Academy Sports and Outdoors, Inc.

Good morning and welcome to the Academy Sports and Outdoors third quarter fiscal 2025 results conference call. The call is being recorded and all participants are in a listen-only mode. Following the prepared remarks, there will be a brief question and answer session. Questions will be limited to analysts and investors. Please limit yourself to one question and one follow-up. To ask your question during the call, please press star 1 from your telephone keypad. If you require operator assistance during the call, please press star zero. I will now turn the call over to Dan Aldridge, Vice President of Investor Relations for Academy Sports and Outdoors.

Good morning, everyone, and thank you for joining the Academy Sports and Outdoors Third Quarter 2025 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 third quarter of fiscal 2025, provide an update on strategic initiatives, discuss outlook for the year, and share our updated guidance for the full year of fiscal 2025. After we conclude prepared remarks, there will be time for questions. With that, I'll turn the call over to CEO, Steve Lawrence. Steve?

Thanks, Dan, and good morning to everyone on the call. The third quarter played out as we expected, with consumers shopping episodically and seeking out value as they looked to stretch their buying power in the face of rising prices across the retail landscape. As we noted in our last call, we saw customers show up and drive positive comps during the back-to-school selling period, which for Academy stretches from mid-July to mid-August. Once we got past the kickoff to tailgating and hunting season in early September, customers pulled back on spending during the lulls in the calendar intended to aggregate their purchases during the promotional events and natural holidays, such as our seasonal clearance event in September or in early October where we ran our Academy deal days over Prime Week and Columbus Day weekend. We did see comps inflect back to positive during the tail end of the quarter when we started getting cooler temperatures in our legacy markets, which accelerated sales in our cold weather categories. This momentum carried into early November and got us off to a good start for the fourth quarter. We saw softness in the middle of the month as warmer temperatures resumed and sales and seasonal apparel slowed a little. As we expected, customers came out in force during Thanksgiving week looking for deals, and our team was well prepared, the strong promotional pricing that was fueled by the inventory we pulled forward, the pre-accelerated tariff pricing in Q2 and Q3. All this resulted in our largest Black Friday weekend ever, which was on top of a record Black Friday event from last year. That being said, we still have a lot of business ahead of us over the next four weeks. Shifting back to third quarter results, it is clear that our strategies are not only working, but continue to accelerate as they take hold. A couple of proof points to support this are, first, we're in our fourth year of new store openings, and we now have 26 new stores from the 2022 through 2024 vintages in our comp base, and by this time next year, we'll have an additional 24. These stores in aggregate comp low single digits in Q1, mid single digits in Q2, and ran a high single digit comp in Q3. Second, the foundational work we've done around improving our omni-channel experience continues to pay dividends, with growth in this channel accelerating from plus 10% in Q1 to 18% in Q2 to 22% in Q3. Lastly, investments in delivering more on-trend product from both the Jordan brand and Nike help drive high single-digit growth in the combined brands and is helping bring in new, higher-income customers into Academy. Turning to our third quarter results, as you saw from our earnings release earlier today, sales came in at $1.38 billion, which was up 3% to last year and translated into a negative 0.9 comp. We were encouraged by the strong reaction from our customers during the back-to-school season, and for our holiday assortment at the tail end of the quarter, we saw cooler temperatures across our geography. We were also pleased by the progress we made against improving average unit retails to help offset the increased tariff expense we are seeing this year. During the quarter, average unit retail steadily improved and were up mid to high single digits versus last year. This improvement also helped increase our gross margin rate to 35.7% or up 170 basis points to last year. We've been walking a bit of a tightrope this year as we work to steadily raise AURs while also maintaining our value leadership in our space. And I can assure you that we're continuously monitoring pricing relative to key competitors and are highly confident that we have the right pricing, architecture, and promotional plan in place to deliver a strong holiday season. Looking at category performance across the business, sports and rack was our strongest division, posting a 6% increase driven by solid growth in our baseball, outdoor cooking, fitness equipment, and bicycle businesses. Apparel sales grew 3%, driven by strength in key national brands such as Nike, Jordan, Carhartt, Ariat, and Burlabo, along with solid growth in our private brands such as Magellan and Freely. Our footwear business grew 2%, fueled by performance running brands such as Nike, Brooks, A6, and Noom