The Squeeze Is On At Academy Sports+Outdoors, Inc
Shares of Academy Sports+Outdoors are moving higher following a strong report and updated guidance. And the stock is undervalued.
A Game-Changing Year At Academy Sports+Outdoors, Inc
If you are looking for a short squeeze to take advantage of Academy Sports + Outdoors, Inc (NASDAQ: ASO) might be a good target. If you're just looking for a good investment Academy Sports + Outdoors, Inc is also a good target. Data from Marketbeat shows the company had a near 18% short interest going into the second-quarter earnings report and we're not quite sure why. The company is undervalued and knocking out home runs for investors.
Academy Sports + Outdoors, Inc is a retailer of sporting goods and outdoor gear which makes it a well-positioned company for pandemic and post-pandemic trends. The company sells shoes and apparel, equipment for team sports, as well as equipment for outdoor recreation like fishing, and shooting sports, all of which are in high demand. Competitors from shoe stores to pure-play sporting goods retailers have been knocking the ball out of the park left and right, there was no reason to think that Academy Sports+Outdoors, Inc would do anything less.
Academy Sports+Outdoors, Inc Is On Target With Growth
Academy Sports+Outdoors, Inc went public last year with the idea of growing. In that time, the company has been engaged in a growth strategy that includes improving brand awareness, improving customer engagement, opening new stores, and building out an omnichannel presence. Those efforts, combined with the tailwind of COVID-19, drove revenue to $1.79 billion and an all-time record. In terms of growth, the net revenue is up 11.5% from last year and beat the consensus by 720 basis points. On a sequential basis, revenue is up 13% while on a two-year basis revenue is up nearly 45%.
The internal metrics are equally good. On a comp-store basis, sales are up 11.4% and bolstered by a slight increase in store counts. On a two-year basis, comps are up 27%. E-commerce sales fell -0.9% but that is a very small decline in light of last year's 210% increase. The salient point here is that e-commerce sales remained steady versus last year while in-store sales continue to rise in the wake of reopening.
Moving down to the earnings portion of the statement, the company's gross margins increased by nearly 30% to 35.9%, or up 500 basis points from last year. This is due to revenue strength, less promotional activity, and product mix shifting towards higher-margin goods. On the bottom line, the GAAP EPS is down on a year-over-year basis but that is due to an increase of shares related to share-based compensation. That said, the $1.99 in GAAP earnings beat the consensus by $0.70 while the adjusted $2.34 beat the consensus by $0.90.
Academy Sports+Outdoors, Inc Raises Guidance And Returns Capital
Academy Sports+Outdoors raised its full-year guidance for EPS to a range of $5.45 to $5.80 from the previous range whose high-end was $4.50. That's a 2000 basis point improvement at the low end of the range and driven by the company's robust performance. The best news is that revenue strength is resulting in robust cash flows and free cash flow which has allowed the company to strengthen its balance sheet. The company has no debt and a growing cash pile that drove not one but two credit upgrades during the quarter and there is a new buyback program as well. Academy Sports+Outdoors, Inc has initiated a $500 million share repurchase program that's worth about 12.5% of the market cap with shares trading near $44.
The Technical Outlook: Academy Sports Is Moving Higher
Price action in Academy Sports+Outdoors, Inc has only moved higher in the wake of the IPO last year and it looks like they're going to continue that trend now. The high short interest helped the market retest support at the $40 level following the release of Q2 results but that test resulted in a confirmation of support that drove share prices back above the previous close. The candle formed is a large green candle with a large lower shadow confirming support at the moving average and constitutes a strong buy signal in our view. Although the indicators are a little mixed by pointing lower at this time, they are also convergent with the recent all-time high and suggest a retest of the all-time high if not higher prices will soon come. In our view, trading at only 8 x the low end of the guidance, the stock is a bargain and should be trading at least $10 higher than where it is now.