ACADEMY SPORTS AND OUTDOORS, INC. Cautionary Statement Regarding Forward-looking Statements This Quarterly Report on Form 10-Q (this "Quarterly Report") includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are subject to the "safe harbor" created by those sections. Forward-looking statements include all statements that are not historical facts, including statements reflecting our current views with respect to, among other things, our operations and financial performance. These forward-looking statements are included throughout this Quarterly Report, including this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the section entitled "Risk Factors," and relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. We have used the words "anticipate," "assume," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "future," "will," "seek," "foreseeable," the negative version of these words or similar terms and phrases to identify forward-looking statements in this Quarterly Report. The forward-looking statements contained in this Quarterly Report are based on management's current expectations and are not guarantees of future performance. The forward-looking statements are subject to various risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify. Our expectations, beliefs, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved. Actual results may differ materially from these expectations due to changes in global, regional or local economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. We believe that these factors include but are not limited to those described under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 (the "Annual Report"), as filed with theSecurities and Exchange Commission (the "SEC") onApril 7, 2021 , and in this Quarterly Report, as such risk factors may be updated from time to time in our periodic filings with theSEC , and are accessible on theSEC's website at www.sec.gov, and also include the following: •overall decline in the health of the economy and consumer discretionary spending; •our ability to predict or effectively react to changes in consumer tastes and preferences, to acquire and sell brand name merchandise at competitive prices and/or to manage our inventory balances; •intense competition in the sporting goods and outdoor recreation retail industries; •the impact of COVID-19 on our business and financial results; •our ability to safeguard sensitive or confidential data relating to us and our customers, team members and vendors; •risks associated with our reliance on internationally manufactured merchandise; •our ability to comply with laws and regulations affecting our business, including those relating to the sale, manufacture and import of consumer products; •claims, demands and lawsuits to which we are, and may in the future, be subject and the risk that our insurance or indemnities coverage may not be sufficient; •harm to our reputation; •our ability to operate, update or implement our information technology systems; •risks associated with disruptions in our supply chain and losses of merchandise purchasing incentives; •any failure of our third-party vendors of outsourced business services and solutions; •our ability to successfully continue our store growth plans or manage our growth effectively, or any failure of our new stores to generate sales and/or achieve profitability; •risks associated with our e-commerce business; •risks related to our owned brand merchandise; •any disruption in the operation of our distribution centers; •quarterly and seasonal fluctuations in our operating results; •the occurrence of severe weather events, catastrophic health events, natural or man-made disasters, social and political conditions or civil unrest; •our ability to protect our intellectual property and avoid the infringement of third-party intellectual property rights; •our dependence on our ability to meet our labor needs; 25 -------------------------------------------------------------------------------- •the geographic concentration of our stores; •fluctuations in merchandise costs and availability; •our ability to manage the growth of our business; •our ability to retain key executives; •our ability to successfully pursue strategic acquisitions and integrate acquired businesses; •payment-related risks; •the effectiveness of our marketing and advertising programs; •our substantial indebtedness; and •investment funds and other entities affiliated withKohlberg Kravis Roberts & Co. L.P. (collectively "KKR")) have the ability to exert substantial influence over us and their interests may conflict with ours or yours in the future. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements. Any forward-looking statement made by us in this Quarterly Report speaks only as of the date of this Quarterly Report and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, investments or other strategic transactions we may make. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws. All references to "Academy," "Academy Sports + Outdoors," "we," "us," "our" or the "Company" in this Quarterly Report refer to (1) prior toOctober 1, 2020 ,New Academy Holding Company, LLC , aDelaware limited liability company and the prior parent holding company for our operations, and its consolidated subsidiaries; and (2) on and afterOctober 1, 2020 ,Academy Sports and Outdoors, Inc. , aDelaware corporation and the current parent holding company of our operations, and its consolidated subsidiaries. 26 -------------------------------------------------------------------------------- The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and related notes included elsewhere in this Quarterly Report for the thirteen weeks endedMay 1, 2021 and our audited financial statements for the fiscal year endedJanuary 30, 2021 and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. See the section of this Quarterly Report entitled "Cautionary Statement Regarding Forward-Looking Statements." When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business. Known material factors that could affect our financial performance and actual results, and could cause actual results to differ materially from those expressed or implied in any forward-looking statements included in this discussion or otherwise made by our management, are described in the "Risk Factors" sections of the Annual Report and this Quarterly Report.Academy Sports and Outdoors, Inc. conducts its operations through its subsidiaries, including its indirect subsidiary,Academy, Ltd. , an operating company which is doing business as "Academy Sports + Outdoors." Any reference in this Quarterly Report to "year" or any year in particular refers to our fiscal year, which represents the fifty-two or fifty-three week period ending on the Saturday closest toJanuary 31 . Any reference in this Quarterly Report to the "current quarter", "2021 first quarter" or similar reference refers to the thirteen week period endedMay 1, 2021 , and any reference in this Quarterly Report to the "prior year quarter", "2020 first quarter" or similar reference refers to the thirteen week period endedMay 2, 2020 . Unless otherwise specified, all comparisons regarding the current quarter 2021 are made to the corresponding quarter of 2020. All statements in this Quarterly Report concerning our current and planned operations are modified by reference to our discussion of recent developments related to the COVID-19 pandemic, and our ability to carry out our current and planned operations are dependent on further developments associated with the COVID-19 pandemic.
Overview
We are one of the leading full-line sporting goods and outdoor recreation retailers inthe United States . Our mission is to provide "Fun for All" and fulfill this mission with a localized merchandising strategy and value proposition that deeply connect with a broad range of consumers. Our broad and localized assortment appeals to all ages, incomes and aspirations, including beginning and advanced athletes, families enjoying outdoor recreation, and enthusiasts pursuing their passion for sports and the outdoors. We sell a range of sporting and outdoor recreation products, including sporting equipment, apparel, footwear, camping gear, patio furniture, outdoor cooking equipment, and hunting and fishing gear, among many others. Our strong merchandise assortment is anchored by our broad offering of year-round items, such as fitness equipment and apparel, work and casual wear, folding chairs, wagons and tents, training and running shoes, and coolers. We also carry a deep selection of seasonal items, such as sports equipment and apparel, seasonal wear and accessories, hunting and fishing equipment and apparel, patio furniture, trampolines, play sets, bicycles, and severe weather supplies. We provide locally relevant offerings, such as crawfish boilers inLouisiana , licensed apparel for area sports fans, baits and lures for area fishing spots, and beach towels in coastal markets. Our value-based assortment also includes exclusive products from our portfolio of 19 owned brands. As ofMay 1, 2021 , we operated 259 stores that range in size from approximately 40,000 to 130,000 gross square feet, with an average size of approximately 70,000 gross square feet, throughout 16 contiguous states located primarily in the southernUnited States . Our stores are supported by over 20,000 team members, three distribution centers, and our rapidly growing e-commerce platform, www.academy.com. We are deepening our customer relationships, further integrating our e-commerce platform with our stores and driving operating efficiencies by developing our omnichannel capabilities, such as our curbside pickup and ship-to-store programs, which we launched in 2020. 27 --------------------------------------------------------------------------------
The following table summarizes store activity for the periods indicated:
Thirteen Weeks Ended
May 1, 2021 May 2, 2020
Beginning stores 259 259
Q1 new stores - -
Closed - -
Ending stores 259 259
Relocated stores 1 -
Trends and Other Factors Affecting Our Business
Various trends and other factors affect or have affected our operating results,
including:
Overall Economic Trends. All of our sales are generated within the United
States , making our results of operations highly dependent on the U.S. economy
and U.S. consumer discretionary spending. Macroeconomic factors that may affect
customer spending patterns, and thereby our results of operations, include, but
are not limited to: health of the economy; consumer confidence in the economy;
financial market volatility; wages, jobs and unemployment trends; the housing
market, including real estate prices and mortgage rates; consumer credit
availability; consumer debt levels; gasoline and fuel prices; interest rates and
inflation; tax rates and tax policy; immigration policy; import and customs
duties/tariffs and policy; impact of natural or man-made disasters; legislation
and regulations; international unrest, trade disputes, labor shortages, and
other disruptions to the supply chain; changes to raw material and commodity
prices; national and international security and safety concerns; and impact any
of public health pandemics. Factors that impact consumer discretionary spending,
which remains volatile globally, continue to create a complex and challenging
retail environment for us. See the section of this Quarterly Report entitled
"Impact of COVID-19 on Our Business."
