Q1 2021 Ollie's Bargain Outlet Holdings Inc Earnings Call
Good afternoon, and welcome to the Ollie's bargain outlet conference call to discuss financial results for the first quarter of fiscal 2021. 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 debt.
For your production of this call in whole or in part is not permitted without written authorization from Ollie's and as a reminder, this call is being recorded on the call today for management are John <unk>, President and Chief Executive Officer, and Jay <unk>, Senior Vice President and Chief Financial Officer.
Now I'll 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 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 or estimates and that.
Actual results could differ materially from those mentioned on today's call any such items, including with respect for 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 undue reliance on these forward looking statements, which speak only as of today and we undertake no obligation to update.
Revise them for any new information or future events factors that might affect future results may not be in our control and are discussed in our SEC filings and encourage you to review these filings, including our annual report on form 10-K on quarterly reports on form 10-Q, as well as our earnings release issued earlier today framework detailed description of these factors.
We'll be referring to certain non-GAAP financial measures on today's call that we believe may be important to investors to assess our operating performance reconciliations for the most closely comparable GAAP financial measures for the GAAP.
Non-GAAP financial measures are included in our earnings release with that I will turn the call over to John.
Thanks, Jean and Hello, everyone. Thanks for joining our call today.
We delivered another incredible quarter and we are very excited about our strong start to the year on.
Our exceptional results were made possible by the remarkable execution and resilience of the entire ollie's family I want to express my gratitude for their tireless work to serve our customers, while maintaining a safe shopping environment.
Our overall performance was driven by robust sales growth, reflecting our ability to capture opportunities in the marketplace.
For productive new stores and strong comparable store sales fueled by great deal flow drove a 29, 5% increase on our TARP than our top line in the quarter and a 65, 7% increase on our operating income comp store sales increased 18, 8%, resulting in a 2 year stack of 15, 5% the.
<unk> of great deals and macro tailwind such as a third round the governance government stimulus fueled fueled our very strong performance.
Our top line strength was broad based across our merchandise categories with 19 of our 21 departments Comping positive as the merchant team continues to deliver great values throughout the store for for our customers. Our top performing departments included bed and Bath flooring lawn and garden electronics books and toys.
We remain laser focused on the execution of our plans, which begins with our amazing deals deals that provide incredible value to our customers across all of our merchandise categories market disruption is driving strong deal flow and we expect that to continue.
Our buying team has deep and long standing vendor partnerships give us a competitive advantage to gain preferred offerings of great deals large and small.
For our success size and scale is also fueling buying opportunities with a host of new vendors, we're well positioned to capture these opportunities with the know how to take advantage of the great deals we see each and every day and we have the dry powder on our open to buy and strong financial liquidity position to make it happen.
In terms of on hand inventory, we are comfortable with our Indian inventory position up 3.3% compared to last year as I mentioned deal flow remains as strong as ever and theres lots of product flowing.
We're well positioned to chase the business as.
As dry powder gives us the flexibility to respond quickly to trends and capitalize on opportunistic purchases.
This responsive and know how is our secret sauce. It drives our success and highlights the flexibility of our business model and nimble operational capabilities.
Our new stores continue to knock it out of the park once again performing above our expectations and demonstrate the predictability portability and consistency of our model earlier. This month, we celebrated the grand opening of our 400 store in Springfield, Vermont.
We are thrilled to hit the major milestone as our new stores are the engine of our growth and shareholder returns.
Since the opening of our 400 store or we have entered into 2 additional states for a total of 3 new states. This year, the states of Vermont, Missouri, and Kansas expanding to a total expanding to 28 states in total.
We're targeting 50 store openings this year, including 2 relocations and we're well on our way.
We see a tremendous runway for growth with the potential to expand our store base to over 1050 locations nationwide.
We currently expect a ceiling between 50 to 55, new stores per year, our disciplined approach to delivering high return on unit growth ensures that our team members perpetuate the ollie's culture in each and every new store, we feel great about the significant white space and the continued availability of high quality sites.
The extreme value proposition of our business model very much supports our growth plans as the importance of value continues to gain traction.
Ollie's Army continue to be a significant driver of our sales in the quarter and membership just keeps growing.
We grew the army by 13, 7% with enrollment levels in the quarter greatly outpacing year over year store unit growth and ended the period with over 11.9 million active members the highest the high retention rate of our Ollie's Army members, coupled with the strong growth of new customers enable us to achieve record army membership levels.
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Remember shop us more frequently and spend more money with us as demonstrated by the achievement of our highest ever sales penetration of over 78% of total sales in the quarter.
These are highly productive customers with whom we we look to build long standing relationships through special benefits and of course, great deals.
