edited transcript of olli earnings conference call or presentation 4-dec-18 9:30pm gmt

Revenue from 2018 Ollie\'s cheap direct sales company in the third quarter of December 10, 2018
Thomson StreetEvents)--
Ollie, who edited the text, sold the earnings conference call or speech of the direct selling holding company, december 4, 2018 9:30:00 new version of GMTTEXT Transcript = = = Name Enterprise = = = * sale direct sales holding company of Jay StaszOllie-
Senior Vice President and Chief Financial Officer
Cheap Store holding limited by SwygertOllie-
Bargain Outlet Holdings, Inc. Executive Vice President, Secretary and COO of Mark ButlerOllie-
Founder, Chairman, President and CEO of the company = = = conference call participant = = = the company of Bradley Binham Thomas KeyBanc Capital Market.
Research Department-
Director and equity research analyst at Christopher PrykullGoldman Sachs group
Research Department-
Stock analyst * Edward Joseph Kelly Wells Fargo Securities Co. , Ltd. , Research Department-
Senior analyst * Judas.
Research Department of Credit Suisse bank-
Research analyst Matthew Robert both JP Morgan Research
Senior analyst at Richard Nelson Stephens
Research Department-
Paul Lawrence Reze Citigroup of the Research Department
Dr. and senior analyst at research department Peter Jacob keithjaffray
Chief and senior research analyst, Randal J.
KonikJefferies Co. , Ltd. , Research Department,
Equity analyst at research division Capital Markets Limited * Scot CiccarelliRBC-
Analyst Vincent J.
Research Department Stanley simorgan Stanley-
Vice President, Jean fontanacr, LLC
MD = = = Introduction-------------------------------------------------------------------------------Operator [1]--------------------------------------------------------------------------------
Good afternoon, welcome to Ollie\'s cheap Channel conference call to discuss the financial results for the third quarter of fiscal 2018. (
Operator instructions)
Remind me that the phone is being recorded.
Today, the chairman, president and chief executive, Mark Butler, received a call from the management;
John Swygert, executive vice president and chief operating officer;
Jay Stasz, senior vice president and chief financial officer.
I am now transferring the call to Jean Fontana, investor relations, to start work.
Please continue, madam. --------------------------------------------------------------------------------
Jean Fontana, LLC-MD [2]--------------------------------------------------------------------------------
Thank you, everyone.
This afternoon, a press release covering the company\'s financial performance for fiscal 2018 for the third quarter was released, and a copy of the press release can be found in the Investor Relations section of the company\'s website.
I would like to remind you that the comments made by management on this conference call may contain forwarding --
Forward-looking statements, including but not limited to forecasts, expectations or estimates, the actual results may be significantly different from those mentioned in today\'s conference call.
Any such projects, including our outlook for fiscal 2018 and future performance, should be seen as moving forward --
Statement in the sense of the Private Securities Litigation Reform Act of 1995.
You shouldn\'t rely too much on these advances.
Forward-looking statements, which have only been made as of today, we have no obligation to update or amend them for any new information or future events.
Factors that may affect future results may not be within our control and discussed in our SEC documents.
We encourage you to review these documents, including our Annual Report on Form 10
K and quarterly reports on table 10
Q and the earnings release we released earlier today for a more detailed description of these factors.
We will mention
We believe that EBITDA, adjusted net income and diluted adjusted net income per share may be important for investors to assess our operating performance.
For these non-
Our earnings release includes GAAP financial metrics that are closest to GAAP financial metrics.
With this, I will transfer the call to Mark. --------------------------------------------------------------------------------
Mark Butler, Ollie\'s cheap store Holding Co. , Ltd. -
[Founder, Chairman, President and CEO]3]--------------------------------------------------------------------------------
Thank you, Jean.
Thank you for calling today.
We have launched another strong quarter and we are very excited about our performance and the continued momentum of our business as we once again exceed our highest and lowest expectations.
Our overall performance was driven by strong sales growth, large flows, productive new stores and strong comparable store sales, which led to a 19% increase in our top products.
This is our positive progress with 4 points for 18 consecutive quarters.
Sales growth in 6% comp stores.
Nearly half of our departments are active and the best performing categories include toys, household items, electronics, floor coverings, and cars.
These strong sales and our tight expense controls have increased adjusted net income by 47%, a huge contribution from another quarter.
Many times, you hear me say that we are proud of the ongoing execution, which is a sign of our success.
The key to these consistent results is that we focus on the execution of 3 strategic drivers: delivering excellent deals, expanding our store base and leveraging and expanding Ollie\'s Army.
Over the past 36 years, Oli has brought huge deals to our customers.
Our business is very simple.
We buy cheap and sell cheap.
That\'s what we do.
We have an incredible deal. -
Throughout the store, we continue to see more and more deals from new and existing suppliers.
Our pipes are absolutely full and we can\'t see the slowdown.
So far our toy acquisition has performed very well and I\'m glad--
These and other deals allow us to give our customers more of what they want and name the brand at a significantly reduced price.
Store growth is another strategic focus and we are pleased that our new store continues to exceed expectations.
We opened 17 new stores in a busy quarter, including relocating our machinery store in Pennsylvania, our first store in the chain.
We opened our first store in Texas on the 23rd.
Since the end of the quarter, we have celebrated another milestone in the opening of the 300 store.
Our recent opening of 6 stores brought us a total of 37 new stores this year, including 1 in line with our long term relocation
Long-term growth expectations.
Our new store includes 4 former Toy \"R\" Us locations and we are very excited about this.
We have acquired a total of 18 previous Toy \"R\" Us sites including 6 rentals and 12 properties purchased.
