Academy Sports & Outdoors, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS ACADEMY SPORTS AND OUTDOORS, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollar amounts in thousands, except per share data) August 3, 2024 February 3, 2024 July 29, 2023 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 324,568 $ 347,920 $ 311,336 Accounts receivable - less allowance for doubtful accounts of $ 2,080 , $ 2,217 and $ 2,534 , respectively 12,812 19,371 14,625 Merchandise inventories, net 1,366,616 1,194,159 1,309,033 Prepaid expenses and other current assets 108,392 83,450 80,490 Total current assets 1,812,388 1,644,900 1,715,484 PROPERTY AND EQUIPMENT, NET 470,752 445,209 404,967 RIGHT-OF-USE ASSETS 1,103,242 1,111,237 1,091,145 TRADE NAME 578,550 578,236 577,929 GOODWILL 861,920 861,920 861,920 OTHER NONCURRENT ASSETS 47,506 35,211 23,971 Total assets $ 4,874,358 $ 4,676,713 $ 4,675,416 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 704,578 $ 541,077 $ 669,832 Accrued expenses and other current liabilities 259,069 217,932 234,011 Current lease liabilities 124,628 117,849 112,936 Current maturities of long-term debt 3,000 3,000 3,000 Total current liabilities 1,091,275 879,858 1,019,779 LONG-TERM DEBT, NET 483,617 484,551 583,729 LONG-TERM LEASE LIABILITIES 1,083,390 1,091,294 1,060,996 DEFERRED TAX LIABILITIES, NET 252,919 254,796 260,909 OTHER LONG-TERM LIABILITIES 10,763 11,564 11,964 Total liabilities 2,921,964 2,722,063 2,937,377 COMMITMENTS AND CONTINGENCIES (NOTE 10) STOCKHOLDERS' EQUITY: Preferred stock, $ 0.01 par value, authorized 50,000,000 shares; none issued and outstanding — — — Common stock, $ 0.01 par value, authorized 300,000,000 shares; 70,915,916 ; 74,349,927 and 74,845,563 issued and outstanding as of August 3, 2024, February 3, 2024 and July 29, 2023, respectively. 709 743 748 Additional paid-in capital 244,584 242,098 236,789 Retained earnings 1,707,101 1,711,809 1,500,502 Stockholders' equity 1,952,394 1,954,650 1,738,039 Total liabilities and stockholders' equity $ 4,874,358 $ 4,676,713 $ 4,675,416 See Condensed Notes to Consolidated Financial Statements 3 ACADEMY SPORTS AND OUTDOORS, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Amounts in thousands, except per share data) Thirteen Weeks Ended Twenty-Six Weeks Ended August 3, 2024 July 29, 2023 August 3, 2024 July 29, 2023 NET SALES $ 1,548,980 $ 1,583,077 $ 2,913,200 $ 2,966,686 COST OF GOODS SOLD 990,255 1,019,631 1,898,681 1,936,125 GROSS MARGIN 558,725 563,446 1,014,519 1,030,561 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 368,639 352,483 722,050 693,402 OPERATING INCOME 190,086 210,963 292,469 337,159 INTEREST EXPENSE, NET 9,071 11,313 18,557 22,543 WRITE OFF OF DEFERRED LOAN COSTS — — 449 — OTHER (INCOME), NET ( 5,531 ) ( 3,623 ) ( 10,735 ) ( 7,336 ) INCOME BEFORE INCOME TAXES 186,546 203,273 284,198 321,952 INCOME TAX EXPENSE 43,958 46,198 65,145 70,907 NET INCOME $ 142,588 $ 157,075 $ 219,053 $ 251,045 EARNINGS PER COMMON SHARE: BASIC $ 1.99 $ 2.06 $ 3.00 $ 3.28 DILUTED $ 1.95 $ 2.01 $ 2.93 $ 3.19 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: BASIC 71,829 76,104 72,911 76,483 DILUTED 73,289 78,091 74,651 78,735 See Condensed Notes to Consolidated Financial Statements 4 ACADEMY SPORTS AND OUTDOORS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Amounts in thousands, except per share data) Additional Paid-In Capital Retained Earnings Total Stockholders' Equity Common Stock Shares Amount Balances as of February 3, 2024 74,350 $ 743 $ 242,098 $ 1,711,809 $ 1,954,650 Net income — — — 76,465 76,465 Equity compensation — — 6,138 — 6,138 Repurchase of common stock for retirement ( 1,984 ) ( 19 ) ( 7,625 ) ( 115,856 ) ( 123,500 ) Settlement of vested Restricted Stock Units, net of shares withheld 98 1 ( 2,798 ) — ( 2,797 ) Stock option exercises, net of shares withheld 127 1 2,746 — 2,747 Cash dividends declared, $ 0.11 per share — — — ( 8,182 ) ( 8,182 ) Balances as of May 4, 2024 72,591 $ 726 $ 240,559 $ 1,664,236 $ 1,905,521 Net income — — — 142,588 142,588 Equity compensation — — 7,955 — 7,955 Repurchase of common stock for retirement ( 1,810 ) ( 18 ) ( 6,961 ) ( 91,802 ) ( 98,781 ) Settlement of vested Restricted Stock Units, net of shares withheld 43 — ( 574 ) — ( 574 ) Issuance of common stock under employee stock purchase plan 62 1 2,818 — 2,819 Stock option exercises, net of shares withheld 30 — 787 — 787 Cash dividends declared, $ 0.11 per share — — — ( 7,921 ) ( 7,921 ) Balances as of August 3, 2024 70,916 $ 709 $ 244,584 $ 1,707,101 $ 1,952,394 5 ACADEMY SPORTS AND OUTDOORS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Amounts in thousands, except per share data) Additional Paid-In Capital Retained Earnings Total Stockholders' Equity Common Stock Shares Amount Balances as of January 28, 2023 76,712 $ 767 $ 216,209 $ 1,411,330 $ 1,628,306 Net income — — — 93,970 93,970 Equity compensation — — 11,382 — 11,382 Repurchase of common stock for retirement ( 750 ) ( 8 ) ( 2,450 ) ( 47,806 ) ( 50,264 ) Settlement of vested Restricted Stock Units, net of shares withheld 93 1 ( 2,470 ) — ( 2,469 ) Stock option exercises, net of shares withheld 385 4 6,962 — 6,966 Cash dividends declared, $ 0.09 per share — — — ( 6,929 ) ( 6,929 ) Balances as of April 29, 2023 76,440 $ 764 $ 229,633 $ 1,450,565 $ 1,680,962 Net income — — — 157,075 157,075 Equity compensation — — 8,501 — 8,501 Repurchase of common stock