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Many people picked up a hobby during COVID-19, from fishing to hiking to camping. Ken Hicks, chief executive of retailer Academy Sports & Outdoor Inc. ASO, +4.31%, thinks those new activities will keep driving sales in 2021 even after the pandemic has passed.
“If 20% or 30% of those people continue with those hobbies, that’s a huge increase,” he told MarketWatch. “Normally it would take years to grow that sort of business.”
A number of retailers have reported a spike in sales of things like bikes and fitness and outdoor equipment. As consumers become more immersed in these newly-acquired pastimes, they’ll be looking to upgrade their gear.
“People start fishing and get a starter rod and now want a new rod or reel. They went camping and have a small tent and now want a bigger, better tent,” he said. “Those are things that will help us do well next year.”
Academy Sports reported earnings for the first time last week after going public in October, posting profit and sales that beat expectations.
There have been tough times during the pandemic, Hicks said, like in the spring when sales of clothes and shoes ground to a halt.
Academy, which was founded in Texas in 1938, felt the comparable sales pinch in the apparel category (down in the low-single digits in Q3 2020) after the Houston Astros made an appearance in the World Series in 2019.
But Hicks was upbeat overall about the most recent quarter and what lies ahead.
“We’re in an industry where we’ve got some tailwinds,” he told MarketWatch.
Still, he says Academy is looking for improvements. The company has new pricing systems in place that can boost margins. And in private labels, a couple of tweaks on a t-shirt, for example, can justify a higher price tag.
“When we look at the timing for the IPO,” Hicks said, “it probably played out better” than the company had hoped.
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Credit Suisse analysts led by Seth Sigman also say tailwinds are giving Academy Sports a boost.
“In our view, it’s still only in the early innings of reaping the benefits,” Credit Suisse said.
“Most encouraging was the customer growth (+3 million), which should have compounding benefits as Academy’s broad assortment means more customer trips/ more opportunities throughout the year.”
Credit Suisse rates Academy Sports stock outperform with a $24 price target.
“Against a more competitive backdrop with most retailers now fully reopened, Academy’s results show that the company is capable of continuing to take its share,” wrote UBS analysts led by Michael Lasser. UBS notes the 16.5% comparable sales growth in the third quarter, bolstered by comps in the Sports & Recreation and Outdoor categories.
The company says these trends have continued so far in the fourth quarter.
“We think this shows how consumers continue to seek out opportunities to remain active,” said UBS.
“We think Academy is uniquely well positioned for the changing seasons, as its largely Southern store footprint will remain conducive to outdoor activities throughout much of the winter. As a result, we think it has a positive near term outlook.”
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UBS rates Academy shares buy with a $21 price target.
John Zolidis, president of Quo Vadis Capital, is bullish about Academy as well, basing what the company can accomplish on Hicks’ history with Foot Locker Inc. FL, +2.09%
Hicks was chief executive of Foot Locker from August 2009 to November 2014, along with holding other titles at the company, including chairman. He was executive chairman from December 2014 to May 2015.
“We followed Foot Locker through this period and feel confident that Mr. Hicks and his team will find operational and merchandising improvements to maintain positive sales and margin momentum for Academy,” wrote Quo Vadis, which is long on the stock.
Academy stock was up 4.6% in Tuesday trading, and has gained 13% over the past month. The S&P 500 index SPX, +1.02% is up 2.4% for the past month.
