Good morning, and welcome to Academy Sports and Outdoors Third Quarter Fiscal 2024 Results Conference Call. This call is being recorded and all participants are in a listen-only mode. Following the prepared remarks, there will be a brief question-and-answer session. Questions will be limited to analysts and investors. We ask that you please limit yourself to one question and one follow-up. I would now like to turn the call over to your host, Brad Morris, Director of Strategic Initiatives for Academy Sports and Outdoors. Thank you. You may begin.

Good morning, everyone and thank you for joining the Academy Sports and Outdoors third quarter 2024 financial results call. Participating on today's 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. 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. The earnings release and an investor presentation are available on our website at investors.academy.com under News and Events. I'll now turn the call over to Steve for his remarks.

Thanks, Brad. Hello, and thanks to all of you for joining us today. As we look at our third quarter and year-to-date performance, we remain confident in our long-range plan and the business strategies that support it. In my prepared remarks today, I will cover three topics with a focus on how we're making progress towards our long-range goals with updates on our third quarter results and a view of our near-term macroeconomic environment along with an update on how we're continuing to advance our strategic initiatives and make progress towards reaching all of our long-term goals. Carl will then provide additional details on our financial results and outlook and will then open up the line for questions. To start with a few highlights, our comp sales results for the third quarter were in line with our previous guidance, and an improvement in trend versus the first half of the year. We delivered positive adjusted free cash flow for the quarter, our 20th consecutive quarter. We have had a strong start to the holiday season, although as we look at our third quarter and year-to-date performance and the consumer environment, we're taking a prudent approach to our outlook and have narrowed the guidance for the full year. Finally, we're pleased to announce last week the board's authorization of a new $700 million share repurchase program reflecting our confidence in the business. Diving into our results, in the third quarter, comp sales declined 4.9%, which was in line with our previous guidance. As we discussed on our Q2 call, we were encouraged by our positive comp performance during August, and we carried a lot of this momentum deep into the quarter, with comps remaining positive most of the way through September. The decline we ran for the quarter was the result of October, which was a challenging month for us. During October, we experienced some unseasonably warm temperatures, which persisted throughout the entire month across our footprint, negatively impacting our seasonal businesses and having roughly a 140 basis point drag on our comps. In addition, we lapped the Rangers World Series run from last year, which also negatively impacted our comp by roughly 120 basis points. We also saw a continued very active storm season during Q3, with Hurricane Helene and Milton hitting in October. I'm incredibly impressed by the resilience of our team members and commend them on their tireless efforts navigating these challenging circumstances. Academy takes pride in serving our communities during natural disasters, and I'm especially proud that we make sure to give back in times of need for our communities with donations of clean water and other disaster recovery supplies. Looking at the results by division on a shifted calendar basis, which is how we manage our business, outdoor was our best performing category, posting total sales growth of 4% versus last year, led by continued strength in our camping and hunting businesses. Footwear was our second best performing category, down 2%, driven by strength in key brands, such as Nike, Brooks, Skechers, and Crocs. Sports and recreation sales were down 3%. We saw strength in team sports driven by football and baseball. Conversely, a lot of the fall seasonal categories in this division such as fire pits and patio heaters saw sluggish sales caused by the aforementioned much warmer than average temperatures across our geography. These much warmer temperatures also undoubtedly had a major impact on our apparel business which ran down 9% for the quarter. While we saw solid increases in warm weather categories such as shorts and tees, these businesses are not large enough in Q3 to offset the softness we saw in the key fall seasonal categories such as fleece and outerwear, as well as the Rangers World Series impact I mentioned earlier. Pulling back and looking at the results across the entire company, you can see that our sales performance is not entirely reflective of the strong momentum we saw with our most popular brands and our non-seasonal businesses. We remain focused on leveraging our advantage as the value provider in our space by protecting our everyday value messaging, while also offering targeted promotions in key time periods during the year. We remain true to this strategy in Q3, which enabled each division to hold margins versus last year. We did end up with merchandise margins down slightly to last year at negative 30 basis points during the quarter, but this was a result of the outperformance in our outdoor division, which mixed us down from a rate perspective. Gross margin during the quarter declined 50 basis points versus last year. The primary reason for the decline in gross margin was driven by some extra supply chain costs associated with the go-live of our warehouse management system and our Georgia distribution facility along with some additional freight costs we incurred as we rerouted key elements of our holiday assortment to come in through the west coast in order to avoid any potential delays from the East Coast port strike. Through the first three quarters of the year, our margins are down slightly last year at negative 10 basis points, so we believe it is prudent that for our full-year guidance we're holding the low end of our range at 34.3% or flat to last year, but narrowing the top end of the guide to 34.5% from 34.7% previously. Turning to the economy, in the third quarter, we continue to see a broad-based consumer backdrop that was characterized by episodic shopping demonstrated by consumers waiting until major events such as back-to-school or holiday, while pulling back spending during the lulls and the calendar. We continue to see strong results during key event periods as evidenced by our positive comps during the first half of the quarter. Customers also continue to gravitate towards the value offerings in our assortment, which was reflected in the strength we saw during the promotional back-to-school season. Our large private brands, which are one of the best articulations of our everyday value proposition, also continue to perform well during the quarter. To capitalize on the customer's focus on value during the holiday peak, we're supplementing our strong slate of everyday values with some compelling promotions, which range from $4.99 sleep pants to $39.99 kids' bikes, all the way up to $99.99 gas and charcoal grills. Newness continues to resonate with customers as we navigate it through 2024. For Q4, we've dramatically expanded our offering of new must-have products with strong statements from brands such as YETI, Stanley and Owala in drinkware, Koolaburra by UGG in boots and slippers, and reintroducing Converse back into our assortments in all doors. At this point, we're past the traditional kickoff to the holiday season and we're pleased with our Thanksgiving weekend results where we had the largest day in the company's history on Black Friday. As most of you are aware, we do have a compressed holiday calendar this year with five fewer days between Thanksgiving and Christmas, which means we'll have to maintain a high level of momentum to help offset this truncated shopping calendar. Turning to our long-range initiatives, Academy has a strong foundation with multiple growth engines that continue to add value and will drive our performance in the long term. I'd like to provide further context on some of the green shoots we continue to see in our business, which have been driven by investments in our strategic initiatives. We remain encouraged by the improvement of our costs versus the first half of the year, and by the fact that we've held on to most of the market share gains we've made since pre-pandemic. As you might