These great sites have built and strengthened our real estate pipeline for us now and in the future.
As you can see in our release, we have just closed down on land in Lancaster, Texas, to build a new distribution center.
This will be our third DC and we are happy to find its home in Texas, because we think this state and the wider geographic area represent a huge opportunity for development and it\'s a great place for the Ollie brand.
615,000 square meters
The Foot plant will support our new store growth and will have the ability to serve 150 to 200 stores upon completion.
Construction has started and we expect to start operations in the first quarter of fiscal 2020.
The end result of all this is that I am as excited as ever about our future prospects.
As we continue to expand, we are eager to serve more customers with our proven and profitable store model.
As we continue to move forward on the roads of 950 or more stores across the country, I am very pleased with the future opportunities for blank spaces.
Next is Ollie\'s Army. now the number of people in this cheap camp has exceeded 8.
8 million members, about 70% of our sales.
As part of our efforts to enhance the army experience, we launched the mobile app of Ollie and the army team of Ollie.
We are in the early stages of these plans and we are excited about the initial response.
Our goal is two.
Attract new customers into the brand and reward the great loyalty of existing Army members.
Our goal is to build a lasting relationship with the cheap camp and get them back.
Our busiest and most exciting night of the year, Ollie\'s Army Night is Sunday, December 9.
Once again, we are pleased to open our doors to the members of Oli\'s army.
Our team has provided great deals to the store tirelessly for this special night and we can\'t wait to welcome our loyal traders.
Come and have a great night with us.
If you\'re not an Ollie Army member yet, there\'s still time to fight for and share fun and special savings.
We hope to see you there.
So, to sum up, we are very satisfied with the third quarter\'s performance and the continued momentum of the business.
Based on our performance and expectations for the fourth quarter, we will improve the full year sales and revenue guidance that Jay will talk about in more detail.
We have all our scores.
We offer incredible deals, control spending, and successfully open new stores.
Simply put, our team knows how to execute our strategy and deliver results.
Over the past 36 years, our team has grown to over 8,500 members who work harder than ever before.
We know that the holidays put additional demands on our colleagues and I sincerely thank them for everything they have done.
Not only at this time of the year, but also every day.
It was the team\'s experience, passion and commitment that made Ollie successful.
Thank you for your support to Oli.
I will now transfer the call to Jay to give you our financial results and 2018 outlook in more detail. --------------------------------------------------------------------------------
Jay Stasz, Ollie\'s cheap store Holding Co. , Ltd. -
Senior Vice President and Chief Financial Officer4]--------------------------------------------------------------------------------
Thank you, Mark. Good afternoon, everyone.
As Mark said, we have another strong quarter, and we are very satisfied with our performance.
Net sales rose 19 this quarter. 1% to $283. 6 million.
Sales of comparable stores increased by 4.
6% at the top of 2.
In the third quarter of last year, growth of 1%, an increase of 3.
2-increase by 9%
Year stack basis.
The increase in Comp store sales was driven by an increase in the average shopping basket, partially offset by a slight decrease in transactions.
During the quarter, we opened 17 new stores, including the relocation of an existing store and the closure of a store in Park, Florida due to the damage caused by Hurricane Michael.
We have 297 stores in 23 states and ended the period with a 12 increase in the number of our stores. 1% year-over-year.
Our new stores continue to perform beyond our expectations in new and existing markets, and we are still very happy with the productivity of the entire store.
Gross profit increased by 17 this quarter. 8% to $115.
4 million. Gross profit margin fell by 6-10 basis points to 40. 7%.
The decline in gross margin is due to the higher supply chain costs as a percentage of net sales, partially offset by the increase in gross margin of commodities.
SG & A charges increased by 15. 1% to $78.
4 million, mainly due to the additional sales cost of our new store and the increase in sales volume of our existing store.
We have increased SG & A costs by 90 basis points to 27 basis points. Net sales of 7%.
Increase in fees before opening 51. 6% to $4.
8 million, 40 basis points to 1 of the deleveraging.
Due to the number and time of new stores opening, 7% of net sales-over-
Including vacancies related to our newly acquired Toy \"R\" Us website.
Operating income rose 21% to $29.
3 million, the operating profit margin increased by 10 basis points to 10 basis points. 3%.
Net income increased by 31. 6% to $24.
Net income per diluted share increased by 8 million to $ 31%. 38.
Included in $0. 38 is $0.
Tax incentives related to stocks 06-
Based on compensation.
Adjusted net income excluding these benefits increased by 47. 1% to $20.
9 million from $14.
Last year was 2 million, and adjusted net income per diluted share increased by 45. 5% to $0.
$32 per share after dilution, from 0.
22 per share diluted in the previous year.
EBITDA increased by 18 after adjustment. 9% to $34.
In the third quarter, the adjusted profit margin of EBITDA was 7 million. 2%.
At the end of the period we had $736,000 in cash and we used about $42 million in cash to buy 12 former toy \"R\" Us stores.
Under our revolving credit arrangement, we do not have outstanding loans with a total final loan of $19. 3 million.
Inventory increased by 16 at the end of the third quarter.
9%, mainly due to the growth of new stores and the timing of the transaction process.
Capital expenditure increased by $52.
Compared to $6, the quarter was 5 million.
5 million due to the time we purchased the previous Toy \"R\" Us store website and the opening of the new store, the previous year.
As Mark mentioned, we are improving sales and revenue guidance for the whole year based on the yearto-
Fourth quarter results and expectations were announced.
So we now expect net sales for the full year to be $1,226,000,000 to $1,231,000,000, including the impact of closing the Florida park store;
Year-on-year comparable store sales increased by 3% to 3.
