Q2 2020 Ollie's Bargain Outlet Holdings Inc Earnings Call
Good afternoon, along with the Ali Baba outlet topical.
Financial results for the second quarter fiscal 2000.
At this time all the pieces obviously.
Ladies and I'll be talking I think that's a constructive with all of that's fine.
Please be advised that maybe that's another call it a whole or any part.
We made it without we're not losing them all.
And as I'm honored to call IZEA recorded.
Well in the call today on that I've met or John bloggers.
<unk>, Chief Executive Officer and they.
Senior Vice President Chief Financial Officer, I'll, now turn the call it would be watching that I can definitely you decided please go ahead.
Thank you Valerie and Hello, everyone. A press release covering the company second quarter 2020 financial results was issued this afternoon any copy that press release can be found any investor relations section of the company's website I want to remind everyone that management's remarks on this call may contain forward looking statements, including but not limited to predictions expectations estimates.
Actual results could differ materially from those mentioned on today's call any such items, including with respect to our future performance should be considered forward looking statement than me, but in the meeting of the private Securities Litigation Reform Act of 1995.
You should not place undue reliance on these forward looking statements, which speak only as of today and we undertake no obligation to update or revise them for any new information or future events.
Yes that might affect future results may not be in our control on or discussed.
SEC filings, we encourage you to review these filings, including our annual report on form 10-K in quarterly reports on form 10-Q as was the 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 EBITDA. Adjusted net income adjusted net income per diluted share.
Lead maybe important to investors and assessing our operating performance.
Conciliations the most closely comparable GAAP financial measures to these non-GAAP financial measures are included in our earnings release, but that I will turn the call over to John.
Thanks Gene and Hello, everyone. Thanks for joining our call today.
Before discussing our second quarter results I would like to.
Thank the entire all these family our suppliers and our customers for their unwavering support as the world continues to cope with the impacts of cope with 19.
Our teams responses response to these challenges has been nothing less an extraordinary and I am incredibly proud of how we have managed to this crisis together since the outside of this pandemic. Our priorities have remained to ensure the health and safety of our team members in our customers support our communities and offer great deals I'm very excited to report that were delivery what are.
Customers need and want during these difficult times.
We delivered our best quarterly results in our 30 year history with record sales and earnings total sales grew 59% and comparable store sales increased an incredible 43% in the quarter.
Topline growth combined with gross margin expansion and tight expense controls led to an operating margin in excess of 17% in 193% growth in adjusted net income.
Sales were strong across the board.
20 up 21 of our departments Comping positive our top performing categories were health and beauty AIDS housewares bed and Bath flooring and electronics.
Broadly speaking, it's a combination of factors that drove sales for the quarter. We clearly benefited from macro elements such as government stimulus monies lifestyle changes and haven't or stores opened my other retailers were closed for a portion of the quarter.
We effectively communicated to our customers that we're open for business and ready to safety serve them and we had the right products at great prices, It's what we do.
As a result, ollie's army customers were shopping with us more often and spending more per visit and we attracted new customers with our value proposition and great deals.
Our merchant team once again demonstrated their ability to be nimble unresponsive to opportunities in the marketplace and adapt to changing consumer needs.
The team leverage longstanding vendor relationships and source from new vendors to expand our offerings of high demand items, and new products, including certainly central items on available and other stores.
There continue to source, great deals and fight incredible values across all of our merchandise categories.
Our sales velocity has is chasing the business a little right now, but our deal for remains as strong as ever and we continue to see lots of product availability.
We have often often mentioned that it takes time for the full impact of marketplace disruption to manifest into mega deals for us. So we expect additional opportunity still to come.
Given our long term relationships proven ability to handle large deals and strong liquidity position. We're confident that we're in great position to capitalize on the robust to close out environment.
While our merchants are doing an amazing job securing deals our distribution center team members are doing an incredible job processing substantially higher volumes than planned the opening of our third distribution centers approval well timed as all facilities are operating at full steam ahead.
We are hiring additional team members and work in additional hours to aggressively push product to our stores.
Our store team members continue to an incredible job processing incoming merchandise keeping the shelf stock and serving our customers while adhering to required CDC guidelines for health and safety.
While we ended the quarter with inventories down 7.7% our inventories have remained in good shape, particularly at store level and we are comfortable with our current inventory position as I previously mentioned deal for remains remarkably strong, but we are pushing products through our distribution centers and into our stores at record levels.
In fact, leaner inventories dovetail nicely into our strategy of maintain more capacity and our open to buy what I call dry powder.
These practices allow us to quickly respond to changing consumer demand and opportunistic deals as I said before I want us to be on offense at all times.
I believe operating with reduced store level inventories will improve the efficiencies of our store operations team. Most importantly, this will provide a better shopping experience for our customers who are more easy see our fresh new deals and they have a greater sense of urgency to purchase.
