Academy Sports and Outdoors, Inc. Goldman Sachs Global Consumer and Retail Conference

Hi, everybody. It's my pleasure to introduce Academy Sports + Outdoors and to moderate our fireside chat today. Today we have Steve Lawrence, Chief Executive Officer of Academy, and Carl Ford, Executive Vice President and Chief Financial Officer of Academy. Thank you so much for joining us today.

Thanks for having us. We wanted to talk about maybe the consumer first, because while I do think you cater to a slightly lower income consumer, you do see a broad swath of consumer.

With the higher gas prices weighing on discretionary spending, particularly for the low income households, how would you characterize the health of the Academy customer today?

Yeah, I would say definitely we saw it change as we progressed through the first half of the year. If you look at our first quarter results, we were pretty happy. Ran almost a 3% comp. Definitely saw a slowdown as we got into the second quarter, where we ran a negative 0.4% comp, grew the top line 3%. I think the difference was the consumer had probably some excess tax refund money in Q1 that helped abate what was happening from an inflationary perspective. I think as we got into Q2, that money was gone, right? I think juxtapose that with gas prices going up at the same time, I think that definitely put pressure on the consumer. If you look at what happened with us specifically, we said in our call that we kind of bucket the consumer into three income groups.

Under 50K, we'll call low income, 50K-100K middle, and then over 100K higher income. We saw the lower income consumer, that under 50K consumer, traffic be down almost high single digits, which was a deceleration from what we saw in Q1, where it was only down low single digits. Conversely, we saw the higher end consumer, north of 100K, shop and come in high single digits up. That was also an acceleration. I think you've got two ends of the spectrum, where you got a lower end consumer who's under pressure, and I think with gas prices inflation being where they are, I think they can't afford much beyond paying rent and feeding their family and clothing their family.

I think they're opting out or only opting in when it's very promotional, and they can get the best deals, and they can stretch their spending. Conversely, the higher end consumer's actually still very strong and hanging in there. As a matter of fact, if you look at our over time, we used to look at it like a third, a third, a third. A third were that under 50K, and a third were over 100K. Just based off the math of it over the past couple of years, that under 30K customer is probably a smaller percentage than it used to be for us.

They're probably in the 30% range. Conversely, the over 100K is probably closer to the high 30s, low 40s now for us, in terms of percentage of contribution. I think it's changing, but I think that low-end consumer, whether it's our customer or not, is definitely under pressure and is pulling back spending.

A lot of questions we are getting recently are on the health of footwear and apparel, athletic footwear and apparel. Do you worry at all that the strong athletic cycle we've seen for the last seven or eight years is waning in any way?

No, I wouldn't say it's waning. We're not seeing that necessarily in our business. We got a lot of questions around this on our earnings call. For us, footwear is about 20% of our business, so it's the smallest of our four divisions, still meaningful. We have a pretty diversified footwear business, so we certainly sell sneakers, but a lot of the shoes we sell are venue. For example, we do the cleated business, right. We've seen no slowdown in that business. Kids are still playing sports, still need cleats to play baseball, football, et cetera. We do a big work boot business. That continues to be very strong. A lot of our casual styles have been pretty strong as well. We talked about brands like Ariat that's doing well for us, or BIRKENSTOCK.

There's been a little bit of softness in the lifestyle piece of the athletic business for us. Because we have such a diverse assortment, it's easy for us to move money around between the two. We'd like the footwear business to be better. We're down, I think, 1% for the quarter. According to Circana, we picked up share there, so we're happy with that, although we'd like that category to be positive. But we think we can mitigate it by balancing out the assortment and investment in other categories.

Footwear is not the biggest part of your business, and you don't have a lot of exposure to the legacy silhouette that I do think is the place where inventory is building a little bit, but it does sound like the promotional environment is going to be a little bit more aggressive as a result of that.

Yeah. Again, even though you don't overlap directly with it, how would you characterize how the promotional backdrop today would impact your business?

In what categories are maybe you seeing outsized promotions aside from footwear?

Yeah. I would say that it certainly progressed from Q1 into Q2. I think it corresponds with the customer slowing down and exhausting whatever tax refunds they had. I would say we saw it be more promotional within Q2, particularly back to school. How I think it manifested itself was a couple. I think you saw people extend the length of promotions. Maybe last year where they ran one week, this year they ran two weeks or three weeks. In some cases, more categories were included in those promotions. Our expectation is that for the back half of the year, it is going to play out very similar to how Q2 played out, right? We think holiday will be probably more promotional than it was last year, and we have modeled that in our plans this year.