SEC Filing | Academy Sports and Outdoors, Inc.

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aso-20221029

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended October 29, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________.

Commission File No. 001-39589

Academy Sports and Outdoors, Inc.

(Exact name of registrant as specified in its charter)

Delaware

85-1800912

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1800 North Mason Road

Katy, Texas 77449

(Address of principal executive offices) (Zip Code)

(281) 646-5200

(Registrant’s Telephone Number, including Area Code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

ASO

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of November 30, 2022, Academy Sports and Outdoors, Inc. had 78,144,893 shares of common stock, par value $0.01 per share, outstanding.

ACADEMY SPORTS AND OUTDOORS, INC.

TABLE OF CONTENTS


			Page
PART I. FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			37
Item 4. Controls and Procedures			37
PART II. OTHER INFORMATION			38
Item 1. Legal Proceedings			38
Item 1A. Risk Factors			38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			38
Item 3. Defaults Upon Senior Securities			38
Item 4. Mine Safety Disclosures			39
Item 5. Other Information			39
Item 6. Exhibits			40
SIGNATURES			41

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ACADEMY SPORTS AND OUTDOORS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollar amounts in thousands, except per share data)


	October 29, 2022		January 29, 2022		October 30, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	318,167	$	485,998	$	401,297
Accounts receivable - less allowance for doubtful accounts of $1,449, $732 and $1,139, respectively	15,998		19,718		12,368
Merchandise inventories, net	1,495,464		1,171,808		1,325,979
Prepaid expenses and other current assets	44,241		36,460		44,491
Assets held for sale	1,763		1,763		1,763
Total current assets	1,875,633		1,715,747		1,785,898

PROPERTY AND EQUIPMENT, NET	354,014		345,836		358,110
RIGHT-OF-USE ASSETS	1,100,522		1,079,546		1,087,407
TRADE NAME	577,571		577,215		577,144
GOODWILL	861,920		861,920		861,920

OTHER NONCURRENT ASSETS	12,804		4,676		5,516
Total assets	$	4,782,464	$	4,584,940	$	4,675,995

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	840,585	$	737,826	$	919,196
Accrued expenses and other current liabilities	259,179		303,207		304,488
Current lease liabilities	88,447		83,077		86,701
Current maturities of long-term debt	3,000		3,000		3,000
Total current liabilities	1,191,211		1,127,110		1,313,385

LONG-TERM DEBT, NET	682,803		683,585		683,845
LONG-TERM LEASE LIABILITIES	1,093,909		1,077,667		1,088,142
DEFERRED TAX LIABILITIES, NET	242,843		217,212		188,243
OTHER LONG-TERM LIABILITIES	12,779		12,420		26,386
Total liabilities	3,223,545		3,117,994		3,300,001

COMMITMENTS AND CONTINGENCIES (NOTE 12)



STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, authorized 50,000,000 shares; none issued and outstanding	—		—		—

Common stock, $0.01 par value, authorized 300,000,000 shares; 77,959,530; 87,079,394 and 88,164,878 issued and outstanding as of October 29, 2022, January 29, 2022 and October 30, 2021, respectively.	779		870		882
Additional paid-in capital	203,734		198,016		188,329
Retained earnings	1,354,406		1,268,060		1,188,271
Accumulated other comprehensive loss	—		—		(1,488)
Stockholders' equity	1,558,919		1,466,946		1,375,994
Total liabilities and stockholders' equity	$	4,782,464	$	4,584,940	$	4,675,995

See Condensed Notes to Consolidated Financial Statements

ACADEMY SPORTS AND OUTDOORS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Amounts in thousands, except per share data)


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
NET SALES	$	1,493,925	$	1,592,795	$	4,648,570	$	4,964,658
COST OF GOODS SOLD	971,454		1,031,957		3,008,612		3,197,623
GROSS MARGIN	522,471		560,838		1,639,958		1,767,035

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	342,949		344,725		998,209		1,057,290
OPERATING INCOME	179,522		216,113		641,749		709,745

INTEREST EXPENSE, NET	12,163		11,424		34,240		38,130
LOSS ON EARLY RETIREMENT OF DEBT	—		—		—		2,239
OTHER (INCOME), NET	(2,538)		(614)		(4,676)		(1,746)
INCOME BEFORE INCOME TAXES	169,897		205,303		612,185		671,122

