Ollie's Bargain Outlet Holdings, Inc.

Good morning and welcome to OLLI's Bargain Outlets, conference call to discuss financial results for the first quarter of fiscal year 2025. 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 OLLI's. Joining today's call from OLLI's management are Eric Vandervlok, President and Chief Executive Officer and Robert Helm, Executive Vice President and Chief Financial Officer. Certain comments made on today's call 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. Those risks and uncertainties are described in the company's earnings press release and filings with the SEC, including the annual report on Form 10-K and quarterly reports on Form 10-Q. Forward-looking statements made today are as of the date of this call, and the company does 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 the company's earnings press release. With that, I will now turn the call over to Mr. Vanderflak. Please go ahead, sir.

Good morning. Thank you for your interest in Ollie's. I want to start by thanking my fellow Ollie's team members, the dream team of discount retail. Your passion for serving our customers by delivering unprecedented value is at the heart of our culture and drives our business. Our team has done an amazing job yet again navigating a dynamic environment while delivering strong financial results. Let me touch on some highlights. First, and most importantly, we are delivering accelerated growth. We opened 25 new stores in the first quarter, a record for any period in our history, and four stores ahead of plan. As will be the case for most of the year, the majority of these openings were former Big Lots locations. The team has done an excellent job prioritizing these openings in 2025 while advancing our pipeline for 2026 and beyond. These stores are off to a very strong start. We appear to be benefiting from the fact that these are warm boxes with a built-in discount shopper customer base, which was our hypothesis going in. We delivered another quarter of strong financial results. Total sales, comparable store sales, and adjusted earnings were all ahead of expectations. We were very encouraged to see strong mid-single digit growth in transactions, despite being up against the final liquidation of the remaining Big Lots stores for much of the quarter. Despite the Big Lots headwind and some SG&A pressure, we beat our expectations on both the top and bottom lines. Our deal flow and our access to product remained strong. There has never been a shortage of goods for us to purchase, and our growing size and scale continues to benefit our buying power. The closeout market is very fluid, and there are many factors which influence deal flow in any given moment. Recently, it's been the significant number of retail store closures and supply chain disruptions that have created a tremendous amount of excess inventory. Our flexible operating model allows our team to be very nimble and selective in what we purchase. We buy from thousands of vendors and work closely with our vendor partners to manage our category mix and assortment to deliver exceptional values while maintaining our margin targets. Our warehouses are set up to handle any type, shape, or size product. Our store presentation is fluid. We do not have planograms or strict guidance around shelf space. And our customers fully embrace the treasure hunt experience. This gives us ultimate flexibility when it comes to navigating a choppy environment and puts us in a very strong position versus most retailers. Given the challenging environment, we believe there could be significant product and market share opportunities. The significant number of retail store closures over the past year has already resulted in strong deal flow and abandoned customers. This is only likely to increase going forward. We are aggressively going after market share by accelerating our store growth, expanding our digital marketing capabilities, and enhancing our Ollie's Army customer loyalty program. We already have one of the strongest loyalty programs in the business. Our Ollie's Army members are our most dedicated customers who account for more than 80% of our sales and spend close to 40% more per visit and shop more frequently. These are value-seeking bargainauts who take pride in saving money and being an Ollie's Army member. We understand this customer base because we are this customer. Ollie's was founded and built by bargainauts who were passionate about finding amazing deals and selling good stuff cheap. We are constantly looking for ways to better serve our Ollie's Army members. In the first quarter, we completed the initial rollout of our co-branded credit card. We paced the rollout, and we are building the program slowly. While it's still early, we are seeing strong spending and shopping frequency. In addition, we are starting to gain valuable insights to these customers. Later this month, we are adding a new private shopping event for our Ollie's Army members. Just like our Ollie's Army Night in December, we are adding a similar event in June. This exclusive shopping night offers special discounts for our loyalty members and it's our way to show our appreciation for our best customers. Members will now have two special nights each year to shop and save. In addition, the Ali's Days promotion that we typically run in late June will be available exclusively to Ali's Army members. This is different from previous years where the late June promotions were available to anyone. You now have to be a member to take advantage of these. So if you're not a member yet, now is a great time to join. Before I turn the call over to Rob, let me just say that while the current environment has added some complexity around the execution of the business, we remain confident in our ability to deliver against our accelerated growth plan and are reaffirming our financial outlook for the fiscal year today. We know how to manage choppy waters, and we thrive on disruption. We are fiercely committed to delivering the best values in the market. Good stuff cheap has been our mission from day one, remains our guiding principle, and what drives our passion in this environment. With that said, let me turn the call over to Rob.

