Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 541K
2: EX-31.1 Certification -- §302 - SOA'02 HTML 25K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 25K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 18K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 18K
19: R1 Document and Entity Information HTML 72K
34: R2 Condensed Consolidated Statements of Income HTML 66K
(Unaudited)
50: R3 Condensed Consolidated Balance Sheets (Unaudited) HTML 102K
27: R4 Condensed Consolidated Balance Sheets (Unaudited) HTML 37K
(Parenthetical)
20: R5 Condensed Consolidated Statements of Stockholders' HTML 55K
Equity (Unaudited)
35: R6 Condensed Consolidated Statements of Cash Flows HTML 93K
(Unaudited)
51: R7 Organization and Summary of Significant Accounting HTML 42K
Policies
25: R8 Net Sales HTML 38K
21: R9 Earnings per Common Share HTML 33K
37: R10 Commitments and Contingencies HTML 47K
44: R11 Accrued Expenses and Other HTML 37K
30: R12 Debt Obligations and Financing Arrangements HTML 25K
13: R13 Income Taxes HTML 21K
38: R14 Equity Incentive Plans HTML 55K
45: R15 Subsequent Event HTML 19K
31: R16 Organization and Summary of Significant Accounting HTML 47K
Policies (Policies)
14: R17 Net Sales (Policies) HTML 19K
40: R18 Net Sales (Tables) HTML 36K
42: R19 Earnings per Common Share (Tables) HTML 29K
23: R20 Commitments and Contingencies (Tables) HTML 40K
15: R21 Accrued Expenses and Other (Tables) HTML 36K
32: R22 Equity Incentive Plans (Tables) HTML 54K
48: R23 Organization and Summary of Significant Accounting HTML 22K
Policies (Details)
24: R24 Net Sales (Details) HTML 36K
16: R25 Earnings per Common Share (Details) HTML 48K
33: R26 Commitments and Contingencies, Operating Leases HTML 72K
(Details)
49: R27 Commitments and Contingencies, Related Party HTML 22K
Leases (Details)
22: R28 Accrued Expenses and Other (Details) HTML 41K
17: R29 Debt Obligations and Financing Arrangements HTML 73K
(Details)
12: R30 Income Taxes (Details) HTML 22K
29: R31 Equity Incentive Plans, Equity Incentive Plans HTML 48K
(Details)
47: R32 Equity Incentive Plans, Stock Option Activity HTML 51K
(Details)
41: R33 Equity Incentive Plans, Weighted Average HTML 29K
Assumptions (Details)
11: R34 Equity Incentive Plans, RSU Activity (Details) HTML 51K
28: R35 Equity Incentive Plans, Stock-Based Compensation HTML 26K
Expense (Details)
46: R36 Subsequent Event (Details) HTML 25K
43: XML IDEA XML File -- Filing Summary XML 84K
26: XML XBRL Instance -- form10q_htm XML 730K
39: EXCEL IDEA Workbook of Financial Reports XLSX 44K
7: EX-101.CAL XBRL Calculations -- olli-20200502_cal XML 129K
8: EX-101.DEF XBRL Definitions -- olli-20200502_def XML 283K
9: EX-101.LAB XBRL Labels -- olli-20200502_lab XML 1.24M
10: EX-101.PRE XBRL Presentations -- olli-20200502_pre XML 614K
6: EX-101.SCH XBRL Schema -- olli-20200502 XSD 89K
36: JSON XBRL Instance as JSON Data -- MetaLinks 211± 320K
18: ZIP XBRL Zipped Folder -- 0001140361-20-012985-xbrl Zip 145K
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of each exchange on which registered
iCommon Stock, $0.001 par value
iOLLI
iThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge accelerated filer☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company i☐
Emerging growth company i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of May 29, 2020 was i65,753,287.
Organization and Summary of Significant Accounting Policies
(a)
Description of Business
Ollie’s Bargain Outlet Holdings, Inc. and subsidiaries (collectively referred to as the “Company” or “Ollie’s”) principally buys overproduced, overstocked, and closeout merchandise from manufacturers, wholesalers and other retailers. In addition, the Company augments its name-brand closeout deals with directly sourced private label products featuring names exclusive to Ollie’s in order to provide consistently value-priced goods in select key merchandise categories.
Since its first store opened in 1982, the Company has grown to i360 retail locations in i25 states as of May
2, 2020. Ollie’s Bargain Outlet retail locations are located in Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Indiana, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Virginia and West Virginia.
i
(b)
Fiscal Year
Ollie’s follows a 52/53-week fiscal year, which ends on the Saturday nearer to January 31 of the following calendar year. References to the thirteen weeks ended May 2,2020 and May 4,2019 refer to the thirteen weeks from February 2,2020 to May 2,2020 and from February 3,2019 to May 4,2019,
respectively. References to “2019” refer to the fiscal year ended February 1,2020 and references to “2020” refer to the fiscal year ending January 30,2021. Both periods consist of 52 weeks.
i
(c)
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated financial statements reflect all normal recurring adjustments which management believes are necessary to present fairly the Company’s results of operations, financial condition, and cash flows for all periods presented. The condensed consolidated balance sheets as of May 2,2020 and May 4,2019, and
the condensed consolidated statements of income, stockholders’ equity and cash flows for the thirteen weeks ended May 2,2020 and May 4,2019 have been prepared by the Company and are unaudited. The Company’s business is seasonal in nature and results of operations for the interim periods presented are not necessarily indicative of operating results for 2020 or any other period. All intercompany accounts, transactions, and balances have been eliminated in consolidation.
The Company’s balance sheet as of February 1,2020, presented herein, has been derived from the audited balance sheet included in the Company’s Annual Report on Form 10-K filed with the SEC on March 25,2020 (“Annual Report”), but does not include all disclosures required by GAAP. These financial statements should be read in conjunction with the financial statements for 2019 and
footnotes thereto included in the Annual Report.
For purposes of the disclosure requirements for segments of a business enterprise, it has been determined that the Company is comprised of ione operating segment.
i
(d)
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
i
(e)
Fair Value Disclosures
Fair value is defined as the price which the Company would receive to sell an asset or pay to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. In determining fair value, GAAP establishes a three-level hierarchy used in measuring fair value, as follows:
●
Level 1 inputs are quoted prices available for identical assets and liabilities in active markets.
●
Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets or other inputs which are observable or can be corroborated by observable market data.
●
Level 3 inputs are less observable and reflect the Company’s assumptions.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and its credit facilities. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of their short maturities. The carrying amount of the Company’s credit facilities approximates its fair value because the interest rates are adjusted regularly based on current market conditions.
