Ollie's Bargain Outlet Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
December 10, 2024

There are 14 speakers on the call.

Operator

Good morning, and welcome to Ali's Bargain Outlets Conference Call to discuss the Financial Results for the Q3 of Fiscal Year 20 24. Currently, all participants are in a listen only mode. Later, we will conduct a question and answer session and interactive instructions will follow at that time. Please be advised this call is being recorded and the reproduction of this call in whole or in part is not permitted without express written authorization of Ollie's. Joining us on the call today from Ollie's management are John Swiger, Chief Executive Officer Eric Vanderbalch Certain comments made today may constitute forward looking statements and are made pursuant and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended.

Operator

Such forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties are described in our annual reports on Form 10 ks and quarterly reports on Form 10 Q on file with the SEC and in the earnings press release. Forward looking statements made today are as of today's date of the call and we do not undertake any obligation to update these statements. On today's call, the company will also be referring to certain non GAAP financial measures. Reconciliation of the most closely comparable GAAP financial measures to the non GAAP financial measures are included in our earnings press release.

Operator

With that said, I'll turn the call over to Mr. Swager. Please go ahead.

Speaker 1

Thank you, and good morning, everyone. We appreciate you joining our call today. We had another great quarter and are pleased with our results. We delivered strong earnings on higher sales, gross margin and disciplined expense control. Even more important, we also took advantage of a number of real estate opportunities that strengthen our new store pipeline and enhance our competitive positioning for the future.

Speaker 1

In the quarter, we saw strong demand for everyday consumables such as cleaning supplies, food and candy. As we have discussed before, our growing relationships with major manufacturers of these categories is leading to strong product flow and a more consistent assortment of everyday merchandise. We had a great selection of consumables and we're ready for the strong demand. Outside of consumables, we also saw strong demand for certain discretionary related categories such as furniture and outdoor living. We believe the warm weather in October along with the late timing of Thanksgiving impacted our sales of seasonal goods in the Q3.

Speaker 1

As the weather normalized and we approach the Thanksgiving holiday, we saw accelerating trends in our seasonal categories. We were pleased with our Black Friday weekend sales and the current momentum in our business. Now more than ever, consumers want value and suppliers need bigger partners. We are benefiting from these two trends and our buyers are doing an amazing job of finding a great assortment of exciting deals. We sell good stuff cheap and we have been in the closeout business for more than 42 years.

Speaker 1

Our value proposition is selling quality name brand products that people need and want for their everyday lives at prices typically 20% to 70% below the fancy stores. Anyone can sell cheap products, but we're all about real brands, real bargains. This has been our value proposition from day 1 and continues to be our competitive mode. The growth of large retailers and suppliers has led to bigger order sizes, higher levels of excess inventory and growth in the closeout industry. Big branded suppliers are very careful about product placement and channel conflict.

Speaker 1

At the same time, the larger order sizes are driving larger production quantities and a continuous cycle of excess product. Our size, scale, experience and strong financial position are increasingly important advantages we have when buying closeouts. With over 5 50 stores in 31 states, we are the largest buyer of closeouts in excess inventory. While we are getting larger, other closeout players are shrinking or going away altogether. This is leading to stronger vendor relationships and increased deal flow.

Speaker 1

At the same time, the investments we have made in the business over the last several years have made us a more nimble organization. This has led to better execution and more consistent results. Both Eric and Rob have been integral part of making these investments. And as my time as CEO comes to a close, I could not be prouder of what we have built and the strength of our positioning going forward. Transition of the CEO role and responsibilities is progressing as planned.

Speaker 1

Eric will become CEO and I will move to the Executive Chairman role at the beginning of fiscal 2025. Given the planned timing of things, this will be my last public earnings call. It's been an amazing 20 plus years and I would like to thank each and every team member that has been part of our family. Operating a closeout retailer is not for the faint of heart. The unpredictable nature of the model creates many ups and downs and operational challenges.

Speaker 1

But Ollie's is a special company that was founded by passionate individuals who kept things simple and stayed true to their model. I was fortunate to work with Co Founder, Mark Butler for many years. I hope that I have made him proud during my tenure as CEO. Everything that we have built and stand for came from Mark and Mort and we continue to honor their legacy by staying true to our mission of saving customers money and selling good stuff cheap. While proud of what we've accomplished, I am more excited about our growth potential and competitive positioning going forward.

Speaker 1

Our value proposition is clear, our deal flow is strong and our ability to execute is as good as it's ever been. We remain focused on delivering profitable growth, consistent results and enhancing shareholder value. With that said, I would now like to turn the call over to Eric.