remember, we have three strategic growth pillars, and as we look ahead, we have several exciting new initiatives that we've been working on, which should help drive our business moving forward. Now I'd like to give you a quick update on each growth initiative. Opening new stores and expanding our footprint remains our largest opportunity for growth and is one of our top priorities as we execute against our long-range plan. During 2024, we successfully opened 16 stores, which equates to roughly 6% unit growth, bringing our total count to 39 new stores opened since we began this journey in fiscal 2022 and it takes our total store count to 298. Our strategic expansion has yielded strong results, which is a testament to our team's dedication, ingenuity, and hard work. This achievement continues to propel us from a regional retailer to a national brand delivering key milestones such as an expansion into our 19th State in Ohio where we look forward to serving local communities. We continue to see positive comps out of our ‘22 vintage stores and have been very encouraged by our 2024 vintage stores, which have gotten out of the gates with a fast start and are overachieving their plans. Our commitment to new store growth remains fundamental to Academy's long-term success and we will continue to refine our approach as we gain additional learnings as we move into new markets. Our real estate team is continually analyzing and including additional data points such as mobility traffic data and improved demographic profiling into our site selection model. The end result is that we've dramatically improved our hit rate on new locations as we've gotten deeper into this journey. In prior calls, we've discussed focusing more on the suburbs, exurbs, and underserved medium-sized markets. The reasoning behind this is simple. After analyzing the data, these types of markets are target-rich with our core customer demographic. Our plan is to continue to position new stores in these locations and to steadily build critical density and brand awareness over time. Based on the results of the recent new stores in these types of markets, we're excited by the range of new store expansion possibilities in front of us. Back to this point, we've built out our new store pipeline utilizing our improved modeling. Our plan is to open up 20 to 25 new stores in 2025, which will increase our unit count by approximately 7.5%, with our 300 stores slated to open up in Q1. While our long-term goal of opening 160 to 180 stores over the next five years remains unchanged, we're acting thoughtfully and prudently to achieve these goals as we continue to navigate a challenging short-term macroeconomic backdrop. To illustrate this point, we're moderating the slope of the new store growth curve in the short term, with the 20 to 25 new stores next year being below the original model we built back in 2022, which called for 30 to 35 stores in 2025. We are also excited that in 2025 we are starting to achieve the balanced approach we have discussed on previous calls, with roughly half of these stores currently slated to open in spring, with the remainder opening up in the back half of the year. We're also on track to open up five new stores in Q1, which is more stores than we've ever opened up in the first quarter since we began this journey. This is further evidence that we're improving execution of our new stores. We're excited about expanding our store footprint into new markets and states as we start to fill in Ohio and open up our 20th State with Pennsylvania. The remaining stores will help us to fill underserved markets and core geographies such as Texas, Oklahoma, Louisiana, Arkansas, and Tennessee. As a reminder, we expect new stores to generate between $12 million and $16 million in year one sales, depending upon whether it is a new or existing market, as well as other factors such as size of market and population demographics. Additionally, we hold all of our new stores to positive four-wall EBITDA contribution in year one, leading to returns on investing capital in excess of 20% over the life of these investments. Now I'd like to move to our second growth initiative, building a more powerful omnichannel business. We found that the number one way for us to build our dot-com business is through store growth, particularly in new markets. The first reason for this is that the new store openings and the associated marketing campaigns help build brand awareness for Academy. Second, roughly 50% of our dot-com businesses fill through BOPIS. Customers have consistently demonstrated over time that the preferred method of fulfillment for many of the bulky big ticket categories we carry such as kayaks, gun safes, or fitness equipment is for them to pick it up themselves. The need to have a physical store to act as a distribution hub inexorably links our dot-com growth to our new store expansions. As mentioned during our last quarterly call, we continue to look for ways to eliminate friction and make it seamless for customers to shop between our website and physical stores. We've seen positive results from our partnership with DoorDash during our first full quarter with this service in place. Phase 1 of our DoorDash partnership was fulfillment through their app, and we saw strong growth in unique customers, as well as omni-channel sales from this new service. As we head into holiday, we've expanded our partnership to allow for same-day delivery options on academy.com, which is also powered by DoorDash. We expect this to be a big unlock the last four to five days leading up to Christmas. Our commitment to our customer is clear. We want to democratize access to sports and outdoor activities for all customers by providing the gear they need at great prices, however they choose to shop. We look forward to the benefits this approach will drive during the fourth quarter holiday season and into 2025 and beyond. Now I'd like to touch on our third growth initiative, which is driving comp growth in our core business across our existing store base. While opening new stores and rapidly expanding our dot-com business are huge growth drivers for us, our number one focus is to move our base business back to positive comp growth moving forward. We believe that many of the initiatives we've been working on over the past year are the keys to moving back to comp growth and unlocking long-term value for our shareholders. As mentioned earlier, our customer continues to vote for newness in our assortment. We have a lot of new items and brands coming this holiday. With that in mind, I'm excited to announce that in Q1 of 2025, we'll have one of the most meaningful launches in Academy's history with the addition of an expanded offering of Nike product in 140-plus stores. The plan is to launch in April with full assortments of men's, women's, and kids across footwear, apparel, and accessories along with a strong statement of sporting goods. We plan to follow up with more details on this exciting addition during our Q4 call in March. A second major initiative for us under this growth pillar is all of the work we've done over the past year around our customer file and getting a deeper understanding of their shopping behavior. During the third quarter, we completed an ID resolution process, which is an important step as we continue to develop and refine our targeted marketing capabilities. The end result of all this work is that we have nearly doubled our identified addressable customer count, which unlocks new opportunities for us to reengage with customers, who might have lapsed over recent years with improved targeted marketing efforts. You can see some of the benefits of this work in the Q3 customer traffic data that Carl will share with you shortly. Another key element of our work on this front is the rollout of My Academy Rewards. In our last call, we decided that our goal was to get 10 million customers signed up by the end of the year. At this point, we're tracking to beat this number and expect to head into 2025 with over 11 million customers in this program. We expect this number will only grow moving forward and it gives us a powerful tool to build a deeper connection and understanding of our customers. I'd like to add that none of the work we've been doing would be possible without our stores, DCs, and home office team members who continue to embody our values and deliver a positive experience for our customers. We're proud of their efforts and want to acknowledge our appreciation for the critical role they play in our success. Carl will now walk you through a deeper dive into our third quarter financials and updated guidance for the full-year.

