10-Q 1 ef20030919_10q.htm 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

Form 10-Q

☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 3, 2024

OR

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Ollie’s Bargain Outlet Holdings, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation)

001-37501
  
80-0848819
(Commission File Number)
  
(IRS Employer Identification No.)

6295 Allentown Boulevard
Suite 1
Harrisburg, Pennsylvania
  
17112
(Address of principal executive offices)
  
(Zip Code)

(717) 657-2300
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Trading Symbol
Name of each exchange on which registered
Common Stock, $0.001 par value
OLLI
The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ☒   No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes ☒   No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒
  
Accelerated filer  ☐
  
Non-accelerated filer  ☐
  
Smaller reporting company  ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   ☐   No  ☒

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of August 26, 2024 was 61,348,371.

INDEX

PART I - FINANCIAL INFORMATION
Page
Item 1.
1
 
1
 
2
 
3
 
4
 
5
Item 2.
15
Item 3.
27
Item 4.
27
 
 
 
PART II - OTHER INFORMATION
 
Item 1.
28
Item 1A.
28
Item 2.
28
Item 5.
  29
Item 6.
30


ITEM 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)

 
Thirteen weeks ended
    
Twenty-six weeks ended
  
    August 3,     July 29,     August 3,     July 29,  
   
2024
    
2023
    
2024
    
2023
  
Net sales
  
$
578,375
    
$
514,509
    
$
1,087,193
    
$
973,663
  
Cost of sales
    
359,344
      
317,825
      
658,804
      
598,408
  
Gross profit
    
219,031
      
196,684
      
428,389
      
375,255
  
Selling, general, and administrative expenses
    
145,673
      
134,623
      
288,092
      
264,891
  
Depreciation and amortization expenses
    
8,004
      
6,655
      
15,720
      
13,138
  
Pre-opening expenses
    
4,595
      
2,869
      
7,321
      
6,150
  
Operating income
    
60,759
      
52,537
      
117,256
      
91,076
  
Interest income, net
    
(3,928
)
    
(3,402
)
    
(8,229
)
    
(6,077
)
Income before income taxes
    
64,687
      
55,939
      
125,485
      
97,153
  
Income tax expense
   
15,705
      
13,758
      
30,161
      
23,992
  
Net income
  
$
48,982
    
$
42,181
    
$
95,324
    
$
73,161
  
Earnings per common share:
                                
Basic
  
$
0.80
    
$
0.68
    
$
1.55
    
$
1.18
  
Diluted
  
$
0.79
    
$
0.68
    
$
1.54
    
$
1.18
  
Weighted average common shares outstanding:
                                
Basic
    
61,313
      
61,768
      
61,347
      
61,869
  
Diluted
    
61,721
      
62,055
      
61,731
      
62,131
  

See accompanying notes to the condensed consolidated financial statements.

1
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)

 
August 3,
   
February 3,
   
 July 29,
 
 Assets   2024    
2024
     2023  
Current assets:
                  
Cash and cash equivalents
  
$
170,600
    
$
266,262
    
$
181,416
  
Short-term investments
     182,544       86,980       128,769  
Inventories
    531,286
       505,790
       498,331
  
Accounts receivable
    1,187       2,223       2,935  
Prepaid expenses and other current assets
    
9,813
      
10,173
      
6,810
  
Total current assets
    
895,430
      
871,428
      
818,261
  
Property and equipment, net of accumulated depreciation of $203,347, $184,201 and $165,791, respectively
    
307,163
      
270,063
      
202,889
  
Operating lease right-of-use assets
    
494,169
      
475,526
      
455,452
  
Goodwill
    
444,850
      
444,850
      
444,850
  
Trade name
    
230,559
      
230,559
      
230,559
  
Other assets
    
2,122
      
2,168
      
2,145
  
Total assets
  
$
2,374,293
    
$
2,294,594
    
$
2,154,156
  
Liabilities and Stockholders’ Equity
                        
Current liabilities:
                        
Current portion of long-term debt
  
$
589
    
$
639
    
$
575
  
Accounts payable
    
129,824
      
128,097
      
121,144
  
Income taxes payable
    
-
      
14,744
      
3,741
  
Current portion of operating lease liabilities
    
87,476
      
89,176
      
90,540
  
Accrued expenses and other current liabilities
    
79,952
      
82,895
      
82,295
  
Total current liabilities
    
297,841
      
315,551
      
298,295
  
Revolving credit facility
    
-
      
-
      
-
  
Long-term debt
    
984
      
1,022
      
1,081
  
Deferred income taxes
    
72,803
      
71,877
      
70,950
  
Long-term portion of operating lease liabilities
    
411,994
      
397,912
      
368,850
  
Total liabilities
    
783,622
      
786,362
      
739,176
  
Stockholders’ equity:
                        
Preferred stock - 50,000 shares authorized at $0.001 par value; no shares issued
    
-
      
-
      
-
  
Common stock - 500,000 shares authorized at $0.001 par value; 67,282, 66,927 and 66,858 shares issued, respectively
    
67
      
67
      
67
  
Additional paid-in capital
    
713,509
      
694,959
      
686,438
  
Retained earnings
    
1,263,275
      
1,167,951
      
1,059,673
  
Treasury - common stock, at cost; 5,891, 5,473 and 5,156 shares, respectively
    
(386,180
)
    
(354,745
)
    
(331,198
)
Total stockholders’ equity
    
1,590,671
      
1,508,232
      
1,414,980
  
Total liabilities and stockholders’ equity
  
$
2,374,293
    
$
2,294,594
    
$
2,154,156
  

See accompanying notes to the condensed consolidated financial statements.

2
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)

 
Thirteen weeks ended August 3, 2024 and July 29, 2023
  
               
Additional
           Total  
   
Common stock
    
Treasury stock
    
paid-in
    
Retained
    
stockholders’
  
   
Shares
    
Amount
    
Shares
    
Amount
    
capital
    
earnings
    
equity
  
Balance as of May 4, 2024
    
67,069
    
$
67
      
(5,810
)
  
$
(379,752
)
  
$
697,816
    
$
1,214,293
    
$
1,532,424
  
Stock-based compensation expense
    
-
      
-
      
-
      
-
      
3,652
      
-
      
3,652
  
Proceeds from stock options exercised
    
211
      
-
      
-
      
-
      
12,172
      
-
      
12,172
  
Vesting of restricted stock
    
4
      
-
      
-
      
-
      
-
      
-
      
-
  
Common shares withheld for taxes
    
(2
)
    
-
      
-
      
-
      
(131
)
    
-
      
(131
)
Shares repurchased
    
-
      
-
      
(81
)
    
(6,428
)
    
-
      
-
      
(6,428
)
Net income
    
-
      
-
      
-
      
-
      
-
      
48,982
      
48,982
  
Balance as of August 3, 2024
    
67,282
    
$
67
      
(5,891
)
  
