Ollie's Bargain Outlet - Q1 2021
May 28, 2020
Transcript
Operator (participant)
Good afternoon, and welcome to Ollie's Bargain Outlet conference call to discuss our financial results for the third quarter of 2020. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will follow at that time. Please be advised that reproduction of this call, in whole or in part, is not permitted without written authorization from Ollie's. As a reminder, this call is being recorded. On the call today from management are John Swygert, President and Chief Executive Officer, and Jay Stasz, Senior Vice President and Chief Financial Officer. I will turn the call over to Jean Fontana, Investor Relations, to get started. Please go ahead, ma'am.
Jean Fontana (Head of Investor Relations)
Thank you, and good afternoon, everyone. A press release covering the company's first quarter 2020 financial results was issued this afternoon, and a copy of that press release can be found on the Investor Relations section of the company's website. I want to remind everyone that management's remarks on this call may contain forward-looking statements, including, but not limited to, predictions, expectations, or estimates, and that actual results could differ materially from those mentioned on today's call. Any such items, including with respect to our future performance, should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these forward-looking statements, which speak only as of today, and we undertake no obligation to update or revise them for any new information or future events.
Factors that might affect future results may not be in our control and are discussed in our SEC filings. We encourage you to review these filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q, as well as our earnings release issued earlier today for a more detailed description of these factors. We will be referring to certain non-GAAP financial measures on today's call, such as Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per diluted share that we believe may be important to investors to assess our operating performance. Reconciliations of the most closely comparable GAAP financial measures to these non-GAAP financial measures are included on our earnings release. I will now turn the call over to John.
John Swygert (President and CEO)
Thanks, Jean, and hello, everyone. Thanks for joining our call today. We hope that you and your families are staying safe and healthy. We appreciate you joining us in what we know is a very challenging time as we all deal with the impacts of COVID-19. Our history demonstrates that Ollie's has been remarkably consistent in both good and bad economic periods. In many respects, operating in the closeout industry for over 38 years sets us up well to effectively navigate uncertain times. This quarter was unprecedented on many fronts, creating unique challenges and opportunities which our teams faced head-on. We have the know-how, the flexibility, and liquidity to manage through this crisis. This is what we do, and the results we deliver reflect the strength of our model and our core competencies.
I want to express my heartfelt thanks to the entire Ollie's family for their tireless work to ensure the continued health and safety of our customers and each other. That has been and remains our number one priority. The team's efforts and ability to rally together during these times has been nothing short of extraordinary. Our stores have remained open, and we work hard to provide a safe environment for our customers to buy what they need. Our teams had to move quickly and aggressively to meet sudden shifts in consumer demand during the quarter. So let me break this down. As we shared with you last quarter, we experienced significant sales pressure in the initial consumer reaction to COVID-19. That volatility in our sales continued in the following weeks. We responded quickly to reassure customers that we are still open and here to serve their needs.
Our marketing message was very focused and deliberate. Our stores are open, we have the goods you need at great prices, and we are taking every precaution to keep you safe. We expanded our offerings of high-demand items and sourced new products, including certain essential items unavailable in other stores, in addition to providing great deals across all our categories. These actions resulted in broad-based comp improvement across all departments. We then experienced a surge in sales in mid-April as people began to receive their stimulus monies. The rebound in our comps enabled us to end the quarter down 3.3%, a considerable improvement from trends discussed on our last call. Now, I'd like to share some insights on how we were able to move quickly to respond to the unique challenges caused by the pandemic and the resulting changes in consumer demand.
It begins with the merchant team. Our talented merchants leveraged longstanding vendor relationships and sourced from new vendors to obtain essential products for our customers. While they remain laser-focused on getting more of these necessities, they did not lose sight of opportunities across all categories. Last quarter, I had mentioned my desire to maintain more capacity in our open-to-buy, what I call dry powder, to allow us to respond to changing consumer demands and opportunistic deals. I want us to be playing offense at all times, and I think our recent sales have benefited greatly from this approach. We're chasing the business a little right now because of the significant uptick in our sales, but we're seeing lots of product availability in the marketplace, and our deal flow is strong.
That said, as we've talked, I've talked about before, it does take some time for the full impact of the disruption to manifest in our deals for us, so we expect bigger and better opportunities to come later this year. We're confident that we're in a great position to capitalize on the robust closeout environment. The second part of the equation is our supply chain. All three DCs are operating at full steam. We're processing substantially higher volumes than planned and aggressively pushing product in response to sales trends. Our DCs are handling the flow-through, and we're getting goods out to the stores to keep them stocked. Our store associates are working very hard to continue to serve our customers, adhering to required CDC guidelines for health and safety, cleaning our stores, and restocking shelves during this busy time. Turning to new stores.
We opened 17 new stores during the quarter, 19 so, 19 so far this year, all of which have been on schedule. We closed two stores, one permanently at its lease end and one temporarily due to a fire. During this pandemic, our new store openings have been more subdued, ensuring that we adhere to CDC guidelines, including social distancing. However, we are pleased with the early performance of these stores. We remain on track to open 47-49 stores this year. That said, given the disruption created by the state and local restrictions on construction and permitting due to the pandemic, there is potential for delays which could push some store openings to early next year. As our results indicate, we have the ability to navigate and perform in a difficult environment.