Speaker 2

Thanks, John, and good morning, everyone. We are pleased with our Q3 performance. The process improvements and investments we have made in our people, supply chain stores and marketing continue to result in better and more consistent execution. The Q3 was a great example of this. We delivered earnings that were in line with expectations despite some temporary headwinds.

Speaker 2

We also opportunistically acquired a number of real estate sites that bolstered our new store pipeline and competitive positioning. The first of these opportunities was the former 99 sit only stores in Texas. We acquired these stores out of bankruptcy in May and shifted our organic new store pipeline to prioritize opening these first. In August, we soft opened several of these stores as a test, minimizing the dead rent and reducing the operational burden of opening so quickly after assuming possession of the sites. Given these stores had been open and active with discount shoppers just a few months prior, we expected they might ramp faster than our typical new stores.

Speaker 2

Several were top performing stores right out of the gate. We later followed up with an official grand opening event and could not be happier with the quick ramp and performance of these stores. The second real estate opportunity is the closing Big Lots stores. To date, we have acquired 17 store locations and were the winning bidder on an additional 7 stores last Friday. Similar to the 99 Cent Only stores, these stores are the right size, located in good trade areas, have attractive rents and leasing structures and have been serving value oriented customers for many years.

Speaker 2

We will prioritize the opening of the acquired stores and expect to have these open by the end of the Q1 next year. With these additional stores, our new store pipeline is very strong and our store openings in 2025 will be front loaded as a result. Our initial plan for next year is a minimum of 56 new stores, which meets our 10% needed growth goal. We will continue to evaluate the new store pipeline and opening schedule as any new opportunities unfold. 2025 will be a record year for new store openings and there is the potential for additional real estate opportunities on the horizon.

Speaker 2

Bankruptcies and closures of retailers come with market disruption. In the short term, it can lead to increased competition for our stores going up against liquidations. This is offset by longer term opportunities in product flow, market share and talent acquisition. To support our accelerated growth, we continue to invest in supply chain. Our newly opened distribution center in Princeton, Illinois began shipping stores in July and is capable of servicing more than 150 stores.

Speaker 2

The new facility has a number of technology and productivity enhancements that will help us scale and increase productivity over time. The Midwest is an area that contains significant growth potential for Ollie's and the newly acquired stores will help us better leverage this asset. With the new DC in place, we down the capacity to service up to 7 50 stores in total, which provides runway for several years of growth. A few other supply chain related comments. The port strike was really a non event for us.

Speaker 2

We continue to closely monitor the potential for increased tariffs. Our flexible buying model allows us to adjust our pricing to changes in the marketplace and pivot between different products. As a reminder, direct imports from China account for approximately 15% of our product flow in any given year. Before I turn the call over to Rob, I would like to thank the entire Ollie's team for their continued hard work and commitment. I would also like to recognize our associates in the hurricane impacted areas.

Speaker 2

Hurricane Selena and Milton were devastating and I'm thankful that our team members are safe and doing what they can for their local communities. I'm honored to be part of an organization that has a clear purpose and an amazing culture. We are proud to sell good stuff cheap and save customers money on the things they want and need. I would also like to thank John for his leadership and impressive 20 year career, which Ollie's delivered nearly unparalleled results in the retail industry. We are especially appreciated for the leadership John provided through the unexpected passing of Mark Butler, which took place only moments before the pandemic started.

Speaker 2

He's been an incredibly strong shepherd of the business model and our culture. I appreciate John's mentorship and the trust he and the Board have placed in me to lead Ollie's into the next phase of growth. Thank you.

Speaker 3

Rob? Thanks, Eric, and good morning, everyone. We are very pleased with our 3rd quarter results. We delivered a 14% increase in adjusted EPS driven by an 8% increase in sales, 100 basis point increase in gross margin and disciplined expense control. We also opened 24 new stores in the quarter, which was a record number for us.

Speaker 3

In the Q3, we faced a number of short term headwinds that impacted sales. These included a shift of 1 flyer out of the 3rd quarter and into the 4th quarter, the 2 major hurricanes, the Big Lots store closures and liquidations and unseasonably warm temperatures. Despite these headwinds, we still delivered earnings that were in line with our expectations and our outlook for the Q4 is largely unchanged. Now let me take you through the Q3 numbers. Net sales increased 8% to $517,000,000 driven by new store growth.

Speaker 3

Comparable store sales declined 0.5% with both transactions and basket down slightly. Demand for everyday consumer staples were strong throughout the quarter and our best performing categories were food, candy, housewares and furniture. Ollie's army membership increased 8% to 14,800,000 members and sales to our members represented over 80% of total sales. Consistent with prior trends, we're seeing growth in our younger customer demographic and retention of higher income customers. We ended the quarter with 5 46 stores in 31 states, an increase of 8% year over year.

