Q4 2020 Ollie's Bargain Outlet Holdings Inc Earnings Call
Yes.
Good afternoon, and welcome to the Ollie's bargain outlet conference call to discuss financial results for the fourth quarter and full year fiscal 2020. Currently all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. Please be advised that reproduction of this call in whole or in its part.
He is not permitted without written authorization from Ollie's and as a reminder, this call is being recorded.
On the call today from management are John Swygert, President and Chief Executive Officer, and Jason <unk>, Senior Vice President and Chief Financial Officer, I'll now turn the call over to Jean Fontana Investor Relations to get started please go ahead ma'am.
Thank you and good afternoon, everyone. A press release covering the company's financial results was issued this afternoon and a copy of that press release can be found in the Investor Relations section on the Companys 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 or estimates.
And that 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 statements within the meaning of the private Securities Litigation Reform Act of 1995, you should not place any undue reliance on these forward looking statements, which speak only as of today and we undertake no obligation to.
Date or revise them for any new information or future of that factors that may affect future results may not be in our control and are discussed in our SEC filings and 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.
I'll be referring to certain non-GAAP financial measures on today's call such as adjusted EBITDA adjusted net income and adjusted net income per diluted share that we believe maybe important to investors with our current operating performance reconciliations from the most closely comparable GAAP financial measures to these non-GAAP financial measures are included in R&R.
With that I will turn the call over to John.
Thanks, Jean and Hello, everyone. Thanks for joining our call today.
We delivered another record breaking quarter to finish fiscal 2020 capping off the best full year results and our 38 year history. This year with surface. This year, we surpassed $1 $8 billion in top line sales and increased adjusted EBITDA by over 56% to $300 million.
These results were achieved in a year of unprecedented challenges and demonstrate this demonstrates the strength of our business model and the extraordinary execution of our team.
They truly went above and beyond leveraging many years of experience and long standing relationships in the closeout industry just share the very best deals for our customers.
This responsiveness and know how is our secret sauce.
Our success and shows the flexibility of our business model and nimble operational capabilities.
I would like to express my sincere thanks to the entire ollie's family for Dennis.
Demonstrated their dedication and resiliency during these challenging times since.
Since the outset of the pandemic, our priorities have been consistent and ensure the health and safety of our team members and customers support our communities and provide our customers with a steady flow of extraordinary deals deals and items they need.
Great deal flow across all departments productive new stores and strong comparable store sales drove a 22% increase in our top line in the fourth quarter.
Comp store sales increased eight 8% as.
As you may recall, our comp trends were running in the low single digits early in the quarter and we saw momentum build as we progress through the holiday season and into January.
We continued to benefit from spending trends that worked in our favor with a shift in demand towards merchandise that appeal to a stay at home lifestyle.
In January we believe the second round of government stimulus also fueled some of the comp sales growth.
Our top line growth combined with our gross margin expansion and tight expense control drove adjusted net income growth of 31% in the quarter.
We are very happy with the broad based strength across our merchandise categories with over two thirds of our departments Comping positive.
Our top performing categories included bed and Bath housewares flooring food.
Health and beauty AIDS and seasonal.
We executed the ollie's formula by cheap and sell cheap.
And we had the right products at a great value deal flow remains very strong and we are excited about what we're seeing in the marketplace with great deals presented to US every day.
Merchant team continues to leverage long standing vendor partnerships and establish new vendor relationships to capture incredible deals across all merchandise categories.
Our ability to capitalize on these opportunities in the current retail landscape has never been better as we continue to leverage our increasing scale.
We have a proven ability to handle large deals from our suppliers in an exceptionally strong liquidity position.
We are pleased with our current inventory position and in the quarter with inventories up five 5% compared to last year. Our continued sales velocity has us chasing the business a little but as I mentioned deal flow remains as strong as ever.
As you've heard me say before our approach to maintaining dry powder in our open to buy it gives us the flexibility to ramp up receipts and opportunistic purchases.
We can also respond quickly to changing consumer demands all of this plays to our strength, our aggressiveness and agility as an organization.
The strong deal flow was always driving great new store performance.
New store has once again delivered sales above our expectations with our recent store classes across new states and new markets outperforming our model.
We opened a total of 46, new stores in 2020, and I am very proud of the team's ability to execute these projects. Despite the added complexities of operating in opening during the pandemic.
New stores remain the primary driver of our growth and we excuse me see a great great opportunities to continue to expand our footprint in 2021 and beyond we're targeting 50 store openings this year, including three to four relocations and are planning to introduce the ollie's brand to three new States, Kansas, Missouri and Vermont.
So far this year, we've opened seven stores, including one relocation and we were very pleased with the early results.
We have a tremendous runway for growth with the potential to expand our store base to over 1050 locations nationwide. We feel good about the significant white space and the ability of high quality sites the.
The value driven consumers clearly not going away by most measures value is gaining in importance.
With this in mind, we feel very confident in our runway for growth.
Ollie's Army continue to be a significant sales driver in the fourth quarter in membership keeps growing we ended the period with over $11 6 million active members, a 13, 6% increase over the prior year with growth in the membership levels outpacing store growth.
Army members shop, our stores more often and drive a substantially larger basket ollie's.
Ollie's Army sales comprised of over 75% of our total sales in both the quarter and the year, representing the highest sales penetration ever.
Clearly these are very important customers with whom we look to build long lasting relationships through special benefits and of course, great deals.
