Academy Sports and Outdoors (NASDAQ: ASO) Could Supercharge Your Portfolio in 2024

Dhaneshwar Prasad

Academy Sports and Outdoors (NASDAQ: ASO) was not known to Wall Street for many years, but 2023 could be the year that this quickly growing store becomes well known.

After a great year in 2023, ASO has big plans for growth that will likely boost stocks in the coming year. Take a better look at why investors should think about this store.

Explosive Growth Trajectory

Academy Sports and Outdoors (ASO) has 282 shops in 18 states in the US as of November 2023. In 2023, the business opened 14 new stores. By the end of 2027, it plans to have opened between 120 and 140 more stores.

The company wants to grow its market position and reach, and this expansion is part of its strategic growth plan.

The number of units would grow by a burning 50% over the next three years. Many of these shops are in places like Texas that make a lot of money, so this expansion into brick-and-mortar stores means that sales will go through the roof.

Sales Growth Drivers

ASO made $6.77 billion in sales as a whole in 2021. In a very unstable year like 2022, sales fell a little to $6.3 billion, but they held up surprisingly well despite high inflation and other economic headwinds.

It’s important to note that ASO’s 2023 sales numbers don’t yet include the store’s busy holiday season, which is usually its busiest sales time. After Christmas sales are counted, ASO’s 2023 top line will probably be much higher than its 2022 top line.

Looking ahead, ASO could make more than $8-$10 billion in sales every year by 2027 if its predictions come true. The company is set to grow its sales by 15-20% or more each year in the coming years thanks to new stores opening and market share wins.

Margin Expansion Opportunities

As sales go up, ASO’s margins should grow by a large amount. At the store level, the company’s EBITDA margins are currently around 15.19%, but its most established stores have profits of over 20%.

As new stores open, get better at turning over their stock, and buy more, their profits should slowly rise to match those of stores that have been open for a while. Within a few years, it seems possible for the company’s EBITDA margins to reach 18–20%.

ASO’s fast-growing e-commerce section could one day be as profitable as its in-store channel. The company’s leaders think that online sales will reach $1 billion by 2025, which is about 15% of the total they hope to make. Multichannel margins should grow as set e-commerce costs are spread out over more sales.

Margin Expansion Opportunities

As sales go up, ASO’s margins should grow by a large amount. At the store level, the company’s EBITDA margins are currently around 14%, but its most established stores have profits of over 20%.

As new stores open, get better at turning over their stock, and buy more, their profits should slowly rise to match those of stores that have been open for a while. Within a few years, it seems possible for the company’s EBITDA margins to reach 18–20%.

ASO’s fast-growing e-commerce section could one day be as profitable as its in-store channel. The company’s leaders think that online sales will reach $1 billion by 2025, which is about 15% of the total they hope to make. Multichannel margins should grow as set e-commerce costs are spread out over more sales.

The 2024 Outlook

ASO is set up for huge growth in FY 2024 thanks to fast store growth, market share gains, margin upside, and a recent secondary selling that strengthened the company’s balance sheet.

ASO could make over $1.3 billion in running profit by the end of 2024 if it increases sales at a rate of 20% per year and raises EBITDA margins to 18%. That would be almost 80% more than what was scored in 2021 in just two years!

Strong cash flows from rising profits can pay for more growth, settle debt, and maybe even start a bonus. As soon as Wall Street learns about this turnaround story, ASO shares, which are currently trading at about 10x EBITDA, could easily reach the mid-teens EBITDA values of leisure retail peers.

Income Statement (Annual)

Financials in millions USD. Fiscal year is February – January.

