Q3 2024 Ollie's Bargain Outlet Holdings Inc Earnings Call
<unk> proposition is clear our deal flow is strong and our ability to execute is as good as it's ever been.
We remain focused on delivering profitable growth consistent results and enhancing shareholder value.
Eric: With that said I would now like to turn the call over to Eric.
Thanks, John and good morning, everyone.
We are pleased with our third quarter performance the process improvements and investments we have made in our people supply chain stores and marketing continue to result in better and more consistent execution.
Eric: The third quarter was a great example of this we delivered earnings that were in line with expectations. Despite some temporary headwinds.
Eric: We also opportunistically acquired a number of real estate sites that bolstered our new store pipeline and competitive positioning.
Eric: The first of these opportunities was the former 99 said only stores in Texas, we acquire these stores out of bankruptcy in may and shifted our organic new store pipeline to prioritize opening these first.
Eric: In August we soft opened several of these stores as a test minimizing the dead rent and reducing the operational burden of opening so quickly after assuming possession of the sites give.
Eric: Given these stores had been opened inactive with discount shoppers just a few months prior we expected they might ramp faster than our typical new stores several more top performing stores right out of the gate. We later followed up with an official grand opening event and could not be happier with the quick ramp and performance of these stores.
Eric: The second real estate opportunity is it closing big lots stores to date, we have acquired 17 store locations and where the winning bidder on an additional seven stores last Friday similar to the 99 cent only stores. These stores are the right size located a good trade areas have attractive rents and leasing structures.
<unk> serving value oriented customers for many years.
Eric: We will prioritize the opening of the acquired stores and expect to have these open by the end of the first quarter next year with.
Eric: With these additional stores, our new store pipeline is very strong and our store openings in 2025 will be frontloaded as a result.
Eric: Our initial plan for next year is a minimum of 56, new stores, which meets our 10% EBIT growth goal we.
Eric: We will continue to evaluate the new store pipeline and opening schedule as any new opportunities unfold 'twenty.
Eric: 2025 will be a record year for new store openings and there is the potential for additional real estate opportunities on the horizon.
Eric: Bankruptcies and closures of retailers comps with market disruption.
Eric: In the short term it can lead to increased competition for our stores going up against liquidations.
Eric: This is offset by longer term opportunities and product flow market share and talent acquisition.
Eric: To support our accelerated growth, we continue to invest in supply chain, our newly opened distribution center in Princeton, Illinois began shipping stores in July and is capable of servicing more than 150 stores. The new facility has a number of technology and productivity enhancements that will help us scale and increase productivity over time.
Eric: The Midwest is an area that continued significant growth potential for ollie's.
Eric: And the newly acquired stores will help us better leverage this asset.
Eric: With the new DC in place, we now have the capacity to service up to 750 stores in total which provides runway for several years of growth.
Eric: A few other supply chain related comments, the port strike was really a non event for us.
Eric: We continue to closely monitor the potential for increased tariffs are flexible buying model allows us to adjust our pricing to changes in the marketplace and tend to be three different products.
Eric: As a reminder, direct imports from China account for approximately 50% of our product flow in any given year.
Speaker Change: Before I turn the call over to Rob I would like to thank the entire ollie's team for their continued hard work and commitment.
Rob: I'd also like to recognize our associates in the hurricane impacted areas Hurricane Selina Milton were devastating and I'm thankful that our team members are safe and doing what they can for their local communities.
Rob: <unk> to be part of an organization that has a clear purpose and an amazing culture, we're proud to sell good stuff cheap and save customers money on the things they want and need.
Rob: I would also like to thank John for his leadership and impressive 20 year career, which always delivered nearly unparalleled results in the retail industry, we're especially appreciative for leadership John provided through the unexpected passing of our Butler, which took place only moments before the pandemic started.
Rob: He has been an incredibly strong shepherd or the business model and our culture I appreciate John's Mentorship and the trust he and the board have placed in me to lead <unk> into the next phase of growth.
Rob: You.
Rob: Rob.
Rob: Thanks, Eric and good morning, everyone. We are very pleased with our third quarter results. We delivered a 14% increase in adjusted EPS driven by an 8% increase in sales a 100 basis point increase in gross margin and disciplined expense control.
Rob: We also opened 24, new stores in the quarter, which was a record number for us.
Rob: In the third quarter, we faced a number of short term headwinds that impacted sales.
This included a shift of <unk> out of the third quarter and into the fourth quarter the.
Rob: Two major hurricanes, the big lots store closures and liquidations and unseasonably warm temperatures.
Rob: Despite these headwinds we still delivered earnings that were in line with our expectations and our outlook for the fourth quarter is largely unchanged.
Rob: Now, let me take you through the third quarter numbers.