As we shared with you last quarter, we are in the early stages of enhancing our marketing programs and redeploying dollars to optimize their effectiveness.
Our focus is twofold, deepen engagement with existing customers and attract new customers.
We are pleased with what we're seeing so far and we will continue to refine our efforts, particularly regarding new digital initiatives in fiscal 2021.
We are very excited about our results for the quarter and the continued momentum momentum of the business comp store sales growth is tracking in the high single digits quarter to date. We are pleased with our current sales trends that we believe we are well positioned to deliver solid first quarter results. As a reminder, we anniversary the onset.
Last year's Covid demand surge in mid April and it's from that point forward that we'll be up against very challenging year over year comparisons.
Like everyone. We look forward to putting the pandemic behind us, but we undoubtedly will be dealing with the opportunities and challenges in fiscal 'twenty, one that like last year, we'll have varying degrees of impact on the economy consumers and our business no matter what comes so we're going to keep doing what we do best buy and sell good stuff cheap while maintain.
Discipline in how we operate the business as.
As Mark would say, we're hitting all our marks were offering incredible deals controlling expenses and opening a successful new stores simply said our team knows how to execute our execute our strategy and delivered results in both good and bad economic periods and we believe we are well positioned to benefit from the continued disruption in the marketplace.
Looking ahead, our long term growth algorithm remains intact and I am bullish as ever about our business.
We delivered unbelievable results in the quarter and the year and I could not be prouder to be part of this team.
I want to thank our almost 9500 team members for their incredible dedication and contributions to the business, particularly during these challenging times.
As we say.
We are ollie's.
I'll now hand, the call over to Jay to take you through our financial results.
Thanks, John and good afternoon, everyone I wanted to start by thanking the entire ollie's team for their tireless efforts and teamwork in a year. Unlike any other in our history. Despite the numerous challenges you consistently stepped up to drive business and meet the customers' needs I. Appreciate all that you do.
We are very pleased to have delivered a record quarter and fiscal year.
For the quarter net sales increased 22, 1% to $515 $8 million, great deal flow productive new stores and strong comps drove this increase.
Comparable store sales increased eight 8% in the quarter fueled by a significant increase in average basket, partially offset by fewer transactions.
We ended the quarter with 388 stores in 25 States, a 12, 5% year over year increase in store count with a total of 46 new stores for the year. These stores are the engine of our growth and we are very pleased with their productivity and ROI as our new stores pay for themselves in less than two years.
Most profit increased 23, 6% to $204 $7 million and gross margin increased 50 basis points to 39, 7%.
The increase in margin was due to improvement in the merchandise margin and leveraging of supply chain costs.
SG&A expenses, excluding insurance gains in both the current and prior year increased 20% to $114 $4 million.
Primarily due to additional selling expenses from our new stores higher store payroll to support the increase in sales and increased incentive compensation.
SG&A as a percentage of net sales, excluding the insurance gains decreased 40 basis points to 22, 2%.
The decrease was driven by leverage in occupancy and many other costs due to our strong sales performance and continued tight expense control.
<unk> operating income, which excludes the gain from the insurance settlements increased 31, 7% to $84 $5 million.
Margin increased 120 basis points to 16, 4% adjusted net income, which excludes tax benefits related to stock based compensation and the after tax insurance gain increased 31% to $63 $8 million adjusted diluted earnings per share increased 31, 1% to <unk> 97 per share adjust.
Good EBITDA increased 32, 9% to $92 $1 million and adjusted EBITDA margin increased 150 basis points to 17, 9% from the quarter.
In 2020, net sales increased 28, 4% to $1 $809 million and comparable store sales increased 15, 6% for the year. Adjusted net income in 2020 increased 61, 1% to $208 million and adjusted net income per diluted share increased 61, 2%.
The $3 16.
Adjusted EBITDA totaled $306 $5 million and adjusted EBITDA margin was 16, 9% for the year.
Capital expenditures in 2020 totaled $35 million compared with $77 million in the prior year last year expenditures included approximately $43 million for the construction of the Texas D C.
At the end of the period, we had no outstanding borrowings under our $100 million revolving credit facility and $447 million in cash in.
In 2020, we generated over $361 million in operating cash flows our proven track record of robust cash flow generation is a testament to the strength of our model, allowing us to fund our growth and continue to build our cash position.
This year, we plan to strategically deploy our cash on hand to buy back shares of our stock in both a programmatic and opportunistic manner, putting our cash to good use and increasing shareholder value.
As you saw on our press release, the board recently authorized a $100 million increase in our share buyback program, resulting in over $200 million approved for share repurchases.
While we are optimistic about the momentum of our business there remains uncertainty related to COVID-19, and its potential impacts on the economy, the consumer and our 2021 results for these reasons, we will not be providing specific guidance at this time, but I will share some high level thoughts on fiscal 2021.
As John indicated we are off to a good start with comps tracking in the high single digits. We continue to operate in an uncertain environment, including the timing and duration of stimulus spending inflation and evolving consumer behavior as we emerge from the pandemic.
As you know we are up against exceptionally strong numbers in store.
<unk> comps in 2020 with the initial Covid related sales surge beginning in mid April the second quarter will certainly be our most difficult comparison, both from a sales and net income standpoint, given our incredible performance in 2020, the third and fourth quarter comparisons will be challenging as well as we continued to perform at unprecedented levels and soft top line benefits from EQ.
