Q1 2024 Ollie's Bargain Outlet Holdings Inc Earnings Call

Operator: Good morning, and welcome to Ollie's Bargain Outlet's conference call to discuss financial results for the first quarter of fiscal year 2024. Currently, all participants are in a listen-only mode.

Okay.

Speaker Change: Good morning, and welcome to Ollie's bargain outlet conference call to discuss financial results for the first quarter of fiscal year 2024. Currently all participants are in a listen only mode. Later, we will conduct a question and answer session and interactivity instructions will follow at that time. Please be advised that this call is being recall.

Operator: Later, we will conduct a question and answer session, and interactive instructions will follow at that time. Please be advised that this call is being recorded, and reproduction of this call in whole or in part is not permitted without express written authorization of Ollie's. Joining us on today's call from Ollie's management are John Swygert, Chief Executive Officer, Eric Vandervlok, President, and Robert Helm, Executive Vice President, Chief Financial Officer.

Speaker Change: And reproduction of this call in whole or in part is not permitted without expressed written authorization of ollie's joining on today's call from Ollie's management or John Swagger, Chief Executive Officer, Eric Bandra Block, President and Robert <unk> Executive Vice President Chief Financial Officer.

Unknown Executive: Certain comments made today may constitute forward-looking statements made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in our annual report on Form 10-K and quarterly reports on Form 10-Q, on file with the SEC, and in the earnings press release.

Speaker Change: Certain comments made today may constitute forward looking statements are made pursuant to and within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 adds a method such forward looking statements are subject to both known and unknown risks and uncertainties that.

Speaker Change: Just cause actual results to differ materially from such statements. Those risks and uncertainties are described in our annual report on Form 10-K, and quarterly reports on Form 10-Q on file with the SEC and the earnings press release forward looking statements made today are as of.

Unknown Executive: Forward-looking statements made today are as of the date of this call, and we do not undertake any obligation to update these statements. On today's call, the company will also be referring to certain non-GAAP financial measures. Reconciliation of those most closely comparable GAAP financial measures to the non-GAAP financial measures is included in our earnings press release. With that said, I'll turn the call over to Mr. Swygert. Please go ahead, si

Speaker Change: The date of this call and we do not undertake any obligation to update these statements on today's call. The company will also be referring to certain non-GAAP financial measures reconciliation of those most closely comparable GAAP financial measures.

Mr. Swagger: non-GAAP financial measures are included in our earnings press release with that said I'll turn the call over to Mr. Swagger. Please go ahead Sir.

John W. Swygert: Thank you and good morning, everyone. We appreciate you joining us on our call today. We are extremely pleased with our performance this quarter. Our team is executing at a very high level, offering amazing deals to our customers, delivering consistent financial results, and investing in our future. Our first quarter comparable store sales, total revenue, gross margin, and expenses were all better than expected, and this resulted in a 49% increase in adjusted earnings per share. Consumers clearly remain under pressure and are seeking value in making their purchase. Our unique business model is delivering exceptional values on branded merchandise that our customers want and need at prices 20 to 70% below the department stores. Everyone loves a bargain, and bargaining is our middle name.

Speaker Change: Yes.

Speaker Change: Thank you and good morning, everyone. We appreciate you joining our call today.

Mr. Swagger: We are extremely pleased with our performance this quarter. Our team is executing at a very high level offering amazing deals to our customers delivering consistent financial results and investing into our future.

Mr. Swagger: Our first quarter comparable store sales total revenue gross margin and expenses were all better than expected and this resulted in a 49% increase in adjusted earnings per share.

Mr. Swagger: Consumers clearly remained under pressure and are seeking value and making their purchases.

Mr. Swagger: Our unique business model is delivering exceptional values on branded merchandise that our customers want and need at prices, 20% to 70% below the fancy stores, everyone loves a bargain and bargain is our middle name.

John W. Swygert: There are a few important themes for propelling our business that we wanted to touch on today. The first is the growth in the closeout industry. Large consumer retailers supplied by large product manufacturers are constantly introducing new products and packaging, and this is leading to growth in the closeout industry. The second is our increasing size and scale.

Mr. Swagger: There are a few important things things propelling our business that we wanted to touch on today.

Mr. Swagger: The first is the growth in the closeout industry large consumer retailers supplied by large product manufacturers are constantly introducing new products and packaging and this is leading to growth in the closeout industry.

Mr. Swagger: The second is our increasing size and scale, while the closeout industry is growing the number of bigger players buying and selling closeout today is shrinking.

John W. Swygert: While the close-up industry is growing, the number of bigger players buying and selling close-ups today is shrinking. Operating a closeout retailer is not for the faint of heart, and over the years, there have been a number of failures because they were not set up properly.

Mr. Swagger: Operating a closeout retailer is not for the faint apart and over the years.

Mr. Swagger: There have been many been a number of failures because they were not set up properly. We are by far the largest buyer of closeout products and this has been our only business for almost 42 years.

John W. Swygert: We are by far the largest buyer of closeout products, and this has been our only business for almost 42 years. Nobody has our know-how, size, and scale, or credibility in the closeout market. As a result, our purchasing power is growing, and we are becoming more and more meaningful to our vendor partners. The third driving theme is the investments we have made back into our business to drive execution, productivity, and growth. This is an area that we probably don't talk about enough.

Mr. Swagger: Nobody has our knowhow size and scale or credibility in the closeout market.

Mr. Swagger: As a result, our purchasing power is growing and we are becoming more and more meaningful to our vending vendor partners.

Mr. Swagger: The third driving theme is the investments we've made back into our business to drive execution productivity and growth.

Mr. Swagger: This is an area that we probably don't talk about enough.

John W. Swygert: While it's the great deals and product offerings that will always be the key to driving our business, it's investments in our people, supply chain, stores, marketing, and systems that enhance our execution, propel our margins, and position us for continued long-term success and profitable growth. On that topic, I would like to discuss two recent announcements. The first is a purchase agreement for a group of 99-cent-only stores.

Mr. Swagger: That's the great deals that and product offerings that will always be the key to driving our business its investments in our people supply chain stores marketing and systems that enhance our execution propel our margins and position us for continued long term success and profitable growth.

John W. Swygert: Eric will provide more details on this in a moment, but we were very excited about these stores. They have attractive rents, longer lease terms, demographics that align nicely with our core customer, and are located in key markets across Texas, where we have a meaningful growth opportunity. I spoke earlier about the shrinking number of closeout players, and 99% only bankruptcy filing and store closures are further validation.

Mr. Swagger: On that topic I would like to discuss two recent announcements the.

Mr. Swagger: The first is a purchase agreement for a group of 99 cents only stores Eric will provide more details on this in a moment, but we were very excited about these stores.

Mr. Swagger: They have attractive rents longer lease terms demographics that align nicely with our core customer and are located in key markets across Texas, where we have a meaningful growth opportunity.

Mr. Swagger: I spoke earlier to the shrinking number of closeout players and 99, only bankruptcy filings and store closures as further validation of this.

John W. Swygert: The second piece of news supporting our long-term growth and success is the number of executive promotions and appointments as part of a rigorous succession planning process conducted by our Board of Directors. I have been with the company for over 20 years and enjoy every minute. But it's my desire to step up to the executive chairman role and pass the CEO baton on to Eric in early 2025. Since joining Ollie's, Eric has played a pivotal role in the company's growth and success.

Mr. Swagger: The second piece of news supporting our long term growth and success as a number of executive promotions and appointment as part of a rigorous succession planning process conducted by our board of directors I have been with the company for over 20 years and enjoyed every minute but.

But it's my desire to step up to the executive chairman role and passed the CEO baton onto Erik in early 2025.

Mr. Swagger: Since joining the Ollie's, Eric has played a pivotal role in the company's growth and success. He has transformed key areas of the business, including supply chain.

Mr. Swagger: Store operations and store design.