The first quarter represented strong performance in challenging circumstances, and the second quarter is off to a very good start. From a longer-term perspective, as things get back to normal, our key priorities and strategies will remain the same and for good reason. Our model is proven and the underlying business is sound. Before turning it over to Jay, I want to provide more detail on our current trends. Our strong finish in April has continued into May. While the spike in demand is exciting, a few words of caution are needed as to the sustainability of these heightened comp trends. While we know our business model is well suited for periods of economic downturn and uncertainty, no one can predict either the duration or the extent of this health and financial crisis, the related stimulus, and how trends will be impacted when other retailers reopen.
It's important to not get over our skis when we think about our current trends. You know us, we're disciplined about how we go about our business, and we're going to keep doing what we do, buy cheap and sell cheap. As we get past the brunt of this pandemic, we believe we are well positioned to secure great deals at great prices for our customers. I'm very pleased with how we're operating the business, very comfortable with how we are positioned as a company, and extremely proud to be part of this organization. The culture we have built at Ollie's has proven to be our most valuable asset as we continue to work through this crisis together. Our store associates, distribution centers, field management, and store support center are working diligently to safely help our customers get what they need.
I want to thank our over 9,000 team members, truly our frontline heroes, for their incredible dedication and contributions to the business, particularly during this difficult period. We are grateful for all you do. You know what I'm gonna say now. We are Ollie's. I'll now hand the call over to Jay to take you through the financial results.
Jay Stasz (SVP and CFO)
Thanks, John, and good afternoon, everyone. I also want to express my gratitude to the entire Ollie's team for their amazing dedication and teamwork during this crisis, and recognize all the frontline heroes beyond Ollie's, those in healthcare, food, production, trucking, everyone that is keeping our new way of life up and running. Thank you. We're very pleased with the results of our business despite the challenging start to the quarter. We saw a substantial shift in our sales performance, and we were able to quickly respond to the spike in consumer demand. In the first quarter, net sales increased 7.5% to $349.4 million. Comparable store sales, while volatile throughout the quarter, rebounded nicely late in the quarter and were down only 3.3%, following a 0.8% increase in the prior year.
Comp store sales consisted of an increase in average basket, offset by a decrease in transactions. We saw units per basket increase significantly as customers were making each trip count while shopping less frequently in response to shelter in place orders. Best performing categories in the quarter included those departments that offered essential items our customers were seeking, such as beauty aids, food, and housewares. Bottom-performing categories included more discretionary departments, including books, domestics, and electronics. We opened 17 stores in the quarter and closed two, ending the period with 360 stores in 25 states, an 11.1% year-over-year increase in store count. Gross profit increased 5.7% to $140.4 million, and gross margin decreased 70 basis points to 40.2%.
The decrease in gross margin is primarily due to the higher sales penetration of consumables, which generally carry below average gross margin rates and deleveraging of supply chain costs. SG&A expense increased to $89.7 million, primarily due to additional selling expenses from our new stores. Despite heightened expenses associated with operating through this pandemic, including premium pay, we managed expenses and were able to maintain an SG&A rate flat to the prior year. Pre-opening expenses decreased to $3.7 million due to the comparative timing and number of new store openings in the quarter. As a percentage of net sales, pre-opening expenses decreased 50 basis points to 1.1%. Adjusted operating income, which excludes a gain from an insurance settlement in the prior year, increased 6.9% to $43 million in the quarter.
Adjusted operating margin decreased 10 basis points to 12.3%, primarily due to the decrease in gross margin, partially offset by the reduction in pre-opening expenses as a percentage of net sales. Adjusted net income, which excludes tax benefits related to stock-based compensation and the after-tax gain from the insurance settlement in the prior year, increased 6.7% to $32.2 million, or $0.49 per diluted share, from $30.2 million or $0.46 per diluted share in the prior year. Adjusted EBITDA increased 6.6% to $49.7 million in the quarter. Inventory at the quarter end increased 4.5% over the prior year, primarily due to the new store growth and the timing of deal flow, and partially reduced by the spike in sales late in the quarter.
We worked quickly to ramp up receipts in response to the rebound in consumer demand. Today, our inventory is in good shape, our pipeline is strong, and our DCs are keeping pace with demand. Capital expenditures in the quarter totaled $12.4 million, compared with $20.1 million in the prior year quarter. Last year's expenditures included approximately $10.1 million for the construction of our new DC. At the end of the period, we had no outstanding borrowings under our $100 million revolving credit facility and $119 million in cash. Now turning to fiscal 2020. Due to heightened uncertainty associated with the pandemic, including the duration and impact on consumer demand, we are not providing fiscal 2020 earnings guidance. Forecasting in this environment is obviously difficult, but I can share some high-level thoughts on key drivers.
First, sales. Our current trends are very strong, as John mentioned. That said, we expect continued volatility given the uncertainty around a number of factors, including consumer demand, continued changes to shelter-in-place measures across regions throughout the remainder of the year, the impact of economic stimulus, and on a competitive front, the reopening of retail stores and potential for large-scale liquidation sales. In terms of gross margin, we continue to manage to our long-term goal of 40%. As we've previously stated, we had assumed our gross margin for the year would be impacted by the usual 20-30 basis points of headwind from our new Texas DC. This rate will, of course, be impacted if we experience significant changes in sales trends.
