Good morning, everyone, and welcome to the Academy Sports and Outdoors' First Quarter Fiscal 2024 Results Conference Call. This call is currently being recorded. I'll now hand the call over to Matt Hodges, Vice President of Investor Relations for Academy Sports and Outdoors. Matt, please proceed.

Good morning, everyone. And thank you for joining the Academy Sports and Outdoors' First Quarter 2024 Financial Results Call. Participating on the call are Steve Lawrence, Chief Executive Officer; and Carl Ford, Chief Financial Officer. As a reminder, statements in today's earnings release and the comments made by management during this call may be considered 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 the factors identified in the earnings release and in our SEC 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. I'll now turn the call over to Steve Lawrence for his remarks. Steve?

Thank you, Matt. Good morning everyone and thank you for joining our first quarter 2024 earnings call. We appreciate your interest and support for Academy Sports and Outdoors. As mentioned in our press release this morning, sales for Q1 reached $1.36 billion, reflecting a 1.4% decrease compared to the same quarter last year. It's important to note that we had a 53rd week in 2023, leading us to use a shifted comparable sales calculation, comparing weeks 1 through 13 this year to weeks 2 through 14 last year. Under this approach, our comparable sales for the first quarter decreased by 5.7%. As anticipated, our customers are facing challenges due to the current macroeconomic climate. Inflation is keeping prices high, and depleted personal savings are resulting in tighter discretionary spending. The customer shopping trends we've discussed in previous calls persisted in the first quarter, with customers shopping less frequently and showing a preference for value offerings along with new and innovative items. However, it was encouraging to see a gradual improvement throughout the quarter, with April outperforming the other months of Q1. The second quarter holds promise for continued improvement, bolstered by several upcoming national shopping events like Father's Day, 4th of July, and the start of Back-to-School. On a positive note, our dotcom business achieved an 8% sales increase compared to last year, comprising 9% of total merchandise sales versus 8.2% from the previous year. More than 80% of total dotcom sales in Q1 came from buy online pick up in store and ship from store, showcasing our omnichannel growth strategy. One of our long-term goals is to build a more robust omnichannel business, as omnichannel customers are our most valuable, shopping more frequently and spending significantly more annually than those who shop through a single channel. When analyzing sales across our divisions, hard goods performed the best this quarter on a non-shifted basis, with our Outdoor division showing a 2% increase. Camping items have seen substantial growth due to brands such as Stanley and YETI. While the momentum from Q4 slowed slightly in Q1, we expect this segment to pick up later in the year. The hunting and fishing categories remain critical for us, with both in their strongest inventory positions in the last four years, preparing us well for the summer fishing and fall hunting seasons. However, the Sports and Recreation category, which also falls under hard goods, experienced a 4% decline. Team Sports performed well, especially in Pickleball, but our outdoor cooking category faced challenges due to a shortage of crawfish impacting sales in the Gulf region. We anticipate a rebound as we move out of crawfish season and customers shift to summer outdoor grilling, supported by an aggressive marketing plan to capture market share. We pride ourselves on offering the widest range of products in this category, including various cooking types and accessories, making it a crucial draw for customers. In terms of challenges, fitness remains our most difficult segment, particularly with softness in cardio equipment sales. We will outline plans to address this lapse shortly. On the soft goods side, our footwear sales were slightly down by 1%, although this marked an improvement compared to Q4. Athletic footwear led the way with gains from performance brands like Nike, Brooks, and New Balance, while casual footwear, driven by brands like Birkenstock, Crocs, and Skechers, was the second-best performing category. Our partnerships with existing footwear brands continue to grant us access to innovations that keep our assortment fresh. We also strive to include popular brands that were previously unavailable. Apparel sales dipped by 3% this quarter, with children’s and outdoor apparel leading. Strong performances came from brands like Nike, Carhartt, and Levi’s, as well as newer private brands like Freely and R.O.W. Licensed apparel lagged, especially compared to last year’s release of Astros World Series jerseys and the NCAA Women's Basketball Championships. However, this segment typically gains traction in the fall, and we’ve made significant progress in refining our assortment for the college and pro-football kick-off later this year. From a profitability perspective, our gross margin rate stood at 33.4% this quarter, a 40 basis point decline from last year, mainly due to an 80 basis point drop in merchandise margins. This decline in merchandise margins was driven by a sales mix favoring lower-margin hard goods and some planned promotional efforts this year. We remain on track to meet our full-year gross margin guidance of 34.3% to 34.7%. Carl will go into more detail regarding profitability later in the call. Looking ahead, we anticipate our customer base to remain pressured, moderating their spending patterns. To address this, we are aligning with the shopping trends demonstrated by customers over the past year while also focusing on our long-term initiatives. To summarize customer behavior, three main drivers are key: newness, value, and driving traffic during important calendar periods. In terms of newness, we continuously seek emerging and innovative brands to invigorate customer interest and traffic. Notable brands added over the past year, such as Birkenstock, NordicTrack in fitness, and BURLEBO in apparel, will see expanded availability this year. We're also bringing in established brands that haven’t been part of our range, like Ultra Trail running shoes and Chaco sandals. To enhance our value offerings, we've introduced new private brands, including a golf line exclusive to Academy, initially focusing on golf balls and clubs. Similar to our outdoor category, we see potential for future category expansions. To stimulate sales in sluggish categories, particularly in fitness, we plan to introduce innovative products. We aim to refresh our cardio equipment lineup by embracing emerging trends and incorporating value items like walking pads, which serve as low-impact workout options for those using standing desks. We are also introducing soft fitness equipment, a leading digital brand known in the cross-fit community. Additionally, we are expanding our NordicTrack selection. We’re also branching into recovery-focused products through partnerships with Lifepro and Hyperice, along with launching new brands in sports nutrition. In terms of value, we are ramping up our focus by spotlighting key products, brands, and categories. We clearly define everyday value leadership on selected private and national brand items, which will be prominently featured in our marketing and displayed in our stores and website. We will maintain our commitment to everyday pricing while utilizing promotions in seasonal categories to take advantage of customer shopping habits aligned with key milestone dates. Significant shopping events in the second quarter include Memorial Day, Father's Day, and the start of Back-to-School and football seasons. We have an exciting promotional lineup focused on summer categories such as grilling, patio furniture, pools, and fishing to drive seasonal traffic. We also have various initiatives as part of our long-range plan that we expect will yield positive results as the year progresses. Opening new stores remains our primary growth driver, with plans to open 15 to 17 new locations in 2024. We opened two new stores during the quarter in Knightdale, North Carolina and Greenwood, Indiana, and recently opened our third store this year in Zanesville, Ohio, growing our footprint to 19 states and reaching a total of 285 stores. We plan to open an additional 12 to 14 stores in the latter half of the year, balancing new and existing market locations. Our 2022 vintage stores have already reported positive comparable sales, and the newer 2023 locations, although not in the comp base yet, are projected to achieve higher first-year sales than the 2022 batch. We expect the 2024 stores to be even more robust. Our second core strategy involves growing our dotcom business to achieve a 15% penetration rate over the next five years. As noted, this segment had a solid start in Q1, marking the second consecutive quarter of positive comparable sales. Our core objectives are to enhance the omnichannel shopping experience, expand online assortments, and boost fulfillment speed. A significant new capability will roll out later this year, allowing for same-day delivery on many products through a partnership with DoorDash. Initially, customers will place orders via the DoorDash app, with plans to integrate this capability into our own sites as we approach Back-to-School. This service aims to attract new customers and stimulate incremental sales while working alongside our strong buy online pick up in store offering, which emphasizes a one-hour fulfillment guarantee, thereby enhancing the overall shopping experience. Additionally, we will continue to deepen our customer engagement through data and analytics. This summer, we will launch our first loyalty program, branded as myAcademy. While our Academy credit card will still be our primary loyalty tool, offering 5% off every purchase, we aim to expand our outreach to customers who may not qualify for the card or choose not to apply. MyAcademy will help us engage non-credit card customers, focusing on reducing purchasing barriers and enhancing their buying power through targeted offers and promotions. Key features will include a welcome offer of 10% off the next purchase, free shipping on orders over $25, expedited checkout, personalized offers, and a birthday reward. As we refine the program, we will incorporate features that resonate with our customers, aiming for a full rollout before Back-to-School. Another initiative in our long-term strategy focuses on optimizing our supply chain. The new warehouse management system implementation is a key part of these efforts, which should lead to greater productivity and service from our Georgia distribution center as it is now operational. Our management team has previously navigated similar transitions successfully, and we are pleased with how smoothly our system upgrade has progressed. This transition is crucial to meeting the new store growth targets set forth in our long-range plan. While we cannot control external economic conditions, we can control how we provide value and innovation regularly for our customers. We will continue to focus on engaging customers through marketing, service levels, and our long-term strategic goals. Now, I’ll turn it over to Carl for a more detailed look at our Q1 financials.