for retirement ( 1,994 ) ( 20 ) ( 7,087 ) ( 100,242 ) ( 107,349 ) Settlement of vested Restricted Stock Units, net of shares withheld 41 — ( 268 ) — ( 268 ) Issuance of common stock under employee stock purchase plan 67 1 2,886 — 2,887 Stock option exercises, net of shares withheld 292 3 3,124 — 3,127 Cash dividends declared, $ 0.09 per share — — — ( 6,896 ) ( 6,896 ) Balances as of July 29, 2023 74,846 $ 748 $ 236,789 $ 1,500,502 $ 1,738,039 See Condensed Notes to Consolidated Financial Statements 6 ACADEMY SPORTS AND OUTDOORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands) Twenty-Six Weeks Ended August 3, 2024 July 29, 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 219,053 $ 251,045 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 57,771 52,021 Non-cash lease expense 7,271 1,604 Equity compensation 14,093 19,883 Amortization of deferred loan and other costs 1,279 1,348 Deferred income taxes ( 1,876 ) 1,866 Write off of deferred loan costs 449 — Gain on disposal of property and equipment — ( 361 ) Changes in assets and liabilities: Accounts receivable, net 6,559 1,878 Merchandise inventories, net ( 172,457 ) ( 25,516 ) Prepaid expenses and other current assets ( 24,943 ) ( 37,559 ) Other noncurrent assets ( 7,462 ) ( 6,924 ) Accounts payable 153,613 ( 12,446 ) Accrued expenses and other current liabilities 19,073 ( 3,316 ) Income taxes payable 19,801 805 Other long-term liabilities ( 1,201 ) ( 762 ) Net cash provided by operating activities 291,023 243,566 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 73,425 ) ( 109,759 ) Purchases of intangible assets ( 314 ) ( 213 ) Proceeds from the sale of property and equipment — 2,126 Net cash used in investing activities ( 73,739 ) ( 107,846 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Revolving Credit Facilities 3,900 — Repayment of Revolving Credit Facilities ( 3,900 ) — Repayment of Term Loan ( 1,500 ) ( 1,500 ) Debt issuance fees ( 5,690 ) — Proceeds from exercise of stock options 3,575 11,639 Proceeds from issuance of common stock under employee stock purchase program 2,819 2,887 Taxes paid related to net share settlement of equity awards ( 3,412 ) ( 4,283 ) Repurchase of common stock for retirement ( 220,325 ) ( 156,447 ) Dividends paid ( 16,103 ) ( 13,825 ) Net cash used in financing activities ( 240,636 ) ( 161,529 ) NET DECREASE IN CASH AND CASH EQUIVALENTS ( 23,352 ) ( 25,809 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 347,920 337,145 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 324,568 $ 311,336 7 ACADEMY SPORTS AND OUTDOORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands) Twenty-Six Weeks Ended August 3, 2024 July 29, 2023 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 17,564 $ 21,521 Cash paid for income taxes $ 45,788 $ 69,169 SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES: Non-cash capital expenditures $ 16,575 $ 5,542 Right-of-use assets obtained in exchange for new operating leases $ 56,185 $ 45,237 See Condensed Notes to Consolidated Financial Statements 8 ACADEMY SPORTS AND OUTDOORS, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Nature of Operations The Company All references to "we," "us," "our" or the "Company" in the financial statements refer to Academy Sports and Outdoors, Inc., a Delaware corporation ("ASO, Inc.") and the current parent holding company of our operations, and its consolidated subsidiaries. We conduct our operations primarily through our parent holding company's indirect subsidiary, Academy, Ltd., a Texas limited partnership doing business as "Academy Sports + Outdoors", or Academy, Ltd. All of the Company's sales and business operations occur at Academy, Ltd., and Academy, Ltd. is also the borrower and/or issuer of the Company's long-term debt and lessee of facilities. Our fiscal year represents the 52 or 53 weeks ending on the Saturday closest to January 31. The Company is a leading full-line sporting goods and outdoor recreational products retailer in the United States in terms of net sales. As of August 3, 2024, we operated 285 "Academy Sports + Outdoors" retail locations in 19 states and three distribution centers located in Katy, Texas, Twiggs County, Georgia and Cookeville, Tennessee. We also sell merchandise to customers across most of the United States via our academy.com website. 2. Summary of Significant Accounting Policies The accompanying unaudited financial statements of the Company have been prepared as though they were required to be in accordance with Rule 10-01 of Regulation S-X for interim financial statements, however, they do not include all information and footnotes required by United States generally accepted accounting principles ("GAAP") for complete financial statements. Certain information and footnote disclosures normally included in our annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. However, we believe that the disclosures included herein are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2024, as filed with the Securities and Exchange Commission on March 21, 2024 (the "Annual Report"). The information furnished herein reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the thirteen and twenty-six weeks ended August 3, 2024 are not necessarily indicative of the results that will be realized for the fiscal year ending February 1, 2025 or any other period. The balance sheet as of February 3, 2024 has been derived from our audited financial statements as of that date. For further information, refer to our audited financial statements and notes thereto included in the Annual Report. Basis of Presentation and Principles of Consolidation These unaudited condensed consolidated financial statements include the accounts of ASO, Inc. and its subsidiaries, New Academy Holding Company, LLC ("NAHC"), Academy Managing Co., L.L.C., Associated Investors, L.L.C., Academy, Ltd., the Company's operating company, Academy Procurement Co., LLC, and Academy International Limited. NAHC, Academy Managing Co., LLC, and Associated Investors, LLC are intermediate holding companies. All intercompany balances and transactions have been eliminated in consolidation. 