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Good morning, and welcome to Academy Sports and Outdoors Second Quarter Fiscal 2025 Results Conference Call. The call is being recorded and all participants are on a listen-only mode. Following the prepared remarks, there will be a brief question and answer session. Questions will be limited to analysts and investors. Please limit yourself to one question and one follow-up. Please press 0. I would now like to turn the call over to Dan A. Aldridge, Vice President of Investor Relations for Academy Sports and Outdoors. Thank you. You may begin.

Good morning, everyone, and thank you for joining the Academy Sports and Outdoors Second Quarter 2025 Financial Results Call. Participating on today's call are Steven Paul Lawrence, Chief Executive Officer, and Earl Carlton Ford, Chief Financial Officer. As a reminder, today's earnings release and the comments made by management during this call include forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, factors identified in the earnings release and in our most recent 10-Ks and 10-Q filings. The company undertakes no obligation to revise any forward-looking statements. Today's remarks also refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in today's earnings release, which is available at investors.academy.com. This morning, we will review our financial results for 2025, provide an update on strategic initiatives, discuss the outlook for the year, and share updated guidance for the full year fiscal 2025. After we conclude prepared remarks, there will be time for questions. With that, I'll turn the call over to CEO, Steven Paul Lawrence.

Thanks, Dan, and good morning to everyone on the call. I'd like to start by addressing the historic flooding event that happened in early July in the Texas Hill Country. While none of our team members or stores were immediately impacted, pretty much everyone who works for us personally knows or has connected with someone who was impacted or whose children attend camps in this area. One of the things I'm most proud of working for Academy Sports and Outdoors is how we show up for our team members and customers in times of need. In response to this disaster, the team quickly reacted with donations of sleeping bags, cots, and other supplies to help support first responders as well as families that were displaced during the floods. We also made a donation to the Kerr County Flood Relief Fund to help with recovery efforts. We're staying close to this situation in the local community and continue to offer aid and assistance as the long rebuilding process continues. Turning now to our performance in the second quarter. As you saw from our earnings release earlier today, we've seen continued improvement in our business with sales coming in at $1.6 billion, which is up 3.3% from last year and translated into a 0.2% comp. These results marked a step change improvement in performance compared to our Q1 results, and are some of the best comps we posted in many quarters. After a slow start in May, we saw steady improvement with sales running positive the last seven weeks of the quarter. Another bright spot was our .com business, which grew approximately 18% during Q2 and increased in penetration by 120 basis points. This was on top of a 10% increase in the first quarter. It's also good to see that we managed to improve the sales trajectory of the business while also holding our gross margin rate essentially flat to last year at 36%. Breaking the business down by category, we had fairly consistent performance across our major families of business, with footwear, apparel, sports and rec, and outdoor all running low single-digit increases. We saw solid results across most of our core categories, such as athletic and outdoor apparel and footwear, sporting goods, hunting, camping, and our backyard businesses. The one consistent soft spot was seasonal categories such as swim, pools, and summer seasonal footwear that got off to a slower start during the first half of the quarter. We attributed this to a cooler and wetter start to the summer. Once we got into late June and July, it got consistently warm across our footprint, and all these businesses rebounded. We're also pleased to see that beneath the surface, our merchandise improved 40 basis points during the quarter. As we manage our business, we remain focused on driving top-line sales while also growing market share. With a business as diverse as ours, we tend to have to track our relative performance across several different data sources. The first place we focus is on traffic data, which we get through Placer.ai. During our Q1 call, we discussed the customer trade-down effect that we first started to see in the back half of last year. Consumers are clearly looking for ways to navigate the current inflationary environment and are seeking out ways to stretch their spending power. We continue to see strong double-digit growth in foot traffic and share gains from customers in the top two income quintiles, or households making more than $100,000 a year. We were flat in traffic share in the middle-income consumer whose households make $50,000 to $100,000 a year. And finally, we continue to see traffic erosion in the lower-income cohorts that make less than $50,000 a year, but the pace of these declines was less than what we saw in Q1. Another key data source for us is Circana, which provides market share data on roughly 60% to 70% of the categories we carry. We're pleased to see meaningful share gains across almost all of our key businesses such as apparel, footwear, sporting goods, fishing, and outdoor cooking. Finally, we use government background checks for firearms purchases or NICS checks data as a proxy for firearms market share. Once again, we saw solid growth on this front. To summarize, in looking at all this data, it tells us customers are gravitating toward our diversified assortment and that our value proposition is resonating with them. All of which resulted in a comp sales increase and solid market share gains during the quarter. We would attribute a lot of the momentum we're starting to build in the business to the solid progress we've continued to make against our long-term objectives and goals. I'll now cover a couple of highlights from Q2. First, opening new stores remains our number one growth strategy. During the quarter, the team successfully opened three new stores, with locations in Fort Walton Beach, Florida, Midlothian, Virginia, and Morgantown, West Virginia. With these additions, we ended the quarter with 306 stores in 21 states with plans to open up a total of 20 to 25 locations in 2025. While opening a new store is always fun, it's as exciting as watching new markets mature and become key contributors in driving comps. We remain very encouraged by the performance of the 2022 and 2023 vintages, which are all now in our comp base. Our belief has been that as we see the base business improve, the new store comps would improve commensurately, and that is exactly what we saw happen this quarter. The second initiative is to grow our .com business at an accelerated pace. The team has taken a back-to-basics approach with a focus on streamlining site navigation and functionality, improving order fulfillment options and speed, and offering a greatly expanded endless aisle assortment. The efforts the team put in on this front helped drive approximately 18% growth in our .com business during the quarter. Probably the best indicator that this approach is working is the improvement we've seen in both online conversion and average order value this year. As this work continues into the back half of the year, we expect .com will continue to drive growth. Our third pillar is improving the productivity of existing stores. We have had several initiatives that we put in place this year to help accomplish this. Our first focus on this front is to continue to refine and expand our assortment by adding the most requested and desirable brands that will inspire existing customers to shop more frequently at Academy Sports and Outdoors, while also attracting new customers to shop with us. We've added new brands to our mix in the first half of the year such as Jordan, Converse, and HydroJug. We've seen strong results from these launches and have plans to extend each of these brands out into more doors. At the same time, we've also been expanding other brands that were already in our assortment and limited doors out to more doors in the chain. Examples of this would be Berlabo, Ninja Coolers, and Birkenstocks, all of which performed well this past quarter. Our second focus was on delivering new technology to stores, with the rollout of RFID scanners and new handheld ordering devices. We completed the launch of all these devices during Q2, in advance of the summer selling peak. At this point, we have Nike, Jordan Brand, Brooks, Adidas, Under Armour, Columbia, Levi's, and Puma on a weekly count cycle to have their physical inventories updated. These brands collectively account for roughly 25% of our annual sales, but we continue to see improved in-stocks and sales increases as a result of this rollout. Our new handhelds also continue to pay dividends to help stores save the sale on items that, for whatever reason, may not have been in stock in that specific store on a given day. In most cases, we can now seamlessly fulfill customers' needs with our new handheld devices either by shipping the item to their home for free or, if needed, can schedule a BOPIS pickup at another store if that is more convenient for them. Our third focus is on driving traffic through more effective targeted marketing. To that end, we continue to lean into our new "Fun, Can't, Lose" campaign, launched in the second quarter. This campaign had a focus on helping our customers maximize their spending power and all of their passions with an emphasis on protecting value and low prices on key summer and back-to-school must-haves. Additionally, we continue to lean into our My Academy rewards program with expanded discounts and incentives for our best customers. We're still early in the evolution of this initiative and are continuously testing and rolling out use cases that help drive customer loyalty. As an example, we launched a campaign in Q2 targeted to My Academy members called "12,000,000 customers in the first full year of this program." Our focus here remains on enrolling people in My Academy so that we can start a dialogue with them and convert them from occasional shoppers to loyal customers who shop with us two to three times more in a year than an average customer and spend four to five times more on an annual basis. Before handing it over to Carl, I want to give a quick update on tariffs and the work our team has put in to mitigate the impact on our business. Teams worked together to deploy multiple tactics including partnering with factories and vendors to absorb a portion of the incremental expense, working with our overseas partners to shift country of origin where it made sense, adjusting unit buys where needed, pulling in additional inventory from brands that had available goods in domestic warehouses, and utilizing our pricing optimization tools to create a strategy to drive higher average unit retails. As all of you know, this has remained a fluid situation over the summer. At this point, we believe that we have a strategy in place that should mostly offset the impacts of tariffs to our business throughout the remainder of this year while still being able to serve customers and deliver a strong value proposition on all of their sports and outdoor needs. Now I'll hand it over to Carl to give you a deeper dive into the financials. Carl?