$
(386,180
)
  
$
713,509
    
$
1,263,275
    
$
1,590,671
  
                                                         
Balance as of April 29, 2023
    
66,778
    
$
67
      
(4,880
)
  
$
(314,484
)
  
$
680,881
    
$
1,017,492
    
$
1,383,956
  
Stock-based compensation expense
    
-
      
-
      
-
      
-
      
3,141
      
-
      
3,141
  
Proceeds from stock options exercised
    
75
      
-
      
-
      
-
      
2,545
      
-
      
2,545
  
Vesting of restricted stock
    7       -       -       -       -       -       -  
Common shares withheld for taxes
    
(2
)
    
-
      
-
      
-
      
(129
)
    
-
      
(129
)
Shares repurchased
    -       -       (276 )     (16,714 )     -       -       (16,714 )
Net income
    
-
      
-
      
-
      
-
      
-
      
42,181
      
42,181
  
Balance as of July 29, 2023
    
66,858
    
$
67
      
(5,156
)
  
$
(331,198
)
  
$
686,438
    
$
1,059,673
    
$
1,414,980
  

 
Twenty-six weeks ended August 3, 2024 and July 29, 2023
  
                Additional           Total  
   
Common stock
    
Treasury stock
    
paid-in
    
Retained
    
stockholders’
  
   
Shares
    
Amount
    
Shares
    
Amount
    
capital
    
earnings
    
equity
  
Balance as of February 3, 2024
    
66,927
    
$
67
      
(5,473
)
  
$
(354,745
)
  
$
694,959
    
$
1,167,951
    
$
1,508,232
  
Stock-based compensation expense
    
-
      
-
      
-
      
-
      
6,801
      
-
      
6,801
  
Proceeds from stock options exercised
    
277
      
-
      
-
      
-
      
14,720
      
-
      
14,720
  
Vesting of restricted stock
    
116
      
-
      
-
      
-
      
-
      
-
      
-
  
Common shares withheld for taxes
    
(38
)
    
-
      
-
      
-
      
(2,971
)
    
-
      
(2,971
)
Shares repurchased
    
-
      
-
      
(418
)
    
(31,435
)
    
-
      
-
      
(31,435
)
Net income
    
-
      
-
      
-
      
-
      
-
      
95,324
      
95,324
  
Balance as of August 3, 2024
    
67,282
    
$
67
      
(5,891
)
  
$
(386,180
)
  
$
713,509
    
$
1,263,275
    
$
1,590,671
  
                                                         
Balance as of January 28, 2023
    
66,672
    
$
67
      
(4,664
)
  
$
(302,204
)
  
$
677,694
    
$
986,512
    
$
1,362,069
  
Stock-based compensation expense
    
-
      
-
      
-
      
-
      
6,004
      
-
      
6,004
  
Proceeds from stock options exercised
    
117
      
-
      
-
      
-
      
4,137
      
-
      
4,137
  
Vesting of restricted stock
    
93
      
-
      
-
      
-
      
-
      
-
      
-
  
Common shares withheld for taxes
    
(24
)
    
-
      
-
      
-
      
(1,397
)
    
-
      
(1,397
)
Shares repurchased
    -       -       (492 )     (28,994 )     -       -       (28,994 )
Net income
    
-
      
-
      
-
      
-
      
-
      
73,161
      
73,161
  
Balance as of July 29, 2023
    
66,858
    
$
67
      
(5,156
)
  
$
(331,198
)
  
$
686,438
    
$
1,059,673
    
$
1,414,980
  

See accompanying notes to the condensed consolidated financial statements.

3
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

 
Twenty-six weeks ended
  
   
August 3,
    
July 29,
  
   
2024
    
2023
  
Cash Flows from Operating Activities:
            
Net income
  
$
95,324
    
$
73,161
  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation and amortization
    
19,733
      
16,269
  
Amortization of debt issuance costs
    
26
      
138
  
Gain on sale of assets
    
(204
)
    
(211
)
Deferred income tax benefit
    
926
      
318
  
Stock-based compensation expense
    
6,801
      
6,004
  
Other
     (1,087 )     -  
Changes in operating assets and liabilities:
                
Inventories
    
(25,496
)
    
(27,797
)
Accounts receivable
    
1,036
      
603
  
Prepaid expenses and other assets
    
380
      
3,652
  
Accounts payable
    
3,426
      
33,502
  
Income taxes payable
    
(14,744
)
    
685
  
Accrued expenses and other liabilities
    
(2,062
)
    
3,441
  
Net cash provided by operating activities
    
84,059
      
109,765
  
Cash Flows from Investing Activities:
                
Capital expenditures
    
(65,154
)
    
(45,240
)
Proceeds from sale of property and equipment
    
233
      
286
  
Purchases of short-term investments
     (230,683 )     (160,709 )
Maturities of short-term investments
     136,206       92,105  
Net cash used in investing activities
    
(159,398
)
    
(113,558
)
Cash Flows from Financing Activities:
                
Repayments on finance leases
    
(637
)
    
(594
)
Proceeds from stock option exercises
    
14,720
      
2,973
  
Common shares withheld for taxes
    
(2,971
)
    
(1,397
)
Payment for shares repurchased
    
(31,435
)
    
(26,369
)
Net cash used in financing activities
    
(20,323
)
    
(25,387
)
Net decrease in cash and cash equivalents
    
(95,662
)
    
(29,180
)
Cash and cash equivalents, beginning of the period
    
266,262
      
210,596
  
Cash and cash equivalents, end of the period
  
$
170,600
    
$
181,416
  
Supplemental disclosure of cash flow information:
                
Cash paid during the period for:
                
Interest
  
$
219
    
$
218
  
Income taxes
  
$
45,376
    
$
23,008
  
Non-cash investing activities:
                
Accrued purchases of property and equipment
  
$
10,310
    
$
5,002
  
Non-cash financing activities
                
 Accrued shares repurchased
   $
-     $
2,625  
 Receivable from exercise of stock options
   $
-     $
1,164  

See accompanying notes to the condensed consolidated financial statements.

4

OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
August 3, 2024 and July 29, 2023
(Unaudited)

(1)
Basis of Presentation and Summary of Significant Accounting Policies


(a)
Description of Business

Ollie’s Bargain Outlet Holdings, Inc. and subsidiaries (collectively referred to as the “Company” or “Ollie’s”) principally buys overproduced, overstocked, and closeout merchandise from manufacturers, wholesalers, and other retailers. In addition, the Company augments its name-brand closeout deals with directly sourced private label products featuring names exclusive to Ollie’s in order to provide consistently value-priced goods in select key merchandise categories.