Thanks, Steve. Good morning, everyone. Our top line in the first quarter did not meet our expectations. Given this, we worked to manage our inventory levels and controlled our operating costs, resulting in Academy generating $200 million in cash from operations during the quarter. Now, let's walk through the details of our first quarter results. Net sales came in at $1.36 billion, a 1.4% decline compared to the first quarter of last year with a comp of negative 5.7%. Our comp ticket size decreased by 1%, while comp transactions declined by 5%. Our omnichannel sales were 9% of total merchandise sales compared to 8.2% in the first quarter of 2023. The investments we have made over the past couple of years, upgrading the technical aspects of our website and the connectivity to the stores have solidified the back-end infrastructure to improve the customer checkout experience. We are now focused on investing in new customer acquisition and driving more traffic to the site. The gross margin rate in the first quarter was 33.4%, a 40 basis point decrease compared to Q1 of last year. Merchandise margins declined by 80 basis points, primarily due to a higher sales mix of hard goods and more promotional activity versus last year. This decline was partially offset by a 40 basis point improvement in freight costs and a 20 basis point improvement in shrink compared to Q1 of last year. We remain on track to achieve our full year gross margin guidance of 34.3% to 34.7%. Our SG&A dollars as a percentage of sales increased by 130 basis points or $12.5 million compared to Q1 of last year. We deleveraged 30 basis points on existing store operations, primarily due to the decline in sales volume. The other 100 basis points of deleverage was a result of Academy investing in its primary growth initiatives, opening new stores, growing omnichannel, scaling and leveraging our customer data platform and modernizing our supply chain. We believe in our long-range plan and are committed to investing in it, while also managing our existing cost structure. Overall, in the first quarter, Academy generated net income of $76.5 million and diluted earnings per share of $1.01. Adjusted net income, which excludes stock-based compensation of $6.1 million and $449,000 of deferred loan costs, was $81.6 million or $1.08 in adjusted earnings per share. Looking at the balance sheet, we ended the quarter with $378 million in cash. Our inventory balance was $1.36 billion, a decrease of 2% compared to Q1 of 2023. Total inventory units were down 11% and this includes having an additional 15 stores compared to the end of Q1 2023. On a per store basis, inventory units were down 11.5%. In terms of capital allocation, we continue to execute a balanced capital allocation strategy focused on our 3 priorities. One, maintaining adequate liquidity for financial stability. Two, self-funding our growth initiatives. And 3, increasing shareholder return through share repurchases and dividends. In Q1, we generated approximately $200 million of cash from operations, we invested $32 million in our growth initiatives, repurchased $124 million worth of shares or 2.7% of the total outstanding shares of the company, and paid out $8 million in dividends. We are investing in future growth as well as shareholder value, particularly when it is discounted relative to the company's long-term growth potential. Academy had $574 million remaining on its share repurchase authorization at the end of Q1. Lastly, a couple of other notes from the quarter. We amended and extended our $1 billion credit facility through March of 2029. And the Board recently approved a dividend of $0.11 per share payable on July 18, 2024, to stockholders of record as of June 20, 2024. Turning to guidance, we expect the economic environment to remain challenging. Therefore, we will continue to efficiently run the business while also making investments to support our long-term strategic opportunities. We are reiterating our previous sales and net income guidance for fiscal 2024 while updating our EPS forecast to reflect the shares repurchased in the first quarter. Net sales are still expected to range from $6.07 billion to $6.35 billion, with comparable sales of negative 4% to positive 1%. Our gross margin rate is still expected to range from 34.3% to 34.7% and GAAP net income between $455 million and $530 million. GAAP diluted earnings are now expected to range from $6.05 per share to $7.05 per share based on a revised share count of approximately 75 million diluted weighted average shares outstanding for the full year. This amount does not include any potential future repurchase activity. SG&A expenses are still expected to be approximately 100 basis points higher than in 2023. As a reminder, SG&A includes stock-based compensation expense of $30 million or approximately $0.30 of earnings per share. We also remain confident in the strength of our cash flows and still expect to generate between $290 million and $375 million of free cash flow, including $225 million to $275 million of capital expenditures. With that, we will now open it up for questions.