Mr. Swagger: All of which have resulted in improved execution and operating efficiencies.

Mr. Swagger: This combined with its closeout merchandise experience makes him the ideal person for his new role.

John W. Swygert: He has transformed key areas of the business, including the supply chain, store operations, and store design, all of which resulted in improved execution and operating efficiency. This, combined with his closed-out merchandise experience, makes him the ideal person for his new role. Today, I am proud to announce that he has been promoted to President. Also, effective today, Rob Helm has been promoted to Executive Vice President and will take on the added responsibilities of managing real estate.

Mr. Swagger: Today I am proud to announce that he has been promoted to president.

Also effective today, Rob helm has been promoted to executive Vice President and will take on the added responsibilities of managing real estate.

Mr. Swagger: Both Eric and Rob have strengthened our leadership team and the promotions are well deserved I look forward to working them working with them for years to come.

John W. Swygert: Both Eric and Rob have strengthened our leadership team, and the promotions are well deserved. I look forward to working with them for years to come. Finally, we announce today the hiring of Chris Zender to the role of Executive Vice President and Chief Operating Officer, effective June 17. Chris brings a vast wealth of operational and leadership experience from a number of deep discounts and closeout retailers. We have a great team, and I will work with them to ensure a smooth transition early next year. The business is in a very good place, and we are well-positioned to keep winning into the future. Now, it is my pleasure to turn the call over to Eric. Thanks, John.

Mr. Swagger: Finally, we announced today the hiring of Chris Zehnder to the role of Executive Vice President and Chief operating Officer effective June 17th.

Mr. Swagger: Chris brings a vast wealth of operational and leadership experience from a number of deep discount and closeout retailers.

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

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

Eric: Thanks, John I appreciate the confidence you and the board having me to lead our company into its next phase of growth.

Eric: John alluded to that but.

Eric: But we really outperformed on every level in the first quarter. Our results are a function of the strong deal flow and execution of our team.

Eric: The process improvements and investments we have made in our people supply chain stores and marketing continue to pay off in the form of better productivity and consistent financial results.

Eric van der Valk: These investments include wages across both our distribution network and our stores, enhanced operational teams across major functional areas such as marketing, real estate, loss prevention, and supply chain. Upgraded Distribution and Transportation Capabilities New Technology and Systems, a Store Remodel Program, and a Retooled Marketing Strategy with Expanded Digital Capability These and other investments have also made us a more nimble organization, capable of handling unplanned events and circumstances, such as the collapse of the Baltimore Bridge. Within hours of this event, we took action to reroute ocean containers to alternate ports, which resulted in minimal delays, disruptions, or incremental costs.

Eric: These investments include.

Eric: Wages across both our distribution network and our stores enhanced operational teams across major functional areas, such as marketing real estate loss prevention and supply chain.

Eric: Upgraded distribution and transportation capabilities.

Eric: New technology and systems.

Eric: Our remodel program and a retooled marketing strategy with expanded digital capabilities.

Eric: These and other investments have also made us a more nimble organization capable of handling unplanned events and circumstances, such as the collapsing the Baltimore bridge.

Eric: Within hours of this event, we took action to reroute ocean containers to alternate ports, which resulted in a minimal delays disruptions or incremental cost.

Eric van der Valk: This was only possible because of the upgraded team, new systems, and new carrier contracts that we put in place a few years ago to provide increased visibility and flexibility around international freight. As a reminder, almost 90% of our foreign shipping requirements are covered under contract, and we have very little exposure to the spot mark. In May, we negotiated our annual international carrier contracts at favorable rates.

Eric: This was only possible because of the upgraded team new systems and new carrier contracts that we've put in place a few years ago to provide increased visibility and flexibility around international freight.

Eric: As a reminder, almost 90% of our foreign shipping requirements are covered under contract and we have very little exposure to the spot market.

Eric: In May we negotiated our annual international carrier contracts at favorable rates.

Eric van der Valk: I'm also pleased to report that our new distribution center in Princeton, Illinois has begun receiving product and is on track to start shipping stores in late July. The construction of the building, installation of our racking and automation solutions, and staffing of the new facility are going as planned and within budget. This fourth distribution center will have the capacity to support an additional 150 to 175 stores. This will give us the ability to service up to 750 stores.

Eric: Im also pleased to report that our new distribution center in Princeton, Illinois has begun receiving product and is on track to start shipping stores in late July the construction of the building installation of a rocking in automation solutions and staffing in the new facility is going as planned and within budget.

Eric: This fourth distribution center will have the capacity to support an additional 150 to 175 stores.

Eric: This will give us the ability to service up to 750 stores.

Eric van der Valk: We are excited about the recently acquired 99 cent only store. As John mentioned, this is a group of 11 stores located in key markets in Texas through your own properties in the balance or lease. These stores are the right size, located in good trade areas, have attractive occupancy costs, and have been serving value-oriented customers for many years. Texas is a great market for us, where we have tremendous growth opportunities. It's hard to find good locations with the type of rent structure that we typically require.

Eric: We are excited about the recently acquired 99 cents only stores.

John W. Swygert: As John mentioned this is a group of 11 stores located in key markets in Texas, three our owned properties and the balance are leases.

John W. Swygert: These stores are the right size located in good trade areas have attractive occupancy costs and have been servicing value oriented customers for many years.

John W. Swygert: Texas is a great market for us, where we have tremendous growth opportunity. It's hard to find good locations with the type of rent structures that we typically require in these stores will significantly strengthen our presence in key markets across the state.

Eric van der Valk: And these stores will significantly strengthen our presence in key markets across the state. On the marketing front, we continue to shift advertising dollars into various digital and social media platforms, including influencers across TikTok, Instagram, and Facebook. This is helping us reach new and younger customers and keep our brand top of mind with existing customers. Our growing customer base is reflected in our Ollie's Army numbers. Consistent with prior trends, we are seeing growth in the younger customer demographic and also in younger customers joining the military.

John W. Swygert: On the marketing front, we continued to shift advertising dollars into various digital and social media platforms, including influencers across tick tock, Instagram and Facebook.

John W. Swygert: This is helping us reach new and younger customers and keeping our brand top of mind with existing customers.

John W. Swygert: Our growing customer base as reflected in our Ollie's army numbers consistent with prior trends, we are seeing growth in the younger customer demographic and also in younger customers joining the army.

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

John W. Swygert: Lastly, we continue to benefit from the trade down effect, we have experienced over the last few quarters and are seeing strong retention from this customer cohort.

John W. Swygert: Before I turn the call over to Rob I would like to thank the entire ollie's team for their continued support and confidence in my leadership of this amazing business.

Speaker Change: I am honored to be named President and looking forward to working with John and the executive team on the CEO transition.

Speaker Change: We are a super unique organization that is rooted in great people experience and an amazing culture.

Robert Helm: Thanks, Eric. And good morning, everyone.

Speaker Change: Rob.

Rob: Thanks, Eric and good morning, everyone. We.

Robert Helm: We are very pleased with our strong start to the year. Our first quarter results came in ahead of our expectations across the board, driven by strong comparable store sales. Significant Gross Margin Expansion, Continued Disappointments, and Higher Interest Increases. In the first quarter, net sales increased 11% to $509 million, driven by new store growth and a 3% increase in our comparable store sales. Transactions, basket, and average retail were all up in the quarter, with basket being the biggest driver of the column. The 53rd week last year and the shift in the Easter holiday this year created some movement in our ad calendar year over year, which made for some choppy weekly comparisons.

Rob: We are very pleased with our strong start to the year. Our first quarter results came in ahead of our expectations across the board driven by strong comparable store sales.

Rob: Significant gross margin expansion continued discipline.

Rob: And higher interest income.

Rob: In the first quarter net sales increased 11% to $509 million driven by new store growth and a 3% increase in our comparable store sales <unk>.

Rob: Transactions basket and average retail were all up in the quarter with basket being the biggest driver of the comp.

