What happened
Shares of Academy Sports and Outdoors (ASO 1.25%) rocketed higher by as much as 16.4% this week, according to data from S&P Global Market Intelligence. The outdoors retailer posted strong second-quarter earnings this week, sending shares higher. As of 4:20 p.m. ET on Thursday, the stock was up 13% since last Friday's close.
So what
On Sept. 7, Academy Sports released its second-quarter earnings for the three months ending in June. Revenue was down 5.8% year over year to $1.69 billion, which at first glance might seem like bad news. However, Academy Sports is comparing to an extremely strong period in 2021 when people skewed toward outdoor activities during the height of COVID-19 restrictions. Compared to pre-pandemic levels, the business is still looking quite strong, which is likely why investors are happy about the results.
On $1.69 billion in sales, Academy Sports generated $247 million in pre-tax income for a margin of 14.6%. With all these profits, management is returning capital to shareholders through share repurchases and dividends. Through just the second quarter, Academy Sports returned $206 million to shareholders, or 5.3% of the stock's current market cap. This is an aggressive capital returns strategy that is being applauded by shareholders.
On top of a stable business, Academy Sports is seeing strong traction with its e-commerce segment, with revenue up 12% year over year in the quarter. The transition to e-commerce is still growing, and Academy Sports will need to continue building out its online business to maintain relevancy in the marketplace.
Now what
At current prices, Academy Sports trades at an enterprise value of $5.3 billion. In 2022, management is guiding for a pre-tax income of $725 million-$805 million. If the company just hits the low end of this guidance, the stock will be trading at a forward earnings multiple of just 7.3, much below the market average. Combine this with an aggressive capital returns strategy, and it's no surprise that investors are bidding up Academy Sports stock after its recent earnings result.
