Academy Sports And Outdoors: A Retailer Worth Investing In As Economic "Soft Landing" Comes In

Stock, Trading, Monitor, Business

Image source: Pixabay

As we continue transitioning into the fall season, 2023 has left egg on the face of many forecasters. The seemingly inevitable recession on the heels of a turbulent 2022 hasn’t materialized. The economy continues to grow, inflation is abating, and the stock market has had a remarkable year. I like Academy Sports and Outdoors (ASO) here, says Doug Gerlach, editor of Investor Advisory Service.

Interest rate increases haven’t torpedoed the employment market. Government, consumers, and the market have coalesced around a “soft landing” narrative. However, as always, there are risks. Federal Reserve policy is the largest one. If progress on inflation reverses in the future, like it did in July, the Fed may be inclined to raise interest rates further. There has been much debate in academic circles about the lagged impact of interest rate increases.

That said, the US economy is headed in the right direction, with rising incomes and falling inflation. Those that stay fully invested do well over time, and we see no reason to act any differently now.


Academy Sports and Outdoors (ASO)

A graph showing the growth of a stock market  Description automatically generated

As for ASO, it reported second-quarter results ahead of expectations, sending shares higher by 9%. Sales declined 6% as results continued to reflect a surge through the pandemic that is in the process of normalizing. Some categories that were particularly strong in recent years, such as fitness equipment, are now underperforming and holding back results.

Management also highlighted current pressures impacting the behavior of consumers. Comparable sales declined 7.5%, as an 8.3% decrease in transactions was partly offset by ticket size. Gross margins increased versus both a year ago and last quarter, helped by lower freight costs that outweighed higher shrink.

Academy reported deleveraged SG&A as it looks to invest in new stores, technology, and digital marketing. This resulted in a 10% decline in EPS to $2.01 despite an 8% reduction in share count over the past year. Management reiterated its full-year outlook but upped its expected EPS range to reflect share repurchase activity.

The outlook is for sales to be flat to down 3%, with comparable sales declining between 4.5%-7.5%. EPS is now forecast in the range of $6.65-$7.35, down 2%-11% versus prior expectations for a 4%-13% decline.

Academy expects to open 13-14 stores this year, with 11-12 of these openings occurring in the back half of the year. This represents store growth of about 5%. Its longer-term ambition remains to increase its store count by 50% by 2027.

My recommended action would be to look into buying shares of ASO in this current market environment.


About the Author

Doug Gerlach is the senior equity analyst with Equity Research Service, a division of the National Association of Investors (NAIC), and Editor-in-Chief of its stock newsletters including the award-winning Investor Advisory Service, the market-beating SmallCap Informer and a dividend-focused newsletter to be announced at The MoneyShow Orlando.

NAIC is also the home of the BetterInvesting Stock Selection Guide and other tools for stock analysis including StockCentral and MyStockProspector. Mr. Gerlach is the author of six books, including Investment Clubs for Dummies and The Armchair Millionaire.


More By This Author:

Arbor Realty Trust: "Fan Favorite" Sporting A 10.8% Yield
SPY: The Primary Trend Remains UP, So Don't Get Shaken Out
September Seasonals Not Great For The Bulls, But Year-End Looking Good

Disclaimer: © 2023 MoneyShow.com, LLC. All Rights Reserved.

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.
Or Sign in with