Ollie's Army was a significant driver of our amazing sales in the quarter with member shopping more often and spending more per visit we signed a new members and an unprecedented numbers surpass even the biggest the busiest of holiday seasons and ended the quarter with 11 million active members, a 13.4% increase over the prior year.
Our regional well beyond Ollie's Army. We believe we have attracted a lot of new customers with our assortment to be central products and great deals like the army. The average basket of these customers exceeded historical levels, which significantly contribute to our comps.
We got them in the door with our value proposition and great deals. Our next efforts will be to hold on hold on our mark to our market share gains by converting these new shoppers to the army.
Well, we're very pleased with the performance of our comp stores. Our long term growth driver has been and we'll continue to be new stores. We remain absolutely committed to annual mid teen unit growth as an important component of our long term algorithm with a ceiling of 50 to 55 stores per year to that in our 2021 pipeline looks strong.
With a solid mix of both existing and new markets, we have a tremendous runway for growth with potentially expand our store base to over 1050 locations across the country. That's a lot of white space and we're always them a look out for high quality opportunities value is clearly where the consumer as these days and we're very excited about our growth prospects.
We are certainly looking forward to things getting back to normal in the meantime, we're going to keep doing what we do best buy cheap and sell cheap while maintaining discipline and how we operate our business.
As we indicated their press release comp growth is now tracking in the high teens and we expect these trends to continue to slow as we progressed to the second half of this year. There remains a lot of uncertainty related to Covidien, we cannot predict the impact of the health and financial crisis future stimulus or the landscape other retail environment.
We believe we're well positioned to benefit from the continued disruption in the marketplace as always we remain very excited about a long term opportunities as we continue to leverage the agility of our unique close out business model and execute our strategic growth plans.
We delivered unbelievable results this quarter and I could not be proud to be part of this team.
Want to thank our 9400 team members for their incredible dedication and contributions to the business, particularly during this demanding period.
As we say we are polys.
I'll now hand, it over to Jay to take you through our financial results.
Thanks, John and good afternoon, everyone like John I also want to express my gratitude to the entire ollie's team, they're perseverance and hard work have truly been the drivers of the incredible results, we achieved in a challenging environment and I too am very grateful. Thank you.
We're very pleased with a record setting top and bottom line performance net sales increased 58.5% to $529.3 million.
Comparable store sales increased 43.3% in the corner driven by increases in both average basket and transactions, we had more customer shop with us than ever before with larger than historical baskets across existing and new customers.
During the quarter, we opened six new stores for a total of 23 openings in the first half of the year ending the quarter with 366 stores and 25 states a 10.2% year over year increase in store count.
Our new stores continue to perform above our expectations across both new and existing markets.
Gross profit increased 66.8% to $206.8 million in gross margin increased 190 basis points to 39.1% returning to historical levels for the corner.
The increase in margin was evenly split between improvements in merchandise margin driven by increased markup and leveraging of supply chain costs.
As gene expenses increased to $109.1 million, primarily due to additional selling expenses from our new stores and higher store payroll to support the significant increase in sales.
SGN as a percentage of net sales decreased 560 basis points to 20.6% decrease was driven by significant leverage and payroll and occupancy as well as other fixed cost due to the strong increase in comp store sales as well as continued tight expense control.
Operating income nearly tripled to $92 million in the quarter from $30.8 million last year.
Operating margin increased 820 basis points to 17.4%.
Adjusted net income, which excludes tax benefits related to stock based compensation increased to $68.9 million from $23.5 million last year adjusted diluted earnings per share increased threefold to one dollar for from 35 cents in the prior year.
Adjusted EBITDA increased $99 million to $99.4 million from $37.5 million and adjusted EBITDA margin increased 760 basis points to 18.8%.
Capital expenditures in the corner totaled $5.7 million compared with $20.2 million in the prior year.
Last year expenditures included approximately $10 million for the construction of our new DC.
At the end of the period, we had no outstanding borrowings under our 100 million dollar revolving credit facility and $305 million in cash.
In the quarter, we generated nearly $169 million in operating cash flows.
Our proven track record of robust cash flow generation is a testament to the strength of our model. We have a very strong balance sheet and we're going to continue to prioritize liquidity and cash in this period of economic uncertainty.
Now turning to our outlook for the back half the year based on the level of continued market uncertainty, including the duration of the pandemic an impact on consumer spending you're not providing 2020 guidance at this time.
Forecasting in this environment is obviously challenging with the potential for a wide range of outcomes when I care can share some high level thoughts on key drivers.
As John indicated comps are now tracking in the high teens, and we expect slower growth as we progressed through the year.
The remains a great deal of uncertainty around a number of factors, including consumer demand the impact of economic stimulus and on the competitive from the potential for a highly promotional environment.
