Ollie's Bargain Outlet Holdings, Inc. (OLLI) Earnings

Management highlights

- **Sales Performance**: Comparable store sales declined 1.8%, driven by flat transactions and a decrease in average basket size. Net sales increased 9.1% to $741 million, primarily due to new store openings. - **Consumer Behavior**: The consumer remains resilient but increasingly selective. Lower-income customers ($65k or below) are prioritizing needs, shopping less frequently, and staying closer to home due to fuel costs. Higher-income customers ($100k+) continue to trade down for value. - **Assortment & Merchandising**: Management is optimizing category mix through a disciplined test-and-learn approach, expanding into high-potential areas like protein/energy products, beverages, and living room furniture. Deal flow remains strong, providing opportunities to sharpen the value proposition. - **Store Expansion**: Opened 15 new stores in Q2 and 42 in H1, with a full-year target of 75 net openings (including 2 closures from storm damage). - **Supply Chain**: Completed expansion of the Texas distribution center; Illinois facility expansion planned for completion next year. Benefits from the Princeton DC operating at scale are now being realized. - **Loyalty Programs**: 'Ollie’s Army' membership grew 13% year-over-year to over 18 million members. Successful engagement events included Ollie’s Army Night and Ollie Days.

Guidance

- **FY2026 Net Sales**: Revised downward to $2.928 billion - $2.941 billion. - **Comparable Store Sales**: Guidance updated to flat to positive 0.5% growth for the full year. Specifically, Q3 comps are expected to be flat, and Q4 comps are expected to grow by approximately 1%. - **Gross Margin**: Expected range of 41.3%. This outlook includes $28 million in IEEPA tariff refunds, partially offset by price investments. - **Operating Income**: Projected between $345 million and $350 million. - **Adjusted Net Income**: Projected between $275 million and $279 million. - **Adjusted EPS**: Projected between $4.57 and $4.65. - **Capital Allocation**: Share repurchases increased to $175 million for the full year. Capital expenditures are guided between $103 million and $113 million.

Segment performance

The transcript does not provide a breakdown of financial performance by specific product segments (e.g., Toys, Furniture). However, it notes that top-performing categories included toys, general merchandise, summer furniture, candy, and seasonal decor. Weather-sensitive categories such as lawn and garden and room air conditioning experienced significant drag, estimated at over 100 basis points on comparable store sales, due to unfavorable weather conditions.

Risks & headwinds

- **Weather Dependency**: Unfavorable weather significantly impacted weather-sensitive categories (lawn/garden, ACs), creating a difficult comparison stack and negatively affecting early-quarter sales. - **Economic Pressure**: Elevated fuel prices and economic uncertainty are causing lower-income consumers to reduce trip frequency and travel radius, particularly in regions with longer drive times (Midwest/Texas). - **Promotional Environment**: An intensified competitive promotional environment forced management to increase price investments to maintain market share and customer attention. - **Tariff Volatility**: While current tariff refunds boosted earnings, future margin stability depends on sustained tariff rates and fuel costs, which remain uncertain.

Analyst Q&A

• Q: Brad Thomas asked how consumer behavior is shifting regarding traffic and spending habits amidst higher gas prices and competitor promotions. /

  A: Eric van der Valk explained that while traffic remained flat, shopping frequency decreased slightly, especially among lower-income customers who are staying closer to home due to fuel costs. He noted that this effect is more pronounced in Western trade areas with longer drive times. Additionally, higher-income households ($100k+) continue to trade down to Ollie's for value.

• Q: Steven Shemesh requested details on the comp cadence for Q3 and the confidence behind the modest acceleration in guidance. /

  A: Robert Helm stated that August results are running ahead of the flat Q3 plan, aided by flyer timing shifts. He highlighted that transaction trends improved sequentially throughout Q2, ending positive, though weather-sensitive categories dragged early results. Consumables continue to perform well with mid-single-digit growth.

• Q: Randy Konik and Eric van der Valk discussed gross margin dynamics ex-tariffs and the strategy for balancing price investments vs. margin. /

  A: Rob Helm noted that excluding the 380 bps tariff refund benefit, gross margin would have been ~40.3-40.4%, above guidance. Eric van der Valk emphasized that Ollie's avoids high-low pricing to protect brand trust. Price investments are targeted at loyalty events and seasonally relevant items (e.g., patio furniture) to motivate customers, with a full-year investment plan of ~$15 million.

• Q: Edward Kelly asked if weak comps were due to a lack of 'newness' in closeout inventory and how Big Lots stores are performing. /

  A: Eric confirmed that closeout availability is strong and not a drag on comps; the weakness was due to weather and competition. He added that deal flow for summer seasonal items is currently very strong. Regarding Big Lots, Rob Helm reported that their second-year performance is moderating better than expected due to a soft-opening approach, showing low-to-mid single-digit declines rather than steep drops.

• Q: Anthony Chukumba asked about winter seasonal risks and whether they pose a similar threat to summer categories. /

  A: Eric clarified that winter weather impacts are far less material than summer impacts, affecting only October-November transitions briefly. Rob Helm added that the stacked comparisons for Q3 and Q4 are much more moderate than the tough Q2 stack, suggesting a smoother path forward despite the challenging prior-year base.