Rob: The 50, <unk> week last year and the shift in the Easter holiday. This year created some movement in our AD calendar year over year, which made for some choppy weekly comparisons.

Robert Helm: Barring these shifts, our underlying comp trends were strong and accelerated as we moved through the quarter. Our category strength was broad-based, with over 50% of our product categories coming positive. Our best performing categories were Lawn and Garden, Housewares, Food, Sporting Goods, and Candy.

Rob: Barring these shifts are underlying comp trends were strong and accelerated as we moved through the quarter.

Rob: Our category strength was broad based with over 50% of our product categories Comping positive.

Rob: Our best performing categories were lawn and garden.

Rob: Housewares food.

Rob: Morning goods and candy.

Robert Helm: Ollie's army membership increased 7% to 14.2 million members, and sales to our members represented over 80% of total sales. During the quarter, we opened four new stores, ending with 516 stores in 30 states, an increase of 8% year over year. We're pleased with the performance of our new stores, which continue to perform in line with our expectations. Gross margin increased 220 basis points to 41.1%, primarily due to favorable supply chain costs and higher merchandise margin. SG&A expenses were well-controlled in the quarter and decreased 40 basis points as a percentage of net sales to 28%, driven by leverage of fixed expenses on the increase in comparable store sales.

Rob: Ollie's Army membership increased 7% to $14 2 million members and sales to our members represented over 80% of total sales.

During the quarter, we opened four new stores, ending with 516 stores in 30 states, an increase of 8% year over year.

Rob: We're pleased with the performance of our new stores, which continue to perform in line with our expectations.

Rob: Gross margin increased 220 basis points to 41, 1%, primarily due to favorable supply chain cost and higher merchandise margins.

Rob: SG&A expenses were well controlled in the quarter and decreased 40 basis points as a percentage of net sales to 28% driven by leverage of fixed expenses on the increase in comparable store sales.

Robert Helm: Operating income increased 47% to $56 million, and operating margin increased 270 basis points to 11.1% in the quarter. Adjusted net income increased 47% to $45 million, and adjusted earnings per share increased 49% to $0.73. Lastly, Adjusted EBITDA increased 40% to $69 million, and Adjusted EBITDA Margin increased 280 basis points to 13.6% for the quarter. Turning to the balance sheet, our balance sheet remains very strong and is a significant strategic asset, which provides us with maximum flexibility to drive growth and maximize shareholder return. We ended the quarter with $342 million in cash on hand and short-term investments and no outstanding borrowings under our revolving credit facility.

Rob: Operating income increased 47% to $56 million and operating margin increased 270 basis points to 11, 1% in the quarter.

Rob: Adjusted net income increased 47% to $45 million and adjusted earnings per share increased 49% to 73.

Rob: Lastly, adjusted EBITDA increased 40% to $69 million and.

Rob: And adjusted EBITDA margin increased 280 basis points to 13, 6% for the quarter.

Rob: Turning to the balance sheet.

Rob: Our balance sheet remains very strong and is a significant strategic asset, which provides us maximum flexibility to drive growth and maximize shareholder returns.

Rob: We ended the quarter with $342 million between cash on hand, and short term investments and no outstanding borrowings under our revolving credit facility.

Robert Helm: Inventories increased 6% to $527 million, primarily driven by new store growth. Capital expenditures totaled $27 million for the quarter, and they were primarily related to our new distribution center in Princeton, Illinois, the remodeling of existing stores, and the development of new stores. We are committed to returning capital to our investors through share repurchases while balancing our strategic growth opportunities and working capital needs. Given some of the share price volatility in the quarter, we stepped up our repurchase activity and bought $25 million of our common stock.

Rob: Inventories increased 6% to $527 million, primarily driven by new store growth.

Rob: Capital expenditures totaled $27 million for the quarter and were primarily related to our new distribution center in Princeton, Illinois, the remodeling of existing stores and the development of new stores.

Rob: We are committed to returning capital to our investors through share repurchases, while balancing our strategic growth opportunities and working capital needs.

Rob: With some of the share price volatility in the quarter, we stepped up our repurchase activity and bought $25 million of our common stock.

Robert Helm: Turning to our outlook for 2024, we are pleased with our strong start to the year and are raising both our sales and earnings outlook for fiscal 2024. For the full year, which is a 52-week year compared to 53 weeks in 2023, we now expect total net sales of $2.257 to $2.277 billion, comparable store sales growth of 1.5 to 2.3%, and gross margin of approximately 40%. Operating income of $250 to $258 million.

Rob: Turning to our outlook for 2024, we are pleased with our strong start to the year and are raising both our sales and earnings outlook for fiscal 2024.

Rob: For the full year, which is a 52 week year compared to 53 weeks in 2023, we now expect total net sales of two to $5 seven to $2 $2 77 billion.

Rob: Comparable store sales growth of one five to two 3%.

Rob: Gross margin of approximately 40%.

Rob: Operating income of $250 million to $258 million.

Robert Helm: Adjusted net income of $196 to $202 million and adjusted net income per diluted share of $3.18 to $3.28, which assumes an annual effective tax rate of 25.5 percent, which excludes the tax benefits related to stock-based compensation and diluted weighted average shares outstanding of approximately 62 million.

Rob: Adjusted net income of 196 to $100 million to $202 million and adjusted net income per diluted share of $3 18 to.

Rob: To $3 28.

Rob: Which assumes an annual effective tax rate of 25, 5%, which excludes the tax benefits related to stock based compensation and diluted weighted average shares outstanding of approximately $62 million.

Robert Helm: Lastly, let me provide color on how we're thinking about the quarterly comp and store opening cadence, as well as a few other numbers to help with your models. For Q2, we are planning comps around the midpoint of our long-term algo of 1 to 2%. Although we are currently running ahead of this, July represents a very challenging monthly comparison for us.

Rob: Lastly, let me provide color on how we're thinking about the quarterly comp and store opening cadence as well as a few other numbers to help with your models.

Rob: For Q2, we are planning comps around the midpoint of our long term algo of 1% to 2%.

Rob: Although we are currently running ahead of this July represents a very challenging monthly comparison for us.

Robert Helm: For Q3, we anticipate comp sales to be flat due to a shift of one flyer from Q3 into Q4. As a result of this shift, we'd expect Q4 comps to be slightly above the high end of our long-term algo. For new store openings, we're still targeting a total of 50 new stores, less two closures that we chose not to renew. As Eric discussed in his remarks, we are very excited to be the winning bidder for 11.99 cents only stores.

Rob: For Q3, we anticipate comp sales to be flat due to a shift of one fire from Q3 into Q4.

Rob: As a result of this shift we would expect Q4 comps to be slightly above the high end of our long term algo.

Rob: For new store openings, we are still targeting a total of 50, new stores last two closures that we chose not to renew.

Rob: As Eric discussed in his remarks, we are very excited to be the winning bidder of $11.99 only stores.

Rob: Since we will start to incur occupancy expenses on these locations at closing our goal is to open new stores as fast as possible.

Rob: With these new stores, we will likely push a handful of our original planned openings from 2024 into early 2025.

Robert Helm: Since we will start to incur occupancy expenses on these locations at closing, our goal is to open these stores as fast as possible. With these new stores, we will likely push a handful of our original planned openings from 2024 into early 2025. Over the course of the next 18 months, we now expect to open a higher number of stores than originally planned. In addition, the shift of a few stores into early next year also means that opening cans will be more front-end loaded next year, which should benefit both full year sales and earnings.

Rob: Over the course of the next 18 months, we now expect to open a higher number of stores than originally planned.

Rob: In addition, the shift of a few stores into early next year also means theyre opening cadence will be more front end loaded next year, which should benefit both full year sales and earnings.