Rob: Net sales increased 8% to $517 million driven by new store growth.
Rob: Comparable store sales declined <unk>, 5% with both transactions and basket down slightly.
Rob: Demand for everyday consumer Staples was strong throughout the quarter and our best performing categories were food candy housewares and furniture.
Ollie's Army membership increased 8% to $14 8 million members and sales to our members represented over 80% of total sales.
Rob: Consistent with prior trends, we're seeing growth in our younger customer demographic and retention of higher income customers.
Rob: We ended the quarter with 546 stores in 31 states, an increase of 8% year over year.
Rob: As mentioned, we opened a record 24, new stores and closed three stores.
Rob: All of the three closures one was the temporary closure from a store that was flooded due to hurricane OEM and fewer store leases that we chose not to renew.
Rob: We are pleased with the performance of our new stores, including the former 99 only stores, which are off to a solid start.
Rob: Gross margin increased 100 basis points to 41, 4% driven primarily by lower supply chain costs, partially offset by lower merchandize margin from the higher mix of consumer staples.
Rob: SG&A expenses as a percentage of net sales increased 40 basis points to 29, 9% due to deleverage of fixed expenses associated with the decrease in comparable store sales.
Rob: Operating income increased 14% to $45 million and operating margin increased 50 basis points to eight 6% in the quarter.
Rob: Adjusted net income increased 13% to $36 million and adjusted earnings per share increased to 58.
Rob: Lastly, adjusted EBITDA increased 17% to $60 million and adjusted EBITDA margin increased 100 basis points to 11, 6% for the quarter.
So turning to the balance sheet.
Rob: Being a public company with a strong balance sheet is a strategic asset in the closeout industry.
Rob: Not only does it enhance our credibility with vendors and allows us to make larger deals. It gives us the flexibility to pursue just about any opportunity as it arises.
Rob: We ended the quarter with $304 million between cash on hand, and short term investments and no outstanding borrowings under our revolving credit facility.
Rob: Inventories increased 14% to $607 million, primarily driven by new unit growth and the timing of receipts.
Rob: Capital expenditures totaled $31 million for the quarter and were primarily related to the development of new stores and the remodeling of existing stores.
Rob: We bought back $16 million of our common stock in the third quarter, bringing our year to date share repurchases to $47 million in line with our targeted capital allocation.
Rob: Turning to our outlook our updated guidance for fiscal 2024 is contained in a table in today's earnings press release.
Rob: Our outlook for the fourth quarter is largely unchanged and we feel good about our positioning heading into the Christmas holiday and remaining weeks of the fiscal year.
Rob: The ranges for net sales and comparable store sales are now 2.27 to $2 8 billion and two 7% to 3% respectively.
Rob: The slight narrowing of the ranges as a result of our third quarter results. The one unplanned store closure and the timing of new store openings.
Yeah.
Rob: Our gross margin outlook of 40% is unchanged as is our outlook ranges for adjusted net income and adjusted earnings per share.
Rob: Preopening expenses are now slightly higher due to rent expenses associated with the recently acquired stores and the front end loaded new store opening scheduled for next year.
Rob: For new store openings, we are still targeting a total of 50 less the two closures that we chose not to renew the lease and the one temporary closure of the flood impacted North Carolina store.
Rob: We expect to open 13 stores in the fourth quarter and are targeting a minimum of 10% new unit growth for next year.
Rob: Next year store openings will be more heavily weighted to the first half with the majority of stores opening in the first and second quarters.
Speaker Change: As John discussed we have seen a nice acceleration in business over the last several weeks and we're pleased with our Black Friday weekend sales.
Speaker Change: We believe that the shorter selling season between Thanksgiving and Christmas could make for a bigger holiday rush into mid to late December period, and our current trend seems to support this.
Speaker Change: We are locked and loaded with great deals for our customers.
Speaker Change: Finally, just a quick reminder, that this this fiscal year has 52 weeks versus 53 weeks last year. The extra week last year contributed approximately $34 million in net sales and about <unk> <unk> to diluted earnings per share.
John: Now, let me turn the call back over to John.
John: Thanks, Rob.
John: I'd like to thank the entire ollie's team for everything they do it's truly the combined experience passion and commitment from everyone that makes ollie's successful.
John: I cannot be prouder of what we've accomplished and look forward to our future success as we say we are.
Dave.
Speaker Change: That concludes our prepared remarks, and we're now happy to take your questions operator.
Speaker Change: Ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered your assembly yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Speaker Change: Okay.
Speaker Change: Our first question comes from Matthew Boss with JP Morgan Your line is open.
Matthew Boss: Great Thanks, and John Congrats on the transition you'll be missed.
John: Thanks, Matt also may round, though don't forget that I'm not disappearing.
Speaker Change: All right.
