Good morning, and welcome to the Academy Sports and Outdoors Third Quarter Fiscal 2025 Results Conference Call. The 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. Please limit yourself to one question and one follow-up. To ask your question during the call, please press star 1 from your telephone keypad. If you require operator assistance during the call, please press star 0. I will now turn the call over to Dan Aldridge, vice president of investor relations for Academy Sports and Outdoors. Good morning, everyone, and thank you for joining the Academy Sports and Outdoors Third Quarter 2025 Financial Results Call.

Participating on today's call are Steve Lawrence, Chief Executive Officer, and Carl Ford, Chief Financial Officer. As a reminder, today's earnings release and the comments made by management during this call include 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 most recent 10-Ks and 10-Q 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. This morning, we will review our financial results for 2025, provide an update on strategic initiatives, discuss the outlook for the year, and share our updated guidance for the full year fiscal 2025. After we conclude prepared remarks, there will be time for questions. With that, I'll turn the call over to CEO, Steve Lawrence. Steve?

Thanks, Dan, and good morning to everyone on the call. The third quarter played out as we expected. Consumers are shopping episodically and seeking out values as they look to stretch their buying power in the face of rising prices across the retail landscape. As we noted in our last call, we saw customers show up and drive positive comps during the back-to-school selling period, which for Academy stretches from mid-July to mid-August. Once we got past the kickoff of tailgating and hunting season in early September, customers pulled back on spending during the lulls in the calendar and tended to aggregate their purchases during promotional events and natural holidays, such as our seasonal clearance event in September or in early October, where we ran our Academy Deal Days over Prime Week and Columbus Day weekend. We did see comps inflect back to positive during the tail end of the quarter as we started getting cooler temperatures in our legacy markets, which accelerated sales in our cold weather categories. This momentum carried into early November and got us off to a good start for the fourth quarter. We saw softness in the middle of the month as warmer temperatures resumed and sales in seasonal apparel slowed a little. As we expected, customers came out in force during Thanksgiving week looking for deals, and our team was well-prepared with strong promotional pricing that was fueled by the inventory we pulled forward at pre-accelerated tariff pricing in Q2 and Q3. All this resulted in our largest Black Friday weekend ever, which is on top of a record Black Friday event from last year.