Other factors that may impact our gross margin rate would be a product mix shift in sales, as well as potential promotional pressure that might occur if we see aggressive and widespread liquidation sales. Finally, our expenses, SG&A. As you know, we always have and always will keep a tight rein on our expenses. During the first quarter, the teams did a great job controlling costs as we managed to a flat SG&A rate, despite additional COVID-19 related costs, the largest being premium pay for associates. As we've said before, our leverage point on expenses is typically about a 1-1.5 comp, so if we do better than that, we can expect some leverage. Our current plans for 2020 include the following, unchanged from what we provided on our last earnings call.
The opening of 47-49 new stores with one planned closure and one unexpected temporary closure. With regard to those store openings, we expect a more normalized cadence with 23 new stores in the first half and the remainder in the second half, with a handful pushing into early Q4. Given the practical realities created by the disruption from COVID-19, there is the potential for some of our openings to be delayed or pushed into next year. We expect capital expenditures of $30 million-$35 million, primarily for new stores, IT projects, and store-level initiatives. To date, we are not deviating from these plans, but we are actively evaluating and will respond to the marketplace as necessary. Our proven model, strong financial position, track record of navigating disruption, and long-term growth opportunities keep us excited about our future.
I'll now turn the call back to the operator to start the Q&A session. Operator?
Operator (participant)
Thank you. To ask a question, you will need to press star then one on your telephone. To withdraw your question, please press the pound key. Our first question comes from the line of Matthew Boss with JPMorgan. Your line is now open.
Matthew Boss (Equity Research Analyst)
Great, thanks, and congrats on a nice quarter and the momentum at the end of the quarter. John, maybe relative to positive low single-digit comps in the front half of March, that I know you had talked to when we entered the pandemic, is there any way that you could help size up the trends that you're seeing in May? Maybe what categories have you seen materially inflect, sounds like in the second half of April, and just your confidence in driving a positive comp for the second quarter and the back half of the year.
John Swygert (President and CEO)
Sure, Matt, with regards to the overall drivers, as you know, we did see positive comps in early March, and then we went negative right after the I think March twelfth, March thirteenth date. We did see a turn in the business when the stimulus money started to go out by April fifteenth. And the overall theme for April was people were still buying the essentials and necessities, and buying the consumable products that we do offer, and they started to dabble a little bit more broadly in certain categories through April, and we saw a nice uptick into April. And when May started, we saw a really nice spike in the business. And the business has been very, very broad-based.
All of our categories are comping positive, other than one, which is luggage, which you would expect not to be comping positive, which is a very small category that we operate in. But it's been very broad-based and very strong, so we're excited about it. But in terms of giving specific color on values or comp percentages, we're gonna stay away from that at this point in time.
Matthew Boss (Equity Research Analyst)
Great. And then a follow-up on the gross margin. How best to think about the components of gross margin in the second quarter? And then as we think about the closeout backdrop, as you see it today, what's your confidence in picking up ground in the back half of the year on the gross margin front to potentially hit that 39.7% original forecast for the year?
Jay Stasz (SVP and CFO)
Yeah, yeah, Matt, this is Jay, and I can start, and John might chime in. You know, but we had talked about it kind of on a normalized sales level, that we were targeting that 39.7%, on a full year basis. I think now, given the pressure that we've seen on Q1, if we kind of go back and layer in our normalized sales model and planning, we'd be closer on an annual basis to 39.5%.
You know, we do expect, and again, we're not giving guidance just because of the volatile nature of everything that's happened at the end of April and into May, and what could happen for the remainder of the quarter with changes in consumer demand, changes in the sheltering in place, not only in Q2, but for the rest of the year, and certainly if liquidation sales come up. But if we looked at kind of a normalized model, we would have expected an increase in Q2 in our reported margin overall, 'cause if you recall, Q2 a year ago was relatively low at 37.2%. So we would have expected to pick up-...
Against that, you know, you know, maybe we'd pick up 60-80 basis points, and we would have thought that would have been both on the merchandise margin side as well as the supply chain costs, because in Q2 a year ago, we kind of got hit on both of those. Again, kind of on our normal typical comp of zero to two, call it. But, you know, we can't really handicap what's gonna happen with the sales trends as well as the mix going forward for the remainder of Q2.
Matthew Boss (Equity Research Analyst)
Perfect.
John Swygert (President and CEO)
And the only-
Matthew Boss (Equity Research Analyst)
Yeah, go ahead.
John Swygert (President and CEO)
The only thing I would add to that is we would, as long as things remain, I'll call it, more normalized, and we don't see a real contraction on consumer spending habits or a massive breakout of COVID again in the back half of the year, and we have to close down the country, I would say that we're probably gonna be able to make up some of our margin and be in pretty good shape with some of the deals we're expecting to see on the back half of the year for sure.
Matthew Boss (Equity Research Analyst)
Perfect. And then just one housekeeping. No change to 25% incremental bottom line flow through on incremental top line dollars. Is that, is that still the way the model flows?
John Swygert (President and CEO)
The 25% on a pre-tax basis, yes.
Operator (participant)
Thank you. Our next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Your line is now open.
Brad Thomas (Managing Director)
Hi, good afternoon, John and Jay, and, congrats on the execution here in the quarter.
Jay Stasz (SVP and CFO)
Thanks, Brad.
