Academy Sports and Outdoors Stock

Hi, everybody. It's my pleasure to introduce Academy Sports and Outdoors to moderate 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 see a broad -- excuse me, a broad swath of consumer. And so 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?

Yes. I would say definitely, we saw it change as we progress through the first half of the year. So if you look at our first quarter results, we're pretty happy, ran almost a 3 comp. Definitely saw a slowdown as we got into the second quarter where we were in 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 kind of abate what was happening from an inflationary perspective. And I think as we got into Q2, that money was gone, right? And 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 3 income groups, under $50,000 we'll call it low income, $50,000 to $100,000 middle, and then over $100,000 higher income. We saw the lower income consumer, that under $50,000 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 $100,000 shop, and come in high-single-digits up. And so that was also an acceleration.

So I think you've got kind of 2 ends of the spectrum where you've 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. So 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. And conversely, the higher-end consumers actually still are 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 1/3, 1/3, 1/3, 1/3 were that under $50,000 and 1/3 were over $100,000, just based off of the math.

But over the past couple of years, that under $30,000 customer is probably a smaller percentage than it used to be for us. They're probably in the 30% range. Conversely, the over $100,000 is probably closer to the high 30s, low 40s now for us in terms of percentage of contribution. So 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.

I mean 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 7 or 8 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 4 divisions, still meaningful. We have a pretty diversified footwear business. So we certainly sell Sneakers, but a lot of the shoes we sell are kind of end use. So for example, the cleated business, right? And 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 kind of the lifestyle piece of the athletic business for us because we have such diverse assortment, it's easy for us to kind of move money around between the 2. So we'd like the footwear business to be better. I mean 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.

So 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. So again, even though you don't overlap directly with it, how would you characterize how the promotional backdrop today would impact your business? And in what categories are maybe you seeing outsized promotions aside from footwear?

Yes. I would say that it certainly progressed from Q1 into Q2. And I think that 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. So maybe last year where they ran 1 week. This year, they ran 2 weeks or 3 weeks. In some cases, more categories were included in those promotions.

Our expectation is that for the back half of the year, it's going to play out very similar to how Q2 played out, right? So we think holiday will be probably more promotional than it was last year, and we've modeled that in our plans this year. And how we're funding that is we're being very mindful about the fact that the customer is really leaning in what we call -- talk about episodic shopping, right? They're coming out and buying during the times of need, when they can get the best deals, and they're kind of pulling back in the lull. So we're rationalizing promotions in the lulls, and we're kind of in one right now once you get past back-to-school until you get into middle part of November. And so you're going to see us be very thoughtful about how we promote in there and then save some of those promotional dollars to fund what we think will be a more promotional holiday.

On the merchandising side, you've made a lot of changes in the last year to 18 months. You've brought in Jordan for the first time. You've expanded your assortment in Nike, and now you just announced the 15 stores that are going to have HOKA...

And online.

And online -- sorry, all online, only 15 stores with HOKA. And so could you maybe talk a little bit about what these brand extensions and additional brands have meant to your business? And what do you think it gets for you longer term?

Yes. I think if you think about Academy, we've changed a lot over the past 6 or 7 years. And if you go back pre-pandemic, we were always good at kind of that good level of pricing, right? And the example I always use is when my son was starting out playing sports and you needed to get him the Little League gear, right? And you can find the bat, ball, the glove at Academy for under $100 and get out. And then the next month, when he decided he want to play soccer, we put that stuff in the closet and go buy the soccer gear. And what we really weren't good at, though, was that better, best level. So if you wanted to stick with the sport and maybe play in a rec league or even a traveling ball team, we didn't have that gear. So we've been upgrading the assortment broadly across all the different categories, whether it's in sporting goods, apparel, footwear, outdoor to layer on that better, best end of the spectrum so that we had the gear that we could stay with people as they kind of progress through the life cycle of their passions.

And so in doing that and adding these brands and assortments broadly, I think it's given customers, who in the past didn't think of us as a viable option for their sports and outdoor needs, a reason to come check us out, right? And so that's been more of a longer-term evolution. Most recently, what we found is that as we've been adding assortment, there's still pieces, there's brands. And we look at -- I'm sure like everybody else does this in retail, null search terms on your website. That's -- what's the most requested thing that you don't have in your assortment? It used to be Jordan. And so that led us to start up a dialogue with Nike about how do we get access to Jordan? And 6 or 7 years ago, they probably would not have given us access to brand because we hadn't built a footwear business north of $100. And we've built a really nice running business with Nike between $100 to $200, and that gave them confidence that we could sell the price points like Jordan.

So we added that in 145 stores initially last year. We now have shops in over 200 doors, and we have some of the product in all stores. And that also helps open up doors for other brands who are requested. So HOKA, behind Jordan, was the second most requested brand that we didn't have access to. So we're excited that we're going to launch that in 15 stores and online. The good news of having it online is we, like a lot of retailers, have handheld devices in stores. So if you come into a store that doesn't have HOKA, that person working in that department can sell you the HOKA shoe that you want. They can either ship it to the store for you to pick it up or we can ship it to your house for free. So it expands that reach beyond just the 15 doors. And we're going to continue to add brands that our customer is looking for.

And I think what that does is twofold. I think it, A, attracts a customer who maybe didn't consider us before for it; and B, it helps a customer who was shopping with us, who had to leave our store to go some other place to find what they're looking for to stay with us. And so I think there's kind of a twofold effect there.

And I mean, Nike, Jordan, and HOKA get all the kind of like top billing just because they're big, big brands. But I know you've brought a lot of other brands into the store as well. I wondered if you could highlight maybe a couple of examples of that as well.

Sure. Yes. I mean those are the brands I think people are most familiar with. But we have a very broad-based eclectic assortment, right? So you think about in apparel, we do a big athletic business, but we also do a big work Western wear outdoor business. And so we -- the team has gotten really good at this. I'm really proud of the work they've done of incubating a brand in a small door count and then once it hits, expanding that out broadly. So we launched a brand, God, about 3 years ago called BURLEBO, which probably a lot of people in the audience haven't heard of, but it's a younger trending outdoor brand that was founded by an ex-football player from the University of Texas.

And he saw a void in the marketplace where he wanted outdoor apparel, but in a younger man's silhouette and styling. And so we have that in 25 doors. We now have that in all doors. It's in kids and men's. It's a top 10 apparel brand for us. So we scaled that very quickly. There's a new running short brand, conversational print running short brand called ChicknLeg. I've never heard of it, but it was -- we're seeing it in a lot of our research in some of these run specialty stores. And so we put it in 25 stores, did very well. We expanded that out to 200 stores. We've got work Western wear brands. You think about a brand like Ariat, that's been around a long time, right? We've had Ariat in our stores. But the demand for that just keeps growing and growing and growing. And so we just launched Ariat shops in 200 doors. We're pulling together a fully integrated presentation that we're really excited about.

And even in private label, we have a stable of over 20 private label brands that we have in our store depending upon the different category. And one of the things we saw a void in was in opening price point hunting rifles and shotguns. And so we have a shooting sports brand called Redfield that used to be just about optics that we've expanded into other categories. We're launching Redfield firearms for the first time. And what we have is market-leading product that has features and benefits that we can retail for about $100 less than comparable national brand items. And so you're right, newness is not just apparel and footwear and -- from the big brands. It's across the store.

Another thing that's having a moment is trading cards, right? You wouldn't think of us as a place for trading cards, but we have these queuing sections in front of our store that the mom takes the kids through if they're checking out, kids want the Pokemon cards or the baseball football cards that we have. And so that's also been a driver for us. So the team has, I think, really stepped up their game on this front. And I think it's really helped us unlock a lot of different things in the past couple of years.

Great. And just to kind of close the loop on merchandising, what does Texas winning over Ohio State mean for your stores?

Well, it will mean a lot if they win the national championship. But certainly, we have a bigger footprint in Texas than we do Oklahoma. So you definitely had a bias towards Texas and most of our team over the weekend.

But in all seriousness -- it was a great game, though. With the World Cup, it was a big contributor to your second quarter. But I think you've talked about it having a halo effect on the whole soccer franchise maybe for the rest of the year. Could you maybe talk a little bit about now that we're outside the World Cup, how has that come to fruition? Are you seeing what you thought you would see in the soccer category? And how do you think about lapping that in '27?

Yes. So we had plans like everybody did for World Cup. I think we had over 30, 40 matches in our footprint, and it generated a lot of excitement. We actually set up shops at the front of our stores that pulled together jerseys and balls and all kinds of fan gear. And I would say that it did exactly what we planned to do. It hit the plan. We're very happy with it. So it drove traffic into our stores. I would say that it wasn't as accretive as we thought because I think what we found was maybe for Father's Day, somebody got a team USA Jersey instead of Magellan fishing shirt. But we certainly were very happy with the traffic it drove in during that time period.

Longer term, to your point, I think the benefit is going to be on youth soccer participation. And so we've seen that business generate double-digit increases within Q2. Those trends have continued into Q3. We're very happy about that. And this is going back a long way, but last time that the World Cup was held in the U.S., we saw a dramatic sustainable surge in youth soccer, and we think that's going to happen into next year. As we lap it going into next year, we think that there's Women's World Cup, although that's not necessarily in our footprint. It's in our hemisphere. So the games will be broadcast real-time, and you have to believe women's team is going to be a favorite. So I think we'll see some surge there.

And we also think there's upside just in our licensed team apparel business to get better localization. We -- one of the things that didn't work out as well as we had last year, the Oklahoma City Thunder winning the NBA championship. Unfortunately, for us, we didn't have the mix in our footprint. So we were big Spurs fans. We didn't get that side of it, but maybe we'll get one of our teams in the NBA finals next year as well. So we think there's upside between Women's World Cup, soccer, in terms of participation and then hopefully other licensed businesses that we can capitalize on.

Great. Thank you. Carl, maybe I can turn it to you with regards to unit growth. Academy's unit growth strategy is now, you announced, 125 stores to open over the next 5 years with 20% of those in new markets and a focus on outer suburbs. Could you maybe walk us through the strategy in opening the new stores since it is a little bit of a shift in what you've done prior?

It sure is. Yes, if you think about our long-range plan, we're going to go from $6 billion to $8 billion. The bulk of that sales growth is going to be through launching the 125 stores. We've changed a lot. We restarted our new store opening program back in 2022. I would say it was very opportunistic. If there was a box available, we were interested in talking about it. We really honed what it is that we're looking for in a new store. And I think it has to do a lot with the demographics of the market around there.

And so what we found is that stores come out of the gate at $12 million to $16 million in year 1 sales. It's going to be $12 million where there's low brand awareness. As an example, we launched our first new stores in the state of Ohio last year. There's 0 brand awareness of what Academy Sports and Outdoors is there. You have to invest into that. In Pennsylvania, some new stores that we're launching. On the flip side of that, when we launch in one of our legacy markets where Academy is a known commodity, but maybe the closest store is 1 hour or 2 away, they're going to come out at $16 million. They are comping mid-single-digits in the second quarter. Very pleased with that. If you think about from an overall ROI standpoint, $3 million to $4 million in CapEx. It's about another $1 million in net inventory, 20% ROIC, EBITDA positive in year 1.

If you look at where it is that we're opening those stores, they tend to not be in urban centers. They tend to be in the suburbs or exurbs where a lot of the categories that we sell around outdoor, and grilling, and backyard fun, and things of that nature, they resonate more with that local consumer. And so we've pivoted our strategy significantly. I like what we're doing. I love the pipeline that we've got visibility to. And so we feel good about 125 stores.

I think the biggest unlock is the work we've done around our customer. We've done so much customer research over the past 2 or 3 years. And I think we have a really good beat on who that core customer is. And it sounds like a pretty logical thing, but putting stores where your biggest base of customers is. That's been the biggest change. And they live in these suburbs and exurbs and mid-sized markets that are underserved, and that's been a big unlock for us.

Great. And I know there's a great waterfall effect with some of these newer stores coming into the comp base over the next couple of years because of how they're performing. But how are you looking to your older locations, your more mature locations? And what steps are you taking to continue to improve the comp trajectory there?

Yes. So if you think about our new stores, so I'm talking about stores from '22 to '25, we've launched 63 new stores, 47 of those stores were in the comp base at the end of the second quarter. They provide mid-single-digit comp provided about a 50 basis point tailwind to comp. If you look at e-commerce, up 12.8%, about a 12% penetration. That's call it, 150 basis point tailwind to comp. So by default, those stores that are non-new have a low-single-digit comp, and that's what's drawing us down to a 0.4% negative comp in second quarter.

I don't think you can think about those stores in isolation from what's going on with the e-commerce channel. I think those are -- over half of the goods that we sell online are picked up in store, whether it's through buy online, pick up in store, or special order firearm, the customer is coming into the stores. And so this sounds cliche, but that is a miniature fulfillment center in those locations that is helping to prop up the overall growth of the business, and we were up 3% in total sales in the second quarter, 4.7% first half of the year. So we're investing into shops. We've talked about Jordan shops or Ariat shops. We've talked about the loyalty program, this 3-tiered loyalty program that we've launched. It's providing a tailwind. We're refreshing those doors to make sure that they're fresh for the customer and that it's an appealing environment, and we're launching new brands.

And where we're launching those new brands, those tend to not be in these underserved markets. They're in those doors that are non-new doors, those legacy doors if you will. So it's a part of our overall strategy. They are improving, and they provide a meaningful EBITDA to the company.

So if you think about what Carl just said, the thing that we're also going to embark upon, and we talked about this in our Analyst Day is we're going to start refreshing roughly 30 to 40 of our legacy stores a year, so call it 35 at the mid-point. So when you think about that over a 5-year period, that gets you to about 175 of those stores that will refresh and refreshing could be -- it's a very bespoke kind of program depending upon what the store needs. In some cases, some of those stores don't have our new queuing, which is kind of that maze that people walk through the checkout. They have more of that grocery store with central lanes. And we see dramatic productivity uplift in the stores that are queuing. So in some stores where they're on queuing and they get queuing. It could be paint, light, tile, whatever, that brings that store up to standard.

So if we get those 175 stores done and then you juxtapose that with the new stores we're opening and have opened, we'll have about 80% of our stores over a 5-year period kind of refreshed or touched over that time period. And we think that's a pretty good place to be in, in terms of having the health of our fleet in a good place.

Right. And just to touch on the digital piece. I think you just recently launched Instacart for same-day delivery. Is this something that your customers are asking for? Do you expect a comp lift from this fulfillment? That...

Yes, absolutely. So we didn't have same-day delivery until about 2 years ago, and we launched a partnership with DoorDash. And that was a two-pronged partnership. First, we have a storefront on their site, right? So people who shop on their site and who need the goods we sell can find it on their site, but then they also power our same-day delivery. So if you order something in academy.com and you want it delivered same day, DoorDash is the person who's filling that for you.

What we found was with DoorDash that a lot of customers who are shopping through their portal are customers who don't shop us. It's a younger consumer. In a lot of cases, a lot of our stores are out in the suburbs and we're seeing a lot of this traffic going into the inner city, right? So it's apartment dwellers and it's interesting. It's a different categories of merchandise. And number one is selling item on DoorDash for us, believe it or not, is air mattresses. So it's somebody who's got somebody who showed up from out of town, needs a bed for them to sleep on and they're ordering air mattresses. I would never have guessed that would have been the #1 thing.

And so that gave us confidence because when we started doing the research on Uber Eats and on Instacart is the customer base is very different for each one of these or it's a very different customer. You have subscription service, you don't tend to have 3, and that you kind of lean into one. So we thought it would be accretive and help us reach customers we weren't reaching. And so having those storefronts, it's early days, but we're really excited. We think it's attracting a younger, newer customer, and one that is probably very comfortable using that platform and probably wasn't shopping with us already.

I wanted to make sure I asked about margins, both kind of in the shorter term and the longer term. Obviously, there are quite a few headwinds now just with fuel and freight. Yet there have been tariff refunds that I think have softened that a little bit. So Carl, could you maybe talk about some of the good guys and bad guys going into the back half of the year? And then I wanted to talk a little bit about your longer-term goal of getting -- increasing margins by 100 bps.

Sure. In the guidance that we put out, the back half of the year gross margin is flat to last year. And I think there's 3 tailwinds and 2 headwinds. So I think from a tailwind perspective, we're seeing some progress with organized retail prime and shrink. It's been about a 25 basis point improvement year-to-date. I think that we've got some more coming to us. I think from a tailwind standpoint, Steve spoke to it, the IEEPA burden rate in the fall of last year has been backfilled with 232s and 301s, but that overall level of tariff is lower.

And then I think we've made really great progress as it relates to where we source our private brands goods. So private brands is about 22% penetration for us. So I think those 3 things are tailwinds for us as we think about gross margin. From a headwind standpoint, the promotional environment is amplified from last year, and we saw it amplify from the second quarter compared to the first quarter. So I think promotions are a headwind. And I think fuel, I don't know what others are baking into their gross margin outlook for fall, but I don't think it's going to get better. I think in the second quarter, diesel index was up about 50% to last year. I think it's going to remain at about that level.

And then just with regards to capital allocation, can you maybe talk a little bit about -- I guess you previously explained 50% of your cash flow from operations is reinvested back into the business, and then you expect to return the remainder to shareholders through dividends and share repurchases. But can you provide us with an update on how you're thinking about planning for 2027 in terms of both CapEx priorities and share buyback?

Yes, yes, yes. I'm not going to give specific guidance to '27, but our capital allocation philosophy is not going to change. For those of you who are not as familiar with Academy, we've been a public company for almost 6 years. Over that 6-year time period, we have bought back about 43% of the shares that we went public with at what we consider to be pretty attractive prices. And we've paid down about $1 billion in debt, have a very stable balance sheet in terms of inventory. And I think would be one of the lower levered folks in the retail space as it relates to the balance sheet.

Going forward, we have a very simple capital allocation philosophy. We're going to invest about 50% of the cash flow from operations back into the business. The bulk of it is going to be on the 3 main growth pillars that we've talked about, new stores, omnichannel, and then that existing base of stores, which would include loyalty, and some shops, and some new brand launches, and refreshing stores that need a little bit of love. And the other 50% is going to be through a pretty modest dividend yield and an outsized share buyback program.

I don't think that's going to change going forward. I think if you think about the long-term algorithm for the LRP, it involves 5% sales growth every year from a CAGR perspective over the next 5 years, low-single-digit comps. and double-digit EPS growth. If you look at what this business can do with low-single-digit comps like we've experienced in the first half of the year, throws off a ton of cash. Half will be reinvested into us and half will be given back to shareholders.

Great. Thank you. We ask 4 questions of every company that sits with us here. And so -- and again, we always touch a little bit already on some of these questions. But first, just on the health of the consumer, thoughts on the consumer in the second half of '26 versus the first half. Do you think things will be the same, better or worse?

I think they'll be about the same as what we saw in Q2, certainly not what we saw in Q1. I don't -- as Carl already said, I don't see gas prices getting much better over the next couple of months. And certainly, I think they're still digesting some of the price increases from tariffs. So I don't think they're going to be much in better in -- better shaped than they have been in Q2. What we worry about are the things we can control, right? And so we know promotional backdrop, we can plan for that. We know we've got a customer who makes under $50,000 who's under stress. We do know they come out and shop.

One of the things as we've done this customer research is they'll tell us that if you're an under $50,000 household, you have kids in the house, you're still going to play baseball, right? And the kids need new cleats, new bats, et cetera. And what they told us is, "Hey, we'll buy ahead of need, we'll buy out of cycle." So at the end of each season, we're going through summer clearance right now. They're buying cleats from '26 or bats from '26 that they'll use for '27. We know they'll do that. And so having that clearance promotion as part of our calendar is a way for us to activate that customer. That's what we're going to continue to do is find ways to get them to come in and shop with us.

And then with regards to pricing, do you expect your prices or AUR to be higher, lower, or the same in the second half of this year versus the first half?

I think that we'll continue to see AUR increases year-over-year fall versus fall of '25. As a percentage, I think it will be less than what we experienced. We were up high-single-digits in the first half of the year. My guess is it will be closer to mid-single-digits as you go through the back half of the year. One reason is we're lapping some of the pricing increases from last year and the first half of the year was kind of non-comp, right? Most of the price increases that we saw coming off the tariff news happened in the back half of last year.

But I'd also say that we're smarter today. We know where we've taken prices up. We're seeing prices go up and the customer has reacted favorably. We also have some places where they haven't reacted as favorably, and we've had to reinvest back into price and take things back to kind of pre-tariff levels. And so we certainly have done that, and that's what you'll see reflect in the back half of the year. And to Carl's point, how we fund that is hopefully a slightly less robust tariff burden in the back half of the year as kind of the IEEPA settle out has happened.

And then we've also been able to resource some things, move some things into new countries where a year ago, we weren't sure where this whole thing was going to settle out. We have -- I wouldn't say it's perfect certainty, but we have a pretty good idea what the tariff rates are going to be by country, and we've managed to move some things around, which should allow us to support some of the pricing investments we've made moving forward.

Okay. And then we talked about margins for the back half with the 3 tailwinds, 2 headwinds. But is there any way you can dimensionalize that into '27, more headwinds or tailwinds?

I think outside of 2027, I think our long-range plan calls for EBITDA expansion or EBIT expansion from 9% to 10%. I think some of that comes from just sales leverage associated with fixed costs. We're going to be in 3 distribution centers. We're going to have 1 corporate office, and we're planning to grow $2 billion. I think there's fixed overhead that we can leverage. I think supply chain has a lot of upside associated with how we receipt from vendors and how we ship the stores. Our new Chief Supply Chain Officer -- he's not new anymore, right?

Yes. Two years in.

Rob Howell. He's got a great background in delivering efficiency and effectiveness. We've launched a retail media network. I think it provides some profitability. I think there's also some other alternative revenue sources that we're looking at. And we think that we can grow private brand penetration from approximately 22% to 25%. I think if we do all of those, we'll have a little bit left over to get back to promotionality associated with specific lines of business where we want to take outsized market share.

I'd say the one thing that's different, and we talked about this on our Earnings Call, obviously, the tariff refund impact in Q2, that's a one-time non-invertible thing. So longer term, we think our algorithm is somewhere around 34.5% to 35% from a margin rate perspective. That's what we're going to continue to aspire towards, and we see no reason why we can't achieve that over 5 years.

Great. And then the fourth question has to do with AI. Do you expect a significant increase in efficiency as a result of AI in 2027 versus '26? And what part of your business would you expect to change the most?

Yes. So it's -- obviously, it's a buzzy topic that's out there. And I think we, like other retailers, are trying to figure out how it makes sense within our 4 walls. And so some preliminary use cases, we're switching our search on our site to be agentic-based. And we're seeing -- it's still small, but we're seeing good results from that. Within productivity of the company, I think there's a lot of manual things that as retailers, we traditionally do like items set up, right? And that's not fun work. It's making sure you got the right attributes and field set up. I think there are things that are very rote and automated like that or in accounts payable that we can probably use AI to automate and get more productive.

I think what you'll see us do in those cases, though, is not necessarily pull that through to workload savings, but to take the time that these people are spending on those rote tasks and get better at the higher functioning things like localization, right? That's kind of the panacea in retail, in getting better at localization. And it's hard to do but I think we can, certainly now that we'll have some of this time for you to spend more time on getting the assortments right on an individual store-by-store basis. That's certainly one.

I think you're going to see us get better at business intelligence, right? We're already starting to test a couple of use cases where traditionally in retail, you come in after the weekend, you're pulling all the reports and you've seen what happened last week. Imagine having a dashboard that can kind of pull all that together for you and make recommendations. And then you're spending time qualitatively deciding between what the recommendations are versus doing the work, the pulling all that data together, I think you'll see more productivity increases from that as well. But once again, I think that's just going to free up people for more higher functioning things, not necessarily flow through to the bottom line from a workload savings perspective.

All right. Well, thank you for joining us today...

Thanks for having us.

Thank you.

Thanks, everybody.

[Operator Instructions]

I would now like to turn the conference over to Dan Aldridge, Vice President, Investor Relations for Academy Sports and Outdoors.

Thank you, you may begin. Good morning and thank you for joining the Academy Sports and Outdoors second quarter fiscal 2026 financial results call. Participating on today's call are Steve Lawrence, Chief Executive Officer, and Carl Ford, Chief Financial Officer. As a reminder, today's earnings release and the comments made by management during this call include forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in today's earnings release and in our most recent Form 10-K and 10-Q filings. The company undertakes no obligation to revise any forward-looking statements. Today's remarks also refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in today's earnings release, which is available on our website at investors.academy.com. Good morning, we will review our financial results for the second quarter of fiscal 2026, provide an update on our strategic initiatives, and discuss our outlook for the year. Once we conclude prepared remarks, there will be time for questions. With that, I'll turn the call over to Steve.

Good morning and welcome to our second quarter earnings call. As you read in our press release earlier today, we saw continued top line momentum in the business with sales for the quarter coming in at $1.6 billion, which was up 3% in total and translated into a slightly negative comp at down 0.4%. The dot-com business continued to grow double digits at up 12.8%, which improved penetration in this channel by 110 basis points versus last year. During our Q1 call, we mentioned a slowdown at the end of the quarter as we transitioned to Q2, which we attributed to overall inflationary pressures on the consumer, which were no longer being offset by increased tax refunds. The trend persisted into the early part of second quarter, May and June sales running up 2% in total and down 1% on a comp basis. You see this most pronounced in traffic trends from the lower income households making less than $50K annually, which were down high single digits during the quarter, a larger decrease than we saw in Q1, which was down low single digits. Conversely, we continue to see strong traffic trends in the higher income cohort with traffic from households greater than $100K annually tracking up high single digits during Q2, which was an acceleration to what we saw in the first quarter.

We're pleased to end Q2 on a high note, with July being our best month of the quarter, plus 3% in total, which translated into a modest positive comp. We believe July sales in back-to-school categories would have been even stronger. We had four states in our footprint, Oklahoma, Missouri, Virginia, and South Carolina, shift their tax-free weekends from the last week of July into the first week of August. While this disadvantaged the tail end of Q2, it did help us get off to a good start to Q3, the sales through Labor Day running up low single-digit comps. As we've seen in the past, when the customer is under pressure, they shop episodically and aggregate their purchases around the key events on the calendar as a way to expand their spending power. This held true this past quarter with events such as Memorial Day, Father's Day, Fourth of July, and Back to School performing well. These also happen to be the time periods where the promotions traditionally are at their peak. Similar to Q1, we continue to see stronger performance on the hard good side of the business. Sports and Recreation was our best business at up 6% with continued strength in sporting goods.

We've been sporting goods. We're definitely seeing a World Cup effect, soccer gear sales running up double digits for the quarter. We expect this trend will continue throughout the remainder of the year and into next. We're also seeing strength and fitness with treadmills up high single digits during the quarter as customers continue to prioritize health and wellness. Another very notable department is our front end department which is somewhat of a catch-all for us. This business continues to benefit from significant investments in trend right categories such as trading cards and outdoor speakers driven by Turtlebox. Outdoor was our second best performing division at up 4% driven by shooting sports, coolers. Well, not as strong as hard goods. We did have some bright spots on the soft goods side of the business.

While apparel sales were flat, we did see strong performance from categories such as World Cup jerseys and tees, outdoor, and work in Western apparel. Some of the World Cup good news was offset by decline in NBA championship gear as we anniversary the Oklahoma City Thunder winning the title last year. As we look to comp the World Cup next year, we believe the Women's World Cup merchandise, coupled with a strengthening assortment and improved localization in our fan shop assortment, should allow us to offset the gains from this year. Footwear was our softest category for the quarter with sales down 1%, but even running this decline, we did pick up market share during the quarter. While footwear is our smallest division at roughly 20% of our total sales, it is an important business for us. We service a diverse portfolio of customer needs, including cleats and athletic shoes you can wear on the field or court, casual shoes and sneakers, work boots and shoes, along with a meaningful business and seasonal style, such as sandals and flip-flops in spring and boots in fall. The team is focused on moving back to top-line growth in this division by aggressively shifting funding from underperforming styles towards the items and brands that are currently driving the business, such as performance running styles from brands like Nike, Adidas, Brooks & New Balance, as well as trending lifestyle brands such as Birkenstock and Ariat.

Clearly, we've seen a shift in the consumer spending patterns as we progress through the first half of the year, with demand decelerating from Q1 into Q2. Our expectation is the trends we saw take shape in Q2 will persist throughout the remainder of the year. Based on this assumption, we're reacting accordingly. We know that being able to present our customers with compelling value during the key events on their calendar is critical to driving sales in the back half of the year. Some actions are taken on this front. First, we're reinvesting the majority of the proceeds from the tariff refunds we received back into approved pricing for our customers. We've done a thorough review and have adjusted pricing across many of our private brand products to offer customers pre-tariff mobile prices, which has already stimulated demand, driven traffic and delivered value to our customers. A couple examples of this are, in Q2, we promoted our Outdoor Gourmet three-burner gas and charcoal grills for key events at 99.99, taking our largest private brand key item, Magellan Outdoors Laguna Madre shirt back to 19.99 versus 24.99 previously.

And finally, within our BCG apparel brand, we're promoting key programs such as our Coach's Polo at 9.99. Second, we continue to make sure that for the key events on the customer's calendar, we have market-leading deals and value on both national and private brands. We'll continue to rationalize promotions during the lulls in the calendar in order to help fund these more aggressive promotions in the peaks. Third, we'll also continue to utilize clearance as a way to drive traffic in off-peak months by providing deep value on end-of-life product as we close out each season. These strategies proved to be particularly valuable to the under $50K a year household who frequently shop out of season as a way to outfit their family in advance of the next year's needs. Fourth, we're leaning into our newly reinvented and relaunched multi-tier MyAcademy Rewards loyalty program by providing more targeted discounts and offers to our loyalists during key moments on the calendar. We're still in the early innings on this program, but are already seeing increased engagement from this initiative.

And I'll share more on this front a little bit later in the call. Finally, we're doubling down on our commitment to delivering newness and innovation across all of our categories as a way to drive traffic with existing and new customers. This has been a key ingredient in our success over the past couple of years, and we're accelerating our pace on this front. A couple of examples of this are we're excited to announce the launch of HOKA in 15 stores and online for this fall. In HOKA will also receive assorted allocations and improved in-store merchandising for all key performance running programs across brands such as Nike, Brooks, Adidas, New Balance, and ASICS. The team has also done a great job of identifying and incubating new brands and smaller door accounts and then rapidly expanding them into additional doors and categories once we get a good read on them. The case study for this has been BURLEBO, which continues to grow high double digits for us over the past several years. We grew the brand from 25 doors to all doors within two years, and BURLEBO is now one of our top 10 apparel brands. The team used the same model to test Chicken Legs, a TrendRight conversational print running short brand in 25 doors this past spring.

The results were well above our expectations, and we quickly scaled this brand out to roughly 200 doors from back to school. We're also leveraging the continued growth in work in Westernwear by expanding one of our key brands Ariat through shop installations and 200 doors, which is double the amount of doors we announced in Q1. This category has been experiencing strong growth over the past couple years. With the partnership we're building on this front, we expect this growth to continue for the remainder of this year and into next. Newness is not just limited to the soft goods business. A great example is how we're scaling new brands and categories in shooting sports. We've been rolling out suppressors this year.

We now have this new category in roughly 85 doors at the end of Q2 with the goal of pushing out to 135 doors by the end of the year versus our original plan of roughly 100 stores. Ultimately, we expect to see this going to almost all doors in 2027. As a reminder, this business is 100% incremental for us. In addition, we're rolling out private label hunting rifles under the Redfield brand in the back half of the year. Introduction of Redfield into the firearms category will allow us to fill a void in the marketplace with shotguns and scope-hunting rifles that can retail for $100 less than comparable national brand firearms. We believe the refinements we're making to our go-forward strategy will continue to drive both traffic and sales increases by delivering compelling value coupled with a steady diet of new and innovative brands and items. This gives us the confidence to reaffirm our sales guidance for the full year of plus 3% to plus 5%, which would translate into a flat to plus 2% comp for fiscal 2026.

Shifting gears, I'd like to share more on the continued progress we're making against our long-range plan strategies. I will start with our single largest growth initiative, new stores. We remain on track to open up 22 to 24 stores this year. During Q2, we opened up three new stores with locations in Altoona, Pennsylvania, and Morristown and North Knoxville, Tennessee. We plan to open 11 additional stores in Q3. Stores for this year are scheduled to open up in November, giving customers a great option to shop for holiday gifts. At this point, we have 46 stores that were opened up between 2022 and 2025 that are currently in the comp base, and these stores continue to perform well in Q2, topping in the mid-single digits. As we progress through the back half of the year, we'll continue to see fall 2025 stores start to move into the base.

By the end of the year, we'll have 63 stores from prior vintages help fuel our comp sales. Our second major sales initiative is driving outsized growth in our dot com business. We're running up 14% in our dot-com channel through the first half of the year and during Q2, we continue to make solid progress on this front. We rolled out storefronts on both the Instacart and Uber Eats same-day delivery platforms to complement our existing partnership with DoorDash. Research shows there is minimal overlap between users on these platforms. We view this as a positive. We also completed our migration on our site and app from traditional keyword search to AI-based semantic search. Moving forward, this will continue to improve our overall site experience as more and more users adopt conversational prompts over keywords as their everyday choice for how they search across the web with AI. At the tail end of Q2, we launched our Academy Retail Media Network, or ARM for short, and have already onboarded several vendor partners who believe we can provide them with expanded and unduplicated reach in the marketing to the Always Game families who serve across our footprint. We don't expect this to be a huge source of revenue or profitability during the back half of this year. We believe our retail media network should be a solid contributor starting next year.

We also plan to launch our first foray into social commerce during Q3 with a TikTok Shop featuring our Freely brand. As you already know, this is a rapidly growing channel for commerce, and we see this as a key way to attract younger consumers to our brand. The third leg of our long-term growth algorithm is to strengthen our existing base business. One of the key focuses on this front has been the integration of our MyAcademy Rewards program with our credit card program. During the quarter, we completed this relaunch, and we're seeing a very strong reaction from customers right out of the gate. A couple of data points I'd share to support this. Credit card applications were up 15% during the quarter, with approval rates up over 900 basis points for the same time period. Spend on Academy credit cards was also up roughly 20% during the quarter.

This tells us that our new value proposition is resonating with existing customers, while also helping us attract a larger number of affluent customers who also tend to have higher credit ratings. We've also seen the spend outside of the Academy on the co-branded card exceed our expectations. This tells us customers are starting to move their MyAcademy Rewards MasterCard to their top of wallet choice. As a reminder, customers earn 2% back on outside spend that generates rewards that are redeemable at Academy. Simply put, as more and more customers adopt the MyAcademy Rewards MasterCard for their everyday purchases, this behavior will translate into additional traffic and sales for Academy down the road. The end result is we believe we should hit 16 million members for MyAcademy program by the end of the year, and are currently sitting at over 15 million members in the program, which was our original goal for the end of this year. This initiative is also in the early innings, and there's ample opportunity for us to scale this program, both in terms of new customer acquisition and driving expanded usage with existing members.

As a reminder, members that have a private label credit card spend two and a half times the average customer. We expect those with co-branded cards to spend three and a half times the average customer. We expect the impact of this integration and relaunch of our loyalty and credit card program will provide us with powerful new tools to drive sales and profitability moving forward. Another key initiative under this strategy is to build a deeper connection with families and communities we serve. To help with this, we're working across a couple of fronts. First, working with two of our key vendor partners, Nike and the Jordan Brand, to launch the H-Town Classic basketball tournament next month. This is a three-on-three tournament for youths aged 11 to 18 to help celebrate basketball culture in our hometown. The tournament will be played in the parking lot of one of our local stores where we expect to see over 150 teams compete. And we're really excited to see this idea to come to life this fall.

Second, we signed a sponsorship agreement with Hyrox to complement our brick-and-mortar exclusivity to this rapidly growing fitness trend. With this partnership, we will tie activations to races and key markets in our footprint, such as Atlanta, Dallas, Nashville, and Tampa, including the title sponsorship of the race in Houston next spring. As you can tell, we're making solid progress against our long-range plan initiatives, but we still have a lot more opportunity ahead of us each as these growth initiatives strengthen and scale. At this point, we're halfway through the year, and our sales year to date are plus 4.7% to last year of $3.1 billion, which translates into a plus 1.1% on a comp basis. These results put us squarely in the middle of our annual comp sales guidance range of flat to plus 2%. Our expectation is that the consumer backdrop will remain challenged during the back half of the year. At the same time, we continue to build momentum in our long-term strategies, and when you couple that with the adjustments we've been making in our assortment and pricing, we believe we can successfully navigate through the remainder of fiscal 2026 and deliver against our annual guidance.

Now I'd like to turn it over to Carl to give you a deeper dive into the financials for the quarter. Carl?

Thanks, Steve. Net sales for the second quarter were $1.6 billion, an increase of 3%, with comparable sales down 0.4%. E-commerce remained a strength in Q2, with continued investment resulting in 12.8% sales growth. New stores in the comp base continue to provide a consistent tailwind, with comps up mid single digits and they contributed approximately 50 basis points to comp during the quarter. The two-year stack of comp sales for the total company has continued its positive trajectory with sequential improvement five quarters in a row. The two-year stack for Q2 was slightly negative. Additionally, spending on the Academy credit cards was up approximately 20% during the quarter. Gross margin for the quarter was 40.4%, up approximately 440 basis points year over year. The increase was driven by 510 basis points from tariff refunds and were partially offset by a negative 70 basis point impact from merch margin as we reinvested tariff refund proceeds into improved pricing for our customers.

While tariff-related proceeds provided a net benefit of 440 basis points to gross margin in the quarter, the majority was offset as part of our FY '25 tariff sales transaction and also used for strategic investments, examples of which Steve mentioned in his remarks. We have received substantially all tariff refunds during the second quarter and do not expect any additional net P&L impact for the remainder of the year. SG&A was 25.5% of sales, up 20 basis points year-over-year, primarily driven by our investments in strategic growth initiatives for 21 new stores opened since Q2 FY '25, tech investments in e-commerce and customer data, the rollout of 55 new Jordan Brand shops in Q2, and the reinvestment of tariff refunds into incremental store labor and marketing. These investments deleveraged SG&A by 150 basis points. During the quarter, we leveraged base expenses by 130 basis points on a negative 0.4% comp. And year-to-date, we have leveraged SG&A in total by approximately 20 basis points.

Operating income for the quarter was $246 million, up 42.9% inclusive of tariff refunds year over year. Other expenses include $61.8 million attributable to the tariff refunds we sold in 2025. Diluted earnings per share was $2.17, an increase of 17.3%, and adjusted earnings per share, which excludes stock compensation and the loss on early retirement of debt, was $2.31, an increase of 19.1%. Tariff refunds net of strategic investments into price, labor, and marketing had a positive net impact on EPS and adjusted EPS by six cents during the quarter. There is a reconciliation in the earnings presentation on page 11 that details the impact from the tariff refund. From a balance sheet and cash flow standpoint, we remain in a position of strength. Total inventory was up 4.4% year over year, but on a per store basis was down 2.3% in dollars and down 5.6% in units as we continue to manage the flow of new product while expanding our store count.

We ended the quarter with strong liquidity and generated healthy, free cash flow. Net of tariff refunds of $32 million, representing a 49% increase year over year. This allows us to continue investing in the business while returning capital to shareholders. Cash balance was $298 million at the end of the second quarter, and we have an untapped $1 billion revolver. Remember, we refinanced our long-term debt in Q2 and improved our weighted average cost of debt by 50 basis points. We also amended and extended our ABL early in the second quarter, which directly led to the $1 million reduction in interest expense for the quarter. As part of the debt transactions, we also had a $1.9 million non-cash loss on early retirement of debt from the original 2020 issuance.

Our capital allocation philosophy has not changed. Approximately 50% of cash flow from operations on an annual basis is reinvested back into the business, and we expect to return the remainder to shareholders through dividends and share repurchases. In the first half of the year, we repurchased approximately $181 million of our shares, representing about 5% of our outstanding shares, paid approximately $19 million in dividends. We continue to fund strategic investments, including new stores, omni-channel capabilities, and technology initiatives. At the end of the second quarter, we had $256 million remaining on our share repurchase authorization. Looking to the back half of the year, we do expect to have continued share repurchases as conditions warrant, but we expect they will not be to the same level as the first half of the year. As I turn to guidance, the progress of the strategic initiatives in our growth algorithm give us confidence in maintaining our sales and comp guidance in the face of continuing consumer pressure. First, new stores continue to be a tailwind to the business, comping up mid-single digits while contributing 50 basis points of comp for the first half of the year.

We expect this contribution will grow as we move forward. Secondly, our e-commerce business grew 14% for the first half of the year as we expand our offering and functionality for customers, and we expect this to be a tailwind for years to come. Thirdly, we are growing the existing business by leveraging our loyalty platform to drive incremental sales, with the sales attributable to an Academy credit card up almost 20% during Q2. Finally, we are launching exciting new items like HOKA and Redfield firearms and are expanding growing TrendRight brands into shop concepts like Ariat. Halfway through the year, we are at or ahead of annual guidance across all metrics. And while the consumer remains pressured and there continues to be macro uncertainty, what is certain is that we are moving the ball forward and positioned to win in this challenging environment. We are updating select elements of our full year outlook to reflect the second quarter performance. Also planning for higher gas and freight prices and the timing of new store openings.

We are affirming our sales and comp guidance with sales in a range of $6.23 billion to $6.36 billion or growth of 3% to 5% and comp sales of flat to plus 2%. We are raising our gross margin rate guidance to 35.5% to 36.0% for the year, while affirming net income guidance in a range of $390 million to $415 million. We are also raising EPS to account for a lower share count. We now expect earnings per share of $6.05 to $6.45 and an adjusted earnings per share to be in the range of $6.50 to $6.90. Finally, we expect adjusted free cash flow in the range of $300 million to $350 million. At the midpoint, we expect total sales to be up 4%. Comp sales to be up approximately 1%, gross margin expansion of 100 basis points and net income to grow by approximately 7%, resulting in EPS growth of over 12% when compared to fiscal year '25. This EPS guidance does not include any impact from future share repurchases. As a reminder of our long-range plan, you should expect a 5% sales CAGR, double-digit EPS growth and high single-digit unit growth over the next five years. With that, we're ready for Q&A. Operator, please open up the line.

[Operator Instructions] Our first question comes from Chris Horvers with JPMorgan.

Please proceed with your question.

Can you talk about how you're thinking about the cadence of sales in the back half of the year? You have a lot of newness that's hitting. You've got the credit card potentially accelerating some of your transactions and ticket there. And then you also have the new store lift. You know, on the other hand, we have to be cognizant of comparison. And so how are you thinking about the cadence between the third and the fourth quarter? And then within that, can you isolate how much the back to school shift, tax holiday shift, was a detriment to the second quarter versus what you spoke to quarter to date?

Sure, Chris, I'll start. I would tell you that if you look at just those four states with tax-free shifts, if that hadn't happened, we would have been essentially flat for the quarter. And that would have taken us to, we'd still be running positive quarter to date through Labor Day, but slightly less than we currently are. So it definitely impacted the end of the quarter, it gave us a good start to the first week or two of the quarter here, but we'd be running positive without that shift for Q3. And as we mentioned, we're running up low single digits positive through Labor Day, so we're excited about that. In terms of cadence throughout the back half of the year, the midpoint of the guidance implies roughly the continuation of the trend we saw in the first half. We're running up 1.1% comp through the first half of the year, the midpoint implied in the guidance would be roughly a 1% comp. I don't see there being a big variance between performance between Q3 and Q4 from a comp perspective. You know, we're up against negative comps from Q3 and Q4 last year.

I think we're down 0.9% in Q3, and I think down 1.5%, 1.6% in Q4. So fairly consistent from quarter to quarter. So we'd expect the business to be fairly consistent in the back half of the year. And yes, you're right. What we're excited about is, you know, we've been quietly investing in a lot of these long-term growth drivers for us over many years. And we feel like they're all starting to kind of take hold and really start making meaningful impact in the business. You know, obviously we've been opening up new stores now for four years. We had 47 stores in the comp base, in the quarter from '22 through '25 that we opened up.

By the end of this year, we'll have 63 of those stores in there as a lot of the back half stores from last year kind of pull into the comp base. We think that's going to continue to accelerate. But we think that the relaunch of the credit card and the combination with our loyalty program is off to a really good start. We think that's going to be a growth driver for many years. We think that in a world where the customer, at least the lower end consumer is really stretched, we think we've done the right thing in terms of reinvesting in price and providing some really outstanding value to them. On the flip side, the other thing that continues to work is newness. We feel like we've got a steady diet of new and innovative brands coming.

Obviously, the thing we're most excited about for this quarter would be the launch of HOKA. But, you know, the expansion of Chicken Legs, the Ariat shops we talked about, all those things should be growth drivers for us moving forward. One of the things we didn't talk about in the prepared remarks, but, you know, we were two years into this RFID journey that continues to help us from an in stock perspective. And I would also say that if you remember last year, the back half of the year was somewhat disrupted by some of the price change activity that was taking as a result of the tariffs. We start to lap this year, in most cases, in some cases we'll have even better pricing than we did last year. So all those things give us confidence that we think we can kind of go right down the goal post of hitting our guidance. I don't think it's going to be easy.

I think the consumer backdrop can continue to be challenged, but we feel really good about the initiatives we have, and it's showing so far through this year that we can overcome some headwinds out there.

So as a follow-up on the gross margin, in the second quarter you reinvested in pricing about $11 million you mentioned mostly private label investments. So a two-part question. One is, is your outlook for gross margin any different than it was prior to today for the back half of the year? And some of your peers and brands have talked about expected higher clearance and promotional pressures and some of the footwear that you also carry. So I guess to what extent do you see that as a pressure in the market today, or are you anticipating embedding in the back half guidance?

I think we'll break that one up, Chris. I think overall, embedded within the annual guidance that we gave, the fall assumption for gross margin is roughly flat. I think there's a couple of puts and takes to that. From a tailwind standpoint, shrink continues to be good news in both the first and the second quarter. I would expect that to continue. I think the overall tariff rate will be a tailwind. I think we will reinvest into what you would call a headwind, which would be pricing investments.

And I think fuel is going to remain elevated for the balance of the year.

In terms of promotional and competitive backdrop, I mean, I definitely think we saw the same thing a lot of our competition did in terms of an increase in promotions around the peaks, most notably Father's Day, Fourth of July, back to school. We expect that to continue into holiday. You know, we're in a bit of a lull now as we kind of get past back to school, but our anticipation as we go into Q4 is that it will be more promotional than last year. We have that embedded into our plans and forecast. And as I said, we've been working on rationalizing pricing in the lulls to try to afford some of that increased promotionality. And I think we've got a good beat on how the back half of the year is going to play out, and I think we're ready for it.

Thanks so much. Have a great fall season.

Our next question comes from Jeffrey Lick with Stephens. Your line is now live.

That was one who obviously, you know, your largest competitor announced had disappointing results, I guess, for a variety of reasons. You guys don't necessarily overlap with them perfectly merchandise-wise and or geographically. And I was wondering maybe you can just kind of, as you looked at that, what would you point out as, hey, this is where we were different, either merchandise or geographically?

Yeah, I would start with, I think it comes down to assortment. And I think we have a really unique position in the marketplace because of the diversity of our assortment. You know, certainly we overlap with, you know, some people on an athletic footwear and apparel side of the business and maybe a little bit in sporting goods. But, you know, we also do a big outdoor grilling and backyard business. We do a big cooler and drinkware business. We have a a big outdoor business that has been really strong through the first half of year in terms of shooting sports and fishing and camping. So I think we're maybe our results are a little different than than some of the people out there that are maybe a little more invested in purely footwear or apparel is the diversity of the assortment. And so I think sometimes that does that doesn't work in our favor, certainly when you're in a the footwear cycle and you've got lifestyle footwear and athletic brands driving the business, I think that benefits people to an outsized perspective and probably we didn't reap the benefits of that and I think on the downside, we're a little more insulated because of the diversity of our assortment.