Speaker 3

As mentioned, we opened a record 24 new stores and closed 3 stores. Of the 3 closures, one was a temporary closure from a store that was flooded due to Hurricane Helene and 2 were store leases that we chose not to renew. We are pleased with the performance of our new stores, including the former $0.99 only stores, which are off to a solid start. Gross margin increased 100 basis points to 41.4 percent, driven primarily by lower supply chain costs, partially offset by lower merchandise margin from the higher mix of consumer staples. SG and A expenses as a percentage of net sales increased 40 basis points to 29.9% due to deleverage of fixed expenses associated with the decrease in comparable store sales.

Speaker 3

Operating income increased 14% to $45,000,000 and operating margin increased 50 basis points to 8.6% in the quarter. Adjusted net income increased 13 percent to $36,000,000 and adjusted earnings per share increased to $0.58 Lastly, adjusted EBITDA increased 17 percent to $60,000,000 and adjusted EBITDA margin increased 100 basis points to 11.6% for the quarter. Turning to the balance sheet. Being a public company with a strong balance sheet is a strategic asset in the closeout industry. Not only does it enhance our credibility with vendors and allows us to make larger deals, it gives us the flexibility to pursue just about any opportunity as it arises.

Speaker 3

We ended the quarter with $304,000,000 between cash on hand and short term investments and no outstanding borrowings under revolving credit facility. Inventories increased 14% to $607,000,000 primarily driven by new unit growth and the timing of receipts. Capital expenditures totaled $31,000,000 for the quarter and were primarily related to the development of new stores and the remodeling of the existing stores. We bought back $16,000,000 of our common stock in the Q3, bringing our year to date share repurchases to $47,000,000 in line with our targeted capital allocation. Turning to our outlook.

Speaker 3

Our updated guidance for fiscal 2024 is contained in a table in today's earnings press release. Our outlook for the Q4 is largely unchanged and we feel good about our positioning heading into the Christmas holiday and remaining weeks of the fiscal year. The ranges for net sales and comparable store sales are now $2,270,000,000 to $2,280,000,000 and $2,700,000 to 3% respectively. The slight narrowing of the ranges are the result of our 3rd quarter results, the one unplanned store closure and the timing of new store openings. Our gross margin outlook of 40% is unchanged as is our outlook ranges for adjusted net income and adjusted earnings per share.

Speaker 3

Pre opening expenses are now slightly higher due to rent expenses associated with the recently acquired stores and the front end loaded new store opening schedule for next year. For new store openings, we're still targeting a total of 50 less the 2 closures that we chose not to renew the lease and the one temporary closure of the flood impacted North Carolina store. We expect to open 13 stores in the 4th quarter and are targeting a minimum of 10% new unit growth for next year. Next year's store openings will be more heavily weighted to the first half with the majority of stores opening in the 1st and second quarters. As John discussed, we have seen a nice acceleration in business over the last several weeks and we're pleased with our Black Friday weekend sales.

Speaker 3

We believe that the shorter selling season between Thanksgiving and Christmas could make for a bigger holiday rush in the mid to late December period and our current trend seems to support this. We are locked and loaded with great deals for our customers. Finally, just a quick reminder that this fiscal year has 52 weeks versus 53 weeks last year. The extra week last year contributed approximately $34,000,000 in net sales and about $0.04 to diluted earnings per share. Now let me turn the call back over to John.

Speaker 1

Thanks, Rob. I'd like to thank the entire Ollie's team for everything they do. It's truly the combined experience, passion and commitment from everyone that makes Ollie successful. I could not be prouder of what we have accomplished and look forward to our future success. As we say, we are Ollie's.

Speaker 1

That concludes our prepared remarks, and we are now happy to take your questions. Operator?

Operator

Thank you. First question comes from Matthew Boss with JPMorgan. Your line is open.

Speaker 4

Great, thanks. And John, congrats on the transition. You'll be missed.

Speaker 1

Thanks, Matt. I'll still be around though, don't forget that. I'm not disappearing.

Speaker 4

Always, always. So could you maybe speak to the cadence of 3Q comps, maybe parsing through best you can some of the transitory headwinds that you faced? And then on November and 4Q, maybe best you can if you could elaborate on November trends that you've seen in the business. And just your confidence in above algorithm comps in the Q4 despite consolidation disruption in the shortened calendar, just how you kind of put it all together?

