Ollie's Bargain Outlet Holdings, Inc. Price & Performance (OLLI)

On today's call, the company will also refer to certain non GAAP financial measures. Reconciliation of the most closely comparable GAAP financial measures to non GAAP financial measures are included in our earnings press release. With that said, I'll now turn the program over to Mr. Vanderwolck. Please go ahead, sir. Good morning. Thank you for your interest in Ollie's.

Our teams did a great job of delivering strong fourth quarter results and setting us up for accelerated growth. Our fourth quarter comparable store sales growth of 2.8 was in line with our expectations, and we delivered better than expected adjusted earnings. We are particularly pleased with these results given the compressed holiday season which required a back to back ad calendar and raised the operational complexity of the quarter. Our team executed very well, and we were ready for the surge in demand that we saw in the days leading up to Christmas. In fact, December was our strongest month of the quarter. Consumers remain under pressure and are seeking value. Many retailers are closing stores or shutting down entirely. Tariffs are creating uncertainty across the retail landscape. This all bodes well for Ollie's. As a closeout retailer, we are constantly looking for the best product opportunities in the market. The same goes for how we think about investing our capital to drive long term shareholder value. With so many retailers closing stores or going bankrupt in the past year, there are a considerable number of abandoned customers [indiscernible] real estate and talent in the marketplace. We think there's an opportunity to take on some of these assets in a manner that strengthens our competitive positioning, broadens our footprint and bolsters shareholder returns for years to come.

We recently announced an agreement to acquire 40 additional store leases of former Big Lots locations. These stores are the right size located in our existing trade areas, and have been serving a value oriented shopper for many years. In addition, they come with below market rents and long term leases that give us control of these properties for upwards of twenty to thirty years. As a result, these stores are capable of generating outsized profitability over the long term. One of the hallmarks of Ollie's is our ability to generate profitable growth and consistent returns for our shareholders. This is a very stable business model. The closeout market is massive. And there will always be merchandise available for a variety of reasons. Innovation, packaging changes, shifts in consumer demand, store closures, tariffs, uncertainty and other unforeseen events, These are just some of the drivers of the closeout market. While sources of products are constantly changing, the availability of closeouts is stable and consistent. With our flexible buying model, we are in control of what we buy and when we buy it. If a product does not meet our requirements, either from a pricing quality, or branding perspective, we simply don't buy it.

Price is certainly a very important component to our value proposition, but it's not the only component. We deliver value to our customers through through a unique and ever changing assortment of products that combine price quality and national brands. Selling good stuff cheap has been our purpose since our founding over forty two years ago, and this remains our passion and motivation to this day. In closing, let me just say how excited about the future of Ollie's. With our strong value proposition, flexible buying model, profitable and portable store concept, fortress balance sheet and talented, hardworking associates we are well positioned to continue driving profitable growth. Now on to Rob, who will discuss our fourth quarter results and guidance for the new fiscal year. Rob? Thanks, Eric, and good morning, everyone. We were pleased with our results and trends in the fourth quarter. We grew comparable store sales in line with expectations and delivered adjusted earnings ahead of our expectations. Despite facing some pressure from unfavorable weather and the liquidation of the Big Lots stores. Before we run through the numbers, it's also important to point out that there are some transitory expenses related to bankruptcy acquired stores, and our accelerated growth.

While this puts a little pressure on our near term earnings growth, it should also lead to stronger earnings power 2026 and beyond. In the quarter, net sales increased 3% to $667,000,000 driven by new stores and comparable sales growth, partially offset by the impact of last year's 50 third week. As a reminder, the 50 third week generated $34,000,000 in sales, and about $04 to earnings per share last year. Excluding the extra week of sales in the comparison, net sales increased 8.5%. Comparable store sales in the fourth quarter increased 2.8%. Driven by fairly equal increases in both transactions and basket. Our best performing categories in the quarter were housewares, food and candy, electronics, and room air. Ollie's army members increased over 8% to over 15,100,000 members in the quarter and sales to our members represented over 80% of total sales. Consistent with prior trends, we continue to drive growth in our younger customer demographic and the retention of higher income customers. We ended the quarter with five fifty nine stores, in 31 states an increase of 9% year over year. We opened 13 new stores in the quarter and 50 for the fiscal year. Our new stores continue to perform well including the former 99¢ only stores, the first wave of acquired Big Lots stores.

