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Cautionary note regarding forward-looking statements
This Annual Report on Form 10-K 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. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, such as those contained in “Item
7,7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this Annual Report on Form 10-K.
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,
taxbut not limited to, legislation,
national trade policy, and the following:
our failure to adequately procure and manage our inventory or anticipate consumer demand;
| • | our failure to adequately procure and manage our inventory or anticipate consumer demand; |
changes in consumer confidence and spending;
risks associated with our status as a “brick and mortar only” retailer;
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 and continuing or renewed regulatory responses thereto;
our inability to operate our stores due to civil unrest and related protests or disturbances;
our failure to properly hire and to retain key personnel and other qualified personnel;
risks associated with the timely and effective deployment, protection, and defense of computer networks and other electronic systems, including e-mail;
our inability to obtain favorable lease terms for our properties;
the failure to timely acquire, develop, open and open,operate, or the loss of, or disruption or interruption in the operations of, any 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 the outcomes thereof;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 and protection of computer networks and other electronic systems;natural disasters, whether or not caused by climate change;
the risks associated with doing business with international manufacturers;
changes in government regulations, procedures and requirements; and
our ability to service indebtedness and to comply with our financial covenants.
See “Item
1A,1A. Risk Factors” for a further description of these and other factors. For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this Annual Report on Form 10-K. Any forward-looking statement made by us in this annual report speaks only as of the date on which we make it. 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 Bargain Outlet Holdings, Inc. operates on a fiscal year, consisting of the 52- or 53-week period ending on the Saturday nearer January 31 of the following calendar year. References to
“2018,“2021,”
“2017,”“2020” and
“2016”“2019” represent the
20182021 fiscal year ended January 29, 2022, the 2020 fiscal year ended January 30, 2021 and the 2019 fiscal year ended February
2, 1, 2020, respectively. 2021, 2020 and 2019 the 2017 fiscal year ended February 3, 2018 and the 2016 fiscal year ended January 28, 2017, respectively. 2018each consisted of a 52-week period, 2017 consisted of a 53-week period, and 2016 consisted of a 52-week period.52 weeks. References to “2019”“2022” refer to the 52-week fiscal year ending February 1, 2020, which consists of a 52-week period.January 28, 2023.
In this report, the terms “Ollie’s,” the “Company,” “we,” “us” or “our” mean Ollie’s Bargain Outlet Holdings, Inc. and its
wholly-ownedwholly owned subsidiaries, unless the context indicates otherwise.
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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 “Good Stuff Cheap,” we offer customers a broad selection of brand name products, including
housewares, bed and bath, food,
housewares,floor coverings, health and beauty aids, books and stationery,
bedtoys and
bath, floor coverings, electronics and toys.electronics. 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. These attributes have driven our rapid growth and strong and consistent store performance.
Mark Butler, our Chairman, President and Chief Executive Officer, co-founded
Ollie’s
in 1982,was founded based on the idea that “everyone in America loves a bargain.” Since opening our first store in Mechanicsburg, PA
we have expanded throughout the eastern half of the United States. From the time Mr. Butler assumed his current position as President and Chief Executive Officer in
2003,1982, we have grown
from operating 28organically by backfilling existing markets and leveraging our brand awareness, marketing and infrastructure to expand into new markets in contiguous states. We have grown to 431 stores in
three states to 303 stores in 2329 states as of
February 2, 2019.January 29, 2022. Our no-frills, “semi-lovely” warehouse style stores average approximately
32,50033,000 square feet and generate consistently strong financial returns across all vintages, geographic regions, population densities, demographic groups, real estate formats and regardless of any co-tenant. Our business model has resulted in positive financial performance during strong and weak economic cycles. We believe there is opportunity for more than
9501,050 Ollie’s locations across the United States based on internal estimates and third party research conducted by
Jeff Green Partners,Hoffman Strategy Group, a retail real estate feasibility consultant that provides market analysis and strategic planning and consulting services.
Our constantly changing merchandise assortment is procured by a highly experienced merchant team, who leverage deep, long-standing relationships with hundreds of major manufacturers, wholesalers, distributors, brokers and retailers. These relationships enable our merchant team to find and select only the best buys from a broad range of brand name and closeout product offerings and to pass drastically reduced prices along to our customers. As we grow, we believe our increased scale has provided and will continue to provide us with even greater access to brand name products as many large manufacturers favor large buyers capable of acquiring an entire deal. Our merchant team augments these deals with directly sourced products, including Ollie’s own private label brands and other products exclusive to Ollie’s.
Our business model has produced consistently strong growth and financial performance. From 20142017 through 2018 (except as noted):2021:
Our store base expanded from 176268 stores to 303431 stores, a compound annual growth rate, or CAGR, of 14.5%12.6% and we entered sevennine new states;
Comparable store sales grew at an average rate of 4.1%1.0% per year;
Net sales increased from $638.0 million$1.077 billion to $1.241$1.753 billion, a CAGR of 18.1%13.0%; and
Net income increased from $26.9$127.6 million to $135.0$157.5 million.
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Our competitive strengths
We believe the following strengths differentiate us from our competitors and serve as the foundation for our current and future growth:
“
Good Stuff Cheap”—Ever changing product assortment at drastically reduced prices.prices. Our stores offer something for everyone across a diverse range of merchandise categories at prices up to 70% below department and fancy stores and up to 20-50% below mass market retailers. Our product assortment frequently changes based on the wide variety of deals available from the hundreds of brand name suppliers we have relationships with. We augment these opportunistic deals on brand name merchandise with directly-sourced unbranded products or those under our own private label brands
such as Sarasota Breeze, Steelton Tools, American Way and Commonwealth Classics and exclusively licensed recognizable brands and celebrity
names such as Magnavox, Marcus Samuelsson Signature Cookware, Josh Capon, Country Living, Popular Mechanics and Wells Lamont.names. Brand name and closeout merchandise represented approximately
70%65% and non-closeout goods and private label products collectively represented approximately
30%35% of the retail value of our
20182021 merchandise purchases.
The percentage of non-closeout goods and private label products is higher than our historical average, reflecting higher average unit retail pricing of non-closeout direct import purchases driven by higher freight costs due to global supply chain disruptions. Our treasure hunt shopping environment and slogan “when it’s gone, it’s gone” help to instill a “shop now” sense of urgency that encourages frequent customer visits.