That doesn't mean though that our footwear business was great, I mean it was our toughest business at roughly down 1%. We're excited that we did pick up market share there. And I once again point to diversity. We don't just have an athletic footwear business. You know, we sell cleats, we sell performance running, which did well, but we also sell work boots and work shoes. We do a big seasonal business in spring with sandals and flip flops. Our Birkenstock business has been really good. Our work in Western wear business has been really good with Ariat. So I think really what it comes down to is the diversity of our assortment is probably what's going to set us apart a little bit from some of our competition moving forward.

I just wondered maybe if you could drill down a little more. You gave some granularity in terms of the under $50K income, and then obviously it seems like you're getting some traction in the above $100K. If you can just combine that with the blue-collar areas you're in, maybe just drill down a little more because it does seem like you might be catching a part of the economy that is doing okay relative to themselves. It could just give some more granularity.

Yes, I would tell you that if you look at the under $50K consumer, we saw traffic there down high single digits, which is an acceleration, or you could say deceleration, I guess, from the trend we saw in Q1 where it was down, I think, low single digits. So I think that customer remains under pressure. I think that gas prices and tariff-driven inflation on discretionary products is really limiting their spending power. And I think they're being very choiceful about when they shop. Clearly we're seeing them shop closer to need. So I think that impacted a little bit of the back to school timing where we saw people buying closer to actually being back in school versus in advance of back to school. I think they're aggregating purchases around the key events in the window because they know that's when retailers are the most promotional.

So I'm not going to tell you that that customer's particularly healthy or we're seeing great trends there. We are seeing strong reaction when we do lean into promotions. We've been able to target them a little more aggressively with our new loyalty program where we weren't as surgical before, so that's a new tool in our arsenal. But what we're also excited about is we're really starting to add more consumers at the higher end, which traditionally hadn't been where we were strongest. Mid to high single digit traffic in the first half of the year with that customer over $100K. That's been going on for multiple years now. We think a lot of the new brands and initiatives that we brought in are getting that customer permission to come in and shop us. And what we're finding is they come in that they're trading broadly across the store.

My expectation is that the back half of the year, the under $50K consumer is going to remain under pressure and they're going to shop episodically. They will come out for Christmas, but I think they'll come out on the discounts of the deepest. And we're going to continue to lean in to loyalty to attract them and promote us. And then on the upper end consumer, we're going to keep running the place we've been running to get them to come in and shop with us and build that customer basket.

Our next question comes from Katharine McShane with Goldman Sachs. Your line is now live.

We wondered with regards to the World Cup, do you think there was any cannibalization within the store, just given the demand for the World Cup merchandise? I know you mentioned in the prepared comments of lapping the World Cup next year. How much do you think it lifted the comp? And can you maybe go through the initiatives again for next year that will allow you to lap it?

Sure. So I would tell you that the World Cup, in essence made our plan. We hit right at what we planned it at for the quarter. I would say that, you know, when the World Cup took place, it was right in the peak of Father's Day. And, you know, I wouldn't say it was 100% additive. Certainly I think people who maybe last year got a Magellan shirt or a Nike shirt for a polo. Father's Day maybe got a World Cup jersey this year. I would also say it was somewhat muted for us a little bit because we were up against Oklahoma City winning the championship. And obviously we have a lot of stores in Oklahoma that really benefited us, so that I would say dampened the effect a little bit.

As we think about lapping it next year, I don't think that'll be as big as obviously having the World Cup in the United States, but certainly you got to believe that the U.S.A. team will probably one of the favorites and we expect to see some offset there. We also think there's continued opportunity to get better at localization within our licensed team business. And then third, I would say some of the work we've been doing around sharpening our pricing. So, you know, we talked about returning to normalized localization. Value in some of our private brands. You know, what we found was some of the pricing that we'd had to move to to offset some of the tariffs on some of our fighter private brands. These would be brands like BCG, which is kind of our opening price point athletic brand, or Magellan Lugano Madre, which is kind of our fighting outdoor shirt. Those, you know, when we took those up, we saw a customer pull back.

And so as we've adjusted pricing back down to last year's kind of pre-tariff level pricing, we've seen demand come back with that. And so we do have that as an opportunity in the first half of next year. What we've managed to also do is to work on sourcing over the last year and find new countries and find ways to kind of mitigate or offset some of the tariff impacts so that we can live at those prices we used to live at. Now, this is not broad-based. We can't do this everywhere, but certainly on those opening price point fighter items, we believe having stronger pricing through the back half of this year and the first half of next year will also help us offset some of the World Cup volume that we generated this past spring.

And just as a quick follow-up, is there any way you can quantify what you saw with regards to traffic versus margin? Price or transaction versus value in the quarter? Yes, from a total basket standpoint.

Our ticket was up 4.5%. That had AURs up and units per transaction down, so ticket up 4.5% and transactions down about 2%.

Our next question comes from Simeon Gutman with Morgan Stanley. Your line is now live.

A quick follow-up to the back half comp question. So, Steve, you mentioned the midpoint of 1%. I guess could we draw the line in the sand that we should see positive comps going forward using the new store waterfall plus the inflection you've seen quarter to date plus all the newness that you have going? Sure.

We give a range for guidance for a reason. I think what we can control with the initiatives that we have in place. And I would reiterate those. We've got the credit card loyalty program, which we're one quarter deep into, and it's driving really great results. We've got the reinvestment in the price. We've got a trending hard good side of the business. It's helping offset a little bit of softness in some of the softer side of the business. We had a ton of newness coming in with the new brands we're launching, notably HOKA, the wall of Chicken Legs, the Ariat shops, the Redfield launch, et cetera.

You got a dot-com business that's been running double-digit comps for multiple quarters. You got the RFID expansion I already mentioned and then the new stores coming into the waterfall. So those are all positives. You know, I think the wild card is just what is going to continue to happen with the consumer backdrop. That is something, you know, we we don't control. And we think we've got the appropriate guidance moving forward, and I think at the midpoint it would solve back to a positive comp. We think we're very confident we can be within kind of the goalposts on that guidance. But that would be the thing that would make it tough to, you know, guarantee, which I think we're looking for at 1%. At the risk of piggybacking on Steve, I would say that the midpoint of our back half.

Guidance implies about a 1% comp. I think if you move beyond FY '26 and you look at the things that we talked with you guys about at the analyst day back in April, we feel really good about that long-term algorithm of sales up 5%, low single-digit comps, and double-digit EPS. I think once we get to the, the back of this year. If you look at what it is that we're at, the midpoint that we're forecasting, up 4%, up 10%, from an adjusted net income standpoint, and GAAP earnings per share up 12.8%. It feels like a prototype of what you should expect to us, but, yeah, back half embedded guidance is plus 1% comp.

The percentage of customers that you defined as low income, have you told us that? And then the other follow-up is this. When we had Investor Day, you showed us a couple of stores. I think one was Searcy, one was Perimeter Georgia. If you take stores, and I don't know if this is true, but have a less competitive overlap, right? You learn from some of the openings, we talked about this from four or five years ago, and you've repositioned the openings. Is there a tale of different comps if you take a cluster of stores that are in these more favorable locations versus call it some of the less, ones that are just higher competitive overlap?

Yes, so I think I'll start with your first part of that question, the percentage and the cohorts. You know, we talk with you guys about traffic and I.

I think if you look at the customers above $100,000, it's our largest and our fastest growing cohort of customers. It's pushing 40%. If you look at those that are below $50,000, you know earlier this year they were about 30%. I think it's, you know, still generally in that neighborhood but the shrinking obviously yes yes the one's growing high single digits and one's shrinking. So I like to say that beginning with that trend back in Q3 of 2024, if you look at our customer portfolio, it's significantly de-risked associated with where we're at right now. Right now just based off of the changes that we're seeing. And I think that those changes are really a reflection of that commitment to value and I think that's going to be even more in demand going forward. Yes, we've pivoted a lot since we started reopening stores back in FY '22. Initially, those first nine stores in 2022 were very, very opportunistic.

I think where we see our strength is being able to serve that underserved customer in mid-sized markets, that Always Game family that's got kids in the home, they're playing sports. They like to get outside and do things in an outdoors environment. We're seeing when we get that algorithm right in terms of where we're launching the stores, which we pivoted more into, outsized comp growth. We talked about mid-single-digit growth for all of them. Of the new stores. I would say that's stronger in the stores that we've launched, you know, in '24 and the first part of '25. I'm really optimistic about the back half of '25 stores that get into the comp later in the year. Overall, 50 basis point, tailwind as it relates to those stores that are in the comp set.

And I think we're getting better and more targeted the further that we go along. And I think you'll see more of that in the 125 stores that we open over this long-range plan.

The only thing I'd add to Carl's comment is if you look at the stores that are slated to open in the back half of this year, they're heavily weighted to those types of markets you just called out, Simeon. It's more mid-sized, smaller markets in our legacy or existing footprint, underserved customer, low competitive density, we have high expectations for those stores perform well.

Our next question comes from Michael Lasser with UBS. Your line is now live.

When you look at the category composition of what drove the business in the second quarter, a lot of hard goods, including sports and firearms. As you've moved into the current quarter where your comps are running up low single digits quarter to date, has it been the same categories that have driven the business, and can you achieve this midpoint of the guidance for the back half of the year if footwear and apparel remain under pressure?

So we have seen the complexity of the business beneath the surface change a little bit, obviously, in August and early September. The footwear and apparel businesses are the ones that most are impacted by back to school. We saw both of those come back in the month of August. So what that tells us is the customer is still out there, they will shop when they need to. As I mentioned earlier, we're seeing them buy closer to need. So I think there was maybe a little bit of a shift out of back to school, at least for us because we tend to have that earlier back to school into August from July. Some of that was probably driven by the tax free moves as well. And if you look at how we modeled the back half of the year, we definitely shifted some investment around, you know, for the remainder of Q3 into Q4 to fuel the trends we're seeing on the hard goods side of the business.

And I think we've got the appropriate forecast for the soft side of the business of the business knowing that it's going to be a little more competitive from a pricing perspective.

My follow-up question is, obviously, there were a lot of moving pieces within the gross margin in the second quarter. So, can you give us more detail on what you're expecting for the gross margin in the back half of the year? As you move into 2027, should we be anticipating that Academy's gross margin is going to be down after you have lapped some of the differences different moving pieces from this year?

Yeah, I think the, thank you for the question. You've got the annual guidance embedded within that annual guidance is for fall gross margin roughly flat. The puts and the takes, I'll just kind of reiterate what I said earlier. I think shrink will continue to be a tailwind and tariffs will be a tailwind. Headwinds will be that investment in pricing and I think fuel is going to be with us for the entire to the back half of the year. As it relates to next year's, we're not giving FY '27 guidance at this time. We will during when we typically do.

But I would just point you back towards what we talked you through in the analyst day related to going from a 9% EBIT to a 10% EBIT. That does not have a regression of gross margin embedded into it. The one thing, and I hope that you give us at least credit for transparency, but associated with the breakout of tariff refunds that we provided, what I will say is that 440 basis points of net gross margin impact in Q2, that is non-recurring. I think as it relates to FY '27 and beyond, we're not thinking about gross margin going down. About private brand penetration going up and how does you know new lower cost sourcing products allow us to do that. We're thinking about you know retail media network we put 30 basis points of EBIT margin in the waterfall that we showed you on analyst day. Look, it's going to be a smidgen this year in fall, but that's going to get bigger. We've got a credit card partnership that's performing well. We're seeing credit card spend inside of Academy up 20% year over year. And for the first time ever, we launched the MyAcademy Rewards MasterCard.

And so that provides a revenue stream for the company that will manifest itself on gross margin rate as well. So we're not planning to regress on gross margin in the back half of the year, nor in the LRP.

Our next question comes from John Heinbockel with Guggenheim Partners. Your line is live.

Hey, Steve, I wanted to ask, behavior of those higher income consumers, in terms of how they shop the store, buying closer to need, responding to promotion, what's their behavior like differently than the base? And then where do you think you're under-indexing with them? Where's the greatest opportunity to pick up wallet share?

I think that the trends you cited are true of pretty much all of our income cohorts, but I think it's more exaggerated within the lower income cohort. So I think the shopping is even more episodic. They definitely come out during the peaks on the calendar, retreat during the lulls, and it takes some pretty deep discounting to get some of those people, I think, in the store during those time periods. That's one of the reasons when we talked about ways we can get them to activate with us. We talked about using clearance, right? That is a way we can deliver deep value at the end of the season to these customers. And what we found in our customer research was they told us, hey, we will buy, you know, the out-of-season bat this year so that my kid can play, you know, softball or baseball next year. And they're okay with that if they can get a really good deal.

So we're going through one of those periods right now in September. We go through another one as we exit fall into spring in February and early March. And I think they definitely come out then. I think they'll come out again during holiday, when we're running deep discounts around Black Friday and kind of those promotional windows. But I think you're just seeing more of a pronounced behavioral change from them than you do see from the upper income consumer. That being said, on the other end of the spectrum, newness continues to do well. So we will see almost agnostic of price that if there is something really new that they have to have, that they will buy it.

And so we're also leaning into that as well. But I think that's probably a little more of the higher end consumer than the lower end consumer. On the under indexing, where we under-indexing with the higher household income. I think the brand that we're launching, I think the HOKA going live with online and 15 stores out of the gate, that'll give us a really good read about how our customer responds to that and whether it drives more more customer cohorts in. I look at what we're doing with work in Western, you would think. That's not a guy out there who's road grading and stuff like that. That's a look and it typically has a higher household income that he's willing to invest in. And so I think that to the extent that we're launching new brands that are exciting and compelling, I think it'll draw more traffic, which is what we've seen from that above $100,000 household, but I think it'll drive new traffic as well.

And Carl, quick follow-up. The base leverage expenses is impressive. Where's the bulk of that coming from? Is that, you know, because it's gotta be a large number. Is it overhead predominantly? Is it a little bit of that supply chain? I guess, where is it coming from and then, I don't know how sustainable 120 or 130 basis points is, what's your thought on that?

Yes, I actually really appreciate the question. So here today, SG&A is 20 basis point levered from a year ago. In the second quarter, we were 20 basis points of deleverage. We talked in my prepared remarks about where we're investing. That should not be a surprise to you guys. That is our long-term algorithm. And we threw in a little bit of tariff refunds on top of it. That was a deleverage of 150.

So where the 130 basis points of what I refer to as base leverage came from would be corporate labor and recruiting and, you know, maintenance and repairs and third-party spend with what we call professional fees. I think the team is doing a great job of managing safety incurrences, so things like workers comp and general liability, those are providing benefit for us and the team has managed healthcare costs well. So those would be some of the categories that I would include. And yes, I don't think it's realistic that it's going to be 130 basis points on a slightly negative comp, but I think if you do the math on what low single digit comps would mean, that gets to be really exciting and makes that 10% EBIT mark a little more real.

Our next question comes from Gregory Melich with Evercore. Your line is now live.

Thanks. I have two questions. First, thanks for the detail on the tariffs and the reinvestment. Just wanted to make sure we're thinking about the right way. If we think about that, what was in gross margin and price, that should be a number that sort of continues into the back half and maybe goes up a little bit, just given the way it flows in. And then on SG&A, should we consider the reinvestment and store experience to be something that's in the base in the back half, and then my follow-up was on the new innovation.

Yes, I think as you think about reinvestment into the customer in the form of price, I think you should consider that as part of the algorithm for flat gross margin overall in fall. And the investments into customer experience, specifically with labor and marketing, was in some very select markets in the second quarter. Testing and learning, I would not bake that into the long-term algorithm.

Got it. Super helpful. And then I guess as you're seeing some of the benefits come and things like even treadmills, etcetera. How is the reallocation of the store footage going as you do the Jordan's shop in shop and even as you bring in HOKA and other things? Are we expecting a certain area to expand, maybe another area to contract, and is the SKU count growing or shrinking as part of this?

Yeah, what I would tell you is that we're continuing to focus on localization. You know, I think that we've done a good job of localization over the past couple years. I think we can continue to do an even better job. And as we move forward, I think you're going to see us continue to kind of shift floor space around towards the trending categories. Maybe even reposition some things in the stores based off of what the localized preference is. We would tend to probably make those moves either A, in kind of the new store footprints as we roll out those new stores, or one of the things we shared with you guys at the analyst day is that we're going to be remodeling roughly 30 to 40 stores a year moving forward. So we'd be reallocating space as we go through each one of those, if it makes sense. So there definitely is some reallocation of space going happening and it's definitely going to be an ongoing thing for us over the next year. Multiple years.

And it's not just reallocation, it's also shifting things around to highlight and feature things that the customer showing a strong demand for.

Yes, from a SKU count standpoint, I give a lot of credit to our Chief Merchant, Matt McCabe. He talked with me the day that I started about depth and breadth. I think the team does a good job of optimizing and reducing breadth to invest into depth and I think you're seeing that related to in-stock positions and I think you'll see more of that rationalization to invest into newness going forward.

Our next question is from Jonathan Matuszewski with Jefferies. Your line is now live.

The first one was on pricing. I appreciate the examples of some of the price point changes made possible by the refunds. So just to clarify, from maybe a pricing gap perspective relative to peers, is it fair to say when we exit this year given the reinvestment in price, it sounds like your gaps relative to some of your larger peers. Is that going to be kind of consistent with how your pricing was relative to them before Liberation Day?

I would tell you we track this on a weekly, daily basis, and I would tell you that our pricing gaps relative to our peers has remained consistent throughout this year and the back half of last year. So when we took our pricing up in some cases, that did not decrease that pricing gap relative to our competition. What I will tell you is there's a couple instances, and it's and I want to make sure we're clear on this. It's not everything, right? It's not broad-based, but there are select items where we saw a pretty big fall off in demand across some of those kind of magic price barriers. Like we took a Coach's Polo that I mentioned on the call from 9.99 to 12.99 and demand fell off and the AUR our uplift is not enough to offset the unit down lift we saw. So we have gone back and adjusted those prices back to kind of those key natural price points. So in effect, that might even actually widen the gap with us versus some of our competitors.

We think it's something we have to do because it's on these items that we saw the biggest demand erosion based off those price increases.

Understood. And then just to follow up on the assortment, Carl, you mentioned, you know, your Chief Merchant. I guess just, you know, as you think about the shift in your customer file over the past couple of quarters, can you maybe just level set where your mix stands today in terms of sales, you know, maybe good, better, best? And, you know, considering some of the current brands that you're exploring, expanding into more doors and then some of the new brands that you're welcoming, how does that kind of good, better, best mix change over the next 12, 24 plus months?

Yes, I'll take the question on a broader perspective. If you go back over time, even pre-pandemic, we probably didn't have any best. It was primarily a good and better assortment. We've evolved a lot over the past five to six years. It's been a slow, gradual evolution. We're probably sitting now with about 25%, 30% of our assortment in the best tier. And it really depends by category.

Some categories lend themselves more to better best product than others. But I would say that best, depending upon the category, is probably somewhere in that 20%, 25% range. You know, that will continue to grow a little bit, but we do not want to lose our anchor in the good because I will tell you that at our core, we're a value-based retailer, and that's what that good level represents for us. What we found was we were basically forcing customers to go shop other places because we didn't have that better best environment of the assortment. So we see that as mostly additive, but we're not going to give up that core good business and good price points.

We have reached the end of the question and answer session. I'd like to turn the call back over to Steve Lawrence for closing comments.

Thanks. I want to close by thanking everyone for joining us today. I also want to recognize and thank the 22,000 plus Academy team members who are working tirelessly to provide our Always Game families the sports and outdoor gear they need to feel the fun in their busy lives. Additionally, I'm excited to welcome Matt Posh as our new EVP and Chief People Officer. Matt brings a wealth of retail knowledge and experience from his tenure at Burlington, and he's going to play an important role in building out and developing our team in the future. As remainder of this year plays out, we're going to be focused on driving sales, gaining market share, delivering value for our customers, and executing the strategic initiatives that will drive sustainable growth over the long term. Despite ongoing uncertainty related to the consumer environment, we believe that our strong balance sheet, disciplined operating model, and compelling value proposition position us well the remainder of the year. When you combine that with the momentum we're seeing so far in Q3 with sales out of back to school and labor coming in at a low single digit positive comp, we're confident in our ability to deliver against our updated guidance and remain committed to generating free cash flow, investing in profitable growth, and returning excess capital to our shareholders.

Have a great rest of your day.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

This live transcript is auto-generated without human intervention or review.

Good morning, and welcome to the Academy Sports and Outdoors First Quarter 2026 Earnings Conference Call. This call is being recorded. [Operator Instructions]

I will now turn the call over to your host, Dan Aldridge, Vice President, Investor Relations for Academy Sports and Outdoors.

Good morning, everyone, and thank you for joining the Academy Sports and Outdoors first quarter fiscal 2026 financial results call. Participating on today's call are Steve Lawrence, Chief Executive Officer; and Carl Ford, Chief Financial Officer.

As a reminder, today's earnings release and the comments made by management during this call include forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in today's earnings release and in our most recent Form 10-K and Form 10-Q filings. The company undertakes no obligation to revise any forward-looking statements.

Today's remarks also refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in today's earnings release, which is available on our website at investors.academy.com. This morning, we will review our financial results for the first quarter of fiscal 2026, provide an update on our strategic initiatives and discuss our outlook for the year. After we conclude prepared remarks, there will be time for questions.

With that, I'll turn the call over to Steve.

Good morning, everyone, and welcome to our first quarter 2026 earnings call. Our plan this morning is to discuss our Q1 results, while also updating you on the progress we're making against our long-term growth initiatives.

Turning to our first quarter results. We were pleased to move back to comp store growth in Q1, with sales coming in at $1.44 billion, which was up 6.7% in total sales and translated into a 2.9% comp increase. Both the comp and total sales were on the high side of the range we communicated in our press release issued on April 7, 2026, and in advance of our Analyst Day where we gave an update to our long-range plan and goals. These results were driven by a combination of a low single-digit positive traffic, coupled with a high single-digit AUR increase. Units per transaction were down slightly, which we would attribute to the increased AUR.

Positive results were broad-based with our dot-com business comping up 17% and all four of our divisions running increases for the quarter. Outdoor was our best performing category at up 12%, driven by strength in fishing and Shooting Sports categories. Meet the surface, our animal business, which was a headwind for us most of last year turned positive in February and accelerated after the contemplate in the Middle East began. Our firearms business also continues to be a bright spot and utilizing mix checks data as a proxy, we have grown market share in this category for 8 consecutive quarters. To help build on the momentum in the Shooting Sports business, we launched the suppressors category into a limited door count during the first quarter with a gold rolled amount to over 100 stores by the end of the year. This is a rapidly growing category in the industry with a strong attachment rate to firearms and high EURs. Since suppressors are totally new to our assortment, this business should be 100% accretive and provide an additional tailwind for the Shooting Sports category throughout the remainder of this year and next.

Sports & Recreation was our second best business at plus 6%, with the increase driven by solid gains in baseball, which fueled our team sports business during the first quarter. We also saw a double-digit growth in our front-end business. Normally, we don't call out front end, but we're seeing rapid growth in this area driven by the collectible trading card business, which has benefited from our increased investment in its category. In addition, we continue to see solid improvements in our outdoor secrets business driven by the leadership position we've taken in [indiscernible] box.

Apparel sales were also positive at plus 5%, with particular strength in our outdoor and work businesses, supported by expanded assortments from Carhart, Murli [indiscernible], Levi's and our Magellan Outdoors brand. We will continue to lean into the Work Western lifestyle trend with the addition of roughly 100 areas shops in the back half of the year. On the athletic side of the business, gains were driven by continued momentum in the Nike and Jordan brand, coupled with double-digit increases in our better private brands are freely enrolled. In the second quarter, we plan to add 55 Jordan brand shops on our apparel pads, which will take our Jordan Brand shop count to 100 stores and continue to fuel the growth in this business. Footwear sales were up 3% for the quarter. Key drivers of growth in Q1 were our cleated business driven by baseball along with our summer seasonal businesses, driven by Crocs and Birkenstock.

We also remain encouraged by the momentum we're seeing in the performance running category fueled by key platforms such as the Mikeva Mero, the Adidas EOS, the New Balance Ellipse and the Brooks [indiscernible]. Our plan is to continue to build out our assortment and space devoted to this category as we progress throughout the remainder of the year. Based on the solid start to the year, we saw growth in market share across all of our businesses, both for the quarter and on a rolling 12-month basis. We've also driven a positive comp over that same 12-month period. We would create the momentum with building in the business and the market share gains to the continued progress we're making against our three core growth strategies, which I'll now give you a brief update on.

New store expansion remains our #1 growth lever, and we're starting to build critical mass behind the strategy. We began the year with 39 stores from our 2022 through 2024 vintages in our comp base. This tranche of stores continues to perform well with sales comping in the high single digits. We anticipate this tailwind should accelerate as the 24 stores from our 2025 in start to flow into the comp base as we crossed through the year. During the first quarter, we opened up two new stores in Canton, Ohio and Asco, Oklahoma, but of which support our strategy to grow in midsized markets. These are underserved communities and tend to over our core customer the always game family. During second quarter, we will open up three more stores with locations in [indiscernible], Pennsylvania, North Knoxville, Tennessee and Morristown, Tennessee. The remaining 15 to 20 stores are expected to open in the back half of the year with a heavy focus in legacy and existing markets.

As we head into 2027 and beyond, we'd expect to have a more balanced mix of openings between the first half and the second half of each year. Our second growth strategy is to improve the productivity of our existing businesses. There are multiple initiatives focused on driving comps in our legacy stores and improving the core business during the second quarter. Initiatives that will have the biggest impact on our comp sales through the remainder of the year with the relaunch of our my Academy Rewards program, which is being integrated into our loyalty ecosystem. The newly integrated program features a three-tiered structure. The base tier is my Academy Rewards and does not require a credit card to access savings. The key element of the value proposition at this level includes both a $15 welcome offer and birthday reward, the $25 of award in the $500 spend threshold and preshipping on all dot-com orders over $25. The middle tier Macadam Rewards requires a economy private label credit card, which gives you access to 5% of the purchases and Academy. It's important to note that the customer gets these savings instantaneously at point of sale versus having to wait for award certificate that they can redeem against future purchases, which is the case with most of the competitive office in the marketplace. This tier also qualifies for free shipping on all conferences with momentum purchase requirement. The top tier is unlocked by our new co-branded myAcademy Rewards Mastercard, which we call the official car fund.

Customers in this year hit all the benefits from the other tiers while also getting a higher credit limit, coupled with the best in market, 2% MAC on all spend outside of the Academy and the former rewards can only be redeemed at a category. We're in the process of reissuing new cars to solve our current cardholders and plan to be complete by the end of June. We're already seeing an uplift in sales from this initiative driven by increased enrollment and in card utilization. We believe customers are leveraging our best-in-market value proposition as a way to offset the rising costs we're dealing with in their everyday lives. Enrollment in myAcademy awards is up double digits year-over-year, with our goal being to add an additional 2 million new members this year, which will grow our total loyalty program to over 15 million members.

As we shared before, summer is one of our prime selling season, and we're well positioned this year to help fuel the fund for our customers. Our in-stocks continue to run up over 200 basis points versus last year, driven by our standard utilization of RFID. In addition, we have several non-comp tailwinds this year including World Cup being played in venues across our footprint, coupled with America's 250th birthday. We are well stocked at World Cup year, summer essentials and all things read white blue, so we can maximize the opportunities ahead of us in the second quarter.

Shifting gears to our omnichannel business. We continue to make solid progress, which is evidenced by the 17% growth in sales and the 100 basis point expansion and penetration we experienced in Q1. We have two key focuses during second quarter. First, we're expanding our same-day delivery platforms to include Uber Eats and Instacart is a complement to our existing partnership with DoorDash. Our research shows there is minimal overlap between the customer bases for each of these services. So expanding our online presence to include these additional same-day delivery platforms should be mostly accretive and expose our brand and product categories to a broader audience. In addition, we plan to migrate the search platform from our site to be powered by Google's AI commerce search and Gemini Enterprise customer experience as we turn the corner into back-to-school. We believe customers are increasingly utilizing AI agents to aide them as they shop online.

So moving our search to be powered by AI is a natural evolution and will be intuitive for them. As we continuously evolve our online capabilities, we expect the sales mode we've built over the past years business will continue to provide a strong comp tailwind to our overall sales.

In summary, our belief is high gas prices and other inflationary pressures will persist and continue to negatively impact discretionary spending for the American consumer throughout the remainder of the year. In the face of this pressure, we are committed to remaining a steward of value for our customers while we methodically execute against our long-range plan and objectives. As our strategies mature, and we build critical mass across each of them, we believe this will provide a strong tailwind, which will allow us to sustain the positive momentum we built in the first quarter. Based on the solid start to the year, we're raising our annual sales guidance to be plus 3% to plus 5%, which would translate into a flat to plus 2% comp sales increase for fiscal 2026.

Now I will turn it over to Carl, who will give you a deeper dive into the Q1 financial results along with the additional information on our updated 2026 guidance. Carl?

Thanks, Steve. Net sales for the first quarter were $1.44 billion, an increase of 6.7% with comparable sales up 2.9%. The E-commerce remained a strength in the quarter with over 17% growth, which accelerated versus fiscal 2025 levels. We expect e-commerce to remain a tailwind throughout the year as we continue to expand our endless aisle, enhance search functionality and expand same-day delivery. As expected, gross margin for the quarter was 33.2%, down 71 basis points year-over-year. The decline was driven by tariffs and was partially offset by favorability in freight and shrink. We expect the first quarter to be the largest tariff impact for the year and for the pressure to subside as we move through 2026. SG&A was 28.1% of sales, an improvement of 77 basis points, primarily driven by the 2.9% comp. Additionally, we are lapping $7.5 million related to the NIKE expansion and Jordan brand rollout from the prior year. The improvement was partially offset by a $3.6 million increase in stock compensation expense year-over-year.

Operating income for the quarter was $74.7 million. Diluted earnings per share was $0.80, an increase of 17.6% and adjusted earnings per share, which excludes stock compensation, was $0.93 and an increase of 22.4%. From a balance sheet and cash flow standpoint, we remain in a position of strength. Our inventory has continued to improve versus last year. with total inventory dollars per store down 0.8% and units per store down 6.8%. We ended the quarter with strong liquidity and generated healthy free cash flow of $121.6 million, representing a 14.2% increase year-over-year. This allows us to continue investing in the business while returning capital to shareholders. Our cash balance was $338 million at the end of the first quarter, and we have an untapped $1 billion revolver. Our capital allocation philosophy has not changed. Approximately 50% of cash flow from operations is reinvested back into the business, and we expect to return the remainder to shareholders through dividends and share repurchases.

During the first quarter, we repurchased approximately 1.7 million of our shares, representing about 2.5% of our shares outstanding, paid $9.6 million in dividends and continued to fund strategic investments, including new stores, omnichannel capabilities and technology initiatives. At the end of the first quarter, we had $338 million remaining on our share repurchase authorization. In May, we refinanced our outstanding long-term debt at a 5.875% rate and amended and extended our ABL, which will generate approximately $2.5 million in annual interest savings for the next 5 years. The maturity date on each is 2031, and additional details were provided in our May 14 press release, which can be found on our Investor Relations site.

Before getting into guidance, I wanted to share a few thoughts on the consumer and how ongoing trends played into how we think about the shape of the year. The consumer environment remains pressured as high gas prices largely offset the benefit of tax refunds in the first quarter, particularly for lower-income households which continues to weigh on discretionary spending. At the same time, we continue to see higher income consumers, which are our largest and fastest-growing cohort trade into Academy in search of value. During the first quarter, trips from consumers who make over $100,000 grew by mid-single digits. Consumer confidence remains bifurcated with materially higher confidence levels among upper-income households versus lower income cohorts, where there is less optimism about their future financial prospects. This dynamic continues the derisking of our consumer base that began at the end of 2024 and and reinforces confidence in Academy's value-driven positioning.

Turning to guidance. We are updating select elements of our full year outlook to reflect the first quarter sales performance while also planning for higher gas and freight prices, tariff dynamics and the timing of new store openings. We now expect sales to be in the range of $6.23 billion to $6.35 billion, or growth of 3% to 5% and comp sales of flat to up 2%. We are maintaining our gross margin rate guidance of 34.5% to 35.0% for the year. We are raising the midpoint of our net income guidance and now expect a range of $390 million to $415 million. We expect earnings per share of $5.95 to $6.35 and adjusted earnings per share to be in the range of $6.40 to $6.80. At the midpoint, we expect comp sales to be approximately 1%, gross margin to be roughly flat and modest SG&A leverage for the full year. resulting in EPS growth of over 10% when compared to fiscal year 2025. This EPS guidance does not include any impact from future share repurchases.

Looking at the shape of the year, we expect our strategic initiatives to drive positive sales. As a reminder, we had no IIFA tariff impact to gross margin in the first quarter of 2025 and costs attributable to tariffs increased throughout the year as we use the weighted average method of inventory accounting, with their full impact hitting average unit cost in the fourth quarter of 2025. We continue to expect modest gross margin pressure in the first half of 2026, followed by modest expansion in the back half, resulting in approximately flat gross margin at the midpoint of our full year guidance.

On SG&A, we continue to expect leverage in the first half with potential deleverage in the back half as new store openings accelerate, ultimately arriving at modest leverage for the full year at the midpoint of our outlook.

To close, we continue to operate in a bifurcated consumer environment. Higher income consumers are increasingly trading into Academy in search of value, while lower income consumers remain under pressure. Against this backdrop, we are executing a rock-solid plan with clear growth tactics, supported by our strong balance sheet, disciplined expense management, and relentless focus on value. Together, these position us well to navigate the current environment and drive long-term value for our shareholders.

With that, we're ready for Q&A. Operator?

[Operator Instructions] Our first question comes from Jeff Lick with Stephens.

Congrats on the nice quarter. I guess I'd throw this out to anyone. I'm just curious, since the Analyst Day, maybe you could just comment on what has surprised you in either direction, what's been incremental, and are you -- how are you seeing the gas prices manifest itself and consumption patterns? And then just my follow-up would be, given the World Cup and America 250 is in 2Q. I think you've mentioned previously you were expecting 2Q to be the weakest quarter in terms of comp. Is that only going to be the case.

Yes, I'll start. Thanks for the question. So yes, gas prices definitely are a headwind for the American consumer. I saw an article, I think, a week or so ago that said, on a monthly basis, it's pulling out about $17.5 million dollars of consumer discretionary spending each month. So that definitely is impacting the consumer. I'd say, as we've gotten into Q2, we've seen a little bit of a slowdown from the consumer, which we would attribute to gas prices. That being said, we kind of look at the quarter as three legs of a race. The first leg is getting through Memorial Day, which is our first big event. Total sales for Memorial Day are tracking up low single digits, roughly flat comp. And while we'd like to be playing with the lead, what we're excited about is we still have a lot of the initiatives that we're counting on to drive business ahead of us. We've got the World Cup, as you just said, kicks off on Thursday. We got our credit card relaunch, which is taking place right now. And we're issuing new class to consumers, and that should be in people's hands, and that has a reactivation reward associated with it. So we think that will help drive business for the next leg of the race with Father's Day. And then, of course, we've got Americas 250 ahead of us. So definitely seeing an impact, a little bit of a slowdown from what we saw in Q1 with the consumer, tracking flat through Memorial Day, but optimistic about the opportunity still ahead of us with a lot of initiatives still to play out.

You asked about what surprised us from our April 7 Analyst Day. I would say this quarter generally came in as expected. We were at the high side of the guidance that we gave from a top line perspective. We had indicated that we knew that there would be gross margin pressure associated with anniversary-ing last year's Q1 that didn't have that IIFA-tariff burden in it. And from an expense management standpoint, we knew that we weren't reanniversary-ing the Jordan launch costs and the Nike expansion cost that was $7.5 million. So I would generally say that the quarter played out like we thought that it would, but it was towards the high side of the guidance that we put out there.

Our next question comes from Kate McShane with Goldman Sachs.

We wanted to focus on gross margins. with the strength in AMO just being a lower-margin category. Did that contribute at all to some of the pressure or the GPM shortfall that we saw in the quarter? And just how should we think about the cadence of some of the tariff pressures that we saw in the first quarter for the rest of the year?

Yes, I'm going to answer this very directly. So if you look at the 71 basis points of gross margin degradation to Q1 of last year, 110 basis points was driven by tariffs essentially having the full burden of that IIFA impact in Q1 of this year versus really nothing last year. And that 110 basis points of tariff headwind was offset by 20 basis points of good news in shrink and 10 basis points as it relates to shipping. So I think of transportation, e-commerce shipping things of that nature. That's how you kind of arrive at the big components of it. From an ammo perspective, total field was up 12% during the quarter. And so field carries a lower margin profile. Amos certainly in the overall outdoor category. And so it was a headwind as it related to, but I would say it was offset by other puts and takes in the mix.

Our next question comes from Chris Horvers with JPMorgan.

So my first question is on Decker's latest earnings call, they talked about planning to continue to selectively expand wholesale distribution with a few thoughtfully chosen tests with new partners this fall. Just curious if you can comment if you're a part of that plan tests.

Yes. I'll give you the same answer I give every time I'd ask this question. If and when we're ready to announce something, you guys aren't going to have to ask us, we'll tell you nothing new to announce at this moment in time.

Got it. And then I guess just stepping back, as you think about how you think about the balance of the year, I guess what changed versus what you initially thought? Is [indiscernible] expected to be a continued tailwind for the balance of the year more than you originally thought. What's your read on Memorial Day weekend and what that says about Father's Day and July 4 and the 250th anniversary as well as World Cup. So can you maybe take us through like the puts and takes of maybe how you're more optimistic versus something that's more balanced because you basically kept the balance of the year on the comp side.

Yes, I would say what we saw happen across through the quarter is I think it's pretty widely documented that increased tax returns were out there feeling sort of spending. And I think that helped kind of mute the impact of gas prices as we go through Q1. I think we're kind of past that now. And as we've seen kind of the exit rate coming out of the quarter. Move from an up 3-ish comp to more of a flat. I think that's kind of what we've seen happen with the health of the consumer. What gives us confidence about the remainder of the year is a lot of the initiatives that we have, right? We've talked about our credit card relaunch and kind of integrating that with our loyalty program. We think that's a big deal for us. It's probably going to have the most impact on our business moving forward. We think it's well timed, particularly in an environment where consumers looking for value, the fact that we're going to give the 5% off every day with the Academy credit card, which we've had before, but now 2% back on upside spend I think, is a big deal. I think we've got other things that we've created, self-created kind of tailwinds like leaning into that work -- western work category, rolling out area shops, leaning into newness with brands like High Rocks and Brunt coming into the assortment. The dot-com growth we're seeing, I think all those things kind of provide a little bit of a tailwind for us that helps us overcome some of the headwinds. But I think it's going to be a cautious consumer out there. They're clearly being very cautious about when they shop and choiceful about buying more on promotion or in clearance. And so that's something we're going to have to think about. [ Amal ] specifically, I think, was a tailwind for us before the conflict with Iran happened, accelerated a little bit in Q2. That's sort of -- or Q1, I'm sorry, that's sort of died off as we've gotten deeper into the conflict. I think it will move from being a pretty good tailwind. It still being a tailwind throughout the remainder of the year. We're lapping a pretty tough animal business. But we believe in is that the initiatives we put in place the self-help initiatives are going to be the things that are going to help us continue to drive the business throughout the remainder of the year.

Our next question comes from Jonathan Matuszewski with Jefferies.

My first question was on Nike and Jordan. I think last year, there were a couple of quarters where kind of that combined business is growing somewhere between high single and maybe low double digits I think we're at maybe a point where we've maybe lapped the initial kind of rollouts of converse in Jordan. So maybe just an update on how your -- the trends you're seeing in that combined business and what type of growth is embedded for the remainder of the year and the updated guide?

Yes. So if we're still in a place we launched Jordan, if I remember, last year, in April, that being said, we did have product on the floor in March. So if you look at the combined Nike, Jordan business for us, that was up mid-single digits. We lapped the launch and ran an increase that week, which we're excited about. So it's still healthy for us, and we consider or expect that the trend that we're seeing first quarter to continue throughout the remainder of the year. We think Nike is a growth engine for us. We're really excited about some of the expansion we're going to have in some of the performance running categories like [indiscernible], we're going to have that and roughly 150 doors going into back-to-school, which is about double the door count we had last year. And it feels like they're just starting to get their innovation pipeline really moving.

Great. That's helpful. And then just a follow-up. I guess just regional trends, NBA championship spurs, maybe if you could give some commentary on kind of related fan wear, implications for demand and maybe kind of dispersion you're seeing in Texas versus other markets would be great.

Yes. I would say the licensed team business for us has been a tailwind for us, and we'll probably be a tailwind throughout the summer. That's where a lot of the World Cup product lives, and we expect that obviously to continue into July as the World Cup plays out. The spurs is certainly a little bit of a tailwind force. You got to remember, though, we're also up against last year, the thunder winning the championship, and so that's in our geography. And while we have fewer stores in Oklahoma City, kind of whole state activates [ probably 1, ] so it's pretty similar to what we're seeing with the spurs. So we hope that spurs win, we don't have any stores in the [indiscernible] area, so the next winning wouldn't be a good thing for us. But we're pretty happy so far with the license business and expect it to be a tailwind, primarily driven by the world cut throughout the remainder of the quarter.

Our next question comes from Joseph Civello with Truist Securities.

I just wanted to see if you could provide any color on early June post Memorial Day. And if anything, in recent trends, like you mentioned with the gas prices has impacted your view on what the World Cup might deliver?

Yes. So the world up, it's still early. We just set that at the start of -- or at the front of our stores in the markets where the World Cup naturally played is saying it's roughly 40 doors. And we've seen an acceleration in that product once we set it. We set it right after Memorial Day weekend. So I think it's still early, but initial signs are pretty good. In terms of trends, I'll stick with what I told you, we kind of are looking at Q2 as kind of a three-legged race, right? First leg is Memorial Day. We came out of that running flat comps up low single digits. The next one is Father's Day. Father's Day is a week later on the calendar. So we're still kind of in the middle of that. And then from there, we move into Fourth of July with kind of back-to-school at the tail end of the quarter. So so far, so good, lots still ahead of us.

Yes, from a fuel specific standpoint, we think that fuel prices at an elevated level are going to be persistent throughout the majority of this year. We talked a little bit about the sensitization that we did at that on our last call. So I would now say that we've encapsulated that within our gross margin guidance. As it relates to weighing on the consumer, $4 plus gas, what we think being a steward of value is a really good thing in times like these, and we continue to see customers, the upper income levels, [indiscernible] 4 and 5 transacting more with us year-over-year. That trend has been consistent in the back part of 2024, and we saw a lessening of that somewhat in Q1, which we think could be a turning point.

Got it. And then just a follow-up on the tariff assumptions that are in for the guidance. How should we think about rates and refunds and stuff like that through the rest of the year, what's baked in?

Yes. From a tariff perspective, we have disclosed to you guys that we sold our right to a refund for a portion of the EPA tariffs from last year. We disclosed it in the 10-K last year as well as in the third quarter. And so that -- we monetized about $10.5 million included in our guidance for this year is recognition of that $1.5 million. There's also for the portion that we did not sell the rights to. We have included that in our tariff guidance, and that's what's included.

So the portion that you didn't sell is also embedded, got it. Okay.

I guess just for clarity there, we did not receive any tariff refunds in the first quarter. There is nothing associated with refunds in the first quarter. We have started to see those low in the second quarter. And so what's embedded in our guidance is what we monetize as well as what we expect to receive.

Our next question comes from Paul Lejuez with Citi.

Just to clarify on the last tariff point, did you guys record a receivable that is flowing through the P&L? And I guess, does this represent a change versus what you had baked in the guidance as of last quarter?

No. In order to book a receivable from an accounting standpoint, we would have had to recognize that. Last year, we did not -- we put it on our balance sheet, essentially as a contingent liability, pending clarification from the administration associated with how refunds will play out. I think we're seeing some clarity in that. So the $10.5 million that was in our cash flow and our balance sheet and spoken to at year-end within our 10-K. We are anticipating that being recognized this year versus recognizing it last year with the receivable, if that makes sense?

Yes. And which quarter is benefiting from that 10.5% running through the P&L?

We don't give quarterly guidance. I will tell you that there was no recognition in the first quarter, but it is in our annual guidance, that $1.5 million.

Got it. And then just relative to the updated comp guidance range that you gave today, can you just talk about where you expect each quarter to fall relative to that range, specifically interested in how you're thinking about 2Q, but would love to hear your thoughts on each quarter relative to the full year range.

Yes. We don't -- obviously, as Carl just said, we don't give quarterly guidance. As was noted earlier, I think by somebody, Q2 is our best quarter last year. We're up against a modest comp gain. I think it was up 0.2% last year. As we mentioned earlier, we're tracking flat through Memorial Day. We still got a lot ahead of us. We're optimistic that the remainder of the year, we're going to be somewhere between that flat to up to comp, and that would be inclusive of what we think is going to happen in Q2.

Got it. And then just last one on World Cup-related product, do you view those sales as incremental? Or do you feel that, that's a substitute for something else in the store?

I think it's mainly incremental. Obviously, having the world's largest soccer tournament in the U.S. soil and having people cheer for their team that they do once every 4 years come in and celebrate that. I think that's mostly incremental. I don't see that as a trade-off from a college or a pro football fan, I think it's incremental.

Our next question comes from Ike Boruchow with Wells Fargo.

Two from us. the gross margins inflecting in the back half. Can you just comment on the drivers there? Is that just effectively the tariff headwinds kind of rolling off or getting less bad? Or is there something else within the model that's kind of shifting as you kind of move through the year?

That is absolutely the main thing that you should be thinking about. We bore the full burden of that weighted average cost impact of IIFA tariffs towards the back part of last year. Q1 was -- you're up against something where there was none of that. You'll see that tariff burden moderate throughout the year. And so I think my hope is that the shrink improvement that we saw in the first quarter will continue. I think fuel will be a for the year is what it's looking like. But I think the main driver of that inflection will be the diminishment of the Q1 tariff headwind that we experienced in Q1 of '26.

Got it. On the store -- just two more. The store count, the ramp through the year, I think it's 3 in the second quarter. Can you just give us 3Q versus 4Q, the plan for the [ 15 to 20. ]

We haven't broken that down. We're a little more back weighted this year than we wanted to be. If you remember, when we were kind of looking at the class of 2026 stores, is right when the whole tariff situation kind of changed, and we weren't sure what the impact was going to be in terms of steel, construction costs, et cetera. So we're more back half weighted. Our goal is obviously to get all the new stores opened up prior to Thanksgiving, but it will be fairly balanced across both quarters, more back half weighted than we initially would like next year, expect it to be more balanced.

Got it. And then last one from us, just the commentary on the flat comp to Memorial Day, I understand that. But can you just comment the last two weeks, I assume they've slowed a little more considering your comments on the consumer. But can you just give us either the last two weeks or the quarter-to-date in totality. I'm sorry to harp on it, but I feel like it's relevant.

Well, we're in a period right now where father says a week later, so it's a little murky, but we're happy with the trends we're seeing, and we're still optimistic about being somewhere between that flat to up 2% for the year.

Our next question comes from Simeon Gutman with Morgan Stanley.

This is Pedro Gil on for Simeon. Nice quarter. I wanted to ask you about the comp guidance for the rest of the year and the shape of the quarter. Should we expect the second quarter to be sort of the strongest quarter in the year as you have World Cup and the 250th anniversary and the rollout of the loyalty program? Or is it more of an even cadence for the remaining three quarters in the year?

Pedro, sitting where I'm at today, I think the 2.9% comp that we experienced in the first quarter, it's obviously outside the range of the 0 to 2%. I think it's going to be the strongest quarter. I think we've got a difference in the year-over-year base related to Q1 versus Q2 of last year. We're excited about the credit card relaunch. We're excited about the World Cup and the 250th, and some of the new brand launches that we have. But I think the rest of the quarters will be within those navigational beacons.

Okay. That's helpful. As a follow-up, I wanted to ask you about the work you're doing in supply chain. Can you give us an update on the efficiencies you're driving? And how should we think about transportation cost for the rest of the year?

