Academy Sports and Outdoors, Inc. (ASO) Earnings Call Transcript & Summary

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?