Continue to see industry headwinds related to supply chain cost shipping delays and labor challenges that are impacting all retailers. We're doing what we can to mitigate cost pressures and we remain comfortable with our current positioning.
On the hiring front, we are working diligently to fill open positions in our distribution centers and stores and recognize we are operating in a highly competitive market.
If these cost headwinds continue we could experience some additional margin pressure, but we are confident in our ability to make adjustments and deliver strong bottom line results.
We had another great quarter, and a strong start to fiscal 'twenty 'twenty 1.
Looking at our second quarter as a reminder, last year, we delivered record sales and profit. During this period following the onset of Covid as our stores, we're able to remain open.
Our comp store sales grew 43% in the second quarter of 2020 with may by far being the strongest month in the quarter quarter to date I am very pleased with our current trends and very excited about the momentum on our business. We are tracking ahead of our comp expectations and prior year comparisons ease considerably is.
We progressed through the quarter.
We continue to make important investments to support our future growth earlier. This month, we announced the hiring of Erik van der Valk to the position of executive Vice President and Chief Operating Officer, Eric will lead the store operations supply chain real estate and asset protection teams and we are excited to have him on board.
We believe that with his deep knowledge of the discount retail space and expertise across key functional areas, including store operations and supply chain.
Who will be instrumental to the execution of our growth plans and help drive continued success and welcome to the Ollie's family Eric.
As always we will focus our efforts on drivers, we can control and keep doing what we do best.
By cheap and sell cheap while maintaining discipline on how we operate the business.
We believe we are well positioned to benefit from the continued disruption in the marketplace I remain incredibly optimistic about our long term opportunities as we continue to leverage the agility of our unique closeout business model and execute our strategic growth plans.
Looking ahead, our long term growth algorithm remains intact and I am as bullish as ever about our business.
This was a terrific start to the year for Ollie's and I am very proud of the ongoing work of our team as we as we execute and persevere in this challenging environment I.
I want to thank our almost 9600 team members for their incredible dedication and contributions to the business.
As we say we are ollie's.
I'll now hand, the call over to Jay to take you through the financial results.
Thanks, John and good afternoon, everyone.
I want to start by thanking the entire ollie's team for their incredible teamwork and dedication that made the first quarter such a success.
I also want to extend a warm welcome to Eric it's great to have you on the ollie's team.
We are thrilled to have delivered another outstanding quarter for the quarter net sales increased 29, 5% to $452.5 million great deal flow productive new stores and strong comps drove this increase.
Comparable store sales increased 18, 8% in the quarter fueled by significant increases in both transactions and average basket.
In the quarter, we opened 11, new stores, including 2 relocations ending the period with 397 stores in 25 States, a 10, 3% year over year increase in store count.
The end of the first quarter, we've opened another 8 stores for a total of 19 this year and our first day count to 28.
These stores drive our growth and we were very pleased with their productivity and ROI as our new stores pay for themselves in less than 2 years.
Gross profit increased 31% to $192.6 million and gross margin increased 20 basis points to 44%.
The increase in margin was due to improvement in merchandise margin, partially offset by increases in and deleveraging of supply chain costs, primarily due to the higher transportation expenses as expected.
SG&A expenses increased 16, 3% to 100 and for $4 million, primarily due to additional selling expenses from our new stores.
For your store payroll and variable selling expenses to support the increase in sales SG&A as a percentage of net sales decreased 260 basis points to 23, 1%.
The improvement was driven by leverage in payroll occupancy and many other costs due to our strong sales performance and continued tight expense control.
Operating income increased 65, 7% to $71.2 million operating margin increased 340 basis points to 15, 7%.
Adjusted net income, which excludes tax benefits related to stock based compensation increased 64, 9% to $53.1 million on.
Adjusted diluted earnings per share increased 63, 3% to 80 cents per share.
Adjusted EBITDA increased 59, 2% to $79.2 million and adjusted EBITDA margin increased 330 basis points to 17.5 per cent for the quarter.
Capital expenditures in the first quarter totaled $9.5 million, primarily for new and existing stores. This compares with $12.4 million in the prior year.
At the end of the period, we had no outstanding borrowings under our $100 million revolving credit facility and $472 million on cash.
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 on both a programmatic and opportunistic manner, putting our cash to good use and increasing shareholder value year to day, we invested almost.
Most $30 million to repurchase our shares.
We're very optimistic about the momentum of our business and long term prospects given the limited visibility in this environment, we will not be providing specific guidance at this time, but I will share some high level thoughts on the remainder of fiscal 'twenty 1 are.