Yes. Some brought in a new Chief Supply team Officer, Rob Howe, who are back on with Cisco Foods? How long ago was that now? He seems like you about two years ago. I think he's doing omens work. I think he's balancing capacity. If you look at our store count growing by 8% last year, it will probably be in that 7% this year. He's got to make a lot of room in the distribution center. He's got a factor in the type of units that we're flowing. We're continuing to see unit per hour productivity and cost per productivity as it relates to distribution center operations. I don't expect that to change. I think as it relates to transportation, net transportation was a 10 basis point tailwind. And improvement year-over-year from Q1 this year versus Q1 of last year. That reflects freight and sort of inbound supply chain, if you will, as well as e-commerce shipping. And so I think that fuel will be a bigger headwind as it relates to Q2 and perhaps Q3 and beyond. But I think the team is doing great work, and they're increasing their productivity year-over-year, and that's what we expect, and that's what we're seeing.

Our next question comes from John Heinbockel with Guggenheim Partners.

Steve, why don't we start with -- given what's going on with gas prices and just macro in general, do you think that amplifies the peaks and valleys around holidays and maybe deeper valleys. And is that -- if you think that's true, is that sort of -- have you made tactical adjustments when you think about how you want to spend promotional dollars and communicate with the customer for the rest of the year?

Yes. I think your instincts are spot on. I mean we definitely have seen that play out a little bit as we progress through Q2, and I expect that's going to happen. And customers are looking for value, right? And I think they're looking for waste to offset higher gas prices. And I think we've seen them in this happen a little bit in Q1, and we've seen it continue into Q2 where they're amplifying purchases during the promotional windows that we have on the calendar or pulling back a little bit in the walls we have definitely adjusted our forecast and our plans moving forward to account for that.

All right. And secondly, I think you want to add, when you look at the membership, and I think you said you want to add 2 million members in I think get to 15 million by year-end. When we think about how that breaks down between rewards members, proprietary credit card, Mastercard, relative sizes of that, and do you think will all -- will most of the growth come from the new Mastercard offering?

Yes. We haven't broken it down between credit loyalty, et cetera, like that. What I will tell you is that we're seeing a meaningful acceleration in take rate on the new credit card. We rolled that out in advance of issuing new plastics. So new customers apply for the credit card pretty much since the middle of March, I would say, have been eligible for either the private label credit card or the co-branded Mastercard. We've seen applications up double digits pretty much since we've done that. We expect that to continue. And we think it's a great value proposition, and it's a great way for customers to stretch their spending power. And so I think the 15 million we set as a goal by the end of the year, I'm fairly confident we're going to beat that number this year.

Our next question comes from Anna Glaessgen with B. Riley Securities.

I'd like to follow up on the Jordan, Nike performance. Nice to see that you're expanding into more stores. I guess could you comment on if there's any structural reason that it wouldn't be able to be expanded through the whole suite? And then a follow-up on, I think you said you expected mid-single-digit growth through the year following the 1Q performance. Was that on a comp store sales basis because given the attention, I just want to understand what are the terms [indiscernible].

So I'll start with. We do have elements of Jordan stores right now. We've expanded out things like slides and backpacks and sports equipment out to all stores. The shop concept is going out to an additional 55 stores, taking us to 200, which is about 2/3 of the store base, which is obviously a meaningful chunk of our volume. I think you'll see us continue to expand that methodically over time. And I don't see any reason why ultimately, we won't have all elements of Jordan in all stores at some point, but it's just more of a methodical rollout. The growth we're seeing in terms of mid-single-digit comp with Jordan and Nike combined, we do expect that to continue forward. I believe that's a comp number that I'm citing. So I don't see any reason why we're going to see that slow in the back half, but that's the trend we saw in the first half of the year based on how we plan the business.

Anna, do you want to take the opportunity to recall in Q1 of last year, we expanded Nike and then roll that shop concept out to 135 doors in Q1 of last year. It's 55 doors, but the timing, obviously, is not Q1, it's Q2. So there's some costs associated with that. But we saw enough benefits in the shop concept versus just having the Jordan elements and disperse them up of the store that we wanted to roll out those additional 55 doors this year. There's some costs that will hit in Q2 there.

Great. That's super helpful. And then I wanted to follow up on the introduction of suppressors. I guess, why historically have you not had the category? And what signals were you seeing that gave us the confidence to expand as a lot of competitors are exiting or diminishing the category.

So I would tell you that suppressors has been a change in law, and it's a little easier to procure than it used to be. It's still a pretty arduous process, but the industry has seen an expansion in suppressors since the loss have changed really at the start of the new year. We've got it in roughly, I think, 30, 35 stores right now. We're going to roll it out to over 100 stores throughout the remainder of this year. It's as we said on the call, it's really for hearing protection for the person who enjoys shooting sports going to the range, et cetera. It's a little quieter and a little safer for them to use. We see a high attachment rate. It's not just a suppressor. It's all the cleaning equipment and other things you need to purchase when you buy [ suppressor ] also has tailwinds into [ ammo ] because it requires a different type of ammo that you shoot. So we think that this is a good noncomp thing for us that we're going to see expansion in fueling the shooting sports category for us throughout the remainder of this year and the next as we expanded into doors. And we're excited about it. I think it's a growing part of the shooting sports category, and we're participating in it.

Our next question comes from Brian Nagel with Oppenheimer.

This is Andrew [ Chasinov ] on for Brian Nagel. Just the first one, Q1 comp was driven by both ticket and traffic, which is a sharp reversal from the Q4 transaction decline. And so just given your commentary about the 50,000 and under cohort remaining under pressure, just trying to understand how dependent full year comp guidance is on the lower income cohort improving versus just continued outperformance by the higher income cohorts?

Yes. So going back to Q3 of 2024, we saw Quintiles 4 and 5, so households above $100,000 in flex. But it was being offset by less transactions by $50,000 and below. That trend continued in 2025. But what we saw in Q1 of 2026 is those above $100,000 customers up mid-single digits, but the below $50,000 were only down low single digits. So I'll say it was less bad -- some of that may have been rebates on taxes -- tax refunds, excuse me. But we do see that those were offset by higher fuel. What I'm interested to look at is how does that lower income cohort does it go -- does it stay at low single digits? Does it go to zero? Does it go back to being a more meaningful full down? Our highest and fastest growing customer cohort is at above $100,000. I think that is going to continue, and that is what is embedded within the forward guidance. I think some of the differentiation between the low and high end is -- of our guidance range is how that lower income cohort. We saw something less bad in Q1 of 2026. TBD on whether that continues into Q3 and beyond -- or Q2 and beyond.

That's really helpful. I appreciate that. And if I could just get a follow-up. Just how you're thinking about some of the halo effects around World Cup. I know you've talked a lot about stores where the games are going to be in market. But I just wanted to get your thinking on potential traffic uplift for stores that are in markets where games are not necessarily being played.

Yes. So we have World Cup products in all stores, right? We moved it to the front of our stores at the entrance in the markets where the games are being played. But if you go into our -- any other stores are outside of those markets, you'll see a meaningful presentation at World Cup, Jersey, U.S.A., Mexico, couple of their teams depending upon where -- which region those teams are playing in on the license team pad. So we expect to see growth not just in those stores, but broadly across the chain. I think we'd see that persist through the summer months. I also think there's probably a generic red, white and blue opportunity out there as people chair for Team USA that maybe is a little less license driven. And then longer term, what we've seen in the past is kind of a halo effect of this in terms of driving net participation in soccer well past the event itself. So we're expecting and believe we'll see more use soccer participation in the back half of this year and into the spring of 2027.

Our next question comes from Michael Lasser with UBS.

I'm curious what you think happened in the first quarter that may not necessarily repeat over the course of the year. So if we take your 2.9% same-store sales increase in 1Q, and if we want to get to the midpoint of the guide, it would imply it's somewhere in the neighborhood of 50 to 100 basis points comp for 2Q, 3Q and 4Q, understanding that the comparison is a little tougher in 2Q, but you will have the benefit of the World Cup during this time. So should we assume that the difference between a nearly 3% comp in 1Q and, call it, a 50 to 100 basis point comp for the rest of the year. Would simply be a function of; a, the tax refunds; and b, the macro getting a little bit more difficult such that if it doesn't get more difficult, you could do better than what's embedded in your guidance?

I think there's a lot wrapped up in that question. Simplistically, what we saw happen in the first quarter was increased tax returns blunting the impact of much higher gas prices. I think as we've gotten further away from that, we've seen the business move to more of a flattish comp, up low single digits in total. So that's where we kind of feel the natural run rate of the business is sitting today. What gets us from that flattish to that up 1% or up 2% in point our guidance for remainder of the year are the impact of the initiatives and how well they're received, and how will they impact the consumer. So that's really what we're seeing in the business, Michael. We've got a lot of initiatives that we think will play out. A lot of them are targeted at activating consumers who are under pressure with the new credit card rollout and the value delivery that in there. That's the thing that's going to take us somewhere between the flat top to.

Yes. And you explained it to Michael, but I do want to be specific. Last year's Q1 comp of negative 3.7% was the easiest compare. Q2 of last year was up 0.2%. Q3 was down 0.9%. Q4 was down 1.6%. So I would encourage you to look at 2-year stacks as you think through the modeling aspect of it. I agree with everything that Steve said, but the prior year compares do weigh in on how we guide for the current year.

Those points are all very helpful. So it sounds like in addition to the 2-year stacks, you are expecting about 200 basis points of same-store sales contribution from your initiatives. And to the extent that you would comp below that over the next few quarters, that would simply be a function of either the compare or the macro getting a little tougher. So a, that's fair. And just to clarify on your full year guidance, you took up the low end of the profit outlook, the profit dollar outlook by about $5 million. What drove that change? Was it simply incorporating the updated expectation around tax tariff rebate into your guidance, or was there -- is there something else that you're seeing that drove that change?

Yes. So as I would speak to initiatives. They get us to the midpoint of the comp guidance. So a plus 1% comp halfway between 0 and 2% for the full year is all initiatives. We think e-com is going to be a tailwind. I am very pleasantly pleased associated with the new stores when they get in the comp base. I'm liking that high single-digit comp that is above how we model them when we additionally -- when we did their pro forma, I think the credit card relaunch we baked in growth associated with that. So our initiatives alone get us to the midpoint. I think the delineation between what drags us down to the low of a flat comp or the high of the 2%. I think some of that relates to the magnitude of these external events, World Cup 250th, things of that nature and the health of the overall consumer. Do we see that low? And I'm really focused primarily on that below customer 50,000. Do they -- are we at an inflection point there? Is it moderating? Are we at a trough? I think there is the delineation between the high and the low point of the guidance. But I do want you to come away thinking that our initiatives alone get us to the midpoint. As it relates to the low end, I think the easiest way to think about why did we take the low end of the annual guidance up, and why is the low end of profit. It's because Q1 came in towards the high side versus the low side. So we're taking that Q1 low side off the table and keeping Q2, 3 and 4 ranges exactly how we had them contemplated it when we guided the full year.

We've reached the end of the question-and-answer session. I'd now like to turn the call back over to Steve Lawrence for closing comments.

Thanks. We started to see momentum shift in the business last year, which continued to build into the first quarter and resulted in a positive comp. While inflationary pressures persist, we're confident in our ability to execute through a range of environments. We have a thoughtful, straightforward strategy. Our goal is to continue to build momentum in the business by methodically executing against this strategy while also providing our customers with compelling assortments at a strong value. We know that if we do this, our key stakeholders, we're pleased with the results. I'd like to close with a heartfelt thanks to our 22,000-plus Academy team meet delivered a solid start to the year. I'm confident he will keep the momentum rolling as we head into the remainder of 2026. Thanks for joining our call today, and have a good rest your day.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Thank you, and good afternoon, everybody. I'm on the stage again. Chris Horvers, broadlines and hardlines retail analyst here at JPMorgan. It's my great pleasure to have the Academy Sports management team, two of the management team. To my right is Carl Ford, EVP and CFO; and then over on the end is Steve Lawrence, the Chief Executive Officer. Thank you, guys, for attending, and thanks for doing the fireside.

Thanks for having us. By the way, the new building is spectacular.

This is gorgeous.

Yes, pretty good building. And if you see next door, the Bear Stearns building, they're gut renovating and they're going to -- it's going to look very similar to this.

I'm sure this will be better, though.

Yes. So as it is with the other sessions, I have a list of questions. As we progress into the meeting, we will open it up for Q&A. If you want to ask a question, please ask a question. There are mics on the table. So just use the mic when you do ask the question. So very timely, you hosted an Analyst Day yesterday. At a high level, what were the key takeaways and key messages that you wanted investors to walk away with?

Sure. So as you know, we didn't -- our last Investor Analyst Day, I think about 3 years ago, and we felt like it was time to kind of update that because we've been on the journey over the last couple of years, doing a lot of work around customers and getting a better understanding of who our core customer base is and using that as kind of the lens to frame up our strategies. And so we came forward yesterday with some revised targets.

I'd say -- first thing I'd say is that the growth strategies themselves remain unchanged, right. We see 3 ways for us to grow, which we think is somewhat unique to us in terms of first new store expansion. One of the stats we really like to share is about 80% Americans don't live within 10 miles of the Academy. So we think there's a lot of white space to expand into. Second, we have an underpenetrated dot-com business. It's been growing nicely, but we're around the 12% penetration. We know that there's opportunity to grow there. And we also know that we have opportunity to increase the productivity of our existing stores. And so those overarching strategies really hadn't changed.

What did change or what we wanted to talk about is refining the targets and how we put some tactics beneath those that I think are very nonsense common things. So we've done a lot of work in terms of the real estate strategy. We've opened up 63 stores over the past 4 years, had a lot of learnings. What we found is that where initially we thought there was less opportunity in kind of our legacy footprint. There's a lot more opportunity that's there. And what's really kind of opened our eyes that is the rapid population growth within our legacy footprint of Texas, Oklahoma, Louisiana and Arkansas, and the fact that a lot of this population has migrated to the outer suburbs of big metro markets or even some of those satellite markets.

And so we've discovered along the way that they're target rich with this always game family that we serve. And so we put forward a target of 125 stores over the next 5 years, roughly 25 a year. And we're going to weight those about 40% in our legacy markets, about 40% into existing markets, which are states we've been in over 5 years and about 20% to new markets. So that's kind of a pivot or a change. The strategy didn't change. But in the past, we're primarily focused on new markets.

Second, I think we put in place a plan to get our dot-com business to roughly 15% penetration and involves us having to basically grow the dot-com business by 70% over the next 5 years. We think that's a challenge, but achievable goal. We had our new Chief Customer Officer, Chad Fox there, who's built this business before for large retailers such as Dollar General and Walmart. And he laid out a pathway through a combination of assortment expansion through drop ship, leveraging loyalty, using AI to better enhance our imagery or our item faceting to serve ourselves up as part of agentic search, multiple tools like that to help drive this growth.

And by the way, there also is a symbiotic kind of relationship between our new store expansion and our dot-com business. We think about half that business we're going to generate from a dot-com growth perspective will come just from the new store footprint and people [ BOPISing ] and buying products. The other half will be generated through these other methods.

And then the third pathway for growth was driving our existing base of business. We talked a lot about new brands. And I think sometimes as an industry, we get fixated on apparel or footwear brands and for us, newness is broad-based. We talked about new brands coming in, in outdoor, such as First Lite Camo or us launching suppressors in the firearm space as a noncomp opportunity for us. Growing work western wear brands with emerging brands like BRUNT, which is a digitally native work brand. Building out a much bigger Ariat business or Carhartt business and footwear going after Birkenstock in a big way, launching Havianas. Going after premium run from Adidas and Nike and New Balance and Brooks. So going after newness is one way.

Second, we're early in our kind of our customer loyalty journey. We traditionally haven't had a loyalty program, if we did, you'd argue it was our credit card. And the primary value exchange there was we're giving 5% off your purchases on the Academy credit card. About 18 months ago, we launched a tender-agnostic loyalty program, where you didn't have to have the credit card to access it, but it kind of ran in parallel to the credit card. We have the opportunity this year to bundle the 2 together and relaunch. This is an integrated program with 3 tiers. So we've got first tier, which is the traditional myAcademy awards where you don't have to have a credit card to access that you get $15 off your first purchase, you get free shipping at a certain threshold. We send your rewards.

The second tier is similar to our current private label credit card with that same kind of value proposition and then we've layered on a third tier, which is a co-branded card with Mastercard. And it has all the benefits of the first 2 tiers of the program and the extra benefit you get is, well 2, first, it has a higher credit limit. And then second, you get 2% back on rewards on spend outside of Academy. So think about this family who's middle income, making $75,000 a year. Kids are playing sports. kids want new gear for baseball or for fishing and it's an expense, right? And this is the way they can leverage that spending power on the weekly and daily necessities like buying gas, groceries and use those points back to buy the gear for their family and enabler funds.

So we think this is a best-in-class value proposition. We think that's going to be another huge unlock for us in terms of driving our existing base of business, but also our dot-com business as well. So from our perspective, we clearly articulated a pathway forward to grow from the $6.1 billion we're at today to $8 billion over the next 5 years. We think it's a no nonsense building blocks, right? If you just take the new store growth of 125 stores times an average of $14 million per store and our new stores do somewhere between $12 million to $16 million. It's worth about $1.8 billion in volume. The new dot-com growth on top of the stores would be another $300,000 and we think -- $300 million and the legacy-based business is worth $300 million. So it actually gets you over $8 billion.

We know there's going to be headwinds and so we wanted to account for those. And so we also put a number in there to account for some headwinds. And so we think it's a very simple, straightforward pathway to get there that we think we've proven we can open new stores. We think we've proven we can grow the dot-com business. And I think the thing that we're starting to prove now this year is that we can drive the comp business. We announced yesterday that our comps through the first quarter are forecasted to be up 2% to 3% from a comp perspective, total sales up 6% to 7%. So we think the combination of all these metrics coming together and getting critical mass is allowing us to start doing that, which is something we haven't done in the past couple of years. So we're excited. I put a lot in there, Chris. I'm sorry, that's probably more than you asked for, but felt it was important to get it out...

Sits on the table perfectly. Staying at a high level in terms of [ the investor day ] from yesterday. Carl, can you talk about the -- how you think about the operating margin long term and contrast that to the prior target from the last Analyst Day and talk about what's changed?

Yes. From an EBIT rate standpoint, we ended last year 2025 at a 9%. As we think about growing to a $8 billion retailer. We think there's 100 basis points of upside from a margin perspective standpoint. So it will be a 10% EBIT shop. The first kind of tranche of that growth is going to be around sales leverage. We already forecasted in the 2026 guidance to modestly lever SG&A on a midpoint 0.5% comp. We think leveraging low single-digit comps, we should grow our EBIT rates, and that's while investing in 25 new stores per year on average as well as some technology capabilities around omnichannel and customer data.

Second is we feel like we have permission to have supply chain benefits. What we talked about is we're an existing -- Academy is in 21 states. And as we begin to infill those 125 stores into that existing 21-state footprint, there are opportunities to leverage our three 1.5 million square foot distribution centers more efficiently. And certainly, from a transportation standpoint, both into those distribution centers domestically and internationally as well as to our stores from the distribution centers. We feel like there's a transportation upside. We've given examples of that in the past, but we have a lot of upside as it relates to how we transport goods.

Third, we think there's about 30 basis points in launching a retail media network. We will launch that this year in 2026. We are certainly a second mover as it relates to that. We see that as a profitability growth engine for the company for the next 5 years. And lastly, just some simplistic things associated with merchandise margins, thinking about where -- existing 22% private brand penetration. We see that growing to about 25% penetration over the next 5 years. And then we're a little bit skewed from a hardline soft goods. We have 4 divisions, in hard goods, we have outdoor and sports and rec, the margin rates tend to be a little bit lower there. They make up about 52% to 53% of our business, soft goods are apparel and footwear.

As those get to more parity around 50%, there's uplift associated with that. When you put all that together, that's more than 100 basis points of EBIT margin expansion. In the investor -- in the analyst deck that we put out, we think that there's some opportunities to give back value to our consumer. We are an everyday value retailer, and there will be certain categories where we want to grow market share more than what we're already growing. And so we would see price as an investment that we could get back to the consumer over the next few years, 100 basis points of growth in the next 5 years.

And can you bring that down just as we set the broader table here, bring that down to what the earnings algorithm is?

This is a very simplistic algorithm. So you should expect to see 5% sales growth from us, compound annual growth rate of 5% over the next 5 years, low single-digit comps and earnings per share growing at high single digits, bumping up against 10% per year. From a use of cash standpoint, if you look at our cash flow from operations as a rate to sales, we were 7%, 8% shop. We're going to reinvest half of that back into these growth initiatives that Steve just laid out. The other half is going to be given back to shareholders in the form of a pretty modest dividend and some outsized share repurchases over that 5-year time period.

Great. From the outside, your brand seems highly associated with a male customer who engages at a high rate in outdoor categories like hunting and fishing and camp. There's a perception that maybe that is a lower growth marketplace relative to something like apparel and footwear and female customers and mom shopping for kids. So is that a fair observation in terms of being a male dominated business and in relatively lower growth categories? And how are you trying to change that?

Yes. I think it's probably more of a misperception. I mean I certainly think if you look at it at 10,000 feet, the statistics may bear that out. But coming from department store land, right, the female shopper was the one that drove the business. If you take outdoor, which is for us hunting and fishing out of it and you look at just the remainder of the box, it actually -- we skew more female than male. And it actually feels more like your traditional mix you'd expect to see.

The beauty of how we lay out the stores candidly is that we kind of create unique shopping destinations for each customer. So the outdoor business tends to be located on the right side of the store. We put outdoor apparel next to that. Work boots adjacent to that. So what's funny is sometimes we have people who join us who don't even realize we sell full portions of the store because they shopped the store for years, but they never go over to that part of it.

So I think if you look at our strategies in terms of new brand acquisition, et cetera, I think we're doing very well with the female consumer. We've been actively growing some of our private brands that attack the consumer such as Freely, which is kind of a better priced, low-aerobic kind of workout, think Pilates, et cetera. at very fair pricing. We've also been growing our outdoor business from brands like Carhartt on the women's side of the business. So I think if you look at 10,000 feet, we skew more male, but I think taking that just that hunting, fishing business out of it, we look more like most other traditional retailers do from a mix perspective.

And as you think about -- can you speak to some of the brands? You added Nike, you added Jordan. Can you speak out some of the brands that you're adding this year, to what extent do you think getting into more like the run business and the apparel footwear business is maybe a pot of gold. And do you have any concerns that the further you lean to maybe fashion starts to maybe disenfranchises that male customer who shops there?

Yes. I hope and don't believe we want to do that. I mean you know this, the quintessential mistake that retailers make is they abandon their existing customer in pursuit of some new customer. We want to add customers in. So whether we're building out our better, best brand architecture or we're going after specific brands to attract a certain customer. It's generally not meant to be at the expense of somebody else, right?

So we always see our North Star being value. And so we are very focused on making sure we have really strong base of product and the good price points and that we're fairly priced there on a daily basis. So you take like our private brand, which is our best expression of value, you take a category like apparel, we price those goods to be at basically the price they're expected to sell at versus marking them up to mark them down. And if you look at us relative to our closest competitor there, we're about 60% of their price on like-to-like items.

So if they price it at $10, we're at $6. We do the same exercise in fishing, if they're at $10, we're at $8, we're about 80% of their pricing. As we've been layering on some of these new brands like a Jordan, okay, that's meant more from a twofold perspective. Number one, to keep a customer who maybe wanted that brand and was shopping with us already, but had to go to another store to find it, to keep them within our 4 walls and hopefully bring customers in who maybe didn't consider us as an option before. And we've seen that happen with Jordan. And once again, you can broadly roll that out across. You think about fitness, we're going after a brand called HYROX. You guys may or may not be familiar with it. It's the fastest kind of growing fitness trend in America with people doing races with their friends and spouses and it's a multidisciplined workout where you do an exercise and then run a lap and you do another exercise, and it's very competitive. And so we're the official brick-and-mortar partner for HYROX-branded workout gear, right, or work out equipment.

We're going after health and wellness trends, and this one leans more female, but like Red Light Therapy masks and things like that or Weighted Vest. That's a hot trend that's happening out there. From a mom perspective, she's shopping for kids and the kids are into like in team sports. That whole baseball culture, right, and having a fashion element there. So as you think about all these different businesses that we've been leaning into, I don't think in any one of them that they alienate a specific customer. They are meant more to add on a layer to our assortment that we didn't have before. and help us attract the new customer, retain one that was maybe shopping with us and had to go to other places to find what they're looking for.

Market share is an interesting discussion. And I think pretty much every company says they gained market share. And -- but if you think about your business, it's different because you have a large public peer who has a very different mix, very different customer, very different geography. But people look at that, some investors and some of my peers look at that is like, "Oh, you're losing market share." I think maybe probably not building the market share from a right lens perspective. So can you talk about how you think your market share has performed over the past couple of years. We've been fighting this COVID hangover. There has been some macro uncertainty and so forth. So your same-store sales haven't been great, but it's hard for us given the diversity of your merchandise assortment and geographic specifics to understand what really is happening from a market share perspective.

Yes. So we look at market share through a couple of ways, and we use a lot of outside data on this. So first, we look at market share within our footprint. So to your point, a lot of competitors have a different geographic footprint. So we work with a company called Circana. You guys have heard of them. They used to be NPD. They're kind of like the gold standard from a market share perspective. And they track market share across about 70% of the categories that we carry and they can geofence it and say, okay, within your 21 states, they can't get much below the state level, but they can tell us at the state level, like what is your market share? And in the categories that they cover for us and that's apparel, that's footwear. That's a lot of the outdoor kind of cooking categories or kayaking or shooting sports accessories, things like that. It's about 70% of our assortment, depending upon the time period.

We picked up market share broadly across every division last year and in some cases, some significant amount of market share. If you take a category like outdoor cooking, I mean, it was like a triple-digit gain. And so we feel very comfortable that this is not us measuring ourselves. It's us getting outside data, and they're telling us we pick up market share there. And so we're very comfortable in that. I'd say another source we look at is NICS check data for firearms. So there is no true proxy for firearms share outside of NICS checks data, which is background checks. And this comes straight from the government. It's very public information. We look at that on a monthly basis, and that will tell you that we have continued over the past 2 years to pick up market share in the firearms business.

So in the 75% of the categories that we carry that we have outside data to support, it's telling us we're picking up share. We also look at traffic share. We sure got a lot of people in this room are familiar with Placer.ai, and so we get foot traffic that we can slice and dice down to pretty discrete geographies. And once again, they tell us that we're gaining share on a regular basis.

So I think the question is, it's -- first off, it's not a zero-sum game. When you look at -- well, if a competitor is running a better comp trend than we're running than one's losing and one's not. We shared in our Analyst Day yesterday, if you take the total addressable market we're looking at within our footprint, it's $130 billion, nationwide, it's like $245 billion and you juxtapose our $6.1 billion in volume against that. It implies we have roughly a 5% share.

So that will tell you that there's a lot of share up for grabs out there, and it really depends upon the category. So for example, in the firearm space, we're probably picking up share from the independent mom-and-pop dealers, right? I would tell you in the growing space, we think, it's coming from some of the home improvement guys. I would say, in the apparel footwear space, it's probably coming from probably more of the independent regional specialty stores.

So I think we know we're picking up share. We've got data that proves that to us. And where we're not, we actively try to construct strategies to gain market share there. And we know that it's a varied approach depending upon the category we're looking at where we're getting that share from.

And so you did offer preliminary guidance of 2% to 3% for the first quarter. So digging into that a couple of different ways. So last year, you saw the lower-end consumer weaken in your data and then the high end traded down and sort of you ended up, I guess, was that -- you ended up like sort of like on a net neutral basis between the trade-in and trade down?

Actually, customers are growing. So can I just speak to customer cohorts for a little bit. This has been -- you could set or watch by it for the last 6 quarters for us. Beginning in third quarter of 2024, we saw the growth in households making above $100,000. So quintiles 4 and 5, growing in a way that outperformed the degradation at below $50,000. So below quintiles 1 and 2.

And the middle income is kind of just hanging in.

Just static. And this is shoppers who are shopping with us. And so that began in the third quarter of '24. I've been waiting for it for so long. I just knew that there was going to be a trade into Academy. And I just -- it happened -- it started happening in the third quarter of 2024 for the next consecutive, right as rain exactly like that.

And so I think that with growth in average unit retails across the retail landscape, I think that customer whose household makes below $50,000 is struggling from a lifestyle perspective just to pay for rent, groceries and gas. And I think there are some further headwinds that are going on in that space right now. I think as you think about the brand introductions that we've done over the last few years kind of concentrating on the better and the best and we always did a really good business, but layering in better and best. I think that's attracted a new customer.

I think also that customer that makes above $100,000 is finding that their lifestyle is quite expensive. And that if you're already carrying the brands that they're interested in and you sell those things for national brands and a little bit below and private brands a lot below what the competition is, they're availing themselves to that. And so we've seen is that $100,000-plus cohort shops with us. They're not just shopping on that 1 or 2 brands that it is that came in maybe looking for. They're broadly shopping across our 4 divisions and availing themselves to private brands. So we think that's encouraging. We -- when we talk externally like we are now, we talk about a derisking of the customer portfolio that's transpired over the last 6 quarters. and that's continuing, and I would expect that to continue into the future.

So just think about that, the 2% to 3% in the acceleration where -- what's driving that? I don't know if you have it down to that level from a customer cohort perspective. What's driving that acceleration to the 2% to 3%? And maybe can you talk about that at the category level as well?

I would say we pay more attention to the intra quarter. We pay more attention to that category level versus the different customer cohorts, we do get monthly reporting on it, but I'll let Steve talk about categories.

Yes. So one of the things we're pleased to see is that actually what we started seeing happen was business improved starting last year, right? We had a tough Q1 down, I think, 3.7%, and then it was up in Q2 slightly, and then we bumped along at kind of a negative 1% comp in the back half of the year, but it was definitely trending in the right direction. And I think ex maybe some of the dislocation in pricing that was happening from some of the trade policy that exists out there, things have been a little better for the consumer, right? And so starting with Christmas, we saw the business start to improve the week before, continued into January, ex maybe 3 days, we had most of our stores shut down because of the storm. That continued into February, that continued into March.

So we've got probably a 15-, 16-week kind of segment of time that we're looking at with fairly consistent comps across it. It's been very broad-based. It's not been any one business. So every major category for us. Carl mentioned this, we break our business into 4 divisions. So you've got apparel, footwear, outdoor, which is hunting, fishing and camping and sports and recreation, which is sporting goods and kind of backyard. All those divisions are running positive increases. Beneath the surface, you've got some that is a little stronger. So certainly, our fishing business has been really solid. Our youth sports business, driven by baseball has been really solid, with what's going on with the baseball culture there.

I would tell you that ammo was a headwind throughout a lot of last year. We saw that business start to improve post-election. And we mentioned, I think, on our Q4 call that it moved from being like a double-digit negative to a single-digit negative and improved as we went through Q4, that flipped to positive in Q2. We've seen an acceleration there since the local -- the most recent conflict that's broken out in the last month. That will probably die off whenever this thing kind of comes to an end. But we still expect it to be relatively healthy on a [ TYLY ] basis because it was trending ahead of that.

So it's pretty broad based. And when we start asking ourselves, what's fueling this? I'd say a couple of things. Number one, what we believe is that all these initiatives that we've been talking to you guys about, and we keep saying they're working. And the answer, why aren't they driving positive comp? I think because we didn't have enough critical mass behind all of them. You think about new stores. So last year, of the 63 stores that we've opened up over the past 4 years, which we've shared are comping mid-single digits. We only had 25 of them in the comp base. This year, that's going to be over 50, right? And then next year, it will be over 80.

You look at our dot-com business, where that's been growing. Last year, it was 10% or 11%. This year, it's 12%, and it's growing double digits. So that's giving us another tailwind. Having a full year of Jordan in our stores now. We talked about some of the technology rollouts we've done where we've rolled out our FID counts on a weekly basis on roughly 25% of our sales base. We're expanding that this year to our private label. So about 35% of our sales base will be updated on a weekly account basis. And that doesn't sound like it's a terribly sexy thing, but knowing what you own and being able to satisfy customer demand by having more accurate inventory is a driver for us.

Our in-stocks are up almost 500 basis points. And so I think it's getting density and scale of all those things at one time in aggregate, helping propel the business forward. And I think -- on the flip side, I don't think the consumer health is much better than where it was in the back half of last year. But we -- I think it's having the density initiatives starting to overcome some of those headwinds is what's kind of changed for us, I would say, over the last probably 3 to 4 months.

The company returned to growth, 2% growth in 2025, and we've guided to a comp growth in FY '26. There's a really good slide in our Analyst Day yesterday that we had about the last 12-month same-store comp. And when you look at that and pair those words with the quantitative LTM same-store sales, you can understand why we guided the way that we bid for 2026.

And so playing devil's advocate. So there's no -- you wouldn't look at tax stimulus or weather comparison as something that maybe is helping the business now that isn't necessarily -- mean it's some degree sustainable.

I think certainly, it is. I think we called that out in our earnings call. I do -- from what we're seeing, Americans should get higher tax refunds this year than they got last year. And I think what we learned during the pandemic with stimulus is when they get it, they spend it, they don't save it. So is it possible? That's -- yes, absolutely. I mean, I don't think you could say that was helping in February. I'm not sure you can say it helped in January. Maybe we're feeling it a little bit now. I'll also say there's the counterpunch of $4 gas, right? So that's not helping anybody out either. So I do think tax stimulus is probably an external tailwind that we're feeling a little bit of and everybody else is.

Weather changes year-over-year. So I would say that it's been a little warmer this year, so that helps some of the seasonal categories out. We also had bad weather last year and good weather this year. So I mean, I think those things kind of even themselves out over time. And we -- in our earnings call, we called out that there's a couple of other big kind of external tailwinds still ahead of us, which we haven't experienced yet. World Cup is coming to the United States, right? And I think 30 matches are going to be played within our footprint. We think that's going to drive, obviously, fan gear licensed team jerseys for Mexico, U.S.A. We're selling the World Cup soccer ball really well already. We think it's going to drive some patriotism behind Team USA. And when you throw that in conjunction with the 250th birthday of America, we think that could be a nice tailwind in Q2.

So I definitely -- retailers were the first ones to call out weather when it's not in our favor, and we don't take -- we don't give us credit. I think it's helping us a little bit. But I think -- the other thing that's helping us is the internal initiatives as well. And if I had to weight them, I would weight it more towards the internal initiatives than the external tailwinds right now.

When we gave guidance for 2026, up 2% to up 5%. Our internal initiatives are right down the middle. Our internal initiatives will take us to the midpoint of that. I think the high end and the low end are due to headwinds associated with consumer health and credit delinquencies and job growth and all the things that are inflation with gas and other things, beat out some of those tailwinds associated with tax refunds and World Cup and 250th. I think those are the differentiators between the high and the low related to our guidance.

And just given the dynamics of maybe comparisons and the timing of the Easter shift, is it fair to say that you've made some assumption that -- some risk assumption that how April could play out in terms of the 2% to 3% forecast for 1Q?

We were very aware of the Easter shift, and it was taken into account, which is why we gave guidance for the quarter versus saying we were recorded.

We've dealt with [ Marple ] for a long time in retail, and we understand the Easter shift, and we feel good about total company for Q1, up 6% to 7% and comp up 2% to 3%.

Understood. Awesome. And then in terms of the -- can you talk about in terms of new brands and brand expansion, can you talk about what is the pitch? You talked about your loyalty program being -- I'm sorry, the media opportunity being like this unique customer. So what is the pitch that you give to brands of like, this is why you want to partner with Academy and be in our stores.

It's a couple fold. First, I would say we pitch that we help them reach customers that can't reach the other retailers. If you look at our footprint, we tend to skew more Hispanic, right? And that's obviously the fastest-growing population segment in the United States. There's a value to a lot of brands wanting to have an increased exposure to a rapidly growing population segment. So we certainly pitch that piece of it. If you look at and we shared a stat at the Analyst Day yesterday, I think a lot of times people say, "Well, you're like DICK'S." Actually, we have less than, I think, about a 25%, 30% customer overlap with them. So we're helping them reach customers that they're not reaching through other points of distribution.

Second, I would point to how we treat brands. We launched Jordan last year in 145 stores. We pulled together integrated shops of apparel footwear accessories in those stores and created men's and women's shops across the aisle from each other and did the same thing back on the kids side of the pad, put in place manikins, big branding elements, and they were very pleased with how we brought that brand to life. And we certainly use that as a proof point as well. And by the way, we also did a big marketing push. We had a great site experience around it.

We show all those things to brands, and we're trying to get them to open us up and say, look at how we treat the brand when we get access to it. And so I think it's a combination of those things that makes it very interesting people. And it also depends upon the category you're in. So one of the things that the sports brands really like about us is in a lot of our markets where the entry point for sports, right? And the belief is if you can get a kid wearing Nike cleats or Adidas cleats playing soccer for the first time. As they continue on their journey through sports, they're going to wear Nike or Adidas cleats all the way through. And in our marketplace, we're the place where they come in and get their kids first gear.

I mean, I have lived in Texas now for 35 years. Every one of my kids when they started out in sports, Academy is the place you go to get them their first bat, ball, glove, cleat. And then when they decide they're not going to play T-ball, you put that in the closet and you come back and you buy the soccer gear and then rinse and repeat, right? And so that offers a really unique position for us, particularly in things like sports or even some of the outdoor activities that entry point into the activity for brands. So we kind of leaned into all 3 of those things depending upon who we're talking to.

I would also mention that when you're growing store units by 7% or 8% per year and you think about growing to 450 stores in the next 5 years, maybe 800-plus nationwide. If you're thinking about sports and outdoors in America and what brand can I grow with, Academy sure feels like a good option. I would also say our cash flow from operations is very strong. And if you look at our debt leverage ratio, I would say it's industry-leading. So there's a sustainability there associated with partnering with us, and I kind of feel like the best is yet to come.

So I'm going to pause here for audience questions. If you have a question, please pick up the microphone and ask your question. While people ponder questions, I will continue. So I think there's -- one of the big changes, and Steve, you referenced this earlier was the new store model, right? And there's actually 3 new store models. And could you talk through that a little bit? And then the endpoint question besides what the waterfall looks like and how the maturation curve looks like is do we arrive -- what's the 4-wall EBITDA margin at maturity for -- in each of the scenarios?

So we'll tag team this one. So when -- we said this at our Analyst Day yesterday, when we resumed new store openings. So if you go back when we're privately held by KKR and we're privately-owned, our growth strategy was new store expansion. And the challenge was we're primarily opening up new stores in our legacy footprint. And so the belief was we got to a place where every new store we opened up was not additive, and it's kind of cannibalizing the existing base.

So we stopped opening stores in 2019. And then we resumed that growth plan in 2022. And so then the focus was primarily on new markets. And so as we've been opening up primarily in new markets, initially we set a very finite target, which I think was somewhat pandemic fueled, these stores are going to do $18 million. And what we found was that stores are kind of opening up, depending upon their geography at different levels. So this makes a pretty intuitive sense.

If we go into a new market where we don't have great brand awareness, not a lot of density like Ohio or Pennsylvania, like those first stores open up, they're doing close to like $12 million. If we open up a store in kind of our legacy existing footprint where we have high brand awareness, we can do closer to $16 million. And then stores in kind of those existing states who have been 5 years or longer, but aren't part of that heritage base of Texas, Oklahoma, Louisiana, Arkansas may be closer to $14 million.

So we refined the model and said, okay, we're not going to argue for a single point, right? We're going to say it's probably some range. We also got smarter about how we value engineered the box. We're looking for roughly 63,000 to 65,000 square feet. We found that we could, in some of these markets open up in maybe more 50,000, 55,000 square foot box, have the same breadth of assortment and still be able to service customers. So that made it a little less expensive to build some of these stores out. So we changed our initial estimate from maybe $5 million to $6 million from an opening to $2 million to $3.5 million in terms of CapEx with another $1 million in inventory.

So that was another refinement. And then the big aha for us came, we shared a slide yesterday where it showed a store we opened up in the heart of Atlanta, outside of perimeter mall. And so it had a high -- it's traditional retail thinking like, "Hey, we're going to open up stores where do you go?" You go where there's high population and high household income. So this store had DMA of roughly almost 466,000 people. Household median income was over $100,000. And then we juxtaposed that against the store we opened up about a year or 2 later in a town called Searcy, Arkansas, which I'm sure nobody in this room has heard of and it's about 60 miles outside of Little Rock, has about fourth of the population and 116,000 people, and the household income is about half of what it was in Atlanta. And so the setup kind of betrays the answer, like which one do you think did better. Believe it or not, it was the one in Searcy, Arkansas.

So the store in Atlanta did roughly $10 million and this is pro forma versus the store in Searcy did over $16 million in year 1 and [indiscernible] performed at 60% more and you go like, why is that? And when we started stripping it down, it came back to the customer. It's where does your customer live. And what we found was that in this location in Atlanta, it tended to be where people lived more in apartments and maybe they're either single or if they're married, they didn't have kids. And so you didn't have the whole youth sports part of our business activate because they're living in apartments, the whole backyard portion of our business didn't activate. They don't have grills. They don't camp, right? They weren't into hunting and fishing. So big chunks of our store weren't really valid for this population.

Now I'll tell you we've gone back and then we tweaked the assortment, built some brand awareness up there. And the store is comping very well for us. I mean it missed its initial pro forma, but it's still EBIT positive, and we're not going to close the store, but it's not as successful as we hope.

Conversely, you go to Searcy, Arkansas. It's more comps. They're looking for value. Our value resonates with them. They got kids playing new sports, dad is an angler or hunter. So it just fits where our customer lives. And so that caused us to rethink our real estate strategy. So traditional retail strategy going into a new market like Ohio would be go into Cleveland or Cincinnati or Columbus and then kind of push out in the outer suburbs and exurbs. This has allowed us to think more differently, and we're actually -- we call it inside out to outside in.

So instead of going in the heart of cities and pushing out, we're starting out in the outer suburbs or even satellite markets and push our way in. So if you think about Ohio, our first store there was in Zanesville, which is about 30 miles outside of Columbus. We just recently opened up a store in North Canton. And the next store, we opened up in St. Clairsville, which is about 110 miles from any major metro area. But it's where these middle-income families live. And we think that's going to be a highly successful strategy for us. And over time, as we kind of infill the gaps in between, we'll push towards those outer suburbs and exurbs and build brand awareness that way.

But then we thought, you know what, how does it supply to our legacy markets. And so we started going back and looking at our legacy markets where we thought we didn't want to open up stores because they're going to cannibalize themselves. And we found that while we weren't opening up stores in our legacy markets, our competition was because guess what, the population is growing faster in our legacy markets. Population was growing 12% or about 4x faster than it was in the rest of the footprint. And meanwhile, the retail square footage, while population was growing 12% had grown 36%.

So competition was coming in and putting in store count faster. And when I'm saying competition, this is any retailer. So this could include off-price. This includes department stores, people we traditionally talk about as well as DICK's, right? So they're all in this competitive set. And so we said, "we need to rethink this." And so we started looking at those outer suburbs. And so we had traditionally 26 stores in Dallas-Fort Worth. We thought that was the right number. But guess what, where -- I've lived in Dallas for about 10, 12 years, some of you guys may be familiar with it. The population just continues to move north, right? And so we're -- 20 years ago, McKinney and Frisco were kind of the outer ring of Dallas, it's pushing into a place like Celina and Little Elm, and the population is growing 27%.

So we started saying, okay, may we have this opportunity in these large metro areas to go out in these exurbs. And so that's been one path that we're going down. And then as we found also kind of stringing stores together, maybe about 45 miles or minutes apart to an hour apart, between the major metro areas. So we opened up a store south of Dallas in a place called Corsicana also opened up really strong at $16 million. This told us that we have opportunity within our legacy footprint, but it's in more of these exurbs or some of the satellite markets. That's why we republished our guidance there and saying, you know what, we think there's about 40 stores over the next -- 40% of the stores. So 50 stores out of the 125 over the next 5 years to kind of infill that and take that same strategy and apply that against both our existing markets and how we enter new markets in terms of 4-wall economics, I'll turn it over to Carl.

Total company, we're probably 20% EBITDA, 4-wall store shop. If you think about the new store algorithm, we've opened 63 of them. We've really got a good beat on how these things are going to launch. Steve talked about existing and legacy markets as opposed to new store markets. CapEx investment, $2.5 million to $3.5 million, [ $1.3 million ]. In the new -- in the legacy markets, it's a pretty quick payback. Overall, we say 20% ROIC, but in legacy markets, it's a 2.5-year payback versus kind of a blended average of 4 . In newer markets where we're having to establish brand awareness. It's going to be a 4- to 5-year payback on that capital investment, but we think that's good seed money for the future. And so that gives you -- they're going to start at an EBITDA rate that is below where the company averages, and that makes perfect sense to us.

They're going to grow to approach that 20% EBITDA. But I would say in some of the older stores, the rent structure that we have there is no longer available in newer real estate. Also they may not get all the way to there. But we contemplated that in that 100 basis points of EBIT expansion over the next 5 years, launching 25 stores per year.

Just to be clear, so 20% average 4-walls for the company, existing legacy markets...

When we launch a new store in a legacy market, it's going to come out below 20%. It's going to packet invested capital much quicker than in newer markets.

And then in the new and existing markets is the 5-year maturity at 20% 4-wall?

It's not going to get to 20% EBIT -- did you...

EBITDA.

EBITDA, it's not going to get there because of the price of poker associated with real estate. It's going to get -- all the other metrics are going to be the same, but it's not going to get quite to that 20%.

Got it. Audience questions?

Yes, I've got one, it's nice that you guys are seeing really nice sales momentum currently, and there's a couple of exciting initiatives to come in the second quarter with World Cup and what not. But I guess like the focus for investors is, what gives you confidence that you will be able to drive transactions in the back half of the year in the specific product categories that you are excited about that you could point to, because the transactions [indiscernible].

Yes. Yes, certainly. I think it's a lot of things we talked about already. It's what we're seeing right now is strengthen the business broad-based. I think we're going to continue to see team sports be strong, right? We think baseball is really expanding. I don't know how familiar you guys are with kind of baseball and it's certainly the bat and the glove, but this whole baseball culture, right? Kids wearing ice cream shorts and tops that match back and bracelets and necklaces and bling and all this other stuff, like that's driving the culture there. So I think baseball is going to be strong.

We think youth ports with the World Cup participation and soccer is going to be big in the back half of the year. So I feel very confident about youth sports. The fitness side of that business is also really strong with a lot of new innovative things going on there, like HYROX. You go into the outdoor side of the business. Our fishing business has been on fire. I think that's going to continue through. And I think a lot of that is just through better merchandising, better in-stocks and having developed out a good architecture brands there.

Our firearms business has been really strong as well. And I would tell you that's more from an assortment expansion that we've done. We have really leveled up our online assortment of firearms that you have to come in the store to pick up. And so that business, I think, will continue driving. And then adding in a new category like suppressors is totally non-comp. So we feel pretty comfortable with that piece of the outdoor business. The one that's going to probably be a little more volatile might be ammo. It was -- obviously, it was negative throughout most of last year. It's positive this year. We're getting a little bit of a surge from kind of the recent activity that may die off, but I think it will still be hopefully not negative like it was last year.

And then in apparel, we're really excited about, particularly the western wear side of the business. That whole part of the culture is having a moment. We've really invested in some emerging brands there. There's one you've heard us talk about on earnings calls, it's called BURLEBO. It's kind of a younger outdoor brand that really appeals to that college-aged kid or slightly after college who wants and lives that outdoor lifestyle, but doesn't want to wear his kind of dad's outdoor gear. That business has been exploding for us and is rapidly expanding. Carhartt continues to be a driver for us there. Ariat is another big driver for us. And then, of course, the expansion into Nike Doors and Jordan and other ones.

So we feel we've got initiatives pretty broad-based across the categories. There may be some subsectors within there that aren't as healthy, but we think we've got growth drivers that are going to help all businesses be strong with some pockets of real strength and a couple of things I just highlighted.

In addition to those categories and those brands that Steve spoke about, if you come back to the core initiatives, the mass of those initiatives is just significantly larger. We'll exit 2026 with 63 new stores in the comp set. That tailwind will be amplified by about 2x what it was in FY '25. If you -- as you think about e-commerce, double-digit growth, 13.6% in 2025, getting up to [indiscernible]. We see that continuing to double-digit comp. And if you think about what we're doing with the Jordan expansion and what we've already seen from Nike and Jordan taken collectively, growing high single digits, the weight of that moving from 145 doors to 200 doors this year.

