Academy Sports (ASO): A Value Investor’s Playbook
Why ASO’s lower valuation, disciplined execution, and growth potential make it a standout in sporting goods retail.
Introduction
In the dynamic world of sporting goods retail, two major players stand out: Academy Sports + Outdoors (ASO) and Dick’s Sporting Goods (DKS). Both companies cater to a wide audience of consumers seeking quality products for outdoor recreation, fitness, and team sports. Yet, while they share the same industry, their strategies, market positioning, and financial performance tell two very different stories.
Academy Sports, with its regional coverage and value-oriented approach, trades at a notably lower valuation than Dick’s Sporting Goods, a difference further emphasized by their national store footprint maps (see image gallery below). This disparity highlights a unique investment opportunity, especially given ASO’s untapped growth potential and strong financial metrics. In contrast, DKS leverages its nationwide presence, strategic partnerships, and innovative offerings to maintain a steady growth trajectory, positioning itself as a leader in the space.
This article delves into a detailed comparison of ASO and DKS, examining their financial performance, operational efficiencies, growth potential, and strategic initiatives. For investors, understanding these distinctions is key to identifying which of these retail giants may hold the greater promise for long-term returns.
Valuation
When it comes to valuation, the disparity between Academy Sports + Outdoors (ASO) and Dick’s Sporting Goods (DKS) is striking. Over the last four years, ASO has consistently traded at a discount to DKS, but the current difference is particularly notable. ASO now trades at approximately 50% of DKS’s NTM (Next Twelve Months) P/E ratio—a larger difference than the historical average discount of 30–40%. This raises the question: is ASO undervalued, or is DKS overvalued?
As of the latest data, ASO’s NTM P/E hovers around 8x, while DKS trades at approximately 16x. This pricing discrepancy suggests that the market undervalues ASO despite its strong operational metrics and significant growth potential. For value-conscious investors, this difference presents a compelling opportunity, especially considering ASO’s ability to deliver high ROIC on new stores and robust free cash flow.
Several factors may explain the divergence in valuation:
Perceived Stability: DKS benefits from its larger scale, nationwide footprint, and strong partnerships, which may give investors a sense of stability and justify its premium valuation.
Growth Expectations: Despite ASO’s higher analyst-estimated growth rates, its smaller footprint and recent negative sales comps might create a perception of higher risk.
Market Sentiment: As a more regionally focused retailer, ASO may not command the same level of investor attention as DKS, which operates over three times as many stores.
However, this lower multiple works to ASO’s advantage. It allows the company to repurchase shares at a highly accretive rate, compounding shareholder value more effectively. Additionally, as ASO continues to expand its geographic footprint and drive omnichannel sales, there is potential for a re-rating of its valuation in line with peers.
The chart below illustrates a clear trend: ASO’s valuation remains disconnected from its underlying fundamentals, making it an attractive option for long-term investors seeking both value and growth.
Sales Performance and Operational Metrics
Sales performance and operational efficiency are critical for understanding the strengths and weaknesses of Academy Sports + Outdoors (ASO) and Dick’s Sporting Goods (DKS). Analyzing their comparable sales (% YoY change) since 2019, including the newly added 2024 YTD data, provides a clearer picture of their trends.
Comparable Sales Trends
The chart above highlights a clear divergence between the two retailers:
ASO: Showed strong pandemic-era growth, peaking at 18.9% in 2021, fueled by heightened demand for outdoor and recreational products. However, ASO has faced 11 consecutive quarters of negative comparable sales growth, including a -4.9% decline YTD 2024, reflecting challenges in sustaining post-pandemic momentum.
DKS: Maintained steadier performance, with a peak growth rate of 27.4% in 2021. Notably, DKS achieved 4.7% YTD 2024 comparable sales growth, continuing its trend of modest but consistent positive performance.
This divergence underscores ASO’s reliance on pandemic-driven categories like hunting, fishing, and camping, which have normalized sharply. DKS’s product mix, including its focus on team sports and exclusive brands, has proven more resilient to shifting consumer spending patterns. Despite ASO’s weaker sales comps, both companies are seeing inflections higher.