5% with the increase in the fourth quarter from the low end of the 2% to 3% range to the high end of the 2% to 3% range;
There are 37 new stores, including 1 relocation store and 2 closing stores;
Operating income was between $0. 155 billion and $0. 157 billion, including new store opening fees increased in the first quarter of fiscal 2019;
Adjusted net income was $0. 115 billion to $0. 117 billion, and adjusted net income per diluted share was $1. 74 to $1.
77. neither of them includes tax incentives related to stocks
Based on compensation and after-sales service
Tax losses in debt settlement;
The effective tax rate is 26%, which also does not include tax benefits related to stocks
Basic compensation;
The diluted weighted average unissued shares were $66 million and capital expenditures were $75 million to $80 million, which included the estimated cost of our Texas DC as of the fiscal yearend.
We intend to own and lease our Texas DC and expect a total investment of $45 million to $50 million during the construction of the project.
Now I\'m going to turn the call back to the operator and start the Q & A session. Operator?
Questions and Answers--------------------------------------------------------------------------------Operator [1]--------------------------------------------------------------------------------(
Operator instructions)
Our first question came from Matthew Boss at JPMorgan Chase. --------------------------------------------------------------------------------
Matthew Robert boss of JPMorgan research
Senior analyst2]--------------------------------------------------------------------------------
Mark, any method can bridge the top trend shown by the model, which may occur with the traditional comp models we talked about before, from 1% to 2%.
Maybe how would you rate the driver?
Did you see that momentum continue until November? --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer3]--------------------------------------------------------------------------------
Yes, Matt. this is John.
About our long-standing overall 1% to 2% comp
The term algorithm, which we have seen in a period of time, we have made public some important trading processes, the overall brand awareness has improved, and our opportunities in the market have also expanded.
But as we have always seen, we have increased the comp range for the third and fourth quarters, because we seem to have more knowledge of the holidays, we have obviously announced the toy business.
But in the long run, we believe that 1% to 2% is right.
The term algorithm for the business, we will also continue to return to this after the end of this fiscal year.
In terms of how we look at this quarter, as you know, we do not comment on internationalquarter.
We have seen the momentum of the business continue and we are pleased with where we are today. --------------------------------------------------------------------------------
Matthew Robert boss of JPMorgan research
Senior analyst4]--------------------------------------------------------------------------------Great.
Then there is only one on the edge.
In terms of gross profit margin, what is the magnitude of supply chain headwinds this quarter?
How best to consider commodity profit margins and supply chain headwinds, perhaps as we consider the fourth quarter?
It would be helpful if there were any preliminary ideas next year. --------------------------------------------------------------------------------
Jay Stasz, Ollie\'s cheap store Holding Co. , Ltd. -
Senior Vice President and Chief Financial Officer5]--------------------------------------------------------------------------------Yes, of course, Matt.
I\'m Jay. I\'ll start here.
Supply chain grew year on year this quarter-over-
80 basis points in the year, which is offset by the year when the profit margin of goods increasesover-
The year of 30 basis points.
So this year--
This year, our goal is still 40 people per year.
The annual profit margin we have discussed is 1%.
When we look at the fourth quarter, when I look at consensus estimates, I think we are very close.
We look forward to the improvement of commodity profits. -
I am sorry that the gross profit margin increase in this quarter is about 20 to 30 basis points.
We expect supply chain headwinds to weaken. -
Reduce by about 20 or 30 headwinds as we will begin to mark these costs in the supply chain in the fourth quarter.
So we do expect that number to decrease from a year ago --over-
From the point of view of year comparison, then we expect the profit margin of commodities to rise in the range of 40 to 50 basis points. --------------------------------------------------------------------------------Operator [6]--------------------------------------------------------------------------------
The next question comes from Brad Thomas, the capital markets of kebanke. --------------------------------------------------------------------------------
Bradley Binham Thomas, capanke capital markets
Research Department-
Director and stock research analyst [7]--------------------------------------------------------------------------------
I would like to know if you can comment more on how toy businesses contribute to 3Q and how 4Q has performed so far? --------------------------------------------------------------------------------
Mark Butler, Ollie\'s cheap store Holding Co. , Ltd. -
[Founder, Chairman, President and CEO]8]--------------------------------------------------------------------------------
Yes, Brad. We\'re excited.
Thank you for your comments. We\'re excited.
We did very well.
As we have pointed out, these toys are one of the best performing categories for us.
We got locked. we got loaded.
We did a very, very good job.
We are very excited.
I am very excited about the outlook for the fourth quarter.
I know the next question or someone will ask soon about the holiday weekend and we have a lot of bargains plus the weather is fine.
So I\'m really excited.
Having said that, there is still a long way to go, and there are many important weekends, including this weekend of Ollie Army night, we still have a lot.
We really, really feel good about where we are.
The toys are very, very good.
Customers like what we offer and they will definitely show it with their wallets and wallets. --------------------------------------------------------------------------------
Bradley Binham Thomas, capanke capital markets
Research Department-
Director and stock research analyst [9]--------------------------------------------------------------------------------Great.
Then about Lancaster distribution center, does this have any impact on the profit and loss of 4Q?
When you step up, how should we consider incorporating this into our model for next year? --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer10]--------------------------------------------------------------------------------
Yes, Brad. this is John.
Regarding fiscal 2018, the Lancaster distribution center in Texas has no impact on profit and loss.
I expect to be in Q--
Starting from 2019, pay for some pre-opening fees, as well as travel related to transforming DC and getting ready.
But in terms of importance, it will be a very small number in the figures for fiscal 19.
