Ollie's Bargain Outlet Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
June 5, 2024

There are 15 speakers on the call.

Operator

Good morning, and welcome to Ollie's Bargain Outlets Conference Call to discuss Financial Results for Q1 of Fiscal Year 20 24. Please be advised that this call is being recorded and reproduction of this call in whole or in part is not permitted without express written authorization of Ollie's. Joining on today's call from Ollie's management are John Swaggart, Chief Executive Officer Eric Vander Vlach, President and Robert Helm, Executive Vice President, Chief Financial Officer. Certain comments made today may constitute forward looking statements are made pursuant to and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. 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.

Operator

Those risks and uncertainties are described in our annual report on Form 10 ks and quarterly reports on Form 10 Q on file with the SEC and the earnings press release. Forward looking statements made today are as of the date of this 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 those most closely comparable GAAP financial measures to the non GAAP financial measures are included in our earnings press release. With that said, I'll turn the call over to Mr.

Operator

Swager. Please go ahead, sir.

Speaker 1

Thank you, and good morning, everyone. We appreciate you joining our call today. We are extremely pleased with our performance this quarter. Our team has executed at a very high level, offering amazing deals to our customers, delivering consistent financial results and investing into our future. Our first quarter comparable store sales, total revenue, gross margin and expenses were all better than expected, and this resulted in a 49% increase in adjusted earnings per share.

Speaker 1

Consumers clearly remain under pressure and are seeking value when making their purchases. Our unique business model is delivering exceptional values on branded merchandise that our customers want and need at prices 20% to 70% below the fancy stores. Everyone loves a bargain and bargain is our middle name. There are a few important things propelling our business that we wanted to touch on today. The first is the growth in the closeout industry.

Speaker 1

Large consumer retailers supplied by large product manufacturers are constantly introducing new products and packaging and this is leading to growth in the closeout industry. The second is our increasing size and scale. While the closeout industry is growing, the number of bigger players buying and selling closeouts today is shrinking. Operating a closeout retailer is not for the faint of heart. And over the years, there have been a number of failures because they were not set up properly.

Speaker 1

We are by far the largest buyer of closeout products and this has been our only business for almost 42 years. Nobody has our know how, size and scale or credibility in the closeout market. As a result, our purchasing power is growing and we are becoming more and more meaningful to our

Speaker 2

vendor partners.

Speaker 1

The 3rd driving theme is the investments we have made back into our business to drive execution, productivity and growth. This is an area that we probably don't talk about enough. While it's the great deals and product offerings that will always be the key to driving our business, It's investments in our people, supply chain, stores, marketing and systems that enhance our execution, propel our margins and position us for continued long term success and profitable growth. On that topic, I would like to discuss 2 recent announcements. The first is a purchase agreement for a group of 99 Cent Only stores.

Speaker 1

Eric will provide more details on this in a moment, but we were very excited about these stores. They have attractive rents, longer lease terms, demographics that align nicely with our core customer and are located in key markets across Texas, where we have a meaningful growth opportunity. I spoke earlier to the shrinking number of closeout players and 9 iCent only bankruptcy filing and store closures is further validation of this. The second piece of news supporting our long term growth and success is the number of executive promotions and appointments as part of a rigorous succession planning process conducted by our Board of Directors. I have been with the company for over 20 years and enjoyed every minute.

Speaker 1

But it's my desire to step up to the Executive Chairman role and pass the CEO baton on to Eric in early 2025. Since joining Ollie's, Eric has played a pivotal role in the company's growth and success. He has transformed key areas of the business, including supply chain, store operations and store design, all of which resulted in improved execution and operating efficiencies. This combined with his closeout merchandise experience makes him the ideal person for his new role. Effective today, I am proud to announce that he's been promoted to President.

Speaker 1

Also effective today, Rob Helm has been promoted to Executive Vice President and will take on the added responsibilities of managing real estate. Both Eric and Rob have strengthened our leadership team and the promotions are well deserved. I look forward to working with them for years to come. Finally, we announced today the hiring of Chris Zehnder to the role of Executive Vice President and Chief Operating Officer effective June 17. Chris brings a vast wealth of operational and leadership experience from a number of deep discount and closeout retailers.