Robert Helm: We're still working through some of this in real time, but we're now modeling approximately six new store openings in the second quarter, 30 in the third quarter, and 10 early in the fourth quarter. While we haven't yet taken physical possession of these stores to complete a thorough assessment, we'd expect the remodeling cost of a 99 cent only store to be a little higher than a typical open. With that in place, we would expect capital expenditures to be approximately $90 million, which excludes the $14.6 million purchase price for these locations.

Rob: We're still working through some of this real time, but we are now modeling approximately six new store openings in the second quarter, 30% in the third quarter and 10 early in the fourth quarter.

Rob: While we havent yet taken physical possession to these stores to complete a thorough assessment, we would expect the re modeling cost of 99 cents only store to be a little higher than a typical opening.

Rob: With that in place we would expect.

Rob: Capital expenditures to be approximately $90 million, which excludes the $14 6 million purchase price for these locations and preopening expenses to be in the range of approximately $17 million for the year.

Robert Helm: And pre-opening expenses to be in the range of approximately $17 million for the year. In terms of gross margin, our first quarter was our easiest comparison for the year. As a result, we would expect the increases in the second and third quarters to be much more modest, and the fourth quarter to be down slightly. However, keep in mind that gross margins in 2Q and 4Q are historically lower than 1Q and 3Q. We are planning for a depreciation and amortization expense of approximately 42 million, which includes $11 million that runs through cost of goods sold.

Rob: In terms of gross margin our first quarter was our easiest comparison for the year as a result, we would expect the increases in second and third quarters to be much more modest in the fourth quarter to be down slightly keep.

Rob: Keep in mind that gross margins in <unk> and <unk> are historically lower than <unk> and <unk>.

Rob: We are planning for depreciation and amortization expense of approximately $42 million, which includes $11 million that runs through cost of goods sold.

Robert Helm: Lastly, we expect net interest income of approximately $14 million. We are now modeling the consensus view of one rate decrease in the back half of the year instead of the three decreases contemplated in our original guide. Now, let me turn the call back to you.

Rob: Lastly, we expect net interest income of approximately $14 million. We are now modeling the consensus view of one rate decrease in the back half of the year instead of the three decrease as contemplated in our original guidance.

Speaker Change: Now, let me turn the call back over to John.

John W. Swygert: Thanks, Rob.

John W. Swygert: We operate a very unique business model that involves everyone at every level to make us successful. I am very proud of the entire team for their hard work and dedication. We love saving customers money and selling good stuff cheap, and it's this passion that brings all of us together and drives the Ollie's culture. It has been a privilege to be part of Ollie's expansion over the last 20 years and to watch us grow from $100 million in sales to over $2 billion in sales. We have so much more growth ahead of us, and in many ways, we are just getting started. We are Honey! That concludes our prepared remarks, and we are now happy to take questions. Operator?

John W. Swygert: We operate a very unique business model that involves everyone from every level to make us successful.

John W. Swygert: I am very proud of the entire team for their hard work and dedication, we love saving customers money in selling good stuff cheap and it's this passion that brings all of us together and drives the ollie's culture.

John W. Swygert: It has been a privilege to be part of all these expansion over the last 20 years and to watch us grow from $100 million in sales to over $2 billion in sales. We have so much more growth ahead of us and in many ways. We are just getting started.

John W. Swygert: We are.

John W. Swygert: Yes.

Speaker Change: That concludes our prepared remarks, and we're now happy to take questions operator.

Operator: Certainly, and ladies and gentlemen, if you have a question at this time, please press star 1-1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 1-1 again. Our first question comes from the line of Brad Thomas from KeyBank Capital Markets. Your question, please.

Speaker Change: Certainly and ladies and gentlemen, if you have a question at this time. Please press star one on your telephone. If your question has been answered and you'd like to remove yourself from the queue simply press Star. One again. Our first question comes from the line of Brad Thomas from Keybanc capital markets. Your question. Please.

Bradley Bingham Thomas: Hi, good morning, and congratulations to everyone on the new opportunities ahead. Thanks, Brad. Sure, John. My question was really, if you could comment a little bit more on, you know, the health of the consumer and your outlook for the next few quarters as you're up against these tough comparisons. You know, we're certainly seeing some mixed data points in terms of how the consumer is spending, and any more color around how you're feeling in your medium-term outlook would be helpful.

Bradley Bingham Thomas: Hi, good morning, and congratulations to everyone on the new opportunities ahead.

Speaker Change: Thanks, Brad.

Speaker Change: Sure John.

Bradley Bingham Thomas: My question was really if you could comment a little bit more on the health of the consumer and your outlook over the next few quarters as you're up against these tough comparisons.

Speaker Change: Seeing some mixed data points in terms of how the consumer spending and any more color around how youre feeling in your medium term outlook would be helpful. Thanks.

Eric van der Valk: Sure. Brad, this is Eric.

Eric: Sure Brad This is Eric what we're seeing in Q1 is pretty similar to Q4, we're continuing to see.

Eric van der Valk: What we're seeing in Q1 is pretty similar to Q4. We're continuing to see a trade-down of higher-income consumers. The sweet spot looks to still be the $100,000 to $150,000 household income range, and our lower-income cohort is relatively stable. But, keep in mind that we're underpenetrated by lower-income consumers compared to others. But it's been relatively stable, so we're pretty consistent quarter over quarter. We're not seeing much change.

Eric: Trade down of higher income consumers, the sweet spot looks to still be the 100000 to $150000 household income range.

Eric: And our lower income cohort is relatively stable I mean keep in mind that we're underpenetrated in lower income consumers compared to others.

Eric: But it's been relatively stable, so we're pretty consistent quarter over quarter, we're not seeing much change.

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

Brian: Yes, Brian I think don't have to add to that is with the consumers being stretched.

Brian: In our opinion value is going to win and I think the best value that you can give to the customer you're.

Brian: More people shopping your stores and we're well positioned for that.

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

Brian: Okay.

Speaker Change: That's helpful and as a follow up.

Speaker Change: John I was wondering if you could talk a little bit more about.

Speaker Change: How your conversations are going with suppliers as you talked about potentially having more strategic partnerships with them.

John: Rather than just doing closeouts and how you think about that opportunity longer term yeah. We we really focus on driving relationships, Brad we don't really try to drive.

John W. Swygert: Yeah, we really focus on driving relationships, Brad. We don't really try to drive made-for-Ollie's, per se, and we have everyday value goods.

Speaker Change: Good for by May four ollie's per se have everyday value goods. So.

Speaker Change: Or what happens again, we don't know.

Speaker Change: But with our size and scale, we believe that some some of this is occurring naturally but the biggest way you continue to garner the best product offerings available by keeping those relationships real strong who you're doing business with you.

John W. Swygert: So what happens at the end of the day, we don't know. But with our size and scale, we believe that some of this is happening naturally. But the biggest way you continue to garner the best product offerings available is by keeping those relationships real strong with who you're doing business with. Yeah, I mean, another way to tell you that, Brad, is...

John W. Swygert: Yeah, I mean another way to say that Brad's strategic partnerships are closeout partners.

Bradley Bingham Thomas: Yes, I mean, another way to say that Brad is strategic partnerships, our closeout partnerships.

John W. Swygert: Absolutely. Thanks so much, and congratulations again.

Speaker Change: Absolutely. Thanks, so much and congratulations again.

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

Thanks, Brad.

Speaker Change: Thank you and our next question comes from the line of Peter Keith from Piper Sandler Your question. Please.

Peter Jacob Keith: Thanks, good morning. Congratulations for me as well on all the promotions. For the four-year guys, are you increasing for the rest of the year? It looks like with Rob, you kind of maintain your quarterly cadence, but it does seem to hit the midpoint of the comp guide where the numbers might be a little bit above what you were thinking a couple of months ago.

Thanks, Good morning, Congrats from me as well and that'll be it promotions.

Speaker Change: For the full year guidance are you raising the rest of this year it looks like with Rod you're kind of maintaining your quarterly cadence, but it does seem to hit the midpoint of the comp guide that the numbers might be a little bit about what youre thinking a couple of months ago.

