Academy Sports and Outdoors: Stock has no margin of safety (NASDAQ:ASO)

explanation

Academy Sports and Outdoors (NASDAQ: ASO) is fairly valued at its current share price at the time of this writing, and we recommend remaining neutral for now.

ASOs are We provide consumers with a wide range of sports and outdoor recreation products. A number of favorable trends resulting from the COVID-29 pandemic have significantly contributed to the growth of ASO. ASO also has many partnerships with specific brands that set it apart from other retailers. We also offer a website that allows you to reach a wide range of customers. In the long run, all of this contributes to his ASO progress.

Company Profile

In the United States, Academy Sports and Outdoors, Inc. is a general retailer of sporting goods and outdoor recreation. ASO wants to be a retailer that continues to offer quality sporting goods and outdoor recreation. They have strengthened their position as leaders in rapidly developing product categories and partnered with strong regional customers to offer a wide range of value-oriented choices.

the market is evolving

The US sporting goods and outdoor recreation industry is constantly changing. There is an undeniable fact that a rapidly growing trend is becoming well known. Athleisure wear, insulated coolers, cups, and outdoor recreation were also popular trends during the COVID-19 pandemic, when everyone was forced to stay at home.

Additionally, one of the greatest benefits for Academy Sports and Outdoors, Inc. is that customers are spending more time on health and wellness at home and spending more time on experiences that create memories. . Not long ago, the advent of COVID-19 prompted consumers to stay home more and participate in isolated recreational and leisure activities promoted by ASOs. We expect this trend to continue and ASO’s customer base to continue to grow over the long term.

Academy Sports and Outdoors, Inc. has demonstrated that it can thrive in the face of major industry changes. The disruption and consolidation of e-commerce has seen the demise of some of ASO’s competitors, but ASO is capitalizing on these changes by gaining market share. Many factors contribute to its success, including a value-based operating strategy and an extensive product range that goes far beyond traditional sporting goods.

Partnerships with Brands and Strong Own Brands

Academy Sports and Outdoors, Inc.’s access to national and owned-brand merchandise provides a more comprehensive selection of value-based and diverse products across price points. Many other stores will struggle to match your specific combination of product categories, name brands, and price points.

It’s no exaggeration to say that ASO has had a significant impact nationwide. As a result, many established brands have turned to him to help grow their customer base. This is good news for him ASO in the long run, both from a financial and product selection standpoint. As mall-based retailers face additional headwinds and the industry is consolidating, ASOs are playing a particularly important role in increasing the number of customers for these brands. The selection of brands, including products in each brand’s price range, is unmatched by the competition in my opinion. Additionally, they gain an edge due to the fact that they have exclusive rights to sell certain products from reputable manufacturers (source: S-1).

Having many brand partnerships is beneficial and desirable, but ASOs should also have their own brand. Products unique to ASO, such as folding chairs and wagons with the Academy logo, are best sellers. This means that these brands have strong brand equity and many loyal customers.

ASO positions brand image and reputation to attract target audience

I believe ASO is very well positioned with respect to customer demand. They offer a wide variety of sporting goods and outdoor recreation products that enable customers to enjoy and participate in, regardless of profile. Consistently rated as the best retailer for products (according to S-1 filing management). More importantly, it’s not just the number one retailer, it’s also a one-stop-shop retailer that serves a large number of diverse customers. It does this by meticulously curating products that result in great varieties that are even more attractive to random participants.

ASO is, to put it mildly, the largest retailer of sporting goods and outdoor recreation. Academy was also named by customers as the most valuable retailer of all sporting goods retailers. Customers ranked value as the most important factor in deciding where to shop (Source: S-1). They’ve been successful for a long time because they focus on what their customers value most: a wide range of reasonably priced products, easy-to-use omnichannel solutions, a one-stop shopping environment, and a friendly support staff.

Overall, our focus on a wide range of products and value allows us to serve price-sensitive and picky customers.

Omni-channel strategy

Customers want to be able to choose from a variety of options when shopping. This has increased the need for omnichannel products. In the S-1 filing, the ASO omnichannel customer said he spent 43% more than his store-only customers, and these customers said he spent 197% more than his ASO online customers. Since the launch of the buy-online-pick-up-in-store program, ASO has been able to penetrate e-commerce, leading to higher average order values ​​and increased in-store purchases.

ASO’s omnichannel platform has many advantages. Among these are online ordering, curbside fulfillment, the ability to order items online when not currently available, and the ability to ship online, with the ability to provide channels that can be used for returns to stores. Orders from retail stores. All of this allows us to reduce the risk of lost sales and deliver faster than usual, while ensuring that our inventory is more productive. They also launched a Ship to Store feature to give customers a wider range of options in different ways to shop at Academy.

ASO’s website also serves as a directory of brick-and-mortar stores. Customers check the website before going to an Academy location to familiarize themselves with their selection, read reviews written by previous buyers, compare prices, and make sure the item they want to buy is at a nearby Academy location. Check it out. Your website also plays an important role in attracting customers who live in areas where you don’t have a physical location. ASO’s enhanced and supported omnichannel services are expected to increase sales.

evaluation

I believe Academy Sports and Outdoors, Inc. is worth $59.37 per share in FY24. This suggests that if discounted by 9-10% over the next two years, ASO will be largely fair or undervalued.

This value is derived from my model based on the following assumptions:

1. FY22 Revenues and Earnings Subject to Management Guidance
2. Earnings will grow in the mid to high single digit range, as the consensus predicts. This is underpinned by ASOs continuing to gain share from smaller players as the industry grows.
3. ASO is a relatively mature company with margins that are near maturity, so while there is still room for growth, we had assumed that margins would remain in the same range going forward. If the margin increases, it’s only good news.
4. ASO is currently trading at 7x forward earnings and we expect this to remain unchanged

main risk

Low bargaining power with big brands

ASO is just as good as any other distributor. they are just big. As a result, there is a limit to how much you can increase your ASO gross margins as big brands are likely to give up less on unit economics as they have the most bargaining power when negotiating prices.

Trends are hard to predict

Literally, there is no human on the planet who can confidently, assertively and correctly predict future consumer trends. ASO cannot predict these trends. Therefore, due to the type of industry ASO operates in, its growth and success depend heavily on these trends. If ASO mispredicts, it can lead to poor performance for that period.

conflict of interest

ASO has its own brand, but situations can arise where a brand complains about a conflict of interest. This is because other brands are turned off by the idea of ​​a distribution channel that competes with their own products.

overview

There are many trends that have evolved over the past few years as a result of the pandemic, and these trends have allowed Academy Sports and Outdoors, Inc. to thrive in the market. We strongly believe that the continuation of these trends will bring his ASO success as they continue to gain attention. That said, I believe Academy Sports & Outdoors stock needs to be revalued lower before it becomes an attractive investment.