Anthony Chukumba: To be respectful to my peers who may also want to ask questions on this call, I will just ask one question. So you talked about the SG&A expense and leverage drivers the new store investments, omni-channel, technology and digital marketing. Obviously, the new store investments will continue, given the fact that you have a very aggressive new store opening plan. But I guess my question is, when do we start to anniversary the, I guess, the bulk of the omni-channel technology and digital marketing investments?
Michael Mullican: You say anniversarying the bulk of the — I’m sorry, Anthony, one more time?
Anthony Chukumba: Yes. When do we start to anniversary the bulk of the omni-channel technology and digital marketing investments?
Carl Ford: Hey, Anthony, it’s Carl. When we launched our long-range plan back in April, we actually baked in about 100 basis points of expense deleverage into it. And it was really around the things that we viewed as strategic priorities to invest in new stores. We think there’s a ton of white space there. Omni-channel capabilities, we think we have a lot of upside there and we’re just starting to get into the cockpit of the fighter jet associated with the customer data platform. So I really think you can expect us to continue to lean into that. We’re going to be responsive from an expense standpoint as we look at a challenged macroeconomic environment and that kind of always optimize our expense structure, but you’re going to see us consistently leaning into investing in those areas throughout the long-range plan.
Steve Lawrence: Yes. I was going to say, I think, particularly in the realm of dot-com, the investment never stops, right? You’re continually reinventing your site, adding new capabilities. We’re adding some new capabilities. Currently, we’re going to have several online in the next couple of weeks, which is a big win for us. So I don’t think you’re going to see us necessarily discontinue those investments or they’re going to stop. They’re going to be continual as we evolve the business. But we’re going to be very thoughtful about where and how we invest those dollars and make sure that they really pay for themselves. This new marketing platform, I think we’re really early things. As a matter of fact, I’d say we’re at the start of the game on this one, and there’s going to be more investment against that. But I guarantee you that everything we do, we run an ROIC against and we’re going to get paid back in spades for those investments.
Michael Mullican: And funding those initiatives with existing cash flow, that’s the — one of the more important parts.
Operator: Our next question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your question.
Brian Nagel: So I’ll follow Anthony’s lead and I’ll ask one question as well, but with multiple parts. First off, congratulations, Carl. We look forward to working with you. So the question I have, look, you’ve done a fantastic job of managing the business through some cross currents out there. Comps are still negative. The guidance you provided for balance sheet would suggest they stay negative through the year. So, I guess the question I have is, how do we think about these negative comps? Is it — what portion of it is lapping some of these post-pandemic type categories versus an underlying more challenged consumer? And then really, what are the — as you’re looking at the business beyond the current year, what are the building blocks to get back to that, say, steady positive comp for the Company where it should be?
Steve Lawrence: Yes. So when we thought about coming out of the pandemic last year in ’22, I mean clearly, during ’20 and ’21, the business grew to an outsized kind of state of proposed, right? It was inflated by onetime customers coming to our stores, one of the only store open, et cetera. We had some of these surge categories, there’s extra stimulus in the economy. We saw last year’s kind of that reset year and really intended to move back to growth this year. I think the thing we were counting on coming into this year was how much pressure the customer is under. So I attribute a lot of what we’re seeing this year is negotiating through that short-term kind of jobs that’s being created by the state of the economy. The inflation we talked about, high credit card debt, et cetera.
So as we move forward, the thing that’s going to — that we have to keep navigating through is that short-term when we see the customers start to get a little healthier and stabilize, I think that’s when we start moving back to growth. And that’s when a lot of these initiatives that we’re still investing in, right? I mean that’s one of the things we talk a lot about is these investments we’re making in new stores, these investments we’re making to our CDP or to our dot-com site, they’re all long-term investments, and that’s when they’re really going to start paying off is once we come out of this kind of short-term dislocation we’re having in the market, you’re going to see those really kick in.
Operator: Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.
Michael Lasser: How much lower can Academy take its operating expenses without having a negative impact on the customer experience especially if comps remain negative into 2024?
Michael Mullican: Yes. Well, I think we’ve got our expense structure in a pretty good place. We’re happy with it. I would reiterate, we are more productive on a sales per square foot basis, we’re more productive in a profit per square foot basis. We’re more productive than the competition when you look at productivity for employee and that’s important. I know that others have had some actions with their employees, but we’re more productive than our competition in most of the sector when it comes to productivity for employees. So, I think we’ve got our expense structure in a pretty good place from a store standpoint. We are looking very diligently as you know, to improve our expense structure and our supply chain. And we’ve got a very long-lived initiative that we’re undertaking there that really won’t start benefiting us in the next year.
So look, we are working hard on the initiatives that Steve talked about to turn the comp trajectory. We do anticipate that, that will happen based on the initiatives again, not this year, but hopefully, shortly thereafter, and as the other initiatives that we have on the expense side, particularly in the supply chain to, we should have some good offsets there.
Steve Lawrence: But your question is a great question. I mean that’s something we spend a lot of time talking about is making sure that as we’re managing through this, we’re not doing anything to hurt the customer experience. We’re more productive in our stores because we’ve taken noncustomer-facing tasks off the plate, and that’s allowed us to flex our labor down there and we’ll continue to flex as we need to. But there is a certain to your point, base level of service we want to provide to the customer. As business comes down, receipts come down a little bit, and that gives us a little bit of room in terms of how we manage our supply chain. So I think we’ve got some natural flexes still in the business based off of how receipts come in, how customers are shopping that we can flex up or down, but we also always want to make sure, to your point, we don’t want to erode that customer experience.
Michael Lasser: Got it. My follow-up question is some of your key vendors are going to soon expand the distribution of their products. And the perception is that as there’s more expanded distribution, this is going to put pressure on the profit pool that Academy plays in, which in turn is lowering the operating profit margins for some of your key competitors. So, A, how have you factored in this expanded distribution into your outlook? And B, over the next few years, if we see your competitors have their margins drift lower, what is it about Academy’s model that would enable you to maintain the margins that Academy has right now?
Steve Lawrence: Yes. I’d start with the distribution question. We got this last quarter because it was right around that time. It was announced that I think NIKE is going back into a couple of retailers apparel in Macy’s. And I believe footwear in DSW and our response then is the same as it is now. A lot of — where Macy’s are picking up apparel, their mall-based we’re non-mall-based. We really don’t anticipate that impacting us too much. DSW tends to be a little more off mall based. So certainly, that you could worry about maybe a little bit of traffic from there. But when we look at their assortment and what they traditionally have carried, it’s not the same level of assortment that we carry. So having more people having access to brands isn’t a positive thing for us, but we think we’ve got it accounted for and appropriately projected in our margin forecast.
Longer term, I keep coming back to the margin improvement that we’ve seen over the past five years is foundational and it’s how we manage the business. And I think Carl said it a couple of times on this call. It starts with inventory management. That is a key foundational thing. As a company, we used to carry way too much inventory that created way too any markdowns and inefficiencies in the system. Managing the inventory, managing the receipt flow has so many positive benefits in terms of not creating markdowns on the back end in terms of not creating traffic inventory that stores have to move around needlessly. So inventory management is a big one and then just how we manage through our pricing and make sure that we present a value price on a day and day out basis and offer great value.
I think the combination of those disciplines we put in place on our everyday value model, I think, are two things that help us believe that our margin is going to be sustainable in the long term.