Our second quarter results are tracking better than expected as we lap the highest comp sales weeks from all of last year with comparisons getting easier as we progressed through the quarter comp sales comparisons in the third and fourth quarter on less challenging than the second quarter. Although we continued to perform at unprecedented levels last year as we saw top line benefits from economic stimulus.
We are anticipating continued headwinds in gross margin due to the ongoing supply chain pressures impacting all retailers, including increased transportation and labor costs. We are very focused on navigating these headwinds and we will work hard to create opportunities in both D. C operations in merchandise margin and mitigate their financial impact as such we are sticking with our original gross Martin.
<unk> plan of $39.7 to 39, 8% for on a year.
Our current plans include the following the opening of 50 stores, including 2 relocations, we are expecting a split of approximately 45% 55 per cent of openings between the first and second halves of the year, we feel confident that we can achieve our target, but we are dependent on local permitting and construction timing and.
An effective tax rate of 25, 4%, which excludes the tax benefits related to stock based compensation and diluted weighted average shares outstanding of approximately $66.4 million before any impacts from future share buybacks.
As always we will continue to evaluate our plans and respond on the marketplace as necessary. It's the effectiveness of our nimble operating model, our strong financial position and long term growth opportunities that keep us excited for the future.
I'll now turn the call back to the operator to start the Q&A session operator.
Thank you.
As a reminder to ask a question you on each press star 1 on your telephone to withdraw.
Your question press the pound key please standby on compile the Q&A roster.
Our first question comes from Matthew Boss with Jpmorgan You May proceed with your question.
Thanks, and congrats on a really nice quarter again guys.
Thanks, Matt Thanks, Matt.
So John maybe to just help out a little bit.
Could you speak first to closeout availability larger picture, where we stand today and then second if you could just elaborate on the underlying top line momentum that you cited in May I guess my question is has the business again, what do you think was the toughest monthly compare in the company's history has it held the 2 year stack which points to it.
The low single digit comp algorithm as we exit the pandemic anything you could share I think would be helpful.
Sure, Matt with regards to the closeout industry.
No theres been.
Rumblings out there that there's there's there's a tightness of closeouts, there's a lack of availability I can tell you from our perspective at least from Ollie's World. That's the furthest from the truth or buyers are having no issue in any category other than what I mentioned in the past, which was the chlorine tablets everything else is flowing very very well and we.
We're seeing an abundance of availability out there from our perspective, the merchants are being very very selective in what they're taking now because there is so much out there, but I would tell you we feel very good war positioned and I think the disruption in the marketplace is going to continue to add more and more opportunities for us as we continue to go forward.
With regards to the overall sales.
I'm not going to give a lot of color on the current quarter, but I would tell you we were definitely in a very excited about what we've seen so far quarter to date.
And we're we're definitely ahead of our expectations and I could tell you, where we will give you a little indication on on a 2 year stack basis. We're ahead of our long term algo without a doubt.
Okay, Great and then maybe to follow up on on gross margin I guess, how best to think about a range of outcomes for merchandise margin versus distribution in the second quarter and for the year holding the 39, 7% to 39% gross margin to me based on everything we're hearing from freight across the industry.
In holding the gross margin for the year, maybe based on what you've seen to date.
Yeah, Matt This is Jay and I'll start and John might chime in but as you said right we are seeing.
The increase in costs, both on the transportation side on the labor side, just like everybody else on retail.
But we are sticking to the 39.7 to 39.8 for the year and you know for us.
You know we can there are certain levers, we can pull and we can work on the merchandise side on the buy side getting getting better buys getting better pricing.
We can work on the pricing side by increasing prices. If we have to keep in mind, though that we're a price follower not a price setter and we always want to maintain them non value to the consumer and we can also work on the DC side, just to be more productive and cut costs out there and as always we're always going to keep our focus on the SG&A dollars.
But I would say you know, we're not giving guidance and so we we're not I'm not going to talk about by quarter I think the way we laid it out last time.
Still sticks, we're sticking to that 39.7 to 39.8 for the year, we could see in the next couple of quarters I would say more pressure on our margin just because of the increased cost on our supply chain.
But again, we would expect that to come back to us on a full year basis and hit that target and we're going to work hard to do it.
Yeah, Matt the only thing I would add to that is obviously the way, we buy and the closeout sector. We do have opportunities to offset some of these cost pressures that we have so.
It's early in the year. We just finished the first quarter saw 3 more quarters to go. So there are a lot of cost pressures out there for all of US I think we're well positioned to try to do our best to offset that as we get later in the year. When we have more color on on what we think we could land, but right now we're sticking with our original.
Plans and expectations that we set out there with a 39.730 on an 8 and we're going to do our work on hardest to make sure we can do that.
Perfect. Congrats again best of luck.
Thanks, Matt Thanks, Matt.