Gross margin increased 20 basis points to 40.7% primarily from lower supply chain costs partially offset by a slightly lower merchandise margin driven by mix. SG and A expenses of $170,000,000 included a one time expense of 5,500,000.0 for the accelerated expense resulting from the modification of existing equity awards for our Executive Chairman. Excluding this one time expense, SG and A as a percentage of net sales increased 50 basis points to 24.6% primarily from our accelerating store growth and the earlier timing of new store openings in fiscal twenty twenty five. Pre opening expenses were $5,000,000 in the quarter, Most of the increase from the earlier, most of the increase was from the earlier timing of new store openings compared to fiscal twenty twenty four. We have already opened 16 stores in fiscal twenty twenty five. This time last year, we had not even opened a single store yet. Dark rent associated with the bankruptcy acquired stores also contributed to the increase in pre opening expenses. And was $1,000,000 in the quarter. Moving down to the bottom line, adjusted net income adjusted earnings per share were $73,000,000 and $1.19 respectively.

Lastly, adjusted EBITDA was $109,000,000 and adjusted EBITDA margin was 16.4% for the quarter. Turning to the balance sheet, our financial position remains very strong. Cash and short term investments were $429,000,000 at the end of the quarter, and we had no outstanding borrowings under our revolving credit facility. Our strong balance sheet is a strategic asset for us. In 2024, we were able to deliver against our expectations while setting our path to accelerated growth in 2025. We opportunistically acquired a number of stores out of bankruptcy began building the inventory to fill these stores, and made the necessary investments in our supply chain. All while remaining committed to our share repurchase program. Inventories increased 9% year over year primarily driven by our accelerating store growth and the earlier cadence of new store openings in 2025. A per store basis, inventories were relatively flat year over year. Capital expenditures totaled $24,000,000 for the quarter, with the majority of the spending going towards the opening of new stores the maintenance of existing stores, and enhancements to our distribution centers. The Big Lots locations were generally well maintained and have required limited build out expenses to open thus far. Along with earnings today, we also announced a new $300,000,000 share buyback program.

In a separate press release. While accelerated growth is our primary focus, the short term, we remain committed to returning capital to our investors through share repurchases while balancing our strategic growth opportunities and working capital needs. Lastly, let me provide some commentary on our initial outlook and how we are thinking about the upcoming fiscal year. As most of you know, our long term annual growth algorithm is 10% unit growth comparable store sales growth of 1% to 2%, gross margin of 40%, slight SG and A expense leverage as a percentage of sales, some modest benefit from share repurchases and investment income, resulting in low double digit adjusted earnings growth. With the acquisition of the former Big Lots stores, we are uniquely positioned to accelerate our growth and gain market share. As Eric discussed, we have been building up to this moment and are well positioned to take advantage of this unique opportunity. Our current plan is to open approximately 75 new stores this year. New store openings will be more heavily weighted to the first half, with approximately 21 stores in the first quarter and 65% in the first half. The Big Lots locations will incur higher pre opening expenses because we take possession of these earlier than a typical opening.

The dark rent is expected to be around $5,000,000 for the year, or $06 to adjusted earnings per share. We have included all of this in our initial guidance, and will also quantify the dark rent expenses related to the acquired Big Lots locations as we report the quarters. Not included in our guidance any benefit to comparable store sales from the Big Lots stores closures. We remain confident that this will be a net benefit to us in fiscal twenty twenty five but it's difficult to predict how and when this will play out. The majority of the Big Lots stores are still in the process of closing, or have very recently just closed and our sample size is still relatively small. In the handful of overlapping markets where the Big Lots stores have been closed, for longer than a few weeks, our stores in these markets are comping better than our stores outside of those markets. With all of that said, initial guidance for fiscal twenty twenty five is the following. Approximately 75 new store openings, total net sales of 2.564 to $2,586,000,000 comparable store sales growth of 1% to 2% gross margin of approximately 40%. Operating income of $2.83 to $292,000,000 adjusted net income of $2.25 to $232,000,000 and adjusted net income per diluted share of 3.65 to $3.75 These estimates assume depreciation and amortization expenses of $54,000,000 inclusive of $14,000,000 within cost of goods sold preopening expenses of $21,000,000 which includes dark rent of approximately $5,000,000 related to the acquired Big Lots locations, an annual effective tax rate of 25%, excludes the tax benefits related to stock based compensation, Diluted weighted average shares outstanding of approximately 62,000,000 and capital expenditures of approximately $83,000,000 to 88,000,000 which includes the build out of the Big Lots stores.