It will start clicking on 2020. --------------------------------------------------------------------------------
Mark Butler, Ollie\'s cheap store Holding Co. , Ltd. -
[Founder, Chairman, President and CEO]11]--------------------------------------------------------------------------------
Yeah Brad, like John said, like we said before, when we started and ran DC in 2020, I mean, normally, we will experience a deposit of 20 to 40 basis points. --------------------------------------------------------------------------------Operator [12]--------------------------------------------------------------------------------
The next question comes from Judah at Credit Suisse. --------------------------------------------------------------------------------Judah C.
Frommer, research arm of Credit Suisse-
Research analyst [13]--------------------------------------------------------------------------------
Supply chain pressure.
Is it similar to the freight we said last quarter and fuel?
What\'s Labor-
Will you call the relatives there? --------------------------------------------------------------------------------
Jay Stasz, Ollie\'s cheap store Holding Co. , Ltd. -
Senior Vice President and Chief Financial Officer14]--------------------------------------------------------------------------------
Judas, I\'m Jay. I\'ll start. maybe John or Mark will chime in.
But the simple answer is, no, the pressure is very consistent with fuel and truck transportation.
As we said before, we continue to invest in DC wages.
So there\'s also a little bit of a fee.
But it was actually shipped by truck. --------------------------------------------------------------------------------Judah C.
Frommer, research arm of Credit Suisse-
Research analyst [15]--------------------------------------------------------------------------------Okay.
More broadly, in terms of wages, labor, it is clear that some are not necessarily comments from direct competitors, but industry reviews since your last call.
Is there any problem with retaining talent or filling a position? --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer16]--------------------------------------------------------------------------------
This is John, Judas.
We really don\'t see any impact on retention or ability to hire.
We will continue to pay competitive salaries and provide a working environment that we believe is good, so we will--
We have not seen any big changes.
We adjust the market according to the market when we need it, but we will continue to work hard.
We are investing in stores to make sure our stores stay in good shape during the holiday season and provide extra time for the store, but we are in good shape in terms of turnover and retention rates. --------------------------------------------------------------------------------Judah C.
Frommer, research arm of Credit Suisse-
Research analyst [17]--------------------------------------------------------------------------------Okay. Great.
If I can squeeze another one out of a slightly negative number of transactions, I think you compared with [last quarter]spinner]
Traffic last year.
Is there more?
Or do you have any comments about consumers?
Are they going to withdraw?
Are they going somewhere else?
Or is there anything else? --------------------------------------------------------------------------------
Mark Butler, Ollie\'s cheap store Holding Co. , Ltd. -
[Founder, Chairman, President and CEO]18]--------------------------------------------------------------------------------
Did I tell you I got four points? 6% comp? --------------------------------------------------------------------------------Judah C.
Frommer, research arm of Credit Suisse-
Research analyst [19]--------------------------------------------------------------------------------You did;
There are fewer people. --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer20]--------------------------------------------------------------------------------
Judas, as we have always said, we do not focus on driving into the store.
The transaction drives traffic, as you can see in 4.
6% comp, when Jay says a very slight negative transaction count, we can see a very slight negative transaction count for the quarter.
So we have nothing to worry about.
We still see people putting more things in the basket and we continue to keep our customer base so we are excited about it. --------------------------------------------------------------------------------Operator [21]--------------------------------------------------------------------------------
The next question comes from Konik Randy\'s holding of this view. --------------------------------------------------------------------------------Randal J.
Konik, R & F, Research Department,
Stock analyst [22]--------------------------------------------------------------------------------
I just want to go back to supply chain costs. So just --
Did you see it--
After the next quarter, are these costs or disadvantages starting to dissipate?
I just want to know the time frame and duration. --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer23]--------------------------------------------------------------------------------Yes.
Randy, I\'ll start getting Jay to complete the technical details.
But in terms of the overall costs that we see in terms of distribution and transportation as well as in terms of headwinds, we are starting to calculate those costs throughout the year, so we do not see the headwinds fade.
We just saw them annualized.
At this point, we do not think-
So far, we have not seen them worse than last year, so we believe it will start to stabilize, so it will become more of a new normal, unless something New does happen that we haven\'t seen yet.
But transportation seems to have been stable for a year. after-
But still much higher than two years ago.
I don\'t know if this will help you, but we think we are still ready to keep this long term
We have been able to deliver a deadline algorithm of 40% gross margin for several years, so we expect this to continue.
The only pressure we see is to enter 2020 with the new DC start.
With the start of the DC, you may see that the edge is a bit of a headwind, and in order to take advantage of it, you need a year or two to do so. --------------------------------------------------------------------------------Randal J.
Konik, R & F, Research Department,
Stock analyst [24]--------------------------------------------------------------------------------
Then in--
In terms of DC costs for these increments, you think you can in some way-
Offset a bit with what you see ---
Continue to improve commodity profit margins? --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer25]--------------------------------------------------------------------------------
We will tell you that we expect to see the margin pressure associated with DC between 20 and 40 basis points in the first year, and then start to see this pressure subside in the second and third years.
But I don\'t think we can offset it. -
If you see we in 2012 2011 in Georgia Open we of DC when you in 39, see the we. 8, 39. 7, 39.
Zone 9, so we\'ll tell you that we may not be able to maintain zone 40 in the first year unless our shipping savings offset so much. But I will not count on this at this time. --------------------------------------------------------------------------------Randal J.
Konik, R & F, Research Department,
Stock analyst [26]--------------------------------------------------------------------------------
Very helpful, very clear.