Sales Per Square Foot (SPSF)
ASO currently reports SPSF of $313, compared to DKS at $304. While ASO retains a slight edge, the gap has narrowed significantly in recent quarters due to the sales disparity just mentioned.
DKS’s improvements are attributed to its store optimization strategies, including enhanced layouts, private-label expansion, and omnichannel improvements.
Operational Metrics and Store-Level ROI
ASO: Achieves EBITDA profitability in Year 1 for new store builds and a stabilized ROIC of 40% by Year 4–5. This reflects disciplined capital deployment and efficient store management.
DKS: Reports a more variable ROIC for new stores, ranging from 35–65%, depending on location and store format. Its Field House concept is a strategic response to underserved markets and ASO’s regional strength.
E-commerce and Omnichannel Platforms
Both companies excel in integrating e-commerce with their physical stores:
ASO: Fulfills approximately 75% of online orders through its stores, maximizing inventory utilization and reducing delivery costs.
DKS: Leads in e-commerce penetration and has invested significantly in digital platforms to enhance customer experience and retention.
Overall, while ASO grapples with demand normalization, DKS has maintained steady growth, driven by its diversified product offerings and strategic market positioning.
Geographic Footprint and Growth Opportunities
The geographic reach of a retailer is a crucial factor in determining its growth potential. ASO and DKS offer contrasting footprints that directly impact their market opportunities and expansion strategies.
Geographic Footprint
As the chart highlights, ASO’s stores currently serve only 20% of U.S. consumers within 10 miles, compared to 60% for DKS and 75% for Target (TGT). This stark disparity underscores ASO’s untapped potential to expand into underserved regions and even take market share. With a current footprint of 298 stores, concentrated primarily in the South and Midwest, ASO is well-positioned to capitalize on its smaller regional presence. Think of all the hunters and fishermen, too, in the northern states.
In contrast, DKS operates a far larger network of 850+ stores, giving it a significant advantage in terms of reach and brand awareness. This has allowed DKS to earn brands such as Hoka in its stores. However, this extensive coverage also means that DKS’s growth opportunities are more incremental and focused on optimizing existing markets or introducing smaller-format stores like its Field House concept.
Growth Opportunities
ASO: Room for Geographic Expansion
ASO plans to grow its store base by 20–25 new stores annually, targeting regions where it currently lacks a presence. This strategic expansion not only increases consumer reach but also leverages ASO’s strong new-store economics, including EBITDA profitability in Year 1 and a stabilized ROIC of 40% by Year 4–5.
The company’s long-term goal of $10 billion in sales (from the current ~$6 billion) underscores the scalability of its business model.
DKS: Optimizing an Established Footprint
DKS’s growth strategy focuses on increasing penetration through new store concepts like Field House, which targets smaller markets underserved by its traditional stores. This initiative complements its core strategy of driving higher sales per square foot and improving omnichannel capabilities.
While DKS’s larger footprint limits the potential for rapid expansion, it benefits from strong brand loyalty and consistent execution in existing markets.
Market Dynamics
ASO’s smaller footprint and focus on value-driven offerings make it an attractive growth story for investors seeking exposure to underpenetrated markets. This growth potential is further enhanced by ASO’s much lower valuation compared to DKS, as previously mentioned, offering a compelling blend of scalability and value. In contrast, DKS’s established presence provides stability and a platform for incremental growth through innovation and market optimization.
Diversification and Product Categories
ASO and DKS differentiate themselves in part by the diversity and focus of their product categories, which reflect their respective strategies and consumer bases. The provided bar chart highlights the composition of each company’s sales, underscoring their unique strengths and opportunities.
Product Mix Breakdown
Hardlines: This category includes sporting goods equipment and outdoor gear (e.g., hunting, fishing, and camping).
For DKS, 38% of sales come from hardlines, primarily driven by traditional sporting goods like fitness and team sports equipment.
