Story Stocks^®

Fierce competitive pressures and a budget-conscious consumer have combined to create a very difficult business climate for Academy Sports + Outdoors (ASO) and that remained the case in 4Q24. Driven by its cost containment efforts -- SG&A expenses fell by about 2% in Q4 -- and an 80% increase in share repurchases, ASO comfortably surpassed EPS estimates. Although still underwater at -3.0%, ASO's comps are also trending in the right direction and with the upcoming launch of the Jordan Brand in 145 stores, the hope is that the trend will continue. However, like Dick's Sporting Goods (DKS), the company issued soft FY26 guidance, amplifying concerns that demand for sports equipment, footwear, and athleisurewear will soften under rising macroeconomic uncertainties.

ASO's results still pale in comparison to DKS's, which has been a steady share gainer, mainly thanks to its large format stores that offer a high-quality product assortment and unique in-store shopping experiences (batting cages, climbing walls, ice rinks), particularly at its House of Sport locations.

• In Q4, DKS achieved its largest sales quarter in its history at $3.89 bln with solid comp growth of +6.4%. The company also reported an improvement in gross margin. In contrast, ASO's revenue declined by 6.6% to $1.68 bln, marking the eleventh yr/y decline over the past twelve quarters. Gross margin also contracted by 50 bps yr/yr to 32.5% due to increased promotional activities aimed at stimulating sales.
• Relief isn't on the immediate horizon, either, with ASO anticipating that 1Q26 will be the most challenging quarter of the year from a sales and EPS perspective. In addition to the headwinds noted above, the company is also transitioning to a new Jordan floor set, which could temporarily disrupt sales while adding costs. 
• On a brighter note, ASO expects the launch of the Jordan Brand and the introduction of new technology and targeted marketing initiatives to start having a positive impact in Q2. We believe the addition of the Jordan Brand is a good step in the right direction, strengthening the company's competitive positioning while attracting a broader and younger customer base. Ultimately, the inclusion of the Jordan Brand should drive incremental sales and enhance store traffic.
• Expanding its store footprint remains a key component of ASO's growth strategy. In Q4, the company opened five new stores for a total of 16 new stores in 2024. For 2025, ASO is aiming to open 20-25 new stores, providing it with increased revenue potential, improved brand visibility, and economies of scale. The downside, of course, is that opening new costs requires significant capital, making the ambitious store expansion plans a risky proposition, especially given the macro-related uncertainties.

The main takeaway is that ASO's Q4 results reflect ongoing underperformance relative to DKS. To help narrow this gap, ASO plans to launch the Jordan Brand in 145 stores and online starting in late April. While we view this is a positive step, ASO has fallen far behind DKS, and it will likely remain a "show me" story as it attempts to execute a major turnaround.