Academy Sports and Outdoors, Inc. (ASO) Q1 2024 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Academy Sports and Outdoors' First Quarter Fiscal 2024 Results Conference Call. At this time, this call is being recorded. [Operator Instructions] I'll now turn the call over to Matt Hodges, Vice President of Investor Relations for Academy Sports and Outdoors. Matt, please go ahead.

Good morning, everyone. And thank you for joining the Academy Sports and Outdoors' First Quarter 2024 Financial Results Call. Participating on the call are Steve Lawrence, Chief Executive Officer; and Carl Ford, Chief Financial Officer. As a reminder, statements in today's earnings release and the comments made by management during this call may be considered forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to the factors identified in the earnings release and in our SEC filings. The company undertakes no obligation to revise any forward-looking statements. Today's remarks also refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in today's earnings release, which is available at investors.academy.com. I'll now turn the call over to Steve Lawrence for his remarks. Steve?

Thanks, Matt. Good morning to everyone and thanks for joining our first quarter 2024 earnings call. As always, we appreciate your interest and support of Academy Sports and Outdoors. As you saw from our press release this morning, sales for Q1 came in at $1.36 billion, which was a 1.4% decline versus the first quarter of last year. As a reminder, we had a 53rd week in 2023. So we're using a shifted comp sales calculation, which compares weeks 1 through 13 this year versus weeks 2 through 14 last year. Using this methodology, our comparable sales for the first quarter came in at down 5.7%. As we expected, our customer remains challenged by the current macroeconomic environment. Inflation is keeping prices at elevated levels, while personal savings have been depleted, causing our customers to be tight with their discretionary spending. The trends we've cited in previous calls in terms of customer shopping patterns held true in the first quarter with customers shopping episodically while gravitating towards the value offerings in our assortment along with new and innovative items. What was encouraging was that we saw sequential improvement throughout the quarter with April being the best month of Q1. The second quarter represents a good opportunity for us to show continued improvement with several national shopping events still ahead of us, such as Father's Day, 4th of July, and the beginning of Back-to-School. Beneath the surface, our dotcom business posted an 8% sales increase over last year, comprised 9% of total merchandise sales versus 8.2% last year. BOPIS and ship from store represented more than 80% of total dotcom sales for Q1, which highlights a true omnichannel approach that we've taken to growing this business. As you know, one of our long-range plan goals is to build a more powerful omnichannel business. We are focused on engaging as many customers as possible across all of our channels because we know that an omnichannel shopper is our most valuable customer. They shop more frequently, they spend more per transaction, and were 3x to 4x more in sales per year than a non-omnichannel customer. In terms of sales performance across our different divisions, the hard goods side of the business performed the best during the quarter on a non-shifted basis. Our strongest category within hard goods remains the Outdoor division, which ran a 2% increase. Camping continues to run significant gains driven by Stanley and YETI. The strong field trend we saw in Q4 slowed down a little bit in Q1, but we expect this business to activate later in the year. The hunting and fishing categories remained key differentiators for us and both businesses are in the best inventory position we've been in over the past 4 years, which sets us up well heading into the summer months for fishing and in the fall for hunting season. The other portion of the business that we categorize as hard goods is Sports and Recreation which ran down 4%. We saw strong performance in this division in Team Sports, which was led by continued growth in Pickleball. It also includes our outdoor cooking category, which has been strong for us over the past couple of years, but had a challenging quarter, primarily driven by a crawfish shortage that suppressed sales across the entire Gulf region. We have seen this business rebound as we exited crawfish cooking season and people started preparing for summer outdoor grilling. To help capitalize on this, we also have a strong marketing plan for the summer to ensure we grow our market share. We offer the broadest and most holistic assortment in the marketplace across cooking types and surfaces, spices and rubs, accessories, and premium fuels, making it another key differentiator and traffic driver for Academy. The most challenged business in Sports and Recreation remains fitness, where we continue to see softness in cardio equipment. We'll talk about some plans to help improve this business a little bit later in my remarks. On the soft goods side of the business, footwear sales were down slightly at negative 1%, which was a solid improvement over our Q4 trend. Athletic footwear had the strongest performance for the quarter, driven by increases in performance running brands, such as Nike, Brooks and New Balance. Casual footwear was the second-best performing category with strong sales in Birkenstock, Crocs and Skechers driven by slip-ins. We continue to partner with our existing footwear brands to gain expanded access to the innovation pipelines that we can ensure our customers have access to the newest styles. At the same time, we continue to work with relevant brands to gain access to items and categories that are not already part of our current assortment. Apparel sales were down 3% for the quarter. Within this division, our kids and outdoor apparel business were the top performers. We continue to see strong results from key national brands, such as Nike, Carhartt and Levi's, while also seeing solid growth in some of our newer private brands such as Freely and R.O.W. Licensed apparel was the weakest segment of the business as we are lapping the release of the commemorative Astros World Series jerseys that launched last spring, along with the LSU Women's Basketball National Championship from last year. That being said, the majority of this business for us is done during the fall. And the team has done a lot of great work around editing the assortment to position us well for the kick-off to college and pro-football later this year. From a profitability standpoint, our gross margin rate came in at 33.4% for the quarter or a 40 basis point decline versus last year, primarily driven by an 80 basis point decline in merchandise margins. The merchandise margin decline versus last year was primarily caused by sales mix being the lower-margin in hard goods businesses, coupled with some planned extra promotional activity this year. We remain on track to achieve our full year gross margin rate guidance of 34.3% to 34.7%. Carl will discuss our profitability performance in more detail in his comments later in the call. As we forecast sales out for the remainder of the year, we expect that our customer base will remain under pressure and continue to moderate their spending. To combat this, we're leaning in the shopping trends the customers clearly demonstrated over the past year, while also focusing on our long-range plan initiatives. In regards to customer behavior, there are 3 primary sales drivers: Newness, value, and driving traffic during the key time periods on the calendar. In terms of newness, we continue to look for emerging and innovative brands to add to our assortment as another way to spark customer interest and drive traffic and