Academy Sports and Outdoors (ASO) is a sporting goods retailer that sells a wide variety of athletic apparel and footwear for both individuals and team sports, sports equipment, as well as a broad array of products that support the outdoor lifestyle, writes Berna Barshay, editor of Consumer/Culture/Commerce by HedgeFundGirl.

Products include everything from equipment for fishing and hunting to outdoor grills, coolers, and camping equipment. If you live in Texas or surrounding states, you probably know Academy – it’s an institution in the region.

The pandemic led to a surge in interest in outdoor sports and activities, and Academy was a large beneficiary during that time period, seeing its earnings per share (“EPS”) double from calendar 2020 to calendar 2022 (like many retailers, Academy’s fiscal year ends in January).

But unlike many companies that went through a pandemic boom, Academy has enjoyed a soft landing post-pandemic. Earnings this year are expected to be down just 10% off the 2022 peak, and next year, earnings should again reach the peak 2022 level of $7.70.

Moreover, in an era when most proven retail concepts have been fully exploited already, Academy’s management plans to open 120-140 stores over the next five years. That represents a roughly 50% growth opportunity over the current 275 store base.

Academy’s wide breadth of product as well as its on-point merchandising that emphasizes everyday value while also offering curated opportunities to upgrade into premium products is the right positioning for success and to compete with its larger primary competitor, Dick’s Sporting Goods (DKS).

DKS has greatly narrowed its focus in recent years and pulled back from many of the outdoor leisure categories where Academy excels. Academy currently outperforms Dick’s on key metrics like sales per square foot and EBITDA (earnings before interest, taxes, depreciation, and amortization) per store.

Academy’s management team has also shown incredible financial discipline since the company went public in 2021. In just over two years, management has bought back approximately 14 million shares of stock, reducing the float by around 15%. Management capitalized on the pandemic opportunity by streamlining operations and increasing margins in a way that generated a ton of cash which they used to aggressively buy back shares.

By returning excess cash to shareholders through buybacks while at the same time prudently allocating capital to self-fund mindful store growth, Academy has managed to maximize short-term EPS growth without sacrificing long-term growth from expanding the business.

Academy is a stock with great growth ahead, yet it trades at a value price. At the recent trading price of $61, ASO shares changed hands at less than nine times the expected earnings of $7 for the fiscal year ending January 2024. Taking into account the company’s expected future growth, the stock looks even cheaper.

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