Speaker 3

Hey, Matt, it's Rob. I'll take that one. From a quarterly flow on the comps for Q3, August was down slightly, which was better than our plan because the flyer shifted out of August in that month. September was up slightly positive, which we thought was really good considering that was the month in which we were impacted by the hurricanes, which was about call it a 50 basis point impact to our comp overall for the quarter. And then lastly, we ended in October and October was the softest month of the quarter.

Speaker 3

It was down, call it, negative low single digits and that's really where the warm weather started to impact us in our seasonal categories. Coming into the Q4, our trends are good. We were pleased with the Black Friday weekend and holiday. We've seen as we're getting closer to the Christmas holiday, our trends continue to strengthen. And from an over algo perspective from the Q4, remember we do have that flyer shift that flipped shifted out of August and shifted into this quarter.

Speaker 3

So that gives us about an extra 100 basis points of comp and that flyer is still sits ahead of us today.

Speaker 4

Great. And then maybe Eric as a follow-up, could you just elaborate on the white space unit growth opportunity multi year you see just puts and takes to consider relative to the 10% plus unit growth for next year? And just as the fleet expands, what are you seeing from vendor relations?

Speaker 2

Plus the audio. Yes. Kevin,

Speaker 1

let me unmute my line here, see if that helps here.

Speaker 5

Can you hear me?

Speaker 6

Hello?

Speaker 1

Hello? Can you

Speaker 4

guys hear me? Yes,

Operator

can you hear me? Yes, Your line is open and unmuted. Can you hear me?

Speaker 4

I can hear you. You want me to ask the second question?

Operator

No. One moment, Matthew. Conference room, your line is unmuted. Can you hear me?

Speaker 1

We can hear you. Can you hear us?

Operator

Yes, we can hear you now.

Speaker 1

We dialed in our mobile. We got whatever phone problems we have, which is dialed in our mobile number now. Okay.

Operator

So go ahead with your question, Matthew.

Speaker 4

Okay, great. So Eric, could you elaborate on the white space unit growth opportunity multiyear? Any growth governors to consider relative to the 10% unit growth minimum that you cited for next year? And just with the greater size and scale, what are you seeing with vendor relationships and closeout opportunities?

Speaker 2

Sure, Matt. As we look into 2025 and beyond, but certainly in 2025, we've looked at real estate on really an opportunistic basis and there are a lot of opportunities out there in this moment. In addition to Big Lots, there are several other retailers that are in either a state of distress or liquidation. And we're looking at all of the real estate. We're in the process, whether it's through an auction process or working direct with landlords if we're able to.

Speaker 2

And opportunistically, we'll accelerate beyond the 10%. Can't really talk too much beyond 25% as the pipeline is built out for 25% at this point, moving into 26%. The governor in this moment, we've invested in infrastructure to support opening as many as 75 ish to 80 stores and that's an operational kind of self imposed governor based on the infrastructure we have in place today. So what I don't want to do is get ahead of ourselves and guide 25 in any way, shape or form, but we are giving direction to 10% gross with opportunities to accelerate beyond that. What we've been seeing in terms of closeout flow and product availability is that our size and scale have been actually very helpful in giving us access to more closeouts.

Speaker 2

We've developed more direct relationships, some larger important vendor relationships, especially the consumables world and our ability to be able to take all of the deal is a differentiator. It's somewhat competitive advantage. And I'll just remind you and everyone that Rob stated it in his remarks that our balance sheet remains very strong in an environment where that we're working in today. That strong balance sheet attracts vendors to us to sell with great payment terms and liquidity and the assurance that they will get paid.

Operator

Thank you. One moment for our next question. Our next question comes from Peter Keith of Piper Sandler. Your line is open.

Speaker 4

Hi, thanks. Good morning. John, my congratulations to you. I know you're not leaving, but it has been a great pleasure working with you on these types of calls. I did want to dig into the dynamic around the Big Lots store closures.

Speaker 4

I think you had called it out as a headwind to Q3. I wonder if there's any quantification there. And then we do have a lot more closures happening in Q4. Could that be a potential headwind as well that we should be contemplating as the quarter progresses?

Speaker 3

Thanks, Peter. This is Rob. I'll take that question. So when we had our Q3 call, there were only about 300 announced closures that Big Lots had announced with about 100 of those store closures impacting us. That impact for the Q3 ended up being in the range of 50 basis points of drag against our comp.

Speaker 3

Since that time, they've announced another 2 50 store closures give or take for a cumulative total of 5 50 store closures. These closures commenced very late in Q3 and will be taking place through the end of the holiday season. So we embedded a similar amount of drag, so call it 50 basis points in our 4th quarter guide.

Speaker 4

Okay, very helpful. Thank you. And then related to the store acquisitions, so I guess the math is I think you've acquired 17 and then you've got a potential 7 more Big Lots stores that could be up to 24. I guess what's your thinking around these? I was intrigued to hear that the $0.99 only stores are opening up quite strong.