Highly experienced and disciplined merchant team.team. Our 16-member22-member merchant team maintains strong, long-standing relationships with a diverse group of suppliers, allowing us to procure branded merchandise at compelling values for our customers. This team is led by five senior merchants, including Mark Butler, and has over 100 combined years of experience at Ollie’s. We have been doing business with our top 15 suppliers for an average of 1317 years, and no supplier accounted for more than 5% of our purchases during 2018.2021. Our well-established relationships with our suppliers, together with our scale, buying power, financial credibility and responsiveness, often makesmake Ollie’s the first call for available deals. Our direct relationships with our suppliers have increased as we have grown and we continuously strive to broaden our supplier network. These factors provide us with increased access to goods, which enablesenable us to be more selective in our deal-making and, we believe, helpshelp us provide compelling value and assortment of goods to our customers and fuelsfuel our continued profitable growth.
Distinctive brand and engaging shopping experience.experience. Our distinctive and often self-deprecating humor and highly recognizable caricatures are used in our stores, flyers, mailers, website and email campaigns. We attempt to make our customers laugh as we poke fun at ourselves and current events. We believe this approach creates a strong connection to our brand and sets us apart from other, more traditional retailers. Our “semi-lovely” stores feature these same brand attributes together with witty signage in a warehouse format that creates a fun, relaxed and engaging shopping environment. We believe that by disarming our customers by getting them to giggle a bit, they are more likely to look at and trust our products for what they are—extremely great bargains. We offer a “30-day no hard time guarantee” as a means to overcome any skepticism associated with our cheap prices and to build trust and loyalty, because if our customers are not happy, we are not happy. We welcome customers to bring back their merchandise within that timeframe for a “no hard time” full refund. We also make it easy for our customers to browse our stores by displaying our products on easily accessible fixtures and by keeping the stores clean and well-lit. We believe our humorous brand image, compelling values and welcoming stores resonate with our customers and define Ollie’s as a unique and comfortable destination shopping location.
Extremely loyal “Ollie’s Army” customer base. Our best customers are members of our Ollie’s Army customer loyalty program, which stands at
9.012.6 million members as of
February 2, 2019.January 29, 2022. For
2018, approximately 70%2021, over 79% of our sales were from Ollie’s Army members, and we grew our base of loyal members by
8.7%8.5% in
2018.2021. Ollie’s Army members spend approximately 40% more per shopping trip at Ollie’s than non-members. We identify our target customer as “anyone
between the ages of 25-70age 25 or older with a wallet or a purse” seeking a great bargain.
Strong and consistent store model built for growth. We employ a proven new store model that generates strong cash flow, consistent financial results and attractive returns on investment regardless of the economic environment.investment. Our highly flexible real estate approach has proven successful across all vintages, geographic regions, population densities, demographic groups, real estate formats and regardless of any co-tenant. New stores opened from 20132016 to 20172020 have generated an average of $4.2$4.7 million in net sales in their first 12 months of operations and produced an average payback period of approximately two years. We believe that our consistent store performance, strategically-located distribution centers and disciplined approach to site selection support the portability and predictability of our new unit growth strategy. TABLE OF CONTENTS
Highly experienced and passionate founder-led management team.team. Our leadership team directed by our co-founder, Chairman, President and Chief Executive Officer, Mark Butler, has guided our organization through its expansion and positioned us for continued growth. Mark Butler hasWe have assembled a talented and dedicated team of executives with an average of 26 years of retail experience, including an average of 12 years of experience at Ollie’s.executives. Our senior executives possess extensive experience across a broad range of disciplines, including merchandising, marketing, real estate, finance, store operations, supply chain management and information technology. We believe by encouraging equity ownership and fostering a strong team culture, we have aligned the interests of our executives with those of our stockholders. We believe these factors result in a cohesive team focused on sustainable long-term growth.
We plan to continue to drive growth in sales and profitability by executing on the following strategies:
Grow our store base. We believe our compelling value proposition and the success of our stores across a broad range of geographic regions, population densities and demographic groups create a significant opportunity to profitably increase our store count. Our internal estimates and third partythird-party research conducted by Jeff Green PartnersHoffman Strategy Group indicate the potential for more than 9501,050 national locations. Our new store real estate model is flexible and focuses predominately on second generation sites ranging in size from 25,000 to 35,000 square feet. We believe there is an ample supply of suitable low-cost, second generation real estate to allow us to infill within our existing markets as well as to expand into new, contiguous geographies. This approach leverages our distribution infrastructure, field management team, store management, marketing investments and brand awareness. We expect our new store openings to be the primary driver of our continued, consistent growth in sales and profitability.
Increase our offerings of great bargains.We will continue to enhance our supplier relationships and develop additional sources to acquire brand name and closeout products for our customers. Our strong sourcingdirect buying relationships with leadingmany major manufacturers, wholesalers, distributors, brokers and our purchasing scaleretailers provide us with significant opportunities to expand our ever changingever-changing assortment of brand name and closeout merchandise at extreme values. 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. We plan to further invest in our merchandising team in order to expand and enhance our sourcing relationships and product categories, which we expect will drive shopping frequency and increase customer spending.
Leverage and expand Ollie’s Army. We intend to recruit new Ollie’s Army members and increase their frequency of store visits and spending by enhancing our distinctive, fun and recognizable marketing programs, building brand awareness, further rewarding member loyalty and utilizing more sophisticated data-driven targeted marketing. We believe these strategies, coupled with a larger store base, will enable us to increase the amount of sales driven by loyal Ollie’s Army customers seeking the next great deal. We operate in one reporting segment. See Note
13,11, “Segment Reporting,” to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We offer a highly differentiated, constantly evolving assortment of brand name merchandise across a broad range of categories at drastically reduced prices. Our
ever changingever-changing assortment of “Good Stuff Cheap” includes brand name and closeout merchandise from leading manufacturers. We augment our brand name merchandise with opportunistic purchases of unbranded goods and our own domestic and direct-import private label brands in underpenetrated categories to further enhance the assortment of products that we offer. Brand name and closeout merchandise represented approximately
70%65% and non-closeout goods and private label products collectively represented approximately
30%35% of the retail value of our
20182021 merchandise purchases.
The percentage of non-closeout goods and private label products is higher than our historical average, reflecting higher average unit retail pricing of non-closeout direct import purchases driven by higher freight costs due to global supply chain disruptions. We believe our compelling value proposition and the unique nature of our merchandise offerings have fostered our customer appeal across a variety of demographics and socioeconomic profiles.