That being said, we still have a lot of business ahead of us over the next four weeks. Shifting back to third quarter results, it is clear that our strategies are not only working but continue to accelerate as they take hold. A couple of proof points to support this are, first, we're in our fourth year of new store openings, and we now have 26 new stores from the 2022 through 2024 vintages in our comp base. And by this time next year, we'll have an additional 24. These stores in aggregate comp low single digits in Q1, mid-single digits in Q2, and ran a high single-digit comp in Q3. Second, the foundational work we've done around improving our omnichannel experience continues to pay dividends, with growth in the channel accelerating from plus 10% in Q1 to 18% in Q2 and 22% in Q3. Lastly, investments in delivering more on-trend products from both the Jordan brand and Nike helped drive high single-digit growth in the combined brands and are helping bring in new higher-income customers into Academy. Turning to our third quarter results, as you saw from our earnings release earlier today, sales came in at $1.38 billion, which was up 3% to last year, translating into a negative 0.9% comp. We're encouraged by the strong reaction from our customers during the back-to-school season and for our holiday assortment at the tail end of the quarter, as we saw cooler temperatures across our geography. We were also pleased by the progress we made improving average unit retails to help offset the increased tariff expense we are seeing this year. During the quarter, average unit retail steadily improved and was up mid to high single digits versus last year. This improvement also helped increase our gross margin rate to 35.7%, up 170 basis points from last year. We've been walking a bit of a tightrope this year as we work to steadily raise AURs while also maintaining our value leadership in our space. I can assure you that we're continuously monitoring pricing relative to key competitors and are highly confident that we have the right pricing, architecture, and promotional plan in place to deliver a strong holiday season. Looking at category performance across the business, Sports and Rec was our strongest division, posting a 6% increase driven by solid growth in our baseball, outdoor cooking, fitness equipment, and bicycle businesses. Apparel sales grew 3%, driven by strength in key national brands such as Nike, Jordan, Carhartt, Ariat, and Berlevo, along with solid growth in our private brands such as Magellan and Freely. Our footwear business grew 2%, driven by performance running brands such as Nike, Brooks, ASICS, and New Balance, all of which drove strong comps. Sales in our Outdoor business also grew 2% for the quarter, with strength in fishing, hunting gear, and firearms. We did see some softness in our ammo business as we started to lap the election run-up from last year. Once we got past the election time period in early November, while still running negative, we've seen the ammo sales trend improve. As we continue to grow top-line sales, we also remain focused on growing our market share. As you know, most of the new stores we're opening are in new or underserved markets, and virtually every dollar of sales from these new stores translates into share gains for us. In many cases, these gains come from smaller independents who lack our scale and pricing power, or in some cases from larger players that do not offer the value and diversity of assortment we carry. With a business as complex as ours, we have to track our relative performance across several different data sources. And similar to last quarter, all the metrics we're seeing indicate we continue to grow our share in the third quarter. The first place we focus on is traffic data, which we get through placer.ai. As prices continue to rise across retail, and discretionary budgets get squeezed, we continue to see strong growth in foot traffic and share gains from customers in the top two income quintiles, which are households making more than $100,000 a year. These top quintiles now represent roughly 40% of our sales during the quarter, and we saw traffic from these cohorts grow in the high single digits. We're very happy to see that we continue to drive strong market share growth with this consumer segment, even as we started lapping the double-digit growth we experienced last year in the third quarter. At the same time, we continue to hold share in the middle-income quintile, which includes households making $50,000 to $100,000 a year, which represents roughly 30% of our customers. And finally, we continue to see traffic erosion in the lower-income cohorts that make less than $50,000 a year, but the pace of these declines was less than what we saw in the first half of the year. As this trend has played out over the past year, we have, in effect, started to somewhat derisk our customer base by giving us less exposure to lower-income consumers, who are under the most amount of economic pressure. Another key data source for us is Surcana, which provides market share data on roughly 60 to 70% of the categories we carry. Similar to last quarter, we were pleased to see meaningful share gains across all of our key businesses such as apparel, footwear, sporting goods, outdoor cooking, fishing, and camping. Finally, we use government background checks for firearms purchases or NICS checks data as a proxy for firearms market share. Once again, we saw continued solid growth on this front, despite the softness in the ammo that I started earlier, with firearm share growing for over eighteen consecutive months. As we move forward into Q4, we expect these trends to continue as customers discover the value, convenience, and diversity of our assortment. We attribute a lot of the momentum we're building in the business to the solid progress we continue to make against our long-term objectives and goals. I will now cover a couple of highlights of this from Q3. First, opening new stores remains our number one strategy. And during the quarter, the team successfully opened up 11 new stores. Unlike the first half of the year, most of these new locations are in our core geography where we have high brand awareness and affinity and are positioned in mid-sized markets with an underserved constituency. Some examples of stores we've opened up during the quarter are Palestine, Texas, Batesville, Mississippi, and Rome, Georgia. While these towns are not household names for many of you, the customer profile in these markets closely aligns with our target consumer. In each of these stores, with the other eight we opened in the quarter, we've been knocking it out of the park since opening and running significantly ahead of plan. The success of these stores highlights the opportunity we have to open stores in our legacy markets and markets that are experiencing high population migration and growth, in addition to the new states and markets where we currently don't have a presence. At this point in time, we have pretty good visibility into our 2026 pipeline of stores. We're excited to announce that we plan to open up an additional 20 to 25 stores next year, with a focus on opening roughly 80% of the new stores in legacy and existing markets and 20% in newer markets. As in the past, we tend to open new markets in the first part of the year, while legacy and existing are more back-half weighted. Our second initiative is to grow our .com business at an accelerated pace. We continue to make progress against this goal in Q3, growing this channel 22% for the quarter, and penetration to total sales grew over 160 basis points to 10.4%. As we mentioned on our previous calls, we believe that our new store growth is one of the things that helps fuel our .com business by acting as local fulfillment hubs for customers who want the convenience of a BOPIS experience. This symbiotic relationship is evidenced by the fact that we're starting to see higher .com penetrations in our new markets, as we lead with a digital-first customer acquisition strategy. An omnichannel shopper is our most productive and profitable customer, and we're laser-focused on getting new customers into our digital ecosystem, engaging with them in ways that support their shopping needs and patterns. In addition to the contribution that new store growth has had on our .com business, we've also made significant investments in both technology and talent over the past twenty-four months, which has led to the growth we experienced over the last three quarters. We believe that we're still in the early innings of many of these initiatives, and that as we continue to invest and focus on delivering a site experience that is easy, engaging, and elegant, we will remain on track to achieving the 15% penetration we outlined in our long-range plan. Our third growth pillar is improving the productivity of our existing stores. We put several initiatives in place this year to help accomplish this. Our first focus on this front is to continue to refine and expand our assortment by adding the most requested and desirable brands that will inspire existing customers to shop more frequently at Academy while also attracting new customers to our brand. We continue to be pleased with the growth we're getting out of our increased investment in partnership with both Nike and the Jordan brand. At this point, we've expanded elements of the Jordan brand out to all stores, such as cleats, socks, slides, and backpacks, and expect to further roll out footwear and apparel in more stores in 2026. We believe that our improved access to basketball game shoes from Jordan and performance running shoes from Nike, such as the Romero, when coupled with the expansion of fashion apparel across both these brands, is helping us attract many of these new $100,000-plus households that I mentioned earlier in my remarks. We've been applying the same approach broadly across the store to ensure that we have a strong presentation of some of the hottest items in transit holiday. The technology team has made some significant inventory investments in key holiday items that feature enhanced technology, including Turtle Box speakers, Meta AI glasses from Ray-Ban and Oakley. We're also leaning into new emerging health and wellness trends such as weighted vest running and walking, portable saunas from Homedics for post-workout recovery, or an expanded assortment of clear proteins from First Form or Isopure for people taking GLP-1 weight loss drugs. Our core customer is the Always Game family, so we haven't forgotten the kids this holiday either. We have the newly released World Cup Triad of Soccer Ball, along with an expanded assortment of some of the hottest youth baseball drip, from brands such as Bruce Bowl, Baseball 101, and Dirty Mid's. The team has also built a strong assortment of sports toys from Nerf Silent Sports. And lastly, sports and Pokemon trading cards always make great stocking stuffers. Our second focus this year was on delivering new technology to stores, with the rollout of RFID scanners and new handheld devices. We continue to see benefits from these initiatives as we improve our inventory accuracy and in-stocks and brands, we can update inventory on a weekly basis. One of the biggest benefits to date has been the impact on our associates' ability to serve the customer and in many cases, save the sale that would have gone somewhere else. The combined utilization of RFID in these handheld devices allows associates to help customers more rapidly find the items and sizes they're shopping for. When the item is not in stock in a specific store, they can save the sale by allowing the associate to immediately order the item for the customer, and it can be delivered to home or picked up in another store, whichever is most convenient for them. We're also seeing productivity gains from our store teams as they can more quickly process .com and BOPIS orders. Our third focus is on driving traffic through expanding our loyalty program and improving the efficiency of our targeted marketing efforts in order to increase the frequency of customer visits and improve conversion rates. Simplistically, we want to streamline the customer shopping experience and make it easy and intuitive. One recent example is where we've automated much of our customer onboarding experience and improved our ability to offer instantaneous real-time benefits from sign-on offers versus in the past, there being a lag between when the customer signed up for loyalty and when they could use their first purchase discount. All this work continues to help drive customer enrollment and engagement in our My Academy Awards program, which we expect to have 13 million members by the end of the year. Driving enrollment in our rewards program remains an important focus for us so we can start a dialogue with them and convert them from occasional shoppers to loyal customers who shop with us two to three times more in a year than an average customer and spend four to five times more on an annual basis. We expect to see this program continue to grow and be a key traffic and conversion driver for us and are excited about our opportunity in 2026 to combine My Academy Awards and our credit card program into one seamless experience for the customer. We'll share more details around this in our next call. Now I'll hand it over to Carl to give you a deeper dive into the financials. Thanks, Steve. Net sales for the third quarter were approximately $1.4 billion, up 3%, with a comp decrease of 0.9%. As Steve noted, our strategic initiatives are working. New store sales comp continues to grow. Our e-commerce channel had a positive comp of approximately 22%, which is our third quarter of consecutive double-digit comp. Nike and Jordan brand are resonating, and our technology investments like RFID are bearing fruit. Breaking down the comp, transactions were down 4.1% while the ticket was up 3.3%. Sales were just below the midpoint of our fall guidance during the quarter as we navigated a warm October and a challenging consumer environment. And as Steve noted, the trends through November and early December are tracking in line with expectations. As consumers seek out value, the strategy is working, and the underlying business is performing well. If you look at the two-year stack on a comp sales basis, we have improved 370 basis points from Q1 to Q3, which included lapping two Texas teams in the World Series. Gross margin came in at 35.7%, up 170 basis points from last year. The expansion was driven by 130 basis points of merchandise margin inclusive of tariffs, and a 30 basis point improvement in freight as we had a reduction in spend due to lapping port strike issues last year that did not recur this year. Additionally, we saw a 20 basis point improvement in shrink as our inventory management and investments in RFID begin to take hold. SG&A came in at 28.4% of sales for the third quarter, an increase of approximately $28 million or 120 basis points. The increase was driven by our initiatives totaling 160 basis points, comprised of 150 basis points of new store growth and 10 basis points of technology investments. All of the SG&A deleverage relates to our growth initiatives. If you strip out the costs attributable to those initiatives, all other costs would have leveraged by 40 basis points. The acceleration in new store growth from 2022 to 2025 has had an outsized impact on SG&A growth. But as we move into 2026, the number of new stores will be similar to 2025. Looking ahead to the fourth quarter, we expect SG&A to be flat to slightly down as we lap accelerated store openings from the prior year. If you recall, we opened five stores in Q4 2024, and we have opened five stores in Q4 2025. Operating income grew 9.7% to approximately $100 million, and diluted earnings per share grew over 14%, coming in at $1.05. And adjusted earnings per share grew over 16% to $1.14. Our inventory has continued to improve as we move through the year. And on a per-store basis, units were down 0.3% from last year. We have also seen good sell-through in the product. This compares to up 4.6% in Q2. We pulled forward earlier in the year, and we feel good about the composition of our inventory as we finish out the holiday and the fourth quarter. We ended the quarter with approximately $290 million in cash and maintained strong liquidity, with an undrawn $1 billion revolver. Our 8% increase in stores since Q3 of last year is completely funded from cash flow from operations. During the third quarter, free cash flow was negative $9 million as a result of payments attributable to tariffs. In the first February, we pulled forward inventory to minimize duties, and those payables came due in Q3. I'm extremely proud of the team and the way they managed through this unprecedented environment. Turning to capital allocation, we remain committed to balanced and disciplined deployment. During the third quarter, we paid approximately $8.7 million in dividends and invested approximately $54 million in strategic initiatives, including new store openings and omnichannel infrastructure. We did not repurchase any of our shares during the quarter, instead choosing to allocate capital to manage inventory. These decisions have allowed us to appropriately manage our inventory position and risk during this period of heightened uncertainty. Our capital allocation philosophy has not changed. We have over $530 million remaining on our current repurchase authorization and plan to begin repurchases again in the fourth quarter. Moving to guidance, based on the results through the third quarter and the expectations for the remainder of fiscal 2025, we are narrowing both the low end of our comp sales guidance from negative 3% to negative 2% and the high end from plus 1% to flat, with the comp range for the year now being between negative 2% to flat. With a new range of 34.3% to 34.5%. To close, our strategic initiatives are working and continue to accelerate. New stores are now comping high single digits. E-commerce grew double digits for the third quarter in a row. Jordan and Nike grew high single digits and have shown incremental growth each quarter since their launch and expansion. And we continue to see consumers in the upper income cohorts trade into Academy as they seek out value. I'm extremely optimistic about the future of Academy as we continue to grow. I'll now turn the call over to the operator for questions.