Balance, all of which drove strong comps. Sales in our outdoor business also grew 2% for the quarter, with strength in fishing, hunting gear, and firearms. We did see some softness in our ammo business as we started to lap the election run-up from last year. Once we got past the election time period in early November, while still running negative, we've seen the ammo sales trend improve. As we continue to grow top-line sales, we also remain focused on growing our market share. As you know, most of the new stores we're opening are in new or underserved markets, and virtually every dollar of sales from these new stores translates into share gains for us. In many cases, these gains come from smaller independents who lack our scale and pricing power, or in some cases from larger players that do not offer the value and diversity of assortment we carry. With a business as complex as ours, we have to track our relative performance across several different data sources, and similar to last quarter, all the metrics we're seeing indicate we continue to grow market share in the third quarter. The first place we focus in on is traffic data, which we get through Placer AI. As prices continue to rise across retail and discretionary budgets get squeezed, we continue to see strong growth in foot traffic and share gains from customers in the top two income quintiles, which are households making more than $100,000 a year. These top quintiles now represent roughly 40% of our sales, and during the quarter, we saw traffic from these cohorts grow in the high single digits. We're very happy to see that we continue to drive strong market share growth with this consumer segment, even as we started lapping the double-digit growth we experienced last year in the third quarter. At the same time, we continue to hold share in the middle-income quintile, which is households making $50,000 to $100,000 a year, which represents roughly 30% of our customers. And finally, we continue to see traffic erosion in the lower-income cohorts that make less than $50,000 a year, but the pace of these declines was less than what we saw in the first half of the year. As this trend has played out over the past year, we have, in effect, started to somewhat de-risk our customer base by giving us less exposure to lower income consumers that are under the most amount of economic pressure. Another key data source for us is Circana, which provides market share data on roughly 60 to 70% of the categories we carry. Similar to last quarter, we were pleased to see meaningful share gains across all of our key businesses, such as apparel, footwear, sporting goods, outdoor cooking, fishing, and camping. Finally, we use government background checks for firearms purchases or NICS checks data as a proxy for firearms market share. Once again, we saw continued solid growth on this front, despite the softness in the ammo that I started earlier with firearms share growing for over 18 consecutive months. As we move forward into Q4, we expect these trends to continue as customers discover the value, convenience, and diversity of our assortment. We attribute a lot of the momentum we're building in the business to the solid progress we continue to make against our long-term objectives and goals. I will now cover a couple of highlights of this from Q3. First, opening new stores remains our number one growth strategy, and during the quarter, the team successfully opened up 11 new stores. Unlike the first half of the year, most of these new locations are in our core geography, where we have high brand awareness and affinity, and are positioned in mid-sized markets with an underserved constituency. Some examples of stores we've opened up during the quarter are Palestine, Texas, Batesville, Mississippi, and Rome, Georgia. While these towns are not household names for many of you, the customer profile in these markets closely aligns with our target consumer in each of these stores, along with the other eight we opened up during the quarter that have been knocking it out of the park since opening and are running significantly ahead of plan. The success of these stores highlights the opportunity we have to open stores in our legacy and existing markets that are experiencing high population migration and growth, in addition to the new states and markets where we currently don't have a presence. At this point in time, we have pretty good visibility into our 2026 pipeline of stores. We're excited to announce that we plan to open up an additional 20 to 25 stores next year with a focus on opening roughly 80% of the new stores in legacy and existing markets and 20% in newer markets. As in the past, we tend to open the new markets in the first part of the year and legacy and existing are more back half-weighted. Our second initiative is to grow our dot-com business at an accelerated pace. We continue to make progress against this goal in Q3. We grew this channel 22% for the quarter, and penetration to total sales grew by over 160 basis points to 10.4%. As we mentioned on our previous calls, we believe that our new store growth is one of the things that helps fuel our dot-com business by acting as local fulfillment hubs for customers who want the convenience of a focused experience. This symbiotic relationship is evidenced by the fact that we're starting to see higher dot-com penetrations in our new markets, as we lead with