All of the things that we're talking about as business drivers and then plus this customer loyalty and customer demographic shift that we're seeing. If you just look at the trajectory of how same-store comp -- same-store sales last 12 months have been trending, this is the year, and that's why we've guided to it. In addition to all the things that he said, internal initiatives is much heavier year-over-year.

We haven't cited it here, but we talked about it yesterday at the Analyst Day. Like if you look at our loyalty program, you take a customer, an average customer spend of X, if we can just get him to sign up for loyalty, it's like 1.5x. If we get him into a credit card, it's 2x. If we can get him into the co-branded card, it's 3.5x, right? So having that kick off this year midway through the year and then just starting the flywheel going on that. That's worth a lot to us, not only in the back half of next -- or this year, but into the first half of next year as well.

That is perfectly timed. I think that was happenstance. Thank you so much for your time.

Thank you. Thanks for having us. Thanks, guys for your interest. Thank you.

Thank you.

All right. Good morning, everybody, and thank you for joining us at Academy Sports 2026 Analyst Day. I'm Dan Aldridge, Vice President of Investor Relations. Before we get started and go through the boilerplate, I want to call everybody's attention to the release that we issued this morning with an update on Q1. We now expect sales to be in the range of 6% to 7% and comparable sales to be in the range of 2% to 3%.

So with that being said, as a reminder, today's presentation and the comments made by management during the event include forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the press release and our most recent 10-K and 10-Q filings.

The company undertakes no obligation to revise any forward-looking statements. Today's remarks also refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in today's presentation, which is available at investors.academy.com. This morning, we will provide an update on our long-range plan the building blocks to get there. And after we conclude, we'll have time for questions.

With that, let's start the event.

[Presentation]

Good morning, everybody. I'm Steve Lawrence, Academy's CEO. And we're excited to be with you guys this morning. We're going to share some information about the company, give you guys an update on our strategic initiatives, present our vision for Academy over the next 5 years and then wrap it up with the financial overview with the way how we're going to plan to deliver value not only to our shareholders, but our customers as well.

Joining me today, we've got our Chief Customer Officer, Chad Fox, who's been with the company a little over 2 years now. He joined us from Dollar General, where he was the Chief Marketing Officer for about 5 years. Prior to that, Chad worked at Walmart, where he helped them build out their marketing tech stack and customer data architecture. We also have Carl Ford, our CFO. A lot of you guys know Carl. Carl joined the company about 7 years ago around the time I did. So we've worked together for a long time. And prior to working for us, Carl worked at Belk in a bunch of different financial roles over time.

So I'd like to start with just kind of a quick rebaselining of where we've been and where we are today. So as you guys know, we're privately held prior to 2019, right? So we were founded in 1938 in San Antonio. KKR bought us in 2011 and really KKR's growth strategy when they bought us a new store expansion. And so they grew the store count to about roughly 259 stores in 16 states by the time we got to 2019. The challenge was a lot of those stores were opening up within our legacy geographies. So you think about Houston, we were taking -- we had 34 stores, we added 35th and the 36th, and we're just kind of subdividing the same volume. They're cannibalizing each other. So we stopped opening stores in 2019.

And our dot-com penetration was sitting at roughly 5%. We actually weren't growing in 2019 in dotcom. Obviously, from 2020 and 2020, we experienced outsized growth with the pandemic and the stimulus that was out there. As you guys know, we got to about as high as $6.8 billion. And we went public as a company in 2020 at about $13 a share. And then I would say since then, the business is rebaseline, coming out of the pandemic. The customer started returning to normal shopping patterns, competition reopened up and got back in stock. At that time, we started new store growth again.

So we started opening stores in 2022 and over the past 4 years, we've opened up 63 stores. We've leveled up our team in our dot-com business and put in place some really good fundamentals there. We built out our better, best architecture from an assortment planning perspective. And we put in place really strong merchandising and planning and allocation disciplines. We've improved our assortment planning process. We've moved to a product lifestyle management, which is really helping us keep our inventory fresh and current.

We've also implemented price and markdown optimization, which takes us to today. We're currently sitting at $6.1 billion. We're in 21 states, and we have 323 stores margins right now are sitting at about 500 basis points higher than where they were pre-pandemic, and we think a lot of the work we did from a merchandising fundamentals perspective is driving that. And our dot-com business is sitting at a little over $700 million, grew double digits last year, and we're sitting around 12% penetration. And last year, it was the first time we grew the top line since 2021.

So what we feel like is we've laid the groundwork, refined the business operating processes and sharpen our strategy and now we're ready for our next phase of growth. And so when you look at our targets over the next 5 years, we're going to grow the top line to roughly $8 billion. And store growth is going to be fundamental to that. So we're going to open up roughly 125 stores during this time frame. We're going to grow our dot-com business by roughly 70% to get to a 15% penetration. And we're going to deliver net income of roughly 7%. And all of that should yield what we believe would be a $9 earnings per share.

So people who know me probably would not describe me as braggadocious, but I'm going to start with something pretty bold. Within our geography, if you're familiar with this, we are the best sports and outdoor retailer in our geography. And I'd offer a couple of data points to support that.

First, foot traffic share. So if you go into our legacy footprint, which is Texas, Oklahoma, Louisiana and Arkansas, we command a dominant 40% traffic share, 4 out of 10 people who shop for sporting goods or outdoor product come to our store, and that's out of a subset of roughly 65 stores. So it's not a small grouping of stores. If you expand that out to our existing markets, which are markets we've been in over 5 years, we have a 30% traffic share.

Another metric I'd talk about is Net Promoter Score. You guys are familiar with this. This is a one word question where you ask people, would they recommend the brand and you subtract the detractors from the brand advocates come off the net score. At 47, we're the highest in our peer group and are about 1.5x higher than our closest competitor.

And the last that I would touch on is our customer satisfaction score. We work with a company called SMG and they do customer satisfaction surveys for us. At 86%, it's the highest we've ever been and it's in the top line of all the retailers that they measure. And simply put, what I would tell you is within our footprint, there is much love and brand affinity for Academy Sports and Outdoor. And our goal really then is to how do we build that in some of these newer markets we're going into and how do we take this nationwide ultimately to be the best sports and outdoor retailer in the country.

Now I'd like to shift gears and talk about the market that we're going after. So the total addressable market for the categories we carry is $245 million. I would say the breadth of our assortment and all the different categories we cover make us unique and set us apart from a lot of our competitors. I'll start with the sporting goods market, which is the largest one we participate in. It's $125 billion. It probably also has the largest competitive set.

But we also do a really good business in Outdoor Apparel and Western Lifestyle. That's a $45 billion market 8and growing. And we do really good businesses here with brands such as Wrangler and Ariat. You see those kind of highlighted on these mannequins over here to my right.

Work and Outdoor Recreation, another really big category for us at $40 billion, and we have a market-leading outdoor cooking business here. We have a big work wear and work boot business anchored in brands like Carhartt, or a private brand Brazos. And finally, the hunting and fishing businesses in a category that was $35 million, highly fragmented, right? There's not a lot of big players in this. We compete with more mom-and-pops.

But if you double-click on this and you look at the market share within our footprint of the TAM that's available with our print it's $130 billion. So roughly 53% of the entire TAM we're going after resides currently within our legacy footprint. So -- and if you actually double-click on that, the top 5 states out of the 21 represent half of that $130 billion. And when you take our annual volume of $6.1 billion, you get roughly a 5% market share. So what that tells you is we've got a ton of opportunity within our existing footprint, and we're just scratching the surface in terms of market share.

Shifting gears. You guys remember about 3 years ago, I think it was right around this time, actually, we came forward with our long-range plan. We had everybody down into Houston, and we put forward 3 growth strategies. Those remain the same. Those haven't changed, right? The first one is new store expansion. It remains our #1 lever for growing the company; second, improving the productivity of our existing base of stores and business. That's number two. And driving positive comps would certainly be a key metric we're looking at there. And third is driving outsized growth in our dot-com business and bringing a more compelling dot-com experience to our customers.

But what I would say has changed is the refinement and focus that we're bringing along with the pacing and scale of these strategies. Another change I'd talk about is that all these strategies now are filtered through the lens of customer. I mentioned Chad joined us a couple of years ago. Over the last couple of years, we've done a ton of customer research, shop along surveys, et cetera, to really come up with a crystal clear point of view of who our customers, and we're using that to filter all these strategies through.

And I'd like to play a quick video that kind of demonstrates who this Always Game Family is that we're going after.

[Presentation]

So hopefully, that gives you kind of a sense of who this customer is, but I'd like to put some demographics around this. Who's this Always Game Family? First, tend to be married with 2 to 3 kids in the household, and they tend to be in their 30s to 40s. Dad very comfortable in the deer blind or in the fishing boat were equally as comfortable in the car, driving everybody around all the different events and seeing from the sideline. Mom keeps the household going, is keen on working out and is really focused on making sure that her family leads a great lifestyle. But we also spent some time trying to get into their heads, and you heard some of those kind of has that we got from there.

So some things that we're thinking about as we move forward. First, convenience is key. They don't have the time to make multiple trips, multiple stores to satisfy all their shopping needs. Second, don't waste their time, be reliably in stock on the things that you're carrying and don't make them have to find them and search the store on and looking for your size or color.

Value is important to them. They want to stretch their spending power, but they will spurge a little bit if it's an affordable luxury that they think is going to make an experience better. So think about like the Turtlebox speakers that are in front of you guys or YETI coolers or things like that. If it's going to make their hunting or fishing camp better, they will spurge on some affordable luxuries.

And as I said, this is the lens through which we're passing all of our strategies. So now I'm going to start with our first growth strategy, which is growing new stores. So as you guys know, we restarted our store expansion strategy in '22, and we opened up 9 stores that year. And at our Analyst Day, if you remember, it was about 3 years ago at this time, we hadn't even lapped those stores being open, right? But we came forward and we gave you guys some pretty definitive targets around what we thought these stores were going to do.

We said they're going to do $18 million in volume. We said that they're going to do, are they going to be roughly 63,000 to 65,000 square feet. We said the cost per store is going to be somewhere between $5 million to $6 million. And at that time, most of the growth was going to be focused into new markets, so we didn't repeat the mistake we made when we were under KKR ownership of only opening up in our legacy markets and cannibalizing our base of stores. So we're really focused on new markets.

And the other thing was we're following a pretty traditional retail real estate strategy, which is put your stores in dense urban population centers with high household incomes. After a couple of years, after '22 and '23 vintages stores were opened, Carl and I came back in an earnings call, and we tweaked those targets a little bit. We told you, you know what, legacy and existing store is probably going to be closer to $16 million or $14 million. We said new markets closer to $12 million. So we gave you a range, $12 million to $16 million versus the definitive $18 million we gave you before.

We also refined the cost per store because we had a chance to value engineer the box a little bit. We said it's probably going to be like $2.5 million to $3.5 million in CapEx with $1 million in net inventory. But we remain focused on new markets as our primary way of expanding.

So now what I want to do is kind of walk you through 2 stores that we open up during this time period. We call this a tale of 2 cities. So the first store we opened up was in a very dense urban population center, 460,000 people, household income pretty high over $100,000 annually. And the second one, we opened up was in a more rural blue-collar town, right? Had about 1/4 of the population at $116,000. Household income was about half of what the other store was.

And I'm sure based off the setup, you're going to guess which store outperform the other one is probably not intuitive. The first store we opened up was in Perimeter, Georgia. This is one of the first new stores we opened up. And I will tell you, the $10 million in the first year, which was below the pro forma. We were disappointed with that.

Now what I'll also tell you is that store, we've done a lot of work in terms of fixing the assortment and retuning it, and it's doing much better now it's comping double digits. But the second store is really interesting. It's in Searcy, Arkansas. You guys may not know where that is, but it's about 60 miles outside of Little Rock. As we started studying why did Searcy so far outperform the other start, did 60% more. It's doing $16.5 million in this first year. It's a simple answer, it's because that's where our customers live, right?

The people and the families in these towns tend to have kids who are in new sports, the dads into outdoor hunting and fishing. Mom's focused on value because she has half the household income of somebody in Atlanta. And we also had a high brand awareness, right? When we came into town, the fact that we're coming to town in and of itself was big news. The Mirror was there. The high school marching bands were there. We didn't have to spend a lot of money marketing this. So what's really exciting is we're starting to think about this is there are a lot of towns like Searcy, Arkansas in our footprint.

So this caused us to start rethinking our real estate strategies. As I mentioned kind of traditional retail real estate strategy is to open up in dense urban centers and push your way out. We call this inside out, right? And what we found is that it makes more sense for us to go outside in. And so our stores that we're opening up are targeted primarily in outer suburbs, exurbs, exurbs is a fancy word for an outer suburb and kind of satellite markets that are in between some of the major markets. And so this has really helped us think through where we're going to open up stores. And we also revalue engineered the box to have a slightly smaller prototype at $50,000 to $55,000.

So a great example of this is our strategy going in Ohio, right? The first store we put in Ohio. Normally, you think you go into Cincinnati or Cleveland or Columbus, we opened up in Zanesville, which is about 30, 35 miles outside of the heart of Columbus, doing very well for us. The next store we're going to open up is in St. Clairsville. It's about 120 miles east of Columbus, 110 miles south of Cleveland. DMA is roughly 70,000 people, but it's going to do very well for us. And we think by having this outside-in strategy, we're going to be able to build brand awareness in these new markets and then push our way into the outer suburbs over time.

Another big aha as we're studying our real estate strategy was that while we stopped opening stores in our markets, the population was growing rapidly. So if you look at our legacy footprint, the population has grown roughly 12% over the past 10 years, which is about 4x faster than the population outside of our legacy footprint.

I'd also say that job growth and household income has gone even faster. And what we also saw was that our competition was wise to this, right? So they were opening up stores. The square footage that's opened up over the past 5 to 10 years has been 3x what the population growth has been. So there's a lot more competitors coming into our legacy footprint. And if you look at Texas as an example, over 1/3 of all commercial real estate that's being developed right now is being developed in Texas. So we thought we need to rethink the strategy and maybe go back and look at some of these legacy markets and see if there's an opportunity for us.

The other thing I'd also say is as this population has been growing within our legacy footprint, it's not just in a big metro centers, it's out in some of these satellite markets, right? So the first place we looked at some of our big metro markets. So this is kind of a screenshot of Dallas. And historically, if you go back 4 or 5 years ago, we didn't think there's any more opportunities in Dallas. We had roughly 26 stores in the DFW kind of geo. It's about a 26, 25-mile radius around the city and we don't think there's an opportunity there.

But as we've looked at where this population is growing, it's now growing another 20 miles out, right? And so we've expanded that range where we're looking and so a great example of this is a store we're going to open up this year in Celina, Texas. You guys may or may not know where that is. If you're familiar with Dallas, you probably know Frisco and McKinney were kind of the growth engines 20 years ago. Now it's Celina, right? That population is growing 27%. It's about 45 miles north of downtown Dallas on a good day with no traffic. It takes you 45 minutes to get out there on a bad day, it's probably 1.5 hours. And by the way, the population here is growing 7% annually. So we're going to open up a store there this year.

But then we also started thinking -- go back -- and then we also started thinking about how does this impact some of these more satellite markets that we're going into in between some of these big metro markets. These DMAs tend to be, once again, rich with our Always Game Family, more middle income consumers who hunt fish, tend to have high brand awareness in a lot of these geos, so low marketing spend, and they tend to be less expensive to operate candidly. And we also believe that putting stores in some of these more satellite markets gives us a defensible moat because we think we can go places where competition cannot and will not go.

So you think about some of these markets they're not -- the population is not big enough to support a full line just sporting goods only store or a full line only outdoor store. The fact that we have both sides of the box and carry other things like outdoor puts us in kind of a unique position. So you think about some of these towns -- the only place -- they're the only competitors maybe they're like a Walmart. So you think category like fishing, they have maybe a half an aisle of fishing and only anchored in the good versus our assortment that takes you from good to better to best or maybe a tractor supply that does deep dive in mainly the work category, but doesn't carry most of the categories that we carry.

So there's not a lot of competition there and a lot of opportunity for us to go. So a great example of this, we opened up a store last year in Palestine, Texas. You probably don't know where that is, but it's 110 miles southeast of Dallas. It's got a population drop roughly 65,000 people, and it's on track to exceed its Tier 1 pro forma of over $16 million.

And so we think that by looking at these more rural markets, this is going to help us expand our opportunity within our legacy and existing footprint to open up almost 100 stores over the next 5 years while not cannibalize or minimizing cannibalization of our existing base because they're about 45 minutes to an hour away from the rest of the more dense urban population centers. And it's also going to allow us to capture some of that $130 billion in TAM that I mentioned that's in our legacy footprint because we're going to go where those customers live and they live in a lot of these small towns, and we're going to provide locational convenience to them.

So moving forward, our strategy as we're going to open up stores, that 125 target that I gave you guys earlier, it's going to be about 40% in legacy, which is Texas, Oklahoma, Louisiana and Arkansas, about 40% in existing, which are states we've been in, in 5 years or longer and about 20% in new markets.

The other benefit to this strategy is as we're looking at this, if you remember at the Analyst Day a couple of years ago, with you guys, we thought we're going to have to build a fourth DC to fuel our growth. We don't think we're going to have to do that to hit this 125 stores. We think we can leverage our existing supply chain network of 3 DCs to get to this 125 store target, which is a really good thing for us.

Shifting gears to driving the existing business. I mentioned we kind of did a deep dive and got into customer's head and came up with these kind of 4 universal truths that they told us were important to them, right? First, fuel the fun, and we do that through assortment. They want shopping at Academy to not be a chore. They want us to help them enable to have all the fun that they're looking for in the sports and outdoor with the gear we sell them. Second, simplify my shop. They want to cut down on the number of stores they visit in order to complete their shopping. Respect my time, remove as much friction from the shopping process as humanly possible, stretch my dollar or -- yes, stretch my dollar value. We need to make sure we got great prices at high quality for them.

And we've used these customer insights to really fuel this strategy of growing our existing base of business. So the first slide I'll show up here is they want us to be a one-stop shop for all the goods they're looking for. And as we were talking to them, what we found was within our assortment architecture, there are some categories that they expected us to go deeper in that we didn't cover in a big way. So you think about this family always being on the go on the weekend, right? And they've got cell phones and tablets, and they need to charge. They need portable power solutions. And we traditionally would do generators around disaster recovery and put them out there if a hurricane was coming, but we really didn't go deep into this category.

So based off this insight, we've gone into a much more robust portable power so that we can take care of our customers' busy lives. Another one they shared with us is pets are an important part of the family. And we've always carried in a limited amount of doors some pet stuff more focused on hunting dogs, but we saw this as an opportunity. So we're testing in a limited group of doors right now, a more expanded pet assortment. And another one was car and garage organization. Like I said, they're spending the weekend kind of driving from an event to event and they're looking for ways, whether it's in the cargo hold or Their SUV or in their garage to organize all this gear and make it make sense. And so we're working on assortments there as well.

Second, it's also important for them to have a way for them to progress from beginner to intermediate to advance. So they want us to build out a good, better, best assortment, and that's exactly what we've done. I think we filled the void kind of in the marketplace. So I'll pick a category like fishing that I mentioned earlier, where you compete against the Walmart, who has about half an aisle of fishing, focused primarily on good in the basics that you need from a fishing perspective. And then the only really competitor there is a big box, super regional kind of a store that you have to drive some cases 1 hour, 1.5 hours to. And we really bridge that gap between that Walmart and that big box competitors.

So we have a good anchor in H2OX, which is our private brand. Better would be Abu Garcia and the best would be Shimano. I'd also say that this expansion into more midsized markets helps us from a locational convenience. And you think about this, I grew up in a small town in Oklahoma, and it was about 1.5 hours to Tulsa and about 2 hours south to Dallas. And we only have a Walmart and maybe JCPenney in our town. And so frequently, probably 6, 7, 8 times a year, we'd have to drive up one direction or down the other to get back-to-school shopping or Christmas shopping done.

Having these stores more conveniently located, cuts away the need for a lot of those trips and wins on locational convenience. And so we think that's going to be a big one for us. And then the last one I'll touch on is it's really important for them for us to drive a sense of discovery by delivering a steady diet of newness. And so that's exactly what we're going to do.

The teams across the business have been really focused on this, and I'll hit on a couple. Sports and rec, we're going after the baseball lifestyle in a big way. You see that kind of illustrate mannequin cluster and bags over here to my left. This is a big movement happening in baseball. You got brands like baseball, Lifestyle 101, Dirty Mids, Bruce Bolt. We're going into that in a much deeper way.

Leaning into emerging health and wellness and fitness trends. We talked about in earnings call and you have a little setup in the back about HYROX. This is the fastest-growing fitness trend in America. We're the exclusive brick-and-mortar partner for HYROX-branded workout equipment, and we are very excited about that. We're putting in red light therapy vests. We're putting weighted vests out there, putting vibration plates out there.

And then it seems kind of logical, but the sporting [ goods ] business also reports in this business because they also merchandise in the front queue. We're expanding that because that whole collectibles business is on fire. With an apparel, Jordan shops expand from 145 doors last year to 200. So we're expanding now to 55 doors. We're bringing in new fund brands.

You see in the back a little bit, you had a running shorts by brand called ChicknLegs. I'm not sure if you're familiar with this, but it's emerging running brand, very similar to this baseball lifestyle with kind of fun printed shorts. That's going to be in over 200 doors by the time we get to back-to-school. We're partnering with a big footwear brand, Brooks, that's going into apparel for the first time when we have that apparel in our stores.

Going to shoes. It's taking a brand like Birkenstock that's having a moment, expanding that out broadly to over 200 doors, putting Havaianas out there in a much greater door count. We're expanding our premium running footwear from brands like Nike under the Vomero platform or Adidas under the EVO SL having a bigger footprint there.

And then lastly, in outdoor, a couple of different things we're doing there. We're putting in suppressors, which is a growing business in the firearms category. We're going to have suppressor shops in over 100 stores. By the time we get to the back half of the year, we're partnering with a company called Silencer Shop to do that. We're putting in a best-in-class, fully loaded hunting rifle under a private brand called Redfield, and then we're expanding into a premium camo brand called First Lite.

And the reason I run through all this, I think a lot of times we talk about newness we get fixated on footwear and apparel kind of athletic brands. And we have newness guys and it's broad across all the different categories. It's equally important in outdoor and sports and rec as it is in apparel and footwear. And we want to make sure you guys understand that's something we're really going after.

The second thing we're working on is leveraging technology to simplify the shopping experience by driving more accurate in-stocks and improved inventory visibility. So you guys know we talked a lot about on earnings calls how we expanded RFID count or counting devices or sensors out to all stores last year, so we could start consuming inventory on a weekly basis counts and updating those on hand. And so at that point, last year, as we rolled it out, about 25% of our sales base is RFID enabled. So this year, we're expanding that out to include private label footwear and apparel, which should take us to about 35%.

But then we're also working with other footwear and apparel brands who currently don't use RFID to adopt it. And then we're partnering with Auburn University, who's kind of the think tank for RFID technology and looking for solutions on categories that don't lend themselves normally to it, like baseball bats or ammo, right? And so our goal ultimately is to get roughly half of the business on our FID over the next 5 years.

We're also leveraging handhelds in a big way. When we rolled out the RFID technology, as you guys know, we rolled out these new customer handhelds, right? And why is that important? Because if you think about these midsized market stores that have a slightly smaller footprint of 50,000 to 55,000 square feet. With this handheld device, they have visibility to the entire inventory of the chain. As a matter of fact, they have an expanded available of inventory because of the drop ship we do, right?

And so putting those devices in the customers -- I mean in the associates' hands is really unlocking the full assortment in these smaller stores. We're also leaning into AI. We've got a partner we use from an allocation perspective. And so what they're helping us do is proactively allocating goods in advance of sales and anticipating what they're going to be versus the traditional reactive model that fills in after sales happens. And the last thing we're testing, and you see this in this lower corner here is electronic signing. We've got 2 doors we're piloting this in this year. And we're going to be studying a couple of use cases.

First, more accurate pricing signing disciplines. Second, it should help improve for our associates picking for BOPUS orders because there's a pick-to-light functionality with the signing as well as potential wayfinding. So it could help within an app, a customer navigate the store. Early days, but really promising uses of technology to help simplify the customer shop.

The third thing that they told us that was really important for them is value to help them expand their spending power. And I would say I'd start with value is multifaceted, right? I think a lot of times, we hear the word value and we immediately go to price. And I think that certainly is a key component of the value, but quality is as well, right? And I think we deliver on quality by having the most trusted national brands in each of the space that really kind of helps credentialize our existing private brands.

We also deliver high-quality private brands that are rigorously tested through the Q&A process. And we stand behind all this with a best-in-class returns policy. But I would also say we returned value a couple of other ways. We give away free services like bike and grill assembly. That being said, though, price is pretty key, right? I think that's what the customer is really focused on right now.

And so there are multiple ways I would tell you that we deliver value through price. First, I would start with a private label, which I believe is our best value. So what we do on our private brands, as you guys know, is we price those at what the selling price should be every day. We don't mark them up just to mark them down and promote off that price. And so you take a category like private brand apparel and you look at our pricing on our private brand apparel against a like competitor on like-to-like items, we're about 60% of where they are on a daily basis.

You take a category like fishing. I mentioned we have a brand there called H2OX. We're about 80% of the price of what our nearest competitor is on those items day in and day out. You also know that we carry a lot of the national brands that we do an everyday value pricing on categories like T-shirts and shorts about $3 to $5 below where the MSRP is a daily basis.

I'd also tell you, we run promotions during key time periods of the year. About 75% of what we sell is at regular price, but we do promote. And we tend to promote during those kind of high traffic time periods like back-to-school or Christmas or Father's Day when the customer is looking for value.

We also deliver deep value through our clearance. And that's another thing we run clearance events generally in the February and September time period tend to be low volume periods on the calendar, but we think it's a great way to drive traffic into our stores by going through our clearance cycle then and we bring in deep value customers there.

And finally, as you guys know, we're constantly monitoring our pricing to make sure that we're at the best pricing out there. We do weekly price scrapes, make adjustments as we need to. And our safety net really is our best price guarantee. So we have a guarantee out there that's loud and proud in every store. If somebody beats our price, we'll match it and beat it by 5%.

But that being said, one of the best and most important ways that we're going to unlock value for our customer is really this new integrated loyalty and credit card program that we're launching.

And now what I'm going to do is hand over to Chad. Fox is going to get up and he's going to cover that along with how we're going to grow our dot-com business. Chad?

So Steve talked to you about the Always Game Family. And we did -- we have spent a lot of time with these folks over the last couple of years. And I think we have been blessed with the opportunity to serve the most deserving customer on this planet. We truly do believe that the better we know our customer, the better we can serve our customer. And so we've invested quite a bit in advanced identity resolution, just really building out our first-party data set and enriching that. In fact, today, we are at over 50 million unique and verified marketable customer profiles in our first-party data set.

Now we haven't just grown them horizontally. We've also grown them vertically. We have over 500 derived attribute that can be appended to these profiles. That doesn't mean anything to you, those are basically triggers or digital signals that the data science team can build models off of, right? And so it goes from just being a deterministic asset to a probabilistic asset. But this rich data set, it truly is. It is an enterprise asset that fuels our entire business, not just marketing.

In fact, we leverage all of these learnings to design the first myAcademy Rewards program that we launched around 18 months ago. That program, we could not be happier with it. We finished this last year at over 13 million members. And to put that into perspective, if you just look at our last 12-month active customer base, roughly 30% of them were myAcademy members, and they made up 45% of our sales, okay? So this is a really sticky problem -- or sticky product, sorry about that.

But what we continue to learn from the customer over this 1.5 years period, though, and we still saw opportunity to do even more with the platform to make it even more relevant to customers. And it really came down to 2 things. And this first one is going to sound really obvious, but customers want to be rewarded for their loyalty. And so when we launched the program, we had a series of, call it, published benefits and unpublished benefits.

And essentially, what that means is we would use it more as a CRM tool and we'd surprise and delight customers by putting money in their wallet, right, and driving trips back in the store. And they love that but they wanted to see something that was a little more cause and effect or action reaction. So that was a great learning for us, and I'll talk to you a little bit about what we've done there.

And then the second one was there is a -- and I'm a parent of 3 kids and they all played sports, but there is a tension in their lives, trying to do the things that they need to do or they believe they need to do as parents to, one, make sure they have all the equipment for all the sports that they want to try or participate in. And then two, setting them up for confidence, right, and to give them the ability to be successful in whatever it is that they try. So we believe that we were able to go back and optimize that platform, create a product that delivers on releasing this tension.

So we soft launched the program, our 2.0 version of their program a couple of weeks ago. You'll see that continue to roll out throughout the summer. And we made a lot of optimizations from what we learned from the customer. But there are 3 that I want to take you through today, okay? The first one you heard Steve talk about. We had -- how many of you are familiar with our private label credit card, right? That private label credit card, we've had it for roughly 7 years now. When customers -- the holders of that card, they get 5% off every single day inside our stores, okay? So we've taken that credit card program, and we've merged it with myAcademy Rewards to create one streamlined program. And then now it's a 3-tier program that has more value baked into it.

The second thing that we've done, I talk to you about action, reaction. So what we've done is we have put a $500 threshold reward in place where customers can earn $25 whenever they cross it, and that goes into their myAcademy digital wallet. Carl was showing me his app earlier. He's like on the verge of earning it. I've already earned it, which means I spend way too much money in our stores because we're only 2 months into the fiscal year. But we're really excited about that, and I think our customers are as well.

The third thing that we've done, and this is the one that just -- that I get so excited about this. But it's the -- we've added a tier, which is the ultimate tier, which is the myAcademy Rewards Mastercard. And the reason like this is so cool is most retailers, their loyalty programs, they are rewarding customers for spending more money inside their stores, right? We've chosen to go a different path. We are going to reward our customers with this Mastercard for spending money on the everyday needs of life, right?

And so how many of you have kids that are in sports, all right, a few of you, all right? So you spend a lot of time taking them to practices, travel, probably spend a lot in the grocery store stocking up the refrigerator and the pantry. We are going to reward customers every time they swipe that card at the grocery store, every time they tap that card at the gas station, every time they hand that card over at the drive-thru for a quick dinner after practice. We're going to give them 2% cash back in their -- myAcademy wallet that then can be put -- spent back at our stores to fuel the fund. And the combination of that will relieve that tension for those customers so that they can set their kids up for success and they can make sure that they have the confidence to succeed in whatever they do, and they can do it without figuring out how they're going to pull it off, all right?

So I've got a TV spot that I'm going to share with you. It's a rough cut as a marketing guy, I feel like I need to say that. But it's going to start airing here in a couple of weeks, and it communicates the value proposition I just walked you through.

[Presentation]

All right. So I've been in retail for about 27 years and marketing. And it's not very often that you truly do get to identify a customer problem and go build a product that truly solves that. And we spent a lot of time with customers talking about it. We think it's going to be great and drive a lot of engagement. And engagement is what this is all about, right? Because the more engaged the customer is, the more productive a customer is.

And customers who are members of myAcademy Rewards and cardholders spend 3.5x more than the average Academy customer. So this phenomenon, this engagement delivering productivity isn't just the case for myAcademy or the case for the card, but it's also the case for our omnichannel business for e-commerce. And we know that customers that shop both in our stores and on our site spend 2x more than the store-only customer.

And that's why the expanding omnichannel, Steve talked about our goals are so important to our long-range plan. He mentioned that we have the intention of growing our e-commerce business by 70% throughout the long-range plan that we want to grow our penetration to 15%. And we believe that we are on track to do that as seen in the double-digit growth that we saw in e-commerce just this past year. So I'm going to walk you through how we're going to do that. And I promise you guys -- I mean, there's nothing crazy or sexy about what I'm about to share with you.

The first thing that we're going to do is we are going to take all that customer data that I was telling you about earlier, and we are going to use it and infuse it throughout that entire customer experience to create more relevant and personalized journeys at every single point of contact, right?

The next thing we are going to do is we -- or we are doing is focused on the fundamentals. And I would say, at least in my experience, this seems to be the most difficult part of a traditional brick-and-mortar retailer really transforming to an omnichannel company, right? I mean whenever you set up items for a 4-foot section in a physical store, you can pretty quickly set those up, cut a PO and get inventory flowing.

When you set up an item for the e-commerce business, you need to be able to do about 100x that amount of work to make sure that the customer has a really good experience when they're reading a product display page or whenever they're searching something to have enough signals to cause it to show up. So we're doing a couple of things, and I'll walk you through each one of them from left to right.

The first one is item master data management. We are going in and we are setting up standards and then governance and controls, item by item category by category in order to make sure that these items are set up and there's enough content to truly -- to trigger those search terms and make sure that things show up whenever customers are searching for it.

The next thing we're doing is we are automating the setup process and the vendor data acquisition piece. I mean the way that, that is done or has been done historically is very hands-on keys. It's very human. It's a lot of running up and down the hall and calling people and texting people and e-mailing people. We have now automated that workflow so that we can scale and we can scale in a sustainable way.

The next piece is really exciting. We -- another one that is just very hands-on keys in human is the enrichment process. We are now leveraging AI to mine that unstructured vendor content that is captured in the automation process and then AI to generate and fill in the gaps for what we don't have so that we can have these rich, really customer-friendly PDPs.

And then the final thing we're doing is once we get those foundational pieces right, we're migrating our search platform that sits on top of that from more of a traditional rules-based search to a more modern semantic and agentic-based search, again, delivering a much better customer experience. So on our private brand, which is roughly 22%, 23% of our assortment, we can't depend purely on that process because we are the vendor, right?

And so whenever you are the vendor, when you are the supplier on something like private brand, you've got to shoot all that content, you've got to write all that content and enrich all of that content. So -- but it's very important, and we know this that customers, they want to evaluate the fit of a product on model, right? And so to do every product on model, that's time-consuming, it's costly, it's really difficult to scale whenever 20%, 25% of your business is private brand.

And so what we've done over the last year is we have developed the capability to leverage AI to create on model imagery for every apparel item that we have from a private brand standpoint. And to put this into perspective, why this is so important, we ran a proof of concept when we were building the business case for this investment. And what we saw was a 30% increase in views. We saw over a 10% increase in conversion, and we saw a 20% increase in orders. So this really does matter to customers and having great content and rich content really does drive the business.

Okay. As many of you may remember, this past holiday season, we launched our Scout agent or our AI Agentic shopping but on our site during the holiday season. And we are really excited about how it performed during the holiday season and where it's going to go from here. What we saw whenever customers engaged in Scout, which is a large number of customers, we saw a 2x increase in conversion rate versus our standard search, and we saw average order values of 12% higher. .

So as I mentioned, we're getting ready to migrate our search and take advantage of these learnings to where you will see more semantic search and Agentic search come together as one customer experience so they can search the way they want to search, very similar to what you'd see today in Chrome when you're searching off the site. Very similar to loyalty in the card and e-commerce, our app also drives engagement, right? And engagement equals customer productivity.

So historically, our app has really had the same commercial -- supported the same commercial objective that the site did, right? There was really no reason for being or added utility or value exchange that really mattered to the customer. What we've done is we have now repositioned our app where the primary objective is to be the remote control to the myAcademy Rewards experience. And we've infused it with utility and with value exchange, and we're already starting to see that pay off. Our monthly active users have grown over 40% over the last 2 years, okay? Units per transaction are 10% higher in the app versus the web, and our conversion rate is 50% higher in the app versus the web.

So you're going to see us continue to invest in the app, create experiences, create utility, create value exchange that sticky, drives that engagement, gives a little bit of that dopamine rush, right, that drives customer productivity. And you're going to see us continue to make -- push that to happen over time away from traditional desktop and away from mobile.

Okay, let's talk a little bit about expanded out. So we've had a lot of success in our special orders firearm business. In fact, I would argue that we have one of the largest assortments online, if not the largest assortment online of firearms as a result of this. We've also had a lot of success with our partnership with Fanatics, which is also a drop ship capability. So you're going to see us continue to grow drop ship as a way to expand our assortment online. And as of today, we have about 2x more items online than we do in our store, right? So there's a reason for being to have an e-commerce business. And we plan to grow this by another 20% this fiscal year.

Okay. So that expanded assortment, Steve talked a little bit about this, that expanded assortment not only benefits customers shopping online, it benefits customers in our stores, right? So our Jordan brand or the Jordan brand, we carried that in about 50% of our stores, okay? But if a customer wants Jordan, and they come into our stores and they're looking for, say, a certain Jordan shoe, right? And we don't carry it in that store. All they have to do is go to a team member right? They'll pick out the shoe that they want. They'll tap their card, and we can have it delivered to their home as early as that same day, right?

So we've talked about our site. We've talked about the app, but we've also talked about the app and expanding commerce in the store. We keep going on this journey of the, call it, decentralization of digital commerce. So many of you know over the -- I guess, about 18 months ago, we launched our storefront in the DoorDash app, right? And DoorDash does a couple of things for us. One, they power our white-label, same-day delivery product, but then they also -- we have a storefront inside their app environment. And we've been very pleased with how that business has performed, how it wrapped up this last year, and we're already pacing this year to double the size of that business this year.

Now we know that the reason -- one of the reasons this is successful and why it's so incremental is because these are subscription -- it's a subscription-based walled garden, right? And so how many of you have DoorDash, right? And how many of you have a DashPass? Really, I would have thought it would be more than that. All right. Do you also use Uber? You do? Do you have an Uber subscription as well? All right. That is highly unusual.

So there are more walled gardens out there. There are more of these delivery storefronts. And you'll see our efforts there start to manifest over the next year because we believe that there's a lot more incrementality out there.

The other thing we're doing is we're expanding into Agentic commerce, right? We're on this journey of going where our customers are and making sure they can transact in that environment. So we've entered into a strategic partnership with Google. We are on a short list of retailers today participating in 4 key initiatives that they talked about at -- just earlier at some of the different meetings like Shoptalk, NRF, et cetera.

So one of them is Universal Commerce Protocol. How many of you have heard of that, okay? All right. Well, it's pretty cool. And what it's going to do is it's going to really strengthen the pipe, the product feed that goes into that environment, whether you're in AI mode or you're in Gemini, and then have the ability to click and pay in that environment without leaving and going to a site.

The next one is conversational attributes. In this world of Agentic AI, where people are typing in more conversational prompts, those attributes matter, and they -- to ensure that you show up organically in that environment. The next one is direct offers. I don't know that Google would say at this, but this feels like an early days version of what ads would look like, right? And so if you're in AI mode or you're in Gemini and you're shopping, serving up offers to you that are very relevant to the conversation that you're having with AI at that point.

And the final one is business agent, right? So I talked a little bit about Scout AI and what Scout does for our customers from a conversational and Agentic standpoint on our side. Business agent is our version of that, that lives in the wild, that lives in AI mode that lives on Gemini. And in addition, we're also in an early partnership with OpenAI as part of their pilots for ads in ChatGPT, which is really exciting.

And like I said, whenever the infrastructure that's got to be built to enable all of that is really going to pay off for us whenever it comes to more of the organic, call it, generative engine operation that's necessary to start showing up organically in the AI environment, whether you're on Perplexity, you're on Copilot or on Gemini, ChatGPT, et cetera. And so that will help us a lot as we move forward to where the customer and technology is taking us.

Then the final thing I'd say on this slide about going where our customers are is social commerce. In fact, we are building out a TikTok shop, and you will see us in the back half of this year, launch that.

Okay. So I also have the pleasure of overseeing our customer care center. And we have about 200 team members that are out there. They're on the phone with customers all day long. As a marketing guy, I see that, and I think, wow, that's like dynamic ethnographic research. And we've always recorded all of these calls, and we transcribe them. But typically, it was -- humans looked at it and they used it for training purposes.

What we've done is we've taken a large language model, and we've set it on top of all of that data and that is now starting to inform and populate dashboards, reports and studies that go back to the business, whether it's operations, it's merchandising, it's e-commerce, it's marketing so that we can action on that in real time and really serve our customers.

All right. So I've talked to you about building out a unique data set, a loyalty program of really rich data. We've talked about getting the e-commerce business fundamentals right, which we're already seeing pay off with double-digit sales. Now we have an opportunity to monetize that with Retail Media. Now we're a second mover in this space. And some would say, we're a late mover.

But I will tell you, I've had experience with my past 2 retailers with Retail Media. It was really important that we get that foundational stuff right first so that we could maximize this opportunity and get it right out of the gate. The other thing I will tell you is technology has changed so much in the last 2 years, a lot of retailers, a lot of our competitors are stuck with outdated technology. They've got technical debt. They've got effort debt and they want to take advantage of new machine learning and AI capabilities, but that's a lot to rip and replace and get out of that technology. We're going to be able to take advantage of the latest and greatest technology and leapfrog in this space.

And I will tell you one of the main reasons we're so excited about this, and we feel like we have a value proposition when it comes to Retail Media, and it's not just a me too, is roughly 70% of our customers do not shop with our nearest top 2 national competitors, right? And so we have a very unique data set that offers advertisers offers our vendors extended, unduplicated reach that's additive to their existing plans, right?

And as a marketer, I will tell you that we are always chasing unduplicated reach. And it's hard to come by once you hit a certain threshold. And so that's a huge value proposition for our vendors, for our advertisers. And then the other piece, we talked about e-commerce, but it's growing so fast for us, the ability to capture that demand at the point of sale is going to be a great opportunity for them to grow their business at Academy, but also grow their business in aggregate.

Okay. So this is my last slide. You're going to lose me here pretty quickly. So just a couple of things. One, we've invested a lot in our customer. We believe that the more we -- the better we know our customer, the better we can serve our customer. That's led us to a really robust loyalty platform. We've only been out there for 18 months and already over 30% of our customers -- active customers are myAcademy members, and they represent nearly 45% of ourselves.

And we're launching the new value prop now right? We didn't let it grow stagnant, right? We're already out there with something new that answers what our customers needed with the 2% cash back on the myAcademy Rewards Mastercard when they shop on the everyday needs of life. And why is this important? Customers who are cardholders and customers who are members of myAcademy, spend 3.5x more than the average customer.

Next, we're working on our e-commerce business. We've made a lot of efforts here, made a lot of investments. It's paying off with double-digit growth, and most of that is getting the fundamentals right, not chasing the shiny objects, but getting the fundamentals right, then putting the new technology on top of that. And we're going to see that continue to pay off.

The next thing, we talked about decentralization of commerce, going where our customer is, not just our site, not just our app, but a team member app with a handheld inside our stores, right? But then also going out into the wild with Agentic commerce, with storefront -- delivery marketplace storefront and then also social commerce.

And then finally, we talked about margin expansion. We talked about the introduction of Retail Media, and we've got a very strong value proposition for advertisers to invest in our Retail Media through unduplicated extended reach that is very valuable for them and a robust and growing e-commerce business so that they can capture demand at the point of sale, all right?

So that's all I've got. I'm going to turn it over to Carl Ford. He's our CFO, who you know well, and thank you, guys.

All right. I'm going to bring it home. You guys have heard Steve and Chad talk about the strategies and the tactics around growing new stores and expanding the productivity of our existing business as well as growing omnichannel and how all of those meet the needs of this Always Game Family, these pain points that they have, how our strategy is aligned to that. I want to walk you through how those strategies and tactics manifest themselves into a 5-year financial vision of the company.

Before I do, believe it or not, we've only been public for a little over 5 years. And during that time period, we've grown sales significantly. We've improved our gross margin in a pretty dramatic way, and that has not been happenstance. If you look at what we've had the opportunity to bring to bear at Academy is a disciplined open-to-buy process.

We've leveraged new tools associated with inventory allocation and replenishment, some of the things that Steve talked about. We've modernized the tools that we use for pricing, reg price optimization, promotional effectiveness and how you manage the life cycle when you go to markdown is really important, and we've elevated the efficiency and the effectiveness of our supply chain.

We've invested into omnichannel capabilities and customer data capabilities that, frankly, when I got here 7 years ago, I just -- I didn't know we had that much upside associated with the capabilities that we can bring to bear, and we've launched 63 new stores, all while paying down over $1 billion in debt and repurchasing almost 40% of the shares that we went public with. We are proud, but we are not satisfied. This is truly the early innings of a multiyear growth story that I want to walk you through how we think that's going to unfold. So FY '25 was a pivotal year for us. We grew sales by 2%, and it will serve as the foundation year that will grow from here. And as you saw this morning, Q1 is off to a good start. So we've got a little momentum behind us.

Our internal initiatives are what is driving the growth in FY '25 and you're going to see more of the same. When you think about FY '25 is that 2% growth year, we had new stores that are exceeding our expectations. And once they lap their 14th month and get them the comp set, they're growing at mid-single digits. That's a little above where I pro forma.

From an omnichannel standpoint, we grew at 13.6%. We're almost at 12% penetration. Steve and I were here when we were a 5% penetration shop. We've leveled up significantly. People were already shopping with their phones and with their desktop computers. They just weren't shopping with Academy because our capabilities were pretty limited. We've enhanced those. There's more to come.

As it relates to launching Jordan brand, when you take it in parity with Nike, we grew at high single digits in FY '25. We're proud of that. That's a meaningful volume increase. Nike was our #1 vendor prior to, and the Jordan brand has been a great add-on to that.

We've grown our myAcademy members. We're up over 13 million. And we've seen a real shift in the customer demographics that are shopping at Academy. Now those quintiles 4 and 5 that are above $100,000 in median household income, they're our largest and our faster growing -- fastest growth consumer cohort. That's really derisked the customer profile for us. And I think that's pretty important as it relates to inflation.

We're also sober about the macro headwinds. We feel it. When you're a $75,000 median household income, you feel gas price is growing. You feel inflation growing. We have to manifest value and they're finding value at Academy. So FY '25 was a solid foundational year for us.

As we think about the building blocks of our growth, they're going to be based on those same initiatives that I just walked through, but that the team talked through the tactics with just a little bit more. We're going to go to $8 billion in the next 5 years. It represents a 5% compound annual growth rate. I want you guys to think about top line consistent 5% growth and what that would look like over 5 years. There's not a lot of retailers that have had a 5% compound annual growth rate over 5 years. That's what we're looking to drive.

We're going to grow 125 stores over 5 years, so ballpark, about 25 per year. That represents a 7% growth per year in new stores. Penetration of new stores in that comp base, it's growing. We've got 63 that are already in the comp base. We finished FY '25 with 39 stores that were in the comp base. We'll finish FY '26 with 63 stores and then we're going to add approximately 25 per year going forward.

That penetration of new stores in the base, it's significant. It provides a meaningful waterfall associated with where we're going from a comp perspective. We've applied the lessons that we've learned on each subsequent vintage. Steve walked you through an example in Atlanta, Georgia, where we launched at $10 million. It wasn't our customer there. It's growing. We're happy with it. It's EBITDA positive. It's going to have a little bit lower of a ROIC than what I pro forma-ed at. But we've learned so much in these stores that we're launching now that are exceeding our expectations, we want to do that consistently over time, each vintage getting better, quicker, faster, stronger than the next.

We expect to grow omnichannel up to 15% penetration. I would tell you that the average omnichannel retailer is a 20% penetrated from an omnichannel perspective. I think the good ones do it at 30%. Us having a goal for 15%, we think it provides meaningful growth for years to come. But when you're growing your store base by 7% per year, that's -- to get that penetration up to 15%, it's growing omnichannel volume by 70% over this 5-year time period.

We're going to grow in the existing businesses through brand launches and expansion, square footage productivity gains and the customer loyalty aspect, making each of those stores more productive. And lastly, we're going to grow earnings per share to $9. We've got a balance sheet with industry-leading leverage, and we self-fund all of our initiatives while returning a healthy portion of free cash flow to our investors. These are the building blocks for durable long-term growth.

I'm a waterfall guy. They make a lot of sense to me as it relates to where we're going. And so I want to walk you through, we ended last year with $6.1 billion in sales. When you look at the growth initiatives that we've laid out, this kind of manifests how those will play out over 5 years. There's overlap associated with some of these, and we'll get into that as it relates to new stores because we see omnichannel activity when we launch new stores go up significantly. So there's brick-and-mortar stores as well as e-commerce sales.