9 Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Our management bases its estimates on historical experience and other assumptions it believes to be reasonable under the circumstances. Actual results could differ significantly from those estimates. Our most significant estimates and assumptions that materially affect the financial statements involve difficult, subjective or complex judgments by management, including the valuation of merchandise inventories and performing goodwill, intangible and long-lived asset impairment analyses. Reclassifications Within the merchandise division sales table presented in Note 3, certain products and categories were recategorized amongst various categories and divisions, respectively, to better align with our current merchandising strategy and view of the business. As a result, we have reclassified sales between divisions in the thirteen and twenty-six weeks ended July 29, 2023 for comparability purposes. This reclassification is in divisional presentation only and did not impact the overall net sales balances previously disclosed. Share Repurchases On September 2, 2021, the Board of Directors of the Company authorized a share repurchase program (the "2021 Share Repurchase Program") under which the Company may purchase up to $ 500 million of its outstanding shares during the three-year period ending September 2, 2024. On June 2, 2022, the Board of Directors of the Company authorized a new share repurchase program (the "2022 Share Repurchase Program") under which the Company may purchase up to $ 600 million of its outstanding shares during the three-year period ending June 2, 2025. On November 29, 2023, the Board of Directors authorized a new share repurchase program (the "2023 Share Repurchase Program") under which the Company may purchase up to $ 600 million of its outstanding shares during the three-year period ending November 29, 2026. The 2023 Share Repurchase Program, the 2022 Share Repurchase Program and the 2021 Share Repurchase Program are collectively referred to as the "Share Repurchase Programs". Under the Share Repurchase Programs, repurchases can be made using a variety of methods, which may include open market purchases, block trades, privately negotiated transactions, accelerated share repurchase programs and/or a non-discretionary trading plan, all in compliance with the rules of the SEC and other applicable legal requirements. The timing, manner, price and amount of any common share repurchases under the Share Repurchase Programs are determined by the Company in its discretion and depend on a variety of factors, including legal requirements, price and economic and market conditions. The Share Repurchase Programs do not obligate the Company to acquire any particular number of common shares, and the programs may be suspended, extended, modified or discontinued at any time. The following table summarizes our share repurchases for the periods presented: Thirteen Weeks Ended Twenty-Six Weeks Ended August 3, 2024 July 29, 2023 August 3, 2024 July 29, 2023 Shares repurchased 1,809,856 1,994,064 3,793,823 2,744,074 Aggregate amount paid (amounts in millions) (1) $ 98.8 $ 107.3 $ 222.3 $ 157.6 (1) Includes estimated excise tax fees of $ 0.9 million and $ 2.0 million for the thirteen and twenty-six weeks ended August 3, 2024, respectively, and $ 0.9 million and $ 1.2 million for the thirteen and twenty-six weeks ended July 29, 2023, respectively. As of August 3, 2024, we no longer had availability under the 2021 Share Repurchase Program or 2022 Share Repurchase Program, and we had $ 476.4 million available under the 2023 Share Repurchase Program. 10 Supplier Finance Programs We have previously entered into a supply chain financing arrangement with a third-party financial institution, whereby certain suppliers have the ability to settle outstanding payment obligations earlier than the due date required by our original supplier terms. Subsequently, we settle invoices with the financial institution within 45 days, which approximates our original supplier terms. The Company does not have an economic interest in suppliers’ voluntary participation, does not provide any guarantees or pledge assets under these arrangements, and our rights and obligations to our suppliers, including amounts due, are not impacted. Our liability associated with these arrangements, which is presented within accounts payable on the condensed consolidated balance sheets, was $ 5.1 million, $ 7.2 million and $ 6.6 million as of August 3, 2024, February 3, 2024 and July 29, 2023, respectively. Recent Accounting Pronouncements Improvements to Income Tax Disclosures In December 