Robert Helm: From a guidance perspective, we are keeping our comp guidance in place, but we were able to pick up quite a few sales weeks based on the acquisition of 99 cent only stores.

From a guidance perspective, we are keeping our comp guidance in place, but we were able to pick up.

Speaker Change: Quite a few sales weeks based on the acquisition of 99 and only stores.

Speaker Change: Okay.

Speaker Change: Maybe just to stick on those stores. So can you give some characteristics around the.

Speaker Change: The size of them.

Speaker Change: I guess.

Speaker Change: Just going backwards ancient history, but yes, there are some history of toys R us.

Cindy: Opening up a lot of stores at once cause some operational difficulties Cindy just talk about the cadence.

Eric van der Valk: Okay, maybe just to stick on those stores. Can you give some characteristics around the size of them? And I guess, you know, just going back, it was ancient history, but there was some history with Toys R Us and, you know, opening up a lot of stores at once caused some operational difficulties. Can you just talk about the pace of opening those and managing the supply to the stores? Sure, Peter, I'll do it.

Eric: Turning now and managing the supply to hit stores sure Peter I'll take it it's Eric.

Eric van der Valk: I think, you know, very different from 2019. Our supply chain is in a much different place. We have the capacity to ensure that we can get those stores up and running with the right inventory without sacrificing the comp base. We will not sacrifice customer experience or profitability as we move forward on these stores. We have the bandwidth to open them properly and get them executed.

Eric van der Valk: Sure, Peter, I'll take it. It's Eric.

Speaker Change: Very differ from 2019, our supply chain is in a much different.

Speaker Change: <unk>, we have the capacity.

Speaker Change: To ensure that we can get those stores up and running with.

Speaker Change: The right inventory.

Speaker Change: Without sacrificing comped the comp base.

Speaker Change: We will not sacrifice customer experience or profitability as we move forward on these stores.

Speaker Change: We have the bandwidth.

Speaker Change: Open them properly.

Speaker Change: And get in get them executed.

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

John: Yes, Peter this is John the other thing that I would add to it.

John: The exact reason why we're not adding any incremental stores the overall.

Speaker Change: Class if you want to call, we're going to just springboard into 2025 have much many more stores ready to open earlier in the year, because we don't want to put too much more pressure on our ability to open stores. Yeah. I think Peter you also asked the question I didn't answer on the size the size of the stores is in the mid twenties.

John W. Swygert: Yeah, I think Peter, you also asked a question I didn't answer about the size. The size of the stores is in the mid 20s, 1000 square feet.

Speaker Change: One square feet.

Speaker Change: You know our average for the chain, it's more like 30, so there are a little smaller than the average.

John W. Swygert: As you know, our average for the chain is more like 30, so they're a little smaller than the average. They're the right size for the markets that we're in, considering the stores we're picking. Perhaps it makes it a little bit easier in terms of the inventory that it takes to open them, but not necessarily a material difference.

Speaker Change: They are the right size for the markets that we're in considering the stores we're picking up.

Speaker Change: Perhaps it makes it a little bit easier in terms of the inventory that it takes to open them, but.

John W. Swygert: And Peter, just to remind everybody, back in the day when we did the Toys R Us sites back in 2019, those stores were closer to 40,000 square feet, and we opened up 22 of them in one quarter, so it put a little more stress on the network that wasn't quite as sophisticated as it is today. And we filled them.

Not necessarily a material difference and Peter just to remind everybody back in the day when we did the toys R us sites back in 2019.

Speaker Change: Those stores were closer to 40000 square foot stores, and we opened up two of them one quarter. So it's still a more stress on the network that wasn't quite as sophisticated as is today and we fill them at 40 <unk> building.

John W. Swygert: And we filled them. For $40,000, we filled them.

Peter Jacob Keith: Okay, very good. Thanks so much, guys. Good luck. Thanks, Peter. Thanks, Peter. Thank you. And one moment for our next question. Our next question comes from the line of Kate McShane from Goldman, please.

Speaker Change: Okay very good thanks, so much guys and good luck. Thanks, Peter Thanks there.

Speaker Change: Thank you and one moment for our next question.

Katharine Amanda McShane: Thank you and one moment for our next question. Our next question comes from the line of Kate McShane from Gold. Please stand. Hi, good morning. Thanks for taking our question.

Speaker Change: Our next question comes from the line of Kate Mcshane from coal.

Speaker Change: Please sir.

Speaker Change: Okay.

Speaker Change: Hi, good morning, Thanks for taking our question.

Katharine Amanda McShane: I'm wondering just how the competitive environment right now with regards to going after closeout deals.

Katharine Amanda McShane: And outside some of the CTG commentary, where youre seeing some of them.

Speaker Change: <unk> closed out opportunities.

John W. Swygert: Yeah, Kate, like we say almost every call, we don't see a whole lot of competition in the close up market for a lot of our deals. So we're not I don't know if it's just because of our size and scale, but we're able to be the first call, and we take what we want.

Katharine Amanda McShane: Yes Kate.

Speaker Change: Like we say almost every call we don't see a whole lot of competition.

Speaker Change: In the closeout market for a lot of our deal so were not I don't know if just because of our size and scale, we're able to be the first call and what we want we take.

John W. Swygert: But we're not seeing any issues from an overall pressure perspective that we're losing deals to anybody out there in the market today. So we feel very well positioned, and we're able to get all the product offerings for all the categories we're looking for at this point in time. Our merchants are in a very good position.

Speaker Change: But we're not seeing any issues from a from a overall pressure perspective that we're losing deals to anybody out there the market today, So we feel very well positioned and we're able to get.

Speaker Change: All the product offerings for all the categories were looking for at this point in time or merchants.

Speaker Change: Very good position.

Speaker Change: Thank you.

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

Speaker Change: Thanks, Ed.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Edward Kelly from Wells Fargo. Your question. Please.

Anthony: Hey, good morning guys. It's Anthony on for Ed.

Anthony: Yeah, Hey, good morning, guys, it's Anthony on for Ed Thanks for taking my questions.

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

Anthony: So first I wanted to ask about the gross margin it looks like a record for Q1 came in a lot higher than most of US were modeling and obviously running well above your full year number can you just talk a little bit more about what's driving that strength and then how we should be thinking.

Anthony: About the cadence of the rest of the year in terms of guidance.

Robert Helm: Hey, this is Rob. I can take this one.

Rob: This is Rob I can take this one we were very pleased with our gross margin result, most of the expansion was supply chain related.

Robert Helm: We were very pleased with our gross margin result. Most of the expansion was supply chain related, you know, which was what we had kind of forecasted when we came in the year. We'd get a nice supply chain lift in the first half of this year. We did get nicely complimented on our gross margin line from the merchandise margin and some nice deal flow that we saw in the quarter. But keep in mind, you know, our gross margin in Q1 and 3Q is typically higher than our full year annual gross margin.

Rob: Which was what we had kind of forecasted when we came into the year that we get a nice.

Rob: Supply chain lift in the first half of this year.

Rob: We did get nicely complemented our gross margin line from the merchandise margin and some nice deal flow that we saw in the quarter.

Rob: But keep in mind, our gross margin in Q1, and three <unk> typically is higher than our full year annual gross margin. So we are expecting.

Robert Helm: So we're expecting, you know, it's a step down sequentially from here, although we do still expect expansion off of last year's gross margin result. And for the rest of the year, 3Q will be up slightly and then 4Q down slightly because, to your point, it was also a record and we're going to continue to plan conservatively until we get a little bit more short-term visibility.

Rob: The step down sequentially from here.

Rob: Although we do still expect expansion off of last year's gross margin result.

Rob: And then from the rest of the year <unk> will be up slightly and.

Rob: And then <unk> down slightly because to your point. It was also a record and were going to continue to plan conservatively until we get a little bit more short term visibility.

Anthony: Got it. That's helpful.