But we're going to get $1.9 billion in sales from launching 125 new stores. If we're just able to hold our ground on where we're at, we'll almost be at our goal of $8 billion. We think that there will be headwinds associated, but we're trying to launch new stores, no regrets the best vintages going live. So we think that's worth $1.9 billion over 5 years.

That includes omnichannel behaviors related to demand generation in those markets. So think about buy online, pick up in store or special order fire arms or the associate using a handheld device to mine inventory that's across the channel. It's the demand generation associated with that new store as well as the brick-and-mortar sales.

There's an additional $300 million in e-commerce growth that's not linked to new stores, and that's all of the stuff that Chad just talked about, such as alternative marketplaces, modernizing the search and drop ship expansion. We think there's another $300 million from growing the existing business through brand launches, customer loyalty and launching of the Retail Media Network. We know that there's going to be headwinds. Not everything is going to go perfectly. We feel like $8 billion for us and where we are in our growth trajectory is a challenging but achievable target for 5 years from now.

As it relates to EBIT margin, we're going to expand by 100 basis points and let me unpack to you. We're going to get sales -- we're going to get leverage from a low single-digit comp. This includes the cost of launching approximately 25 stores per year, as well as the technology costs associated with driving omnichannel as well as the customer data analytics that we've talked about. We think there's 50 basis points of supply chain efficiencies. You guys have heard me talk about 100 basis points in the past. We've leveled up since when we talked to you a few years ago. I still think there's efficiencies on the come, 50 basis points associated with DC operations, but also related to transportation as we fill in the 21 states that we talked to you about that we plan to stay contained within for the next 5 years.

Retail Media Network will be an overall EBIT increaser in terms of dollars as well as rate. And just getting private label to 25% and balancing out the penetration of softline and hardlines is another 20 basis points of gross margin expansion. So I think that there's going to be an opportunity to give some value back to the customer. So while I called it a headwind from a sales perspective, I think we're going to have opportunities to invest into value to the consumer. If we lose our everyday value proposition, we've lost our North Star associated with what it is that we do. So this is a bridge of how we get from 9% to 10%, and we think it's challenging but achievable.

This is my last slide, and it's my favorite slide because our capital allocation philosophy has not changed. At our core, we are going to be stability first. We are going to keep a healthy amount of cash on the balance sheet, and we're going to have a $1 billion ABL behind it that I don't have a tactical use for, but it's the best insurance in the world. This company that stands before you is going to be stable, first and foremost.

The second thing as it relates to capital allocation is we're going to invest into these initiatives that you've heard. We think the best use of the cash that we generate from our operations is to invest back into the things that you've heard about today. New stores, $2.5 million to $3.5 million in CapEx, selected well aligned with our customer demographic, great ROIC associated with investing back into ourselves, omnichannel behaviors. We're at almost 12% penetration, a lot of upside. It doesn't come free. We're focused on the capabilities that Chad talked about in unleashing that. And then brand launches, brand expansions, Retail Media Network invest into ourselves is the next thing that we're going to do.

And the last thing is we're going to get back to everything else to our shareholders. We have a pretty modest dividend, and you've seen what we've done from a buyback perspective. I like this slide. It shows that I don't have a laser pointer, but $1.8 billion we've given back to shareholders in the form of dividends and share buybacks since we've gone public over 5 years.

I'll leave you with this. There are a few retailers that have the long-term growth opportunities that we have. Second, our balance sheet looks really good. We have the ability to self-fund these growth initiatives. There's not a lot of retailers. I'm going to funnel here. This is -- who has the growth opportunities, who can actually fund that growth opportunities, who has a track record of giving value back to shareholders in the form of what we've talked about here.

And then last, there's none that have the value multiple that we have a fixed to them right now. If you take that $9 earnings per share, which I consider to be very straightforward associated with the tactics that we've laid out and you apply that value multiple, I'm looking trailing right now, value multiple, you would have a $90 stock. If we got halfway to a consumer sort of portfolio average, you'd have $135 stock. And if we just achieve the average consumer multiple, you'd have $180 stock. I want you guys to leave here thinking why is Academy's not one of my top 5 picks when I'm talking with folks about long-term value investing. We invite you to join us on this journey. The best is yet to come.

With that, we are going to do Q&A and we're going to have a really manual setup associated with -- get some chairs up here. So give us just 1 second.

All right. So we're going to have 2 mics roving around the room. I'm just going to call on people. When I call on you for the webcast purposes, please state your name and the firm. And due to the amount of people in the room, we're just going to do one question, no follow-up. So we're going to start upfront...

Kate McShane from Goldman Sachs. I just had a few questions -- well, one question. Sorry, Dan, and I'll follow up. With the pivot in terms of the store growth strategy, are most of the markets you are targeting seeing similar population growth as some of the examples you used? And how should we think about the cost of building a store in that rural or exurb market versus the suburban and rural?

Yes. So we cited a couple different stores. So some -- we're certainly in those far out suburbs and exurbs, large metros. They're definitely growing very, very quickly. We're seeing that. Some of the more midsized markets, probably not growing as fast, but I will tell you that there's tons of opportunity just based off of their underserved customers who don't have access to the brands that we're selling on a daily basis. So it's a combination of the 2, but they are growing. In terms of build-out, it's obviously cheaper to build out in some of those towns. In a lot of cases, we get some subsidies from the local municipality. And then obviously, from a wage rate to operate them on a yearly basis is a little bit less expensive as well.

And then just as a follow-up, with the goal of sales of $8 billion, what is the assumption for same-store sales within that? It seems like the contribution of existing stores is $300 million over the 5-year period or $56 million a year. It seems like it's like less than 1% comp store sales. Is that...

Low single-digit comps. Overall, 5%, you should think about as an average across this 5-year time horizon, but low single-digit comps.

Let's go, Michael.

It's Michael Lasser from UBS. In order to get the multiple that Carl referenced as part of his presentation, the company is going to need to generate positive comps, which has proven to be a bit elusive over the last few years. What as part of this plan is going to address those factors that led to the comp challenges that have occurred in the past? And secondly, as you look towards the 50 basis points of value investment as part of the plan, how would you compare that to what Academy has been able to invest over the last few years? Is it more or less or about the same?

I'll take the first part. What I'd say, Michael, is if you think back over the last couple of years, right? I mean, obviously, we saw pretty lofty heights during the pandemic that were probably unsustainable, right? And so I think that there's certainly been a rebaselining of the business since then, which I think a lot of retailers have experienced. I'd say probably the last year, 1.5 years, the thing that's probably been our biggest challenge has been health of the consumer with the backdrop of inflation. What gives us confidence now is we've been working really hard for the last couple of years where we came forward with strategies a couple of years ago.

I'm not sure we had the refined tactics in place to deliver against those strategies. And so you hear the work we've done on the real estate front. And I feel very confident sitting before you today that we can open up 125 stores. We opened up 24 last year. And I feel very confident that we know what those stores are going to do now that we've got 63 stores that we've opened up over the past 4 years. And I can tell you that stores in legacy markets do 16, stores in existing do 14 and stores in new do 12. So we've got really finite results that tell us we should be confident in that. You think about the work Chad and the team have done from a dot-com perspective to build the foundation there. We didn't have all that place 2 years ago. And we've proven this past year that we can grow the dot-com business double digits.

And then when you look at the existing base business and you think about the expansion of brands, the work we're doing on loyalty, these are all once again proven things that not only have we proven ourselves we can do, but others have done as well. So I think it's the combination of all those things being a year or 2 down the road on some of those strategies and building some really good disciplines and some tailwinds from them. And I think it's pulling all those things together. It's having that scale of those initiatives that gives us confidence we can get back to consistent regular comps.

From a gross margin standpoint, the 50 basis point we've grown gross margin by 500 basis points since pre-pandemic, a little over 400 basis points since we went public. We think that there's going to be opportunities to specific categories to make an investment into the value that the customer sees, whether that's at good, better or best pricing and give back. So I would tell you, we've done a lot of structural work on how we manage inventory and how we manage pricing, almost like from a scientific standpoint. We just think there's going to be opportunities over the next 5 years to invest in categories and continue to take market share.

Simeon Gutman, Morgan Stanley. I'll make it 2 parts with one question, Dan. The margin outlook, what happens as e-commerce grows a little faster over time? Does that fit into that 50 bps? Bigger question, I thought I heard 2 themes. There's a lot of blocking and tackling things that you're doing. You talked about the pricing, inventory, merchandising real estate and then next level stuff loyalty, Agentic. I don't think we appreciated where you were on some of the blocking and tackling. There's a lot more opportunity for Academy. Can you give us a sense of where you are on those initiatives? And then what are most important, what's the lowest hanging fruit? And then in some of the next-gen stuff, whether it's loyalty or Agentic, where should we see some progress being made?

We'll split this one up across multiple people. I'd say I'd start. Go ahead, you go first.

E-commerce sales tends to over-index towards hardline goods in our business. They have a merchandise margin that is lower than soft goods. But what we've experienced pretty consistently is that with those hard good purchases, still over 50% of customers don't have it delivered to their home. They come pick it up at the store. We think as we grow stores in these midsized markets, where the store is conveniently located, it's going to continue to be up over 50%. So there's a modest headwind associated with growing e-commerce, but it's not quite as much as I think in other retail businesses because of the high propensity to pick up in store.

I'd also say that the margin mix that Carl talked about, where we have an opportunity to grow private label in the soft goods mix kind of balances that. So we took that into account as we built out the waterfall in terms of where we're at on different initiatives. I mean certainly, on the merchandising side, we started earlier, right? So we're further along on the good, better, best from an assortment perspective.

We're pretty far along, I would say, probably in the middle to later innings on a lot of the merchandising disciplines. I'd say the dot-com piece of it, the technology stuff, obviously, Retail Media Network early, early, early innings on a lot of that. Chad, I don't know if you have anything you want to add to that?

Yes. I would just add to a couple of things. One, what -- just building on what Carl was saying about e-commerce being heavy on hard goods. We talked about expansion of drop-ship. And 2 things that, that will help us do. It will also help us to mix out and bring in more softlines into e-commerce without the burden of the inventory because it's drop ship. So that will help in terms of margin mix and e-commerce as well. On the journey that we're on, I would say we're probably about just a little south of halfway through going item by item catalog throughout the catalog category by category. We will be done with that before we get to the holiday season. And so...

So that's the starting point. We're just going to get to the starting point.

But I mean -- so yes, yes. But I'm really excited about that. I know it's foundational and it's basic, but that's huge. In terms of leveraging Agentic AI for enrichment purposes and automation, all of that stuff is happening right now, right? But as you get those standards and governance in place, then it will just continue to cycle through that and just get better and better.

In terms of search and migrating search, we'll be there. We'll be launching in the next couple of months on a new search platform that leverages both Symantec and Agentic. And that sitting on top of that cleaner, better hygiene data and structure will have an accelerated effect as it gets better and better.

Let's go back to Greg.

Greg Melich with Evercore. My question is on the capital investment required to get to these goals. So we have the CapEx per store. I think you said it was around $2.5 million, $3 million. What should we be thinking about for the total CapEx investment and P&L investment to hit the sales targets? And then my follow-up is on Retail Media.

Yes. So well, we've guided to [ $250 million-ish in CapEx, $200 million to $250 million ] this year, I think you should see us below 4% as it relates to -- 4% of sales as it relates to CapEx investment. I would have told you a couple of years ago that we would be over that threshold as we built out a fourth distribution center. I feel really good about what the team is doing in leveraging the three 1.5 million square foot facilities that we have and increasing the capacity there. So I would say we're going to be below 4%. And again, we'll invest about half of our cash flow from operations back into ourselves through the growth initiatives as well as maintaining the overall fleet and the other half you should look to give back to shareholders.

I will add something before we go to Retail Media Network. I would say that we didn't bring them up here today, but we've got a new Head of supply chain. He's been with us about the same time as Chad about 2 years. His name is Rob Howell. He came to us from Sysco. He's a supply chain strategist and he's really helped us. That's something that we mentioned briefly, but this idea of being able to kind of reengineer our distribution centers and be able to fulfill 450 stores out of those 3 DCs. We didn't think we could do that a couple of years ago, and he's really helped us rethink that. So I think that's a big unlock for us and helps us defer an investment further down the road that ultimately, we're going to have to make, but buys us some time against that as we get more thoughtful about where the next tranche of stores comes from. Retail Media?

Yes. The follow-up there -- thanks, Chad. If -- maybe if you could just unpack a little bit more. I looked at Carl, the waterfall. I saw $300 million from Retail Media Network. So should I be thinking that it would be about 4% of sales by the time we get in 5 years?

Let me -- related to the $300 million, that was a mix of what I would have called investments into the existing. So that included loyalty, that included Retail Media Network, that included brand launches. You saw 30 basis points of profitability growth on the $8 billion. So you can infer what we think it means from a bottom line impact associated with EBIT. But as it relates to Retail Media overall, we put in that waterfall is what we think that we can achieve. We're in super early innings associated with that. Chad is a thought leader. I'll let him unpack any other themes. But financially, we feel good about what we put in there.

Yes. I mean just from a financial standpoint, I think we're going to launch middle of this year. And so I wouldn't anticipate a lot in the back half of the year. But I think as we start to get into next year, you'll start to see that compound as time goes on.

We are going to launch a Retail Media out of the gates, both with on-site and off-site capabilities. And so when you think about sponsored search and sponsored product and display and OLV on our site, that inventory will be available from the get-go.

If you cover Retail Media, you know that, that's the highest value inventory in terms of what's sought after from the vendors and from the advertisers because it's an opportunity to capture that demand while on site. But we'll also make our audiences available offsite, very similar to other Retail Media Networks through different DSPs, whether that be The Trade Desk, DV360 with Google or Meta or others. So we'll do that right out of the gate. The value prop will exist both. So we'll be able to accelerate pretty quickly.

Let's go back up front, Brian.

Brian Nagel from Oppenheimer. So a couple of questions. First, just real near term, so business update today, it sounds like the business is tracking somewhat better than we heard from you just recently. Maybe just talk about what the drivers have been there. And then longer term, I guess, longer term, we talked a lot about the success of the new store openings, and it sounds like that's tracking really well. Any thoughts about going back to the existing base? And are there stores that maybe don't make sense anymore that could be shut down?

Yes. So in terms of what's working in the short term, we saw business starts to inflect before Christmas, right? And it's been fairly consistent positive from pretty much the week or 2 before Christmas all the way up to recently with the exception of about a 3-day window where we were shut down with some storms in kind of the end of January. And it's been broad-based. It's not been one area.

We mentioned on our earnings call, all 4 divisions ran positive in the month of February that continued into March. Certainly, you have some business outperforming a little better like the baseball business, which is a big business for us and spring is doing really well with some of the new initiatives. But every business is running positive. And I think it's the combination of all these different metrics we've pulled together in terms of the strategy starting to get some traction and all working in unison with each other. That's what we would attribute it to.

From a store closure standpoint, we haven't closed the store since 2019. We haven't impaired any stores, whether they're existing stores or new stores. In my prior life where I did evaluate that a little bit more closely, I kind of use the $500,000 EBITDA threshold to say, does it still make sense to operate if I close the store, would the volume just go to another near-term store. We're not evaluating closing any stores is the short answer.

But I do think over time, as some of these stores in the population continues to migrate outwards, we may have that opportunity. At those points, we're probably at the end of the lease or we're in a year-to-year situation and we can make those calls individually as need be. Another thing that we also are very focused on is we want to make sure we're keeping our existing base of stores updated.

So we're going to moving forward, try to remodel or touch roughly 30 to 40 stores a year, which is roughly 10% of the population with the idea being that you want to touch them roughly every 10 years. That's kind of a good discipline to be in. Stores that are higher traffic that are shopped more frequently, maybe every 7, 8 years and stores that are less frequently shopped, maybe like 11 to 12 years, but that's also another thing we're working on as well.

Adrienne from Barclays. I guess my question is really sort of how should we think about the shaping of the 5-year plan over the 5 years? Obviously, you've given guidance for this year. And I guess we've heard from the ASIC's CEO recently about inflationary pressures on the horizon for back-to-school and maybe kind of this spike nature of price increases. Have you seen any of that in your discussions? And how should we think about kind of the macro backdrop? And then I have a follow-up.

So you talk to shape and I'll talk over 5 years...

I wouldn't overthink it. I think it's going to be pretty symmetrical across the 5 years. I don't think that there's any year that we think is going to have outsized store growth above that 25% average. I don't think that there are milestones for 3 years from now as it relates to e-commerce spiking. I think you should think of it as pretty symmetrical.

In terms of pricing, I would say that we were probably faster to move on some of our private label because we're the import of record and some of our brands have been. Brands took varied approaches depending upon where they're at from a supply chain perspective. Some took pricing up immediately. Some took it up on as new items were coming in. Some waited until we got to the new year to start raising prices because, as you know, one of the tricky parts about all this is the ticketing increases and changing those.

I believe where we're at today, assuming there's no major changes one way or the other from a trade policy perspective is the pricing architecture we have in place right now is going to be pretty stable for the remainder of the year.

Our goal was -- it was very disruptive last year to go through all these pricing changes and all the convolution of trying to raise AURs. Our goal is to get into spring with the pricing architecture at the right level. And right now, I believe we're at that level. And I would think as we actually get to the back half of the year, what we're going to see is customers getting more used to it because they're now lapping seeing some of those price increases they saw last year.

Great. And then my follow-up is, Chad, for you. There are many different MDO, RFID, AI, Retail Media. Can you also kind of talk about kind of which of those are sort of furthest along? I'd imagine that MDO is largely in the base, RFID, the type of productivity gains that you're seeing in the first quarter and what we can expect to see on the next kind of path to 50% on that?

I'll take the RFID one because we're all owners of the business, but Chad's got the omnichannel piece of it. We've seen with the implementation of RFID in-stocks go up almost 500 basis points year-over-year. And when you think about retail, the #1 reason why somebody does and buy something is they can't find their size or color. So having that kind of a meaningful improvement in in-stocks broadly across apparel and footwear we've deployed this has been a driver.

And it's part of the reason why I think when we talk about -- it's getting traction against all these initiatives. You can't point to one and say, the reason sales are positive is because our in-stocks are better. But I think it's a piece of it, right? It's not solely because of that, but it's certainly a piece of it.

So I think as we get RFID pushed out more, we're going to continue to see a compounding effect of that. I'd say MDO and a lot of the assortment planning work, we're further along on. All the stuff from a technology perspective that Chad talked about in terms of the Agentic search, Retail Media Network, I mean we're early, early inning on all that stuff. I don't know if you have anything you want to add there?

No. Yes, you said it.

Chris Horvers, JPMorgan. So I also have 2 questions. My first question, Carl, your favorite topic is capital allocation. So does the high single-digit EPS growth algorithm assumes share repurchase?

Yes, it does. We do not -- when we give annual guidance, we do not embed within it, share buybacks. We had $437 million of share buyback authorization at the end of FY '25. This would be contemplated along that 5 years of us re-upping and continuing to -- about 50% of our cash flow from operations back to shareholders through modest dividend and share repurchases. So the simple answer is yes.

Okay. Understood. And then on the dividend side, how are you thinking about growing that dividend? Obviously, it's a value stock pitch, which you laid out at the end? Or do you think about growing that in line with the earnings growth? Is there a certain yield that you're trying to target draw that investor base in?

We've grown it for 4 consecutive years. We used to talk about trying to grow by over 10% per year. We've been able to do that. We do not have a defined what we're looking to do. But I would tell you, we're looking to continue a dividend and continued dividend growth along the 5 years.

Got it. And then my follow up -- the follow-up question is on loyalty. So 45% of sales going through the loyalty card in 18 months. How is that relative to your expectations? On one hand, it sounds like rapid growth, but you also have a very high brand awareness and you have a lot of concentration of sales in your legacy heritage markets.

So -- and then you also just -- you're changing the loyalty program. So I guess taking the glass half-empty point of view, did you expect it to be higher? And does it say something about who your customer is this core male, outdoor enthusiast who's maybe just not interested in loyalty and that's why it didn't grow to a higher penetration?

Yes. No, I appreciate the question. So I'll start with like who our customer is. And you're right, we look at a couple of different cohorts that make up the Always Game Family. And one of them is that outdoor enthusiast. The other one is what we call sporting family. And both of those cohorts punch above their weight. But what we see is whenever those cohorts overlap, that's where the Always Game Family comes from. And loyalty is very important to them.

I would argue, coming out of the gate, 18 months in and being at 13 million members is a good thing. And -- but the fact that 33% of our customers that are active over the last 12 months are -- myAcademy Rewards members right? And they make up 45% of our sales. We're not changing the program. We're just enhancing the program, right? We've learned a couple of things along the way where we can enrich it even more, make it even more relevant.

But I can tell you, at least in my past life, to be that quickly, that heavily penetrated is a good thing. Now do we want to keep growing it? And is there headroom? You bet. But customers are signing up for. It's growing at an accelerated rate. And we believe that there's a lot of upside. I have -- we have not seen anything that the value prop doesn't resonate with customers. In fact, we did some pretty high-end conjoint analysis and other types of research whenever we were doing, pulling this together. We truly believe that we have put the right permutation and combination of reasons to believe and benefits together to have the best rewards program in our space, if not all of retail.

So I'd say 13 million in 18 months exceeded our expectations. You got to think about it. We didn't have a loyalty program for many, many years. I guess you'd say our private label credit card was kind of our de facto loyalty program, right? And what's been interesting is because we launched that 7 years ago and when we launched loyalty 2 months ago, the programs don't work together. They are almost 2 parallel paths. We actually have a big cohort of customers who are in the credit card program are in the loyalty program and vice versa. So this opportunity to pull them all together, we think is going to be accelerator for us. So we're pleased with what we've built so far, but we think there's a lot of opportunity still ahead of us.

I did want to mention just because you talked about male-dominated shoppers. About 55% of our customers are male. We come out of the department store space, where we're used to -- I was used to 90% of sales being from a lady for herself or for her family. We have a lot of parity in...

If you take the outdoor business out and you just look at the other 3 businesses in aggregate, there's more female. So certainly, that does skew the total. But if you take outdoor, which is we know a very male-dominated category and you look at apparel and footwear and sports and rec, we're actually heavier penetrated in female shoppers.

Jonathan Matuszewski, Jefferies. Nike and Jordan were a success for you guys this past year, high single-digit growth. Curious the reaction from other national brands. They saw your success there in terms of their vote of confidence. And any examples in terms of national brands and their intentions to replicate what Nike has done in your stores?

Yes. Certainly, I would say it's a great proof point for us, right? I mean I think when you're talking to a brand who's not in your store, particularly a more premium brand or a better brand, they want to know how you're going to treat the brand, right? And so I think the way we launched Jordan pulled the shops together with integrated product presentations, marketed it, put it on our site. I think it surpassed what Nike was expecting of us. And I think it's been a good proof point for us as we're trying to do other brands. And so we'll certainly share more as those come, but brands like -- you got Turtlebox in front of you or we mentioned Birkenstock, right?

We had a limited door in Birkenstock. We're getting more doors faster there. You look at premium running where in the past, we didn't think we'd sell shoes over $100. Now we have a really nice business between $100 to $200 and even north of $200. And that's helping us get like the Vomero platform out to 150 doors by the time we get to back-to-school or the EVO SL. So I think it's as much moving new brands to come in, but it's also giving brands existing in the portfolio confident we're going to treat their more premium product the right way, and it's giving us access that way as well.

And then a follow-up along those lines, you mentioned Burlebo and Turtlebox number of times, high growth. I think the goal for own brands is 25% sales penetration. Is that all organic in terms of incubating more brands and brand extensions? Or would you contemplate looking at some of these small, high-growth brands, bringing them in-house, capturing the margin, et cetera?

Yes, it's very possible. So the 25% we set out there is an organic target. I mean for a couple of different retailers in the past that fell in love with the kind of the margins the private label give you and artificially try to drive to a number. This is a well laid-out plan where we're going into categories. An example I used in the overview is we have a private brand called Redfield. It used to be a national brand. We actually bought the brand, and we've been expanding into new categories, traditionally was an optics brand. We sell it in gun safes now, shooting accessories. Now we're going into hunting rifles, right? So it's a very methodical plan built out with brand extensions in the logical categories.

We think we're going to get there organically. We're going to let the customer vote. If over time, they tell us that once we get to 25%, the right level could be as high as 30%, we'll go there, but we're not going to dictate it. Could we accelerate that through the acquisition of some of these brands? Absolutely, we'd certainly consider that. It would have to make sense for us to do that. But it's certainly something -- we've gotten this question in the past around M&A and is that a strategy we pursue. And I think our answer is we feel very confident in our 3 growth pillars.

And if we thought M&A would help us get to one of those end results faster and acts as an accelerant, we would consider it. If it's not, we probably think of it a distraction. But I think acquiring a brand like that, that is hot could be something we'd look at.

John Zolidis, Quo Vadis Capital. First of all, thank you so much for having this event. And Carl, thanks for the price target suggestions that you provided at the end of your chat.

They're only suggestions.

And so my question is about the changing nature of your customer demographic. So you spoke about having a $75,000 income customer with high gas prices being potentially a difficult place to be. You also spoke about the higher income quintiles being the fastest-growing component. And we know about the price increases that were taken throughout last year and into this year related to trade policy and other factors having an influence on your customer and transactions within the store.

So when you think about 5 years into the future and the targets that you provided, are you deliberately trying to position the store to appeal to a different demographic than you have today? Or how do you envision the customer file changing over that time frame?

Yes. I think we'll probably tag this. I think at our core and Carl said this, our North Star is value, right? And I think that, that is what we're founded in. And if we ever lose sight of that, we're going to stop being Academy and be some other kind of retailer. So everything we think of is through the lens of value. That being said, certainly, the lower income consumer is probably the hardest pressed right now. And in a lot of cases, is opting out with higher gas prices and inflation and everything else and is either trading down or just sitting out, right? That's not forever. They're going to have to come back at some point, and we want to make sure when they're ready to reengage in gas prices normalize, we still provide great value for them.

That being said, we think that there's a way for us to attract customers we currently maybe weren't reaching with some of the additions of some of the brands. We talked about adding Jordan last year. We had a customer cohort that's one of the most shopped or requested brands on our website that we -- we call it no search terms that we didn't satisfy them with. So I think this is helping us, in some cases, a, retain a customer that maybe had to go to the places to find brands or in some cases, bring in a customer in the past, maybe didn't think about shopping with us. And so we look at it in both ways.

But our goal here is not to move away from our existing customer base to attract newer customers. That's like the quintessential mistake in retail, right, to abandon your existing customer base in the pursuit of another. We want to expand our reach.

And the last thing I'd say is, and I kind of put this in my prepared remarks, I mean, sometimes we think just because something costs a little bit more that it's attracting a different customer. I mean the speakers that you have in front of you today are Turtlebox speakers. They're, I think, $250 retail wholesale, but they're selling very well and they're selling broadly across all customer spectrums because it's something that's going to help them enjoy their event.

If they're out golfing or they're sitting around the campfire and a hunting trip, having a great sound system is something they'll splurge on. And so we don't think that leveling up and having more better, best is, in some cases, maybe helping service our customer base, but it's not alienating our existing customer base. We don't want to do that.

John Heinbockel, Guggenheim. So 2 questions. Where do you -- in your plan, where do you think the number of loyalty members are in 5 years or the number of loyalty members plus co-branded Mastercard, right? Because it looks like when you look at the differential in spending, I mean, that alone looks like that could be half of that $300 million in sales increment. .

And then secondly, what would not be -- you talked about basically a linear P&L. What would not be? Is there any element of supply chain that would not be linear or I think about the rollout of -- you didn't commit to a rollout of electronic shelf labels.

Yes, we're still piloting it.

But if that works, that would be back-end loaded, does that make a difference -- a noticeable difference in labor productivity?

Why don't you take the first part and Chad can answer the loyalty question.

Yes. I think I'll take it. So when you talk about -- I think you're talking about investment into the business as opposed to like top line growth when you talked about -- from a margin perspective, Yes. I think the biggest things that we're investing in are from a CapEx standpoint that you saw up here, it included the burden of 25 stores per year. It included leveling up in omnichannel capabilities and customer data capabilities.

I think those are going to be the main investment types over this 5-year time horizon. I think we feel like from a supply chain standpoint. We'll have to invest for capacity as we grow the store base from 323 as we sit here today to 450, but I don't think there's going to be large infrastructure related to supply chain. I think it's going to be a little bit of racking and tools and technology. We talked about the warehouse management system.

So from an investment standpoint, I think it would probably come back to value and what we put in the EBIT bridge. I just -- I don't know the specific things that the categories that we want to invest in. But even with the gross margin expansion that we've seen over time, we're still taking market share, which I just think is amazing. But are there categories that we really want to own and dominate? That's where I would think about the investment from -- it would be in value back to the customer.

Piggyback on Carl's comments. So in the strategy, we have money set aside for CapEx each year for technology, right? And so if, for example, electronic shelf labels end up being something, there's some money built into that to support that. Obviously, the pacing of that, depending upon how successful it is, we may decide to accelerate that and then they move money forward or out depending upon the plan.

But it's not like all the CapEx that we built into the plan is solely to support new stores. I mean we know we have to continue to invest in core-based technology, and there's money set aside for that. And we're going to determine how fast we go on some of those things based off of the success and the payback we get off of those investments.

On the loyalty piece, I'd say, one, we think of -- when we're evaluating that our first-party data, and we're building out different models, we think of it on really 2 axes. One would be the identity ladder and the other one is productivity, right? And so you can stack that identity ladder of where each wrong, they become more productive, right?

And so if you just got your average customer that is store only, we want them to become an omni customer. They become more productive. We want them to become a myAcademy rewards-based member. We want them to get the myAcademy credit card, et cetera, right? And so we've engineered an infrastructure that -- or an ecosystem that create stickiness, right? And we've modeled that data in a way to where we know what the propensities are the next most likely thing that you may be interested in, right, to truly be targeted and mindful in the way that we push people or pull people up the ladder, which will have a direct impact on how they come out to the right.

And so in terms of the card itself, I haven't looked at it as we want -- well, we do have in the financial model, like how many members of the card do we have. But it's really more of the combination of all of those things working together and having those choices so that the customer can opt in to what is relevant to them and not every combination is going to be relevant to them, right? But giving them the choice to engage in the things that they want that creates a brand that they feel like it hears them, sees them, what they say matters, their money is valuable in our store. It's a brand for them and therefore, I'm going to shop more often.

And I will tell you, we had it in the presentation, but it was just probably too much. But we've literally gone in, and you can grab just a real customer right, and watch them over an 18-month period and see the space in between their shop and then they opt into one, right? And then that -- the space contracts, right, in terms of the number of -- then they opt into another one and you see it get even tighter and tighter. And so we know how it works and we've got the playbook in place in order to incentivize the customer to adopt, move up that identity ladder and become more engaged. Does that help?

Anna Glaessgen, B. Riley Securities. I was curious how you assess the loyalty and credit card opportunity as you think about your various custom income -- customer income cohorts? Do you see outsized opportunity to stabilize maybe the lower income cohorts or accelerate that trade down that you're seeing with the hire income?

I think certainly, at the base level, myAcademy, which doesn't require getting qualified for a credit card, is a great way for a lower income consumer to unlock value, right? I mean they get several different value propositions with that, a birthday reward, a sign-on discount, et cetera. So I think that is certainly one way that we think we can kind of offset some of the pressure that customer is facing through loyalty.

Ultimately, over time, then the goal would be as the economy gets a little better or their financials get a little better than they could apply for and qualify for a credit card. And when they do that, that 5% back we give off every day on purchases from Academy, I think is a really big value proposition for them. So we think definitely the lowest tier of the program being myAcademy Rewards without a card is a great way for them to harvest value from us.

Ike Boruchow, Wells Fargo. Carl, could you elaborate a little bit more on the comp outlook? Maybe a little bit more detail on the waterfall that's embedded in their kind of legacy store versus the waterfall. It kind of sounded like those 60-plus stores are kind of in the mid -- should hit in the mid-single-digit range. I'm just kind of curious, is there any more year 1, year 2, year 3 versus what are you baking in for legacy store comp over that 5-year period? Just curious if there's more detail you could provide.

What we're seeing is a mid-single-digit comp. So we've got 39 stores that are in the comp base that we've begun when we started building new stores back in FY '22. And those taken as a whole in FY '25, we're at a mid-single-digit comp. What I will tell you is that stores when they launch at a little bit of a lower volume in the newer markets where the brand awareness is a little lower, we do tend to see a little bit higher comp versus in legacy markets where they're coming out closer to $16 million.

But overall, mid-single-digit comp, that will be 63 stores at the end of this fiscal year, 25 new stores per year, they'll all get into the 14th month related to the comp. From an algorithmic standpoint, that provides a pretty meaningful tailwind associated with this low single-digit comp. Could it be higher? Yes, what we baked into the model is low single-digit comps, 5% overall sales, getting to $8 billion in 5 years.

Does that mid continue into year 2 into year 3?

What that mid -- I want to be -- so what I want to make sure it's clear. When I say a mid-single-digit comp, that includes the FY '22 stores that are now on their third year, still comping positive. They're a component of that mid-single digits. We do tend to see like in the first month or 2 as there's a little bit of anniversarying of the sort of the grand opening festivities and maybe a little bit of outsized marketing, hey, how you doing? We're here. There's a slight negative comp in that like first comp month, maybe into the second. But overall, all of these stores, in some cases, meaningful double-digit comps are contributing to that mid-single-digit comp, which I think is a good average use as you take it back.

So I think I'll try to help answer, I think, the question you're trying to get at, like what's the base business and what are the comps there? So if you look at -- there's a slide -- the presentation slides, so you can pull it up, but we show you kind of a new store starting at 12, legacy stores starting at 16 and then existing at 14. We show you kind of the lines all converging at the same point.

So ultimately, we see over time, if we go back is that they all get to roughly around the store average of $20 million. So obviously, a store that's in a legacy market starts out higher at 16 and if they end up at the legacy average 20, it's a steeper -- I'm sorry, it's a shallower shorter curve versus a new store that has a longer ramp.

So as we're moving more stores into legacy and existing, I think we're going to -- it's going to pay off -- have quicker payoff for us. But I think it's also going to lessen a little bit of the comp tailwind that we're going to get from new stores. And so the legacy stores are implied to be flat to up slightly as part of the model moving forward.

We're going to take one more question and then we'll call Steve back up. We'll take the last question from Cristina.

Cristina Fernández from Telsey Advisory Group. I had 2 questions. The first one is on e-commerce. You've made a lot of progress targeting 15%. Some of your peers or some of the other industry are higher, let's call it, 20%, 25%. So as you look at your business, do you feel like you'll get there eventually or just the nature of your business with the new store openings and higher e-commerce penetration kind of limits you from being like at the industry average?

Well, I think the short answer is, I mean, our goal isn't to stop at 15%, right? I mean that's just our goal over the next 5 years. I think that a couple of things that are unique to our business is we see a very symbiotic relationship between our new store growth and our dot-com business. And that's because half of our dot-com business is BOPUS. And we saw big bulky things like gun safes and treadmills and things like that.

And so I think part of how we're getting to that 15% is the store growth that Carl said. I'm not sure it's a limitation for us, but I certainly think that our mix is different into those bigger bulky things, which probably means we're going to be at a little bit lower percentage than like an apparel only or a footwear-only retailer who tends to ship a lot of their product direct to the consumer.

But our goal long term is not to stop at 15%. And if we can accelerate and get to above 15% in the next 5 years, we're certainly going to do that. We're not -- there's no governor on the business. We think it's a logical growth plan though when you think about. I mean, we're going to have to grow the business 70% over the next 5 years. That's not a small number. I mean it implies double-digit comps, low double-digit comps in dot-com every year. I think we've got the game plan to do it. But I mean it's not in auspicious goal.

And then the second question is more short term. The first quarter guidance, better than expected to 3% comp. I assume tax refunds have been some help. But I was wondering if you can talk about when gas prices have gone up this much historically, like what you've seen from your consumer?

It's not a good thing, right? I mean you can't say that $4 gas is good for most people outside of maybe the gas companies, right? It certainly takes a bite out of consumer spending. So I definitely think that's a headwind that's facing the American consumer right now. I think inflation is real, and I think we're still feeling the effects of some of the trade policy stuff.

I think that some of the tailwinds that we're seeing right now, you could argue that there's some tax refund in there. It's hard for us to disaggregate that. I mean certainly, we're running positive in January. I don't think you could say tax refunds were helping that certainly in February, I don't think you can say it was helping that.

Maybe a little bit in March, but I think it's still early to tell. So I think that certainly as this thing prolongs, we don't know how long it's going to last. I think there are puts and takes on our business one way or the other. So certainly, the gas price is a headwind. We see some businesses activate when there's global conflict like this. Certainly, our ammo business has accelerated. It was running positive before. It's gotten a little better since then. But I think we have puts and takes on the business, but I don't think you could argue gas prices being as high as a good thing for the American consumer.

Thank you very much. So Steve is going to come up for some closing comments.

Once again, value-based retailer. We move our own furniture. So hopefully, you guys feel that we presented a clear-cut approach and pathway to achieving $8 billion in sales, 7% net income. And we believe that should yield a $9 earnings per share. Our growth strategies remain constant, right? We haven't changed since that presentation we did a couple of years ago. New store growth remains our #1 strategy, growing our dot-com business to 15% penetration is number two. And then, of course, we have solid plans in place, I believe, to grow our existing base of business.

So you may ask yourself what has changed? Why do they more confident in their ability to deliver versus where we were 3 years ago? I'd say a couple of things. First, and you heard us talk about this, right? We've had time to really develop and fine-tune the tactics. We're 4 years now into this new store opening process, and we've seen how these new stores are comping, right? And we've refined that strategy.

And we're telling you that the new stores are comping mid-single digits. We've also told you that the new stores that we're opening up that aren't in the comp base are exceeding the pro forma right now. So that's a good thing. And I'd also tell you, we've proven that our dot-com business can grow double digits. We did that last year, and it's off to a good start this year. So we're talking about our base business being up running positive, our dot-com business is running positive comp as well.

But second, it's that we're starting to build critical mass behind these strategies, right? This year, as Carl mentioned, we're going to have over 60 stores in the comp basis versus maybe 25 most of last year, right? So that's providing a comp tailwind. Next year, it's going to be 85 new stores, right? So that's going to continue to compound over time. Our dot-com business is growing double digits. And I think we've proven and shown you guys, we've got some really concrete strategies that are self-help generated that are going to get us there.

And I'd also tell you that the strategy is about growing our existing base business, the steady diet of newness that we're bringing in, the expanded loyalty program, the technology we're leaning into are all proven things that we know are going to drive the business moving forward. That's really what we think has changed, right? It's those -- the critical mass behind those strategies and having time to build out the tact to support those.

So with all that, as Carl said, we believe the future is very bright for Academy. We're excited that you guys came to talk to us today and give us a chance to articulate our strategy. And we want to thank you for coming, and I wish you all a good rest of your week. Thanks, everybody.

Good morning, and welcome to the Academy Sports and Outdoors Fourth Quarter Fiscal 2025 Results Conference Call. The call is being recorded. [Operator Instructions]

I would now like to turn the call over to Dan Aldridge, Vice President, Investor Relations for Academy Sports and Outdoors.

Good morning, everyone, and thank you for joining the Academy Sports and Outdoors Fourth Quarter and Fiscal Year 2025 Financial Results Call. Participating on today's call are Steve Lawrence, Chief Executive Officer; and Carl Ford, Chief Financial Officer.

As a reminder, today's earnings release and the comments made by management during this call include forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the earnings release and in our most recent 10-K and 10-Q filings.

The company undertakes no obligation to revise any forward-looking statements. Today's remarks also refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in today's earnings release, which is available at investors.academy.com.

This morning, we will review our financial results for the fourth quarter of fiscal 2025 and the full year, provide an update on strategic initiatives, discuss outlook for the year and share guidance for the full year fiscal 2026. After we conclude prepared remarks, there will be time for questions.

With that, I'll turn the call over to CEO, Steve Lawrence.

Thanks, Dan, and good morning to everyone on the line today. On our call this morning, we plan to cover our fourth quarter and full year results for 2025, along with providing initial guidance for 2026. I will remind you that we also have an Analyst Day planned for April 7 in New York City, which will also be webcast where we'll go into more detail on our long-range plan and how the investments we're making in 2025 and 2026 play into our multiyear strategy.

I'll start with the fourth quarter, which played out largely as we forecasted with sales coming in at $1.7 billion, which is a 2.5% increase versus last year and translated into a negative 1.6% comp decrease. These results were within our implied guidance range for the quarter. As we shared on our last call, sales were strong over the Thanksgiving and Cyber Week time periods.

Similar to prior years, we saw customer spending patterns soften in the second and third week of December and then surged during the week leading into Christmas, which continued into the last week of the month. January was softer than we anticipated, primarily driven by the large winter storms in the last 10 days of the month, which caused roughly half of our stores to be partially or fully shut down for 2 to 3 days. We saw the business rebound once our stores reopened.

As we discussed on prior calls, the big unknown for us this holiday was how the customer was going to react to the inflationary pressures on pricing for goods were imported from overseas. Our forecast was for average unit retails to be up low double digits for the quarter, and we delivered against that by raising our average unit retails up 10% through a combination of promotional optimization, growing sales in the better, best end of our assortment, and some strategic AUR increases. All these efforts helped improve our gross margin by 140 basis points versus last year.

Pulling back to the full year, I'm proud of how our team executed in a choppy environment. We navigated through all of the challenges in 2025, while still growing top line sales to $6.05 billion or up 2%, which resulted in solid market share gains across our footprint. We also put in place many foundational building blocks, which should help drive sales in 2026 and beyond, some of which include: First, I'm proud of how the team rallied midyear to mitigate and offset the impact of the incremental tariffs that were levied in late Q1 and Q2 of last year.

Team had to react midyear after most of the merchandise was already purchased and managed to offset the increased expense through a combination of sourcing country diversification, inventory pull forward at lower costs and pricing and promotional optimization work. The result of these efforts yielded an annual AUR increase of 6%, which translated into a gross margin rate of 34.8% or plus 90 basis points versus the prior year.

As we embarked on this journey to raise AURs, we've also remained committed to not losing our reputation for having outstanding value by constantly monitoring pricing across the marketplace. What we found through the ongoing customer research work we do is that we've managed to improve average unit retails across the full year, while also improving our value perception with customers relative to key competitors. I can assure you that this was no easy feat.

Another key accomplishment was the 13.6% growth we drove in our dot-com business. We put a lot of new players in place late in 2024, and they jumped in and quickly worked to improve core search that experience fundamentals. They also showed tremendous agility throughout the year as we incorporated emerging AI capabilities into our site for data enrichment on our items to help improve relevance and search, leveraging image generation capabilities on our private brand apparel. And finally, by introducing agentic AI onto our site for the first time, the launch of Scout prior to Christmas. While we're still in the early innings of these efforts, we're excited about the initial results we're seeing on this front.

Third, new store expansion remains our #1 growth opportunity. During the year, we successfully opened up 24 new stores, which in aggregate, are tracking to exceed their year 1 pro formas. At the same time, stores that opened up in 2022 through 2024, which are now in the comp base, drove mid-single-digit comp increases. We expect this tailwind to grow in 2026 as the 2025 vintage and new stores rolls into the comps as we progress throughout the year.

Fourth, the team was laser-focused on improving its stock through a combination of assortment rationalization efforts, coupled with the rollout of RFID scanners to all of our stores in Q2. During the year, we shifted to weekly counts and inventory updates on brands that are RFID-enabled, which in aggregate represent roughly 25% of our annual volume. The end result was improvements to our in-stocks across the company by 500 basis points. which had a major impact on overall customer satisfaction, along with improving conversion.

We also believe that the merchants did a great job of leaning into emerging trends and brands, which helped reinforce our position as a key destination during gift-giving time periods, such as Father's Day and Christmas, along with stock-up time period such as back-to-school. Adding in-demand brands as Jordan and Converse for our assortment, coupled with expanding other hot trending items such as Birkenstock, BURLEBO, Baseball Lifestyle 101, Turtlebox speakers, Ray-Ban Metas helped us drive traffic into our stores during the key moments of our customers' calendars. This is another initiative that we'll continue to push on in 2026.

Next, our myAcademy Rewards loyalty program has continued to grow since we kicked it off in mid-2024. We now have over 13 million customers enrolled in this program. This is another initiative that we're still in the early innings on, and we have some exciting plans to accelerate growth in this front in 2026 that I'll share in a couple of minutes.

Finally, all these efforts combined to help us drive new customers into our stores, which was evidenced by the 10% growth we saw in consumers whose household income is over $100,000 a year. The increased traffic from this cohort is, in effect, helping us diversify and somewhat derisk our customer base with these higher income consumers now representing our largest and fastest-growing customer cohort.

To be clear, we remain focused and committed to maintaining our position as the value provider in the sports and outdoor space. That being said, we believe layering on new trending brands and items targeted at the better, best end of the assortment is a good way for us to both expand our share of wallet with existing customers while also attracting new customers to shop with us.

Shifting gears to 2026. You saw in our press release earlier this morning that we're providing sales guidance for 2026 of plus 2% to plus 5% total growth, which translates into a negative 1% to plus 2% comp sales. The low end of our guidance contemplates a continued muted backdrop for discretionary consumer spending. Our belief is that most of the macroeconomic pressures that consumer faced in the back half of '25 will carry into the first half of 2026.

In particular, inflationary pressures on goods sourced outside of the U.S. should continue through the first half of the year. Assuming no additional dramatic changes in trade policy, we believe that as we lap the increased tariff costs in the back half of the year, prices should settle in at their new levels. That being said, there are also several tailwinds that should help us overcome some of these macroeconomic pressures. The first I'll mention our external events that we should benefit from.

First, we're still early in the tax return cycle, but we believe consumers should see higher income tax refunds this year. In the past, we've seen categories such as firearms, gun safes and work boots benefit from earlier and/or higher refunds during the tax season. It's hard to discern how much of an impact we're currently seeing from refunds, but I'll share with you through the first 7 weeks of the quarter, we're running a positive comp, and we believe some portion of these results could be attributed to higher tax refunds.

Second, as most of you are aware, the World Cup is coming to the U.S. this summer and approximately 30 matches will be played in venues across our footprint. We believe this should translate into increased tourism and foot traffic in the second quarter which should provide a sales lift for a license team and tailgating businesses. Longer term, we've seen events such as this drive increased participation in new soccer, which should help drive sales in our sporting goods business in the back half of the year and into 2027.

Finally, 2026 is the 250th anniversary of the United States. We traditionally see strong selling over the summer in patriotic merchandise, and we believe this year will be even stronger when you couple the surge in national pride around our 250th birthday with all of the excitement for Team USA this summer. At the same time, we have multiple self-health initiatives we put in place, which should also enable us to drive comp growth.

We expect the momentum we started to build on our dot-com results in 2025 will continue to propel the business forward. We're accelerating Academy's digital transformation by building a modern omnichannel business that will deepen engagement with our customers through data-driven personalization.

The enhancements for 2026 include: moving to an AI-based semantic search platform on our site in late Q2 to improve relevancy and conversion. We're also working with leading AI platforms such as OpenAI and Google to enable our catalog of products and offer to surface inside their ecosystems, which will greatly simplify the browsing experience for customers who are using AI as a search engine for shopping.

We also continue to grow our online assortment through additional drop-ship partnerships. When you combine this push to expand our endless aisles with the new handheld devices we roll out to stores in conjunction with RFID last year, you can see we're empowering our store team members to take care of their customers' needs in real time by dramatically expanding the assortment available to them well beyond what is physically available in that individual store. Lastly, we continue to expand our reach beyond our own channels through third-party store fronts on platforms where our customers frequent.

Chad Fox, our Chief Customer Officer, presented our Analyst Day on April 7 to give you a deeper dive into many of the topics I just covered along with some of the other initiatives that we have in the works for later in the year and beyond.

Another big landmark for us in 2026 will be the relaunch of the Academy credit card. We launched this program 7 years ago and for many years, this served as our only customer loyalty vehicle. In 2024 we introduced myAcademy Rewards as a way to extend loyalty offers to customers who either didn't want and/or qualify for our private label credit card. These programs have worked in parallel to each other, but were not connected.

