Good morning, ladies and gentlemen. Thank you for standing by, and Welcome to the Academy Sports & Outdoors Q3 2020 Earnings Conference Call. Today is Thursday, December 10th, 2020, and this call is being recorded. At this time, 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 a question during the call please press star one. To require any operator assistance during the call please press star zero. I'd now like to introduce your host, Heather Davis, Senior Vice President of Accounting, Treasury & Tax. Heather, please go ahead.
Good morning, everyone. Thank you for joining our call today. On the call with me are Ken Hicks, Chairman, President, and CEO, Michael Mullican, Executive Vice President and Chief Financial Officer, and Steve Lawrence, Executive Vice President and Chief Merchandising Officer. Before we get started, I want to go over some standard administrative matters. Our earnings release issued this morning is available in the investor relations section of our website at investors.academy.com. A replay of the audio webcast of this call will be archived on the investor relations section of our website for approximately 30 days. As a reminder, statements in today's earnings release and some of the comments made by management during this call may be considered 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 today's earnings release and in our filings with the Securities and Exchange Commission, including our final prospectus dated October 1st, 2020, and our most recent quarterly report on Form 10-Q. Any such forward-looking statements are based upon currently available information and our expectations, estimates, assumptions, and projections as of today and are intended to be covered by the safe harbor provisions under the federal securities laws. The company assumes no obligation to update forward-looking statements to reflect events or circumstances that occur after the statement is made or the occurrence of unanticipated events. Today's earnings release and this call also include certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP financial measures are included in today's earnings release and provided in the investor relations section of our website.
Now I'd like to turn the call over to Ken.
Thank you, Heather. Good morning, everyone, and thank you for joining us today. This is an exciting day as it is our first time hosting a quarterly earnings call as a public company. On October 2nd, 2020, Academy Sports + Outdoors started a new chapter as a result of the entire team's efforts, from our 259 stores to the three distribution centers and our home office that support them. Over the years, we've given our customers not just great products, but also great experiences, and we look forward to helping our customers have even more fun out there. We hope that you and your family are safe and healthy. I continue to be proud of our team members and their commitment to serve our customers and our communities during the COVID-19 pandemic.
All Academy stores, distribution centers, and the corporate office are currently open and have continued to operate within government safety recommendations and requirements, providing a safe environment for our customers and teammates. We've worked hard over the past several years to improve our competitive position as we move forward to our vision of being the best sports and outdoors retailer in the country. Our business has performed strongly during the past several quarters, beginning well before the COVID-19 pandemic. We strategically invested in our key initiatives, including power merchandising, omnichannel, and our focus on the customer. We saw these efforts continue to pay off in the Q3 of 2020. Now moving to our financial results. As we announced earlier this morning, we had a remarkable Q3 with our fifth consecutive quarter of positive comparable sales increases.
We achieved a record $1.35 billion of total net sales for the Q3 with a comparable sales increase of 16.5%. Our comp sales were driven by increases in transactions, units, and average unit retail. From a divisional perspective, Sports and Recreation and Outdoors were our best performing businesses. The Sports and Recreation division had a strong double-digit comp increase. Bicycle, outdoor games, outdoor cooking, and fitness equipment purchases drove our Sports and Recreation division. Our Outdoors division also experienced a strong double-digit comp increase, which was propelled by increases in our fishing, camping, and hunting categories as our customers continue to participate in more outdoor activities. Comp sales for the Footwear division increased mid-single digits as a result of good sales in both athletic and work footwear.
We saw a low single-digit decrease in the apparel division due to the decline in licensed apparel as we anniversaried the strong sales from the Astros' 2019 World Series appearance, as well as the impact from a changed back-to-school environment. Our e-commerce experience continues to drive significant revenue and profit growth as well as deeper customer relationships. We've made our website easier to navigate, improved our content, and added new services, all of which have improved the customer experience. E-commerce net sales increased 95.9% during the Q3 compared to the same period last year and achieved a 7.5% penetration to total merchandise sales, compared to a 4.5% penetration for the same period last year. Our Buy Online, Pick Up In Store, and curbside pickup program comprised approximately half of our overall e-commerce sales for both the quarter and the year-to-date.
Including our ship from store, Buy Online, Pick Up In Store, and in-store retail sales, our stores were involved in over 95% of our total sales for the quarter. Our Q3 sales were the result of our broad, differentiated product offering, which lends itself well to the ongoing trends of at-home fitness, staycations, road trips, and outdoor activities like fishing, camping, hunting, and outdoor cooking and games. We offer fun for the whole family through a variety of products for many activities. Our everyday value also resonates during times of economic uncertainty. We offer customers a convenient and safe shopping experience both in the store and online. We're here for active families that love to make fun memories together, but we also show up for our communities during difficult times when fun is harder to find. We are continuing to strengthen our balance sheet subsequent to the Q3.
