Q1 2020 Earnings Call

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Good afternoon and one.

I'd now like conference call to the.

Well the core.

Tony Tony.

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Later, we'll conduct a question and answer session.

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Well the call today from management or John Sweigert, President and Chief Executive Officer, NJ Stats, Senior Vice President and Chief Financial Officer.

I will turn the call over to Jean Fontana Investor Relations.

Please go ahead ma'am thank.

Thank you good afternoon, everyone a press release covering the company's first quarter 2020 financial results was issued this afternoon and a copy that press release can be found on the Investor Relations section of the company's website.

Once remind everyone that management's remarks on this call may contain forward looking statements, including but not limited to predictions expectations estimates and actual results could differ materially from those mentioned on today's call any such items, including.

Spectra future performance should be considered.

Statements within the meaning of the private Securities Litigation Litigation Reform Act of 1995.

Should not place undue reliance on these forward looking statements, which speak only as of today, we undertake no obligation to update or revise them for any new information or future events factors that might affect future results may not be in our control and are discussed in our SEC filings encourage you to review these filings, including our annual report on form 10-K.

And quarterly reports on form 10-Q, as well as our earnings release issued earlier today for a more detailed description of these factors will be referring to certain non-GAAP financial measures on today's call such as adjusted operating income adjusted EBITDA adjusted net income and adjusted net income per diluted share. We believe maybe important to investors to assess our operating performance.

Reconciliations of the most closely comparable GAAP financial measures to these non-GAAP financial measures are included on our earnings release.

Now turn the call over to John.

Thanks Gene and Hello, everyone. Thanks for joining our call today, we hope that you and your families are staying safe and healthy. We appreciate you joining us what we know it was a very challenging time as we all deal with the impacts of Copel 19.

Our history demonstrates it always has been remarkably consistent both good and bad economic periods in many respects operating in the close at an industry for over 38 years sets up well to effectively navigate uncertain times. This quarter was unprecedented on many fronts, creating unique challenges and opportunities, which our teams faced head on.

We have the know how the flexibility and liquidity managed through this crisis. This is what we do and the results would deliver reflect the strength of our model and our core competencies.

Want to express my heartfelt thanks to the entire all these family for this their tireless work to ensure that continued health and safety of our customers and each other.

That has been remains our number one priority.

The team's efforts and ability to rally together during these times has been nothing short of extraordinary.

Our stores have remained open and we work and work.

Hi, Good Friday safe environment for our customers to buy what they need our teams had to move quickly and aggressively to meet sudden shifts in consumer demand during the quarter. So let me break this down as we shared with you last quarter, we experienced significant sales pressure in the initial consumer reaction to cope with 19 that volatility in our sales continue to.

In the following weeks, we responded quickly to reassure customers that we are still open in here to serve their needs.

Our marketing message was very focused and deliberate.

Our stores are open we have the goods you need at great prices and we are taking every precaution to keep you safe we expanded our offerings of high demand items in source, new products, including a certainty central items on available in other stores. In addition to providing great deals across all our categories. These actions resulted in broad based comp improvement across all the.

Arguments, we then experience a surge in sales in mid April as people began to receive a stimulus money.

The rebound in our comps enable us to end the quarter down 3.3% a considerable improvement from trends discussed in our last call.

Now I'd like to share some insights on how we were able to move quickly to respond to the unique challenges caused the pay caused by the pandemic and the resulting changes in consumer demand.

It begins with the merchant team, our talented merchants leverage longstanding vendor relationships and source from new vendors to obtain the central products for our customers.

While they remain laser focused on getting more of these necessities. They did not lose sight of opportunities across all categories last quarter I had mentioned my desire to maintain more capacity in our open to buy what I call dry powder to allow us to respond to changing consumer demands and opportunistic deals I want us to be playing offense at all times and I think our recent sales.

Had benefited greatly from this approach.

We're chasing the business a little right now because of the significant uptick in our sales.

But we're seeing lots of product availability in the marketplace in our deal flow is strong.

That said as we talk Alan talked about before it does take some time for the full impact of the disruption to manifest in art in deals for us. So we expect bigger and better opportunities to come later this year.

We're confident that we're in a great position to capitalize on the robust close out environment.

The second part of the equation as our supply chain. All three Dcs are operating at full steam where process is this process is substantially higher volumes and plan and aggressively pushing product in response to sales trends. Our dcs are handling the flow through and we're getting goods out to the stores the keeping stocked.

Our store associates are working very hard to continue to serve our customers at her at hearing to required CDC guidelines for health and safety cleaning our stores and re stocking shelves. During this busy time.