Thanks, Eric, and good morning, everyone. We were pleased with our results and continued momentum in the first quarter. We grew comparable store sales and adjusted earnings ahead of expectations, despite some headwinds on both the top and bottom lines. Our value proposition is strong and continues to resonate with our customers. Consumers are looking for value and prioritizing their spending around their immediate needs. We saw continued evidence of this in the first quarter. Demand for consumer staples was consistently strong throughout the quarter, while demand for certain seasonal categories was impacted by the weather. Now let me run through our financial numbers. Net sales increased 13% to $577 million, driven by new store openings and an increase in comparable store sales growth. We opened 25 new stores in the first quarter and ended the period with a total of 584 stores, an increase of 13% year over year. The openings in the quarter were ahead of our plan. Our new stores are performing well, particularly the former Big Lots locations. Comparable store sales in the first quarter increased 2.6%, driven by an increase in transactions. Our best performing categories in the quarter were food, hardware, electronics, domestics, and housewares. OLLI's Army members increased over 9% to 15.5 million members in the quarter, and sales to our members represented over 80% of total sales. Gross margin was flat at 41.1%, and this was slightly ahead of our plan. Lower supply chain costs were offset by lower merchandise margins, primarily driven by product mix. SG&A expenses as a percentage of sales increased 60 basis points to 28.6%, driven primarily by higher medical and casualty claims and new store growth. Pre-opening expenses were $6.7 million in the quarter. Most of the $4 million increase was from the higher number of new store openings this year. As mentioned, we opened 25 new stores in the quarter, which was four more than our plan. By comparison, we opened four stores in the first quarter last year. Dark rent associated with the bankruptcy-acquired stores was $1.8 million in the first quarter, which was also a factor in the year-over-year increase. Moving down to the bottom line, adjusted net income and adjusted earnings per share were $46.1 million and 75 cents respectively. Lastly, adjusted EBITDA was $72.2 million, and adjusted EBITDA margin was 12.5% for the quarter. Turning to the balance sheet, our financial position remains very strong. Cash, cash equivalents, and short-term investments were $370 million at the end of the quarter. We also had an additional $45 million in long-term investments, giving us a total cash and investment position of $415 million and no meaningful long-term debt. Inventory has increased 16% year-over-year, primarily driven by our accelerating store growth. As Eric mentioned, the closeout pipeline remains very strong. We feel good about our inventory content and position. Capital expenditures totaled $27 million for the quarter, with the majority of the spending going towards the opening of new stores and investments in our supply chain. The Big Lots locations were generally well-maintained and have required limited build-out expense to open thus far. Lastly, let me run through our outlook for fiscal year 2025. We are reaffirming our earnings outlook for the full fiscal year. This outlook flows through the upside in our first quarter sales results, maintains our gross margin target of 40%, and assumes slightly higher SG&A levels from the higher than expected medical and casualty trends that we experienced in the first quarter. It also assumes that current tariffs, in effect, remain in place for the balance of this fiscal year. Our updated guidance figures are contained in the table in our earnings release posted this morning and include 75 new store openings, net sales of 2.579 to 2.599 billion dollars, comparable store sales growth of 1.4 to 2.2 percent, gross margin of 40 percent, operating income of 283 to 292 million dollars, an adjusted net income and adjusted net income per share of $225 to $232 million, and $3.65 to $3.75, respectively. These estimates assume depreciation and amortization expenses of $54 million, inclusive of $14 million within cost of goods sold, pre-opening 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%, 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. As far as the quarterly comps are concerned, our thinking has not changed. We still think our second quarter comp could be at the lower end of our long-term algo of 1% to 2%, and third and fourth quarter comps could be at the higher end of that same 1% to 2% range. As Eric said, we feel very good about our results and positioning in the market. As consumers seek value and the current environment weighs on retailers and suppliers, we believe we are well positioned to benefit and continue driving profitable growth and market share. Now, let me turn the call back to Eric. Thanks, Rob.

This continues to be a very exciting time for Ali's. We have a tremendous opportunity to grow the business and remain focused on our strategic priorities. We are investing in our people who are the lifeblood of our business. We are delivering extraordinary value to consumers at a time when they need it most. We are doubling down on customer acquisition and retention and driving transaction and loyalty member growth. And we are delivering consistent financial results and profitable growth. Before we move to the Q&A, let me make one final comment. Last quarter, we did not do a very good job on the Ollie's chant. The chant is something our team takes a lot of pride in, and this has been a topic of conversation internally since the last earnings call. We now have the opportunity to redeem ourselves and are excited to make this right. Are you ready, guys? We are!

Ollie's!

That concludes our remarks. We are now happy to answer your questions.

Certainly, and our first question for today comes from the line of Matthew Boss from JPMorgan. Your question, please.

Great, thanks. So, Eric, could you elaborate on the state of closeout availability, maybe where things stood before the impact of tariffs, any area or areas of concern today across categories, and just opportunities you see from this disruption, whether it's in the back half of this year or into next year?