In November, we reduced our debt by approximately $630 million and refinanced and extended the remaining $800 million in debt through 2027. In addition, we extended our undrawn $1 billion ABL revolving credit facility through 2025. We believe these actions, along with our continued strong performance this year, have positioned us for ongoing financial stability. Excuse me. Good results just choked me up. Our inventory positions for the Q3 have improved in almost all categories. Firearms and ammunition will continue to be challenged for the foreseeable future. However, inventory continued to flow in all of our divisions during the quarter, allowing us to experience strong sales. We've been working collaboratively as a preferred retailer with all of our business partners, including our merchandise vendors and logistics partners, to improve our in-stock positions and merchandise wealth.
While our Q3 performance was strong, we continue to work on our key opportunities to pave the way for the future. In our e-commerce environment, we've launched ship to store in advance of the holiday season and continue to focus on search and checkout optimization opportunities. In stores, we're focused on leveraging our systematic capabilities to further align team member schedules and responsibilities with the customers' traffic patterns. In the supply chain, we continue to focus on distribution centers and logistics efficiencies by enhancing processes and systems optimization. In marketing, we continue to improve our targeted marketing capabilities to better communicate with our customers in a personalized fashion. In merchandising, our focus remains on continued advancements in our replenishment and allocation systems as well as product placement within our store environments.
With respect to our future outlook, due to the high level of uncertainty created by numerous external factors, including the pandemic, we will not be providing guidance at this time. Before I turn it over to Michael, I would like to thank all of our team members in our stores, distribution centers, and home office for all their hard work and dedication during this challenging year, which helped us to achieve these strong results. Now I'll turn it over to Michael to review our financial results in more detail. Michael?
Thanks, Ken, and good morning, everyone. Overall net sales for the Q3 were $1.35 billion, which is an increase of 17.8% compared to the same period a year ago. As Ken mentioned, comparable sales for the Q3 increased 16.5%. The gross margin rate was 32.7% of net sales, which is 110 basis points higher than the Q3 of 2019. This 110 basis point increase was driven by strategic merchandising actions, such as lower markdown rates and lower clearance volumes, but partially offset by a sales increase in hard line categories, which generally carry lower merchandise margin rates, but do have a higher ticket. Adjusted EBITDA increased 64.1% to a record Q3 performance of $145.7 million, up from $88.8 million in the Q3 of 2019.
For the Q3, SG&A was $359 million, or 26.6% of net sales, which is 40 basis points lower than the Q3 of last year. SG&A included approximately $32 million in non-cash and extraordinary items associated with our October IPO. Excluding these charges, SG&A for the Q3 would've been $326.8 million or 24.2% of net sales, a 280 basis point improvement from the prior year. Now looking at our bottom line, net income increased 109% to $59.6 million or $0.74 per diluted share versus net income of $28.6 million or $0.38 per diluted share in the Q3 of 2019. Pro forma adjusted net income, which excludes the impact of certain extraordinary items, was $73.7 million or $0.91 per diluted share in the Q3.
This was an increase of 188% from $25.6 million or $0.34 per diluted share in the Q3 of 2019. The increase in free cash flow for the Q3 was driven primarily by net income and the vendor term changes we implemented in the Q1 of 2020. As a result, our adjusted free cash flow was an inflow of $83.7 million, compared with an outflow of $30 million for the same period a year ago. On the balance sheet, we ended the Q3 with $869.7 million in cash and cash equivalents, and no borrowings under our billion-dollar ABL credit facility. Net of $21.1 million in letters of credit, our available liquidity, including cash, was $1.7 billion at quarter end, which is $730 million higher from the end of the Q3 of 2019.
Most of the proceeds received in connection with our IPO in October are reflected in the quarter end balance sheet. Subsequent to the Q3, on November 3rd, 2020, the company issued and sold an additional 1.8 million shares pursuant to the underwriter's over-allotment option, resulting in approximately $22.1 million of further net proceeds. As Ken mentioned, subsequent to the Q3, on November 6th, 2020, we completed a debt refinance transaction where we issued $400 million of senior secured notes and amendments to a new $400 million term loan facility, both of which mature in 2027. We utilized the net proceeds from the notes and the new term loan as well as cash on hand to repay in full our $1.4 billion term loan facility, reducing our overall debt by approximately $630 million. We extended our billion-dollar ABL facility through 2025.