Thank you. The company will now open the call for your questions. To ask your question, please press 1. We will pause for a moment to wait for the queue to fill. A session, CEO, Steve Lawrence, will make closing comments.

Hey, thanks, guys. Curious if we could start with the average, the ticket increase of 3.3%. If you could talk about AUR versus UPT. The buildup to get to that ticket. And then I'm curious what sort of price increases were taken in the third quarter and relative to the costs that were running through the P&L, I know you brought in some inventory early, so I'm wondering if there was, like, a temporary mismatch between the prices that you took benefiting the gross margin versus how those tariff costs run through the P&L. And what is the dynamic for 4Q and even beyond as we look out to '26? Thanks.

Hey, thanks for the question, Paul. Carl and I will probably tag team this from an AUR perspective. Played out as we thought. AURs for the quarter were up mid to high single digits as we progressed through the quarter, which is what we had outlined on our last call. UPT was down mid-single digits. So we did see some trade-off between AUR and unit sales. As we progressed through the quarter in terms of pricing. We've talked about a lot of different ways we've been trying to raise AURs. A lot of that through clearance management, promotion management, and of course, the last resort was we did a little bit of that in the quarter, which resulted in higher margin. We do feel pretty good about where we sit from a pricing architecture perspective at this point in time. Heading into holiday.