Speaker 1

We have a great team and I will work with them to ensure a smooth transition early next year. The business is in very good in a very good place and we are well positioned to keep winning into the future. Now it is my pleasure to turn the call over to Eric.

Speaker 3

Thanks, John. I appreciate the confidence you and the Board have in me to lead our company into its next phase of growth. John alluded to this, but we really outperformed on every level in the Q1. Our results are a function of the strong deal flow and execution of our team. The process improvements and investments we have made in our people, supply chain, stores and marketing continue to pay off in the form of better productivity and consistent financial results.

Speaker 3

These investments include wages across both our distribution network and our stores, enhanced operational teams across major functional areas such as marketing, real estate, loss prevention and supply chain, upgraded distribution and transportation capabilities, new technology and systems, a store remodel program and a retooled marketing strategy with expanded digital capabilities. These and other investments have also made us a more nimble organization, capable of handling unplanned events and circumstances such as the collapsing of the Baltimore Bridge. Within hours of this event, we took action to reroute ocean containers to alternate ports, which resulted in minimal delays, disruptions or incremental costs. This was only possible because of the upgraded team, new systems and new carrier contracts that we put in place a few years ago to provide increased visibility and flexibility around international freight. As a reminder, almost 90% of our foreign shipping requirements are covered under contract, and we have very little exposure to the spot market.

Speaker 3

In May, we negotiated our annual international carrier contracts at favorable rates. I'm also pleased to report that our new distribution center in Princeton, Illinois has begun receiving product and is on track to start shipping stores in late July. The construction of the building, installation of our racking and automation solutions and staffing of the new facility is going as planned and within budget. This 4th distribution center will have the capacity to support an additional 150 to 175 stores. This will give us the ability to service up to 7 50 stores.

Speaker 3

We are excited about the recently acquired 99 Cent Only stores. As John mentioned, this is a group of 11 stores located in key markets in Texas. 3 are owned properties and the balance are leases. These stores are the right size, located in good trade areas, have attractive occupancy costs and have been servicing value oriented customers for many years. Texas is a great market for us where we have tremendous growth opportunity.

Speaker 3

It's hard to find good locations with the type of rent structures that we typically require and these stores will significantly strengthen our presence in key markets across the state. On the marketing front, we continue to shift advertising dollars into various digital and social media platforms, including influencers across TikTok, Instagram and Facebook. This is helping us reach new and younger customers and keeping our brand top of mind with existing customers. Our growing customer base is reflected in our Ollie's Army numbers. Consistent with prior trends, we are seeing growth in the younger customer demographic and also in younger customers joining the Army.

Speaker 3

Lastly, we continue to benefit from the trade down effect we have experienced over the last few quarters and are seeing strong retention from this customer cohort. Before I turn the call over to Rob, I would like to thank the entire Ollie's team for their continued support and confidence in my leadership of this amazing business. I am honored to be named President and looking forward to working with John and the executive team on the CEO transition. We are a super unique organization that is rooted in great people, experience and an amazing culture. Rob?

Speaker 4

Thanks, Eric, and good morning, everyone. We are very pleased with our strong start to the year. Our Q1 results came in ahead of our expectations across the board, driven by strong comparable store sales, significant gross margin expansion, continued discipline expenses and higher interest income. In the Q1, net sales increased 11% to $509,000,000 driven by new store growth and a 3% increase in our comparable store sales. Transactions, basket and average retail were all up in the quarter with Basket being the biggest driver of the comp.

Speaker 4

The 53rd week last year and the shift in the Easter holiday this year created some movement in our ad calendar year over year, which made for some choppy weekly comparisons. Barring these shifts, our underlying comp trends were strong and accelerated as we move through the quarter. Our category strength was broad based with over 50% of our product categories comping positive. Our best performing categories were lawn and garden, housewares, food, sporting goods and candy. Ollie's Army membership increased 7% to 14,200,000 members and sales to our members represented over 80% of total sales.