Immaterial Correction of Prior Period Financial Statements
During the fourth quarter of fiscal 2019,the Company identified that it had been incorrectly recording the activity within one of its cash accounts as borrowings and repayments on its revolving credit facility within the consolidated statements of cash flows although there were no actual borrowings or repayments on the revolving credit facility during the periods. The error had no impact to total net cash used in financing activities or the Company’s condensed consolidated balance sheets or condensed consolidated statements of income. The Company corrected the presentation for the prior period in the accompanying
condensed consolidated statement of cash flows.
(g)
Impact of the Novel Coronavirus (“COVID-19”)
The outbreak of the novel coronavirus COVID-19, which was declared a global pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the U.S. and global economies. The outbreak of COVID-19 and related measures to quell the outbreak have impacted our inventory supply chain, operations and customer demand. The Company’s stores and distribution centers have continued to operate as an essential business during the COVID-19 pandemic and the Company is committed to maintaining a safe work and shopping environment. The COVID-19 pandemic could further affect the Company's operations and the operations of its suppliers
and vendors as a result of continuing shelter-in-place orders, restrictions and limitations on travel, limitations on store or facility operations up to and including closures, and other governmental, business or consumer actions. The extent to which the COVID-19 pandemic will impact the Company’s operations, liquidity or financial results in subsequent periods is uncertain, but such impact could be material.
i
(2)
Net Sales
i
Ollie’s recognizes retail sales in its stores when merchandise is sold and the customer takes possession of merchandise. Also included in net sales is revenue allocated to certain redeemed discounts earned via the Ollie’s Army loyalty program and gift card breakage. Net sales are presented net of returns and sales tax. The Company provides an allowance for estimated retail merchandise returns based on prior experience.
Revenue Recognition
i
Revenue is deferred for the Ollie’s Army loyalty program where members accumulate points that can be redeemed for discounts on future purchases. The Company has determined it has an additional performance obligation to Ollie’s Army members at the time of the initial transaction. The Company allocates the transaction price to the initial transaction and the discount awards based upon its relative standalone selling price, which considers historical redemption patterns for the award. Revenue is recognized as those discount awards are redeemed. Discount awards issued upon the achievement of specified point levels are subject to expiration. The maximum redemption period is i45
days. At the end of each fiscal period, unredeemed discount awards and accumulated points to earn a future discount award are reflected as a liability. Discount awards are combined in one homogeneous pool and are not separately identifiable. Therefore, the revenue recognized consists of discount awards redeemed that were included in the deferred revenue balance at the beginning of the period as well as discount awards issued during the current period. The following table is a reconciliation of the liability related to this program (in thousands):
Gift card breakage for gift card liabilities not subject to escheatment is recognized as revenue in proportion to the redemption of gift cards. Gift cards do not expire. The rate applied to redemptions is based upon a historical breakage rate. Gift cards are combined in one homogenous pool and are not separately identifiable. Therefore, the revenue recognized consists of gift cards that were included in the liability at the beginning of the period as well as gift cards that were issued during the period. The following table is a reconciliation of the gift card liability (in thousands):
Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding after giving effect to the potential dilution, if applicable, from the assumed exercise of stock options into shares of common stock as if those stock options were exercised and the assumed lapse of restrictions on restricted stock units.
i
The following table summarizes those effects for the diluted earnings per common share calculation (in thousands, except per share amounts):
Weighted average number of common shares outstanding – Basic
i63,061
i63,188
Incremental shares from the assumed exercise of outstanding stock options and vesting of restricted stock units
i2,181
i2,988
Weighted average number of common shares outstanding – Diluted
i65,242
i66,176
Earnings per common share – Basic
$
i0.53
$
i0.61
Earnings per common share – Diluted
$
i0.51
$
i0.59
The effect of the weighted average assumed exercise of stock options outstanding totaling i721,692 and i145,684
for the thirteen weeks ended May 2,2020 and May 4,2019, respectively, were excluded from the calculation of diluted weighted average common shares outstanding because the effect would have been antidilutive.
The effect of weighted average non-vested restricted stock units outstanding totaling i47,792 and i29,127
for the thirteen weeks ended May 2,2020 and May 4,2019, respectively, were excluded from the calculation of diluted weighted average common shares outstanding because the effect would have been antidilutive.
i
(4)
Commitments and Contingencies
Commitments
The Company accounts for leases in accordance with Accounting Standards Update (“ASU”) 2016-02,Leases, which was adopted as of February 3,2019. Pursuant to the adoption of the new standard, the Company elected the practical expedients upon transition that did not require it to reassess existing contracts to determine if they contain leases under the new definition of a lease, or to reassess historical lease classification or initial direct costs. The
Company also adopted the practical expedient to not separate lease and non-lease components for new leases after adoption of the new standard. In addition, the Company applied a policy election to exclude leases with an initial term of 12 months or less from balance sheet recognition. The Company did not adopt the hindsight practical expedient and, therefore, will continue to utilize lease terms determined under previous lease guidance.
Ollie’s generally leases its stores, offices and distribution facilities under operating leases that expire at various dates through 2034. These leases generally provide for fixed annual rentals; however, several provide for minimum annual rentals plus contingent rentals based on a percentage of annual sales. A majority of the Company’s leases also require a payment for all or a portion of common-area maintenance, insurance, real estate taxes, water and sewer costs and repairs, on a fixed or variable payment basis, the cost of which, for leases existing as of the adoption of ASU 2016-02, is charged to the related expense category rather than being accounted for as rent expense. For leases entered into after the adoption of ASU 2016-02,the Company accounts for lease components together with non-lease components as a single component for all classes of underlying assets. Most of the leases contain options to renew for ithree to ifive
successive ifive-year periods. The Company is generally not reasonably certain to exercise renewal options; therefore, the options are not considered in determining the lease term, and associated potential option payments are excluded from the lease payments. Ollie’s lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.
Store and office lease costs are classified in selling, general and administrative expenses and distribution center lease costs are classified in cost of goods sold on the condensed consolidated statements of income.
Non-cash right-of-use assets obtained in exchange for lease obligations
i18,060
i17,613
Weighted-average remaining lease term
i7.0 years
i6.0 years
Weighted-average discount rate
i4.4
%
i4.5
%
Related Party Leases
The Company has entered into ifive non-cancelable operating leases with related parties for office and store locations that expire at various dates through 2033. Ollie’s made $i0.4
million and $i0.3 million in rent payments to such related parties during each of the thirteen weeks ended May 2,2020 and May 4,2019, respectively. The lease payments are included in the operating lease disclosures
stated above.