Since its first store opened in 1982, the Company has grown to 525 retail locations in 31 states as of August 3, 2024. Ollie’s Bargain Outlet retail locations are located in Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, Wisconsin, and West Virginia.


(b)
Fiscal Year

Ollie’s follows a 52/53-week fiscal year, which ends on the Saturday nearer to January 31st of the following calendar year.  References to the thirteen weeks ended August 3, 2024 and July 29, 2023 refer to the thirteen weeks from May 5, 2024 to August 3, 2024 and from April 30, 2023 to July 29, 2023, respectively.  References to the year-to-date periods ended August 3, 2024 and July 29, 2023 refer to the twenty-six weeks from February 4, 2024 to August 3, 2024 and from January 29, 2023 to July 29, 2023, respectively.  References to “2023” refer to the fiscal year ended February 3, 2024 and references to “2024” refer to the fiscal year ending February 1, 2025.  Fiscal year 2023 consists of 53 weeks, and fiscal year 2024 consists of 52 weeks.


(c)
Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated financial statements reflect all normal recurring adjustments which management believes are necessary to present fairly the Company’s results of operations, financial condition, and cash flows for all periods presented. The condensed consolidated balance sheets as of August 3, 2024 and July 29, 2023, and the condensed consolidated statements of income and stockholders’ equity for the thirteen and twenty-six weeks ended August 3, 2024 and July 29, 2023, and the condensed consolidated statements of cash flows for the twenty-six weeks ended August 3, 2024 and July 29, 2023 have been prepared by the Company and are unaudited. The Company’s business is seasonal in nature and results of operations for the interim periods presented are not necessarily indicative of operating results for 2024 or any other period. All intercompany accounts, transactions, and balances have been eliminated in consolidation.

The Company’s balance sheet as of February 3, 2024, presented herein, has been derived from the audited balance sheet included in the Company’s Annual Report on Form 10-K filed with the SEC on March 27, 2024 (“Annual Report”), but does not include all disclosures required by GAAP. These financial statements should be read in conjunction with the financial statements for 2023 and footnotes thereto included in the Annual Report.

For purposes of the disclosure requirements for segments of a business enterprise, it has been determined that the Company is comprised of one operating segment.


(d)
Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

5
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
August 3, 2024 and July 29, 2023
(Unaudited)

 (e)
Fair Value Disclosures

Fair value is defined as the price which the Company would receive to sell an asset or pay to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. In determining fair value, GAAP establishes a three‑level hierarchy used in measuring fair value, as follows:


•
Level 1 inputs are quoted prices available for identical assets and liabilities in active markets.


•
Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data.


•
Level 3 inputs are unobservable, developed using the Company’s estimates and assumptions, which reflect those that market participants would use.

The Company’s financial instruments consist of cash and cash equivalents, investment securities, accounts receivable, accounts payable and the Company’s credit facilities. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable are representative of their respective fair value because of their short-term nature. The carrying amount of the Company’s credit facilities approximates its fair value because the interest rates are adjusted regularly based on current market conditions. Under the fair value hierarchy, the fair market values of cash equivalents and the investments in treasury bonds and corporate bonds are Level 1 while the investments in municipal bonds are Level 2. Since quoted prices in active markets for identical assets are not available, these prices are determined by the third-party pricing service using observable market information such as quotes from less active markets and quoted prices of similar securities.
 
As of August 3, 2024, February 3, 2024, and July 29, 2023, the Company’s investment securities are classified as held-to-maturity since the Company has the intent and ability to hold the investments to maturity. Such securities are carried at amortized cost plus accrued interest and consist of the following:

 
  
As of August 3, 2024
  
 
  
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Fair
Market
Value
  
 
  
(in thousands)
  
Short-term:
                  
Treasury bonds
  
$
104,762
    
$
35
    
$
(48
)
  
$
104,749
  
Municipal bonds
    
27,515
      
-
      
(398
)
    
27,117
  
Corporate bonds
    50,267       101       (47 )     50,321  
Total
  
$
182,544
    
$
136
    
$
(493
)
  
$
182,187
  

 
  
As of February 3, 2024
  
 
  
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Fair
Market
Value
  
 
  
(in thousands)
  
Short-term:
                  
Treasury bonds
  
$
49,765
    
$
16
    
$
-
    
$
49,781
  
Municipal bonds
    
10,136
      
-
      
(139
)
    
9,997
  
Corporate bonds
     27,079       22       -       27,101  
Total
  
$
86,980
    
$
38
    
$
(139
)
  
$
86,879
  

6
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
August 3, 2024 and July 29, 2023
(Unaudited)

  
As of July 29, 2023
  
 
  
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Fair
Market
Value
  
 
  
(in thousands)
  
Short-term:
                  
Treasury bonds
  
$
88,891
    
$
-
    
$
(813
)
  
$
88,078
  
Municipal bonds
    
39,878
      
-
      
(473
)
    
39,405
  
Total
  
$
128,769
    
$
-
    
$
(1,286
)
  
$
127,483
  

Short-term investment securities as of August 3, 2024, February 3, 2024, and July 29, 2023 all mature in one year or less.

(2)
Net Sales

Ollie’s recognizes retail sales in its stores when merchandise is sold and the customer takes possession of merchandise.  Also included in net sales is revenue allocated to certain redeemed discounts earned via the Ollie’s Army loyalty program and gift card breakage.  Net sales are presented net of returns and sales tax. The Company provides an allowance for estimated retail merchandise returns based on prior experience.

Revenue Recognition

Revenue is deferred for the Ollie’s Army loyalty program where members accumulate points that can be redeemed for discounts on future purchases. The Company has determined it has an additional performance obligation to Ollie’s Army members at the time of the initial transaction. The Company allocates the transaction price to the initial transaction and the discount awards based upon its relative standalone selling price, which considers historical redemption patterns for the award. Revenue is recognized as those discount awards are redeemed. Discount awards issued upon the achievement of specified point levels are subject to expiration. Unless temporarily extended, the maximum redemption period is 45 days. At the end of each fiscal period, unredeemed discount awards and accumulated points to earn a future discount award are reflected as a liability.  Discount awards are combined in one homogeneous pool and are not separately identifiable.  Therefore, the revenue recognized consists of discount awards redeemed that were included in the deferred revenue balance at the beginning of the period as well as discount awards issued during the current period.  The following table is a reconciliation of the liability related to this program:

 
Twenty-six weeks ended
  
   
August 3,
    
July 29,
  
   
2024
    
2023
  
   
(in thousands)
  
Beginning balance
  
$
10,159
    
$
8,130
  
Revenue deferred
    
9,425
      
7,425
  
Revenue recognized
    
(8,164
)
    