2023, the FASB issued ASU 2023-09: Improvements to Income Tax Disclosures. This pronouncement is intended to enhance the transparency and decision usefulness of income tax disclosures and establishes new income tax disclosure requirements, including requiring disaggregation of a reporting entity’s effective tax rate reconciliation and disaggregation of the income taxes paid based on the applicable tax jurisdiction. The new guidance is effective for fiscal years beginning after December 15, 2024 and should be applied on a prospective basis with the option to apply the standard retrospectively. The Company is currently evaluating the impact that the adoption of this accounting standard will have on its financial disclosures. Segment Reporting In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to enhance the disclosures on reportable segments. Under this pronouncement, all public entities (including those with a single reporting segment) are required to include incremental disclosures related to a public entity’s reportable segments, including disclosure of disaggregated expense information that is regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. The new guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and should be adopted retrospectively. The Company is currently evaluating the impact that the adoption of this accounting standard will have on its financial disclosures. 11 3. Net Sales Revenue from merchandise sales is recognized, net of sales tax, when the Company’s performance obligation to the customer is met, which is when the Company transfers control of the merchandise to the customer. Store merchandise sales are recognized at the point of sale and e-commerce sales are recognized upon delivery to the customer. The following table sets forth the approximate amount of sales by merchandise divisions for the periods presented (amounts in thousands): Thirteen Weeks Ended Twenty-Six Weeks Ended August 3, 2024 July 29, 2023 August 3, 2024 July 29, 2023 Merchandise division sales (1) Outdoors $ 391,703 $ 388,437 $ 766,597 $ 754,746 Sports and recreation 402,025 433,570 752,613 799,875 Apparel 436,564 446,426 772,204 791,674 Footwear 312,119 308,032 604,553 604,323 Total merchandise sales (2) 1,542,411 1,576,465 2,895,967 2,950,618 Other sales (3) 6,569 6,612 17,233 16,068 Net Sales $ 1,548,980 $ 1,583,077 $ 2,913,200 $ 2,966,686 (1) Certain products and categories were recategorized amongst various categories and divisions, respectively, to better align with our current merchandising strategy and view of the business. As a result, we have reclassified sales between divisions in the thirteen and twenty-six weeks ended July 29, 2023, for comparability purposes. This reclassification is in divisional presentation only and did not impact the overall net sales balances previously disclosed. (2) E-commerce sales consisted of 9.7 % and 9.4 % for the thirteen and twenty-six weeks ended August 3, 2024, respectively, and 9.4 % and 8.8 % for the thirteen and twenty-six weeks ended July 29, 2023, respectively. (3) Other sales consisted primarily of the gift card breakage income, credit card bounties and royalties, shipping income, net hunting and fishing license income, sales return allowance and other items. We sell gift cards in stores, online and in third-party retail locations. A liability for gift cards, which is recorded in accrued expenses and other liabilities on our consolidated balance sheets is established at the time of sale and revenues are recognized as the gift cards are redeemed in stores or on our website. The following is a reconciliation of the gift card liability (amounts in thousands): Thirteen Weeks Ended Twenty-Six Weeks Ended August 3, 2024 July 29, 2023 August 3, 2024 July 29, 2023 Gift card liability, beginning balance $ 82,269 $ 78,112 $ 94,155 $ 90,650 Issued 25,777 25,820 43,797 43,113 Redeemed ( 28,019 ) ( 28,076 ) ( 56,564 ) ( 56,791 ) Recognized as breakage income ( 1,259 ) ( 1,106 ) ( 2,620 ) ( 2,222 ) Gift card liability, ending balance $ 78,768 $ 74,750 $ 78,768 $ 74,750 12 4. Long-Term Debt Our debt consisted of the following (amounts in thousands) as of: August 3, 2024 February 3, 2024 July 29, 2023 ABL Facility, due March 2029 $ — $ — $ — Term Loan, due November 2027 90,250 91,750 193,250 Notes, due November 2027 400,000 400,000 400,000 Total debt 490,250 491,750 593,250 Less current maturities ( 3,000 ) ( 3,000 ) ( 3,000 ) Less unamortized discount on Term Loan ( 431 ) ( 501 ) ( 1,196 ) Less deferred loan costs (1) ( 3,202 ) ( 3,698 ) ( 5,325 ) Long-term debt, net $ 483,617 $ 484,551 $ 583,729 (1) Deferred loan costs are related to the Term Loan and Notes. As of August 3, 2024, February 3, 2024 and July 29, 2023, the balance in deferred loan costs related to the ABL Facility (as defined below) was approximately $ 6.9 million, $ 2.1 million and $ 2.6 million, respectively, and was included in other noncurrent assets on our consolidated balance sheets. Total amortization of deferred loan costs was $ 0.6 million and $ 1.2 million for the thirteen and twenty-six weeks ended August 3, 2024, respectively, and $ 0.6 million and $ 1.2 million for the thirteen and twenty-six weeks ended July 29, 2023, respectively. Total expenses related to accretion of original issuance discount was $ 0.0 and $ 0.1 million for the thirteen and twenty-six weeks ended August 3, 2024, respectively, and $ 