As far as DC is concerned, just the reason for owning and leasing, everything is from the technical point of view of the third distribution center, which is different, or it will be set in a different way than the other 2 have the ability to have extra throughput, or--
And/or anything you learned from the third distribution center that applies to the other two distribution centers? --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer27]--------------------------------------------------------------------------------
Randy, I think what we learned is that the third distribution center will be almost exactly the same as the first one.
We felt that as early as 2011, we actually set up the first distribution center, which is a good prototype for our next distribution center.
We think this is the most effective model we have, and we basically copy the same footprint.
We can add a little more automation from the pit mods themselves in the building.
But beyond that, we will be making public what we did in York, Pennsylvania, in 2011.
From a throughput point of view, this is the right model and the right building, and we are very comfortable with this.
In terms of the ownership of the asset, I will let Jay solve the problem. --------------------------------------------------------------------------------
Jay Stasz, Ollie\'s cheap store Holding Co. , Ltd. -
Senior Vice President and Chief Financial Officer28]--------------------------------------------------------------------------------
Buy it or buy it yourself
I mean, we \'ve got these calls and we \'ve talked about capital allocation.
This is our strategic asset.
It\'s not necessarily like store assets change quickly at different times.
We want to have this asset.
We want to control it for a long time.
We have enough capital to do it, so we think it makes sense to buy it from all these angles than to pay a premium to lease it. --------------------------------------------------------------------------------Operator [29]--------------------------------------------------------------------------------
The next question comes from Vincent siensie of Morgan Stanley. --------------------------------------------------------------------------------Vincent J.
Sinisi, Morgan Stanley Research Department-VP [30]--------------------------------------------------------------------------------
Just want to go back to the problem of Judah, just--
We know it\'s slight, but it\'s on traffic this quarter.
I know this has not been the case in the past few quarters, compared to some, but more importantly, it\'s just a bit strange because you have introduced the team in the Army project, can you talk to some people? -
We know it\'s too early, but in terms of frequency, to some extent, what do you see?
Obviously the traffic will turn positive again, but what you see is probably some higher ranking, etc? --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer31]--------------------------------------------------------------------------------
Yes, Vince, I will tell you. -
It may be too early for us to see a big difference.
At the beginning of August, we just launched the ranking here, so you\'re talking about the two-month event.
We don\'t have enough data to really start analyzing and mining it.
So I think we might need a few more quarters to tell you. -
See what we see in the team and how the needle moves.
But we\'re not far from this shape. -
Almost ready to talk about or give any type of color today. --------------------------------------------------------------------------------
Jay Stasz, Ollie\'s cheap store Holding Co. , Ltd. -
Senior Vice President and Chief Financial Officer32]--------------------------------------------------------------------------------
Vince, this is Jay.
There is only one comment on the transaction.
If we look back on the past year
Before the quarter, HBA was one of our top divisions.
So I mean, it\'s obviously a higher speed, a higher transaction item.
So from this perspective, we are not too surprised, especially given some of the top categories of the quarter, we have some adverse effects on the transaction. --------------------------------------------------------------------------------Randal J.
Konik, R & F, Research Department,
Stock analyst [33]--------------------------------------------------------------------------------
It was very helpful to find you.
Then maybe just a quick one-
Just extra trackingup to that.
Just as the team is in place for this holiday season, Army nights and things coming up this week, can you have any changes, additions or approaches to marketing for this holiday season?
I might slip another one if you don\'t mind.
As long as there is a new DC, any initial idea as soon as it starts to run--
We know it\'s too early, but in the mix of existing and new markets, what changes could happen over time? --------------------------------------------------------------------------------
Mark Butler, Ollie\'s cheap store Holding Co. , Ltd. -
[Founder, Chairman, President and CEO]34]--------------------------------------------------------------------------------
Vin, this is Mark. I\'m leaving on Ollie\'s Army night.
This is definitely the 100% exactly the same thing we did last year and we have been doing it for decades.
The whole store is selling to customers.
You have to be an army member of Ollie to get in, and there is a bigger discount on all the Christmas and all the toy products in the store.
So the store will be an absolute zoo.
They\'re packing.
Hope the weather is good. -
We watch the weather every moment, but it looks good, but it never changes.
The grade does not affect, or even in the future. It was just --
We are so busy that you can\'t do anything with the team on this special night.
So there\'s no change in Ollie\'s Army-to-
Especially the night of Ollie\'s Army.
The second part of the question, I let the children go. --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer35]--------------------------------------------------------------------------------
Yes, Vincent. this is John.
About DC, and what does it offer us from the overall store growth opportunity, whether it\'s a new market or an existing one?
Obviously, we think Texas is-
It will be a very good market for us.
This will be a lot of shops.
We believe in 80 years old. to 90-
Store opportunities in Texas.
From a logistical point of view, the country itself is very large, so in many ways ---
Jay mentioned that DC will serve 150 to 200 stores when fully completed.
We believe there are 80 or 90 stores in Texas;
The rest of the stores will come out from a portion of the Tennessee market-Louis Anna, Arkansas, Homer, Mississippi-fill in the number of stores, possibly ---
It\'s also part of New Mexico.
That\'s the service area.
As we have always said, we are still filling many of the new markets in the Georgian distribution center [1]several]
In Florida, we believe we will have about 70% stores, 80% from new markets and 20% to 30% from existing markets. --------------------------------------------------------------------------------Operator [36]--------------------------------------------------------------------------------
The next question comes from Paul Lejuez of Citigroup. --------------------------------------------------------------------------------
Paul Lawrence Lejuez, Citigroup Research-
Senior analyst37]--------------------------------------------------------------------------------
Could you please talk about the growth of active customers this quarter and last quarter?