Speaker 4

During the quarter, we opened 4 new stores, ending with 5 16 stores in 30 states, an increase of 8% year over year. We are pleased with the performance of our new stores, which continue to perform in line with our expectations. Gross margin increased 220 basis points to 41.1%, primarily due to favorable supply chain costs and higher merchandise margins. SG and A expenses were well controlled in the quarter and decreased 40 basis points as a percentage of net sales to 28%, driven by leverage of fixed expenses on the increase in comparable store sales. Operating income increased 47 percent to $56,000,000 and operating margin increased 270 basis points to 11.1 percent in the quarter.

Speaker 4

Adjusted net income increased 47 percent to $45,000,000 adjusted earnings per share increased 49 percent to $0.73 Lastly, adjusted EBITDA increased 40% to $69,000,000 and adjusted EBITDA margin increased 280 basis points to 13.6% for the quarter. Turning to the balance sheet. Our balance sheet remains very strong and is a significant strategic asset, which provides us maximum flexibility to drive growth and maximize shareholder returns. We ended the quarter with $342,000,000 between cash on hand and short term investments and no outstanding borrowings under our revolving credit facility. Inventories increased 6% to $527,000,000 primarily driven by new store growth.

Speaker 4

Capital expenditures totaled $27,000,000 for the quarter and were primarily related to our new distribution center in Princeton, Illinois, the remodeling of existing stores and the development of new stores. We are committed to returning capital to our investors through share repurchases, while balancing our strategic growth opportunities and working capital needs. With some of the share price volatility in the quarter, we stepped up our repurchase activity and bought $25,000,000 of our common stock. Turning to our outlook for 2024. We are pleased with our strong start to the year and are raising both our sales and earnings outlook for fiscal 2024.

Speaker 4

For the full year, which is a 52 week year compared to 53 weeks in 2023, we now expect total net sales of $2,257,000,000 to $2,277,000,000 comparable store sales growth of 1.5% to 2.3 percent gross margin of approximately 40 percent operating income of 250,000,000 dollars to $258,000,000 adjusted net income of $196,000,000 to $202,000,000 and adjusted net income per diluted share of $3.18 to $3.28 which assumes an annual effective tax rate of 25.5%, which excludes the tax benefits related to stock based compensation and diluted weighted average shares outstanding of approximately 62,000,000. Lastly, let me provide color on how we're thinking about the quarterly comp and store opening cadence as well as a few other numbers to help with your models. For Q2, we are planning comps around the midpoint of our long term algo of 1% to 2%. Although we are currently running ahead of this, July represents a very challenging monthly comparison for us. For Q3, we anticipate comp sales to be flat due to a shift of 1 flyer from Q3 into Q4.

Speaker 4

As a result of this shift, we'd expect Q4 comps to be slightly above the high end of our long term algo. For new store openings, we're still targeting a total of 50 new stores, less two closures that we chose not to renew. As Eric discussed in his remarks, we are very excited to be the winning bidder of $11.99 only stores. Since we will start to incur occupancy expenses on these locations at closing, our goal is to open these stores as fast as possible. With these new stores, we will likely push a handful of our original planned openings from 2024 into early 2025.

Speaker 4

Over the course of the next 18 months, we now expect to open a higher number of stores than originally planned. In addition, the shift of a few stores into early next year also means that opening cadence will be more front end loaded next year, which should benefit both full year sales and earnings. We're still working through some of this real time, but we're now modeling approximately 6 new store openings in the 2nd quarter, 30 in the Q3 and 10 early in the 4th quarter. While we haven't yet taken physical possession to these stores to complete a thorough assessment, we'd expect the remodeling cost of a $0.99 only store to be a little higher than a typical opening. With that in place, we would expect capital expenditures to be approximately $90,000,000 which excludes the $14,600,000 purchase price for these locations and preopening expenses to be in the range of approximately $17,000,000 for the year.

