10-K: Ollies Bargain Outlet Holdings Reports Strong Fiscal Year, Plans Continued Expansion

Ollies Bargain Outlet Holdings, Inc. reports a strong fiscal year with increased net sales, gross profit, and Adjusted EBITDA, driven by new store growth and comparable store sales increases, while also outlining plans for continued expansion and strategic initiatives.

Summary

• Ollies Bargain Outlet Holdings, Inc. reported its Form 10-K for the fiscal year ended February 3, 2024.
• The company operates 512 stores in 30 states as of February 3, 2024.
• Ollies estimates a potential to operate as many as 1,300 stores nationwide.
• From 2019 through 2023, the store base expanded from 345 to 512 stores, representing a CAGR of 10.4%.
• Net sales increased from $1.408 billion to $2.103 billion during the same period, a CAGR of 10.5%.
• The company's loyalty program, Ollies Army, has 14.0 million members as of February 3, 2024, accounting for over 80% of net sales in 2023.
• The company is constructing its fourth distribution center in Princeton, Illinois, expected to be operational in the second half of fiscal 2024.
• Net sales increased to $2.103 billion in 2023 from $1.827 billion in 2022, an increase of 15.1%.
• Comparable store sales increased 5.7% in 2023 compared with a 3.0% decrease in 2022.
• Gross profit increased to $832.4 million in 2023 from $656.1 million in 2022, an increase of 26.9%.
• Gross margin increased to 39.6% in 2023 from 35.9% in 2022.
• Adjusted EBITDA increased to $275.2 million in 2023 from $168.9 million in 2022, an increase of 62.9%.
• Capital expenditures in 2024 are planned to be approximately $85 million.
• The company authorized a share repurchase program to repurchase up to $200.0 million of shares of its common stock through March 31, 2026.
• As of February 3, 2024, the company had approximately $85.7 million remaining under its share repurchase program.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results and expansion plans. While risks are acknowledged, the overall tone is optimistic and confident.

Positives

• The company's store base has expanded significantly, indicating successful growth and market penetration.
• The potential to operate 1,300 stores nationwide suggests substantial future growth opportunities.
• The Ollies Army loyalty program drives a significant portion of sales and encourages higher spending per visit.
• New stores open strong and achieve a quick payback period, demonstrating the effectiveness of the store model.
• The company is expanding its distribution network to support future growth.
• Net sales, gross profit, and Adjusted EBITDA have all increased, indicating strong financial performance.
• Gross margin has improved, suggesting better cost management and pricing strategies.
• The company has a share repurchase program in place, which can enhance shareholder value.

Negatives

• The company is subject to various risks, including those related to business operations, legal and regulatory issues, technology and cybersecurity, accounting and financial matters, ownership of common stock, indebtedness, and environmental, social, and governance matters.
• The company faces intense competition, which could limit growth opportunities and adversely impact financial performance.
• The company's business is seasonal, with the highest volume of net sales during the holiday season, making it vulnerable to adverse events during the fourth fiscal quarter.
• The company relies on third parties to move merchandise through ports and transport them from ports to our centralized distribution centers, which is outside of their control.

Risks

• The company may not be able to execute its opportunistic buying strategy or anticipate customer demand.
• Fluctuations in comparable store sales and results of operations could cause business performance to decline.
• Consumer confidence and spending may be reduced due to factors beyond the company's control.
• Increased competition may put negative pressure on results of operations and financial condition.
• The company may not be able to identify potential store locations and negotiate leases in line with its growth strategy.
• The company's lack of an online shopping option and an omnichannel customer experience may pose challenges to growth and customer retention.
• The company may not be able to develop and operate its distribution centers efficiently.
• External economic pressures, including inflation and transportation costs, may reduce profitability.
• Shrinkage or the loss or theft of inventory may result in material negative impacts on results of operations.
• The company may not be able to hire and retain qualified personnel.
• The company is subject to governmental laws, regulations, procedures, and requirements that can lead to substantial penalties if it fails to achieve and/or maintain compliance.
• The company may fail to maintain the security of information it holds relating to personal information or payment card data of its customers, employees, and suppliers.
• The company may not be able to timely or adequately maintain or upgrade its technology systems needed for operations.
• If the company's estimates or judgments relating to significant accounting policies prove to be incorrect, it could suffer negative financial results.
• Changes to the accounting rules or regulations could have material adverse effects on the company's results of operations.
• The company may not declare dividends on its common stock in the foreseeable future.
• The company's credit facility can limit its ability to find other sources of financing.
• The company may be unable to generate sufficient cash flow to meet debt service, which could have a material adverse effect on its business, financial condition, and results of operations.
• The company cannot guarantee that its share repurchase program will be fully consummated or that it will enhance long-term stockholder value.
• The company's business and reputation may be adversely affected by environmental, social and governance matters.

Future Outlook

The company plans to continue to drive growth in sales and profitability by growing its store base, increasing its offerings of great bargains, and leveraging and expanding Ollies Army.

Management Comments

• 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: growing our store base; increasing our offerings of great bargains; and leveraging and expanding Ollies Army.

Industry Context

The closeout industry is large, highly fragmented, and growing, fueled by the consolidation of retailers and manufacturers. Ollies competes with a diverse group of retailers, including discount, closeout, mass merchant, department, grocery, drug, convenience, hardware, variety, online, and other specialty stores.

Comparison to Industry Standards

• It is difficult to directly compare Ollies to specific companies due to its unique business model as a closeout retailer.
• However, comparable metrics can be assessed against discount retailers like Dollar General (DG) and Dollar Tree (DLTR), focusing on same-store sales growth, gross margins, and store expansion rates.
• Ollies' comparable store sales growth of 5.7% in 2023 can be benchmarked against these companies to evaluate its relative performance in attracting and retaining customers.
• Gross margin of 39.6% can be compared to the gross margins of DG and DLTR to assess Ollies' efficiency in managing costs and pricing strategies.
• The planned capital expenditures of approximately $85 million for 2024, primarily for the construction of our fourth distribution center, which is anticipated to be operational in the second half of fiscal 2024, as well as the opening of 50 new stores, store-level initiatives at our existing stores, as well as general corporate capital expenditures, including information technology can be compared to similar projects by DG and DLTR to assess the efficiency of capital allocation.

Corporate Governance

Legal Proceedings

• From time to time we are involved in claims and legal actions that arise in the ordinary course of our business.
• We cannot predict the outcome of any litigation or suit to which we are a party.
• However, we do not believe that an unfavorable decision of any of the current claims or legal actions against us, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations, liquidity or capital resources.

Related Party Transactions

• During fiscal year 2023, the Company purchased excess inventory of $1.5 million from a subsidiary of Hillman Solutions, Inc. where John Swygert, President and Chief Executive Officer of Ollies, is a member of its Board of Directors.

Stakeholder Impact

• Shareholders: The company's strong financial performance and share repurchase program are likely to positively impact shareholder value.
• Employees: The company's growth and profitability may lead to increased job security and potential for career advancement.
• Customers: The company's continued focus on providing great bargains is likely to benefit customers.
• Suppliers: The company's growth and scale provide opportunities for suppliers to expand their business.
• Creditors: The company's strong financial position and compliance with its credit facility are likely to reassure creditors.

Next Steps

• The company plans to open 50 new stores in 2024.
• The company expects the fourth distribution center in Princeton, IL to be operational in the second half of fiscal 2024.
• The company will continue to execute its share repurchase program.

Key Dates

Keywords

Ollies Bargain Outlet, retail, closeout merchandise, net sales, comparable store sales, EBITDA, store expansion, Ollies Army, distribution center, risk factors, financial performance