Thank you. Our next question comes from Randy <unk> with Jefferies. You May proceed with your question.
Yeah. Thanks, a lot. So 2 questions I guess, 1 you've got you had really nice expense leverage in the quarter. We've seen a lot of companies be able to do that and a lot of them have been talking about.
Crooning expense day during COVID-19, and becoming more lean coming out of Covid. So just wanted to get some sense of what you think is more sustainable or not sustainable on your expense base in terms of the ability to get leverage or possibly have a lower expense leverage point and then second I guess John.
If you think about just the longer term and the buying team what are some of the enhancements of our strategies youre working on to think about.
Enhancing that team for the next 510 years, what are you guys working on its different and kind of.
Can help you get into new categories or just.
More relationships just curious there thanks.
Yes, let me answer that 1 first and I'll, let Jay go back to the SG&A leverage with regards to the merchant team I would tell you we.
We always are always have been and continue to invest into the team.
As you know we've been pretty successful for 39 years, and we continue to be successful with the business model. We operate in so I think we've got the we've got the mouse trap pretty much figured out and we really focus heavily on the closeout business, which we call. The inconvenience business. So we're going to continue to invest into our team.
We definitely are focusing on some potential I'll call it enhancements or strategies with regards to merchandise categories. We definitely think the pet category is something we could do a lot better than what we've done so far so we're going to invest into some strategies with the enhancing our pet department, but right now.
In a world Broadbased hard line retailer, we think we have most categories covered that we want to be into them and now it's a matter of just sourcing up the the closeout deals and continue to invest in into our team and continue to teach people, how we buy them the closeout business and we're definitely committed to continue to do that we look to build internal talent.
And we'll continue to look outside as well so that's what we've been doing for many years, where you continue to do.
Thing, we think that debt that that strategy works very well.
And Randy this is Jay on the expenses I mean, Theres really no no change for us from the overall model. We've always had a leverage point like we've talked about on or about 1 point to a point and a half of comp.
And I mean kind of to the way you started the question, we've always run very lean and kept an eye on on every dollar that we spend so I don't know that we had new savings are identified great new savings methods.
Cause of Covid, we did incur COVID-19 related premium pay last year, not a lot but.
Probably $10 million for the year of $1 million on a half in the first quarter. So we're not having to anniversary those.
But no no change to the overall leverage point I would say, we obviously got great leverage in the first quarter and that's really just a function of the strong sales performance and we levered on our store payroll like we would expect to and we levered on our some of our fixed costs like occupancy probably being the biggest 1 like we would expect to we do think in this environment I mean, it's a very competitive.
On the on the paint front not only at the D C. But also at the stores and like we've said, we address that market by market.
So you know, we're not giving guidance, but generally what we talked about on our last call was a normalized SG&A rate of about 25% to sales on an annual basis.
And obviously, we had some goodness in the first quarter, but we're kind of sticking we're not we're kind of just sticking to the plan as we added we could have to reinvest some of those savings that we realized in the first quarter throughout.
Throughout the rest of the year and wages at the store level, but again not a widespread increase just market by market but.
Yeah, where we're going to continue to leverage at that 1 on 1.5% comp.
Perfect. Thanks, guys.
Okay. Thanks, Randy.
Thank you. Our next question comes from Brad Thomas with Keybanc Capital markets. You May proceed with your question.
Thanks, Good afternoon nice quarter.
Wanted to ask about.
On the spending patterns that youre singing could you give us a little more color about ticket and traffic trends.
And then as you analyze some of the data from the Ollie's Army members. What are you seeing about some other new customers that you brought in over the course of the last year and how they're shopping patterns might be different and more legacy customers. Thanks.
Sure, Brad Hey, and good to hear from you I.
I can speak to the transactions and the average basket, we don't have traffic counters. So we measure transactions and so for our 18.8% comp in the quarter.
Both were very robust about 55 per cent of the increase came from the transaction side and the remainder came from average basket.
We saw a big increase.
Really in the average unit retail there.
Yeah, Brad on with regards to the Ollie's Army, what we would tell you that I'm not going to break out the new the new sign ups for the old synovus, but the the overall.
Spend in basket for the Ollie's Army customer has gone up year over year.
But it is still maintaining about a 40% 41% spread over the non or non ollie's army customer in terms of basket size. So they are definitely spending more when they come into shop for US. We are seeing is as we said earlier.
13, 7% increase on the overall army for $11.9 million active members is very strong and over 78 per cent of our sales coming from the army, where we're very excited about that so that's telling us that what we're doing is working to get the arm Ollie's Army membership up and increase so we are seeing pretty it's odd, but we're seeing very very can.
Assistant.