Turning to new stores, we opened 17, new stores during the quarter 19. So 19, so far this year all of which had been on schedule. We closed two stores one permanently at at least in one temporarily due to a fire.

During this pandemic, our new store openings had been more subdued ensuring that we adhere to CDC guidelines, including social distancing. However, we're pleased with the early performance of these stores.

We remain on track to opened 47 to 49 stores. This year that said given the disruption created by the state and local restrictions on construction and permitting due to the pandemic, there's potential for delays, which could push some store openings to early next year.

As our results indicate we have the ability to navigate perform any difficult environment. The first quarter represented strong performance in challenging circumstances and the second quarter is off to a very good start.

From a longer term perspective, as things get back to normal our key priorities and strategies will remain the same and for good reason or model is proven and the underlying businesses sound.

Before turning it over to Jay I'm going to provide more detail on our current trends are strong finish in April has continued into may well. This spike in demand is exciting a few words of caution or needed as to the sustainability of these heightened comp trends, while we know our business model is well suited for periods of economic downturn uncertainty.

No one can predict either the duration or the extent of this help in financial crisis, the related stimulus and how trends will be impacted when other retailers reopened.

It's important to not get over our skis, when we think about our current trends.

You know us we're disciplined about how we go about our business and we're going to keep doing what we do buy cheap and sell cheap.

As we get passed the brunt of this pandemic, we believe we're well positioned to secure a great deals at great prices for our customers.

I'm very pleased with how we're operating the business very comfortable with how we're positioned as a company an extremely proud and part of this organization.

The culture, we have built at all these has proven to be our most valuable asset as we continue to work through this crisis together.

Our store associates distribution centers field management and store support center are working diligently to safely help our customers get what they need.

I want to thank over 9000 team members truly our frontline heroes further incredible dedication and contributions to the business, particularly during this difficult period.

We are great. We are grateful for all you do.

You know, what I'm going to say down.

We are colleagues.

I'll now hand, the call over to Jay to take you through the financial results.

Thanks, John and good afternoon, everyone. I also want to express my gratitude to the entire ollie's team for their amazing dedication and teamwork. During this crisis and recognize all the frontline heroes beyond knowledge those in health care food production trucking, everyone that is keeping our new way of life up and running thank you.

We're very pleased with the results of our business. Despite the challenging start to the quarter. We saw substantial shifting our sales performance and were able to quickly respond to the spike as consumer demand.

In the first quarter net sales increased 7.5% to $349.4 million.

Comparable store sales, while volatile throughout the quarter rebounded nicely late in the quarter and were down only 3.3% following a 0.8% increase in the prior year comp store sales consisted of an increase in average basket offset by decrease in transactions. We saw units per transaction per we saw units per basket increase significantly as CFO.

Customers were making each trip countless shopping less frequently in response to shelter in place orders.

It's performing categories in the quarter included those departments at offered essential items, our customers are seeking such as PD AIDS food and housewares bottom performing categories included more discretionary departments, including books Domestics and electronics.

We opened 17 stores in the quarter and close to ending the period with 360 stores in 25 state and 11.1% year over year increase in store count.

Gross profit increased 5.7% to $140.4 million in gross margin decreased 70 basis points to 40.2% decrease in gross margin is primarily due to the higher sales penetration of consumables, which generally carry below average gross margin rates and de leveraging of supply chain costs.

As seen a expense increased to $89.7 million, primarily due to additional selling expenses from our new stores.

Despite heightened expenses associated with operating through this pandemic, including premium pay we manage expenses and were able to maintain NSG name rate flat to the prior year.

Preopening expenses decreased to $3.7 million due to the comparative timing in number of new store openings in the quarter and as a percentage of net sales preopening expenses decreased 50 basis points to 1.1%.

Adjusted operating income, which excludes again from an insurance settlement in the prior year increased 6.9% to $43 million in the quarter.

Adjusted operating margin decreased 10 basis points to 12.3% primarily due to the decrease in gross margin, partially offset by the reduction in preopening expenses as a percentage of net sales.

Adjusted net income, which excludes tax benefits related to stock based compensation in the after tax gain from the insurance settlement in the prior year increased 6.7% to $32.2 million were 49 cents per diluted share from $30.2 million or 46 cents per diluted share in the prior year.

Adjusted EBITDA increased 6.6% to $49.7 million in the quarter.

Inventory at the quarter and increased 4.5% over the prior year, primarily due to the new store growth in the timing of deal FFO deal flow and partially reduced.

By the Spike in sales late in the quarter, we worked quickly to ramp up receipts in response to the rebound in consumer demand to their inventories in good shape. Our pipeline is strong and our Dcs are keeping pace with demand.