With this relaunch in Q2, we have streamlined the sign-up process and are also creating a unified customer loyalty program with expanded ways to provide increased value to our customers. The new program will have 3 tiers. myAcademy Rewards, which is currently comprised of 13 million members, is the base tier and does not require an Academy credit card to access.

Key benefits customers get for joining myAcademy include a sign-on first discount of $15 off of their next purchase, birthday rewards, free shipping on dot-com orders over $25 and a $25 award after spending $500 inside of Academy within the first 90 days.

Second tier is a private label credit card, which can only be used at Academy. Value proposition for this tier includes all the benefits of joining myAcademy with some additional perks. The sign-up first discount accelerates from $15 off to $30 off. Customers get free shipping on all dot-com orders with no minimum. And similar to today, customers receive 5% off of all purchases made in our stores and dot-com site on this card.

The third tier is a new myAcademy Rewards Mastercard, which can be used as a normal credit card across all purchases. Benefits for this tier include all the ones I listed for the private label credit card, along with a couple of additional incentives. First, they get a higher spending limit than customers traditionally get on a private label credit card.

In addition to the 5% offer spending with us, these customers also get 2% back on all purchases made outside of Academy and rewards they can redeem to shop back at the Academy. Finally, they get an initial $50 reward to shop after they spend their first $500 outside of Academy on their card.

The beauty of this new card is a unique and best-in-class value proposition that helps solve an unmet customer need. Most retailers' cards only give rewards for spending within a brand's 4 walls or on their website. Our myAcademy Rewards Mastercard will allow always game families that we serve to leverage all of their spend on weekly necessities such as groceries and gas, taking the rewards they earn from their spend and redeeming them at Academy to buy all the gear they need to fill their families' activities and passions.

We will fully relaunch the program and convert existing cardholders over to the new card in Q2 in advance of Father's Day. All reissued cards will have a reactivation reward included with our new credit card, which should help drive a good tailwind heading into the key summer selling time period.

Similar to last year, we'll continue to add and expand our offering of better and best brands that resonate with our core consumers. For example, while we launched the Jordan brand in 145 doors last spring, some categories such as boys' apparel, stocks and slides and backpacks have already expanded out to all doors. We'll expand our Jordan brand shop concept this spring out to an additional 55 stores, which will take this integrated presentation to more than 200 doors overall.

At the same time, we also will continue to expand our offering from Nike of higher-level fashion in both footwear and apparel into all stores and online. Another key trend we're rapidly growing is our offering in work in Western wear. We're capitalizing on this growing lifestyle movement by expanding our breadth assortment from key brands such as Carhartt, Wrangler and Ariat, while also expanding our vendor matrix test emerging brands such as [ Hooey and Brunt. ]

On the fitness front, one of the hottest trends out here is HYROX. For those not familiar with HYROX, it is a multi-disciplined workout where people train for and participate in over 80 races across the globe. We are their exclusive brick-and-mortar partner in the U.S. and will bring their branded training equipment to over 70 academy doors this spring so people can train at home for the races.

The last big merchandise initiative I will cover today is our continued push into the baseball lifestyle culture. We continue to expand our assortment of the hottest bats and gloves, and have supplemented that with an assortment of apparel and lifestyle accessories from hot new brands such as Baseball Lifestyle 101, Dirty Mids and Bruce Bolt. This area was one of our best-selling categories of our holiday and we expect that the momentum will carry through in the spring and summer selling seasons. We plan to share more on our other exciting brand launches at our Analyst Day in April.

Last self-health initiative I will cover is leaning into and expanding on some of the strategic investments we made over the past couple of years. As I mentioned earlier, rolling out RFID scanners last year was a game changer for us as it helps us improve in-stocks and drive higher conversion rates.

This spring, we're spanning tagging to include our private branded apparel and footwear products. This will allow us to facilitate weekly counts and update inventory on roughly 1/3 of our sales base by the end of spring. We also remain committed to our new store expansion plans. And as we shared in our Q3 call, our plan is to open up 20 to 25 new stores in 2026.

The majority of these stores will be infill within our legacy and existing markets and should be strong performance for us right out of the gates. At the same time, as we move through the year, the 2025 vintage and new stores will start to flow in our comp base. And by the end of the year, we'll have over 50 stores that opened up between 2022 and 2025 impacting our comparable sales growth. We'll give you a deeper dive on how we've refined our real estate strategy during our Analyst Day on April 7.

To summarize, we are proud of all that the team accomplished in 2025. While we expect the macroeconomic backdrop to be challenging for the lower and middle-income consumer, we believe that there are a combination of external factors that when coupled with our internal initiatives, should allow us to grow top line sales 2% to 5% while also driving margin expansion and earnings per share growth in 2026.

I will now turn it over to Carl to give you a deeper dive into the Q4 and full year financials for 2025, along with our initial guidance for annual 2026. Carl?

Thank you, Steve. Fourth quarter net sales were $1.7 billion, up 2.5% and comparable sales were down 1.6%. Breaking down the comp, transactions were down 6.4%, while ticket was up 5.1%. In the fourth quarter, Academy generated net income of $133.7 million and diluted earnings per share of $1.98. Fourth quarter adjusted net income was $132.9 million or $1.97 in adjusted diluted earnings per share.

Gross margin of 33.6% in the fourth quarter was up 140 basis points versus last year and exceeded our implied guidance. The majority of the expansion was driven by efficiency gains in our supply chain and the lapping of costs incurred for port disruption from the prior year. Merch margin, inclusive of tariffs, was flat as we manage prices while managing alignment with our value pricing strategy.

SG&A expenses came in at 23.7% of sales for the fourth quarter, an increase of approximately $21 million or 70 basis points. The increase was driven by growth initiatives totaling approximately 135 basis points, comprised of 115 basis points of new store growth as we've opened 24 new stores in the last 12 months and 20 basis points of technology investments to fuel our omnichannel growth. The acceleration in new store growth from 2022 to 2025 has had an outsized impact on SG&A expense growth. But as we move through 2026, the number of new stores at 20 to 25 will be similar to FY '25.

Looking at the balance sheet. We ended the quarter with $330 million in cash, which was a 14% increase from the prior year. Our inventory balance was $1.5 billion, an increase of 15% compared to last year. On a per store basis, inventory dollars were up 6.3%, while inventory units were flat.

For the full year, we generated $435 million in cash from operations of which we reinvested $172 million back into the business to drive our growth initiatives. These actions led to approximately $263 million of adjusted free cash flow, of which we returned $234 million to investors through $35 million in dividends and $199 million in share repurchases at an average price of $50.62.

In terms of capital allocation, our strategy remains focused on generating cash flow to reinvest into our growth initiatives for the business and to return the majority of our free cash flow back to investors through dividends and stock repurchases. During the fourth quarter, we paid $8.6 million in dividends and repurchased approximately $100 million of our shares at an average share price of $54.03.

We are pleased to announce the Board recently approved a 15% increase in our dividend, resulting in $0.15 per share, payable on April 10, 2026, to stockholders of record as of March 20, 2025.

Our guidance for 2026 is as follows: Net sales are expected to range from $6.18 billion to $6.36 billion, an increase of 2% to 5% with comparable sales of negative 1% to positive 2% with a midpoint of positive 0.5%. I'd like to share the assumptions that influence our 2026 guidance.

As we head into 2026, we expect the consumer to continue to face a challenging economic backdrop, but we are confident that our internal initiatives alone support the midpoint of our guidance. The low end of our sales guidance contemplates a continued muted backdrop in discretionary consumer spending. And the high end represents an improvement in consumer health aided by the macro events already mentioned. We also expect traffic to improve as our internal initiatives continue to resonate and prices stabilize throughout the year.

Our gross margin rate is expected to range from 34.5% to 35.0%. GAAP net income is between $380 million and $415 million. Adjusted net income, which excludes stock-based compensation of approximately $37 million, is forecasted to range from $410 million to $445 million. Our gross margin gains for the full year of 2025 were primarily driven from merch margin expansion as we expanded Nike and launched the Jordan brand and while we don't anticipate the same level of expansion, we do see growth as we expand the Jordan brand shop concept into 55 more doors and expand softline brands like BURLEBO.

This, of course, will be partially offset by the impact of continued tariffs, especially in the first half of the year. In addition, we expect shrink to be a tailwind as we continue to roll out RFID to more national brands and private label apparel and footwear.

We expect GAAP diluted earnings per share of $5.65 to $6.15 and adjusted diluted earnings per share of $6.10 to $6.60. The earnings per share estimates are based on an expected share count of 67 million diluted weighted average shares outstanding for the full year. These amounts do not include potential future repurchase activity.

Our current authorization had $437 million remaining at the end of fiscal 2025. We are also confident in the strength of our cash flows and expect to generate between $250 million and $300 million of adjusted free cash flow after investing $200 million to $240 million back into the business in the form of capital expenditures, primarily for our strategic growth initiatives.

Looking at the anticipated shape of the year, our Q1 performance through the first 7 weeks is off to a positive comp sales start and we expect it to be our strongest quarter as we lap a negative 3.7% comp from 2025. On the surface, the second quarter could appear the most challenging as we lap a positive comp, the launch of Jordan brand and the subsequent Nike assortment expansion. However, we're optimistic as we expect to see tailwinds from the launch of the new myAcademy Rewards Mastercard as well as the continued rollout of the Jordan brand shop concepts into 55 doors this spring.

Additionally, we expect to see a tailwind from the World Cup, increased tax refunds and America's 250th anniversary. We expect the positive momentum in the first half to carry over into the second half of the year, but we're mindful that tariffs and any prolonged impact to gas prices could have a negative impact on the U.S. consumer.

It's also important to remember that the 20 to 25 new store openings in 2026 will be more back half weighted when compared to fiscal 2025 due to the initial pausing of signing new leases for 2026 when tariffs caused uncertainty in construction prices. We will provide updates to our guidance each quarter as conditions warrant.

To conclude, we're optimistic as we head into the new fiscal year and believe we have made the right investments and strategic decisions. I look forward to speaking with you again during our Analyst Day on April 7 about our long range plan.

Operator, please open the line for questions.

[Operator Instructions] Our first question comes from Christopher Horvers with JPMorgan.

So my first question is on sales. You mentioned a large number of store closures at the end of January. Can you quantify how much of a headwind that was to your overall performance in the fourth quarter? And then as we try to parse out what the right underlying trend in the business is, where are you -- any specificity on where you're running quarter-to-date? You did have weather headwinds that you lapped last year in February and then March wasn't that much better.

And then you've had the war recently, which I think historically, when these events happen, it does drive some sort of run on the ammo business as well. So how do you think about like the puts and takes of what the right underlying trend is? And have you seen that impact from what's going on in Iran?

Yes, sure. I'll start. So Chris, we saw trends coming through Christmas pretty strong the last week leading up to Christmas and even the week after Christmas. January is actually running positive for us. We had roughly half of our stores closed for about 3 days. It was over a weekend this year versus last year where we had some weather it was during the week.

If you took those 3 days out where we had roughly half of our stores running or shut down, we're running a positive comp in the mid-single-digit range. We estimate that it's probably worth about 100 basis points in comp of a headwind for us within Q4. We're pleased to see, though, that once the stores reopen, as we said, the business resumed. February was strong. We were happy with the positive comps. We had a positive comps across every division. That's continued into early March.

So it feels pretty broad-based. I would tell you that ammo, the category you just mentioned, got better during the quarter in Q4. So we were -- we talked, I think, in the previous call about how we're up against the run-up part of the election in Q3, and we saw that business start to stabilize in Q4, started off running down high single digits by the end of the quarter. It was running down low single digits. It's running positive comp -- was running positive comp in February before the war kicked off a couple of weeks ago. And then since then, it's obviously accelerated a little bit. But it's also been a solid business for us, it probably aided a little bit by the current events.

Understood. And then my follow-up question, Carl, is on the SG&A side. You mentioned that you're going to annualize -- you'll have 2 back-to-back years of similar kind of unit growth as you look at what's happened ex the lapping -- you'll lap Jordan -- the Jordan rollout and some of the costs that you put in on the advertising and the updates there.

But you've been running 6%, 7%, it looks like. We were thinking that was the right trend here in 2026, but the guidance seems to imply about 2% to 3% SG&A growth this year. Is there anything -- like how much of that is the annualization of a similar number of store opens? Is there some investments that are being dialed back or anything unique to get down to that math? I know you mentioned the cadence of the year and how the stores are going to be weighted. So any additional detail on that would be helpful as well.

Yes. So the main driver of our SG&A growth has been the store increases. And so as we move from 16 in 2024 to 24 in FY '25, that had an outsized impact. We're guiding 20 to 25. We think that's the right number for us next year. We feel good about all the openings. Simply not having the growth in the number of units, it will be about an 8% unit growth for us, provides a good level of leverage.

As it relates to next year's guidance, at the midpoint, what's implied is modest leverage from an SG&A standpoint. I will remind you that in Q1 of last -- of 2025, we had $7.5 million in the Jordan launch cost that was associated with primarily the 145 shop doors. That's going to be less this year, and it will be in Q2, not Q1. And then overall, like, look, we're looking for ways to leverage in the business. And so things -- doing things smarter and more efficiently. We found some automation opportunities that's helpful and we're going to have modest leverage next year at the midpoint.

Our next question comes from Simeon Gutman with Morgan Stanley.

So if you look at '25 -- 2025 in the rearview mirror, discretionary spend was fairly light across the board for most end markets. But you were lapping easier compares and you did add a few initiatives, which are working, still seem promising. So looking at the following year, and I appreciate the range and it's early and there's a lot of geopolitical things brewing. But big picture, the return to positive comps, why do you think it's taking as long as it is given the initiatives and the drivers and the confidence of landing may be in the higher end of that range for this year?

Yes. I think when we talked about guidance, Simeon, we were looking at the puts and the takes. And I'd say from a headwind perspective, I think that the consumer was under pressure, as you noted last year. I think that persisted throughout most of the year. And I think that was probably the one thing that stopped us from getting all the way across the line to get to a positive comp.

I will note that we actually grew the top line last year, which is the first time since 2021 that we've grown the top line. So that's a good starting point, but we know delivering consecutive positive comps is the key moving forward. So that's why we really talked about some of the growth initiatives we have, both self-help as well as some external.

You look at our dot-com business. That's been surging. It was up almost 14% last year. I think we've got a really good foundational base there. We're going to continue to lean into that. I think some of the moves the team is making and leaning into AI are really going to help out there. The new stores continue to get stronger, right? We mentioned that our new stores that opened up from '22 to '24 ran a mid-single-digit positive comp and we had roughly 25, 26 that we're feeling that last year. That number doubles this year as more stores fill in the comp base. That becomes an increasing tailwind.

I can't underestimate the impact of this loyalty credit card relaunch and integration. That's a big, big deal for us. It was -- ran as kind of 2 separate programs based off when we launched them. I think integrating it, I think, is really going to allow us to start delivering the value to the consumer.

And then you think about other things. We've got some outsized growth in some categories we're carrying like work in West and where those are training lifestyle initiatives out there that we're really doubling down on this year. We continue to lean in newness with all the things we mentioned on the call. And then you've got the external tailwinds like the tax refunds, World Cup and then obviously, the 250th anniversary of the United States.

So we feel like we've got a really good point of view around what we think the headwinds are. We think we've got a lot of self-help as well as external tailwinds that allow us to get back to positive comps. We think this is the year that happens.

And a follow-up, the store economic model, if you step back, how is the profitability ramp of the newer stores? And then given the lighter comp backdrop, how do you think of the year 2, year 3 stores or the economic model of the returns producing the way you thought?

Yes. Thanks for asking. So our stores in year 1 are performing a little bit better than what we anticipated and with mid-single-digit comps for those that are in the comp set, and that's after the 14th month that they enter the comp set. They're performing well. So we're pretty pleased with it.

We've seen some opportunities to infill in legacy and existing markets. Those typically perform a little bit better than those in our newer markets where we're establishing brand awareness. From an economic model standpoint, from a CapEx standpoint, it's $2.5 million to $3.5 million of net CapEx, and then we invest some incremental inventory there, too. We expect a 20% ROIC.

From a multiyear standpoint, from a growth trajectory, what we're seeing is that they continue to grow. In the legacy markets, it's pretty steady growth. And then in the new markets, when you look at those that are in the comp set, they're growing well into years 2 and 3 as well. So again, we like what we're seeing. We've learned a ton over time since we started launching in 2022, and we feel really good about the 2026 cohort.

Our next question comes from John Heinbockel with Guggenheim Securities.

I want to start with this year, the waterfall effect of new stores looks like that could be, I don't know, 60 or 70 basis points or something like that at a mid-single digit. Is that fair? Does that sort of suggest mature stores, you think will be flattish? And then the impact of loyalty and the Mastercard launch, could that be as impactful as the waterfall? How would you sort of compare the 2?

I think you're in the right range, John. I think that we saw mid-single-digit growth last year in the '22 through '24 vintage of stores, and you multiply that times the percentage they contribute, it was probably about a 30 basis point tailwind last year that will probably come close to doubling this year. And I think you can assume a very similar sort of lift for the loyalty relaunch. And remind you, that's only for about half a year because we're really kind of kicking the full relaunch off heading into Father's Day. So we'll also get the benefit of that as we lap the first half of next year as well. So we're really excited about both those initiatives.

And then maybe as a follow-up, the -- I know there's been a lot of opportunity with regard to supply chain, which has, I guess, been pushed out a little bit. What's the current update on, I guess, all of the initiatives, some of it, right, is technology, some of it is throughput. But where are we on that? Where are we tracking?

Yes. So from a supply chain standpoint, I'll get to the future facing in a second, but we did see the majority of our gross margin gains in the fourth quarter through the supply chain. Some was from lapping. I don't even know if people remember this, but in Q3 and Q4, there was proposed East Coast port strikes, and we took some mitigating activities. We were up against those. The efficiencies that we saw in Q4 of 2025 was more than just the lapping.

And I think Rob Howell, our Chief Supply Chain Officer, is doing a great job as it relates to driving efficiencies out of transportation as well as DC efficiency. So moving forward, I think I'd like to couch the majority of the ongoing benefit because we're going to contextualize that in the Analyst Day on April 7. But we have rolled out one of our distribution centers on the Manhattan Active Warehouse Management program.

We are looking to slate the Katy distribution center and the Cookeville distribution center later. It will not be in 2026. We've got some pretty good efficiencies that are going on there right now based on the unitary management there, and that is implied within the guidance. As it relates to beyond that, I still feel really good about the supply chain efficiencies that we spoke about previously, but I'd like to give you more color, if you don't mind. I'd like to wait until April 7 to speak to beyond 2026.

Our next question comes from Brian Nagel with Oppenheimer.

So I want to -- look, a lot of questions and a lot of focus on just this path towards consistent positive comps at Academy. And so the way I want to frame the question is, today, we're hearing on the last few quarters, I mean, it seems as though the tools, if you will, to get there are taking shape. You've got the new stores and the new product launches, e-commerce effort, et cetera.

So -- but we're still kind of not there yet. The question is, is there something in the business, maybe aside from a more difficult macro backdrop, but is there something in the business that is kind of offsetting all those positives that are taking shape that is becoming a bigger headwind for Academy and it's push towards positive comps?

I would say if you go back and look at 2025 in a vacuum, probably one of the bigger headwinds we faced was ammo. That's a big business for us. It does move the needle. And there were a lot of events that kind of drove that business in '24 that weren't there in '25. But outside of that, I would say it's -- there's nothing I would point to outside of just getting these initiatives and strategies really mature and starting to contribute fully. I think that's the thing that's going to allow us to break through and post positive comps. And that's why we're excited about all the different initiatives put together.

We're seeing really good green shoots beneath the surface on all the initiatives we talked about and we think this is the year where all those things kind of culminate and pull together and get us across the line. So we're seeing momentum in the business coming out of Christmas into the first part of this year. We want to be very muted about what we see from a consumer backdrop out there. But we're encouraged by what we're seeing and we think that the culmination of all those initiatives is what it's going to take to get us there.

I just want to -- I agree with everything Steve said. The primary headwind is the economic health, the financial health of the American consumer. That is what is moving against e-com being up 13.6%, new stores, mid-single-digit comps. Nike and Jordan taken together because we didn't have a Jordan the previous year, up high single digits. That headwind, except for the category of ammo that Steve spoke to, is the financial health of the American consumer.

And that's embedded within our guidance. So our -- we feel great about the initiatives moving forward. But look, I'm seeing credit card delinquencies at double what they were at the end of 2024. I feel job growth in America is not going to be strong in 2026. I think that gas staying high, we're just really conscious of a headwind associated with financial health.

That's very helpful. And so Carl, I guess my follow-up will be, I noticed you made the comment just a second ago about gas prices. So obviously, a very big focus right now for the market. I mean a lot of questions of how high and the duration. But given the nature of your business, the consumer and give them where your stores are generally located. Historically, have you seen a higher or elevated oil or gas price is more of a friend or foe for your consumers?

Yes, I'll jump in here, Brian. I would tell you that, obviously, gas prices being high is not good for discretionary spending in America, right? I mean that's not a good thing for us or for any of our competitors because it just takes more share of wallet from the consumer.

On the flip side, to the point I think you're alluding to, I mean, we have a big base of stores in Texas and higher oil prices lead to higher rig count, higher rig count leads to higher employment in the oil patch, and that sometimes can be a tailwind for us. So we're not going to prognosticate along how long this is going to take or how long this is going to play out. But there are definitely puts and takes with what's going on in the world today.

I mean, we got a question earlier about the impact on some of our categories. And ammo tends to be one of those categories that reacts positively when we have events like this happen. So we're watching it closely. We're not trying to prognosticate about what's going to happen in the war, but we think we've got a really good balanced approach based off of the backdrop that Carl mentioned as well as the self-help initiatives that we have internally to help us overcome those headwinds.

Our next question comes from Michael Lasser with UBS.

I wanted to mention some of the puts and takes on your sales outlook for this year. Carl, in your remarks, you talked about a 200 to 300 basis point swing from the low end to the high end of the guide based on macro factors. And yet you're also pointing to some good guys from the macro, whether it's tax refunds, the World Cup or the 250th anniversary celebration.

So are you factoring in around 200 to 300 basis points of a contribution from those factors because a year from now, when we are having this conversation, we're going to have to dimension how much of your performance in 2026 is based on what Academy is doing versus how much was based on the macro, and it would be very helpful to understand what you assumed within your outlook.

Yes. So we started with what our plan is, and it's not a range. It's what we think we're going to deliver. And so our self-help initiatives. So the things that we're talking to you about new stores, e-commerce, aided by all the things that Steve said, the loyalty program, these things that we're launching and in some cases, building upon, it gets us to the midpoint of that 2% to 5% guidance range.

And so I think at the low end, we anticipate that macroeconomic factors stay the same and that the tailwinds associated with those 3 big events that you just mentioned, World Cup, 250th and elevated tax refunds are completely negated by a macro headwinds. At the top end, the 5%, those macro events, those 3 things outweigh the headwind associated with financial pressure on the consumer and that they give us a little bit of a net tailwind, if you will.

So our self-help initiatives, midpoints, the 3 things that are macro drivers are either going to be overwhelmed by financial pressure of the consumer or will gain some from, and that was really what differentiates the 2% to 5% low high guidance.

I'll tag on to this question, Michael. The other thing I would say is that when you think about the value of the external tailwinds versus the self-help, the self-help are much greater than the external. We think the World Cup is probably worth about 30 basis points for the year. That being said, we think that just the loyalty credit card alone is equal to that this year with having a half year next year. So that should mute or overcome whatever we'd be up against from a World Cup perspective.

Tax refunds will be repeated. I don't think those are going to be lower next year. And so then you come back to 250th anniversary of the United States. That's helpful. I mean it certainly can drive a surge in patriotism and help us with red, white and blue. But it's not as big as the impact of the new store comp waterfall or the impact of dot-com in our business. So I would say that the majority of what gives us confidence this year about being able to bend the curve and get back to a positive comp is the self-help initiatives are going to drive it.

Got you. Very helpful. My follow-up question is the changing nature of the Academy model pivoting to maybe a slightly higher income and a slightly higher vendor base that might have a higher expectation for how you showcase their products.

So as a result, does that driving increase in your operating expenses? Because if we look at your results in the fourth quarter, the gross profit dollars actually exceeded the consensus forecast, but operating income was a bit short, and it really all came down to SG&A. And the question is, are you seeing less visibility in your SG&A dollars as you pivot to maybe a more -- a higher operating cost model as a result of these changes?

Yes. I don't think there's an elevated operating cost model. Again, there are some launch costs, which I walked through for Jordan associated with rolling out the shops. And then we do have a Jordan enthusiast that staffs on key time periods for that. But I really wouldn't point to elevated operating costs as the issue.

I think in looking at the consensus for the fourth quarter from an SG&A rate standpoint, we do still pay people when we close our stores. So if that was a 100 basis point headwind to the fourth quarter comp, we still did incur some of those costs without having the sales that they provide.

But the majority -- I mean, almost twice as much of the deleverage, 135 basis points in the fourth quarter was because of our growth initiatives that we're pretty committed to. Those will normalize as it relates to the number of stores year-over-year into 2026, which is why we're guiding to modest leverage in SG&A in 2026.

Yes. The thing I'd add on to Carl's point, I agree with everything he said is that, at our core, listen, we're a value retailer. We're not getting away from that. I want to make sure that we don't leave any doubt in anybody's mind that we're losing focus on that. I think we're in an environment where the lower-end consumer under $50,000 is really under pressure, is opting out or trading down.

We still actively market to them and want them to shop with us. And I think we see them come back during times of deep value like when we run clearance events or when we're in a promotional time period, we see them come back and shop with us. We see this layering on at better best brands, the way to somewhat diversify and derisk our assortment a little bit from twofold.

Number one, it helps customers who maybe couldn't find those brands in our stores previously stay with us and shop when they had to leave. And on the other side of it, I think it's helping us bring in a new customer. So we're still a value-based retailer. We think these new brands help us diversify and derisk our customer and bring in slightly more elevated customer, but we don't want you to think in any way, shape or form that we're losing focus on the value based customer as well.

Our next question comes from Kate McShane with Goldman Sachs.

We're just curious if we could get a little bit more detail about how each business segment performed during the quarter? And then just as a second unrelated follow-up question, when you are thinking about the loyalty program or this new iteration of the loyalty program, what is being incorporated into the margin implications of that in 2026?

Yes. So from a -- how the different category has worked out for Q4, we saw strength across a lot of our core businesses. Bikes, fishing, outdoor cooking, apparel, electronics and athletic footwear were all strong. Some of the softer businesses for us during the quarter were more seasonal in nature. So seasonal footwear, I think boots and outerwear. I already mentioned ammo was a little soft. I would say that camping was a little soft, primarily driven by lapping some really big numbers from the year before in Drinkware.

And then ride-ons was a little tougher for us this holiday. And when we went back and looked at it, we had to kind of cobble together an assortment there based off of the tariff environment, trying to find the right goods out there. What's exciting is as we've crossed over into spring and moved to a positive comp, all the businesses are performing pretty well right now. So we're seeing pretty broad-based solid business across all the different businesses. Could you repeat the second part of your question, Kate? I was writing something down and I missed the second part.

Yes. Just any kind of cost implications, yes, from the launch.

Yes. So on the loyalty, what we did is we went back -- we always have done different sometimes targeted discounts through various loyalty programs that we have. We basically pulled those all together and our bundling them from a rewards perspective. So we don't expect it to really impact the overall gross margin. It's going to be more a repurposing of discounts that we were using in the past for other purposes that we're going to repurpose via loyalty and be much more targeted. So rather than kind of broadly based giving out coupons on certain events or certain time periods, it's going to be really targeted at loyalty members, which we think is going to really help us activate against them.

Jonathan, are you muted?

Can you hear me okay?

Yes, we can.

Great. Carl, you mentioned plans for traffic to improve in 2026 versus 2025. So maybe just at the midpoint of your comp range, what's embedded for traffic versus ticket? And how does that change at the lower and upper bounds of the range?

We don't really guide based off of traffic. So I don't think I can directly answer your question. But I will say, as it relates to all of the context that we've given around sales growth, all of those are traffic drivers. So new stores positive comping, existing stores launching and annualizing gross traffic. E-commerce, we look at a couple of different ways to understand share.

We look at similar web information associated with session growth, and we see that we're taking share there. We think that some of the agentic search, and I don't know if you guys have looked at our website at Scout, the little assistant that helps you with kind of like large language searches. That's going to get better, quicker, faster, stronger, additional Jordan shops, those are traffic drivers. So we haven't overly guided towards the basket or traffic, but I know that traffic will be improved from what we saw in 2025.

Okay. And then just a quick follow-up. Just looking for more color in terms of the traffic decline this quarter. I don't know if you can share any details in terms of by income cohort and understand maybe how kind of the lower income quintiles are reacting to the AURs versus the other cohorts.

Yes. So we -- the traffic trends we saw by income cohort kind of mirror what we saw all year that we talked about on previous calls. At the high end, we continue to see a double-digit increase in traffic count, low double-digit increase from customers making over $100,000 a year or households making over $100,000 a year. At the lower end, we continue to see probably a high single-digit decline in those lower income consumers and the middle kind of is holding its own.

And that's kind of the behavior we've seen all year. And it continued into Q4. So once again, I don't think that the AUR increases and the assortment mix are what's really driving the traffic declines in the lower income consumer. I think they're just under pressure and are opting out or trading down. And as I mentioned earlier, we do have some different time periods and strategies and tactics we have to try to engage with them.

We're pretty pleased with some of the reaction we saw during February around our clearance event. And we think that was a lower-income consumer coming back in and really taking advantage of the values there. And once again, as we run other promotional windows during later in the year or clearance events, we think we're going to get that customer to come back, but they're definitely under pressure.

Our final question is from Anthony Chukumba with Loop Capital Markets.

So I guess I just have one question in 2 parts. I guess it's on the Jordan brand. Just in terms of how has the brand -- it's been, I guess, 6 to 7 months. How has the brand performed relative to your initial expectations? And then also, do you think that that's going to help with bring in some other high-profile brands that you currently don't have in your merchandise assortment? And Steve, I think you know which brands I'm referring to.

I do, Anthony. Thank you for the question. Listen, we're very pleased with the relationship that we have with Nike and the Jordan brand. We don't have a last year for Jordan. So what we can cite is if you combine Nike and Jordan together, they grew high single digits, which we were very pleased with. And we're going to continue to expand and grow the Nike and Jordan footprint. We're getting more access to more premium footwear that we're pushing deeper into the chain.

You take a performance running shoe like Vomero. And last year, we got it at launch, and you're going to see that probably go up to roughly 150 doors as we head into back-to-school. So I think how we brought the Jordan brand to life really, I think, showed the Nike team as well as vendors across the spectrum, what we can do when we launch a new brand. And we certainly use that as a proof point as we're talking to new brands.

And we will share some information around some new brands in the April 7 update. And obviously, if we get to a place where we're ready to announce or can announce some of the brands you've asked about in the past, trust me, you will not have to ask us the questions. We'll probably tell you before you ask us.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Steve Lawrence for closing comments.

Thanks. In closing, we made a lot of progress across numerous fronts in 2025, which allowed us to both grow top line sales for the first time in a couple of years as well as continue to gain market share. We believe that we have the strategies and tactics in place to continue this growth in 2026 and move back to comp store growth as well.

As always, I'd like to thank our 22,000 plus team members for their hard work and efforts, which are helping make Academy the best sports and outdoor retailer in the country. We look forward to meeting with most of you on April 7 and sharing how we plan to build on the initiatives we outlined today in 2026 and beyond.

Thank you all for joining our call today, and have a great rest of your day and happy St. Patrick's Day.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Good morning, and welcome to the Academy Sports and Outdoors Third Quarter Fiscal 2025 Results Conference Call. The call is being recorded [Operator Instructions]

I will now turn the call over to Dan Aldridge, Vice President of Investor Relations for Academy Sports and Outdoors.

Good morning, everyone, and thank you for joining the Academy Sports and Outdoors Third Quarter 2025 Financial Results Call. Participating on today's call are Steve Lawrence, Chief Executive Officer; and Carl Ford, Chief Financial Officer.

As a reminder, today's earnings release and the comments made by management during this call include forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the earnings release and in our most recent 10-K and 10-Q filings. The company undertakes no obligation to revise any forward-looking statements.

Today's remarks also refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in today's earnings release, which is available at investors.academy.com.

This morning, we will review our financial results for the third quarter of fiscal 2025, provide an update on strategic initiatives, discuss outlook for the year and share our updated guidance for the full year fiscal 2025. After we conclude prepared remarks, there will be time for questions.

With that, I'll turn the call over to CEO, Steve Lawrence. Steve?

Thanks, Dan, and good morning to everyone on the call. The third quarter played out as we expected, with consumers shopping episodically and seeking out value as they look to stretch their buying power in the face of rising prices across the retail landscape.

As we noted in our last call, we saw customers show up and drive positive comps during the back-to-school selling period, which for Academy, stretches from mid-July to mid-August. Once we got past the kickoff the tailgating and hunting season in early September, customers pulled back on spending during the lulls in the calendar intended to aggregate their purchases during the promotional events and natural holidays, such as our seasonal clearance event in September or in early October, where we ran our Academy deal days over Prime week and Columbus Day weekend.

We did see comps inflect back to positive during the tail end of the quarter. We started getting cooler temperatures in our legacy markets, which accelerated sales in our cold weather categories. This momentum carried into early November and got us off to a good start for the fourth quarter. We saw softness in the middle of the month as warmer temperatures resumed and sales in seasonal apparel slowed a little. As we expected, customers came out in force during Thanksgiving week looking for deals, and our team was well prepared with strong promotional pricing that was fueled by the inventory we pulled forward the pre accelerated tariff pricing in Q2 and Q3. All of this resulted in our largest Black Friday weekend ever, which was on top of a record Black Friday event from last year. That being said, we still have a lot of business ahead of us over the next 4 weeks.

Shifting back to third quarter results, it is clear that our strategies are not only working and continue to accelerate to take hold. A couple of proof points to support this are: first, we're in our fourth year of new store openings, and we now have 26 new stores from the 2022 through 2024 vintages in our comp base. And by this time next year, we'll have an additional 24. These stores in aggregate comped low single digits Q1, mid-single digits in Q2 and around a high single-digit comp in Q3.

Second, the foundational work we've done around improving our omnichannel experience continues to pay dividends, with growth in this channel accelerating from plus 10% in Q1, to 18% in Q2, to 22% in Q3.

Lastly, investments in delivering more on-trend product from both the Jordan brand and Nike helped drive high single-digit growth in the combined brands, and is helping bring in new higher income customers into Academy.

Turning to our third quarter results. As you saw from our earnings release earlier today, sales came in at $1.38 billion, which was up 3% to last year and translated into a negative 0.9% comp. We're encouraged by the strong reaction from our customers during the back-to-school season. And for our holiday assortment at the tail end of the quarter, we saw cooler temperatures across our geography. We were also pleased by the progress we made against improving average unit retails to help offset the increased tariff expense we are seeing this year.

During the quarter, average unit retail steadily improved and were up mid- to high single digits versus last year. This improvement also helped increase our gross margin rate to 35.7% or up 170 basis points from last year. We've been walking a bit of a tight rope this year as we work to steadily raise AURs while also maintaining our value leadership in our space. And I can assure you that we're continuously monitoring pricing relative to key competitors and are highly confident that we have the right pricing, architecture and promotional plan in place to deliver a strong holiday season.

Looking at category performance across the business, sports and rack was our strongest division, posting a 6% increase, driven by solid growth in our baseball, outdoor cooking, fitness equipment and bicycle businesses. Apparel sales grew 3%, driven by strength in key national brands, such as Nike, Jordan, Carhartt, Ariat and Burlebo, along with solid growth in our private brands, such as Magellan and Freely. Our footwear business grew 2%, fueled by performance running brands such as Nike, [ Brooks ], Asics and New Balance, all of which drove strong comps.

Sales in our outdoor business also grew 2% for the quarter, with strength in fishing, hunting gear and firearms. We did see some softness in our ammo business as we started to lap the election run-up from last year. Once we got past the election time period in early November, while still [ earning ] negative, we've seen the ammo sales trend improve.

As we continue to grow top line sales, we also remain focused on growing our market share. As you know, most of the new stores we're opening are new or underserved markets. And virtually every dollar of sales from these new stores translates into share gains for us. In many cases, these gains come from smaller independents offer the value and diversity of assortment we carry. With the businesses complex as ours, we have to track our relative performance across several different data sources. And similar to the last quarter, all the metrics we're seeing indicate we continue to grow market share in the third quarter.

The first place we focus in on is traffic data, which will get through [indiscernible] high. As prices continue to rise across retail and discretionary budgets get squeezed, we continue to see strong growth in foot traffic and share gains from customers in the top 2 income quintiles, which are households making more than $100,000 a year. These top quintiles now represent roughly 40% of our sales. And during the quarter, we saw traffic from these cohorts grow in the high single digits. We're very happy to see that we continue to drive strong market share growth with this consumer segment even as we started lapping the double-digit growth we experienced last year in the third quarter.

At the same time, we continue to hold share in the middle income quintile, which is houses making $50,000 to $100,000 a year, which represents roughly 30% of our customers. And finally, we continue to see traffic erosion in the lower income cohorts that make less than $50,000 a year, but the pace of these declines was less than what we saw in the first half of the year. As this trend has played out over the past year, we have, in effect, started to somewhat derisk our customer base by giving us less exposure to lower-income consumers that are under the most amount of economic pressure.

Another key data source for us is Circana, which provides market share data on roughly 60% to 70% of the categories we carry. Similar to last quarter, we were pleased to see meaningful share gains across all of our key businesses such as apparel, footwear, sporting goods, outdoor cooking, fishing and camping.

Finally, we use government background check requirement purchases or mix check data as a proxy for firearms market share. Once again, we saw continued solid growth on this front despite the softness in the ammo that I started earlier, with firearms share growing for over 18 consecutive months. As we move forward in Q4, we expect these trends to continue as customers discover the value, convenience and diversity of our assortment.

We attribute a lot of the momentum we're building the business to the solid progress we continue to make against our long-term objectives and goals. I will now cover a couple of highlights of this from Q3. First, opening new stores remains our #1 growth strategy. And during the quarter, the team successfully opened up 11 new stores. Unlike the first half of the year, most of these new locations are in our core geography where we have high brand awareness and affinity, and are positioned in midsized markets with an underserved constituency.

Some examples of stores we've opened up during the quarter are Palestine, Texas; [indiscernible], Mississippi; and Rome, Georgia. While these accounts are not household names from any of you, the customer profile in these markets closely aligns with our target consumer in each of these stores, along with the other 8 we opened in the quarter, have been knocking it out of the park since opening, and are running significantly ahead of plan. The success of these stores highlights the opportunity we have to open stores in our legacy and existing markets that are experiencing high population migration and growth, in addition to the new states and markets where we currently don't have a presence.

At this point in time, we have pretty good visibility into our 2026 pipeline of stores. We're excited to announce that we plan to open up an additional 20 to 25 stores next year, with a focus on opening roughly 80% of the new stores in legacy and existing markets and 20% in newer markets. As in the past, we tend to open in new markets in the first part of the year, and legacy and existing are more back half weighted.

Our second initiative is through our dot-com business at an accelerated pace. We continue to make progress against this goal in Q3, we grew this channel 22% for the quarter, and penetration to total sales grew by over 160 basis points to 10.4%. As we mentioned on our previous calls, we believe that our new store growth is one of the things that helps fuel our dot-com business by acting as local fulfillment hubs for customers who want the convenience of a BOPIS experience. This symbiotic relationship is evidenced by the fact that we're starting to see higher dot-com penetration in our new markets as we lead with a digital-first customer acquisition strategy. An omnichannel shopper is our most productive and profitable customer. We're laser-focused on getting new customers into our digital ecosystem, engaging with them in ways that support their shopping needs and patterns.

In addition to the contribution that new store growth has had on our dot-com business, we also made significant investments in both technology and talent over the past 24 months, which has led to the growth we experienced over the last 3 quarters. We believe that we're still in the early innings of many of these initiatives. And that as we continue to invest and focus on delivering a site experience that is easy, engaging and elegant, that will remain on track to achieving the 15% penetration we outlined in our long-range plan.

Our third growth pillar is improving the productivity of our existing stores. We put several initiatives in place this year to help accomplish this. Our first focus on this front is to continue to refine and expand our assortment by adding the most requested and desirable brands that will inspire existing customers to shop more frequently at the Academy, while also attracting new customers to our brand.

We continue to be pleased by the growth we're getting out of our increased investment in partnership with both Nike and the Jordan brand. At this point, we've expanded elements of the Jordan brand out to all stores such as fleets, socks, slides and backpacks, and expect to further roll out footwear and apparel in more stores in 2026. We believe that our improved access to basketball games shoes from Jordan and performance running shoes from Nike, such as the Vomero, when coupled with the expansion of fashion apparel across both these brands, is helping us attract many of these new 100,000-plus households that I mentioned earlier in my remarks.

We've been applying the same approach broadly across the store to ensure that we have a strong presentation of some of the hottest items in [ transit ] holiday. The team has made some significant inventory investments in key holiday items that feature enhanced technology, including Turtlebox speakers, Meta AI glasses from Ray Ban and Oakley. We're also leaning into new emerging health and wellness trends such as weighted vest running and walking, a portable sauna from HoMedics for post-workout recovery, or an expanded assortment of clear proteins from [ first farm ] or Isopure to support people taking GLP-1 weight loss drugs.

Our core customer is the always game family, so we haven't forgotten the kids this holiday either. We have the newly released World Cup [indiscernible] a soccer ball owned with an expanded assortment of some of the hottest put baseball drip from brands such as [ Bruce Bolt ], Baseball 101 and Dirty Mids. The team has also built out a strong assortment of sports choice from [indiscernible] sports. And last week, sports and pulp on trading cards always make great stocking stuffers.

Our second focus this year was on delivering new technology to stores with the rollout of RFID scanners and new handheld devices. We continue to see benefits from these initiatives is to improve our inventory accuracy and in-stocks and brands where we can update inventory on a weekly basis. One of the biggest benefits to date has been the impact on our associates ability to service the customer, and in many cases, save the sale that would have gone somewhere else. The combined utilization of RFID in these handheld devices allowing associates to help customers more rapidly find the items in size who their shopping for. And when the item is not in stock in a specific store, saving the sale by allowing the associates to immediately order the item for the customer so they can be delivered to home or picked up in another store, whichever is most convenient for them. We're also seeing productivity gains from our store teams as they can more quickly process com and BOPIS orders.

Our third focus is on driving traffic for expanding our loyalty program and improving the efficiency of our targeted marketing efforts in order to increase frequency of customer visits and improve conversion rates. Simplistically, we want to streamline the customer shopping experience and make it easy and intuitive. One recent example is where we've automated much of our customer onboarding experience and improved our ability to offer instantaneous real-time benefits from sign-on offers versus in the past year being a lag between the customers signed up for loyalty when they could use their first purchase discount.

All this work continues to help drive customer enrollment and engagement in our myAcademy Rewards program, which we expect to have over 13 million members in by the end of the year. Driving enrollment in our rewards program remains an important focus for us, so we can start a dialogue with them and convert them from occasional shoppers to loyal customers who shop with us 2 to 3 times more in a year than an average customer and spend 4 to 5x more on an annual basis. We expect to see this program continue to grow and be a key traffic and conversion driver for us, and are excited about our opportunity in 2026 to combine myAcademy Rewards and our credit card program into one seamless experience for the customer. We'll share more details around this in our next call.

Now I'll hand it over to Carl to give you a deeper dive in the financials. Carl?

Thanks, Steve. Net sales for the third quarter were approximately $1.4 billion, up 3%, with a comp decrease of 0.9%. As Steve noted, our strategic initiatives are working. New store sales comp continues to grow. Our e-commerce channel had a positive comp of approximately 22%, which is our third quarter of consecutive double-digit comp. Nike and Jordan brand are resonating, and our technology investments like RFID are bearing fruit.

Breaking down the comp, transactions were down 4.1%, while ticket was up 3.3%. Sales were just below the midpoint of our fall guidance during the quarter as we navigated a warm October and a challenging consumer environment. And as Steve noted, the trends for November and early December are tracking in line with expectations as consumers seek out value. The strategy is working and the underlying business is performing well. If you look at the 2-year stack on a comp sales basis, we have improved 370 basis points from Q1 to Q3, which included lapping 2 Texas teams in the World Series.

Gross margin came in at 35.7%, up 170 basis points to last year. The expansion was driven by 130 basis points of merchandise margin inclusive of tariffs and a 30 basis point improvement in freight as we had a reduction in spend due to lapping port strike issues last year that did not recur this year. Additionally, we saw a 20 basis point improvement in [ shrink ] as our inventory management and investments in RFID begin to take hold.

SG&A came in at 28.4% of sales for the third quarter, an increase of approximately $28 million or 120 basis points. The increase was driven by our initiatives totaling 160 basis points, comprised of 150 basis points of new store growth and 10 basis points of technology investments. All of the SG&A deleverage relates to our growth initiatives. If you strip out the costs attributable to those initiatives, all other costs would have leveraged by 40 basis points. The acceleration in new store growth from 2022 to 2025 has had an outsized impact on SG&A growth. But as we move into 2026, the number of new stores will be similar to 2025. Looking ahead to the fourth quarter, we expect SG&A to be flat to slightly down as we lap accelerated store openings from the prior year. If you recall, we opened 5 stores in Q4 2024, and we have opened 5 stores in Q4 2025.

Operating income grew 9.7% to approximately $100 million, and diluted earnings per share grew over 14%, coming in at $1.05, and adjusted earnings per share grew over 16% to $1.14. Our inventory has continued to improve as we move through the year. And on a per store basis, units were down 0.3% to last year. This compares to up 4.6% in Q2. We have also seen good sell-through in the product we pulled forward earlier in the year, and we feel good about the composition of our inventory as we finish out holiday and the fourth quarter.

We ended the quarter with approximately $290 million in cash and maintain strong liquidity with an undrawn $1 billion revolver. Our 8% increase in stores since Q3 of last year is completely funded from cash flow from operations. During the third quarter, free cash flow was negative $9 million as a result of payments attributable to tariffs. In the first 2 quarters, we pulled forward inventory to minimize duties, and those payables came due in Q3. I'm extremely proud of the team in the way they manage through this unprecedented environment.

Turning to capital allocation. We remain committed to balanced and disciplined deployment. During the third quarter, we paid approximately $8.7 million in dividends and invested approximately $54 million in strategic initiatives, including new store openings and omnichannel infrastructure. We did not repurchase any of our shares during the quarter, instead choosing to allocate capital to manage inventory. These decisions have allowed us to appropriately manage our inventory position and risk during this period of heightened uncertainty. Our capital allocation philosophy has not changed. We have over $530 million remaining on our current repurchase authorization, and plan to begin repurchases again in the fourth quarter.

Moving to guidance. Based on the results through the third quarter and the expectations for the remainder of fiscal 2025, we are narrowing both the low end of our comp sales guidance from negative 3% to negative 2%, and the high end from plus 1% to flat, with the comp range for the year now being between negative 2% and flat. Additionally, we are raising the low end of our gross margin guidance from 34.0% to 34.3%, with a new range of 34.3% to 34.5%.

To close, our strategic initiatives are working and continue to accelerate. New stores are now comping high single digits. E-commerce grew double digits for the third quarter in a row, Jordan and Nike grew high single digits and have shown incremental growth each quarter since their launch and expansion, and we continue to see consumers in the upper income cohorts trade into Academy, as they seek out value. I'm extremely optimistic about the future of Academy as we continue to grow.

I'll now turn the call over to the operator for questions.

[Operator Instructions] At the end of the Q&A session, CEO, Steve Lawrence, will make closing comments.

Our first question comes from the line of Paul Lejuez with Citi.

Curious, if we could start with the average, the ticket increase of 3.3%. If you could talk about AUR versus UPT, the buildup to get to that ticket. And then I'm curious what sort of price increases were taken in the third quarter? And relative to the costs that were running through the P&L, I know you brought in some inventory early, so I'm wondering if there was like a temporary mismatch between the prices that you took benefit in the gross margin versus how those tariff costs run through the P&L? And what is the dynamic for 4Q and even beyond as we look out to first half of '26?