So it played out about as we thought in terms of the flow through from a tariff perspective. I'll turn it over to Carl. Yeah. So within that 170 basis points of gross margin, 120 basis points was growth related to merchandise margin. That's inclusive of the tariff burden. And then we got 30 basis points of freight good news and 20 of shrink. As it relates to the 120 basis points of merchandise margin growth, you're right. We're on weighted average cost. So to the extent that we're moving AURs up in anticipation of tickets positioning, you'll get a little bit of a bump associated with that in the initial quarter. We're beginning to see that as it relates to the fourth quarter, which is kind of the last part of yours. We've got the midpoint of our guidance at flat gross margin. And I think that's appropriate for the environment that we're in.

And just a follow-up. What price increases should we expect to see in the fourth quarter relative to the third? And will that be the peak of the price increases? Or did it get even higher as we look out to the first half?

Yeah. Our expectation from an AUR perspective is up high single to low double digits for Q4. We'd expect that to kind of plateau at that level and carry into Q1 and Q2 of next year. As we lap the accelerated tariffs in the back half of the year, so we're in at more of a flattish level. But certainly, what we're going to see for Q4, we think, will carry forward into Q1 and Q2.

Thank you, guys. Good luck.

Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.

Hi, good morning. This is Pedro on for Simeon. Thanks for taking our question. Nice job with the continued rollout of the Jordan brand. Can you give us some color on what the contribution looks like that you're seeing at the store level in terms of sales, margin, and what the continued rollout looks like next year? And as a follow-up, you've talked in the past about other brand partners, like Levi's, Adidas, Under Armour, you've mentioned. Can you give us an idea of the pipeline in terms of new or expanded collaborations with brand partners?

So I'll start with, yeah, we continue to be really pleased with the contribution that Jordan and increased access to a better Nike product has had on our stores. As we cited in the prepared remarks, if you combine those two brands, we don't have a last year for Jordan, right? But if you combine the two brands, they were up high single-digit comps. So that's pretty exciting considering Nike is our biggest brand already. So that's a meaningful contribution. We've rolled out elements to all stores, as we've noted in the prepared remarks. Things like cleats, slides, some sporting goods like basketballs and things like that. We're gonna roll more apparel and footwear out into more doors in spring. So we expect it to be a growth driver for us into next year as well. In terms of new brands, listen, it's not just about apparel and footwear. We're really focused on making sure we have a lot of new exciting things across the whole footprint. So some of the things we called out, when you look at what we've done with brands like Burlevo, we've rolled out other brands more deeply into the store, such as Birkenstock in footwear. We've got some new Hock trading cards that have come in. We've got a lot of new fun innovative brands that we brought in this year. We'll continue to do that. It's not just about apparel and footwear. It's looking for those things across the store. I think we're looking at, you know, not just tried and true brick and mortar brands, but things that are digitally native and looking for ways to partner with them and bring them into retail as well.

Great. Thank you, guys. Good luck. Thanks.

Our next question comes from the line of Christopher Horvers with JPMorgan. Please proceed with your question.

Hi, everyone. This is Jolie on for Chris. Just following up on that Nike Expansion Jordan launch question. Since Academy is still negative, would it be fair to assume that the lift from that combined brand is less than you had originally expected? Considering I believe last quarter was meaningful double digit this quarter more high single digit, or is it more so that the consumer is just worse given broader macro trends and uncertainty?

Yeah. I would say it's meeting our expectations and doing better in some categories. So we're very, very pleased with how this is playing out for us. If you go back and look at the quarter, actually, if you take ammo out, we would have run a positive comp. I have a boss who, whenever I've said things like that in the past and I'd say, hey, if you take ammo out, we run a positive comp. He would say, well, yeah, if you take the Eagles out of the Super Bowl last year, the Chiefs would have won five Super Bowls. So we try not to do that too often, but generally, we were pretty pleased with the performance of all the different categories. All categories ran an increase last quarter. Ammo was probably the one drag, and that's really, we believe, a reflection of anniversarying the run-up to the election. Last year, we saw a big surge in demand, and we noted in the prepared comments, once we got past that in November, we saw the ammo business stabilize. So I feel like the initiative is playing out as we thought. We're seeing acceleration in our .com business, acceleration in our new store business. You know, really was. Ammo was the drag.

That makes sense. And our follow-up question is on the implied four comp guide. Our math, we're getting about a down 3.5% to an up 3.5%, which is a wide range for the fourth quarter. So we were curious why the range is so wide and what the puts and takes are of hitting the high and low end.

It is a wide range. You know, we're not national. We've got some localized stuff that's going on from a weather perspective. The midpoint of the guidance is flat. And Jolie, your ranges are about right. From a puts and takes standpoint, look. AURs are elevated. Like, that's a load on the consumer. The price of poker has gone up with tariffs. And so what we're seeing is that the AUR is largely offset with unitary degradation, whether in the form of traffic or UPTs. And so the downside implies that that worsens, and the upside is basically just how the consumer responds to that. So that's really the difference between the high and the low is the unitary offset of AURs going up.

Great. Thank you.

Our next question comes from the line of Kate McShane with Goldman Sachs. Please proceed with your question.

This is Emily Ghosh on for Kate. We were wondering how would you characterize the health of the Academy customer and how does the level of trade-in that you saw again from upper-income customers compare to what you saw in the second quarter?