Thanks, Steve. Net sales for the second quarter were approximately $1.6 billion, up 3.3% with a comp increase of 0.2%. As Steve mentioned, we saw sequential comp improvement throughout the quarter and our e-commerce channel had a positive comp of approximately 18%. Breaking down the comp, transactions were down 1.4% while the ticket was up 1.5%. Compared to Q1, we grew comp sales by almost 400 basis points, in a tough sales environment. This contrasts to a challenging 2024 where comp sales decreased by 120 basis points from Q1 to Q2, primarily driven by in-stock challenges related to the Georgia distribution center WMS implementation as well as Hurricane Barry and the derecho that impacted the Houston area. Our Georgia distribution center has significantly improved over the last twelve months and helped contribute to a meaningful improvement of in-stock for the total company. Gross margin came in at 36%, down two basis points to last year. While we saw merch margin expansion of 40 basis points, it was offset by shrink and higher e-comm shipping costs. SG&A came in at 25.3% of sales for the second quarter, an increase of $36 million or 150 basis points. The increase was driven by initiatives totaling 160 basis points, comprised of 130 basis points of new store growth, 20 basis points of technology investments, and 10 basis points of depreciation. Over the last twelve months, we have added 21 new stores to our fleet. And all of the new stores in our comp base are leveraging expenses as we would expect. If you strip out the costs attributable to our growth initiatives, all other costs would have leveraged by 10 basis points. Operating income was $172 million and diluted earnings per share was $1.85. Adjusted earnings per share was $1.94. Our inventory per store is elevated, with units per store up 4.6% and dollars per store up 8.2%. We have purposely pulled forward domestic inventory receipts at pre-tariff prices. The majority of this is evergreen product such as bicycles or free weights which have no seasonal or obsolescence risk. These actions positioned us well to support the summer selling season. And we will continue to evaluate the environment and take further actions as necessary. Since the first quarter, we have seen our inventory units per store decrease by approximately 30% or 190 basis points. And we anticipate inventory levels will continue to normalize as we move through the year. We ended the quarter with $31 million in cash and maintain strong liquidity with an undrawn $1 billion revolver. Our 7% increase in stores since Q2 of last year is 100% funded from cash flows from operations. Q2 free cash flow was $21.7 million. Turning to capital allocation, we remain committed to balanced and disciplined deployment. During the second quarter, we invested approximately $80 million in inventory-related working capital, paid approximately $8.7 million in dividends, and invested approximately $60 million in strategic initiatives including new store openings and omnichannel infrastructure. We did not repurchase any of our shares during the quarter, instead choosing to allocate capital to manage inventory. This decision led to a strong inventory position that helped drive positive comp sales and mitigated tariff exposure. Going forward, our capital allocation philosophy has not changed. We have over $530 million remaining on our current repurchase authorization. Moving to guidance. Sales for the second quarter continued to improve, and the green shoots we saw in Q1 are accelerating. We also have additional information into tariff impacts and have taken appropriate actions to mitigate them. Based on the results of the first half of the year and the expectations for the remainder of fiscal 2025, we are tightening the low end of our comp sales guidance from negative 4% to negative 3%, with the comp range for the year now being between negative 3% and positive 1%. To close, our initiatives are starting to bear fruit and are accelerating. We are seeing positive momentum across the business that lends confidence that our strategies are working, while also resonating with current customers and attracting new ones. I am incredibly proud of the work our team has done to get us to this point, but we have a long way to go to reach our goals. I'm excited to see the continued progress as we move forward. With that, we are now ready for questions. Thank you.