Thank you, Steve. Third quarter sales of $1.34 billion and comparable sales of negative 4.9% fell in line with our expectations. Our comp transactions declined by 7.1%, while comp ticket increased by 2.4%, compared to last year. Our gross margin rate in the third quarter was 34.0%, a 50 basis point decrease, compared to the third quarter of last year, primarily driven by increased supply chain costs associated with international freight and labor expenses in our Georgia distribution facility, coupled with a mixed shift in our outdoor merchandise penetration. Overall, in the third quarter, we generated GAAP net income of $65.8 million and GAAP diluted earnings per share of $0.92. Adjusted net income, which excludes stock-based compensation of $6.3 million was $70.5 million or $0.98 in adjusted earnings per share. Despite negative comparable sales in the third quarter, we were pleased to see favorable traffic trends, which drove the sequential improvement in our comp sales trajectory, reflecting the strengthening of our core business as we head into the holiday season. We experienced an increase of 250 basis points in store foot traffic versus the first-half of the year. Additionally, foot traffic during key shopping events in the third quarter increased 3.8% versus last year. Both of these data points, as well as our start to the holiday season, give us confidence in a stabilizing consumer environment as we enter the fourth quarter. As we exited the Labor Day selling period, our quarter-to-date comparable sales were positive, which were offset in the back half of the quarter, due to lapping the Texas Rangers World Series sales, as well as a decline in fleece and outerwear sales due to warmer than normal weather patterns. As a result, these drove approximately 260 basis points of combined impact on the overall comp for the quarter. Our comparable sales improvement during the first-half of the quarter was attributable to all of our divisions, with outdoor leading the way, primarily driven by strong fishing, camping, and hunting sales. While overall comp sales for the quarter were negative 4.9%, we were encouraged by the performance of our business in August and September, and the October decline in sales was atypical to historical builds. Gross margin of 34.0% in the third quarter was down 50 basis points versus last year, driven by several factors, including lower merchandise margins, as well as higher costs associated with freight and distribution center labor costs. Furthermore, the decline in margins was driven by two key factors during the quarter. First, headwinds associated with the backlog cleanup of our Georgia distribution center, which we discussed on the second-quarter call, drove inefficiencies in our productivity as we increased the resources needed to ensure we were prepared for the holiday shopping season, of which the majority of these costs were recognized in the third quarter. Additionally, costs increase in the international freight associated with accelerating merchandise ahead of the October port strike. Second, our merchandise margins were down 30 basis points versus last year. The primary driver of this was outperformance in our outdoor division, which was up 7% versus last year. We're now fully caught up in the Georgia distribution center in time for the holiday shopping season and will continue to leverage the scale of our supply chain throughout our business, especially as we scale operations in our Georgia facility. In the third quarter, SG&A increased by $19.3 million versus last year, which was primarily driven by our investments in our growing store base as we increased our footprint by 18 new stores versus the third quarter of last year. Unpacking that further, over 90% of the increase was driven by our investments in strategic initiatives related to new stores, omnichannel improvements, and our customer data platform. We remain confident in our continued investment in these areas as part of our long-range plan and are essential to positioning our business for sustainable long-term growth. Looking at the balance sheet, we ended the quarter with $296 million in cash. Our inventory balance was $1.52 billion, an increase of 2.2%, compared to last year. Total inventory units were flat. This includes an additional 18 stores, compared to the end of Q3 2023. On a per-store basis, inventory units were down 7% and inventory dollars were down 4%. Our inventory management remains a focus, especially as we grow the store base. In the third quarter, we generated approximately $97 million in cash from operations. We invested $63 million in our growth initiatives, repurchased approximately 1 million shares for $53 million, and paid out $8 million in dividends. Year-to-date, Academy has generated approximately $252 million of adjusted free cash flow, compared to $150 million year-to-date 2023. On a per share basis, this represents a third quarter year-over-year increase of 140% and an increase of 76% versus year-to-date 2023. In terms of capital allocation, our strategy remains focused on executing against three pillars, which are: One, financial stability; two, self-funding growth initiatives; and three, increasing shareholder return through share repurchases and dividends. We believe these priorities will help drive future sales and earnings growth, as well as increase shareholder value. Third quarter dividends paid of $7.7 million or $0.11 per share resulted in a quarterly dividend yield of 22 basis points and share repurchases in the third quarter represented a total of 1.5% of our market cap. Combined, we have returned a total of 1.7% to our shareholders in the third quarter and a total of 8.2% year-to-date. On that note, earlier this month, our Board of Directors authorized a new share repurchase program of $700 million over the next three years, increasing our prior remaining authorization by approximately $300 million. At current pricing, our available authorization represents over 20% of our market cap and is currently one of the largest remaining share repurchase authorizations among sporting goods retailers as a percentage of market capitalization. Additionally, the Board recently approved a dividend of $0.11 per share payable on January 15, 2025, to stockholders of