Sure. Thanks, Matt. Good question. We've seen a very strong deal flow over the past several months. Our inventory was up 16% at the end of Q1, as Rob indicated, which is a strong indicator of a great deal flow. With all the retail bankruptcies and store closings out there, we're being offered a tremendous amount of abandoned products and we're getting access to product pipelines that weren't available to us a year ago. It happens to coincide with accelerated growth, so it lines up very, very well for us. In terms of what might come in the future, the environment's creating even more pressure on retailers and suppliers who are having challenging moments in planning their business, and we think there'll be even more product available as we move into the back half of the year related to some of what I consider supply chain disruption related to tariff. In terms of categories, this business is ebbs and flows with deals that are out there. They're traded from all kinds of various sources, and we haven't seen any particular pressure or windfall in any given category yet today. It's about deals and big deals, and many of the biggest deals are tying back to bankruptcies.

Does that answer your questions?

Yes. And then, Rob, maybe just as a follow-up, could you elaborate on just what you saw from traffic trends in terms of the progression throughout the first quarter, maybe what you've seen in May, and just your visibility or confidence in comping the tougher compare in the second quarter?

Thanks, Matt. Traffic has been strong, continues to be strong. It built throughout the quarter. Our seasonal categories were a little impacted at the tail end of the quarter due to weather, but the traffic has remained strong throughout and into the second quarter. In terms of second quarter comps and our ability to comp it, I would say that our core comp today for the second quarter is running in the low to mid-single digit range. It's getting impacted by seasonal categories from week to week as the weather ebbs and flows. It has been a tiny bit unseasonal thus far, but it gets warm every year, and we're confident it's going to get warm again this year and that we'll be good to deliver our guidance of the lower end of the 1% to 2% range for the second quarter.

Wow, that's great color. Best of luck.

Thanks, Matt. Thank you. And our next question comes from the line of Brad Thomas from KeyBank Capital Markets. Your question, please.

Thanks. Good morning, and congrats on the strong start to the year. I wanted to first ask a couple of follow-ups on tariffs, if I could. And the first question is really around how, if at all, the tariff environment is affecting how you think about negotiations with suppliers and how you think about pricing, given that many retailers are being a bit cagey about when and where they may be putting through price increases. And so how that's affecting how you look at sourcing. And then if you could also just comment on the direct import side of things. It seems like you're in a very good spot here for 2025. but anything we should think about for 2026 if the rates stay where they are.

Thanks. Sure. Yeah. Thanks, Brad. So, in terms of vendor relationships, we have long-standing, deep relationships with our vendors, and we've been working collaboratively with our vendor partners. They're great partners and have been very supportive throughout this process. Suppliers and manufacturers are under pressure as a result of this dynamic environment. Vendors are seeking retailers who have strong values to partner in moving inventory, and we're very well positioned for this moment. In terms of pricing, we're fiercely committed to maintaining our value prop and our price gaps, especially on brand name items. As you know, we've always been a fast follower in terms of price, whether the price of the market goes up or down. We simply don't buy a product if we can't offer a tremendous value to the customer. So in addition to working closely with our vendor partners, we're buying alternative products, we're buying more closeouts, we're reducing our reliance on Chinese imports. We're expecting most retailers to be very deliberate, smart, strategic in their approach to pricing. taking a portfolio approach across their entire business. And we're watching that very closely. Retailers adjusting price up and down to hit margin targets. And as I said, we're fiercely committed to maintain our value prop and our price gap.

I appreciate it.

And quickly, Eric, on the real estate front, clearly off to a great start here this year. Wondering what you're seeing in terms of maybe more the market that's still out there. There's been so many bankruptcies. How are you feeling about the pipeline for stores as we move through the year and look at incremental signing opportunities?

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Great. Yeah, can you hear me now? Yeah, we hear you. I know what happened. No problem. I think we got a pretty full answer to my initial question. So I just wanted to follow up around the real estate side of things and seems like you all are very happy with the signings that you've had from Big Lots. I was wondering what the market looks like for you today, particularly given that there were so many stores that you didn't take on and there are so many opportunities out there for you to get high quality real estate, it would seem. What are you seeing out there and how does that set up for 2026?

Thanks, Brad. This is Rob. You're exactly right. The setup for 2026 is very strong. We're not ready to guide 2026 yet, but we were surmised at this point, based on what we see in the environment, that we're setting up for the potential of another above-algo year in 2026 in terms of real estate.

Great. Thanks so much.

Thanks, Brad. Thank you. And our next question comes from the line of Peter Keith from Piper Sandler.

Thanks. Good morning, guys. Nice quarter and nice chant. On the big lot scores, so the closures, there's a lot of them in Q1. I was wondering if you would be able to quantify what, if any, headwind you saw from their liquidations during the quarter. And then the reverse of that, do you have any increased visibility on comp lifts from stores that perhaps overlap with a former Big Lot store?