INCOME TAX EXPENSE	38,156		43,998		141,837		141,511
NET INCOME	$	131,741	$	161,305	$	470,348	$	529,611

EARNINGS PER COMMON SHARE:
BASIC	$	1.67	$	1.77	$	5.67	$	5.76
DILUTED	$	1.62	$	1.72	$	5.54	$	5.55
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC	79,085		91,140		82,901		91,951
DILUTED	81,379		93,844		84,910		95,504

See Condensed Notes to Consolidated Financial Statements

ACADEMY SPORTS AND OUTDOORS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Amounts in thousands)


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
COMPREHENSIVE INCOME:
Net income	$	131,741	$	161,305	$	470,348	$	529,611

Recognized interest expense on interest rate swaps	—		489		—		2,384

Tax expense	—		(115)		—		(548)
Total comprehensive income	$	131,741	$	161,679	$	470,348	$	531,447

See Condensed Notes to Consolidated Financial Statements

ACADEMY SPORTS AND OUTDOORS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(Amounts in thousands, except per share data)


				Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
	Common Stock

	Shares	Amount
Balances as of January 29, 2022	87,079	$	870	$	198,016	$	1,268,060	$	—	$	1,466,946
Net income	—	—		—		149,806		—		149,806
Equity compensation	—	—		3,499		—		—		3,499
Repurchase of common stock for retirement	(2,272)	(23)		(5,247)		(83,231)		—		(88,501)
Settlement of vested Restricted Stock Units	63	1		(1)		—		—		—
Stock option exercises	201	2		3,292		—		—		3,294
Cash dividends declared, $0.075 per share	—	—		—		(6,536)		—		(6,536)
Balances as of April 30, 2022	85,071	$	850	$	199,559	$	1,328,099	$	—	$	1,528,508
Net income	—	—		—		188,801		—		188,801
Equity compensation	—	—		6,158		—		—		6,158
Repurchase of common stock for retirement	(5,551)	(55)		(13,391)		(186,665)		—		(200,111)
Settlement of vested Restricted Stock Units	29	0		(0)		—		—		—
Issuance of common stock under employee stock purchase plan	93	1		2,796		—		—		2,797
Stock option exercises	83	1		1,388		—		—		1,389
Cash dividends declared, $0.075 per share	—	—		—		(6,271)		—		(6,271)
Balances as of July 30, 2022	79,725	$	797	$	196,510	$	1,323,964	$	—	$	1,521,271
Net income	—	—		—		131,741		—		131,741
Equity compensation	—	—		5,829		—		—		5,829
Repurchase of common stock for retirement	(2,176)	(22)		(5,477)		(95,325)		—		(100,824)
Settlement of vested Restricted Stock Units	3	0		(0)		—		—		—
Stock option exercises	408	4		6,872		—		—		6,876
Cash dividends declared, $0.075 per share	—	—		—		(5,974)		—		(5,974)
Balances as of October 29, 2022	77,960	$	779	$	203,734	$	1,354,406	$	—	$	1,558,919

See Condensed Notes to Consolidated Financial Statements

ACADEMY SPORTS AND OUTDOORS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(Amounts in thousands, except per share data)



				Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
	Common Stock

	Shares	Amount
Balances as of January 30, 2021	91,114	$	911	$	127,228	$	987,168	$	(3,324)	$	1,111,983
Net income	—	—		—		177,796		—		177,796
Equity compensation	—	—		5,874		—		—		5,874
Settlement of vested Restricted Stock Units	87	1		(1)		—		—		—
Share-Based Award Payments adjustment for forfeitures	—	—		39		—		—		39
Stock option exercises	2,686	27		17,230		—		—		17,257
Recognized interest expense on interest rate swaps (net of tax impact of $270)	—	—		—		—		926		926
Balances as of May 1, 2021	93,887	$	939	$	150,370	$	1,164,964	$	(2,398)	$	1,313,875
Net income	—	—		—		190,510		—		190,510
Equity compensation	—	—		27,331		—		—		27,331
Repurchase of common stock for retirement	(3,230)	(32)		(5,299)		(94,669)		—		(100,000)
Settlement of vested Restricted Stock Units	836	8		(8)		—		—		—
Issuance of common stock under employee stock purchase plan	35	—		945		—		—		945
Stock option exercises	1,356	14		14,407		—		—		14,421