Consumer Preferences and Demands. The level of success we achieve is dependent
on, among other factors, how accurately and timely we predict consumer tastes
and preferences regarding sporting goods and outdoor recreation merchandise, the
level of consumer demand, the availability of merchandise, and the competitive
environment. Our products must appeal to a broad range of customers whose
preferences cannot be predicted with certainty and are subject to change. We
must identify, obtain supplies of, and offer to our customers, attractive and
high-quality merchandise on a continuous basis. It is difficult to predict
consistently and successfully the products and services our customers will
demand as we often purchase products from our vendors several months in advance
of the proposed delivery. If we misjudge the market for our products, we may be
faced with excess inventories for some products. We utilize a variety of
measures to help us identify products that are relevant to our customer base and
to better understand changing customer trends, such as social media analysis,
internet search analytics, internal customer insights and vendor intelligence.
Strategic Inventory Management. We must maintain sufficient inventory levels of
merchandise that our customers desire to successfully operate our business. A
shortage of popular merchandise could reduce our net sales. Conversely, we also
must seek to avoid accumulating excess inventory to maintain appropriate
in-stock levels. If we overstock unpopular merchandise, then we may be forced to
take significant inventory markdowns or miss opportunities for the sale of other
merchandise, both of which could have a negative impact on our profitability,
and, in turn, our sales may decline or we may be required to sell the
merchandise we have obtained at lower prices. We have deployed several new tools
over recent years to improve inventory handling and vendor management, including
third-party programs to analyze our inventory stock and execute a disciplined
markdown strategy throughout the year at every location. This implementation,
along with other factors, has allowed us to improve our inventory management in
stores, increasing our average inventory turns from 2.96x to 4.08x in the twelve
months ended May 2, 2020 and May 1, 2021 , respectively. We have coupled these
tools with the data we have been able to collect from our Academy Credit Card
program and targeted customer surveys, so that we can better estimate future
inventory requirements. It is imperative that we continue to find innovative
ways to strengthen our inventory management if we are to remain competitive and
expand our margins on a go-forward basis. During 2020 and through the 2021 first
quarter, we experienced significant inventory reductions from high sell-through
during the period. We expect to use cash to replenish such inventory throughout
the rest of the current fiscal year, which we expect will impact our net cash
provided by operating activities for the rest of 2021.
28
--------------------------------------------------------------------------------
Value Strategy. We offer a broad assortment of products at competitive prices
that offer extraordinary value. Our in-store experience includes value-added
customer service delivered by our highly trained and passionate staff, such as
free assembly of certain products (such as bicycles, grills, and bows), fitness
equipment demonstrations, issuances and renewals of hunting and fishing
licenses, fishing line spooling and assisting customers with carrying bulk items
to the car, among others. Our goal is to consistently offer better value than
our peer retailers. Our value-based pricing gives us an advantage over the
specialty retailers and other large format retailers, who typically offer their
more limited assortment at premium prices. Our broad assortment gives us an
advantage over mass general merchants who typically do not carry the leading
national brands sold at Academy. We have also continued to add owned brand
products to our assortment of products, which we generally price lower than the
national brand products of comparable quality that we also offer. A shift in our
sales mix in which we sell more units of our owned brand products and fewer
units of the national brand products would generally have a positive impact on
our gross margin but an adverse impact on our total net sales.
E-commerce. We expect that the expansion and enhancement of our omnichannel
capabilities will be a key driver of growth in our net sales and gross margin.
We continue to invest in initiatives that will increase traffic to our
e-commerce website and drive increased online sales conversion. Our improved
website also supports our stores with digital marketing and our
buy-online-pickup-in-store ("BOPIS") and ship-to-store programs. Our website
also allows us to reach customers outside of our current store footprint and
introduces new customers to the Academy brand. In the thirteen weeks ended May
1, 2021 , BOPIS accounted for approximately half of our e-commerce sales. Our
website is also a platform for marketing and product education, allowing us to
connect further with our customers. During the 2021 first quarter, stores
facilitated approximately 95% of our total sales, including ship-from-store,
BOPIS and in-store retail sales. We believe it is important that we continue to
grow our omnichannel capabilities, especially in light of changing consumer
preferences as a result of the COVID-19 pandemic, which, together with recent
enhancements made to our website and omnichannel capabilities, contributed to
the substantial increase in e-commerce sales during 2020. It is, however,
difficult to ascertain with precision what portion of our e-commerce sales was
attributable to the COVID-19 pandemic as compared to such recent enhancements.
During the 2021 first quarter, e-commerce penetration was 7.4% compared to 13.1%
in the 2020 first quarter and 2.8% in the thirteen weeks ended May 4, 2019 . Our
e-commerce sales declined 21.0% in the 2021 first quarter primarily driven by a
demand shift from e-commerce to in-store as more and more customers are becoming
comfortable shopping in our stores and the easing of COVID-19 restrictions;
however, our e-commerce sales increased 300% from the thirteen weeks ended May
4, 2019 . We expect to continue to invest in expanding and enhancing our
omnichannel capabilities, including BOPIS, ship-from-store and ship-to-store,
which will continue to require significant investments by us.
Competition. The U.S. sporting goods and outdoor recreation retail industries
are highly competitive and fragmented. We compete with specialty footwear and
outdoor retailers, traditional sporting goods stores, large format sporting
goods stores, mass general merchants and catalogue and internet retailers. This
competition takes place both in physical retail locations and online. Some of
our competitors may be significantly larger and have substantially greater
resources than us. Pressure from our competitors could require us to reduce our
prices or increase our spending for advertising and promotion. Traditional
competitors have become increasingly promotional and, if our competitors reduce
their prices, it may be difficult for us to reach our net sales goals without
reducing our prices, which could impact our margins. We may require significant
capital in the future to sustain or grow our business, including our store and
e-commerce activities, due to increased competition.