(6,348
)
Ending balance
  
$
11,420
    
$
9,207
  

7
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
August 3, 2024 and July 29, 2023
(Unaudited)
Gift card breakage for gift card liabilities not subject to escheatment is recognized as revenue in proportion to the redemption of gift cards. Gift cards do not expire. The rate applied to redemptions is based upon a historical breakage rate. Gift cards are combined in one homogenous pool and are not separately identifiable. Therefore, the revenue recognized consists of gift cards that were included in the liability at the beginning of the period as well as gift cards that were issued during the period. The following table is a reconciliation of the gift card liability:

 
Twenty-six weeks ended
  
    August 3,    
July 29,
  
   
2024
    
2023
  
    (in thousands)  
Beginning balance
  
$
2,650
    
$
2,527
  
Gift card issuances
    
3,262
      
2,078
  
Gift card redemption and breakage
    
(3,451
)
    
(2,269
)
Ending balance
  
$
2,461
    
$
2,336
  

(3)
Earnings per Common Share

Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding after giving effect to the potential dilution, if applicable, from the assumed exercise of stock options into shares of common stock as if those stock options were exercised and the assumed lapse of restrictions on restricted stock units.

The following table summarizes those effects for the diluted earnings per common share calculation:

 
Thirteen weeks ended
    
Twenty-six weeks ended
  
    August 3,     July 29,     August 3,     July 29,  
   
2024
    
2023
    
2024
    
2023
  
    (in thousands, except per share amounts)  
Net income
  
$
48,982
    
$
42,181
    
$
95,324
    
$
73,161
  
Weighted average number of common shares outstanding - Basic
    
61,313
      
61,768
      
61,347
      
61,869
  
Incremental shares from the assumed exercise of outstanding stock options and vesting of restricted stock units
    
408
      
287
      
384
      
262
  
Weighted average number of common shares outstanding - Diluted
    
61,721
      
62,055
      
61,731
      
62,131
  
Earnings per common share - Basic
  
$
0.80
    
$
0.68
    
$
1.55
    
$
1.18
  
Earnings per common share - Diluted
  
$
0.79
    
$
0.68
    
$
1.54
    
$
1.18
  

The effect of the weighted average assumed exercise of stock options outstanding totaling 298,237 and 515,627 for the thirteen weeks ended August 3, 2024 and July 29, 2023, respectively, and 408,987 and 678,573 for the twenty-six weeks ended August 3, 2024 and July 29, 2023, respectively, were excluded from the calculation of diluted weighted average common shares outstanding because the effect would have been antidilutive.

The effect of weighted average non-vested restricted stock units outstanding totaling 445 and 19,897 for the thirteen weeks ended August 3, 2024 and July 29, 2023, respectively, and 246 and 23,069 for the twenty-six weeks ended August 3, 2024 and July 29, 2023, respectively, were excluded from the calculation of diluted weighted average common shares outstanding because the effect would have been antidilutive.

8
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
August 3, 2024 and July 29, 2023
(Unaudited)
(4)
Leases

Effective February 3, 2019, the Company accounts for its leases under ASC 842, Leases (Topic 842). Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease, if available. The Company’s lessors do not provide an implicit rate, nor is one readily available, therefore the Company uses its incremental borrowing rate based on the portfolio approach, which applies one rate to leases within a given period. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. Variable lease expenses, if any, are recorded when incurred.

In calculating the right-of-use asset and lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. The Company does not act as a lessor.

Ollie’s generally leases its stores, offices, and distribution facilities under operating leases that expire at various dates through 2035.  These leases generally provide for fixed annual rentals; however, several provide for minimum annual rentals plus contingent rentals based on a percentage of annual sales.  A majority of the Company’s leases also require a payment for all or a portion of common-area maintenance, insurance, real estate taxes, water and sewer costs, and repairs, on a fixed or variable payment basis, the cost of which, for leases existing as of the adoption of ASC 842, is charged to the related expense category rather than being accounted for as rent expense.  For leases entered into after the adoption of ASC 842, the Company accounts for lease components together with non-lease components as a single component for all classes of underlying assets.  Most of the leases contain options to renew for three to five successive five-year periods.  The Company is generally not reasonably certain to exercise renewal options; therefore, the options are not considered in determining the lease term, and associated potential option payments are excluded from the lease payments.  Ollie’s lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.

Store and office lease costs are classified in selling, general, and administrative expenses and distribution center lease costs are classified in cost of sales on the condensed consolidated statements of income.

The following table summarizes the maturity of the Company’s operating lease liabilities by fiscal year as of August 3, 2024:

    August 3,  
   
2024
  
    (in thousands)
  
Remainder of 2024
  
$
48,964
  
2025
    
102,746
  
2026
    
99,301
  
2027
    
87,245
  
2028
    
70,965
  
Thereafter
    
168,093
  
Total undiscounted lease payments (1)
    
577,314
  
Less:  Imputed interest
    
(77,844
)
Total lease obligations
    
499,470
  
Less:  Current obligations under leases
    
(87,476
)
Long-term lease obligations
  
$
411,994
  

(1)
Lease obligations exclude $38.4 million of minimum lease payments for leases signed, but not commenced.

9
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
August 3, 2024 and July 29, 2023
(Unaudited)
The following table summarizes other information related to the Company’s operating leases as of and for the respective periods:

 
Twenty-six weeks ended
  
    August 3,     July 29,  
   
2024
    
2023
  
    (dollars in thousands)
  
Cash paid for operating leases
  
$
57,080
    
$
51,209
  
Operating lease cost
    
55,292
      
50,359
  
Variable lease cost
    
8,062
      
5,847
  
Non-cash right-of-use assets obtained in exchange for lease obligations
    
33,113
      
32,264
  
Weighted-average remaining lease term
  
6.6 years
    
6.3 years
  
Weighted-average discount rate
    
4.1
%
    
3.5
%

(5)
Commitments and Contingencies

Contingencies

Legal Matters

From time to time, the Company may be involved in claims and legal actions that arise in the ordinary course of its business. The Company cannot predict the outcome of any litigation or suit to which it is a party.  However, the Company does not believe that an unfavorable decision of any of the current claims or legal actions against it, individually or in the aggregate, will have a material adverse effect on its financial position, results of operations, liquidity or capital resources.
 
(6)
Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consists of the following:

   
August 3,
    
February 3,
    
July 29,
  
 
2024
    
2024
    
2023
  
    (in thousands)  
Compensation and benefits
  
$
15,977
    
$
20,535
    
$
20,387
  
Deferred revenue
    
13,881
      
12,809
      
11,543
  
Sales and use taxes    
11,015
      
10,234
      
9,420
  
Insurance
    
9,419
      
9,671
      
9,775
  
Real estate
    
4,966
      
4,680
      
6,016
  
Freight
    
2,370
      
4,359
      
1,253
  
Advertising
    
2,027
      
1,780
      
4,371
  
Other
    
20,297
      
18,827
      
19,530
  
   
$
79,952
    
$
82,895
    
$
82,295
  

10
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
August 3, 2024 and July 29, 2023
(Unaudited)
(7)
Debt Obligations and Financing Arrangements

Long-term debt consists of finance leases.