record as of December 18, 2024. We are excited by the long-term growth potential of our business, driven by continued investment in new stores. We opened a total of eight new stores in the third quarter and five new stores in November, bringing our total new store openings to 16 year-to-date. We continue to leverage our value-engineering capabilities, including cost optimization of raw materials, construction services, and landlord participation. Currently in Academy's new-store pipeline, there are over 80 sites in various stages of the new-store site selection process, which will support our 20 to 25 planned new-store openings in fiscal 2025. We are excited about the learnings and insights from previous new-store openings and look forward to the 2025 vintage being the best yet. Now turning to our outlook for the remainder of the year. We are narrowing our previous guidance for fiscal 2024. Our revised guidance is as follows: Net sales are expected to range from $5.89 billion to $5.94 billion with comparable sales of negative 6% to negative 5%. Our gross margin rate is expected to range from 34.3% to 34.5%. GAAP net income is expected to be between $400 million and $425 million. Adjusted net income, which excludes certain estimated expenses, primarily stock-based compensation of approximately $27 million is forecasted to range from $420 million to $445 million. GAAP diluted earnings per share is expected to be $5.50 to $5.80 and adjusted diluted earnings per share is forecasted to range from $5.80 to $6.10. The earnings per share estimates are based on a revised share count of 73.1 million diluted weighted-average shares outstanding for the full year. This amount does not include any potential future repurchase activity using our new $700 million authorization. We also remain confident in the strength of our cash flows and expect to generate between $310 million and $350 million of adjusted free cash flow, which includes $185 million to $210 million of capital expenditures. Additionally, we would like to discuss potential impacts to our business from the outcome of the recent election and the potential increase in tariffs. While the magnitude and timing of impacts are uncertain, we are actively monitoring news surrounding potential trade policy and corporate tax changes from the next administration. Over the last several years, as part of our normal course of business, we have taken proactive steps to diversify our sourcing base to reduce our direct import exposure from a single country, which we believe best positions our business in 2025 and beyond. First, sales of our private brands represent roughly 21% of our total business. As I mentioned earlier, we have steadily been diversifying our supplier base over the past several years and have moved the percentage of goods we directly source out of China from over 70% in 2019 to roughly 50% today and we have no exposure to Mexico or Canada. This translates to approximately 10% of exposure to potential elevated tariffs on which we are the importer of record. We will continue this diversification strategy moving forward and continue to look for ways to further mitigate any risk. Second, similar to other companies who import goods, we have also accelerated some spring receipts to ship pre-Chinese New Year. This should have a two-fold benefit, in that it could help avoid any increase in tariffs, while at the same time avoiding key elements of our spring set getting caught up in a potential East Coast ports strike. Third, the large national brands that partner with us have been on a similar journey to diversify their sourcing bases and our exposure to potential price increases with these brands is similar to what other retailers who share the same brand portfolio would be. One exception to this is that a large portion of firearms and ammunition business is manufactured domestically, which could help insulate this important category from price disruptions. If and when changes occur, we will take the appropriate actions to serve our customers and preserve the profitability of the company while continuing to deliver everyday value. In closing, I would like to address three important points that are central to our forward business outlook. First, how Academy is positioned to capitalize on our growth opportunities; second, our continued investment in our strategic initiatives given recent performance; and third, our expectation of generating strong operating profits and cash flow following these investments. Today, approximately 80% of Americans do not live within a 10-mile radius of an Academy, implying a large untapped white space for growth. We've demonstrated our right to win in the category by offering customers compelling value, coupled with industry-leading assortment, and we remain confident in our ability to deliver Academy's unique value proposition on a national scale. As such, our strategic investments reflect our long-term vision for the business, recognizing short-term business headwinds as seen in recent quarters could change the trajectory and pace at which we achieve these goals. These investments are paramount to long-term success, driving growth in new markets via geographic expansion and penetration as well as growth within our existing business through powerful organic growth initiatives. As one of the key tenets of our capital allocation strategy, we have never sacrificed our ability to return capital directly to our shareholders at the cost of investing in growth. Academy has generated positive free cash flow for the last 20 consecutive quarters alongside our strategic investments in the business, allowing us to consistently pursue share repurchases and issue dividends to amplify shareholder value. Since our IPO in October of 2020, we have consistently deployed our free cash flow into share repurchases, resulting in the repurchase of 35% of the company while paying down debt by $945 million to de-risk the balance sheet. We plan to operate under the same paradigm moving forward, generating ample free cash to facilitate our capital allocation strategy, while simultaneously investing in the business to plant seeds that will generate sustainable growth over the long term. With that, we will now open it up for any questions you might have.