And our first question is from the line of Seth Basham with Wedbush Securities.

My first question is just thinking about the balance of the year. With your maintained full year guidance, it implies material improvement in both the top line as well as gross margins. Can you reiterate or help us better understand the key drivers of that improvement in the second quarter and beyond?

Yes. So I'll start with, when we talked on the last call how we described the kind of the sequence of the quarters and progression was that we thought Q1 would be the most challenging quarter for us. We saw a sequential improvement coming in Q2. We saw the back half getting better than the first half of the year. So that was how we described it. And we're sticking with that as kind of our thoughts on how the quarterly progression goes. In terms of things that we have within our control that we're using to try to drive the business and start moving the needle, obviously, we talked about the customer behavior, right? We said the customers clearly demonstrated over the past years a focus on value, newness and episodic shopping around those key moments in the calendar. And so we've really aligned our assortments, our marketing, and all of our promotions around that. So you'll see very aggressive pushes for us across all fronts during those key time periods in the calendar such as Father's Day, 4th of July, Back-to-School, and Holiday. And then I think you'll see us pull back a little bit from promotions on the gaps within. So we've got a good game plan from that perspective. We've got a couple of categories that are resurgent. Our outdoor business has been positive now for 2 quarters in a row. So we're excited about that. That had been a drag on the business for at least a couple of years going back to '22 and early part of '23. So we feel good about that. The dotcom business has had 2 back-to-back quarters of positive growth as well and we expect that to continue as we move through the year. As we get deeper in the year, some of the other initiatives start to kick in. Obviously, we talked about the '22 vintage of new stores running a positive comp for first quarter. We expect those to continue to positive comp for us. And then as for the '23 vintages start fitting into the comps, we believe that those would also inflect a positive. And then we start opening up our 24 stores. We only have 3 stores so far, we opened up. We guided 15 to 17, so the back end of the year is where most of those stores are going to open up and start contributing. So that's another driver for us. A couple of other things, we've talked a lot about loyalty and our new CDP on the last couple of calls. So I think as we're about a year into now having that customer data platform in place, we're getting smarter about how we leverage that in terms of targeted marketing to our customer. I think the new myAcademy reward that we're rolling out is an outgrowth of that. And it gives us another tool to interact and engage with our customers, particularly those who haven't been using our credit card. And then, last, we've got an improving apparel and footwear business. Both of those businesses were better in Q1 than they were in Q4. So we've got those businesses moving in the right direction. So those are all the reasons why we believe that we're going to start seeing steady improvement throughout the remainder of the year.