The company will now open the call up for your questions. To ask a question, please press. We will pause for a moment to wait for the queue to fill. CEO, Steven Paul Lawrence, will make closing comments. Our first question comes from Christopher Horvers with JPMorgan Chase. Please proceed with your question.

Thanks. Good morning, guys. So my first question is about the consumer. You gave us great detail in terms of the different cohorts. Over the past couple of years, you've seen some pretty episodic shopping in between events. You know, strong Memorial Day, strong Labor Days, but the valleys in between tending to be softer. So can you talk about what you've seen sort of post the back-to-school period, you know, in the August time frame, do you think those valleys could actually attenuate as you get later into the year?

Yes, it's a great question. I think we do see that episodic shopping you're talking about, Chris. If you go and look at back-to-school for us, which is, you know, kind of we have an earlier back-to-school that bridges at late July, early August time period, we ran a positive comp there, which we're excited about. If you remember, August is one of the only two positive comp months we had last year. So the comp to comp through that part was feeling pretty good. We did see a slight pullback after we got out of back-to-school. You know, we had attributed that mainly to less clearance activity this year around Labor Day and a shift to the hunting season starting in September versus in August last year. But we feel pretty good about the momentum that we have in the business, and we feel pretty good about our opportunity and optimistic about the remainder of the quarter as we lap some pretty soft comps in late September and October from last year.

Yep. And then on the tick front, can you talk about how much of the ticket benefited from tariff pricing? And as you think about your working through this with the brands and obviously you have a big private brand penetration in your box. Will that tariff pricing pressures complete in the back half of the year? Or would you expect more pricing in 2026 as sort of the brands catch up with the cost that they've incurred? Thank you.

Yeah. Thanks. I would say AURs were up, you know, low to mid-single digits for the quarter. So that was certainly a chunk of our average ticket being up about one and a half percent. We started seeing some price increases creep in as we got deeper into the summer. I think you'll see more of that activity happen in the back half of the year as the tariffs find their way into the cost of goods. Our goal would be to complete most of any price adjustments that need to be completed in the back half of the year in anticipation of next year. That being said, it's a fluid environment, Chris. You know, this thing changes every day. And we feel pretty good about our ability to mitigate the tariffs so far through all the different levers that we've pulled. And, you know, it really is now gonna be up to the consumer and see how they react to, you know, some of the higher prices that they can experience in the back half of the year. But we think we still have a pretty good value proposition out there and we like where we stand.

Thanks so much. Our next question comes from Simeon Gutman with Morgan Stanley. Please proceed with your question.

Good morning. This is Pedro on for Simeon. Thank you for taking our questions. My first question is about guidance. Your updated guidance implies good operating leverage in the second half of the year. What are the assumptions around SG&A? Is the leverage coming from gross margin or a reduction in the pace of SG&A investments that you have been making during the first half? As a follow-up, if I could, on tariffs, how is it that you're able to offset most, if not all, of the impact from tariffs while many of your peers are expecting to see pressure on profit margins during the second half?

I think we'll probably tag team it, Pedro. So as it relates to guidance for the year, we're sticking with I've quoted on previous calls, about 100 basis points of SG&A deleverage for the full year. So we were down 150 basis points. We delevered 150 basis points in the second quarter, and more than all of it is driven by our initiatives. So as it relates to guidance for the back half, we've got a range of outcomes associated with the second half of the year. At the low end, comps would be negative 4%. At the high end, it's about a plus three and a half percent. And so from a gross margin standpoint, we still feel good about 34.0 to 34.5. That's up at the low end 10 basis points to last year where we came in at a 33.9%. Some of that 33.9% was impacted by some deleverage that we experienced in one of our distribution centers, primarily in Q2 and Q3. And from an expense standpoint, look. We're very consciously investing in these initiatives. They are performing very, very well. Steve talked a little bit about the acceleration that we saw in e-commerce from Q1 to Q2. The new stores that are in the comp, you know, mid-single digits. And Nike and Jordan, double-digit up over last year. We're investing in these things, and you're gonna see more of it. So the base business will continue to leverage to bring in the annual guidance.