Our warehouse format stores feature a broad number of categories including
housewares, bed and bath, food,
housewares,floor coverings, health and beauty aids, books and stationery,
bedtoys and
bath, floor coverings, electronics
and toys as well as other products including hardware,
personal health care, candy, clothing, sporting goods, pet and lawn and garden products. We focus on buying cheap to sell cheap and source
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products as unique buying opportunities present themselves. Our merchandise mix is designed to combine unique and brand name bargains at extremely attractive price points. This approach results in frequently changing product assortments and localized offerings which encourage shopper frequency and a “shop now” sense of urgency as customers hunt to discover the next deal.
The common element of our dynamic merchandise selection is the consistent delivery of great deals to our customers, with products offered at prices up to 70% below department stores and fancy stores and up to 20-50% below mass market retailers. Our product price tags allow customers to compare our competitor’s price against Ollie’s price to further highlight the savings they can realize by shopping at our stores.
Examples of our product offerings include:
| • | Housewares:cooking utensils, dishes, appliances, plastic containers, cutlery, storage and garbage bags, detergents and cleaning supplies, cookware and glassware, fans and space heaters, candles, frames and giftware; |
| • | Bed and bath: household goods including bedding, towels, curtains and associated hardware; |
| • | Food:packaged food including coffee, bottled non-carbonated beverages, salty snacks, condiments, sauces, spices, dry pasta, canned goods, cereal and cookies; |
| • | Bed and bath: household goods including bedding, towels, curtains and associated hardware; |
| • | Books and stationery: novels, children’s, how-to, business, cooking, inspirational and coffee table books along with DVDs, greeting cards and various office supplies and party goods; |
| • | Floor coverings:laminate flooring, commercial and residential carpeting, area rugs and floor mats; |
| • | Books and stationery: novels, children’s, how-to, business, cooking, inspirational and coffee table books, greeting cards and various office supplies and party goods; |
| • | Electronics:air conditioners, home electronics, cellular accessories and as seen on television; |
| • | Toys:dolls, action figures, puzzles, educational toys, board games and other related items; |
| • | Health and beauty aids:personal care, hair care, oral care, health and wellness, including PPE related to the COVID-19 pandemic, over-the-counter medicine, first aid, sun care, and personal grooming; and |
| • | Other:hardware, candy, clothing, sporting goods, pet products, luggage, automotive, seasonal, furniture, summer furniture and lawn & garden. |
The following chart shows the breakdown of our
20182021 net sales by merchandise category:
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We maintain consistent average margins across our primary product categories described below.
Brand name and closeout merchandise
Brand name and closeout merchandise
(approximately 70%represented approximately 65% of
the retail value of our 2021 merchandise purchases,
in 2018)which is lower than our historical average, reflecting higher average unit retail pricing of non-closeout direct import purchases driven by higher freight costs due to global supply chain disruptions. Our focus is to provide huge savings to our customers primarily through brand name products across a broad range of merchandise. Our experienced merchant team purchases deeply discounted, branded or closeout merchandise primarily from manufacturers, retailers, distributors and brokers. This merchandise includes overstocks, discontinued merchandise, package changes, cancelled orders, excess inventory and buybacks from retailers and major manufacturers.
Non-closeout goods/private label (approximately 30%
Non-closeout and private label products collectively represented approximately 35% of
the retail value of our 2021 merchandise purchases,
in 2018)which is higher than our historical average, reflecting higher average unit retail pricing of non-closeout direct import purchases driven by higher freight costs due to global supply chain disruptions. We augment the breadth of our brand name merchandise with non-closeout and private label merchandise. In categories where the consumer is not as brand conscious, such as food, home textiles, and furniture, or when we may not be offering a current brand name merchandise deal, we will buy deeply discounted unbranded merchandise. These extreme value offerings are mixed in the stores with our brand name merchandise. We also have a variety of domestic and direct-import private label merchandise and exclusive products sold under brands such as Sarasota Breeze, Steelton Tools, American Way and Commonwealth Classic.numerous brands. These high quality products are developed in key categories such as housewares and are designed to create brand-like excitement and complement our brand name merchandise. We also have licenses for private label products that use recognizable celebrity names like Marcus Samuelsson and Josh Capon, or brand names like Country Living, Magnavox, Popular Mechanics and Wells Lamont.names. We routinely evaluate the quality and condition of these private label goods to ensure that we are delivering our customer a high quality product at a great price.
Merchandise procurement and distribution
Our disciplined buying strategy and strict adherence to purchasing margins support our merchandising strategy of buying cheap to sell cheap.
Our
16-member22-member merchant team maintains strong, long-standing relationships with a diverse group of suppliers, allowing us to procure branded merchandise at compelling values for our customers.
This team is led by five senior merchants, including Mark Butler, and has over 100 combined years of experience at Ollie’s. Our merchants specialize by department in order to build category expertise, in-depth knowledge and sourcing relationships. We believe our buying approach, coupled with long-standing and newly formed relationships, enable us to find the best deals from major manufacturers and pass drastically reduced prices along to our customers. We plan to further invest in and grow our merchandising team in order to expand and enhance our sourcing relationships and product categories, which we expect will drive shopping frequency and increase customer spending.
We believe that our strong sourcing capabilities are the result of our tenured merchant team’s ability to leverage deep, long-standing relationships with hundreds of manufacturers, wholesalers, brokers, retailers and other suppliers. Our merchants maintain direct relationships with brand manufacturers, regularly attend major tradeshows and travel the world to source extreme value offerings across a broad assortment of product categories. We are an ideal partner to major manufacturers because our merchants are experienced and empowered to make quick decisions. Each opportunity is unique and our merchants negotiate directly with the supplier to lock in a particular deal. Our ability to select the most attractive opportunistic purchases from a growing number of available deals enables us to provide a wide assortment of goods to our customers at great bargain prices.
We source from over 1,100 suppliers, and no supplier accounted for more than 5% of our purchases during
2018.2021. Our dedication to building strong relationships with suppliers is evidenced by a
13-year17-year average relationship with our top 15 suppliers. As we continue to grow, we believe our increased scale will provide us with even greater access to brand name products since many major manufacturers seek a single buyer to acquire the entire deal.
Distribution and logistics
We have made significant investments in our distribution network and personnel to support our store growth plan. Currently, we distribute
overapproximately 95% of our merchandise from our distribution centers in York, PA (603,000 square feet)
and, Commerce, GA
(962,280(962,000 square feet)
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In 2018, we acquired a 58-acre parcel of land in, and Lancaster, TX for the construction of our third distribution center. Construction of the planned 615,000(615,000 square foot facility has commenced and the distribution center is expected to be operational by the first quarter of 2020.feet). In order to minimize the amount of time our retail stores devote to inventory management, our merchandise is seeded with price tickets and labeled with a bar code for shipping.