Our merchandise inventory at the end of the Q3 was $1.1 billion, which was $249 million or 19% lower than at the end of the Q3 of 2019. This reduction in inventory represents a significant sell-through of inventory to support our exceptional sales growth of 18.3% year-to-date and moves us towards a better ongoing inventory position with fresher inventory. While our current inventory position reflects the challenges of staying in stock in certain key categories that have been in high demand during the pandemic, we believe that our inventory is positioned well in those categories and that we're in a good position to make improvements into the future as our supply chain continues to improve to support our sales velocity.
Net capital expenditures for property and equipment were $8.1 million in the Q3 of 2020 compared to $20.8 million in the Q3 of last year, with the decline driven by no new stores and fewer store remodels. Moving on to year-to-date results. Net sales increased $632.4 million or 18.3% to $4.1 billion, which included a 16.1% increase in year-to-date 2020 comparable sales. Year-to-date net income increased 112.3% to $217.2 million or $2.82 per diluted share from net income of $102.3 million or $1.37 per diluted share in the prior year. Year-to-date pro forma adjusted net income was $208.6 million, up 257.6% from year-to-date 2019. This resulted in pro forma adjusted earnings per diluted share of $2.70 compared to $0.78 per diluted share for the year-to-date 2019.
Our 2020 year-to-date adjusted free cash flow increased significantly to $843.4 million compared to $42.2 million last year. To conclude, we are pleased with our strong performance during the Q3, excited about our accomplishments, and proud of our team members that are nothing short of inspiring during these challenging conditions. I would like to reiterate Ken's thanks to our extraordinary team members for helping us achieve strong sales and earnings results. This concludes our prepared remarks. We are very optimistic about our future as our key initiatives continue to drive strong results. We look forward to sharing our progress with you again next quarter. Now we'll take your questions.
Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow signal to reach your equipment. Again, that is star one to ask a question. We'll pause for just a moment. I'll take our first question from Robert Ohmes at Bank of America Securities. Go ahead.
Oh, good morning, guys. Ken, congrats on a great Q1 out of the box here. Actually, I have two questions. First question, just on a thletic, the footwear and apparel comps, I was hoping you could give maybe a little more color on how the outlook is there. Were there some things that happened this quarter, that you think restrained footwear? Also on the apparel side, how much of an impact was there from the Astros last year, and maybe some color on how apparel looked excluding that. Maybe just some thoughts on the team sports side of that business as well and how that looked versus what you may think that could be next year.
Yeah. The apparel business was not as strong as it had been, and we were up against some big comps. It was both from the license to Astros, but it was also from a strong back-to-school last year. The Astros, we won't go into the details of how much exactly it was, but we would've had a positive comp had we not had the Astros and on just the increase in Astros event. It would've been a positive comp without that. Also the back-to-school was a factor. It was more spread out, it was later, and it wasn't as big as it had been in the past.
Both of those actually present good opportunities for next year because we would anticipate, particularly with the vaccine and hopefully things getting back more to normal, that there would be a regular back-to-school and we'd be able to take advantage of that. Also licensed apparel should be stronger because there will be teams playing sports and more fan interest. We had a couple of factors. We're up against a good year. We're up against the championship. As I say, it would've been positive without the incremental Astros and the back-to-school. We still had a good quarter, so that should be a good plus for next year.
That's really helpful. Thanks. Just quick follow-up, actually maybe for Michael, the e-commerce penetration. Could you just talk about the impact that had on gross margin year-over-year and maybe just related to that, there's, I guess, about 4%-5% of sales is e-commerce that is not running through your stores. Can you give us some color on what kind of margin pressure you get from that portion of the e-commerce business?
Yeah, I think we've done a lot there from a process standpoint that's helped us manage the margins. I think, again, that the big thing that happened this year was the introduction of BOPIS for Academy. We get a bigger ticket with BOPIS. We get more repeat trips. Of course, we don't bear the shipping costs with it. We're happy with it. We think the introduction of BOPIS and how it's going will be a tailwind on gross margin as customers have adopted that. We're happy with the progress there. Rob, one other thing I wanted to follow up on your question about team sports. Our team sports business was positive for the quarter. I mean, the delayed back-to-school moved some stuff, but we're very happy with how that's performed, and most of our categories within team sports were also positive.
Great. Thanks very much. Congrats again.
[crosstalk] Thanks, Rob.