Brad Thomas (Managing Director)
I wanted to follow up on kind of the inventory and purchasing side of things, maybe two parts. The first was, John, your comment that you've been chasing the business a little bit. Can you talk about how much that might have played a role in, you know, what trends have looked like of late? Which categories are you maybe behind in? And then as a second part, I was hoping you could talk a little bit about, you know, the cadence with which you think you will see some of this interesting closeout availability that may be coming, you know, pretty quickly down the pipeline.
John Swygert (President and CEO)
Sure. Brad, with regards to the availability of product, as we said, it sometimes takes a little bit of time to manifest itself and become available because the manufacturer has to feel a little bit of pain and have some time with that product in order to get to our pricing level. So I would say we expect to see that in the next three to six months, at the outskirts, maybe nine months, that we'll start to see a little more, a little bit more on the deal flow that becomes true closeouts that we're able to collapse on. We are starting to see some of these already, but I think the significant portions will start a little bit later on in the year. Your other question, I can't remember what you said, Brad, sorry. The cadence.
Brad Thomas (Managing Director)
Oh, with respect to, you know, sort of chasing the, chasing the business a little of late as the sales really accelerated after having been weak. You know, just where inventory stands today and which categories you feel best about your inventory and which you maybe aren't quite convincing to you.
John Swygert (President and CEO)
I would say I feel pretty good with all of our businesses right now. Everything's working very, very well. We're chasing every single department. There's really nothing that is stale or nothing that we have excess inventory in. The seasonal business has been very strong. HBA, Housewares, has been very strong. Domestics has been very strong. Everything's working very well right now. So, we're chasing the business. The merchants are having a great time buying. We're finding the position where we're just buying as much as we possibly can to bring it into the chain, and we're excited to be able to operate this way.
Brad Thomas (Managing Director)
Great. Thank you so much.
Jay Stasz (SVP and CFO)
Thanks, Brad.
Operator (participant)
Thank you. Our next question comes from the line of Peter Keith with Piper Sandler. Your line is now open.
Peter Keith (Managing Director and Senior Research Analyst)
Hey, good afternoon. Thanks for taking the question. On the closeout availability, there's been some chatter out there that the availability of consumables or essentials might start to dry up in the closeout world. I guess, some chatter that some of the larger CPG companies might be donating product to charity now instead of sending it to the liquidation or closeout channel. John, is that anything that you're starting to hear rumblings on, or it might cause the consumables mix to dip down a little bit in the coming quarter or quarters?
John Swygert (President and CEO)
We haven't heard that yet, Peter. But I had suspected that we would, you know, not necessarily from donating the product, but just from the sheer velocity, when you look, you know, in March and April, go to the grocery stores or go to any other mass merchant retailer, the shelves were wiped of any of the consumables that they had. So I would have expected that to lead to a shortage of consumable opportunities from some of these major CPG companies back half of this year. I still probably feel that way, that there could be a shortage on the consumable front.
But I will tell you, our merchants are working hard each and every day to offset and compensate for that shortage of some of that product that may not be available and sourcing other products that may be on the private label front and not necessarily the CPG label you might normally see, but we think we'll be well positioned to be able to capitalize on the need for the, I'll call it, the essentials or the consumables that people are looking for.
Peter Keith (Managing Director and Senior Research Analyst)
Okay, very good. And then, just kind of going back to last year, and the issues around cannibalization and the reverse waterfall, I would think maybe you're starting to lap some of those dynamics. Can you maybe just tee up the current perspective on either one of those headwinds and how they're starting to play out?
Jay Stasz (SVP and CFO)
Yeah, Peter, like we talked about on past calls, we did expect it to certainly start to lap that in Q1 and really be fully lapped, you know, as we got into the back half of this year. Obviously, given the environment and the dynamics, it's not something that we've really, you know, paid a lot of attention to or focused on, especially, you know, in environments like this with the earnings call. I mean, we expect it to be in the rearview mirror and not something that we'd be bringing up going forward.
Peter Keith (Managing Director and Senior Research Analyst)
Okay, sounds good, guys. Thanks a lot, and good luck.
John Swygert (President and CEO)
Thanks, Peter.
Operator (participant)
Thank you. Our next question comes from the line of Randy Konik with Jefferies. Your line is now open.
Randy Konik (Managing Director)
Yeah, can you hear me?
John Swygert (President and CEO)
We got you, Randy.
Randy Konik (Managing Director)
Hey, John, how are you?
John Swygert (President and CEO)
Good.
Randy Konik (Managing Director)
Just, just real curious from a, from a strategy perspective, as you kind of navigate through, you know, the COVID here, anything that you, that you did from a, you know, a top level executive perspective to, to, to implement some process change that helped you, you know, improve productivity or really kind of navigate, you know, even faster to these, these real-time changes that you feel that, you'll kind of implement more on a, a long-term basis at all, to kind of help the business continue to respond, react even faster as things pop up in the future? Just any thoughts there on anything you've changed process-wise?
John Swygert (President and CEO)
Randy, the answer on that is we haven't changed much. I mean, the biggest thing that we had talked about, even prior to the COVID, that my strategy was a little bit different than Mark's, in terms of working with the merchants to maintain dry powder and maintain open-to-buy, to be able to react to opportunistic deals that are currently available. This just heightens the awareness much more. Our merchant team is very, very nimble. We've always built our model to react quickly. We don't have a lot of overhead in our business. We make decisions rapidly, company-wide, to when what's the best interest for the company and the consumer. So, really no changes.