For ASO, 53% of sales come from hardlines, with a notable mix of 60% outdoor equipment (e.g., hunting, fishing, and camping) and 40% sports gear. This diversification makes ASO a leader in outdoor categories, competing directly with specialty retailers like Bass Pro Shops and Cabela’s.
Apparel and Footwear:
DKS has a stronger focus on these categories, with 33% of sales in apparel and 26% in footwear, bolstered by partnerships with top brands and exclusive product offerings.
ASO derives 26% of sales from apparel and 21% from footwear, aligning more with value-oriented consumers.
DKS's Specialization and Struggles in Outdoor Expansion
While DKS’s product mix is heavily weighted toward sporting goods, it has made attempts to diversify into the outdoor market. The launch of its Public Lands store concept aimed to target outdoor enthusiasts, competing with ASO’s stronghold in this space. However, according to a recent article, DKS is now scaling back this initiative, closing or converting many Public Lands stores into its traditional formats, citing performance challenges. This underscores the difficulty of penetrating ASO’s core outdoor markets, where ASO has an established value proposition and consumer loyalty.
Private Label Offerings
Private-label products are another area of differentiation:
ASO: Private label accounts for 21% of sales, with plans to increase this to 25% by 2027, supporting higher margins and greater control over inventory.
DKS: Private label comprises 13% of sales but is supplemented by exclusive partnerships with major brands, reinforcing its position as a premium sporting goods retailer.
Key Strengths and Opportunities
ASO: Broad category diversification, particularly its strength in outdoor equipment, helps offset volatility in specific segments. The mix of outdoor and sports products within its hardlines category positions ASO as a hybrid between traditional sporting goods retailers and specialty outdoor stores.
DKS: Maintains a strong focus on team sports, fitness, and lifestyle products. Its Golf Galaxy stores and GameChanger SaaS product exemplify its specialization in youth sports and high-performance niches, areas where ASO has limited exposure. The SaaS product is interesting for DKS. It has only $100 million in revenue and has grown at a 35% CAGR since 2017.
The contrast in product strategy reflects the companies’ different growth priorities. ASO’s leadership in outdoor equipment complements its value-driven approach, while DKS focuses on dominating the premium sports and team-focused segments. The chart provides a clear visual representation of this strategic divergence.
Private Label and Supplier Dynamics
The role of private-label products and supplier partnerships is evolving rapidly in the sporting goods retail industry, with ASO and DKS taking distinct approaches. Both companies are leveraging these areas to drive profitability and deepen customer loyalty, but their strategies reflect differing priorities and competitive strengths.
Private Label Penetration
Private-label offerings are central to ASO’s strategy of providing value-driven, exclusive products. As illustrated in the accompanying image above, private-label sales currently account for 21% of ASO’s revenue, with a goal to reach 25% by 2027. This growth initiative positions ASO to capture higher margins while delivering affordable options across its key categories of apparel, footwear, and outdoor gear.
In contrast, DKS derives 13% of its revenue from private-label products. Its strategy emphasizes quality over quantity, using private labels to complement its strong portfolio of premium national brands. While smaller in scale, DKS’s private-label initiatives are carefully curated to align with its premium brand positioning.
Supplier Dynamics and Strategic Partnerships
The scale of DKS enables it to secure strong partnerships with top-tier brands like Nike, Adidas, and Under Armour, offering exclusive products that drive foot traffic and reinforce its premium image. These partnerships allow DKS to maintain its competitive edge in categories like apparel and footwear, which account for a significant portion of its sales.
ASO, while smaller in scale, is making significant strides in building relationships with national brands. A notable milestone is the recent partnership with Nike, as highlighted by ASO’s CEO during the latest earnings call:
"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 in 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."
This announcement marks a pivotal moment for ASO, signaling its ability to attract top brands and broaden its appeal across key categories.
Additionally, ASO continues to target new partnerships in the outdoor segment, with efforts to bring in high-demand brands like HOKA to solidify its leadership in hardlines.
