Ollie's Bargain Outlet Holdings, Inc. (OLLI) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary reflects strong financial performance, robust product development, and strategic market growth. The Q&A highlights positive sentiments from analysts regarding store growth and earnings potential, despite some concerns over SG&A pressures. The company's aggressive expansion plans and improved customer engagement, particularly through the Ollie's Army program, suggest optimism. While there are some conservative aspects in guidance, the overall outlook is positive, with strong store performance and strategic initiatives driving growth. The lack of specific future guidance does not overshadow the positive financial and strategic developments.
Key Financial Performance
Net Sales Net sales increased 18% to $680 million, driven by new store openings and comparable store sales growth.
Comparable Store Sales Comparable store sales increased 5%, driven by an increase in transactions. Strong demand for consumer staples and seasonal items contributed to this growth.
Gross Margin Gross margin increased 200 basis points to 39.9%, driven by lower supply chain costs and higher merchandise margins. Strong deal flow and lower shrink also benefited merchandise margins.
SG&A Expense SG&A expense as a percentage of net sales increased 60 basis points to 25.8%, primarily due to higher medical and casualty claims and slightly higher store labor expenses.
Preopening Expenses Preopening expenses were $9 million, up $4 million year-over-year due to a higher number of new store openings (29 stores this quarter compared to 9 last year).
Adjusted Net Income Adjusted net income was $61 million, and adjusted earnings per share increased 26.9% to $0.99 for the quarter.
Adjusted EBITDA Adjusted EBITDA increased 26% to $94 million, and adjusted EBITDA margin increased 90 basis points to 13.8% for the quarter.
Total Cash and Investments Total cash and investments increased by 30% or over $100 million to $460 million, with no meaningful long-term debt at quarter end.
Inventories Inventories increased 20% year-over-year, primarily driven by accelerating store growth and higher in-transit inventory.
Capital Expenditures Capital expenditures totaled $26 million, with the majority spent on new store openings, build-out of bankruptcy-acquired stores, and investments in supply chain and existing stores.
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Operating Highlights
New Store Openings: Opened 54 new stores in the first 6 months of the year, exceeding previous full-year growth records. Celebrated the opening of the 600th store and entered the 33rd and 34th states.
Loyalty Program Enhancements: Revamped Ollie's Days event to include exclusive member-only shopping night, boosting customer acquisition and loyalty. Ollie's Army members increased by 10.6% to 16.1 million.
Market Share Expansion: Capitalized on bankruptcies and store closures of competitors to acquire new locations and customers. Focused on gaining market share through footprint expansion and customer acquisition.
Financial Performance: Net sales increased 18% to $680 million, with comparable store sales up 5%. Gross margin improved by 200 basis points to 39.9%, driven by lower supply chain costs and higher merchandise margins.
Cost Management: SG&A expenses increased slightly due to higher medical and casualty claims, but overall cost management supported profitability.
Strategic Growth: Committed to double-digit annual unit growth and profitable expansion. Raised new store target to 85 for the year.
Customer Focus: Enhanced loyalty program to strengthen customer connection and lifetime value, with Ollie's Army members accounting for over 80% of sales.
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Risk or Challenges
Medical and Casualty Claims: Higher medical and casualty claims have increased SG&A expenses, which could impact profitability if the trend continues.
Store Labor Expenses: Slightly higher store labor expenses have contributed to increased SG&A costs, potentially affecting margins.
Dark Rent Costs: Dark rent associated with bankruptcy-acquired stores has added $2.3 million in expenses, which could strain financial resources if not managed effectively.
Inventory Management: Inventories increased 20% year-over-year, driven by store growth and higher in-transit inventory, which could lead to overstocking or inefficiencies.
Preopening Expenses: Preopening expenses increased due to a higher number of new store openings, which could pressure short-term financial performance.
Economic Uncertainty: The company's outlook assumes current tariffs remain in place, indicating potential vulnerability to changes in trade policies or economic conditions.
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Guidance & Outlook
Full Year Outlook: The company is raising its full-year outlook across the board, including sales and earnings projections.
New Store Openings: The company plans to open 85 new stores in fiscal year 2025, an increase from the previous target. This includes 10 additional stores beyond the original plan.
Comparable Store Sales Growth: The company expects comparable store sales growth of 3% to 3.5% for fiscal year 2025.
Gross Margin: Gross margin is projected to be in the range of 40.3% for fiscal year 2025.
Operating Income: Operating income is expected to range between $292 million and $298 million for fiscal year 2025.
Adjusted Net Income and EPS: Adjusted net income is projected to be between $233 million and $237 million, with adjusted earnings per share (EPS) ranging from $3.76 to $3.84.
Capital Expenditures: Capital expenditures are expected to range between $83 million and $88 million, including investments in new store openings and the build-out of acquired locations.
Third Quarter Comparable Sales: The company anticipates third-quarter comparable sales growth to exceed its long-term algorithm of 1% to 2%, reaching approximately 3%.