I\'m curious if you can tell me if you\'re attracting a new customer and focusing on this category as toy purchases increase? --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer38]--------------------------------------------------------------------------------
This is John, Paul.
I don\'t think we really focused on active customers. -
Compared with the same period last year, new active customers this yearover-quarter.
We usually look at it year by year.
So I won\'t even give you an answer today, but I can get back to you. --------------------------------------------------------------------------------
Paul Lawrence Lejuez, Citigroup Research-
Senior analyst39]--------------------------------------------------------------------------------Okay.
Then in that 4.
6% comp, how many of them are from toys?
Then, how much more compensation comes from toy-driven traffic, in other words, just--
Not only is the toy sale itself, but also the additional sale of the toy purchase? --------------------------------------------------------------------------------
Jay Stasz, Ollie\'s cheap store Holding Co. , Ltd. -
Senior Vice President and Chief Financial Officer40]--------------------------------------------------------------------------------
Paul, this is Jay. we really didn\'t get into these departments. we called them out. -
Their contribution to comp, so we are not going to talk about this.
As John said, we have not really finished the analysis you are referring. --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer41]--------------------------------------------------------------------------------
Then Paul.
That is, we--
Mark and I always remind everyone that we have been toy retailers for many, many years, so we are not only toys this year, nor last year.
So we don\'t have to attract new people who didn\'t buy toys last year.
We may just be selling more toys in the same basket, so it will be a very difficult analysis in any case and get accurate results. --------------------------------------------------------------------------------
Paul Lawrence Lejuez, Citigroup Research-
Senior analyst42]--------------------------------------------------------------------------------Yes. Got you.
Then, at a higher level, can you talk about your inventory turnover trend, perhaps by category.
Where did you see the biggest improvement?
Then, what category are your biggest opportunities for improvement? --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer43]--------------------------------------------------------------------------------
This is John, Paul.
I have been working for Ollie for about 15 years and we are not a company focused on stock turnover.
We focus on trading, which drives our business. So we\'re --
We are not fast fashion retailers for good reason.
We did not manage our inventory to a shelf life of 8 weeks to 12 weeks.
We manage our inventory to get the right product to motivate consumers, so as a company, our inventory has turned around 2. 3 to 2.
Since I came here, there have been 4 turns a year, no improvement and no worse.
This is just the essence of our buying business, so we are not really a business that focuses on increasing the profits of the department.
We are trying to increase trading with consumers. --------------------------------------------------------------------------------Operator [44]--------------------------------------------------------------------------------
The next question comes from Ciccarelli red blood cells in Scotland. --------------------------------------------------------------------------------
Research Department of RBC Capital Market Co. , Ltd. Scot Ciccarelli-Analyst [45]--------------------------------------------------------------------------------
And a toy problem. Just --
Conceptually, for toys between 3Q and 4Q, how does this split usually work on a seasonal basis?
Let\'s say you have $50 million in stock sale between the two quarters, what is the typical split? --------------------------------------------------------------------------------
Jay Stasz, Ollie\'s cheap store Holding Co. , Ltd. -
Senior Vice President and Chief Financial Officer46]--------------------------------------------------------------------------------
Yes, Scot. we haven\'t revealed yet.
We usually only talk about the annual sales of toys, which has reached 5. 5% last year.
We have already discussed that this number will rise in the fourth quarter.
In the normal year, it will double in the fourth quarter, and that\'s what we\'re talking about.
We haven\'t talked about the differences between the third and fourth quarters. --------------------------------------------------------------------------------
Research Department of RBC Capital Market Co. , Ltd. Scot Ciccarelli-Analyst [47]--------------------------------------------------------------------------------Okay. Understood.
And then the second question.
When you open a new store, what kind of traffic do you usually experience?
I know you guys tend to have very strong new store openings, drop a little and then pick up again.
Do you guys have the annualized number of boost traffic or deals you get on the new store waterfall? --------------------------------------------------------------------------------
Jay Stasz, Ollie\'s cheap store Holding Co. , Ltd. -
Senior Vice President and Chief Financial Officer48]--------------------------------------------------------------------------------
Scot, we don\'t count traffic, and I think we \'ve said it many times to everyone.
I know everyone likes the concept, but we don\'t count traffic.
This is not what we pay attention to. we only pay attention to sales. --------------------------------------------------------------------------------Operator [49]--------------------------------------------------------------------------------
The next question is Rick Nelson from Stephens. --------------------------------------------------------------------------------
Nels Richard Nelson from Stephens
Research Department-MD [50]--------------------------------------------------------------------------------
I want to ask you--
Earlier this year, you talked about spending some tax reform benefits or having up to 20% opportunities.
If you can talk to something you think you have reinvested into this, you need to be in--going forward? --------------------------------------------------------------------------------
Jay Stasz, Ollie\'s cheap store Holding Co. , Ltd. -
Senior Vice President and Chief Financial Officer51]--------------------------------------------------------------------------------Sure, Rick. This is Jay.
Our topic isby-quarter.
We didn\'t spend much time in the second quarter.
We put a little bit in welfare, a little bit in Washington, D. C.
In the third quarter, we certainly saw growth in investment.
We continue to invest in wages in Washington, D. C.
We also do a lot of seasonal hiring for all of our stores in many key markets, so we also invest in pay by market as John said earlier in the conference call.
Therefore, we invest in wages in certain markets, not in all markets;
We have not raised the minimum wage.
But we also put extra time into the store during the sales season and the reinvestment of benefits continues.
So the third quarter is more regular and we think it will continue.
We planned about $4.
5 million in the second quarter--
Basically this year.