Patterns with the overall army year over year. So the frequency is very very comparable other than the spend.
Which is up everything else is pretty static year over year on we look at the overall, how the customers are performing.
Very helpful and John I was wondering if you could speak a bit to the labor market and how you all are dealing with.
It's obviously very tough environment to hire and retain for people.
Sure Brad I'll break it up into 2 segments..1 is the distribution centers supply chain and Warner is on the storefront the the distribution supply chain.
Has been and continues to be very very competitive.
Challenging to hire into we have made some changes most recently too.
Invest into the overall distribution centers be in all 3 of them at this point and offering sign on bonuses as well to the associates, which appears to be catching some traction and it appears to be working so the next thing. We're working on is the retention factor, which is which is key and critical to be able to retain the new associates.
When you bring them in so we're working on on continue to make.
And create a positive work environment for the associates controlling them on overtime, they get because a lot of those folks don't want to work too much over time. So we're trying not to burn them out too fast, but we're focused on the DC network stores little bit different stores is getting more competitive, but it's really market driven it's not necessarily tote.
Globally.
So we're focusing in on the markets, where we're having a challenging hiring and we're making the appropriate adjustments to get more and more associates says the building. Most recently on May 18th we actually did a national hiring day.
Which was very very successful for us and we actually are.
We were able to hire quite a few employees at store level, which made us very excited and we're going to continue to look at that and actually plan on running industrial and other national hiring day on June 15th which will include all the Dcs and the stores and this 1 is going to be a little bit more planned out Ms. Li Hello, more time to get our ducks in a row and I think we'll see a much better response as well when that.
[noise] period comes around so we're just going to continue to evaluate each market and continue to push to try to hire the folks and most importantly, keep them by giving them a good work environment and appreciate them when they they work for us.
Yes.
Very helpful. Thank you so much.
Thanks, Brad Thanks Grant.
Our next question comes from.
Scot Ciccarelli with RBC capital markets. You May proceed with your question.
Hey, guys.
On our triad does can you simply tell us what your comp expectation had been but for the quarter started just so we can kind of understand the baseline of how youre thinking about the business.
For Q2.
Yes, Sir.
Yeah, we're not going to give any color on that Scott that debt that basically should be giving you guidance for the quarter. So.
We obviously you guys know where the street's at and you guys have your baseline and we obviously feel very very good where we sit and how we are running relative to our internal expectations, but we're not really going to give much more color than that at this point in time, Yeah, and Scott I would just add to net I mean, the framework that we talked about on on the call last quarter.
You know kind of those concepts and benchmarks and the way people laying out their models.
I think that's pretty consistent and we're sticking we're not making any changes.
Okay.
Kimberly on Guy for trying.
Yes.
Unlike a lot of retailers you guys have had some pretty material increases in transactions over the past year, presumably it's because you are able to add a bunch of new customers. Obviously, you just talked about some other growth at Ollie's Army, but do you have any other details or color regarding your ability to kind of maintain those customers or is it just they come in they sign up and maybe they don't.
Transact again.
We have we have isolated Scott the I'll call. It for 2020, the Q2.2020, new sign ups for the Q2.2019 sign ups.
As as a control group and what we've seen is debt that control group from 2020 has been a little bit more sticky than the 2019 group.
Which tells us that they came in they liked us they try this on a continuing to come back they weren't just 1 and done at a higher rate than what we experienced in a normal year. So we feel like we've been pretty successful at getting them in the box and keeps them coming back relative to what we've seen and what normal period of time look like it looks like.
Okay.
Got it thanks guys.
Thank you.
Thank you. Our next question comes from Ken <unk>.
<unk> with Goldman Sachs. You May proceed with your question.
Hi, Good afternoon. This is John me from Goldman and congratulations on a great quarter.
Thank you. Thank you yeah of course, and if you guys could give us some color on some of the categories, where you are seeing more disruption than others. That's that's aiding your deal flow that would be great.
Yes, Sean this is John with regards to the what we're seeing in terms of deal flow, we're seeing that very very very broad based.
There's no shortage of product in any category that we're sourcing.
We have a very very small category and luggage that we buy there's not a lot of closeouts on luggage and you don't really.
The I'll call it the the private label luggage World. So that'd be 1 area, we don't see a lot of deal flow right now, but we're seeing a ton of activity in the H, the health and beauty AIDS housewares.
Domestics would be bed and Bath for instance, we're seeing good activity in the book category. So we're seeing a real broad based on what we're what we're seeing from a flow perspective. So our merchants are are not not on on any shortage of product in any category.
Got it.
It's helpful color. Thank you and perhaps you could touch upon your marketing program that you've been working for a couple of quarters now just trying to understand you know how much is that contributing to you getting a bigger share of wallet with your existing army members and then also helping perhaps getting more.
