Sporting goods retailer Academy Sports & Outdoor (NASDAQ:ASO) fell short of the market’s revenue expectations in Q3 CY2024, with sales falling 3.9% year on year to $1.34 billion. The company’s full-year revenue guidance of $5.92 billion at the midpoint came in 1.3% below analysts’ estimates. Its non-GAAP profit of $0.98 per share was 23.1% below analysts’ consensus estimates.

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"We delivered third quarter sales in line with expectations and were encouraged to see an improvement in comp sales trends versus the first half of the year,” said Steve Lawrence, Chief Executive Officer.

Company Overview

Founded in 1938 as a tire shop before expanding into fishing equipment, Academy Sports & Outdoor (NASDAQ:ASO) sells a broad selection of sporting goods but is still known for its outdoor activity merchandise.

Sports & Outdoor Equipment Retailer

Some of us spend our leisure time vegging out, but many others take to the courts, fields, beaches, and campsites; sports equipment retailers cater to the avid sportsman as well as the weekend warrior. Shoppers can find everything from tents to lawn games to baseball bats to satisfy their athletic and leisure needs along with competitive prices and helpful store associates that can talk through brands, sizing, and product quality. This is a category that has moved rapidly online over the last few decades, so these sports and outdoor equipment retailers have needed to be nimble and aggressive with their e-commerce and omnichannel presences.

Sales Growth

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

Academy Sports is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Academy Sports’s sales grew at a sluggish 4.7% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts).

This quarter, Academy Sports missed Wall Street’s estimates and reported a rather uninspiring 3.9% year-on-year revenue decline, generating $1.34 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 2.9% over the next 12 months, a slight deceleration versus the last five years. This projection is underwhelming and indicates its products will face some demand challenges.

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Store Performance

Number of Stores

A retailer’s store count often determines how much revenue it can generate.

Academy Sports operated 298 locations in the latest quarter. It has opened new stores at a rapid clip over the last two years by averaging 4.9% annual growth, much faster than the broader consumer retail sector. This gives it a chance to become a large, scaled business over time.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.

Academy Sports’s demand has been shrinking over the last two years as its same-store sales have averaged 6.1% annual declines. This performance is concerning - it shows Academy Sports artificially boosts its revenue by building new stores. We’d like to see a company’s same-store sales rise before it takes on the costly, capital-intensive endeavor of expanding its store base.

In the latest quarter, Academy Sports’s same-store sales fell by 4.9% year on year. This decrease represents a further deceleration from its historical levels. We hope the business can get back on track.

Key Takeaways from Academy Sports’s Q3 Results

We struggled to find many resounding positives in these results. Its EBITDA missed significantly and its EPS fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 4.1% to $48.30 immediately following the results.

The latest quarter from Academy Sports’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.