Sure, Peter. This is Rob. It's still early on both sides, right? But we can give you, in terms of the first quarter impact, for the 200 or so stores that were closing during the quarter, and it's the timeframe from January to, say, about the middle of March, those stores had about a 50 basis point impact on the comp for that set of stores. So when you boil it down to the impact on the total comp, it was a little bit less than 25 basis points of a headwind for the quarter, for the first quarter. In terms of the big lot stores that closed prior to Christmas, And we'll call that set, you know, in the range of, say, 200 stores as well. Those stores are seeing low to mid-single-digit lift versus the rest of the stores in the chain. They were similarly impacted by unseasonable weather and the factors that, you know, impacted the quarter in the comp store base. But we're very pleased with the trends in those stores. We're very pleased with the transaction trends, which are a sign of, you know, lifting market share. And we're very pleased with the Ali Army signups as well.

Okay, very good. And then maybe a follow-on from that. I believe maybe last fall you were talking about stores that were within a half hour of the former Big Lots stores were kind of considered same trade area. Have you reassessed how many Ali stores would be in a trade area to pick up share from a Big Lots closure?

Not exactly reassessed. We started the rings broad, but, you know, we have a certain algo in terms of how we think about drive times for our discount shoppers. So that's been pretty static in terms of how we thought about it.

Can you remind us about how many stores total do you think might see some type of low to mid-single-digit lift?

I would call it in the range of 400 stores.

Okay. Very helpful, guys. Thanks so much.

Thanks, Peter. Thank you. Our next question comes from the line of Chuck Gromp from Gordon Haffey. Your question, please.

Hey, thanks. Can you guys talk about the cadence of the comp in the quarter a bit more, maybe just a little bit more granular on the exit rate in April? And as a follow-up, can you talk about the decision to extend a second OLLI Army night this year and how it's going to be structured? Sure. And I guess bigger picture, you know, how you're thinking about continuing to grow the OLLI Army base? I believe it was up over 9% in the quarter, your best run rate in probably close to four years.

Sure, I'll take the first part and Eric will take the second part of the question. In terms of the cadence of the comp, we talked about on the year-end call, February started out slow. It was a down month. We were weighed by the big lots liquidation sales that we were up against. severe weather in February and a delayed timing in tax refunds. In March, we saw a meaningful change in acceleration and we had a strong positive comp in the mid single digit range in the month of March. And then headed into April, we were pleased with the performance of our spring selling, seasonal selling, and Easter holiday. And then we saw some unseasonable weather impact us at the very tail end of April.

Yeah, on the second part of your question, Chuck, we're very excited about enhancing the program, the Alley's Army loyalty program. So I guess to take it up a level, moving into this year, With the market share opportunity that we knew would exist primarily from the closure of Big Lots, we said no better time to really just double down on the loyalty program. And that's both in ensuring we drive new customers into the store through our enhanced digital marketing capabilities, and then converting or convincing them to join the Army once we're in the store. So as part of that, we've introduced enhancements to the program to make it even more compelling for customers to join the program, even more compelling for our cashiers to convince customers to join the program. This Ollie's Army Night, we're going to run in June. It's something we've actually been talking about for years. Probably the most special aspect of the program that many, many customers have known us for a long, long time is the Ollie's Army Night we run in December. So why not run a second one at a different point in time of the year? So we're very excited to do this. It's going to run in late June, right before we run the Ollie's Days promotion that we're now calling the Ollie's Army Days promotion. It will give the customer special discounts on certain categories, primarily discounts, sorry, seasonal categories. The store has an overall discount of 15% and certain categories will be 25%. It really mirrors the event that we're running in December, only the categories are relevant to the season that we're in. And then also requiring a customer to be a member of the Army for the Ollie's Days promotion or what is now the Ollie's Army Day promotion was something we thought would be an enhancement to make it even kind of more special to our loyalty customers to only have access to that discount versus anybody who happens to walk in the door. So that, along with the credit card, are, we believe, significant enhancements to the program this year, make it much more compelling, and we're very, very focused on driving loyalty members in long-term value, ultimately, as a result of ensuring we retain all these new customers that we welcome into our stores.

Thanks, Eric. And then just, Rob, just to follow up on the gross margin line, you know, flat performance against a tough compare last year. How should we think about the phasing of the gross margin line over the next three quarters? And any thoughts on maybe quantifying what you actually think the tariff impact has been on the business, which it appears like you've found some offsets.

Thank you. Thanks, Chuck. In terms of phasing, we'd expect that the year follows a seasonal flow typical of our pattern, a seasonal gross margin. We're targeting the 40% gross margin target for the year with the tariff impact included. We'd anticipate that third quarter would be above that 40% gross margin target and that the second and fourth quarter consistent with how it has been in the past because of the OLLI's days and OLLI's Army Night events would be below that 40% target to come out to the 40 for the year. In terms of tariffs to date, we've incurred a few million dollars of tariffs thus far to date. That's included in our numbers for the year. And, you know, we feel comfortable with delivering the 40 with that tariff impact included. Okay, great. Thank you.