Grabbing more eyeballs with.
New potential customers.
Yeah. We are we're really working on transforming the marketing department and go on a little bit more away from what we called print advertising go on to the digital World. We're just starting that we started we started work on with Stitcher AD and Facebook last year, which I think is adding some benefits to us we've been.
Doing the little bit of testing and we're going to continue doing some more testing here in the second quarter of this year and then we have a strategy to really I'll call. It.
Add to the the benefits of our print marketing because we're not going to we're not going to go away from that that's still going to be our key driver, but the digital world we have been doing some.
Testing with cartilage fix on the credit card side, we've been doing some email testing what the ollie's army customers.
For folks who have lapsed not been back on the store to bring them back in the store.
We just signed a contract with with.
The Sacher group from a digital perspective to help us with I'll call. It the the paid searches with Google Youtube Pinterest users use of Influencers, we're looking to do some testing with retail me not so theres a lot of things we have in the pipeline right now, but we're not necessarily.
Totally complete with all of our tests to see what what's the most effective I think are our mousetrap is always been pretty good. The digital may just be adding a little bit of a flair to folks who don't get the print advertising and getting a little bit more traction within our box and we're I think we're seeing that as well, but it's a little noisy.
On the as you know with regards to stimulus I'll call. It stimulus number 3.
Still being out there so we really need things to settle down in the marketplace to really evaluate everything was right now I would tell you we look very very very smart.
Yeah.
Great. Thank you.
Thank you.
Thank you. Our next question comes from Peter Keith with Piper Sandler You May proceed with your question.
Hey, good afternoon, guys, it's free neuron for Peter Thanks for taking my questions.
They bought a follow up on the sales outlook.
In China coming out from a different angle.
On a 2 year basis.
Posted about 40% growth this quarter, that's kind of been in line with your historical 2 year growth levels sudden days running ahead of expectations is there any reason.
On average that you can sustain.
This 40% level.
Give or take a couple of points for the rest of the year.
As stimulus going to continue every single quarter.
We have.
Jonathan just came in in July not not not the same magnitude, yes, I would say that.
I don't we don't expect and have not planned out the year are to continue to add any at any level.
Compared to tell why we're confident of 42% comp, we do not and have not expected to comp that number and we've been pretty clear with that as well. So I would tell you that that'd be a far stretch to be able to do that and there is some easing in Q3 and for but those are still pretty large numbers up 15 and change and up almost 9% in Q4, So I think that.
Our outlook and expectations have not changed.
Due to the result of Q1, which obviously Q1 had stimulus baked into it starting in the middle of March so.
We feel pretty confident with the remaining where we were at originally and continue to run the business with our current expectations as we play on the beginning of the year Bobby I would just say, obviously Q1 is a very very strong performance and the trends. So far in Q2 are ahead of our expectations.
We feel great about where the businesses and the momentum in the business and our ability to react to the market.
But that said we've done a lot of big weeks ahead of us and just like always we're going on you know like Mark would say stick with us we're going to deliver all we can we're not going to turn off the registered if we're going to be prudent in how we manage these expenses.
But yes, we're not updating guidance, we're going on kind of stick stick with what we had in.
I'm trying to beat it.
Yeah.
Okay sounds good maybe 1 more.
On a retailers talking about strong outdoor trends continuing this year I'm wondering how you feel about your spring and summer outdoor merchandise this year.
Did you plan to have inventory is up year on year on those categories.
Yes, I think from from the outdoor perspective for either summer summer patio lawn and garden. Those are 2 categories that we would probably tell you we feel pretty good about as well.
And I think we're well positioned there there definitely is as we mentioned earlier on I think a lot of other retailers. We're seeing it. There's there are some delays in the the summer furniture and lawn and garden areas.
But we are we believe we're well positioned to get our stuff in in time for the season and I think we will see good result, there.
Okay.
Alright, Thanks, a lot guys.
Thanks, Bobby.
Thank you for our next question comes from Simeon Gutman with Morgan Stanley You May proceed with your question.
Hey, good afternoon. This is soham on for Simeon This afternoon.
I just wanted to ask for their first quarter could you, maybe just give us the cadence by month on comps.
No we don't break out the cadence by month I mean, certainly.
February was made me a little bit it was very consistent with April maybe a little bit lighter than our expectations. Just because we had some delays in tax refunds and there were storms in Texas.
March was very strong in the quarter, given the stimulus that hit in <unk>.
Then the momentum you know April was very good ahead of our expectations and that's continued right into the second quarter.
Okay.
The other thing on excuse me the only thing I would go back on is as we mentioned on the call we were mid single digits.