Recognized interest expense on interest rate swaps (net of tax impact of $163)	—	—		—		—		536		536
Balances as of July 31, 2021	92,884	$	929	$	187,746	$	1,260,805	$	(1,862)	$	1,447,618
Net income	—	—		—		161,305		—		161,305
Equity compensation	—	—		2,921		—		—		2,921
Repurchase of common stock for retirement	(5,723)	(57)		(11,941)		(233,839)		—		(245,837)
Stock option exercises	1,004	10		9,603		—		—		9,613
Recognized interest expense on interest rate swaps (net of tax impact of $115)	—	—		—		—		374		374
Balances as of October 30, 2021	88,165	$	882	$	188,329	$	1,188,271	$	(1,488)	$	1,375,994

See Condensed Notes to Consolidated Financial Statements

ACADEMY SPORTS AND OUTDOORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)


	Thirty-Nine Weeks Ended
	October 29, 2022		October 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	470,348	$	529,611
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	78,852		77,767
Non-cash lease expense	635		708
Equity compensation	15,486		36,126
Amortization of terminated interest rate swaps, deferred loan and other costs	2,328		4,787

Deferred income taxes	25,631		48,991
Non-cash loss on early retirement of debt	—		2,239



Changes in assets and liabilities:
Accounts receivable, net	3,720		4,938
Merchandise inventories, net	(323,656)		(335,945)
Prepaid expenses and other current assets	798		(16,177)
Other noncurrent assets	(8,987)		2,207
Accounts payable	95,183		128,743
Accrued expenses and other current liabilities	(39,196)		34,683
Income taxes payable	(12,332)		(1,830)

Other long-term liabilities	359		(1,785)
Net cash provided by operating activities	309,169		515,063

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(79,454)		(58,567)
Purchases of intangible assets	(357)		(144)


Net cash used in investing activities	(79,811)		(58,711)

CASH FLOWS FROM FINANCING ACTIVITIES:


Repayment of Term Loan	(2,250)		(101,500)
Debt issuance fees	—		(927)
Share-Based Award Payments	—		(11,214)


Proceeds from exercise of stock options	11,559		41,292
Proceeds from issuance of common stock under employee stock purchase program	2,797		945
Taxes paid related to net share settlement of equity awards	(1,078)		(15,418)
Repurchase of common stock for retirement	(389,436)		(345,837)
Dividends paid	(18,781)		—

Net cash used in financing activities	(397,189)		(432,659)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(167,831)		23,693
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	485,998		377,604
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	318,167	$	401,297

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	25,362	$	28,481
Cash paid for income taxes	$	129,588	$	95,799

SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:
Non-cash issuance of common shares	$	—	$	501
Change in capital expenditures in accounts payable and accrued liabilities	$	7,576	$	950
Right-of-use assets obtained in exchange for new operating leases	$	94,845	$	10,924

See Condensed Notes to Consolidated Financial Statements

ACADEMY SPORTS AND OUTDOORS, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Operations

The Company

All references to "we," "us," "our" or the "Company" in the financial statements refer to Academy Sports and Outdoors, Inc., a Delaware corporation ("ASO, Inc.") and the current parent holding company of our operations, and its consolidated subsidiaries. We conduct our operations primarily through our parent holding company's indirect subsidiary, Academy, Ltd., a Texas limited partnership doing business as "Academy Sports + Outdoors", or Academy, Ltd. Our fiscal year represents the 52 or 53 weeks ending on the Saturday closest to January 31. On August 3, 2011, an investment entity owned by investment funds and other entities affiliated with Kohlberg Kravis Roberts & Co. L.P. (collectively, "KKR"), acquired a majority interest in the Company. On October 6, 2020, ASO, Inc. completed an initial public offering and as of September 17, 2021, KKR no longer held an ownership interest in the Company.

The Company is one of the leading full-line sporting goods and outdoor recreational products retailers in the United States in terms of net sales. As of October 29, 2022, we operated 265 "Academy Sports + Outdoors" retail locations in 17 states and three distribution centers located in Katy, Texas, Twiggs County, Georgia and Cookeville, Tennessee. We also sell merchandise to customers across most of the United States via our academy.com website.