sales. Several of the new brands that we've added the assortment over the last year, such as Birkenstock, NordicTrack in fitness and BURLEBO in apparel will be available in an expanded number of stores this year. We also continue to bring in well-known brands that previously weren't part of our assortment, such as Ultra Trail running shoes or Chaco sandals. In order to highlight our value offering, another place we've added newness is in our private brand portfolio, where we recently launched [indiscernible] golf as a brick-and-mortar exclusive for Academy. Initially, we're leaning into golf ball and club sets. But similar to Redfield on the outdoor side of the business, we think there are category expansion opportunities down the road. The last way we're leveraging newness is to jump-start sales in lagging categories. I mentioned earlier in my comments about the continued softness in the Fitness business. And our plan is to lean into newness and innovation as a way to help spark this business. The first focus is to reenergize our cardio equipment assortment by capitalizing on emerging trends, while also leaning into value with items such as walking pads, which are essentially a simplified treadmill that works well for people who use standing desks or want a low impact while they workout at home. Another addition is taking advantage of the cross-fit trend by being the first retailer to add a soft fitness to our brick-and-mortar assortment. They're a digitally native brand that is well known in respect to within the cross-fit community. Finally, within Cardio, as I briefly mentioned earlier, we're expanding our NordicTrack assortment out to outdoors with additional styles. Another growing fitness trend is focused on recovery where we're expanding into cold therapy with offerings from Lifepro and Hyperice. Sports nutrition is the third leg of the store with several new brands launching in our stores, including [ Jaco ] and Podium. On the value front, we continue to ramp up our focus by distorting the products, brands and categories. We have clearly defined everyday value leadership on key private and national brand items. You'll see these items heavily featured in marketing and primarily positioned and signed in our stores and on our website. While we remain firmly committed to our everyday pricing model, we will also use promotions on seasonal categories as a way to take advantage of customers' episodic shopping patterns and drive traffic during the key milestones in the calendar. As I mentioned earlier, we have several national shopping events in the calendar in the second quarter, including Memorial Day, Father's Day, 4th of July and the kick-off to Back-to-School and football season. We have a strong slate of promotions focused in this time period with an emphasis on key summer categories such as grilling, patio furniture, pools, and fishing to help ensure we win the driveway decision. We also have several initiatives that are incorporated into our long-range plan strategies, which we expect to start paying dividends as we progress through the year. Opening new stores remains the #1 growth driver for us. As we previously guided, in 2024, we plan to open up 15, 17 new stores. During the quarter, we opened up 2 new stores with the first one in Knightdale, North Carolina, which is right outside of Raleigh and the second in Greenwood, Indiana, which is south of Indianapolis. We're excited that just a couple of weeks ago, we opened up our third new store for this year in Zanesville, Ohio, expanding our presence from 18 to 19 states and our store count to 285. The remaining 12 to 14 stores will open up in the second half of the year with a good balance of locations between new and existing markets. During the first quarter, our '22 vintage of new stores ran positive comps. While the 2023 vintage is not currently in the comp base, we are tracking to higher year 1 volume levels than that of the '22 vintage. Our expectation is that the 2024 stores will be even stronger. Our second core strategy is to grow our dotcom business to 15% penetration over the next 5 years. As I mentioned earlier, our sales in this channel are off to a strong start in Q1. This is the second consecutive quarter of positive comps for the dotcom business. Our core focuses on this front are to streamline and elevate the omnichannel shopping experience, offer expanded assortments online, and improve our fulfillment speed. One key capability that will go live as we head into the remainder of the year is the ability to offer same-day delivery from many of our products. We partner with DoorDash to help us deliver this new level of same-day fulfillment. And we'll launch this capability across our entire footprint as we head into Back-to-School. Initially, customers will be able to order Academy products through the DoorDash app. The next phase will be to integrate this functionality into our sites so that customers can choose same-day delivery as another fulfillment option. We believe that this added capability will help us reach new customers through the DoorDash app and drive incremental sales. This new service, coupled with our strong BOPIS offering, where we will focus on 1-hour fulfillment guarantee helps further simplify our customer shopping experience and better enable them to have fun out there in all of their sports and outdoor activities. Another focus under this strategy is all the work that you've heard us speak to in prior calls from driving a deeper connection with our customers through the use of data and analytics. Over the summer, we plan to launch our first-ever loyalty program, which will be branded as myAcademy. To be clear, our Academy credit card will remain our primary loyalty tool with 5% off every purchase being the cornerstone of the value proposition. That being said, we have many customers who don't either qualify for the card or choose not to apply. So we plan to expand how we engage with non-Academy credit card customers through myAcademy. The goal is to reduce and/or eliminate perching for a loyalist while also expanding their buying power by offering targeted offers and promotions. Key elements of myAcademy will include a welcome offer of 10% off through next purchase of up to $200, free shipping on purchases over $25 versus $50 for people who aren't in the program, faster checkout for both online and inter-app, insider access to personalized offers, deals and products and the birthday reward. Over time, as we test new features and benefits, our plan is to integrate the ones that resonate with our customers into this loyalty program. At this point, our plan is to have the program fully rolled out prior to Back-to-School. Another one of our long-range plan initiatives is to leverage and scale our supply chain. The implementation of our new warehouse management system is one of several supply chain initiatives. We should see increased productivity and service levels out of our Georgia distribution center as we move forward now that it has gone live. Our management team has collectively been through many of these transitions at other companies. And we are all pleased at how smoothly the changeover to the new WMS has gone. As a reminder, the implementation of a lot of the system is foundational to us achieving our new store growth targets that we outlined in our long-range plan. This is the first of our 3 DCs that we will be converting over to the Manhattan WMS. While we can't control the economy, we can control how we deliver value and newness for customers on a regular basis. We can also control how we engage with our customer through marketing and the service levels we provide along with how we execute against the pillars of our long-range plan, and that is what we're going to remain focused on. With that, I'll turn it over to Carl, who will give you a deeper dive into our Q1 financials. Carl?