Contingencies
From time to time the Company may be involved in claims and legal actions that arise in the ordinary course of its business. The Company cannot predict the outcome of any litigation or suit to which it is a party. However, the Company does not believe that an unfavorable decision of any of the current claims or legal actions against it, individually or in the aggregate, will have a material adverse effect on its financial position, results of operations, liquidity or capital resources.
i
(5)
Accrued Expenses and Other
i
Accrued expenses and other consists of the following (in thousands):
The Company’s prior credit facilities consisted of a $i200.0 million term loan, which was fully paid as of February 2, 2019, and a $i100.0
million revolving credit facility.
On May 22, 2019, the Company completed a transaction in which it refinanced its credit facility (the “Credit Facility”). The Credit Facility provides for a ifive-year $i100.0
million revolving credit facility, which includes a $i45.0 million sub-facility for letters of credit and a $i25.0
million sub-facility for swingline loans (the “Revolving Credit Facility”). The loans under the Revolving Credit Facility mature on iMay 22, 2024. In addition, the Company may at any time add term loan facilities or additional revolving commitments up to $i150.0
million pursuant to terms and conditions set out in the Credit Facility.
The interest rates for the Credit Facility are calculated as follows: for Base Rate Loans, the higher of the Prime Rate, the Federal Funds Effective Rate plus i0.50% or the Eurodollar Rate plus i1.0%,
plus the Applicable Margin, or, for Eurodollar Loans, the Eurodollar Rate plus the Applicable Margin. The Applicable Margin will vary from i0.00% to i0.50%
for a Base Rate Loan and i1.00% to i1.50%
for a Eurodollar Loan, based on availability under the Credit Facility. The Eurodollar Rate is subject to a i0% floor.
Under the terms of the Revolving Credit Facility, as of May 2, 2020, the Company could borrow up to i90.0% of the most recent appraised value (valued at cost, discounted for the current net orderly liquidation value) of its eligible inventory, as defined, up to $i100.0
million.
As of May 2, 2020, the Company had ino outstanding borrowings under the Revolving Credit Facility, with $i94.9
million of borrowing availability, outstanding letters of credit commitments of $i4.9 million and $i0.2 million of rent reserves. The Revolving
Credit Facility also contains a variable unused line fee ranging from i0.125% to i0.250%
per annum.
The Credit Facility is collateralized by the Company’s assets and equity and contains a financial covenant, as well as certain business covenants, including restrictions on dividend payments, which the Company must comply with during the term of the agreement. The financial covenant is a consolidated fixed charge coverage ratio test of at least i1.0
to 1.0 applicable during a covenant period, based on reference to availability. The Company was in compliance with all terms of the Credit Facility during the thirteen weeks ended May 2, 2020.
The provisions of the Credit Facility restrict all of the net assets of the Company’s consolidated subsidiaries, which constitutes all of the net assets on the Company’s condensed consolidated balance sheet as of May 2, 2020, from being used to pay any dividends or make other restricted payments to the Company without prior written consent from the financial institutions that are a party to the Credit Facility, subject to material exceptions including proforma compliance with the applicable conditions described in the Credit Facility.
i
(7)
Income Taxes
The provision for income taxes is based on the current estimate of the annual effective tax rate and is adjusted as necessary for discrete events occurring in a particular period. The effective tax rates for the thirteen weeks ended May 2,2020 and May 4,2019 were i22.3% and i5.4%,
respectively. The increased effective tax rate in the thirteen weeks ended May 2,2020 was primarily the result of a reduction in excess tax benefits related to stock-based compensation. These discrete tax benefits totaled $i1.2 million and $i8.1
million in the thirteen weeks ended May 2,2020 and May 4,2019, respectively.
i
(8)
Equity Incentive Plans
During 2012, Ollie’s established an equity incentive plan (the “2012 Plan”), under which stock options were granted to executive officers and key employees as deemed appropriate under the provisions of the 2012 Plan, with an exercise price at the fair value of the underlying stock on the date of grant. The vesting period for options granted under the 2012 Plan is ifive years (iiiii20////%
ratably per year). Options granted under the 2012 Plan are subject to employment for vesting, expire i10 years from the date of grant and are not transferable other than upon death. As of July 15, 2015, the date of the pricing of the Company’s initial public offering, no additional equity grants will be made under the 2012 Plan.
In connection with its initial public offering, the Company adopted the 2015 equity incentive plan (the “2015 Plan”) pursuant to which the Company’s Board of Directors may grant stock options, restricted shares or other awards to employees, directors and consultants. The 2015 Plan allows for the issuance of up to i5,250,000
shares. Awards will be made pursuant to agreements and may be subject to vesting and other restrictions as determined by the Board of Directors or the Compensation Committee of the Board. The Company uses authorized and unissued shares to satisfy share award exercises. As of May 2, 2020, there were i2,785,205
shares available for grant under the 2015 Plan.
The exercise price for stock options is determined at the fair value of the underlying stock on the date of grant. The vesting period for awards granted under the 2015 Plan is generally set at ifour years (iiii25///%
ratably per year). Awards are subject to employment for vesting, expire i10 years from the date of grant, and are not transferable other than upon death.
i
A summary of the Company’s stock option activity and related information for the thirteen weeks ended May 2, 2020 follows:
The weighted average grant date fair value per option for options granted during the thirteen weeks ended May 2,2020 and May 4,2019 was $i13.13
and $i24.95, respectively. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that used the weighted average assumptions in the following table:
The expected life of stock options is estimated using the “simplified method,” as the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses its historical information since its initial public offering as well as comparable public companies as a basis for its expected volatility to calculate the fair value of option grants. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option
Restricted Stock Units
Restricted stock units (“RSUs”) are issued at a value not less than the fair market value of the common stock on the date of the grant. RSUs granted to date vest ratably over three or ifour years or cliff vest in one or ifour
years. Awards are subject to employment for vesting and are not transferable other than upon death.
i
A summary of the Company’s RSU activity and related information for the thirteen weeks ended May 2, 2020 is as follows:
The compensation cost for stock options and RSUs which have been recorded within selling, general and administrative expenses related to the Company’s equity incentive plans was $i1.3 million and $i2.2
million for the thirteen weeks ended May 2, 2020 and May 4, 2019, respectively.