Thank you. The company will now open the call up for your questions. We will pause for a moment to wait for the queue to fill. Our first question comes from Christopher Horvers with JP Morgan. Please proceed with your question.

Hi, this is Jolie on for Chris. So you mentioned that Black Friday was the largest selling day ever this year. So was there any quarter-to-date commentary you can provide on Black Friday holiday, and just Cyber Week overall, and how this compares to the down 5% midpoint guide, and how you're modeling the balance of the quarter? And also just kind of piggybacking off of that with the five fewer selling days this year, can you just remind us what you saw the last time the calendar turned this way?

Yes, there's a lot wrapped up in that question, Carl and I'll probably tag team that. What I would tell you is that if you see how the quarter played out, a lot of the trends we saw that kind of continued out at the end of October and bled into the first part of November, weather was continuing to be warm, suppressed some early seasonal selling on fleece, outerwear, things like that. But from about the third week forward, we definitely saw an acceleration in the business with our Black Friday event. What was really exciting is we also got a burst of cold weather, so not only was Black Friday the day itself the largest in the company's history, the weekend was the largest weekend in our history as well. You know when you think about the shifted calendar that you brought up, there's five fewer days in the calendar this year. The Thanksgiving moved from November 23rd last year to November 28th this year. So the whole compression at five fewer days is really felt in November. You basically trade out Cyber Week, which this year fell in December, last year would have fallen in the November calendar for pre-Thanksgiving week. So it puts a little pressure on November. That being said, as we move into December, it puts in our favor and there's actually two extra days of shopping in December before Christmas. So we've got some momentum. We're making our forecast. We use the 2019 builds to your point as a way to kind of model out how this year is playing out. We're tracking at or ahead of our forecast on a daily basis. We're excited about that. We want to be mindful though that there is still a lot of business ahead of us the next three weeks or three of the four largest weeks of the entire year for us. So we've got a lot of business to do. We're really pleased with the momentum we saw coming out of Black Friday that carried into Cyber Week.

Jolie, I'll speak to kind of Q4 guidance at the midpoint. So it's about a negative 4.5% comp. A gross margin rate of about 33.8%, that's up 50 basis points from last year. And I want to give you a little bit of color on that. One, we're really clean from an inventory perspective, units per store down 7%, costs down 4%. And so I don't think we're going to need to promote due to an excess buildup of inventory. We feel good about the inventory position. Two, I told you that third quarter mix down from a margin rate because of outdoor penetration. We were proud of the plus 7% in outdoor. But the fourth quarter kind of pivots a little bit more to apparel and that's what we're seeing at the start of holiday. And then last, with five fewer promotional days between Thanksgiving and Christmas, we see ourselves as an everyday value retailer. We engage in promotions during key holidays, especially between Thanksgiving and Christmas. With fewer days, it impacts our promotional penetration a bit. Regarding SG&A, it's largely flat Q4 over Q4, and net income is approximately $130 million. That's how the midpoint of our guidance plays out, based on the updated or narrowed guidance we've provided.

Got it. Thank you. And a follow-up question, switching to the gross margin side, if you could list the drivers of gross margin decline in order, so like the Georgia distribution center freight, higher outdoor mix and quantify them and looking to 4Q, how the freight impact is expected to differ from what we just saw in the third-quarter? Thank you.

Yes. So 50 basis-point decline in gross margin rate in the third quarter, 30 basis points of that was merchandise margin. More than all of that 30 basis points was due to the mix shift associated with outdoor up 7%. All of the other categories actually grew their margin rate year-over-year. To round out the 20 basis points, and this is the color that you'll see in the 10-Q later on today. It was really a combination of a little bit of international freight associated with, we just didn't know what was going to happen in October with that East Coast port strike. So we made the decision proactively to reroute that stuff to the West Coast. We spent a little bit of extra money there. We don't have regrets associated with it. And then from the Georgia facility standpoint, we threw a lot of getting caught up. We wanted to make sure that we were ready for the holiday.

Just to build on one thing Carl said, we feel like we're caught up now in the store service side of the Georgia facility. And it's certainly a headwind for us in Q2. We called that out on our Q2 call. We even mentioned in our Q2 call that it impacted us a little bit in Q3 early on, but that the strength of the business in other categories offset that. It actually flipped where those stores that were serviced out of the Georgia facility were actually some of the best-performing stores over Black Friday weekend. So hopefully, we're past the pain there. And from here forward, it's at least neutral, if not a tailwind moving forward.