Thanks, Steve. Good morning, everyone. Our top line in the first quarter did not meet our expectations. Given this, we worked to manage our inventory levels and controlled our operating costs, resulting in Academy generating $200 million in cash from operations during the quarter. Now, let's walk through the details of our first quarter results. Net sales came in at $1.36 billion, a 1.4% decline compared to the first quarter of last year with a comp of negative 5.7%. Our comp ticket size decreased by 1%, while comp transactions declined by 5%. Our omnichannel sales were 9% of total merchandise sales compared to 8.2% in the first quarter of 2023. The investments we have made over the past couple of years, upgrading the technical aspects of our website and the connectivity to the stores have solidified the back-end infrastructure to improve the customer checkout experience. We are now focused on investing in new customer acquisition and driving more traffic to the site. The gross margin rate in the first quarter was 33.4%, a 40 basis point decrease compared to Q1 of last year. Merchandise margins declined by 80 basis points, primarily due to a higher sales mix of hard goods and more promotional activity versus last year. This decline was partially offset by a 40 basis point improvement in freight costs and a 20 basis point improvement in shrink compared to Q1 of last year. We remain on track to achieve our full year gross margin guidance of 34.3% to 34.7%. Our SG&A dollars as a percentage of sales increased by 130 basis points or $12.5 million compared to Q1 of last year. We deleveraged 30 basis points on existing store operations, primarily due to the decline in sales volume. The other 100 basis points of deleverage was a result of Academy investing in its primary growth initiatives, opening new stores, growing omnichannel, scaling and leveraging our customer data platform and modernizing our supply chain. We believe in our long-range plan and are committed to investing in it, while also managing our existing cost structure. Overall, in the first quarter, Academy generated net income of $76.5 million and diluted earnings per share of $1.01. Adjusted net income, which excludes stock-based compensation of $6.1 million and $449,000 of deferred loan costs, was $81.6 million or $1.08 in adjusted earnings per share. Looking at the balance sheet, we ended the quarter with $378 million in cash. Our inventory balance was $1.36 billion, a decrease of 2% compared to Q1 of 2023. Total inventory units were down 11% and this includes having an additional 15 stores compared to the end of Q1 2023. On a per store basis, inventory units were down 11.5%. In terms of capital allocation, we continue to execute a balanced capital allocation strategy focused on our 3 priorities. One, maintaining adequate liquidity for financial stability. Two; self-funding our growth initiatives. And 3, increasing shareholder return through share repurchases and dividends. In Q1, we generated approximately $200 million of cash from operations, we invested $32 million in our growth initiatives, repurchased $124 million worth of shares or 2.7% of the total outstanding shares of the company, and paid out $8 million in dividends. We are investing in future growth as well as shareholder value, particularly when it is discounted relative to the company's long-term growth potential. Academy had $574 million remaining on its share repurchase authorization at the end of Q1. Lastly, a couple of other notes from the quarter. We amended and extended our $1 billion credit facility through March of 2029. And the Board recently approved a dividend of $0.11 per share payable on July 18, 2024, to stockholders of record as of June 20, 2024. Turning to guidance, we expect the economic environment to remain challenging. Therefore, we will continue to efficiently run the business while also making investments to support our long-term strategic opportunities. We are reiterating our previous sales and net income guidance for fiscal 2024 while updating our EPS forecast to reflect the shares repurchased in the first quarter. Net sales are still expected to range from $6.07 billion to $6.35 billion, with comparable sales of negative 4% to positive 1%. Our gross margin rate is still expected to range from 34.3% to 34.7% and GAAP net income between $455 million and $530 million. GAAP diluted earnings are now expected to range from $6.05 per share to $7.05 per share based on a revised share count of approximately 75 million diluted weighted average shares outstanding for the full year. This amount does not include any potential future repurchase activity. SG&A expenses are still expected to be approximately 100 basis points higher than in 2023. As a reminder, SG&A includes stock-based compensation expense of $30 million or approximately $0.30 of earnings per share. We also remain confident in the strength of our cash flows and still expect to generate between $290 million and $375 million of free cash flow, including $225 million to $275 million of capital expenditures. With that, we will now open it up for questions.

And our first question is from the line of Seth Basham with Wedbush Securities.

My first question is just thinking about the balance of the year. With your maintained full year guidance, it implies material improvement in both the top line as well as gross margins. Can you reiterate or help us better understand the key drivers of that improvement in the second quarter and beyond?