Speaker Change: Could you maybe speak to the cadence of <unk> comps, maybe parsing through best you can some of the transitory headwinds that you faced and then on November and for Q, maybe best you can if you can elaborate on November trends that you've seen in the business and just your confidence in above algorithm comps in the fourth.
Speaker Change: Order despite consolidation disruption given the shortened calendar just how you are how you kind of put it all together.
Hey, Matt, it's Rob I'll take that one.
Speaker Change: From a quarterly flow on the comps for Q3.
Speaker Change: August was down slightly which was better than our plan because the flyer shift shifted out of August in that month.
Speaker Change: September was up slightly positive, which we thought was really good considering that was the month in which the we were impacted by the Hurricanes, which was about.
Speaker Change: Call. It a 50 basis point impact to our comp overall for the quarter and then lastly, we ended in October and October was the softest month of the quarter.
Speaker Change: Down call it <unk>.
Speaker Change: Negative low single digits, and Thats really where the warm weather started to impact us in our seasonal categories.
Speaker Change: Coming into the into the fourth quarter.
Speaker Change: Our trends are good and we were pleased with the Black Friday weekend and holiday.
Speaker Change: We've seen as we're getting closer to the Christmas holiday our trends continue to strengthen.
Speaker Change: And from a over algo perspective from the fourth quarter remember, we do have that flyer shift that flipped shifted out of August.
And shifted into this quarter, so that gives us about an extra 100 basis points of comp and Thats wire is still sits ahead of us today.
Speaker Change: Great and then maybe Eric.
Speaker Change: Follow up could you just elaborate on the white space unit growth opportunity multiyear you see just puts and takes to consider relative to the 10% plus unit growth for next year and just as our fleet expands what are you seeing from vendor reliant audio.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Let me let me on mute My line here is that how you can you hear me.
Speaker Change: Hello Hello.
Speaker Change: Can you guys hear me all right.
Speaker Change: Yes can you hear me.
Speaker Change: But.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: One moment, ladies and gentlemen, please standby.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Once again, ladies and gentlemen, please standby your conference call will resume momentarily.
Speaker Change: Again, ladies and gentlemen, please standby your call will resume momentarily.
Speaker Change: Again, ladies and gentlemen, please standby your call resume momentarily.
Speaker Change: B B.
Speaker Change: Two.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Your line is open at a muted can you hear me.
Speaker Change: I can hear you want me to ask the second question no one one moment Mathieu.
Speaker Change: Congress from your line is unneeded Ark can you hear me.
Speaker Change: We can hear you can you hear US yes, we can hear you now.
And on mobile, we got whatever per phone, probably grab which style than on my mobile number now okay.
Speaker Change: So go ahead with your question Matthew.
Matthew Boss: Great. So Eric could you elaborate on the white space to unit growth opportunity multiyear.
Matthew Boss: Any growth govs to consider relative to the 10% unit growth to minimum that you cited for next year and just with the with the greater size and scale. What are you seeing with vendor relationships and closeout opportunities.
Matthew Boss: Sure Matt.
Speaker Change: As we look at the 25 and 25 and beyond but certainly 25, we've looked at real estate.
On really an opportunistic basis and there are a lot of opportunities out there.
Speaker Change: In this moment edition of Big lots there are several other retailers that are in either state of distress or liquidation.
Speaker Change: And we're looking at all of the real estate, we're in the process.
Speaker Change: Whether it's through an auction process of working direct with landlords, if we're able to.
Speaker Change: And.
Speaker Change: <unk> will accelerate beyond the 10%.
Speaker Change: Can't really talk too much beyond 25 is the pipeline is built out for 25 at this point.
Speaker Change: Begin to 'twenty six.
Speaker Change: The governor in this moment, we've invested in infrastructure to support opening.
Speaker Change: It's 75 ish to 80 stores and Thats an operational.
Kind of self imposed governor based on the infrastructure, we have in place today. So what I don't want to do is get ahead of ourselves and guide 25.
In any way shape or form, but we aren't giving direction temperature unit growth with opportunities to accelerate beyond that what we've been seeing in terms of closeout flow in product availability is that our size and scale have been.
Very helpful in giving us access to more closeouts.
Develop more direct relationships with some larger.
Speaker Change: Important vendor relationship, especially the consumables world.
Speaker Change: And our ability to.
Speaker Change: To be able to take all of the deal is is a differentiator, it's something like a competitive advantage.
Speaker Change: And I'll, just remind you and everyone that I'd, Rob stated in his remarks that our balance sheet.
Speaker Change: Remained very strong in an environment where.
Speaker Change: You know that we're working in today that strong balance sheet attracts vendors to us too.
To tell with great payment terms and liquidity and the assurance that they will get paid.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Peter Keith with Piper Sandler Your line is open.