The Company’s credit facility (the “Credit Facility”) provides for a five-year $100.0 million revolving credit facility, which includes a $45.0 million sub-facility for letters of credit and a $25.0 million sub-facility for swingline loans (the “Revolving Credit Facility”).  In addition, the Company may at any time add term loan facilities or additional revolving commitments up to $150.0 million pursuant to terms and conditions set out in the Credit Facility. On January 9, 2024, the Company refinanced its credit facility (the “Credit Facility”), pursuant to which the maturity date for any loans under the revolving credit facility was extended for a period of five years from the effective date of January 9, 2024 and a zero percent (0.0%) interest rate floor was added to the option for the SOFR Loan Rate (as defined in the Amendment). Loans under the Revolving Credit Facility mature on January 9, 2029.

As a result of the anticipated discontinuation of LIBOR in 2023, on January 24, 2023, the Company amended its Credit Facility to replace the LIBOR-based interest rates included therein with SOFR-based interest rates and to modify the provisions for determining an alternative rate of interest upon the occurrence of certain events relating to the availability of interest rate benchmarks. The interest rates for the Credit Facility are calculated as follows: for ABR Loans, the highest of the Prime Rate, the Federal Funds Effective Rate plus 0.50% and Term SOFR with a term of one-month in effect on such day plus the SOFR Spread Adjustment plus 1.0%, plus the Applicable Margin, or, for SOFR Loans, the SOFR Loan Rate plus the Applicable Margin plus the SOFR Spread Adjustment. The Applicable Margin will vary from 0.00% to 0.50% for an ABR Loan and 1.00% to 1.50% for a SOFR Loan, based on availability under the Credit Facility. The SOFR Loan Rate is subject to a 0% floor.

Under the terms of the Revolving Credit Facility, as of August 3, 2024, the Company could borrow up to 90.0% of the most recent appraised value (valued at cost, discounted for the current net orderly liquidation value) of its eligible inventory, as defined, up to $100.0 million.

As of August 3, 2024, the Company had no outstanding borrowings under the Revolving Credit Facility, with $89.0 million of borrowing availability, outstanding letters of credit commitments of $10.7 million and $0.2 million of rent reserves. The Revolving Credit Facility also contains a variable unused line fee ranging from 0.125% to 0.250% per annum.

The Credit Facility is collateralized by the Company’s assets and equity and contains a financial covenant, as well as certain business covenants, including restrictions on dividend payments, which the Company must comply with during the term of the agreement. The financial covenant is a consolidated fixed charge coverage ratio test of at least 1.0 to 1.0 applicable during a covenant period, based on reference to availability. The Company was in compliance with all terms of the Credit Facility during the twenty-six weeks ended August 3, 2024.

The provisions of the Credit Facility restrict all of the net assets of the Company’s consolidated subsidiaries, which constitutes all of the net assets on the Company’s consolidated balance sheet as of August 3, 2024, from being used to pay any dividends or make other restricted payments to the Company without prior written consent from the financial institutions that are a party to the Credit Facility, subject to material exceptions including pro forma compliance with the applicable conditions described in the Credit Facility.

(8)
Income Taxes

The effective tax rates for the thirteen weeks ended August 3, 2024 and July 29, 2023 were 24.3% and 24.6%, respectively.

The effective tax rates for the twenty-six weeks ended August 3, 2024 and July 29, 2023 were 24.0% and 24.7%, respectively.

11
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
August 3, 2024 and July 29, 2023
(Unaudited)
The Company is subject to tax in the United States. The Company files a consolidated U.S. income tax return for federal income tax purposes. The Company is no longer subject to income tax examinations by U.S. federal, or state and local tax authorities for tax years 2018 and prior.

Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues arise as a result of a tax audit, and are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

(9)
Equity Incentive Plans

During fiscal 2012, Ollie’s established an equity incentive plan (the “2012 Plan”), under which stock options were granted to executive officers and key employees as deemed appropriate under the provisions of the 2012 Plan, with an exercise price at the fair value of the underlying stock on the date of grant. The vesting period for options granted under the 2012 Plan is five years (20% ratably per year). Options granted under the 2012 Plan are subject to employment for vesting, expire 10 years from the date of grant, and are not transferable other than upon death. As of July 15, 2015, the date of the pricing of the Company’s initial public offering, no additional equity grants will be made under the 2012 Plan.

In connection with its initial public offering, the Company adopted the 2015 equity incentive plan (the “2015 Plan”) pursuant to which the Company’s Board of Directors may grant stock options, restricted shares, or other awards to employees, directors and consultants. The 2015 Plan allows for the issuance of up to 5,250,000 shares. Awards will be made pursuant to agreements and may be subject to vesting and other restrictions as determined by the Board of Directors or the Compensation Committee of the Board. The Company uses authorized and unissued shares to satisfy share award exercises. As of August 3, 2024, there were 1,670,602 shares available for grant under the 2015 Plan.

Stock Options

The exercise price for stock options is determined at the fair value of the underlying stock on the date of grant. The vesting period for awards granted under the 2015 Plan is generally set at four years (25% ratably per year). Awards are subject to employment for vesting, expire 10 years from the date of grant, and are not transferable other than upon death.

A summary of the Company’s stock option activity and related information for the twenty-six weeks ended August 3, 2024 follows:

                 Weighted  
           Weighted      average  
           average      remaining  
     Number      exercise      contractual  
 
of options
    
price
    
term (years)
  
             (in thousands, except share and per share amounts)  
Outstanding at February 3, 2024
    
1,119,484
    
$
56.71
        
Granted
    
126,683
      
75.37
        
Forfeited
    
(5,144
)
    
68.57
        
Exercised
    
(277,025
)
    
53.14
        
Outstanding at August 3, 2024
    
963,998
      
60.13
      
6.8
  
Exercisable at August 3, 2024
    
529,849
      
58.68
      
5.5
  

12
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
August 3, 2024 and July 29, 2023
(Unaudited)
The weighted average grant date fair value per option for options granted during the twenty-six weeks ended August 3, 2024 and July 29, 2023 was $39.27 and $29.07, respectively. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that used the weighted average assumptions in the following table:

 
Twenty-six weeks ended
  
     August 3,      July 29,  
   
2024
    
2023
  
Risk-free interest rate
    
4.27
%
    
3.36
%
Expected dividend yield
    
-
      
-
  
Expected life (years)
  
6.25 years
   
6.25 years
  
Expected volatility
    
47.63
%
    
47.16
%

The expected life of stock options is estimated using the “simplified method,” as the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants.  The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For expected volatility, the Company uses its historical information over the expected life of the option granted to calculate the fair value of option grants.  The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option.

