Ollie's Bargain Outlet Holdings, Inc.

Good morning and welcome to Ali's Bargain Outlet Conference call to discuss financial results for the fourth quarter and fiscal year 2024. Currently, all participants are in listen-only mode. Later, we will conduct a question and answer session and interactive instructions will be provided at that time. Please be advised that this call is being recorded and the reproduction of this call in whole or in part is not permitted without the express written authorization of Ali's. Joining us on today's call from OLLI's management are Eric Vandervalk, President and Chief Executive Officer, and Robert Helm, Executive Vice President and Chief Financial Officer. Certain comments made today may constitute forward-looking statements and 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. These 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 earnings press releases. Forward-looking statements are made today 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 refer to certain non-GAAP financial measures. Reconciliation of the most closely comparable GAAP financial measures to non-GAAP financial measures are included in our earnings press release. With that said, I'll now turn the program over to Mr. Vandervolk. Please go ahead, sir.

Good morning. Thank you for your interest in Ollie's. Our teams did a great job of delivering strong fourth quarter results and setting us up for accelerated growth. Our fourth quarter comparable store sales growth of 2.8% was in line with our expectations and we delivered better than expected adjusted earnings. We are particularly pleased with these results given the compressed holiday season and which required a back-to-back ad calendar and raised the operational complexity of the quarter. Our team executed very well, and we were ready for the surge in demand that we saw in the days leading up to Christmas. In fact, December was our strongest month of the quarter. Consumers remain under pressure and are seeking value. Many retailers are closing stores or shutting down entirely. Tariffs are creating uncertainty across the retail landscape. This all bodes well for Ollie's. As a closeout retailer, we are constantly looking for the best product opportunities in the market. The same goes for how we think about investing our capital to drive long-term shareholder value. With so many retailers closing stores or going bankrupt in the past year, there are a considerable number of abandoned customers, merchandise, real estate, and talent in the marketplace. We think there's an opportunity to take on some of these assets in a manner that strengthens our competitive positioning, broadens our footprint, and bolsters shareholder returns for years to come. We recently announced an agreement to acquire 40 additional store leases of former Big Lots locations. These stores are the right size, located in our existing trade areas, and have been serving a value-oriented shopper for many years. In addition, they come with below-market rents and long-term leases that give us control of these properties for upwards of 20 to 30 years. As a result, these stores are capable of generating outsized profitability over the long term. One of the hallmarks of Ali's is our ability to generate profitable growth and consistent returns for our shareholders. This is a very stable business model. The closeout market is massive and there will always be merchandise available for a variety of reasons. Innovation, packaging changes, shifts in consumer demand, store closures, tariffs, uncertainty, and other unforeseen events. These are just some of the drivers of the closeout market. While sources of products are constantly changing, the availability of closeouts is stable and consistent. With our flexible buying model, we are in control of what we buy and when we buy it. If a product does not meet our requirements, either from a pricing, quality, or branding perspective, we simply don't buy it. Price is certainly a very important component to our value proposition, but it's not the only component. We deliver value to our customers through a unique and ever-changing assortment of products that combine price, quality, and national brands. Selling good stuff cheap has been our purpose since our founding over 42 years ago. And this remains our passion and motivation to this day. In closing, let me just say how excited about the future of Ali's. With our strong value proposition, flexible buying model, profitable and portable store concept, fortress balance sheet, and talented, hardworking associates, we are well positioned to continue driving profitable growth. Now on to Rob, who will discuss our fourth quarter results and guidance for the new fiscal year.

