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Can Academy Graduate to the Big Leagues?

By bob Mcgee – May 1, 2017

The Top Two banners in U.S. sporting goods retail generated an aggregate $12.6 billion in 2016 sales. With Sports Authority’s recent demise via the Chap. 11 bankruptcy route, Academy Sports + Outdoors ascended to be the closest rival to market leader Dick’s Sporting Goods. A look back at a ranking of the “Leading Global Retailers” shows that Dick’s was 20th worldwide at $440 million; Academy 21st at $420 million.  

But with a recent credit downgrade by Moody’s Investment House that details some of Katy, TX-based Academy’s weaknesses, there remains serious doubt about whether the KKR-controlled retailer, with its strong geographic focus, can be a viable, national competitor to Dick’s like Lowe’s is to Home Depot in the home improvement space.  

Sports Insight Extra decided to take a closer look after reviewing the Moody’s report.

  • FY16 Revenues
  • Comparable Store Sales
  • Stores
  • Retail Space
  • Planned 2017
  • E-commerce Penetration
  • Ownership
  • Dick’s SG
  • $7.9 billion +9.0%
  • +3.5%
  • 676 in 47 states
  • 36.0 million sq. feet
  • 43
  • 11.9%
  • Publicly traded since 2002
  • Academy Sports + Outdoors
  • $4.7 billion +2.2%
  • -3.4%
  • 228 in 16 states
  • 11.4 million sq. feet
  • 16
  • less than 5%
  • Controlled by Kohlberg, Kravis, Roberts & Company (KKR) since 2011

In its April 24 credit opinion, Moody’s dropped Academy, Ltd.’s outlook to negative, citing its high leverage, aggressive financial policies and geographic concentration. Since its leveraged buyout by KKR six years ago, Academy has returned more than 75 percent of the equity investment via three debt-financed dividends totaling $886 million.  

In breaking down Academy’s 2016 results, the rating service said the retailer’s 3.4 percent drop in comparable store sales last year was attributable to a post-election decline in firearms sales, lower traffic for certain outdoor recreation products, second half oil and gas market weakness and clearance activity by its bankrupt rivals, including Sports Authority. Also, hurting Academy’s bottom-line last year was “too much private label product” that competed with national brands that fueled promotional clearance activity.  

Moody’s complimented Academy, which named hhgregg’s former chief retail officer Sam Johnson as its new EVP of retail operations last Monday, for its solid brand recognition in core Southern markets and its “everyday low price (EDLP) strategy” that differentiates it from other retailers.  

But citing Academy’s low e-commerce penetration of less than 5 percent, the credit service said the company’s ability to attract store traffic with a differentiated assortment at value prices and scale its online business will be keys going forward. The banner is opening 16 stores in core markets this year, including recent openings in Greensboro, NC and Columbus, MO. It is facing new competition from Dick’s in its home state and a potentially combined Bass Pro-Cabela’s in certain geographies.  

Academy ended its most recent fiscal year with no debt and approximately $637 million in available borrowing capacity. The retailer, according to Moody’s, is projected to have good liquidity over the next 12-18 months, including $20-50 million in free cash flow.

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