So from a tariff mitigation perspective, you know, we've been working on this obviously from the moment the meeting in the Rose Garden happened. You know, one of the actions we detail on the call, partner factories to get them to absorb some portion of the cost. Diversifying the sourcing base, adjusting unit buys where needed, pulling in additional domestic inventory. I don't wanna downplay that one. That was a big one for us. And then, obviously, you know, as everybody says, the last kind of resort after you do all those things is looking at how do you adjust prices, and we've been working pretty hard on that. A couple different fronts. First, you know, we use our markdown optimization tool, Revionics, so that on the back end, we're trying to get a little more money out of our clearance, which helps raise AURs. And then, you know, where we had to make pricing adjustments, what we feel like is, as we've seen the market move on pricing, we still have maintained a pretty good spread on our private brand product where we that's where we express most of our value. And we're seeing that trade-down effect accelerate as we get deeper into the year, and that gives us confidence that in the environment we're living in right now, customers are gonna choose the value proposition that we offer, which is how we believe we're gonna mostly offset or impact the impact of these tariffs.

Got it. Thank you, guys. Good luck.

Our next question comes from Paul Lejuez with Citi. Please proceed with your question.

Hi, guys. This is Kelly on for Paul. Thanks for taking our question. I guess just to get a little bit more granular given the back half comp assumptions are so wide. Any color you could provide 3Q versus 4Q, how you're thinking about that? And then just given SG&A came in much higher than The Street was modeling, and I think 3Q will be a high point for new store openings. So if you could just provide maybe some additional color around the quarterly flow of SG&A guide and how that should look? Thanks.

Yeah. So we I don't give quarterly guidance, but I'm happy to give a little bit of color, as it relates to SG&A. I think you'll see a continued moderation of the deleverage. So in the first quarter, I think we deleveraged 290 basis points. We were at 150 basis points in the second quarter. I think you'll continue to see that tapering for the overall year at approximately at the midpoint down 100 basis points. And from a comp standpoint, yeah. If you think about last year, we had two positive comps in the year. They were both in the back half of the year. One was in August, one was in December. And what you had was a pretty big trough that happened late September, October, early November. And then once we got into December, with a compressed holiday calendar last year, if you remember, we saw the comps inflect positive there. So we expect that as we start lapping some pretty tough comps in late September, early October, we'll see the business inflect, and we expect that to continue through early November. And then, obviously, you know, Christmas is gonna be what it is. I think even in tough times, people always come out and shop for Christmas. So I'm optimistic about episodic shopping still happening. And I believe that we've got some softer comps in the middle part of the quarter, which is going to allow us to have a better candidly back half of the year than the first half of the year. That's how we're thinking about it.

And just to follow-up on those two. I mean, the deleverage rate is dependent on the top line. So I guess how much flexibility do you have to sort of achieve that 100 basis points of deleverage in the back half? Like, you risk could spend more each quarter or what? Just even if you could just speak to it on an SG&A dollar growth would be helpful. Thanks.

Yeah. I'm quoting at the midpoint. So, you know, between the high and the low case, it's at 100 basis points. I think we have flexibility associated with many of the variable items. And I would tell you that at the low end of our guidance range, you know, incentive comp would be impacted, which we're baking into the overall kind of on the low on the low side.

Got it. Thanks, guys.

Our next question comes from Greg Melich with Evercore ISI. Please proceed with your question.

I wanted to follow-up on the gross margins in the quarter. You mentioned shrink and the cost of e-commerce, I think, being a headwind of 40 or 50 bps, how do you see that playing out in the back half? And then second, my follow-up was just, could you level set us given all the things you've done to mitigate on tariffs what percentage of your COGS now are imported from various countries? Thanks.

Absolutely. Yeah. So as it relates to, you know, being down two basis points in the quarter, merchandise margin was a tailwind of 40 basis points. Shrink was a headwind of 20. E-commerce shipping was a headwind of 10. There were some, you know, miscellaneous things. There was a couple of extra basis points. If you look at shrink, not just in the quarter but for the full year, we're down five points for last year. I think that's about in the range of what you would expect it to be for the year. There's puts and takes as we take physical inventories throughout the year. And we've taken almost 190 of our stores already. So I think we've got a good feel for the trends that are going on there. As it relates to e-commerce deleverage, you know, look, being up 18% in e-commerce, we're pleased about that. We think we're starting to see the benefits of what we've been investing in. And so I'll take 10 basis points of headwinds, but I think that's pretty much what you should expect for the year.

So from a sourcing diversification perspective, it's a moving target, to be honest with you. I think we started off when we got the initial first kind of read on the tariffs and, you know, China looked to be the epicenter for this. And so we spent a lot of time talking about how we're diversifying our exposure in China, where last year it was in the, you know, teens to under 10% with a goal of being in the mid-single digits by the end of the year. That's still on track. But candidly, as this thing has evolved, what we found is other countries are actually now, in some cases, at higher tariff rates than goods out of China. And so what we've decided to do moving forward is with a business as diverse as ours, we need to have a really diversified sourcing base, number one. And so we're trying not to add too many eggs in any one basket. And then second, we're trying to partner with factories and vendors that have multiple countries where they make products so that they can flex and move goods around as the tariffs ebb and flow. So I feel really good about the work the team has done on diversifying the sourcing base and not really having too many eggs in any one basket. And I think that's gonna be the best approach moving forward. It's gonna serve us well. As it relates to the goods that we manufacture, we've got about, from a total COGS standpoint, about six to 7% exposure from total COGS. But that's what we manufacture. So think about that as private label. As just to what Steve said about the dynamic environment, our national brand partners are changing up it feels like daily, associated with where their base is. So it'd be hard to quote national brand by country just given the dynamic nature of it. But from our private brands, you know, looking at six, 7% for the year.