Yes. So I'll start with, when we talked on the last call how we described the kind of the sequence of the quarters and progression was that we thought Q1 would be the most challenging quarter for us. We saw a sequential improvement coming in Q2. We saw the back half getting better than the first half of the year. So that was how we described it. And we're sticking with that as kind of our thoughts on how the quarterly progression goes. In terms of things that we have within our control that we're using to try to drive the business and start moving the needle, obviously, we talked about the customer behavior, right? We said the customers clearly demonstrated over the past years, a focus on value newness and episodic shopping around those key moments in the calendar. And so we've really aligned our assortments, our marketing, and all of our promotions around that. So you'll see very aggressive pushes for us across all fronts during those key time periods in the calendar such as Father's Day, 4th of July, Back-to-School, and Holiday. And then I think you'll see us pull back a little bit from promotions on the gaps within. So we've got a good game plan from that perspective. We've got a couple of categories that are resurgent. Our outdoor business has been positive now for 2 quarters in a row. So we're excited about that. That had been a drag on the business for at least a couple of years going back to '22 and early part of '23. So we feel good about that. The dotcom business has had 2 back-to-back quarters of positive growth as well and we expect that to continue as we move through the year. As we get deeper in the year, some of the other initiatives start to kick in. Obviously, we talked about the '22 vintage of new stores running a positive comp for first quarter. We expect those to continue to positive comp for us. And then as for the '23 vintages start fitting into the comps, we believe that those would also inflect a positive. And then we start opening up our 24 stores. We only have 3 stores so far, we opened up. We guided 15 to 17, so the back end of the year is where most of those stores are going to open up and start contributing. So that's another driver for us. A couple of other things, we've talked a lot about loyalty and our new CDP on the last couple of calls. So I think as we're about a year into now having that customer data platform in place, we're getting smarter about how we leveraged that in terms of targeted marketing to our customer. I think the new myAcademy reward that we're rolling out is an outgrowth of that. And it gives us another tool to interact and engage with our customers, particularly those who haven't been using our credit card. And then, last, we've got an improving apparel and footwear business. Both of those businesses were better in Q1 than they were in Q4. So we've got those businesses moving in the right direction. So those are all the reasons why we believe that we're going to start seeing steady improvement throughout the remainder of the year.

And as a follow-up on that last point, the apparel and footwear is still lagging as categories. It seems like industry-wise, they're doing better, so opposite for you. Are there key initiatives or key brands that will help drive improvement in that business as we move through the year?

Yes. So footwear for us was a drag in Q4. It was actually one of the better businesses for us in Q1. There are certainly things going on in the performance running sector that we don't have access to a couple of those brands. That being said, we're working with our core suppliers, the Nikes, the New Balances that uses of the world to continue to get expanded access to premium footwear there. We're also working with our other brands where one of the things that's good about our business is it's not just active footwear, right? We have a work boot business. We have a casual shoe business. We're working with brands like Skechers to really drive the slip-in piece that we're working with our work boot vendors to drive that piece of it. And then we continue to add new brands such as Birkenstock, which has only been in the store about a year. We've expanded the presentation of that now into more doors. We just added Ultra Trail running shoes for Q1 as well as Chaco sandals. So it's a mixture of working with our existing brands to get access to the things that we currently haven't had access to, layering on new brands, and expanding new brands rapidly as they prove successful. And that's how we're going to drive growth in footwear.

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

Steve, you mentioned the positive comp in new stores. I was hoping you could expand on that a bit. How did the '22 vintage comp in aggregate, how does that compare to what you would anticipate from normal maturation? Just trying to understand the comp benefit from new store maturation versus how your mature stores are performing.

Yes. I would say it was in line with how we modeled it based off of, if you remember, we talked a little bit about how when we initially came forward with our forecast, we were kind of looking at stores that had some influence in the pandemics. So we went back and looked at stores in the '14, '15, '16 vintages to kind of get a sense of what year to look like and that's how we modeled it. So I would say that they were in the mid-single-digits from a comp, mid to low single-digits from a comp perspective. It was significantly better than the remainder of the stores. So we definitely saw an inflection there. Our expectation would be that as when the '23 vintages start to mature and feed in, we'd see similar behavior. As a reminder, the '22 vintage was somewhat opportunistic. We tested a lot of different things. We applied those tests to the '23 vintage. And as we've been tracking them, they're tracking to a higher year 1 volume than the '22 vintage did. And our expectation is we'll see the same thing with the '24 vintage. So this is something that's going to take a while to build. It's a little bit of that flywheel as we're trying to get it going. It's encouraging to see the '22 vintages perform much better than the rest of the chain. And as we get more of these vintages '23 and '24 feeding into that, I think it's just going to help accelerate our comps.

And then maybe a question for Carl, just on gross margin. Curious how 1Q came in relative to your expectations? And if you could just help us bridge the gap between the 1Q gross margin rate to the full year guide? I know 2Q, 3Q historically have higher or historically higher margin rate quarters. But just how do you envision merch margins evolving over the balance of the year and what's your assumptions for freight within the full year guide?

Yes. So last year came in at 34.3% gross margin. We guided to 34.3% to 34.7%, so on the high side, 40 basis points of growth. Where we thought that would come from would be 2 real places. One would be on distribution center operations. Steve mentioned that we went live with the Manhattan Active product in our Twiggs County or Georgia distribution center, which is our least productive. We're happy with what we're seeing coming out of there in terms of productivity. And so we think that getting out of the quarter of implementation, if you will, that there's upside potential associated with DC operations. Second would be around merchandise margins, call it 20 basis points of upside potential associated with that. Our inventories are pretty clean, as we're proud of how we managed inventory. We're proud of how we managed promotions. So we're clean inventory balance, don't need to promote into things to clear it. What we would promote is on this key traffic driving time periods where we want to incentivize the customer to come in. As it relates specifically to Q1, our gross margin was down 40 basis points. That was 80 basis points of merch margin decline, 40 basis points of freight improvement year-over-year and 20 basis points of shrink improvement. I would really expect shrink to be flat for the year, year-over-year. I think we've got opportunity areas and we're focused on it. Coming out of the gate, 20 basis points better than last year on the inventories that we did, I'm pleased with it. But I would tell you to think about it as a flat opportunity. And then freight, overall, I think it will generally be flat for the year within our guidance. We'll have some pressure associated with import. We've got opportunities on the outbound side from a DC to store standpoint. I think this will generally be flat. The 2 upside potentials are DC operations and merch margin.