Lastly, let me give you some thoughts on how we're thinking about the quarterly comp cadence. The first quarter got off to a sluggish start. However, we have seen momentum start to build with the change in the weather. As we get further into the year, we face tougher comparisons in June and July from the lapping the strong air conditioner sales last year. Then in the back half, the comparisons start to ease a bit from lapping the Big Lots store closures. As a result, we're thinking that comp growth could be in the lower end of the 1% to 2% range for the first half. And the midpoint, to the higher end of the range for the 1% to 2% in the back half.

Now back to Eric.

Thanks Rob. This is a very exciting time for us at Ollie's. The foundation of our success is our people. I am very appreciative and proud of what we have accomplished as a result of their hard work and commitment. Our people care deeply and find purpose in serving customers and stretching their hard earned dollars. This is especially important in this moment. We are This concludes our prepared remarks. We are now happy to answer your questions.

Certainly. And our first question for today comes from the line of Steven Zaccone from Citi. Your question please.

Hi, good morning. Thanks very much for taking my question.

I was curious for your assessment on the consumer. You kind of gave some commentary there about how trends have performed quarter to date. But if you take a step back, how do you think about the state of your consumer? How is that factored into your outlook for 2025?

Thanks, Steve. Appreciate the question. Consumers remained under pressure We thrive in this environment. Ollie's is the destination for any type of disruption, whether it's consumers under pressure, excess inventory resulting from store closures, tariff pressure, people to join our team, real estate, But back to the consumer, our consumable business continues to be a very strong business for us and a traffic driver, which is certainly indicative of where the mindset of the consumer is. The consumer continues to respond to amazing deals, whether they're in discretionary categories or nondiscretionary. [indiscernible] Ollie's value always wins. This being said, big ticket items have been a little softer. In terms of household income segments, the trade down continues. Higher income consumers, we define as over 100,000 household income. We've continue to see that trade down. And retention of those customers, we're continuing to see strong low middle income cohort at the 40,000 to $65,000 range in our low income cohort has been stable.

Okay, thanks for that. My follow-up was on gross margin. So 2024 came in better than your 40% algo. The guide is for 40% this year.

Can you just help us think through the puts and takes like can supply chain costs still be a good guy as we think about 2025?

Sure, Steve.

From a gross margin perspective, I would say that our algo is 40% Anytime that we see ourselves exceeding 40%, we reinvest in the customer and pricing to drive loyalty. From a supply chain perspective, we're planning for a mostly stable environment So supply chain costs will be flattish year over year. Aside from the benefit we get from burning in the Princeton DC that we opened last year, We have planned for shrink similar to how we planned for shrink in 2024, although we're starting to see the shrink headwinds soften a little bit over the last say 200 stores or so that we've counted, From buying getting back to IMU and a buying perspective, we expect that the buying environment could be quite good coming into the mid year and the back half. As some of this is slowdown in consumer demand. And sales for some other full price retailers, starts to play out and the tariff impacts starts to play out. So we're we're very overall, we're very comfortable with our 40% gross margin considered some small tariff impact in there in the short term. And we think we're ready to deliver for 2025.

Great. Thanks for all the detail.

Thanks, Steve. Thank you. And our next question comes from the line of Chuck Grom from Gordon Hassek. Your question please.

On the biggie front, was the headwind to sales commensurate with your plan of about 50 basis points in the fourth quarter? And more recently, now that the liquidations have passed at most most of the locations, have you seen an inflection in sales? And then just bigger picture zooming out, what have been the biggest learnings thus far on the Big Lots front from an operational and talent front. Sure, I'll take the first part, I think Eric will take the second part. The Big Lots impact was not quite what we expected. When we guided the quarter in the December, we did not anticipate or foresee the deal with Nexus falling through. So the complete closure of the chain and liquidation in January and February was not something that we planned for or guided to. And just to kind of level set everyone on what actually occurred in the quarter, We started to see some small benefit in comps in surrounding stores [indiscernible] store closures that closed in October and November. Was about 100 stores. And then we had about 100 stores that liquidated in the fourth quarter, where we didn't see as much of a headwind as we anticipated.