Looking at gross margin, we continue to manage our long term goal and 40% as we stated prior to the pandemic. We've assumed our gross margin for 2020 would be impacted by 20 to 30 basis points of headwind from our new Texas DC as it ramps to full capacity. This rate could of course be impacted if we experienced significant changes in sales trends mix supply chain costs.
For promotion.
Finally, as DNA as you know we evolved we always have and always will keep a tight rein on our expenses no changes there as we've said before our leverage point on expenses is typically about a 1% to 1.5% comps. So if we do better than that we can expect some leverage which we certainly saw in our Q2 performance.
Our current plans for 2020 include the following the opening of 46 stores, including one relocation and one closure we have opened four stores. So far in Q3, while we currently don't expect further delays there is the potential for some openings to be 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.
As always we continue to evaluate our plans and respond to the marketplace as necessary.
Our nimble operating model enables us to pivot quickly. It's the effectiveness of this model are strong financial position and long term growth opportunities that have as excited for our future I'll now turn the call back to the operators starts Kuni second operator.
Thank you ladies and gentlemen, if you like that's a question. Please press Star then one when you touched on telephone again, if you would like to ask the question. Please press Star then one.
Our first question comes from Matthew Boss of Jpmorgan. Your line is open.
Thanks, and congrats on a on a great quarter.
Thanks, Matt.
John So on your high teens current comp trend how much do you believe leaner inventory on hand, maybe constraining comps at this current time and without what's your outlook on close out product availability as we think about opportunity in the back half of this year relative to the front half of 2021.
If you could just elaborate on the timeline I think that you cited to take full advantage of industry disruption.
Yes, Matt I don't believe the leaner inventories are negatively impacting our comps one bit I think it's actually a positive in store, it's a better shopping experience for the comes the customer it's a better store operations execution level. So I would tell you that the the leaner inventory is playing into exactly what my strategy was I spoke about.
In Q1, we're on the phone with everybody. So that that has that make it has me not concerned one bit the stores are great great position to do business that customers are responding tremendously to our offerings I think the I'll call. It the slowdown in the the comps are more related to business is coming back online.
The the economy coming back a little bit people that people have more opportunities to shop elsewhere. So that's more of the impact it's not a certain inventory I should all we're not having a shortage of inventory in our pipeline whatsoever, obviously with the 43.3% comp were definitely chasing that business and I'd say, most retailers would have difficult even be in Florida in our stores are pretty good shape.
Still.
So from from a long term perspective for looking out six months or nine months I do think that the the close up market right. Now is still really robust the deals are great. Our merchants have a lot of product coming in they have a lot of new vendors are sourcing from today. There are some big name vendors that obviously I won't mention on the call, but they're very exciting that we're getting opportunities from the.
Even today.
What I do think we'll see as as production ramps up for those folks who are who are I'll call behind the April right now and chasing the business a little bit and have no inventory in their stores there will be an abundance of of excess inventory creative from them over planning other buys for them to the manufacturers over producing I think that'll prime materialize.
Matt probably in late Q4 early Q1, but theres definitely not a shortage of merchandise out there for a buyer's data there they're doing a great job in as we said the they the sales are very broad base in every single departments working.
That's great and then just a follow up on gross margin how best to think about merchandise margin opportunity in the third quarter and then in the fourth quarter from a gross margin perspective, how best to think about lapping last year's decline and then last it sounds like 40% gross margin remains them. The models multiyear target if I if I caught that.
Right.
Yeah, Matt This is Jay and for sure.
Long term basis, you know the algorithm stays intact, we're targeting that 40% gross margin long term and for the year I mean, we're not giving guidance I mean, who knows what will happen with sales trends.
You know, but on a full year basis generally speaking this year, if we're at more normalized levels, we would expect.
Gross margin for this full year to be at 40%.
And remember right the Oh on on the merchandise front, we're always going to have strike that balance between managing margin and passing value on the consumer. So I think from a merchandise margin standpoint, we're going to be we're going to be targeting that 40%, there's still going to be volatility on the supply chain side you know.
On all fronts really with with the transportation side as well as the flow through that we're putting through the Dcs. Currently so we can't really get more granular than that we currently forecast, but I think 40%.
For the full year is a target that we're shooting for.
That's great Congrats again.
Yes, Thanks, Matt.
Thank you. Our next question Cosmetology mood <unk> of Goldman Sachs. Your line is open.
Hi, Thank you for taking my question.
In terms of your Cadthirty speech can you talked about the 20 out of 21 category. It's very positive. So so I guess.
What would the top ones and then Watson said, one category that didn't dwell for you when and how would you think about those categories in that.
Hi, Steve costs that you are witnessing input quarter at the moment.