Speaker 4

In terms of gross margin, our Q1 was our easiest comparison for the year. As a result, we would expect the increases in 2nd and third quarters to be much more modest and the 4th quarter to be down slightly. Keep in mind that gross margins in 2Q and 4Q are historically lower than 1Q and 3Q. We are planning for depreciation and amortization expense of approximately $42,000,000 which includes $11,000,000 that runs through cost of goods sold. Lastly, we expect net interest income of approximately $14,000,000 We are now modeling the consensus view of 1 rate decrease in the back half of the year instead of the 3 decreases contemplated in our original guidance.

Speaker 4

Now let me turn the call back over to John.

Speaker 1

Thanks, Rob. We operate a very unique business model that involves everyone from every level to make us successful. I am very proud of the entire team for their hard work and dedication. We love saving customers money and selling good stuff cheap and it's this passion that brings all of us together and drives the Ollie's culture. It has been a privilege to be part of Ollie's expansion over the last 20 years and to watch us grow from $100,000,000 in sales to over $2,000,000,000 in sales.

Speaker 1

We have so much more growth ahead of us and in many ways we are just getting started. We are.

Speaker 5

All right.

Speaker 1

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

Operator

Our first question comes from the line of Brad Thomas from KeyBanc Capital Markets. Your question please.

Speaker 6

Hi, good morning and congratulations to everyone on the new opportunities ahead.

Speaker 1

Thanks, Brad.

Speaker 6

Sure, John. My question was really if you could comment a little bit more on the health of the consumer and your outlook over the next few quarters as you're up against these tough comparisons. We're certainly seeing some mixed data points in terms of how the consumer spending and any more color around how you're feeling in your medium term outlook would be helpful. Thanks.

Speaker 3

Sure. Brad, this is Eric. What we're seeing in Q1 is pretty similar to Q4. We're continuing to see a trade down of higher income consumers. The sweet spot looks to still be the $100,000 to $150,000 household income range.

Speaker 3

And our lower income cohort is relatively stable. I mean, keep in mind that we're underpenetrated in lower income consumers compared to others, but it's been relatively stable. So we're pretty consistent quarter over quarter. We're not seeing much change. Yes.

Speaker 1

Brad, I

Speaker 7

think the only thing

Speaker 1

I'd add to that is with the consumers being stretched, in our opinion, value is going to win. And I think the best value that you can give to the customer, you're going to get more people shopping in your stores, and we're well positioned for that.

Speaker 6

That's helpful. And as a follow-up, John, I was wondering if you could talk a little bit more about how your conversations are going with suppliers as you talk about potentially having more strategic partnerships with them rather than just doing closeouts? And how do you think about that opportunity longer term?

Speaker 1

Yes. We really focus on driving relationships, Brad. We don't really try to drive made for Ollie's per se and have everyday value goods. So our what happens at the end of the day, we don't know. But with our size and scale, we believe that some of this is occurring naturally.

Speaker 1

But the biggest way you continue to garner the best product offerings available is by keeping those relationships real strong with who you're doing business with.

Speaker 3

Yes. I mean, another way to say that, Brad, is strategic partnerships are closeout partnerships.

Speaker 6

Absolutely. Thanks so much and congratulations again.

Speaker 1

Thanks Brad.

Operator

Thank you. And our next question comes from the line of Peter Keith from Piper Sandler. Your question please.

Speaker 2

Thanks. Good morning. Congrats from me as well on all the promotions. For the full year guide, are you raising the rest of the year? It looks like, McGraw, you kind of maintained your quarterly cadence, but it does seem to hit the midpoint of the comp guide that the numbers might be a little bit above what you were thinking a couple of months ago.

Speaker 4

From a guidance perspective, we are keeping our comp guidance in place, but we were able to pick up quite a few sales weeks based on the acquisition of 99 Cent Only Stores.

Speaker 2

Okay. Maybe just to stick on those stores. So can you give some characteristics around the size of them? And I guess, just going back to the ancient history, but there was some history of Toys R Us and opening up a lot of stores at once caused some operational difficulties. Maybe just talk about the cadence of opening those and managing the supply to the stores.

Speaker 3

Sure, Peter. I'll take it. It's Eric. I think very different from 2019, our supply chain is in a much different place. We have the capacity to ensure that we can get those stores up and running with the right inventory without sacrificing comp the comp base.