Secondary Offering

On January 27, 2021, ASO, Inc. entered into an Underwriting Agreement (the “Underwriting Agreement”), by and among ASO, Inc., Allstar LLC, Allstar Co-Invest Blocker L.P., KKR 2006 Allstar Blocker L.P., MSI 2011 LLC, MG Family Limited Partnership and the former management selling stockholder named therein (collectively, the “Selling Stockholders”), and Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC, as representatives of the several underwriters named therein (the “Underwriters”), relating to an underwritten offering of 12,000,000 shares of common stock (the “Secondary Offering”), pursuant to the Company’s Registration Statement on Form S-1 (File No. 333-252390), filed on January 25, 2021. The Selling Stockholders granted the Underwriters the option to purchase, within 30 days from the date of the Underwriting Agreement, an additional 1,800,000 shares of common stock. On January 29, 2021, the Underwriters exercised in full their option to purchase the additional shares. The Secondary Offering was completed on February 1, 2021. Pursuant to the Underwriting Agreement, the Underwriters purchased the shares from the Selling Stockholders at a price of approximately $20.69 per share. The Company did not receive any proceeds from the Secondary Offering.

May 2021 Secondary Offering and Stock Repurchase

On May 5, 2021, ASO, Inc. entered into an underwriting agreement (the “May 2021 Underwriting Agreement”), by and among ASO, Inc., Allstar LLC, Allstar Co-Invest Blocker L.P., KKR 2006 Allstar Blocker L.P., MSI 2011 LLC and MG Family Limited Partnership (collectively, the “May 2021 Selling Stockholders”), and Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC, as representatives of the several underwriters named therein (the “May 2021 Underwriters”), relating to an underwritten offering of 14,000,000 shares of Common Stock at $30.96 per share (the “May 2021 Secondary Offering”), pursuant to the Company’s Registration Statement on Form S-1 (File No. 333-255720), filed on May 3, 2021. The May 2021 Selling Stockholders granted the May 2021 Underwriters the option to purchase, within 30 days from the date of the May 2021 Underwriting Agreement, an additional 2,100,000 shares of Common Stock. On May 6, 2021, the May 2021 Underwriters exercised in full their option to purchase the additional shares. The May 2021 Secondary Offering also included the Company's repurchase and simultaneous retirement of 3,229,974 shares out of the 14,000,000 shares at $30.96 per share, the same price granted to the underwriters, which was at a discount to the prevailing market price at the time of repurchase (see "Share Repurchases" in Note 2). The May 2021 Secondary Offering was completed on May 10, 2021. The Company did not receive any proceeds from the May 2021 Secondary Offering.

The May 2021 Secondary Offering reduced the KKR ownership interest in the Company, resulting in a vesting event (the "2021 Vesting Event") for awards granted under the 2011 Unit Incentive Plan, whereby unvested time awards and performance-based awards which had previously met their performance targets vested and unvested performance-based awards which had not previously met their performance targets were forfeited. As a result, we incurred approximately $24.9 million in non-cash expenses related to equity-based compensation and approximately $15.4 million of cash expenses related to taxes on equity-based compensation. Additionally, approximately $8.2 million of Share-Based Award Payments (see Note 9) for equity-based compensation distributions were accelerated during the 2021 second quarter.

September 2021 Secondary Offering and Stock Repurchase

On September 14, 2021, ASO, Inc. entered into an underwriting agreement (the “September 2021 Underwriting Agreement”), by and among ASO, Inc., Allstar LLC, Allstar Co-Invest Blocker L.P. and KKR 2006 Allstar Blocker L.P. (collectively, the “September 2021 Selling Stockholders”), and Credit Suisse Securities (USA) LLC, as representative of the several underwriters named therein (the “September 2021 Underwriters”), relating to an underwritten offering (the “September 2021 Secondary Offering”) of 18,645,602 shares of common stock at approximately $43.52 per share, pursuant to the Company’s Registration Statement on Form S-1 (File No. 333-259477), filed on September 13, 2021. The September 2021 Secondary Offering also included the Company’s repurchase and simultaneous retirement of 4,500,000 shares out of the 18,645,602 shares of common stock at approximately $43.52, the same price granted to the September 2021 Underwriters, which was at a discount to the prevailing market price at the time of repurchase (see "Share Repurchases" in Note 2). The September 2021 Secondary Offering was completed on September 17, 2021. The Company did not receive any proceeds from the September 2021 Secondary Offering.