0.1 million and $ 0.2 million for the thirteen and twenty-six weeks ended July 29, 2023, respectively. The expenses related to amortization of deferred loan costs and accretion of original issuance discount are included in interest expense, net on the consolidated statements of income. Term Loan We refer to the 2020 Term Loan and the amendments thereto collectively as the "Term Loan". On November 6, 2020, Academy, Ltd. entered into a seven-year $ 400.0 million senior secured term loan (the "2020 Term Loan"). On May 25, 2021, Academy, Ltd. entered into Amendment No. 4 (the “Amendment”) to the Second Amended and Restated Credit Agreement, dated as of November 6, 2020, among Academy, Ltd., as Borrower, Credit Suisse AG, Cayman Islands Branch, as the administrative agent and collateral agent, the several lenders party thereto and the several other parties named therein. Under the Amendment, the Term Loan bore interest, at Academy, Ltd.'s election, at either (1) LIBOR rate with a floor of 0.75 %, plus a margin of 3.75 %, or (2) a base rate equal to the highest of (a) the federal funds rate plus 0.50 %, (b) Credit Suisse's "prime rate", or (c) the one-month LIBOR rate plus 1.00 %, plus a margin of 4.00 %. On May 17, 2023, Academy, Ltd. entered into a Conforming Changes Amendment to the Second Amended and Restated Credit Agreement, dated as of November 6, 2020, among Academy, Ltd., as Borrower, Credit Suisse AG, Cayman Islands Branch, as the administrative agent and collateral agent and the several lenders party thereto and the several other parties named therein, which updated the Term Loan benchmark base interest rate from LIBOR to Adjusted Term SOFR (as defined in the Conforming Changes Amendment to the Second Amended and Restated Credit Agreement). The transition of our Term Loan to Adjusted Term SOFR became effective on August 1, 2023. Borrowings under the Term Loan bear interest, at our election, at either (1) Adjusted Term SOFR with a floor of 0.75 % rate plus a margin of 3.75 % or (2) a base rate equal to the highest of (a) the federal funds rate plus 0.50 %, (b) the U.S. "prime rate" announced by the administrative agent, or (c) the one-month Adjusted Term SOFR with a floor of 0.75 % rate, plus a margin of 3.75 %. Quarterly principal payments of $ 750 thousand are required through September 30, 2027 and borrowings mature on November 6, 2027. As of August 3, 2024, the weighted average interest rate was 9.19 %, with interest payable monthly. The terms and conditions of the Term Loan also require that the outstanding balance under the Term Loan is prepaid under certain circumstances. As of August 3, 2024, no prepayment was due under the terms and conditions of the Term Loan. 13 Notes On November 6, 2020, Academy, Ltd. issued $ 400.0 million of 6.00 % senior secured notes which are due November 15, 2027 (the "Notes"), pursuant to an indenture, dated as of November 6, 2020 (the "Indenture") with The Bank of New York Mellon Trust Company, N.A., as trustee and collateral agent. The Notes require cash interest payments semi-annually in arrears on May 15 and November 15 of each year at a rate of 6.00 % per year. ABL Facility We refer to the 2020 ABL Facility and the amendments thereto collectively as the "ABL Facility". On November 6, 2020, Academy, Ltd., as borrower, and the guarantors, amended the previously existing secured asset-based revolving credit facility by entering into an amendment to the First Amended and Restated ABL Credit Agreement, dated as of November 6, 2020, with JPMorgan Chase Bank, N.A. as the administrative agent and collateral agent, letter of credit issuer and swingline lender and the several lenders party thereto, which ABL amendment, among other things, extended the maturity of Academy, Ltd.’s asset-based revolving credit facility thereunder to November 6, 2025 (the "2020 ABL Facility"). On March 30, 2023, Academy, Ltd., as borrower, and the guarantors, amended the 2020 ABL Facility by entering into an amendment to the First Amended and Restated ABL Credit Agreement, dated as of July 2, 2015, with JP Morgan Chase Bank, N.A. as the ABL Agent and the several lenders party thereto, which ABL amendment updated its benchmark base interest rate from LIBOR to Adjusted Term SOFR. On March 8, 2024, Academy, Ltd., as borrower, and New Academy Holding Company, LLC, Associated Investors, L.L.C. and Academy Managing Co., L.L.C., as guarantors, entered into an amendment (the “ABL Amendment”) to the First Amended and Restated ABL Credit Agreement, dated as of July 2, 2015, with JPMorgan Chase Bank, N.A. as the administrative agent and collateral agent, letter of credit issuer and swingline lender, and the several lenders party thereto, which ABL Amendment, among other things, extended the maturity of Academy’s asset-based revolving credit facility (the “ABL Credit Facility”) to March 8, 2029, unless (i) more than $100 million of the aggregate principal amount of the Notes or the Term Loan, or any refinancing thereof, in each case, is outstanding on the date that is 91 days prior to the earliest maturity date of any such indebtedness or (ii) equal to or less than $100 million of the aggregate principal amount of the Notes or the Term Loan, in either case, is outstanding on the date that is 91 days prior to the earliest maturity date of any such indebtedness and a Reserve (as defined in the ABL Amendment) in the ABL