Got it. And if I could follow-up on just that one particular point, I think in inventory, you said AUR was up around 8%. So should we think of that as a proxy of what would happen to ticket AUR in the coming quarters? Is that a fair way to think about it?

No. We did not say that AUR was up 8%. It was up, you know, in the mid-single-digit range. We expect that to accelerate in the back half of the year. I think we will see AURs creep up in the high single or double digits for us and for the industry candidly in the back half of the year.

Got it. Alright. Thanks and good luck.

Our next question comes from Brian Nagel with Oppenheimer. Please proceed with your question.

Hey, guys. Good morning. Good morning. Good morning. So what I well, congrats on the positive comp. You know, we've been talking about things. I did this for a while, so congrats.

Thank you.

The question I wanna ask is, and this is somewhat repetitive. But, you know, as you look at particularly as the comps have strengthened through this year and even the quarter, is there any real what's the reason why that momentum would not continue through the back half of the year? I mean, recognizing you're probably acting conservatively with the guidance. But if you look at the business, is there any reason why that momentum should not continue?

Not really, Brian. I mean, when you look at it, you hit on it. I mean, see our .com business accelerating. It was up, you know, I think 10% in Q1. It was up almost 18% in Q2. You see the new stores' contribution there in the comp accelerate from the low single digits to mid-single digits. You see our investments in technology, whether it's RFID or the handheld scanners, sent out to save the sale, really start to contribute. We see the new brands working. We haven't had a chance to really talk about, you know, the investment we made with Jordan or Nike, but, you know, those two brands in aggregate are driving meaningful double-digit growth for us right now. You see our loyalty program where we have over 12 million people in it right now, and we're adding almost 500,000 or half a million people every quarter. Grow, and customers really resonate there. And we're picking up market share to resolve all this. So we really don't see any reason why that would stop in the back half of the year. I think the wildcard candidly is just the consumer health and how they deal with the external macro environment. But we like our strategy, and we feel like it's gaining momentum. We expect it to carry forward not only through the remainder of this year but into the next year.

That's very helpful. My follow-up question, just on tariffs. So I think you mentioned, was probably in response to another question, but you know, you're starting to adjust prices here. Are you seeing any impacts upon demand, you know, as these higher prices are starting to roll through?

It's funny. We kinda look at it and as you'd expect, there are like three different buckets there. There are some categories, you know, I'd say, like, front end where we sell soda and chips and things like that. That are, you know, highly inelastic, so the unit demand has not at all been impacted by the AUR increases. You got a second bucket of goods where you're seeing some AUR increases and unit demand is roughly in line. And then you got a couple of bigger ticket categories where as we started nudging some pricing up, you know, you saw some demand erosion there from a unit perspective greater than the AUR increase, so we've made adjustments there. It's very fluid, but definitely kind of three different behaviors depending upon the category and, you know, the price point.

Got it. I appreciate it. Thank you.

Thank you.

Our next question comes from Eric Cohen with Gordon Haskett. Please proceed with your question.

Hi, thanks for the question. Wonder if you can just talk about the promotional environment. You said that consumers are continuing to be diet conscious in shopping during events. I'm just curious what you're seeing in the promotional environment. And just on the merchandise margin, is some of that benefiting from the merchandise mix as you have the Jordan and Nike expansion assortment since those are naturally higher margin products.

So from a promotional environment perspective, Eric, I would say that it's about how we've described it in the past, right? I mean, each year feels like it's a little more promotional than the year before, but not, you know, anywhere near what we were seeing kind of pre-pandemic. And I expect that will continue through the remainder of the year. We have seen on a year-over-year basis, if we run roughly the same promos, we're seeing a higher take rate from the customer where they're aggregating more of their purchases into those promos during the windows that we're running them. So that certainly, you know, is an acceleration in terms of, you know, the take rate on the promos. In terms of margin mix, you know, the goal and belief is that having growth in the apparel category, which tends to be higher margin for us or footwear, that will mix us up. I would say we really didn't experience that as much in Q2. You know, we had a pretty tight range of performance between all the businesses. They were all looking about 120 basis points of each other, so we didn't see dramatic mix one way or the other in terms of hard goods, soft goods. But moving forward, that would be the goal in the plan.

Great. Then just on the cohorts, it sounds like the upper-income consumer, higher-income consumer is continuing to post positive comps. Has that accelerated, and do you expect the higher-income consumer to drive the comp growth in the back half of the year, or do you think that the middle-income consumer can inflect positive in the back half?

Yes. So it has accelerated. If you look at the top two quintiles, 100 ks and up, they were up double digits in terms of traffic for us within the quarter, which is an acceleration versus Q1. We held share in that middle-income quintile, 50 to 100 k. And then we lost a little bit of share in the lower-income quintile, although it was less than what we saw in the previous quarters. And so at the higher end, it's more than offsetting the lower-end income consumers. So I do believe that that should continue and accelerate as we move through the back half of the year.

Thanks a lot.

Thank you.

Our next question comes from Kate McShane with Goldman Sachs. Please proceed with your question.

Hi, good morning. Thanks for taking our question. Our question just was going to be focused on Nike and Jordan. Just any more detail that you could give around the performance? I believe you set up double digits, but any more detail there? And can you talk about the exclusivity of both the Nike and Jordan product as you continue to see increased points of distribution by the brand?

