Jordan And Nike Partnership And New Stores Will Transform Retail

Key Takeaways

• Expanding the Nike partnership and private brands could boost sales, improve margins, and drive revenue growth through higher-margin apparel.
  
• New stores and enhanced omnichannel capabilities aim to increase market share, operational efficiency, and online sales, positively impacting net sales growth.
  
• Declining sales and margin pressures due to cost challenges and macroeconomic uncertainties highlight potential hindrances to revenue and profitability growth.

Catalysts

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

• The introduction of the Jordan brand and an expanded partnership with Nike in 2025 is expected to drive sales growth, particularly in apparel and footwear, which could bolster revenue and improve gross margins due to the higher margin nature of apparel sales.
  
• The plan to open 20 to 25 new stores in 2025 across new and existing markets is anticipated to expand Academy's market share and increase revenue, contributing positively to net sales growth.
  
• The rollout of RFID technology across stores is aimed at improving inventory accuracy by 20% to 25%, which should enhance operational efficiency, reduce lost sales, and positively impact gross margins.
  
• The continued growth and strong performance of Academy's private brands, increasing their share from 23% in 2024, is expected to drive higher revenue and margin expansion due to their cost-effective nature.
  
• The company's focus on expanding its omnichannel capabilities, including site enhancements and improved fulfillment options like same-day delivery, is expected to increase online sales penetration and contribute positively to overall revenue and earnings.

Academy Sports and Outdoors Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Academy Sports and Outdoors's revenue will grow by 6.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 7.1% today to 6.1% in 3 years time.
• Analysts expect earnings to reach $441.0 million (and earnings per share of $7.3) by about April 2028, up from $418.4 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 8.9x on those 2028 earnings, up from 5.9x today. This future PE is lower than the current PE for the US Specialty Retail industry at 13.9x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.13%, as per the Simply Wall St company report.

Academy Sports and Outdoors Future Earnings Per Share Growth

Risks

• The company experienced a 6.6% decline in net sales for the quarter, with flat sales and a 3% decrease in comparable sales excluding contributions from new stores, indicating potential challenges in driving revenue growth.
  
• Gross margins declined by 110 basis points year-over-year, primarily due to higher freight and distribution costs and lower merchandise margins, which could negatively impact net margins and profitability.
  
• Tariff pressures, particularly those related to China and steel and aluminum, present ongoing uncertainties and potential margin pressures that could affect earnings.
  
• Despite new store openings and strategic initiatives, the guidance for 2025 suggests flat to slightly negative comparable sales, indicating potential difficulties in achieving revenue growth.
  
• The company noted a decline in traffic and sales softness in the shoulder months, driven by consumer spending constraints and macroeconomic uncertainties, which could continue to pressure revenues.

Valuation

• The analysts have a consensus price target of $57.105 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 $70.0, and the most bearish reporting a price target of just $44.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.2 billion, earnings will come to $441.0 million, and it would be trading on a PE ratio of 8.9x, assuming you use a discount rate of 9.1%.
• Given the current share price of $36.65, the analyst price target of $57.11 is 35.8% 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.