Capital expenditures in the quarter totaled $12.4 million compared with 20.1 million in the prior year quarter last year expenditures included approximately $10.1 million for the construction of our new DC.

At the end of the period, we had no outstanding borrowings under our $100 million revolving credit facility and $119 million in cash.

Now turning to fiscal 2020.

Due to heightened uncertainty associated with the pandemic, including the duration and impact on consumer demand, we're not providing fiscal 2020 earnings guidance.

Forecasting in this environment is obviously difficult, but I can share some high level thoughts on key drivers.

First sales our current trends are very strong as John mentioned that said, we expect continued volatility given the uncertainty around a number of factors, including consumer demand continue changes to shelter in place measures across regions throughout the remainder every year the impact of economic stimulus and on a competitive front, the reopening of retail stores and potential.

So for large scale liquidation sales in terms of gross margin. We continue to manage our long term goal of 40% as we've previously stated we had assumed our gross margin for the year would be impacted by the usual 20 to 30 basis points of headwind from our new Texas DC. This rate will of course, the impacted if we experienced significant changes in sales trends.

Other factors that may impact, our gross margin rate would be a product mix shift in sales as well as potential promotional pressure that might occur if we see a graphic aggressive and widespread liquidation sales.

Finally, our expenses as DNA as you know, we always have and always will keep a tight rein on our expenses during the first quarter. The team did a great job controlling costs as we managed to a flat as genie rate. Despite additional covered 19 related costs the largest being premium pay for associates as we've said before our leverage point on expenses is typically.

About a one to one and a half comp. So if we do better than that we can expect some leverage.

Our current plans for 2020 include the following unchanged from what we provided on our last earnings call. The opening of 47 to 49, new stores with one plant closure and one on one unexpected temporary closure.

With regard to those store openings, we expect a more normalized cadence with 23, new stores in the first half and the remainder in the second half with a handful pushing into early Q4, given the practical realities created by the disruption from Cobot 19, there has the potential for some of our openings to be delayed or pushed into next year.

We expect capital expenditures of $30 million to $35 million, primarily for new stores I T projects in store level initiatives. Today, we are not deviating from these plans, but we are actively evaluating and will respond to the marketplace as necessary our proven model strong financial position track record of navigating disruption in long term growth opportunities.

Keep us excited about our future.

I'll now turn the call back to the operator to start Kuni session operator.

Thank you.

Asked the question you would need to press Star then one on your telephone to withdraw your question. Please press the pound team.

Our first question comes on the line of Matthew Ball with JP Morgan. Your line is now open.

Great. Thanks, and congrats on a nice quarter and ER and the momentum at the end of the corridor.

John maybe relative to positive low single digit comps in the front half of March then I know you had talked too when we entered the pandemic.

Anyway that you can help size up the trends that you're seeing in may maybe what categories have you seen materially inflect sounds like in the second half of April and just your confidence in driving a positive comp for the second quarter and the back half of the year.

Sure Matt with regards to the overall drivers as you know we did see.

Positive comps in early March and then we went negative right. After the thing March 12 March 13th date, we did see a turn in the business when the stimulus money started to go out about April 15th and the overall theme for April was people are still buying the than the essentials and necessities.

And by in the consumable products that we do offer and they started to dabbled little bit more broadly in certain categories through April and we saw nice uptick in April and May start to we saw a really nice a spike in the business in the business has been very very broad based.

All of our categories are comping positive.

Other than one which is luggage, which you would expect not to be comping positive, which is a very small category that we operate in.

But it's been very broad based on very strong. So we're excited about it but in terms of giving specific color on.

Values are comp percentages were going to stay away from that at this point in time.

Great and then a follow up on on the gross margin I, how best to think about the components of gross margin in the second quarter and then as we think about the close out backdrop as you see it today, what's your confidence in picking up ground in the back half of the year on the gross margin front and potentially at that 39, seven original forecast for the year.

Yeah, Matt This is Jay and I can start and John My chime in.

We had talked about a kind of on a normalized sales level.

We were talking to targeting that 39, seven a on a full year basis I think now given the pressure that we've seen on Q1, if we kind of go back and layer in our normalized sales model in planning, we'd be closer on an annual basis to 39 five.

We do expect and again, we're not we're not giving guidance I'm just because of the volatile nature of everything that's happened at the end of April on into May and what could happen for the remainder of the corner with with changes in consumer demand changes in the sheltering in place.

Not only in Q2, but for the rest of the year and certainly if liquidation sales come up but if we looked at kind of a normalized model.

We would have expected an increase in Q2 and our our reported margin overall, because if you recall Q2, a year ago was relatively low that 37.2, so we would have expected to pickup.

Against that you know.