2. Summary of Significant Accounting Policies

The accompanying unaudited financial statements of the Company have been prepared as though they were required to be in accordance with Rule 10-01 of Regulation S-X for interim financial statements, however, they do not include all information and footnotes required by United States generally accepted accounting principles ("GAAP") for complete financial statements. Certain information and footnote disclosures normally included in our annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. However, we believe that the disclosures included herein are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2022, as filed with the Securities and Exchange Commission on March 29, 2022 (the "Annual Report"). The information furnished herein reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the thirteen and thirty-nine weeks ended October 29, 2022 are not necessarily indicative of the results that will be realized for the fiscal year ending January 28, 2023 or any other period. The balance sheet as of January 29, 2022 has been derived from our audited financial statements as of that date. For further information, refer to our audited financial statements and notes thereto included in the Annual Report.

Basis of Presentation and Principles of Consolidation

These unaudited condensed consolidated financial statements include the accounts of ASO, Inc. and its subsidiaries, New Academy Holding Company, LLC ("NAHC"), Academy Managing Co., LLC, Associated Investors, LLC, Academy, Ltd., the Company's operating company, and Academy International Limited. NAHC, Academy Managing Co., LLC, and Associated Investors, LLC are intermediate holding companies. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Our management bases its estimates on historical experience and other assumptions it believes to be reasonable under the circumstances. Actual results could differ significantly from those estimates. Our most significant estimates and assumptions that materially affect the financial statements involve difficult, subjective or complex judgments by management, including the valuation of merchandise inventories and performing goodwill, intangible and long-lived asset impairment analyses. Given the global economic climate and the possibility of additional unforeseen effects from the COVID-19 pandemic, these estimates remain challenging, and actual results could differ materially from our estimates.

Share Repurchases

On September 2, 2021, the Board of Directors of the Company authorized a share repurchase program (the "2021 Share Repurchase Program") under which the Company may purchase up to $500 million of its outstanding shares during the three-year period ending September 2, 2024. On June 2, 2022, the Board of Directors of the Company authorized a new share repurchase program (the "2022 Share Repurchase Program") under which the Company may purchase up to $600 million of its outstanding shares during the three-year period ending June 2, 2025. The 2022 Share Repurchase Program and the 2021 Share Repurchase program are collectively referred to as the "Share Repurchase Programs".

Under the Share Repurchase Programs, repurchases can be made using a variety of methods, which may include open market purchases, block trades, privately negotiated transactions, accelerated share repurchase programs and/or a non-discretionary trading plan, all in compliance with the rules of the SEC and other applicable legal requirements. The timing, manner, price and amount of any common share repurchases under the Share Repurchase Programs are determined by the Company in its discretion and depend on a variety of factors, including legal requirements, price and economic and market conditions. The Share Repurchase Programs do not obligate the Company to acquire any particular number of common shares, and the programs may be suspended, extended, modified or discontinued at any time.

During the thirteen and thirty-nine weeks ended October 29, 2022, we repurchased and concurrently retired 2,176,463 and 9,999,704 shares of ASO, Inc. common stock for an aggregate amount of $100.8 million and $389.4 million, respectively, pursuant to the Share Repurchase Programs. During the thirteen and thirty-nine weeks ended October 30, 2021, we repurchased and concurrently retired 5,722,892 and 8,952,866 shares of ASO, Inc. common stock for an aggregate amount of $245.8 million and $345.8 million, respectively, which includes purchases that were made pursuant to the Share Repurchase Programs and those that were made prior to the Share Repurchase Programs. As of October 29, 2022, we no longer had availability under the 2021 Share Repurchase Program and we had approximately $399.4 million available for share repurchases pursuant to the 2022 Share Repurchase Program.

Recent Accounting Pronouncements

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The adoption of this guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the expedients and exceptions provided by this amendment as it relates to our transition from LIBOR to another reference rate to determine the impact.

Supplier Finance Programs

In September 2022, the FASB issued ASU 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations." This pronouncement requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of the financial statements to understand the program's nature, activity during the period, changes from period to period and potential magnitude. The adoption of these amendments is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except the amendment on roll-forward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this accounting standard will have on its financial disclosures.

