Ollie's Bargain Outlet Holdings, Inc.

Good morning, and welcome to OLLI's Bargain Outlets conference call to discuss the financial results for the third quarter of fiscal year 2024. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and interactive instructions will follow at that time. Please be advised this call is being recorded, and the reproduction of this call, in whole or in part, is not permitted without express written authorization of OLLI's. Joining us on the call today from OLLI's management are John Swigert, Chief Executive Officer, Eric Vandervalk, Certain comments made today may constitute forward-looking statements and are made pursuant 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 risk and uncertainties that could cause actual results to differ materially from such statements. These risk and uncertainties are described in our annual reports on Form 10-K and quarterly reports on Form 10Q, on file with SEC, and in the earnings press release. Forward-looking statements made today are as of today's date of the 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 the 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. Swigert. Please go ahead.

Thank you, and good morning, everyone. We appreciate you joining our call today. We had another great quarter and are pleased with our results. We delivered strong earnings on higher sales, gross margin, and disciplined expense control. Even more important, we also took advantage of a number of real estate opportunities that strengthened our new store pipeline and enhanced our competitive positioning for the future. In the quarter, we saw strong demand for everyday consumables such as cleaning supplies, food, and candy. As we have discussed before, our growing relationships with major manufacturers of these categories is leading to strong product flow and a more consistent assortment of everyday merchandise. We had a great selection of consumables and were ready for the strong demand. Outside of consumables, we also saw strong demand for certain discretionary related categories such as furniture and outdoor living. We believe the warm weather in October, along with the late timing of Thanksgiving, impacted our sales of seasonal goods in the third quarter. As the weather normalized and we approached the Thanksgiving holiday, we saw accelerating trends in our seasonal categories. We were pleased with our Black Friday weekend sales and the current momentum in our business. Now more than ever, consumers want value and suppliers need bigger partners. We are benefiting from these two trends, and our buyers are doing an amazing job of finding a great assortment of exciting deals. We sell good stuff cheap, and we have been in the closeout business for more than 42 years. Our value proposition is selling quality name brand products that people need and want for their everyday lives at prices typically 20% to 70% below the fancy stores. Anyone can sell cheap products, but we're all about real brands, real bargains. This has been our value proposition from day one and continues to be our competitive moat. The growth of large retailers and suppliers has led to bigger order sizes, higher levels of excess inventory, and growth in the closeout industry. Big branded suppliers are very careful about product placement and channel conflict. At the same time, the larger order sizes are driving larger production quantities and a continuous cycle of excess product. Our size, scale, experience, and strong financial position are increasingly important advantages we have when buying closeouts. With over 550 stores in 31 states, we are the largest buyer of closeouts and excess inventory. While we are getting larger, other closeout players are shrinking or going away altogether. This is leading to stronger vendor relationships and increased deal flow. At the same time, the investments we have made in the business over the last several years have made us a more nimble organization. This has led to better execution and more consistent results. Both Eric and Rob have been an integral part of making these investments, and as my time as CEO comes to a close, I could not be prouder of what we have built and the strength of our positioning going forward. Transition of the CEO role and responsibilities is progressing as planned. Eric will become CEO and I will move to the executive chairman role at the beginning of fiscal 2025. Given the planned timing of things, this will be my last public earnings call. It's been an amazing 20 plus years and I would like to thank each and every team member that has been part of our family. Operating a closeout retailer is not for the faint of heart. The unpredictable nature of the model creates many ups and downs and operational challenges. but Ollie's is a special company that was founded by passionate individuals who kept things simple and stayed true to their model. I was fortunate to work with co-founder Mark Butler for many years. I hope that I have made him proud during my tenure as CEO. Everything that we have built and stand for came from Mark and Mort, and we continue to honor their legacy by staying true to our mission of saving customers money and selling good stuff cheap. While proud of what we've accomplished, I am more excited about our growth potential and competitive positioning going forward. Our value 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. 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. The third quarter was a great example of this. We delivered earnings that were in line with expectations despite some temporary headwinds. We also opportunistically acquired a number of real estate sites that bolstered our new store pipeline and competitive positioning. The first of these opportunities was the 499-set-only stores in Texas. We acquired these stores out of bankruptcy in May and shifted our organic new store pipeline to prioritize opening these first. 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. Given these stores had been open and active with discount shoppers just a few months prior, we expected they might ramp faster than our typical new stores. Several were 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. The second real estate opportunity is the closing Big Lots stores. To date, we have acquired 17 store locations and were the winning bidder on an additional seven stores last Friday. Similar to the 99 cent only stores, these stores are the right size, located in good trade areas, have attractive rents and leasing structures, and have been serving value-oriented customers for many years. We will prioritize the opening of the acquired stores that expect to have these open by the end of the first quarter next year. With these additional stores, our new store pipeline is very strong, and our store openings in 2025 will be front-loaded as a result. Our initial plan for next year is a minimum of 56 new stores, which meets our 10% needed growth goal. We will continue to evaluate the new store pipeline and opening schedule as any new opportunities unfold. 2025 will be a record year for new store openings, and there is the potential for additional real estate opportunities on the horizon. Bankruptcies and closures of retailers come with market disruptions. In the short term, it can lead to increased competition for our stores going up against liquidations. This is offset by longer-term opportunities in product flow, market share, and talent acquisition. 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. The Midwest is an area that contains significant growth potential for Ollie's, and the newly acquired stores will help us better leverage this asset. 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. A few other supply chain-related comments. The port strike was really a non-event for us. We continue to closely monitor the potential for increased tariffs. Our flexible buying model allows us to adjust our pricing to changes in the marketplace and pivot between different products. As a reminder, direct imports from China account for approximately 15% of our product flow in any given year. Before I turn the call over to Rob, I would like to thank the entire OLLI's team for their continued hard work and commitment. I would also like to recognize our associates in the hurricane impacted areas. Hurricanes Helene and Milton were devastating and I'm thankful that our team members are safe and doing what they can for their local communities. I'm honored to be part of an organization that has a clear purpose and an amazing culture. We are proud to sell good stuff cheap and save customers money on the things they want and need. I would also like to thank John for his leadership and impressive 20-year career in which Ollie's delivered nearly unparalleled results in the retail industry. We are especially appreciative for the leadership John provided through the unexpected passing of Mark Butler, which took place only moments before the pandemic started. He's been an incredibly strong shepherd of the business model and our culture. I appreciate John's mentorship and the trust he and the board have placed in me to lead Ollie's into the next stage of growth. Thank you. Rob.