Maybe we pick up 60 to 80 basis points and we would've thought that would have been both on the merchandise margin side as well as the supply chain costs because in Q2, a year ago, we kind of got hit on both of those.

Yes, I must our normal.

Compounds of zero to two call it.

But we can't really handicap, what's going to happen with the sales trends as well as the mix going forward for the remainder of Q2.

Perfect. Thank.

God that building I would add to that is we will as long as things remain I'll call. It more normalized so we don't see real contraction on consumer spending habits or a hub massive massive breakout of coal, but again in the back half of the year on we have to close down.

The the country I would say that we're probably going to be able to make up some of our margin and being pretty good shape of some of the deals were expecting to see on the back half of the year for sure.

Perfect and then just one housekeeper no change to 25% incremental bottom line flow through on incremental topline dollar says that is that still the way the model flows.

The 25% on a pre tax basis, yes.

Thank you. Our next question comes on the line of Brad Thomas with Keybanc Capital markets. Your line is now open.

Hi, Good afternoon, John Jay and.

Got some execution more and the corridor.

Thanks, Brad.

Wanted to follow up on kind of inventory and purchasing side of things maybe maybe two parts. The first was John your comment that you've been chasing the business a little bit can you talk about how much that might have played a role and.

What trends it looked like a plate.

Which categories are you may be behind in and then as the second part I was hoping you could talk a little bit about you know the cadence with which you think you'll see.

Some of this.

Interesting close out availability, there may be coming pretty quickly on pipeline.

Sure Brad with regards to the availability of product as we said it sometimes takes a little bit time to manifest itself in become available because of the manufacturer has dipped a little bit of pain and have some time with that product or to get to our pricing levels. So I would say, we expect to see that in the next three to six months at the outskirt.

Maybe nine months that will start to see a little more a little bit more on the the deal flow that becomes true closeouts that we'd be able to collapse on we are starting to see some of these are ready, but I think them. The significant portions will start a little bit later on in the year.

Your other question I can't remember, what you said Brad sorry.

Oh with respect to sort of chasing chasing the business a little bit of ways as the sales really accelerated after having been we just where inventory stands today and which categories you feel best about your inventory in which you may be.

Quick where you want company.

I would say I feel pretty good with all of our all all of our businesses right now everything is working very very well, we're chasing every single department.

There is there's really nothing that is still are nothing that we have excess inventory in the seasonal business has been very strong.

H.B.A. Housewares has been very strong domestics has been very strong everything's working very well right now so we're chasing the business. The merchants are having a great time buying we're finding the position we're just buying as much we possibly can bring it into the chain and we're excited to build operate this way.

Great. Thank you so much.

Thanks Fred.

Thank you. Our next question comes on the line of Peter Keith with Piper Sandler. Your line is now open.

Hey, good afternoon, thanks for taking the question.

On the close out of Billability, there's been some chatter out there that the availability of consumables are essential might start to dry up and to close out world.

So some chatter that some of the larger CPG companies might be donating product to charity now instead of sending it to the liquidation or close out channel.

John is there anything that you're starting here rumblings onto or.

Might cause the consumables mix to dipped down a little bit in the coming quarter recorders.

We haven't heard that yet Peter but I had suspected that we would you know not necessary from donating the product, but just from the sheer velocity. When you look you know in March and April go to the grocery stores or go to any other mass merchant retailer. The shelves were wiped of any of the consumables that they had so I would agree I would've expected that to lead.

To a shortage of consumable opportunities from some of these major CPG companies back half of this year I am I still probably feel that way that there could be a shortage on a consumable front.

But I will tell you our merchants are working hard each and every day to offset in compensate for that shortage of some of that product that may not be available in sourcing other products that may be on the private label front and not necessary. The Seabeach CPG label, you might normally see but we think we'll be well position to build to capitalize on the need for the.

I'll call it the the essentials or the consumables that people are looking for.

Okay very good and then I'm, just kind of going back to last year than the issues around cannibalization and the reverse waterfall.

I think maybe you're starting to lap some of those dynamics can you maybe just.

Tee up the current perspective on either one of those headwinds and how they're they're starting to play out.

Hi, Peter like we've talked about on past calls, we did expect that certainly start to lap that.

In Q1, and meet really be fully lapped as we got into the back half of this year, obviously, given the environment and the dynamics, it's not something that we've really.

Paid a lot of attention to we're focused on especially.

You know in environments like this with the earning call I mean, we expected to be in the rear view mirror and not something that we'd be bringing up going forward.

Okay sounds good guys. Thanks, a lot and good luck.

Thanks Peter.

Thank you.

Okay.

Randy.

Got it now opening.

Yeah can you hear me.

We got you Randy.