Yes. So I think that's an interesting question. I think there's a lot of talk out there amongst different pundits around this K-shaped economy. I believe that that's a real thing. I think that at the high end, we're seeing continued growth with consumers making over $100,000 a year. We saw that growth continue into this quarter being in the high single digits. As we noted in the prepared remarks, that's a little lower than we saw in Q2 and Q1 where it was up in the double-digit range. But that being said, we're starting to lap that trend that we started to see happen a year ago. So we're pleased we're continuing to see it build on top of double-digit growth from last year. The middle-income consumer continues to be fairly steady and shopping pretty regularly. And then the lower-income consumer continues to pull back and be very thoughtful about where they're shopping. And so we've seen declines there in the mid-single digits. That being said, that trend also got better where it was in Q2 and Q1. So we're adding more customers in at the top end faster than we're treading at the low end. That being said, like all the shoppers to come shop with us this holiday and we've got great deals and great values to try to attract them. But certainly, the lower-end consumer continues to be under pressures with inflation and what's going on in the economy.

We talked a little bit, Emily, about this on the last call, but if I think about the last year at Academy, I think there's been an exceptional derisking of the consumer portfolio. And by that, I mean, look, we don't want people who make below 50,000 quintiles one and two to stop shopping with us. But I think not just the academy, but overall prices in the marketplace have gone up. And in some cases, they've just, you know, they're not shopping in the category anymore. You think about that being more than offset with households that make over 100,000, if I compare the average customer now versus a year ago, they're significantly healthier. But I think it's because of the trade into Academy in those quintiles four and five.

Thank you.

Our next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question.

Yes. Hey, guys. Good morning. It's Adam on for Ike. Two questions, one, on the really strong e-commerce results. Help us understand if that was in line with your thinking, if better than what you're thinking. And if that's the case, maybe how that could impact sort of your thinking on new stores in those new markets going forward, right? Is it more maybe of fill-in and then use e-com to drive that area, and maybe make it more profitable earlier than expected? And then secondly, also on stores, just with the pivot back to existing markets next year more so than this year. Help us understand maybe, like, the cost of a store in a new market versus an existing market.

Yes. This is Steve. We'll probably tag team this one. I would say the .com business being up 22% was above, you know, where we planned it. I think the team's done a really, really good job there. I love to point to one thing that's driving it. I think it's a combination of all the efforts the team has made over the past year in terms of improving navigation and filtering the product site functionality and search, more personalized experiences, expanded assortment options through dropship. It's all that work that's really helped. And as we said, there's definitely a symbiotic relationship between adding a new store into the market and then us seeing a surge in .com demand. We build brand awareness in that new market. So we expect that to continue as we move into new markets. Pivoting to kind of the mix between existing and new markets, we're going to move back next year to about eighty-twenty new and existing. So if you look at it, legacy and existing, I'm sorry, would be about 8%. New will be 20. What we found as we've been going on this journey is that opening up and primarily focused on new markets has been a lot of population growth in our core legacy markets. As a matter of fact, there's a stat we're looking at the other day that I think over a third of all commercial real estate being developed in the US is in Texas right now. And so we've got a lot more opportunity than maybe we initially thought to open up stores in kind of our legacy footprint. We tend to find those stores more in those midsized markets where our Always Game family lives. And they're a little underserved in terms of other retail outlets. And so we think that's a really big opportunity for us. In terms of the economics of the new stores opening up in a new market versus an existing market.

Yeah. I think from a build-out standpoint, we're still at the 4 to $5 million, and that's all in. That's inclusive of net inventory. You know, as I think about the run cost, from a brand awareness standpoint, the brand awareness within our legacy or existing footprint around Academy is exceptionally high. And so I think from a marketing standpoint, we're not gonna have to introduce the brand as much as I think about, you know, some of the new states that we've opened over the last two or three years. I think from a rent perspective, you know, rents are going up in the US as we look at some of these small to midsized marketplaces. Really attractive rents and landlords and municipalities that really want us there. So I think the overall ROIC proposition and payback period would be better as it relates to legacy and existing marketplaces. But with that being said, not gonna stop planting seeds and growing the brand. We're just seeing some really compelling opportunities within our space. And I do wanna just speak directly to cannibalization. We're seeing very low levels of cannibalization when we look at our pro formas at how these stores will operate. You know, we look at drive times to existing stores if it's an hour away. There's gonna be some level of overlap. We model that in the NetROIC and we're actually pretty pleased. I think some of that is because of the population demographics that Steve spoke to.

That's great, guys. I appreciate it. Thank you so much.

Thank you.

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

Hi. Good morning. This is Dan Silverstein on for Michael. So much for taking our question. Maybe just to start, merchandise margins up 120 basis points in 3Q, inventory units sound like they're in a healthy position. What are the potential pressure points for the fourth quarter gross margin outlook?

I think it comes down to just the health of the consumer, right? You know, they're, you know, I think the word everybody's using is choiceful. And so what we've seen is that that is really demonstrated by the customer coming out when promotions are happening and pulling back when they're not aggregating sales around promotions. And that's really what's going to drive it, right? At the end of the day, it's going to be got a lot of thoughtful promotions we've built out there that hopefully will resonate with the consumer. But I think the biggest wildcard will be how they react to those promotions and what's the take rate on those as we progress throughout the holiday. I think we're in a pretty good place from a seasonal perspective. We really don't think there's gonna be a big seasonal liability. Carryover from that perspective. But I think it's more just the customer's appetite to buy and how much they buy a promotion.

Very helpful. And then just our follow-up. As your recent vintages of store openings have continued to get more productive, does this help provide a floor for what you think is achievable from a perspective next year? I think you cited, you know, a high single-digit comp for those recent store openings, a very healthy level. So just wondering how that evolves from here.

Yeah. I'm very fired up about how the new stores are performing. I think we have a high degree of precision of how year one will come out, based off of whether there's market awareness. And that 12 to $16 million is playing out kinda like we thought. As it relates to high single-digit comp once they're in the base. And we treat things that once they're on the fourteenth month, they fall into the comp set. Something that I think is really meaningful, there's 26 stores in the third quarter that are in that comp set and it provided about a 50 basis point comp tailwind if you think about it from a waterfall standpoint. We'll have 50 stores this time, this year that are in that comp base. So I think the things that you guys have seen in the marketplace and we've seen in the as it relates to building up that retail pipeline, gonna play out that way here, and I think we'll like the way that that matures long term.