Credit Facility has not been taken for such amount, then the maturity date of the ABL Credit Facility will be the date that is 91 days earlier than the earlier maturity date of the Notes and the Term Loan. The ABL Facility is used to provide financing for working capital and other general corporate purposes, as well as to support certain letters of credit requirements, and availability is subject to customary borrowing base and availability provisions. During the normal course of business, we periodically utilize letters of credit primarily for the purchase of import goods and in support of insurance contracts. As of August 3, 2024, we had outstanding letters of credit of approximately $ 9.3 million, all of which were issued under the ABL Facility, and we had no borrowings outstanding under the ABL Facility, leaving an available borrowing capacity under the ABL Facility of $ 990.7 million. Borrowings under the ABL Facility bear interest, at our election, at either (1) Adjusted Term SOFR plus a margin of 1.25 % to 1.75 %, or (2) a base rate equal to the highest of (a) the federal funds rate plus 0.50 %, (b) JPMorgan Chase Bank, N.A.'s "prime rate", or (c) the one-month Adjusted Term SOFR rate plus 1.00 %, plus a margin of 0.25 % to 0.75 %. The ABL Facility also provides a fee applicable to the unused commitments of 0.25 %. The terms and conditions of the ABL Facility also require that we prepay outstanding loans under the ABL Facility under certain circumstances. As of August 3, 2024, no future prepayments of outstanding loans have been triggered under the terms and conditions of the ABL Facility. In connection with the reduction of two lenders who dropped out of the ABL Facility, the Company wrote off $ 0.4 million of deferred loan costs related to the ABL Facility. Covenants . The ABL Facility, Term Loan and Notes agreements contain covenants, including, among other things, covenants that may restrict Academy, Ltd.'s ability to incur certain additional indebtedness, create or permit liens on assets, engage in mergers or consolidations, pay dividends, make other restricted payments, make loans or advances, engage in transactions with affiliates or amend material documents. Additionally, at certain times, the ABL Facility is subject to a minimum adjusted fixed charge coverage ratio. These covenants are subject to certain qualifications and limitations. We were in compliance with these covenants as of August 3, 2024. 14 5. Fair Value Measurements Fair value is defined as an exit price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Authoritative guidance establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of the assets and liabilities. The fair value measurements are classified as either: • Level 1 which represents valuations based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; • Level 2 which represents valuations based on quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and • Level 3 which represents valuations based on prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy in which the fair value measurement is classified in its entirety, is based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. There were no transfers made into or out of the Level 1, 2 or 3 categories during any period presented. Periodically we make cash investments in money market funds comprised of U.S. Government treasury bills and securities, which are classified as cash and cash equivalents on the condensed consolidated balance sheets and are redeemable on demand. As of August 3, 2024, February 3, 2024 and July 29, 2023, we held $ 254.7 million, $ 303.4 million and $ 145.7 million in money market funds, respectively. The fair value of the Term Loan and Notes is estimated using a discounted cash flow analysis based on quoted market prices for the instrument in an inactive market and is therefore classified as Level 2 within the fair value hierarchy. As of August 3, 2024, February 3, 2024, and July 29, 2023, the estimated fair value of the Term Loan and Notes was $ 0.5 billion, $ 0.5 billion and $ 0.6 billion, respectively. As borrowings on the ABL Facility are generally repaid in less than 12 months, we believe that fair value approximates the carrying value. 6. Property and Equipment Property and equipment consists of the following (amounts in thousands) as of: August 3, 2024 February 3, 2024 July 29, 2023 Leasehold improvements $ 605,746 $ 571,785 $ 499,499 Equipment and software 713,400 688,143 659,693 Furniture and fixtures 407,371 398,415 364,423 Construction in progress 53,326 38,873 86,307 Building and Land 14,921 14,919 3,698 Total property and equipment 1,794,764 1,712,135 1,613,620 Accumulated depreciation and amortization ( 1,324,012 ) ( 1,266,926 ) ( 1,208,653 ) Property and equipment, net $ 470,752 $ 445,209 $ 404,967 Depreciation expense was $ 28.9 million and $ 57.8 million in the thirteen and twenty-six weeks ended August 3, 2024, respectively, and $ 25.7 million and $ 52.0 million in the thirteen and twenty-six weeks ended July 29, 2023, respectively. 15 7. