Why Academy Sports and Outdoors Stock Just Popped
Key Points
Academy Sports and Outdoors stock beat earnings this morning.
With profit margins strong, management also raised earnings guidance for this year.
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Academy Sports and Outdoors (NASDAQ: ASO) stock soared 10.9% through 10 a.m. ET Wednesday after reporting an earnings beat this morning.
Expected to earn $2.09 per share on sales of $1.66 billion, Academy instead reported a $2.31 per share (non-GAAP) profit for Q2 on sales only slightly worse than expected -- $1.65 billion. Its forecast for the rest of the year was similar: Better earnings than Wall Street anticipated, and only slightly worse sales.
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Academy Sports Q2 earnings
Same-store sales weren't great at Academy this past quarter, declining 0.4%, but by adding new stores and growing its e-commerce presence, Academy was able to flip total sales growth to positive 3%.
Profit margins expanded sufficiently to then boost (non-GAAP) earnings growth to 19%, including refunds from the overruled Trump tariffs, and GAAP profits rose nearly as much -- 17%, resulting in a $2.17 per share GAAP profit.
What's next for Academy Sports stock
Future sales growth could be even stronger. Adding just three new stores was enough to give Academy 3% sales growth in Q2; in Q3, the company plans to open 11 new stores. Management is for now only sticking with its previous forecast for 3% to 5% total sales growth this year, about $6.3 billion in total sales, with positive same-store sales growth of 2%.
Improved profit margins, however, allowed management to raise earnings guidance to a new range of from $6.05 to $6.45, GAAP. Taken at the midpoint, that means Academy Sports stock is trading at a low 7.7x current-year earnings and roughly 9.2x current-year free cash flow.
For a stock that just turned in 17% earnings growth, and that's forecast to grow earnings 11% annually over the next five years, that looks like a "buy" to me.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Academy Sports And Outdoors. The Motley Fool has a disclosure policy.
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