Thank you so much.

Our next question comes from the line of Robbie Ohmes with Bank of America. Please proceed with your question.

Hi. This is Maddie Check on for Robbie Ohmes. Thanks for taking our questions. I just wanted to ask how Black Friday promos compared to last year. And what's the risk that you need to be more promotional later in the quarter based on what happens in retail overall? And given Foot Locker's stance to be more aggressive with clearance this holiday in footwear?

Yes. I would say promos were roughly in line with where they were last year for Black Friday. Things we've looked at as we've been trying to look at raising AURs is how do we promote, how broad is that promotion, how long do we run it. But if you look at the absolute level of promos for us, and it looks like across the industry, I would say fairly consistent with last year. I think as we go through the holiday, I think the wildcard continues to be, as I said earlier, just what is the customer's take rate on those promos? What we've seen happen a lot this, you know, in Q3 and in Q4 is if we run the same promotion as we did a year ago, same level, etcetera, customers are taking advantage of that. So I think that's going to be a thing that we're going to see continue as we make our way through the rest of the holiday. In terms of Foot Locker promotions, I would tell you our assortment versus theirs. There's not much overlap. They certainly, you know, they carry Jordan a lot of basketball shoes. We tend to be more game shoes. They tend to be more limited edition releases and things like that. So we don't expect that to have a big impact on us. Certainly, that's a more mall-based customer. Most of our stores are off-mall. So I don't think it's going to have a lot of impact on us.

Thank you. Appreciate it. And can you talk about where you're raising price within your assortment versus where you might have seen some unit degradation?

Let's say, in general, prices have gone up a little bit almost across the board. Certainly, it's more pronounced in the hardgoods side of the business than the apparel side of the business based on where that sourcing base is. But once again, as we're looking at raising AURs or multiple packages, we're looking at, right? Step one is being better in how we manage clearance. And so taking less good clearance and being more thoughtful about when and how we clear goods. We're looking at promotions. In a lot of cases, maybe shortening the length of promotions or maybe not being as broad including everything within a brand. Maybe it's just key categories. In some cases, it may be reducing the depth of promotions. And so we look at all those things first. And then the last thing we try to look at would be actually physically raising prices, you know, the tickets on goods. Certainly, some of that's happened as the national brands have passed on price increases and raised their MSRP's. We've tried to keep them lockstep with that with our private brands. But I would say it's pretty broad-based. It's not any one area, but it's more pronounced in the hardgoods side of the business.

Understood. Thank you.

Our next question comes from the line of John Heinbockel with Guggenheim. Please proceed with your question.

I wanted to start with year two and year three comps on the new stores. How much do they tick down from high single digit at all? I don't know if they kinda land mid-single digit. You know? And if I think about the traffic ticket composition of that, how does that look? Right, in those new stores? And then, you know, clearly World Cup will be a positive next year. You know, how significant do you think that is? Obviously, that's something you can lean into, I would imagine, pretty hard.

I think we'll tag team this one. I'll take the World Cup piece of it first. Yeah. Listen. I think it's gonna be significant. Right? We have a lot of games and matches that are gonna be played within our footprint between Dallas and Houston. We already have some World Cup jerseys on the floor as well as the soccer ball, the try on the soccer ball at various levels. And the initial reads on both are very, very good. I think we're excited about it. We're not going to give guidance next year, but certainly, we think it could be a tailwind for us through the summer months as the World Cup plays out. But really what we think is that the impact would be more long-lasting than that. You know, the last time the World Cup was in the United States, the real benefit was not the actual bump you got from tourism or selling jerseys. It was participation in soccer after the fact. And we really think that's going to provide a big tailwind for the soccer business for us. Many years to come, not only in 'twenty-six, but 'twenty-seven, and 'twenty-eight.

Yeah. And, John, as it relates to the kind of the year two comp, the only thing that I would call out as being a bit different is that fourteenth month tends to be a negative comp. So there's still some grand opening anniversarying and some marketing hoopla and, you know, the neatness of having a new store in my location, you know, drives a lot of activity. They positive comp in their first quarter, but that first month is a little bit different. And then as it relates to year two and year three, we're seeing pretty good strength across the board associated with that. I think the only thing to call out there would literally be that fourteenth month just tends to be negative.

Alright. And my follow-up when you look at, you know, population growth in a lot of your markets, Florida looks incredibly underdeveloped. You know, what's your thought when you kinda do your long-term real estate plan on that state? And, you know, is there, you know, is real estate availability cost? Is there anything holding that back or, you know, or just that's kinda how the availability has fallen?

I love the Florida marketplace. I think it plays out exceptionally well associated with our fishing assortment. I think the demographics of the state line up pretty well with getting outside and having fun. The one thing I would call out is the state is proud of the land, and they're proud of the rents that they charge in some of these locations. We're committed to having an ROIC of 20% and a four-year payback. I think we're very selective associated with where we go in. And we love to partner with landlords who wanna make that work our while. But I love the demographics. I love the people that are moving to the state of Florida. I just we gotta make sure it's a win-win opportunity, and we don't degradate the ROIC of the company associated with where we put stores.

Just to be clear, we're talking about 80% of the new stores next year kind of in legacy and existing markets. Florida will be an existing market for us. And we think that there's a lot of opportunity, particularly in these middle-sized markets with underserved consumers there. We think that that definitely aligns with who our customer is you're going to continue to see us grow in Florida.

Thank you.

Thank you.

Our next question comes from the line of Anna Gluskin with B. Riley. Please proceed with your question.

Hey, good morning. Thanks for taking my question. I'd like to turn back to the ammunition commentary. You know, I believe that ammo and firearm together are less than 10% of sales. So surprised by the magnitude of impact that, I guess, ammo had on the quarter. So maybe if you could expand on that, maybe there's a seasonal aspect because 3Q captures the hunt season. And then secondly, as we've seen some stabilization in ammo post-election, is it possible at this new stable level but still negative you can drive a positive comp? Thanks.

