ASO announced a secondary offering of 14mm shares (with another 2.1mm underwriter option) with KKR selling 11mm and Gochman family members (Academy founder’s family) selling 3mm shares. ASO will actually be purchasing $100mm of the shares, or roughly 3.2mm shares. The company also provided an update on 1Q sales results, which came in at a blistering 39%. Remember ASO wasn’t closed down last year, it delivered a 3% comp in peak pandemic shutdown 1Q2021. The update also noted less promotions and clearance and continued margin strength. So perhaps that provides color on why the board is comfortable buying stock. ASO could generate as much CFFO in this single quarter as it did in all of fiscal 2019. How quickly this has gone from a company viewed as having a debt problem, to one that is returning cash to shareholders. We think sporting goods demand still has legs in 2021, and ASO will continue to benefit from current supply and demand trends as well as the reopening of team sports. ASO's stock is still super cheap relative to peers. With this 1Q result, we’re now looking at 2021 EPS around $3.80 and 2022 at $3.95. Given buyback capability we see Tail earnings power of $4.50 to $5.30. With DKS trading at 16.5x consensus (numbers that are likely too low after this ASO comp), we think ASO deserves AT LEAST a low double digit multiple. At 10x-12x PE that would be a stock of $38 to $46 vs the current $31 or 20%-45% upside to fair value. With recent performance, long term cash return, and long term unit growth potential, it’s not unreasonable to say ASO could get a PE in the mid-teens on NTM numbers. The KKR secondaries are annoying, but in this instance share count is concurrently coming down, and the more KKR shares that are sold, the lower the drag on the stock from expected future sale announcements.
