Academy Sports and Outdoors, Inc. ($ASO)

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.

Pretty good building. And if you see next door, the Barters building, they're renovating and they're going to -- it's going to look very to this .

I'm sure this will be better, though. .

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 .

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 on 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 10 miles on the academy. So we think there's a lot of white space to expand into. Second, we have an underpenetrated com business. It's been growing nicely, but we're in 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 open rise to 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 is 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 wait 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 focusing 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 us launching suppressors in the firearm space as a noncomp opportunity for us, brands with emerging brands like Brunt, which is a digitally native work brand. building out a much bigger ARO business or car heart 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 1 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 we didn't have to have the credit card to access it, but it kind of ran in parallel to the credit card. We had 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 awards where you don't have to have a credit card to access that you get off your first purchase, you get free shipping in 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, to 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 confer 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 want to get it That's the table.

Okay. staying at a high level in terms of from yesterday. Carl, can you talk about the how you think about the operating margin long term. In 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 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 benefit. 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 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 we're 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 departments for land, right, the female shopper was the 1 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. Beauty of how we lap the stores candidly is that we kind of create -- you need this 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 pull 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 plates, et cetera. at very fair pricing. We've also been growing our outdoor business from brands like Cohort 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 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 of 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 shops.

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 have been on 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 customers. 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 in 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 mark 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 you do the same exercise in fishing, if they're at $10, we're at $8, we're about 80% of the 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 already, but had to go in on their 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 Hiro. You guys may or may not be filing 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 work out 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 Hirox-branded workout 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 death. 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, 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 meant more to add on a layer to our assortment that we didn't have before. and help us attract the new customer, retain 1 that was maybe shopping with a head of other places find what they're looking for.

Market share is an interesting discussion. And I think pretty much every company so they gain market share. 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. So 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 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 Serkan. You guys have heard of them. They. 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 data for firearms. So there is no true proxy for firearms share outside, which is background checks. And this comes straight from the government. It's very public information. We looked at 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 put 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 the ones losing 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 weekends 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 1 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 on 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 the sports and recreation, which is sporting goods and kind of backyard all those divisions are running positive increases. Beneath the surface, you've got something that is a little stronger. So certainly, our fishing business has been really solid. Our used sports business, driven by baseball has been really solved 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 T Y-o-Y 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, well, driving positive comp. I think because we didn't have enough critical mass behind all 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 on 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 1 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 is 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 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 helpful 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 have 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 Cups coming to the United States, right? And I think 30 match is 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 patritism behind USA. And when you throw that in conjunction with the 25th berth of America, we think that could be a nice tailwind in Q2. So I definitely -- retailers were the first ones to call out whether 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 wait weighted more towards the internal initiatives and 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 20th 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 Marpol 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 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 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 discretes playing soccer for the first time as they continue their drink through sports, they're going to wear nidus 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 lived in Texas now for 35 years. every 1 of my kids when they started out in sports academies the place you go to get them their first back ball glove, fleet. 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 rents 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. 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 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. Well, people ponder questions, I will continue. So I think there's -- one of the big changes in 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 fr in each of the scenario?

So we'll tag team this one. So when we said 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 added, 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 the 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. if we open up a store in kind of our legacy existing footprint where we have high brand awareness, we do closer to 16. And then stores in kind of those existing states would have been 5 years or longer, but aren't part of that heritage base in Texas, Oklahoma, Louisiana, Arkansas may be closer to 14. 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 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 a lot a year or 2 later in a town called Surci, Arkansas, which I'm sure nobody in this room has heard of. and it's about 60 miles outside of Little Rock has about 4 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 1 in sort Arkansas. So the store in Atlanta did roughly $10 million miss its pro forma versus the store inserted over $16 million in year 1 and Blue ways 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 live more in apartments and maybe they're either single or if they're married, they didn't have kids. And so they didn't have the whole use 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 tweak the assortment built some brand awareness up there. And the store is comping very well for us. I mean it is its mission pro forma, but it's still EBIT positive, and we're not going to close the store, but it's not a successful. Conversely, you're going to start Arkansas. It's more comps. They're looking for value. Our value resonates with them. They got kids playing new sports, adds an angler or hunter. So it's just -- it's where our customer loss. And so that causes 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 ex. This has allowed us to think more differently, and we're actually -- we call it inside out to outset 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 camp. And the next door, we'll open up the 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 exerts 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% and 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 concludes 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 also 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 Selina and Little Elm, and the population is growing 27%. So we started saying, okay, may we have this opportunity in these large metro areas out in these exerts. And so that's been 1 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 open up a store south of Dallas and a place called Corsicana also opened up really strong at $16 million. This told us that we have opportunity with our legacy footprint, but it's in more of these egerbs or some of the satellite markets since 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 overall economic .

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 bead 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 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 -- and so that gives you -- they're going to start 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 be invested capital much quicker than in newer markets. And then in the new existing markets is the 5-year maturity at 20% for wall. It's not going to get to 20% EBIT 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, 1 -- 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 -- but I guess like the focus for investors is, what gives you confidence the back half here specific product categories that are starting now to point any transactions can you be on process.

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 with kind of baseball and it's certainly the bat and the glove at this whole baseball culture, right? Kids wearing ice cream shorts and tops that match back and bracelets and all this other stuff, like that's driving the culture there. So I think baseball is going to be strong. We think use 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 the sports. The fitness side of that business is also really strong with a lot of new innovative things going on there, like Hirox. You go into the outdoor side of the business. Our pitching 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 of 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 to drive then adding in a new category with suppressors is totally non-comp. So we feel pretty comfortable with that piece of the outdoor business. The 1 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 kind of a younger outdoor brand that really appeals to that college-age kid or slightly after college want and love that outdoor lifestyle, but doesn't want to wear is kind of dads outdoor gear. That business has been exploding for us and is rapidly expanding. Car Hart continues to be a driver for us there. Area another big driver for us. And then, of course, the expansion into Nike doors and Jordan and another one. 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. And if you -- as you think about e-commerce, double-digit growth, 13.6% in 2025, getting up to 11 -- 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 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, 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 and average customer spend of X, if we can just get them to sign up for loyalty, it's like 1.5x. If we get them into a credit card, it's 2x. If we can get them 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 did that was happen stance. Thank you so much for your time.

Thank you. Thanks for having us. Here. Thanks. Thank you, brother. Appreciate it.