Because it appears that those stores were relatively starved fresh inventory for holiday. And that inventory was diverted to the go forward chain. When they made the announcement at the December, and then ensuing liquidation in January and February, we saw quite a bit of headwinds relative to that. However, January and February also overlap some really unseasonably cold weather and winter storms.

So it's very hard to to parse out what the exact impact to the liquidation was. In January and February. Now that we've cleared the liquidation and the weather is changing, we have seen quite a step change in our momentum and our comps. And still hard to parse out, So we did not embed in our guidance as you folks know, we are relatively conservative folks. We like to continue to deliver for our shareholders and our investors. So we thought it prudent to give the 1% to 2% guidance but if you take a step back on the total market share opportunity for Big it's a very unique situation where big lots didn't really close too many stores as they struggled over the last couple of years. And their last reported annual revenue base was in the range of $4,500,000,000 So when you take into account they did about 25% of their business in furniture, and you subtract that out then you subtract out the markets that we're not in, which there is about an 80% to 85% overlap on the original Big Lots fleet.

In our store base. You get to a number that's you know, a $2,700,000,000 addressable market share opportunity. And we like our chances to grab that market share as much as anyone.

Yeah, Chuck, the second part of your question on operational related to operational lineup with Big Lots employees. We've had a lot of success in recruiting leaders, in the field, store leaders and [indiscernible] Operationally, the companies were similar enough that Big Lots people, when they come into the Ollie's environment, hit the ground running. They certainly have some very great people. And we're very happy that we've been able to recruit them and have them join our team. It helps us to run fast especially in some of these new stores. That we're picking up, the former Big Lots stores we're picking up leaders and associates in those stores. It helps us to get a faster, more meaningful start as we grand open those stores. We're also finding that the conversion of Big Lots stores to an Ollie's store is even a little easier than we expected. It's going faster and potentially is you know, fairly economical. So, all things are lining up very nicely for all those Big Lots stores that are now in our pipeline to convert to Ollie's in 2025.

Great answer. That's great to hear. Just a quick follow-up. Just can you discuss the progress you've made with the rollout of the private label credit card Maybe how many states or stores now offer the card? And are You guys still there?

Jonathan?

Hello?

Yes. Here. Can you hear me?

Think I think Chuck cut out, but I think we understand the question. Around the credit card Is everyone else still on, I guess?

Yes. Everyone is still on. Go ahead and answer.

Alright. Excellent. We just lost track. So, yeah, on the on the credit card, we've rolled it out to most stores. By the end of Q1, we will have rolled it out to the chain. It's too early to report in on what it's gonna ultimately mean to our business. We love it as an enhanced to our Ollie's Army loyalty program. And we're seeing initially the basket size for an Ollie's credit card customer is fairly significantly higher than the basket size for an Ollie's Army customer who does not have a credit card. So it looks very promising. By the end Q1, we'll be rolled out to the whole chain, and we'll see what it means for the balance of the year.

Thank you. And our next question comes from the line of Alexia Morgan from Piper Sandler. Your question please.

Hi, this is Alexia Morgan on for Peter Keith at Piper Sandler. Thanks for taking our question. I was wondering if you could speak more to the dead rent dynamic on a going forward basis. You quantified dark rent as 5,000,000 in 2025, so it seems like it could impact flow through this year. So we were wondering then how to think about flow through dynamics in the model from 2025 to 2026, how it could change.

Sure, I'll take that. It's Ram. We're very excited about what accelerated growth means for 2025. And what it means for 2026 and beyond. The Big Lots store closures have given us a unique opportunity to really improve our strategic positioning broaden our footprint and boost our returns. The bankruptcy acquired rent stores require that we're on the clock for rent as soon as the store is turned over to us. That model, we have to take on average about four months of dead rent versus typical Ollie's opening, which is four to five weeks. These stores come with below market rents and long term leases, which allow for outsized profitability for this segment of stores. Given that these stores are going to open midway through the year into the back half of the year, you don't get as much flow through on earnings for the store for the year. And it is burdened with the dead rent, which makes it about 300,000 or so a store. It was a normal year. We would deliver say, low teens earnings growth when I'm talking about 2026, we'd expect 2026 to mid teens earnings growth, maybe even approaching high teens earnings growth.

