What happened
Week to date, shares of Academy Sports and Outdoors (ASO 2.79%) were up 9.7% through Thursday's market close, according to data provided by S&P Global Market Intelligence.
Earnings season can usually cause stocks to move sharply in one direction or another, and that was the case this week. The sports apparel retailer reported financial results for the fiscal second quarter ended in July that were not as bad as expected, which lifted the stock.
So what
It's been a difficult year for retailers. Many industry leaders are reporting consumers are trading down to lower-priced items, and Academy Sports is seeing the same. The company reported a 6.2% year-over-year decline in total net sales. Comparable sales, which measures the change in sales of stores open after 13 fiscal months, fell 7.5%.
The reason the stock didn't fall is partly due to the company's stellar record of profitable growth, which has earned it a certain level of confidence among investors in management's execution. On that score, the company reported only an 8.3% decrease in adjusted earnings per share, as margins are holding up well.
Moreover, the stock's valuation relative to the company's projected profits, or earnings, is cheap. Academy has consistently traded at less than 10 times expected earnings over the last few years, which seems to persistently undervalue the company's growth and future opportunities.
Academy's low valuation on top of its record of profitable growth is why the stock has climbed 320% over the last three years, significantly beating the broader market averages.
Now what
Management is doing what it can to mitigate the sales pressure in the near term while keeping its eye on the future. The company plans to open 11 to 12 new stores this fall, continue to push its omnichannel capabilities across physical stores and e-commerce, and work to offer more brands that resonate with customers.