Hey, John how are you.

Yes, just curious from.

So the strategy perspective, as you kind of navigate through.

The Colgate here anything that you did you did from May.

GAAP level executive perspective.

To implement some process change that helps you.

Improved productivity are really kind of navigate eating out even faster to these real time changes that you feel that.

You'll kind of implement more on a long term basis at all it's kind of helped a bit and continue to respond reacting faster.

I think pop up in the future just any thoughts there anything change process was.

Randy the answer on that as we haven't changed much I mean, the biggest thing that we had talked about even prior to the cold did that my strategy was a little bit different the marks in terms of working with the merchants to maintain dry powder and maintain open to buy to build a react to opportunist opportunistic deals that are currently available. This just just just heightens the awareness much.

More our merchant team is very very nimble. We've we've always built our model to react quickly. We don't have a lot of overhead in our business, we make decisions rapidly company wide to what's the best interest for the company and the consumer So really no changes, we just really got to put our skill set to to work and like I said the merchants.

Our reacting and they're they're buying up is fast they can.

All the products in the marketplace and we're doing great with it.

It's nice to hear to shift the model.

Really shows through shines through here on what about any kind of updated perspective, you can give us on real estate performance by geography in terms of how you're thinking about the consumers responding during the call make any type of indicators of new customer acquisition that you were able to pick up.

During the quarter and kind of connect help you lives we continue to grow throughout the balance the going into next year.

Yeah, Randy this is Jay and I can start on the regional performance and John might speak to the new customer acquisition, but it's been a relatively consistent by region I think it ebbs and flows as we see a shelter in place orders changing are evolving.

So it's been fairly consistent but you can see pockets, maybe that had been open longer starting to.

Come down from there peaks and you can see areas that are recently opened peaking and then.

You know maybe trending down but ultimately at the end of the day when we started to see the strength in late April and in early May for the most part over that period of time, it's been pretty consistent.

I think in terms of new customer acquisition I mean, certainly we are seeing.

New customers come into our stores, especially recently our trends.

And transactions are strong certainly at the end of the quarter in into May.

So we do have new customers in the box, which is great thing and we're signing up those people into Ollie's Army as best we can I mean bear in mind that the stores are having to adhere to CDC guidelines. So we're limiting capacity we're running every other register.

And we're doing a sizable volumes. So we're maybe not getting quite as many of those folks signed up as we would like.

Well, we are definitely seeing an increase in that.

Super helpful. Thanks, guys.

Thanks Randy.

Operator.

Okay.

Thanks, Hello, that's like a rally your line is open.

[laughter], maybe we need to upgrade the systems reason there how are you guys.

So I think they're working I think they're working from home Scott's was little challenging for them [laughter] you better signal I don't want to extrapolate your current results as the stimulus high starts to fade, but is it fair to assume you guys were still running Thompson call. It the negative mid to upper teens range through the.

End of March because it sounds like that was kind of but where sales period for most retailers.

Yes, that's a duration for the group from Middle of March through.

Early April absolutely, 100% Scott.

Okay got it.

And then I guess the second question is just regarding how we start thinking about the potential impact.

For more discounted product in the marketplace overall as you know that a lot of these retailers have been close for a couple of months, they're gonna start to reopen they're gonna have older. Good.

Some of that overflow may reach your kind of.

By buying parameters like do you think that.

No that potentially.

Creates a little bit exhaustion from the customers just because you're going to have a lot of other people selling stuff pretty cheap.

Pretty well high value rates.

Well I think that's part of what our rationale for not provide any guidance for the remainder of key too because there's a lot of uncertainty when people reopen what they're going to do.

There is a sense of Comfortableness that we have is a lot of our I'll call. It first tier competitors.

Have been opened the entire period of time to walmarts the targets home depot lows. All those guys have been opened so the the hard lines retailers are not really a problem for us and that's the crux of our business.

But they'll still be some discounting in the home area.

For the folks who start to open up there the clothing will be nominal but that'll be some big discounting going on there, but that's that's definitely part of our caution for the back half of this this quarter were currently in and then obviously back after the year, but thats is definitely something that's going to be out there and we think it's going to happen.

Got it okay I appreciate guys. Thanks.

It's gotten Scott.

Thank you. Our next question on the line of box with Morgan Stanley. Your line is now open.

Hey, everyone. Its Simeon hopeful as well my first question, it's a little bit of a follow up to a previous one you mentioned that the cadence was somewhat consistent I think late April and May can you talk about some of the state that you operate in that have reopened and we have I don't know a couple of weeks, maybe worth of trend and if theres any nuances between the.

Performance of that group of stores versus ones, where states are still closed.

