Academy Sports and Outdoors, Inc. 2027 Q2 Earnings Call

Good morning, and thank you for joining the Academy Sports + Outdoors second quarter fiscal 2026 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 today's earnings release and in our most recent Form 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 on our website at investors.academy.com.

This morning, we will review our financial results for the second quarter of fiscal 2026, provide an update on our strategic initiatives, and discuss our outlook for the year. With that, I'll turn the call over to Steve.

Good morning, and welcome to our second quarter earnings call. As you read in our press release earlier today, we saw continued top-line momentum in the business, with sales for the quarter coming in at $1.6 million, which was up 3% in total and translated into a slightly negative comp at down 0.4%. Our dot-com business continued to grow double digits at up 12.8%, which improved penetration in this channel by 110 basis points versus last year. During our Q1 call, we mentioned a slowdown at the end of the quarter as we transitioned to Q2, which we attributed to overall inflationary pressures on the consumer, which were no longer being offset by increased tax refunds. This trend persisted into the early part of second quarter, with May and June running up 2% in total and down 1% on a comp basis.

You see this most pronounced in traffic trends from the lower-income households making less than 50K annually, which were down high single digits during the quarter. This was a larger decrease than we saw in Q1, which was down low single digits. Conversely, we continue to see strong traffic trends in the higher income cohort, with traffic from households greater than 100K annually tracking up high single digits during Q2, which was an acceleration to what we saw in the first quarter. We are pleased to end Q2 on a high note, with July being our best month of the quarter, +3% in total, which translated into a modest positive comp.

We believe July sales in back-to-school categories would have been even stronger, but we had four states in our footprint, Oklahoma, Missouri, Virginia, and South Carolina, shift their tax-free weekends from the last week of July into the first week of August. While this disadvantaged the tail end of Q2, it did help us get off to a good start to Q3, with sales through Labor Day running up low single-digit comps. As we have seen in the past, when the customer is under pressure, they shop episodically and aggregate their purchases around the key events on the calendar as a way to expand their spending power. This held true this past quarter with events such as Memorial Day, Father's Day, Fourth of July, and back to school performing well. These also happen to be the time periods where the promotions traditionally are at their sharpest.

Similar to Q1, we continue to see stronger performance on the hardgoods side of the business. Sports and recreation was our best business at up 6%, with continued strength in sporting goods. Within sporting goods, we are definitely seeing a World Cup effect, with soccer gear sales running up double digits for the quarter. We expect this trend will continue throughout the remainder of the year and into the next. We are also seeing strength in fitness, with treadmills up high single digits during the quarter as customers continue to prioritize health and wellness. Another area of note is our front end department, which is somewhat of a catch-all for us. This business continues to benefit from significant investments in trend-right categories such as trading cards and outdoor speakers driven by Turtlebox. Outdoor was our second-best performing division at up 4%, driven by shooting sports, coolers, and camping.

While not as strong as hardgoods, we did have some bright spots on the softgoods side of the business. While apparel sales were flat, we did see strong performance from categories such as World Cup jerseys and tees, outdoor, and work and western apparel. Some of the World Cup good news was offset by decline in NBA championship gear as we anniversary the Oklahoma City Thunder winning the title last year. As we look to comp the World Cup next year, we believe the Women's World Cup merchandise, coupled with a strengthening assortment and improved localization in our Fan Shop assortment, should allow us to offset the gains from this year. Footwear was our softest category for the quarter, with sales down 1%. But even running this decline, we did pick up market share during the quarter.

While footwear is our smallest division at roughly 20% of our total sales, it is an important business for us. We service a diverse portfolio of customer needs, including cleats and athletic shoes you can wear on the field or court, casual shoes and sneakers, work boots and shoes, along with a meaningful business in seasonal styles such as sandals and flip-flops in spring and boots in fall. The team is focused on moving back to top-line growth in this division by aggressively shifting funding from underperforming styles towards the items and brands that are currently driving the business, such as performance running styles from brands like Nike, Adidas, Brooks, and New Balance, as well as trending lifestyle brands such as Birkenstock and Ariat.

Clearly, we've seen a shift in the consumer spending patterns as we progress through the first half of the year, with demand decelerating from Q1 into Q2. Our expectation is the trends we saw take shape in Q2 will persist throughout the remainder of the year. Based on this assumption, we're reacting accordingly. We know that being able to present our customers with compelling value during the key events on their calendar is critical to driving sales in the back half of the year. Some actions we've taken on this front. First, we're reinvesting the majority of the proceeds from the tariff refunds we received back into improved pricing for our customers. We've done a thorough review and have adjusted pricing across many of our private brand products to offer customers pre-tariff level prices, which has already stimulated demand, driven traffic, and delivered value to our customers.

A couple examples of this are: in Q2, we promoted our Outdoor Gourmet 3-burner gas and charcoal grills for key events at $99.99. We've taken our largest private brand key item, Magellan Outdoors Laguna Madre shirt, back to $19.99 versus $24.99 previously. Finally, within our BCG apparel brand, we're promoting key programs such as our Coach's Polo at $9.99. Second, we continue to make sure that for the key events on a customer's calendar, we have market-leading deals and value on both national and private brands. We'll continue to rationalize promotions during the lulls in the calendar in order to help fund these more aggressive promotions in the peaks. Third, we'll also continue to utilize clearance as a way to drive traffic in off-peak months by providing deep value on end-of-life products as we close out each season.

This strategy has proved to be particularly valuable with the under $50K a year household who frequently shop out of season as a way to outfit their family in advance for the next year's needs. Fourth, we're leaning into our newly reinvented and relaunched multi-tier myAcademy loyalty program by providing more targeted discounts and offers to our loyalists during key moments on the calendar. We're still in the early innings on this program but are already seeing increased engagement from this initiative. I'll share more on this front a little bit later in the call. Finally, we're doubling down on our commitment to delivering newness and innovation across all of our categories as a way to drive traffic with existing and new customers. This has been a key ingredient in our success over the past couple of years, and we're accelerating our pace on this front.

A couple examples of this are: we're excited to announce the launch of Hoka in 15 stores and online for this fall. Stores that get Hoka will also receive distorted allocations and improved in-store merchandising for all key performance running programs across brands such as Nike, Brooks, Adidas, New Balance, and ASICS. The team has also done a great job of identifying and incubating new brands in smaller door counts and then rapidly expanding them into additional doors and categories once we get a good read on them. A case study for this has been BURLEBO, which continues to grow high double digits for us over the past several years. We grew the brand from 25 doors to all doors within 2 years, and BURLEBO is now one of our top 10 apparel brands.

The team used this same model to test Chubbies, a trend-right conversational print running short brand, in 25 doors this past spring. The results were well above our expectations, and we've quickly scaled this brand out to roughly 200 doors for back to school. We're also leveraging the continued growth in work and western wear by expanding one of our key brands, Ariat, through shop installations in 200 doors, which is double the amount of doors we announced in Q1. This category has been experiencing strong growth over the past couple years. With the partnership we're building on this front, we expect this growth to continue for the remainder of this year and into next. Newness is not just limited to the soft goods business. A great example is how we're scaling new brands and categories in shooting sports we've been rolling out suppressors this year.