Ollie's Bargain Outlet Holdings, Inc.

Good morning and welcome to OLLI's Bargain Outlets conference call to discuss financial results for the second 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 Vanderbalk, President and Chief Executive Officer of and Robert Helm, Executive Vice President and Chief Financial Officer. Certain comments made on today's call may constitute forward-looking statements, and these 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 risk, 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. Vanderbilt. Please go ahead, sir.

Good morning. Thank you for joining us today. We had a very strong second quarter and we are operating with the wind in our sails. New store openings, total sales, comparable store sales, and adjusted earnings were all ahead of our expectations. And we are raising our full year outlook across the board. Our performance of the quarter is the result of the hard work and commitment of our entire team. We are driving the business to new heights through improved planning, coordination, and execution across the organization. We are delivering against our strategic priorities, laying the groundwork for future growth, and driving strong, consistent results. With so many retailers closing stores or going bankrupt in the past year, there's an opportunity to gain market share through expanding our footprint, acquiring new customers, and turning these customers into loyal Ollie's Army members. This is our flywheel, our formula for growth, and we are all over it. Everyone loves a bargain, and it's our mandate to bring great deals to consumers from coast to coast. We have a tremendous opportunity ahead to continue opening new stores and gain market share. This is not growth at any cost, however. We are committed to profitable growth, and we are able to do this through a flexible store model that can be adapted to generate strong returns across different geographies demographics, and store spaces. In the first six months of the year, we opened 54 new stores. This is over four times the number of stores we opened in the same period last year, and in just six months, we have exceeded our previous full-year unit growth high watermark. During the second quarter, we celebrated the opening of our 600th store in New Hampshire and entered our 33rd and 34th states. Our new stores continue to perform ahead of our expectations and are benefiting from a number of factors, including improved planning and execution, a stopped opening schedule, and what we call the warm box dynamic. We are committed to delivering double-digit annual unit growth moving forward and have invested in the necessary people and process to deliver this. The bankruptcy filing and subsequent store closures of a number of retailers over the past year have provided a unique opportunity to pick up additional stores that are well-suited for our business model. The team has done an excellent job prioritizing the opening of these locations while advancing our pipeline of organic store openings, and we are ahead of plan for the first half. As a result, we are raising our new store target and now expect to open an additional 10 stores for a total of 85 this year. We are equally focused on new customer acquisition and demonstrating our deep appreciation for our most loyal customers. We have some of the most dedicated and passionate customers in this business, and there's an opportunity to strengthen this connection and grow lifetime value. All these Army members shop more frequently and spend over 40% more per visit than non-members. They account for more than 80% of our sales and are now more than 16 million strong. This is a devoted group of deal-seeking bargainauts who take pride in saving money. We are fiercely committed to serving this group and enhancing the value proposition of the Ollie's Army program. We made a deliberate and strategic change in the second quarter that did just that. We revamped our annual Ollie's Days event to include an exclusive member-only shopping night and we limited the promotions for the week to OLLI's Army members. By all accounts, the Reimagine event was a huge success and exceeded all expectations. First and most importantly, we rewarded our OLLI's Army members and acquired an abundance of new members. Second, the event was accreted to sales and earnings. Before I turn the call over to Rob, let me quickly call out two other company milestones. Ollie celebrated its 43rd year in business last month. The company opened its first store in Mechanicsburg, Pennsylvania in July of 1982. We also celebrated our 10-year anniversary as a public company and learned that Ollie's is one of the best performing retail IPOs over a 10-year period since NASDAQ began tracking this in 2014. We appreciate our shareholders for putting their trust in us for the past 10 years. We also value our partners who make this business happen, especially our merchandise suppliers, vendors, and manufacturers. We greatly appreciate the deep and long-lasting relationships. Now, let me turn the call over to Rob.

