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10/02/2020

Academy Sports and Outdoors Fails To Attract IPO Interest

Mike Troy
Editorial Director
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Academy Sports and Outdoors Lowers IPO Share Price
Academy received net proceeds of $182.8 million from IPO which reduces KKR's ownership stake to 70% of outstanding shares

Academy Sports and Outdoors underwhelmed investors on Friday, Oct. 2 when it offered shares to the public at $13, below a previously provided price range of $15 to $17.

Even at the reduced price, shares of the operator of 259 stores failed to attact interest and closed Friday at $12.99. The lack of interest in the $4.8 billion company may be attributable to four consecutive years of declining same store sales, an uncertain outlook for consumer spending during the holidays and a $1.4 billion debt load, which increased by $257 million just prior to the IPO as private equity owner KKR paid itself and the Gochman family ownership group a special dividend. Academy also had the misfortune of coming to market on a day when the revelation that President Donald Trump had tested positive for COVID-19 sent markets reeling.

As a result of the offering, Academy received net proceeds of approximately $182.8 million and KKR's ownership position was reduced to 70% of the company's outstanding shares.

Although the productivity of stores has declined the preceding four years, based on same store sales details provided in the company's filings with the Securities and Exchange Commission, the pandemic gave Academy a significant sales boost during the first half of the year. During the six month period ended Aug. 1, same store sales increased 15.9% and total sales increased 18.5% to $2.74 billion and net income increased 113.7% to $157.6 million, well above the profit of $120 million the company recorded in 2019.

Academy did not break out its sales and profit performance for the first or second quarters in its filings with the SEC.

The company did elaborate on a growth strategy driven by new stores, store brands and further digital growth. For example, during the first six months, Academy said its e-commerce business increased 284% and accounted for nearly 11% of total sales, with half of the e-commerce business generated by buy online, pick up in store capabilities introduced last year.

Sales and profits are also said to be benefitting from a private label business that now accounts for 20% of sales. Academy's private brand portfolio consists of 17 brands the company disclosed were purchased by 60% of customers in 2019.

Regarding store expansion, Academy did not detail planned openings for 2021, but did say it expects to open between eight and 10 stores annually beginning in 2022. Many of those stores are expected to be outside the company's home state of Texas where 106 of its total store count of 259 units are located. Academy operates in 16 predominantly southern states and recently introduced a small format in Dallas. The new small store measures 40,000-sq.-ft., ompared to the company's typical store size of 70,000-sq.-ft., and opens up new expansion opportunities for the company.

 

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