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following (amounts in thousands) as of: August 3, 2024 February 3, 2024 July 29, 2023 Accrued interest $ 6,964 $ 6,717 $ 7,453 Accrued personnel costs 34,472 30,899 39,940 Accrued professional fees 2,180 1,818 2,328 Accrued sales and use tax 17,979 14,828 14,388 Accrued self-insurance 15,953 15,269 15,486 Deferred revenue - gift cards and other 82,619 96,688 78,095 Income taxes payable 29,114 9,313 2,184 Property taxes 36,425 14,239 37,639 Sales return allowance 5,500 6,400 6,300 Other 27,863 21,761 30,198 Accrued expenses and other current liabilities $ 259,069 $ 217,932 $ 234,011 8. Share-Based Compensation On September 29, 2020, the ASO, Inc. Board of Directors adopted the 2020 Omnibus Incentive Plan (the "2020 Omnibus Incentive Plan"), which became effective on October 1, 2020. The 2020 Omnibus Incentive Plan provides for the grant of certain equity incentive awards (each, an "Award"), such as options to purchase ASO, Inc. common stock (each, a "Stock Option") and restricted units that may settle in ASO, Inc. common stock (each, a "Restricted Stock Unit") to our directors, executives and eligible employees of the Company. Awards granted under the 2020 Omnibus Incentive Plan consist of Stock Options that vest upon the satisfaction of time-based requirements (each, a "Service Option"), Restricted Stock Units that vest upon the satisfaction of time-based requirements (each, a "Service Restricted Stock Unit") and Restricted Stock Units that vest upon the satisfaction of time and performance and/or market based requirements (each, a "Performance Restricted Stock Unit"). The plan reserved a total of 5,150,000 shares of common stock for issuance. On June 1, 2023, our stockholders approved the First Amendment to the 2020 Omnibus Incentive Plan, which, among other changes, increased the number of shares available for issuance thereunder by 2,600,000 shares. As of August 3, 2024, there were 4,112,148 shares that were authorized and available for future issuance under the 2020 Omnibus Incentive Plan. On September 29, 2020, the ASO, Inc. Board of Directors adopted the 2020 Employee Stock Purchase Plan (the "ESPP"), which became effective on October 1, 2020. We have reserved a total of 2,000,000 shares under the ESPP and as of August 3, 2024, there were 1,531,484 shares authorized and available for future issuance under the ESPP. Equity compensation expense was $ 8.0 million and $ 14.1 million for the thirteen and twenty-six weeks ended August 3, 2024, respectively. Equity compensation expense was $ 8.5 million and $ 19.9 million for the thirteen and twenty-six weeks ended July 29, 2023, respectively. These costs are included in selling, general and administrative expenses in the consolidated statements of income. For all Awards granted in 2023 and 2024, for team members that meet the age and service requirement for retirement eligibility (as defined in the award agreement), such Awards do not require the continued employment of the team member for vesting eligibility. In such cases, expensing of Awards is accelerated through the retirement eligibility date. The following table presents the Award grants during the twenty-six weeks ended August 3, 2024: Service Restricted Stock Units Performance Restricted Stock Units Number of shares 390,585 129,041 Weighted average grant date fair value per Award $ 63.51 $ 65.48 Weighted average exercise price per Award N/A N/A 16 The following table presents the unrecognized compensation cost as of August 3, 2024: Service Options Service Restricted Stock Units Performance Restricted Stock Units Remaining expense $ 5,824,253 $ 31,174,588 $ 7,888,830 Weighted average life remaining in years 1.5 2.3 2.5 9. Earnings per Common Share Basic earnings per common share is calculated based on net income divided by the basic weighted average common shares outstanding during the period, and diluted earnings per common share is calculated based on net income divided by the diluted weighted average common shares outstanding. Diluted weighted average common shares outstanding is based on the basic weighted average common shares outstanding plus any potential dilutive effect of stock-based awards outstanding during the period using the treasury stock method, which assumes the potential proceeds received from the dilutive stock options are used to purchase treasury stock. Anti-dilutive stock-based awards do not include awards which have a performance or liquidity event target which has yet to be achieved. Basic and diluted weighted average common shares outstanding and basic and diluted earnings per common share are calculated as follows (amounts in thousands except per share amounts): Thirteen Weeks Ended Twenty-Six Weeks Ended August 3, 2024 July 29, 2023 August 3, 2024 July 29, 2023 Net income $ 142,588 $ 157,075 $ 219,053 $ 251,045 Weighted average common shares outstanding - basic 71,829 76,104 72,911 76,483 Dilutive effect of Service Restricted Units and Service Restricted Stock Units 135 208 275 275 Dilutive effect of Performance Restricted Stock Units and Liquidity Event Restricted Units 110 167 122 174 Dilutive effect of Service Options 1,080 1,441 1,221 1,633 Dilutive effect of Performance Unit Options 84 117 88 134 Dilutive effect of ESPP Shares 51 54 34 36 Weighted average common shares outstanding - diluted 73,289 78,091 74,651 78,735 Earnings per common share - basic $ 1.99 $ 2.06 $ 3.00 $ 3.28 Earnings per common share - diluted $ 1.95 $ 2.01 $ 2.93 $ 3.19 Anti-dilutive stock-based awards excluded from diluted calculation 129 145 120 106 10. Commitments and Contingencies Technology Related and Other Commitments As of August 3, 2024, we have obligations under technology-related, construction and other contractual commitments in the amount of $ 91.4 million. Of such commitments, approximately $ 52.0 million is payable in the next 12 months. 