Speaker Change: Hi, Thanks, Good morning, John Mike Congratulations to you I know, you're not leaving but it has been a great pleasure working with you on these types of calls.
Speaker Change: I did want to dig into the dynamic around the big lots store closures I think you had called it out as a as a headwind to Q3 I wonder if there's any quantification there and then we do have a lot more closures happening in Q4.
Speaker Change: Could that be a potential headwind as well that we should be contemplating as the quarter progresses.
Speaker Change: Thanks, Peter This is Rob I'll take that question. So when we had our third quarter call. There were only about 300 announced closures that big Big lots It announced with about 100 of those store closures impacting us that.
That impact for the third quarter ended up being in the range of 50 basis points of <unk>.
Speaker Change: Drag against our comp.
Speaker Change: Since that time, they've announced that another 250 store closures give or take for a cumulative total of 550 store closures.
Speaker Change: These closures cement.
Speaker Change: Very late in the third quarter, and we will be taking place through the end of the holiday season.
Speaker Change: So we embedded.
Speaker Change: A similar amount of draw.
Speaker Change: Drag so call it 50 basis points in our fourth core guide.
Speaker Change: Okay.
Speaker Change: Very helpful. Thank you.
Speaker Change: And then.
Speaker Change: Related to the store acquisition, so I guess, the Matthew I think you've acquired 17, and then you've got a potential seven more big lots stores it could be up to 24.
Speaker Change: What's your thinking around knees. It was intrigued to hear that the 99 cent only stores are opening up quite strong does that inform any thinking around the stores that you are buying now and how they could open up in the early 2025.
Speaker Change: It certainly does inform how we think about it we think that the stores could ramp very quickly.
Speaker Change: We're excited about these acquisitions.
Speaker Change: Great lease economics.
Customer demographic.
Speaker Change: Strong.
Speaker Change: Street visibility and great box sizes. So we're really excited about these.
Speaker Change: Okay sounds good thanks, so much thank.
Speaker Change: Thank you.
Speaker Change: For our next question.
Okay.
Speaker Change: Our next.
Speaker Change: Comes from Brad Thomas with Keybanc capital markets. Your line is open.
Speaker Change: Good morning, and John.
Speaker Change: All the best to you as well.
Speaker Change: Wanted to first ask about just operationally and how you plan the organization for this accelerating square footage growth just to ensure that these new store here is very strong as they can be out of the gate and how other stores don't suffer as yet get inventory to this.
Speaker Change: Accelerating amount of square footage growth.
Speaker Change: Then I know you don't have a lot of commentary on 2025.
Financially, but just at a high level. If there is any op margin puts and takes that we should be thinking about thanks.
Sure Brad Eric I'll take the first question.
Speaker Change: We have invested in our infrastructure anticipating.
Speaker Change: Both supporting the 10% unit growth.
Speaker Change: Planned going forward as well as the potential to accelerated 25.
Speaker Change: Project management resource is one of the bigger areas that we've invested in which is.
Speaker Change: Construction and our new store set up teams.
Speaker Change: Ensuring that we're hiring ahead.
Speaker Change: For sure we have the leadership in place.
Speaker Change: Infrastructure and store leadership in general.
Speaker Change: And then the DC network, which I talked a little bit about in my opening remarks is another one that we've gotten our head on with now the.
Do you see that work able to support 750 stores, we have no concern about.
Speaker Change: Bandwidth throughput on the on the DC side as well.
Speaker Change: And the perimeter earnings outlook on 2025.
Speaker Change: Typically don't give too much color on our third quarter call.
Speaker Change: Around that.
Speaker Change: Would say is that when you think about 2025.
Speaker Change: Firmly going to be in the long term our long term algo.
Speaker Change: Working our way back to a 14% EBITDA.
Speaker Change: And there is potential for.
Speaker Change: Outside EPS growth because of the front loading of the store opening schedule, which is something we haven't seen for several years here.
Speaker Change: Great. Thanks, Eric.
Speaker Change: One moment for our next question.
Speaker Change: Yes.
Speaker Change: Our next question comes from Chuck Grom with Gordon Haskett. Your line is open.
Speaker Change: Hey, good morning, Thanks, very much can we just double click on the acceleration in your business over the past few weeks and I guess can you also dig into why you think the consolidated calendar could accelerate business in the coming weeks and I think Rob you said that you still have one flyer to come can you just confirm that.
Speaker Change: Yes.
Eric: It's Eric so.
Eric: <unk>.
Eric: From where we sit today.
Eric: There is a lot of meaningful business still in front of us with the calendar shifted a condensed calendar. The flyer ship is in front of us beating its ahead of us.
Eric: And it's planned.
Eric: A week when you look at how the bid.