So if you come up with about $1 million in the second quarter, I think next year\'s investment will continue, and I think it\'s about $3 million to $4 million a year. --------------------------------------------------------------------------------
Nels Richard Nelson from Stephens
Research Department-MD [52]--------------------------------------------------------------------------------Okay. That\'s helpful.
Also, I would like to ask about the tariff.
They did. now they did.
So if they go back to how you see the business that is affecting you? --------------------------------------------------------------------------------
Mark Butler, Ollie\'s cheap store Holding Co. , Ltd. -
[Founder, Chairman, President and CEO]53]--------------------------------------------------------------------------------
Yes, Rick. this is Mark.
As we mentioned earlier, tariffs have some minor impact on some of the products we sell-
We introduce, we sell.
But in general, the tariff has no significant impact on us because we are not price makers and we are price reactors.
So our goal is to get a certain percentage of discounts in what we call real stores.
So if the real store, no matter why they adjust the price, is the percentage we want.
If they pay more for the product, they may have to raise the price.
We don\'t know.
Of course, with the delay of any tariff, one will definitely think that the consumer will win, but we only know that we have to pay attention to the competition situation and price it accordingly according to the market situation. --------------------------------------------------------------------------------Operator [54]--------------------------------------------------------------------------------
The next question is Peter Keith from Piper Jaffry. --------------------------------------------------------------------------------
Peter Jacob Keith of Piper Jaffray, Research Department-
Chief and senior research analyst55]--------------------------------------------------------------------------------
Mark, it\'s just a follow-up. up on tariffs.
When we talk again about this \"on\", \"off\", \"move\", \"curious\", how do you think this is an opportunity to close the door?
You \'ve been talking about change in the past that can help your business.
If there is a possible excess of imported inventory, do you think there are some potential opportunities to consider in 19 years? --------------------------------------------------------------------------------
Mark Butler, Ollie\'s cheap store Holding Co. , Ltd. -
[Founder, Chairman, President and CEO]56]--------------------------------------------------------------------------------
It\'s always you, Peter.
Yes, we are actively pursuing it, I think.
From my point of view, you know my personality, I think, there may be a lot of canceled orders that happen because people try to break in time and at any time, this is your point of view and your question and we have the opportunity to seize this opportunity and we are already ahead.
We are actively seeking overseas: loss of stock, cancellation of orders, suspension of production.
I think there may be a good run in this regard, but it remains to be seen.
It\'s very, very early now, but you are 100% in line with what we think every day. --------------------------------------------------------------------------------
Peter Jacob Keith of Piper Jaffray, Research Department-
Chief and senior research analyst57]--------------------------------------------------------------------------------Okay. Very good.
Another question about toys.
What investors are worried about is that you will get close once.
It will be difficult to run out next year.
I guess, do you think you are improving your relationship with the vendor community in the toy category so that your toy business can grow every year --
Now, interest rates are at a higher level. -
Exit the market with toys fighting city? --------------------------------------------------------------------------------
Mark Butler, Ollie\'s cheap store Holding Co. , Ltd. -
[Founder, Chairman, President and CEO]58]--------------------------------------------------------------------------------
Yes, I think it\'s a good question, too, you see. I think that --
Welcome to my world. We\'ve --
This is 18 consecutive quarters.
So whether it\'s toys, HBA or candles, we-
I do think that once you get people familiar with our coffee and once you get familiar people into your store and they enjoy the experience, they save money, it will be a habit for them to come back.
So I\'m excited about the prospect of us selling toys.
We are actively pursuing toys now and in the future.
Of course, we have been able to achieve some very good success in the third quarter.
Hopefully it will continue in the fourth quarter.
We still have a long way to go, but we have a lot of great toys and other branded products.
But I think we will have to circle it next year. We are --
I think we have done the task well and I think we will do it well. --------------------------------------------------------------------------------Operator [59]--------------------------------------------------------------------------------
The next question comes from Edward Kelly of Wells Fargo. --------------------------------------------------------------------------------
Edward Joseph Kelly, Research Department, Wells Fargo Securities Co. , Ltd.
Senior analyst60]--------------------------------------------------------------------------------
Let\'s start with the following
In the freight and supply chain.
Based on your comments on the phone, I think you seem to be looking forward to the normalization of pressure next year.
Can you talk about the drivers in this regard?
I know I think we should expect diesel. -
It may go down, but we don\'t really hear from others the cost of what they expect to normalize.
I think a lot of people still think the cost will be a drag.
I\'m just curious about what drives this. --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer61]--------------------------------------------------------------------------------What I think --
To make sure we\'re clear, Ed, I think what we\'re talking about is that we\'re counting every yearover-year.
So it won\'t go back to normalization until it increases.
It\'s just that I\'m at the same level and it\'s been a year.
So we don\'t think it\'s 12-
It\'s a month now.
So we won\'t go back to normal until the growth we saw 12 months ago.
We will begin to annualize this number, which is what we call the new normal.
I hope you understand that. --------------------------------------------------------------------------------
Edward Joseph Kelly, Research Department, Wells Fargo Securities Co. , Ltd.
Senior analyst62]--------------------------------------------------------------------------------
No, no, I see.
I think what I\'m asking is the inflation rate and cost in your P & L.
Will it rise again next year? --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer63]--------------------------------------------------------------------------------
At this point, we do not see any year that continues to rise --over-year.
We believe it will normalize.
We\'re going to see the apartment.
Line up at a new higher level.
So it\'s still a challenge.
To make up for this, we have to keep our merchant margins higher, but our quarterover-
Quarterly differences should not be as big as you can see from the indirect distribution and shipping perspective. --------------------------------------------------------------------------------
Jay Stasz, Ollie\'s cheap store Holding Co. , Ltd. -
Senior Vice President and Chief Financial Officer64]--------------------------------------------------------------------------------
Yes, this is Jay.