Simeon This is John I would say it's been very.

There is still were such an early stages I think I would tell you. It's been very very consistent across all of our regions Theres been a couple regions that have gotten a little warmer than others and we started to sell air conditioners before other regions have gotten warm yet, but other than that the overall broadbased Ben.

If it's a we're seeing our across all of our stores and all of our geography.

Got it and then.

I mentioned right all these factors and not not providing guidance, which makes sense, it's pretty tricky at this moment you have an internal guess regarding how stimulus is help the business and thinking from from an internal are planning perspective, right, you're selling at a pretty high rate you're turning over at a high rate and yet you still have to have the proper amount of inventory month to month.

So I guess, how are you going through that process and do you have your own best guess that you probably won't share with us on the stimulus benefit, but do you have a sense of what that could be.

I, probably wouldn't share that with you as you would expect and I would tell you it definitely.

We saw an immediate impact in the business when the stimulus checks start to come out April 15th so that in those as you guys know that those funds are continuing to go out into the marketplace. I believe through August. So we definitely believe that's a benefit to all of us retailers and all our businesses.

The button quantifying that we're not going to do that we're looking at our open to buy on a weekly basis and we're managing it managed to four or five weeks out. So we're just continuing to make adjustments, where we need to and continued chased the business and the merchants continue to push along as we as we see it then though where were we think we're in a great position to continue to capital.

Lies on the opportunities that arise after that the marketplace.

Great. Thank you.

Thanks Simeon.

Thank you.

On the line Edward Kelly with Wells Fargo. Your line is now open.

Hi, guys good afternoon.

Hi, John.

Just wondering if I'm, taking a step back and thinking about.

The opportunity that that is out there associated with the disruption, especially as we think about the back half the years.

In the experiences that you guys haven't been running this business is there anyway. You can you can sort of help give us some perspective on how big this opportunity is.

Yes, if we think about the size of the close out business regularly <unk> how much could this be up I mean is this something we're talking about 20% could double I'm just kind of curious is this if you have any thoughts around how how you know this this the size of the price here.

I don't think I can put a percentage with it Ed but I would tell you that I. This this is probably something we've never seen.

We experienced all eight or nine I think this is gonna be something even larger than that and there's really a lot more opportunities out there and they probably going to be a little more immediate than what we saw between oyo eight or nine.

How large is gonna be I don't know, but there is definitely going to be problems out there. We're starting to see cracks are ready as you guys would imagine where we're seeing opportunities that are that are presented themselves as we speak today. So.

We're excited about it and we definitely will tell you our financial position is going to put us in a great.

Situation to be able to capitalize on these opportunities as they do come about and we're excited about it.

As you think about the opportunity and.

So I guess storage capacity I I would imagine that you guys might want to buy some of this product as much as you can and maybe even packaway if you can.

How much capacity is there out that they're out there for you to do do things like that.

Third we have quite a bit of capacity add obviously with our new distribution center that we just opened up in Texas.

Which is 618000 square feet and that is for us to grow into in the future and that's fully built out already. So there is there's a lot of capacity from a holding perspective that we could we could take down quite a bit of in inventory. If it was call. It a goods that we cannot pass on that we wanted to have control of that didn't have any dating issues, we can probably take down.

Hi, probably tell you, we could take down $100 million of inventory pretty quickly.

Okay, and then just last one for you there has been other players talking about the opportunity and Closeouts and Im just kind of curious how you're looking at competition through this sat through this cycle or is the opportunity just so big that it's just not really going to matter.

Yes, I think it's the latter part, but I think the opportunity. So big is not going to matter and I think a lot of people do talk about getting into the close of business, but as we've always said, that's it's not that easy just to decide to become a closeout retailer and deal will close out product. So.

I think people talk about it but when they get down to the the into the game, it's hard for them to make deals happen that makes sense for the person trying to sell to them and then for them to handle it so.

Why they I think there they are talking about it and there's opportunities for them. I think is the pie is going to be so big that.

There will be enough for us to go around and be able to be fine here.

Thank you.

On the line of Rick Nelson with Steve.

And is now.

Thanks, Good afternoon, Kirk can you comment the real was hey, Mark that you know what care.

I think there.

Quality, it's came available.

Were to accelerate.

Your store opening plans.

Sure Rick we haven't seen a big change in commercial real estate as of yet I.

I think that that has that's a real lagging.

Piece of the business said that I think would take couple of years to come out for us in terms of opportunities.

But in terms of.

Sites, becoming available in our acceleration of store growth greater than our normal cadence. So we've talked about a long term our long term algorithm the answer that would be no. We would not push the envelope, we feel that our growth rate is appropriate. It's it's in control and our results were able to deliver by growing with the white space, we have already can.