Eric: We expect the business to flows planting of wheat that is very very meaningful and we're putting some great deals out there to attract customers into the stores.
Eric: On a somewhat last minute basis as we approach the holiday also keep in mind that between now and Christmas or two additional shopping days, even though there were fewer than that.
Eric: In the total season, so we're reading the data in the business to come and we feel good about where we're at.
Speaker Change: Okay, great. Thanks, very much and then just on Ollie's Army.
Speaker Change: Over 80% of sales you talked earlier in your prepared remarks about getting younger with your customer I was wondering if you could dig into that a little bit more for us it seems like a big opportunity for you guys.
Sure Yes.
Speaker Change: Ollie's Army, the contingency strength and attracting.
Young customers are stronger strongest growth segment now consistently for several quarters. It has been.
Speaker Change: 18% to 45 year old.
Speaker Change: <unk>.
Speaker Change: So that's very encouraging we do believe that our digital marketing efforts are continuing to pay off we've made investments over several years now, including bringing on a new.
Speaker Change: Advertising agency that specializes in retail digital marketing programs in that.
Speaker Change: It seems to be going very very well for us.
Speaker Change: And then we're also.
Speaker Change: Bringing in product that is more attractive ti requests of our that also lends itself to.
Speaker Change: Tracking those customers.
Speaker Change: Yes.
Speaker Change: That's great. Thank you.
Speaker Change: Thanks, Chuck one moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Scot Ciccarelli with Truest Your line is open.
Speaker Change: Good morning, guys Scot Ciccarelli.
Speaker Change: I know you talked about the negative impact of the big lots store liquidations, but what are your early reads from our sales capture perspective from the sales that are orphaned from those closed stores.
Speaker Change: Then another question about how that the go forward earnings flow through.
Speaker Change: Any kind of notable investments that are going to be needed that would create a headwind to margin. Rob. Obviously, you just talked about above algo for 25, but just as you kind of think about the longer term growth opportunity, whether it's D. C. Whether it's technology or anything we should be kind of thoughtful up thanks.
Speaker Change: Hey, Scott, it's Rob I'll take that.
Speaker Change: We're relatively early days post liquidation.
Speaker Change: The first round of liquidation is only route.
About a month ago, we have seen some glimmers of pick up.
Speaker Change: Hereby close.
Speaker Change: But it's not it's too early to give a solid readout on it yet.
Speaker Change: From a from an investment perspective for the accelerated growth.
Speaker Change: We've already made a bunch of those in vacuum fifth year and readying ourselves for next year. So there is not youre not going to see any significant investment in SG&A to significant investment in technology, we have what we need in place.
Speaker Change: One thing that Youll see over the years with accelerated growth because we'll continue to make supply chain investments in the form of distribution centers and that.
Speaker Change: The faster that we grow the.
Speaker Change: The sooner we will get to our our fifth distribution center, which is still a couple of years off at this point.
We had.
Speaker Change: Had a little bit of color, we have the ability to expand two of our existing buildings as well.
Speaker Change: Building in Texas stability in Illinois, both have an opportunity to expand 200000 square feet. Each so we don't necessarily have to run.
Speaker Change: Fast Intuit building, we could expand the two buildings in weak from a roadmap standpoint, we'd have thought process around that in years 2026.
Speaker Change: And beyond.
Speaker Change: Understood. Thanks, guys.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Kate Mcshane with Goldman Sachs. Your line is open.
Kate Mcshane: Hi, Good morning, Thanks for taking our question we wanted to ask a couple of questions around gross margin can you just talk about how.
Kate Mcshane: Mix impacted the margin in the quarter, just given the strength in some of the consumables and if thats increase doesn't mix of overall sales and just how should we how long.
Kate Mcshane: Will you benefit from the lower freight costs.
This is rob.
Speaker Change: From a mix perspective, I would say that consumables had a 20 point drag on the quarter. In addition to what we.
Speaker Change: Contemplated when we originally guided our margin.
Speaker Change: Can you repeat the second question on <unk>.
Speaker Change: Second question.
Speaker Change: Yes, just how many more quarters can we see a benefit from freight.
Speaker Change: I would say that this is the last quarter of significant benefit of rate.
Constantly doing what we can to make ourselves more efficient throughout our business and thats true of supply chain as well so you'll see a little improvement in terms of contracting and how we flow product and operations at our distribution centers, but they're going to be fairly muted relative to what we've seen in the.
Speaker Change: Pick up coming off of the two.
Speaker Change: The supply chain Crunch from the last couple of years.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Jeremy Hamblin with Craig Hallum Capital Group. Your line is open.
Speaker Change: Thanks for take our taking the question here.
Speaker Change: Wanted to start by asking about Preopening expense, Rob I think you noted, it's going to be a little bit higher.