Yeah, I would tell you that the only category that comp negative was our luggage department, which makes 100% sense with no with no one traveling so luggage.
And it's a very very very small department that we operate.
So that does not bother us one bit every other departments. We said was very positive everything worked very very well. So as we said on the the script our best performing Department was health and beauty aid followed by housewares bed and Bath flooring electronics.
We sold during the quarter is.
With the cut the customers lifestyle changes they were they were buying very broadly and all of a products. We were selling our stores really resonated with the consumer so all of our departments were moving along very very well and coughing.
Very strongly we continue to see a very broad based.
Performance in our stores today.
I would say the only difference is we sold out of our lawn and garden in summer furniture.
Earlier, this year than ever because of the demand. So those departments are not performing nearly as well because we don't have the inventory to.
Back to sales with the season for our perspective, it's actually a good thing business seasons over and this lower markdowns for us to have to deal with other than that the the consumer still responding to all the offers we have in our stores and I think that the freshness in our stores is really driving excitement in the stores with the customer.
That's very helpful. Thank you and my follow up would be any color you could give us on oh.
James Stelmi geographic standpoint, any differences any any cadence that sort of move just different states. So funded and concerns to be in March.
So much.
I would we look at our company within four regions and I would tell you that all four of our regions performed very similarly, and very strong there was different timing that happened within the quarter.
Obviously region, one which is up here in the mid Atlantic in the northeast.
They had a little more impact earlier than the south.
But when you look at the entire quarter, they're all pretty evenly spread in all four regions performed very very well.
Great. Thank you congratulations on a great quarter.
Thank you. Thank you.
Thank you.
Sometimes from Brad Thomas of Keybanc capital markets. Your line is open.
Hey, good afternoon, and this is Andrew on for Brad Congrats again on the record performance here.
I wanted to ask you know looking looking ahead what categories are you. Most excited about from a deal perspective, and then how how are you thinking about the the holiday season this year.
Yeah, Andrew I would tell you what we're right now we're feeling pretty excited about most of our categories. Everything is like I said is on fire and it's doing very well.
Obviously, as we think that were set pretty well for the seasonal category, which in our world is the heater business. The toy business and then our seasonal holiday trim a tree business, we feel real good will position right now looking to consumer skouries respond very well, but I'd say in health and beauty is houses housewares bed and Bath, we were locked.
And loaded in the deals we have coming are going to be very strong. So I I expect another broad based performance and all of our categories for the back half of the year I don't think theres any real big holes that would that we're seeing the deal for remains grade as I've said and we're feeling like we're in good shape.
Great and then as the industry continues to evolve at a fast pay are you seeing any significant changes in the competitive landscape and if so how do you see that's affecting your business going forward.
Yeah, thus far into we've not seen any real changes the competitive late at the competitive landscape, we didnt really feel.
Very very large impact with a liquidations that took place in some of the stores that reopened and during the second quarter. Obviously, we saw us a slight slowdown compared to what we were at but our numbers and the first couple of months were phenomenal and that pace was not maintainable by any retailer so.
We feel like the.
We're in a very unique situation being in the close up market that we we provide a rule just a real interesting shopping experience with a treasure hunt that the customer is able to come into as you know we're not we have no ecommerce play and we are delivering a 43.3% comp would know E. Com. So I think that the customer is.
And what they like in our stores and resonating and we're definitely attracting new customer base into the store during this difficult period of time.
Great. Thank you.
And then my last question is.
I know you touched on gross margins that but I guess more on the S. DNA side, you know if you could help us that the puts and takes four.
<unk> expenses for the back half the year, especially where you stand on may the kobin related expenses, including the premium associate pay that you've been paying out.
Yeah, Andrew Hi, This is Jay and I can speak to it obviously, we got a great leverage in the quarter with with the sales levels at where they were for the second quarter, we leveraged.
On the payroll and that included premium pay we probably had about $4 million worth of premium pay in the quarter and that as we've talked about that was $1.50 an hour premium to our frontline employees and we've stopped that at the a ended the second quarter, but we're kind of transitioning it to something more.
The stipend a discretionary bonus going forward on a monthly basis, but we don't expect going forward that we're going to be anywhere near or we won't be over certainly on the run rate than we had in the second quarter and and with the sales trends in the way we manage payroll we've been able to absorb it. We also got great leverage on our occupancy you know the fixed costs. So.
Depending on the sales levels and what happens going forward and again, we're not forecasting anything but.
If we if we have sales they go over the the one on one half comp that's when we start to experienced leverage on the SGN ne.
And we would expect that to continue.
And again looking looking forward.
For the back half a on a normalized basis and again I know, we're not on a normal basis, but we obviously got great leverage in the second quarter. So maybe on a full year basis again, if we went back to our base plan, maybe we'd be around 24% for SGN and maybe little bit north of that but again, depending on him to sales we'd get some benefit.