Yes. I would jump in and just say that the merch margin coming in a little lower than last year, I think, was really affected 2 things. First, we talked about how outdoor performed better within the quarter and that certainly has a lower margin profile. So that mix is down a little bit. And then I'd also say that we're talking about the customers being under pressure and they're gravitating towards value. Early in the season, one of the #1 ways we delivered value is clearance. And so we certainly saw a higher take rate on some of the clearance promotions that we ran early in the season with the customer gravitating towards those. That being said, I think we've got a solid plan and visibility of the gross margin. And we think merch margins over the course would be roughly flattish is how we're thinking about it.

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

So it sounds like the consumer has been responding to some of the promotional activity and discounting that the Academy has been doing. How aggressive is the Academy willing to be with its gross margin in order to drive sales, given what's happening in this environment?

Yes. So Michael, I think what we shared with you in the past, and I think it's held true, candidly, in terms of the behavior we've seen in the first quarter. In periods where there's not a reason for the customer to shop, promoting aggressively has not really driven incremental traffic. It's just basically then an [ AUR ] erosion. And so what our game plan has been and will remain is we know that the customer is coming out and shopping during those key moments on the calendar. So we've got a couple of the big ones ahead of us. I mean we really activate over the summer, as you all know. And as we get into Father's Day, which is one of the larger weeks of the year for us and 4th of July, and Back-to-School, we have promotions lined up and will be more promotional than last year. That being said, it's anticipated in our gross margin forecast. We pulled back on kind of the gaps in between when the customer isn't showing as much willingness to shop based on the discounts. So we've got it modeled in there. But you're going to see us be promotional during those key time periods and then pull back on the gaps in between. And that's worked for us over the past 6 to 12 months and you're going to see us lean more into that.

My follow-up question is on the momentum you talked about in April. Has that continued into the current quarter? And Steve, there's a lot of skepticism on Academy's ability to hit at the least the low end of the guidance for the rest of the year. What's implied in that is that comps do make a meaningful improvement. You outlined several factors that you think will drive the improvement. If you don't see that improvement, what actions are you going to take in order to preserve the profitability and manage the business?

Yes. So what I can tell you is that, yes, you're right. If you look at the guidance, I mean, obviously, Q1 is down 5.7%. It's outside the low end of the guidance. So it does imply that we see improvement as we move forward. The thing I'll point out is we really haven't had any of those major kinds of customer shopping moments on the calendar in Q1. We're not obviously a big Easter business. There's not a lot of outdoor activities going on during that time period, et cetera. So really, our sweet spot and we've described this, I think, in a lot of different venues is that kind of Memorial Day through Back-to-School time period. That 13-week period is a very big time period for us. That's where we've lined up a lot of our marketing initiatives, that's where we've lined up a lot of our promotions. That's why we're launching a lot of new capabilities, such as our new loyalty program, same-day delivery with DoorDash, things like that around that time period to really take advantage of it. So our belief is we're going to see that inflection during that time period. Back to the start of your question, I would tell you that the start of May was a little softer than we wanted. I think it's been pretty well documented that we had some pretty tough weather in a lot of our geographies with a lot of stores shut down for periods of time. That being said, when we got to Memorial Day and we've got some clean kind of weather, we actually saw Memorial Day behaved as we thought it should. And we were pretty happy with how Memorial Day inflected. That being said, we've got a lot of volumes still out of this. This is a big week for us. 4th of July is a big week for us and, obviously, Back-to-School is a big week for us. So we're going to lean into those things. And then after we get through all of those time periods, we're going to assess where we're at. And [indiscernible] based off of what we're reading in the business from that point forward.

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

My first question is on new stores. Can you talk about like the newness in terms of the -- you said new vintages are comping positive. Does that include all stores? And then can you assess why the '24 class is -- or the '23 class, sorry, is comping well ahead or at higher levels? Like how do you diagnose that? And is there any cannibalization happening across neighboring stores?

So first off, I want to be clear, when we're talking about new stores comping positive, the only ones we're referencing right now are the '22 vintages, because the '23 vintage, candidly, most of them opened up in the back half of the year. They haven't even lapped themselves yet. So we're pleased that the '22 vintage, which are the first vintage feeding into comps are comping positive. What we've commented on is we've seen the '23 vintages start off to a higher year 1 volume trajectory than the year 2 vintage. And we would attribute that to the fact that we took a lot of the learnings from the '22 vintage and apply them to the '23 vintage in terms of how we grand open and ran the marketing cadence, a longer period upfront of seeding those stores, a longer sustainment time period, those kind of things, better localized merchandising, better staffing model. So we just took the learning, supply to them, and we're seeing the payoff on that. And our anticipation is that '24 is going to be off to a good start. We've had 3 stores we've opened up this year. One of the things we're really pleased with is 2 of them I think I called out in the comments, Knightdale, North Carolina and Zanesville, which are -- I would characterize as not in our current footprint. Those are relatively new markets for us are both doing very well. So I think it's taking some of those learnings that we've had as we've gone into new markets and applying those and getting them off to a good start. And our belief is that the '24 vintage is going to be off to a higher year 1 volume than the '23 vintages.

And a follow-up regarding the cadence for the rest of the year. You said the customers being more discerning. And you talked about promotion and then you have more newness and activities, I guess, initiatives as it goes on. So the question is, how do you balance the more discerning, maybe more value-oriented customer with the -- I guess, the slope now that's implied for the rest of the year to drive the events or to drive the comp?