And that's casting aside any market share grab or outside comp that we would deliver in '25 or '26. By virtue of acquiring the Big Lots market share aside from the real estate.

Okay. Thank you. And then maybe just one more. Were you had already talked a little bit about the big loss. Opportunity, but one more about that. How are you thinking about the new Big Lots stores opening as compared to the new 99¢ only stores which you had acquired, which seemed we're doing to to be very strong and successful right out of the gate so we were just wondering how the Big Lots stores could have a similar experience.

Sure. Alexia.

We think about them very similarly. In fact, we are more bullish on Big Lots. Conversion than we were even on a 99 conversion. And as you know, we were very bullish on '99 cent only conversion. The biggest attribute these [indiscernible] two companies provide to us is these are, I call them warm boxes. A lot of the real estate we do traditionally over many years is second generation sites that have been vacant for years. They've been vacant so long, you forget who the retailer was that was in the box. So cold sites, these are all warm. Not only are they warm, they're also warm with customers who have been conditioned. Discount customers conditioned to shop. In a store concept that's similar enough to us. And a customer cohort that's similar enough to our customers. So we have just a little bit of experience to date with Big Lots conversions. Only a handful have been converted so far, but we really like what we're seeing. On the conversions in terms of the excitement of the customer. And so the initial sales [indiscernible] we think it'll be as strong or even stronger than the 99¢ only conversions. Great.

Thank you.

Thank you. And our next question comes from the line of Matthew Boss from JPMorgan. Your question please.

Great, thanks. So Eric, maybe could you elaborate on the cadence of first quarter to date same store sales? What you saw early versus the exit rate in February and more recent trends you've seen in March? And have you embedded any lift in the full year guide for potential market share opportunity tied to Big Lots?

Sure. Great question, Matt. I'm going to ask Rob to address Hey, Matt.

How are you?

February was a pretty tough month. There were quite a bit of headwinds. There was weather. There was the big lot store closures. There was a delay early on in tax refunds, although that's caught up and now started to accelerate. And there's been widespread media reports of slowdown in consumer demand. So it's been it was quite volatile. With that being said, we've seen a very recent step change towards the February into the March which coincides with the Big Lots store closures and the change in the weather. And we have have some pretty good momentum at this moment. As of now, we are running quarter to date in line with our comp guidance for the first quarter. But we have a lot of spring selling to go. The weather hasn't quite fully changed yet. And we're pretty confident that we're going to be able to deliver. As you know, you followed the story a long time, we don't turn the registers off. [indiscernible] it. And then maybe just a follow-up. Eric, could you could you argue Ollie's could actually be a net beneficiary? Of tariffs as we tie in availability and product that you're seeing? And Rob, on the SG and A front, if we exclude the dead rent, how best to think about the comp needed to leverage SG and A in 2025?

And then multi year, what's the right comp leverage point you think for the model?

So, yeah, Matt, on tariffs, it's kind of back to how I answered the state of consumer question. Tariffs are disruptive. They're especially disruptive when they change moment to moment. We thrive on disruption. So this is a great example of disruption. I think when you look at it in the short term, we're a price follower We focus on maintaining price gaps to our competitive set, delivering strong values. We don't have a mandate to buy anything. So if it's priced right, it meets our margin profile. We buy it. If it's not priced right, we don't buy it. It's a very flexible model. So we have a business model that is really built for a situation like this there are various products that are incurring certain expenses, we could choose not to buy them, or we could follow the market in terms of price. So in terms of product availability, absolutely. When you look back on the history and our experience with tariffs, from some years going back, It does result in excess inventory. That's available to buy back. We would expect that to happen most likely in the back half of twenty twenty five if it follows the same pattern that it did back when tariffs were increased five ish years ago.

From an SG and A perspective, for 2025, we'd expect SG and A leverage to be pretty much at the midpoint of the 11% to 2% positive comp. We operate off a relatively low G and A base and we have the corporate investments in place. To be able to support our accelerated growth. There may be some some wiggling from quarter to quarter from a SG and A expense leverage flow through perspective. As we're accelerating growth and we're putting in some of those upper field investments to be able to build out new markets. But on the year, we'd expect it to be closer to the midpoint.