Gnomic stimulus under normal circumstances, we would not expect to comp. These numbers, we are anticipating some headwinds in gross margin due to ongoing supply chain pressures impacting all retailers such as increased important trucking costs. We expect a headwind of approximately 20 to 30 basis points for the year, taking us from our typical target of 40% gross margin to <unk>.
39, 7% to 39, 8% for the year. In addition to these increased costs. We are currently seeing increased port congestion, which could create delays in certain imported product categories. However is always disruption of this nature may lead to opportunities down the road.
Finally, SG&A as you know, we have and always will keep a tight rein on our expenses. However, even with the continued prudent approach to expense management, we are facing very very challenging comparisons given the leverage we achieved in 2020, we expect to return to more historical norms and our SG&A expense rate for 2021.
Our current plans include the following the opening of 50 stores, including three to four relocations. We are planning a split of approximately 50 50 and openings between the first and second halves of the year, we feel confident that we can achieve our target, but we will be dependent on local market conditions to stay on schedule.
We expect capital expenditures of $40 million to $45 million, primarily for new stores, it projects and store level initiatives depreciation and amortization expense in the range of $26 million to $27 million, excluding including approximately $6 million that runs through cost of goods sold.
An effective tax rate of 25, 2%, which excludes the tax benefits related to stock based compensation and diluted weighted average shares outstanding of approximately $66 6 million before any impacts from stock buybacks. While challenges remain in 2021 opportunities also exist the strength of our model in both strong and weak economic cycles.
Our very strong financial position and our confidence in our ability to deliver on our long term growth algorithm have us excited as ever for the future.
I'll now turn the call back to the operator to start the Q&A session, operator, certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key.
First question comes from the line of Matthew Boss from Jpmorgan. Your question. Please.
Great. Thanks, John maybe to kick off could you just elaborate on customer behavior that you're seeing quarter to date, maybe any early takeaways from this round of stimulus versus around a year ago and when it's all said and done I mean.
Do you believe this pandemic will ultimately prove additives to ollie's brand awareness or market share just kind of trying to think about our model on the other side.
You know as we as we approach the end hopefully at this pandemic.
Sure Matt.
From what we can see obviously, it's very very early on and what I would call. The third stimulus package that just came out store.
Friday Saturday of this past week, but the behaviors are really resembling what we saw on the seamless one into a relative to the immediate response to our at least our model we're seeing some from some pretty nice benefits.
From what people are doing.
I do believe that we will see some continued benefits all the way through probably the mid part of April until we go up against the first stimulus that was that was introduced last year. So we'll have some headwinds at that point in time, but I think we have some pretty good runway from now till the middle of April in terms of long term I think that no different than we saw in 2008 2009.
I think people, who try us like us and they like the discount they liked the brand names like the Closeouts that we offer and the value. We present. So I think we will have some stickiness with those folks and that should be a benefit for us on a long term basis.
Great and then maybe just a follow up.
Does the overall product availability picture look like right now in the marketplace for you today.
Curious how youre from I guess as Youre, probably chasing inventory now, but then as we think about going up against some of these tougher compares.
How are you planning inventory between near term and back half of the year and last just on that point as we think about your backend model from a merchandise margin opportunity on the buying front.
Does this provide you some level of installation as we think about the freight headwinds that and I know you're facing as well.
Yeah, Matt I would tell you we are having no problems whatsoever.
Securing product and great great brands and great great names at great prices.
It's actually been better than I would've expected at this point in time, and it's very broad based it's not one category or two categories. We're seeing it in every single category, which is a little earlier than I would've expected. Our merchants are are appropriately bought up and they are in great shape from an open to buy perspective, but we are not in any way.
<unk> perform having problems.
Getting the inventory purchased from our from our manufacturers and our relationship so from that perspective, I'm very excited and I think it's only a better the remainder part of the year, having as some of the the retailers and manufacturers lap some numbers from last year, they're going to probably over produce and we're going to have more opportunity as well as we continue to go forward.
I think you had one other question, Matt that I might not have answered.
Yes. It was it was more just merchandise with the with the plentiful availability out there how best to think about merchandise margin opportunity that historically, you were able to offset some of these <unk>.
Wins that are more transitory.
That would be an opportunity.
If things come in better.
Yes, I would tell you the answer on that as we always are going to get back to the consumer where we can and try to maintain our 40 point gross margin as Jay said, we're price shooting for 37% 38 today with what we're seeing in the marketplace 30, 97, sorry, 39 739 eight.
From where we're at today.
If we can get more and there's more availability on the price we'll take it.
But more likely than not if we can get back to consumer maintain the 40 point, that's what we shoot for.
Yeah.
Alright, good luck guys.
Thanks, Matt Thanks, Matt.
Thank you. Our next question comes from the line of Peter Keith from Piper Sandler Your question. Please.
Hey, good afternoon, thanks for taking the question.
John You had mentioned that some digital initiatives for 2021, I was hoping you could tease that out a little bit more and maybe on that note.
I was wondering if there's any consideration to your go to market strategy with advertising, which has been heavily print dominant in the past I know you've been asked about this a lot, but with consumer behavior shifting online while you don't have a web site.
Perhaps some of your advertising could also be shifting to more digital.
Yes, Peter we are in the initial stages and we've talked about it a few times. So we're definitely planning.
Planning to move some of our dollars from print to what I call mass media or digital.
Working on that.
We're working on that for 2021, as well and I think that's just another means to attract a new new consumer and speak to people in different fashions, but we're definitely working on that and the marketing team is very focused on doing more card link card linked offers.
Working through Facebook Instagram.
