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spk04: Good morning and welcome to OLLI's Bargain Outlets conference call to discuss financial results for the first quarter of fiscal year 2024. Currently, all participants are in listen-only mode. 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 OLLI's. Joining on Today's call from OLLI's management are John Swigert, Chief Executive Officer, Eric Vandervlok, President, and Robert Helm, Executive Vice President, Chief Financial Officer. Certain comments made today may constitute forelooking statements are 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 the earnings press release. Forward-looking statements made today are 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 are included in our earnings press release. With that said, I'll turn the call over to Mr. Swagger. Please go ahead, sir.
spk06: Thank you and good morning, everyone. We appreciate you joining 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 into 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 when making their purchases. 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. There are a few important themes propelling our business that we wanted to touch on today. The first is the growth in the clothesline 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. While the closeout industry is growing, the number of bigger players buying and selling closeouts 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. 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. 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. 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 to the shrinking number of closeout players, and 99 cent only bankruptcy filing and store closures is further validation of this. The second piece of news supporting our long-term growth and success is a 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 enjoyed 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. He has transformed key areas of the business, including supply chain, store operations, and store design, all of which result in improved execution and operating efficiencies. This combined with his closeout merchandise experience makes him the ideal person for his new role. Effective 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. 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 announced today the hiring of Chris Zender to the role of Executive Vice President and Chief Operating Officer effective June 17th. Chris brings a vast wealth of operational and leadership experience from a number of deep discount and closeout retailers. We have a great team and I will work with him 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.
spk08: 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 teams. 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. 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 capabilities. These and other investments have also made us a more nimble organization, capable of handling unplanned events and circumstances, such as the collapsing 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. 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 stock market. In May, we negotiated our annual international carrier contracts at favorable rates. 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 is 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. We are excited about the recently acquired 99 cent only stores. As John mentioned, this is a group of 11 stores located in key markets in Texas. Three are owned properties, and the balance are leases. 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. 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, 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 keeping our brand top of mind with existing customers. Our growing customer base is reflected in our Ali's Army numbers. Consistent with prior trends, we are seeing growth in the younger customer demographic and also in younger customers joining the Army. 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. Before I turn the call over to Rob, I would like to thank the entire OLLI'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.
spk29: Rob. Thanks, Eric, and good morning, everyone. 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 and higher interest income. 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 comp. 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. 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 percent of our product categories comping positive. Our best-performing categories were lawn and garden, housewares, food, sporting goods, and candy. OLLI's Army membership increased 7 percent 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 margins. SG&A expenses were well controlled in the quarter and decreased 40 basis points as a percentage of net sales to 28 percent, driven by leverage of fixed expenses on the increase in comparable store sales. Operating income increased 47 percent to $56 million, and operating margin increased 270 basis points to 11.1 percent in the quarter. Adjusted net income increased 47 percent to $45 million, and adjusted earnings per share increased 49 percent to 73 cents. 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 maximum flexibility to drive growth and maximize shareholder returns. We ended the quarter with $342 million between cash on hand and short-term investments and no outstanding borrowings under our revolving credit facility. Inventory has increased 6 percent to $527 million, primarily driven by new store growth. 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. We are committed to returning capital to our investors through share repurchases while balancing our strategic growth opportunities and working capital needs. With some of the share price volatility in the quarter, we stepped up our repurchase activity and bought $25 million of our common stock. 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 percent, gross margin of approximately 40 percent, operating income of 250 to 258 million, adjusted net income of 196 to 202 million, and adjusted net income for 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. 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 percent. Although we are currently running ahead of this, July represents a very challenging monthly comparison for us. 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 of 11 99-cents only stores. 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 cadence will be more front-end loaded next year, which should benefit both full-year sales and earnings. We're still working through some of this 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 to these stores to complete a thorough assessment, we'd expect the remodeling cost of a $0.99 only store to be a little higher than a typical opening. 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. 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 second and third quarters to be much more modest and the fourth quarter to be down slightly. 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. 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 guidance. Now let me turn the call back over to John.
spk06: Thanks, Rob. We operate a very unique business model that involves everyone from 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 Ollie's. That concludes our prepared remarks, and we are now happy to take questions. Operator?