Yes, absolutely. So you're right. We've cited in the past that firearms combined are about 10% of the business. So you can assume ammo is roughly five. It does, at certain time periods, have an outsized impact. What we attribute the sluggishness or slowness we saw in the ammo sales in Q3 was really a reflection on the election runoff from a year ago. If you go back and this is something we see traditionally in front of a lot of different presidential elections, there's a run-up in advance of that as people are trying to better figure out what's happening one way or the other in terms of who's going to get elected. And we saw that right at the October. And so as we came up against that, it certainly put us in a place where we're having a hard time comping those comps. We did see it stabilize as we got past that time period, which leads us to believe it was really the election run-up that was driving that. Yeah, we do believe that, you know, ammo, if it can run even, you know, where it is today in mid-single or actually it's high single digits negative right now. We should be able to post comps if we can keep it at that level. Only when it starts running much more negative than that becomes a bigger headwind.

And I wanna be real specific. Ammo in the third quarter was a negative 130 basis points headwind to comp. So if you bump that up against our negative 90 basis points, we would have been plus 40 without it. And for all the reasons that Steve just said.

That's super helpful. Thanks, guys. Thank you.

Our next question comes from the line of Joseph Savella with Truist. Please proceed with your question.

Hey, guys. Thanks so much for taking my questions. First off, how should we be thinking about the potential growth contribution from Nike and Jordan in '26 versus 2025? I know you'd be lapping a tougher brand-specific comp, but offsetting that you'll have a broader assortment for the full year. Incremental doors, and the World Cup.

Yeah. So I would tell you that I think depending upon the quarter we've seen the combined Nike Jordan grow in the high single to low double digits. I think you should expect that, and we expect that to happen again next year. Based off of further rollout of Jordan and More Doors and continued access and rollout of more fashion products within Nike. It's gonna be a growth driver for us somewhat what we saw this year.

Got it. Thanks. And then also, can you just give any color on the margin benefits you're seeing from the inventory pulled forward prior to tariffs?

Yeah. I mean, what I wouldn't say we've seen a huge margin benefit from it. What I would tell you is that it's allowed us to hold pricing on a lot of categories going through holiday. The goal was when we first learned of these accelerated tariffs is we were looking at it saying, okay, there's a lot of inventory on this side of the water. At those pre-accelerated tariff prices. If we can pull those into our warehouses and DCs, that should allow us to be priced at last year's level, a lot of these items going into holiday and we think that would give us an advantage and that's how we planned it out. So we really see it as a huge margin uptick. We saw it more as a way to protect sales and to offer value to the consumer going through holiday.

I just I do wanna echo, it was sweaty knuckles in the first part of the year with that M pull forward. I think our units per store were up 6.5% in the first quarter, like 4.5% in the second quarter. Now they're down 0.3%. We have no regrets associated with that pull forward as we do our pricing scrapes to look at how like-to-like product or similar private brand products are selling. We feel really good about our ability to hold that inventory to lower cost and offer that to our consumers, and that's resonating from a value perspective.

Got it. Thanks so much.

Our next question comes from the line of Adrian Yee with Barclays. Please proceed with your question.

Hi. This is Angus Kelleher on for Adrian Yee. I wanted to ask about the percent of product price increases implemented in fall 2025 and expected price increases for spring 2026. And then just curious since you cited AUR running mid-high single digits and transactions down 4%, where are you seeing the elasticity thresholds by category?

So if I understand your question correctly, you're asking around prices and AUR increases. As we said earlier, our AUR increases in Q2 were up mid-single digits. We expected Q3 to be up mid to high single digits. That's exactly what we saw. That's a combination of some price increases as well as promotional rationalization and better clearance management. We expect those to be up, AURs to be up high single low double digits in Q4 hold through Q1 and Q2 of next year. I don't see that necessarily changing. The question we got around elasticity was, you know, what were we seeing from a UPT perspective? We saw UPTs be down about mid-single digits. We saw AURs in the quarter up mid to high single digits. So it's almost a one-to-one offset. It really varies by category. We've got some categories in front end where, you know, I would say that it's been, you know, fairly inelastic. We've taken prices up and there's been no resistance to that. I think if a customer is standing in line and wants a bottle of water, they're going to buy a bottle of water even if it costs $0.10 more. On the flip side, we've seen other categories that are highly elastic based on the pricing increases. So it's not a one-size-fits-all. It really varies by category.

Angus, one thing I would add to that is changing prices is very disruptive on the store floor, and it's very disruptive in a distribution center. And so, how we thought about it is we wanna go ahead and make those price changes and not have that be a perpetual activity. Nobody knows what tariffs are gonna know, what's gonna come out, but we've made those price changes and they're costly to do on the floor. So our goal in all of the actions we've talked about with growing AUR, the last of which is changing tickets. You know, we feel that, if there's no significant changes to the tariff structure, we've set the reset the floor, reset the inventory and the distribution center so we can run a little bit more efficiently next year.

That's great color. Thank you.

Thank you.

Our next question comes from the line of Justin Kleber with Baird. Please proceed with your question.

Hey, good morning. This is Zach back on for Justin. Thank you for taking our questions. A couple on modeling. Q4 guidance seems to imply SG&A dollars are below Q3. Is unlike the normal sequential trend in your SG&A. So what is driving the lower SG&A figure in Q4? And how sustainable is this dynamic as you think about the shape of dollar growth next year? And then, Carl, you mentioned resuming buybacks in Q4. Guidance implies a good free cash flow quarter. Can you maybe just size how this buyback plan compares to what you did in Q1? Thank you.

