Ollie’s Bargain Outlet Holdings, Inc. — Form 10-K Summary
Reporting period: The provided filing is the Form 10-K for the 52-week fiscal year ended January 28, 2023 (“2022”), compared primarily with the 52-week fiscal year ended January 29, 2022 (“2021”). This does not correspond to “2021 Q4” in the request metadata.
Business context
Ollie’s operates one reporting segment as an extreme-value, brick-and-mortar retailer of brand-name, closeout, private-label and other discounted merchandise. It operated 468 stores in 29 states at year-end, after opening 40 stores and closing three during 2022. Management estimates potential for more than 1,050 U.S. locations.
- Merchandise categories include home, consumables, seasonal and other products.
- Ollie’s Army loyalty membership reached 13.2 million, up 4.8%; members generated more than 80% of sales.
- Approximately 95% of merchandise was distributed through distribution centers in York, Pennsylvania; Commerce, Georgia; and Lancaster, Texas.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net sales | $1.827 billion | $1.753 billion | +4.2% |
| Gross profit | $656.1 million | $681.2 million | -3.7% |
| Gross margin | 35.9% | 38.9% | -300 bps |
| Operating income | $130.9 million | $204.6 million | -36.0% |
| Operating margin | 7.2% | 11.7% | -450 bps |
| Net income | $102.8 million | $157.5 million | -34.7% |
| Diluted EPS | $1.64 | $2.43 | -32.5% |
| Adjusted EBITDA | $168.9 million | $237.3 million | -28.8% |
| Comparable-store sales | -3.0% | -11.1% | Improved 810 bps |
SG&A increased 9.6% to $490.6 million and rose to 26.9% of sales from 25.5%, primarily because of additional stores, wage investments and higher utility costs. Pre-opening expenses increased 20.6% to $11.7 million, while depreciation and amortization increased 18.0% to $22.9 million.
Net interest income was $3.0 million in 2022 versus net interest expense of $0.2 million in 2021, reflecting higher cash balances and favorable interest rates. The effective tax rate was 23.2%, compared with 23.0%.
Cash flow, liquidity, debt and capital allocation
- Cash provided by operating activities was $114.3 million, compared with $45.0 million in 2021.
- Cash used in investing activities was $111.5 million, including $51.7 million of capital expenditures and $60.2 million of short-term investment purchases.
- Cash used in financing activities was $39.3 million, primarily reflecting $41.8 million of share repurchases.
- Cash and cash equivalents were $210.6 million, and short-term investments were $60.2 million, for combined cash and short-term investments of $270.8 million.
- The $100.0 million revolving credit facility had no borrowings and $87.0 million of availability at year-end. Letters of credit totaled $12.8 million and rent reserves totaled $0.2 million.
- The facility matures May 22, 2024, is collateralized, includes a fixed-charge coverage covenant of at least 1.0 to 1.0 when applicable, and was amended to replace LIBOR-based rates with SOFR-based rates.
- Operating lease obligations totaled $439.9 million on the balance sheet, with $491.4 million of undiscounted payments; an additional $45.5 million related to signed but not yet commenced leases.
- The company repurchased 848,133 shares for $41.8 million during 2022. Approximately $138.2 million remained under the repurchase authorization at year-end.
- No cash dividends have been declared, and management does not expect to pay dividends for the foreseeable future.
Material changes and unusual items
- Sales growth was driven by $124.1 million of non-comparable-store sales from new stores, while comparable-store sales declined $50.1 million.
- Gross margin contracted primarily because of higher import and trucking costs and, to a lesser extent, higher distribution-center wages.
- Profitability declined materially despite sales growth, with operating income down $73.7 million and net income down $54.7 million.
- Management reported $0.9 million of gains from insurance settlements in SG&A in 2022, compared with $0.4 million in 2021.
- Inventory was $470.5 million at year-end. Evaluation of excess inventory and the timing of permanent markdowns was identified by KPMG as a critical audit matter.
- Goodwill of $444.9 million and the $230.6 million trade name were tested for impairment; no impairment was recorded for 2022.
- The company purchased excess inventory of approximately $0.8 million from a subsidiary of Hillman Solutions, Inc., where Ollie’s’ CEO served on the board.
Guidance, outlook and management commentary
- Management expects new-store openings to remain the primary driver of sales and profitability growth.
- Planned 2023 capital expenditures were approximately $125 million, including the construction of a fourth distribution center, the York distribution-center expansion, 45 new stores, store initiatives and information technology.
- The York expansion was expected to add 201,000 square feet and capacity for approximately 50 additional stores. The Princeton, Illinois land purchase for a fourth distribution center was expected to close in the first quarter of fiscal 2023; the filing states the closing was scheduled for approximately March 27, 2023.
- Management stated that cash, operating cash flow and available revolver capacity should fund planned capital expenditures, working capital, debt service and other financing needs for the following 12 months.
- Key risks include inflation and supply-chain costs, inventory availability and markdowns, labor shortages and wage pressure, competition including online retailers, reliance on leased stores and distribution centers, cybersecurity and privacy events, seasonal demand, and compliance with debt covenants.
Facts investors should verify
- Confirm the intended reporting period, because the supplied filing covers fiscal 2022 rather than 2021 Q4.
- Assess whether gross-margin pressure from freight, import, wage and other supply-chain costs persists.
- Review inventory aging, markdown assumptions, shrinkage and the $470.5 million inventory balance.
- Verify execution, cost and timing of the York expansion, Princeton distribution center and planned 45-store openings.
- Monitor comparable-store sales, transaction counts, average ticket and the profitability of new stores.
- Evaluate liquidity after planned capital expenditures, lease commitments and share repurchases, including the May 2024 revolver maturity.
- Review the full risk factors and disclosures regarding labor, cybersecurity, international sourcing, litigation, tariffs, inflation and the absence of an online retail platform.