And Jolie, first for the fourth quarter, I already gave you a little bit of a color on why we think gross margins are going to be up 50 basis points at the midpoint, 33.8 inventories clean, apparel is mixing higher, less promotion days. As it relates to some of the supply chain headwinds, don't expect that level in the fourth quarter. Some of that was just a catch-up to get right before holiday.

Got it. Thank you. Happy holidays.

Thank you. Happy holidays.

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

Hi, this is Emily Ghosh on for Kate. We were wondering on consumer trends, were there any behavioral differences in the third quarter versus the first half of the year that you would call out? And then also, you had mentioned an increase in credit card and Buy Now Pay Later usage earlier this year. Is that something that you saw in the third quarter as well? Thank you.

Yes, this is Steve. I'll take the first part. In terms of changing credit or I'm sorry, change in customer behavior, we did see a couple of changes. One of the most notable ones is we've gotten questions in the past on these calls, have we seen a trade-down in terms of customer, and we haven't really seen that. I would tell you in Q3, we actually started to see that. When we looked at market share gains or losses within customers making over $100,000, we actually picked up share there. So we're starting to see some evidence of trade-down, so I would say that would be a new behavior. I would say we also saw a continuation of behavior of the episodic shopping in terms of the customer coming out during those key moments on the calendar. We certainly saw that for back-to-school that continued into September as we entered hunting season and tailgating season. You get into that October time period, there's really not a reason for the customer to come out and shop unless it's a change in weather or in our case, sometimes we have a hot market in baseball that certainly helps.

Yes, Emily, I would tell you we're still seeing people funding their lifestyle on credit and credit products. We're continuing to see credit card penetration paired with Buy Now Pay Later as a percentage of our overall tender up year-over-year, and that's amplified at those kind of lower three quintiles, if you will. And for Buy Now Pay Later specifically, yes, we are seeing more of that. We have a couple of different options. It really over-indexes online. Our online average order value was up helpfully in the third quarter and it was really all from Buy Now Pay Later transactions where people are basically financing that over a couple of months to afford their wants right now.

Thank you.

Thank you.

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

Hey, good morning, guys. My first question is, can you give us a little more color on the Nike product that's going to be coming in, in April? Is it a lot more $100 plus sneakers? Is it a lot more premium apparel? Any more color you can give on what's happening there? It would be my first question.

Thanks, Robby. I honestly would love to give you more color. I've got to stick with what we shared in the prepared remarks. It's going to be the most meaningful launch in our company's history, 140-plus stores, broad-based across men's, women's, and kids' apparel, footwear, sporting goods. We're really excited about it, and we're going to share more details when we can, but just can't give you more details at this moment in time.

Got you. And then just in terms of what you've seen playing out on versus last year, how would you say the competitive pressures versus Walmart or Dick's are this year compared to last year as you go into holiday here and also be curious how digital is playing out versus in-store compared to last year?

Yes. I would say that the promotional environment, it seems at least we're early days still in the holiday, is a little more elevated than last year, but in line with where we thought it was going to be. We're seeing competitors probably include a few more items or categories in their promotions in a couple of places maybe taking down one click. But I would say it's right where we kind of expected it to be. And as I've characterized it before, it's more than last year, but it's certainly not back to where it was pre-pandemic. I'd also say we've seen maybe a pullback a little bit from some of the brands direct sites, direct-to-consumer sites where those were very promotional a year ago at this time. And so I would say it's kind of where we expected it to be.

And then just digital versus in-store versus your expectations?

Yes. So digital is performing at our expectations. It's hard to read because obviously, we had a shift in Cyber Week moving out a week, but it's performing in line with our expectations and kind of the trends in the stores. And so it's right where we thought it would be.

Got you. Thanks. Good luck for the rest of the holidays.

Thank you.

Our next question comes from Michael Lasser with UBS. Please proceed with your question.

Good morning. Thank you for taking my questions. If you start to see your same-store sales improve, how will your SG&A adjust as well? Will you need to bring back some labor expenses to maintain the customer experience? If you were to increase sales by 2% to 3% next year, what would your SG&A leverage look like?

Yes. I think inventory management is one of our strong skills. I think expense management, I would also put in that same category. So just to recap, in the third quarter, you know, of the $19 million growth in SG&A, $17.5 million of it, basically a little over 90% was on these initiatives that we speak about and that we have a lot of conviction around. As it relates to when we inflect from a comp sales standpoint, you'll see us be very judicious associated with getting some leverage out of that and we're going to continue to spend the dollars on the initiatives. The biggest consumer of those dollars, if you will, is the new stores. We had 18 new stores. If you compared Q3 of this year to Q3 of last year, we went ahead and gave you guidance on 20 to 25 next year. I think you're going to continue to see elevated SG&A spend. It will deleverage because of the initiatives and it will leverage when we positive comp inflect on that kind of that base spend, if you will.

Thank you for that. And understanding your current guidance is for 20 to 25 new stores next year, if we play out the other scenario where your same-store sales do not inflect, how would that influence your willingness and ability to continue to open stores at this current pace, not only in next year, but over the next few years? Thank you very much.