Yes. So we're very excited about what we're seeing early reads in terms of Nike and Jordan. As you remember, we launched Jordan in late Q1, kind of the April. And we've seen that business build, particularly at back-to-school. We had our biggest weeks of the year during back-to-school as we expected. We expect that to continue particularly on the footwear side as we move into basketball season. We also think it's gonna be a big gift-giving category for us this year as well for the holiday. So really expect that to continue to be a tailwind for us. And on the other side, from a Nike perspective, you know, we've made a big investment there as well. I wouldn't say we have exclusive product per se. I would say we're getting access to better premium products. So for example, within footwear, you know, we have the Vomero 18 on the floor as well as the Plus. We have the P 6,000 out there that's doing very well. We've got two season two seventies out in almost every door at this point. And those aren't, you know, cheap shoes. Those are $165, $180 shoes in a lot of cases, doing very well for us. So we feel really good about that. On the apparel side, we got things like the Phoenix fleece, which in the past we'd have had limited access to. We now have more doors. So it's less about exclusivity for us. It's more about having higher-end product more broadly distributed throughout the chain. And that is working for us.

Thank you.

Thank you. Our next question comes from Anthony Chukumba with Loop Capital Markets. Please proceed with your question.

Morning. Thanks for taking my question. Also wanted to just kind of follow-up on Kate's question. I guess, how does your Jordan Brand assortment just in terms of the overall size of the assortment, compare now to, you know, when you first launched it? And then how much more assortment expansion do you anticipate over the remainder of the year? Thank you.

Yeah. So I would take a category like footwear where it's dramatically expanded. I think we launched with two shoes, if you remember, we're kind of at the tail end of basketball season. So now you'll see a much more expanded basketball assortment out there. I would say from a SKU count, it's probably more than tripled. We've also taken things like football cleats, weren't in the assortment. Those are out in all doors right now. Categories like backpacks have also expanded out into all doors. Apparel, as we get in the back half of the year, is gonna get, obviously, expanded from, you know, more fleece, things like that. So the assortment will continue to expand both from a it has expanded from a door count perspective as well as SKU count. The back half of the year. And then obviously, as we go into next year, the goal would be to expand those shops onto more doors. And we haven't given guidance on that, but we're working with them right now on what that plan looks like. But it will be in more doors for us next spring.

That's helpful. Thank you.

Thank you.

Our next question comes from Jonathan Mataszewski with Jefferies. Please proceed with your question.

Great. Good morning and thanks for taking my questions. First one was on just spending by customer cohorts. I think you talked about the lower-income consumer a bit, but hoping you could zero in on any disparities in shopping patterns across different ethnicities, including the Hispanic consumer? Is the under there widening, narrowing, or consistent versus prior periods? That's my first question. Thanks.

Yeah. So, all the data that we get, or that I'm about to talk about is from Placer. So you know, it used to be that Academy over-indexed in consumers making below $50,000. But what we've seen since I don't know, like, quarter of last year is that the growth in quintiles four and five is more than offsetting that degradation in those consumers in quintiles one and two. And so, it's been very steady. And I'm anticipating it to continue. As it relates to ethnicity, again, through PLACER, PLACER would tell you that the Hispanic consumer in our markets is up year over year. We were very concerned associated with the health of that demographic. The other, you know, black, white, Asian, you know, it gives you all different cuts of it. Overall, I would say there's no real significant outliers. One thing I would comment on, though, is we've got about 30 some odd stores that over-index towards the Hispanic consumer. Many of those are on the border of Texas and Mexico. And we're seeing those stores do a little bit worse than the trend overall as it relates to Texas or as it relates to the balance of the chain. And so we do think there's some impact associated with people who are coming across the border to shop for the day. I think there's been disruption associated with that. It doesn't show up as pronounced in the data from Placer, but we are seeing it in the individual store performance that over-indexed on the Hispanic population.

That's helpful. And then a quick follow-up. You mentioned improved in-stocks from the RFID initiative I think, just the Georgia DC, is there a way to dimensionalize maybe the frequency of out-of-stocks you're seeing today versus the magnitude of potential improvement in conversion in the quarters ahead? Thanks.

So what we've shared publicly is that we see about a 20% improvement in terms of inventory accuracy in goods that are counted on RFID on a weekly basis versus goods that are not. That's improved our in-stocks by 400 to 500 points overall. And having goods in the right sizes certainly helps us from a conversion perspective. That's what we've shared publicly.

Our next question comes from John Heinbockel with Guggenheim Securities. Please proceed with your question.

Hey, Steve. First question, can you frame the size of those three cohorts you referenced? Right? Because I don't think it's a third, a third, a third. And then do you think structurally going forward I know you've added best product but is there more to be done on the marketing front or the targeted marketing front to go after the 100, plus k, whether it's CRM or social, you know, to try to leverage even more to that group.

Yeah. So I'll start, and I think Steve will finish. As it relates to the size or the penetration percentage, so it literally is almost one third, one third, one third. So one third quintiles one and two, so making below $50,000. Quintile three, $50,000 to $100,000, approximately a third. And then, above $100,000, quintiles four and five, about a third. I would tell you even over the last year, there's been a radical shift in that as quintiles one and two, frequent SLS, and quintiles four and five are significantly growing, trading into Academy. So, I think at some point, I'll maybe provide a little bit more color related to that. But generally speaking, you know, 30 to 33% for each of those three cohorts.

Then from a marketing perspective, you're spot on correct. Right? I mean, obviously, having the new CDP, having done all the data resolution, as we get more of these people, shopping with Academy, getting added to our customer file. They're high-value customers who are coming in and shopping for the first time. Our goal is certainly to turn them in from casual shoppers into, you know, Academy loyalists. We have a ton of plays we're working on. You know, one of the things I was just talking to our chief customer officer about last week is we've got, you know, some of these people who come in and shop either through one channel or the other, whether they're .com shopper or brick and mortar shopper from ponder or primarily. So what we would expect is when you look at the combination of the two, the kind of the customer shops across both, those are our most valuable customers. And so we're really doing some targeted marketing to try to convert store-only shoppers to be omnichannel shoppers or online shoppers to be omnichannel shoppers. And there's a lot of really good work the team is doing that candidly could have done several years ago because we didn't have the CDP. We did not have all the information at our fingertips. That we do now have.