When we had our call and I think it was March Mark.
<unk>.
March 15th or 18th for something around the nature. So.
You can kind of get a lay of the land to go from a mid mid single digits up to an 18.8 we had pretty good momentum after the middle of March through the middle of April than we had the stimulus. So we went up against last year that started in the middle of April of 2020. So there is some nice runway basically for Middleby.
<unk> to middle of April.
Okay that makes sense and then John I think you commented earlier that the 2 year for May is running ahead on the long term algo.
Does that imply that the sales force.
Store.
Sort of running in that range as well.
Or are we sort of flat down or up is there any color you can give there on a sales per store basis.
No I'm not going to be you can't give any additional color on what we've already done.
What I would tell you is obviously gone up it gets a 43.3.
From last year.
And coming off of an 18.8 from Q1, we're feeling pretty good where we're sitting.
Today, and how we've performed so far compared to our expectations it's definitely.
Not comping the comp as we said very clearly that that's debt, that's a pretty up pretty large uphill battle.
But where we're we feel very good on a on a 2 year basis, where we're sitting today.
Okay I appreciate it guys. Thank you.
Yes.
Thank you. Our next question comes from Jeremy Hamblin with Craig Hallum Capital You May proceed with your question.
Thanks, and congrats on the tremendous performance and execution, let me start with a question about your private label sales I think it was like 20% of sales in Q4.
Given some supply chain disruption and what's going on in ports and so forth what did you do.
Private label in Q1, what's the expectation for Q2 and the balance of the year.
Yeah, Jeremy I don't recall ever really discussing what we did in private label sales, we've downturn, we've ever talked about that as a company. So we may have disclosed that.
About 12% of our business comes from private label and about 18% comes from everyday value goods and 70 per cent closeouts, but we really don't disclose our overall private label sales that's not really a focus of ours in terms of how we really analyze the business on a quarter to quarter basis. That's a lot of people think private law.
Able are margin drivers to us it's margin neutral closeouts or sometimes a better margin than private label goods. So it's a little counterintuitive from our perspective, but that's not that's not an area that we really.
Look at our focus on our report on.
Fair enough.
Then ask a question about.
Your buybacks, which you have accelerated you just have a tremendous amount of on.
Cash on the balance sheet I think if you executed the rest of your buyback overnight you'd still have like.
3 ex the amount of cash.
That you've ever had on the balance sheet.
Is there some thought discussion around.
Whether or not.
You could either.
Bad debt buyback program on.
Sure.
Essentially do something on the order of a special dividend.
No your growth concept.
But just.
How do we manage such an enormous amount of cash on the balance sheet and make that a productive assets.
Yeah, Jeremy this is Jay and I'll speak to it I mean like we like we said on the call. I mean, we think buyback is the right use for that excess cash in.
Just like anything Ollie's does we're going to.
Crawl before we walk walk before we run but to your point, we are building up quite a sizable amount of cash on the balance sheet, and we think probably long term $200 million to $250 million of cash on the balance sheet is what we would keep from an operating standpoint, and like you said like you know we've got a 170 million authorized by the board, but I.
Right now our thinking is we just wanna be lean into the buyback program and that's.
Gonna be iron Levered to continue to use that excess cash and obviously.
You know, it's subject to the market a little bit and we want to be opportunistic and we also want to be out there consistently but that's what we're going to lean into as a vehicle to use that cash and we think that's the best way to get shareholder value. So I don't have on a number I can give you for the year, but absolutely we're going to lean into it and I would tell you over the long term.
And it's something we talk about every quarter, but in the in my mind in the next year or 2 buybacks will be the way we go before special dividend or anything else and we're going to work towards that cash balance on the balance sheet of $200 million to $250 million.
Thanks, guys, great job specialty best wishes.
Alright.
Yeah.
Thank you for our next question comes from Rick Nelson with Stephens. You May proceed with your question.
Thanks.
Afternoon.
Congrats on it.
For the year.
It could.
Talk about the real estate market share.
Per bed.
Rent.
<unk> today are you okay.
And then you have on the past and you know it works.
Happening.
Along those lines.
Yeah, Rick I would tell you that the the real estate.
Market that we operate in there there is a lot of availability and opportunities for second generation sites in terms of rent.
Rental rate opportunities to reduce probably not there we've always been very very aggressive on our rental rates that we've been able to achieve and that's something that I doubt that we would not ever but we don't foresee in the near future any reduction in the rental rates, we believe there's opportunities for pretty good sites.
We've been doing pretty well I think we'll continue to do very well on the site selection.
Programs that we operate in where as we said in the past our stores are pretty successful. We don't have any stores that lose money. So I think we've had a pretty good idea of of how to go to the mark on the real estate side I will tell you. There are there are there are cost pressures and challenges today in the marketplace.