We just really got to put our skill set to work, and like I said, the merchants are reacting, and they're buying up as fast as they can all the products in the marketplace, and we're doing great with it.
Randy Konik (Managing Director)
That's great to hear. It just shows the model, you know, really shows through, shining through here. What about any kind of updated perspective you can give us on, you know, real estate performance by geography, in terms of how you're thinking about the consumers responding during the pandemic, and any type of indicators of new customer acquisition that you were able to pick up during the quarter and kind of, you know, kind of help you as we continue to go throughout the balance of the year and into next year?
Jay Stasz (SVP and CFO)
Yeah, Randy, this is Jay, and I can start on the regional performance, and John might speak to the new customer acquisition. But, you know, it's been relatively consistent by region. I think it ebbs and flows as we see shelter-in-place orders changing or evolving. So it's been fairly consistent, but you can see pockets maybe that have been open longer, starting to come down from their peaks, and you can see areas that are recently open, peaking and then, you know, maybe trending down. But ultimately, at the end of the day, when we started to see the strength in late April and into early May, for the most part, over that period of time, it's been pretty consistent.
I think in terms of new customer acquisition, I mean, certainly we are seeing new customers come into our stores, especially recently. Our trends and transactions are strong, you know, certainly at the end of the quarter and into May. So we do have new customers in the box, which is a great thing, and we're signing up those people into Ollie's Army as best we can. I mean, bear in mind that the stores are, you know, having to adhere to CDC guidelines, so we're limiting capacity, we're running every other register, and we're doing sizable volumes. So we're maybe not getting quite as many of those folks signed up as we would like, but we are definitely seeing an increase in that.
Randy Konik (Managing Director)
Super helpful. Thanks, guys.
John Swygert (President and CEO)
Thanks, Randy. Operator?
Operator (participant)
Thank you.
Scot Ciccarelli (Managing Director and Senior Equity Research Analyst)
Hello?
Operator (participant)
Scot Ciccarelli, your line is now open.
Scot Ciccarelli (Managing Director and Senior Equity Research Analyst)
Maybe we need to upgrade the systems we're using there. How are you guys?
John Swygert (President and CEO)
I think they're working, I think they're working from home, Scot, so it's a little challenging for them.
Scot Ciccarelli (Managing Director and Senior Equity Research Analyst)
They need a better signal. I know you guys don't wanna extrapolate your current results as the stimulus high, you know, starts to fade, but is it fair to assume you guys were still running comps in the negative mid- to upper-teens range through the end of March? Because it sounds like that was kind of the worst sales period for most retailers.
John Swygert (President and CEO)
Yeah, that's during, for the through, from middle March through early April, absolutely 100%, Scot.
Scot Ciccarelli (Managing Director and Senior Equity Research Analyst)
Okay, got it. And then I guess the second question is just regarding how are you guys thinking about the potential impact for, you know, for more discounted product in the marketplace overall, as, you know, like, a lot of these retailers have been closed for a couple months, they're gonna start to reopen, they're gonna have older goods. You know, some of that overflow may, you know, reach your kind of, you know, buying parameters. But, you know, do you think that, you know, that potentially, it, you know, creates a little bit of exhaustion from the customers, just because you're gonna have a lot of other people selling stuff, you know, pretty cheap, at pretty low high value rates?
John Swygert (President and CEO)
Well, and that, I think that's part of what our rationale for not providing any guidance in the remainder of Q2, is there's a lot of uncertainty when people reopen, what they're gonna do... There is a sense of comfortableness that we have is a lot of our, I'll call it first tier competitors, have been open the entire period of time. The Walmarts, the Targets, Home Depot, Lowe's, all those guys have been open.
So the hard lines retailers are not really a problem for us, and that's the crux of our business. But there'll still be some discounting in the home area for the folks who start to open up there. The clothing will be nominal, but that'll be some big discounting going on there. But that's, that's definitely part of our caution for the back half of this quarter we're currently in, and then, obviously, back half of the year. But that's just definitely something that's gonna be out there, and we think it's gonna happen.
Scot Ciccarelli (Managing Director and Senior Equity Research Analyst)
Got it. Okay. I appreciate it, guys. Thanks.
John Swygert (President and CEO)
Thanks, Scot.
Operator (participant)
Thanks, Scot.
Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is now open.
Simeon Gutman (Managing Director and Retail Equity Analyst)
Hey, everyone. It's Simeon Gutman as well. My first question, it's a little bit of a follow-up to a previous one. You mentioned that the cadence was somewhat consistent, I think, late April and May. Can you talk about some of the states that you operate in that have reopened, and we have, I don't know, a couple weeks maybe worth of trend, and if there's any nuance between the performance of that group of stores versus ones where states are still closed?
John Swygert (President and CEO)
Simeon, this is John. I would say it's been very—it's still we're, we're such an early stages, I think. I would tell you it's been very, very consistent across all of our regions. There's been a couple regions that have gotten a little warmer than others, and we've started to sell air conditioners before other regions have gotten warm yet. But other than that, the overall broad-based benefits that we're seeing are across all of our stores and all of our geographies.
Simeon Gutman (Managing Director and Retail Equity Analyst)
Got it. And then, you mentioned, right, all these factors and, you know, not providing guidance, which makes sense. It's pretty tricky at this moment. You have an internal guess regarding how stimulus has helped the business and thinking, you know, from an internal or planning perspective, right? You're selling at a pretty high rate, you're turning over at a high rate, and yet, you know, you still have to have the proper amount of inventory month to month. So I guess, how are you going through that process, and do you have your own best guess? You probably won't share with us on the stimulus benefit, but do you have a sense of what that could be?