And then just quick follow-up. I know you guys have talked about 100 basis points of supply chain opportunity. You know, what's the cadence of that? And now that you're accelerating stores and using the capacity more, is the opportunity greater than 100 with that, or you don't think so?

You know, I think the 100 basis points is still live. I think we invested some basis points last year and we'll get them back this year related to twigs. When we talk about our long-range plan, you know, five years, I think 100 basis points is the right cadence. Some of that will be related to the rollout of the WMS to the other two distribution centers. But some of it is, we brought in a new chief supply chain officer last year. And similar to when Steve and I got here, coming from, like, more of the department store space and just looking at how the distribution centers operate. From a retail as well as the DTC standpoint. There's just some upside opportunities related to just what normal looks like. And I would say, Rob, Powell is doing a good job at getting after this. So I think the 100 basis points is alive and well. I wouldn't take it up at this point in time. Because I wanna prove it out before we talk about what maybe some, you know, out-year opportunities are.

Thank you.

Our next question comes from Robby Ohmes with Bank of America. Please proceed with your question.

Hi. This is Maddie Chek on for Robby Ohmes. Thank you for taking our questions. Maybe first, what should we expect in terms of inventory growth in the second half? And then second, you called out that all categories were up low single digits in the second quarter. Could you provide any more color on the performance of each apparel and footwear versus outdoor? And maybe how the ammo business performed versus the first quarter? Thank you.

Yes. So if you look at inventory, we're having to look a lot at inventory on a unit basis and on a unit per store basis. A, because of the tariffs and the impact that it's having on costs. B, the fact that we're opening up new stores. So if you look at it, we were up about 6.5% in Q1 on a units per store basis. We're up, I think, 4.6% in Q2. We'd expect that number to continue to come down as we progress through the year and sell through the inventory that we pull forward. Kinda normalize by the end of the year. So we feel like we've got a good beat on inventory. Particularly on a unit and per store basis. Feel like we're in a really good position there.

Repeat the second part of your question. Oh, division of performance. So if you look at performance by division, apparel and footwear were the two best-performing businesses. Both were up almost equal to each other from a comp and an absolute basis. But once again, there was only a 120 basis point spread between outdoor and apparel, which was the best business on an absolute basis. Beneath the surface, you'd asked about ammo. Ammo continues to be tough, although the trend was a little better in Q2 than it was in Q1. I think that's a business that goes through ebbs and flows as there's demand cycle pulling more goods out there. Right now, there's a lot of supply, so it's become more of a price-sensitive business. We're certainly monitoring and making sure we have the best price on ammo on a daily basis. And, you know, we're gonna continue to monitor the business. We've had some success with bulk packs as a way to drive higher average unit tickets here, so we're gonna continue to work on that. I would say the ammo business, of all the businesses, is probably one of the more challenged businesses.

Yeah. And, Maddie, you'll get the 10-Q later today. So I'll go ahead and lay out the numbers that you'll see in the footnote. You know, on the soft lines standpoint, footwear and apparel were each up 3.7, 3.8% in total. And outdoor was up 2.5%. So three of our four divisions, positive comp during the quarter, it wasn't just regionally focused. There was good health across the business. And, you know, but our fall forecast contemplates a range of outcomes that I think is less centric to the acceleration of our initiatives and is more focused on the health of the overall consumers. I do wanna reiterate, you know, with where tariffs are, we envision all retailers taking AURs up. And on a weekly standpoint, we scrape active pricing via the Internet on like-to-like products, and we also do it, you know, on our private brands. So nobody else sells an Academy Sports and Outdoors chair that you put on the soccer field. You know? But lots of other folks have their own private brands. Every week, we're looking at where prices are. And if there's any place where we don't represent value, as an everyday value retailer, we take adjustments that very next week. So, really, really tight performance across the various categories. Initiatives are going to continue to perform. Health of the American consumer is the primary headwind.

Very helpful. Thank you.

Thank you.

Our next question comes from Justin Kleber with Baird. Please proceed with your question.

Hey, good morning, guys. Thanks for taking the questions. First one for me, just around future brand access, specifically, if you started to see the launch of Jordan and the expanded Nike assortment, is that helping break down any historical barriers and allowing you to gain access or at least, you know, have new conversations with brands that previously would not sell to you.

I would say it certainly helps, right? I mean, obviously, when you look at the investment we made to bring Jordan to life in our stores and on our site, I think the team did a really good job. I'm really proud of the work they did on this front. I think Nike is very happy with the partnership and what we've managed to do there. And I think it definitely has helped us continue to gain access to brands. And we have a couple of new brands. You know, they're not all footwear. I mean, we brought Converse this year, which we didn't have before, but brands like Hydro Jug coming into the assortment are a big win for us. We've got other higher-end brands. One we talked a lot about is called Berlabo. Kind of a younger men's outdoor brand. Pretty high AUR candidly, doing really, really well for us. Pets out in outdoors. A younger golf brand called Waggle that we now have in a meaningful count of doors. Doing very well for us. You know, we talked about Ninja coolers and grills all doing really well for us. So we continue to get access to brands, continue to have dialogues with brands that we wanna have access to. I think that the way we launched Jordan, I think, definitely helps our case as we make it to get access to those brands.