All right, we'll take our next question from Seth Sigman at Credit Suisse. Please go ahead.
Hey, good morning, everybody. Thanks for taking the question and congrats on the quarter.
Thanks, Seth.
Great. Can you talk about some of the incremental merchandising initiatives as you look out into the Q4, but more so into next year? Obviously, we all know that industry demand has been strong during this period. You're going to have to lap that, but there's also a lot of things within your control. How are you thinking about some of the key drivers for Academy specifically as you look out over the next 12 months?
I'll start and then I'll have Steve comment on some of them. One of the big things, and we've talked about this, was what we've done in planning and allocation and the systems to get the right merchandise in the right store, the right size and the right quantity. Those systems are learning systems, so they, over time, continue to improve and enhance themselves. We get smalls and extra smalls in our border stores. We make sure we get the right type of grill, the gas grills in the Midwest versus wood and pellet in the South. Those systems are very important. Then we also continue to work with our vendors and are adding important merchandise to our assortment and broadening, particularly in our Better and Best categories, what you're in there.
The third thing that I would say is what we're doing with our private labels, and continuing to build on the private label programs that we have. We've got some new ideas that will be coming there, but also strengthening the programs we have. Steve, do you want to add?
Just add a few things to what Ken covered. In terms of planning and allocation, flow is a big one, which he mentioned. I'll also say markdown optimization there. We've been spending a lot of time getting our markdowns positioned in the right quarter, taking more markdowns in season versus post-season, which ultimately is speeding up sell-through, improving turn and improving margin long term.
Another thing we've talked about is how we're building out a true good, better, best assortment across a lot of our categories. We've always been pretty good at the good end of it. You take a category that somebody asked about earlier in terms of team sports, we've gone in and built out better, best assortments there, so that we can take that kid from a beginner to an intermediate traveling team to an advanced level. From that perspective, that's relatively new for us. We had a lot of that work that was supposed to take effect this year. With all the week shut down, we probably didn't get all the benefit of that work, that should provide a tailwind in the future. Improved store presentation.
We're working really hard to make our stores more engaging, easy to shop, better presentations within vendors, et cetera. That also ties into our website as well. That'll be another one. Then Ken touched a little bit on localization, getting a lot better at localization. All those things I'd say were in early innings.
[audio distortion] While we have great assortments now, people come to the store for product and product that's appropriate for them, and it's not just size, it's the type of product. That localization is something that our merchants really are working hard on to fit each of our markets. One of the things, as a result, we're seeing some of our new markets as we've implemented localization are our fastest growing markets.
Okay, that's all very helpful. If I could just follow up quickly on the gross margin this quarter, very strong, up 110 basis points. More importantly, that was stronger than prior quarters. I'm curious, what was different in the Q3 versus prior quarters? You did have a mix factor this quarter, but I think you had that earlier in the year as well. Was mix less of a factor this quarter or the positive offsets just greater this quarter? Can you just give us a sense of what's going on within that? Thank you.
I'm glad you asked that. I think really what's happening is all the stuff that Steve just talked about. We've had nice gross margin expansion over the past quarter-over-quarter for the last two years because of all the stuff we're doing from a merchandising perspective that's allowing us to harvest our margin. I couldn't agree more. We are very pleased with the mix shift that we've had. It's skewing more hard goods, more outdoor, not anniversarying the [audio distortion] . Past that gross margin expansion, we're really happy with where we're headed, and it's really attributable to all of the merchandise initiatives that we've talked about, which, by the way, are similar, we'd say, to Ken's points.
Yeah. The asterisk says that was all full margin stuff. Really, you think about it, there's a couple of things that we've mentioned. What we've done in dot-com has helped in looking at that. The approach that we've taken with the markdown optimization. A third thing is what we're doing with our private label, where historically we were running our private label really as a loss leader and not a margin enhancer. We've improved the products and what we're doing there so that it can be margin accretive as opposed to margin dilutive.
If we look ahead, we do have a couple businesses that have been challenged. License is one of them, cleats, backpacks through back-to-school. Those businesses will be margin accretive next year as we expect them to return to more normal levels. A lot to look forward to.
I'll just add on that we are less promotional right now. We've dialed back promotionality, certainly in a lot of the really in-demand categories. It just doesn't make sense, and particularly even later back-to-school. As we go forward into next year, that probably provides us an opportunity to put back some of the promotions we pulled out. At the same time, we should have an offset from the mix perspective with apparel and what we call percent of total.
Okay, that's great. Thanks again for all the color, and best of luck ahead.