We just hired Sasha is a firm out there to help us with Google and really looking at but we're not going to go 100% digital ever.
But the the print will be augmented with our digital campaigns. So we'll smoothed some of that dollars around but I think we're not going to become an E com business, but where we're looking to refine our website and looking at refine all the digital means that are out there.
To augment what we have so I think we're well positioned to do that this year and going forward.
And Peter this is Jay just to tack on a little bit to that I mean, obviously, the consumer has shifted a little bit and.
Because we can advertise we really can't do our closeout business online, but given the strength in the numbers and the trends that we've seen.
It's almost reinforced the fact that there is room from brick and mortar.
Especially when there is a value and there's a treasure hunt and.
So that still resonates with the consumer and we have got a lot of white space and a lot of growth ahead of us. So obviously thats our focus.
Okay that sounds interesting.
And maybe Jay to follow up with you on a financial question.
You talked about.
Strong comps you saw back in the two.
2008.
2009 recession, I think 2009, you comped, 8% than 2010 was a flat so two year stack of plus eight.
Is that maybe some type of framework, we can think about for for this year or do you just see too many differences with what's going on now versus back then.
Yes, Peter I mean, we're not giving guidance.
Yes, we've talked about that framework before and Thats, a reasonable way to look at it from a.
Kind of a base plan base base case modeling right. We obviously had a heck of a year last year. So we wouldn't expect to comp that and write that negative eight.
As a rational way to think about it the other way from a framework standpoint, how we think about in a little bit is if we look at 2019, our normal top line growth rate is call it 14% to 15%. So if we have two years of that from 19.
Grow top line, 30% and that might get you in the ballpark, but again, we're not giving guidance, but trying to just give a framework for kind of a base model.
Okay.
Alright, thanks, so much and good luck.
Thank you Peter.
Thank you. Our next question comes from the line of charter Needless Ro from Goldman Sachs. Your question. Please.
Hi, Thank you for taking my question hope everybody is well.
I wanted to talk about the launch of new sign ups that you guys have seen very impressive stats, perhaps you could give us some sense of how the new members within yard.
Ollie's Army are looking worse since traditional members.
The demographics, what are they looking to buy and how has that bind shift as you now know that a lot of these members are six months into the program, perhaps thank you.
Sure, we don't necessarily have the demographic profile of the customers as they onboard so I'm not able to answer that question to you right now, but I can tell you we have had nice sign up and nice activity within the overall, new new membership for 2020.
We're excited what we're seeing their behaviors are not much different than the overall.
Ollie's Army membership that we've had I can tell you the overall spend and the army they are averaging about $40 per basket versus the non ollie's army member of about $30. So they're spending about 37% more per average basket, which is much larger than it used to be so we're getting a nice traction what the the customer base that we're seeing in the stores.
I'll definitely have seen some additional velocity from the folks that have signed up during Q2 of 2020 and what their purchasing habits were in Q4 compared to the prior year. So we did see some nice increase in spend and additional new members that signed up and came in the store. So I think we will be attracted some new.
New individuals' and solve them come back to our store multiple times. So we're excited what we're seeing there and we hope to continue to see that trend as we go forward.
Great and if I could quickly follow that up with.
The high single digit comp that you are seeing quarter to date I know you don't have a lot of stores in Texas, but I just wanted to quickly check was there any net.
Negative impact that you saw from that region.
Generally from the cold snap that we saw in the country in February or perhaps any after math of that debt that resulted in.
Increased demand.
Thank you yeah, we definitely we definitely saw a direct impact to not only Texas, It impacted Louisiana and went up through Tennessee and to Kentucky.
It was more widespread than just Texas, Texas got the brunt of it.
Our one of our distribution centers is right outside of Dallas and that was impacted.
Cut down for an entire week. So we definitely had some impacts on the business, but to your point I believe all of it was timing wise I think we got that back and we'll get that back but it definitely caused some some headwinds in the first month, but I think that came back to us with additional purchases in people buying more stuff they need for the home, but as you know that.
Not a big part of our overall comp base, but it definitely had an impact in February but I think we're getting that back.
Great.
Thank you. Our next question comes from the line of Brad Thomas from Keybanc Capital. Your question. Please.
Hey, good afternoon, John and Jay.
My first rational if you can.
Give us.
Thanks, My first question was around trends in traffic and ticket. If you could just give us a little more color about how those trended in the quarter and how youre thinking about those for 2021.
Yes, Brian this is Jay and in the quarter the transactions were down low single digits and then the <unk>.
Average basket was up.
In double digits to get to the comp that we had a an eight eight so.
Not inconsistent with what we've seen during this pandemic fewer shopping trips, but people are buying more when they're here and the average basket was really driven by the units per transaction versus any change in the quarter at least on AUR. So and then looking forward.
We are in the closeout business. So we don't really plan the business around those metrics. We don't know if a deal is going to drive traffic.
Drive.
I ask it but.
But we know we're going to react and like John said our deal our deal flow is strong and we expect to have good deals I mean, obviously with the stimulus. We most recently we've seen very strong trends.
Tied to that.
So we'll see how that goes it's going to be different I think the stimulus flow this year versus last year, but.
We'll just do what we do best which is react to the business and get what the customer wants.
Great.
Jay in your prepared remarks, you referenced the current port congestion.
And how it could lead to some opportunities of course as we've seen in years past when you've got and port issues.
But just to be clear are there any issues on the negative side that you all are seeing right now because of the port issues.
Sure Brad This is John with regards to the port issues.