Speaker Change: Got it that's helpful. And then just on the Q1 comp I know you guys mentioned some calendar noise. Thank you.

Speaker Change: And given the 50 <unk> week can you just talk us through the magnitude of that impact in a little more detail just trying to understand how clean are already that number is.

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

Robert Helm: And then just on the Q1 comp, I know you guys mentioned some calendar noise in Q1 given the 53rd week. Can you just talk us through the magnitude of that impact in a little more detail, just trying to understand how clean of a read that number is? Well, from a quarter perspective.

Speaker Change: Well from a quarter perspective, the quarter had the same number of adds year over year. My comments were referencing there week to week shifts, which are calendar shifts with our flyer. So the.

Speaker Change: The weekly fluctuations could be.

Speaker Change: Quite significant but over the over the course of the quarter. We saw that we did have positive comps in all three quarters when factoring in for the Easter shift and we saw that the comp trend.

Speaker Change: Strengthened as we moved throughout the quarter as the customer responded to our spring seasonal offerings later in the quarter.

Robert Helm: Understood. Thanks, guys. Thanks for having me. Thank you.

Speaker Change: Understood. Thanks, guys.

Anthony: Thanks Anthony.

Scot Ciccarelli: Thank you. And our next question comes from the line of Scott Ciccarelli from Truist Securities. Your question, please? Hey, good morning, guys. This is Joe on for Scott. Thanks for taking my question.

Speaker Change: Thank you and our next question comes from the line of Scot Ciccarelli from Truth Securities. Your question. Please.

John W. Swygert: Yes, Joe, as you know, with our business and being predominantly closed out retailing, we don't have a ton of line of sight per se, we're not out six months or eight months from our perspective, but we have a couple months, two months, three months of visibility. And right now, our line of sight feels very good. We're positioned, and you know, what we feel in the marketplace is that the strength of the deal flow and the momentum we have are pretty good.

Speaker Change: Hey, Good morning, guys. This is Joe on for Scott. Thanks for taking my question I was just wondering if you could talk a little bit more about <unk>.

Speaker Change: Your line of sight for sourcing this year, and where you see the most opportunities across categories.

Speaker Change: Yes, Joe as you know with our business and being predominant closeout retailing, we don't have a ton of line of sight per se, we're not out six months or eight months from our perspective, but we have a couple of month two months three months visibility and right now our line of sight. It feels very good where we're positioned and what we feel in the marketplaces the strength of the.

John W. Swygert: And I think it's going to continue to be pretty strong for us. So we feel well positioned going into the second half of the year as Gotcha. Great. And if I could just do a quick follow up on how you're thinking about consumer roles versus like general merchandise in terms of demand and sourcing out there, that'd be great. Thanks. We look at it more in the deal you know the obviously consumables are a big driver right now to everyone but that the pressure that consumers under but we try to give the best deal to the consumer and if it's a if it's a value the consumer responds as we have such a wide disparity of income levels in our stores so we bring we're being the right product at the right price itself but consume consumables are definitely a big part of the puzzle right now we keep focused on that but we also are staying away from real big ticket items just because that's a more challenging to move so we're we're staying right in our spot which we know is working well for

Speaker Change: Deal flow and the momentum we have it's been pretty good and I think it's going to continue to be pretty strong for us. So we feel well positioned going into the second half of the year as well.

Speaker Change: Got you great and if I could just do a quick follow up on how you're thinking about consumables versus like general merchandise in terms of demand in sourcing out there would be great. Thanks.

We look at it more on the deal.

Speaker Change: The obviously consumables are a big driver right not everyone, but the pressure that consumers under but we try to give the best deal to the consumer and if it's a if it's a value the consumer responds.

Speaker Change: We have such a wide disparity of income levels in our stores. So when we bring that we'd be in the right product at the right price itself, but consume consumables are definitely a big part of the puzzle right now we keep focus on that but we also are staying away from real big ticket items, just because that's a more challenging to move so we're staying right in our spot, which we know is working well for the consumer.

Speaker Change: Got it thanks, so much.

Matthew Robert Boss: Thank you. And our next question comes from the line of Matthew Boss from J.P. Morgan. Your question, please. Thanks and congrats on a nice quarter. Thanks, Matt. So John, could you elaborate on new customer acquisition trends, maybe key initiatives to capture competitive opportunities in the landscape? And then, just near term, have you seen any change in consumer behavior so far in the second quarter versus that strengthening in comps that you cited as the first quarter progressed?

Speaker Change: Thanks, Joe.

Speaker Change: Thank you and our next question comes from the line of Matthew Boss from Jpmorgan. Your question. Please thanks, and congrats on a nice quarter.

Matt: Thanks, Matt.

Matt: John could you elaborate on new customer acquisition trends, maybe key initiatives to capture competitive opportunities in the landscape and then just near term have you seen any change in consumer behavior. So far in the second quarter versus that strengthening in comps that you cited as the first quarter progressed.

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

Matt: Okay.

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

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

Eric: Yes, I think in terms of acquisition, Matt <unk>.

Eric: The biggest trend we're seeing is with younger consumers the 18 to 45.

Eric: Our old cohort is where we're seeing the strongest acquisition of <unk> of.

Speaker Change: New customers.

Speaker Change: It's very exciting is we do believe that our digital marketing investments and the remix of print.

Speaker Change: Investing more into digital.

Speaker Change: Is working quite well in attracting that customer.

Speaker Change: And also on the product side, bringing in products that appeal.

Speaker Change: To younger customers as the deals present themselves.

Speaker Change: It's also very.

Speaker Change: Helpful in driving that younger consumer I would also say that the.

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

Speaker Change: Boost we're seeing in the customer file is also our attrition starting to level off we're seeing that we are retaining customers at greater levels than we have over the last couple of years and if you remember Matt we picked up a lot of customers in academic and then had some operational challenges.

Speaker Change: We feel like we're coming out the other side of that and the <unk>.

Speaker Change: These army filings being up 7%.

Speaker Change: For the quarter is a testament to that.

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

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

Speaker Change: Great Best of luck. Thanks.

Patrick: Thanks, Patrick Thanks.

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

Speaker Change: Thank you.

Speaker Change: And our next question comes from the line of Jeremy Hamblin from Craig Hallum. Your question. Please.

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

Jeremy Scott Hamblin: Congrats on the momentum and the promotions I wanted to ask.

Shrink.

Speaker Change: And you were still hearing a ton of.

Speaker Change: Retail peers that are struggling with shrink control.

Speaker Change: They have identified a subset of stores that I think is causing the majority of your shrink but wanted to get an update because I think the last time, you said, it's still a little bit elevated.

Speaker Change: Wanted to get an update on where you are on that.

Robert Helm: Hey Jeremy, this is Rob. Shrink does remain elevated. It feels like we've hit a little bit of a plateau here, but we continue to work on it every day, and as we, you know, take action and improve, you know, one, you know, one store, you know, another store will kind of pop up as we do rolling counts throughout the course of the year. The good news is that it does seem to have leveled off and that our guidance contemplates, you know, the shrink at this, you know, albeit higher level. So, you know, we don't haven't forecasted for any improvement yet. It continues to be a work in progress, and we're focused on it, and hopefully, you know, we'll have a more positive update in the future.

Speaker Change: On the shrink front.

Rob: Hey, Jeremy this is Rob.

Speaker Change: Shrink does remain elevated.

Speaker Change: Feels like we've hit a little bit of a plateau here.

Speaker Change: We continue to work on it every day and as we take actions and improve.

Speaker Change: One one store another store kind of pop up as we do rolling counts throughout the course of the year. The good news is it does seem to have leveled off and that our guidance contemplates that.

Speaker Change: Shrink at.

Speaker Change: Albeit higher level, so we haven't forecasted for any improvement yet.

Speaker Change: To be a work in process progress and we're focused on it and hopefully we'll have a more positive update in the future.