spk04: 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.
spk18: Hi, good morning, and congratulations to everyone on the new opportunities ahead.
spk25: Thanks, Brad.
spk18: Sure, John. 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. 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. Thanks.
spk08: Brad, this is Eric. 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. Keep in mind that we're under-penetrated in 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.
spk06: Yeah, Brad, I think the only thing I'd add to that is with the 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.
spk18: 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 closeouts? And how do you think about that opportunity longer term?
spk06: Yeah, we really focus on driving relationships, Brad. We don't really try to drive made-for follies, per se, and have everyday value goods. 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 occurring 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.
spk08: Yeah, I mean, another way to say that, Brad, is strategic partnerships are closeout partnerships.
spk17: Absolutely. Thanks so much, and congratulations again.
spk04: Thanks, Brad. Thank you. And our next question. comes from the line of Peter Keith from Piper Sandler. Your question, please.
spk11: Thanks. Good morning. Congrats from me as well on all the promotions. For the four-year guys, are you raising 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 that the numbers might be a little bit above what you were thinking a couple of months ago.
spk29: 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. Okay.
spk11: Maybe just to stick on those stores, so can you give some characteristics around the size of them? And I guess, you know, just going back, it was ancient history, but, you know, there was some history with Toys R Us and You know, opening up a lot of stores at once caused some operational difficulties. Cindy, just talk about the cadence of opening those and managing the supply to the stores.
spk08: Sure, Peter. I'll take it. It's Eric. 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 comp, 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.
spk06: Yeah, Peter, this is John. The other thing that I would add to it, that's the exact reason why we're not adding any incremental stores to the overall class, if you want to call it. We're going to just springboard into 2025 with much 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 the stores.
spk08: Yeah, I think, Peter, you also asked a question I didn't answer on the size. The size of the stores is in the mid-20s, 1,000 square feet. 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 up. 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.
spk06: 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 foot stores. And we opened up 22 of them in one quarter. So it's a little more stress on the network that wasn't quite as sophisticated as it is today.
spk09: And we filled them at 40,000 feet. We filled them.
spk11: OK. Very good. Thanks so much, guys.
spk04: 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 Gold.
spk19: Hi. Good morning. Thanks for taking our question. We were wondering just how the competitive environment looks right now with regards to going after closeout deals. And outside, you know, some of the CPG commentary where you're seeing some of the more compelling closeout opportunities.
spk06: Yeah, Kate, like we say almost every call, we don't see a whole lot of competition in the closeout 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, we're able to be the first call and what we want we take. 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.
spk01: Thank you.
spk04: Thanks, Kate. 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.
spk02: Yeah, hey, good morning, guys. It's Anthony on for Ed. Thanks for taking our questions. So first I wanted to ask about the gross margin. It looks like our 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 about the cadence of the rest of the year in terms of guidance?
spk29: Hey, 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, which was what we had kind of forecasted when we came into the year that 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 typically is higher than our full-year annual gross margin. So we're expecting, you know, it to step down sequentially from here, although we do still expect expansion off of last year's gross margin results. And then from 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.
spk02: Got it. That's helpful. 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?
spk29: 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 fluctuation could be – quite significant, but over the course of the quarter, we saw that, you know, we did 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 the customer responded to our spring and seasonal offerings later in the quarter.
spk02: Understood. Thanks, guys.
spk04: Thanks, Anthony. Thank you. And our next question comes from the line of Scott Ciccarelli. from Truist Securities. Your question, please.
spk10: 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 line of sight for sourcing this year and where you see the most opportunities across categories.
spk06: 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 visibility, and right now our line of sight feels very good. We're positioned, and what we feel in the marketplace is the strength of the 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.
spk10: Gotcha. Great. And if I could just do a quick follow-up on how you're thinking about consumer roles versus general merchandise in terms of demand and sourcing out there, it would be great. Thanks.