The issues that we see is theres twofold, theres a lot of congestion.
Coming out of Asia, and a lot of lack of containers and then obviously the cost of moving containers is much higher than it was previously but getting into the overall marketplace along long beach is definitely a challenge.
But we definitely have some delays that we're working through but we believe we're going to be in good shape and not have any real risk for the season. So that that's the main takeaway from my perspective, but were definitely working diligently at that that piece and we're moving our products as fast as we can.
Great that's just.
Seasonal talking to this summer furniture lawn and garden and air conditioners, not not all of our not all of our products the challenge.
That's very helpful. John one more for you John just in terms of thinking about.
How you are leading the buying team and some of the decisions right now the company over many years has been a well oiled machine, where the merchants' own the deal and control the markdowns from Adams selling could you just talk a little bit about how you make sure that the team is operating as efficiently as possible as you go up against these difficult comparisons.
Where you may not have inventory, where items may end up sitting on the shelves are a bit longer than you.
As you all how are you.
Just make sure you optimize the organization during this.
A couple of quarters, you're going to be up against.
Yes, Brad I would tell you nothing has changed with our merchant team everybody has been trained according to Mark would have wanted it to be done and that's still happening each and every day. There is no change in how our markets Mark.
Our merchants are managing the business. So there's nothing that we're implementing differently they own they own the product from the time the rate the purchaser until it goes out the door.
With regards to how we've managed the business Brad.
One of my Big pieces were to maintain dry powder and maintained lower inventory levels from the stores and what we historically have done.
That's led to us having a lot I'd say.
Lot easier operational activities in the stores and we're not having and don't see any slowdown in the inventory in the stores. The challenges are actually less than what they used to be because we're a lot cleaner. We don't have the the challenges of top stocking goods being stuck on the shelves for an extended period of time. So we're actually in a very good position.
To where the merchants have a lot of open to buy ready to go in the stores can take it where we're not we're not pushing the stores that hard at all where we're clean ready to go.
Very helpful. Thanks, so much.
Thanks Rod next question comes from the line of Rick Nelson from Stephens. Your question. Please.
Hi, good afternoon current per.
Craig have inquired stream or cash.
Sure.
Covid shrimp for reported $147 million.
Cash.
Yes.
Chris Kirk.
The priorities there.
Level it could run the business growth from.
So you've got a buyback program in place.
Any potential here for David.
Shareholders.
Yes, Rick this is Jay and I'll speak to that I mean I think.
Obviously the board just authorized the increase in the stock buyback program by another $100 million. So we've got about 260 out there 60 of that expires in the relative near term.
Depending what happens there, we've really got $200 million and we're focused on I think from a cash standpoint to run the business, we still do want to maintain some flexibility and liquidity, so maybe $200 million.
Is kind of the amount on the balance sheet that we would target to keep and then we would look to as I said in the prepared remarks, we wanted to deploy the rest and we want to invest in ourselves and newest stock buyback program.
We don't have the details around that are the amounts or the timing just yet, but it's something we're going to be talking about and focusing on.
Once we get past this call and get into an open trading window.
But we would expect to use that excess cash and the stock buyback program and not for a dividend or a special dividend and be more consistent with that going forward because we expect the business.
To continue.
To fund its internal growth to fund our growth with internal cash and continue to generate cash beyond that.
Great.
Direct color Jay.
Current music.
The category strength.
In the quarter can you talk.
About some of the.
Products.
Well I like the trend.
Sure.
With regards to obviously, we have always have that occur.
Our slower departments during the quarter would have been in the toy category.
Candy.
Luggage so from my perspective toys was understandable, we actually had a real nice comp in Q3. So I think there was a pull forward of some of our toy sales during the year people were shopping earlier. So toys did just fine, but they were up double digit in Q3, and just didnt perform quite as well as we would have seen from last year, but.
Overall, we're very pleased and came out of the toy season, very very clean cash.
Candy was really related to the timing of deal flow Candy deal flows weren't real strong during the fourth quarter.
But oddly enough came January in the Candy deals came right to us and we've been having a great candy season.
Season, so far so we're very excited about it and that was just timing of deal flow and luggage people aren't traveling to buy and luggage. So that would that one totally makes sense to us other than that we had some real strong performance with all the stay at home categories.
Net and Bath housewares flooring food in HVA, where we're really really really strong during the quarter and seasonal as well was we received it was off the charts for us.
Okay.
Look at the current.
Closeout pipeline.
What.
Categories are showing the most.
<unk> copper determinant news.
I would tell you right now most all of our categories are showing a lot of promise I haven't seen a lot of deal flow and the HPA front.
A lot of deal flow in the housewares front bed and Bath is real strong sporting goods has been real good everything is the only area I would tell you. If you had to say words or a shortage or a challenge its one item its pool chlorine pool chlorine is not easy to get in there as a chlorine shortage nationally that.
We're all going to have to deal with.
Other than that we don't feel any pressure on any other category in the entire business.
Okay.
Thanks Buck.
That's correct.
Thank you. Our next question comes from the line of Simeon Gutman from Morgan Stanley. Your question. Please.
Hi, This is actually Hannah <unk> on for Simeon. Thanks for taking my question you mentioned given the strong sales you're chasing the business in some cases and I'm wondering does that create a wider range of gross margin than you would you usually see on are you expecting any volatility there or is that built into your 39.
738, 30 day.
<unk> gross margin expectations. So if theres any other risk factors that you can talk about that are embedded in that gross margin that would be that would be helpful.