Our stores generally receive shipments from our distribution centers
twoone to
threetwo times a week, depending on the season and specific store size and sales volume. We utilize independent third party freight carriers and, on average, load and ship between 85 and 95 trucks per day.
We believe our
current distribution capabilities
once our Lancaster, TX facility is fully operational, can support a range of 500 to 600 stores over the next several years.
As of
February 2, 2019,January 29, 2022, we operated
303431 stores, averaging approximately
32,50033,000 square feet, across
2329 contiguous states in the eastern half of the United States. Our highly flexible real estate approach has proven successful across all vintages, geographic regions, population densities, demographic groups, real estate formats and regardless of any co-tenant. Our business model has resulted in positive financial performance during strong and weak economic cycles. We have successfully opened stores in
sevennine new states since
2014,2017, highlighting the portability of our new store model. The following map shows the number of stores in each of the states in which we operated as of
February 2, 2019:
January 29, 2022:
All of our warehouse format stores incorporate the same philosophy: no-frills, bright, “semi-lovely” stores and a fun, treasure hunt shopping experience. We present our stores as “semi-lovely” to differentiate our stores from other traditional retailers, and to minimize operating and build-out costs. Our stores also welcome our customers with vibrant and colorful caricatures together with witty signage. We attempt to make our customers laugh as we poke fun at ourselves and current events. We believe that by disarming our customers by getting them to giggle a bit, they are able to look at and trust our products for what they are—extremely great bargains.
We believe the store layout and merchandising strategy help to encourage a “shop now” sense of urgency and increase frequency of customer visits as customers never know what they might come across in our stores. We make it easy for our customers to browse our stores by displaying our frequently changing assortment of products on rolling tables, pallets and other display fixtures. Our store team leaders are responsible for maintaining our treasure hunt shopping experience, keeping the stores clean and well-lit and ensuring our customers are engaged. We believe our humorous brand image, compelling values and welcoming stores resonate with our customers and define Ollie’s as a unique and comfortable destination shopping location.
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Expansion opportunities and site selection
We believe we can profitably expand our store count on a national scale to more than
9501,050 locations based on internal estimates and third party research conducted by
Jeff Green Partners.Hoffman Strategy Group. Our disciplined real estate strategy focuses on infilling existing geographies as well as expanding into contiguous markets in order to leverage our distribution infrastructure, field management team, store management, marketing investments and brand awareness.
We maintain a pipeline of real estate sites that have been approved by our real estate committee. Our recent store growth is summarized in the following table:
| 2018 | 2017 | 2016 |
Stores open at beginning of period | | 268 | | | 234 | | | 203 | |
Stores opened | | 37 | | | 34 | | | 31 | |
Stores closed | | (2 | ) | | — | | | — | |
Stores open at end of period | | 303 | | | 268 | | | 234 | |
| | | 2021 | | | 2020 | | | 2019 | |
| Stores open at beginning of year | | | 388 | | | | 345 | | | | 303 | |
| Stores opened | | | 46 | | | | 46 | | | | 42 | |
| Stores closed | | | (3 | ) | | | (4 | ) | | | - | |
| Stores re-opened | | | - | | | | 1 | | | | - | |
| Stores open at end of year | | | 431 | | | | 388 | | | | 345 | |
We utilize a rigorous site selection and real estate approval process in order to leverage our infrastructure, marketing investments and brand awareness. Members of our real estate team spend considerable time evaluating prospective sites before bringing a new lease proposal to our real estate committee, which is comprised of senior management and executive officers. Our flexible store layout allows us to quickly take over a variety of low-cost,
second generationsecond-generation sites, including former big box retail and grocery stores.
We believe there is an ample supply of suitable low-cost,
second generationsecond-generation real estate allowing us to infill within our existing markets as well as to expand into new, contiguous geographies. By focusing on key characteristics such as proximity to the nearest Ollie’s store, ability to leverage distribution infrastructure, visibility, traffic counts, population densities of at least 50,000 people within ten miles and low rent per square foot, we have developed a new store real estate model that has consistently delivered attractive returns on invested capital.
Our strong unit growth is supported by our predictable and compelling new store model. We target 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. With our relatively low investment costs and strong new store opening performance, we target
first-year annual new store sales of approximately
$3.9$4.0 million. New stores opened from
20132016 to
20172020 have generated an average of
$4.2$4.7 million in net sales in their first full year of operations and produced an average payback period of approximately two years. We believe that our consistent store performance, corporate infrastructure, including our distribution centers, and disciplined approach to site selection support the portability and predictability of our new unit growth strategy.
Store-level management and training
Our
Senior Vice President of Store Operations oversees all store activities. Our stores are grouped into
threefour regions, divided generally along geographic lines. We employ
threefour regional directors, who have responsibility for the day-to-day operations of the stores in their region. Reporting to the regional directors are
3045 district team leaders who each manage a group of stores in their markets. At the store level, the leadership team consists of a store team leader (manager), co-team leader (first level assistant manager) and assistant team leader (second level assistant manager). Supervisors oversee specific areas within each store.
Each store team leader is responsible for the daily operations of the store, including the processing of merchandise to the sales floor and the presentation of goods throughout the store. Store team leaders are trained to maintain a clean and appealing store environment for our customers. Store team leaders and co-team leaders are also responsible for the hiring, training and development of associates.
While each store’s sales volume is reviewed to determine the optimal store-level staffing requirements, our stores typically employ 17 to 30 associates. Part-time associates generally comprise approximately 60% of the associates in a typical store, with approximately 40% being full-time associates.We work tirelessly to hire talented people, to improve our ability to assess talent during the interview process and to regularly train those individuals at Ollie’s who are responsible for interviewing candidates. We also devote substantial resources to training our new managers through our Team Leader Training Program. This program
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operates at 2544 designated training stores located across our footprint. It provides an in-depth review of our operations, including merchandising, policies and procedures, asset protection and safety, and human resources. Part-time associates receive structured training as part of their onboarding throughout their first five scheduled shifts.
Our Ollie’s Leadership Institute (“OLI”) is a program that is used to equip associates with the ability to advance their career. Each OLI participant receives an individual development plan, designed to prepare him or her for his or her next level position. Our strong growth provides opportunities for advancement and OLI is focused
For additional information on
preparing eligible candidates for these positions. OLI is our preferred source for new supervisors and team leaders as “home grown” talent has proven to be successful. Since the program was implemented in 2009, our internal promotion rate has increased from approximately 18% to approximately 55% in 2018. We believe ourstore-level management training and
development programs help create a positive work environment and result in stores that operate at a high level.initiatives by the Company, see the discussion of Human Capital below.