And as a follow-up on that last point, the apparel and footwear is still lagging as categories. It seems like industry-wise, they're doing better, so opposite for you. Are there key initiatives or key brands that will help drive improvement in that business as we move through the year?

Yes. So footwear for us was a drag in Q4. It was actually one of the better businesses for us in Q1. There are certainly things going on in the performance running sector that we don't have access to a couple of those brands. That being said, we're working with our core suppliers, the Nikes, the New Balances that use the world to continue to get expanded access to premium footwear there. We're also working with our other brands where one of the things that's good about our business is it's not just active footwear right? We have a work boot business. We have a casual shoe business. We're working with brands like Skechers to really drive the slip-in piece that we're working with our work boot vendors to drive that piece of it. And then we continue to add new brands such as Birkenstock, which has only been in the store about a year. We've expanded the presentation of that now into more doors. We just added Ultra Trail running shoes for Q1 as well as Chaco sandals. So it's a mixture of working with our existing brands to get access to the things that we currently haven't had access to, layering on new brands, and expanding new brands rapidly as they prove successful. And that's how we're going to drive growth in footwear.

Our next question is from the line of Justin Kleber with Baird.

Steve, you mentioned the positive comp in new stores. I was hoping you could expand on that a bit. How did the '22 vintage comp in aggregate, how does that compare to what you would anticipate from normal maturation? Just trying to understand the comp benefit from new store maturation versus how your mature stores are performing.

Yes. I would say it was in line with how we modeled it based off of, if you remember, we talked a little bit about how when we initially came forward with our forecast, we were kind of looking at stores that had some influence in the pandemics. So we went back and looked at stores in the '14, '15, '16 vintages to kind of get a sense of what year to look like and that's how we modeled it. So I would say that they were in the mid-single-digits from a comp, mid to low single-digits from a comp perspective. It was significantly better than the remainder of the stores. So we definitely saw an inflection there. Our expectation would be that as when the '23 vintages start to mature and feed in, we'd see similar behavior. As a reminder, the '22 vintage was somewhat opportunistic. We tested a lot of different things. We applied those tests to the '23 vintage. And as we've been tracking them, they're tracking to a higher year 1 volume than the '22 vintage did. And our expectation is we'll see the same thing with the '24 vintage. So this is something that's going to take a while to build. It's a little bit of that flywheel as we're trying to get it going. It's encouraging to see the '22 vintages perform much better than the rest of the chain. And as we get more of these vintages '23 and '24 feeding into that, I think it's just going to help accelerate our comps.

And then maybe a question for Carl, just on gross margin. Curious how 1Q came in relative to your expectations? And if you could just help us bridge the gap between the 1Q gross margin rate to the full year guide? I know 2Q, 3Q historically have higher or historically higher margin rate quarters. But just how do you envision merch margins evolving over the balance of the year and what's your assumptions for freight within the full year guide?

Yes. So last year came in at 34.3% gross margin. We guided to 34.3% to 34.7%, so on the high side, 40 basis points of growth. Where we thought that would come from would be 2 real places. One would be on distribution center operations. Steve mentioned that we went live with the Manhattan Active product in our Twiggs County or Georgia distribution center, which is our least productive. We're happy with what we're seeing coming out of there in terms of productivity. And so we think that getting out of the quarter of implementation, if you will, there's upside potential associated with DC operations. Second would be around merchandise margins, call it 20 basis points of upside potential associated with that. Our inventories are pretty clean, as we're proud of how we managed inventory. We're proud of how we managed promotions. So we're clean inventory balance, don't need to promote into things to clear it. What we would promote is on this key traffic driving time periods where we want to incentivize the customer to come in. As it relates specifically to Q1, our gross margin was down 40 basis points. That was 80 basis points of merch margin decline, 40 basis points of freight improvement year-over-year and 20 basis points of shrink improvement. I would really expect shrink to be flat for the year, year-over-year. I think we've got opportunity areas and we're focused on it. Coming out of the gate, 20 basis points better than last year on the inventories that we did, I'm pleased with it. But I would tell you to think about it as a flat opportunity. And then freight, overall, I think it will generally be flat for the year within our guidance. We'll have some pressure associated with import. We've got opportunities on the outbound side from a DC to store standpoint. I think this will generally be flat. The 2 upside potentials are DC operations and merch margin.

Yes. I would jump in and just say that the merch margin coming in a little lower than last year, I think, was really affected by 2 things. First, we talked about how outdoor performed better within the quarter and that certainly has a lower margin profile. So that mix is down a little bit. And then I'd also say that we're talking about the customers being under pressure and they're gravitating towards value. Early in the season, one of the top ways we delivered value is clearance. And so we certainly saw a higher take rate on some of the clearance promotions that we ran early in the season with the customer gravitating towards those. That being said, I think we've got a solid plan and visibility of the gross margin. And we think merch margins over the course would be roughly flattish is how we're thinking about it.