Strategic Importance
For ASO, the focus on private-label growth and new supplier partnerships reflects its mission to serve value-conscious consumers while expanding its appeal through partnerships with iconic brands. DKS, on the other hand, emphasizes its established supplier relationships and premium product offerings to maintain its leadership in sporting goods.
Financial and Strategic Highlights
ASO and DKS demonstrate strong financial performance and similar approaches to capital allocation, but their market capitalizations create a significant divergence in free cash flow yields. This section examines their profitability, long-term goals, and free cash flow efficiency.
Gross Margin Parity
The attached chart above highlights the recent gross margin trends for ASO and DKS. As of the last twelve months (LTM), DKS reports a gross margin of 35.79%, slightly higher than ASO’s 34.18%. However, this parity has been achieved as DKS’s gross margin has declined from elevated levels over the past few years, compressing to ASO’s range. Recently, DKS’s margins have begun to expand again, driven by improved inventory management and pricing strategies.
ASO Long-Term Goals
Management at ASO sets out long-term financial and operational targets:
$10 billion in annual sales (from ~$6 billion currently).
13.5% EBIT margin, emphasizing operational efficiency.
10% net income margin
30% ROIC
3.7x inventory turnover, optimizing working capital.
15% e-commerce penetration, building on its omnichannel strengths.
Free Cash Flow Efficiency
ASO’s free cash flow yield is more than twice that of DKS, driven by its smaller market capitalization and efficient operations.
Current FCF Yields (LTM):
ASO: 11.81% (or 14.4% after excluding growth capex).
DKS: 4.02% (or 5.8% after excluding growth capex).
This significant gap underscores ASO’s ability to generate substantial cash relative to its valuation, offering flexibility for share repurchases, dividends, and reinvestments. Both companies adopt similar capital allocation strategies, but ASO’s lower valuation amplifies the impact of its buybacks.
Conclusion
ASO and DKS represent two compelling players in the sporting goods retail industry, each with distinct strengths and investment profiles. DKS offers steady revenue growth, a larger footprint, and strong partnerships with premium brands, appealing to investors seeking stability and incremental growth. However, it trades at a higher valuation—making it less of a bargain in an industry sensitive to shifts in consumer demand. As Joel Greenblatt teaches, retail stocks are often most attractive when they are deeply undervalued, and DKS may not fit that mold today.
ASO, on the other hand, stands out for its significantly lower valuation and consequently much higher free cash flow yield. Management has demonstrated prudent handling of operating leverage and margins, even in the face of recent sales challenges, maintaining stability while continuing to build its store footprint. As comparable sales recover, ASO’s operational leverage and disciplined growth strategy could unlock substantial upside, especially with continued buybacks and accretive new store development. Without needing a calculator, a re-rating to an 11x P/E combined with resumed sales growth could easily double the stock, all while the company operates efficiently behind the scenes.
From a personal portfolio perspective, I hold a 1% position in ASO and have also sold short put options at strike prices in the mid-40s. I’ve been patiently trying to accumulate ASO under $50 as the opportunities present themselves. A $50 price puts this company at a 7.9x NTM P/E - that’s a Greenblatt P/E! I have confidence in the company’s potential to outperform, driven by its value proposition, strong free cash flow generation, and growth runway.
While some investors may favor DKS for its scale and revenue consistency, I view ASO as the better opportunity for those focused on both value and growth. ASO offers the rare combination of safety and upside potential, earning its place as a Safe Harbor Stock. Beyond valuation, ASO provides the advantage of the third engine of growth—something I’ll explore in a future article.
has recently published write-ups on ASO and DKS as well. If you have a subscription, I recommend checking those out.Thanks for being part of the Safe Harbor community! Follow me for more insights: LinkedIn | X (formerly Twitter) | Instagram
Disclosure: This information is provided for informational purposes only and should not be considered a solicitation or recommendation to buy or sell any securities. The author or entity providing this information may hold positions in the securities discussed. This is not investment advice.
Really good write up here! I hadn’t looked at ASO before.
Really enjoyed this! Great thoroughness and insights. Really think you hit the nail on the head by highlighting the geographic saturation relative to DKS.