Now Morgan I think the closeout business in its nature is called chasing the business from chasing the deals that's what we do each and every day.
Not anything different from our merchants they chase it all the time, what we have right now is a little more flexibility and little more dry powder, where they can collapse on deals faster, but our model is to try to maintain a 40% gross margin and get back to the consumer and build loyalty. So we're not trying to use that as a margin driver we're always trying to shoot for the 40%.
Gross margin, there's a lot of cake mix to that but that's what we tried to do and I think we're poised to continue to deliver consistent margin as Jay had called out earlier.
That's helpful. Thank you.
Great. Thanks.
Thank you. Our next question comes from the line of Scot Ciccarelli from RBC capital markets. Your question. Please.
Hey, good afternoon, guys two questions first.
Follow up on I think it might been Peter's question.
Jay you suggested.
Curious to ask maybe a framework for people kind of think about for 'twenty, one, but I think when you start dealing with really large nominal numbers you can start using stacks starts to distort the numbers a bit so could sales per store sales per square foot potentially be a better framework force for 'twenty one.
Yeah, I mean, it's fair we've had that discussion.
Scott after the last call a little bit and to your point right. There is a certain level of when you look at stacks that by store productivity, maybe gets too low, especially when we're looking at certain quarters like.
Q2, we're going up against a 43 three comp I mean that is still a huge comp to go against some we're not going to.
Be able to match that but.
So that's why we kind of have gone to the 2019.
Basis, that's kind of the last actual knowing that we have thats true and if we grow that 30% youre going to get in the ballpark.
We're going on giving guidance, but that's kind of we started to think of it.
For our base model kind of against 19, and expanding that top line by 30% and we've got the margin at the 39, 7% to 38. The SG&A, we would expect to be in more normalized which is call. It 25%, maybe a little bit north of there.
And then you drop that through and you get down to adjusted net income growth, which is really in line with our long term algorithm.
On a two year basis, which would be.
36, 37%.
Got it very helpful and then thanks.
Thanks for all the deal flow commentary, but I guess one of the questions. I think people are struggling with John its just how is it you guys are seeing strong deal flow in categories, whether it's some of the home related stuff you mentioned, you'll sporting goods et cetera. When most of US are hearing about product shortages in those categories. If you can just kind of connect.
That's for people I think it would be really helpful for the Investor base.
Yes, Scott I think this is the number one area that even mark and I have been challenged ever since we've gone public to get people understand how we make a living.
We've been doing this for 38 years, we have longstanding relationships with a lot of vendors while low.
Of our 1000 different vendors.
There is just there isn't there is always going to be closeouts, regardless of what people think and how they view the world.
Packaged change Theres obsolete the obsolescence that happens there is shelf pulls there as I mentioned this a few a few calls ago.
Closeouts could create in many different ways, just because there might be shortages of the inline product. It doesn't mean, there's there's not closeout availability.
That availability will exist all the time, good times and bad times, it's just the way it works stuff that maybe short dated.
Short dated for target and Walmart might be 18 months.
Short data for US is probably 90 day, so theres a big difference in terms of where that product can go from the menu from the CPG company. So there's just there's a gamut of reasons things become available people cancel orders.
But I can tell you in 100% confidence our buyers are.
Flush with goods they are not having a hard time finding product.
And we're not having any type of misses were not changing category mix to make things work better for us where we're buying the categories that we have always bought in we can see what we're doing we have not changed our business strategy one bit.
Okay really helpful. Thanks, guys.
Thanks Scott.
Thank you. Our next question comes from the line of Portlaoise assets from Citigroup. Your question. Please.
Hey, guys. This is Brandon Cheatham on for Paul.
Sorry to keep going back from the inventory side, but.
When we look at a per store basis seems pretty lean could you just talk about it is that where you wanted with plenty of open to buy or is there more opportunity there too to lean down inventory and then just on the competition side for product.
Anything different.
The puts and takes there.
Yes, I don't think the inventory the word lean would be would be necessarily what I would be thinking where we are inventory turned three times. This year. So from a retail perspective, I'd say you're pricing were slow Turner.
We are lean from what we used to do but I think we're right where we are so I think reducing the levels from where we were previously is we are spot on where we'd like to be and we need to continue to maintain where we're sitting today on a long term basis I think that this makes for a great shopping experience for the consumer.
And it makes the model work very efficiently. So I would tell you where we're very very satisfied war at an average inventory per square foot basis in the stores.
The return for US is great. We've moved from a two to three so I think thats, probably about as fast as all of these can turn but we're excited about it. So what was your other question I forgot that.
Total competition comp.
But first on from goods.
Yes, we're not seeing a huge change in competition closeouts or are different animal. We just we don't see a lot of.
People, who are able to by nearly as much as we can buy.
Most people don't like to deal with Closeouts and lot of the bigger retailers, it's not easy they're not set up to deal with it. So we're probably one of the first choices you're going to see from a closeout perspective in the marketplace. So we're not having we're not having a lot of competition getting the goods would get.
Got it thanks.
Look thank you.
Thank you. Our next question comes from the line of Edward Kelly from Wells Fargo. Your question. Please.
Hey, guys.
I wanted to ask you just a question about about product mix.
How mix is looking like currently closeout versus sort of direct sourced product.
Has that changed at all.
Last year, and then as you sort of think about like where trends are going is there opportunity in direct sources curious as to how you are.
Sort of thinking about like that traditional sort of 70% mix and how that is in flow.