Our next question is from the line of Michael Lasser with UBS.

So it sounds like the consumer has been responding to some of the promotional activity and discounting that the Academy has been doing. How aggressive is the Academy willing to be with its gross margin in order to drive sales, given what's happening in this environment?

Yes. So Michael, I think what we shared with you in the past, and I think it's held true, candidly, in terms of the behavior we've seen in the first quarter. In periods where there's not a reason for the customer to shop, promoting aggressively has not really driven incremental traffic. It's just basically then an AUR erosion. And so what our game plan has been and will remain is we know that the customer is coming out and shopping during those key moments on the calendar. So we've got a couple of the big ones ahead of us. I mean, we really activate over the summer, as you all know. And as we get into Father's Day, which is one of the larger weeks of the year for us and 4th of July, and Back-to-School, we have promotions lined up and will be more promotional than last year. That being said, it's anticipated in our gross margin forecast. We pulled back on kind of the gaps in between when the customer isn't showing as much willingness to shop based on the discounts. So we've got it modeled in there. But you're going to see us be promotional during those key time periods and then pull back on the gaps in between. And that's worked for us over the past 6 to 12 months and you're going to see us lean more into that.

My follow-up question is on the momentum you talked about in April. Has that continued into the current quarter? And Steve, there's a lot of skepticism on Academy's ability to hit at least the low end of the guidance for the rest of the year. What's implied in that is that comps do make a meaningful improvement. You outlined several factors that you think will drive the improvement. If you don't see that improvement, what actions are you going to take in order to preserve profitability and manage the business?

Yes. So what I can tell you is that, yes, you're right. If you look at the guidance, I mean, obviously, Q1 is down 5.7%. It's outside the low end of the guidance. So it does imply that we see improvement as we move forward. The thing I'll point out is we really haven't had any of those major kinds of customer shopping moments on the calendar in Q1. We're not obviously a big Easter business. There's not a lot of outdoor activities going on during that time period, et cetera. So really, our sweet spot and we've described this, I think, in a lot of different venues is that kind of Memorial Day through Back-to-School time period. That 13-week period is a very big time period for us. That's where we've lined up a lot of our marketing initiatives, that's where we've lined up a lot of our promotions. That's why we're launching a lot of new capabilities, such as our new loyalty program, same-day delivery with DoorDash, things like that around that time period to really take advantage of it. So our belief is we're going to see that inflection during that time period. Back to the start of your question, I would tell you that the start of May was a little softer than we wanted. I think it's been pretty well documented that we had some pretty tough weather in a lot of our geographies with a lot of stores shut down for periods of time. That being said, when we got to Memorial Day and we've got some clean kind of weather, we actually saw Memorial Day behaved as we thought it should. And we were pretty happy with how Memorial Day inflected. That being said, we've got a lot of volumes still out of this. This is a big week for us. 4th of July is a big week for us and, obviously, Back-to-School is a big week for us. So we're going to lean into those things. And then after we get through all of those time periods, we're going to assess where we're at. And based off of what we're reading in the business from that point forward.

Our next question is from the line of Simeon Gutman with Morgan Stanley.

My first question is about new stores. Can you discuss the positive performance of the new vintages? Does that apply to all stores? Additionally, can you explain why the class of 2023 is performing significantly better than expected? How do you analyze this? Is there any cannibalization occurring among neighboring stores?

First, I want to clarify that when we refer to new stores showing positive comps, we are only talking about the 2022 vintage because most of the 2023 vintage opened in the latter half of the year and haven't had a chance to compare themselves yet. We are pleased to see that the 2022 vintage, which is the first group contributing to comps, is performing well. We've noticed that the 2023 vintages have started off with a stronger year one volume trajectory compared to the year two vintage. We believe this is due to the lessons learned from the 2022 vintage, which we applied to the 2023 vintage regarding our grand openings and marketing strategies, such as extending the seeding period for those stores, sustaining marketing efforts longer, better localized merchandising, and an improved staffing model. By implementing these learnings, we are seeing positive results. We expect that 2024 will start off strong. This year, we opened three new stores, and we are particularly pleased with the performance of two of them, Knightdale, North Carolina, and Zanesville, which are in relatively new markets for us and are both doing very well. We believe that applying our experiences from entering new markets has helped set these stores up for success. We are confident that the 2024 vintage will achieve a higher year one volume than the 2023 vintages.

Could you provide more details about the plans for the rest of the year? You've mentioned that customers are becoming more selective and discussed the importance of promotions, along with new initiatives. How do you plan to address the needs of these more value-focused customers while also maintaining progress in your sales performance for the remainder of the year?