Yes. So, Michael, thanks for the question. I would share with you that as we talked about in the script, the biggest and best way we can grow the company is through new-store growth and it has impact on both our brick-and-mortar sales as well as the influence it has on our dot-com business. And so it's a core part of our strategy. And as we share all the time, there's a lot of white space. We're right now in 19 states, 298 stores, lots of white space for us to put new stores. So we're committed to that as a growth engine. We did want to give some color around next year generally, we don't give guidance at this point in time around what our next year growth count is, but we thought it was important to share the 20 to 25. As we mentioned in the prepared remarks, it is a little bit of a slowdown or we changed kind of the ramp of the curve versus what we initially put forward when we did our initial plan back in 2022, just acknowledge that we're operating in a tough environment. And I think you're going to see us continue to be very thoughtful and judicious about when and how we open up these stores. We're making sure that all these stores are hitting the profit targets, hitting the productivity targets. I said it in the prepared remarks as well, but we're really excited. We made this pivot and we talked about in our Q4 call at the start of the year-around how we've changed kind of the dynamics of the new store opening and where we're looking for these stores in more midsized markets that are underserved.

And those stores are off to a really fast start. So it's giving us more confidence that we've really zeroed in on what the right mix is. So I can't give you guidance beyond 2025. We'll acknowledge that it's a little bit slower ramp than we initially planned, but it's something we're continuing to focus on moving forward because it is our number-one growth engine. And Michael, I'll share that we cash flow well. You guys see that. We talked about the 20 consecutive quarters of positive cash flow and that's with the last 11 quarters of negative comps. So we positive cash flow in good top-line environments as well as bad. In terms of the capital allocation philosophy, stability, you should expect that with us, still $1 billion of untapped ABL and almost $300 million of cash on the balance sheet invest into ourselves and then the capital allocation that we talked about with share repurchases and a pretty nominal dividend. Look, I don't think anything is going to change that commitment to planning seeds in the future. And as long as we're cash flowing like we are in good and bad times, we're very committed to that and these projects are getting better and better.

Thank you very much and have a good holiday.

Thanks, Michael.

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

Good morning. Thanks for taking my question. So just wanted to kind of circle back on Nike. It sounds like there's a lot of excitement around this launch. I understand there's somewhere limited in terms of what you can say. But I guess my question is, are you envisioning that product would just be in line or are you planning on doing any sort of like incremental special kind of Nike fixturing or displays for that product?

We will not simply mix it with the current Nike product; instead, we will present it as a distinct offering. It will be prominently displayed, and we will invest in how we bring this to life in store. We are quite excited about it, but we also want to be mindful of how much we share on this call, so I prefer not to elaborate further.

Got it. Okay. So my follow-up question, it's sort of an oblique question. So I guess I always ask about companies that rhyme with Non and Roka. And I guess my question is, do you think that in any way, shape or form getting this incremental Nike product could help to get other brands that are currently not in your stores that might rhyme with Non and Roka?

Yes. Well, that's a pretty subtle code you got there, Anthony. Yes, listen, I think the more we continue to upgrade our assortments and bring in new brands, it opens the door for complementary brands to want to come in as well. So it's certainly a step in the right direction. We continue to have dialog with those two brands that you're mentioning. Nothing to share at this moment in time, but obviously, our goal would be to get access to them because our customer wants access to them and it's a way for us to better serve our customers.

Got it. Thanks so much.

Thanks, Anthony.

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

Good morning, everyone. My first question is a follow-up on the commentary you shared about being pleased with the quarter-to-date performance and your outlook for the holiday season. Could you explain how you established the guidance for the fourth quarter? Are you confident enough to expect results in the middle or even exceeding that range, or are there specific events that need to occur? I understand there are still important weeks ahead, but I'm curious about how you determined your guidance, especially considering the fewer days in the calendar.

We're highly aware of the fewer days. It's contemplated within our forecast. Our Q4 guidance at the mid is negative 4.5%, the way we set that is we come up with actually a definitive forecast and then we set some guardrails around that from high and low if we saw this on this end or if we saw that on that end. And as Steve said in his earlier reply to one of them, we're kind of tracking in line with that forecast. I'm really, really proud of the team on the way that they operated on Black Friday. Things were working well on all fronts.

Thanks for that. And then following up on stores and new stores, you may have mentioned this in the prepared and I missed it. You gave us some commentary in prior quarters on the stores that are just entering into comp base. And then I think the two-year-old like the stores that are now two years into the comp base, can you talk about their spread relative to the rest of the chain where they should be, are they ebbing and flowing with the comp or are they still the same way, you know, they're keeping the spread that they had, I think of the last couple of quarters?

I would tell you that as we shared in previous quarters and the commentary we shared was that the 22 vintage of stores, and we really try to talk about these entirely as a vintage and that's the only group of stores that's wholly in the comp, continue to comp positive. And I would say that the delta, the spread between their performance and the total is about the same where it's been. So the belief and hope is that as we start to inflect the comp base, we see these stores hold that spread and bubble off at a faster rate of growth. So that's our current plan. And just to reiterate something I said earlier, the revised forecasting and tools and how we're picking locations going forward that we shared with you guys is really starting to pay dividends. We're pretty excited about the six or seven new stores that opened in the back half of the year, they're doing very well versus our initial forecast.

Thanks, guys. Good luck. Happy holidays.

Thanks, Simeon.

Our next question comes from Anna Glaessgen with B. Riley. Please proceed with your question.