17 Financial Guarantees During the normal course of business, we enter into contracts that contain a variety of representations and warranties and provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against us that have not yet occurred. However, based on experience, we believe the risk of loss to be remote. Legal Proceedings We are a defendant or co-defendant in lawsuits, claims and demands brought by various parties relating to matters normally incident to our business. No individual case, or group of cases against us, presenting substantially similar issues of law or fact, is expected to have a material effect on the manner in which we conduct our business or on our consolidated results of operations, financial position or liquidity. The majority of these cases are alleging product, premises, employment and/or commercial liability. Reserves have been established that we believe to be adequate based on our current evaluations and experience in these types of claim situations; however, the ultimate outcome of these cases cannot be determined at this time. We believe, taking into consideration our indemnities, defenses, insurance and reserves, the ultimate resolution of these matters will not have a material impact on our financial position, results of operations or cash flows. In addition, government agencies and self-regulatory organizations have the ability to conduct periodic examinations of and administrative proceedings regarding our busines s. As previously disclosed, in May and December 2023, U.S. Customs and Border Protection ("CBP") notified us that we owed additional duties relating to certain products that we imported from China that CBP believed were subject to certain anti-dumping and/or countervailing dutie s. While we contested CBP’s determination, we were required to deposit with CBP duties relating to these products (the “AD/CVD deposits”), which are included in prepaid expenses and other current assets on the Company’s consolidated balance sheet. In January 2024, we requested a changed circumstances review of CBP’s determination by the U.S. Department of Commerce (the “DOC”). In April 2024, the DOC made a determination in the Company’s favor in connection with the changed circumstances review, and in May 2024, instructed CBP to begin the process of issuing refunds to the Company on the AD/CVD deposits. For additional details, see “Note 11, Subsequent Events” below. Other than as discussed above, there have been no material developments during the fiscal quarter ended August 3, 2024, wi th respect to any of the matters discussed under the heading "Legal Proceedings" in the Annual Report. We are not currently party to any other legal proceedings that we believe would have a material adverse effect on our financial position, results of operations or cash flows. Sponsorship Agreement and Intellectual Property Commitments We periodically enter into sponsorship agreements generally with professional sports teams, associations, events, networks, or individual professional players and collegiate athletic programs in exchange for marketing and advertising promotions. We also enter into intellectual property agreements whereby the Company receives the right to use third-party owned trademarks typically in exchange for royalties on sales. These agreements typically contain a one to three-year term and contractual payment amounts required to be paid by the Company. As of August 3, 2024, we have $ 12.7 million in related commitments through 2027, of which $ 6.1 million is payable in the next 12 months. 18 11. Subsequent Events Our management evaluated events or transactions that occurred after August 3, 2024 through September 10, 2024, the issuance date of the consolidated financial statements, and identified the following matters to report: Resolution of CBP Matter As discussed above in Note 10, in May and December 2023, CBP notified us that we owed additional duties relating to certain products that we imported from China that CBP believed were subject to certain anti-dumping and/or countervailing duties. While we contested CBP’s determination, we were required to deposit the AD/CVD deposits, which were included in prepaid expenses and other current assets on the Company’s consolidated balance sheet. In January 2024, we requested a changed circumstances review of CBP’s determination by the DOC. In April 2024, the DOC made a determination in the Company’s favor in connection with the changed circumstances review, and in May 2024, instructed CBP to begin the process of issuing refunds to the Company on the AD/CVD deposits. In August 2024, subsequent to the period covered by this report, the Company received a full refund of the AD/CVD deposits. This matter is now resolved, and the refund will be recorded as cash within cash and cash equivalents on our unaudited condensed consolidated balance sheet for the quarter ending November 2, 2024. Declaration of Dividend On September 5, 2024, the Company's Board of Directors declared a quarterly cash dividend with respect to the fiscal quarter ended August 3, 2024, of $ 0.11 per share of the Company's common stock, payable on October 17, 2024, to stockholders of record as of the close of business on September 19, 2024. 19