Sourcing and Supply Chain Management . For our business to be successful, our
suppliers must provide us with quality products in substantial quantities, in
compliance with regulatory requirements, at acceptable costs and on a timely
basis. Competition for resources throughout the supply chain, such as production
and transportation capacities, has increased. Trends affecting the supply chain
include the impact of fluctuating prices of labor and raw materials on our
suppliers, as well as the impact of the COVID-19 pandemic. The merchandise we
sell is sourced from a wide variety of domestic and international suppliers and
our ability to find qualified suppliers and access merchandise in a timely and
efficient manner is often challenging, particularly with respect to merchandise
sourced outside the United States . We generally do not have long-term written
contracts with our suppliers that would require them to continue supplying us
with merchandise, particular payment terms or the extension of credit. As a
result, these suppliers could modify the terms of these relationships due to
general economic conditions or otherwise. Changes in our relationships with our
suppliers (which can occur for various reasons in or out of our control) also
have the potential to increase our expenses and adversely affect our results of
operations. Moreover, many of our suppliers provide us with merchandise
purchasing incentives, such as return privileges, volume purchasing allowances
and cooperative advertising, and a decline or discontinuation of these
incentives could severely impact our results of operations. In addition, the
announcement or imposition of any new or increased tariffs, duties or taxes as a
result of trade or political tensions between the United States and other
countries or otherwise could adversely affect our supply chain. In recent years,
the Trump administration imposed multiple rounds of tariffs on exports from
China , where we and many of our vendors source commodities. As a result, we have
experienced rising inventory costs on owned brand products we directly source
from China , as well as national brand
29
--------------------------------------------------------------------------------
products from China that we source through our vendors. These higher inventory
costs have resulted in higher prices and/or lower margins, thus resulting in a
negative impact to net sales and/or gross margin. However, no significant
modifications have been enacted to date, relative to the escalated tariffs which
impact our business.
New Store Openings. We expect that new stores will be a key driver of growth in
our net sales and gross margin in the future. Our results of operations have
been and will continue to be materially affected by the timing and number of new
store openings. We are continually assessing the number of locations available
that could accommodate our preferred size of stores in markets we would consider
and we expect, subject to the impact of the COVID-19 pandemic, to open eight to
10 new stores per year, starting in 2022, similar to our growth rates from 2018
through 2019. The performance of new stores may vary depending on various
factors such as the store opening date, the time of year of a particular
opening, the amount of store opening costs, the amount of store occupancy costs
and the location of the new store, including whether it is located in a new or
existing market. For example, we typically incur higher than normal team member
costs at the time of a new store opening associated with set-up and other
opening costs. Most of our stores achieve profitability within the first twelve
months of opening a store. We believe our real estate strategy has positioned us
well for further expansion. However, our planned store expansion will place
increased demands on our operational, managerial, administrative and other
resources. New stores in new markets, where we are less familiar with the target
customer and less well-known by the target customer, may face different or
additional risks and increased costs compared to new stores in existing markets.
We may have to broaden our assortment to merchandise more locally as we grow
into newer markets. Managing our growth effectively will require us to continue
to enhance our store management systems, financial and management controls and
information systems. We will also be required to hire, train and retain store
management and store personnel, which, together with increased marketing costs,
affects our operating income and net income.
Interim Results and Seasonality. Our business is subject to seasonal
fluctuations. A significant portion of our net sales and profits is driven by
summer holidays, such as Memorial Day , Father's Day and Independence Day , during
the second quarter. Our net sales and profits are also impacted by the
November/December holiday selling season, and in part by the sales of cold
weather sporting goods and apparel during the fourth quarter.
53rd Week. We operate on the retail industry's 4-5-4 calendar. The 4-5-4
calendar is a guide for retailers that ensures sales comparability between years
by dividing the year into months based on a 4 weeks - 5 weeks - 4 weeks format.
Every five to six years a week is added to the 4-5-4 fiscal calendar.
Impact of COVID-19 on Our Business
The outbreak of COVID-19, which has been declared a global pandemic by the World
Health Organization , continues to affect our business, as well as our customers,
team members and suppliers, and has resulted in federal, state and local
governmental authority safety recommendations and requirements aimed at
mitigating the spread of the virus, such as stay-at-home orders, prohibitions of
large group gatherings, travel restrictions and closures of certain businesses.
The scope and nature of these impacts continue to evolve on a daily basis,
including any potential resurgence in COVID-19 cases.
In response to these restrictions, and in order to serve our customers while
also providing for the safety of our customers, team members and service
providers, we have taken many actions, including cleaning each store
professionally on a regular basis, equipping each store with hand sanitizer
stations and signage illustrating how to socially distance within the store,
wearing face coverings, limiting the number of customers admitted at one time,
and having protective shields installed at cash registers and other countertops.
We have incurred increased costs related to the implementation of these
measures, and temporary wage premiums and additional sick time for our active
store and distribution center team members. To mitigate the cost of these
measures, during the thirteen weeks ended May 2, 2020 , we temporarily furloughed
a significant number of corporate, store and distribution center team members
and enforced temporary pay cuts for executives and remaining active team members
as well as other strategic actions to significantly reduce operating expenses
during the period. We also drew down $500 million on our ABL Facility (as
defined below) in March 2020 as a precautionary measure to ensure financial
flexibility and maximize liquidity. All three of our distribution centers
remained open during 2020 and through the 2021 first quarter, all of our 259
stores have been fully operational since May 20, 2020 , and our corporate office
has been fully open since June 8, 2020 . We continue to monitor the rapidly
evolving situation and expect to continue to adapt our operations to address
federal, state, and local requirements as well as to implement standards or
processes that we determine to be in the best interest of our team members,
customers, and communities.
30
--------------------------------------------------------------------------------
The impact of the pandemic and actions taken in response to it had varying
effects on our results of operations, as further discussed below, and our
business has been especially unpredictable. However, as an essential retailer,
we have been able to serve our customers as their needs evolved during the
pandemic. Early in the pandemic, we saw the acceleration of sales in specific
categories, such as outdoor cooking, camping, shooting sports and hunting. Later
in the 2020 first quarter, customers realized they needed to find ways to
entertain their families and stay fit while schools and gyms closed, so they
turned to us for isolated recreation, outdoor and leisure activities that we
support, and as a result, we saw increased sales of weights, yoga mats,
treadmills, indoor bicycles, fishing, hunting and camping gear, backyard and
driveway games, trampolines, patio seating and grills. We anticipate that the
increased popularity of isolated recreation, outdoor and leisure activity
products will continue for the duration of the pandemic and will result in a
long-term increase to our customer base. At the same time, during the 2020 first
quarter we experienced decreased sales of certain of our offerings, primarily
for apparel and footwear, and had to occasionally cancel certain of our purchase
orders for these products. Despite the initial challenges in 2020 with sales
declines in our footwear and apparel merchandise divisions, these categories
ultimately experienced positive comparable sales growth for 2020. The outdoors
and sports and recreation divisions had consistent positive store sales growth
throughout 2020 and ultimately experienced significant positive comparable sales
growth in 2020.