So I would say a couple of things. You're going to see us lean into value a couple of different ways. First, we view ourselves as an everyday value price retailer. About 75% of what we sell is at regular price, right? We've got great everyday value on our private label. We've got everyday value in a lot of our national brand offerings. And sometimes we're not sure we're being as overt as we should about that. So you're going to see us really lean into that sort of marketing message. You're going to see us sign it more aggressively in stores. You're going to see it more prominently featured in our website and our marketing. So you're going to see it across every touch point. At the same time, we also use promotions strategically during those key moments in the calendar like a Father's Day, like a Back-to-School to drive traffic. And so during those time periods, we're going to have more broader-based promotions and somewhat deeper promotions in certain key categories to drive traffic and win the driveway decision. And, of course, we've got that modeled into our margin. One of the things that's really been helpful with the new customer data platform that we have is we can start seeing customer behavior. So we know within our customers who are the more value-based customers. And we're targeting a lot of that marketing towards that customer. Conversely, we also have a customer who we can tell is more triggered by or activated by newness. And so we're using our CDP to really target them with more of the new offerings and some of the new brands that we're launching. So that's really how we're going about it, using CDP as a way to kind of target those messaging and making sure we've got good fuel from a promotional perspective or a newness perspective to send to those customers based off of what they're gravitating towards.

Our next question is from the line of Christopher Horvers with JPMorgan.

So in terms of the improvement in the back half, can you talk a little more specifically about the categories that you expect to turn positive? To what extent is mix going to play out in the gross margin as it relates to that? And to what extent are you expecting maybe the hunt category to see some lift around the election?

Yes. So you hit on the first one where you're asking which categories do we expect to continue to drive for us on sales. I think certainly outdoor is one of those. It's lapped itself in terms of some really tough comps. And it's been 2 quarters of a pretty good performance and we'd expect that to continue through the year. I think that would be broad-based. One of the things on the call we called out was the camping category really fueled by Stanley and YETI. We think that's going to continue through. We also expect that the hunt business will be good as we turn the quarter into hunting. And we expect fishing to be good over the summer. So I think all of those categories should continue to be drivers for us. Impact of the election on it, hard to tell at this point in time. We really haven't modeled a ton of activity off of that. We do not know when we go back and look at election years. So we see that business activate or almost time periods. But we're not really banking on that. If it happens, that would certainly be a positive. We expect the dotcom business to continue to be positive. And we expect the apparel and footwear business to steadily improve. At the low end of our guidance, it's down 4% comp. That implies the customer remains under pressure and doesn't really improve in terms of how they're shopping and us leaning into our activities and focuses from a newness value experience perspective, kind of get us to the low end of the guidance. If we can see some inflection from the hunting category based off the election and we can see some of the newness and value offerings really kick-in from an apparel-forward perspective and those are the positive, that's how we get to the high end of our guidance. So that's why we didn't narrow the range at this point in time. We're only 25% of the way through the year. We think we still have a lot of outcomes ahead of us that are undetermined. And as we get deeper in the year, we'll certainly share what we're seeing in the business once we get through Q2 because we've got a lot of key events right now in front of us.

And then just to clarify, so in the gross margin, supply chains are tailwinds, shrinks flat. Merchandise margin is flat. Is that right? Am I missing any pieces? And then that merch margin, are you expecting mix to be a positive and then essentially offset more promotions year-on-year?

So we're expecting a flat merchandise margin. We have considered some deleverage from the hard goods big ticket side of the business, particularly Outdoor, which has a lower margin profile. However, we anticipate that footwear and apparel margins will be strong as we move through the year.

The next question is from the line of Kath McShane with Goldman Sachs.

Our first question was just on the myAcademy loyalty program. I just wondered if you could give us a little bit more detail on the timing of the rollout of that. And is the guidance capturing any kind of upside potential from that or any kind of margin implications as a result of the promotions and offerings that go along with it?

Sure. So I'd start with, from a timing perspective, it's going to roll out over the summer. We want to have it in place prior to Back-to-School. As you know, our Back-to-School starts a little earlier. So it starts kind of at the tail end of July. So I'd expect we'll have it fully rolled out to all stores by the first or second week of July. Really, the goal is we have a pretty powerful loyalty program right now with our credit card. That being said, we have several customers who either; A, don't want another credit card or; B, maybe in some cases don't qualify for the credit card. And so we wanted to offer them a lot of the same sort of values. And so we talked on the call, that's initial sign-up discount of 10% of up to $200. That's free shipping over $25. That's targeted discounts. So all of those things that are kind of endemic to a lot of loyalty programs we're going to have. The only thing you don't get with myAcademy that you do get with the credit card primarily is the 5% off every day. We certainly believe that's going to be a sales driver for us. We have that modeled in as part of our improvement. That's one of the ways we see getting from the negative 5.7% we had in Q1 to our guidance range of down 4% to up 1%. From a margin erosion perspective, we've repurposed other discounts that we've been running towards this. So it's not really, from our perspective, going to be initially gross margin accretive because we've offset other promotions to fund it. And certainly, over time, we're going to test how targeted offers work. And if certain offers resonate more than others, we might add those into benefits, hard benefits that we'll run going forward. But we started off a little light. And our goal would be to add to this over time as we test our way into offers the customer responds to.

And our second question just was around your comment around some of the key brands that you aren't currently carrying in footwear. How much do you think this specifically is challenging traffic to the store?

