Ollie’s Bargain Outlet Holdings, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended February 3, 2024. The filing is an annual 10-K, not a 2022 Q4 filing. Fiscal 2023 comprised 53 weeks versus 52 weeks in fiscal 2022. Ollie’s operates one reporting segment and had 512 stores in 30 states at year-end.
Business Context
Ollie’s is a brick-and-mortar closeout retailer offering branded, excess, private-label and opportunistically sourced merchandise generally at discounts of 20% to 70% from traditional retail prices. Its primary growth strategies are opening new stores, expanding merchandise offerings and growing the Ollie’s Army loyalty program.
- 45 stores opened and one store closed in fiscal 2023, compared with 40 openings and three closures in fiscal 2022.
- Management estimates potential for more than 1,300 U.S. locations, up from a prior target of 1,050.
- Ollie’s Army reached 14.0 million members, up 5.9% year over year; members generated more than 82% of fiscal 2023 net sales.
- The Princeton, Illinois distribution center is expected to become operational in the second half of fiscal 2024. Together with the York, Pennsylvania expansion, the distribution network is expected to support up to 750 stores.
Financial Performance and Liquidity
| Metric | Fiscal 2023 | Fiscal 2022 | Change |
|---|---|---|---|
| Net sales | $2.103 billion | $1.827 billion | 15.1% increase |
| Gross profit | $832.4 million | $656.1 million | 26.9% increase |
| Gross margin | 39.6% | 35.9% | Up 370 basis points |
| Operating income | $227.8 million | $130.9 million | 73.9% increase |
| Operating margin | 10.8% | 7.2% | Up 360 basis points |
| Net income | $181.4 million | $102.8 million | 76.5% increase |
| Diluted EPS | $2.92 | $1.64 | 78.0% increase |
| Adjusted EBITDA | $275.2 million | $168.9 million | 62.9% increase |
| Cash flow from operations | $254.5 million | $114.3 million | Increase of $140.2 million |
| Capital expenditures | $124.4 million | $51.7 million | Increase of $72.7 million |
Net sales growth reflected new-store expansion, a 5.7% comparable-store sales increase and approximately $34.0 million from the 53rd week. Excluding the extra week, sales increased 13.2%. Gross-margin expansion was attributed primarily to favorable supply-chain costs. SG&A rose 14.7% but declined modestly to 26.8% of sales from 26.9%, reflecting fixed-cost leverage partly offset by higher incentive compensation.
- Cash and cash equivalents were $266.3 million, and short-term investments were $87.0 million, for total cash and short-term investments of approximately $353.2 million at February 3, 2024.
- The $100.0 million revolving credit facility had no borrowings, $90.0 million of availability, $9.7 million of outstanding letters of credit and $0.2 million of rent reserves.
- The credit facility was refinanced in January 2024 and now matures January 9, 2029. The company was in compliance with its covenants.
- Total inventory was $505.8 million, up from $470.5 million. Total operating lease liabilities were $487.1 million, including $89.2 million current and $397.9 million long-term.
- Fiscal 2023 share repurchases totaled $52.5 million for 808,669 shares. Approximately $85.7 million remained authorized at year-end.
Material Changes Versus Fiscal 2022
- Sales, comparable-store sales, gross profit, operating income, net income and Adjusted EBITDA all improved materially.
- Gross margin expanded 3.7 percentage points, driven mainly by favorable supply-chain costs.
- Operating cash flow more than doubled, while capital expenditures increased substantially due to the York distribution-center expansion and construction of the Princeton facility.
- The company increased its store base by 44 net stores to 512 and remodeled 35 stores during the year.
- Interest income increased to $14.7 million from $3.0 million because of higher cash and short-term investment balances and favorable interest rates.
- The tax rate increased to 25.2% from 23.2%, primarily due to state tax-rate changes, partly offset by larger discrete tax benefits from stock-based compensation.
Guidance, Outlook, Risks and Unusual Items
For fiscal 2024, management planned approximately $85 million of capital expenditures, primarily for the Princeton distribution center, approximately 50 new stores, store initiatives and information technology. Management stated that new-store growth is expected to remain the primary driver of sales and profitability growth and that existing cash, operating cash flow and available revolver capacity should fund planned needs for the next 12 months.
- Key risks include inventory procurement and valuation, shrinkage, markdowns, consumer spending, inflation, labor availability and wage costs, competition, lease costs, supply-chain disruptions, tariffs and international sourcing.
- The company remains a brick-and-mortar-only retailer without an online shopping or omnichannel offering, which may limit customer retention and growth relative to competitors.
- The business is seasonal, with the highest sales and working-capital needs generally occurring in the fourth quarter.
- Legal proceedings arise in the ordinary course; management does not believe current matters will materially affect financial position, results, liquidity or capital resources.
- The critical audit matter was estimation of store shrink. Management stated that a 10% change in relevant markdown and shrink assumptions would have affected fiscal 2023 net income by approximately $1.0 million.
- The company disclosed a $1.5 million fiscal 2023 purchase of excess inventory from a Hillman Solutions subsidiary where the Ollie’s CEO serves on the board.
- No material cybersecurity incident affected the business during fiscal 2023, although cybersecurity, privacy and payment-card risks remain material potential exposures.
Most Important Facts to Verify
- Whether the 53rd-week benefit and favorable supply-chain costs are nonrecurring or could distort comparisons and margins.
- Progress, cost and timing of the Princeton, Illinois distribution center and the planned 50-store opening program.
- Inventory growth, shrinkage, markdown exposure and the assumptions underlying the retail inventory method.
- Sustainability of the 5.7% comparable-store sales increase and 39.6% gross margin.
- Cash deployment between capital expenditures, share repurchases and liquidity preservation, including the remaining $85.7 million authorization.
- Compliance with the credit facility’s fixed-charge coverage and other covenants, as well as the effect of lease commitments totaling $557.3 million of undiscounted operating lease payments.
- Exposure to labor inflation, tariffs, freight costs, consumer spending changes and the company’s lack of an e-commerce channel.