3. Net Sales

Revenue from merchandise sales is recognized, net of sales tax, when the Company’s performance obligation to the customer is met, which is when the Company transfers control of the merchandise to the customer. Store merchandise sales are recognized at the point of sale and e-commerce sales are recognized upon delivery to the customer.

The following table sets forth the approximate amount of sales by merchandise divisions for the periods presented (amounts in thousands):


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Merchandise division sales
Outdoors	$	473,014	$	578,987	$	1,423,641	$	1,604,045
Sports and recreation	274,262		285,614		1,028,641		1,098,621
Apparel	401,892		399,852		1,207,979		1,269,106
Footwear	336,296		320,119		961,940		967,839
Total merchandise sales (1)	1,485,464		1,584,572		4,622,201		4,939,611
Other sales (2)	8,461		8,223		26,369		25,047
Net Sales	$	1,493,925	$	1,592,795	$	4,648,570	$	4,964,658

(1) E-commerce sales consisted of 9.5% and 9.7% of merchandise sales for the thirteen and thirty-nine weeks ended October 29, 2022, respectively, and 8.0% for the thirteen and thirty-nine weeks and October 30, 2021.

(2) Other sales consisted primarily of the sales return allowance, gift card breakage income, credit card bounties and royalties, shipping income, net hunting and fishing license income and other items.

We sell gift cards in stores, online and in third-party retail locations. A liability for gift cards, which is recorded in accrued expenses and other liabilities on our consolidated balance sheets is established at the time of sale and revenues are recognized as the gift cards are redeemed in stores or on our website.

The following is a reconciliation of the gift card liability (amounts in thousands):


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Gift card liability, beginning balance	$	69,959	$	60,526	$	86,568	$	74,253
Issued	18,288		17,407		63,164		61,333
Redeemed	(21,023)		(19,006)		(80,668)		(74,749)
Recognized as breakage income	(680)		(618)		(2,520)		(2,528)
Gift card liability, ending balance	$	66,544	$	58,309	$	66,544	$	58,309

4. Long-Term Debt

Our debt consisted of the following (amounts in thousands) as of:


	October 29, 2022		January 29, 2022		October 30, 2021
ABL Facility, due November 2025	$	—	$	—	$	—
Term Loan, due November 2027	295,500		297,750		298,500
Notes, due November 2027	400,000		400,000		400,000
Total debt	695,500		697,750		698,500
Less current maturities	(3,000)		(3,000)		(3,000)
Less unamortized discount on Term Loan	(2,135)		(2,463)		(2,572)
Less deferred loan costs (1)	(7,562)		(8,702)		(9,083)
Long-term debt, net	$	682,803	$	683,585	$	683,845

(1) Deferred loan costs are related to the Term Loan and Notes.

As of October 29, 2022, January 29, 2022 and October 30, 2021, the balance in deferred loan costs related to the ABL Facility (as defined below) was approximately $3.5 million, $4.3 million and $4.6 million, respectively, and was included in other noncurrent assets on our consolidated balance sheets. Total amortization of deferred loan costs was $0.7 million and $2.0 million for the thirteen and thirty-nine weeks ended October 29, 2022, respectively, and $0.6 million and $2.0 million for the thirteen and thirty-nine weeks ended October 30, 2021, respectively. Total expenses related to accretion of original issuance discount were $0.1 million and $0.3 million for the thirteen and thirty-nine weeks ended October 29, 2022, respectively, and $0.1 million and $0.4 million for the thirteen and thirty-nine weeks ended and October 30, 2021, respectively. The expenses related to amortization of deferred loan costs and accretion of original issuance discount are included in interest expense, net on the consolidated statements of income.

Term Loan

We refer to the 2020 Term Loan and the Amendment collectively as the "Term Loan".