So I would say a couple of things. You're going to see us lean into value a couple of different ways. First, we view ourselves as an everyday value price retailer. About 75% of what we sell is at regular price, right? We've got great everyday value on our private label. We've got everyday value in a lot of our national brand offerings. And sometimes we're not sure we're being as overt as we should about that. So you're going to see us really lean into that sort of marketing message. You're going to see us sign it more aggressively in stores. You're going to see it more prominently featured in our website and our marketing. So you're going to see it across every touch point. At the same time, we also use promotions strategically during those key moments in the calendar like a Father's Day, like a Back-to-School to drive traffic. And so during those time periods, we're going to have more broader-based promotions and somewhat deeper promotions in certain key categories to drive traffic and win the driveway decision. And of course, we've got that modeled into our margin. One of the things that's really been helpful with the new customer data platform that we have is we can start seeing customer behavior. So we know within our customers who are the more value-based customers. And we're targeting a lot of that marketing towards that customer. Conversely, we also have a customer who we can tell is more triggered by or activated by newness. And so we're using our CDP to really target them with more of the new offerings and some of the new brands that we're launching. So that's really how we're going about it, using CDP as a way to kind of target those messaging and making sure we've got good fuel from a promotional perspective or a newness perspective to send to those customers based off of what they're gravitating towards.

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

So in terms of the improvement in the back half, can you talk a little more specifically about the categories that you expect to turn positive? To what extent is mix going to play out in the gross margin as it relates to that? And to what extent are you expecting maybe the hunt category to see some lift around the election?

Yes. So you hit on the first one where you're asking which categories do we expect to continue to drive for us on sales. I think certainly outdoor is one of those. It's lapped itself in terms of some really tough comps. And it's been 2 quarters of a pretty good performance and we'd expect that to continue through the year. I think that would be broad-based. One of the things on the call we called out was the camping category really fueled by Stanley and YETI. We think that's going to continue through. We also expect that the hunt business will be good as we turn the quarter into hunting. And we expect fishing to be good over the summer. So I think all of those categories should continue to be drivers for us. Impact of the election on it, hard to tell at this point in time. We really haven't modeled a ton of activity off of that. We do not know when we go back and look at election years. So we see that business activate or almost time periods. But we're not really banking on that. If it happens, that would certainly be a positive. We expect the dotcom business to continue to be positive. And we expect the apparel and footwear business to steadily improve. At the low end of our guidance, it's down 4% comp. That imply the customer remains under pressure and doesn't really improve in terms of how they're shopping and us leaning into our activities and focuses from a newness value experience perspective, kind of get us to the low end of the guidance. If we can see some inflection from the hunting category based off election and we can see some of the newness and value offerings really kick-in from an apparel-forward perspective and those are the positive, that's how we get to the high end of our guidance. So that's why we didn't narrow the range at this point in time. We're only 25% of the way through the year. We think we still have a lot of outcomes ahead of us that are undetermined. And as we get deeper in the year, we'll certainly share what we're seeing in the business once we get through Q2 because we've got a lot of key events right now in front of us.

And then just to clarify, so in the gross margin, supply chains are tailwinds, shrinks flat. Merchandise margin is flat. Is that right? Am I missing any pieces? And then that merch margin, are you expecting mix to be a positive and then essentially offset more promotions year-on-year?

So we're expecting -- I think you have the puts and takes, right? We're expecting a flat merch margin. We've modeled in some deleverage from the hard goods, big ticket side of the business, particularly Outdoor, which has a lower margin profile. But we expect that, certainly, this footwear and apparel margins are going to be strong as we progress through the year.

The next question is from the line of Kath McShane with Goldman Sachs.

Our first question was just on the myAcademy loyalty program. I just wondered if you could give us a little bit more detail on the timing of the rollout of that. And is the guidance capturing any kind of upside potential from that or any kind of margin implications as a result of the promotions and offerings that go along with it?

Sure. So I'd start with, from a timing perspective, it's going to roll out over the summer. We want to have it in place prior to Back-to-School. As you know, our Back-to-School starts a little earlier. So it starts kind of at the tail end of July. So I'd expect we'll have it fully rolled out to all stores by the first or second week of July. Really, the goal is we have a pretty powerful loyalty program right now with our credit card. That being said, we have several customers who either; A, don't want another credit card or; B, maybe in some cases don't qualify for the credit card. And so we wanted to offer them a lot of the same sort of values. And so we talked on the call, that's initial sign-up discount of 10% of up to $200. That's free shipping over $25. That's targeted discounts. So all of those things that are kind of endemic to a lot of loyalty programs we're going to have. The only thing you don't get with myAcademy that you do get with the credit card primarily is the 5% off every day. We certainly believe that's going to be a sales driver for us. We have that modeled in as part of our improvement. That's one of the ways we see getting from the negative 5.7% we had in Q1 to our guidance range of down 4% to up 1%. From a margin erosion perspective, we've repurposed other discounts that we've been running towards this. So it's not really, from our perspective, going to be initially gross margin accretive because we've offset other promotions to fund it. And certainly, over time, we're going to test how targeted offers work. And if certain offers resonate more than others, we might add those into benefits, hard benefits that we'll run going forward. But we started off a little light. And our goal would be to add to this over time as we test our way into offers the customer responds to.

And our second question just was around your comment around some of the key brands that you aren't currently carrying in footwear. How much do you think this specifically is challenging traffic to the store?

Well, we certainly pay a lot of attention to market share data and what's going on. The brands we've been most questioned about on this call last time and certainly in other calls had been around [indiscernible]. And if you look at those 2 brands, they've more than tripled their market share over the past 2 years. So I think it's a meaningful driver out there for running footwear. And not having it, I think, it's certainly something that we would love to have as part of our assortment. So it could help drive traffic for us. That being said, we're not sitting around waiting for them to open us up. We certainly are having dialogues with them and believe at some point we will get access to that. But it's all the work we're doing with our existing brands to get access to things we currently don't have access to that are more premium for them. It's adding in new brands that help us complement our assortment. It's all of those things that we're going to be focused on while we also simultaneously work with those brands, we don't have to gain access to them.