John Swygert (President and CEO)
I probably wouldn't share that with you, as you would expect. And I would tell you, it definitely, we saw an immediate impact in the business when the stimulus checks started to come out April 15. So that and those, as you guys know, that those funds are continuing to go out into the marketplace, I believe, through August. So we definitely believe that's a benefit to all of us retailers and all of our businesses.
But in quantifying, we're not going to do that. We're looking at our open-to-buy on a weekly basis, and we're managing it four or five weeks out. So we're just continuing to make adjustments where we need to and continue to chase the business, and the merchants continue to push along as we see it. And we think we're in a great position to continue to capitalize on the opportunities that arise at the marketplace.
Simeon Gutman (Managing Director and Retail Equity Analyst)
Great. Thank you.
John Swygert (President and CEO)
Thanks, Simeon.
Operator (participant)
Thank you. Our next question comes from the line of Edward Kelly with Wells Fargo. Your line is now open.
Edward Kelly (Managing Director in Equity Research)
Yeah. Hi, guys. Good afternoon.
John Swygert (President and CEO)
Hey, Ed.
Edward Kelly (Managing Director in Equity Research)
I was just wondering if, you know, taking a step back and thinking about, you know, the opportunity that is out there associated with the disruption, you know, especially as we think about the back half of the years. You know, in the experience that you guys have in running this business, is there any way you can sort of help, you know, give us some perspective on how big this opportunity is? You know, if we think about the size of the closeout business regularly, how much could this be up? I mean, is this something we're talking about 20%? Could it double? I'm just kind of curious if you have any thoughts around how, you know, the size of the prize here.
John Swygert (President and CEO)
I don't think I can put a percentage with it, Ed, but I would tell you that this is probably something we've never seen. We experienced 2008, 2009. I think this is gonna be something even larger than that, and there's gonna be a lot more opportunities out there, and they're probably gonna be a little more immediate than what we saw between 2008, 2009. How large it's gonna be, I don't know, but there is definitely gonna be problems out there. We're starting to see cracks already, as you guys would imagine. We're seeing opportunities that are presenting themselves as we speak today. So we're excited about it, and we definitely will tell you our financial position is gonna put us in a great situation to be able to capitalize on these opportunities as they do come about, and we're excited about it.
Edward Kelly (Managing Director in Equity Research)
As you think about the opportunity and, I guess, storage capacity, I would imagine that you guys might wanna, you know, buy some of this product as much as you can, and maybe even pack it away if you can. How much capacity is there out there for you to do things like that?
John Swygert (President and CEO)
We have quite a bit of capacity, Ed. Obviously, with our new distribution center that we just opened up in Texas, which is 618,000 sq ft, and that's for us to grow into in the future, and that's fully built out already. So there's a lot of capacity from a holding perspective that we could take down quite a bit of inventory. If it was, call it, A goods that we could not pass on, that we wanted to have control of, that didn't have any dating issues, we could probably take down, I'd probably tell you we could take down $100 million of inventory pretty quickly.
Edward Kelly (Managing Director in Equity Research)
Okay. And then just last one for you. You know, there has been other players talking about, you know, the opportunity in closeouts, and, I'm just kind of curious how you're looking at competition, you know, through this, through this cycle. Or is the opportunity just so big that it's just not really-
John Swygert (President and CEO)
Yeah, I think it's the latter part. I think the opportunity is so big, it's not gonna matter. I think a lot of people do talk about getting into the closeout business, but as we've always said, that's. It's not that easy just to decide to become a closeout retailer and deal with closeout products. I think people talk about it, but when they get down to the end of the game, it's hard for them to make deals happen that makes sense for the person trying to sell it to them and then for them to handle it.
So, while they, I think they're, they're talking about it and there's opportunities for them, I think this, the pie is gonna be so big that there'll be enough for us to go around and, and be able to be fine here.
Operator (participant)
Thank you. Our next question comes from the line of Rick Nelson with Stephens. Your line is now open.
Rick Nelson (Equity Research)
Thanks, and good afternoon. Can you comment on the real estate market? You know, what you're seeing there, and if, you know, quality sites came available, you know, would you accelerate your store opening plans?
John Swygert (President and CEO)
Sure, Rick, we haven't seen a big change in commercial real estate as of yet. I think that that has-- that's a real lagging piece of the business that I think would take a couple of years to come out for us in terms of opportunities. But in terms of sites becoming available and our acceleration of store growth greater than our normal cadence that we've talked about on long term- our long-term algorithm, the answer to that would be no, we would not push the envelope. We feel that our growth rate is appropriate, it's in control, and our results will be able to deliver by growing with the white space we have. We're gonna continue to do what we do and continue to grow in the mid-teens as well as we have for a very long period of time.
That's not gonna change, even based on availability of real estate. We'll just work on, as you know, we take second-generation sites, so we'll work on them with the landlords, and we'll take them when they're appropriate for us to take.
Rick Nelson (Equity Research)
Thanks for that color. Also, I'm curious, in terms of, merchandise categories, any new business that you're pursuing, any new buyers that you've hired, to take advantage of, potential closeouts?