Speaker 4

Does that inform any thinking around these stores that you're buying now and how they could open up in early 2025?

Speaker 3

It certainly does inform how we think about it. We think that the stores could ramp very quickly. We're excited about these acquisitions. It's great lease economics, good customer demographic, strong street visibility and great box sizes. So we're really excited about these.

Speaker 4

Okay. Sounds good. Thanks so much. Thanks, Peter.

Operator

One moment for our next question. Our next question comes from Brad Thomas with KeyBanc Capital Markets. Your line is open.

Speaker 7

Good morning and John, all the best to you as well. I wanted to first ask about just operations and how you plan the organization for this accelerating square footage growth just to ensure that these new stores are as strong as they can be out of the gate and how other stores don't suffer as you get inventory to this accelerating amount of square footage growth? And then I know you don't have a lot of commentary on 2025 financially, but just at a high level if there's any margin puts and takes that we should be thinking about? Thanks.

Speaker 2

Sure, Brad. It's Eric. I'll take the first question. We have invested in our infrastructure anticipating both supporting the 10% unit growth plan going forward as well as the potential to accelerate to 2025. Project management resource is one of the bigger areas that we've invested in, which is construction and our new store setup teams, ensuring that we're hiring ahead, making sure we have the leadership in place, infrastructure and store leadership in general.

Speaker 2

And then the DC network, which I talked a little bit about in my opening remarks is another one that we've gotten ahead on with now the DC network able to support 750 stores. We have no concern about bandwidth throughput on the DC side as well.

Speaker 3

And from an earnings outlook on 2025, we typically don't give too much color on our Q3 call around that. What I would say is that when you think about 2025, it's firmly going to be steeped in the long term our long term algo, working our way back to a 14% EBITDA. And there's potential for outsized EPS growth because of the front loading of the store opening schedule, which is something we haven't seen for several years here.

Speaker 7

Great. Thanks Eric and Ron.

Operator

One moment for our next question. Our next question comes from Chuck Grom with Gordon Haskett. Your line is open.

Speaker 6

Hey, good morning. Thanks very much. Can we just double click on the acceleration in your business over the past few weeks? And I guess, can you also dig into why you think the consolidated calendar could accelerate business in the coming weeks? And I think, Rob, you said that you still have one flyer to come.

Speaker 6

Can you just confirm that? Yes. It's Eric.

Speaker 2

So from where we sit today, there is a lot of meaningful business still in front of us with the calendar shift and the cadets calendar. The flyer shift is in front of us, meaning it's ahead of us and it's planned in a week when you look at how the business we expect the business to flow, it's planned in a week that is very, very meaningful and we're putting some great deals out there to attract customers into the stores on a somewhat last minute basis as we approach the holiday. Also keep in mind that between now and Christmas are 2 additional shopping days even though there were fewer in the total season. So we're reading the business to date and the business to come and we feel good about where we're at.

Speaker 6

Okay, great. Thanks very much. And then just on Ollie's Army, over 80% of sales. You talked earlier in your prepared remarks about getting younger with your customers. I was wondering if you could dig into that a little bit more for us.

Speaker 6

It seems like a big opportunity for you guys.

Speaker 2

Sure. Yes. The Ollie's Army, we continue to see strength in attracting younger customers, our strongest growth segment now consistently for several quarters has been the 18 to 45 year old segment. So that's very encouraging. We do believe that our digital marketing efforts are continuing to pay off.

Speaker 2

We've made investments over several years now, including bringing on a new advertising agency that specializes in retail digital marketing programs and that seems to be going very, very well for us. And then we're also a pretty good product that is more attractive to your customer that also lends itself to attracting those customers.

Operator

That's great. Thank you.

Speaker 2

Thanks, Chuck.

Operator

One moment for our next question. Our next question comes from Scot Ciccarelli with Truist. Your line is open.

Speaker 8

Good morning, guys. Scot Ciccarelli. I know you talked about the negative impact of the Big Lots store liquidations, but what are your early reads from a sales capture perspective from the sales that are orphaned from those closed stores? And then another question about kind of the go forward earnings flow through. Any kind of notable investments that are going to be needed that would create a headwind to margin?

Speaker 8

Rob, obviously, you just talked about above algo for 25, but just as you kind of think about the longer term growth opportunity, whether it's DCs, whether it's technology, anything we should be kind of thoughtful of? Thanks.

Speaker 3

Hey, Scott. It's Rob. I'll take that. We're relatively early days post liquidation. The first round of liquidation is only round about a month ago.