Speaker 3

We will not sacrifice customer experience or profitability as we move forward on these stores. We have the bandwidth to open them properly and get them executed.

Speaker 1

Yes, Peter, this is John. The other thing I would add to it, that's the exact reason why we're not adding any incremental stores to the overall class, if you want to call it. We're going to just springboard into 2025 with much of many more stores ready to open earlier in the year, because we don't want to put too much more pressure on our ability to open the stores. Yes.

Speaker 3

I think, Peter, you also asked a question I didn't answer on the size. The size of the stores is in the mid-20s, 1,000 square feet. As you know, our average for the chain is more like 30. So they're a little smaller than the average. They're the right size for the markets that we're in considering the stores we're picking up.

Speaker 3

Perhaps it makes it a little bit easier in terms of the inventory that it takes to open them, but not necessarily a material difference.

Speaker 1

And Peter, just to remind everybody, back in the day when we did the Toys R Us site back in 2019, those stores were closer to 40,000 square foot stores and we opened up 22 of them in 1 quarter. So it's a little more stress on the network that wasn't quite as sophisticated as it is today.

Speaker 3

And we filled them at 40,000. We filled

Speaker 2

them. Okay, very good. Thanks so much, Dan. Good luck. Thanks, Peter.

Speaker 2

Thanks, Peter.

Operator

Thank you. And one moment for our next question. Our next question comes from the line of Kate McShane from Goldman. Please, Seth.

Speaker 8

Hi, good morning. Thanks for taking our question. We were wondering just how the competitive environment looks right now with regards to going after closeout deals? And outside some of the CTG commentary where you're seeing some of the more compelling closeout opportunities?

Speaker 1

Yes. Kate, like we say almost every call, we don't see a whole lot of competition in the closeout market for a lot of our deals. So we're not I don't know if it's because of our size and scale, we're able to be the 1st call and what we want we take. But we're not seeing any issues from an overall pressure perspective that we're losing deals to anybody out there in the market today. So we feel very well positioned and we're able to get all the product offerings for all the categories we're looking for this point in time.

Speaker 1

Our merchants are in a very good position.

Speaker 8

Thank you.

Speaker 2

Thanks, Kate.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Edward Kelly from Wells Fargo. Your question please.

Speaker 9

It's Anthony on for Ed. Thanks for taking our questions. So first, I wanted to ask about the gross margin. It looks like a record for Q1 came in a lot higher than most of us were modeling and obviously running well above your full year number. Can you just talk a little bit more about what's driving that strength and then how we should be thinking about the cadence of the rest of the year in terms of guidance?

Speaker 4

Hey, this is Rob. I can take this one. We were very pleased with our gross margin results. Most of the expansion was supply chain related, which was what we had kind of forecasted when we came in the year that we get a nice supply chain lift in the first half of this year. We did get nicely complemented on our gross margin line from the merchandise margin and some nice deal flow that we saw in the quarter.

Speaker 4

But keep in mind, our gross margin in Q1 and 3Q typically is higher than our full year annual gross margin. So we're expecting it to step down sequentially from here, although we do still expect expansion off of last year's gross margin results. And then from the rest of the year, 3Q will be up slightly and then 4Q down slightly because to your point, it was also a record and we're going to continue playing conservatively until we get a little bit more short term visibility.

Speaker 9

Got it. That's helpful. Then just on the Q1 comp, I know you guys mentioned some calendar noise in Q1 given the 53rd week. Can you just talk us through the magnitude of that impact in a little more detail? Just trying to understand how clean of a read that number is.

Speaker 4

Well, from a quarter perspective, the quarter had the same number of adds year over year. My comments were referencing the week to week shifts, which are calendar shifts with our flyer. So the weekly fluctuations could be quite significant. But over the course of the quarter, we saw that we did a positive comps in all three quarters when factoring in for the Easter shift. And we saw that the comp trends strengthened as we move throughout the quarter as the customer responded to our spring and seasonal offerings later in the quarter.

Speaker 9

Understood. Thanks, guys.

Speaker 1

Thanks Anthony.