As of May 2, 2020, there was $i20.1 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements. That cost is expected to be recognized over a weighted average period of i3.1
years. Compensation costs related to awards are recognized using the straight-line method.
i
(9)
Subsequent Event
In December 2019, the Company announced the unexpected passing of Mark Butler, the then-Chairman of the Board, President and Chief Executive Officer of the Company. Subsequent to the first quarter of fiscal 2020, the estate of Mark Butler exercised i1.9 million of vested stock options and the
Company received $i17.1 million in proceeds.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes of Ollie’s Bargain Outlet Holdings, Inc. included in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and the related notes included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 25, 2020 (“Annual Report”). As used in this Quarterly Report on Form 10-Q, except where the context otherwise requires or where otherwise indicated, the terms “Ollie’s,” the “Company,”“we,”“our” and “us” refer to Ollie’s Bargain Outlet Holdings, Inc.
We operate on a fiscal calendar widely used by the retail industry that results in a fiscal year consisting of a 52- or 53-week period ending on the Saturday nearer to January 31 of the following year. References to “2020” refer to the 52-week period of February 2, 2020 to January 30, 2021. References to “2019” refer to the 52-week period of February 3, 2019 to February 1, 2020. References to the “first quarter of fiscal 2020” and the “first quarter of fiscal 2019” refer to the 13 weeks of February 2, 2020 to May 2, 2020 and February 3, 2019 to May
4, 2019, respectively. Historical results are not necessarily indicative of the results to be expected for any future period and results for any interim period may not necessarily be indicative of the results that may be expected for a full year.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “could,”“may,”“might,”“will,”“likely,”“anticipates,”“intends,”“plans,”“seeks,”“believes,”“estimates,”“expects,”“continues,”“projects” and similar references to future periods, prospects, financial performance and industry outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially
from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions, including, but not limited to, legislation, national trade policy, and the following: our failure to adequately procure and manage our inventory or anticipate consumer demand; changes in consumer confidence and spending; risks associated with intense competition; our failure to open new profitable stores, or successfully enter new markets, on a timely basis or at all; the risks associated with doing business with international manufacturers and suppliers including, but not limited to, potential increases in tariffs on imported goods; outbreak of viruses or widespread illness, including the continued impact of COVID-19; our inability to operate our stores due to civil unrest and related
protests or disturbances; our failure to hire and retain key personnel and other qualified personnel; our inability to obtain favorable lease terms for our properties; the failure to timely acquire, develop and open, the loss of, or disruption or interruption in the operations of, our centralized distribution centers; fluctuations in comparable store sales and results of operations, including on a quarterly basis; risks associated with our lack of operations in the growing online retail marketplace; risks associated with litigation, the expense of defense, and potential for adverse outcomes; our inability to successfully develop or implement our marketing, advertising and promotional efforts; the seasonal nature of our business; risks associated with the timely and effective deployment, protection, and defense of computer networks and other electronic systems, including e-mail; changes in government regulations, procedures and requirements; and our ability to service
indebtedness and to comply with our financial covenants together with each of the other factors set forth under “Item 1A - Risk Factors” contained herein and in our filings with the SEC, including our Annual Report. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which such statement is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. You are advised, however, to consult any further disclosures we make on related subjects in our public announcements and SEC filings.
Ollie’s is a highly differentiated and fast-growing, extreme value retailer of brand name merchandise at drastically reduced prices. Known for our assortment of products offered as “Good Stuff Cheap,” we offer customers a broad selection of brand name products, including housewares, food, books and stationery, bed and bath, flooring, toys and hardware. Our differentiated go-to market strategy is characterized by a unique, fun and engaging treasure hunt shopping experience, compelling customer value proposition and witty, humorous in-store signage and advertising campaigns.
Impact of COVID-19
The outbreak of the novel coronavirus COVID-19, which was declared a global pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the U.S. and global economies. The outbreak of COVID-19 and related measures to quell the outbreak have impacted our supply chain, operations and customer demand. The COVID-19 pandemic could further affect our operations and the operations of our suppliers and vendors as a result of shelter-in-place orders, restrictions and limitations on travel, limitations on store or facility operations up to and including closures, and other governmental, business or consumer actions.
Our stores and distribution centers have continued to operate as an essential business during the COVID-19 pandemic and we committed to maintaining a safe work and shopping environment. We experienced significant volatility in our sales during the first quarter of fiscal 2020 as store traffic and consumer demand significantly decreased in the initial consumer reaction to the COVID-19 pandemic. To address the demand, we worked quickly to reassure customers that our stores remained open and that we carried needed products at great prices and advertised our heightened store safety protocols in response to the pandemic. Our sales improved late in the quarter as we responded to changing consumer needs and benefited from increased consumer spending that coincided with economic stimulus provided under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. During the quarter we also experienced
significant shifts in our sales mix into more non-discretionary and/or consumable products, which generally carry a lower than average gross margin rate. We incurred additional SG&A expenses during the quarter in response to operating during the pandemic as we closely managed other controllable expenses.
As circumstances evolved during the first quarter of fiscal 2020, our top priorities in responding to the pandemic have been and continue to be the safety and well-being of our associates and customers. In response to COVID-19, we have taken a number of actions, including the following:
•
Implemented procedures for social distancing, cleaning, sanitation, and use of protective personal equipment in our stores, distribution centers, and store support center to adhere to the appropriate CDC and local guidelines.
•
Implemented temporary premium pay for our in-store associates, store leadership, and distribution center employees.
•
Supported our communities by raising money to provide much needed funding to local food banks through a partnership with Feeding America.
As a result of these efforts, we have incurred and expect to continue to incur higher payroll expenses at our stores and distribution facilities and incremental cleaning and safety costs at all of our facilities.
We continue to actively monitor developments that may cause us to take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our associates, customers, suppliers and stockholders.
While we are closely monitoring the economic impact of the COVID-19 pandemic on our business, the long-term impact of the pandemic is unknown at this time. We expect the impact of the COVID-19 pandemic on our financial condition, results of operations and cash flows will largely depend on the extent and duration of the pandemic, the governmental and public actions taken in response, and the effect the pandemic will have on the U.S. economy. Moreover, the significant uncertainty surrounding the COVID-19 pandemic and its effects may result in impacts or consequences that we do not anticipate at this time or that develop in unexpected ways, which makes it more challenging for management to estimate future performance of our business, including the cadence of new store openings, particularly over the near term.
Our Growth Strategy
Since the founding of Ollie’s in 1982, we have grown organically by backfilling existing markets and leveraging our brand awareness, marketing and infrastructure to expand into new markets in contiguous states. We have expanded to 360 stores located in 25 states as of May 2, 2020.