Speaker 3

We've seen some glimmers of pickups since the nearby stores have closed, but it's not it's too early to give a solid readout on it yet. From an investment perspective for the accelerated growth, we've already made a bunch of those investments this year and readying ourselves for next year. So there's not you're not going to see any significant investment in SG and A, any significant investment in technology. We have what we need in place. One thing that you'll see over the years with accelerated growth is we'll continue to make supply chain investments in the form of distribution centers.

Speaker 3

And that the faster that we grow, the sooner we'll get to our 5th distribution center, which is still a couple of years off at this point. We got to

Speaker 8

add a little bit of color.

Speaker 2

We have the ability to expand 2 of our existing buildings as well. The building in Texas, the building in Illinois both have an opportunity to expand 200,000 square feet each. So we don't necessarily have to run fast into a 5th building. We can expand those 2 buildings and we from a roadmap standpoint, we have thought process around that in years 2026 and beyond. Understood.

Speaker 2

Thanks guys.

Operator

One moment for our next question. Our next question comes from Kate McShane with Goldman Sachs. Your line is open.

Speaker 9

Hi, good morning. Thanks for taking our question. We wanted to ask a couple of questions around gross margin. Can you just talk about how mix impacted the margin in the quarter just given the strength in some of the consumables and if that's increased as a mix of overall sales? And just how should we how long will you benefit from the lower freight costs?

Speaker 3

Hey, this is Rob. From a mix perspective, I would say that consumables had a 20 point drag on the quarter, in addition to what we contemplated when we originally guided our margin. Could you repeat the second question? I didn't get the second question.

Speaker 9

Yes. Just how many more quarters can we see a benefit from freight?

Speaker 3

I would say that this is the last quarter of significant benefit of freight. We're constantly doing what we can to make ourselves more efficient throughout our business and that's true of supply chain as well. So you'll see little improvements in terms of contracting and how we flow products and operations with our distribution centers, but they're going to be fairly muted relative to what we've seen in the pickup coming off of the supply chain crunch from the last couple of years.

Speaker 9

Thank you.

Operator

One moment for our next question. Our next question comes from Jeremy Hapland with Craig Houghton, Capital Group. Your line is open.

Speaker 5

Thanks for taking the question here. I wanted to start by asking about preopening expense. Rob, I think you noted it's going to be a little bit higher than what you had previously anticipated, which I think was about $17,000,000 for the year. I want to see if you could quantify, given the stores that you're bringing on, how much that would change here in 2024? And also as we look ahead to 2025, if you can kind of give us an early read of how we should be thinking about that year?

Speaker 5

And then my second question is just getting a bit more granular on the performance of the new stores, understanding how are the $0.99 only legacy stores performing relative to the typical Ollie's? And then what you're thinking about in terms of the Big Lots legacy stores versus your typical Ollie?

Speaker 3

Sure. From a preopening perspective for the Q4, there's about an additional, call it, $0.01 of EPS drag relative to Big Lots stores. We take those stores over and pay the dead rent as soon as we acquire the lease. So that's contemplated in our guidance for this year. For next year, no really big changes in how we're thinking about preopening aside from just the front loading of expense that you're seeing a little bit in the Q4 as well there.

Speaker 3

But it's kind of status quo for next year we'd expect.

Speaker 2

Yes. Jeremy, just a little more color on, we call them warm stores for new stores or stores that were opened that it was somewhat recent past. You remember a lot of the real estate that we take on in our organic pipeline, 2nd generation real estate and the retailer that we're replacing has been out of business for 5 plus years oftentimes And we have to kind of rack our brains to remember even who they were because some of this is very cold boxes. So what we found with $0.99 is that there were customers showing up to the stores that thought the store was still $0.99 and discovered that it wasn't anymore. We're not disappointed because it is a discount oriented customer and our business model though somewhat different from $0.99 was similar enough that the customers found it to be appealing and attractive.

Speaker 2

And it's too early to quantify what all that means, but I said in my opening remarks that we were very happy with the additional response of customers with almost no marketing or grand opening event. We were doing volume in some of these stores that was kind of the equivalent of a post grand opening halo period. We would expect the Save for Big Lots stores. We believe we haven't opened any that we've acquired in the various auctions yet, but we expect to see something similar. These boxes will have been cold for 90 days, maybe under 20 days.

Speaker 2

So we would expect something similar or fairly quick ramp.

Speaker 5

Great. Thanks for the color and best wishes in the holiday season.

Operator

Thanks, Jeremy. One moment for our next question. Our next question comes from Anthony Chukumba with Loop Capital Markets. Your line is open.