If at all.
Yes, and I would tell you. This year, we were basically flat with our normal closeout mix to the total we're close to 70, the only caveat to that is we did buy a ton of PPE that would some of them may have been closed up but most of it was not close out so that would have impacted our overall closeout mix somewhere.
<unk> close to 66.
Our percent of our overall purchases the PPA PPE that we purchased but we believe we'll be back to the 70% here in 2021 and that that is something thats not a problem for us I don't foresee us buying us nearly as much PPE. This year as we did last year, but the overall mix of 70% Closeouts I believe is a good number for us and then 18%.
On the everyday value goods and 12% on the imports is about where we think it will be.
Okay, and then as you think about this.
The second quarter lap.
Just kind of curious as to whether there is any more color you can provide in terms of how you are thinking about it I'm just curious I mean it was so unusual.
The timeshare.
Curious also how product availability was at that time is this lap harder or easier than it looks.
Any thoughts there would be would be helpful.
On Q2, Ed Yes.
Yes, yes.
Q2, Q2 is a mountain Q2, no matter, how you want to slice. It a 43, 3% comp for anybody is I think that was I think that was the largest comp number of any retailer that reported.
And I would tell you that we worked very hard to do that.
But keeping in mind I think.
At that time.
Most all retail there were 90 central were closed so that's that was a very different time that we're in today all retailers back open now so everyone's competing for the dollar. So there is definitely a very large disparity this year versus last year in terms of where where Q2 is going to be for those of us that were open.
During during the pandemic and for those of us that generated a 43% comp.
That's going to be that that number is a big number to even dream of bond cough the comping. So.
We definitely don't expect the comp that number but we're setting up to do the best we can until the largest of sales and profit to our shareholders and we'll continue to do that but we don't expect to be positive.
Understood. Thank you.
Thanks, Ed.
Thank you. Our next question comes from the line of Jason Haas from Bank of America. Your question. Please.
Hi, Thanks for taking my question. So I saw you recently did a by a professional in workwear clothing. So I'm curious to know how that performed and if you could potentially do more in the apparel category.
Yes, Jason as we would always tell you.
We do buys every day and the workwear category as a buyer we do each and every year. The one that you were talking about was a special buyout from of bankruptcies that occurred. So we do it each and every year just like the wedding dresses was a by a bankruptcy buyout.
We do a ton of this that's just our model. So we're working on another deal right now thats related to that same organization that'll come in here then probably in the next month into our stores Thats more of on the <unk>.
Professional work, we're not necessarily the day.
Rugged workwear, so you'll see that come in our store and Thats, just how we make a living.
With regards to changing our overall strategy to more clothing, absolutely not.
That is of low interest to us, we're going to buy closeouts or put them in the stores and.
The workwear is in our sweet spot that's what we do that's how we make a living wedding dresses wedding dresses were not how we make a living and that was something that we had to figure out how to work through the rugged wears great and when we got it it was a great deal for us to have so we expect to see additional clothing deals as we did last year. The <unk> deal that we saw in Q2 and we see clear.
Deals all the time they come across our desk.
But we see we see deals come in every single category and we'll continue to see those and I don't expect any monumental change we're actually we're not getting into fashion.
Like fashion risk and that's how we do we are really more of a hard line retailer I think call. It makes up two or 3% of our overall sales and that's not going to change.
Thank you. Our next question comes from the line of Jeremy Hamblin from Craig Hallum. Your question. Please.
Yes. Thanks.
Great great quarter.
I wanted to thanks Jeremy.
Wanted to just ask and see if we can get even a little bit more granularity and actually I wanted to ask more about Q1 and Q.
Q2.
I know you don't normally disclose cadence around that.
Once.
Within a quarter, but.
Because of we had the end of March I think was really really tough and I think we have given a little more color on that I did want to see those last two weeks of the second half of April I did want to get a sense for.
If you could quantify the magnitude of the comps that you saw in.
In those weeks I just think from a.
A modeling perspective that would go a long way in helping.
Especially with you guys are off to a pretty strong start here in Q1.
Yeah, Jeremy I can't give too much color, but I can give you directionally, where we saw last year.
Obviously, when the economy close down I think it was march 11th of last year.
We saw significant decreases in our model.
For about about a four week period, almost a five week period, but closer to like four five weeks.
Which took us to the last two weeks of our fiscal calendar of April and that the stimulus came in about April 15th April 13th and we were a rocket ship from that point forward all the way through Q2. So there were some there are some big numbers on the back half of the last two weeks of April we've got probably.
Another 333, plus weeks of pretty good scaling I think here with the way the timing of the stimulus came in.
Stimulus number three versus the economy being shut down last year.
Okay. We'll go I don't know if that helps you, but that's kind of directionally, where we it gives us that gives us a sense.
Okay. The second question I wanted to ask was Ollie's Army.
Versus a single night in Q4.
Just wanted to see if you could provide some additional color on how you felt that performed.
Obviously I think this wasn't unusual holiday season, where a lot of buying was pulled forward.
But you clearly saw pretty good performance, obviously in January but maybe.
December turned out better than November was.
So I wanted to see if you could provide some color on that week and then as we think forward to Q4. This year is that something where maybe it's going to be ollie's Army week going forward instead of a single mind.
Jeremy This is Jay and yes, we were pleased with our holiday season like you said.
We didnt participate in a lot of the early sales that were happening in November it seems like people are really starting to black Friday early but our November.