Restricted Stock Units

Restricted stock units (“RSUs”) are issued at the closing price of the Company’s common stock on the date of grant. RSUs outstanding vest ratably over four years or cliff vest in one or four years. Awards are subject to employment for vesting and are not transferable other than upon death.

A summary of the Company’s RSU activity and related information for the twenty-six weeks ended August 3, 2024 is as follows:

           Weighted  
           average  
     Number    
grant date
  
 
of shares
    
fair value
  
Non-vested balance at February 3, 2024
    
350,804
    
$
53.94
  
Granted
    
172,232
      
74.79
  
Forfeited
    
(6,790
)
    
58.79
  
Vested
    
(116,047
)
    
54.02
  
Non-vested balance at August 3, 2024
    
400,199
      
62.80
  

Stock-Based Compensation Expense

The compensation cost for stock options and RSUs which have been recorded within selling, general, and administrative expenses related to the Company’s equity incentive plans was $3.7 million and $3.1 million for the thirteen weeks ended August 3, 2024 and July 29, 2023, respectively, and $6.8 million and $6.0 million for the twenty-six weeks ended August 3, 2024 and July 29, 2023, respectively.

As of August 3, 2024, there was $32.7 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 2.8 years. Compensation costs related to awards are recognized using the straight-line method.

13
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
August 3, 2024 and July 29, 2023
(Unaudited)
(10)
Common Stock

Common Stock

The Company’s capital structure consists of a single class of common stock with one vote per share. The Company has authorized 500,000,000 shares at $0.001 par value per share. Additionally, the Company has authorized 50,000,000 shares of preferred stock at $0.001 per value per share; to date, however, no preferred shares have been issued. Treasury stock, which consists of the Company’s common stock, is accounted for using the cost method.

Share Repurchase Program

On December 15, 2020, the Board of Directors of the Company authorized the repurchase of up to $100.0 million of shares of the Company’s common stock. On March 16, 2021, the Board of Directors of the Company authorized an increase of $100.0 million in the Company’s share repurchase program.  Both of these authorizations were authorized to be executed through January 2023. On November 30, 2021, the Board of Directors of the Company authorized an additional $200.0 million to repurchase stock pursuant to the Company’s share repurchase program, expiring on December 15, 2023. On November 30, 2023, the Board of Directors of the Company authorized an extension to the existing share repurchase program set to expire on December 15, 2023, until March 31, 2026.

The shares to be repurchased may be purchased from time to time in open market transactions (including blocks), privately negotiated transactions, accelerated share repurchase programs or other derivative transactions, issuer self-tender offers, or any combination of the foregoing. The timing of repurchases and the actual amount purchased will depend on a variety of factors, including the market price of the Company’s shares, general market, economic and business conditions, and other corporate considerations. Repurchases may be made pursuant to plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, which could allow the Company to purchase its shares during periods when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods.  Repurchases are expected to be funded from cash on hand or through the utilization of the Company’s Revolving Credit Facility.  The repurchase authorization does not require the purchase of a specific number of shares and is subject to suspension or termination by the Company’s Board of Directors at any time. During the twenty-six weeks ended August 3, 2024, the Company repurchased 418,274 shares of its common stock for $31.4 million, inclusive of transaction costs, pursuant to its share repurchase program. These expenditures were funded by cash on hand. As of August 3, 2024, the Company had $54.2 million remaining under its share repurchase authorization. There can be no assurance that any additional repurchases will be completed, or as to the timing or amount of any repurchases. The share repurchase program may be discontinued at any time.

(11)
Transactions with Affiliated and Related Parties



During the twenty-six weeks ended August 3, 2024 and July 29, 2023, respectively, the Company purchased inventory of $0.2 million and $0.5 million, respectively, from a subsidiary of Hillman Solutions, Inc. where John Swygert, President and Chief Executive Officer of Ollie’s, is a member of its Board of Directors.

14
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes of Ollie’s Bargain Outlet Holdings, Inc. included in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and the related notes included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 27, 2024 (“Annual Report”). As used in this Quarterly Report on Form 10-Q, except where the context otherwise requires or where otherwise indicated, the terms “Ollie’s,” the “Company,” “we,” “our,” and “us” refer to Ollie’s Bargain Outlet Holdings, Inc. and subsidiaries.

We operate on a fiscal calendar widely used by the retail industry that results in a fiscal year consisting of a 52- or 53-week period ending on the Saturday nearer to January 31st of the following year. References to “2024” refer to the 52-week period of February 4, 2024 to February 1, 2025. References to “2023” refer to the 53-week period of January 29, 2023 to February 3, 2024.  References to the “second quarter of fiscal 2024” and the “second quarter of fiscal 2023” refer to the thirteen weeks of May 5, 2024 to August 3, 2024 and April 30, 2023 to July 29, 2023, respectively.  Year-to-date periods ended August 3, 2024 and July 29, 2023 refer to the twenty-six weeks of February 4, 2024 to August 3, 2024 and January 29, 2023 to July 29, 2023, respectively. Historical results are not necessarily indicative of the results to be expected for any future period and results for any interim period may not necessarily be indicative of the results that may be expected for a full year.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by words such as “could,” “may,” “might,” “will,” “likely,” “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “continues,” “projects,” and similar references to future periods, prospects, financial performance, and industry outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, capital market conditions, the economy, and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions, including, but not limited to, supply chain challenges, legislation, national trade policy, and the following: our failure to adequately procure and manage our inventory, anticipate consumer demand, or achieve favorable product margins; changes in consumer confidence and spending; risks associated with our status as a “brick and mortar” only retailer; risks associated with intense competition; our failure to open new profitable stores, or successfully enter new markets, on a timely basis or at all; fluctuations in comparable store sales and results of operations, including on a quarterly basis; factors such as inflation, cost increases and energy prices; the risks associated with doing business with international manufacturers and suppliers including, but not limited to, potential increases in tariffs on imported goods; our inability to operate our stores due to civil unrest and related protests or disturbances; our failure to properly hire and to retain key personnel and other qualified personnel; changes in market levels of wages; risks associated with cybersecurity events, and the timely and effective deployment, protection, and defense of computer networks and other electronic systems, including e-mail; our inability to obtain favorable lease terms for our properties; the failure to timely acquire, develop, open and operate, or the loss of, disruption or interruption in the operations of, any of our centralized distribution centers; risks associated with our lack of operations in the growing online retail marketplace; risks associated with litigation, the expense of defense, and potential for adverse outcomes; our inability to successfully develop or implement our marketing, advertising, and promotional efforts; the seasonal nature of our business; risks associated with natural disasters, whether or not caused by climate change; outbreak of viruses, global health epidemics, pandemics, or widespread illness, including the continued impact of COVID-19 and continuing or renewed regulatory responses thereto; changes in government regulations, procedures, and requirements; and our ability to service indebtedness and to comply with our financial covenants together with each of the other factors set forth under “Item 1A - Risk Factors” contained herein and in our filings with the SEC, including our Annual Report. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which such statement is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.  You are advised, however, to consult any further disclosures we make on related subjects in our public announcements and SEC filings.
 