Speaker 10

Good morning. Thanks for taking my question. So in terms of the Big Lots and the $0.99 only stores, are there any noticeable differences from your core store base? In other words, like are they significantly bigger or smaller in size? Are they more in sort of urban locations relative to your stores?

Speaker 10

Just anything that you think is worth pointing out in of any differences?

Speaker 2

Sure. Anthony, it's Eric. The 99 Cent Stores were slightly smaller than the average store that we opened. They were in the mid-20s and our average typically runs a little over 30,000 square feet. So there are slightly smaller.

Speaker 2

There were a couple of them that were actually sub-twenty 1,000 feet, which is very unusual for us. But the majority of them were above 20 and again average in the mid-twenty For the Big Lots stores, the gross square footage of the total box is very similar to ours, but they have larger back rooms. So we're making some adjustments to the selling square footage in some of those stores to ensure that it's more similar to our box size. But I would expect the Big Lots stores to be slightly smaller on average in terms of selling square footage than our average store.

Speaker 10

Got it. And then just one quick follow-up. So you talked about that flyer that shifted out of the Q3 into the Q4. Any and maybe this is too granular, but any thought in terms of what the comp hit might have been from that or another way to think about what the comp benefit will be in the Q4?

Speaker 3

For the Q3, we think that it was slightly less than 100 basis points, but just about there. For the Q4, we'd expect about 100 basis points of improvement.

Speaker 10

Got it. Thanks so much and good luck with the rest of the holiday selling season.

Speaker 2

Thanks, Anthony.

Operator

One moment for our next question. Our next question comes from Melanie Nunez with Bank of America. Your line is open.

Speaker 9

Hi. Thanks for taking my question. I just wanted to talk on gross margin for a second. I know you talked about some of the mix impact. Just anything to think about for 4Q in terms of the merch margin and how your mix changes in this quarter?

Speaker 9

Thanks.

Speaker 3

Our Q4 guidance carries over a little bit of the mix. We thought that that was prudent because we have seen our consumers responding to consumer staples. I think I mentioned in an earlier question, the supply chain improvement is much more muted as we lap costs. Aside from that, everything else is pretty status quo. Shrink is pretty stable.

Speaker 3

So we're planning to shrink pretty stable, albeit at a higher level, but nothing else really to comment on in gross margin.

Speaker 9

Great. Thank you.

Operator

One moment for our next question. Our next question comes from Simeon Gutman with Morgan Stanley. Your line is open.

Speaker 11

Hi, this is Zach on for Simeon. Thanks for taking our question. Inventory was up 14% in the 3rd quarter, a bit higher than sales growth of 7.8%. You did call out new unit growth and the timing of receipts. So it seems like it's mostly just normal course of business.

Speaker 11

But can you speak to the if there was any pull forward of product for the holiday season or also perhaps in front

Speaker 4

of any potential tariffs? Thanks.

Speaker 3

Nothing significant to call out about inventory growth. We have been playing a little bit of catch up on inventory growth for the last couple of years relative to our unit growth and we feel really good and confident about our 14% unit inventory growth, we are locked and loaded with deals for the holiday season.

Speaker 11

Great. Thank you.

Operator

One moment for our next question. Our next question comes from Edward Kelly with Wells Fargo. Your line is open.

Speaker 12

Hi, good morning everyone and congrats as well John on a successful

Speaker 2

career there.

Speaker 7

My first question, can you I

Speaker 12

wanted to ask you about SG and A and labor. You made some changes around the workforce full time, part time. Curious as to what you're seeing there sort of like cost versus benefit? And then as we think about like going forward into 2025 beyond, are you still comfortable with the leverage point on SG and A at around the 1% comp? Or is that just kind of inching a little bit higher based upon some of the changes on labor?

Speaker 2

Sure, Ed. I'll take the questions. We are still in the early stages of testing the benefits to the full time, part time mix change. Just to remind everybody, we're currently 60% part time and are moving to a fifty-fifty ratio. So we're in a few dozen stores testing that change.

Speaker 2

We also are testing a leadership structure change that we believe will help us to better execute the stores alongside the full time, part time mix change. So we'll have the stores better covered from a leadership standpoint. It will help us to better execute. We ultimately look at this as expense neutral. We look at our investment in leadership and a full time person being a more productive and career oriented person offsets the wage investment that we make in full time people and is net neutral.

Speaker 2

The leverage point for SG and A is closer to 2% going forward based on the investments we've made in the business.

Speaker 12

Great. Okay. And just a quick follow-up related to the Big Lots opportunity. Any sort of thoughts on the Big Lots plan going forward? And I ask this question because they've had some stores that were liquidated that are no longer going to close.