During the 2021 first quarter, we experienced double digit comparable sales
growth in all of our merchandise divisions. Additionally, our sales mix has
returned to more balanced levels relative to the prior year quarter. In-store
traffic has increased recently and relative to the prior year quarter. We
believe the increase is attributable to the easing of COVID-19 restrictions and
increased availability of vaccinations throughout our footprint, which has
contributed to increased customer comfort with shopping in our stores.
Additionally, we have seen recent demand increases from various factors, such as
the U.S. government stimulus payments, enhanced unemployment benefits and the
gradual return of team sports and in-person education.
We believe that our consumers feel comfortable visiting our stores due to the
fact that we have big-box stores and curbside pick-up for online orders, making
it easier to socially distance, and that we are not in, or tethered to, malls,
as customers seek to avoid crowded spaces. We also saw a significant increase
during 2020 of customers purchasing our products through omnichannel platforms,
specifically as customers increasingly take advantage of our curbside pick-up
service, which we launched during the 2020 first quarter and ship-to-store,
which launched in the 2020 third quarter, which gives our customers more options
on how to shop Academy. While the easing of most COVID-19 restrictions in the
2021 first quarter has allowed for greater traffic in our stores, we believe it
has also resulted in decreased e-commerce sales penetration when compared to the
prior year.
The extent to which our operations and business trends will be impacted by, and
any unforeseen costs will result from, the pandemic will depend largely on
future developments, which are highly uncertain and cannot be accurately
predicted. These developments include, among other things, new information that
may emerge concerning the severity of the outbreak and health implications, the
development and availability of vaccines to mitigate the risk of COVID-19,
actions by government authorities to contain the outbreak or treat its impact,
and changes in consumer behavior resulting from the outbreak and such government
actions. We continue to monitor the evolving situation as there remain many
uncertainties regarding the pandemic and its resurgence, including the
anticipated duration. See the section of the Annual Report entitled "Risk
Factors-Risks Related to Our Business-The impact of COVID-19 may adversely
affect our business and financial results."
How We Assess the Performance of Our Business
Our management considers a number of financial and operating metrics, including
the following key metrics, to evaluate our business, measure our performance,
identify trends affecting our business, determine the allocation of resources,
make decisions regarding corporate strategies and evaluate projections. These
metrics include operational measures and non-GAAP metrics supplemental to our
GAAP results. See "Non-GAAP Measures" below.
Comparable Sales. We define comparable sales as the percentage of
period-over-period net sales increase or decrease, in the aggregate, for stores
open after thirteen full fiscal months, as well as for all e-commerce sales.
There may be variations in the way in which some of our competitors and other
retailers calculate comparable sales. As a result, data in this Quarterly Report
regarding our comparable sales may not be comparable to similar data made
available by other retailers. Stores which have been significantly remodeled or
relocated are removed from this calculation until the new store has been in
operation for substantially all of the periods being compared. Stores which have
been closed for an extended period of time due to circumstances beyond our
control are also removed from the calculation. Any sales made through our
website are allocated to e-commerce sales for the purpose of measuring
comparable sales, regardless of how those sales are fulfilled, whether shipped
to home or picked up in-store or curbside through BOPIS. For example, all BOPIS
transactions, which are originated by our website, are allocated to e-commerce
sales for the purpose of comparable sales, despite the fact that our customers
pick-up these purchases from a specific store. Increases or decreases in
e-commerce between periods being compared directly impact the comparable sales
results. Various factors affect comparable sales, including consumer
preferences, buying trends and overall economic trends; our ability to identify
and respond effectively to customer preferences and local and regional trends;
our ability to provide an assortment of
31
--------------------------------------------------------------------------------
high quality/value oriented product offerings that generate new and repeat
visits to our stores and our website; the customer experience and unique
services we provide in our stores; our ability to execute our omnichannel
strategy, including the growth of our e-commerce business; changes in product
mix and pricing, including promotional activities; the number of items purchased
per visit and average order value; a shift in the timing of a holiday between
comparable periods; and the number of stores that have been in operation for
more than 13 months.
Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net
Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow.
Management uses Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma
Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free
Cash Flow to supplement GAAP measures of performance in the evaluation of the
effectiveness of our business strategies, to make budgeting decisions, and to
compare our performance against that of other peer companies using similar
measures. Management also uses Adjusted EBIT as a performance target to
establish and award discretionary annual incentive compensation. See "Non-GAAP
Measures" below.
E-commerce Penetration. E-commerce penetration is defined as total e-commerce
merchandise sales (which includes BOPIS) divided by total Company merchandise
sales.
Components of Our Results of Operations
Our profitability is primarily influenced by fluctuations in net sales, gross
margin and our ability to leverage selling, general and administrative expenses.
Net Sales . Net sales are derived from in-store and e-commerce merchandise sales,
net of sales tax and an allowance for merchandise returns.
Net sales fluctuations can be driven by new store openings, comparable sales
increases or decreases including e-commerce sales, our ability to adjust
inventory based on sales fluctuations, our management of vendor relations and
meeting customer demand, allowances and logistics, seasonality, unseasonal or
extreme weather, changes in consumer shopping preferences, consumer
discretionary spending, and market and sales promotions.
Gross Margin. Gross margin is our net sales less cost of goods sold. Our cost of
goods sold includes the direct cost of merchandise and costs related to
procurement, warehousing and distribution. These costs consist primarily of
payroll and benefits, occupancy costs and freight and are generally variable in
nature relative to our sales volume.
Our gross margin depends on a number of factors, such as net sales increases or
decreases, our promotional activities, product mix including owned brand
merchandise sales, and our ability to control cost of goods sold, such as
inventory and logistics cost management. Our gross margin is also impacted by
variables including commodity costs, freight costs, shrinkage and inventory
processing costs and e-commerce shipping costs. We track and measure gross
margin as a percentage of net sales in order to evaluate our performance against
profitability targets.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses include store and corporate administrative
payroll and payroll benefits, store and corporate headquarters occupancy costs,
advertising, credit card processing, information technology, pre-opening costs
and other store and administrative expenses. These expenses are both variable
and fixed in nature. We track and measure operating expenses as a percentage of
net sales in order to evaluate our performance against profitability targets.
Management of SG&A expenses depends on our ability to balance a control of
operating costs, such as store, distribution center, and corporate headcount,
information technology infrastructure and marketing and advertising expenses,
with efficiently and effectively servicing our customers. We expect that our
SG&A expenses will increase in future periods due to our continuing growth and
in part to additional legal, accounting, insurance and other expenses we expect
to incur as a result of being a newly public company.
Income Tax Expense (Benefit). Prior to October 1, 2020 , New Academy Holding
Company, LLC , our prior ultimate parent company, was treated as a flow through
entity for U.S. federal income tax purposes and thus no federal income tax
expense was recorded in our consolidated statements of income for periods prior
to October 1, 2020 . Our tax rate prior to October 1, 2020 was almost entirely
the result of state income taxes. In connection with our initial public offering
("IPO"), as a result of the Reorganization Transactions (see Note 1 to the
financial statements included in this Quarterly Report) completed on October 1,
2020 , Academy Sports and Outdoors, Inc. ("ASO, Inc. ") is treated as a U.S.
corporation for U.S. federal, state, and local income tax purposes and
accordingly, a provision for income taxes has been recorded for the anticipated
tax consequences of our reported results of operations for federal, state and
local income taxes since October 1, 2020 .