spk06: We look at it more in the deal. Obviously, consumables are a big driver right now to everyone with the pressure that consumers are under, but we try to give the best deal to the consumer. If it's a value, the consumer responds because we have such a wide disparity of income levels in our stores. We're being the right product at the right price itself, but 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 more challenging to move. So we're staying right in our spot, which we know is working well for the consumer.
spk04: Got it. Thanks so much. Thanks, Joe. Thank you. And our next question comes from the line of Matthew Boss from J.P. Morgan. Your question, please.
spk26: Thanks, and congrats on a nice quarter.
spk25: Thanks, Matt.
spk26: 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 comp that you cited as the first quarter progressed?
spk06: Yeah, Matt, I'll let Eric take part of that, and then I can kick in at the end.
spk08: 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. And it's very exciting. We do believe that our digital marketing investments in the remix of print investing more into digital is working quite well in 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.
spk29: 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 in the pandemic and then had some operational challenges. We feel like we're coming out the other side of that. And, you know, the Ali's Army file being up 7% for the quarter is a testament to that.
spk06: 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 the 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.
spk27: Great. Best of luck.
spk04: Thanks, Matt. Thanks. Thank you. And our next question comes from the line of Jeremy Hamlet from Craig Hallam. Your question, please.
spk07: Congrats on the momentum and the promotions. I wanted to ask about shrink. And we're still hearing a ton of retail peers that are struggling with shrink control programs. 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 of where you are on that, on the shrink front.
spk29: Hey, Jeremy. This is Rob. Shrink does remain elevated. It feels like we've hit a little bit of a plateau here. We continue to work on it every day. And as we, you know, take actions and improve, 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 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 haven't forecasted for any improvement yet. Continue 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.
spk07: Great. And then just want to come back to the $0.99 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, you know, 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 cash generation that you're getting from these stores, given that it sounds like you've got some favorable rent economics?
spk29: That's a good question. I'll take this one. From a store performer perspective, you're correct. We're modeling for these stores to be slightly less productive on the sales line. But with the slightly less productive on the sales line, comes a lower occupancy cost and a lower payroll cost. And all that's kind of considered in the math. And when you get to the bottom line, these stores we'd anticipate aren't too far off from an economic perspective of what a prototype Ollie's would look like typically. So we'd expect economics to be nicely accretive to this year.
spk07: Great. Thanks for the color and good luck the rest of the year. Thanks, Jeremy. Thanks, Jeremy.
spk20: thank you and our next question comes from the line Melanie Nunes from Bank of America your question please hey good morning thanks for taking my question I just wanted to see what you know what you're seeing in terms of the promotional landscape across the space and you know how your buying teams really monitor that and factor that into your buying and pricing strategies yeah Melanie we look at pricing every day that that's that's our paramount measure of our success so
spk06: 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 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, 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.
spk00: Thank you.
spk04: Thank you. Thank you. Thank you. And our next question comes from the line of Eric Cohen from Gordon. Your question, please.
spk16: Good morning. Thanks for the question. Great quarter and congrats on all the promotions. Just want to ask on the guidance. You guys called out the big Q1B. 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 $0.99 store acquisitions?
spk29: $0.99 will be accretive to this year. You know, while you have the dark rents that you do reference, you know, we're not raising our total store opening count for the year. And we do have some level of pre-opening expenses in for, you know, non-$0.99 stores that we were going to open instead of these stores. 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 stores.
spk16: Got it. And historically, 70% of your sales have been from closeout. The last four years, it's dipped down to 65%. Understandably, during 2020, 2021, with strong demand and less closeout opportunity, it shrunk. But even as the retail environment has stabilized, it's still stayed at that 65%. So is that the right way to think about it, the business going forward? And does increasing that everyday value mix actually make the comps more consistent?
spk06: 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, but we don't believe something 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 on how we mix in everyday value goods and closeouts, but our goal is is to stay close to that 70, and right now we feel pretty comfortable we can stay there with what we're seeing in the marketplace.
spk14: Great. Thanks a lot.
spk06: Thank you. Thanks, sir.
spk04: Thank you. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 1-1. Our next question comes from the line of Mark Cardin from UBS. Your question, please.