Marketing and advertising
Our marketing and advertising campaigns feature colorful caricatures and witty sayings in order to make our customers laugh. We believe that by disarming our customers by getting them to giggle a bit, they are able to look at and trust our products for what they are—extremely great bargains. Our distinctive and often self-deprecating humor and highly recognizable caricatures are used in all of our stores, flyers and advertising campaigns.
We tailor our marketing mix and strategy for each market, deal or promotion. We primarily use the following forms of marketing and advertising:
| • | Print and direct mail: During 2018,2021, we distributed over 500677 million highly recognizable flyers. Our flyers are distributed 22 times per year and serve as the foundation of our marketing strategy. They highlight current deals to create shopping urgency and drive traffic and increase frequency of store visits; |
| • | Television and radio: We selectively utilize creative television and radio advertising campaigns in targeted markets at certain times of the year, particularly during the holiday sales season, to create brand awareness and support new store openings; |
| • | Sports marketing, charityCharity and community events: We sponsor professional and amateur athletics including Major League Baseball, NASCAR, National Basketball Association, NCAA basketball and football, as well as various local athletic programs. Additionally, we are dedicated to maintaining a visible presence in the communities in which our stores are located through the sponsorship of charitable organizations such as Feeding America, Toys for Tots, Children’s Miracle Network, Cal Ripken, Sr. Foundation and the Kevin Harvick Foundation. We believe supporting these sponsorships promoteorganizations promotes our brand, underscoreunderscores our values and buildbuilds a sense of community; and |
| • | Digital marketing and social media: We maintain an active webonline presence and promote our brand through our website, our mobile app and social media outlets.channels. We also utilize targeted weekly email marketing to highlight our latest brand name offerings and drive traffic to our stores. In addition, we invest in digital marketing where we target both our current and prospective customers. |
We have entered into an agreement with Valassis Communications, Inc. (“Valassis”) for marketing services. This agreement has a guaranteed spend commitment of $23.0 million over a two-year period ending May 28, 2022. As of January 29, 2022, the Company has met its guaranteed spend commitment with Valassis.
Our customer loyalty program, Ollie’s Army, stands at
9.012.6 million members as of
February 2, 2019,January 29, 2022, an increase of
8.7%8.5% from
2017.2020. In
2018,2021, Ollie’s Army members accounted for
approximately 70%over 79% of net sales and spent approximately 40% more per shopping trip, on average, than non-members. Consistent with our marketing strategy, we engage new and existing Ollie’s Army members through the use of witty phrases and signage; examples include “Enlist in Ollie’s Army today,” “become one of the few, the cheap, the proud” and “Ollie’s Army Boot Camp…all enlistees will receive 15% off their next purchase.”
In addition,Throughout the year, for every $250 Ollie’s Army members spend, they receive a coupon for 10% off their next entire purchase.
In 2018 we introduced Ollie’s Army
ranks to the program.‘ranks’ are another savings opportunity for members. For the first $250 and $500 members spend in a calendar year, they receive a coupon for 20% and 30% off of one item, respectively. Historically, Ollie’s Army members have demonstrated
double-digithigh redemption rates for promotional activities exclusive to Ollie’s Army members, such as our Valentine’s, Boot Camp and 15% off holiday
mailers, as well asmailers. In addition, Ollie’s Army members have historically enthusiastically responded to Ollie’s Army Night, an annual one-day after-hours sale in December exclusively for
Ollie’s Army members. We expect to continue leveraging the data gathered from our proprietary database of Ollie’s Army members to better segment and target our marketing initiatives and increase shopping frequency.
We compete with a diverse group of retailers, including discount, closeout, mass merchant, department, grocery, drug, convenience, hardware, variety, online and other specialty stores.
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The principal basis on which we compete against other retailers is by offering an ever changingever-changing selection of brand name products at compelling price points in an exciting shopping environment. Accordingly, we compete against a fragmented group of retailers, wholesalers and jobbers to acquire merchandise for sale in our stores.
Our established relationships with our suppliers, coupled with our scale, associated buying power, financial credibility and responsiveness, often makes Ollie’s the first call for available deals. Our direct relationships with suppliers have increased as we have grown, and we continuously strive to broaden our supplier network.
Trademarks and other intellectual property
We own multiple state and federally registered trademarks related to our brand, including “Ollie’s,” “Ollie’s Bargain Outlet,” “Good Stuff Cheap,” “Ollie’s Army,” “Real Brands Real Cheap!” and “Real Brands! Real Bargains!,” among others. In addition, we maintain a federal trademark for the image of Ollie, the face of our company. We also own registered trademarks for many of our private labels such as “Sarasota Breeze,” “Steelton Tools,” “American Way” and
“Commonwealth Classics,“Middleton Home,” among others. We routinely prosecute trademarks where appropriate, both for private label goods and to further identify our
goods and services. We enter into trademark license agreements
whereas necessary, which may include our private label offerings, such as the Magnavox products
and Marcus Samuelsson Signature Cookware available in our stores. Our trademark registrations have various expiration dates; however, assuming that the trademark registrations are properly renewed, they have a perpetual duration. We also own several domain names, including www.ollies.us,
www.ollies.com, www.olliesbargainoutlet.com, www.olliesarmy.com, www.ollies.cheap, www.sarasotabreeze.com and www.olliesmail.com, and unregistered copyrights in our website content. We attempt to obtain registration of our trademarks
and other intellectual property as practical and pursue infringement of those marks when appropriate.
Our management information systems provide a full range of business process assistance and timely information to support our merchandising team and strategy, management of multiple distribution centers, stores and operations, and financial reporting. We believe our current systems provide us with operational efficiencies, scalability, management control and timely reporting that allow us to identify and respond to merchandising and operating trends in our business. We use a combination of internal and external resources to support store point-of-sale, merchandise acquisition and distribution, inventory management, financial reporting, real estate and administrative functions. We continuously assess ways to maximize productivity and efficiency, as well as evaluate opportunities to further enhance our existing systems. Our existing systems are scalable to support future growth.
We are subject to
state and federal laws including labor and employment laws, including minimum wage requirements and wage and hour laws, laws governing advertising, privacy laws, safety
regulations, environmental laws and regulations, and other laws, including consumer protection regulations that regulate retailers and/or govern product standards, the promotion and sale of merchandise and the operation of stores and warehouse facilities. We monitor changes in these laws and believe that we are in material compliance with
all applicable laws.