Speaker Change: Then what you had previously anticipated, which I think it was about $17 million for the year wanted to see if you could quantify.
Speaker Change: Given the stores that you are bringing on how much that would change here in 'twenty four and now also as we look ahead to 'twenty five if you can kind of give us an early read of.
Speaker Change: How we should be thinking about that year.
Speaker Change: And then my second question is just getting a bit more granular on the performance of the new stores understanding how are the 99 cent only legacy stores performing relative to the typical ollie's and then what youre thinking about in terms of the big lots our legacy stores versus.
Speaker Change: Your typical Ali.
Speaker Change: Sure from a preopening perspective for the fourth quarter.
Speaker Change: There is about an additional call it a penny of EPS drag relative to the big lots stores.
Speaker Change: We take those stores over and pay the dead rent.
Speaker Change: As soon as we acquire the lease so that's contemplated in our guidance for this year for next year no really big.
Speaker Change: Big changes in how we're thinking about reopening aside from just the frontloading of expense that youre seeing a little bit in.
Speaker Change: In the fourth quarter is while there but.
Speaker Change: Just kind of status quo for next year, we would expect.
Jeremy Hamblin: Yes, Jeremy.
Jeremy Hamblin: A little more color on.
Speaker Change: We call them warm stores for new stores or stores that.
Jeremy Hamblin: <unk>.
Jeremy Hamblin: Okay.
It's somewhat recent past.
Remember a lot of the real estate that we take on in our organic pipeline and second generation real estate.
Jeremy Hamblin: The retailer that we're replacing its been out of business for five plus years oftentimes, we have to kind of rack upgrades you remember even who they work because some of this is.
Jeremy Hamblin: It's very high.
Cold boxes, so what we found with 99%.
Jeremy Hamblin: That there were customers showing up to the stores that thought the store was still 90 99.
Jeremy Hamblin: And discovered that it wasn't Eddie board, we're not disappointed because it is a discount oriented customer.
Jeremy Hamblin: Our business model somewhat.
Jeremy Hamblin: Somewhat differ from 99 cent was similar enough that the customers found it to be appealing and attractive.
Jeremy Hamblin: And it's too early to.
Jeremy Hamblin: Quantify what all that means but I said in my opening remarks that we're very happy with the.
Jeremy Hamblin: The initial response from customers with almost no marketing or Grand opening event, we were doing volume in some of these stores that was kind of the equivalent of the post Grand opening Halo period.
Jeremy Hamblin: We would expect the same for big lots stores. We believe we haven't opened any that we've acquired.
Jeremy Hamblin: The various auctions, yet, but we expect to see something similar or are these boxes will get cold for 90 days, maybe 120 days.
Jeremy Hamblin: So we would expect.
Jeremy Hamblin: Something similar a fairly quick ramp.
Speaker Change: Great. Thanks for the color and best wishes in the holiday season.
Speaker Change: Thanks, Jeremy.
One moment for our next question.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Our next question comes from Anthony <unk> with loop capital markets. Your line is open.
Speaker Change: Good morning, Thanks for taking my question.
Speaker Change: So in terms of the big lots and the 99 cents only stores are there any noticeable differences.
Speaker Change: From your core store base in other words like are they are they are they significantly bigger or smaller in size. This more in sort of core urban locations relative to your stores. Just anything that you think is worth pointing out in terms of any differences.
Sure Anthony.
Speaker Change: Eric.
99, <unk> stores were slightly smaller than the average store that we opened and they were in the.
Speaker Change: Mid Twenty's and our average typically runs a little over 30000 square.
Speaker Change: Square feet, there are slightly smaller.
Speaker Change: There were a couple of them that were actually sub 20000 feet, which is very unusual for us.
Speaker Change: But the majority of them were above 20, and again averaged in the mid 20.
Speaker Change: For the big lots stores gross square footage of the total box is very similar to ours, but they have larger back rooms. So.
Speaker Change: We're making it to the job youre selling.
Speaker Change: Selling store short square footage in some of those stores.
Speaker Change: To ensure that.
Speaker Change: It's.
Speaker Change: More civil of our box size, but.
Speaker Change: But I would expect the big lots stores to be slightly smaller on average in terms of selling square footage than our average store.
Speaker Change: Got it and then just one quick follow up so you talked about that fliers that shifted.
Speaker Change: Out of the third quarter into the fourth quarter any any EM and maybe this is too granular, but any any thought in terms of what the comp.
Speaker Change: Hit might have been from that or another way to think about what the comp benefit will be in the fourth quarter.
Speaker Change: For the third quarter, we think that it was slightly less than 100 basis points, but just about there.
Speaker Change: For the fourth quarter, we would expect about 100 basis points of improvement.