Thank you. And our next question comes from the line of Steven Zucconi from Citi. Your question, please.

Great, good morning. Thanks very much for taking my question. First question I had was on pricing. Just given what's happening with the tariff environment, what are you seeing from competition? Maybe what's your strategy on pricing? How do you feel about your price gaps right now?

Sure. We, Steve, we feel very good about our price gaps. And as I said earlier, and hopefully I wasn't cut off when I answered Brad's question, we are fiercely committed to maintaining our value prop price gaps, especially on branded products. So, you know, we have seen some movement on price in the market. It's still a little bit early to fully understand the impact of, you know, pressure related to tariffs primarily on various retailers, but we're very, very close to it. And we're, you know, very good at looking at competitor prices, ensuring that we maintain price gaps and making choices not to buy products where we don't think we can offer tremendous value. So a lot of our product is substitutable. It is a closed-off business. We're opportunistic. It's a fluid and flexible model, as I said on the call, in terms of how we manage the business and how the operation's been built. So, you know, we're constantly sourcing and countersourcing product on a day-to-day basis. This is the nature of the business, and we feel very good about our ability to maintain price gaps.

Great. The follow-ups I had, one was a one minor thing for the model. Can you quantify the SG&A item in the first quarter? And then will that carry into, will you see any impact in the forward quarters at all? And then you may have mentioned about 26 being a year for real estate above algo. How do you think about, you know, potential earnings power into next year since you'll have, you know, real estate openings above algo? Could we expect similar trends?

Sure. This is Rob. In the first quarter, there were two expense pressures that were weighed against our earnings growth. The first was a pre-opening expense. That's on a separate line outside of SG&A. That was a $4 million headwind relative to last year. That was considered in our guidance and largely planned. We did a little bit better than we anticipated because, honestly, the Big Lots openings have gone a little bit smoother than we anticipated when we went into the year. The second was SG&A pressure relative to higher medical and casualty claims. This one was an unplanned pressure, and it was really more so on the medical side. We had an uptake in high severity claims, so a few specific claims that are driving a significant amount of expense. In my past experience and based on what we've seen, the uptake is going to be the highest that we'd expect for the year in the first quarter. We'd expect for it to trail off from here, but we felt that it was prudent to be conservative about our expense for the balance of the year. We are proactively seeking opportunities to offset the expense and working on those actions as we speak. In terms of real estate opportunities for next year, we'd anticipate the number of organic openings to increase for next year. That'll reduce, obviously, the dark rent that we're incurring for this year. And to one of the earlier questions, the pipeline is strong for next year, and there's a lot of availability out there based on the recent bankruptcy events.

Thanks for the detail.

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

Thanks and congrats on the strong results. I wanted to come back to the Ali's Army sign up and just get a sense for you're clearly seeing kind of outsized performance here in these warm former big lot stores. I wanted to get a sense for this acceleration in the Ali's Army growth, the best in four years. What is the performance that you're seeing in that new sign-up generation at those former Big Lot stores versus your legacy stores? I was wondering if you might be able to provide any additional insight into that.

Sure, Jeremy. Not just in this moment, but in every moment over the past several years, we are much more focused on convincing customers to join the Army in newer stores. We have different standards for conversion of non-Ali's Army members at the point of sale in our newer stores. We are, in this moment, seeing an outsized performance in conversion to the Army in our New Year's stores. It typically is significant. It's even a little more significant in this moment. And part of that is our focus. Part of that, we believe, is a customer who's familiar with loyalty programs, not just because they're common in the industry, but because Big Lots had one. And they don't want to miss out on whatever our program may have to offer. So that's certainly a piece of the performance improvement that we're seeing in having Ollie's Army and converting to the Army. But our comparable store sales are also performing quite well. And I've been super proud of our team and how well they've executed in both welcoming new customers into stores and convincing them to join our family, our Ollie's Army family, and to be part of this.

Great color. And then kind of taking that point a step further, as you focus on the private shopping event here in Q2, I think historically, Ali's Army Night December is maybe your biggest day of the year. Wanted to get a sense for how you would expect a mid-year private shopping event to perform. know is this in in terms of what it could look like in terms of a driver in q2 can you put some context around how much the q4 ali's army night impacts q4 results and how you are sizing up what you think this new event could do here in q2 sure uh we

I don't think we've provided color around how meaningful OLLI's Army Night is in December, so I won't get real specific about this, but we don't believe it's going to perform at the same level as the December event, partly because of the time of year. and how relevant the categories are that we take deeper discounts on. And it's the gift-giving season and a customer that tends to shop multiple times over that kind of condensed holiday shopping period. So we don't think it's necessarily going to live up to the volume that we do in December. But we've run various scenarios on it, and we're relatively optimistic that it's going to be a nice lift. Never done it before, so we're taking educated guesses about it based on our experience with the December event. We contemplated this, factored it into our previous guidance, and our most important focus on this event is the enhancement to the program and compelling people to be part of the loyalty program, the long-term value that generates for the company and for the consumer as well. So, you know, it's marginally accreted in sales and earnings for the year, though, to answer the question.

