Ollie's Bargain Outlet Holdings, Inc. (OLLI) Q3 2026 Earnings Call Transcript
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Overview
The earnings call reveals strong financial performance with raised guidance, successful new store openings, and strategic shifts in marketing from print to digital. The Q&A highlights positive analyst sentiment and management's confidence in overcoming operational challenges. The focus on consumables and direct sourcing supports margin improvement, while the Ollie's Army loyalty program expansion aids customer retention. Despite some unclear responses regarding tariffs, the overall sentiment is positive, suggesting a likely stock price increase in the next two weeks.
Key Financial Performance
Net Sales Net sales increased 19% to $614 million, driven by new store openings and comparable store sales growth.
Comparable Store Sales Comparable store sales increased 3.3%, driven by a mid-single-digit increase in transactions, which was partially offset by a decrease in average ticket price.
Gross Margin Gross margin decreased 10 basis points to 41.3%. The slight decrease was better than expectations and was driven by higher supply chain costs, primarily incremental tariff expenses, which were partially offset by higher merchandise margins.
SG&A Expenses SG&A expenses as a percent of net sales decreased 50 basis points to 29.4%, with the decrease primarily driven by lower professional fees, stock-based compensation, and leverage from the continued optimization of the marketing ecosystem.
Preopening Expenses Preopening expenses increased 3% to $7 million in the quarter, driven by new store growth and $1 million of dark rent expense associated with the former Big Lots locations acquired through bankruptcy auction.
Adjusted Net Income and EPS Adjusted net income and adjusted earnings per share increased 29% to $46 million and $0.75, respectively, for the quarter.
Adjusted EBITDA Adjusted EBITDA increased 22% to $73 million, and adjusted EBITDA margin increased 30 basis points to 11.9% for the quarter.
Total Cash and Investments Total cash and investments increased by 42% to $432 million, with no meaningful long-term debt at the end of the quarter.
Inventories Inventories increased 16% year-over-year, primarily driven by accelerating store growth and strong deal flow.
Capital Expenditures Capital expenditures totaled $31 million for the quarter, with the majority of spending going towards new store openings, build-out of bankruptcy-acquired stores, and investments in supply chain and existing stores.
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Operating Highlights
Seasonal and gift items: Expanded assortment of seasonal and gift items, including fall harvest, Halloween, and Christmas categories, which were top-performing categories.
Holiday gift programs: Grew holiday gift programs that were initially tested last year.
New store openings: Opened 32 new stores in Q3 and 86 for the year, representing 18% growth. Long-term target is 1,300 stores with a commitment to 10% annual unit growth.
Customer acquisition: New memberships in the loyalty program increased 30% year-over-year, and the customer file grew by 12%. Younger and higher-income groups were the fastest-growing cohorts.
Marketing strategy: Shifted from traditional print-heavy approaches to a digital-first strategy, reallocating print spend to digital media, which proved effective in driving sales.
Supply chain investments: Planned expansion of the Texas distribution center by 150,000 square feet and Illinois distribution center expansion starting next year.
Real estate opportunities: Capitalized on the challenging retail environment to secure attractive second-generation real estate sites.
Focus on value-driven consumables: Prioritized value-driven consumable deals to attract new customers and increase engagement.
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Risk or Challenges
Tariff Expenses: Higher supply chain costs, primarily incremental tariff expenses, have slightly decreased gross margins, impacting profitability.
Retail Environment Challenges: The current retail environment is challenging for many retailers, which could impact Ollie's ability to maintain its growth trajectory.
Pressure on Average Unit Retail and Basket Size: Intentional pursuit of closeout deals to drive customer growth and engagement has put pressure on average unit retail and basket size, potentially affecting profitability.
Supply Chain Expansion Costs: Planned expansions of distribution centers in Texas and Illinois involve significant capital expenditures, which could strain financial resources if not managed effectively.
Dependence on Consumer Behavior: Shifts in consumer behavior, such as prioritizing necessity over discretionary items, could limit growth in certain product categories.
Tariff Continuation Assumption: The guidance assumes current tariffs remain in place, which could pose a risk if tariffs increase or change unexpectedly.
Dark Rent Expense: $1 million of dark rent expense associated with former Big Lots locations acquired through bankruptcy auction adds to operational costs.
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Guidance & Outlook
Full Year Sales and Earnings Outlook: The company has raised its full-year sales and earnings outlook, reflecting better-than-expected third-quarter results and a strong start to the fourth quarter. Updated guidance includes net sales of $2.648 billion to $2.655 billion, comparable store sales growth of 3.2% to 3.5%, and adjusted net income of $236 million to $239 million.
Store Expansion: The company plans to open 86 new stores in fiscal 2025, representing an 18% year-over-year increase. For fiscal 2026, 75 new store openings are targeted, with a focus on front-end weighted openings.
Long-Term Store Growth Target: The company aims to reach 1,300 stores in the long term, with a commitment to a minimum 10% annual unit growth.
Customer Acquisition and Loyalty Program: Ollie's Army loyalty program membership increased by 12% year-over-year to 16.6 million members. The company is focused on acquiring new customers and increasing engagement, particularly among younger and higher-income groups.
Marketing Strategy: The company is shifting from traditional print-heavy approaches to a digital-first strategy, reallocating print spend to digital media to deliver targeted messages and improve marketing efficiency.
Supply Chain Investments: Plans include expanding the Texas distribution center by 150,000 square feet to increase service capacity by approximately 50 stores to 800. Expansion of the Illinois distribution center is also planned for late next year.
Capital Expenditures: Projected capital expenditures for fiscal 2025 are approximately $88 million, including investments in new store openings, supply chain expansions, and the build-out of former Big Lots locations.