Operator

Thank you. And our next question comes from the line of Scot Ciccarelli from Truist Securities. Your question please.

Speaker 2

Hey, good morning guys.

Speaker 10

This is Joe on for Scott. Thanks for taking my question. I just wondering if you could talk a little bit more about line of sight for sourcing this year and where you see the most opportunities across categories?

Speaker 1

Yes. Joe, as you know, with our business and being predominantly closed out retailing, we don't have a ton of line of sight per se. We're not out 6 months or 8 months from our perspective, but we have a couple of months, 2 months or 3 months visibility. And right now, our line of sight feels very good where we're positioned. And then what we feel in the marketplace is the strength of the deal flow and the momentum we have.

Speaker 1

It's been pretty good and I think it's going to continue to be pretty strong for us. So we feel well positioned going into the second half of the year as well.

Speaker 10

Got you. Great. And if I could just do a quick follow-up on how you're thinking about consumables versus like general merchandise in terms of demand and sourcing out there,

Speaker 2

it would be great. Thanks.

Speaker 1

We look at it more on the deal. The obviously consumables are a big driver right now to everyone with the pressure that consumers under. But we try to give the best deal to consumer. And if it's a value, the consumer responds, as we have such a wide disparity of income levels in our stores. So we bring the right product and at the right price itself.

Speaker 1

But consumables are definitely a big part of the puzzle right now and we keep focused on that. But we also are staying away from real big ticket items just because that's a little more challenging to move. So we're seeing right in our spot, which we know is working well for the consumer.

Speaker 10

Got it. Thanks so much.

Speaker 1

Thanks, Joe.

Operator

Thank you. And our next question comes from the line of Matthew Boss from JPMorgan. Your question please.

Speaker 11

Thanks and congrats on a nice quarter.

Speaker 12

Thanks, Matt.

Speaker 11

So John, could you elaborate on new customer acquisition trends, maybe key initiatives to capture competitive opportunities in the landscape? And then just near term, have you seen any change in consumer behavior so far in the Q2 versus that strengthening in comps that you cited as the Q1 progressed?

Speaker 1

Yes, Matt, I'll let Eric take part of that and then I can kick in at the end.

Speaker 3

Yes. I think in terms of acquisition, Matt, the biggest trend we're seeing is with younger consumers, the 18 to 45 year old cohort is where we're seeing the strongest acquisition of new customers. And it's very exciting. We do believe that our digital marketing investments in the remix of print investing more into digital is working quite well and attracting that customer. And also on the product side, bringing in products that appeal to younger customers as the deals present themselves is also very helpful in driving the younger consumer.

Speaker 4

I would also say that the boost we're seeing in the customer file is also attrition starting to level off. We're seeing that we're retaining customers at greater levels than we have over the last couple of years. And if you remember, Matt, we picked up a lot of customers in the pandemic and then had some operational challenges. So we're we feel like we're coming out the other side of that. And the Ollie's Army file being up 7% for the quarter is a testament to that.

Speaker 1

Yes. And Matt, lastly on the consumer behavior going into Q2 with us being a little bit better than our expectations. It's really not a real we're not seeing the change in the consumer behavior. We're seeing more of the weather patterns were a little more favorable earlier this year than they were last year so far. So that's why we're just kind of holding tight where we're sitting.

Speaker 11

Great. Best of luck.

Speaker 3

Thanks, Matt. Thanks.

Operator

Thank you. And our next question comes from the line of Jeremy Hamblin from Craig Hallum. Your question, please.

Speaker 13

Congrats on the momentum and the promotions. I wanted to ask about shrink. And you were still hearing a ton of retail peers that are struggling with shrink control. You guys have identified a subset of stores that I think are causing the majority of your shrink. But want to get an update, because I think the last time you said it's still a little bit elevated.

Speaker 13

I want to get an update of where you are on that on the shrink front?

Speaker 4

Hey, Jeremy, this is Rob. Shrink does remain elevated. It feels like we've hit a little bit of a plateau here. We continue to work on it every day. And as we take actions and improve one store, another store kind of pop up as we do rolling counts throughout the course of the year.