On November 6, 2020, Academy, Ltd. entered into a seven-year $400.0 million senior secured term loan (the "2020 Term Loan") with Credit Suisse AG, Cayman Island Branch ("Credit Suisse"), as the administrative agent and collateral agent and the several other lenders and parties. The 2020 Term Loan will mature on November 6, 2027. The 2020 Term Loan bore interest, at Academy, Ltd.’s election, at either (1) LIBOR rate with a floor of 0.75%, plus a margin of 5.00%, or (2) a base rate equal to the highest of (a) the federal funds rate plus 0.50%, (b) Credit Suisse’s "prime rate", or (c) the one-month LIBOR rate plus 1.00%, plus a margin of 4.00%. Quarterly principal payments of approximately $1.0 million were required through September 30, 2027, with the balance due in full on the maturity date of November 6, 2027.

On May 25, 2021, Academy, Ltd. entered into Amendment No. 4 (the “Amendment”) to the Second Amended and Restated Credit Agreement, dated as of November 6, 2020, among Academy, Ltd., as Borrower, Credit Suisse AG, Cayman Islands Branch, as the administrative agent and collateral agent, the several lenders party thereto and the several other parties named therein (as previously amended, the “Existing Credit Agreement” and as amended by the Amendment, the “Amended Credit Agreement”). Pursuant to the terms of the Amendment, Academy, Ltd. (i) reduced the applicable margin on LIBOR borrowings under the Existing Credit Agreement from 5.00% to 3.75% and (ii) utilized cash on hand to repay $99.0 million of outstanding borrowings under the Existing Credit Agreement, leaving an outstanding principal balance of $300.0 million under the Amended Credit Agreement. Quarterly principal payments of $750.0 thousand are required through September 30, 2027 and borrowings under the Amended Credit Agreement will continue to mature on November 6, 2027. All other material terms and provisions of the 2020 Term Loan remain substantially the same as the terms and provisions in place immediately prior to the effectiveness of the Amendment. As of October 29, 2022, the weighted average interest rate was 6.88%, with interest payable monthly. The terms and conditions of the Amendment also require that the outstanding balance under the Term Loan is prepaid under certain circumstances. As of October 29, 2022, no prepayment was due under the terms and conditions of the Term Loan.

In connection with the Amendment, the Company recognized a non-cash loss on early retirement of debt of $2.2 million in the thirty-nine weeks ended October 30, 2021 from the write-off of deferred loan costs and expense related to the original issuance discount associated with our 2020 Term Loan.

Notes

On November 6, 2020, Academy, Ltd. issued $400.0 million of 6.00% senior secured notes which are due November 15, 2027 (the "Notes"), pursuant to an indenture, dated as of November 6, 2020 (the "Indenture") with The Bank of New York Mellon Trust Company, N.A., as trustee and collateral agent. The Notes require cash interest payments semi-annually in arrears on May 15 and November 15 of each year at a rate of 6.00% per year.

ABL Facility

On November 6, 2020, Academy, Ltd., as borrower, and the guarantors, amended the previously existing secured asset-based revolving credit facility by entering into an amendment to the First Amended and Restated ABL Credit Agreement, dated as of July 2, 2015, with JPMorgan Chase Bank, N.A. as the administrative agent and collateral agent, letter of credit issuer and swingline lender and the several lenders party thereto, which ABL amendment, among other things, extended the maturity of Academy, Ltd.’s asset-based revolving credit facility thereunder to November 6, 2025 (the "ABL Facility").

The ABL Facility is used to provide financing for working capital and other general corporate purposes, as well as to support certain letters of credit requirements, and availability is subject to customary borrowing base and availability provisions. During the normal course of business, we periodically utilize letters of credit primarily for the purchase of import goods and in support of insurance contracts. As of October 29, 2022, we had outstanding letters of credit of approximately $17.4 million, all of which were issued under the ABL Facility, and we had no borrowings outstanding under the ABL Facility, leaving the available borrowing capacity under the ABL Facility of $982.6 million.

Borrowings under the ABL Facility bear interest, at our election, at either (1) LIBOR plus a margin of 1.25% to 1.75%, or (2) a base rate equal to the highest of (a) the federal funds rate plus 0.50%, (b) JPMorgan Chase Bank, N.A.'s "prime rate", or (c) the one-month LIBOR rate plus 1.00%, plus a margin of 0.25% to 0.75%. The ABL Facility also provides a fee applicable to the unused commitments of 0.25%. The terms and conditions of the ABL Facility also require that we prepay outstanding loans under the ABL Facility under certain circumstances. As of October 29, 2022, no future prepayments of outstanding loans have been triggered under the terms and conditions of the ABL Facility.