spk28: Great. Thanks so much for taking my questions, and congrats, guys, on the promotions. So to start, I wanted to ask another one of the nexon and scent only stores. You guys mentioned they're a bit smaller. How do you think about assorting them? Would you expect to keep a similar closeout, non-closeout mix? Would you expect to trim back in any particular categories? I just want to dig into if there's any differences on that front.
spk08: 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 adjust 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, that 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's a couple other categories that are gonna be re-spaced and smaller. 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 for what mixing a 25,000 square foot store needs to look like.
spk28: That makes sense. And 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-end customers into your ecosystem? Thanks.
spk08: Yeah, I mean, it's really both. We're seeing repeat buying from... in the aggregate from all cohorts, including the higher-income consumers, and we continue to acquire the higher-income customers as well. Great.
spk28: Thanks so much, and good luck, guys. Thank you.
spk04: Thank you. And our next question comes from the line of Simeon Gutman from Morgan Stanley. Your question, please.
spk22: Good morning, everyone.
spk03: 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 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 how does that flow throughout the rest of the year? And then I have one follow-up.
spk29: Sure. I would say from a gross margin perspective – Q1 would be the peak benefit relative to supply chain costs. We do anticipate 2Q to be less than this and 3Q to be virtually no benefit on the supply chain side. And then 4Q would be like for like for the most part. 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 going into the retailer's peak season and some commentary out of the ocean carrier front. We're going to proceed in caution and obviously flow through the gross margin if we're able to do better than what we planned.
spk03: Okay. And then to follow up to that, that means that 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 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 the changing merchandise.
spk29: That's a good one. Basket was about two-thirds of the Comp B. Transactions 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 kind of look at in terms of mix. UPT was up ever so slightly.
spk04: Thank you. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to John Swagger for any further remarks.
spk06: I would like to thank everyone for their time today and interest in OLLI's. We look forward to updating you on our continued progress on our next earnings call. Thank you and have a great day.
spk04: Thank you, ladies and gentlemen, for your participation at today's conference. This does conclude the program. You may now disconnect.
spk23: Good day. Thank you. Amen. Thank you. Thank you.
spk04: Good morning and welcome to OLLI's Bargain Outlets conference call to discuss financial results for the first quarter of fiscal year 2024. Currently, all participants are in listen-only mode. 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 OLLI's. Joining on Today's call from Ali's management are John Swigert, Chief Executive Officer, Eric Vandervlok, President, and Robert Helm, Executive Vice President, Chief Financial Officer. Certain comments made today may constitute forelooking statements are 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 the earnings press release. Forward-looking statements made today are 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 are included in our earnings press release. With that said, I'll turn the call over to Mr. Swagger. Please go ahead, sir.
spk06: Thank you, and good morning, everyone. We appreciate you joining 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 into 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 when making their purchases. 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. There are a few important themes propelling our business that we wanted to touch on today. The first is the growth in the clothesline 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. While the closeout industry is growing, the number of bigger players buying and selling closeouts 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. 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. 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. 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 to the shrinking number of closeout players, and 99 cent only bankruptcy filing and store closures is further validation of this. The second piece of news supporting our long-term growth and success is a 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 enjoyed 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. He has transformed key areas of the business, including supply chain, store operations, and store design, all of which resulted in improved execution and operating efficiencies. This combined with his closeout merchandise experience makes him the ideal person for his new role. Effective 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. 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 announced today the hiring of Chris Zender to the role of Executive Vice President and Chief Operating Officer effective June 17th. Chris brings a vast wealth of operational and leadership experience from a number of deep discount and closeout retailers. We have a great team and I will work with him 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.
spk08: 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 teams. The process improvements and investments we have made in our people, supply chain, stores, and marketing continue to pay off in a form of better productivity and consistent financial results. 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 capabilities. These and other investments have also made us a more nimble organization, capable of handling unplanned events and circumstances, such as the collapsing 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. 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 market. In May, we negotiated our annual international carrier contracts at favorable rates. 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 is 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. We are excited about the recently acquired 99 cent only stores. As John mentioned, this is a group of 11 stores located in key markets in Texas. Three are owned properties, and the balance are leases. 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. 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 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 keeping 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 Army. 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. Before I turn the call over to Rob, I would like to thank the entire OLLI'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. Rob.