Great. Thanks for all the color and best wishes.

Thanks, Jeremy. Thank you. And our next question comes from the line of Simeon Kettman from Morgan Stanley. Your question, please.

Hey, good morning. Thanks for the question. Hey, to clarify, the second quarter – You're expecting it comp to be at the lower end. There's a tough compare. And then you mentioned that you started out pretty well, even though seasonal weather, I think you said that hasn't helped you yet. So I was trying to reconcile the two. Is the run rate that you're at already quarter to date better than you expected? And then it sounds like that is enough to get you to at least that low end of that range. Or are you expecting... much weaker in the next two months. Thanks.

Sure, Simeon. So to clarify my comments, we're running in line with our guidance for the full quarter of the lower end of the 1% to 2% range. In terms of what we're seeing day to day, week to week, we're seeing a strong core comp in our non-seasonal categories in the low to mid single digit range. The seasonal categories have still started off soft for the quarter because, as you know, the weather has been unseasonable in May to date for across most of the country. In terms of compares, May and June were our strongest months of the quarter last year, and then July was a little bit softer.

Got it. Okay. That's helpful. And then a similar follow-up on gross margin. Recognizing Q2, Q4, there might be some pressure points, but can you comment in Q1, did you basically hit where you expected to be or you also ran a little bit better than that?

We were slightly better than our expected gross margin for the first quarter. One was really related to deal flow and some better pricing on deal flow. And then two was shrink was better than we had anticipated.

Got it. Okay. It's helpful. Thanks, guys.

Thank you. And our next question comes from the line of Scott Ciccarelli from Truist. Your question, please.

Good morning, guys. With Big Lots effectively being a competitor.

Jonathan, can you hear us? Yes, I can hear you. Can you not hear us? Are you not hearing us? Hello? Yes, sir. I hear you, Scott. Okay.

Oh, they disconnected again. Ladies and gentlemen, please stand by as our speaker line is experiencing some technical difficulties, and they will rejoin us here in just a moment. All right, I believe our speaker line has now rejoined.

Go ahead, third time's a charm. Hey guys, Scott Ciccarelli. With Big Lots effectively being a competitor for deal flow from vendors with OLLIs, but now being materially smaller, do you guys have any examples of incremental deal flow or better terms that you received now that Big Lots can't compete at the same scale?

Yeah, I don't think I'd get too specific on examples, but yes, we're absolutely seeing what I call banded pipelines of product, particularly in consumables or CPG-related goods, where Big Lots was relatively strong in the closeout and excess inventory space. You know, the question around short-term abandoned product that was already manufactured and destined for product versus long-term, we're starting to see both, you know, vendors who have product in pipelines that would be directed to big lots that are now available to us. It's crossing, you know, many different categories, but I guess if I were going to be specific, I would say consumables and CPG was the first advantage.

Got it. Thank you. And then second question. You guys did quantify the amount of dark rent that you incurred in the quarter and expect for the year, but young stores tend to be a profit drag as they mature. So is there any way to kind of size the impact of the profit or margin drag from the acceleration in store growth this year?

We haven't really quantified that. I would say that it's going to be meaningful. We're going to get the carry-on impact of opening the 25 stores in the first quarter, which was four more than planned, and that'll start to accelerate. You know, when you look at the street numbers that they have out there for consensus, you know, we're relatively in line for that in terms of earnings growth as the year goes on.

Got it. So it is a drag, and then obviously as the stores mature, they become more profitable and should give you a good exit rate out of 25 into 26. Yes, sir. Understood. Thanks, guys.

Thank you. And our next question. comes from the line of Anthony to come up from Loop Capital Markets. Your question, please.

Good morning. Thank you for taking my question. Congrats on a strong year, start to the year, but more importantly on the sequential improvement in the big lots, sorry, in the Ali's champ. So very encouraging to see that. But so I guess first question, you know, you talked about, you know, you're having the second Ali's Army Night. And I guess my question was, you know, How much of this or is any of this related to the fact that, you know, seasonal has moved a little bit slower than you were expecting? And or is it, you know, intended, particularly with you taking that one event and making it just exclusive now to Ali's Army members, you know, to try to drive additional Ali's Army members? How do you sort of think about that?