[crosstalk] Thank you.
All right, we'll take our next question from John Zolidis at Quo Vadis Capital. Please go ahead.
Hi, good morning, and congratulations, and thanks for taking my question.
Thanks, John.
Ken, this is primarily a question for you, but I'm interested in everyone else's thoughts as well. I think one challenge here is trying to separate out what's happening from a category demand perspective versus internal initiatives at the business. Maybe if you could provide us some perspective about how you were thinking about Academy before you took the role, the initiatives that were working to drive the positive inflection in same- store sales prior to the pandemic. Then now with the accelerated consumer demand, has that accelerated the realization of the opportunity you saw? Maybe you could tell us what inning perhaps you think we're in terms of what's left to do and what you see going forward in terms of optimizing the business over the long term. Thanks.
Thanks, John. When I got here, one of the things When I go to a company, I go to a place where I think there's tremendous opportunity, I've been fortunate in having very strong teams that have helped capture that opportunity, in the past and here. I saw the opportunity here. We've built a strong team. The thing that really, quite frankly, we had started the turnaround a year ago before COVID hit. Seems like ancient history. We started to see the results, and I believe that we would still be seeing above average store-for-store growth without the tailwinds that we got to some degree from the pandemic. The reason I believe that is because the strategy that we put in place, we've seen the results. That strategy actually really helped position us well. For example, doing what we did with our dot-com.
That was very fortuitous because we had a really crappy dot-com system. Doing what we did with our systems, we could not just stay and stop the flow of the merchandise, because flow, because of what's happened with inventories, is so critical. We've got reduced inventories, we're moving it through the system so fast that we're not seeing the impact of that, as we probably would've before. I think you said it, that what this situation has done, it's accelerated our learnings. I still believe the strategy that we had worked before, it's worked during, and it positions us even well because it's like running in the mud. Okay, we're running in the mud right now, but our legs are stronger, so when we get to solid ground, we'll be in even better shape to move forward and take advantage of that.
I think we will continue to have good, solid growth, good, solid profit growth going into the future, after the pandemic. Hopefully that answers your question.
Thanks very much, and happy holidays, everyone.
You, too. Thank you.
All right, we'll now take our next question from Christopher Horvers at J.P. Morgan. Please go ahead.
Thanks. Good morning, everybody. A couple questions. First, you talked about a shift in timing of back-to-school, and I know there are some big districts in Texas that pushed school back a few weeks or maybe even a month. Can you talk a bit about the cadence of the quarter? You also have the benefit of having Black Friday and Cyber Monday behind you. Curious what you're seeing so far, and how do you think about the sort of risks and opportunity as you get into sort of cooler weather patterns, and how that could impact the overall momentum in the business that you're seeing?
Yeah. The thing with that, there were three issues with back-to-school or three things that happened with the environment. One, it was later, as you said, and so what normally would've happened probably in August, we started to see in September and October. The second thing was that it was spread out because historically, the school districts, we'll use Texas since that's our largest state, normally would start by the third Monday in August, and they actually spread out from the third Monday in August all the way until the middle of October. It was spread out. The third part of it was there was still a lot of kids who didn't go back-to-school because in many of the districts, it was left to be a parent option.
In some districts, less than half the children went back-to-school, so they didn't have to buy all the clothes that they would normally buy and go back-to-school. There also were key sports that didn't start up. It was later, more spread out, and smaller than what it historically would've been with the normal back-to-school, which we would anticipate seeing next year. What was the second part of the question?
Thoughts on quarter to date. You have the big Black Friday and Cyber Monday behind you.
Yeah. We're not going to give any direction on the current quarter other than saying that the trends that we've seen in the overall trend that we saw in the Q3 has continued into the Q4.
Understood. Then on the balance sheet, obviously generated ton of cash. Big de-leveraging moment here in early November, which is great. How are you thinking about working capital into year-end, and how much rebuild do you expect to be in 2021? Do you look at it inventory per store, per foot? Then related to that, your accounts payable to inventory ratio is 2X what it had been historically. How are you thinking about where that settles out, and the ability to maintain such a high AP to inventory ratio? Clearly, you're going to be sitting on a lot of cash and generate a lot of cash, and we understand you're committed to continuing to de-leverage the balance sheet. Just starting to think about the potential of that next year, and timing of that next year.