We source a portion of our products from outside the United States. The U.S. Foreign Corrupt Practices Act and other similar anti-bribery and anti-kickback laws and regulations generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our policies and our vendor
compliance agreementscode of conduct mandate compliance with applicable law, including these laws and regulations.
We maintain third-party insurance for a number of risk management activities, including workers’ compensation, general liability, commercial property, ocean marine, cyber, director and officer and employee benefit related insurance policies. We evaluate our insurance requirements on an ongoing basis to ensure we maintain adequate levels of coverage.
Employees
Human Capital
Attracting, developing, and retaining quality talent is key to our growth, and our success depends on cultivating an engaged and motivated workforce.We work hard to create an environment where Ollie’s team members can build fulfilling careers and we take pride in providing opportunities for growth and development.
We seek to build a diverse and inclusive workplace where we can leverage our collective talents, striving to ensure that all associates are treated with dignity and respect. We believe that a workforce with a diversity of viewpoints, background, experience and industry knowledge, as well as more traditional characteristics of diversity, such as race and gender, are key to our culture and long-term success. We are committed to providing equal employment opportunities and advancement consideration to all individuals based on job-related qualifications and ability to perform the job as well as maintaining an environment that is free of intimidation or harassment. We value the talents and contributions of our associates and by focusing on our team members we know that the entire Ollie’s community will be well served.
Oversight and Management
Our Human Resources department manages all associate matters, including recruiting, hiring, compensation and benefits, performance management and associate training. In addition, our management team works closely with the Human Resources department to evaluate associate management issues such as retention and workplace safety. As we strive to retain and engage talent at all levels of our business, our Human Resources department also reviews our retention and turnover rates and administers our talent and training programs and review process to support the development of our talent pipeline.
Associates
As of
February 2, 2019,January 29, 2022, we employed
more than 7,700over 9,900 associates, approximately
3,4004,700 of whom were full-time and approximately
4,3005,200 of whom were part-time. Of our total associate base, approximately
160180 were based at our store support center,
in Harrisburg, PA. Ourapproximately 800 were employed at our distribution centers,
employ approximately 530 associates. Theand the remaining were
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store and field associates. The number of associates in a fiscal year fluctuates depending on the business needs at different times of the year. In 2018,2021, we employed approximately 3,0002,600 additional seasonal associates during our peak holiday sales season. We have As of January 29, 2022, approximately 60% of our workforce is self-identified female and approximately 40% is self-identified male. Over 35% of our workforce has self-identified as having a long history of maintaining a culture that embraces our associates. We take pride in providing a great work environment and strong growth opportunities for our associates. racial or ethnic minority background. None of our associates belong to a union or are party to any collective bargaining or similar agreement.
Associate Training and Development Programs
We offer a compelling work environment with meaningful growth and career-development opportunities. This starts with the opportunity to do challenging work and learn on the job and is supplemented by programs and continuous learning that help our team build skills to advance. We encourage a promote-from-within environment when internal resources permit. We also provide internal leadership development programs designed to prepare our high-potential team members for greater responsibility. Our current team of district managers and store managers have an average tenure of approximately six and four years, respectively. We believe internal promotions, coupled with the hiring of individuals with previous retail experience, will provide the management structure necessary to support our long-term strategic growth initiatives.
Our Ollie’s Leadership Institute (“OLI”) is a program that is used to equip field associates with the ability to advance their career. Each OLI participant receives an individual development plan, designed to prepare them for their next level position. Reflecting our belief in our “home grown” talent, OLI is our preferred source for new supervisors and team leaders. In 2021, over 45% of our current district team leaders were internally promoted to their position. Company-wide, over 65% of our field positions were filled by internal promotions. We believe our training and development programs help create a positive work environment and result in stores that operate at a high level.
Compensation and Benefits
We are committed to providing market-competitive compensation for all positions. Eligible team members participate in one of our various bonus incentive programs, which provide the opportunity to receive additional compensation based upon store and/or Company performance. In addition, we provide our eligible team members the opportunity to participate in a 401(k) retirement savings plan with a Company-sponsored match. We also share in the cost of health insurance provided to eligible team members, and team members receive a discount on merchandise purchased from the Company. We additionally provide our team members with paid time off.
Workplace Health and Safety
Maintaining a safe and secure work environment is very important to us and we conduct our business in an environmentally sound manner based on customer needs and local requirements. To that end, we have introduced safety protocols in response to the COVID-19 pandemic to ensure our stores, distribution centers and support center facilities are safe for both our customers and team members (see below). To further promote a safe work environment, we have established safety training programs. This includes administering an occupational injury- and illness-prevention program, together with an employee assistance program for team members.
COVID-19 Response
The COVID-19 pandemic has significantly impacted the U.S. and global economies, resulting in, among other things, changes in the mindset and availability of the labor force. We are experiencing labor pressures at both our stores and distribution centers, higher import and trucking costs, and supply chain disruptions due to the impacts of COVID-19 and related measures. We are increasing our hiring efforts in certain impacted markets and working closely with our suppliers and transportation partners to mitigate the impact of the supply chain challenges. We continue to monitor the impact of the pandemic on our business, including on our associates, customers, business partners and supply chain.
Our top priorities in responding to the pandemic have been and continue to be the safety and well-being of our associates and customers. We are committed to maintaining a safe work and shopping environment. In response to COVID-19, we have taken several actions, including the following:
implemented procedures for social distancing, cleaning, sanitation, and use of personal protective equipment in our stores, distribution centers, and store support center to adhere to the appropriate CDC and local guidelines;
supported our team members with COVID-19 paid medical leave and 100% coverage of COVID-19 testing and treatment under our medical plan; and
supported our communities by raising money to provide much needed funding to local food banks through a partnership with Feeding America.
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
generally 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.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act are available free of charge on our website, www.ollies.us, as soon as reasonably practicable after the electronic filing of such reports with the Securities and Exchange Commission (“SEC”). The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors,
as well as other information in this Annual Report on Form 10-K, before deciding whether to invest in the shares of our common stock. The occurrence of any of the events described below could have a material adverse effect on our business, financial condition or results of operations. In the case of such an event, the trading price of our common stock may decline and you may lose all or part of your investment.