John Swygert (President and CEO)
No, there's no new buyers that we've hired, as it relates to this. We have our normal process of our merchant team. We're fully intact. Everyone's executing there. We definitely have chased some of the, I'll call it, the essential necessary items people were looking for, categorically, that have been pretty powerful for us. We jumped on it quickly, like we always do, and we're probably the first to market on a couple of items within our stores, that have benefited us from the consumers' demand and what they needed, during this period of time. But other than that, we've not made any real big changes. We're just replenishing the businesses that are selling and moving quickly on us.
Rick Nelson (Equity Research)
Good. Thanks, and good luck.
John Swygert (President and CEO)
Thanks, Rick.
Jay Stasz (SVP and CFO)
Thanks, Rick.
Operator (participant)
Thank you. Our next question comes from the line of Judah Frommer with Credit Suisse. Your line is now open.
Judah Frommer (Senior Equity Research Analyst)
Yeah. Hi, guys. Thanks for taking the question, and congrats on the execution here. My first one is just kind of high level. If we think about kind of the opportunity for the closeout business and Ollie in particular, do you see the opportunity born out of COVID as potentially kind of extending the market size opportunity, or does it potentially move the Ollie story forward in terms of new customers? Kind of, how are you thinking about further executing on just how big this opportunity is gonna be?
John Swygert (President and CEO)
Judah, I would say it's probably both. I see it's gonna increase at least temporarily, it's gonna increase the availability of closeouts for folks who are distressed and need to move product. And I also think that based on consumer situation with the high unemployment and the situation people find them in, I think we're gonna be a natural, along with some other discount retailers, where you'll have another trade-down impact that's gonna take place with folks coming down to the discounters in times of need. And I think we're gonna see both of those take place here.
Okay, that makes sense. And then just more on the housekeeping side. You mentioned premium pay. I don't know if you guys had disclosed exactly what you'd done there in terms of bonuses or whether it's hourly and kind of what the plan is there. And can you tie that into just general, maybe changes in the labor environment?
Sure, Judah. I'll cover the generalities and then Jay can probably get into the numerics. But we started to provide premium pay to our store associates and our distribution center associates back about March 22. And what we did, we increased the pay for the hourly full-time and hourly part-time associates in the stores, and we also gave a weekly bonus to the management staff as well. And we've continued that through today, and right now we're planning on running that for now through, I believe, June 13. And we'll evaluate it on a biweekly basis to decide if we want to or need to continue the premium pay.
That's something that as long as these frontline workers are continuing to work very hard and provide the environment for our consumers to shop in, we feel that it's imperative that we take care of them.
Jay Stasz (SVP and CFO)
Yeah, and Judah, this is Jay. In the quarter, we incurred it. It wasn't a lot. We're not incurring charges like some of these other companies, but it was about $1 million, $1.5 million of incremental expense related to the premium pay.
Judah Frommer (Senior Equity Research Analyst)
Okay, great. Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Chandni Luthra with Goldman Sachs. Your line is now open.
Chandni Luthra (Equity Research Analyst)
Hi. Thank you so much for taking my question. Nice quarter, guys. I was wondering if you could perhaps throw some more light on, you know, you talked about new customer acquisition in this environment, but is there a way to sort of, you know, throw some more color into that around the market share gains that you got just by token of your, you know, retailers, most retailers being closed? And then, what are you doing to ensure it is sticky going forward? And then, did anything change in the way you disseminated your marketing message to your customers that you have essentials and, and you're open? Just trying to assess that. Thank you.
John Swygert (President and CEO)
Sure. With regards to the overall acquisition of the new Ollie's Army customer, it's probably too early for us to actually comment on the specifics related to that. It's only been a few weeks, so I think it'd be too premature for us to say too much about that. We've got to get into that data and figure it out, and we have not done that as of yet. With regards to... What was your other question? I'm sorry.
Chandni Luthra (Equity Research Analyst)
Just dissemination of your marketing message. You know, how, what has changed there? Not just what's in the message, but how you are communicating it.
John Swygert (President and CEO)
Yeah, our message is primarily in print. That has not changed. We made a few little minor adjustments to our marketing campaign during the quarter to go a little bit more digital, but we're basically testing, working with Facebook, and doing that on a very small scale. But most of it's all been emails to our Ollie's Army customers directly, focusing on communicating in our print advertising that we have essential product for our consumer base and calling out a lot of the essential items that we have available to them.
Nothing real major has changed, and making sure they know we were open was a big deal because I don't know if when things first started, everyone knew that we were open for business, so we had to get that word out to the marketplace as well.
Chandni Luthra (Equity Research Analyst)
Got it. Thank you so much.
John Swygert (President and CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Liz Suzuki with Bank of America. Your line is now open.
Liz Suzuki (Equity Research Management)
Great. Thank you. So, you know, you mentioned new customer acquisition and, you know, that basket size also increased. I mean, I guess in the data that you're getting through Ollie's Army, are you finding that existing customers are cross-shopping in categories that they weren't shopping in before to consolidate shopping trips? Or are they mostly just buying up, you know, three bottles of shampoo instead of one, you know, just to make sure that they don't need to come in as frequently? Like, where are you seeing those increases in basket size?
John Swygert (President and CEO)
Basically, Liz, we're seeing them buy a lot of, a lot of the essential product and cross-shopping departments they already purchased from before. So it's, it's been, it's very, as we said earlier, it's been very broad-based. They're, they're buying wide within the store. In terms of dissecting that information down to the customer level, we've not, we've not had time to do that as of yet.