From an inventory perspective, I'd say there's probably $150 million of inventory we'd rather have right now that we've been chasing hard to get, like everybody else. There's just, as you know, worldwide shortages in some categories that have been hot. We're still getting the product and selling it. We're just not getting back the minimum presentation quantities that we'd like to have. That's how I think about inventory. From an AP standpoint, I think one of the really good things that came out of the pandemic was the strengthening of our vendor relationships, and good results generally help with that. As an essential retailer, we never closed. We were able to place orders. We were able to pay our vendors, we were able to pay our landlords, and we were able to work with them on the strength of that relationship to help extend our terms.
Really, we were behind our peers for a while there, and [audio distortion] fair treatment, and I think we're in a fair place, and I wouldn't expect a lot of giveback there going forward. That's how I'm thinking about those.
Yeah. One of the other comments, and it relates to your first question, is because we were open and we saw what was happening, Steve and his team were able to place a lot of orders of merchandise that other people weren't. They were actually canceling goods, and we were placing orders. We feel, starting in the Q3 and going forward on a number of categories, we're probably in a better position than some of the competition because we did place those orders and are flowing them in now and for next year.
Got it. Have a great holiday, Christmas season.
Okay. Thanks, Chris.
All right, I'll take our next question from Tom Nikic at Wells Fargo. Please go ahead.
Hey, good morning, guys. Thanks for taking my question. I wanted to ask, I know you've been trying to drive loyalty with the Academy branded credit card. Can you talk about what you've been doing there, the performance of the credit card in the quarter, and I guess anything sort of interesting from a loyalty perspective would be helpful. Thanks.
Yeah, we're really happy with these initiatives and how they've progressed. We've added over 3 million new customers this year. Specifically with the Credit Card Program, which we've really designed to have a loyalty feature to it, we're happy with it. I think you recall we were 4% penetrated as of the end of Q2. That number is running around 6% currently. We're very happy with the growth. Those customers shop us more often. We get a nice basket uplift with them, and it's a great program that we think has a lot of room to run. The customer gets 5% off their purchase every day. They don't have to wait for a coupon in the mail. They don't have to accumulate points, and the bank funds that discount. It's a great program for us. It's growing nicely, and we're happy with it.
Great. Glad to hear that. A quick follow-up, more of a sort of housekeeping item. With the $630 million reduction in debt early in Q4, Michael, can you let us know, I guess, what the interest expense savings will be from that debt pay down?
Yeah. It's about [audio distortion]
Okay. Got it. Thanks.
Yeah.
Yeah.
Yeah.
All right, sounds good. That's it for me. Have a Happy Holidays. I'll talk to you guys soon.
Okay. Thanks, Tom.
I'll take our next question from Greg Melich at Evercore ISI. Please go ahead.
Hi, thanks, congrats on a nice opening quarter, guys. On the comp breakdown, you listed transactions. Does that mean that that was a majority of the comp in the quarter? If you could give us a little insight on how the trend on transactions was through the quarter.
No. We had all elements of the purchase. The transactions, the units per transaction, and the average ticket were all up for the quarter. We don't have counters in all our stores, but we have counters in some. The traffic that we saw was up, and it was well over the rest of the industry.
Got it. I think of it as a plurality. Traffic and transactions was a key part of it, but it wasn't a majority of the comp.
Yes, exactly. It was up. It was all the elements.
Got it.
When you're up 16%, you need everything clicking.
On that front, being able to do that, how long can you keep growing like that with inventory still missing that it's down 18% year-over-year? I think, Michael, you mentioned you wish you had $150 million more. When you think about that, how long can you keep this up if you can't get that inventory?
We're like Special K. We're running as fast as we can. Really, we've kept it up now for a number of months, the reason is, first of all, we're catching up in a number of businesses, it's not as extreme as it was. What's happening is we are learning how to flow the merchandise much better. Michael used the term properly. The presentation standards aren't necessarily what we would like, the sales have continued because it literally, we'll get a load of bikes in on delivery to a store, in a day or two, they're all sold. Two days later, they get another load. The customer has learned, using online to find out what the inventory is and we think we're going to catch up, that the customer is coming just as rapidly as we're getting it in.
We're not able to present it the way we like, but we're able to sell it the way we like.
It's steadily improving. We've improved week-over-week for the last several months here, so we are improving. The sales velocity in some of these categories has been slow.
Yeah. It's really flow. It's what Steve mentioned earlier. Flow is really critical, and to be quite frank, there's only about two or three businesses now that are really an issue. Guns, ammo, and bicycles, and some parts of exercise. Dumbbells would be one. Other than that, most of the others, we feel that we might not be exactly where we want, but we're at an acceptable level.
