Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ollie's Bargain Outlet Holdings Inc (OLLI, Financial) reported a 5.8% increase in comparable store sales, surpassing expectations.
- The company achieved a 12% increase in net sales to $578 million, driven by new store growth and strong transaction growth.
- Ollie's Army membership grew by 8% to 14.5 million members, with sales to members accounting for over 80% of total sales.
- The company successfully opened its fourth distribution center in Princeton, Illinois, on time and on budget, enhancing its supply chain capabilities.
- Ollie's Bargain Outlet Holdings Inc (OLLI) raised its fiscal 2024 sales and earnings guidance, reflecting strong performance and positive outlook.
Negative Points
- Gross margin decreased slightly to 37.9%, impacted by a mix shift towards lower-margin categories like room air and consumables.
- The company anticipates potential disruption from competitor liquidation sales in the third quarter, which could impact store performance.
- There is ongoing pressure from shrink, which has plateaued but remains a concern for the company.
- Big ticket categories such as flooring, mattresses, and furniture continue to show weakness, reflecting broader industry trends.
- The company faces challenges in estimating the full impact of competitor liquidations on its business, adding uncertainty to future performance.
Q & A Highlights
Q: Could you elaborate on the cadence of trends through the quarter and what you've seen so far in August? Also, what do you see as a multiyear opportunity from industry consolidation?
A: From a comp perspective, we were nicely positive in all three months of the quarter, with momentum continuing into August. We are embedding some level of consolidation impact as the quarter progresses. Regarding multiyear opportunities, our investments in infrastructure allow us to set a floor at 10% unit growth with the ability to accelerate. We are excited about real estate opportunities and market share gains from distressed retailers.
Q: Can you quantify how much the mix ended up hurting gross margin this quarter? And how should we think about gross margin for Q3 and Q4?
A: The mix shift, particularly from higher penetration in AC sales and consumables, impacted our gross margin. We were planning for a modest expansion year-over-year but ended up with a slight decline. We still feel confident about achieving a 40% gross margin for the full year as the business changes significantly in Q3 and Q4.
Q: How are you thinking about the impact of competitor liquidation sales, and how long might this last?
A: The impact of liquidation is somewhat unprecedented for us. These compressed liquidations sell a large amount of goods in a short window at high markdown rates. Initially, core customers shop these sales, but it’s hard to quantify the overall impact. We are taking a cautious approach in our guidance but believe we are well-positioned to navigate through it.
Q: Are the Big Lots store closures a larger opportunity than previous store liquidations from other competitors?
A: Yes, the Big Lots closures are more directly located in our marketplaces and could be impactful. We thought it prudent to call it out, but we are not worried. We believe we are well-positioned and will navigate through it.
Q: Can you provide the comp lift from the air conditioners category in Q2?
A: The comp lift from air conditioners was about 2 full points on the 5.8% comp for the quarter.
Q: How much of your store base is being impacted by competitor liquidations, and could this pull forward demand impacting future quarters?
A: About 100 of the 296 closing stores are located in our trade areas. While it’s unprecedented, our intel suggests limited seasonal assortment in these liquidating stores, so we are hopeful it won’t impact Q4 significantly.
Q: How are your other bigger categories performing, and what does this tell you about consumer health and market share gains?
A: About 50% of our categories comped positive for the quarter. Weakness in categories like flooring is deal-driven rather than a reflection of consumer health. We are seeing strength across all income segments, particularly in the $40,000 to $60,000 household income segment, and retention of higher-income customers.
Q: Can you give us some color on SG&A expense control and flow-through on higher sales?
A: We leveraged 100 basis points on a 5.8% comp, with 40 basis points from leverage and 60 basis points from other efficiencies. We saw efficiency in advertising and favorability in store payroll from early optimization efforts.
Q: How sticky do you think higher-income customers are in the longer term?
A: We are seeing a couple of quarters of trend indicating that higher-income customers are sticky. We measure retention over a two-year period and like the trend we are seeing.
Q: How are you thinking about real estate opportunities with potential store closures, and what is your bandwidth for taking on new locations?
A: We are considering every angle, including contiguous states to our current trade areas. We believe there are meaningful opportunities in existing trade areas and are prepared to accelerate store openings without risking core business execution.
Q: How are you positioned for the holiday season, and are there any merchandising opportunities?
A: We believe we are well-positioned for the holiday season with the right inventory at the right values. We are excited about our seasonal and toy assortments and early selling trends are encouraging.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
