factors that impacted your gross margin in 2024. With that being said, you do have what would probably be a lower-margin vendor coming deeper into your assortment and the potential that tariffs will weigh on the profitability of the overall sector. So how did you incorporate those factors along with what is likely to be a very promotional environment if the consumer does take a step down into your gross margin expectations for the year? And can you also isolate how much exposure you have to reciprocal tariffs such that as those come in around April 2, that could create a little bit more pressure Academy's profitability in 2025?

That's a multipronged question. We'll try to tackle. Okay. When you bring up the margin from the incoming vendor, I'm assuming you're talking about Jordan. Jordan actually would be accretive from a margin perspective. Apparel carries the highest margin mix of our business across the footprint. So having a bigger, better apparel business mixes up and provides a margin tailwind. The other thing you have to think about is -- and you've been doing this a while, you understand this, Michael. The first 6 to 12 months, you have a new brand on the floor there's not a lot of cleanup markdowns, right? And so we took a lot of those markdowns on the other side of the year. As you turn the page into this year, we're very clean from an inventory perspective. We're going to have all this new product that's going to sell primarily at higher prices at full margin. And so we think it will actually provide a bit of a margin tailwind for us as we progress throughout the year.

Other things that can also be offsets are -- I think Carl brought up, we see apparel growing at a faster rate this year. That's a margin tailwind for us. We've done some regular price optimization, which we think will help offset a lot of the tariff impact. So we feel like we've got it appropriately modeled into our guidance as we move forward. Reciprocal tariffs, I think this is going to be a fluid situation. I think as we progress through the year, anybody who says they have a really good idea of how this is going to play out probably isn't being realistic, right? So what we've done is put in place a process where each month, we get together, we see what the latest round of tariffs have been, we start looking at ways to offset them or deal with them. and then we put that pricing action into place for the subsequent month. And I think that's how we're going to purchase all the way through. And I think that's how we have to approach it.

Our final question will come from the line of Simeon Gutman with Morgan Stanley.

My first question, Carl, you mentioned SG&A per store, I think, in the fourth quarter being well managed. Can you give us the 52- to 52-week what's implied for SG&A per store for 2025? And then I have one follow-up.

Yes, it's deleverage at the midpoint. It's a little under 100 basis points. But I just want to reemphasize that deleverage is all from 20 to 25 new stores, getting more into customer data, growing the dot-com business. It's not going to be on what we would consider base expenses. It's going to be on those seeds for the future. But it's a little below 100 basis points implied within the midpoint of the '25 guidance.

Okay. And then the follow-up, it's also on the new stores or I guess, I think Steve mentioned the base, the base stores because if you take the estimated benefit from new classes of stores, I think you could get to something like a 1 point contribution of comp. That's a rough math. It could be even higher, it could be a little lower, but it's certainly positive, which means the base is still implied to be negative. My question is on the base stores, mature stores. What's happening to the trend line there? Does it look similar to the ramping stores and then what's happening to cash flows? Are cash flow stable, growing or deteriorating in some of these base stores that have had negative comps for a couple of years?

I think Carl and I will tag team this one. In terms of the base stores, I mean, obviously, they've been comping negative. But as we've seen the trend improve sequentially quarter-over-quarter during the back half of the year, we've seen the same thing happen with the base stores. And candidly, when we went through the prepared remarks, obviously, new stores, I think we understand the economics and know the value of those, and it's our best way to grow market share and to grow our brand. But we know that we've got to get the base stores moving back. And that's why we spent the most time talking about the initiatives we have there. The new brand launches, the new technology rolling out the stores. So work we've done around marketing to drive increased traffic. I would tell you the preponderance of the strategies that we're banking on and working towards in 2026 -- '25 and '26, I'm sorry, are really focused on turning the base store comp around.

Yes. And then I would say cash flow, I'm proud of our cash flow. If you look at cash flow from operations as a rate of sales, I think we're top quartile in retail, and I do that because I benchmark it all the time. Cash flow, we're managing well. We're managing inventory in those base stores well. If you look at free cash flow, if you will, it was up year-over-year on a negative 5% comp, negative 5. 1% comp for the year. That has not happened stance. We're pretty proud of how we're managing through this.

Okay. As Carl and I outlined today, we remain confident in our long-range plan and business strategies. Over the past 20 months, we've strengthened and solidified our management team and I'm pleased to welcome our new SVP and Chief -- I'm sorry, EVP and Chief Information Officer, Sumit Anand earlier this month. We've also augmented our long-range plan pillars with a strong tactical plan that we believe should move us back to top line growth in 2025. We got multiple pathways to grow and a strong operating model that allows us to fund our growth investments while also consistently returning value to our shareholders.

Finally, we have a beloved brand in our core geography with a lot of white space for expansion. The opportunity before us is clear, and we're excited to pursue it. We believe that by staying true to our strategy, we can achieve our vision of becoming the best sports and outdoor retailer in the country.

Before ending the call today, I want to thank our investors and analysts for joining us on the call. I also want to take a moment to acknowledge and recognize our 22,000-plus team members and their incredible efforts in consistently exceeding customer expectations during 2024. Our associates remain the key ingredient in our secret sauce, and I believe they're going to deliver a strong result in 2025. Have a great rest of your day.

The call has now concluded. You may now disconnect. Thank you.