Speaker Change: Got it thanks, so much and good luck with the rest of the holiday selling season. Thanks.
Speaker Change: Thanks Anthony.
Speaker Change: One of them before our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Robert <unk> with Bank of America. Your line is open.
Speaker Change: Hi, Thanks for taking my question.
Speaker Change: Chuck on gross margin for a SEC M&A you talked about.
Speaker Change: The mix impact just anything to think about for <unk> in terms of the merch margin and how your mix changes in this quarter.
Speaker Change: Yes.
Speaker Change: Our fourth quarter guidance carriers over a little bit of the mix.
Speaker Change: We thought that that was prudent because we have seen are consumers responding.
Speaker Change: Consumer staples.
Speaker Change: Yes.
Speaker Change: I think I mentioned in an earlier question the supply chain improvement.
Speaker Change: Improvement.
Speaker Change: Is much more muted as we lap costs.
Speaker Change: Slide from that everything else is pretty status quo.
Speaker Change: Shrink is pretty stable. So we're planning trained pretty stable, albeit at a higher level.
Speaker Change: But nothing else really to comment on the gross margin.
Speaker Change: Yes.
Speaker Change: Great. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Sure.
Speaker Change: Our next question comes from Simeon Gutman with Morgan Stanley. Your line is open.
Speaker Change: Hi, This is zach on for Simeon Thanks for taking my question.
Speaker Change: Inventory was up 14% in the third quarter, a bit higher than sales growth of seven 8%.
Speaker Change: You did call out new unit growth and the timing of receipt. So it seems like it's mostly just normal course of business, but can you speak to the.
Speaker Change: If there was any pull forward of product for the holiday season are also in.
Speaker Change: Perhaps in front of any potential tariffs. Thanks.
Speaker Change: Nothing significant to call out about inventory growth, we have been playing a little bit of catch up on inventory growth for the last couple of years relative.
Speaker Change: Relative to our unit growth and we feel really good and confident about our.
Speaker Change: 14% unit.
Speaker Change: We're a growth we are locked and loaded with deals for the holiday season.
Great. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Right.
Speaker Change: Our next question comes from Edward Kelly with Wells Fargo. Your line is open.
Speaker Change: Hi, good morning, everyone and congrats as well John on a successful career there.
Speaker Change: My first question can you I wanted to ask you about <unk>.
Speaker Change: <unk> and labor you made some changes around the workforce full time part time.
Speaker Change: Various as to what Youre seeing there sort of like cost versus benefit and then as we think about like going forward in 'twenty five.
Speaker Change: Are you still comfortable with the leverage point on SG&A at around a 1% comp or is that just kind of inching a little bit higher based upon.
Speaker Change: Some of the changes on labor.
Speaker Change: Sure I'll take the questions.
Speaker Change: We are still in the early stages of testing the benefits to the full time part time mix change.
Speaker Change: To remind everybody we're currently 60%.
Speaker Change: Time.
Speaker Change: And are moving to 50 50.
Speaker Change: Ratios so we're in.
Speaker Change: Few dozen stores testing that change.
Speaker Change: We also are testing a leadership structure change that we believe will help us to better execute the stores.
Speaker Change: <unk> side, the full time part time mix change so what the stores better covered from a leadership standpoint, it will help us to better execute.
Speaker Change: We ultimately look at this as expense neutral when you look at our investment in leadership and a.
Speaker Change: A.
Speaker Change: A full time person being.
Speaker Change: A more productive.
Speaker Change: They're warranted oriented person.
Speaker Change: Offsets the wage investment that we made in full time people on is net neutral.
The leverage point for SG&A is closer to 2%.
Speaker Change: Going forward based on the investments we've made in the business.
Speaker Change: Great, Okay, and just a quick follow up.
Speaker Change: Related to the big Big lots of opportunity.
Speaker Change: Any sort of thoughts on.
Speaker Change: The big lots plan going forward and ask this question because they've had some stores that were liquidated that are that are no longer going to close.
Speaker Change: 70 stores or so in it and are now going to remain open.
Speaker Change: I think some of the discounts that they're running on these liquidations has been decreasing versus where they were historically and there's been talk coming out of I think big lots around.
Maybe.
Speaker Change: Our strategy of buying lean a bit more on the Closeouts I'm, just kind of curious as to how youre thinking about.
Speaker Change: Thats going forward.
Speaker Change: As you sort of look at your competitive landscape.
Speaker Change: Yes.
Speaker Change: It's hard to tell you we're focused on running our business.
Speaker Change: We're not not real focused on big lots, except to the extent that liquidations are somewhat disruptive. We're excited that you close stores or the opportunity to pick up market share because the share basket is.
Speaker Change: Fairly meaningful between our customers.