Fourth Quarter Comparable Store Sales: The company expects fourth-quarter comparable store sales growth in the range of 2% to 3%.
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Shareholder Return Plan
Share Repurchase: We bought back $12 million worth of our common stock in the quarter and had $293 million remaining under our current share repurchase authorization at the end of the quarter.
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Key Q&A
Q:Can you frame out the state of your consumer in light of your basket commentary and discuss vendor relationships, particularly in driving deeper CPG relationships?
A:The company is seeing strength in higher-income consumers (above $100,000 household income) and upper-middle-income consumers ($65,000 and above). There is some softness in lower-income consumers, potentially due to the government shutdown. Vendor relationships have been strong, with growth in the order book and new relationships in the CPG space. The food business has benefited from abandoned products and order book space from companies that have closed or consolidated.
Q:Can you elaborate on the components of the third-quarter comp, particularly the growth in transactions relative to the second quarter, and discuss the cadence of monthly comps in the third quarter?
A:The third-quarter comp was 3.3%, above the guidance of 3%. Transactions showed mid-single-digit growth, an acceleration from Q2. Basket size declined due to a high single-digit decline in AUR. The quarter saw a slowdown midway due to warm weather and the government shutdown but regained momentum in October. Quarter-to-date trends in Q4 are ahead of guidance, with AUR now showing a low single-digit increase.
Q:Can you discuss customer acquisition trends, retention, and the planning for the Ollie’s Army Night event in December?
A:Customer acquisition is strong, with a younger demographic (18-34 years old) being the strongest cohort. Retention and reactivations are also strong. For Ollie’s Army Night, the event start time was adjusted to 4:00 p.m. based on customer feedback, particularly from older customers. The event is accounted for in guidance, with no significant incremental contribution expected.
Q:Can you talk about the levers being pulled in SG&A and provide an early look at next year?
A:The company is focused on positioning for long-term growth while delivering near-term results. Benefits are expected from the annualization of new stores, a favorable real estate environment, and the roll-off of dark rent from Big Lots locations. Cost pressures like medical expenses remain. Marketing is shifting from print to digital, reallocating resources to drive top-line growth.
Q:What opportunities do you see to improve sales productivity and optimize category mix? How does leaning into consumables impact long-term gross margin?
A:Sales productivity is being improved by leveraging size and scale to steer category mix, with a focus on consumer staples and seasonal categories. Consumables are being emphasized, benefiting from closeout opportunities. The long-term gross margin target remains at 40%, with current guidance at 40.3% due to tailwinds like lower markdowns and shrink.
Q:What are you seeing from new stores, particularly those in bankruptcy locations, and how is the soft opening strategy performing?
A:New stores are performing strongly, with 85% beating plan. The soft opening strategy has flattened the reverse waterfall effect, leading to more consistent performance in subsequent years. This strategy reduces stress on teams and has been successful in delivering 86 stores this year.
Q:Can you provide an update on the performance of stores near closed Big Lots locations and discuss operational stresses from accelerated store openings?
A:Stores near closed Big Lots locations are outperforming the rest of the chain, with low to mid-single-digit lifts. Operational stresses from accelerated openings were mitigated by investments in infrastructure and a soft opening approach, which spread resources and reduced stress.
Q:Can you discuss the margin implications of direct sourcing for seasonal and holiday gift merchandise?
A:Seasonal and holiday gift merchandise is a mix of direct sourcing and closeouts. Direct sourcing benefits from the company’s size and scale, allowing for better margins. Seasonal categories had more closeouts this year due to retail bankruptcies, which also supported margins.
Q:How are you thinking about the role of traditional print flyers in your advertising strategy?
A:The company is shifting from print to digital while maintaining flyer events. Shared mail is still used, but digital channels are increasingly important for distributing flyers. The shift is driven by the decline of print media and the effectiveness of digital engagement.
Q:What are your expectations for Q4 comps and gross margins, and how do tariffs impact these metrics?
A:Q4 comps are currently running ahead of guidance, driven by strong transaction trends and a positive AUR. Gross margin guidance is in the mid-39% range, consistent with historical levels. Tariffs are managed through price gaps, with no significant impact expected on gross margins.
Q:What are your early thoughts on the 2026 comp build and the impact of fiscal factors like tax cuts?
A:The 2026 comp guidance will likely remain at 1-2%, with potential tailwinds from elevated tax money, Big Lots market share capture, and improved AUR. The company will reset guidance at 1-2% and aim to exceed it.
Q:Can you expand on the drivers behind the 2026 pipeline of 75 stores and the real estate environment?
A:The 2026 pipeline includes 75 stores, with many being former Big Lots locations. The real estate environment remains favorable, with opportunities from distressed and bankrupt retailers. The company is balancing accelerated growth with other strategic priorities.
Q:What are your expectations for preopening expenses and the impact of DC expansions on margins?
A:Preopening expenses will decrease as dark rent from Big Lots is eliminated. The impact of DC expansions on margins is expected to be nominal due to the company’s larger sales base, with any effects offset in guidance.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the specific impact of tariffs on Q3 gross margins and the exact breakdown of preopening expenses for 2026. Additionally, while they discussed the shift from print to digital marketing, they did not provide detailed data on the cost savings or ROI from this transition.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Army Night
Army loyalty
Lots location
Sunday
Texas
associate
brand
build
buying model
capacity
compensation
coordination
customer acquisition
digit increase
discount retail
distribution center
engagement
expansion
foot
gift
group
holiday season
holiday shopping
item
leverage
marketing ecosystem
medium
membership
merchandising
pm
point decrease
print
priority store
reallocation
record number
result start
sale outlook
start sale
strength
OLLI Transcript
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OLLI Report
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