Expansion Into New Markets And Nike Partnership Will Boost Revenue And Customer Growth

Key Takeaways

• Strategic market expansion, omnichannel initiatives, and brand partnerships are expected to drive revenue growth and enhance customer experiences.
  
• Share repurchases and customer engagement enhancements could boost EPS, return value to shareholders, and strengthen customer loyalty.
  
• Increased supply chain costs and consumer behavior volatility may pressure margins and earnings, while reliance on Chinese products poses risks amid shifting trade policies.

Catalysts

Through its subsidiaries, operates as a sporting goods and outdoor recreational retailer in the United States.

• Expansion into new markets: The company plans to open 20 to 25 new stores in 2025, increasing unit count by approximately 7.5%. This expansion is expected to drive increased revenues through geographic penetration and increased brand awareness.
  
• Omnichannel growth initiatives: Investments in building a more powerful omnichannel business through store growth and partnerships, like the one with DoorDash for same-day delivery, are expected to boost digital sales and enhance customer experience, potentially increasing revenue and improving net margins.
  
• Introduction of high-demand brands: The upcoming launch of an expanded Nike product offering across multiple categories in 140+ stores is expected to drive increased sales and attract new customer segments, which could boost revenues and improve earnings.
  
• Share repurchase program: The newly authorized $700 million share repurchase program over the next three years could significantly enhance EPS by reducing the share count, returning capital to shareholders and demonstrating management’s confidence in future growth.
  
• Customer engagement strategies: The expansion of myAcademy rewards and improvements in customer targeting practices may increase customer loyalty and frequency of purchases, positively impacting revenue growth and margins.

Academy Sports and Outdoors Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Academy Sports and Outdoors's revenue will grow by 4.7% annually over the next 3 years.
• Analysts are assuming Academy Sports and Outdoors's profit margins will remain the same at 7.5% over the next 3 years.
• Analysts expect earnings to reach $522.4 million (and earnings per share of $7.26) by about December 2027, up from $453.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.6x on those 2027 earnings, up from 8.6x today. This future PE is lower than the current PE for the US Specialty Retail industry at 16.4x.
• Analysts expect the number of shares outstanding to grow by 1.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.76%, as per the Simply Wall St company report.

Academy Sports and Outdoors Future Earnings Per Share Growth

Risks

• The decline in comp sales of 4.9% in the third quarter, affected by unseasonably warm weather and a challenging October, may signal continued volatility and risk to future revenue stability.
  
• Increased supply chain costs, including international freight and labor expenses in the Georgia distribution facility, contributed to a 50 basis point decrease in gross margin, indicating potential pressure on net margins.
  
• Negative consumer trends, such as sporadic shopping patterns and reliance on events, suggest that future revenues might be susceptible to fluctuations in consumer behavior and macroeconomic conditions.
  
• Rising penetration of credit card usage and buy now, pay later options highlight financial strains on consumers, potentially leading to a decrease in discretionary spending, which may impact earnings.
  
• A high concentration of product sourcing from China and the risk of elevated tariffs under changing trade policies could affect product costs and overall net margins.

Valuation

• The analysts have a consensus price target of $62.39 for Academy Sports and Outdoors based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $85.0, and the most bearish reporting a price target of just $51.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $6.9 billion, earnings will come to $522.4 million, and it would be trading on a PE ratio of 10.6x, assuming you use a discount rate of 7.8%.
• Given the current share price of $56.01, the analyst's price target of $62.39 is 10.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.