Thanks, Eric, and good morning, everyone. We are very pleased with our second quarter results and the continued momentum in our business. New store openings, new store performance, comparable store sales, total sales, and earnings were all ahead of our expectations for the quarter, and we're raising our sales and earnings outlook for the fiscal year. Accelerating new unit growth and expanding the Ali's Army Loyalty Program are two big priorities this year. We are delivering on both of these initiatives. We opened 29 new stores in the second quarter and ended the period with a total of 613 stores, an increase of 17% year over year. Both our new store openings and new store performance were ahead of our plans for the quarter and first half of the year. Eric spoke to a number of changes to our Ollie's Days event in June. These and other enhancements to our loyalty program are working. We drove strong customer acquisition in a way that benefits sales and protected margin. Ollie's Army members increased 10.6% to 16.1 million, and we estimate that the revamped Ollie's Days event added approximately 100 basis points to comp store sales in the quarter. Now let me run you through our P&L numbers. Net sales increased 18% to $680 million driven by new store openings and comparable store sales growth. Comparable store sales increased 5% and was driven by an increase in transactions. We saw strong demand for consumer staples throughout the quarter and demand for seasonal items accelerated as the weather normalized in June and July. Our top five performing categories were lawn and garden, hardware, food, housewares, and domestics. Gross margin increased 200 basis points to 39.9%, and this was better than our expectations. Lower supply chain costs and higher merchandise margins were the primary drivers of the increase. Benefiting merchandise margins in the quarter was strong deal flow and lower shrink. SG&A expenses and percentage net sales increased 60 basis points to 25.8%. driven primarily by higher medical and casualty claims, as well as slightly higher store labor expenses. Consistent with the trends we experienced in Q1, the higher medical expenses were from an unusually high number of severe medical cases. This is not typical for us, and we expect medical expenses to work their way back down as these cases are resolved. Pre-opening expenses were $9 million in the quarter. Most of the $4 million increase was from the higher number of new store openings this year. We opened 29 stores in the quarter compared to nine last year. Dark rent associated with the bankruptcy-acquired stores was $2.3 million, which was also a factor in the year-over-year increase. Moving down to the bottom line, adjusted net income was $61 million, and adjusted earnings per share increased 26.9% to 99 cents for the quarter. Lastly, adjusted EBITDA increased 26% to $94 million, and adjusted EBITDA margin increased 90 basis points to 13.8% for the quarter. Let me also take a moment to comment on our balance sheet. Given the nature of our business, the strength of our balance sheet is a strategic asset. Our financial stability, the visibility of being a public company, and our size and scale truly differentiates us in the closeouts and off-price space. As a result, we are committed to maintaining a fortress type of balance sheet on the go forward because it helps drive our business. For the quarter, our total cash and investments increased by 30%, or over $100 million to $460 million, and we had no meaningful long-term debt at quarter end. Inventories increased 20% year over year, primarily driven by our accelerating store growth and higher in transit inventory. Capital expenditures totaled $26 million for the quarter, with the majority of the spending going towards the opening of new stores, the build-out of the bankruptcy-acquired stores, and to a lesser degree, investments in both our supply chain and existing stores. We bought back $12 million worth of our common stock in the quarter and have $304 million remaining under our current share repurchase authorization at the end of the quarter. Lastly, let me run through our outlook for fiscal year 2025. We are raising both our sales and earnings outlook for the full year. Our revised outlook flows through the upside in our first half results and raises our comparable store sales outlook for the third quarter, given the momentum in our business. Our updated outlook also assumes the current tariffs remain in place for the balance of the year. Our updated guidance figures are contained in the table in our earnings release posted this morning and include 85 new store openings, net sales of 2.631 to 2.644 billion dollars, comparable store sales growth of 3 to 3.5%, growth margin in the range of 40.3%, operating income of $292 to $298 million, and adjusted net income and adjusted earnings per share of $233 to $237 million, and $3.76 to $3.84, respectively. These estimates assume depreciation and amortization expenses of $54 million, inclusive of $14 million within cost of goods sold, pre-opening expenses of $23 million, which includes dark rent of approximately $5 million related to the acquired Big Lots locations, an annual effective tax rate of approximately 25%, which excludes the tax benefits related to stock-based compensation, diluted weighted average shares outstanding of approximately $62 million, and capital expenditures of $83 to $88 million, which includes the build-out of the former Big Lots locations. As far as the quarterly comps are concerned, we now think our third quarter comp growth could be above our long-term outgrow of one to 2%. We are leaving our fourth quarter numbers in place for the moment as we generally do not update more than one quarter ahead of the time. This puts us in the range of 3% in the third quarter and leaves us just below 2% in the fourth quarter. For the remaining new stores, the large majority of these are planned to open in the third quarter. In closing, We are taking advantage of the unique opportunity in this moment to gain market share through accelerated unit growth and enhancements to our Ali's Army program to aggressively go after these abandoned customers up for grabs. Our actions are clearly working. We are strengthening our competitive positioning, broadening our footprint, and setting us up to drive strong shareholder returns for the years to come. Now let me turn the call back to Eric.