Ollie's Bargain Outlet (US:OLLI)2022-09-01 16:11Financial Data and Key Metrics Changes - For Q2 2022, net sales totaled $452.5 million, an increase of 8.8% from the prior year, with comparable store sales increasing by 1.2% [17] - Gross profit decreased by 11.9% to $143.6 million, and gross margin decreased by 750 basis points to 31.7% compared to 39.2% in the same period a year ago [17] - Operating income totaled $16.5 million, down from $45.7 million in the prior year, with operating margin decreasing by 730 basis points to 3.7% [18] - Adjusted net income was $13.7 million, with adjusted diluted earnings per share at $0.22 [18] - Capital expenditures totaled $14 million, compared to $8.2 million in the prior year [19] Business Line Data and Key Metrics Changes - The company opened 11 new stores and closed one, ending the quarter with 449 stores, a 9.8% year-over-year increase in store count [17] - The inventory position increased by 32.3% to $494.1 million compared to $373.6 million a year ago, driven by increased supply chain costs and the number of stores [19] Market Data and Key Metrics Changes - The closeout market remains favorable with an abundance of deals due to canceled orders, excess inventory, and supply chain disruptions [9] - The company is seeing signs of consumers trading down to seek value amidst inflationary pressures [10] Company Strategy and Development Direction - The company is focused on providing real brands at bargain prices, especially during inflationary times, and is committed to offering great deals [8] - Plans to open between 41 and 43 new stores in fiscal 2022, with a focus on returning to a long-term cadence in fiscal 2023 [12] - The company is finalizing plans to open a fourth distribution center in the Midwest in 2024 to support growth [14] Management's Comments on Operating Environment and Future Outlook - Management acknowledges several consumer headwinds due to inflation, particularly higher gas and food prices, but remains optimistic about the back half of the year [10] - The company expects gross margins to improve materially in the second half of the year due to easing supply chain expenses [10] - For the full year, total net sales are expected to be between $1.843 billion and $1.861 billion, with comparable store sales projected to decline by 2.5% to 1.5% [20] Other Important Information - The customer loyalty program, Ollie's Army, grew by 6% to 12.9 million active members, achieving over 80% sales penetration [13] - The company is in the test and learn phase of its store remodel program, with eight remodels completed and plans for approximately 30 by year-end [12] Q&A Session Summary Question: What drove the gross margin miss in Q2? - Management indicated that two-thirds of the miss was due to overall merchandise margin and one-third from supply chain issues [26] Question: Will there be new products or sharper pricing in the back half of the year? - Management expects a lot of new products and strong deals in the back half of the year [28] Question: How has the guidance changed for the back half of the year? - Most changes are expected in Q3 due to timing of securing higher-margin deals [34] Question: What is the outlook for gross margins going forward? - Management anticipates gross margins to normalize around 39.5% in Q3 and Q4 [39] Question: How is the consumer behavior shifting? - The consumer is moving away from larger ticket items and focusing more on consumables [44] Question: What is the impact of potential minimum wage increases? - An increase to $15 per hour would create significant pressure, but the gap has narrowed as the average hourly rate is around $11 [70] Question: What is the current cash versus credit payment mix? - Approximately 80% of transactions are made with plastic (credit/debit), while 20% are cash [116]