spk29: Thanks, Eric, and good morning, everyone. 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 and higher interest income. In the first quarter, net sales increased 11 percent to $509 million, driven by new store growth and a 3 percent 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 comp. 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. 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 percent of our product categories comping positive. Our best-performing categories were lawn and garden, housewares, food, sporting goods, and candy. OLLI's Army membership increased 7 percent 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 margins. SG&A expenses were well controlled in the quarter and decreased 40 basis points as a percentage of net sales to 28 percent, driven by leverage of fixed expenses on the increase in comparable store sales. Operating income increased 47 percent to $56 million, and operating margin increased 270 basis points to 11.1 percent in the quarter. Adjusted net income increased 47 percent to $45 million, and adjusted earnings per share increased 49 percent to 73 cents. Lastly, adjusted EBITDA increased 40 percent to $69 million, and adjusted EBITDA margin increased 280 basis points to 13.6 percent for the quarter. Turning to the balance sheet, our balance sheet remains very strong and is a significant strategic asset, which provides us maximum flexibility to drive growth and maximize shareholder returns. We ended the quarter with $342 million between cash on hand and short-term investments and no outstanding borrowings under our revolving credit facility. Inventory has increased 6 percent to $527 million, primarily driven by new store growth. 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. We are committed to returning capital to our investors through share repurchases while balancing our strategic growth opportunities and working capital needs. With some of the share price volatility in the quarter, we stepped up our repurchase activity and bought $25 million of our common stock. 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 percent, gross margin of approximately 40 percent, operating income of 250 to 258 million, adjusted net income of 196 to 202 million, and adjusted net income for 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. 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 percent. Although we are currently running ahead of this, July represents a very challenging monthly comparison for us. 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 of 11 99-cents only stores. 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 cadence will be more front-end loaded next year, which should benefit both full-year sales and earnings. We're still working through some of this 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 to these stores to complete a thorough assessment, we'd expect the remodeling cost of a $0.99 only store to be a little higher than a typical opening. 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. 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 second and third quarters to be much more modest and the fourth quarter to be down slightly. 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. 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 guidance. Now let me turn the call back over to John.
spk06: Thanks, Rob. We operate a very unique business model that involves everyone from 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... Ollie's! That concludes our prepared remarks, and we are now happy to take questions. Operator?
spk04: 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.
spk18: Hi, good morning, and congratulations to everyone on the new opportunities ahead.
spk25: Thanks, Brad.
spk18: Sure, John. 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. 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. Thanks.
spk08: Brad, this is Eric. 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. Keep in mind that we're under penetrated in 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.
spk06: Yeah, Brad, I think the only thing I'd add to that is with the 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.
spk18: 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 closeouts, and how you think about that opportunity longer term?
spk06: Yeah, we really focus on driving relationships, Brad. We don't really try to drive made-for follies, per se, and have everyday value goods. 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 occurring 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 say that, Brad, is strategic partnerships are closeout partnerships.
spk17: Absolutely. Thanks so much, and congratulations again.
spk04: Thanks, Brad. Thank you. And our next question comes from the line of Peter Keith from Piper Sandler. Your question, please.
spk11: Thanks. Good morning. Congrats from me as well on all the promotions. For the four-year guys, are you raising 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 that the numbers might be a little bit above what you were thinking a couple of months ago.
spk29: 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. Okay.
spk11: Maybe just to stick on those stores, so can you give some characteristics around the size of them? And I guess, you know, just going back, it was ancient history, but, you know, 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 cadence of opening those and managing the supply to the stores?
spk08: Sure, Peter, I'll take it. It's Eric. 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 comp, 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.
spk09: and get them executed.
spk06: Yeah, Peter, this is John. The other thing that I would add to it, that's the exact reason why we're not adding any incremental stores to the overall class, if you want to call it. We're going to just springboard into 2025 with 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 the stores.
spk08: Yeah, I think, Peter, you also asked a question I didn't answer on the size. The size of the stores is in the mid-20s. thousand square feet. 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 up. 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.