Liz Suzuki (Equity Research Management)
Okay, and then, sort of a follow-up on the question about closeout inventory and available categories coming up. I mean, just given the potential opportunity in categories like clothing, and other retail, categories that are seeing some real pressure and where we're seeing more, you know, broader industry bankruptcies, I mean, anything that you're thinking about in how you would position your product lineup differently based on, you know, what's coming up and what's available?
John Swygert (President and CEO)
Well, we're not gonna change our overall business strategy because we're not gonna get into fast fashion. I think the clothing that comes about, if it's basic in nature and it's not really fashion-oriented, we would definitely take a look at it. But the other fashion clothing that may come about, I'll leave that for the TJs and the Rosses to have their day at that, because that's not something we need to get involved with. But in terms of hard lines and hard goods and home goods that come about available in the marketplace, we'll be ready, willing, and able to take those deals. So we're already starting to see some of those pop up from other retailers that have canceled orders or, in fact, filed bankruptcy. So we're active right now.
Jay Stasz (SVP and CFO)
Yeah, and Liz-
Liz Suzuki (Equity Research Management)
Great.
Jay Stasz (SVP and CFO)
This is Jay. Just to, you know, add on to that, I mean, we've gotten a lot of questions about, you know, strategically how we're thinking about it and, and new categories, new buyers. But I think ultimately, like John said, we're gonna stick, to what we do. And ultimately, you know, we're gonna... The merchants do this every day, scour to get new deals. And if we get, good, strong deals, you know, in the categories, that we're historically in, that's gonna, win the day for us, both on retaining our existing customers as well as getting the new customers that we've gotten during this time to come back in.
Liz Suzuki (Equity Research Management)
Yep, makes sense. Thank you.
John Swygert (President and CEO)
Thank you, Liz.
Operator (participant)
Thank you. Our next question comes from the line of Jeremy Hamblin with Craig-Hallum Capital Group. Your line is now open.
Jeremy Hamblin (Equity Research)
Thanks. Congrats, guys. I wanted to start with, you know, the store openings, and you mentioned potential for delays. You know, in terms of getting through the crisis, if we don't have a second wave here, you know, are you seeing permitting delays or other things that are currently impacting store openings? Or is it something that is, you know, kind of hypothetical in the back half of the year?
John Swygert (President and CEO)
Jeremy, what we're seeing is, some of the local municipalities are starting to reopen, but they are very far behind, so there, there is definitely risk for some of the work that needs to get done by the landlords to turn the buildings over to us to be able to get them done on time. There's probably a handful of stores today that we've actually seen delays in, that we've had to push out into the early fourth quarter period that Jay had mentioned earlier on the call.
Those stores are definitely at risk. So, it's not that we're not ready to take the store, the leases are signed, it's just the landlord's having trouble getting the work done in certain situations. We're pushing very hard to get those all in and get those done, but we're not in control of what the local governments do from a permitting perspective. So there is work that's got to be done that just may be delayed.
Jeremy Hamblin (Equity Research)
Okay, understood. And then, just as a follow-up to that, I think you had quantified CapEx expectations in the $30 million-$35 million range. Is that kind of still the number that you're looking at?
John Swygert (President and CEO)
Yes, it is.
Jeremy Hamblin (Equity Research)
Okay. Last thing is, just in terms of store staffing levels, you know, it's such an unusual situation. Are you seeing, you know, any changes in terms of your labor matrix needing more personnel, in the stores or potentially, you know, going with fewer people in stores simply because you're trying to have less people on top of each other?
John Swygert (President and CEO)
Yeah, Jeremy, we, we've always been a low touch business with low customer service and not a lot of employees in our boxes. So with regards to our number of employees in our overall square in our boxes, we've always been pretty light. We definitely, with the uptick in sales since, you know, third week of April, we, we have been using more hours in the stores, and we've been hiring additional people, so there's, there's more man-hours needed and more bodies needed in the store, but nothing material.
We don't, we don't have, you know, 100 employees in our stores. We average anywhere from 15-25 associates in a store, so it's not that we have an overwhelming need for, for our over our, our employee base. And with the social distancing and following CDC guidelines at our stores, we're running every other register, from a spacing perspective. So we don't have a tremendous need there, but we definitely are pushing out more hours with the increased sales volumes.
Jeremy Hamblin (Equity Research)
Is any of that overtime hours?
John Swygert (President and CEO)
Oh, I'm sure.
Jeremy Hamblin (Equity Research)
Okay. And what is your overtime as a percentage of your store payroll on a typical year?
John Swygert (President and CEO)
I don't have that, but it's not material. We manage it pretty closely. We don't like to pay overtime. We like to have the right bodies in the right place at the right time.
Jeremy Hamblin (Equity Research)
Thanks, guys. Great job. Good luck.
John Swygert (President and CEO)
Thanks, Jeremy.
Jeremy Hamblin (Equity Research)
Thank you.
Operator (participant)
Thank you. This concludes today's question and answer session. I would now like to turn the call back to John Swygert for closing remarks.
John Swygert (President and CEO)
Thank you, Operator. Thanks to everyone for your participation and continued support. We look forward to sharing our second quarter results with you on our next earnings call.
Operator (participant)
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.