It's great color. Best of luck. Thanks, Mike. Thank you.

Thank you. And our next question comes from the line of Brad Thomas from KeyBanc Capital Markets. Your question please.

Hi, thanks and good morning. Maybe just a follow-up on Matt's question on tariffs. Can you talk a little bit more about how those are baked into your guidance overall? And the exposure that you have on the direct import side?

Sure, Exposure on the direct import side again, very short term. It's about 50% of our business that comes out of China, which is primarily where the pressure is, although there could be some pressure in with other countries in the future. China's certainly the biggest Again, with that 50% of our business, we're a price follower. And there's nothing in that 50% that we absolutely have to buy. So we're not overly concerned about it, but it does present a little bit of a short term challenge. Long term, we like our chances.

In terms of gross margin and guidance, we're very comfortable with our 40% for the year. We've considered some small tariffs impact in the very immediate term. We believe in that in the medium and longer term, will be a great buying opportunity and demand opportunity for us.

Great. And if I could follow-up just on on the store growth outlook, looking past 2025. Really feels like you have an incredible pipeline and opportunity in front of you with all the retailers that are closing stores in The United States right now. I guess could you just speak to your confidence in driving growth and what you think that rate growth rate will be over the next few years? Sure, Brad. Our long term algo is is 10% annual unit growth. We feel very, very good about our pipeline. Meeting and beating this target. With all the closings that you mentioned, the bankruptcies that are out there, we had a unique opportunity to accelerate growth. Good locations, below market rent, great long term leases. We're prioritizing these stores these leases that we picked up through bankruptcies. It pushed out our organic pipeline [indiscernible] early twenty twenty six, which makes for a very strong setup to 2026. So with the high number of store closures, it's increasing the availability of second generation sites that we can pursue outside of bankruptcy. And we're absolutely capitalizing on this. So we feel very good about both 2025 and 2026 at this point to exceed that 10% long term ALLO can't really speak beyond 2026, but we feel very, very good about our chances for the next next two years.

Very helpful. Thank you so much.

Thank you. And our next question comes from the line of Simeon Gutman from Morgan Your question please.

Hi, this is Lauren Ng on for Simeon.

You for taking our question. Our first one is on the ramp of the 24 stores you purchased, in the back half of 2024. You give any more color or early reads from the productivity of these boxes out of the gate? Our second question is on just the comp perspective. Is there anything to call out from the timing of the Easter shift for this year? Thank you.

Sure. This is Rob. I'll take that one. In terms of Big Lots openings, we just opened our first set of Big Lots stores in February. We opened a chunk of stores in Wisconsin, which gave us a ramp in that market very quickly and we're seeing some exciting results there. The other stores, it's really too early to give you any color, but we're fairly confident that they'll open strong as the gates for the dynamic that Eric mentioned, relative to the warm stores. For the second part of the question, can you repeat the second part of the question, Yes, the second question was just anything to call out on the Easter shift. Timing for Q1.

Oh, for sure. So the Easter shift gives us a little bit of an elongated spring selling season right up through Easter. With the weather breaking a little bit later and not quite with the spring weather, it gives us the opportunity to have an elongated spring selling season. Which we believe will bode well in our favor.

Great. Thank you.

Thank you. And our next question comes from the line of Scott Ciccarelli from Truist. Your question please.

Good morning guys. I know it's very early, but you did comment that stores near the Big Lots locations that have closed are comping better than the base. Can you give us any color on the magnitude of that performance gap?

I would say that it's it's difficult to say. There are a lot of crosswinds and cross dynamics. But I would say low single digits to mid single digits for positive mid single digits for a bunch of them. But we'll give you more color as we clear out past the complete liquidation.

Got it. And then given the acceleration of store openings in '25, are you guys building in for cannibalization? And then how do investors get comfortable that we won't see any kind of operational strains like the company had back during the Toys R Us acquisition phase.

From a cannibalization perspective, that's something that we we're pretty sophisticated on, and we've been working through for many years being a high growth retailer. We use an outside party that runs algorithms and math around customer demographics and surrounding existing stores. So that's an important dynamic when making real estate decisions, and something that we very much considered when we acquired the Big Lots store. So we view our chances to grow with very limited cannibalization is extremely high.

Got it. And on the operational front?

Yeah. On the what was the question on operations?