spk06: 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 foot stores, and we opened up 22 of them in one quarter. So it was a little more stress on the network that wasn't quite as sophisticated as it is today.
spk09: And we filled them. At 40,000, we filled them.
spk11: Okay. Very good. Thanks so much, guys. Good luck.
spk04: Thanks, Peter. Thanks, Peter. Thank you. And one moment for our next question. Our next question comes from the line of Kate McShane from Gold. Please, Zach.
spk19: Hi, good morning. Thanks for taking our question. We were wondering just how the competitive environment looks right now with regards to going after closeout deals and outside, you know, some of the CPG commentary where you're seeing some of the more compelling closeout opportunities.
spk06: Yeah, Kate, like we say almost every call, we don't see a whole lot of competition in the closeout 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, we're able to be the first call and what we want we take. 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.
spk01: Thank you.
spk04: Thanks, Kate. 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.
spk02: Yeah, hey, good morning, guys. It's Anthony on for Ed. Thanks for taking our questions. So first I wanted to ask about the gross margin. It looks like our 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 about the cadence of the rest of the year in terms of guidance?
spk29: Hey, 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, which was what we had kind of forecasted when we came into the year that 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 typically is higher than our full-year annual gross margin. So, we're expecting, you know, it to step down sequentially from here, although we do still expect expansion off of last year's gross margin results. And then, from 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.
spk02: Got it. That's helpful. 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?
spk29: 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 fluctuation could be quite significant, but over the course of the quarter, we saw that, you know, we did 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 the customer responded to our spring and seasonal offerings later in the quarter.
spk02: Understood. Thanks, guys.
spk04: Thanks, Anthony. Thank you. And our next question comes from the line of Scott Ciccarelli. from Truist Securities. Your question, please.
spk10: 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 line of sight for sourcing this year and where you see the most opportunities across categories.
spk06: 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 visibility, and right now our line of sight feels very good. We're positioned, and what we feel in the marketplace is the strength of the 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.
spk10: Gotcha. Great. And if I could just do a quick follow-up on how you're thinking about consumer roles versus general merchandise in terms of demand and sourcing out there, it would be great. Thanks.
spk06: We look at it more on the deal. Obviously, consumables are a big driver right now to everyone with the pressure that consumers are under, but we try to give the best deal to the consumer. If it's a value, the consumer responds because we have such a wide disparity of income levels in our stores. We're being the right product at the right price itself, but 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 more challenging to move. So we're staying right in our spot, which we know is working well for the consumer.
spk10: Got it.
spk06: Thanks so much.
spk04: Thanks, Joe. 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.
spk25: Thanks, Matt.
spk26: 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 comp that you cited as the first quarter progressed?
spk06: Yeah, Matt, I'll let Eric take part of that, and then I can kick in at the end.
spk08: Yeah, I think in terms of acquisition, Matt, the biggest trend we're seeing is with younger consumers, the 18 to 45 Your old cohort is where we're seeing the strongest acquisition of new customers. And it's very exciting. We do believe that our digital marketing investments in the remix of print investing more into digital is working quite well in 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.
spk29: 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 in the pandemic and then had some operational challenges. We feel like we're coming out the other side of that. And, you know, the Ali's Army file being up 7% for the quarter is a testament to that.
spk06: 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 the 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.
spk27: Great. Best of luck.
spk06: Thanks, Matt. Thanks.
spk04: Thank you. And our next question comes from the line of Jeremy Hamlet from Craig Hallam. Your question, please.
spk07: Congrats on the momentum and the promotions. I wanted to ask about shrink. And we're still hearing a ton of retail peers that are struggling with shrink control programs. 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 of where you are on that, on the shrink front.
spk29: Hey, Jeremy. This is Rob. Shrink does remain elevated. It feels like we've hit a little bit of a plateau here. We continue to work on it every day. And as we, you know, take actions and improve, 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 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 haven't forecasted for any improvement yet. Continue 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.
spk07: Great. And then just want to come back to the $0.99 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, you know, 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 cash generation that you're getting from these stores, given that it sounds like you've got some favorable rent economics?