From that number.
Understood. Thank you that's all from me.
Thank you. Thank you.
Our next question comes from Simon Gutman Morgan Stanley Your line is open.
Hi, everyone I'd Simeon how are you.
Just to clarify I think at the the late July update if I'm not mistaken sales were mid teens and I think we're talking now high teens I just want to clarify the sales actually accelerated quarter to date and I know you mentioned there are less than the 43.
And that's because of opening but why what explains a slight pickup.
If that's right on the sequential move.
Yes, you are right when we issued the release, we were probably a couple of weeks 10 days out from the ended the quarter.
If you remember a year ago during that time, we and heavy clearance of air conditioners, and some seasonal product and so that's subsided a little bit towards the end of the quarter. So we saw the comps accelerate and that's why we ended up at the 43 three versus closer to the 40 that we've had in the pre release.
And now you know again.
Those trends have decelerated, a little bit, but we still feel pretty good from a from a cadence during the quarter. Our strongest month of the quarter was may and we saw step down in June we saw a step down in July.
So that trends continuing a little bit, but like John said already on the call part of that also as these seasonal categories, where we did still have some stock early in Q3 last year. We just don't have that were out of stock that's a good position to be in.
And otherwise the.
But we are experiencing now so far in the third quarter is broad based and we feel good about that.
Okay, and then can you just how can you talk about the lead time is that changing it at all in terms of inventory being shown to you is it getting longer or shorter and then I think John mentioned that being leaner could actually help and maybe this is just an age old question for this business is just staying disciplined on what your.
Buying.
As you get more or let's say brands that you hadn't had before so how you manage that process.
Well I think depicting Simeon is right I want to talk about staying leaner. It's in store inventories I'm not going to turn down deals or opportunities with new major manufacturers are new new or existing vendors. We may hold that the goods in the distribution center, rather than getting the store to force not as Shoppable as I think it can.
When we don't have as much top stop or have good stuck in the back room I don't think thats, great model to be running from an operational efficiencies efficiency perspective. So there's not a shortage of product is not a huge change in strategy, just a little bit of change to get the stores, a little fresher and we will be thing to be little more easily shoppable. So that's not something that I would.
Really get too concerned with from your perspective, we're not returning the Apple cart upside down or anything of that nature. So.
We're excited where we're sitting I would tell you that deal for remains strong when I talk about when mega deals will present themselves.
Theres no hard fast rule is it three months six months nine months or 12 months just generically speaking, we always know there's a time for a vendor to have a little bit of pain with goods that they don't have the ability to move somewhere else and then in order to becomes available for us at the price. We're looking for so that normally takes a little bit time to materialize I think were priced six months away from.
That maybe seven eight months, so, but we're getting plenty of deal flow today plenty of great deals more excited what we're seeing in the marketplace, where we're expecting to see some larger deals present themselves. So later date that we will take we will taken hold and then distribute to the stores as they can handle them.
Okay. Thank you.
Yes. Thanks.
[music].
Thank you. Our next question comes from Peter Keith Type of Sandler Your line is open.
Hi, Good afternoon, I wanted to just dig into the close out availability and try to understand if that might cause your sales mix to change over the coming quarters, and I guess, John what it would be looking at specifically as some of your home related categories, like housewares or bed and Bath, sorry 25.
For set of sales.
Everything home related has been kind of white hot at retail so is that the clothes that availability and those two categories going to come down to and is there a similar dynamic that could happen and consumables, which is also remained strong.
Hi, Peter that's a great question I would tell you that we are definitely working hard in the housewares and the bed and Bath area and obviously the age Bay area, as well, which a lot of consumables reside in but our merchants not having a hard time, finding the product they need to meet their sales objectives and meet their inventory plan. So we don't.
Like we were and have a shortage in those categories were actually feeling a little bit a pickup in the bed and bath on some items, we hit order previously that were delayed.
So there is a little a little bit of a.
Challenge with you know with Covance, starting back in March and some goods might have been delayed during Q2 that we may not be seen so Q3, which will obviously benefit us even more than what you would expect so I don't think theres going to be us real major shifts categorically.
Between what we historically have seen from a company perspective, I don't expect a 500 basis points shift between any department or 250 basis point shift. So I think we'll be inline with our expectations Department by Department and I think for were set and ready to go for Q4 three so.
Okay very good.
So I was hoping you might go to provide a little more detail around the ticket and traffic comps.
And I guess, specifically interested in the in the traffic comp and whether you have some understanding or new customers achieve acquired during the quarter.
Yes, Peter this is Jay and and our transactions were up 18%. The average basket was up 25 and that was driven by 19% increase in average unit retail. So we saw a nice pop on the retail as well as you TP in the transactions up 18 so.
And to your point, we absolutely.