Operational Just like yeah. The the the I mean, I know this before you got over there. Versus IT. Sorry. Yeah. IT.

So in '19, the dynamic was a supply chain that did not have the capacity to service the accelerated growth. You'll remember back in 'nineteen, we didn't have our third distribution center in Lancaster, Texas up and running. That was the main challenge that we had in 2019. So we have capacity now with four distribution centers to service up to seven fifty stores. So we're way short of the throughput. We have more than enough throughput to service the stores that are in the pipeline now. We've also been investing our infrastructure some of this informed by the pandemic surge of business and some of the challenges that we had through the pandemic, we've been investing in our in our business to ensure that we have stability in executing as we move forward. And those investments are really paying off as we're accelerating growth in 2025.

Thank you. And our next question comes from the line of Kate McShane from Goldman Sachs. Your question please.

Hi, good morning. I wanted to follow-up on the gross margin question that was asked earlier. It sounds like merch margins were lower due to mix and the consumables mix. Was this more than what you expected? Can we expect consumables to weigh on merch margin mix into 2025?

And then just a longer term question, you discussed before maybe allowing gross margin to go a little bit higher to offset some of the inflation seen on the labor side. In SG and A that's been driving up costs. Should we not think of that up upside as a potential any longer for the longer term outlook for gross margin?

Sure. I'll answer that. It's Rob. We love the consumables business. The consumables business is a high frequency, high retention business that that helps drive the stability of our model. And those folks come in for the consumables each week but they stay and they buy the extra deal, the deals as well. So consumables is a great business for us to drive our business. From a gross margin perspective, I would say that it was probably in line with what we expected. We've continued to turn consumables faster. Throughout the course of, say, the last two years. So not a real surprise there. Looking ahead to 2025, we have considered this trend in our guidance and we're comfortable with delivering on the 40 there. In terms of rolling higher than the gross margin, we're in a moment in time where we've got a really unique opportunity grab market share. So jumping on the price and taking a little bit of extra margin and flow through doesn't seem like the right strategic plan at the moment. There'll be a time potentially, but the time is not now.

And on the SG and A front, to come back to the other part of your question, I would say that wage and employment and all of those dynamics that we saw coming out of the pandemic they've started to soften a bit. So that's putting less pressure on the SG and A rate. And less pressure on the need to go up on the gross margin. So right now, we're comfortable with the 40%. We're going to deliver the 40% this year. We're going to grab market share.

Yeah, I'd just add one comment. We continue to be focused on improving productivity. Enhancing processes, especially in stores. And we look at those enhancements as an offset to any incremental wage pressure that we may see in coming year coming couple of years?

Thank you. And our second question, you quantified that it could be $2,700,000,000 in addressable sales that were left behind here by the bankruptcy. Do you have an estimate of how much you can capture over over time or what the transfer rate could look like given your overlap with other retailers?

I'd say that we stand to benefit from the big loss closures as much as anyone. I would imagine that the mass merchants and the 5% of the 2,700,000,000.0, that's well over $100,000,000 sales opportunity for us. Which on our comp base, couple hundred basis points of positive comp.

Thank you.

Thank you. And as a reminder, ladies and gentlemen, you do have a question that Our next question comes from the line of Anthony Chukumba from Loop Capital Markets. Your question please.

Good morning. Thank you for taking my question. So I couldn't help but notice at the end of your prepared remarks the timing was a little bit off with the Ollie's chant. Is that something that investors should be concerned with?

I love it.

We really blew it in. Yeah.

Right.

Maybe we should be We've had some recent changes that we've had to work through in terms of our Executive Chairman transition. So we're working on the chess though. Got it. Fair Thank you for reporting it out. Was like a missed high five. Do better than Your words, not mine. Thanks for the call out.

So just following up on the question on consumables. I mean one thing I definitely noticed in my store business is you always have Tide Pods, right? And it seems like you're buying a bit more directly from manufacturers And I just wonder if you had any update on that, because I definitely agree with you I know I can always go in and get my Tide pods, I'd buy my Tide pods, but obviously I'm there and doing the whole treasure hunt and so that's a benefit for you. Any update there?