Jeremy Scott Hamblin: Great And then I just want to come back to the 99 cent only stores. And thinking about the economics of the box, a little bit smaller box, in terms of thinking about, you know, kind of the returns on that, presumably, we might be modeling these at, you know, 80% productivity of a full-line Ollie's store. But how do we think about the, you know, kind of the EBITDA, or full wall cash generation that you're getting from these stores, given that it sounds like you've got some favorable rent economics?

Speaker Change: Great and then just wanted to come back to the 99 cent only stores.

Speaker Change: And thinking about the economics of the box a little bit smaller box in terms of thinking about.

Speaker Change: Kind of the returns on that.

Speaker Change: Presumably we might be modeling needs it.

Speaker Change: 80% productivity.

Speaker Change: Our full line all of these store.

Speaker Change: But how do we think about.

Speaker Change: Kind of the EBITDA or four wall cash generation that youre getting from these stores given that it sounds like you've got some some favorable rent economics.

Robert Helm: That's a good question. I'll take this one.

Speaker Change: Yes, that's a good question I'll take this one from a store pro forma perspective, you're correct. We are modeling me for these stores to be slightly less productive on the sales line, but with the slightly less productive on the sales line.

Robert Helm: From a store proforma perspective, you're correct. We're modeling for these stores to be slightly less productive on the sales line. But with slightly less productivity on the sales line comes a lower occupancy cost and a lower payroll cost. And all that's kind of considered in the map. And, you know, when you get to the bottom line, these stores we anticipate aren't too far off from an economic perspective from what a prototype Ollie's would look like typically. So we'd expect, you know, the economy to be nicely accreted to this year.

Speaker Change: Come to lower occupancy cost and a lower payroll cost and all of that is kind of considered in the map and when you get to the bottom line.

Speaker Change: These stores, we'd anticipate aren't too far off from an economic perspective of what a prototype always would look like typically.

Speaker Change: So we would expect.

Speaker Change: The economics to be nicely accretive to this year.

Jeremy Scott Hamblin: Great, thanks for the caller and good luck the rest of the year.

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

Melanie Nunez: Thanks, Jeremy. Thanks, Jeremy. Thank you. And our next question comes from the line of Melanie Nunez from Bank of America. Your question, please? Hey, good morning. Thanks for taking my question. I just wanted to see what you knew about your.

Jeremy Scott Hamblin: Jeremy Thanks, Jeremy.

Speaker Change: Thank you and our next question comes from the line of Melanie Newness from Bank of America. Your question. Please.

Speaker Change: Hey, good morning, Thanks for taking my question.

Melanie Newness: Just wanted to see what youre seeing in terms of the promotional landscape across the space and how youre buying team is really monitor that and factor that into your buying and pricing strategies.

John W. Swygert: Yeah, Melanie, we look at pricing every day. That's the paramount measure of our success.

Speaker Change: Melanie we look at pricing every day.

Speaker Change: Our Paramount measure of our success so.

John W. Swygert: So promotional pricing has not been a real headwind for us at all to date. But our merchants, every single time they buy a deal, they look at the price in the marketplace to base our value for the consumer on that. So if and when someone's got a promotional price, we look at it, and we'll adjust accordingly when we need to. But for the most part, our gaps are so large, we don't need to make any additional adjustments from that. But if and when it does happen, we make it.

Speaker Change: Promotional pricing has not been a real headwind for us at all to date.

Speaker Change: But our merchants every single time, they buy a deal they look at the price in the marketplace to base our value for the consumer off of that so if and when someone's got a promotional price we look at it and we'll adjust accordingly, when we need to but for the most part where our gaps are so large we don't need to make any additional adjustments from that but if and when it does happen we make it quickly.

Speaker Change: Thank you.

Speaker Change: Thank you. Thank you.

Speaker Change: Thank you.

Eric Michael Cohen: And our next question comes from the line of Eric Cohen from Gordon. Your question, please.

Speaker Change: And our next question comes from the line of Eric Cohen from Gordon Haskett Your.

Eric Michael Cohen: Thanks for the question. Great quarter and congrats on all the promotions. Just want to ask about the guidance.

Robert Helm: You guys called out the big Q1 beat. How much of that is just flowing through? Or in other words, I guess, Now that you have the 99 cent only stores, we're going to have dark rent until they open. Could the full year guidance have been raised even higher if it wasn't for the 99 cent store acquisitions?

Speaker Change: Please.

Speaker Change: Good morning, Thanks for the question great quarter, and congrats on all the promotions.

Eric Michael Cohen: I just wanted to ask on the guidance you guys called out the Big Q1 beat how much of that is just flowing through or in other words I guess now.

Speaker Change: Now that you have the nine months and only stores are going to have dark rent until they open.

Speaker Change: The full year guidance have been raised even higher if it wasn't for 99 cents to acquisitions.

Robert Helm: $0.99 will be accretive to this year. You know, while you have the dark rent that you do reference, we're not raising our total store opening count for the year. And we do have some level of pre-opening expenses for, you know, non-$0.99 stores that we were going to open instead of these stores. But from a net-net perspective, we think it's accretive this year because we're picking up sales weeks and we're advancing our pipeline based on acquiring these.

Speaker Change: 99% will be accretive to this year, while you have the dark rent that you do reference we're not raising our total store opening count for the year and we do have some level of Preopening expenses for non 99 centers that we were going to open instead of your stores.

Speaker Change: From a net net perspective, we think it's accretive this year, because we're picking up sales weeks and revamping our pipeline based on acquiring new stores.

Eric Michael Cohen: Got it. And historically, 70% of your sales have been from close out. But in the last four years, it's dipped down to 65%. Understandably, during 2020 and 2021, with strong demand and less close opportunity, it's shrunk, but even as the retail environment has stabilized, it's still stayed at that 65%. So that's the right way to think about it, the business going forward. And does increasing that everyday value mix actually make the comps more consistent? Eric, that's a great question.

Speaker Change: Got it and historically, 70% of your sales have been from closeout. The last four years it stepped down to 65% understandably during 2000 22021 with strong demand and less close opportunity has shrunk, but it's even as the retail environment has stabilized its still stayed at that 65%. So is that fair.

Speaker Change: Way to think about it the business going forward and is increasing that everyday value mix actually make the comps more consistent.

John W. Swygert: Eric, that's a great question. From our perspective, we've always said that our goal would be to have 100% closeouts, which we know is not possible. So our internal goal is always 70-30 closeout versus everyday value goods. But the reality is, as we continue to expand, it gets harder and harder to have all the closeouts that you need to have the business model operating correctly. So we do believe that as we continue to slide up to the 1,000-plus store number, we'll see that closeout percentage start to dip down a little bit.

Eric Michael Cohen: Eric That's a great question from our perspective, we've always said that our goal would be to have 100% Closeouts, which we know is not possible. So our internal goal is always 70, 30 closeout versus everyday value goods, but the reality is we could as we continue to expand.

Eric Michael Cohen: It's harder and harder to have all the closeouts that you need to have the business model operating correctly. So we do believe that as we continue to slide up to the 1000 plus stores.

Eric Michael Cohen: Number we will see that closeout percentage start to dip down a little bit, but we don't believe.

John W. Swygert: But we don't believe anything south of 60 is ever going to happen. So we think 60-40 is probably about as low as we would go on the closeout versus everyday value goods. And we've been doing this for a long, long time. So the customer really doesn't notice the difference in how we mix in everyday value goods and closeouts. But our goal is to stay close to that 70. And right now, we feel pretty comfortable that we can stay there with what we're seeing in the market.

Eric Michael Cohen: Something south of <unk> ever going to happen. So we think 60 40 is probably about as low as we would go on a closeout versus everyday value goods. So and we've been doing this for a long long time, so the customer really doesn't notice a difference on how we mix in everyday value goods in closeouts, but our goal is to stay close to at 70 and right now we feel pretty comfortable we can stay there with what we're seeing.