Our attracting new customers, certainly and non ollie's army customers into the box and they're spending a lot and we're working to understand that we're glad we can see the numbers going up and that there are new customers coming into the box with our goal is to convert them into the army.
And speak to them, so we're well underway on that and in addition.
Kind of to Johns team the way, we're going about the business now a little pressure a little leaner when we run these ads, it's very meaningful to deals pop.
For the customers coming into the store and those circulars, while they are not the there little bit old school, but they get a new loan by a lot of eyeballs, both inside the army and outside the army.
Thank you.
Our next question person got Pirelli of RBC capital markets. Your line is open.
Good morning, guys, Scot ciccarelli or good afternoon.
John.
Can you can you help reconcile something for me when you've previously talked about the potential for Mega deals Youve comment that you can see kind of six to nine months down the road just because it takes to send your time to understand with the pricing thats exactly the merchandise, but in theory the process really should start at call. It four or five six months ago, and so I guess I would just.
No sooner than 678 months would would kind of makes sense. So can you help us kind of understand the timing of when some of those deals and why why would manifest so much later.
I think the main part that were seen Scott is the the delay of shipment that would have come into the states.
The product that there that was canceled by another major retailer that they were not sure was going to go subsequent take time for to play out.
Theres no like I said, there's no magic hard data, so science to it as a matter of how long they have to hold onto it and if they're hope is that they're going to have another retailer potentially buy it at a higher price that we are and what we obviously closeouts or closeouts and that's how the model works. So we expect will be out there to be had.
Short order and like I said deal flow is strong we're not we're not starving we're not looking for product. We're not we're not out of product. So the deal flow is strong today.
And has been stronger we're getting new vendors that are great.
Major manufacturers. So I don't want I don't want you guys are takeaway that we're not getting product and we're sitting here settling for for a non non a goods. So we're in very good position our comps would indicate that we're not as you guys know we're not a comp story, where we're really a growth story. So seeing the comps were able to deliver which I call world class comps and.
Still continuing to be in the high teens is pretty powerful message on the customers are are still resonating with what we're offering versus what other retailers are selling in the market today.
That's helpful. And then it seems like there's there's a lot of retailers and kind of that the hardline world brought on world that are chasing inventory so.
Can you help us understand where at least what some of that broad categories, maybe where where you're starting to see where you're seeing a lot of the strong deal flow because it I guess, it's just not fully intuitive just given some of the shortages other retailers are also experiencing.
Yeah, I would tell you there you're not seeing that we're store, we're seeing excess in some categories you would not expect to see excess which would be in the the coffin flu and cough and cold area.
We're definitely seeing access and the housewares category small electrics is still out there.
Domestics bed and Bath, we're still seeing we're seeing the excess come about where where is it a little leaner than what were normally used to seem I would probably call. It the food category the merchants, having to work a little bit harder to get the product there used to getting the the major manufacturers in the food category are not as full as they normally would would be will shortly.
Their product, which makes total logical sense with what happened with Covance and I think I, even called out last call that we expected to see a shortage in some of these categories, but all the other categories. Our merchants as you guys know we have a big team has been do this for a long time there their sourcing the product there fill their departments. According to the open to buy so we're not having issues with the deal flow.
Awesome, Thanks, a lot cuts.
Thanks, Scott Thanks.
Thank you.
Next question comes in Lids is that your bank of America. Your line is open.
Great. Thanks, guys I guess.
Some economists are getting worried about a double dip into a more normal recession. So one that last longer than 30 days just in that environment. How do you think your business could perform how would you adjust versus the current environment and just how are you thinking about that as they are no possibility for the next 12 months.
Yeah lives I would tell you, we're not recession resistant carbon recession proof or definite recession resistant our models have been proven in good times, a bad times, we performed well in both I think that a recession plays into our hand, where people have potentially at the trade down in the marketplace and come to more van.
You, which they flocked to in 2008 2009. So we're we're we're at we're ready and able to take on that additional.
The loss of your volume if you want to call. It it would it at that time does come in in our model is perfectly placed for that yen. Liz. This is Jeff I'd just add on I mean, we're kind of demonstrating that nimbleness and the ability certainly on the merchandise front for the buyers to go after and secure key product in key deals.
You know one and dynamic time, and if we did go into double dip recession that would be more of the same I think we'd be very well positioned this model in general.
Can you continue to do well.
Great and just a follow up on holiday I mean, how are you thinking about your approach this year given that shopping behavior, just seem to be changing a bit and if you think about those ollie's army members that you're converting from your new members, they've got or new customers they've gotten in the last quarter I guess my for Q, how much do you think you could speak.
Getting in terms of new Ollie's Army membership on a year over year basis.
But that's probably impossible for me to answer that because I don't know how the economy going to play out in the uncertainty that that we're all dealing with in the marketplace, So but I.