Our stores are supported by three distribution centers, one each in York, PA, Commerce, GA and our new facility in Lancaster, TX, which commenced operations in February 2020. We believe our distribution capabilities can support a range of 500 to 600 stores over the next several years.
We have invested in our associates, infrastructure, distribution network and information systems to allow us to continue to rapidly grow our store footprint, including:
•
growing our merchant buying team to increase our access to brand name/closeout merchandise;
•
adding members to our senior management team;
•
expanding the capacity of our distribution centers to their current 2.2 million square feet; and
•
investing in information technology, accounting, and warehouse management systems.
Our business model has produced consistent and predictable store growth over the past several years, during both strong and weaker economic cycles. We plan to continue to enhance our competitive positioning and drive growth in sales and profitability by executing on the following strategies:
•
growing our store base;
•
increasing our offerings of great bargains; and
•
leveraging and expanding Ollie’s Army, our customer loyalty program.
We have a proven portable, flexible, and highly profitable store model that has produced consistent financial results and returns. Our new store model targets a store size between 25,000 to 35,000 square feet and an average initial cash investment of approximately $1.0 million, which includes store fixtures and equipment, store-level and distribution center inventory (net of payables) and pre-opening expenses. We target new store sales of approximately $4 million.
While we are focused on driving comparable store sales and managing our expenses, our revenue and profitability growth will primarily come from opening new stores. The core elements of our business model are procuring great deals, offering extreme values to our customers and creating consistent, predictable store growth and margins. In addition, our new stores generally open strong, immediately contributing to the growth in net sales and profitability of our business. We plan to achieve continued net sales growth, including comparable stores sales, by adding stores to our store base and by continuing to provide quality merchandise at a value for our customers as we scale and gain more access to purchase directly from major manufacturers. We also plan to leverage and expand our Ollie’s Army database marketing strategies. In addition, we plan to continue to manage our selling, general and administrative expenses (“SG&A”) by continuing to
make process improvements and by maintaining our standard policy of reviewing our operating costs.
Our ability to grow and our results of operations may be impacted by additional factors and uncertainties, such as consumer spending habits, which are subject to macroeconomic conditions and changes in discretionary income. Our customers’ discretionary income is primarily impacted by gas prices, wages and consumer trends and preferences, which fluctuate depending on the environment. The potential consolidation of our competitors or other changes in our competitive landscape could also impact our results of operations or our ability to grow, even though we compete with a broad range of retailers.
Our key competitive advantage is our direct buying relationships with many major manufacturers, wholesalers, distributors, brokers and retailers for our brand name and closeout products and unbranded goods. We also augment our product mix with private label brands. As we continue to grow, we believe our increased scale will provide us with even greater access to brand name and closeout products as major manufacturers seek a single buyer to acquire an entire deal.
How We Assess the Performance of Our Business and Key Line Items
We consider a variety of financial and operating measures in assessing the performance of our business. The key measures we use are number of new stores, net sales, comparable store sales, gross profit and gross margin, SG&A, pre-opening expenses, operating income, EBITDA and Adjusted EBITDA.
Number of New Stores
The number of new stores reflects the number of stores opened during a particular reporting period. Before we open new stores, we incur pre-opening expenses described below under “Pre-Opening Expenses” and we make an initial investment in inventory. We also make initial capital investments in fixtures and equipment, which we amortize over time.
We expect new store growth to be the primary driver of our sales growth. Our initial lease terms are approximately seven years with options to renew for three to five successive five-year periods. Our portable and predictable real estate model focuses on backfilling existing markets and entering new markets in contiguous states. Our new stores often open with higher sales levels as a result of greater advertising and promotional spend in connection with grand opening events but decline shortly thereafter to our new store model levels.
Net Sales
Ollie’s recognizes retail sales in its stores when merchandise is sold and the customer takes possession of the merchandise. Also included in net sales is revenue allocated to certain redeemed discounts earned via the Ollie’s Army loyalty program and gift card breakage. Net sales are presented net of returns and sales tax. Net sales consist of sales from comparable stores and non-comparable stores, described below under “Comparable Store Sales.” Growth of our net sales is primarily driven by expansion of our store base in existing and new markets. As we continue to grow, we believe we will have greater access to brand name and closeout merchandise and an increased deal selection, resulting in more potential offerings for our customers. Net sales are impacted by product mix, merchandise mix and availability, as well as promotional activities and the spending habits of our customers. Our broad selection of offerings across diverse product categories
supports growth in net sales by attracting new customers, which results in higher spending levels and frequency of shopping visits from our customers, including Ollie’s Army members.
The spending habits of our customers are subject to macroeconomic conditions and changes in discretionary income. Our customers’ discretionary income is primarily impacted by gas prices, wages, and consumer trends and preferences, which fluctuate depending on the environment. However, because we offer a broad selection of merchandise at extreme values, we believe we are less impacted than other retailers by economic cycles. These cycles correspond with declines in general consumer spending habits and we benefit from periods of increased consumer spending.
Comparable Store Sales
Comparable store sales measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of the previous year. Comparable store sales consists of net sales from our stores beginning on the first day of the sixteenth full fiscal month following the store’s opening, which is when we believe comparability is achieved. Comparable store sales are impacted by the same factors that impact net sales.
We define comparable stores to be stores that:
•
have been remodeled while remaining open;
•
are closed for five or fewer days in any fiscal month;
•
are closed temporarily and relocated within their respective trade areas; and
•
have expanded, but are not significantly different in size, within their current locations.
Non-comparable store sales consist of new store sales and sales for stores not open for a full 15 months. Stores which are closed temporarily, but for more than five days in any fiscal month, are included in non-comparable store sales beginning in the fiscal month in which the temporary closure begins until the first full month of operation once the store re-opens, at which time they are included in comparable store sales.
Opening new stores is the primary component of our growth strategy and as we continue to execute on our growth strategy, we expect a significant portion of our sales growth will be attributable to non-comparable store sales. Accordingly, comparable store sales are only one measure we use to assess the success of our growth strategy.
Gross Profit and Gross Margin
Gross profit is equal to our net sales less our cost of sales. Cost of sales includes merchandise costs, inventory markdowns, shrinkage and transportation, distribution and warehousing costs, including depreciation. Gross margin is gross profit as a percentage of our net sales. Gross margin is a measure used by management to indicate whether we are selling merchandise at an appropriate gross profit.
In addition, our gross margin is impacted by product mix, as some products generally provide higher gross margins, by our merchandise mix and availability, and by our merchandise cost, which can vary.