32
--------------------------------------------------------------------------------Results of Operations
Thirteen Weeks EndedMay 1, 2021 Compared to Thirteen Weeks EndedMay 2, 2020 The following table sets forth amounts and information derived from our unaudited statements of income for the periods indicated as follows (dollar amounts in thousands): Thirteen Weeks Ended Change May 1, 2021 May 2, 2020 Dollars Percent Net sales$ 1,580,333 100.0 %$ 1,136,301 100.0 %$ 444,032 39.1 % Cost of goods sold 1,016,632 64.3 % 838,356 73.8 % 178,276 21.3 % Gross margin 563,701 35.7 % 297,945 26.2 % 265,756 89.2 % Selling, general and administrative expenses 324,627 20.5 % 283,923 25.0 % 40,704 14.3 % Operating income 239,074 15.1 % 14,022 1.2 % 225,052 NM Interest expense, net 14,549 0.9 % 24,522 2.2 % (9,973) (40.7) % Other (income), net (397) 0.0 % (993) (0.1) % 596 (60.0) % Income (loss) before income taxes 224,922 14.2 % (9,507) (0.8) % 234,429 NM Income tax expense 47,126 3.0 % 513 0.0 % 46,613 NM Net income (loss)$ 177,796 11.3 %$ (10,020) (0.9) %$ 187,816 NM
*Percentages in table may not sum properly due to rounding.
Net Sales . Net sales increased$444.0 million , or 39.1%, in the 2021 first quarter compared to the 2020 first quarter as a result of increased comparable sales of 38.9% and strong sales performances across all of our merchandise divisions. During the 2021 first quarter, we experienced a more balanced product sales mix across merchandise divisions relative to the prior year quarter. Our increase in comparable sales was led by strong performances in apparel and footwear resulting from increased overall customer spending and a decline in prior year sales within these categories. During prior year quarter, we began to see the effects of the COVID-19 pandemic drive an increase in popularity of isolated recreation, outdoor and leisure activities resulting in better performances in the outdoors and sports and recreation merchandise divisions, which was partially offset by performance declines in the footwear and apparel divisions. The 2021 first quarter comparable sales increase of 38.9% was driven by increased sales across all merchandise divisions and almost every product category. The apparel division increase was led by athletic and outdoor and seasonal products. The footwear division increased due to strong sales across the division especially in work, casual and youth and athletic. The sports and recreation merchandise division comparable sales increase was driven by strong sales in recreation and team sports. The outdoor merchandise division increase was led by the camping and fishing categories and partially offset by a decrease in firearms sales. E-commerce net sales decreased$30.9 million , or 21.0%, in the 2021 first quarter compared to the 2020 first quarter and represented 7.4% of merchandise sales in the 2021 first quarter compared to 13.1% in the 2020 first quarter. We believe the decline in e-commerce was generated by a demand shift from e-commerce to in-store sales caused by the easing of COVID-19 restrictions, as well as a greater comfort level amongst our customers for visiting our stores in person. During the 2021 first quarter, we encountered challenges from a winter storm, which occurred fromFebruary 14, 2021 throughFebruary 20, 2021 , resulting in the temporary closure of up to 125 stores, two of our distribution centers and our e-commerce platform. 33 -------------------------------------------------------------------------------- Gross Margin. Gross margin increased$265.8 million , or 89.2%, to$563.7 million in the 2021 first quarter from$297.9 million in the 2020 first quarter. As a percentage of net sales, gross margin increased 9.5% from 26.2% in the 2020 first quarter to 35.7% in the 2021 first quarter. The increase of 950 basis points in gross margin is primarily attributable to: •777 basis points of favorability in merchandise margins due to a shift in higher margin goods driving the increased sales, higher average unit retails, and less clearance and promotional activity from the prior year; •173 basis points of favorability in inventory overhead expenditures as a result of lower expense absorption rates from higher inventory turnover rates; partially offset by •100 basis points of unfavorability related to import freight as a result of increased rates. Selling, General and Administrative Expenses. SG&A expenses increased$40.7 million , or 14.3%, to$324.6 million in the 2021 first quarter from$283.9 million in the 2020 first quarter. As a percentage of net sales, SG&A expenses were down 4.5% to 20.5% in the 2021 first quarter compared to 25.0% in the 2020 first quarter. The decrease of 450 basis points in SG&A is primarily attributable to: •259 basis point decrease in property and facility fees as a result of leveraging costs on increased sales; •168 basis point decrease in employee costs driven by increased sales that more than offset the increased costs from prior year furloughs, wage reductions and other strategic initiatives; and •various other declines as a result of leveraging SG&A costs on increased sales. Interest Expense. Interest expense decreased$10.0 million , or 40.7%, in the 2021 first quarter when compared to the 2020 first quarter, primarily as a result of a lower outstanding principal balance on the Term Loan (as defined below) in the current year compared to the prior year due to debt refinancing activities which occurred in the 2020 fourth quarter as well as lower interest on the ABL Facility from our 2020 first quarter$500.0 million draw-down as a precautionary measure at the beginning of the COVID-19 pandemic. Other (Income), net. Other income decreased$0.6 million due to lower earned interest on money market funds from lower balances and lower interest rates during the 2021 first quarter relative to the 2020 first quarter. The higher prior year investments in money market accounts were driven by the precautionary draw-down of$500.0 million on our ABL Facility at the beginning of the COVID-19 pandemic. Income Tax Expense. Income tax expense increased$46.6 million to$47.1 million in the 2021 first quarter as compared to$0.5 million in 2020 first quarter. As a result of the Reorganization Transactions, which occurred onOctober 1, 2020 ,ASO, Inc. became subject toU.S. federal income taxes and is being taxed at the prevailing corporate rates.ASO, Inc.'s effective tax rate for the 2021 first quarter was 20.9%. The effective tax rate was reduced by approximately 2.9% for the benefit of tax deductions related to the vesting or exercise of several equity compensation awards during the period. 34 -------------------------------------------------------------------------------- Non-GAAP Measures Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow, as shown below, have been presented in this Quarterly Report as supplemental measures of financial performance that are not required by, or presented in accordance with, accounting principles generally accepted inthe United States of America ("GAAP"). We define Adjusted EBITDA as net income (loss) before interest expense, net, income tax expense and depreciation, amortization and impairment, further adjusted to exclude consulting fees, private equity sponsor monitoring fees, equity compensation expense, gain on early extinguishment of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic and other adjustments. We define Adjusted EBIT as net income (loss) before interest expense, net, and income tax expense, further adjusted to exclude consulting fees, private equity sponsor monitoring fees, equity compensation expense, gain on early extinguishment of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic and other adjustments. We describe these adjustments reconciling net income (loss) to Adjusted EBITDA and to Adjusted EBIT in the applicable table below. We define Adjusted Net Income as net income (loss), plus consulting fees, private equity sponsor monitoring fees, equity compensation expense, gain on early extinguishment of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic and other adjustments, less the tax effect of these adjustments. We define Pro Forma Adjusted Net Income as Adjusted Net Income less the retrospective tax effect of Adjusted Net Income at our estimated effective tax rate of approximately 25% for periods prior toOctober 1, 2020 , the effective date of our conversion to a C-Corporation. We define basic Pro Forma Adjusted Earnings per Share as Pro Forma Adjusted Net Income divided by the basic weighted average common shares outstanding during the period and diluted Pro Forma Adjusted Earnings per Share as Pro Forma Adjusted Net Income divided by the diluted weighted average common shares outstanding during the period. We describe these adjustments reconciling net income (loss) to Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share in the applicable table below. We describe Adjusted Free Cash Flow as net cash provided by (used in) operating activities less net cash used in investing activities. We describe this adjustment by reconciling net cash provided by operating activities to Adjusted Free Cash Flow in the applicable table below. We believe Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. Management believes Adjusted Free Cash Flow is a useful measure of liquidity and an additional basis for assessing our ability to generate cash. Management uses Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures. Management also uses Adjusted EBIT as a performance target to establish and award discretionary annual incentive compensation. Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow are not recognized terms under GAAP and should not be considered as an alternative to net income (loss) as a measure of financial performance or net cash provided by operating activities as a measure of liquidity, or any other performance measures derived in accordance with GAAP. Additionally, these measures are not intended to be a measure of free cash flow available for management's discretionary use as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share should not be construed to imply that our future results will be unaffected by unusual or non-recurring items. In evaluating Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow should not be construed to imply that our future results will be unaffected by any such adjustments. 35 -------------------------------------------------------------------------------- Our Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow measures have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: •Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect costs or cash outlays for capital expenditures or contractual commitments; •Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect changes in, or cash requirements for, our working capital needs; •Adjusted EBITDA and Adjusted EBIT do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, and Adjusted Free Cash Flow does not reflect the cash requirements necessary to service principal payments on our debt; •Adjusted EBITDA and Adjusted EBIT do not reflect period to period changes in taxes, income tax expense or the cash necessary to pay income taxes; •Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; •although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA and Adjusted Free Cash Flow do not reflect cash requirements for such replacements; and •other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures. Because of these limitations, Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow should not be considered as measures of discretionary cash available to invest in business growth or to reduce indebtedness. Management compensates for these limitations by primarily relying on our GAAP results in addition to using Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow supplementally. 36 -------------------------------------------------------------------------------- Adjusted EBITDA and Adjusted EBIT The following table provides reconciliations of net income (loss) to Adjusted EBITDA and to Adjusted EBIT for the periods presented (amounts in thousands): Thirteen Weeks Ended May 1, 2021 May 2, 2020 Net income (loss)$ 177,796 $ (10,020) Interest expense, net 14,549 24,522 Income tax expense 47,126 513 Depreciation and amortization 25,298 27,447 Consulting fees (a) - 56 Private equity sponsor monitoring fee (b) - 920 Equity compensation (c) 5,874 2,109 Severance and executive transition costs (d) - 228 Costs related to the COVID-19 pandemic (e) - 6,645 Other (f) 350 837 Adjusted EBITDA$ 270,993 $ 53,257 Less: Depreciation and amortization (25,298) (27,447) Adjusted EBIT$ 245,695 $ 25,810 (a) Represents outside consulting fees associated with our strategic cost savings and business optimization initiatives.
(b) Represents our contractual payments under the Monitoring Agreement. See
Note 12 to the financial statements included in this Quarterly Report.
(c) Represents non-cash charges related to equity based compensation, which
vary from period to period depending on certain factors such as timing and
valuation of awards, achievement of performance targets andequity award
forfeitures.
(d) Represents severance costs associated with executive leadership changes and
enterprise-wide organizational changes.
(e) Represents costs incurred during the 2020 first quarter as a result of the
COVID-19 pandemic, including temporary wage premiums, additional sick time,
costs of additional cleaning supplies and third party cleaning services for
the stores, corporate office and distribution centers, accelerated freight
costs associated with shifting our inventory purchase earlier in the year
to maintain stock, and legal fees associated with consulting in local
jurisdictions. These costs were no longer added back beginningin the third
quarter of 2020.
(f) Other adjustments include (representing deductions or additions to Adjusted
EBITDA and Adjusted EBIT) amounts that management believes are not
representative of our operating performance, including investment income,
installation costs for energy savings associated with ourprofitability
initiatives, legal fees associated with a distribution to NAHC's members
and our omnibus incentive plan, store exit costs and other costs associated
with strategic cost savings and business optimization initiatives.
37
--------------------------------------------------------------------------------
Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted
Earnings per Share
The following table provides a reconciliation of net income to Adjusted Net
Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share
for the periods presented (amounts in thousands, except per share data):
Thirteen Weeks Ended
May 1, 2021 May 2, 2020
Net income (loss) $ 177,796 $ (10,020)
Consulting fees (a) - 56
Private equity sponsor monitoring fee (b) - 920
Equity compensation (c) 5,874 2,109
Severance and executive transition costs (d) - 228
Costs related to the COVID-19 pandemic (e) - 6,645
Other (f) 350 837
Tax effects of these adjustments (g) (1,489) (19)
Adjusted Net Income 182,531 756
Estimated tax effect of change to C-Corporation status (h) - (316)
Pro Forma Adjusted Net Income $ 182,531 $ 440
Pro Forma Adjusted Earnings per Share
Basic $ 1.98 $ 0.01
Diluted $ 1.89 $ 0.01
Weighted average common shares outstanding
Basic (1) 92,088 72,474
Diluted (1) 96,472 72,474
(1) See Retrospective Presentation of Ownership Exchange in Note 2 to the financial statements.
(a) Represents outside consulting fees associated with our strategic cost
savings and business optimization initiatives.
(b) Represents our contractual payments under the Monitoring Agreement. See
Note 12 to the financial statements included in this Quarterly Report.
(c) Represents non-cash charges related to equity based compensation, which
vary from period to period depending on certain factors such as timing and
valuation of awards, achievement of performance targets and equity award
forfeitures.
(d) Represents severance costs associated with executive leadership changes and
enterprise-wide organizational changes.
(e) Represents costs incurred during the 2020 first quarter as a result of the
COVID-19 pandemic, including temporary wage premiums, additional sick time,
costs of additional cleaning supplies and third party cleaning services for
the stores, corporate office and distribution centers, accelerated freight
costs associated with shifting our inventory purchase earlier in the year
to maintain stock, and legal fees associated with consulting in local
jurisdictions. These costs were no longer added back beginning in the third
quarter of 2020.
(f) Other adjustments include (representing deductions or additions to Adjusted
Net Income) amounts that management believes are not representative of our
operating performance, including investment income, installation costs for
energy savings associated with our profitability initiatives, legal fees
associated with a distribution to NAHC's members and ouromnibus incentive
plan, store exit costs and other costs associated with strategic cost
savings and business optimization initiatives.