Sure. I mean, those businesses continue to be strong. Our size and scale are as we continue to continue to grow along with our fortress balance sheet, our big differentiators in terms of our ability to buy. A lot of CPG companies out there like the simplicity of selling all of whatever it they have to just one customer whomever that might be in in we are the biggest customer for what you consider closeouts or excess inventory and in CPG. I think the other thing to point out Anthony, is that consolidation in the closeout space, to whatever extent Big Lots played in it in a meaningful way, along with companies like Essex Bargain Hunt, We're buyers and consumers of CPG products. There's more out there now as well, which lines up really nicely to what the consumer is most interested in buying in this moment.

Got it. That's very helpful. Thank you.

Thanks, Anthony.

Thank you. And our next question comes from the line of Jeremy Hamblitt from Craig Hallum Capital Group. Your question please.

Thanks and congrats to the team on success.

I wanted to talk about category performance as we've moved into fiscal 'twenty five. You noted some choppiness in February and you've also noted some improvements here in recent weeks since the February. I wanted to get a sense for where you're seeing some of that category performance if you could get a little bit granular in terms of where maybe you saw some softness in February and where you've now some pickup here as we've moved into March.

Yeah, that is hi, Jeremy. It's a little more granular than we tend to get, like, kinda inter quarter category. Mix, but to an extent, it's following what we saw in fourth quarter. Our consumable businesses continue to be strong. The more discretionary businesses like the big ticket businesses continue to be a drag. Weather does play a role in the flow of business when you're looking at it across a quarter or even potentially two quarters. [indiscernible] lawn and garden and patio businesses when weather cooperating, those businesses are down and we certainly could see that. In the first part of the quarter when we had a normally cold inclement weather, people aren't out there in their forging on their lawns in their garden or starting to invest in furniture or things for outdoor entertaining.

The other call out to mention, we talked about a little bit earlier, is the shift of Easter. Has some advantages, but a little bit of disadvantage in that your candy business isn't as strong when you're your Easter when Easter shifts out you know, three weeks. So it it it all works out. You know, great great in the end and we've had great deal flow in in Candy. So think we're going to have a strong finish in those businesses. But the flow of the quarter changes a bit with the the very late Easter.

Got it. And then think you called out pre opening expense as $21,000,000 for the year. Wanted to see if you could provide us with a little bit more guidance in terms of how you expect that to play out, you know, or unfold over the course of the year. I think you said 65% of your store openings you expect at the first half of the year. How do you expect that preopening expense to flow?

Well, we would expect that preopening follows the store cadence. So we would expect two thirds of the pre opening expense to flow through the first half of the year. With the second quarter actually being the highest amount for the year. Third quarter will start to tail off a little bit from there. And the fourth quarter should be relatively low We are not currently planning to open any stores in the fourth quarter, so that the pre opening expenses would be lower there.

Great. For the color. Best, of luck this year.

Thank you.

Thank you. And our next question comes from the line of Mark Carton from UBS. Your question please.

Hi, this is Matt Rothway on for Mark.

I was wondering if you can talk about the $0.99 stores and when you think they might reach full sales productivity. It sounds like they've opened up really nicely. And then a quick follow-up. I couldn't hear if you've mentioned how long the lease agreements are for the Big Lots stores that you acquired. Thank you. Sure, Matt.

Terms of 99% only, it's we opened in mid middle of last year and they did open strong. As you're probably aware, we have a reverse waterfall in terms of how stores typically [indiscernible] They're stronger in their opening year, grand opening results, the excitement around around the business. Stronger initially and it falls off a bit and then we get to full maturity and you're years three or four. There's nothing, it's too early for us to really say kind of where we'll end up in 99% only stores, but we like where we're at.

In terms of real estate terms, that's one of the most important things that we look at when we look to acquire a lease through bankruptcy. If you're buying a lease want to make sure that it has sufficient term. Some of the big lot stores go out as far as twenty to thirty years. So we have great amounts of term on most of the leases that we did acquire, And that's actually why we didn't acquire more leases through the bankruptcy process. We haven't reported on today yet is approximately 600 Big Lots stores made it through the bankruptcy auction process. Are still vacant and out there for the taking. Those are for the most part stores where they didn't have term they had some other restriction that we would not be able to step into the lease. So that's what gives us the confidence in 2026 and beyond to keep the accelerated growth and potentially deliver over the 10% algo for a second year.

That's great. Thank you. Thank you. This does conclude the question and answer session as well as today's program. Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day.