At the time, we announced low single digits in December was stronger than that our holiday period for those two months together.
It was in the mid single digits. So we were pleased with that and then to your point January was very strong with the stimulus that came in that month.
As far as Ollie's Army week versus Ollie's Army night, the week. The week itself was probably flattish a little bit down to the year ago period, and part of that was because in the prior year, we aimed to actually ran a 25% off toys promotion for for the public not only the army, but anybody that came in the store so from a top line standpoint.
We were actually a little bit negative on the weak from a margin standpoint, because we were less promotional.
It was beneficial.
So that is the weak next year or this year I guess looking forward to Ollie's Army night.
Our leaning is that we would go back to the one nine we kind of like the excitement and the buzz that it generates from the customer to come in and.
It's just kind of a tradition and a longstanding event that creates a lot of excitement both from our stores and our shoppers. Most importantly, so we're leaning towards the one night going back to that Jeremy the only caveat to that is if there is still.
Issues with Covid and restrictions on number of people in the store and whatnot, then we'd have to adjust accordingly.
But we'll see where we're at we'll have time to make that decision.
Let's hope not thanks for taking the question, but we're not a great job and good luck.
Hi, Thanks.
Thank you. Our next question comes from the line of Antti <unk> from loop capital markets. Your question. Please.
Thanks for taking my question and congrats on a strong.
Finish to a strong year.
I guess my question in terms of the new store openings.
Just any sense for how much just roughly what percentage of those are going to be in existing markets versus new markets. Thank you.
Yes, Anthony we're going to open up in three new states. This year as I said earlier with Kansas, Missouri and Vermont.
In terms of back filling in existing versus new markets I would tell you, we're probably going to do.
30% or 40% in existing markets and the rest comes in the newer markets I wouldn't say new markets, but we're still in we're still infants in the state of Texas, We're still infants in Oklahoma.
We're still back from some of the newer states, but overall if you literally speaking if you want to look at Kansas, Vermont, Missouri, That's probably only a handful of store. So most of that would come in existing states that we're in but we're really we view, Texas as new and Oklahoma is new but we're predominantly focused on the new markets, but we're still.
Backfill in existing markets as well.
Got it and then just a related follow up.
I guess how is your I mean, obviously given this COVID-19, just hope you I mean, how do you sort of changed your new store openings and I'm, assuming you can't you just can't.
Advertise the way, but you did get big growth in the stores and if so how does how would that change if at all.
Yes. It was definitely a good good question Anthony last year once Covid hit we never.
Ran any grand opening campaigns in the stores.
The heavy heavy period of the pandemic. So we basically just did a regular flyers and opened the store is very quietly we never call them Grand openings, because we couldnt afford to have that many people in the store as a one time, but what we did see which was interesting is we still got the traction.
And the stores may not happen that one day, but its still happened pretty quickly where we the store is still performed very very well and I think we learned a little bit about how we can open stores and we don't have to spend as much in advertising as we may have done historically.
Got it thank you.
Thank you Anthony.
Our next question comes from the line of Brian Mcnamara from Wehrenberg capital. Your question. Please.
Alright. Thank you for taking my question I know you don't typically comment on intra quarter trends, but you did mention a low single digit start.
Quarter, three months ago, and a stimulus impact on January benefiting the quarter in your prepared remarks can you give us an idea of how meaningful that stimulus impact was relative to december's trend clearly it was an improving trend throughout the quarter.
I don't think the stimulus had anything to do with December whatsoever. The stimulus checks didn't come out till after the first of January.
So the December results were on their own they stood on their own.
So that's what I meant in terms of the.
How meaningful stimulus was in January relative to December.
I'm, sorry can you say it again.
What I'm trying to get it right.
Right.
So presumably the quarterly trend.
It improved as the quarter went on I'm, just trying to kind of tease out how impactful is the stimulus was the January strength relative to December.
Yes, it was.
It was pretty significant relatively speaking the.
We reported the eight 8% comp for for the quarter January was definitely in the double digits.
<unk>.
From from your perspective, so we definitely saw big acceleration the holiday period itself being November and December we were close to a 5% comp.
Got it. Thank you and then and then secondly, given the massive Q2 copies you guys are going to have to cycle and the strong H two that youll.
Recycling is it would it surprise you if 12 months from now were talking about maybe a minus low single digit comp that you just reported.
Are you talking about kind of how youre preparing internally both from a cost standpoint, and just an overall business perspective standpoint, as youre, obviously youre going to be lapping.
Precedented year this year.
<unk>.
Yes for sure and like we said on the call, we would've never a normal environment and kind of a base case, we would never expect.
To lap these numbers. So again, we're kind of from a base framework, we're going back to the 2019 actuals and growing the top line.
Two years' worth of growth so call. It 30%. So that gives you a top line you can kind of back into probably the split between comp and non comp.
We've got the margin of 39, 7% to 39, eight SG&A levels of more normalized call it 25% little bit north of there.
So that's that's the model and that results in a base model of adjusted net income.
Close to <unk>.
<unk> 36, 37%, which is right in line with our long term algorithm.
And of course, where we're.
Going to work hard to do better than.
To do the best we can turn off the registers like Mark would say and we've been pretty successful at that but again these yet China comp a year like last year is just not something that all of these is built for.
Great. Thank you best of luck.
Thank you.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to John Swygert for any further remarks.
Thank you operator, thanks, everyone for your participation and continued support we look forward to sharing our first quarter results with you on the next earnings call.
Stay safe.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Okay.
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