<p><a href="https://www.wsj.com/articles/academy-sports-tests-investor-appetite-for-retail-11601636400">In October 2020</a>, nearly a decade after being acquired <a href="https://media.kkr.com/news-details?news_id=f412e3c5-3f71-4b6c-b8f0-09a2b020c387&type=1">by KKR</a>, Academy Sports + Outdoors (ASO) went public. It seemed an ideal time to act: after reporting negative comps in each of the preceding three years, 2020 and 2021 comps increased by +16.1% and +18.9%, respectively. This resulted in average unit volumes (AUV’s) climbing by about 40% in two years, to $26.2 million in 2021, along with nearly 40% incremental operating profit margins (FY19 - FY21). As a result, they generated more than $700 million in FY21 adjusted net income – <strong>nearly 10x higher</strong> than what ASO earned in 2019.</p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F11370abb-82fd-4629-8ce2-5428aee2901a_913x664.jpeg" target="_blank"><div class="image2-inset"><source type="image/webp" /><img alt="" class="sizing-normal" height="664" src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F11370abb-82fd-4629-8ce2-5428aee2901a_913x664.jpeg" width="913" /><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg class="lucide lucide-refresh-cw" fill="none" height="20" stroke="currentColor" stroke-linecap="round" stroke-linejoin="round" stroke-width="2" viewBox="0 0 24 24" width="20" xmlns="http://www.w3.org/2000/svg"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg class="lucide lucide-maximize2" fill="none" height="20" stroke="currentColor" stroke-linecap="round" stroke-linejoin="round" stroke-width="2" viewBox="0 0 24 24" width="20" xmlns="http://www.w3.org/2000/svg"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>The market quickly realized that the IPO price of <a href="https://sgbonline.com/academy-sports-reaches-inflection-point-as-ipo-debuts/">~$13 per share</a> - a market cap of ~$1.1 billion - was now far too low: on the one year anniversary of the IPO, the stock had already tripled, to ~$40 per share; as of yesterday’s close, it had risen another ~50%, to $59 per share (a market cap of ~$4.2 billion).</p><p>But at ~10x FY24e EPS, compared to <a href="https://s27.q4cdn.com/812551136/files/doc_financials/2024/q3/3Q24-DKS-Earnings-Release_vF.pdf">~17x FY24e for DKS</a>, it’s clear Mr. Market still has some questions about the sustainability of Academy’s current economics, a view supported by three consecutive years of mid-single digit comp declines. (Management expects FY24 comps of <a href="https://investors.academy.com/node/10651/pdf">-6% to -5%</a>, below the initial guide of <a href="https://investors.academy.com/node/10016/pdf">-4% to +1%</a>. <strong>This has become a recurring outcome</strong>: they were also overly optimistic on their initial comp guidance in <a href="https://investors.academy.com/node/8211/pdf">FY22</a> and <a href="https://investors.academy.com/node/9081/pdf">FY23</a>.)</p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F5cb24193-e23c-4218-bef9-2ccf9a16bacb_912x664.jpeg" target="_blank"><div class="image2-inset"><source type="image/webp" /><img alt="" class="sizing-normal" height="664" src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F5cb24193-e23c-4218-bef9-2ccf9a16bacb_912x664.jpeg" width="912" /><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg class="lucide lucide-refresh-cw" fill="none" height="20" stroke="currentColor" stroke-linecap="round" stroke-linejoin="round" stroke-width="2" viewBox="0 0 24 24" width="20" xmlns="http://www.w3.org/2000/svg"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg class="lucide lucide-maximize2" fill="none" height="20" stroke="currentColor" stroke-linecap="round" stroke-linejoin="round" stroke-width="2" viewBox="0 0 24 24" width="20" xmlns="http://www.w3.org/2000/svg"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa9d7404b-e147-44f1-a476-1d8a3670320e_913x665.jpeg" target="_blank"><div class="image2-inset"><source type="image/webp" /><img alt="" class="sizing-normal" height="665" src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa9d7404b-e147-44f1-a476-1d8a3670320e_913x665.jpeg" width="913" /><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg class="lucide lucide-refresh-cw" fill="none" height="20" stroke="currentColor" stroke-linecap="round" stroke-linejoin="round" stroke-width="2" viewBox="0 0 24 24" width="20" xmlns="http://www.w3.org/2000/svg"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg class="lucide lucide-maximize2" fill="none" height="20" stroke="currentColor" stroke-linecap="round" stroke-linejoin="round" stroke-width="2" viewBox="0 0 24 24" width="20" xmlns="http://www.w3.org/2000/svg"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div>
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