Thanks for the question, Paul. Carl and I will probably tag team this. From an AUR perspective, played out as we thought. AURs for the quarter were up mid- to high single digits as we progress through the quarter, which is what we had outlined on our last call. UPT was down mid-single digits. So we did see some trade-off between AUR and unit sales as we progress through the quarter in terms of pricing.

We've talked about -- there's a lot of different ways. We've been trying to raise AURs. A lot of that is through clearance management, promotion management. And of course, the last resort was taking up tickets. We did a little bit of that in the quarter, which resulted in the higher margin. We do feel pretty good about where we sit from a pricing architecture perspective at this point in time, heading into holiday. So it played out about as we thought.

In terms of the flow-through from a tariff perspective, I'll turn it over to Carl.

Yes. So within that 170 basis points of gross margin, 120 basis points was growth related to merchandise margin. That's inclusive of the tariff burden, and then we had 30 basis points of freight, good news in 20 of shrink. As it relates to the 120 basis points of merchandise margin growth, you're right, we're on weighted average cost. So to the extent that we're moving AURs up in anticipation of tickets positioning, you'll get a little bit of a bump associated with that in the initial quarter. We're beginning to see that as it relates to the fourth quarter, which was kind of a -- the last part of [ URs ], we've got the midpoint of our guidance at flat gross margin. And I think that's appropriate for the environment that we're in.

And just a follow-up. What sort of price increases should we expect to see in the fourth quarter relative to the third? And will that be the peak of the price increases? Or does it get even higher as we look out to the first half?

Yes. Our expectation from an AUR perspective is up high single to low double digits. For Q4, we'd expect that to kind of plateau at that level and carry into Q1 and Q2 of next year. And as we lap kind of the accelerated tariffs in the back half of the year, [indiscernible] a more of a flattish level. But certainly, what we're going to see for Q4, we think will carry forward into Q1 and Q2.

Our next question comes from the line of Simeon Gutman with Morgan Stanley.

This is Pedro on for Simeon. Nice job with the continued rollout of the Jordan brand. Could you give us some color on what the contribution looks like that you're seeing at the store level in terms of sales, margin, what the continued rollout looks like in the next year?

And as a follow-up, you've talked in the past about other brand partners like Levi, Adidas, Under Armour, you've mentioned. Can you give us an idea of the pipeline in terms of new or expanded collaborations with [indiscernible] partners?

So I'll start with -- yes, we continue to be really pleased with the contribution of Jordan and increased access to better Nike product has -- had on our stores as we cited in the prepared remarks. If you combine those 2 brands, we don't have last year for Jordan, right? But if you combine the 2 brands, they were up high single-digit comps. So that's pretty exciting, considering Nike is our biggest brand already. So that's a meaningful contribution. We've rolled out elements to all stores, as we noted in the prepared remarks, things like cleats, slides, some sporting goods like basketball and things like that. We're going to roll more apparel and footwear out in more doors in spring. So we expect it to be a growth driver for us into next year as well.

In terms of new brands, listen, it's not just about apparel and footwear. We're really focused on making sure we have a lot of new exciting things across the whole footprint. So some of the things we called out, when you look at what we've done with brands like Burlebo, we've rolled out other brands more deeply into the store, such as Birkenstock in footwear. We've got some new hot trading cards that have come in. We've got a lot of new fund innovative brands that we brought in this year. We'll continue to do that. It's not just about apparel and footwear. It's looking for those things across the store. And I think we're looking at not just tried and true brick-and-mortar brands, but things that are digitally native and looking for ways to partner with them and bring them into retail as well.

Our next question comes from the line of Christopher Horvers with JPMorgan.

This is Jolie on for Chris. Just following up on that Nike expansion, Jordan launch question. Since Academy is still negative, would it be fair to assume that the lift from that combined brand is less than you originally expected, considering I believe last quarter was meaningful double-digit, this quarter more high single digit? Or is it more so that the consumer is just worse given broader macro trends and uncertainty?

Yes. I would say it's meeting our expectations and doing better in some categories. So we're very, very pleased with how this is playing out for us. If you go back and look at the quarter, actually, we -- if you take ammo out, we would have run a positive comp. I have a boss, whenever I said things like that in the past, and I'd say, hey, if you take ammo out, we would have run a positive comp. He said, well, yes, if you take the Eagles out of the Super Bowl last year, the Chiefs would have won [ 5 ] Super Bowls. So we try not to do that too often.

But generally, we're pretty pleased with the performance of all the different categories, all categories had an increase last quarter. Ammo was probably the one drag, and that's really, we believe, reflection of anniversary in the run up to the election last year, we saw a big surge in demand. And as we noted in the prepared comments, once we got past that. In November, we saw the ammo business stabilize. So I feel like the initiatives playing out as we thought, we're seeing acceleration in our dot-com business, acceleration in our new store business, it really was -- ammo was the drag.

That makes sense. And our follow-up question is on the implied 4Q comp guide. Our math were getting [indiscernible] down 3.5 to an up 3.5, which is a wide range for the fourth quarter. So we were curious why the range is so wide and what the puts and takes are of hitting the high and low end?

It is a wide range. We're not national. We've got some localized stuff that's going on from a weather perspective. The midpoint of the guidance is flat, and Jolie, your ranges are about right.

From a puts and takes standpoint, look, AURs are elevated, like that's a load on the consumer, the price of poker has gone up with tariffs. And so what we're seeing is that the AUR is largely offset with unitary degradation, whether in the form of traffic or UPTs. And so the downside implies that elasticity worsens, and the upside is basically just how the consumer responds to that. So that's really the difference between the high and the low is the unitary offset of AURs going up.

Our next question comes from the line of Kate McShane with Goldman Sachs.

This is Emily Ghosh on for Kate. We were wondering, how would you characterize the health of the Academy customer? And how does the level of trade in that you saw again from upper income customers compared to what you saw in the second quarter?

Yes. So I think that's an interesting question. I think there's a lot of talk out there amongst different funds that surround this [indiscernible] shaped economy. I believe that, that's a real thing. I think that at the high end, we're seeing continued growth with consumers making over $100,000 a year annually. We saw that growth continue into this quarter being in the high single digits. As we noted in the prepared remarks, that's a little lower than we saw in Q2 and Q1, where it was up in the double-digit range. But that being said, we're starting to lap that trend that we started to see happen a year ago. So we're pleased that we're continuing to see it build on top of double-digit growth from last year.

The middle income consumer continues to be fairly steady and shopping pretty regularly. And then the lower income consumer continues to pull back and be very thoughtful about where they're shopping. And so we've seen declines there in the mid-single digits. That being said, that trend also got better versus where it was in Q2 and Q1. So we're adding more customers in at the top end, faster than we're [ treading ] at the low end. That being said, we like all the shoppers come shop with us this holiday and we've got great deals and great value to try to attract them. But certainly, the lowering consumer continues to be under pressure with inflation and what's going on in the economy.

We talked a little bit, Emily, about this on the last call, but if I think about the last year at Academy, I think there's been an exceptional derisking of the consumer portfolio. And by that, I mean, look, we don't want people who make below $50,000, quintiles 1 and 2, to stop shopping with us. But I think not just at Academy, but overall prices in the marketplace have gone up. And in some cases, they've just -- they're not shopping in the category anymore. If you think about that being more than offset with households that make over $100,000, if I compare the average customer now versus a year ago, they're significantly healthier. But I think it's because of the trade into Academy in those quintiles 4 and 5.

Our next question comes from the line of Ike Boruchow with Wells Fargo.

It's Adam on for Ike. Two questions. One, on the really strong e-commerce results. Help us understand if that was in line with your thinking, if it's better than what you're thinking. And if that's the case, maybe how that could impact sort of your thinking on new stores in those new markets going forward, right? Is it more maybe of fill in and then use e-com to drive that area and maybe make it more profitable earlier than expected?

And then secondly, also on stores, just with the pivot back to existing markets next year more so than this year. Help us understand maybe like the cost of a store in a new market versus an existing market.

Yes. This is Steve. We'll probably tag team this one. I would say the dot-com business being up 22% was above where we had planned it. I think the team has done a really, really good job there. I'd love to point to one thing that's driving it. I think it's a combination of all the efforts the team has made over the past year in terms of improving navigation and filtering the product, improved site functionality and search, more personalized experiences, expanded assortment options through [indiscernible], it's all that work that's really helped. And as we said, there's definitely a symbiotic relationship between adding a new store into a new market and then us seeing a surge in dot-com demand as we build brand [indiscernible] in that new market. So we expect that to continue as we move into new markets.

Pivoting to kind of the mix between existing and new markets. We're going to move back next year to about 80-20 new and existing. So if you look at it, legacy and existing [indiscernible] to be about 80%; newly, 20%. What we found as we've been going on this journey is that while we've been opening up and primarily focused on new markets, there's been a lot of population growth in our core legacy markets. As a matter of fact, there's a stat we're looking at the other day that I think over 1/3 of all commercial real estate being developed in the U.S. is in Texas right now. And so we've got a lot more opportunity than maybe we initially thought to open up stores in kind of our legacy footprint. We tend to find those stores more in those midsized markets where our always game family lives, and they're a little underserved in terms of other retail outlets. And so we think that's a really big opportunity for us.

In terms of the economics of the new stores opening up in a new market versus an existing market, Carl?

Yes. I think from a build-out standpoint, we're still at the $4 million to $5 million, and that's all in. That's inclusive of net inventory. As I think about the run costs, from a brand awareness standpoint, the brand awareness within our legacy or existing footprint around Academy is exceptionally high. And so I think from a marketing standpoint, we're not going to have to introduce the brand as much as I think about some of the new states that we've opened over the last 2 or 3 years.

I think from a rent perspective, rents are going up in the U.S. as we look at some of these small to midsized marketplaces, really attractive rents and landlords and municipalities that really want us there. So I think the overall ROIC proposition and payback period would be better as it relates to legacy in existing marketplaces. But with that being said, we're not going to stop planting seeds and growing the brand. We're just seeing some really compelling opportunities within our space.

And I do want to just speak directly to cannibalization. We're seeing very low levels of cannibalization when we look at our pro formas, how these stores will operate. We look at drive times to existing stores, if it's an hour away. There's going to be some level of overlap, we model that in the net ROIC, and we're actually pretty pleased. I think some of that is because of the population demographics that Steve spoke to.

Our next question comes from the line of Michael Lasser with UBS.

This is [ Dan Silverstein ] on for Michael. Maybe just to start, with merchandise margins up 120 basis points in 3Q, inventory units sound like they're in a healthy position, what are the potential pressure points for the fourth quarter gross margin outlook?

I think it comes down to just the health of the consumer, right? I think the word everybody is using is choiceful. And so what we've seen is that, that is really demonstrated by the customer coming out when promotions are happening, and pulling back when they're not aggregating sales around promotions. And that's really what's going to drive it, right? At the end of the day, it's going to be -- we've got a lot of thoughtful promotions that we've built out there that, that hopefully will resonate with the consumer. But I think the biggest probably wildcard will be how they react to those promotions and what's the take rate on those as we progress throughout the holiday.

I think we're in a pretty good place from a seasonal perspective. We really don't think there's going to be a big seasonal liability carryover from that perspective. But I think it's more just the customer's appetite to buy and how much they buy on promotion.

Very helpful. And then just a follow-up. As your recent vintages of store openings have continued to get more productive, does this help provide a floor for what you think is achievable from a comp perspective next year? I think you cited a high single-digit comp for those recent store openings a very healthy level. So just wondering how that evolves from here.

Yes. I'm very fired up about how the new stores are performing. I think we have a high degree of precision of how year 1 will come out based off of whether there's market awareness, and that $12 million to $16 million is playing out kind of like we thought. As it relates to high single-digit, once they're in the base, and again, we treat things that once they -- on the 14th month, they fall into the comp set.

Something that I think is really meaningful. There's 26 stores in the third quarter that are in that comp set, and it provided about a 50 basis point comp tailwind, if you think about it from a waterfall standpoint. We'll have 50 stores this time this year that are in that comp base. So I think the things that you guys have seen in the marketplace and we've seen in the marketplace as it relates to building up that retail pipeline, it's going to play out that way here. And I think we'll like the way that, that matures long term.

Our next question comes from the line of Robby Ohmes with Bank of America.

This is [ Maddie ] Cech on for Robby. I just wanted to ask how Black Friday promos compared to last year? And what's the risk that you need to be more promotional later in the quarter based on what happens in retail overall? And given Foot Locker stands to be more aggressive with clearance this holiday in footwear.

Yes. I would say promos were roughly in line with where they were last year for Black Friday. Some things we've looked at as we've been trying to look at raising AURs is how do we promote, how broad is that promotion, how long do we run it. But if you look at the absolute level of promos for us and it looks like across the industry, I would say it's fairly consistent with last year.

I think as we go through the holiday, I think the wildcard continues to be, as I said earlier, just what is the customers take rate on those promos? What we've seen happen [indiscernible] this in Q3 and in Q4 is if we run the same promotion as we did a year ago, same level, et cetera, more customers are taking advantage of that. So I think that's going to be the thing that we're going to see continue as we make our way to the rest of the holiday.

In terms of Foot Locker promotions, I would tell you our assortment versus theirs, there's not much overlap. They certainly -- they carry Jordan, a lot of basketball shoes. We tend to be more game shoes. They tend to be more limited edition releases and things like that. So we don't expect that to have a big impact on us. Certainly, that's a more mall-based customer. Most of our stores are off-mall. So I don't think it's going to have a lot of impact on us.

Appreciate it. And can you talk about where you're raising price within your assortment versus where you might have seen some unit degradation?

Well, I'd say, in general, prices have gone up a little bit almost across the board. Certainly, it's more pronounced in the hard goods side of the business and the apparel side of the business based off where that sourcing base is. But once again, as we're looking at raising AURs, there are multiple packages we're looking at, right? Step 1 is being better in how we manage clearance. And so taking less goods to clearance and be more thoughtful about when and how we clear goods. We're looking at promotions. In a lot of cases, maybe shortening the length of promotions or maybe not being as broad, including everything within a brand, maybe it's just the key categories, in some cases and maybe reducing the depth of promotions. And so we look at all those things first.

And then the last thing we try to look at would be actually physically raising prices, the tickets on goods. Certainly, some of that's happened as the national brands have passed on price increases and raise our MSRPs. We've tried to keep them, watch that with our private brands. But I would say it's pretty broad-based. It's not any one area, but it's more pronounced in the hardgoods side of the business.

Our next question comes from the line of John Heinbockel with Guggenheim.

Wanted to start with year 2 and year 3 comps on the new stores, how much do they tick down from high single digit, if at all? I don't know if they kind of land mid-single digit. And is -- if I think about the traffic ticket composition of that, how does that look, right, in those new stores? And then clearly, World Cup will be a positive next year. How significant do you think that is? And obviously, that's something you can lean into, I would imagine, pretty hard.

I think we'll tag team this. And I'll take the World Cup piece of it first. Listen, I think it's going to be significant, right? We have a lot of games and matches that are going to be played within our footprint between Dallas and Houston. We already have some World Cup jerseys on the floor as well as the soccer ball, the [indiscernible] soccer ball at various levels. And the initial reads on both are very, very good.

I think we're excited about, we're not going to give guidance next year, but certainly, we think it could be a tailwind for us through the summer months as the World Cup plays out. But really, what we think is that the impact would be more long lasting than that. The last time the World Cup was in the United States, real benefit was not the actual [ bulk ] got from in tourism or selling jerseys, it was the participation in soccer after the fact. And we really think that's going to provide a big tailwind for the soccer business for us for many years to come, not only in '26, but '27 and '28.

Yes. And John, as it relates to the kind of the year 2 comp, the only thing that I would call out as being a bit different is that 14th month tends to be a negative comp. So there still some grand opening, anniversarying and some marketing hoopla, the neatness of having a new store in my location drives a lot of activity. The positive comp in the first quarter, but that first month is a little bit different. And then as it relates to year 2 and year 3, we're seeing pretty good strength across the board associated with that. I think the only thing to call out there was to literally be that 14th month just tends to be negative.

And my follow-up, when you look at population, population growth in a lot of your markets, Florida looks incredibly underdeveloped. What's your thought when you kind of do your long-term real estate plan on that state? And is there -- is real estate availability cost, is there anything holding that back or just -- that's kind of how the availability has fallen?

I love the Florida marketplace. I think it plays out exceptionally well associated with our fishing assortment. I think the demographics of the state line up pretty well with getting outside and having fun. The one thing I would call out is the state is proud of the land, and they're proud of the rents that they charge in some of these locations. We're committed to having a ROIC of 20% and a 4-year payback. So I think we're very selective associated with where we go in and we love to partner with landlords who want to make that worth our while. But I love the demographics. I love the people that are moving to the state of Florida, I just -- we got to make sure it's a win-win opportunity and we don't degradate the ROIC of the company associated with where we put stores.

Just to be clear, when we're talking about 80% of the new stores next year kind of in legacy and existing markets. Florida would be an existing market for us. And we think that there's a lot of opportunity, particularly in these middle-sized markets with underserved consumers there. We think that definitely aligns with who our customer is, and you're going to continue to see us grow in Florida.

Our next question comes from the line of Anna Glaessgen with B. Riley.

I'd like to turn back to the ammunition commentary. I believe that ammo and firearm together are less than 10% of sales. So surprised by the magnitude of impact that, I guess, ammo had on the quarter. So maybe if you could just expand on that, maybe there's a seasonal aspect because 3Q captures the hunt season.

And then secondly, as we've seen some stabilization in ammo post election, is it possible at this new stable level but still negative, you can drive a positive comp?

Yes, absolutely. So you're right, we've cited in the past that ammo and firearms combines about 10% of the business. So you can assume ammo's roughly [ 5% ]. It does, in certain time periods, have outsized impact. What we attribute the sluggish [indiscernible] slowness we saw in the ammo sales in Q3 was really a reflection on the election run-up from a year ago.

If you go back -- and this is something we see traditionally in front of a lot of different presidential elections, there's a run up in advance of that as people are trying to better figure out what's happening one way or the other in terms of who is going to get elected. And we saw that right at the tail end of October last year. And so as we came up against that, it certainly put us in a place where we're having a hard time comp in those comps. We didn't see it stabilize as we got past that time period, which leads us to believe it was really the election run-up that was driving that.

Yes, we do believe that ammo, I think, can run even where it is today in mid-single or actually high single digits, negative right now. We should be able to post comps if we can keep it at that level. It's only when it starts running much more negative that, that becomes a bigger [indiscernible].

And I want to be real specific. Ammo, in the third quarter, was a negative 130 basis point headwind to comp. So if you bump that up against our negative 90 basis points, we would have been plus 40 without it, and for all the reasons that Steve just said.

Our next question comes from the line of Joseph Civello with Truist.

First off, how should we be thinking about the potential growth contribution from Nike and Jordan in '26 versus 2025? I know you'd be lapping a tougher brand-specific comp, but offsetting that, you'll have a broader assortment for the full year, incremental doors and the World Cup.

Yes. So I would tell you that I think, depending upon the quarter, we've seen the combined Nike, Jordan grow in the high single to low double digits. I think you should expect that, and we expect that to happen again next year based off a further rollout of Jordan into more doors and continued access and roll out of more fashion product within Nike. It's going to be a growth driver for us, similar to what we saw this year.

Got it. And then also, can you just give any color on the margin benefits you're seeing from the inventory pulled forward prior to tariffs?

Yes. I mean, I wouldn't say we've seen a huge margin benefit from it. What I would tell you is that it's allowed us to hold pricing on a lot of categories going through holiday. The goal was, when we first learned these accelerated tariffs is, we were looking at it saying, okay, there's a lot of inventory on this side of the water at those pre-accelerated tariff prices. If we can pull those into our warehouses and DCs, that should allow us to be -- price at last year's a little on a lot of these items going into holiday, and we think that will give us an advantage. And that's how we played it out. So we really didn't see it as a huge margin uptick. We saw it more as a way to protect sales and to offer value to the consumer going through the holiday.

I just -- I do want to echo, it was sweaty knuckles in the first part of the year with that inventory pull forward. I think our units per store were up 6.5% in the first quarter, like 4.5% in the second quarter. Now they're down 0.3%. And we have no regrets associated with that pull forward as we do our pricing scrapes to look at how like-to-like product or private -- similar private brand products are selling. We feel really good about our ability to hold that inventory to lower cost and offer that to our consumers, and that's resonating from a value perspective.

Our next question comes from the line of Adrienne Yih with Barclays.

This is Angus Kelleher on for Adrienne Yih. I wanted to ask about the percent of product price increases implemented in fall 2025 and expected price increases for spring 2026? And then just curious, since you cited AUR running mid-high single digits and transactions down 4%, where are you seeing the elasticity thresholds by category?

So if I understand the question correctly, you're asking around prices and AUR increases. As we said earlier, our AUR increases in Q2 were up mid-single digits. We expected Q3 to be up mid- to high single digits. That's exactly what we saw. That's a combination of some price increases as well as promotional rationalization and better clearance management. We expect those to be up, AURs to be at high single, low double digits in Q4 and hold through Q1 and Q2 of next year. I don't see that necessarily changing.

The question we got around elasticity was what were we seeing from a UPT perspective. We saw UPTs be down about mid-single digits. We saw AURs in the quarter up mid- to high single digits. So it's almost a 1:1 offset. It really varies by category. We've got some categories in front end where I would say that it's been fairly inelastic. We've taken prices up. And there's been no resistance to that. I think if a customer standing in line and wants a bottle water, they're going to buy a bottle water even if it costs $0.10 more. On the flip side, we've seen other categories that are highly elastic based off the price increases. So it's not a one-size-fits-all. It really varies by category.

And I guess, one thing I would add to that is changing prices is very disruptive on the store floor and it's very disruptive in a distribution center. And so how we thought about it is we want to go ahead and make those price changes and not have that be a perpetual activity. Nobody knows what tariffs is going to -- what's going to come out, but we've made those price changes, and they're costly to do on the floor. So our goal in all of the actions we've talked about with growing AUR, the last of which is changing for tickets. We feel that if there's no significant changes to the tariff structure, we've set -- reset the floor, reset the inventory in the distribution center so we can run a little bit more efficiently next year.

Our next question comes from the line of Justin Kleber with Baird.

This is [ Zach Beeck ] on for Justin. A couple on modeling. Q4 guidance seems to imply SG&A dollars are below Q3, which is unlike the normal sequential trend in your SG&A. So what is driving the lower SG&A figure in Q4? And how sustainable is this dynamic as you think about the shape of dollar growth next year?

And then Carl, you mentioned resuming buybacks in Q4. Guidance implies a good free cash flow quarter. Can you maybe decide how this buyback plan compares to what you did in Q1?

Yes. From an SG&A standpoint, at the midpoint, it's basically 100 basis points of leverage. I don't have the SG&A going down, but it's close. I think some of the things that we're focused on is we've been -- you were kind of comparing it not to last year, but to the third quarter, there's price changes that are going on. I will tell you, last year in the fourth quarter, we had a sale leaseback of a property. We always have first right of refusals on our leases, and in some cases, our landlords are looking to not be landlords and sell to another landlord. So in some cases, we'll step into that. That's a component of it.

But I would just say, overall, the teams set up to run efficiently. We've gotten rid of taking a bunch of price changes. We're not trying to do those in November and December. So there's some good news there.

From a buyback perspective, while my words said that we were going to get back at it, I do want to highlight that the guidance that we put out there does not have buybacks embedded in it. As it relates to capital allocation philosophy, first, its stability, hold cash, have the ABL. Second is investing ourselves. And I would include inventory management in that category. And then third is give the rest back to shareholders with a nominal dividend and buyback. I think from an order of magnitude standpoint, I'm not going to get into the specifics since it's not included in the guidance, but we think our stock is attractively priced and we do cash flow well.

Our next question comes from the line of Eric Cohen with Gordon Haskett.

I want to ask about the income cohorts because earlier in previous calls, you had said that it was a sort of [ 30 -- 1/3, 1/3, 1/3 ] breakdown of the high middle low income. And so you said the high income is now 40%. So what do you think you can do to keep that higher income consumer since it seems to have a comp benefit? And do you think this is just a natural structural change in the customer base? Or is this more of just higher income consumers are trading down and the lower income consumers just under pressure?

Yes. I think it's a combination of both, Eric. I think that if you look at it, the reason we cited that -- that 40%, because that's a pretty meaningful change for us from the 1/3, 1/3, 1/3. And we've seen that happen over the past 4 quarters, just wanted to call that out.

I think what's driving that is 2 things. Number one, I do think that the higher income consumer is looking for value. And I think in some cases, we are the value leader in the space and they're finding this and discovering us. And I think it's second, the work we've done around the assortment. If you think about where we are today versus where we were even 4 or 5 years ago in terms of layering on better best brands, across the category, that could be baseball bats north of $100 or running shoes north of $100.

I think we're in a different place today. So I think the work the merchants have done around building out that better-best assortment, adding brands like Jordan or Burlebo or Turtlebox or Ray-Ban Meadows. All those things, I think, give that customer a reason to come shop with us and permission to continue to shop with us. And we're not going to stop assorting those brands, right? We're going to continue to look to build those. That doesn't mean we've lost focus on the value end of our assortment either, but we see this as additive. And so I think we continue to do this work, bringing in new innovative brands, I think we'll keep that customer shopping with us and continue to grow share there.

Great. And you called [indiscernible] for [ 20 25 ] stores next year. I thought the messaging earlier was that store growth should be accelerating sequentially each year. So is this any change in sort of how you're thinking about store growth going forward? Or is this [ 20 25 ] sort of the right run rate in '26 and beyond?

Yes. I think what we're focused on each year is coming up with a list of new stores and locations that we feel really confident about. If you remember, we said about midway through the year that we were kind of pausing new stores and weren't getting a lot of guidance around what we're doing in Q1 because we wanted to see how the tariffs played out. We feel really good about the 20 to 25 stores we've identified for next year. We feel really good about the pipeline we're building, we'll share more information in our next call around 2026 guidance. And then we're looking to an Analyst Day probably somewhere in early April. We'll share more details around what the long-range plan in terms of store growth looks like.

Our final question comes from the line of Cristina Fernandez with Telsey Advisory Group.

I wanted to ask about the high-income consumer that's coming to Academy. Do you have a sense of were they previously shopped or where those market share gains are coming from?

And then my second question is around private brands. How are those performing? And do you see -- are you seeing consumers trade into or trade down to private brands as pricing has increased for natural brands?

Yes. On the income cohort standpoint, I can't speak to specific nameplates that they're coming from. A lot of this information is in our CDP. And in that case, I don't see where they're coming from, our customer database platform. But as it relates to place, we're big users of place or AI, I can see shift. I would say, generally speaking, they're seeking value. Look, they can't afford their lifestyle, they're seeing value offered at Academy, and they're intrigued by some new brands that we have.

And I would say that when they come in, our private brands represent [indiscernible] of best expression and value to our consumer. We're seeing them trade into those brands. I mean we talked about the strength we saw in Magellan during the quarter or Freely. I think that's a direct result of this customer coming in, maybe shopping for something that they've saw at another store and thinking we have a better price on it than trading into one of our private brands. That's definitely the behavior we're seeing happen right now.

I'd like to turn the floor back to you for closing comments.

I was taking it over before you're going to turn it over to me.

So we're proud to close out this year by giving back community across our footprint. Throughout this holiday season, we posted more than 40 local giveback events, partnered with local organizations and gifted $120,000 directly to families in need, [indiscernible] our company's commitment to making a positive impact on our communities.

I'd also like to express gratitude to our 22,000-plus associates who worked tirelessly to provide our customers with an outstanding experience when they shop at Academy. As I mentioned earlier, while we are now past the Thanksgiving kickoff of the season, we still have the lion's share of the holiday business ahead of us. Having been in a lot of stores over the last month, I can honestly tell you that we're in the best position we've been in since I joined the company to take care of our customers' holiday needs. With a strong inventory position in the most desirable and trend right gift ideas, our associates are ready to help the customer, and our position as the value leader in the space is clearly resonating with consumers.

Before I sign off, we're also excited to announce that we'll be hosting an analyst event in New York on April 7, to provide an update on our [ long-range ] plan that will be webcast in the public. In addition, to Carl and myself, we'll be joined by other members of the executive team, you can hear directly from the people executing all the initiatives you've been hearing about over the past year.

Thank you all for joining our call today, and have a very happy holiday season.

The call has now concluded. You may now disconnect. Thank you.

Okay. Hi, everybody. Hi, Larry. How are you? Thanks for coming to the fireside chat with Academy. Today, we have with us Steve Lawrence, Chief Executive Officer. Steve has served as CEO and on the Board of Directors since June 2023. We also have with us Carl Ford, Executive Vice President and Chief Financial Officer of Academy. Thank you for joining us today.

Thanks for having us.

Thought we could start with just a high-level question, just how you would define the year of 2025 so far for Academy.

It's been an interesting year. I mean, I guess, that's what you get when you work in retail, right? It feels like every time things start to normalize, something else comes along. So for us, listen, obviously, I think the backdrop of kind of the changing trade war has had some impact on how we're navigating on the flip side. We've got some really good initiatives we've been working on that I think are really starting to bear fruit, right? So we talk about our long-range strategy, new store growth. We're seeing the stores we've opened up in the past couple of years start to comp positive in the mid-single digits. We're really excited about that.

Our dot-com business has been accelerating. We've done basically a back-to-basics approach there in terms of making the site easier to navigate more functional, and the customers really reacting. And we ran almost up 18% in Q2 on that, and that's an acceleration versus Q1. We've got some new brands we've launched, which we got a little bit of press on. So we introduced Jordan this year. That was a big plus for us, obviously, and then we've rolled out some new technology. So it's been a year of investment, while we're kind of navigating the backdrop and what's been really exciting, we've seen the business progressively improve as investments are paying off, resulting in a positive comp for Q2, which we're excited about.

That's great. So maybe we can start with the health of the consumer first. I think if it's the right characterization, you're more middle quintile in terms of your consumer. But I also think you've started to benefit a little bit from a trade down from a higher-end consumer. So could you maybe go through some of the income cohorts and what you're seeing across each?

Yeah, absolutely. So one of the things that is a challenge, we operate a really diverse business, as you know. I mean, we sell things from apparel and footwear to grills, to firearms, to fishing rods, to sporting goods, and there's not one true source you can get all the data, right? But one of the things we really lean into is Placer.ai, I'm sure a lot of you guys are familiar with that. And they give us some really interesting cuts on traffic data. And so they give us some demographic cuts that we've really been leaning into. And so you kind of quintile the customer into $25,000 to -- under $25,000; $25,000 to $50,000, those are kind of the bottom 2 income quintile. That's about a 1/3 of our customers.

We've seen traffic there down in the high single digits. And that's been a continuation. That's something we've seen over the last several years. And that's a function of that customer being more under pressure and opting out or trading down in some cases. The middle income quintile for us is $50,000 to $100,000. That's another 1/3 of our customers. We've seen that be fairly stable. But what's been really exciting is over the past probably 4 quarters, we've seen acceleration in the top 2 income quintiles, people making over $100,000 a year. We've seen a mid-teens acceleration there over the past couple of quarters. And that we saw it start happening last year in Q3, built into Q4, built into Q1 and once again into Q2.

So we feel like we're adding customers in at the higher end faster than maybe we're trading at the lower end. And Carl and I talk about this, and Carl had a really good observation. If you think about it, I think sometimes when people thought of Academy because we're so rooted in value, I think people associated with us over-indexing with a lower income consumer. And that being a risk, particularly if the economy is a challenge, I think we've derisked the customer portfolio a little bit with some of the new customers added in. And I think a lot of new brands we've added in, I think, have helped give that customer permission to come shop at Academy.

That's great. So that's a good segue maybe to the newest brand that you've brought in, which you mentioned is Jordan. But in addition to Jordan, you've also expanded your Nike assortment as well. So I wondered if we could maybe take each initiative and ask a couple of questions around it. Jordan is the biggest launch you've had in your company. I wondered what the expansion of the brand will look like going forward. What's yet to come? And how much of a lift do you think that you're getting as a result of this?

So we launched Jordan at very end of Q1, actually April 23, obviously. Michael Jordan's number is 23. So we had a whole marketing campaign behind that. And so what we did is we launched the brand in 145 doors with a shop concept. And so if you walk into our stores, most of our stores, there's an outer perimeter ring that has hard goods, so that's sporting goods, outdoor, et cetera, around it. We put apparel in the middle and shoes is generally kind of at the backside of the store. And the apparel pads split between men's and women's. And so we built right in front of the fitting room on each corner, Jordan shop, one for men's, one for women's, but they merchandise together. That's expanded fixturing, more mannequins, a lot of visual collateral, obviously, to highlight the brand.

We put a big kind of ring around it, so you can see it from all corners of the stores, wayfinding. And then we actually did something we've never done before. We took the footwear and we cross-merchandised that and put that on the fitting room wall. And we used a big Jordan graphic there featuring some of their best athletes like Luka who's very important or was very important in our geography before he got traded to Lakers. And built just a destination for Jordan between men's and women's.

And then we replicated that on the kids' floor as well. I think visually, it was exciting and really engaged with the consumer. It really called out that the brand was there. A lot of great success with that. We haven't cited Jordan specific numbers, and we don't have a last year from Jordan. So we tend to lump Jordan and Nike to get, at least when we're talking externally, and we've seen double-digit growth from that, the combination of Nike and Jordan, with Jordan being a significant contributor, but the Nike business is good as well.

As we progress through the year, we've taken some categories within Jordan. So for example, as we got into the summer months and football became important, we took cleats, and we rolled those out to all stores. So all stores have cleats in them. We've also taken categories like backpacks and rolled those out to more stores. And then as we go into next year, the plan would be to expand that shop concept broader into the chain. So right now, the shops are about half the door count. I think ultimately, our goal would be to get it into all stores. That certainly, I think, will happen over the next 2 years. We're going to see how much we can get done next year.

Was Jordan something your existing customers were looking for? Or was this a way to maybe again, address the new customers?

I think it's both. So like all retailers, right, we listen to customer feedback. And one of the key places we get customer feedback, obviously, is anecdotal in store. But we look at our website, and there's a term no search terms, right? People search for something on your site, a brand or a product that you don't have, and it's generally a good indicator of something you should add to the assortment. And the highest no search term we had on our site was Jordan. And so we knew there was an appetite for the product in our stores. So we certainly used that as we were talking to Nike about adding the brand in. And we also told them the story of who Academy is and how we think we help them reach customers. We over-index with the Hispanic consumer in some of our stores, helping them reach a customer they weren't reaching through their own website or through other points of distribution.

So that certainly, I think, has helped us on one end where there are customers clearly who are shopping with us, right, and had to go to places to find the brand. And at the same time, we also are tracking people coming into the store for the first time, signing up for loyalty, and we can see they're purchasing Jordan, certainly, but in a lot of cases, they're broadly shopping across the store and discovering the value we have in our private label or other merchandise categories we carry. So it's been a really nice addition in terms of both keeping all older consumers who are shopping with us already shopping with us and attracting new consumers.

Could you maybe just talk a little bit about the Jordan assortment versus other retailers? Is there quite a bit of exclusivity or uniqueness in what you're carrying?

I wouldn't say there's exclusivity. I think it's the lens that you focus on. So to be clear, and we talk about this very broadly, our focus is sports. So one of the reasons I think our partnership with Nike is so strong as well as adidas and Under Armour and all the brands is, at our core, Academy has always been known as the good retailer. And so you think about as a kid's beginning sport, right? We're the entry point for that.

So when my kids were younger, and my son wanted to play baseball, right? Academy is the place you take them to, to get the bat, the ball, the glove, the cleat, you can get out for under $100, right? And then, of course, the next month, when they decide they don't want to play that sport anymore, you put that in the closet, and then you go buy the shin guard and the ball for soccer. And we've always been good at that, right? We've managed to add on a whole better bestsellers. We can now stay with that customer on that journey through sport.

But the belief of the brands is if you can get them wearing a pair of Nike cleats or adidas cleats in their first sport, they'll stick with that through life, right? And so I think that same idea applies with Jordan. So where we're really focused in Jordan on footwear is on shoes that kids will play basketball in, right? So we don't have the limited edition '92 Retro Jordans, right, that are limited edition, that's not our model.

At some point, it may evolve to that. But really, the opening assortment has been focused on kids' shoes that they'll play basketball in, cleats they'll play football in. We've expanded into flip-flop slides and other categories that they may -- if they're not in the field, trade into socks. And because we launched in spring, we're kind of at the tail end of basketball season, we only had 2 or 3 shoes in a couple of different color ways, that's expanding dramatically as we go throughout the year.

So I think there's 5 or 6 different styles and other color combinations that are on the floor now, that will just continue to grow as we progress. So nothing terribly exclusive, but I think the way we're curating it and focusing it around sport, I think, is probably unique. On the apparel side, obviously, it's a little harder. I mean, obviously, kid will wear a basketball short or Jersey or something like that, both from a sportswear kind of a casual perspective as well as to play in. There, I would say we have access to the full line and have a pretty robust assortment of goods there. And then, of course, we carry footballs and basketballs and all those other categories in sporting goods as well.

And I think you've said that actually the additional Nike product that you're now carrying might even be bigger than what Jordan is. So I was wondering if there was a way you could contextualize that. What are you carrying now that you didn't carry before? Is this new product bringing in a new customer? And then just when thinking about both Nike and Jordan and the fact that Nike as an enterprise is going back into more wholesale points of distribution, how do you differentiate that?

So I would tell you that it's maybe less about getting access to stuff we didn't have before, but certainly getting more access and spreading it deeper throughout the store. So we've always had 25, 50 store cluster where we do higher-end fashion, right? And as we expanded Nike, so what we actually did is we physically expanded the square footage for Nike, depending upon the store 10%, 15%, gave more aisle frontage, very similar to what we did with Jordan.

We brought in mannequins, signage and really amped up the brand presence in the store. It's getting more of that fashion product, having it a bigger percentage of each store's assortment and driving that fashion deeper into the chain. So from an apparel perspective, you'll see higher-end things like Phoenix fleece, which is a $70 fleece piece that they'll sell that in the past may have been in limited doors, it will be broadly distributed across the chain.

In footwear, we would get some access to things like the 270, which is a hot shoe for them. We had it in a limited door count, that's now in all stores. And it's actually our #1 shoe from Nike. And so I think it's a little more access, and then I think it's more broad distribution of that. In some cases, it's around timing. So for example, they're really focused, as most of you guys probably know, on the performance running category and reclaiming their heritage there.

And so they've come out with a new Vomero 18 and then they also have Vomero Plus. Traditionally, when they roll a shoe like that out, they would put it in like run specialty first, like Fleet Feet or somebody like that. And then maybe 6 months later into a bigger box. And then after that, a year or 2 later, we might get access to it. We actually have that on the floor now, and I think we got it a couple of months after the release there. So it's trickling down much faster into our store as well. So it's both timing as well as probably breadth of exposure we're getting there.

And so we kind of talked about some of the shorter-term pieces to the product you're getting, how it's filtering through to all the stores. But I think we've seen at other retailers that when you do carry a little bit more depth and breadth of a brand, perhaps it begets other brands, other higher-quality brands. Have you seen any movement yet from brands that maybe you wanted to bring into Academy because of this bigger relationship with Nike?

Look, it doesn't hurt, right? I mean I think that -- we talk a lot about Nike, but -- and certainly, they're our #1 brand and a very important brand. But with the category merchandising that we have that is diverse, I mean, it's equally important to get whatever the hot new thing is happening in fishing or hunting or team sports. And so I think when some brands have seen how we can bring a brand to life, how we treat it, how we launch it, I think it's opened up some doors. So we've got some exciting new brands across the store, one we've talked about several times with people is there's a brand out there called Turtlebox, right?

And it's kind of a new emerging brand that is kind of like the YETI for outdoor speakers, right? And it's got limited distribution. It's something we're a big believer in. They believe in us. I think we share a customer base that we're going after. In drinkware, it's going after. Obviously, everybody knows popularity Stanley had over the last couple of years. But Owala is right behind that, right? And then after that, there's brands like HydroJug. We have some brands in apparel that are more outdoor centric, like there's a brand we carry called BURLEBO. And so I think in every case, having something you can point to like how we launched Jordan or how we treated the Nike Power Up is a great proof point for them to say, "I want you to do that for my brand as well," and we certainly use that to help unlock and open doors.

And with all this merchandising effort and change, are we at a place now where you think that we can see a period of sustained same-store sales growth?

That's our hope. That's our belief. I think that it feels like the initiatives are gaining traction and momentum. Our belief is, obviously, we're here for growth, right? And so this year, we returned to top line growth in second quarter positive comps. And the goal will be to sustain that, right? And so I think we've got a really good game plan. I like the initiatives and how they're playing out. Certainly, I think that as you think about the back half of the year and as I think tariffs continue to find their way throughout the cost of goods and you see retailers adjusting prices, I think we have been focused on value. Value is our North Star.

It's who we are at our core. It doesn't mean we don't sell higher-end, better stuff. But at our core, it's offering great value on our private label, great value from the national brands that we carry. And so when we think about all these price adjustments that are working their way through, we spend a lot of time making sure that we still maintain our relative value on those things. And I think what we're seeing at the high end is customers trading in. And I think it is because of the value offer, and we think that's going to continue to accelerate.

Maybe if we can transition to tariffs, your June guidance update included a range of expectations for the tariff environment. Can you remind us of your exposure and what's reflected in the guide?

Yes. So from a tariff perspective, we've done a lot to offset them. I think the best way to not pass them on [ is not pay them, ] pull forward a lot of inventory, about $100 million in the first half of the year at pre-tariff prices [ that's between that ]. We've partnered with our factories. I think we've done the other things that you see proactive retailers do. If you look at our gross margin, we're up 30 basis points year-to-date, and most of that's driven by in the merchandising space. And our guide for the full year was to either be up 10 basis points at the low end, so we can get back some margin or be up 60 basis points the last year. We feel like we're right in the middle. And from a preventative standpoint, I think we've done more than most associated with not having to pay that overseas tariff by capitalizing on domestic purchases, and we hope to manifest that for the customers this fall.

If we could just move to margin. Actually, an environment -- if the environment was to get tougher, how are you thinking about addressing any kind of incremental SG&A spend?

Yes, I think -- well, let me just be straightforward. We delevered SG&A by 150 basis points in the second quarter, more than all of it was related to these initiatives that Steve is talking about. So e-commerce being up 18%. We're proud of that. We've invested into that. The new stores, once they get around that 14th month and they're comping mid-single digits, we've invested in new stores and the brand launches, which we outlaid some costs associated with that and Nike and Jordan together being up double digits, we're proud of.

On our base costs, we're leveraging. And so as it relates to the fall, the annual guidance had embedded into it about 100 basis points of deleverage in SG&A. Every nickel of that is going to be focused on initiatives. As it relates to base, we've got a new CIO. He's doing a great job at controlling costs with his third parties and making sure that they're kind of helping us offset some of those tariff pressures in a long-term partnership way. And so we think that we can lever in the back half of the year on the base, but still invest into these initiatives that are working well.

So there are a few things. I think you mentioned that are working well. The e-commerce acceleration is a big change. The new brands are changed too. And this has all happened since your 2023 Investor Day when you put long-term targets out. So is there enough of a difference here where those targets might maybe look a little bit different than what you originally planned? Or are we still kind of on track?

I think we're at the same targets on what we're shooting for. I think it's going to be the same strategy, but I would say that, especially in the case of our new stores, we've pivoted that strategy quite a bit. We've learned a lot since we started reopening stores in FY '22. But from a long-term algorithm standpoint, we think the biggest growth engines are, number one, new stores, 80% of Americans do not live within 10 miles of an Academy Sports and Outdoors. We have an amazing white space opportunity associated with smart expansion.

From an e-commerce perspective, we're at 11% penetration. I think 20% relatively average in omnichannel. I think good omnichannel retailers do it at about 30%. We brought in some new team there, and I'm really excited by the initial results, but I think it's got a lot of legs. And we're just 1 year into launching a loyalty program. We've added 12 million of our customers to it. There's a bit of enthusiasm. Two years ago, we did not have a centralized repository of customer information. So we launched a customer database platform and last year, launched a loyalty program. And those are working well. We're seeing that we can augment the customers' buying patterns from a frequency and basket size standpoint. So I think the targets remain the same, and I think the tactics are generally the same, but I would say we've learned some over the last 2 years.

If we could maybe just pivot to unit growth. I don't think necessarily it's something that the market is giving you guys a ton of credit for because it does seem like there is quite a bit of white space as you mentioned. So why do you think that is? Where do you think you need to go with your unit growth in order to maybe get some more credit and how are you seeing the store economics play out for some of these new areas?

We'll probably tag team this one. I think that the Street and the investor community values the new store expansion. I think what has concerned them is the lack of comp growth on the other side of it, right? We've really refined the new store opening strategy. So if you think back, we -- when we were privately held pre-going public, we were opening stores. But primarily, all the stores we had opened up were in our core geography. And so we weren't really adding any volume, we were just kind of cannibalizing our existing base. And so we stopped opening stores right after Ken and I both joined the company in 2019, 2018. And then the pandemic hit, obviously, right? So then we restarted opening stores. And during that time period, we'd actually kind of disassembled our real estate team. We didn't need one, right, if we aren't opening stores. And so we had to reassemble the team.

And I would say that initially, when we started opening stores the focus was on high income, high population density. And that's traditional retail thinking. There's nothing wrong with that. It was a good start. But I think what we found is we've been going on this journey. And by the way, we also were very focused on new markets, right, less in our existing geography. And I think as we've been going on this journey, we found other better predictors of success at our core, say something really profound, go where your customers are, right? At our core, our customer is a family, right? And so we were opening some stores in some really dense urban population centers where there weren't a lot of families or people with kids in the household, and that basically shut off a chunk of our store where people didn't need to shop, right? Or we're in a very urban dense area where people didn't have houses with backyards and so we couldn't sell grills and patio furniture and pool stuff.

And so we started pivoting to be a lot of the stores more in suburbs and exurbs. We found that if we can go more in that middle income quintile, we had more blue collar, $50,000 to $100,000 household income, that's better for us, candidly, than a higher income quintile. Obviously, with categories like hunting and fishing going to places where there's high hunt fish participation helps. And so we basically have aligned on a kind of a 9-box grid performer that really indicates success for us. And I think you're seeing us be much more laser-focused on where those new stores are going, and we're getting very predictive at what they're opening up at.

We also, when we came out with this new store strategy, said they're going to do $18 million. And the reality is not every store is equal. And so what we found is that stores that are in our core geography that there's high brand recognition open up, they generally do about $16 million the first year. If we go into a new geography, for example, we opened up our first stores this year in Pennsylvania and Maryland, they tend to be closer to $12 million. But what we've seen over time is that as the brand awareness wears in, so the newer markets tend to start off a little slower, but they have a much steeper kind of ramp and end up -- we think they'll all end up around $20 million, let's say, on average, but they have a longer growth trajectory versus an existing market may start out a little higher, but have a shallower ramp.

And so we've been really smart about how we're planning those things out. And I think we've also found that it's about balance, right? So we want to open up in new markets, but the population is growing very rapidly in our existing footprint. And so we can't be -- we can't ignore that idea or fact as other people are coming in. And so we've also refocused some of the stores back into our core geography and found that there's a lot of midsized, underserved communities where we can open up stores that are very productive and profitable. So I think the strategy makes sense. I think it's been refined. I think as we explain that to the investor community, they seem to understand it. I think the thing that's been missing has been the comp store growth, and we're working on fixing that. And hopefully, this is the first of many comp quarters for us.

Carl, I wanted to just make sure we asked about capital allocation. You previously have said the company has flexibility to adjust your priorities during periods of disruption and uncertainty. Can you provide us with any update on your capital allocation strategy and how you're planning into next year?

I'm really proud of our company's capital allocation philosophy. Just if I rewind a little bit, the company went public in October of 2020. And since that time, we've bought back 1/3 of our shares on the open market for a weighted average price of $45 per share. And we've paid down $1 billion in debt. I love our balance sheet. I love our leverage. I like everything to do with the capital allocation. If you look at Academy's cash flow from operations as a rate to sales, which is a metric that I really like to benchmark, about 10% of every sales dollar we put in the bank, the cash flow from operations. And then that gives us the opportunity to do stuff with capital, right?