(g) For the thirteen weeks ended
the total adjustments made to arrive at Adjusted Net Income at the
estimated effective tax rate for the fiscal year ended January 31, 2022.
For the thirteen weeks ended May 2, 2020 , this represents the tax effect of
the total adjustments made to arrive at Adjusted Net Income at our
historical tax rate.
(h) Represents the retrospective tax effect of Adjusted Net Income at our
estimated effective tax rate of approximately 25% for periods prior to
October 1, 2020 , the effective date of our conversion to aC-Corporation,
upon which we became subject to federal income taxes.
38
--------------------------------------------------------------------------------
Adjusted Free Cash Flow
The following table provides a reconciliation of net cash provided by operating
activities to Adjusted Free Cash Flow for the periods presented (amounts in
thousands):
Thirteen Weeks Ended
May 1, 2021 May 2, 2020
Net cash provided by operating activities $ 219,228 $ 90,756
Net cash used in investing activities (16,808) (9,926)
Adjusted Free Cash Flow $ 202,420 $ 80,830 Liquidity and Capital Resources
Sources and Uses of Liquidity Historically, our principal sources of cash have included: •cash generated from operating activities; •issuances of the Notes / debt securities; and •borrowings under our Term Loan and ABL Facility. Our historical uses of cash have been associated primarily with: •cash used for operating activities such as the purchase and growth of inventory, expansion of our sales and marketing activities and other working capital needs; •cash used for capital improvements and support of expansion plans, as well as various investments in store renovations, store fixtures and on-going infrastructure improvements; •cash used to pay our debt obligations and related interest expense; •cash used to pay partnership distributions to our members; and •fluctuations in working capital due to timing differences of cash receipts and cash disbursements. OnMay 1, 2021 , our cash and cash equivalents totaled$593.3 million . During 2020, we focused on navigating the challenges presented by COVID-19 through the preservation of our long-term liquidity and management of cash flow through preemptive actions to enhance our ability to meet our short-term liquidity needs. We took various cost cutting measures to maximize operational cash flows (see "Impact of COVID-19 on Our Business" in the MD&A). Such actions included, but are not limited to, reduction of discretionary spending, deferring or cancelling our planned expenses, revisiting and reprioritizing our strategic investments, and reducing our payroll costs, including temporary team member furloughs, workforce reductions and pay cuts. OnAugust 28, 2020 , we paid a$257.0 million one-time special distribution to our members of record as ofAugust 25, 2020 ,$248.0 million of which was paid with cash on hand and the remainder of which was distributed through an offset of outstanding loans receivable from a member as well as state income tax withholdings made on behalf of NAHC's members. Related cash payments of$24.0 million to vested share-based award holders was paid throughMay 1, 2021 and an additional$8.2 million of payments will be made to unvested share-based award holders as the related awards vest (see "Distribution" in Note 9 and "May Secondary Offering and Stock Repurchase" in Note 14 to the financial statements included in this Quarterly Report). 39 -------------------------------------------------------------------------------- OnOctober 6, 2020 , we completed our IPO in which we issued and sold 15,625,000 shares of common stock,$0.01 par value, to the IPO underwriters for cash consideration of$12.22 per share (representing an initial public offering price of$13.00 per share, net of underwriting discounts) that resulted in net proceeds of approximately$184.9 million after deducting underwriting discounts, which included approximately$2.7 million paid toKKR Capital Markets LLC ("KCM"), an affiliate of KKR, for underwriting services in connection with the IPO, and$6.1 million in costs directly associated with the IPO, such as legal and accounting fees (see "Initial Public Offering, IPO Over-Allotment Exercise and Reorganization Transactions" in Note 1 to the financial statements included in this Quarterly Report). The shares sold in the offering were registered under the Securities Act of 1933, as amended, pursuant to our registration statement on Form S-1 (File No. 333-248683, which was declared effective by theSecurities and Exchange Commission onOctober 1, 2020 ). OnNovember 3, 2020 , the Company issued and sold an additional 1,807,495 shares of the Company's common stock, par value$0.01 per share, for cash consideration of$12.22 per share (representing an initial public offering price of$13.00 per share, net of underwriting discounts) to the IPO underwriters, resulting in approximately$22.1 million in proceeds net of underwriting discounts (see "Initial Public Offering, Over-Allotment Exercise and Reorganization Transactions" in Note 1 to the financial statements included in this Quarterly Report), which included$0.3 million paid to KCM, for underwriting services, pursuant to the partial exercise by the underwriters of their option to purchase up to 2,343,750 additional shares to cover over-allotments in connection with our IPO. The option has expired with respect to the remaining shares. OnNovember 6, 2020 , the Company (1) issued$400.0 million of 6.00% senior secured notes (the "Notes"), which are dueNovember 15, 2027 , (2) entered into a$400.0 million first lien term loan facility (the "2020 Term Loan " and, together with the 2015 Term Loan (as defined in the notes to the financial statements included in this Annual Report), the "Term Loan"), which is dueNovember 6, 2027 and (3) extended the maturity ofAcademy, Ltd.'s asset-based revolving credit facility thereunder toNovember 6, 2025 (as extended, the "2020 ABL Facility" and, together with the 2015 ABL Facility (as defined in the notes to the financial statements included in this Annual Report), the "ABL Facility"). We used the net proceeds from the Notes and the net proceeds from the 2020 Term Loan, together with cash on hand, to repay in full the 2015 Term Loan, in the amount of$1,431.4 million (see Note 4 to the financial statements included in the Annual Report). Subsequent to the 2021 first quarter and in connection with theMay 2021 Secondary Offering (see "May 2021 Secondary Offering and Stock Repurchase" in Note 14 to the financial statements included in this Quarterly Report), onMay 10, 2021 , the Company completed a repurchase and simultaneous retirement of 3,229,974 shares from the underwriters for cash consideration of$30.96 per share, resulting in a payment of approximately$100.0 million to the underwriters. TheMay 2021 Secondary Offering reduced KKR's ownership interest in the Company to 31.3% and resulted in a vesting event for awards granted under the 2011 Unit Incentive Plan, whereby unvested time awards, and performance-based awards which had previously met their performance targets, vested, and unvested performance-based awards which had not previously met their performance targets were forfeited. As a result, we incurred approximately$24.9 million in non-cash expenses related to equity-based compensation and approximately$15.4 million of cash expenses related to taxes on equity-based compensation. Additionally, approximately$8.2 million of cash payments for equity-based compensation distributions will be accelerated (see Note 14 to the financial statements included in this Quarterly Report). Subsequent to the 2021 first quarter, onMay 25, 2021 , the Company entered into an Amendment No. 4 (the "Amendment") to the Second Amended and Restated Credit Agreement (as previously amended, the "Existing Credit Agreement") which (i) reduced the applicable margin on LIBOR borrowings under the Term Loan from 5.00% to 3.75% and (ii) utilized cash on hand to repay$99.0 million of outstanding borrowings under the Term Loan, leaving an outstanding principal balance of$300.0 million under the Amended Credit Agreement. Borrowings under the Amended Credit Agreement will continue to mature onNovember 6, 2027 , and all other material terms and provisions of the Existing Credit Agreement remain substantially the same as the terms and provisions in place immediately prior to the effectiveness of the Amendment (see Note 14 to the financial statements included in this Quarterly Report). We expect to use existing cash balances, internally generated cash flows, and available borrowings under the ABL Facility to fund anticipated capital expenditures, working capital needs and scheduled debt service costs and maturities over at least the next twelve months. The ABL Facility provides for these financing needs and other general corporate purposes, as well as to support certain letter of credit requirements. We may continue to use the ABL Facility to repay debt under the Term Loan. Availability under the ABL Facility is subject to customary asset-backed loan borrowing base and availability provisions. Amounts outstanding under the ABL Facility may fluctuate materially during each quarter mainly due to cash flow from operations, normal changes in working capital, capital expenditures and debt service costs. Our availability under the ABL Facility was ample to support our operations and service our requirements. To date in 2021, we have had no borrowings under the ABL Facility. 40 --------------------------------------------------------------------------------
Liquidity information related to the ABL facility is as follows for the periods shown (dollar amounts in thousands):
Thirteen Weeks Ended
May 1, 2021 May 2, 2020
Average funds drawn $ - $ 232,967
Number of days with outstanding balance - 46
Maximum daily amount outstanding $ - $ 500,000
Minimum available borrowing capacity $ 780,945 $ 270,152
Liquidity information related to the ABL facility (amounts in thousands) as of:
May 1, 2021 January 30, 2021 May 2, 2020
Outstanding borrowings $ - $ - $ 500,000
Issued letters of credit $ 13,577 $ 20,112 $ 15,927
Available borrowing capacity $ 819,401 $ 718,763 $ 270,152
Capital Expenditures. We expect capital expenditures for fiscal year 2021 to be
approximately $80.0 million . Approximately 50% of our planned cash outflow
relate to investments in our corporate, e-commerce and information technology
programs. Investments in existing stores and distribution centers is expected to
account for approximately 40% of the planned cash outflow and the remaining 10%
is expected to be utilized through investments in new stores and relocations. We
review forecasted capital expenditures throughout the year and will adjust or
modify projects based on business conditions at that time.