I'd just add that what's really interesting is when you ask how long can we keep this up, certainly as we went through this and we looked at certain categories and said, "Well, is this pull forward, is it not?" We had to put our best thinking cap on as we did that. As we've gotten back in stock, we've actually seen a lot of the trends accelerate, because we actually have inventory in some of these categories where other people haven't. It's not that we're not procuring a lot of inventory and having to chase it, but even as we've been bringing it in, it's very hand-to-mouth, it's even accelerated some of these categories.
If I could cheat and sneak in one more. With the new customers, I know that's been a focus as you get new customers or re-engage customers. Could you give us an update on the things you're doing to make those customers sticky, and maybe have them come back next month or next year?
Sure. We have a really good grip on who they are. We know how to reach them. We've been marketing to them, digital, some print delivered via mail, and have been talking regularly. Our goal is, obviously, to keep all of them, if at all humanly possible. Longer term, what really is going to keep these customers and other customers shopping with us is moving away from traditional blast media, traditional media that's broad broadcast, whether it's news, print, broadcast, and more digital personalized messaging. We've been evolving our marketing spend and how we communicate with the customer across those channels.
We're doing a lot more of that today than we were doing a year or two years ago. We're going to get even more personalized going forward and talk to them about the things that they're purchasing. Make sure that we're speaking to them about things they're interested in.
Greg, these 3 million new customers, the growth of Academy Credit are very exciting. I think the most exciting thing that we have going on from a customer perspective is we have a number of customers who have shopped with us for a long time, that new-to-category existing customers is growing greater than it has in the past. What we're seeing is those customers shopping that new category a second and third time more than we have in years past. That, I think, bodes very well for some of these trends moving forward.
That's great. Well, have a great holiday. Thanks.
[crosstalk] You too. Thanks, Greg.
Well, I'll take the next question from John Pinckard at Guggenheim Partners. Please go ahead.
Hey, guys, let me start with Better and Best. With people having more money to spend at home, Better and Best selling, the flow through of that versus Good, are those stronger lines for you, and where are you in the build-out of Better and Best? I don't know how you want to describe that. How much more to go is there on those lines?
I'll start with the principle and let Steve talk about some of the specifics. In principle, we had a very strong position in good, and so as a beginner or a novice, we were there. As people grew and developed, we probably didn't have as good an offering. We had an offering, but not as good as we would like in the Better and Best for the enthusiast. The expert or the person who's going to sleep on a mountain cliff on a hiking or camping trip, that's not us. For a person who's got a hobby and is developing, that's what we want. That was why we developed.
We got out of some categories which provided the inventory and space for it, but the idea was not to reduce what we had at the opening price for that initial customer, because we're strong there, and we didn't want to run away from them. We want to continue to support them and allow them to grow within us. I'll let Steve talk about where we are.
Sure. One thing I want to make sure I emphasize is that one of our key strengths is our value position in the marketplace. I don't want anybody to mistake the fact that while we're trying to layer on a Better and Best piece of our offering, that we're somehow moving away from Good. That is foundational to who we are, and we really make sure that we address that. To Ken's point, it's really different by category. You go through and you think about a category like grills or outdoor cooking, where we've had a pretty established business there for a while. We're further along in terms of building out that Better and Best piece of the assortment. What we're finding is customers who came to us for an opening price four-burner, six-burner grill are now stepping up to a Traeger pellet grill.
We're seeing growth in those categories. Not at the expense of good. I'd say fishing is another one. We're a little more further on the journey in terms of having the better best out there. Other categories like camping, as Ken mentioned, we're probably in early innings on camping, building out the better best. We're making some progress for next year. I'd say sporting goods in certain categories, we're a little in the early innings there as well.
Great. Maybe secondly, when you guys think about how well the business is doing, the idea of maybe pulling forward your restart in store expansion, could you do that, and is that desirable? Maybe, along with that, thoughts on capital allocation since the balance sheet has strengthened so quickly. Maybe for Ken, thoughts on how you want to use free cash flow going forward.
Yeah. To the first part of your question, the challenge with the new stores is just the time that it takes to make sure we find the sites that we have done kind of the preliminary work, but the detail work, and then also lining up the construction and things. That, as you can imagine, is reasonably challenging during what's going on with COVID. If we find something that we can move quickly on next year, we will. The challenge is just the time it takes to make sure we have a really good site, because we don't want to compromise, and then build it. That was why we said 2022. If the right opportunity came up and we could do it, we would do it in 2021. With regards to capital, again, we're in unsure times.