Jay said, we're poised.
To take advantage of it and I think will be strong.
With our numbers and attracting new customers and obviously motivating the existing ollie's Army customer database, which as you guys know accounts for more than 70% of our sales. So there are integral part of our success.
So that's what we'll continue to focus on I do think the holiday season is going to be much more stretched out a dominant typically has been I think that there'll be a we'll be ready for will be set early and ready to go but I do think that there'll be a little unique shopping patterns, obviously black Friday will be a low.
Little different than what I think we normally see it at.
We're already internally talking about what we're going to do for Ollie's Army night, which is typically on the second Sunday in December and as for four hour period, which with the way Cofidis today Theres no way in the World. We can have Ollie's Army night and still follow CDC guidelines in our stores. So we're going to have to make some changes on that and stretch out.
A little bit to make sure our stores are not to full we can actually.
Handle the customers on customers and employees safely. So we're we're internally talking about that are ready today. So.
Thank you. Our next question comes from Edward Kelly of Wells Fargo. Your line is open.
Hi, guys good afternoon.
Just a follow up first on the Ali Ollie's Army number.
Is that a clean number I know from time to time, you guys have kind of like you know some cleanup stuff that gets done and that number and just kind of curious is that the best way to think about.
The the number of new members year over year.
Yeah, that's a very clean number and I think we had a hiccup two years ago, or two and half years ago and ever since a hiccup we've been clean a very very consistent on how we report the ollie's Army active membership.
Right.
And then if we think about.
Back half comps I mean, you're running high teens now.
This stimulus benefits, that's probably almost gone at this point.
How do we think about the importance of stimulus to kind of maintaining a double digit rate in the back half or is it more about just product cycle I'm just kind of curious as to your you're thinking about.
You know things potentially slowing a bit.
It doesn't really seem to be happening.
But I'm just kind of curious as to how you are weighing the individual drivers of that.
Yeah. This is Jay this is Jay and I'll start and John May chime in but I mean, obviously right. It's not something we can really forecasts are attributed I mean, like we said we're running in the high teens now and in the commentary we would expect that to slow.
It's really hard to bifurcate all the components of it whether it's the stimulus whether it is people being.
In their home and wanting to get out and have some entertainment.
Via shopping whether it is people are being home and wanting to to spend money in the categories that than we've done a lot of that complement them refreshing their home.
So it's really hard to bifurcate all that I think the one thing that we talk about and are focused on is controlling what we can control, which is is we've got new customers in the box, making sure. They haven't good experience converting them to the army talking to them either via the army or if not in other means and engaging them and retaining those customers. That's.
What we can control.
So we do expect it to slow, but again we would.
I think there would be some level of tailwind theoretically from these new customers, but we're not in any position to forecast or quantify that.
Thank you. Our next question comes from Rick Nelson of Stephens. Your line is open.
[laughter] current Clark <unk> current where are you bring.
Who are buyers.
Merchandise categories.
Appears to be a lot of greater ability and the apparel.
I know historically bags.
Folk who serve our is procure out.
Trucks, who sort of apparel just curious about your interest.
Yes, Rick Rick from the apparel standpoint, we probably have very little interest.
Increasing the I'll call it the fast fashion categories.
In the in the world of basics socks underwear T shirts blue jeans.
Hunting gear stuff like that we're going to continue to stay in that category, but we do not occur Ics expect or plan to expand our clothing department in any material fashion with regards to south or will leave the those excess clothing deals for for other ones, who play in that field, if theres a us.
A deal that comes about that may be.
Relate.
Outerwear coats or something of that nature that that's a one off we would definitely look at that we're not looking to expand the closing department. In fact, right now I think our departments are all set pretty well in terms of of we want to be and we're not going to be at any new categories to our arsenal today.
[laughter] curious could hi, this up correctly.
So.
What you're saying in terms of rent.
The quality of low taste.
[music].
Yes, Rick we're definitely seeing we're definitely seeing a pretty good.
Set of locations out there in the marketplace pretty strong today, I think it's going to get stronger as retailers continue to have more and more difficulty to survive. There's there the box sizes, we said before toysrus had the perfect box size for us.
But others are you know JC penney's, the Kmarts people forget how did the demise those and break those up but we're getting we're getting our fair share of deals rents are not really easing that much yet.
I think as we said before it takes time.
But I think that we're definitely getting good deals for the real estate that we're we're acquiring and I think we're poised to continue to grow at the right rate that we've talked about in the past in our.
Real estate team is very busy in each and every day scarring new locations for us.
Great. Okay, that's good color Hank.
Thanks, Rick.
Thank you.
Next question comes from Paul underwear.
Research Your line is open.
Hey, this spread and shoot them on for Paul just if I could follow up on that real estate market opportunities that you're seeing.