RISK FACTOR SUMMARY
We are providing the following summary of the risk factors contained in our Form 10-K to enhance the readability and accessibility of our risk factor disclosures. We encourage our stockholders to carefully review the full risk factors contained in this Form 10-K in their entirety for additional information regarding the risks and uncertainties that could cause our actual results to vary materially from recent results or from our anticipated future results.
Risks Related to
our Business and
IndustryOperations
The impact of COVID-19 on our business, operating results, cash flows, year-over-year performance and/or financial condition is significant and uncertain, and the impact could be material and adverse;
Vaccine mandates and other governmental regulations relating to the ongoing COVID-19 pandemic could have a material adverse impact on our business, financial conditions, results of operations, and prospects;
The impact of COVID-19 and the related testing and vaccination may result in us not being able to accurately forecast health care and other benefit costs, and we are uncertain whether future health care and other benefit costs could exceed our projections;
We may not be able to execute our opportunistic buying strategy;
Consumer confidence and spending may be reduced in light of factors beyond our control and our financial results may suffer;
Competition may increase in our segment of the retail market, which could put negative pressure on our results of operations and financial condition;
Identification of potential store locations and lease negotiations may not keep pace with our growth strategy;
We are a “brick and mortar only” retailer. Our lack of an online shopping option may mean that we face challenges to grow and retain customers. Our customers, including our loyalty program members, may determine to shop at other stores or through web-enabled services and therefore not be as likely to shop at our stores;
We may not be able to develop and operate our multiple distribution centers in an efficient or effective manner and that could mean that we do not have sufficient inventory in our store locations. The loss or disruption of one or more of our distribution centers or disruption of our supply chain or third-party shipping carriers could also make it difficult for us to timely receive or distribute goods to our stores;
External economic pressures over which we have no or limited control, including inflation, occupancy costs, and transportation costs may reduce our profitability;
Inventory management and/or shrinkage or the loss or theft of inventory can result in material negative impacts on our results of operations;
We need to be able to hire and retain the right people to run our stores and our distribution centers. We also need to hire and retain managerial personnel, a merchant team and executive officers. If we are not effective in these areas, our results may suffer; and
Comparable store sales and results of operations have fluctuated in the past and may do so again in the future.
Risks Related to Legal and Regulatory Issues
We are subject to governmental regulations, procedures and requirements that can lead to substantial penalties if we fail to achieve compliance;
We are subject to risks associated with laws and regulations generally applicable to retailers;
From time to time we are involved in legal proceedings from customers, suppliers, employees, governments or competitors; and
From time to time we are involved in legal proceedings from stockholders.
Risks Related to Technology and Cybersecurity
We may fail to maintain the security of information we hold relating to personal information or payment card data of our customers, employees and suppliers;
We may not adequately prepare for or respond to existing and future privacy legislation; and
We may not be able to timely or adequately maintain or upgrade our technology systems needed for operations.
Risks Related to Accounting and Financial Matters
If our estimates or judgments relating to significant accounting policies prove to be incorrect, we could suffer negative financial results; and
Changes to the accounting rules or regulations could have material adverse effects on our results of operations.
Risks Related to Ownership of Our Common Stock and Corporate Governance
There is risk associated with our fluctuating quarterly operating results and we may fall short of prior periods, our projections or the expectations of securities analysts or investors;
We may not declare dividends on our common stock in the foreseeable future; and
There are provisions in our organizational documents that could delay or prevent a change of control.
Risks Related to Our Indebtedness and Capitalization
Our credit facility can limit our ability to find other sources of financing;
There are covenants contained in our credit facility that we must meet in order to be able to use it;
If we are unable to generate sufficient cash flow to meet debt service it could negatively impact our liquidity; and
We cannot guarantee that our share repurchase program will be fully consummated or that it will enhance long-term stockholder value.
For a more complete discussion of the material risks facing our business, see below.
BUSINESS AND OPERATIONS
The COVID-19 pandemic has disrupted and is expected to continue to disrupt our business, which could have a material adverse impact on our business, results of operations, liquidity and financial condition for an extended period of time.
During March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. The COVID-19 pandemic has significantly impacted health and economic conditions throughout the United States, as public concern about becoming ill with the virus has led to the issuance of recommendations and/or mandates from federal, state and local authorities to practice social distancing or self-quarantine. Over the course of 2021, we continued to operate our stores as we qualified under definitions of an “essential” business. In response to the challenges of COVID-19, at times we have had to implement reduced store hours, limit the number of customers in our stores at any one time and implement social-distancing guidelines throughout our store operating space.
If the classification of what is an “essential” business changes in jurisdictions where our stores are located, or the restrictions on retail operations in our markets are reinstituted, or other government regulations are adopted pertaining to how we may operate our stores, we may be required to temporarily close or restrict operations at one or more, if not all, of our stores, which would significantly impact our sales and results of operations. Also, if we do not respond appropriately to the pandemic, or if customers do not perceive our response to be adequate for a particular region or our company as a whole, we could suffer damage to our reputation and our brand, which could adversely affect our business in the future, and subject us to costly litigation, enforcement actions and penalties.
COVID-19 has also impacted our supply chain for products we sell, particularly those products that are sourced internationally. To the extent one or more of our vendors is negatively impacted by COVID-19, including due to the closure of its distribution centers or manufacturing facilities, we may be unable to maintain delivery schedules or adequate inventory in our stores.
The impacts of the uncertainties surrounding the outbreak of COVID-19 also make it more challenging for us to estimate future performance of the business, predict customer acceptance of new products and offerings, and to develop growth strategies for the future. We are continuing to monitor the spread of COVID-19 and the related risks to our business and operations. The magnitude and duration of the pandemic and its impact on our business, results of operations, cash flows, financial position, employees, and customers are uncertain as this situation continues to evolve globally.
The extent to which the COVID-19 outbreak impacts our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to the duration, spread, severity and impact of the COVID-19 outbreak, the effects of the outbreak on our customers, employees and vendors, the regulatory response and impact of stimulus measures adopted by local, state and federal governments, and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we could experience materially adverse impacts to our business as a result of any economic disruption that has occurred or may occur in the future due to a continued erosion in consumer sentiment or the effect of unemployment on our consumer base. Additionally, the consumer preferences for certain product categories that have driven positive sales during the height of the COVID-19 outbreak may not continue after the outbreak has subsided, and any change in consumer preferences could negatively impact our results of operations. Furthermore, the financial condition of our customers and vendors may be adversely impacted by the pandemic, which may result in a decrease in discretionary consumer spending and our store traffic and sales, and an increase in bankruptcies or insolvencies with respect to our vendors. These events may, in turn, have a material adverse impact on our business, results of operations, liquidity and financial condition. In the event of a prolonged material economic downturn, including circumstances that require us to close a large portion of our stores or cause us to experience a further reduction in store traffic, we may not be able to comply with the financial covenants in our credit facility, which could negatively impact our ability to borrow under that facility or with other lenders and negatively impact our liquidity position.