Our next question is from the line of Robbie Ohmes with Bank of America.

Maybe for Carl, just on the store opening cadence for the year, anything you can tell us about how that may or may not pressure certain quarter's preopening expense, just timing of store openings being back half weighted?

Yes. So the balance of our stores that we're going to open are going to be in the second half of the year. As you think about preopening costs, we've really modeled those into the 100 basis points of deleverage that we put in the SG&A guide. So that's really what's driving the year-over-year deleverage as our investments into new stores and we like the way that they're starting off. We like the way that they're comping once they get pass that 14th month. And we think this is a big driver for the long-range plan. So we're going to continue to do that. It will deleverage us. Our average store did $22 million in sales volume last year. And these new stores we're guiding $12 million to $16 million in year 1. So there's deleverage associated with it. But that's what's essentially baked into the 100 basis points of deleverage that's embedded within our guidance.

And then can you walk us through the economics of the DoorDash deal? Was that -- is that very favorable to you guys? How is that structured?

I can't, obviously, divulge all the details of it, obviously, from a contractual perspective. But basically, they have a couple of different ways they model it in the initial phase for us. The way it works is the customer can shop through the DoorDash app and find Academy product. The DoorDash will actually physically come into store, find the product, purchase it, and then we pay a commission after the fact on that. Over time, we see this probably going to a model where it looks more like a BOPIS order for us where we pick the goods and deliver it to the DoorDash person outside that has a slightly different rate associated with it. And then longer term, the goal would be to integrate it, as we talked about in the call, into our website so you can pick that as an option. One of the things that is we've been studying the customer behavior and seeing what's -- what they're reacting to, what they're not reacting to. Time is one of those things. They're voting for convenience and us not having this as an option. I mean we had BOPIS, we could pick it up. But think about the use case where the customer is at the field and they forgot a pair of cleats or the mouth guard. And they want to have it delivered to them while they're at the tournament. We can now do that. We couldn't do that before. When we looked at the customer overlap between their file and our file, it's mostly accretive. There's not a lot of overlap there. And so for all of those reasons, we've decided to add this capability. We think it's going to be a nice add for us. Of course, DoorDash makes the delivery fee that's embedded in their fee structure. But like I said, we're pretty happy with it so far. It's really early days as we roll it out. And we think it's going to help us reach the customer we haven't been reaching before.

Robbie, the only thing that I would add to that is, obviously, somebody is not going to DoorDash are going to save for a kayak or some of these bigger ticket items that tended to be lower in margin rate. So there is a royalty and commission associated with it. But the margin profile that gets being sold should be elevated based off our holistic product assortment.

Our next question is from the line of Greg Melich with Evercore ISI. The next question will be coming from the line of Anthony Chukumba with Loop Capital Markets.

I won't add my -– I won't give my usual On and Hoka question given that's already been covered. So I guess I'll have to come up with something else. I guess my question is just on the competitive promotional environment. I mean, you've been talking now for a while about the fact that you're not promoting much, if at all, between big sale events, which makes a lot of sense. What are you seeing from your competitors? I mean are competitors -- are they doing a similar thing in terms of the timing of their promotions? And how would you just sort of compare maybe just year-over-year or maybe now versus pre-pandemic, just kind of the overall competitive promotional environment?

Yes. So I would characterize it similar to how we've talked about it in previous quarters. I mean it's certainly not back to where it was pre-pandemic. It seems that each year, it's getting a little more promotional. As I mentioned earlier, we don't have a ton of big events for us in the first half of the -- or first quarter of the year. We really started hitting that time period right around now, Memorial Day, Father's Day, 4th of July, Back-to-School. Early read so far is that it seems like it's a little more promotional last year, but certainly not crazy, not irrational. It feels like people are promoting the categories. You'd expect to promote right now a lot of the summer categories; grilling, pools, things like that. So I would characterize it as still very rational. And candidly, I would say, Q1, it wasn't terribly promotional outside of the clearance cycle that I think everybody went through.

And then just one quick follow-up. You mentioned that your shrink was down 20 basis points year-over-year. Is there anything in particular that was driving that? And do you expect continued shrink improvement over the remainder of the year?

Yes. So shrink was, just to be clear, shrink was up last year. And so being 20 basis points off of -- 20 basis points better than being up year-over-year is better. The things that we're doing is we've deployed some technology solutions around license plate readers or [ dual ] sensors, things that are in-store that kind of give us a heads-up on when something is not going well in certain cases where the product has been stolen and it's not available for sale. We're doing precautions like locking up product and putting a customer service button right there to help the customer. We partner closely with local law enforcement. And we keep a beat on this overall cycle counts and physical inventories throughout the year. The things that are driving it, I think that is still up across the market. I think this is a big retail issue. I think we're taking issues to correct it, but -- and address it. But it's not like it's suddenly dropped off of a cliff. I would tell you that the Manhattan system within the distribution center space is a lot more methodical than our previous warehouse management system. And we do carry a fair amount of inventory in our distribution centers. And so accounting for that correctly, that was a little bit of a source of goodness over year-over-year. But 20 basis points, we're probably halfway through our physical inventories for the year now. We feel like we've got to be now where it's going. We're happy with 20 basis points, but I would guide you that flat for the year.

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

So Carl, just on the SG&A rate, it looks like SG&A dollars were up about 4% in the first quarter. How should we think about SG&A dollars and rate into the back half of the year and in the different scenarios of comps that you laid out? It's a fairly wide range at down 4% to up 1%. So I'm just thinking how that rate might trend given the high and low end of the comp guide.