spk29: That's a good question. I'll take this one. From a store performer perspective, you're correct. We're modeling for these stores to be slightly less productive on the sales line. But with the slightly less productive 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 when you get to the bottom line, these stores we'd anticipate aren't too far off from an economic perspective of what a prototype Ollie's would look like typically. So we'd expect economics to be nicely accretive to this year.
spk07: Great. Thanks for the color and good luck the rest of the year. Thanks, Jeremy. Thanks, Jeremy.
spk04: Thank you. And our next question comes from the line. Melanie Nunes from Bank of America. Your question, please.
spk20: Hey, good morning. Thanks for taking my question. I just wanted to see what you're seeing in terms of the promotional landscape across the space and how your buying teams really monitor that and factor that into your buying and pricing strategies.
spk06: Yeah, Melanie, we look at pricing every day. That's our paramount measure of our success. 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 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, 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.
spk00: Thank you.
spk04: Thank you. Thank you. And our next question comes from the line of Eric Cohen from Gordon. Your question, please.
spk16: Good morning. Thanks for the question. Great quarter, and congrats on all the promotions. Just want to ask on the guidance. You guys called out the big Q1B.
spk15: How much of that is
spk16: just flowing through? Or in other words, I guess, now that you have the 99 cent only stores, you'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?
spk29: 99 cents 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 pre-opening expenses in for you know, non 99 cent stores that we were going to open instead of these stores, uh, from a net net perspective, we, we think it's secretive this year because we're picking up sales weeks and we're advancing our, our pipeline, uh, based on, on acquiring these stores.
spk16: Got it. And historically 70% of your sales have been from closeout the last four years. It's dipped down to 65% understandably during 2020, 2021 with strong demand and left close opportunity it shrunk, but. even as the retail environment has stabilized, it's still stayed at that 65%. So is that the right way to think about it, the business going forward? And does increasing that everyday value mix actually make the comps more consistent?
spk06: 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. But we don't believe something 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. on 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 we can stay there with what we're seeing in the marketplace.
spk14: Great. Thanks a lot.
spk06: Thank you.
spk04: Thanks, sir. Thank you. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 1-1. Our next question comes from the line, Mark Cardin from UBS. Your question, please.
spk28: Great. Thanks so much for taking my questions, and congrats, guys, on the promotions. So to start, I wanted to ask another one of the nexon-only stores. You guys mentioned they're a bit smaller. How do you think about assorting them? Would you expect to keep a similar closeout, non-closeout mix? Would you expect to trim back in any particular categories? I just want to dig into if there's any differences on that front.
spk08: 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 adjust 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, that 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's a couple other categories that are going to be re-spaced and smaller. 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 for what mixing a 25,000 square foot store needs to look like.
spk28: Got it. Makes sense. And 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-end customers into your ecosystem? Thanks.
spk08: Yeah, I mean, it's really both. We're seeing repeat buying from... in the aggregate, from all cohorts, including the higher-income consumers, and we continue to acquire the higher-income customers as well. Great.
spk28: Thanks so much, and good luck, guys.
spk08: Thank you.
spk04: Thank you. And our next question comes from the line of Simeon Gutman from Morgan Stanley. Your question, please.
spk22: Good morning, everyone.
spk03: 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 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 how does that flow throughout the rest of the year? And then I have one follow-up.
spk29: Sure. I would say from a gross margin perspective – Q1 would be the peak benefit relative to supply chain costs. We do anticipate 2Q to be less than this and 3Q to be virtually no benefit on the supply chain side. And then 4Q would be like for like for the most part. 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.
spk03: Okay. And then to follow up to that, that means that 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 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 the changing merchandise.
spk29: That's a good one. Basket was about two-thirds of the Comp B. Transactions 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 kind of look at in terms of mix. UPT was up ever so slightly.
spk04: Thank you. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to John Swigert for any further remarks.
spk06: I would like to thank everyone for their time today and interest in OLLI's. We look forward to updating you on our continued progress on our next earnings call. Thank you and have a great day.
spk04: Thank you, ladies and gentlemen, for your participation at today's conference. This does conclude the program. You may now disconnect. Good day.
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