Our gross profit is variable in nature and generally follows changes in net sales. We regularly analyze the components of gross profit, as well as gross margin. Specifically, our product margin and merchandise mix is reviewed by our merchant team and senior management, ensuring strict adherence to internal margin goals. Our disciplined buying approach has produced consistent gross margins and we believe helps to mitigate adverse impacts on gross profit and results of operation.
The components of our cost of sales may not be comparable to the components of cost of sales or similar measures of our competitors and other retailers. As a result, our gross profit and gross margin may not be comparable to similar data made available by our competitors and other retailers.
Selling, General and Administrative Expenses
SG&A are comprised of payroll and benefits for store, field support and support center associates. SG&A also include marketing and advertising, occupancy, utilities, supplies, credit card processing fees, insurance and professional services. The components of our SG&A remain relatively consistent per store and for each new store opening. The components of our SG&A may not be comparable to the components of similar measures of other retailers. Consolidated SG&A generally increase as we grow our store base and as our net sales increase. A significant portion of our expenses is primarily fixed in nature, and we expect to continue to maintain strict discipline while carefully monitoring SG&A as a percentage of net sales. We expect that our SG&A will continue to increase in future periods with future growth.
Depreciation and Amortization Expenses
Property and equipment are stated at original cost less accumulated depreciation and amortization. Depreciation and amortization are calculated over the estimated useful lives of the related assets, or in the case of leasehold improvements, the lesser of the useful lives or the remaining term of the lease. Expenditures for additions, renewals, and betterments are capitalized; expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed on the straight-line method for financial reporting purposes. Depreciation as it relates to our distribution centers is included within cost of sales on the condensed consolidated statements of income.
Pre-Opening Expenses
Pre-opening expenses consist of expenses of opening new stores and distribution centers, as well as store closing costs. For opening new stores, pre-opening expenses include grand opening advertising costs, payroll expenses, travel expenses, employee training costs, rent expenses and store setup costs. Pre-opening expenses for new stores are expensed as they are incurred, which is typically within 30 to 45 days of opening a new store. For opening distribution centers, pre-opening expenses primarily include inventory transportation costs, employee travel expenses and occupancy costs. Store closing costs primarily consist of insurance deductibles, rent and store payroll.
Operating income is gross profit less SG&A, depreciation and amortization and pre-opening expenses. Operating income excludes net interest income or expense and income tax expense. We use operating income as an indicator of the productivity of our business and our ability to manage expenses.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are key metrics used by management and our Board to assess our financial performance. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. We use Adjusted EBITDA to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to evaluate our performance in connection with compensation decisions and to compare our performance against that of other peer companies using similar measures. Management believes it is useful to investors and analysts to evaluate these non-GAAP measures on the same basis as management uses to evaluate the Company’s operating results. We believe that excluding items from operating income, net income and net income per diluted share that may not be indicative
of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude, enhances the comparability of our results and provides a better baseline for analyzing trends in our business.
We define EBITDA as net income before net interest income or expense, depreciation and amortization expenses and income taxes. Adjusted EBITDA represents EBITDA as further adjusted for non-cash stock-based compensation expense and the gain from an insurance settlement. EBITDA and Adjusted EBITDA are non-GAAP measures and may not be comparable to similar measures reported by other companies. EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. In the future we may incur expenses or charges such as those added back to calculate Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items. For further discussion of EBITDA and Adjusted EBITDA and for reconciliations of EBITDA and Adjusted EBITDA to net income, the most directly comparable
GAAP measure, see “Results of Operations.”
Factors Affecting the Comparability of our Results of Operations
Our results over the past two years have been affected by the following factors, which must be understood in order to assess the comparability of our period-to-period financial performance and condition.
Historical Results
Historical results are not necessarily indicative of the results to be expected for any future period.
Store Openings
We opened 17 new stores and closed two stores in the first quarter of fiscal 2020 and opened 21 new stores in the first quarter of fiscal 2019. In connection with these store openings and closings, we incurred pre-opening expenses of $3.7 million and $5.2 million in the respective periods.
Our business is seasonal in nature and demand is generally the highest in our fourth fiscal quarter due to the holiday sales season. To prepare for the holiday sales season, we must order and keep in stock more merchandise than we carry during other times of the year and generally engage in additional marketing efforts. We expect inventory levels, along with accounts payable and accrued expenses, to reach their highest levels in our third and fourth fiscal quarters in anticipation of increased net sales during the holiday sales season. As a result of this seasonality, and generally because of variation in consumer spending habits, we experience fluctuations in net sales and working capital requirements during the year. Because we offer a broad selection of merchandise at extreme values, we believe we are less impacted than other retailers by economic cycles which correspond with declines in general consumer spending habits and we believe we still
benefit from periods of increased consumer spending.
Results of Operations
The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales.
We derived the condensed consolidated statements of income for the first quarter of fiscal 2020 and the first quarter of fiscal 2019 from our unaudited condensed consolidated financial statements and related notes. Our historical results are not necessarily indicative of the results that may be expected in the future.
Average net sales per store represents the weighted average of total net weekly sales divided by the number of stores open at the end of each week for the respective periods presented.
Includes depreciation and amortization relating to our distribution centers, which is included within cost of sales on our condensed consolidated statements of income.
First Quarter of Fiscal 2020 Compared with the First Quarter of Fiscal 2019
Net Sales
Net sales increased to $349.4 million in the first quarter of fiscal 2020 from $324.9 million in the first quarter of fiscal 2019, an increase of $24.5 million, or 7.5%. The increase was the result of a non-comparable store sales increase of $34.5 million, partially offset by a comparable store sales decrease of $10.0 million. The increase in non-comparable store sales was driven by sales from new stores that have not been open for a full 15 months.
Comparable store sales decreased 3.3% in the first quarter of fiscal 2020 compared with a 0.8% increase in the first quarter of fiscal 2019. We experienced significant volatility in our comparable store sales during the first quarter of fiscal 2020 as store traffic and consumer demand significantly decreased in the initial consumer reaction to the COVID-19 pandemic. Our stores have continued to operate as an essential business during the quarter and comparable store sales subsequently improved as we effectively responded to the changing retail environment and consumer needs. Also, we benefited from increased consumer spending coinciding with the economic stimulus provided under the CARES Act.
The decrease in comparable store sales in the current quarter consisted of a decrease in the number of transactions, partially offset by an increase in the average transaction size. Declines in our books, domestics and electronic departments were offset by increases in health and beauty aids, food and housewares departments.