Yes, it's a good question and it's one that I'm kind of proud of the team on. So SG&A dollars quarter-over-quarter are up $12.5 million or 130 basis points. And this is for Q1. As it relates to $12.5 million, more than all of that was associated with the investment in new stores, primarily, but also some technology solutions around the customer database platform, e-comm user experience, and now the go live of the WMS system. So that's what's driving more than all of the dollars and almost all of the leverage. I think we deleveraged pretty modestly on the negative comp base, the negative 5.7%. And what, John, what that shows is a responsiveness by the team. We understand how to pull levers inside the quarter. And we're very responsive to what we're going to do and not do and how that plays out. I would tell you, customer satisfaction has never been higher, but the polls that we get, the overall satisfaction of the customer. So we think we're flexing with things that the customer still perceives that they're really getting good service. As it relates to the balance of the year, what's really in the full year guide, yes, 100 basis points is how I would counsel you on the high and the low. If we hit the low, there'll be some more giveback associated with incentive comp and things of that nature. And on the high reflects pretty well. But as it relates to controlling promotions, controlling inventory, and controlling the expense profile of the company, the team is really united here. What we are investing in is these new stores. And we're offsetting internally in a way that the customer is not just pleased with.

Steve, just on the merchandising front, I think footwear has been a big driver of one of your biggest peers, dotcoms recently. What are you doing in terms of working with the vendors, working with the in-store presentation within footwear because the category obviously has a lot of momentum right now? It's not all just with On and Hoka. I mean you have a big Nike business and New Balance and others. So just what are you doing in terms of allocations as we get into the back half of the year?

Yes. No, that's a good question. So we continue to work with our existing partners. Certainly, Nike is our biggest vendor in the store. It's a large center in footwear and working with them to get access to better footwear. So example, 270 is within a limited door count last year. It's going to be in over 150 doors this year. We've done an elevated presentation for it in our store. We're working with them on other footwear as they move forward to get access to that, same conversations candidly, with New Balance and Adidas as well. But the thing that I want to also make sure that I land the point is, is athletic is a big chunk of our business, but it's winning in the other categories too. Like I said, we do a big workgroup business. We do a big seasonal footwear business. We do the big casual business. So leaning into things like Birkenstock, which is an expanded door count for us this year, taking a brand last year like [indiscernible] that we had in a very limited door count and expanding that out more broadly this fall. I think there are a lot of ways for us to win in footwear. The team is really working broadly with the broad-based vendors to make sure we can do that. And I'm optimistic about our opportunities in footwear as we move forward with all the newness that we're driving there.

At this time we just have time for one final question, which will be coming from the line of John Heinbockel with Guggenheim.

Steve, 2 maybe related questions, right? We've talked a lot about driving business in the episodic periods. But in the periods in between, right, when you think about using CDP to go after heavy users; whether it's fishing or outdoor cooking, what do you see as that opportunity in those periods? And then during the promotional periods, are you getting a better sense of promotional elasticity by customer, right, such that your promotions are more effective than they were a year or 2 ago?

Yes. I'll start with the first part of your question. So one of the new use cases we've really started leaning into is we've done our traditional customer segmentation. And so; one of the customer segments that we've identified, for example, is a high-value, first-time purchaser. So think about somebody who came in and purchased a grill or an elliptical or something like that with their first purchase and we haven't really seen them shop us before. So we're using kind of those lows where we're targeting those types of customers to come in and drive whatever the attachment is. In the case of the grill, maybe it's more fuel, some of the spices and rubs we sell or cover and turning those customers into kind of high-value onetime shoppers into loyalists over time. And so really leaning to offers during those time periods has been one of the things we've used the CDP for. I think your second question, kind of observation is spot on. As we've gotten deeper into the use cases on our CDP, I think we are getting a better sense of which types of promotions resonate with which customers. And so I think that's something that we're just going to continue to refine and be sharper and sharper on in terms of the types of promotions we deliver to the customers, delivering the right ones to the customers who activate against them. And as I mentioned earlier, some customers really gravitate towards value, so leaning into promotions of them versus the customers who really are more about newness. So we maybe can be a little shallower with those customers in terms of discounts we offer, but really focus and feature newness in those. So it's still -- we're a year into this. I think we're a lot smarter today than we were a year ago. We still have a lot of opportunities as we continue to bring this out. And I think myAcademy Rewards program that we're launching is going to help us get even deeper and match with our customer in terms of them engaging with us and us engaging with them in ways that they really want to be engaged with. Okay. First, I want to say that I think the team has done a really good job of managing through the current economic environment while steadily executing against our long-range plan objectives. We're committed to helping active young families that are under financial pressure stretch their dollars and have fun out there by providing compelling assortments coupled with an outstanding value proposition. We still have 3 quarters of the year and most -- and our most important shopping seasons ahead of us. We remain optimistic about the opportunities in front of us throughout the remainder of the year. Beyond 2024, we're also investing in the business to drive long-term shareholder value. These critical investments are linked to the strategies of our long-range plan, which are opening new stores, growing omnichannel, driving our existing business by improving our connection to customers through improved merchandising and marketing and leveraging scaling our supply chain. We believe that remaining true to this strategy will allow us to break through and deliver against our vision to be the best Sports and Outdoor retailer in the country. In closing, I want to thank all 22,000 of our Academy team members for the hard work and effort we've put in over the past quarter. We continue to believe that our associates are the key ingredient in our secret sauce. And I know that every one of them is committed to delivering an outstanding shopping experience to all of our customers. Thanks for joining today and have a great rest of your day.

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