We definitely pay close attention to market share data and the current situation. The brands that have been most frequently questioned in this and previous calls have been around a couple of specific names. If you consider those two brands, they have more than tripled their market share over the last two years. This suggests they are significant contributors in the running footwear segment. Not having them in our lineup is something we would prefer to change, as they could help drive traffic to our stores. However, we are not just waiting for them to open their offerings to us. We are actively engaging in conversations with them and are confident that we will eventually gain access. Meanwhile, we continue to put effort into enhancing our existing brands and seeking out more premium products that we currently do not have. We are also focused on adding new brands to complement our selection. All these strategies will remain our focus as we work towards gaining access to those brands we do not currently possess.

Our next question is from the line of Robbie Ohmes with Bank of America.

Maybe for Carl, just on the store opening cadence for the year, anything you can tell us about how that may or may not pressure certain quarter's preopening expense, just timing of store openings being back half weighted?

Yes. So the balance of our stores that we're going to open are going to be in the second half of the year. As you think about preopening costs, we've really modeled those into the 100 basis points of deleverage that we put in the SG&A guide. So that's really what's driving the year-over-year deleverage as our investments into new stores and we like the way that they're starting off. We like the way that they're comping once they get past that 14th month. And we think this is a big driver for the long-range plan. So we're going to continue to do that. It will deleverage us. Our average store did $22 million in sales volume last year. And these new stores we're guiding $12 million to $16 million in year 1. So there's deleverage associated with it. But that's what's essentially baked into the 100 basis points of deleverage that's embedded within our guidance.

Can you explain the economics of the DoorDash deal? Is it very favorable for you? How is it structured?

I can't share all the details due to contractual obligations. Essentially, there are a couple of different ways they model the initial phase for us. The customer can use the DoorDash app to find our products. DoorDash will come to the store, retrieve the product, purchase it, and we will pay a commission afterward. Over time, we anticipate shifting to a model resembling a BOPIS order, where we prepare the items and hand them over to the DoorDash representative, which will have a different associated rate. Ultimately, we aim to integrate this option into our website, as discussed in the call. We've been analyzing customer behavior to see what resonates with them. Convenience is a priority, and currently, we don't offer this option. Previously, we had BOPIS available for pickups, but consider situations where a customer at a tournament realizes they've forgotten a pair of cleats or a mouthguard. Now we can deliver those items, which we couldn't do before. The customer overlap between our files and theirs is mostly additive, with minimal overlap. For all these reasons, we've chosen to implement this capability, believing it will be a beneficial addition. DoorDash charges a delivery fee within their fee structure, but overall, we are satisfied with the arrangement so far. It is still early in the rollout, and we think it will help us connect with customers we haven't reached before.

Robbie, the only thing that I would add to that is, obviously, somebody is not going to DoorDash are going to save for a kayak or some of these bigger ticket items that tended to be lower in margin rate. So there is a royalty and commission associated with it. But the margin profile that gets being sold should be elevated based off our holistic product assortment.

Our next question is from the line of Greg Melich with Evercore ISI. The next question will be coming from the line of Anthony Chukumba with Loop Capital Markets.

I won't bring up my usual questions about On and Hoka since those have already been addressed. Instead, I would like to ask about the competitive promotional environment. You've mentioned that you are not engaging in promotions much between major sales events, which makes sense. What are you observing from your competitors? Are they adopting a similar approach regarding the timing of their promotions? Additionally, how would you compare the current promotional environment to previous years or to the period before the pandemic?

Yes. I would describe it similarly to how we've discussed in past quarters. It's not quite back to pre-pandemic levels. Each year seems to be a bit more promotional. As I mentioned before, we don’t have many significant events in the first half of the year. We've actually entered that period now with Memorial Day, Father's Day, 4th of July, and Back-to-School approaching. Initial observations suggest it is slightly more promotional than last year, but it’s not excessive or irrational. It appears that promotions are being focused on the expected summer categories like grilling and pools. Overall, I would describe the environment as still quite rational. Honestly, in Q1, it wasn't very promotional except for the clearance cycle that many experienced.

And then just one quick follow-up. You mentioned that your shrink was down 20 basis points year-over-year. Is there anything in particular that was driving that? And do you expect continued shrink improvement over the remainder of the year?

Yes. To clarify, shrink increased last year, so being 20 basis points better year-over-year is an improvement. We're implementing technology solutions like license plate readers and dual sensors to alert us when products are missing due to theft. We're taking precautions such as securing products and providing customer service buttons to assist shoppers. We work closely with local law enforcement and monitor our inventory through regular physical counts. The driving factors are still prevalent in the market, reflecting a broader retail issue. We're addressing the problems, but they haven't drastically declined. I can tell you that the Manhattan system in our distribution centers is more systematic compared to our previous warehouse management system, and we maintain a significant amount of inventory there. Properly accounting for that has contributed positively year-over-year. We're about halfway through our physical inventories for the year and are pleased with the 20 basis points improvement, but I would suggest that we expect it to remain flat for the year.

Our next question is from the line of John Kernan with TD Cowen.

So Carl, just on the SG&A rate, it looks like SG&A dollars were up about 4% in the first quarter. How should we think about SG&A dollars and rate into the back half of the year and in the different scenarios of comps that you laid out? It's a fairly wide range at down 4% to up 1%. So I'm just thinking about how that rate might trend given the high and low end of the comp guide.