a digital-first customer acquisition strategy. An omnichannel shopper is our most productive and profitable customer. We're laser-focused on getting new customers into our digital ecosystem, engaging with them in ways that support their shopping needs and patterns. In addition to the contribution that new store growth has had on our dot-com business, We also made significant investments in both technology and talent over the past 24 months, which has led to the growth of the experience over the last three quarters. We believe that we're still in the early innings of many of these initiatives, and that as we continue to invest and focus on delivering a site experience that is easy, engaging, and elegant, that we'll remain on track to achieving the 15% penetration we outlined in our long-range plan. Our third growth pillar is improving the productivity of our existing stores. We put several initiatives in place this year to help accomplish this. Our first focus on this front is to continue to refine and expand our assortment by adding the most requested and desirable brands that will inspire existing customers to shop more frequently at Academy, while also attracting new customers to our brand. We continue to be pleased by the growth we're getting out of our increased investment and partnership with both Nike and the Jordan brand. At this point, we've expanded elements of the Jordan brand out to all stores, such as cleats, socks, slides, and backpacks, and expect to further roll out footwear and apparel in more stores in 2026. We believe that our improved access to basketball game shoes from Jordan and performance running shoes from Nike, such as the Romero, when coupled with the expansion of fashion apparel across both these brands, is helping us attract many of these new 100,000-plus households that I mentioned earlier in my remarks. We've been applying this same approach broadly across the store to ensure that we have a strong presentation of some of the hottest items in trends this holiday. The team has made some significant inventory investments in key holiday items that feature enhanced technology, including turtle box speakers, Meta AI glasses from Ray-Ban and Oakley. We're also leaning into new emerging health and wellness trends, such as weighted vests for running and walking, a portable sauna from Home Addicts for post-workout recovery, or an expanded assortment of clear proteins from First Form or IsoPure for people taking GLP-1 weight loss drugs. Our core customer is the Always Game family, so we haven't forgotten the kids this holiday either. We have the newly released World Cup Triana Soccer Ball, along with an expanded assortment of some of the hottest youth baseball drip from brands such as Bruce Bolt, Baseball 101, and Dirty Mids. The team has also built a strong assortment of sports toys from Nerf and Silent Sports, and lastly, sports and Pokemon trading cards always make great stocking stuffers. Our second focus this year was on delivering new technology to stores with the rollout of RFID scanners and new handheld devices. We continue to see benefits from these initiatives as we improve our inventory accuracy, and in stocks and brands, we can update inventory on a weekly basis. One of the biggest benefits to date has been the impact on our associates' ability to service the customer, and in many cases, save the sale that would have gone somewhere else. The combined utilization of RFID and these handheld devices is allowing associates to help customers More rapidly, find the items in size for the shopping floor, and when the item is not in stock in a specific store, saving the sale by allowing the associate to immediately order the item for the customer so it can be delivered to home or picked up in another store, whichever is most convenient for them. We're also seeing productivity gains from our store teams as they can more quickly process .com and both disorders. Our third focus is on driving traffic for expanding our loyalty program and improving the efficiency of our targeted marketing efforts in order to increase frequency of customer visit and improve conversion rates. Simplistically, we want to streamline the customer shopping experience and make it easy and intuitive. One recent example is where we've automated much of our customer onboarding experience and improved our ability to offer instantaneous real-time benefits from sign-on offers versus in the past there being a lag between the customer signed up for loyalty when they could use their first purchase discount. All this work continues to help drive customer enrollment and engagement in our My Academy Awards program, which we expect to have over 13 million members in by the end of the year. Driving enrollment in our rewards program remains an important focus for us, so we can start a dialogue with them and convert them from occasional shoppers to loyal customers who shop with us two to three times more in a year than an average customer and spend four to five times more on an annual basis. We expect to see this program continue to grow and be a key traffic and conversion driver for us and are excited about our opportunity in 2026 to combine myAcademy rewards and our credit card program into one seamless experience for the customer. We'll share more details around this in our next call. Now, I'll hand it over to Carl to give you a deeper dive into the financials.