Lauren Ng

Lauren Ng asked for clarification on expectations for the Q4 comparable store sales, specifically how quarter-to-date trends relate to the guidance and what drives the anticipated acceleration. She also inquired about the impact of tariff-related expenses on Q3 gross margin and whether tariffs are the primary reason for the expected meaningful contraction in Q4 gross margin year-over-year.

Answer

EVP and CFO Robert Helm clarified that Q4 comps are currently running ahead of guidance quarter-to-date, not necessarily needing acceleration. Confidence stems from consistent mid-single-digit transaction trends throughout the year and a positive low single-digit average unit retail (AUR) in Q4, a shift from the negative high single-digits in Q3. He stated that Q4 gross margin was historically planned in the mid-39% range. He noted tailwinds like lower markdowns, shrink benefits, and the ability to adjust prices on tariff-impacted products, which contribute to confidence in delivering Q4 gross margin, while maintaining conservative guidance. President and CEO Eric van der Valk added that Ollie's manages price gaps and acts as a fast follower; if tariffs decrease, the market adjusts prices, and Ollie's will adjust to maintain price gaps, not expecting an unexpected positive gross margin win.

Lauren Ng asked for expectations on the Q4 comparable store sales, clarifying the acceleration mentioned, and sought to size the impact of tariff-related expenses on Q3 gross margin, also asking if Q4 gross margin contraction is primarily tariff-driven.

Answer

Robert Helm (EVP and CFO) clarified that Q4 comps are running ahead of guidance, not necessarily accelerating, driven by strong mid-single-digit transaction trends and a positive low single-digit AUR (compared to negative high single-digits in Q3). He stated that Q4 gross margin was always planned in the mid-39% range, with tailwinds from closeouts, lower markdowns/shrink, and price adjustments offsetting supply chain costs and tariffs. He did not explicitly size the Q3 tariff impact but implied it was a factor in the overall gross margin.

Lauren Ng, on for Simeon Gutman, asked what specifically drove the higher merchandise margin (better buying vs. product mix) and requested a breakdown of the 5% Q2 comp between ramping new stores and mature stores.

Answer

EVP and CFO Robert Helm attributed the higher merchandise margin primarily to strong deal flow with better-than-expected margins and lower shrink, noting that product mix was in line with expectations. Regarding the comp drivers, he stated that the company saw broad-based strength across all store cohorts and vintages, rather than it being driven by a specific group.

Lauren Ng of Morgan Stanley, on for Simeon Gutman, asked how the company's high leverage ratio is affecting its ability to execute its strategic plan and inquired about any supply chain constraints.

Answer

Interim CFO & Treasurer Tony Iskander asserted that reducing debt is the top capital priority and that the company maintains sufficient liquidity, having recently paid off its revolver. CEO Jason McDonell clarified that recent inventory reductions were driven by internal optimization efforts, not external supply issues, and were achieved while simultaneously improving in-stock rates.

Lauren Ng, on behalf of Simeon Gutman at Morgan Stanley, asked to reconcile positive category sentiment with the updated comp guidance and inquired about the gross margin cadence from the new marketplace.

Answer

CFO Matt Bilunas explained the updated guidance of -1% to +1% incorporates Q1 trends and then layers on the estimated impact from tariffs. He stated that margin benefits from the marketplace and ads are expected in the second half of the year, with the marketplace being accretive to the full-year operating income rate.

Lauren Ng, on behalf of Simeon Gutman at Morgan Stanley, asked about the drivers of the strong 5% domestic comp, questioning the split between company initiatives and market demand, and asked about future focus areas for commercial growth.

Answer

CEO Philip Daniele attributed the vast majority of the sales growth to company-specific initiatives, such as improved execution, the expansion of hubs and mega hubs, and enhanced product assortments, which are driving market share gains. He reiterated that the commercial strategy remains focused on local assortments, hub deployment, and improving delivery speed.

Lauren Ng, on behalf of Simeon Gutman at Morgan Stanley, asked about the drivers behind the strong 5% domestic comp, seeking to understand the split between company initiatives and underlying market demand, and inquired about future focus areas for the commercial business.

Answer

CEO Philip Daniele attributed the vast majority of the sales growth to company-specific initiatives, including improved execution, the rollout of hubs and mega hubs, and enhanced product assortments. For the commercial business, he reiterated the focus on improving local store assortments, deploying hubs, and refining delivery strategies to reduce fulfillment times.

Lauren Ng of Morgan Stanley, on for Simeon Gutman, asked about the drivers of the consumables segment improvement, specifically if it was ticket-driven or from new customers.

Answer

Executive Joel Anderson attributed the consumables strength to fundamental retail execution, including better in-stock positions from a new inventory system, improved inventory flow, and competitive pricing. CFO Brian LaRose added that the fresh and frozen food category was a standout performer, growing 20% year-over-year.