We probably will be a little more conservative now than what you might have seen in the past. We'll be conservative there and make sure that how we think about capital in terms of what we do with dividends or buybacks, that we're in very solid position. We will first make sure we're taking care of the business and our opportunities to grow and develop the business. We do want to make sure that we recognize and reward our investors. At this time, I think that the prudent thing to do is to be more conservative than less.
Thank you very much.
Thank you. Appreciate it, John.
Okay, I'll take our next question from Michael Lasser at UBS. Please go ahead.
Hi, this is Mike Schwartz on for Michael Lasser. Thanks for taking our question. You touched on it a bit earlier, but do you have a sense of what portion of the growth that you're seeing has been from wallet share gain with existing customers versus attracting new customers? Looking forward, how do you think Academy and the sporting goods retail category more broadly is positioned to lap some of these wallet share gains in a normalizing environment?
Well, again, we've captured 3 million new customers since the beginning of the pandemic. We are gaining share in many of our categories. I mean, footwear and apparel have specifically been gaining over the past few years. I think that there's a little bit of noise. We've had strong, sustained results through the majority of the year, where others were shut down. With respect to share, there's a little bit of noise in there because we were open when others weren't, and I think, Steve, I don't know if you want to add anything with respect to team sports.
Yeah. In terms of the share conversation, we've picked up a lot of share, obviously, in Q2. We've looked at some categories and actually gave up a little bit of share in Q3 based off of us being out of stock in certain categories that we sold through candidly in Q2 that other people weren't stocking because they'd been closed down. We're back in stock there, and we feel very good about how we're positioned for holiday and going forward.
Michael, at this time, we're not breaking down the amount of business we do with the new customers versus existing customers, or for that matter, what Michael talked about, which is important, existing customers shopping in other categories. We will say that they are all accretive. It's kind of like what I said about the three components of sales. To get a 16% increase, you need all of them hitting, and they're all hitting. I think what we found in this was we carry a very broad assortment in our stores, and I think we found customers who generally shop with us for one category, thought of us for one category, discovered that we carry a lot of the extra categories. We've seen that definitely be something that happened as the pandemic has continued since then, where they're shopping more broadly across the store.
Thank you. That's helpful. As a follow-up, are you seeing much variation in trends across different regions within your footprint? Is there any performance differentiations between some of the legacy markets and some of your newer markets?
No. [crosstalk] Michael, one of the things that's really good about what we're seeing, I mentioned earlier that our non-heritage markets are growing faster, not that much faster than our traditional. We're seeing good growth across our entire footprint. That's impressive because some of the areas are having their own challenges, be it the pandemic or industry issues or things like that. We're seeing pretty consistent growth across all of our geographies.
Yeah. At a category level, as I think you can point, the newer markets, particularly the East Coast markets, are outcomping the chain, and that's where we've seen a greater rate of new customer acquisition. It's been very exciting.
Thank you.
We have time for one more question.
Sure.
We have time for one more question. We'll take our next question from Daniel Imbro at Stephens. Please go ahead.
Good morning, everyone. This is Andrew on for Daniel. I just wanted to say, really impressive quarter, and I want to drill in on SG&A and what's driving your leverage. I noticed expenses are up about $18 million this quarter over last year, excluding the non-recurring costs. What's making up this delta and what else is driving the impressive leverage this quarter? Thanks.
Well, good sales help to do that, and that's the one thing we benefited from. The other thing that's really happening, to the point I just made, is that the newer markets, they're achieving the scale that we expected to achieve. We're able to leverage the fixed costs that we have in those markets. I'll tell you, the other thing through COVID-19 that we learned is how to operate a little bit more efficiently across the board. We've done a lot from a labor standpoint in our stores, making sure that we're not cheating the customer on labor hours but not doing things we don't need to do from a process perspective. Again, the other big one, which was really a game changer from a P&L perspective, was Focus.
We doubled the size of our dot-com business. Now we're driving bigger baskets to the store as opposed to shipping product from the DC or from the store. That's all accretive.
We also did take some actions to improve our expense structure as we're coming through COVID with things that we felt that we could save on. That's also given us the opportunity to look at other areas where we can save. We've got some work to do. While we're pleased with the improvement, we've got some work to do to continue to improve our SG&A.
Perfect. Thank you, guys.
Thank you, Andrew. Thank you, operator, and all the participants on the call. Hope that you all have a very safe and happy holidays. Wish you all the best, and hope that you all will stop in or go online to shop in Academy, get a great gift for your family and yourself. Happy holidays.
This concludes today's call. Thank you for your participation. You may now disconnect.