Just for persistence.
I mean, we still have a long way to go when we come up with a 2019 plan.
We haven\'t got there yet, and of course we haven\'t talked much about it on this phone.
We will discuss more in the fourth quarter conference call. --------------------------------------------------------------------------------
Edward Joseph Kelly, Research Department, Wells Fargo Securities Co. , Ltd.
Senior analyst65]--------------------------------------------------------------------------------Understood.
I just wanted to ask a question about the Ollie army.
Did I hear you guys say 8
There are 8 million members this quarter, right? --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer66]--------------------------------------------------------------------------------This is correct. --------------------------------------------------------------------------------
Edward Joseph Kelly, Research Department, Wells Fargo Securities Co. , Ltd.
Senior analyst67]--------------------------------------------------------------------------------
Can I ask, because I mean, unless I remember the numbers wrong, it looks less than the previous quarter, right? --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer68]--------------------------------------------------------------------------------
Yes, that\'s right.
If you go back to the notes for the same period last year, you will have the same problem.
We clean up Ollie\'s Army database once a year, always by the end of October.
So, from our Q2 to Q3 phones, you always decrease when we clear those customers that we think are not active.
We clear them, so we don\'t allow this number to continue to grow.
We are working hard now to try to get to what we are talking about quarterly cleaning, so it\'s going to be more smooth for you guys.
We haven\'t arrived yet.
We are very close to getting there and have already started doing so.
So, this is our goal right now, and you can start to see the quarter-over-quarter, year-over-
This year, the numbers won\'t be as choppy as they were between the second and third quarters, and you won\'t see so many people disappear.
But we have done the same thing since we went public.
The same is true every quarter. --------------------------------------------------------------------------------
Edward Joseph Kelly, Research Department, Wells Fargo Securities Co. , Ltd.
Senior analyst69]--------------------------------------------------------------------------------
So this quarterover-
Year may be the right way to consider the growth of that member base, right? --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer70]--------------------------------------------------------------------------------
That\'s right, ed. --------------------------------------------------------------------------------Operator [71]--------------------------------------------------------------------------------
The next question comes from Chris Prykull of Goldman Sachs. --------------------------------------------------------------------------------
Christopher Prykull, Goldman Sachs Group
Research Department-
Stock analyst [72]--------------------------------------------------------------------------------
I just followed up quickly.
Ed\'s question.
Do you know more about contract shipping or spot shipping?
Do you see any difference in interest rates over the years? over-
Because it looks like the spot rate has come in, but the contract rate is still rising, so between 2 years? --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer73]--------------------------------------------------------------------------------Chris, we are --
We have higher exposure in the spot market. We --
Because we buy-
The way we buy and buyto-
On the market, every time we shop, we don\'t know where our goods come from.
Therefore, we are usually in the spot market in terms of inbound freight for our business.
We\'re on the contract. -
We are mainly based on the contract rate for outbound travel.
Most of our headwinds this year are at the entry end of our business. --------------------------------------------------------------------------------
Christopher Prykull, Goldman Sachs Group
Research Department-
Stock analyst [74]--------------------------------------------------------------------------------
That makes sense.
Then change--
I think I correctly heard the slight changes in operating income guidance, but mostly around some incremental pre-opening fees for the fourth quarter, is that accurate? --------------------------------------------------------------------------------
Jay Stasz, Ollie\'s cheap store Holding Co. , Ltd. -
Senior Vice President and Chief Financial Officer75]--------------------------------------------------------------------------------
Yes, that\'s right.
We added a little bit, just over $0.
The pre-opening fee increased by 5 million, mainly related to the improvement in the pace of 19 years of opening compared with a year ago. --------------------------------------------------------------------------------
Christopher Prykull, Goldman Sachs Group
Research Department-
Stock analyst [76]--------------------------------------------------------------------------------Fair enough.
If I could sneak it in, the last one.
Is there any preliminary knowledge or color from mobile app launch?
Or is it too early? --------------------------------------------------------------------------------John W.
Cheap Store Holding Ltd. Swygert in Ollie-
Executive vice president, secretary and chief operating officer77]--------------------------------------------------------------------------------
Chris, I think it may be too early.
But we are excited from the perspective that we are more adoption of mobile apps than we expected.
We are now in the north of 115,000 members that adopt mobile apps, and we didn\'t expect adoption to be so fast, so we are happy to see a lot of people sign up so quickly. --------------------------------------------------------------------------------Operator [78]--------------------------------------------------------------------------------
Ladies and gentlemen, this is the end of our problem. and-answer session.
I \'d like to turn the phone back now and have Mark Butler make any closing remarks. --------------------------------------------------------------------------------
Mark Butler, Ollie\'s cheap store Holding Co. , Ltd. -
[Founder, Chairman, President and CEO]79]--------------------------------------------------------------------------------Okay.
Thank you, operator.
Thank you for participating in our conference call and for your support to Oli.
Looking ahead, we are very happy with the current trend and we believe we are in a good position for the rest of the holiday season.
It\'s an exciting time here in Oli.
Our stores are packed and we urge all of you to go out and buy our incredible bargains.
We wish you all a happy holiday and look forward to sharing our results with you on our third quarter conference call.
Thank you very much. Happy holidays. --------------------------------------------------------------------------------Operator [80]--------------------------------------------------------------------------------
Ladies and gentlemen, thank you all for attending today\'s meeting.
This is the end of today\'s program.
You can all disconnect.
Everyone, I wish you all a good day.