Sure. We actually contemplated introducing this event. in 2021 so that's how long it's been considered here took us a while to to drive it to the finish line we made a decision in january of this year to execute the event so this has absolutely nothing to do with any uh seasonal drag or any perception of where we may end up in q2 for with the seasonal business uh we are purely made a decision to introduce this event because we value our Ollie's Army most loyal members and customers and want to invest in them. The exclusivity around the Ollie's Days is something that I guess when I came into the business, I had a hard time understanding why we would give a discount to somebody who may not actually know when they came in the store. We were discounting the whole store. And that's bothered me and others here for the years that we've done it. This has been around for forever here. But it bothered me that a customer who's not a member of our loyalty program that may have not received an ad driving them into the store still gets the benefit of the discount. And candidly, I just did not think that was fair to our Army members who stayed very loyal to us and shop us frequently and and outspend others. So, making it exclusive makes it even more compelling to join the program and makes our current members feel even more special.

Got it. That's helpful. And then just one quick follow-up, you know, and this is sort of related to your answer to the last question about big lots. You know, one thing that I know that you guys have been doing is building more kind of relationships, direct relationships with the manufacturers, particularly in the CPG space. I was wondering if you just had any, you know, update on that, particularly in light of, you know, of big lots.

Our update is that continues to go very, very well for us. We continue to expand our relationships with TPG companies. We even have newer relationships that have formed over the last couple years that are now rapidly expanding. We don't always know if it's a direct result of Big Lots. We don't necessarily ask the question. It's not necessarily open to communication about where the product comes from. But what we do know is that we are getting the benefit of expanded product pipelines And we do believe, you know, in some cases, very tangible to resolve a big lot exiting. And others, right? You've got Party City out there. You've got Joanne out there. You know, people underestimate Essex Bargain Hunt. It's a relatively small company people haven't heard of, but they had a pretty meaningful pipeline of consumable goods as well. So it's a moment where we're gaining momentum.

Advantage in a lot of different spaces a lot of different categories with a lot of different vendors That's very helpful, thank you Thank you Thank you, and our next question comes from the line of Lorraine Hutchinson from Bank of America your question, please Thank you.

Good morning. I wanted to just go back to tariffs for a minute and Is there a gross margin hit included in guidance for tariffs above the few million you've already incurred? And how quickly can you reduce your reliance on imports from China for the direct import part of your business?

Hey, this is Rob. I'll take that one. You know, we've reiterated our full year earnings outlook, including tariffs at the 40%. That assumes the tariffs that are in place stay in place for the balance of year. Our imports are typically 20% of our overall mix. So we've been taking a number of actions across our business to mitigate the tariff expense. Our vendors have really worked with us and been great partners thus far. But our biggest advantage is our flexible buying model that Eric mentioned, meaning that we can pick and choose through the best deals in the marketplace. There's absolutely nothing that we're committed to buying. Through this, we have reduced our exposure to China. In the past, it was closer to, say, 15%. For this year, we'd expect for it to be closer to the 10% range. So, you know, that's a positive for our tariff mitigation. And then the last piece that I would say is, you know, just as a reminder, we are a fast follower on pricing. We intend to maintain our value proposition and our pricing gaps, and we'll continue to adjust those as the marketplace shifts over the next couple of months.

Thank you.

Thank you. And our next question comes from the line of Edward Kelly from Wells Fargo. Your question, please.

Hi. Good morning, everybody. A couple questions. I guess first on the comp and Q2, I just want to follow up to make sure I fully understand here. I mean, it sounds like May is maybe up about 1% or so. I guess is that right? And then as we think about the AC lap from last year, which I think was pretty big in June, how are you thinking about the comp against that lap and does the Army night essentially kind of offset that? And then July is easier, but I think the multi-year compare might be harder. I'm just curious as to how you're thinking about the mapping of Q2 against all of this.

Those are a lot of questions about the Q2 comp. So I'll try to unpack that. You're right in saying that we're running in that range of positive 1% quarter to date. That's in line with the guidance for the full quarter in terms of the lower end of the 1% to 2% range. In terms of comping against last year, the strong AC lap really started at the tail end of the first quarter. So the last two weeks of April were strong from an AC perspective. May was a strong AC month, which we just did positive comp, as I just mentioned. And June was a strong AC month as well. July was a little bit softer, as I mentioned, but it was still a strong month. We had a strong quarter from top to bottom last year. Vialli's Army Night, we'd expect a change in the event to add that, and then to make it a... special events for the week for just the OLLI's Army members, that would be a little bit of an offset to that addition of that OLLI's Army night. But we'd expect that the week in total would be slightly accretive to our 1% guidance for the quarter.

Got it. Great. And then just a follow-up on the inventory outlook. I know there's been sort of debate around this. I'm curious, could you talk about the product assortment that you see in the pipeline, the quality of that assortment? There's been some talk about consumables. I'm curious how you're thinking about the consumable buying backdrop versus the GenMerch buying backdrop, and then how you think that plays out throughout the year, and then from a holiday positioning standpoint. I know visibility is always hard. but how you think about holiday assortment against all of that.