Thank you to do we do and continue to grow in the mid teens as well as we have for very long period of time, that's not going to change.

Even based on availability of real estate Woods work on the as you know we take second generation sites. So work on than what the landlords will take them when they are appropriate for us to take.

Hi, Thanks for that color also.

In terms of merchandise categories.

And he is that correct here pursuing buyers.

Hired.

Craig advantage.

What turns for closing remarks.

No. There's there's no new buyers that we've hired.

<unk> as it relates to this we have our normal process of our merchant team we're fully intact.

Once executing their we definitely have chased some of the I'll call B.

Essential necessary items few for looking for.

Categorically that have been pretty powerful for us we jumped on it quickly like we always deal are probably the first to market and a couple items within our stores that had benefited us from from the consumers demand than what they needed a during this period of time, but other than that we've not made any real big changes. We're just we're we're refurnishing the businesses that are selling and moving quickly on us.

[laughter], Thanks, and good luck.

Thanks, Rick Thanks, Rick.

Thank you our next question from the line.

Good.

With credit Suisse. Your line is open.

Yes, hi, guys. Thanks for taking the question and congrats on the execution here.

My first one just kind of high level, if we think about kind of the opportunity for.

The close out business and Ali in particular do you see the opportunity born out of coded as potentially kind of extending.

The market size opportunity or does it potentially move the Ali story forward in terms of new customers kind of how are you thinking about further executing on just how big this opportunity is gonna be.

Hey, Jude I would say, it's probably both I see it it's going to increase the at least temporarily is going to increase the availability of closeouts for folks who are distressed and need to move product and I also think that based on consumer.

Consumer situation with the high unemployment and the situation people find them in I think we're going to be a natural along with some other discount retailers, where you have another trade down impact is going to take place.

With folks coming down to the to the discounters and times of of need and I think we're in a C. Both of those take place here.

Okay that makes sense and and then just more on the on the housekeeping side, you mentioned premium pay I don't know if you guys had disclose exactly what you've done there in terms of bonuses or whether it's hourly and kind of what the plan is there and can you tie that into just general maybe changes in the labor environment.

Sure Judah I'll cover the generalities and then.

Jay can probably get into the Numerics, but we we started to provide premium pay to our store associates and our distribution Center associates back about March 22nd.

And what we did we increased the pay for the AURELIA. So the hourly full time and hourly part-time association the stores and we also gave.

A weekly bonus to the management staff as well.

And Weve continued that through today and right now we're planning on running that for for now through I believe June 13th and we'll evaluate it on a biweekly basis to decide if we want to or need to continue to premium pay but that's something that as long as these frontline workers are continuing to work.

Very hard and provide the environment for our consumers a shop in we feel that it's imperative that we take care of them.

Yeah and junior this is Jay in the quarter.

We incurred to it wasn't a lot and we're not even charges like some of these other companies, but as about a million a $1.5 million of incremental expense related to the premium pay.

Okay, great. Thank you.

Thank you. Our next question comes on that line Shan Chandni Luthra.

Goldman Sachs. Your line is now.

Hi, Thank you so much for taking my question.

Nice quarter guys I was wondering if you could perhaps throw some more light on you talked about new customer acquisition in this environment, but is there we just sort of peanuts Morrison more color into that around the market share gains that you got just by token LPR.

Retailers most frequent it was being closed and then what are you doing two in short it is sticky going forward and then did anything change in the way you disseminated your marketing message to your customers that you are you have essential then and Youre open just trying to assess that thank you.

Sure with regards to the overall acquisition of the New Ollie's Army customer, it's probably too early for us to ACSI comment on the specifics related to that it's only been a few weeks I think it'd be too premature for us to say too much about that we've got to get into data and figure it out we have not done.

On that as of yet.

With regards to what was your other question I'm sorry.

Oh, just dissemination of your marketing message I, what has changed there it's not just what's in the message, but how you are communicating.

Yes, we are our message is primarily imprint that has not changed we made a few little minor adjustments to our marketing campaign during the quarter to go a little bit more digital but we're basically testing.

Working with Facebook.

And doing that on a very small scale, but most of it's all been emails to our ollie's army customers directly focusing on communicating the in our in our print advertising that we have you central product for our consumer base and calling out a lot of of the essential items that we have available to them, but nothing real.

Roger has changed and making sure. They know we were open was a big deal because I don't know if when things first started everyone knew that we were open for business. So we had to get that word out to the marketplace as well.

Got it thank you so much.

Thank you.

Thank you.

Our next question comes from the mine.

She's Lucky with Bank of America Your line.

Great. Thank you.