And so we invest about 40% of that back into ourselves in the form of CapEx in stores, that's a little bit underpenetrated. I would tell you that 10% cash flow from operations as a rate of sale is top quartile in all of retail. And so 40% of that 10% we put back into ourselves in the form of initiatives that are working well. We pay a pretty modest dividend and the rest of it, we give back to shareholders in the form of share buybacks. And so nothing's changed for us. We prioritize stability in the form of cash in the bank and a $1 billion undrawn credit facility, then we invest into ourselves, and then we give the rest back to shareholders.

We are asking 5 questions [Technical Difficulty]. Okay. I have 5 questions of every company that speaks with us at the conference. We've touched on some already. But could you talk about your expectations for the environment in the second half of '25 versus what you saw in the first half of '24 with the consumer? Do you think it will be the same, better or worse?

Right now, I would say same, but it's -- I'd say it depends, right? I mean I think that obviously, with what's going on in terms of the tariffs in the industry, I think we are at the early innings of seeing how that kind of flows through in terms of price adjustments within -- in the marketplace. I would say so far so good. I mean I think we've seen some low single-digit inflation in the second quarter and the customer seems pretty resilient. I think that will accelerate as more of the costs find their way through the cost of goods.

I mean you think most retailers started off with inventory at pre-tariff prices, right? And then we also had probably about a quarter before the accelerated tariffs started to hit. So I think as you get through the back half of the year, you're going to see more of that find its way into COGS. I think you're going to prices go up, and it will be interesting to see how the consumer deals with that. But I like our positioning. I like our chances. I mean I go back to the relative value thing that I said earlier. I mean if we do our job right and we manage this correctly, I think we'll continue to see trade down, and we should benefit from that.

Our second question is on pricing. And to the extent that you've had to take any price on like-for-like product, have you seen any elasticity response?

Yes. We got this question on our earnings call. And I'd say it falls into like 3 different buckets. Obviously, there are some items, and I use the poster child for that is if you go in our stores, when you check out, there's a queuing lane, right, and there's soda and candy and chips and whatever in the there. There, we see no unit erosion in terms of when we've taken prices up, and it makes sense, right? I mean if you're thirsty and a bottle of soda costs $0.20 more, you'll pay that.

We've seen other categories where we've maybe nudged the price up and it went from $8.99 to $9.99, and there maybe the unit erosion is almost equal to whatever the AUR offset is. We've had a couple of places where we've seen, particularly when we crossed like a magic price barrier. So an example I used was a grill that we're promoting during the summer that was maybe $4.99 last year and it went to $5.49. And there, the unit falloff, obviously, was greater than the AUR uplift. And so we quickly pivoted and said, okay, obviously, the customer has a negative reaction to this. And so what we came up with was a strategy of maybe being more thoughtful on the timing of it. So we said, okay, maybe if last year, it lived at that $4.99 price for 4 consecutive weeks, maybe we can do it for 4-day blocks around major holidays and then let it be up in those other time periods.

And so that's -- this is a very iterative process, and we're learning as we go through this. I will say the customer is smart, right? And so I think that what's going to happen in the back half of the year is the -- we did a ton of shop-alongs for back-to-school. And I was shopping with this one mom, and she was very savvy about how she was utilizing discounts and rewards and things like that. And she said, "I've got $200 to spend for my child for this trip, and I'm going to spend $200, I'm going to get the most from it." And she did, and she found a way to work every deal and every angle to get the best possible deal. And I asked her at one point, and I said, well, what do you think about all this news around tariffs, and she said, I think that's some business made up just to charge higher prices, and I'm like, okay.

But I think that mindset is right, like I think they're going to have a fixed budget. I think in the economy, it feels like the government is very focused on making sure nondiscretionary things like gas and food stay relatively low. So I think they'll have the same spend maybe from a dollar perspective for discretionary, and we could argue whether some of the categories we saw are discretionary or not. I think if your kid plays baseball, he is going to play baseball. But I think if you can help them stretch that dollar and maximize their spend, I think there's a way through this.

Okay. With inventory, and again, we touched on this a little bit, your expectations for inventory growth into the second half?

Yes, we pulled forward a lot of inventory. So at -- on a per store basis at the end of the second quarter, our inventory is up 8% in dollars, 4.5% in units.

Per Store.

Yes, per store. On a per store basis. So we've pulled that forward. We've adjusted our unitary buys in the back half for the units that we've already purchased. We think with elevated AURs, managing for units is the right way to go. And so you should see that taper off. But I do encourage people to look on it at a per store basis. Right now, we've grown store units 7% year-over-year. We're guiding 20 to 25 stores for the full year. So it's not being flat on a relative basis, it's going to be on a per store basis.

So when Carl is talking about pull forward, I mean, obviously, we have really smart people who work for us, and we had somebody say the best way to mitigate a tariff is to not pay it. And you're like, okay, that's really profound. So what we found was there's a lot of evergreen product out there, right, bikes, grills, treadmills, things like that. that a lot of manufacturers had in domestic warehouses on the side of the water. So we went out and grabbed as good as we could, knowing that, that would be something that would give us a pricing advantage going through the back half of the year. And so that's the inventory pull forward. And to Carl's point, on a per-store basis, units were up like 6.5% I think at the end of Q1, we're up 4.5% at the end of Q2. I think you're going to see that continue to clip down as we go throughout the year and sell down on that pull forward inventory.

Okay. And then with regards to margins outside of any kind of tariff costs, freight wages, material into '26, do you see that better, the same or worse?

I think we have upside opportunity as it related to supply chain. I think that's something that we've baked into the long-term algorithm associated with our long range plan. So we've launched a new WMS in 1 of our 3 distribution facilities, had some bumps coming out of it. But I think longer term, there's opportunity in the transportation space. I'll give you a couple of thoughts.

Academy for the most part still does like one distribution center door per truck per store. And it goes from the DC to the store, and it comes back. It doesn't have a sort of a network drop off in the Houston market or drop off in the Charlotte market, partial loads. We needed a WMS system to help us plan those loads a little bit better. So that's an opportunity in the transportation space. In the distribution center space, we don't cross stock a lot of our goods. We touch them manually, kind of pick, packing, shipping as if almost for a DTC, and we do this for retail stores. And so I think the ability to stage goods in the appropriate place. So it's got the highest sell-through and the human pickable locations, things of that nature. These are big opportunities for our company. And there's something that were surprising to Steve and I when we got there. But at the same time, it's opportunity for the future.

And then our last question is just about the competitive landscape and consolidation. Do you think market share consolidation will speed up, slow down or be about the same in '26?

I think maybe consolidate a little bit. I mean I think, obviously, one of the kind of the hidden cost of tariffs are you pay them upfront, right? Theoretically, you don't realize them or get them back until you sell the product. And so I think where there are companies who don't have healthy balance sheets, I think there's going to be some contraction there. And so I think that's going to happen this year to a certain degree, and we've already seen it happen in a couple of places.

Yes. Yes. Well, thank you so much for joining us today. Appreciate the time.

Thank you for having me. Thank you.

Good morning, and welcome to Academy Sports and Outdoors Second Quarter Fiscal 2025 Results Conference Call. The call is being recorded. [Operator Instructions]

I would now like to turn the call over to Dan Aldridge, Vice President of Investor Relations for Academy Sports and Outdoors. Thank you. You may begin.

Good morning, everyone, and thank you for joining the Academy Sports and Outdoors Second Quarter 2025 Financial Results Call. Participating on today's call are Steve Lawrence, Chief Executive Officer; and Carl Ford, Chief Financial Officer.

As a reminder, today's earnings release and the comments made by management during this call include forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the earnings release and in our most recent 10-K and 10-Q filings. The company undertakes no obligation to revise any forward-looking statements.

Today's remarks also refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in today's earnings release, which is available at investors.academy.com. This morning, we will review our financial results for the second quarter of fiscal 2025, provide an update on strategic initiatives, discuss outlook for the year and share updated guidance for the full year fiscal 2025. After we conclude prepared remarks, there will be time for questions.

With that, I'll turn the call over to CEO, Steve Lawrence.

Thanks, Dan, and good morning to everyone on the call. I'd like to start by addressing the historic flooding event that happened in early July in the Texas Hill Country. While none of our team members or stores were immediately impacted, pretty much everyone who works for us personally knows or is connected to someone who was impacted or whose children attending camps in this area. One of the things I'm most proud of working for Academy is how we show up for our team members and customers in times of need.

In response to this disaster, the team quickly reacted with donations of water, sleeping bags, cots and other supplies to help support first responders as well as families that were displaced during the floods. We also made a donation to the Kerr County Flood Relief Fund to help with recovery efforts. We're staying close to the situation in the local community and continue to offer aid and assistance as the long rebuilding process continues.

Turning now to our performance in the second quarter. As you saw from our earnings release earlier today, we've seen continued improvement in our business with sales coming in at $1.6 billion, which is up 3.3% to last year and translated into 0.2% comp. These results marked a step change improvement in performance compared to our Q1 results, one of the best comps we posted in many quarters.

After a slow start in May, we saw steady improvement with sales running positive for the last 7 weeks of the quarter. Another bright spot was our dot-com business, which grew approximately 18% during Q2 and increased in penetration by 120 basis points. This is on top of the 10% increase in the first quarter. It was also good to see that we managed to improve the sales trajectory of the business while also holding our gross margin rate essentially flat to last year at 36%.

Breaking the business down by category, we had fairly consistent performance across our major families of business with footwear, apparel, sports and rec, and outdoor all running low single-digit increases. We saw solid results across most of our core categories such as athletic and outdoor apparel and footwear, sporting goods, hunting, camping and our backyard businesses. The one consistent soft spot was seasonal categories such as swim, pools and summer seasonal footwear that got off to a slower start during the first half of the quarter. We attributed this to a cooler and wetter start to the summer. Once we got into late June and July, when it got consistently warm across our footprint, all these businesses rebounded.

We're also pleased to see that beneath the surface, our merchandise margin improved 40 basis points during the quarter. As we manage our business, we remain focused on driving top line sales while also growing market share. With a business as diverse as ours, we tend to have to track our relative performance across several different data sources. The first place we focus is on traffic data, which we get through Placier.ai.

During our Q1 call, we discussed the customer trade down effect that we first started to see in the back half of last year. Consumers are clearly looking for ways to navigate the current inflationary environment and are seeking out ways to stretch their spending power. We continue to see strong double-digit growth in foot traffic and share gains from customers in the top 2 income quintiles, which are households making more than $100,000 a year. We were flat in traffic share in the middle-income consumer whose households make $50,000 to $100,000 a year. And finally, we continue to see traffic erosion in the lower income cohorts that make less than $50,000 a year, but the pace of these declines was less than what we saw in Q1.

Another key data source for us is Circana, which provides market share data on roughly 60% to 70% of the categories we carry. We're pleased to see meaningful share gains across almost all of our key businesses such as apparel, footwear, sporting goods, fishing and outdoor cooking. Finally, we use government background checks for firearms purchases or NICS checks data as a proxy for firearms market share. Once again, we saw solid growth on this front.

To summarize, and looking at all this data, it tells customers are gravitating to our diversified assortment and that our value proposition is resonating with them, all of which resulted in a comp sales increase and solid market share gains during the quarter. We would attribute a lot of the momentum we're starting to build in the business to the solid progress we've continued to make against our long-term objectives and goals.

I'll now cover a couple of highlights from Q2. First, opening new stores remains our #1 growth strategy. And during the quarter, the team successfully opened 3 new stores with locations in Fort Walton Beach, Florida; Midlothian, Virginia and Morgantown, West Virginia. With these additions, we ended the quarter with 306 stores in 21 states with plans to open up a total of 20 to 25 locations in 2025.

While opening a new store is always fun, what is exciting is watching new markets mature and become key contributors in driving comps. We remain very encouraged by the performance of the 2022 and 2023 vintages, which are all now in our comp base. We saw these vintages move from low single-digit comps in Q1 to mid-single digits in Q2. Our belief has been that as we see the base business improve, that the new store comps would improve commensurately, and that is exactly what we saw happen this quarter.

Our second initiative is to grow our dot-com business at an accelerated pace. The team has taken a back-to-basics approach with a focus on streamlining site navigation and functionality, improving order fulfillment options and speed and offering a greatly expanded endless aisle assortment. The efforts the team put in on this front helped drive approximately 18% growth in our dot-com business during the quarter. Probably the best indicator that this approach is working is the improvement we have seen in both online conversion and average order value this year. As this work continues into the back half of the year, we expect dot-com will continue to drive growth.

Our third pillar is improving the productivity of existing stores. We have had several initiatives that we put in place this year to help accomplish this. Our first focus on this front is to continue to refine and expand our assortment by adding the most requested and desirable brands that will inspire existing customers to shop more frequently in Academy while also attracting new customers to shop with us. We've added new brands to our mix in the first half of the year, such as Jordan, Converse and HydroJug. We've seen strong results from these launches and have plans to extend each of these brands out into more doors.

At the same time, we've also been expanding other brands who are already in our assortment in limited doors out to more doors in the chain. The examples of this would be BURLEBO, Ninja Coolers and Birkenstocks, all of which performed well this past quarter. Our second focus was on delivering new technology to stores with the rollout of RFID scanners and new handheld ordering devices. We completed the launch of all these devices during Q2 in advance of the summer selling peak.

At this point, we have Nike, Jordan Brand, Brooks, Adidas, Under Armour, Columbia, Levi's and PUMA on a weekly count cycle to have their physical inventories updated. These brands collectively account for roughly 25% of our annual sales, and we continue to see improved in-stock and sales increases as a result of this rollout. Our new handhelds also continue to pay dividends to help stores save the sale on items that, for whatever reason, may not have been in stock in that specific store on a given day. In most cases, we can now seamlessly fulfill customers' needs with our new handheld devices, either by shipping the item to their home for free or if needed, we can schedule a BOPIS pickup at another store if that is more convenient for them.

Our third focus is on driving traffic through more effective targeted marketing. To that end, we continue to lean into our new Fun Can't Lose campaign launched in the second quarter. This campaign had a focus on helping our customers maximize their spending power on all of their passions with an emphasis on protecting value and low prices on key summer and back-to-school must-haves. Additionally, we continue to lean into our myAcademy Rewards program with expanded discounts and incentives for our best customers. We're still early in the evolution of this initiative and are continuously testing and rolling out use cases that help drive customer loyalty.

As an example, we launched a campaign in Q2 targeted to myAcademy members called [ Summer of Savings ] that included a steady stream of exclusive and early access to deals, targeted offers and bounce backs, which aim to help drive shopping frequency and spend. We saw strong results from this program, which translated into increases in weekly enrollments, higher redemption rates on offers and a sales uplift. I'm proud of the work the team has done, adding over 12 million customers in the first full year of this program. Our focus here remains on enrolling people in myAcademy, that we can start a dialogue with them and convert them from occasional shoppers to loyal customers who shop with us 2 to 3x more in a year than an average customer and spend 4 to 5x more on an annual basis.

Before handing it over to Carl, I want to give a quick update on tariffs and the work our team has put in to mitigate the impact on our business. Teams work together to deploy multiple tactics, including partnering with factories and vendors to absorb a portion of the incremental expense, working with our overseas partners to shift country of origin where it made sense, adjusting unit buys where needed, pulling in additional inventory from brands that had available goods in domestic warehouses and utilizing our pricing optimization tools to create a strategy to drive higher average unit retails. As all of you know, this has remained a fluid situation over the summer. At this point, we believe that we have the strategies in place that should mostly offset the impacts of tariffs to our business throughout the remainder of this year, while still being able to serve customers by delivering a strong value proposition on all of their sports and outdoor needs.

Now I'll hand it over to Carl to give you a deeper dive into the financials. Carl?

Thanks, Steve. Net sales for the second quarter were approximately $1.6 billion, up 3.3% with a comp increase of 0.2%. As Steve mentioned, we saw sequential comp improvement throughout the quarter, and our e-commerce channel had a positive comp of approximately 18%. Breaking down the comp, transactions were down 1.4%, while ticket was up 1.5%. Compared to Q1, we grew comp sales by almost 400 basis points in a tough sales environment. This contrasts to a challenging 2024 where comp sales decreased by 120 basis points from Q1 to Q2, primarily driven by in-stock challenges related to the Georgia distribution center WMS implementation as well as Hurricane Beryl and the Derecho that impacted the Houston area.

Our Georgia distribution center has significantly improved over the last 12 months and helped contribute to a meaningful improvement of in-stock for the total company. Gross margin came in at 36%, down 2 basis points to last year. While we saw merch margin expansion of 40 basis points, it was offset by shrink and higher e-comm shipping costs. SG&A came in at 25.3% of sales for the second quarter, an increase of $36 million or 150 basis points. The increase was driven by initiatives totaling 160 basis points, comprised of 130 basis points of new store growth, 20 basis points of technology investments and 10 basis points of depreciation. Over the last 12 months, we have added 21 new stores to our fleet, and all of the new stores in our comp base are leveraging expenses as we would expect. If you strip out the costs attributable to our growth initiatives, all other costs would have leveraged by 10 basis points.

Operating income was $172 million and diluted earnings per share was $1.85. Adjusted earnings per share was $1.94. Our inventory per store is elevated with units per store up 4.6% (sic) [ 4.5% ] and dollars per store up 8.2%. We have purposely pulled forward domestic inventory receipts at pre-tariff prices. The majority of this is evergreen product such as bicycles or free weights, which have no seasonal or obsolescence risk. These actions positioned us well to support the summer selling season, and we will continue to evaluate the environment and take further actions as necessary.

Since the first quarter, we have seen our inventory units per store decrease by approximately 30% or 190 basis points, and we anticipate inventory levels will continue to normalize as we move through the year. We ended the quarter with $301 million in cash and maintained strong liquidity with an undrawn $1 billion revolver. Our 7% increase in stores since Q2 of last year is 100% funded from cash flows from operations. Q2 free cash flow was $21.7 million.

Turning to capital allocation. We remain committed to balanced and disciplined deployment. During the second quarter, we invested approximately $80 million in inventory-related working capital, paid approximately $8.7 million in dividends and invested approximately $60 million in strategic initiatives, including new store openings and omnichannel infrastructure. We did not repurchase any of our shares during the quarter, instead choosing to allocate capital to manage inventory. This decision led to a strong inventory position that helped drive positive comp sales and mitigated tariff exposure. Going forward, our capital allocation philosophy has not changed. We have over $530 million remaining on our current repurchase authorization.

Moving to guidance. Sales for the second quarter continued to improve and the green shoots we saw in Q1 are accelerating. We also have additional information into tariff impacts and have taken appropriate actions to mitigate them. Based on the results of the first half of the year and the expectations for the remainder of fiscal 2025, we are tightening the low end of our comp sales guidance from negative 4% to negative 3%, with the comp range for the year now being between negative 3% and positive 1%.

To close, our initiatives are starting to bear fruit and are accelerating. We are seeing positive momentum across the business that lends confidence that our strategies are working while also resonating with current customers and attracting new ones. I am incredibly proud of the work our team has done to get us to this point, but we have a long way to go to reach our goals. I'm excited to see the continued progress as we move forward.

With that, we are now ready for questions.

[Operator Instructions] At the end of the Q&A session, CEO, Steve Lawrence, will make closing comments.

Our first question comes from Christopher Horvers with JPMorgan Chase.

So my first question is about the consumer. You gave us great detail in terms of the different cohorts. Over the past couple of years, you've seen some pretty episodic shopping in between events, strong Memorial Day, strong Labor Day, but the valleys in between tend to be softer. So can you talk about what you've seen sort of post the back-to-school period in the August time frame? Do you think those valleys could actually attenuate as you get later into the year?

Yes, it's a great question. I think we do continue to see that episodic shopping you're talking about, Chris. If you go and look at back-to-school for us, which as you know, kind of we have an earlier back-to-school of bridges that late July, early August time period, we ran a positive comp there, which we're excited about. If you remember, August is one of the only 2 positive comp months we had last year. So the comp to comp through that part was feeling pretty good.

We did see a slight pullback after we got out of back-to-school. We would attribute that mainly to less clearance activity this year around Labor Day and the shift of the hunting season starting in September versus in August last year. But we feel pretty good about the momentum that we have in the business, and we feel pretty good about our opportunity and optimistic about the remainder of the quarter as we lapped some pretty soft comps in late September and October from last year.

Yes. And then on the ticket front, can you talk about how much of the ticket benefited from tariff pricing? And as you think about working through this with the brands, and obviously, you have a big private brand penetration in your box. Will that -- will tariff pricing pressures complete in the back half of the year? Or would you expect more pricing in the first half of 2026 as sort of the brands catch up with the cost that they've incurred?

Yes, thanks. I would say AURs were up low to mid-single digits for the quarter. So that was certainly a chunk of our average ticket being up about 1.5%. We started seeing some price increases creep in as we got deeper into the summer. I think you'll see more of that activity happen in the back half of the year as the tariffs find their way into the cost of goods. Our goal would be to complete most of any price adjustments that need to be completed in the back half of the year in anticipation of next year.

That being said, it's a fluid environment, Chris. This thing changes every day. And we feel pretty good about our ability to mitigate the tariffs so far through all the different levers that we've pulled. And it really is now going to be up to the consumer and see how they react to some of the higher prices that they going to experience in the back half of the year. But we think we still have a pretty good value proposition out there, and we like where we stand.

Our next question comes from Simeon Gutman with Morgan Stanley.

This is Pedro on for Simeon. My first question is about guidance. Your updated guidance implies good operating leverage in the second half of the year. What are the assumptions around SG&A? Is the leverage coming from gross margin or a reduction in the pace of SG&A investments that you have been making during the first half? And as a follow-up, if I could, on tariffs, how is it that you're able to offset most, if not all, of the impact from tariffs, while many of your peers are expecting to see pressure on profit margins during the second half?

I think we'll probably tag team it, say, Pedro. So as it relates to guidance for the year, we're sticking with -- I've quoted on previous calls, about 100 basis points of SG&A deleverage for the full year. So we were down 150 basis points. We delevered 150 basis points in the second quarter and more than all of it is driven by our initiatives. So as it relates to guidance for the back half, we've got a range of outcomes associated with the second half of the year. At the low end, comps would be negative 4%. At the high end, it's about a plus 3.5%. And so from a gross margin standpoint, we still feel good about 34.0% to 34.5%. That's up at the low end, 10 basis points for last year, where we came in at a 33.9%. Some of that 33.9% was impacted by some deleverage that we experienced in one of our distribution centers, primarily in Q2 and Q3.

And from an expense standpoint, look, we're very consciously investing in these initiatives. They are performing very, very well. Steve talked a little bit about the acceleration that we saw in e-commerce from Q1 to Q2. The new stores that are in the comp mid-single digits and Nike and Jordan, double digit up over last year. We're investing in these things, and you're going to see more of it. So the base business, we will continue to leverage to bring in the annual guidance.

So from a tariff mitigation perspective, we've been working on this, obviously, from the moment the meeting in the Rose Garden happened. A lot of the actions we detailed on the call, partnering with factories to get them to absorb some portion of the cost, diversifying the sourcing base, adjusting unit buys where needed, pulling in additional domestic inventory. I don't want to downplay that one. That was a big one for us.

And then obviously, as everybody says, the last kind of resort after you do all those things is looking at how do you adjust prices, and we've been working pretty hard on that from a couple of different fronts. First, we use our markdown optimization tool, Revionics so that on the back end, we're trying to get a little more money out of our clearance, which helps raise AURs. And then where we had to make pricing adjustments. What we feel like is, as we've seen the market move on pricing, we still have maintained a pretty good spread on our private brand product where we -- that's where we express most of our value. And we're seeing that trade-down effect accelerate as we get deeper into the year, and that gives us confidence that in the environment we're living in right now, customers are going to choose the value proposition that we offer, which is how we believe we're going to mostly offset or impact the impact of these tariffs.

Our next question comes from Paul Lejuez with Citi.

This is [ Kelly ] on for Paul. I guess just to get a little bit more granular given the back half comp assumptions are so wide. Any color you could provide 3Q versus 4Q, how you're thinking about that? And then just given SG&A came in much higher than The Street was modeling, and I think 3Q will be a high point for new store openings. So if you could just provide maybe some additional color around the quarterly flow of SG&A guide and how that should look?

Yes. So we don't give quarterly guidance, but I'm happy to give a little bit of color. As it relates to SG&A, I think you'll see a continued moderation of the deleverage. So in first quarter, I think we delevered 290 basis points. We were at 150 basis points in the second quarter. I think you'll continue to see that tapering for the overall year at approximately at the midpoint, down 100 basis points. And from a comp standpoint...

Yes, if you think about last year, we had 2 positive comps in the year there, both in the back half of the year, one was in August, one was in December. And what you had was a pretty big trough that happened late September, October, early November. And then once we got into December with compressed holiday calendar last year, if you remember, we saw the comps inflect positive there.

So we expect that as we start lapping some pretty tough comps in late September, early October, we'll see the business inflect that we expect that to continue through early November. And then obviously, Christmas is going to be what it is. I think even in tough times, people always come out and shop for Christmas. So I'm optimistic about that episodic shopping still happening. And I believe that we've got some softer comps in the middle part of the quarter, which is going to allow us to have a better, candidly, back half of the year than the first half of the year. That's how we're thinking about it.

And just to follow up on those 2. I mean the deleverage rate is dependent on the top line. So I guess, how much flexibility do you have to sort of achieve that 100 basis points of deleverage in the back half? Like you could spend more intra-quarter or just -- even if you could just speak to it on an SG&A dollar growth would be helpful.

Yes. I'm quoting at the midpoint. So between the high and the low cases at 100 basis points. I think we have flexibility associated with many of the variable items. And I would tell you that at the low end of our guidance range, incentive comp would be impacted, which we're baking into the overall kind of on the low side.

Our next question comes from Greg Melich with Evercore ISI.

I wanted to follow up on the gross margins in the quarter. You mentioned shrink and the cost of e-commerce, I think, being a headwind of 40 or 50 bps. How do you see that playing out in the back half? And then second, my follow-up was just, could you level set us, given all the things you've done to mitigate on tariffs, what percentage of your COGS now are imported from various countries?

Absolutely. Yes. So as it relates to being down 2 basis points in the quarter, merchandise margin was a tailwind of 40 basis points. Shrink was a headwind of 20. E-commerce shipping was a headwind of 10, and there were some miscellaneous things that was a couple of extra basis points. If you look at shrink, not just in the quarter, but for the full year, we're down 5 basis points to last year. I think that's about in the range of what you would expect it to be for the year. There's puts and takes as we take physical inventories throughout the year. And we've taken almost 190 of our stores already.

So I think we've got a good feel for the trends that are going on there. As it relates to e-commerce deleverage, look, being up 18% in e-comm, we're pleased about that. We think we're starting to see the benefits of what we've been investing in. And so I'll take 10 basis points of headwinds, but I think that's pretty much what you should expect for the year.

So from a sourcing diversification perspective, it's kind of a moving target, to be honest with you. I think we started off when we got the initial first kind of read on the tariffs and China looked to be the epicenter for this. And so we spent a lot of time talking about how we're diversifying our exposure in China, where last year, it was in the teens to under 10% with a goal of being in the mid-single digits by the end of the year. That's still on track. But candidly, as this thing has evolved, what we found is other countries are actually now, in some cases, at higher tariff rates than goods out of China. And so what we've decided to do moving forward is with a business as diverse as ours, we need to have a really diversified sourcing base, number one. And so we're trying not to have too many eggs in any one basket.

And then second, we're trying to partner with factories and vendors that have multiple countries where they make products so that they can flex and move goods around as the tariffs ebb and flow. So I feel really good about the work the team has done on diversifying the sourcing base and not really having too many eggs in any one basket. And I think that's going to be the best approach moving forward. It's going to serve us well.

As it relates to the goods that we manufacture, we've got about -- from a total COGS standpoint, about 6% to 7% exposure for total COGS, but that's what we manufacture. So think about that as private label. As just to what Steve said about the dynamic environment, our national brand partners are changing up, it feels like daily associated with where their base is. So it would be hard to quote national brand by country, just given the dynamic nature of it. But from our private brands, looking at 6%, 7% for the year.

Got it. And if I could follow up on just that one particular point. I think in inventory, you said AUR was up around 8%. So should we think of that as a proxy of what would happen to ticket AUR in the coming quarters as that flows through? Is that a fair way to think about it.

No, we did not say that AUR was up 8%. It was up in the mid-single-digit range. We expect that to accelerate in the back half of the year. I think we will see AURs creep up in the high single, low double digits for us and for the industry candidly in the back half of the year.

Our next question comes from Brian Nagel with Oppenheimer.

So I want to -- congrats on the positive comp. I know we've been talking about this for a while. So congrats. The question I want to ask is, and this is somewhat repetitive. But as you look at -- particularly as the comps have strengthened through this year and even in the quarter, is there any -- what's the reason why that momentum would not continue through the back half of the year? I mean recognizing you're probably acting conservative with the guidance. But I mean you're looking at the business, is there any reason why that momentum should not continue?

Not really, Brian. I mean when you look at it, you hit on it. I mean, we see our dot-com business accelerating. It was up, I think, 10% in Q1. It was up almost 18% in Q2. You see the new stores contribution that are in the comp accelerate from the low single digits to the mid-single digits. You see our investments in technology, whether it's RFID or the handheld scanners we sent out to save the sale really start to contribute. We see the new brands working. We haven't had a chance to really talk about the investment we made with Jordan or Nike, but those 2 brands in aggregate are driving meaningful double-digit growth for us right now.

You see our loyalty program where we have over 12 million people in it right now, and we're adding almost 500,000 or 0.5 million people every quarter grow and customers really resonate there. And we're picking up market share as a result of all this. So we really don't see any reason why that would stop in the back half of the year. I think the wildcard candidly, is just the consumer health and how they deal with the external macroeconomic environment. But we like our strategy, and we feel like it's gaining momentum, and we expect it to carry forward not only through the remainder of this year but into the next year.

That's very helpful. My follow-up question, just on tariffs. So I think you mentioned this is probably in response to another question, but you're starting to adjust prices here. Are you seeing any impacts upon demand as these higher prices are starting to roll through?

It's funny. We kind of look at it. And as you'd expect, there are like 3 different buckets. There are some categories, I'd say, like front end, where we sell soda and chips and things like that, that are highly inelastic. So the unit demand has not at all been impacted by the AUR increases. You got a second bucket of goods where you're seeing some AUR increases and unit demand is roughly in line. And then you had a couple of bigger ticket categories where as we started nudging some pricing up, you saw some demand erosion there from a unit perspective greater than the AUR increase. So we've made adjustments there. It's very fluid, but definitely kind of 3 different behaviors depending upon the category and the price point.

Our next question comes from Eric Cohen with Gordon Haskett.

I wonder if you can just talk about the promotional environment. You said that consumers are continuing to be value conscious in shopping during events. But just curious what you're seeing in the promotional environment. And just on the merchandise margin, is some of that benefiting from the merchandise mix as you have the Jordan and Nike expansion assortment since those are naturally higher-margin products?

So from a promotional environment perspective, Eric, I would say that it's about how we've described it in the past, right? I mean each year feels like it's a little more promotional than the year before, but not anywhere near what we were seeing kind of pre-pandemic. And I expect that will continue through the remainder of the year. We have seen on a year-over-year basis, if we run roughly the same promos, we're seeing a higher take rate from the customer where they're aggregating more of the purchases into those promos during the windows that we're running them. So that certainly is an acceleration in terms of the take rate on the promos.

In terms of margin mix, the goal and belief is that having growth in the apparel category, which tends to be higher margin for us for footwear, that will mix us up. I would say we really didn't experience that as much in Q2. We had a pretty tight range of performance between all the businesses. They were all looking about 120 basis points of each other. So we didn't see dramatic mix one way or the other in terms of hard goods and soft goods. But moving forward, that would be the goal in the plan.

Great. And then just on the cohorts, it sounds like the upper income consumer, higher income consumer is continuing to post positive comps. Has that accelerated? And do you expect the higher income consumer to drive the comp growth in the back half of the year? Or do you think that the middle-income consumer can inflect positive in the back half?

Yes. So it has accelerated. If you look at the top 2 quintiles, $100,000 and up, they were up double digits in terms of traffic for us within the quarter, which is an acceleration versus Q1. We held share in that middle-income quintile of $50,000 to $100,000. And then we lost a little bit of share in the lower income quintile, although it was less than what we saw in the previous quarters. And so at the higher end, it's more than offsetting the lower-end income consumer. So I do believe that, that should continue and accelerate as we move through the back half of the year.

Our next question comes from Kate McShane with Goldman Sachs.

Our question just was going to be focused on Nike and Jordan. Just any more detail that you could give around the performance? I believe you set up double digits, but any more detail there? And can you talk about the exclusivity of both the Nike and Jordan product as you continue to see increased points of distribution by the brand?

Yes. So we're very excited about what we're seeing or early reads in terms of Nike and Jordan. As you remember, we launched Jordan, in late Q1, kind of the back half of April. And we've seen that business build, particularly at back-to-school. We had our biggest weeks of the year during back-to-school as we expected. We expect that to continue, particularly on the footwear side as we move into the basketball season. We also think it's going to be a big gift-giving category for us this year as well for holiday. So we really expect that to continue to be a tailwind for us.

And then on the other side, from a Nike perspective, we've made a big investment there as well. I wouldn't say we have exclusive product per se. I would say we're getting access to better premium products. So for example, within footwear, we have the Vomero 18 on the floor as well as the Plus. We have the P-6000 out there that's doing very well. We've got 270s out in almost every door at this point.

And those aren't cheap shoes. Those are $165, $180 shoes in a lot of cases, doing very well for us. So we feel really good about that. On the apparel side, we've got things like the Phoenix Fleece, which in the past we have had limited access to, we now have in more doors. So it's less about exclusivity for us. It's more about having higher-end product more broadly distributed throughout the chain, and that is working for us.

Our next question comes from Anthony Trauma with Loop Capital Markets.

Also, I wanted to just kind of follow up on Kate's question. I guess how does your Jordan brand assortment, just in terms of the overall size of the assortment, compared now to when you first launched it? And then how much more assortment expense do you anticipate over the remainder of the year?

Yes. So I would take a category like footwear, where it's dramatically expanded. I think we launched with 2 shoes. If you remember, we're kind of at the tail end of basketball season. So now you'll see a much more expanded basketball assortment out there, I would say, from the SKU count. It's probably more than tripled. We've also taken things like football cleats, which weren't in the assortment initially. Those are out in all doors right now. Categories like backpacks have also expanded out in all doors. Apparel as we get in the back half of the year is going to get obviously expanded from more fleets, things like that.

So the assortment will continue to expand both from -- has expanded from a door count perspective as well as the SKU count throughout the back half of the year. And then obviously, as we go into next year, the goal is to expand those shops out into more doors. And we haven't given guidance on that, but we're working with them right now what that plan looks like, but it will be a more doors for us next spring.

Our next question comes from Jonathan Matuszewski with Jefferies.

The first one was on just spending by customer cohorts. I think you talked about the lower-income consumer a bit, but hoping you could zero in on any disparities in shopping patterns across different ethnicities, including the Hispanic consumer. Is the underperformance there widening, narrowing or consistent versus prior periods? That's my first question.

Yes. So all the data that we get or that I'm going to about to talk about is from Placer. So it used to be that Academy over-indexed in consumers making below 50,000. But what we've seen since, I don't know, like third quarter of last year is that the growth in quintiles 4 and 5 is more than offsetting that degradation in those consumers in quintiles 1 and 2. And so it's been very steady, and I'm anticipating it to continue.

As it relates to ethnicity, again, through Placer, Placer would tell you that the Hispanic consumer in our markets is up year-over-year. We were very concerned associated with the health of that demographic. The other black, white, Asian, it gives you all different cuts of it. Overall, I would say there's no real significant outliers.

One thing I would comment on, though, is we've got about 30-sub-odd stores that over-indexed towards the Hispanic consumer. Many of those are on the border of Texas and Mexico. And we're seeing those stores do a little bit worse than the trend overall as it relates to Texas or as it relates to the balance of the chain. And so we do think there's some impact associated with people who are coming across the border to shop for the day. I think there's been disruption associated with that. It doesn't show up as pronounced in the data from Placer, but we are seeing it in the individual -- the store performance that over-indexed on the Hispanic population.

That's helpful. And then a quick follow-up. You mentioned improved in stocks from the RFID initiative, and I think just the Georgia DC. Is there a way to dimensionalize maybe the frequency of out-of-stocks you're seeing today versus the magnitude of potential improvement in conversion in the quarters ahead?

So what we shared publicly is that we see about a 20-point improvement in terms of inventory accuracy in goods that are counted on RFID on a weekly basis versus goods that are not. That's improved our in-stocks by 400 to 500 basis points overall. And having goods in the right sizes certainly helps us from a conversion perspective. That's what we shared publicly.

Our next question comes from John Heinbockel with Guggenheim Securities.

Steve, first question, can you frame the size of those 3 cohorts that you referenced, right? Because I don't think it's 1/3, 1/3, 1/3. And then do you think structurally going forward, I know you've added best product, but is there more to be done on the marketing front, right, the targeted marketing front to go after the $100,000 plus, whether it's CRM or social to try to deleverage even more to that group?

Yes. So I'll start and I think Steve will finish. As it relates to the size or the penetration percentage, so it literally is almost 1/3, 1/3, 1/3. So 1/3 quintiles 1 and 2, so making below 50,000, quintile 350 to 100, approximately 1/3 and then above 100,000, quintiles 4 and 5, about 1/3. I would tell you, even over the last year, there's been a radical shift in that as quintiles 1 and 2 frequent us less. And quintiles 4 and 5 are significantly growing trading into Academy. So I think at some point, I'll maybe provide a little bit more color related to that. But generally speaking, 30% to 33% for each of those 3 cohorts.

And then from a marketing perspective, you're spot on correct, right? I mean, obviously, having the new CDP, having done all the data resolution as we get more of these people shopping with Academy, they're getting added to our customer file. They're high-value customers who are coming in and shopping for the first time. Our goal is certainly to turn them in from casual shoppers into Academy loyalists. We have a ton of plays we're working on. One of the things I was just talking to our Chief Customer Officer about last week is we got some of these people who come in and shop either through one channel or the other, whether they're dot-com shopper or a brick-and-mortar shopper primarily.

So what we would expect is when you look at the combination of the two, the kind of the customer shops across both, those are our most valuable customers. And so we're really doing some targeted marketing to try to convert store-only shoppers to the omnichannel shoppers or online shoppers to be omnichannel shoppers. And there's a lot of really good work the team is doing that candidly, we couldn't have done several years ago because we didn't have the CDP, we did not have all the information at our fingertips that we do now have.

And then just a quick follow-up. I know you guys have talked about 100 basis points of supply chain opportunity. What's the cadence of that? And now that you're accelerating stores and using the capacity more, is the opportunity greater than 100 with that or you don't think so?

I think the 100 basis points is still live. I think we invested some basis points last year, and we'll get them back this year related to Twiggs. When we talk about our long-range plan, 5 years, I think 100 basis points is the right cadence. Some of that will be related to the rollout of the WMS to the other 2 distribution centers.

But some of it is -- we brought in a new Chief Supply Chain Officer last year. And similar to when Steve and I got here coming from like more of the department store space and just looking at how the distribution centers operate from a retail as well as a DTC standpoint, there's just some upside opportunities related to just what normal looks like. And I would say, Rob Howell is doing a good job at getting after those. So I think the 100 basis points is alive and well. I wouldn't take it up at this point in time because I want to prove it out before we talk what may be some out-year opportunities are.

Our next question comes from Robert Ohmes with Bank of America.

This is Maddy Cech on for Robby Ohmes. Maybe first, what should we expect in terms of inventory growth in the second half? And then second, you called out that all categories were up low single digits in the second quarter. Could you provide any more color on the performance of each apparel and footwear versus outdoor? And maybe how the ammo business performed versus the first quarter?

Yes. So if you look at inventory, we're having to look a lot of inventory on a unit basis -- on a unit per store basis, a, because of the tariffs and the impact that it's having on cost; b, the fact that we're opening up new stores. So if you look at it, we're up about 6.5% in Q1 on units per store basis. We're up, I think, 4.6% in Q2. We'd expect that number to continue to come down as we progress through the year and sell through the inventory that we pulled forward kind of normalizing by the end of the year. So we feel like we've got a good beat on inventory, particularly on a unit and per store basis and feel like we're in a really good position there.

Repeat the second part of your question. Divisional performance. So if you look at performance by division, apparel and footwear were the two strongest performing businesses, both were up almost equal to each other from a comp and an absolute basis. But once again, there was only like 120 basis point spread between outdoor and apparel, which was the best business on an absolute basis.

Beneath the surface, you asked about ammo. Ame continues to be tough, although the trend was a little better in Q2 than it was in Q1. I think that's a business that goes through ebbs and flows as there's demand cycle pulling more goods out there. Right now, there's a lot of supply. So it's become more of a price-sensitive business. We're certainly monitoring and making sure we have the best price on ammo on a daily basis. And we're going to continue to monitor the business. We've had some success with bulk packs as a way to drive higher average unit tickets there. So we're going to continue to work on that. But I would say the ammo business, of all the businesses is probably one of more challenged businesses.

Yes. And Maddy, you'll get the 10 -- all of you guys will get the 10-Q later today, so I'll go ahead and lay out the numbers that you'll see in the footnote. On the softlines standpoint, footwear and apparel were each up 3.7%, 3.8% in total, and outdoor was up 2.5%. So 3 of our 4 divisions, positive comp during the quarter. It wasn't just regionally focused. There was good health across the business, but our fall forecast contemplates a range of outcomes that I think is less centric to the acceleration of our initiatives and it's more focused on the health of the overall consumers.

I do want to reiterate with where tariffs are, we envision all retailers taking AURs up. And on a weekly standpoint, we scrape active pricing via the Internet on like-to-like products. And we also do it on our private brands. So nobody else sells an Academy Sports and Outdoors chair that you put on the soccer field, but lots of other folks have their own private brands. Every week, we're looking at where prices are and if there's any place where we don't represent value as an everyday value retailer, we take adjustments that very next week. So yes, really, really tight performance across the various categories. Initiatives are going to continue to perform. Health of the American consumer is the primary headwind.

Our next question comes from Justin Kleber with Baird.

First one for me, just around future brand access. Specifically, if you started to see the launch of Jordan and the expanded Nike assortment, is that helping break down any historical barriers and allowing you to gain access or at least have new conversations with brands that previously would not sell to you?

I would say it certainly helps, right? I mean, obviously, when you look at the investment we made, bring Jordan to life in our stores on our site, I think we -- the team did a really good job. I'm really proud of the work they did on this front. I think Nike is very happy with the partnership and what we've managed to do there. And I think it definitely has helped us continue to gain access to brands. And we have a couple of new brands. They're not all footwear. I mean, we brought in converse this year, which we didn't have before, but brands like HydroJug coming into the assortment are a big win for us.

We've got other higher-end brands. One we talked a lot about is called BURLEBO. It's kind of the younger men's outdoor brand, pretty high AUR candidly, doing really, really well for us. That's out in outdoors. The younger golf brand called Waggle that we now have in a meaningful count of doors doing very well for us. We talked about Ninja coolers and grills also doing really well for us. So we continue to get access to brands. We continue to have dialogues with brands that we want to have access to. I think that the way we launched Jordan, I think, definitely helps our case as we make it get access to those brands.

That's helpful. And then a question for Carl on the gross margin guide. It seems about 50 basis points of expansion in the back half at the midpoint, which is a bit stronger than the first half. So obviously, tariffs, I think, are going to have a bigger impact as we move deeper into the year. So can you just outline the drivers of expansion you see in the back half, thinking about your view on merch margins versus cycling over some of these elevated freight and supply chain costs that you referenced?

Yes. I mean at the low end, we're going up 10 basis points from last year, and we invested margin rate in some of the distribution center standpoint. So 34.0% at the low end compared to 33.9% last year. To get to that upper end, we would need merch margin to continue to perform like we're seeing it. I think there is some mix shift things that are in play there associated with Jordan, Nike performing so well. As it relates to shrink, I think it's -- it might round to 10 basis points. It's not a huge headwind. As I said, it's running down 5 -- or it's running up 5 basis points last year as a headwind of 5 basis points year-over-year year-to-date. And then some of the e-comm shipping, I think, is some of the price of [ poker ] associated with driving such, what I consider to be, an awesome comp at plus 17.7% in the quarter. I'll take that.

As it relates to other shipping things, Rob and his team are doing a great job. We pulled forward a lot of inventories. So we've seen a lot of the shipping costs associated with that. And then basically, those just play out as we sell the goods. So I think you get to a midpoint, we would continue to see year-over-year improvement. I think we're up 30 basis points year-to-date in gross margin. And at the low end, we're up 10, at the high end, we're up 60.

Our last question is from John Kernan with TD Cowen.

Carl, can you talk to new store productivity? The productivity from the new boxes, it looks like omnichannel. Sales per foot is still under some pressure here. I'm just curious what your assumptions are as you ramp store openings in the back half of the year. And I got a quick follow-up for Steve.

Yes. I mean the productivity of the boxes is pretty much coming in exactly like we said it would. So $12 million to $16 million year 1 EBITDA positive, but deleverage to the total company, which, I think, average is about $21 million per store, 20% ROIC 4-year kind of cash-on-cash payback. Look, it's different by market. And so in those new markets where our brand awareness is low, and we're having to invest in like educating the consumer on what is Academy Sports and Outdoors. What do they sell? How do I break into that shopping cycle that they're already involved with? It's coming in closer to the $12 million in the legacy markets where brand awareness is high. They just don't drive routinely like an hour to where an Academy is. It's coming in really close to that $16 million.

We're pretty pleased. I think once you get past that first year, we've shown a propensity to be able to kind of estimate what that year 1 is, their positive comping. And I can't say enough about going from mid-singles -- or excuse me, from low single-digit comps. And again, this is -- once they've reached their 14th month, they're in the comp set, going from low single digits to mid-single digits. I think it's 26 stores that are now in the comp set for some portion of the second quarter. That's meaningful to me. I'm really excited about the comp waterfall long term as we continue to roll out these stores. If there's a level of predictability on where they're going to come in on year 1 and then they're banging out mid-singles from a growth algorithm standpoint, I like that as it relates to some of the broader goals that we're trying to achieve.

That's helpful. And then, Steve, you talked about some pretty significant AUR increases in some categories in the back half of the year. I'm just curious how you're planning for that within the comp guidance given the middle to lower income consumers under a little bit more pressure here?

Yes. I think we expect the behavior we've seen throughout Canada in the last several quarters of the lower-end consumer being under pressure to not change, right? I mean I think those people making under $50,000, they're struggling. And I think they're continuing to either hop out or trade down. And so I think that's going to continue, although we've seen the rate of those trading slow each quarter.

And so hopefully, that trend will continue. But we're really excited about the middle and higher income quintiles trading into us, and we think that's going to more than offset any erosion we feel on the low end because once again, it's not relative value. And I think Carl mentioned this earlier. As prices go up, one of the things we're very focused on is making sure that we still have the best value on like-to-like items out there in the marketplace and all the work we do on a daily, weekly basis continues to reinforce that. And the fact that consumer is accelerating at that higher end tells us they're noticing it as well, and they're trading in and picking Academy for the value that we offer.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Steve Lawrence for closing comments.

Thanks. I want to close by thanking you all for joining our call. I'd also like to express gratitude to our 23,000-plus associates who work tirelessly to provide our customers with an outstanding experience when they shop at Academy. You guys are truly the secret sauce and makes Academy a great company.

I'd also like to welcome Brandy Treadway as our new Executive Vice President and Chief Legal Officer. Brandy joined us last month and brings nearly 25 years of retail and legal experience. She oversees our legal, compliance and risk management teams and will play a meaningful role in our continued growth.

At this point, we've made it through August and are encouraged by the continued momentum we saw during the back-to-school selling season. It gives us confidence as we head into the back half of the year that we have the right strategies in place and that our assortments are resonating with our core consumers.

We remain focused on helping our customers navigate the current economic backdrop by enabling them to maximize their spending power at Academy. We also believe that we'll come out of this year better positioned than ever to serve our customers and ensure long-term growth. Thanks, and have a great rest of your day.

The call has now concluded. You may now disconnect. Thank you.