Eric Michael Cohen: In the marketplace.

Speaker Change: Alright, Thanks, a lot.

Speaker Change: Thank you Sir.

Eric Michael Cohen: Thank you. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11. Our next question comes from the line, Mark Carden from UBS. Your question, please. Great. Thanks so much for taking my questions and congratulations, guys, on the promotions.

Speaker Change: Yes.

Speaker Change: Thank you and as a reminder, ladies and gentlemen, if you do have a question at this time. Please press star one one our next.

Mark David Carden: Next question comes from the line of Mark Carden from UBS. Your question. Please great. Thanks, so much for taking my questions and congrats guys on the promotions.

Mark David Carden: So to start, I wanted to ask another one about the 99 cent only stores. You guys mentioned they're a bit smaller. How do you think about assorting them? Would you expect to keep a similar close out, non-close out mix? Would you expect to trim back in any particular categories? Just want to see if there are any differences on that front.

Mark David Carden: So to start I wanted to ask another one and then back down instead only stores you guys mentioned there are a bit smaller how do you think about our sourcing down would you expect to keep a similar closeout non closeout mix would you expect to turn back and any particular categories.

Speaker Change: Alright, if theres any differences in that front.

Eric van der Valk: Yeah, Mark, it's Eric. We do think about it quite a bit. It's not a big enough difference for there to be a material change in the mix, but it does affect our thinking about category mix to an extent. It does not adjust our thinking in terms of closeout mix. But there are certain categories of business that take up a little bit more space and are a little bit less productive that we'll pull back on to remix the store to make sure the categories that are really the pillars of our business, the destination categories, are featured well in a meaningful way, and there are a couple other categories that are going to be re-spaced and smaller.

Eric Michael Cohen: Markets Eric.

Speaker Change: We do think about it quite a bit it's not.

Eric Michael Cohen: Big enough difference for there to be a material change in the mix.

Speaker Change: But it does adjust our thinking about category mix to an extent it does not adjust our thinking in terms of closeout mix.

Speaker Change: But there are certain categories of business, they take up a little bit more space that are a little bit less productive that will pull back on to remix the store to make sure. The categories that are really the pillars of our business.

Speaker Change: <unk> categories are featured well in a meaningful way.

Speaker Change: There's a couple of other categories that are going to be re spaced in smaller we've learned a lot in remodeling stores over the past two years as we re spaced and relocated categories as to what works and what doesn't work and it has helped inform us.

Eric van der Valk: We've learned a lot in remodeling stores over the past two years as we've re-spaced and relocated categories as to what works and what doesn't work, and it's helped inform us about what mixing a 25,000 square foot store needs to look like.

Speaker Change: For what mixing at 25000 square foot store needs to look like.

Eric van der Valk: You guys have seen a lot of momentum in higher-income customers over the past few quarters. At this stage, are your tailwinds in this cohort skewing more towards repeat buyers, or are you still bringing in a lot of new higher-income customers into your ecosystem?

Speaker Change: Got it makes sense and you guys have seen a lot of momentum and higher income customers over the past few quarters. At this stage are your tailwind in this cohort skewing more towards repeat buyers are you still bringing in a lot of new hiring customers into our ecosystem. Thanks.

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

Speaker Change: Yes, it's really both we're seeing.

Speaker Change: We're seeing repeat buying from.

In the aggregate from all cohorts, including the higher income consumers and we continue to acquire the.

Speaker Change: The higher income customers as well.

Mark David Carden: Great. Thanks so much and good luck, guys.

Speaker Change: Great. Thanks, so much good luck guys. Thank you.

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

Speaker Change: Thank you.

Speaker Change: And our next question.

Speaker Change: Comes from the line of Simeon Gutman from Morgan Stanley Your question. Please.

Simeon Ari Gutman: Good morning, everyone. I have one question and one follow-up. The first question is on gross margin. You mentioned first quarter seasonalally, typically a little bit better. Can you talk about what's imputed in terms of freight and supply chain costs? And if we've gotten sort of the peak benefit in the numbers now, and what is that? How does that flow throughout the rest of the year?

Simeon Ari Gutman: Good morning, everyone I have one question one follow up the first question is on gross margin you mentioned first quarter seasonally typically a little bit better can you talk about whats imputed in terms of freight and supply chain cost and if we've gotten sort of the peak benefit in the numbers now.

Simeon Ari Gutman: And what does that what how does that flow throughout the rest of the year and then I have one follow up.

Robert Helm: Sure. I would say from a gross margin perspective, T1 would be the peak benefit relative to supply chain costs. We do anticipate 2Q to be less than this, and 3Q to have virtually no benefit on the supply chain side. And then 4Q would be like for like for the most part.

Speaker Change: Sure I would say from a gross margin perspective, Q1 would be the peak benefit relative to supply chain costs, we do anticipate.

Speaker Change #100: <unk> to be.

Speaker Change #101: Less than this.

Speaker Change #101: And <unk> to be virtually.

Speaker Change #102: No benefit on the supply chain side.

Speaker Change #102: And then <unk> would be like for like for the most part.

Robert Helm: From a supply chain cost perspective, we did proceed into the year with a decent amount of caution on supply chain rates embedded in our guidance. And we're not kind of taking any kind of goodness at this point, which is the potential for, you know, going into, you know, the retailer's peak season and, you know, some commentary out of the ocean carrier front. We're going to proceed with caution and, you know, obviously flow through the gross margin if we're able to do better than, you know, what we planned.

Speaker Change #102: From a supply chain cost perspective.

Speaker Change #102: We did proceed into the year with a decent amount of caution on supply chain right.

Simeon Ari Gutman: Okay, and then to follow up on that, that means the caution was justified so far. And then I'll just ask my second question.

Speaker Change #102: Embedded in our guidance.

Speaker Change #102: And we're not taking any any kind of good news at this point.

Speaker Change #102: We just the potential for.

Speaker Change #102: Going into the retail peak season in some commentary out of the out of the Ocean carrier front, we're going to proceed with caution and obviously flow through the gross margin, if we're able to do better than.

Speaker Change #102: What we plan.

Robert Helm: The second question, it was back to traffic and tickets. I think you said basket and transactions were both positive. In the basket piece, is that the number of items that are being purchased? Or I don't know if there's an average ticket that you can proxy given, you know, the changing merchandise. That's a good one.

Speaker Change #103: Okay, and then to.

Speaker Change #104: A follow up to that that means the caution was justified so far and then I'll just throw my second question. The second question was back to traffic and ticket I think you said basket and transactions were both positive in.

Speaker Change #105: In the basket piece is that the number of items that are being purchased or I don't know if theres an average ticket that you can proxy given the changing merchandize.

Robert Helm: That's a good one. Basket was about two-thirds of the Comp B transactions, and it was about a third of the Comp for the quarter. Out of the basket, most of it was driven out of AUR. But to your point, it's a difficult one to look at in terms of mix. UPC was up ever so slightly.

Speaker Change #104: Okay.

Speaker Change #106: That's a good one basket was about two thirds of the Combi transactions was about a third of the comp.

Speaker Change #106: For the quarter.

Speaker Change #106: Out of the basket most of it was driven out of.

Speaker Change #107: But to your point, it's a difficult one to kind of look at it in terms of mix.

Speaker Change #107: UPC was up ever so slightly.

Speaker Change #108: Thank you.

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

Speaker Change #108: Thank you.

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.

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

John W. Swygert: I would like to thank everyone for their time today and interest in all of these we look forward to updating you on our continued progress on our next earnings call. Thank you and have a great day.

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

Speaker Change #109: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

Speaker Change #109: Okay.

Speaker Change #109: [music].

Speaker Change #109: [music].

Speaker Change #109: Okay.

Speaker Change #109: Yes.

Speaker Change #109: Yes.

Speaker Change #109: Yes.

Speaker Change #109: [music].

Speaker Change #109: Thanks.