From a construction perspective, as we all know everything.
Is higher and cost anything construction related lumber related is much much higher so it's making it more challenging.
To get the deals with the rent structure, where we continue to push out but are are dealmakers are doing a great job securing the sites and the great debt great job holding the the landlords to the numbers, we're trying to hit and get into the construction work completed. So we're overall very excited where we're sitting and we think our growth and our ability to deliver the sites along for <unk>.
This is pretty solid.
Great.
Follow up collage for metrics.
Sure.
Type stores.
Sure.
Correct.
For the structure would support.
Is there anyway.
Beyond that you certainly have the capital on the cash.
The accelerated store growth.
Yeah, Rick I think right now and I think its current it's not forever, we're comfortable with the 50 to 55 stores. We've always said about 1 store per week feels right to us our stores are or are not as easy to run and some other stores out there and pretty complicated to fill up.
So right now with our current infrastructure, we think that's the right number for us to be at we.
As you know, we're really lubra focused on the culture of this business and we feel that if we grow too fast and we don't have the right training in place and the right ability to promote from within and we stretch ourselves too thin that could hurt the model and we just feel right now are the right thing to do is 50 to 55 stores.
On 2 or 3 years from now on might have a different answer for you as we can as we continue to have a larger base.
It's really it's really human capital related on why we're not growing any faster because we want to make sure we grow successfully with our teams and they understand the always way of operating the model.
Okay.
Thanks, and good luck.
Thanks, Rick.
Yeah.
Thank you. Our next question comes from Paul <unk> with Citi. You May proceed with your question.
Hey, everyone in the spring and shoot him on for Paul.
I was wondering.
It sounds like product availability is very good but I was just wondering if the competitive dynamics for product has changed at all for the last couple of quarters.
We've not seen any competitive changes in the overall market for the for our relationships. We have in the marketplace. There is no new competition no no retailers changing their model, that's causing us any any challenges or are loss of any product we truly desire, we've we're pretty much.
Able to get what we want to do we wanted to be successful at it.
Got it.
And then the new vendors that you've added did they come to you because of disruptions in their business.
I'm out.
And are you, adding them to kind of your total rolodex are you just kind of high grading their vendor relationships.
I would tell you most of the vendors reach out to us just because of our sheer size and.
Staying power in the marketplace, but any new vendor we get our goal is always to keep that relationship. So we're.
We're not we're not trying to do 1 and done deal. So anytime we get something we always keep them on a rolodex and we make sure. They know we're always ready to buy and worked very hard to be the first call. So that's just incremental to the overall add to our overall to our Arsenal.
Thanks, and good luck.
Thank you. Thank you.
Yes.
Thank you. Our next question comes from Brian Mcnamara with fabric capital markets. You May proceed with your question.
Good afternoon. Thank you for taking my question Congrats on the excellent results.
With army penetration continuing to grow rather robustly I think you said, 78% I think it was 70% run rate pre pandemic do you believe your underlying comp rate run rate is structurally higher now as the army kind of underpins that growth in pandemic impacts free.
Brian I would I hate to answer this way, but I don't know intuitively the stronger the army the better for us.
As long as long as we can continue to expand it but I think over the last over the last over 2020, 'twenty 'twenty 1 with the pandemic the stimulus all the noise. That's in these numbers, it's hard to tell but intuitively it should be helpful to continue to build obviously at some point I think you're capped out in terms of your.
Our overall ability to expand the army when you're already at 78% of your sales, but I think we're not I don't think we're there yet so.
So I do think there's there's upside on opportunities I think for some of our digital initiatives will be able to add some additional people as well to the the overall mix and we should be able to have some some positive impacts as we move forward, but we've got a clear clear the noise here with the stimulus and the monies that people are getting from the government.
Great. That's fair and then any color can you provide on.
On your merchant team build out obviously your merchants are doing a tremendous job.
Historically, particularly over the last 12 months.
Yeah in terms of adding to the team we added to the team last year. This year, we've actually added I believe 3 new people to the team to our what we call. The minor leagues, who are coming in are ran out of school and we've actually just added someone to our clothing department from another retailer and has some experience in that category.
We will continue to build out the team and I think right now where we're not in a position where we're actually actively looking for anybody but if someone comes by we'll definitely talk to them. So we're we're full for the year on the overall merchant team and if a superstar comes by we'll look at them.
Great Best of luck.
Thank you.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to John Swygert for any further remarks.
Thank you operator, thanks to everyone for your participation and continued support.
We look forward to share in our second quarter results with you on our next earnings call.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Sure.
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Yes.
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Okay.
Yes.