Year20222021202020192018
Revenue6,3956,7735,6894,8304,784
Revenue Growth (YoY)-5.58%19.05%17.79%0.96%-1.07%
Cost of Revenue4,1834,4223,9553,3993,416
Gross Profit2,2132,3511,7341,4311,368
Selling, General & Admin1,3661,4431,3141,2521,239
Operating Expenses1,3661,4431,3141,2521,239
Operating Income846.55907.95420.4179.42128.95
Interest Expense / Income46.4448.9986.51101.31108.65
Other Expense / Income-18.21-0.58-5.24-44.75-3.1
Pretax Income818.32859.54339.12122.8623.39
Income Tax190.32188.1630.362.821.95
Net Income628671.38308.76120.0421.44
Net Income Growth-6.46%117.44%157.21%459.85%-63.35%
Shares Outstanding (Basic)8291787272
Shares Outstanding (Diluted)8494817575
Shares Change-11.02%15.78%8.87%-0.54%0.03%
EPS (Basic)7.707.383.961.660.30
EPS (Diluted)7.497.123.791.600.29
EPS Growth5.20%87.86%136.88%451.72%-63.20%
Free Cash Flow443.7597.46970.33200.87101.01
Free Cash Flow Per Share5.446.5712.442.771.39
Dividend Per Share0.300
Gross Margin34.60%34.71%30.48%29.63%28.59%
Operating Margin13.24%13.41%7.39%3.71%2.70%
Profit Margin9.82%9.91%5.43%2.49%0.45%
Free Cash Flow Margin6.94%8.82%17.06%4.16%2.11%
Effective Tax Rate23.26%21.89%8.95%2.29%8.34%
EBITDA971.511,008545345.39264.83
EBITDA Margin15.19%14.89%9.58%7.15%5.54%
Depreciation & Amortization106.7599.75119.36121.22132.78
EBIT864.76908.53425.63224.17132.05
EBIT Margin13.52%13.41%7.48%4.64%2.76%

Balance Sheet (Annual)

Financials in millions USD. Fiscal year is February – January.

Year2022202120202019
Cash & Equivalents337.15486377.6149.39
Cash & Cash Equivalents337.15486377.6149.39
Cash Growth-30.63%28.71%152.77%97.36%
Receivables16.519.7217.3114
Inventory1,2841,172990.031,100
Other Current Assets49.5138.2230.0826.31
Total Current Assets1,6871,7161,4151,289
Property, Plant & Equipment1,4521,4251,5221,587
Goodwill and Intangibles1,4401,4391,4391,439
Other Long-Term Assets17.624.688.5815.85
Total Long-Term Assets2,9092,8692,9693,042
Total Assets4,5954,5854,3844,331
Accounts Payable686.47737.83791.4428.82
Current Debt112.0886.0884.34110.45
Other Current Liabilities240.17303.21291.35211.38
Total Current Liabilities1,0391,1271,167750.65
Long-Term Debt1,6571,7611,9322,570
Other Long-Term Liabilities271.77229.63173.8319.2
Total Long-Term Liabilities1,9281,9912,1052,590
Total Liabilities2,9673,1183,2723,340
Total Debt1,7691,8472,0162,681
Debt Growth-4.26%-8.36%-24.80%64.97%
Common Stock216.98198.89128.14996.29
Retained Earnings1,4111,268987.170
Comprehensive Income00-3.32-8.07
Shareholders’ Equity1,6281,4671,112988.22
Net Cash / Debt-1,431.58-1,361.33-1,638.31-2,531.5
Net Cash Per Share-17.06-14.44-20.12-33.85
Working Capital647.96588.64247.93538.8
Book Value Per Share19.9616.1314.2613.63

Cash Flow Statement (Annual)

Financials in millions USD. Fiscal year is February – January.

Year20222021202020192018
Net Income628671.38308.76120.0421.44
Depreciation & Amortization106.7599.75119.36121.22132.78
Share-Based Compensation21.1839.2631.627.884.63
Other Operating Activities-203.92-137.13551.8614.5339.62
Operating Cash Flow552.01673.271,012263.67198.48
Operating Cash Flow Growth-18.01%-33.45%283.66%32.84%138.12%
Capital Expenditures-108.3-75.8-41.27-62.8-97.48
Acquisitions008.13-3.99-4.14
Other Investing Activities-0.5-0.222.59
Investing Cash Flow-108.81-76.02-33.14-66.78-99.03
Dividends Paid-24.630000
Share Issuance / Repurchase-463.18-359.05206.96-0.371.25
Debt Issued / Paid-103-102.25-665.07-122.82-53.25
Other Financing Activities-1.24-27.56-292.12-2.81
Financing Cash Flow-592.05-488.85-750.23-123.19-54.81
Net Cash Flow-148.85108.39228.2273.6944.65
Free Cash Flow443.7597.46970.33200.87101.01
Free Cash Flow Growth-25.74%-38.43%383.05%98.88%
Free Cash Flow Margin6.94%8.82%17.06%4.16%2.11%
Free Cash Flow Per Share5.446.5712.442.771.39
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Former Sony professional turned multi-business owner and stock investor, Dhaneshwar leverages his MBA to produce market, IPO and biz content and personal investments on Modernagebank.com
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