Sure. We feel very good about inventory content and the pipeline in this moment. We've actually had to hold our buyers back. There's so much out there to buy across just about every category, and consumables, as I mentioned earlier, you know, CPG has been particularly strong. Our relationships continue to expand, and there's plenty of consumable product out there as well that continue driving our business. I don't know necessarily what to expect through the back half of the year, specific to your question around consumables. It really depends on how various retailers manage you know, the kind of portfolio pricing approach to their businesses and whether there's any real pressure in consumables, which there is some real pressure related to tariffs, or if they'll try to take price in consumables, what that means ultimately to the product pipeline. I would just say generically that whenever there's disruption, in supply chain or in projecting a business, it tends to benefit us in that we feel very good about our opportunities in navigating the back half of the year. In terms of specifically the holiday, so I figured somebody would go there so we could talk specifically about toys because that's a business that's relatively important to us. in Q4, and we like our positioning in toys. We like our positioning in the category. We've continued to buy closeouts in toys, even after the tariffs were announced. We've been very selective in what we've been buying. We've been buying only the product that we think would still motivate a consumer that is of a strong value. And we have a flexible and fluid buying model as well. So we can buy into and have been buying into other gift-related categories where we can offer strong values and perhaps in at least a limited way stronger values than some of the traditional toys we would otherwise buy. And we feel very confident in our ability to cover that business in the back half of the year despite the tariff headwind.

Great. Thanks, guys.

Thanks, Ed. Thank you. And our next question comes from the line of Matthew Rathway from UBS. Your question, please.

Hi, this is Matt. I'm from Mark Cardin. Just wanting to turn back to gross margin and your supply chain costs. What's driving that lower? And are tariffs having any impact there? And then follow on to that. I think on your prior call, you were expecting supply chain costs to be flat this year. Is that still what you're expecting? Thanks.

Sure, I'll take that one. So, from a supply chain cost perspective, the tariffs are included in there. That is a slight headwind for the year, but, you know, we're offsetting in other areas, including within our buying on the product side. In terms of the rest of supply chain costs, we just did our ocean contract in May. That negotiation is slightly favorable to our plan. In terms of domestic transportation, we're seeing positive rates there and good improvement there. And then on the DC side, our DCs are functioning at record levels in terms of throughput and cost.

So, pleased with the results there.

Great. Thank you. Thank you. And our final question for today comes from the line of Randy Koenig from Jefferies. Your question, please.

Yeah, thanks a lot, guys. Just real quick, back on the seasonal category, is there any kind of quantification on how much of a headwind that was or dragged on the first quarter comp seasonal was? And just give us some perspective or dimensionalize how big seasonal is as a part of the mix. Thanks.

In terms of seasonal categories, I would say that if I'm thinking about the first quarter, I would try to combine that with the severe weather we saw in February. Between the severe weather we saw in February and the tail end of the quarter that really impacted the seasonal in terms of Long Garden ACs, I would say that it's in the range of 150 basis points of a headwind for the first quarter. In terms of seasonal for the second quarter, it definitely starts to become more meaningful. ACs were a meaningful component. You know, we talked about that last year in terms of being a 200 basis point contribution to comp. for the quarter of last year. But lawn and garden gets a little bit smaller in terms of an impact as we go on throughout the summer here.

Very helpful. And just final follow-up here. You noted in response to one of the questions you got better pricing on deals. Is there anything kind of structural there that you kind of think about long-term where you just become bigger and bigger and more important to these different partners in the close-up business here, and you just get better terms over time that can potentially take up your ability to get gross margin consistently above 40%, even though you're guiding long-term to 40%, just would be really helpful to dimensionalize that. Thanks, guys.

Sure, Brady. Yes, to answer your question, yes, absolutely. We've already seen that happen in a pretty meaningful way over the past several years. More and more of our relationships have become direct with various manufacturers. And I know we tick on CPG because it's an important business, but it's happened over many different categories over the last several years. The consolidation of discount retail is a piece of that. The growth of Ollie's, a piece of it. A very strong balance sheet that we've managed all the way through. over many, many years. The fact that we're a public company and there's transparency to our financial situation or status is also helpful in establishing more direct relationships, more meaningful relationships. So, yes, it's been a meaningful tailwind to us as we continue to grow our business. At this point in time, we continue to invest in price and maintain the 40% margin target. I can't answer that question. I'm not ready to answer that question for 26 and beyond. I like having the pricing power, Randy, to be candid. In a market where we're continuing to gain market share, drive traffic, drive costs, and drive growth, unit growth, I like having the pricing power So I'm not ready to say that we want the pricing power we're gaining from these direct relationships to drive P&L accretion.

Super helpful. Thanks, guys.

Thanks, Randy. Thank you. This does conclude the question and answer session as well as today's program. Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day.