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Overview
 
Ollie’s is a highly differentiated and fast-growing, extreme value retailer of brand name merchandise at drastically reduced prices.  Known for our assortment of products offered as “Good Stuff Cheap,” we offer customers a broad selection of brand name products, including housewares, bed and bath, food, floor coverings, health and beauty aids, books and stationery, toys, and electronics.  Our differentiated go-to market strategy is characterized by a unique, fun and engaging treasure hunt shopping experience, compelling customer value proposition and witty, humorous in-store signage and advertising campaigns.

Our Growth Strategy
 
Since the founding of Ollie’s in 1982, we have grown organically by backfilling existing markets and leveraging our brand awareness, marketing and infrastructure to expand into new markets in contiguous states.  We have expanded to 525 stores located in 31 states as of August 3, 2024.
 
Our stores are supported by four distribution centers, one each in York, PA, Commerce, GA, Lancaster, TX, and Princeton, IL. In the first quarter of fiscal 2023, the Company acquired land in Princeton, IL, for the construction of its fourth distribution center and broke ground on construction of our 615,000 square feet facility in April 2023. We completed the construction of the Princeton, IL distribution center in the second quarter of 2024 and began shipping product in July 2024. With the addition of our fourth distribution center, we believe our distribution capabilities will support up to 750 stores.
 
We have invested in our associates, infrastructure, distribution network and information systems to allow us to continue to rapidly grow our store footprint, including:
 

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growing our merchant buying team to increase our access to brand name/closeout merchandise;
 

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adding members to our senior management team;
 

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expanding the capacity of our distribution centers to their current 2.4 million square feet and constructing a fourth distribution center in Princeton, IL; and
 

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investing in information technology, accounting, and warehouse management systems.
 
Our business model has produced consistent and predictable store growth over the past several years, during both strong and weaker economic cycles.  We plan to continue to enhance our competitive positioning and drive growth in sales and profitability by executing on the following strategies:
 

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growing our store base;
 

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increasing our offerings of great bargains; and
 

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leveraging and expanding Ollie’s Army.
 
We have a proven portable, flexible, and highly profitable store model that has produced consistent financial results and returns.  Our new store model targets a store size between 25,000 to 35,000 square feet and an average initial cash investment of approximately $1.0 million, which includes store fixtures and equipment, store-level and distribution center inventory (net of payables), and pre-opening expenses.  We target new store sales of approximately $4.0 million in their first full year of operations.

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While we are focused on driving comparable store sales and managing our expenses, our revenue and profitability growth will primarily come from opening new stores.  The core elements of our business model are procuring great deals, offering extreme values to our customers and creating consistent, predictable store growth and margins.  In addition, our new stores generally open strong, immediately contributing to the growth in net sales and profitability of our business.  We plan to achieve continued net sales growth, including comparable stores sales, by adding stores to our store base and by continuing to provide quality merchandise at a value for our customers as we scale and gain more access to purchase directly from major manufacturers.  We also plan to leverage and expand our Ollie’s Army database marketing strategies.  In addition, we plan to continue to manage our selling, general, and administrative expenses (“SG&A”) by continuing to make process improvements and by maintaining our strong expense control discipline.

Our ability to grow and our results of operations may be impacted by additional factors and uncertainties, such as consumer spending habits, which are subject to macroeconomic conditions and changes in discretionary income.  Our customers’ discretionary income is primarily impacted by gas prices, wages, rising interest rates, and consumer trends and preferences, which fluctuate depending on the environment. The potential consolidation of our competitors or other changes in our competitive landscape could also impact our results of operations or our ability to grow, even though we compete with a broad range of retailers.

Our key competitive advantage is our direct buying relationships with many major manufacturers, wholesalers, distributors, brokers, and retailers for our brand name closeout products and unbranded goods.  We also augment our product mix with private label brands.  As we continue to grow, we believe our increased scale will provide us with even greater access to brand name closeout products as major manufacturers seek a single buyer to acquire an entire deal.
 
How We Assess the Performance of Our Business and Key Line Items
 
We consider a variety of financial and operating measures in assessing the performance of our business.  The key measures we use are number of new stores, net sales, comparable store sales, gross profit and gross margin, SG&A, pre-opening expenses, operating income, EBITDA and Adjusted EBITDA.
 
Number of New Stores
 
The number of new stores reflects the number of stores opened during a particular reporting period.  Before we open new stores, we incur pre-opening expenses described below under “Pre-Opening Expenses” and we make an initial investment in inventory.  We also make initial capital investments in fixtures and equipment, which we amortize over time.

We expect new store growth to be the primary driver of our sales growth.  Our initial lease terms are approximately seven years with options to renew for three to five successive five-year periods.  Our portable and predictable real estate model focuses on backfilling existing markets and entering new markets in contiguous states.  Our new stores often open with higher sales levels as a result of greater advertising and promotional spend in connection with grand opening events, but decline shortly thereafter to our new store model levels.
 
Net Sales
 
Ollie’s recognizes retail sales in its stores when merchandise is sold and the customer takes possession of the merchandise.  Also included in net sales is revenue allocated to certain redeemed discounts earned via the Ollie’s Army loyalty program and gift card breakage.  Net sales are presented net of returns and sales tax.  Net sales consist of sales from comparable stores and non-comparable stores, described below under “Comparable Store Sales.”  Growth of our net sales is primarily driven by expansion of our store base in existing and new markets.  As we continue to grow, we believe we will have greater access to brand name closeout merchandise and an increased deal selection, resulting in more potential offerings for our customers.  Net sales are impacted by product mix, merchandise mix and availability, as well as promotional activities and the spending habits of our customers. Our broad selection of offerings across diverse product categories supports growth in net sales by attracting new customers, which results in higher spending levels and frequency of shopping visits from our customers, including Ollie’s Army members.

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The spending habits of our customers are subject to macroeconomic conditions and changes in discretionary income.  Our customers’ discretionary income is primarily impacted by gas prices, wages, inflation, and consumer trends and preferences, which fluctuate depending on the environment.  However, because we offer a broad selection of merchandise at extreme values, we believe we are less impacted than other retailers by economic cycles that correspond with declines in general consumer spending habits.  We believe we also benefit from periods of increased consumer spending.
 