Speaker 4

The good news is it does seem to have leveled off and that our guidance contemplates the shrink at this albeit higher level. So we haven't forecasted branding improvement yet, Continue to be a work in progress and we're focused on it and hopefully we'll have a more positive update in the future.

Speaker 13

Great. And then, just want to come back

Operator

to the

Speaker 13

$0.99 only stores. And thinking about the economics of the box, so a little bit smaller box. In terms of thinking about kind of the returns on that, presumably, we might be modeling these at 80% productivity of a full line Ollie store. But how do we think about the kind of the EBITDA or 4 wall cash generation that you're getting from these stores, given that it sounds like you've got some favorable rent economics?

Speaker 4

That's a good question. I'll take this one. From a store pro form a perspective, you're correct. We're modeling for these stores to be slightly less productive on the sales line. But with the slightly less productive on the sales line comes a lower occupancy cost and a lower payroll cost.

Speaker 4

And all of that's kind of considered in the math. And when you get to the bottom line, these stores we'd anticipate aren't too far off from an economic perspective of what a prototype of Ollie's would look like typically. So we'd expect economics to be nicely accretive to this year.

Speaker 13

Great. Thanks for the color and good luck for the rest of the year.

Speaker 3

Thanks, Jeremy. Thanks, Jeremy.

Operator

Thank you. And our next question comes from the line of Melanie Nunez from Bank of America. Your question, please.

Speaker 8

Hey, good morning. Thanks for taking my question. I just wanted to see what you're seeing in terms of the promotional landscape across the space and how your buying teams really monitor that and factor that into your buying and pricing strategies? Thanks.

Speaker 1

Yes, Melanie, we look at pricing every day. That's our paramount measure of our success. So promotional pricing has not been in a real headwind for us at all to date. But our merchants, every single time they buy a deal, they look at the price in the marketplace to base our value for the consumer off of that. So if and when someone's got a promotional price, we look at it and we'll adjust accordingly when we need to.

Speaker 1

But for the most part, where our gaps are so large, we don't need to make any additional adjustments from that. But if and when it does happen, we make it quickly.

Speaker 8

Thank you.

Speaker 1

Thank you.

Speaker 5

Thank you.

Operator

Thank you. And our next question comes from the line of Eric Cohen from Gordon Haskett. Your question please.

Speaker 14

Good morning. Thanks for the question. Great quarter and congrats on all the promotions. Just want to ask on the guidance. You guys called out the big Q1 beat.

Speaker 14

How much of that is just flowing through? Or in other words, I guess, now that you have the 99¢ only stores, you're going to have dark rent until they open. Could the comp could the full year guidance have been raised even higher if it wasn't for the $0.99 store acquisitions?

Speaker 4

$0.99 will be accretive to this year. While you have the dark rents that you do reference, we're not raising our total store opening count for the year. And we do have some level of preopening expenses in for non $0.99 stores that we were going to open instead of e stores. From a net net perspective, we think it's accretive this year because we're picking up sales weeks and we're advancing our pipeline based on acquiring these stores.

Speaker 14

Got it. And historically, 70% of your sales have been from closeout. The last 4 years, it's dipped down to 65%, understandably during 2020, 2021 with strong demand and less closeout opportunity, it shrunk. But even as the retail environment has stabilized, it's still stayed at that 65%. So is that the right way to think about it, the business going forward?

Speaker 14

And does increase in that everyday value mix actually make the comps more consistent?

Speaker 1

Eric, that's a great question. From our perspective, we've always said that our goal would be to have 100% closeouts, which we know is not possible. So our internal goal is always seventy-thirty closeout versus everyday value goods. But the reality is as we continue to expand, it gets harder and harder to have all the closeouts that you need to have the business model operating correctly. So we do believe that as we continue to slide up to the 1,000 plus store number, we'll see that close out percentage start to dip down a little bit.

Speaker 1

But we don't believe something south of 60 is ever going to happen. So we think sixty-forty is probably about as low as we would go on the closeout versus everyday value goods. So and we've been doing this for a long, long time. So the customer really doesn't notice the difference on how we mix in everyday value goods and closeouts. But our goal is to stay close to that 70.

