Academy Sports and Outdoors Sees Better Days Ahead

Academy Sports and Outdoors (ASO) has been a big winner on Wall Street this year. Its shares have gained 126% year-to-date compared to 25% for the S&P 500. I’m bullish on ASO shares. (See Analysts’ Top Stocks on TipRanks)

The company’s mission is to provide “fun for all” by offering apparel, footwear, and sports products to help people enjoy their favorite outdoor activities.

It has certainly created a lot of joy for its shareholders by releasing solid financial reports in recent quarters, including one last week.

Record Sales Results

The Texas-based retailer reported an 18.1% jump in net sales to a third-quarter record of $1.59 billion. That’s a 39.1% increase compared to the same quarter in 2019.

Comparable sales rose 17.9% on top of 16.5% last year – the ninth consecutive quarter of positive comparable sales, thanks to strength in the overall market and solid consumer demand across all product categories, especially for sports and outdoor activities.

Ken Hicks, Chairman, President, and Chief Executive Officer, cheered the company’s financial results. “The Academy Sports + Outdoors team did a great job again delivering our 9th consecutive quarterly sales and profit increase,” said Hicks. “We are confident that our strong assortment and value offering, coupled with our great store service, enhanced omnichannel capabilities, and resilient supply chain will enable Academy to continue to achieve excellent results through this holiday season and beyond.”

Meanwhile, Michael Mullican, Executive Vice President and Chief Financial Officer, sees better days ahead for ASO for the next twelve months, “The ongoing successful execution of our strategic priorities has allowed us to achieve yet another period of record-setting sales and profitability.”

He then continued, “In addition, the strength of the entire Academy team was apparent as we were able to grow our inventory position in a challenging environment. As our initiatives continue to mature, we believe the best days at Academy are still to come. In light of these exceptional results and expectations, we are raising our annual guidance.”

That will undoubtedly create even more joy for ASO’s shareholders.

How Long Can It Last?

Quo Vadis President Zolidis, a long-time bull for ASO’s shares, joined management to cheer the company’s performance, “ASO has now produced six consecutive quarters of DD increases in same-store sales, and we feel confident, even before the conference call this morning, that Q4 Fiscal Year 2021 is also set up for a DD gain.”

Meanwhile, Zolidis raised a couple of questions about future sales growth, “We think it is reasonable to believe growth in demand will slow but is there evidence of a reversal?”

He continued, “In an environment where demand is still growing next year (given the consumer may be in one of the strongest positions, ever), what is the argument for believing margins will reverse? Typically, markdowns in retail increase when demand slows and companies have mismatched inventory relative to demand. Or, markdowns could increase when a player tries to take share by cutting prices. Unfortunately, neither condition looks about to occur.”

Wall Street’s Take

Turning to Wall Street, Academy Sports and Outdoors has a Strong Buy consensus rating, based on six Buys and one Hold assigned in the past three months. The average Academy Sports and Outdoors price target of $55 implies 17.3% upside potential.

Analyst price targets range from a low of $47 per share to a high of $65 per share.

That’s pretty good upside potential when considering the year-to-date gains the stock has already experienced. That is, of course, if the Fed’s tapering doesn’t sour investor mood going forward.

Disclosure: Panos Mourdoukoutas owns shares of ASO.