Gross Profit and Gross Margin
Gross profit increased to $140.4 million in the first quarter of fiscal 2020 from $132.7 million in the first quarter of fiscal 2019, an increase of $7.6 million, or 5.7%. Gross margin decreased 70 basis points to 40.2% in the first quarter of fiscal 2020 from 40.9% in the first quarter of fiscal 2019. The decrease in gross margin in the first quarter of fiscal 2020 is primarily due to higher sales penetration of consumables, which generally carry below average gross margin rates, and the deleveraging of supply chain costs as a percentage of net sales primarily due to the increased costs from the opening of our Lancaster, TX distribution center at the beginning of this fiscal year.
Selling, General and Administrative Expenses
SG&A increased to $89.7 million in the first quarter of fiscal 2020 from $83.3 million in the first quarter of fiscal 2019, an increase of $6.4 million, or 7.7%. We incurred increased expenses associated with operating through COVID-19, primarily premium pay totaling $1.5 million to qualifying in-store associates, store leadership and distribution center associates. Our SG&A rate was 25.7% in both the first quarter of fiscal 2020 and fiscal 2019. Included in SG&A in the first quarter of fiscal 2019 is $0.6 million of income related to a gain from an insurance settlement. Excluding this prior-year gain, current year SG&A dollars increased 6.9% and the rate improved 10 basis points from the prior year. The increase in SG&A was primarily driven by increased selling expenses related to new store growth. The increased selling expenses consisted primarily of store payroll and benefits, store occupancy costs and other store-related expenses.
Pre-opening expenses for new stores decreased to $3.7 million in the first quarter of fiscal 2020 from $5.2 million in the first quarter of fiscal 2019 due to the comparative number and timing of new stores. During the first quarter of fiscal 2020, we opened 17 stores and closed two stores, one as planned and one closed temporarily due to smoke damage from a fire at an adjacent tenant. As a percentage of net sales, pre-opening expenses decreased 50 basis points to 1.1% in the first quarter of fiscal 2020 from 1.6% in the first quarter of fiscal 2019.
Interest Income, Net
Net interest income was $0.1 million in both the first quarters of fiscal 2020 and fiscal 2019.
Income Tax Expense
Income tax expense was $9.6 million and $2.2 million in the first quarters of fiscal 2020 and fiscal 2019, respectively. The effective tax rates for the first quarters of fiscal 2020 and fiscal 2019 were 22.3% and 5.4%, respectively. The increased effective tax rate in the first quarter of fiscal 2020 was primarily the result of a reduction in excess tax benefits related to stock-based compensation. These discrete tax benefits totaled $1.2 million and $8.1 million in the first quarters of fiscal 2020 and fiscal 2019, respectively.
Net Income
As a result of the foregoing, net income decreased to $33.5 million in the first quarter of fiscal 2020 from $38.7 million in the first quarter of fiscal 2019, a decrease of $5.3 million or 13.6%.
Adjusted EBITDA
Adjusted EBITDA increased to $49.7 million in the first quarter of fiscal 2020 from $46.6 million in the first quarter of fiscal 2019, an increase of $3.1 million, or 6.6%.
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are net cash flows provided by operating activities and available borrowings under our Revolving Credit Facility. Our primary cash needs are for capital expenditures and working capital. As of May 2, 2020, we had $94.9 million available to borrow under our Revolving Credit Facility and $119.4 million of cash and cash equivalents on hand. On May 22, 2019, we amended and restated our Revolving Credit Facility to effect several amendments thereto and extend the maturity thereunder to May 22, 2024. For further information, see Note 6 under “Notes to Unaudited Condensed Consolidated Financial Statements.”
Our capital expenditures are primarily related to new store openings, store resets, which consist of improvements to stores as they are needed, expenditures related to our distribution centers, and infrastructure-related investments, including investments related to upgrading and maintaining our information technology systems. We spent $12.4 million and $20.1 million for capital expenditures in the first quarters of fiscal 2020 and fiscal 2019, respectively. Prior year expenditures included approximately $10.1 million invested in the construction of the Company’s new distribution center. We expect to fund capital expenditures from net cash provided by operating
activities. We opened 17 new stores during the first quarter of fiscal 2020 and expect to open between 47 and 49 stores during 2020. However, we may experience delays in construction and permitting of new stores due to COVID-19.
Historically, we have funded our capital expenditures and working capital requirements during the fiscal year with cash flows from operations.
Our primary working capital requirements are for the purchase of inventory, payroll, rent, other store operating costs, distribution costs and general and administrative costs. Our working capital requirements fluctuate during the year, rising in our third fiscal quarter as we increase quantities of inventory in anticipation of our peak holiday sales season in our fourth fiscal quarter. Fluctuations in working capital are also driven by the timing of new store openings.
Based on our new store growth plans, we believe our cash and cash equivalents position, net cash provided by operating activities and availability under our Revolving Credit Facility will be adequate to finance our planned capital expenditures, working capital requirements, debt service and other financing activities over the next 12 months. If cash provided by operating activities and borrowings under our Revolving Credit Facility are not sufficient or available to meet our capital requirements, we will then be required to obtain additional equity or debt financing in the future. There can be no assurance equity or debt financing will be available to us when needed or, if available, the terms will be satisfactory to us and not dilutive to our then-current stockholders.
We are not currently receiving, and do not currently intend to apply for, loans under any federal or state programs implemented as a result of the COVID-19 pandemic, including the CARES Act.
Share Repurchase Program
On March 26, 2019, the Board of Directors of the Company authorized the repurchase of up to $100.0 million of shares of our common stock. The shares to be repurchased may be purchased from time to time in open market conditions (including blocks or in privately negotiated transactions). The timing of repurchases and the actual amount purchased will depend on a variety of factors, including the market price of our shares, general market, economic, and business conditions, and other corporate considerations. Repurchases may be made pursuant to plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, which could allow us to purchase our shares during periods when we otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. Repurchases
are expected to be funded from cash on hand or through the utilization of our Revolving Credit Facility. The repurchase authorization does not require the purchase of a specific number of shares, has a two-year term, and is subject to suspension or termination by our Board of Directors at any time.
During 2019, we repurchased 689,457 shares of our common stock for $40.0 million, inclusive of transaction costs, pursuant to our share repurchase program. These expenditures were funded by cash generated from operations. As of May 2, 2020, we had $60.0 million remaining under our share repurchase authorization. There can be no assurances that any additional repurchases will be completed, or as to the timing or amount of any repurchases.