Covenants. The ABL Facility, Term Loan and Notes agreements contain covenants, including, among other things, covenants that restrict Academy, Ltd.'s ability to incur certain additional indebtedness, create or permit liens on assets, engage in mergers or consolidations, pay dividends, make other restricted payments, make loans or advances, engage in transactions with affiliates or amend material documents. Additionally, at certain times, the ABL Facility is subject to a minimum adjusted fixed charge coverage ratio. These covenants are subject to certain qualifications and limitations. We were in compliance with these covenants as of October 29, 2022.

5. Derivative Financial Instruments

We have historically used interest rate swap agreements to hedge market risk relating to possible adverse changes in interest rates. All interest rate swaps had been designated as cash flow hedges of variable rate interest payments on borrowings under the Term Loan. As of October 29, 2022, we do not have any derivative financial instruments outstanding.

For derivatives which were designated as hedging instruments, amounts included in Accumulated Other Comprehensive Income (Loss) ("AOCI") were reclassified to interest expense in the same period during which the hedged transaction affected earnings, which was as interest expense was recorded on the underlying Term Loan.

The impact of gains and losses related to interest rate swaps that were deferred into AOCI and subsequently reclassified into expense are as follows (amounts in thousands):


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Accumulated Other Comprehensive Loss, beginning	$	—	$	(1,862)	$	—	$	(3,324)

Increase to interest expense (net of tax impact of $115 and $548 in the thirteen and thirty-nine weeks ended October 30, 2021, respectively)	—		374		—		1,836

Accumulated Other Comprehensive Loss, ending	$	—	$	(1,488)	$	—	$	(1,488)

6. Fair Value Measurements

Fair value is defined as an exit price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Authoritative guidance establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of the assets and liabilities.

The fair value measurements are classified as either:

•Level 1 which represents valuations based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

•Level 2 which represents valuations based on quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

•Level 3 which represents valuations based on prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy in which the fair value measurement is classified in its entirety, is based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. There were no transfers made into or out of the Level 1, 2 or 3 categories during any period presented.

Periodically we make cash investments in money market funds comprised of U.S. Government treasury bills and securities, which are classified as cash and redeemable on demand. As of October 29, 2022, January 29, 2022 and October 30, 2021, we held $264.7 million, $401.0 million and $294.0 million in money market funds, respectively.

The fair value of the Term Loan and Notes is estimated using a discounted cash flow analysis based on quoted market prices for the instrument in an inactive market and is therefore classified as Level 2 within the fair value hierarchy. As of October 29, 2022, January 29, 2022, and October 30, 2021 the estimated fair value of the Term Loan and Notes was $0.7 billion. As borrowings on the ABL Facility are generally repaid in less than 12 months, we believe that fair value approximates the carrying value.

7. Property and Equipment

Property and equipment consists of the following (amounts in thousands) as of:


	October 29, 2022		January 29, 2022		October 30, 2021
Leasehold improvements	$	476,670	$	456,918	$	455,542
Equipment and software	624,915		602,289		593,479
Furniture and fixtures	352,501		336,679		332,368
Construction in progress	37,267		11,147		16,486
Land	3,698		3,698		3,698
Total property and equipment	1,495,051		1,410,731		1,401,573
Accumulated depreciation and amortization	(1,141,037)		(1,064,895)		(1,043,463)
Property and equipment, net	$	354,014	$	345,836	$	358,110

Depreciation expense was $27.0 million and $78.9 million in the thirteen and thirty-nine weeks ended October 29, 2022, respectively, and $26.5 million and $77.8 million in the thirteen and thirty-nine weeks ended October 30, 2021, respectively. These costs are included in selling, general and administrative expenses on the consolidated statements of income.

8. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (amounts in thousands) as of:


	October 29, 2022		January 29, 2022		October 30, 2021
Accrued interest	$	13,340	$	6,583	$	12,676
Accrued personnel costs	57,979		115,073		91,433
Accrued professional fees	1,762		4,534		3,632
Accrued sales and use tax	15,025		13,054		23,111
Accrued self-insurance	15,677		15,824		13,784
Deferred revenue - gift cards and other	69,727		88,713		61,145
Income taxes payable	5,848		9,602		21,900