Yeah, you mentioned, new customer acquisition and that that basket size also increase I mean, I guess in in the data that you're getting through Ollie's Army are you finding that existing customers are cross shopping categories that they weren't choppy in before to consolidate shopping trips or are they mostly just buying up yes, three bottles to shampoo and.

Set of one year just to make sure that they don't need to come in as frequently I like where are you seeing those increases and basket size.

Basically lives were seeing them by a lot of a lot of the essential product in cross dropping department. They already purchased from before so it's been it's fair as we said early it's been very broad base their buying.

A wide within the store in terms of dissecting that information down to the customer level. We've not we've not had time to do that as of yet.

Huh.

Okay, and then I'm sort of a follow up on the on the question about close that inventory and available categories coming up and just given the potential opportunity in categories like clothing I. Another retail categories that are seeing some real pressure, we're seeing more broader industry bankruptcies I mean anything.

Okay about how you would position newer product product lineup differently based on what's coming up and whats available.

Well, we're not going to change our overall business strategy, because we were not going to get into fast fashion.

I think the clothing that comes about if it's if its basic in nature and it's not really fashion oriented we would definitely take a look at it but the other fashion clothing that may come about I'll leave that for the TJ is in the Ross is to have their day at that because that's not something we need to get involved with.

But in terms of hard lines and hard goods and home goods that come about available in the marketplace will be ready willing and able to take those deals. So we're already starting to see some of those pop up from from other retailers that have cancelled orders or in fact file bankruptcy. So we're we're active right now yeah and Liz This is Jason.

Add on to that I mean, we've gotten a lot of questions about.

Strategically how we're thinking about it in and new categories, New buyers, but I think ultimately like John said, we're going to stick to what we do and ultimately we're going to the merchants do this everyday scoured to get new deals and if we get a good strong deals you know in the categories.

Where historically and that's going to when the day for us both on retaining our existing customers as well as getting the new customers that we've gotten during this time to come back in.

Yeah. It makes sense. Thank you.

Thank you Liz.

Thank you.

Question comes on the line of Jeremy Hamblin with Craig Hallum capital.

Your line now.

Thanks, Congrats guys I wanted to start with you know the store openings that you mentioned actual for.

Delays.

In terms of getting through the crisis, we don't have the second wave here.

Are you see permitting delays or other things that are currently impacting store openings or is it something that is you know kind of hypothetical in the back half of the year.

Jeremy what we're seeing is the some of the local municipalities are starting to reopen but they are very far behind so there. There is definitely risk for some of the work that needs to get done by the landlords to turn the buildings over to us to be able to get them done and time, there's probably a handful of stay.

Stores today that we've actually seen delays in that we've had a push out.

Into the early fourth quarter period that Jay had mentioned earlier on the call. Those stores are definitely at risk. So there's it's not that we're not ready to take take the store. The leases are signed its just a landlords having trouble getting the work done in certain key certain situations.

We're pushing very hard to get those all in and get those done, but we're not in control of what the local governments do from a permitting perspective. So there is work that's got to be done this may be delayed.

Okay understood and then just a follow up to that I think you had quantified capex expectations in the.

30, or 35 million dollar range is that kind of still the number that you're looking at.

Yes. It is.

Okay last thing is just in terms of store staffing levels.

You know, it's such an unusual situation are you seeing.

Any changes in terms of your labor matrix medium more personnel in the stores or potentially.

You know going with fewer people in stores simply because you're trying to have less people on top of each other.

Yeah, Jeremy we we've always been a low touch business with low customer service and not a lot of employees in our boxes.

So with regards to our number of employees in our overall square in our boxes, we always been pretty light.

We definitely with the uptick in sales.

Since third week of of April we we have been using more hours in the stores. We've been hired hiring additional people. So there is there's more man hours needed and more bodies needed in the store, but nothing material. We don't we don't have.

100 employees in our stores, we average anywhere from 15 to 25 associates in the stores. So it's not that we have an overwhelming need for far over our employee base and with the social discussing the falling CDC guidelines that are stores were running every other register.

From a spacing perspective, so we don't have a tremendous need there, but we definitely are pushed out more hours with the increased sales volumes.

If any of that overtime hours.

Oh I'm sure.

Okay.

It is your overtime as a percent of your store payroll on it out a typical year I.

I don't have that but it's not material we manage it pretty closely we don't we don't like to pay overtime, we like to have the right bodies in the right place right time.

Thanks, guys great job good luck thanks, Jeremy.

Thank you. This concludes today's question and answer session I would now like to turn the call back to John sign up for closing remarks.

Thank you operator, thanks, everyone for your participation and continued support we look forward to sharing our second quarter results with you on our next earnings call.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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