Summary of Cash Flows
A summary of our cash flows from operating, investing and financing activities is presented in the following table:
Net cash provided by operating activities in the first quarters of fiscal 2020 and fiscal 2019 was $41.4 million and $22.0 million, respectively. The increase in net cash provided by operating activities in the first quarter of fiscal 2020 was primarily due to favorable comparative adjustments to working capital, particularly in our inventories.
Net cash used in investing activities in the first quarters of fiscal 2020 and fiscal 2019 was $12.4 million and $20.1 million, respectively. The comparative decrease in cash used in investing activities relates to the prior-year construction of our Texas distribution center, which totaled approximately $10.1 million in the first quarter of fiscal 2019, partially offset by the timing of capital expenditures for our new store locations.
Cash Provided by Financing Activities
Net cash provided by financing activities was $0.4 million and $4.7 million in the first quarter of fiscal 2020 and fiscal 2019, respectively. The decrease in cash provided by financing activities is due to a decrease in the proceeds from stock option exercises in the current year.
Contractual Obligations
We enter into long-term contractual obligations and commitments in the normal course of business, primarily operating leases. Except as set forth in Note 4 of the accompanying unaudited condensed consolidated financial statements, there have been no material changes to our contractual obligations as disclosed in our Annual Report, other than those which occur in the ordinary course of business.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. There have been no significant changes in the significant accounting policies and estimates.
Recently Issued Accounting Pronouncements
Not applicable.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are subject to interest rate risk in connection with borrowings under our Revolving Credit Facility, which bears interest at variable rates. As of May 2, 2020, we had no outstanding variable rate debt.
As of May 2, 2020, there were no material changes in the market risks described in the “Quantitative and Qualitative Disclosure of Market Risks” section of our Annual Report.
Impact of Inflation
Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our historical results of operations and financial condition have been immaterial. We cannot be assured that our results of operations and financial condition will not be materially impacted by inflation in the future.
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q pursuant to Rule 13a-15(b) of the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q are effective at a reasonable assurance level in ensuring that information required to be disclosed in our Exchange Act reports is: (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent or detect all errors and all fraud. While our disclosure controls and procedures are designed to provide reasonable assurance of their effectiveness, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting during the first quarter of fiscal 2020 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 17, 2019, a purported shareholder class action lawsuit captioned Robert Stirling et al. v. Ollie’s Bargain Outlet Holdings, Inc. et al., Civ. No. 1:19-cv-08647-JPO was filed in the United States District Court for the Southern District of New York against the Company, Mark Butler (then serving as the Company’s Chief Executive Officer and Chairman of the Board of Directors), Jay Stasz (the Company’s Chief Financial Officer), and John Swygert (then serving as the Company’s Chief
Operational Officer). The complaint alleges that, in public statements between June 6, 2019, and August 28, 2019, the defendants made materially false and misleading statements and/or failed to disclose material information about the Company’s earnings, projections, supply chain, and inventory. The plaintiffs seek unspecified monetary damages and other relief. On December 5, 2019, the Court appointed lead plaintiffs Bernard L. Maloney and Nathan Severe to act on behalf of the putative class of Ollie’s stockholders. On February 20, 2020, the lead plaintiffs filed an amended complaint extending the class period to March 26, 2019 through August
28, 2019, alleging substantially similar claims as the initial complaint, and seeking the same relief. On March 6, 2020, the court ordered that Michael L. Bangs, Executor of the Estate of Mark L. Butler be substituted as party for Mark Butler. On May 8, 2020, Ollie’s and the individual defendants moved to dismiss the action in its entirety. We believe the case to be without merit.
From time to time we may be involved in claims and legal actions that arise in the ordinary course of our business. We cannot predict the outcome of any litigation or suit to which we are a party. However, we do not believe that an unfavorable decision of any of the current claims or legal actions against us, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations, liquidity or capital resources.
ITEM 1A. RISK FACTORS
The risk factor below updates those disclosed in Item 1A in our Annual Report on Form 10-K.
Our business, operations and financial performance have been and may in the future be adversely affected by an epidemic or pandemic outbreak such as COVID-19 (coronavirus).
The occurrence of epidemic outbreaks, including the COVID-19 pandemic, in regions where our stores are located could adversely affect our business and financial performance. Considerable uncertainty exists regarding the extent to which the COVID-19 pandemic will continue, as well as the scope and duration of measures directed at the containment and remediation of COVID-19. The pandemic and public health measures have caused us to take actions that we determine are in the best interests of our associates and our customers. If we do not respond appropriately to the pandemic, or if our response is perceived to be inadequate, we could suffer damage to our reputation and our brand, which could materially adversely affect our business. The COVID-19 pandemic has contributed to economic uncertainties, governmental orders such including travel bans, quarantines, shelter-in-place orders, among other things.
In addition to the factors above, the COVID-19 pandemic has subjected our business to additional risk, including, but not limited to:
•
Increased Costs of Operation. In response to COVID-19, we have taken actions that focus on providing a safe work and shopping environment. As a result of these actions, we have incurred and expect to continue to incur higher payroll expenses at our stores and distribution facilities and incremental cleaning and safety costs at all of our facilities.
•
Supply Chain Disruptions. Governmental orders or other challenges could impact one or more of our key suppliers or result in the closure of one or more of our centralized distribution centers, our stores or our corporate headquarters and we may be unable to maintain delivery schedules or provide other support functions to our stores.
•
Economic Uncertainty. Widespread volatility and deteriorations in consumer spending, economic and market conditions, the risk of significant recession and a record rise in unemployment could adversely impact our sales.
•
Consumer Shopping Trends. The adoption of travel bans, quarantines, shelter-in-place orders, among other things could cause a shift in consumer attitudes with respect to in-person shopping and may decrease foot traffic in our stores.
At this time, we cannot assess the ultimate economic impact of the COVID-19 pandemic on our business, operations or financial performance, which will be determined by, among other things, the duration, severity and magnitude of such circumstances and governmental responses and requirements relating to the pandemic, nor can we predict the long-term effects of governmental and public responses to changing conditions. The extent to which the COVID-19 pandemic will impact our operations, liquidity or financial results in subsequent periods is uncertain, but such impact could be material. If the COVID-19 pandemic becomes prolonged, and/or more severe, it could exacerbate the negative impacts on our business and results of operations and may also heighten many of the other risks described in the “Risk Factors” section of our Form 10-K for the period ended February 1, 2020. It is also possible that any
adverse business and other financial impacts of the pandemic and public health measures may continue once the pandemic is controlled and those measures are lifted.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