Yeah. That's helpful. Thanks, Steve. And then a question for Carl on the gross margin guide. It seems about 50 basis points of expansion in the back half at the midpoint, which is a bit stronger than the first half. So obviously, tariffs, I think, are going to have a bigger impact as we move deeper into the year. So can you just outline the drivers of expansion you see in the back half thinking about your view on merch margins versus cycling over some of these elevated freight and supply chain costs that you referenced?

Yeah. I mean, at the low end, we're going up 10 basis points from last year and we invested margin rate in some of the distribution center standpoint. So 34.0 at the low end compared to 33.9 last year. You know, to get to that upper end, we would need merch margin to continue to perform like we're seeing it. I think there are some, you know, mix shift things that are in play there associated with Jordan, Nike performing so well. As it relates to shrink, I think it's, you know, it might round to 10 basis points. You know? It's not a huge headwind. As I said, it's running down five or it's running up five basis points to last year. It's a headwind of five basis points year over year, year to date. And then some of that e-comm shipping, I think, is some of the price of poker with driving such what I consider to be an awesome comp at plus 17.7% in the quarter. I'll take that. As it relates to other shipping things, Rob and his team are doing a great job. We pulled forward a lot of inventory, so we've seen a lot of the shipping costs associated with that. And then, basically, those just play out as we sell the goods. So I think to get to a midpoint, you know, we would continue to see year-over-year improvement. I think we're up 30 basis points year to date in gross margin. And at the low end, we're up 10. At the high end, we're up 60.

Alright. Thanks for the color, guys. Best of luck.

Thanks.

Our last question is from John Kernan with TD Cowen. Please proceed with your question.

Good morning, guys. Thanks for taking my question. Good morning.

Good morning, Keith.

Can you talk to new store productivity? The productivity from the new boxes, it looks like omnichannel sales per foot is still under some pressure here. I'm just curious what your assumptions are as you ramp store openings in the back half of the year. And I got a quick follow-up for Steve.

Yeah. I mean, the productivity of the boxes is pretty much coming in like we said it would. So $12 to $16 million year one EBITDA positive, but deleverage to the total company, which I think averages about $21 million per store. You know, 20% ROIC, four-year, kinda cash on cash payback. Look. It's different by market. And so in those new markets where our brand awareness is low and we're having to invest in educating the consumer on what is, you know, Academy Sports and Outdoors. What do they sell? How do I break into that shopping cycle that they're already involved with? You know, it's coming in closer to the $12 million in the legacy markets. Where brand awareness is high. They just don't drive routinely like an hour to where an Academy is. It's coming in really close to that $16 million. We're pretty pleased. I think once you get past that first year, we've shown a propensity to be able to kinda estimate what that year one is. They're positive comping, and I can't say enough about going from mid-singles or, excuse me, from low single-digit comps. And, again, this is once they've reached their fourteenth month during the comp set. It's going from low single digits to mid-single digits. You know, I think it's 26 stores that are now in the comp set for some portion of the second quarter. Like, that's meaningful to me. I'm really excited about the comp waterfall long term as we continue to roll out these stores. There's a level of predictability on where they're gonna come in on year one, and then they're banging out mid-singles, from a growth algorithm standpoint, I like that it relates to, you know, some of the broader goals that we're trying to achieve.

That's helpful. Thanks. And then, Steve, you talked about some pretty significant AUR increases in some categories in the back half of the year. I'm just curious how you're planning for that within the comp guidance given the middle to lower-income consumers are under a little bit more pressure here.

Yes. I think we expect the behavior we've seen throughout Canada in the last several quarters of the lower-end consumer being under pressure to not change, right? I mean, I think those people making under 50 ks they're struggling. I think they're continuing to either opt out or, you know, trade down. And so I think that's gonna continue, although we've seen the rate of those attriting slow, you know, each quarter. And so, hopefully, that trend will continue. But we're really excited about the middle and higher-income quintiles trading into us, and we think that's going to more than offset any erosion we feel on the low end. Because, you know, once again, it's about relative value, and I think Carl mentioned this earlier. You know, as prices go up, one of the things we're very focused on is making sure that we still have the best value on like-to-like items out there in the marketplace. All the work we do on a daily, weekly basis continues to reinforce that. And the fact the consumer is accelerating at higher end tells us they're noticing it as well. They're trading in and picking Academy for the value that we offer.

That's helpful, Steve. Thanks.

Thank you.

We have reached the end of the question and answer session. I'd now like to turn the call back over to Steven Paul Lawrence for closing comments.

Thanks. I want to close by thanking you all for joining our call. I'd also like to express gratitude to our 23,000 plus associates who work tirelessly to provide our customers with an outstanding experience when they shop at Academy Sports and Outdoors. You guys are truly the secret sauce that makes Academy a great company. I'd also like to welcome Brandy Treadway as our new Executive Vice President and Chief Legal Officer. Brandy joined us last month and brings nearly twenty-five years of retail and legal experience. She oversees our legal compliance and risk management teams and will play a meaningful role in our continued growth. At this point, we've made it through August and are encouraged by the continued momentum we saw during the back-to-school selling season. It gives us confidence as we head into the back half of the year that we have the right strategies in place and that our assortments are resonating with our core consumers. We remain focused on helping our customers navigate the current economic backdrop enabling them to maximize their spending power at Academy. We also believe we'll come out of this year better positioned than ever to serve our customers and ensure long-term growth. Thanks, and have a great rest of your day.