No.
It Doesnt sound like you're necessarily getting more favorable terms on new doors.
Is the new store cadence of about 50 design internal constraint or is that based on what market opportunity.
And then you mentioned JC Penney whichever consider switching from off mall with.
Terms are favorable north.
Where we're not a real big fan of malls. So a lot of JC penney's of the malls JC Penney JC penney's or in our either getting a de mold or the close off that section of the mall, there's no access to our buildings from them. All so that we have zero zero interest and being attached to a mall it have them all access into the stores those those.
As you know most malls are starting to die in their chain change in the mountain, they're starting to make make a more and the strip centers by turn out the middle Nuggets. So with regards to our constraints in terms of new store growth, our new store growth is constrained by our internal.
Restrictions, we put ourselves is not a matter of availability. So there could be more sites available for us to collapse on but we we feel that 50 to 55 stores a year is the mass we want to do one per week feels right with the complexity of our our business and what we do and the main reason that there is a constraint on.
The the overall real estate or new store growth. Most people think its inventory, it's really not inventory. It's the people side of the business, we really work hard to keep the culture of the business it's difficult to run. These stores. So we want to develop as many potential new store managers from an internal development perspective, so we moderate the store role.
Because of human capital.
Thank you. Our next question comes and Jeremy Hamblin, Craig Hallum. Your line is open.
Thanks, and congrats on this.
Impressive execution.
I wanted to start just clarifying something that you said Jay.
The SGN today.
And you guys are getting more leverage obviously the normal.
I think did you suggest that the kind of 24% of sales is that for the back half of the Earth is kind of the level, you're thinking or is that specific to Q3.
No and that's a full year estimate based on kind of a base plan, which we know is outdated actualizing Q1 in Q2, and then what our normal base plan would be for full year, we'd be closer to 24% and keep in mind in Q4 last year.
We had a lot of compensation.
Paying it was reversed because of the performance. So that's a bit of a headwind at a normalized sales level. So.
And to that point on me.
Yes to that point on the pay the comp pay which I know was below typical in Q4.
Hi, I'm, assuming that you guys are tracking pretty well ahead of the beginning of the your plan.
That you're likely to hit all those targets or most of them.
Is that something now where you've kind of caught up and normalized where it's going to be for the year. That's part one of the question part two would be.
Have you considered to the point about the Ollie's Army night, whether or not youre. The operating hours that you typically would have in Q4, if that's going to be more or less than you would normally have.
Yes from a compensation standpoint, the bonus this year I mean, you're right. We're tracking well ahead of plan and Weve.
Crude to that as we've gone now so we've got that contemplated in the actual numbers and we've got to forecast forward, but we're well ahead as you said, but then the 24 on full year basis would contemplate that.
And then the operating hours.
Now I'll, let John Yeah, Jeremy with regards the operating hours I think during the fourth quarter. We will we will definitely plan to keep our hours as we have historically.
We open up at eight in the morning were up until 10, I think giving the shop or more obviously since we have no E com and our platform is in the box in the four walls and it's a busy time of year. The more hours, we give the consumer the opportunity to shop, the more spread out they will be.
So I think shoring up the hours would be a problematic and I don't think when you make me longer than what we have so I think we're we're poised ride I do think as I mentioned earlier, the Ollie's Army night will definitely have to be changed in spread out over a longer period of time. So we don't have so much compression I in the stores and have issues from a safety perspective, so that that's that's definitely in the works and so.
There were probably gonna be changing.
Okay, Great and then last question actually is on your your balance sheet and.
Not inventories, but your cash levels are just.
Extraordinarily high.
You know I know that you would have some usage of that for working capital here in Q3 in the build towards holiday, but typically you exit.
With a level that's kind of app.
Or maybe slightly above what you typically have at the end of Q2, which would project you with over $300 million to end the year.
Have you given some thought it's the board thinking about other alternatives for that.
Kind of cash or that you're building.
Any color you can share it'd be great.
Yes sure Jeremy This is Jay and absolutely the board and John and I are talking about it and our position currently used were going to maintain that cash balance and be conservative.
Until we get through the pandemic, we think that makes sense I mean, when there is going to be deals to come in the future. So we want to make sure that we've got the liquidity to go after that aggressively.
But then when the time is right.
Obviously, we will talk to the board and we will work together to returning that cash to the shareholder.
In the best way possible.
Great. Thanks for taking the questions guys. Good luck.
Thanks, Jeremy here.
Thank you I'm showing no further questions at this time, you turn the call back over to John Sliger for any closing remarks.
Thank you operator.
Thanks, everyone for your participation and continued support we look forward to share in our third quarter results with you on our next earnings call.
Okay.
Ladies and gentlemen, this does conclude today's conference. Thank you participating you may now disconnect have a great day.
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