Rob. Thanks, Eric, and good morning, everyone. We were pleased with our results and trends in the fourth quarter. We grew comparable store sales in line with expectations and deliver adjusted earnings ahead of our expectations, despite facing some pressure from unfavorable weather and the liquidation of the big lot stores. Before we run through the numbers, it's also important to point out that there are some transitory expenses related to bankruptcy-acquired stores and our accelerated growth. While this puts a little pressure on our near-term earnings growth, it should also lead to stronger earnings power for 2026 and beyond. In the quarter, net sales increased 3% to $667 million, driven by new stores and comparable sales growth, partially offset by the impact of last year's 53rd week. As a reminder, the 53rd week generated $34 million in sales and about 4 cents to earnings per share last year. Excluding the extra week of sales in the comparison, net sales increased 8.5%. Copper Bowl store sales in the fourth quarter increased 2.8%, driven by fairly equal increases in both transactions and baskets. Our best performing categories in the quarter were housewares, food and candy, electronics, and room air. Ali's Army members increased over 8% to over 15.1 million members in the quarter, and sales to our members represented over 80% of total sales. Consistent with prior trends, we continue to drive growth in our younger customer demographic and the retention of higher income customers. We ended the quarter with 559 stores in 31 states, an increase of 9% year over year. We opened 13 new stores in the quarter and 50 for the fiscal year. Our new stores continue to perform well, including the former 99 cent only stores and the first wave of acquired Big Lots stores. Gross margin increased 20 basis points to 40.7%, primarily from lower supply chain costs, partially offset by a slightly lower merchandise margin driven by mix. SG&A expenses of $170 million included a one-time expense of $5.5 million for the accelerated expense resulting from the modification of existing equity awards for our executive chairman. Excluding this one-time expense, SG&A as a percentage of net sales increased 50 basis points to 24.6%, primarily from our accelerating store growth and the earlier timing of new store openings in fiscal 2025. Pre-opening expenses were $5 million in the quarter. Most of the increase was from the earlier timing of new store openings compared to fiscal 2024. We have already opened 16 stores in fiscal 2025. This time last year, we had not even opened a single store yet. Dark rent associated with the bankruptcy-acquired stores also contributed to the increase in pre-opening expenses and was $1 million in the quarter. Moving down to the bottom line, adjusted net income and adjusted earnings per share were $73 million and $1.19 respectively. Lastly, adjusted EBITDA was $109 million and adjusted EBITDA margin was 16.4% for the quarter. Turning to the balance sheet, our financial position remains very strong. Cash and short-term investments were $429 million at the end of the quarter, and we had no outstanding borrowings under a revolving credit facility. Our strong balance sheet is a strategic asset for us. In 2024, we were able to deliver against our expectations while setting our path to accelerated growth in 2025. We opportunistically acquired a number of stores out of bankruptcy, began building the inventory to fill these stores, and made the necessary investments in our supply chain. all while remaining committed to our share repurchase program. Inventories increased 9% year over year, primarily driven by our accelerating store growth and the earlier kins of new store openings in 2025. On a per store basis, inventories were relatively flat year over year. Capital expenditures totaled $24 million for the quarter, with the majority of the spending going towards the opening of new stores, the maintenance of existing stores, and enhancements to our distribution centers. The Big Lots locations were generally well maintained and have required limited build-out expenses to open thus far. Along with earnings today, we also announced a new $300 million share buyback program in a separate press release. While accelerated growth is our primary focus in the short term, we remain committed to returning capital to our investors through share repurchases while balancing our strategic growth opportunities and working capital needs. Lastly, Let me provide some commentary on our initial outlook and how we are thinking about the upcoming fiscal year. As most of you know, our long-term annual growth algorithm is 10% unit growth, comparable store sales growth of 1% to 2%, gross margin of 40%, slight SG&A expense leverage as a percentage of sales, some modest benefit from share repurchases and investment income, resulting in low double-digit adjusted earnings growth. With the acquisition of the former big lot stores, we are uniquely positioned to accelerate our growth and gain market share. As Eric discussed, we have been building up to this moment and are well positioned to take advantage of this unique opportunity. Our current plan is to open approximately 75 new stores this year. New store openings will be more heavily weighted to the first half, with approximately 21 stores in the first quarter and 65% in the first half. The big lots locations will incur a higher pre-opening expenses because we take possession of these earlier than a typical opening. The dark rent is expected to be around $5 million for the year or six cents to adjusted earnings per share. We have included all of this in our initial guidance and we'll also quantify the dark rent expenses related to the acquired big lots locations as we report the quarters. Not included in our guidance is any benefit to comparable store sales from the big lots stores closures. We remain confident that this will be a net benefit to us in fiscal 2025, but it's difficult to predict how and when this will play out. The majority of the Big Lot stores are still in the process of closing or have very recently just closed, and our sample size is still relatively small. In the handful of overlapping markets where the Big Lot stores have been closed for longer than a few weeks, our stores in these markets are coming better than our stores outside of those markets. With all of that said, our initial guidance for fiscal 2025 is the following. Approximately 75 new store openings, total net sales of $2.564 to $2.586 billion, comparable store sales growth of 1% to 2%, gross margin of approximately 40%, operating income of $283 to $292 million, adjusted net income of $225 to $232 million, and adjusted net income per diluted share of $3 to $65 to $3.75. These estimates assume depreciation and amortization expenses of $54 million, inclusive of $14 million within cost of goods sold, reopening expenses of $21 million, which includes dark rent of approximately $5 million related to the acquired Big Lots locations, an annual effective tax rate of 25 percent, which excludes the tax benefits related to stock-based compensation, diluted weighted average shares outstanding of approximately $62 million, and capital expenditures of approximately $83 to $88 million, which includes the build-out of the Big Lot stores. Lastly, let me give you some thoughts on how we're thinking about the quarterly comp cadence. The first quarter got off to a sluggish start. However, we have seen momentum start to build with a change in the weather. As we get further into the year, we face tougher comparisons in June and July from lapping the strong air conditioner sales last year. Then in the back half, the comparisons start to ease a bit, from lapping the Big Lots door closures. As a result, we're thinking that comp growth could be in the lower end of the 1% to 2% range for the first half, and the midpoint to the higher end of the range for the 1% to 2% in the back half. Now back to Eric.