Customer Acquisition and Loyalty Program: The company is focusing on expanding its Ollie's Army loyalty program, which grew by 10.6% to 16.1 million members. Enhancements to the program are expected to drive future sales and customer retention.
Market Share Growth: The company aims to capitalize on the bankruptcy and store closures of competitors to gain market share and attract new customers.
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Shareholder Return Plan
Share Repurchase: We bought back $12 million worth of our common stock in the quarter and had $304 million remaining under our current share repurchase authorization at the end of the quarter.
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Key Q&A
Q:Could you elaborate on the improving cadence of comp as the second quarter progressed and trends seen in August? What are you seeing from deal flow given the tariff disruption?
A:Eric stated that deal flow remains strong, driven by market disruptions like tariffs, retail bankruptcies, and store closures, which have created additional buying opportunities. Inventory was up 20% at the end of Q2, indicating strong deal flow. Rob added that May was flat, June accelerated, and July was the strongest month of the quarter.
Q:How did the Ollie's Army Night in Q2 compare to the traditional December Ollie's Army Night? Any learnings from the event?
A:Eric mentioned that the reimagined Ollie's Days event surpassed expectations, driving record customer engagement and Ollie's Army acquisition. Most stores had long lines, and the event was well-executed. Rob noted that sales exceeded expectations, contributing 100 points of comp to the quarter, and customer acquisition for the week was up almost 60%. Sales even exceeded the December night, despite not being in a peak holiday moment.
Q:How are you thinking about store growth and earnings power for 2026?
A:Eric stated they are committed to 10% annual unit growth but may outpace this due to market opportunities like bankruptcies and store closures. They expect another year of elevated openings in 2026. Rob added that earnings growth will benefit from higher and earlier store openings, reduced dark rent costs, and improving trends in medical and casualty costs. Gross margin is expected to remain above 40% for 2026, with double-digit top-line growth translating to mid-teens bottom-line growth.
Q:Can you provide insights into SG&A leverage in the back half and long-term algorithm? Also, any cultural changes at Ollie's?
A:Rob explained that unforeseen costs like medical and casualty are pressuring SG&A but do not change the long-term algorithm. They plan to leverage in the back half and deliver full-year guidance. Eric emphasized the strong culture at Ollie's, rooted in its founders' values, and highlighted tweaks to the business model to stay relevant, particularly focusing on enhancing the Ollie's Army program.
Q:How are new stores performing compared to prior cohorts, and when will a new distribution center be needed?
A:Rob stated that new stores are performing above plan, with consistent payback periods for organic openings. Bankruptcy-acquired stores have longer payback periods due to upfront costs. Eric mentioned plans to expand distribution centers in Texas and Illinois within 18 months, adding capacity for 100 more stores. A fifth distribution center is expected in 3-4 years.
Q:How did customer acquisition look from the Ollie's Army Night, and is the customer base getting younger?
A:Rob noted no significant difference in customer acquisition trends during Ollie's Army Night compared to the rest of the quarter. New customers were up among mid- to upper-income levels, and the existing customer base is getting younger due to digital strategies.
Q:What impact has the supply chain work had on the business?
A:Eric highlighted improvements in distribution centers, including automation in Illinois, and changes in transportation procurement, which have reduced costs and increased capacity. He emphasized the importance of culture in motivating teams and serving customers effectively.
Q:What trends are you seeing in Ollie's stores located near closed Big Lots stores?
A:Rob stated that stores near closed Big Lots locations are performing well, with low to mid-single-digit comps above the chain average. New stores are performing over plan, but the impact of the reverse waterfall effect is still being studied.
Q:What is driving the higher merchandise margin, and how much of the Q2 comp is from new versus mature stores?
A:Rob attributed higher merchandise margin to strong deal flow, better margins on deals, and lower shrink. Comps were broad-based across all store cohorts, with no significant difference between new and mature stores.
Q:Why should we model a decline in gross margin in the back half, and how are tariffs impacting the business?
A:Rob explained that the decline is due to conservatism in guidance and strong Q4 performance last year. Eric added that they maintain price gaps and adjust sourcing to navigate tariffs, ensuring the value proposition remains intact.
Q:What is happening with product mix and vendor relationships?
A:Eric noted that closeout opportunities remain strong, and they are not compelled to rely on contracted manufactured products. Vendor relationships are expanding, making the business more predictable and stable.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on future plans for Ollie's Army program enhancements, stating they are finalizing plans and will communicate them later. Additionally, they did not provide concrete numbers for 2026 earnings power, citing a preference not to get ahead of themselves.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Amanda McShane
Army member
Army program
Bargain Outlet
Bingham KeyBanc
Bradley Bingham
CFO Bradley
Co Research
Days event
Division Carden
Group
Inc Research
LLC Research
Lots location
Research Division
bankruptcy store
build
case
change Days
coast
customer acquisition
factor
filing
footprint
group
margin basis
merchandise
month store
number store
opening sale
opportunity store
planning
priority
return
sale expectation
sale outlook
store model
store period
tax
OLLI Transcript
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