Speaker Change: The category mixes is somewhat similar although they are quite very heavy in the big ticket businesses, where we don't play.
Speaker Change: So we're excited for the opportunity.
Speaker Change: We think.
Speaker Change: Were very very strong closeout.
Speaker Change: Discount player with a very loyal customer that tracks due in younger customers on a day to day basis.
Speaker Change: Very strong loyalty program and we like our chances in terms of the competitive environment, whether it's big lots or or anyone else out there that.
Speaker Change: Chooses to go after the deep discount close that business.
Speaker Change: Yes.
Speaker Change: Great. Thanks, Scott and good luck this holiday.
Speaker Change: Thanks.
Speaker Change: And again, ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone.
Speaker Change: One moment for our next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Mark Carden with UBS. Your line is open.
Speaker Change: Good morning, Thanks, so much for taking the questions. So on tariffs. Your commentary has been helpful. How do you think about the balance of incremental purchasing costs relative to the potential for higher demand that could come if customers become more pressed in their spending.
Speaker Change:
Speaker Change: I guess I'm not I'm not understanding your question.
Speaker Change: The impact just in terms of.
Speaker Change: Yes, just in terms of the incremental costs that could come from higher purchasing.
Speaker Change: Thanks, good even would be impacted by.
Speaker Change: If you think about your parts in China versus prices across the board for customers going up and.
Speaker Change: And see more customers looking to trade into ollie's.
Speaker Change: We generally drive on disruption and the tariffs are one of those disruptive events.
Speaker Change: We think that if anything the tariffs could creating additional closeout opportunity.
Speaker Change: There is some other traditional retailers may be priced out of goods because the incremental tariffs that we may be able to you.
Speaker Change: Get that get those products at a bargain.
Speaker Change: Sure those bargains with our customers so.
Speaker Change: Being a price follower it positions us well to navigate through the.
Speaker Change: The tariff situation.
Speaker Change: Got it that's helpful. And then I know, it's early days, but any takeaways from your initial credit card rollout in Pennsylvania, and just how does this customer compared to your typical ollie's Army member.
Eric: Yes, Mark it's Eric.
Eric: Rollout is going well.
Eric: We're in about 70 stores now.
Eric: <unk> tested large phase, we're trying to understand best what's the most effective way.
Eric: Continue to rollout the programming.
Eric: <unk> 25 will take probably both to <unk> 45 to complete.
The rollout.
Eric: It is going.
Eric: Better than expected in certain ways the approval rates are a bit higher than we expected in the.
Eric: The spend is higher than we expected so it's off to off to a very good start.
Eric: I can't answer the question on how the demographics compare thats. Good question its something we havent studied yet, but we will.
Great. Thanks, so much good luck guys. Thanks.
Speaker Change: Thanks Mark.
Speaker Change: For our next question.
Speaker Change: Our next question comes from Paul the juice with Citi. Your line is open.
Speaker Change: Hey, Thanks, guys curious if maybe you could talk a bit more about the buying environment, where youre seeing increased availability I think you mentioned in the consumables category, but also curious if there are any pockets, where youre not seeing as great of availability and then secondly, just as we think about the gross margin structure.
Speaker Change: Longer term.
Speaker Change: Is there anything to think about as consumables take up a larger percentage of sales. How do you think about gross margin targets any any different if at all.
Speaker Change: Yes, Paul this is John with regards to the overall deal flow.
Speaker Change: It's been pretty pretty wide all way around all of our departments were not seeing a shortage in any category. That's been it's been pretty strong and it continues to flow very well there was a small period of time of where theres a little bit slow Miss in HPA, but that has turned around and we're seeing some.
Speaker Change: Some good deal flow and the HBA front, but overall, we're very excited by what we're seeing I do believe that with the disruption that's been out there.
Speaker Change: And the changes that are taking place in the marketplace. We're seeing a lot more product flow out there with regards to the overall deal flow.
Speaker Change: Rob to answer you on the overall margin of the impactful consumables from a gross margin perspective, we're not thinking about the gross margin target is much different.
Speaker Change: <unk> is 40 remains 40, we would say.
Speaker Change: We are seeing a slightly higher drag relative to consumer staples, but.
Speaker Change: We love those businesses because it had built in frequency and customer did that bring our customers back for the consumables as well as the great deals.
Speaker Change: The drag on the gross margin, we think we'll be able to offset operational efficiencies through our supply chain.
Speaker Change: Got it. Thank you good luck.
Speaker Change: Thanks, Thank you.
Not showing any further questions at this time I'd like to turn the call back over to Eric.
Speaker Change: I would like to thank everyone for their time and interest at Ali We look forward to updating you on our continued progress on our next earnings call. Thank you.
Thank you ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Speaker Change: Okay.
Speaker Change: [music].