Yes, it's a good question and it's one that I'm kind of proud of the team on. So SG&A dollars quarter-over-quarter are up $12.5 million or 130 basis points. And this is for Q1. As it relates to $12.5 million, more than all of that was associated with the investment in new stores, primarily, but also some technology solutions around the customer database platform, e-comm user experience, and now the go live of the WMS system. So that's what's driving more than all of the dollars and almost all of the leverage. I think we deleveraged pretty modestly on the negative comp base, the negative 5.7%. And what, John, what that shows is a responsiveness by the team. We understand how to pull levers inside the quarter. And we're very responsive to what we're going to do and not do and how that plays out. I would tell you, customer satisfaction has never been higher, but the polls that we get, the overall satisfaction of the customer. So we think we're flexing with things that the customer still perceives that they're really getting good service. As it relates to the balance of the year, what's really in the full year guide, yes, 100 basis points is how I would counsel you on the high and the low. If we hit the low, there'll be some more giveback associated with incentive comp and things of that nature. And on the high reflects pretty well. But as it relates to controlling promotions, controlling inventory, and controlling the expense profile of the company, the team is really united here. What we are investing in is these new stores. And we're offsetting internally in a way that the customer is not just pleased with.

Steve, just on the merchandising front, I think footwear has been a big driver of one of your biggest peers, dotcoms recently. What are you doing in terms of working with the vendors, working with the in-store presentation within footwear because the category obviously has a lot of momentum right now? It's not all just with On and Hoka. I mean you have a big Nike business and New Balance and others. So just what are you doing in terms of allocations as we get into the back half of the year?

Yes, that's a good question. We are continuing to collaborate with our existing partners, and Nike remains our largest vendor in the store, especially in the footwear category, where we are working to access better options. For instance, the 270 model, which was available in a limited number of stores last year, will be in over 150 this year. We have created an enhanced presentation for it in our store and are also engaging with them on additional footwear options as we move forward. Similarly, we are having those conversations with New Balance and Adidas. It's important to note that while athletic footwear represents a significant portion of our business, we are also performing well in other categories. We have a strong workgroup, seasonal footwear, and casual business. This year, we are expanding our partnership with brands like Birkenstock and increasing the availability of other brands, which were previously limited. I believe there are numerous ways for us to succeed in footwear, and our team is actively engaging with a variety of vendors to ensure we capitalize on these opportunities. I remain optimistic about our potential in footwear as we introduce new products moving forward.

At this time we just have time for one final question, which will be coming from the line of John Heinbockel with Guggenheim.

Steve, 2 maybe related questions, right? We've talked a lot about driving business in the episodic periods. But in the periods in between, right, when you think about using CDP to go after heavy users; whether it's fishing or outdoor cooking, what do you see as that opportunity in those periods? And then during the promotional periods, are you getting a better sense of promotional elasticity by customer, right, such that your promotions are more effective than they were a year or 2 ago?

Yes, I'll begin with the first part of your question. One of the new use cases we have been focusing on is our traditional customer segmentation. We have identified a customer segment that consists of high-value, first-time purchasers. For example, this includes someone who has made their first purchase of a grill or an elliptical, and has not shopped with us previously. We are targeting these customers to encourage additional purchases, such as fuel, spices, rubs, or covers for their grill, with the goal of transforming these one-time high-value shoppers into loyal customers over time. Utilizing offers during these key periods has been one of the ways we leverage the customer data platform (CDP). Regarding your second question, your observation is accurate. As we explore the use cases for our CDP, we are gaining insights into which types of promotions resonate with different customer segments. This is an area we will continue to refine as we aim to deliver the right promotions to the customers who are most likely to respond to them. Some customers are more inclined towards value, so we will focus on relevant promotions for them, while for others who are more interested in new products, we may offer fewer discounts but emphasize newness instead. We have come a long way in the past year, and we still see many opportunities as we further develop this approach. Additionally, the myAcademy Rewards program we are launching will enhance our ability to engage with customers in the ways they prefer. First, I want to express that I believe the team has done an excellent job navigating the current economic landscape while consistently working towards our long-term plan goals. We are dedicated to assisting active young families facing financial challenges to maximize their budgets and enjoy their time by offering attractive product assortments along with great value. There are still three quarters of the year remaining, along with our most significant shopping seasons ahead. We stay hopeful about the opportunities ahead of us for the rest of the year. Looking beyond 2024, we are also investing in the business to enhance long-term shareholder value. These essential investments are aligned with the strategies outlined in our long-term plan, which include opening new stores, expanding our omnichannel presence, enhancing our existing business by better connecting with customers through improved merchandising and marketing, and maximizing our supply chain efficiency. We believe staying true to this strategy will enable us to excel and achieve our vision of becoming the leading Sports and Outdoor retailer in the country. In conclusion, I want to acknowledge all 22,000 of our Academy team members for their hard work and commitment over the past quarter. We believe that our associates are the key to our success, and I know that each of them is dedicated to providing an exceptional shopping experience for all our customers. Thank you for joining today, and have a wonderful rest of your day.

Ladies and gentlemen, the call has now concluded. Thank you for your participation. You may now disconnect.