Speaker 12

It's like, I don't know, 70 stores or so that are now going to remain open. I think some of the discounts that they're running on these liquidations has been decreasing versus where they were historically. And there's been talk coming out of, I think, Big Lots around maybe a competitive landscape?

Speaker 2

Yes. It's hard to say, Ed. We're focused on running our business. We're not real focused on big lots except to the extent that the liquidations are somewhat disruptive. We're excited as they do close stores for the opportunity to pick up market share because the share basket is fairly meaningful between our customers.

Speaker 2

The category mix is somewhat similar, although they play very heavy in the big ticket businesses where we don't play. So we're excited for the opportunity and we think we're very, very strong closeout deep discount player with a very loyal customer that attracts new and younger customers on a day to day basis with a very strong loyalty program. And we like our chances in terms of the competitive environment, whether it's Big Lots or anyone else out there that chooses to go after the deep discount closeout business.

Speaker 12

Great. Thanks guys and good luck this holiday.

Speaker 2

Thanks,

Operator

Our next question comes from Mark Carden with UBS. Your line is open.

Speaker 13

Good morning. Thanks so much for taking the questions. So on tariffs, your commentary has been helpful. How do you think about the balance of incremental purchasing costs relative to the potential for higher demand that could come if customers become more pressed in their spending?

Speaker 2

I guess, I'm not understanding your question. The impact

Speaker 13

Just in terms of the incremental cost that could come from higher purchasing, that we basically you would be impacted by, when you think about your imports in China versus prices across the board for customers going up and seeing more customers looking to trade into Ollie's,

Speaker 5

if that

Speaker 7

makes sense?

Speaker 3

So we generally thrive on disruption and the tariffs are one of those disruptive events. We think that if anything, the tariffs could create an additional closeout opportunity where some other traditional retailers may be priced out of goods because the incremental tariffs that we may be able to get those products at a bargain and share those bargains with our customers. So being a price follower, it positions us well to navigate through the tariff situation.

Speaker 12

Got it. That's helpful.

Speaker 13

And then I know it's early days, but any takeaways from your initial credit card rollout in Pennsylvania? Just how does this customer compare to your typical Ollie's Army member?

Speaker 2

Yes, Mark, it's Eric. The rollout is going well. We're in about 70 stores now. It's a test of learn phase. We're trying to understand best what's the most effective way to continue to roll out the program in 2025.

Speaker 2

We'll take probably most of 25 to complete the rollout. It's going better than expected in certain ways. The approval rates are a bit higher than we expected and the spend is higher than we expected. So it's off to a very good start. I can't answer the question on how the demographics compare.

Speaker 2

That's a good question. It's something we haven't studied yet, but we will. Great.

Speaker 13

Thanks so much. Good luck, guys.

Speaker 2

Thanks, Mark.

Operator

One moment for our next question. Our next question comes from Paul Lejuez with Citi. Your line is open.

Speaker 5

Hey, thanks guys. Curious if maybe you could talk a bit more about the buying environment, where you're seeing increased availability. I think you mentioned in the consumables category, but also curious if there are any pockets where you're not seeing as great of availability? And then second, just as we think about the gross margin structure longer term, is there anything to think about as consumables take up a larger percentage of sales? How you think about gross margin targets any different, if at all?

Speaker 1

Yes. Paul, this is John. With regards to the overall deal flow, it's been pretty wide all the way around all of our departments. We're not seeing a shortage in any category. It's been pretty strong and it continues to flow very well.

Speaker 1

There is a small period of time where there's a little bit of slowness in HBA, but that has turned around and we're seeing some good deal flow in the HBA front. But overall, we're very excited about what we're seeing. I do believe that with the disruption that's been out there and the changes that are taking place in the marketplace, we're seeing a lot more product flow out there with regards to the overall deal flow. Rob can answer you on the overall margin and the impact from the consumables.

Speaker 3

From a gross margin perspective, we're not thinking about the gross margin target is much different. The algo is 40, remains 40. We would say we are seeing a slightly higher drag relative to consumer staples, but we love those businesses because it has built in frequency and customer visits that bring our customers back for the consumables as well as the great deals. The drag on the gross margin, we think we'll be able to offset operational efficiencies through supply chain.

Speaker 5

Got it. Thank you. Good luck.

Speaker 4

Thanks. Thank you.

Operator

And I'm not showing any further questions at this time. I'd like to turn the call back over to Eric.

Speaker 2

I would like to thank everyone for their time and interest in Ali. We look forward to updating you on our continued progress on our next earnings call. Thank you.

Operator

Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Remove Ads
Powered by Quartr
Earnings Conference Call
Ollie's Bargain Outlet Q3 2025
00:00 / 00:00
Remove Ads