Ollie's Bargain Outlet Holdings, Inc. Q2 FY2025 earnings call

• Strong second quarter performance with new store openings, total sales, comparable store sales, and adjusted earnings all ahead of expectations. • Opened 54 new stores in the first 6 months, with 29 in Q2, and raised new store target to 85 for the year. • Ollie's Army members grew to 16.1 million, a 10.6% increase, with the revamped Ollie's Days event driving strong customer acquisition and sales. • Gross margin improved due to lower supply chain costs, higher merchandise margins, and lower shrink. • Balance sheet remains strong with total cash and investments up 30% to $460 million, and no meaningful long-term debt. • Celebrated 43rd year in business and 10th anniversary as a public company.

Net sales increased 18% to $680 million. Comparable store sales grew by 5%. Gross margin was 39.9%, an increase of 200 basis points. SG&A expense as a percentage of net sales was 25.8%, up 60 basis points. Adjusted net income for the quarter was $61 million, with adjusted earnings per share increasing 26.9% to $0.99. Adjusted EBITDA was $94 million, with a margin of 13.8%, up 90 basis points. Inventory increased 20% year-over-year primarily due to accelerating store growth and higher in-transit inventory.

• Raised full-year outlook: net sales $2.631 billion to $2.644 billion, comparable store sales growth 3% to 3.5%, gross margin ~40.3%, operating income $292 million to $298 million, adjusted net income $233 million to $237 million, and adjusted EPS $3.76 to $3.84. • Expect third quarter comp growth above the long-term algo of 1% to 2%, with fourth quarter numbers remaining unchanged. • Capital expenditures expected to be $83 million to $88 million, including build-out of former Big Lots locations.

• Medical and casualty claims impacting SG&A expenses, though these are transitory. • Uncertainties related to tariffs and the retail environment affecting deal flow and supply chain costs. • Dark rent associated with bankruptcy-acquired stores adding to preopening expenses.

Q: Congrats on a really nice quarter, and you killed the chance this morning. So Eric, could you elaborate on the improving cadence of comp as the second quarter progressed and maybe speak to trends that you've seen in August? And then with the wind in your sales, as you cited, what are you seeing from deal flow given the tariff disruption? Or maybe how would you characterize the state of the closeout industry today?

A: Eric van der Valk said deal flow is strong with multiple sources of closeouts, including retail bankruptcies and store closures creating buying opportunities. Robert F. Helm noted May started slow, June accelerated, and July was the strongest month of the quarter.

Q: Great results. I want to dig into the Ollie's Army Night from Q2. And maybe comparing it to the traditional December Ollie's Army Night, were there any differences or call-outs as it related to the sales lift or new member adds? And then just any general learnings from that event and how you might think about future events.

A: Eric van der Valk said the reimagined event was a success, driving record customer engagement and acquisition. Robert F. Helm added sales exceeded expectations, customer acquisition for the week was up almost 60%, and sales exceeded the December night despite not being a peak holiday moment.

Q: Congrats, guys. I love the energy this morning. Hoping we peak ahead to 2026 a bit and how you're thinking about store growth. And I guess more broadly, earnings power. It seems to me that $4.50 to $5 is certainly an achievable number. And maybe, Rob, can you talk about the opportunities for gross margins over the next couple of years and how you see it flowing?

A: Eric van der Valk stated commitment to 10% annual unit growth. Robert F. Helm said earnings power could see double-digit top line growth translating to mid-teens bottom line growth, with gross margin guiding above 40% for the year but not a change to long-term algo.

Q: Great quarter here. I wanted to follow up maybe a little bit off of the last question from Chuck and just asking about the SG&A side of things. And could you help us think a little bit about SG&A leverage, both in the back half and how that may feed into the long- term algorithm? And then perhaps, Eric, I could sneak in kind of a high-level one for you. The quarter was really interesting with you changing some kind of long-standing practices from Ollie's that seem to work very well. And I was wondering if you could just talk a little bit about maybe some cultural changes and the willingness to maybe look for new opportunities like that.

A: Robert F. Helm said unforeseen costs like medical and casualty are transitory and don't change long-term algo. Eric van der Valk talked about the strong business model and culture emphasizing tweaks and adjustments to stay relevant to consumers.

Q: Nice results. Just wanted to circle back on the comp. So strong result and with the May being flat and improving throughout the quarter, it sounds like the exit rate was in the high single-digit, low double-digit range. So as we just try to kind of like triangulate 3Q being in the 3% range off of an easier compare. I'm just curious, have you seen anything different quarter-to-date? Is there anything to keep in mind from a compare perspective? Or is there just a lot of quarter left?

A: Robert F. Helm said there's a lot of quarter left and they have a conservative approach, but signaling 3% growth in Q3 due to momentum.

Q: Congrats on the impressive results. I wanted to just come back to the medical and casualty costs and just see, Rob, if you could share what is the incremental cost expected both for the full year '25, but also baked into the second half of the year? And then just want to come back to Q2 in particular because you have such outsized results now over a multiyear period or 3-year stacks, 20%. Gross margin in Q2 by far the best that you've ever had in Q2. And just see, is there something that's changed in the mix of product that is driving both gross margin upside but also sales upside? I mean, I know, obviously, the Ollie's Days added 100 basis points, but any other color you can share?

A: Robert F. Helm said medical costs have a slight improvement baked into Q3 and Q4. Eric van der Valk said strong deal flow, better buying, and consolidation of the closeout market are driving gross margin and sales upside.

Q: So I wanted to ask another one on Big Lots. Just how meaningful were the differences in sales capture between warm boxes in your existing footprint? So said another way, how should we think about the Big Lots contribution going to your same-store sales versus your new store productivity? And then what are you seeing with respect to the Ollie's Army sign-ups from some of these former Big Lots customers?

A: Robert F. Helm said top line not noticeably different between organic and Big Lots openings. Eric van der Valk said accelerated acquisition in new stores, including Big Lots converted ones, with strong communication of the Ollie's Army program.

Q: This is Lauren Ng on for Simeon. I just were curious about what specifically was driving that higher merch margin. Is this maybe more a result of better buying or product mix or maybe both? And then a follow-up is just on the Q2 comp of the 5%. Can you share how much is this coming from maybe stores ramping versus your mature stores?

A: Robert F. Helm said higher merch margin due to strong deal flow, better margin on deals, lower shrink. Comp growth was broad-based across all store cohorts.

Q: Nice quarter. I want to add my congratulations. A couple of questions for you. I just wanted to follow up on the questions around the gross margin. Obviously, Q2 was a great performance. I don't know, maybe the strongest Q2 that you guys have had. Just curious as to why we should be modeling a decline in the back half. I mean it does sound like there's some conservatism in there. Curious as the impact of tariffs that -- how that might flow through, particularly as you get into the fourth quarter. And then I had a bigger picture question, which I guess is probably for you, Eric, which is I'm curious as to what's happening with your product mix. I mean, obviously, closeout opportunity is very strong. So I don't know if that percentage of the mix is up. And then what's happening with product that vendors may be making for Ollie's? I know you've had some of that ramp over time, but I think it was still small. But I'm just curious as to whether you're getting more of like consistent flow from vendors that they're using you as well in terms of like made for Ollie's kind of product.

A: Robert F. Helm said gross margin decline in back half due to conservatism and prior strong performance. Eric van der Valk said they're opportunistic in closeout buying, with no material change to contracted manufactured product flow yet.