Hi, good morning, guys. Thanks for taking my questions. I'd like to start with another follow-up on the quarter-to-date trend. Taking a little bit of a different stab at it. Apparel was impacted during the most recent quarter, notably by the unseasonable weather. And as you've moved into this quarter and the weather has turned a bit, have you seen an improvement in apparel?

Yes, absolutely. So as we said a little bit earlier, you know, the trend in apparel was pretty tough in October. That was where the majority of the decline for the quarter came out of, and it was two-fold. It was the weather and the Rangers. Obviously, as we got past October and got into November, Rangers became less of an issue. It was purely weather. We saw that continue into the first week or two, but we got a weather snap right as the Black Friday promotions started kicking in and we saw apparel really take off. Apparel led the way for Black Friday. It also was very strong last week for Cyber Week. So it gives us confidence that our assortments are right. It's what the customer is looking for. We've invested in the right things and that the softness we saw in late October and maybe early part of November is more just weather-based.

Thank you. Now, regarding the negative comparisons you've been experiencing, it's drawing a lot of attention as people compare it to larger public peers. However, it seems overlooked in this discussion are the smaller specialty players who are likely performing worse than the comparisons you've been presenting, especially with the recent consolidation in this sector. What is your outlook on the potential market share opportunities as you look to 2025 and beyond?

Well, I think our goal as we've stated it multiple times is to be the best sports and outdoor retailer in the country. So growing our store base and growing our footprint is key to our growth and implied in that is gaining market share. And I think you're dead-on in your question, your comment that I think sometimes we get wrapped up and that market share is binary. It's really not, right? I mean, when you look at who we are and the different companies we compete against, I mean, it really varies by category. You take a category like outdoor grilling, it's probably the home-improvement guys we compete against. You take a category like fishing, maybe a company like BassPro or hunting, maybe like Cabela's and/or sports warehouse. So depending upon the category, we have a different competitive set. We look at market share broadly across a lot of different categories. We use Circana, who is kind of the gold center that used to be NPD. We track market share for the categories they cover through that. We use NICS checks data for firearms, some places like AML where there's not market-share data, we use vendor sources. And what we hear and see in all that is that if you look back on a long-term basis over the past five years, we've picked up a lot of market share. We're running up about 22% to 23% versus where we were in 2019 at this point in time. So we've picked up a lot of market share. We continue to hold on to it. We also look at it on an annualized and a quarterly basis and in both those metrics, we look at market shares flat to up slightly depending upon the category. There's a couple of categories where maybe it's down, apparel was down slightly, I think within Q3, but we've attributed that more to kind of the distortion we have in the Rangers product. But our goal is to continue to take market share. It's going to change and vary by the category we carry, but we feel really good about our opportunity to do that, not only in 2025, but in the future as well.

I just want to add just a little bit more color to that. The biggest share opportunity that we have is 80% of Americans do not live within 10 miles of an Academy. And so look at the state of Ohio, we have a 0% market share there last year and now we have two stores kind of in suburbs outside of Columbus and those stores are performing well. They're exceeding our expectations. And so now we're capturing market share there. There's a lot of white space associated with that. If you look at our other growth initiatives, e-commerce penetration of 11%. Look, I would tell you, I think retail average is closer to 20%, and good omnichannel retailers do it at 30%. We brought in Chad Fox, our Chief Customer Officer. He's been there and done that. We think that we've got some really easy ways to elevate there. We talked about DoorDash, same-day delivery, things like that that optimize the user experience are big for us. And then lastly, from a customer data standpoint, launched the platform last year, launched our first-ever loyalty program this year, going to be 11 million My Academy members. These are really powerful long-term growth engines that, yes, we think will take share. We say internally, we do not have a challenged strategy. We have a challenged customer right now and we're trying to unveil those things to improve the base while all these other things can help on the outside. But we see a lot of opportunity in the future and that's why we're continuing to invest in these strategic investments.

Great. Thanks, and good luck with the rest of the holidays.

Thank you. Happy holidays.

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

Thanks, operator, and thanks to everyone for listening to our call. As we've outlined today, we remain confident in our long-range plan and business strategies and have been working hard to put in place the building blocks for growth in the future. Over the past year, we've consistently seen the customer come out and shop with us during key moments on the calendar. This demonstrates the strength of our position as the value leader in our space, coupled with the credit customers give us for extensive and differentiated assortment of categories and items. Despite some of the headwinds we've experienced this past year, the fundamentals of our business and long-term growth trajectory remain intact. Our investment back into the business through our strategic initiatives is a testament to our belief in the long-term future of Academy. In the short term, we'll continue to take a proactive approach into managing the business, protecting margins and cash flow, while also ensuring that we're best positioned to capitalize when customer spending returns to normalized levels. The opportunity is clear to us. As we've said multiple times on this call, over 80% of Americans do not live within 10 miles of Academy. There's plenty of white space for expansion opportunities. We have a much beloved brand with high awareness in our core geography, and we have the opportunity to bring this brand to new customers who are not yet familiar with Academy. Finally, our value-based and broad, and complete assortment helps us fill the void that no other retailer fully addresses. We believe remaining true to this strategy will allow us to break through and deliver against our vision to be the best sports and outdoor retailer in the country. Thanks for joining us today. And if I don't speak to you before then, I'd like to say have a Merry Christmas and happy holidays to all of our team members, vendors, and investors.

The call is now concluded. You may disconnect your lines and thank you for your participation.