Yes. From an SG&A standpoint, at the midpoint, you know, it's basically a 100 basis points of leverage. I don't have an SG&A going down, but it's close. I think some of the things that we're focused on is we've been you were kinda comparing it not to last year, but to the third quarter. There's price changes that are going on. I will tell you, last year in the fourth quarter, we had a sale-leaseback of a property. We always have first right of refusals on our leases and in some cases, landlords are looking to not be landlords and sell to another landlord. So in some cases, we'll step into that. That's a component of it. But I would just say overall, the team's set up to run efficiently. We've gotten rid of taking a bunch of price changes. We're not trying to do those in November and December. So there's some good news there. From a buybacks perspective, while my words said that we weren't gonna get back at it, I do wanna highlight that the guidance that we put out there does not have buybacks embedded in it. As it relates to capital allocation philosophy, first, it's stability, hold cash, have the ABL. Second is to invest in ourselves. And I would include, you know, inventory management in that category. And then third is to give the rest back to shareholders with a nominal dividend and buybacks. I think from an order of magnitude standpoint, not gonna get into the specifics since it's not included in the guidance, but we think our stock is attractively priced and we do cash flow well.

Great. Thanks, Carl. I'll pass it on.

Our next question comes from the line of Eric Cohen with Gordon Haskett. Please proceed with your question.

Hi, thanks for taking the question. I wanna ask about the income cohort because I calls had said that it was a sort of 30 a third, third, a third breakdown of the high middle low income. And say you said if the high income is now 40%, so what do you think you can do to keep that higher income consumer since it seems to have a comp benefit? Do you think this is just a natural structural change in the customer base, or is this more of just higher income consumers are trading down and the lower income consumers just under pressure?

Yes. I think it's a combination of both, Eric. I think that if you look at it, the reason we cited that, that 40%, because that's a pretty meaningful change for us. On the third, a third, third, and we've seen that happen over the past four quarters. So I wanted to call that out. I think what's driving that is two things. Number one, I do think that the higher income consumer is looking for value and I think in some cases, we are the value leader in the space, and they're finding us and discovering us. I think it's second to work we've done around the assortment. You know, if you think about where we are today versus where we were even four or five years ago in terms of layering on better best brands across the category. That could be baseball bats, North $100 or running shoes north of $100. I think we're in a different place today. So I think that the work the merchants have done around building out that better best assortment adding brands like Jordan or Burlevo or Turtlebox or Ray-Ban Meadows, all those things, I think, give that customer a reason to come shop with us and permission to continue to shop with us. And we're not gonna stop assorting those brands. Right? We're gonna continue to look to build those. That doesn't mean we've lost focus on the value end of our assortment either, but we see this as additive. And so I think if we continue to do this work, bringing in new innovative brands, I think we'll keep that customer shopping with us. Continue to grow share there.

Great. And you called for twenty twenty-five stores next year. I thought the messaging earlier was that store growth should be accelerating sequentially each year. So is this any change in sort of how you're thinking about store growth going forward, or is this 2025 sort of the right run rate in '26 and beyond?

Yeah. I think what we're focused on each year is coming up with a list of new stores and locations that we feel really confident about. If you remember, we said about midway through the year that we were kind of pausing new stores and weren't giving a lot of guidance around what we're doing in Q1 because we wanted to see how the tariffs played out. We feel really good about the 20 to 25 stores we've identified for next year. We feel really good about the pipeline we're building. Share more information in our next call around 2026 guidance. And then we're looking to do an analyst day probably somewhere in early April. We'll share more details around what the long-range plan in terms of store growth looks like.

Sounds good. Appreciate the color.

Thank you. Our final question comes from the line of Christina Fernandez with Telsey Advisory Group. Please proceed with your question.

Hi. Good morning. I wanted to ask about the high-income consumer that's coming to Academy. Do you have a sense of where they previously shopped or where those market shares, gains are coming from? And then my second question is around private brands. How are those performing, and do you see are you seeing consumers trade into or trade down to private brands as pricing has increased for national brands?

Yeah. On the income cohort standpoint, you know, I can't speak to specific nameplates that they're coming from. A lot of this information is in our CDP. And in that case, I don't see where they're coming from. Our customer database platform as it relates to Placer, we're big users of placer.ai, I can see, you know, shift. I would say generally speaking, they're seeking value. Look. They can't afford their lifestyle. They're seeing value offered at Academy. And they're intrigued by some new brand launches and new brands that we have.

I would say that when they come in, you know, our private brands represent probably our best expression of value to our consumer. We're seeing them trade into those brands. I mean, we talked about the strength we saw in Magellan during the quarter or Freely. I think that's a direct result of this customer coming in maybe shopping for something that they've got in another store and thinking we have a better price on it. Then trading into one of our private brands. That's definitely the behavior we're seeing happen right now.

Thank you.

I was taking it over before you're gonna turn it over to me. So we're proud to close out this year by giving back to communities across our footprint. Throughout this holiday season, we've hosted more than 40 local giveback events, partnered with local organizations, and gifted $120,000 directly to families in need. Inviting our company's commitment to making a positive impact on our communities. I'd also like to express gratitude to our 22,000 plus associates who work tirelessly to provide our customers with an outstanding experience when they shop at Academy. As I mentioned earlier, while we are now past the Thanksgiving kickoff of the season, we still have the lion's share of the holiday business ahead of us. Having been in a lot of stores over the last month, I can honestly tell you that I feel we're in the best position we've been in since I joined the company. Take care of our customers' holiday needs. With a strong inventory position in the most desirable and trend-right gift ideas, our associates are ready to help the customer. And our position as the value leader in the space is clearly resonating with consumers. Before I sign off, we're also excited to announce we'll be hosting an analyst event in New York on April 7. Provide an update on our long-range plan that will be webcast to the public. In addition to Carl and myself, we'll be joined by other members of the executive team so you can hear directly from the people executing all the initiatives you've been hearing about over the past year. Thank you all for joining our call today, and have a very happy holiday season.

The call is now concluded. You may now disconnect. Thank you.