Cash Flows for the Thirteen Weeks Ended
Our unaudited statements of cash flows are summarized as follows (in thousands):
Thirteen Weeks Ended
May 1, 2021 May 2 , 2020
Net cash provided by operating activities
(16,808) (9,926)
Net cash provided by financing activities 13,264
495,400
Net increase in cash and cash equivalents
Operating Activities. Cash flows from operating activities are seasonal in our business. Typically, cash flows from operations are used to build inventory in advance of peak selling seasons, with the fourth quarter pre-holiday season inventory increase being the most significant. Cash provided by operating activities in the 2021 first quarter increased$128.5 million , compared to the 2020 first quarter. This increase in cash was attributable to: •$187.8 million increase in net income; and a •$15.5 million net increase in non-cash charges; partially offset by a •$74.8 million net decrease in cash flows provided by operating assets and liabilities.
The increase from non-cash charges was primarily caused by:
•$25.1 million increase in deferred income taxes as a result of
41
--------------------------------------------------------------------------------
The decrease in cash flows from operating assets and liabilities was primarily
attributable to:
•$177.8 million increase in merchandise inventories, net related to an increase
in inventory during the 2021 first quarter coupled with a prior year reduction
of inventory; partially offset by an
•$89.5 million increase in accounts payable related to increased inventory
receipts in recent months and extensions of vendor payment terms; and
•$21.4 million increase in income taxes as a result of ASO, Inc. becoming
subject to U.S. federal income taxes after the Reorganization Transactions in
October 2020 .
Investing Activities. Cash used in investing activities increased $6.9 million
in the 2021 first quarter compared to the same period last year. The increase in
cash used in investing activities is primarily due to:
•$6.9 million higher capital expenditures on various digital projects as well as
updates in the stores and distribution centers, coupled with the strategic
reduction of capital expenditures in the prior year in response to the COVID-19
pandemic.
Financing Activities. Cash provided by financing activities decreased $482.1
million in the 2021 first quarter, compared to the same period last year. The
primary drivers of the decrease were:
•$500.0 million decrease in cash inflow due to the precautionary draw-down of
$500.0 million on the ABL Facility during the 2020 first quarter in response to
the COVID-19 pandemic; partially offset by a
•$17.3 million of net proceeds from the exercise of stock options in the current
year.
Critical Accounting Policies and Estimates
This management's discussion and analysis of our financial condition and results
of operations is based upon our unaudited financial statements, which have been
prepared in accordance with GAAP. The preparation of financial statements in
conformity with GAAP requires our management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities as of the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Our management bases its estimates on historical experience and other
assumptions it believes to be reasonable under the circumstances. Actual results
could differ significantly from those estimates.
Management evaluated the development and selection of our critical accounting
policies and estimates used in the preparation of the Company's unaudited
financial statements and related notes and believes these policies to be
reasonable and appropriate. Certain of these policies involve a higher degree of
judgment or complexity and are most significant to reporting our results of
operations and financial position, and are, therefore, discussed as critical.
Our most significant estimates and assumptions that materially affect the
financial statements involve difficult, subjective or complex judgments by
management including the valuation of merchandise inventories, and performing
goodwill, intangible and long-lived asset impairment analyses. Given the global
economic climate and additional unforeseen effects from the COVID-19 pandemic,
these estimates remain more challenging, and actual results could differ
materially from our estimates. More information on all of our significant
accounting policies can be found in Note 2, "Summary of Significant Critical
Accounting Policies and Estimates" to our audited consolidated financial
statements included in the Annual Report and the section of the Annual Report
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations." There have been no material changes to our critical
accounting policies as compared to the critical accounting policies described in
the Annual Report.
Recent Accounting Pronouncements
The information set forth in Note 2 to our unaudited consolidated financial
statements under Part I, Item 1 of this Quarterly Report is incorporated herein
by reference.
42
--------------------------------------------------------------------------------
Related Party Transactions
The information set forth in Note 12 to our unaudited consolidated financial
statements under Part I, Item 1 under the heading of this Quarterly Report
entitled "Related Party Transactions" is incorporated herein by reference.
Off-Balance Sheet Arrangements
As of May 1, 2021 , our off-balance sheet contractual obligations and commercial
commitments relate to future minimum guaranteed contractual payments and letters
of credit. There have been no other material changes in our off-balance sheet
arrangements as discussed in the section of the Annual Report entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" or our audited financial statements for the fiscal year ended
January 30, 2021 included in the "Off-Balance Sheet Arrangements" section of the
Annual Report.
Contractual Obligations and Commercial Commitments
Our contractual obligations and commercial commitments primarily relate to our
debt facilities and senior secured notes, operating leases for stores,
distribution centers, and office buildings, technology related commitments, and
sponsorship and intellectual property agreements. Other than than the item noted
below and fluctuations from transactions in the ordinary course of business,
there were no material changes during the quarter ended May 1, 2021 to the
contractual obligations and commercial commitments disclosed in "Contractual
Obligations and Commercial Commitments" in the section of the Annual Report
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
On
© Edgar Online, source