Comparable Store Sales
 
Comparable store sales measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of the previous year.  Comparable store sales consist of net sales from our stores beginning on the first day of the sixteenth full fiscal month following the store’s opening, which is when we believe comparability is achieved.  Comparable store sales are impacted by the same factors that impact net sales.
 
We define comparable stores to be stores that:
 

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have been remodeled while remaining open;
 

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are closed for five or fewer days in any fiscal month;
 

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are closed temporarily and relocated within their respective trade areas; and
 

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have expanded, but are not significantly different in size, within their current locations.
 
Non-comparable store sales consist of new store sales and sales for stores not open for a full 15 months.  Stores which are closed temporarily, but for more than five days in any fiscal month, are included in non-comparable store sales beginning in the fiscal month in which the temporary closure begins until the first full month of operation once the store re-opens, at which time they are included in comparable store sales.

Opening new stores is the primary component of our growth strategy and as we continue to execute on our growth strategy, we expect a significant portion of our sales growth will be attributable to non-comparable store sales.  Accordingly, comparable store sales are only one measure we use to assess the success of our growth strategy.
 
Gross Profit and Gross Margin
 
Gross profit is equal to our net sales less our cost of sales.  Cost of sales includes merchandise costs, inventory markdowns, shrinkage and transportation, distribution and warehousing costs, including depreciation. Gross margin is gross profit as a percentage of our net sales. Gross margin is a measure used by management to indicate whether we are selling merchandise at an appropriate gross profit.

In addition, our gross margin is impacted by product mix, as some products generally provide higher gross margins, by our merchandise mix and availability, and by our merchandise cost, which can vary.

Our gross profit is variable in nature and generally follows changes in net sales.  We regularly analyze the components of gross profit, as well as gross margin.  Specifically, our product margin and merchandise mix is reviewed by our merchant team and senior management, ensuring strict adherence to internal margin goals.  Our disciplined buying approach has produced consistent gross margins and we believe helps to mitigate adverse impacts on gross profit and results of operation.

The components of our cost of sales may not be comparable to the components of cost of sales or similar measures of our competitors and other retailers.  As a result, our gross profit and gross margin may not be comparable to similar data made available by our competitors and other retailers.

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Selling, General, and Administrative Expenses
 
SG&A are comprised of payroll and benefits for store, field support, and support center associates.  SG&A also include marketing and advertising expense, occupancy costs for stores and the store support center, insurance, corporate infrastructure, and other general expenses. The components of our SG&A remain relatively consistent per store and for each new store opening. The components of our SG&A may not be comparable to the components of similar measures of other retailers.  Consolidated SG&A generally increase as we grow our store base and as our net sales increase. A significant portion of our expenses is primarily fixed in nature, and we expect to continue to maintain strict discipline while carefully monitoring SG&A as a percentage of net sales.  We expect that our SG&A will continue to increase in future periods with future growth.
 
Depreciation and Amortization Expenses
 
Property and equipment are stated at original cost less accumulated depreciation and amortization. Depreciation and amortization expenses are calculated over the estimated useful lives of the related assets, or in the case of leasehold improvements, the lesser of the useful lives or the remaining term of the lease. Expenditures for additions, renewals, and betterments are capitalized; expenditures for maintenance and repairs are charged to expense as incurred. Depreciation and amortization are computed on the straight-line method for financial reporting purposes. Depreciation as it relates to our distribution centers is included within cost of sales on the condensed consolidated statements of income.
 
Pre-Opening Expenses
 
Pre-opening expenses consist of expenses of opening new stores and distribution centers, as well as store remodel and closing costs.  For opening new stores, pre-opening expenses include grand opening advertising costs, payroll expenses, travel expenses, employee training costs, rent expenses, and store setup costs.  Pre-opening expenses for new stores are expensed as they are incurred, which is typically within 30 to 45 days of opening a new store. For opening distribution centers, pre-opening expenses primarily include inventory transportation costs, employee travel expenses, and occupancy costs. Store remodel costs primarily consist of payroll expenses, travel expenses, and store setup costs expensed as they are incurred. Store closing costs primarily consist of insurance deductibles, rent, and store payroll.
 
Operating Income
 
Operating income is gross profit less SG&A, depreciation and amortization, and pre-opening expenses.  Operating income excludes net interest income or expense, and income tax expense or benefit.  We use operating income as an indicator of the productivity of our business and our ability to manage expenses.
 
EBITDA and Adjusted EBITDA
 
EBITDA and Adjusted EBITDA are key metrics used by management and our Board to assess our financial performance.  EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry.  We use Adjusted EBITDA to supplement U.S. generally accepted accounting principles (“GAAP”) measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to evaluate our performance in connection with compensation decisions and to compare our performance against that of other peer companies using similar measures.  Management believes it is useful to investors and analysts to evaluate these non-GAAP measures on the same basis as management uses to evaluate the Company’s operating results.  We believe that excluding items from operating income, net income and net income per diluted share that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude, enhances the comparability of our results and provides a better baseline for analyzing trends in our business.

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We define EBITDA as net income before net interest income or expense, depreciation and amortization expenses and income taxes.  Adjusted EBITDA represents EBITDA as further adjusted for non-cash stock-based compensation expense.  EBITDA and Adjusted EBITDA are non-GAAP measures and may not be comparable to similar measures reported by other companies.  EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. In the future we may incur expenses or charges such as those added back to calculate Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items. For further discussion of EBITDA and Adjusted EBITDA and for reconciliations of net income, the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA, see “Results of Operations.”

Factors Affecting the Comparability of our Results of Operations
 
Our results over the past two years have been affected by the following factors, which must be understood in order to assess the comparability of our period-to-period financial performance and condition.
 
Historical Results
 
Historical results are not necessarily indicative of the results to be expected for any future period.
 
Store Openings and Closings
 
We opened 9 new stores in the second quarter of fiscal 2024 and opened 6 new stores in the second quarter of fiscal 2023. We opened 13 new stores in the twenty-six weeks ended August 3, 2024 and opened 15 new stores and closed one store in the twenty-six weeks ended July 29, 2023.
 
Seasonality
 
Our business is seasonal in nature and demand is generally the highest in our fourth fiscal quarter due to the holiday sales season.  To prepare for the holiday sales season, we must order and keep in stock more merchandise than we carry during other times of the year and generally engage in additional marketing efforts.  We expect inventory levels, along with accounts payable and accrued expenses, to reach their highest levels in our third and fourth fiscal quarters in anticipation of increased net sales during the holiday sales season.  As a result of this seasonality, and generally because of variation in consumer spending habits, we experience fluctuations in net sales and working capital requirements during the year.  Because we offer a broad selection of merchandise at extreme values, we believe we are less impacted than other retailers by economic cycles which correspond with declines in general consumer spending habits, and we believe we still benefit from periods of increased consumer spending.

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