Speaker 1

And right now, we feel pretty comfortable we could stay there with what we're seeing in the marketplace.

Speaker 14

Great. Thanks a lot. Thank

Speaker 1

you. Thanks, sir.

Operator

Thank you. Our next question comes from the line of Mark Carden from UBS. Your question please.

Speaker 14

Great.

Speaker 5

Thanks so much for taking my questions and congrats guys on the promotions. So to start, I wanted to ask another one of the Magna and Send only stores. You guys mentioned they're a bit smaller. How do you think about sorting them? Would you expect to keep a similar closeout, non closeout mix?

Speaker 5

Would you expect to trim back in any particular categories? Just want to dig into if there's any differences on that front?

Speaker 3

Yes. Mark, it's Eric. We do think about it quite a bit. It's not a big enough difference for there to be a material change in the mix, but it does adjust our thinking about category mix to an extent. It does not adjust our thinking in terms of closeout mix.

Speaker 3

But there are certain categories of business that take up a little bit more space, that are a little bit less productive, that we'll pull back on to remix the store to make sure the categories that are really the pillars of our business, The destination categories are featured well in a meaningful way. And there's a couple of other categories that are going to be re spaced and smaller. We've learned a lot in remodeling stores over the past 2 years as we re spaced and relocated categories as to what works and what doesn't work. And it's helped inform us for what mixing a 25,000 square foot store needs to look like.

Speaker 5

Got it. And you guys have seen a lot of momentum in higher income customers over the past few quarters.

Speaker 14

At this stage, are your tailwinds in

Speaker 5

this cohort skewing more towards repeat buyers? Or are you still bringing in a lot of new higher end customers into your ecosystem? Thanks.

Speaker 3

Yes. I mean, it's really both. We're seeing repeat buying from in the aggregate from all cohorts, including the higher income consumers, and we continue to acquire the higher income customers as well.

Speaker 14

Great. Thanks so much

Speaker 5

and good luck guys.

Speaker 2

Thank you.

Operator

Thank you. And our next question comes from the line of Simeon Gutman from Morgan Stanley. Your question please.

Speaker 12

Good morning everyone. I have one question, one follow-up. The first question is on gross margin. You mentioned Q1 seasonally typically a little bit better. Can you talk about what's imputed in terms of freight and supply chain costs?

Speaker 12

And if we've gotten sort of the peak benefit in the numbers now and what is that what how does that flow throughout the rest of the year? And then I have one follow-up.

Speaker 4

Sure. I would say from a gross margin perspective, Q1 would be the peak benefit relative to supply chain costs. We do anticipate 2Q to be less than this and 3Q to be virtually no benefit on the supply chain side. And then 4Q would be like for like for the most part. From a supply chain cost perspective, we did proceed into the year with a decent amount of caution on supply chain rates embedded in our guidance.

Speaker 4

And we're not kind of taking any kind of goodness at this point, with just the potential for going into the retailer's peak season and some commentary out of the ocean carrier front. We're going to proceed with caution and obviously flow through the gross margin if we're able to do better than what we planned.

Speaker 12

Okay. And then to follow-up to that, that means the caution was justified so far. And then I'll just throw my second question. The second question, it was back to traffic and ticket. I think you said basket and transactions were both positive.

Speaker 12

In the basket piece, is that the number of items that are being purchased? Or I don't know if there's an average ticket that you can proxy given the changing merchandise?

Speaker 4

That's a good one. Basket was about 2 thirds of the Comp B transactions was about a third of the comp for the quarter. Out of the basket, most of it was driven out of AUR, but to your point, it's a difficult one to kind of look at in terms of mix. UPC was up ever so slightly.

Speaker 12

Thank you.

Operator

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to John Swager for any further remarks.

Speaker 1

I would like to thank everyone for their time today and interest in Ollie's. We look forward to updating you on our continued progress on our next earnings call. Thank you and have a great day.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect.

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Earnings Conference Call
Ollie's Bargain Outlet Q1 2025
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