We may not be able to execute our opportunistic buying strategy, adequately manage our supply of inventory or anticipate
customer demand, which could have a material adverse effect on our business, financial condition and results of operations. Our business is dependent on our ability to strategically source a sufficient volume and variety of brand name merchandise at opportunistic pricing. We do not have significant control over the supply, design, function, cost or availability of many of the products that we offer for sale in our stores. Additionally, because a substantial amount of our store products are sourced by us from suppliers on a closeout basis or with significantly reduced prices for specific reasons, we are not always able to purchase specific merchandise on a recurring basis. We do not have long-term contracts with our suppliers and, therefore, we have no contractual assurances of pricing or access to products and any supplier could discontinue sales to us at any time or offer us less favorable terms on future transactions. We generally make individual purchase decisions for products that become available, and these purchases may be for large quantities that we may not be able to sell on a timely or cost-effective basis.
Due to economic uncertainties, some of our suppliers may cease operations or may otherwise become unable to continue supplying discounted or closeout merchandise on terms or in quantities acceptable to us.We also compete with other retailers, wholesalers and jobbers for discounted or closeout merchandise to sell in our stores. Although we work with a range of suppliers, toTo the extent that certain of our suppliers are better able to manage their inventory levels and reduce the amount of their excess inventory, the amount of discount or closeout merchandise available to us could also be materially reduced, potentially compromising profit margin goals for procured merchandise.
Due to economic uncertainties, governmental orders, or other challenges relating to the ongoing COVID-19 pandemic, one or more of our suppliers could become unable to continue supplying discounted or closeout merchandise on terms or in quantities acceptable or desirable to us. We also compete with other retailers, wholesalers and jobbers for discounted or closeout merchandise to sell in our stores. Those businesses may be better able to anticipate customer demand or procure desirable goods. Shortages or disruptions in the availability of brand name or unbranded products of a quality acceptable to our customers and us could have a material adverse effect on our business, financial condition and results of operations and also may result in customer dissatisfaction. In addition, we may significantly overstock products that prove to
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be undesirable and be forced to take significant markdowns. We cannot ensure that our merchant team will continue to identify the appropriate customer demand and take advantage of appropriate buying opportunities, which could have a material adverse effect on our business, financial condition and results of operations.
Risks associated with or faced by our suppliers could adversely affect our financial performance.
We source our merchandise from a variety of suppliers, and we depend on them to supply merchandise in a timely and efficient manner. If one or more of our current suppliers became unable to supply goods, we believe we generally would be able to obtain alternative sources, but it could increase our merchandise costs and supply chain lead time, potentially resulting in temporary reduction in store inventory levels, and reduce the selection and quality of our merchandise. An inability to obtain alternative sources could materially decrease our sales. Additionally, if a supplier fails to deliver on its commitments, we could experience merchandise out-of-stocks that could lead to lost sales and reputational harm. Further, failure of suppliers to meet our compliance protocols could prolong our procurement lead time, resulting in lost sales and adverse margin impact. Changes to the prices and flow of certain goods are, at times, for reasons beyond our control, such as political or civil unrest, acts of war, currency fluctuations, disruptions in maritime lanes, port labor disputes, economic conditions and instability in countries in which foreign suppliers are located, the financial instability of suppliers, failure to meet our terms and conditions or our standards, issues with our suppliers’ labor practices or labor disruptions they may experience (such as strikes, stoppages or slowdowns, which could also increase labor costs during and following the disruption), the availability and cost of raw materials, pandemic outbreaks, merchandise quality or safety issues, transport availability and cost, increases in wage rates and taxes, transport security, inflation, and other factors relating to suppliers. Such changes could adversely affect our operations and profitability.
We rely on third parties to move goods through ports and transport them from ports to our centralized distribution centers.
Our ability to timely and effectively deliver goods to our stores relies in part on shipping and transportation partners to timely and safely move our goods from manufacturing facilities to ports and then onto oceangoing carriers. The demand for space onboard oceangoing vessels can vary and costs to secure space can vary greatly. We may be subject to higher transportation costs or be unable to secure space for containers on economically reasonable terms. In addition, there may be labor or other disputes at either ports of departure or at ports of entry that may delay or otherwise hinder the flow of goods. Additional factors, such as customs or border control policies, may further delay or hinder transportation of goods or the costs to obtain them. There are multiple factors in the transportation of goods from the manufacturer that are both outside of our control and which may negatively impact the cost of the goods or the timeframes in which we receive them.
In addition to the many and varied costs that are associated with COVID-19, our ability to predict healthcare and other benefit costs may be limited.
COVID-19 and the related testing and vaccination costs are inherently uncertain and therefore very difficult to predict. These costs, and the costs associated with other healthcare impacts of COVID-19, may significantly impair our ability to timely and accurately forecast health care and other benefit costs for this or further periods. As a result, we may have difficulty establishing accurate budgetary reserves or estimates for these and other costs, which could in turn, negatively impact our results of operations and expenses.
Factors such as inflation, cost increases and energy prices could have a material adverse effect on our business, financial condition and results of operations.
Future increases in costs, such as the cost of merchandise, shipping rates, freight costs (including import costs) and store occupancy costs, may reduce our profitability, given our pricing model. These cost increases may be the result of inflationary pressures, geopolitical factors or public policies, which could further reduce our sales or profitability. Increases in other operating costs, including changes in energy prices, wage rates and lease and utility costs, may increase our cost of goods sold or selling, general and administrative expenses. Our low-price model and competitive pressures in our industry may have the effect of inhibiting our ability to reflect these increased costs in the prices of our products and, therefore, reduce our profitability and have a material adverse effect on our business, financial condition and results of operations.
Vaccine mandates and other governmental regulations relating to the ongoing COVID-19 pandemic could have a material adverse impact on our business, financial conditions, results of operations, and prospects.
On November 4, 2021, the U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”) issued an emergency temporary standard (“ETS”) regulation requiring all employers with at least 100 employees have their employees be vaccinated or tested weekly. On January 13, 2022, the United States Supreme Court (“Court”) granted emergency relief and stayed implementation of the ETS. The Court held that the challengers were likely to succeed on their argument that OSHA lacked the authority to promulgate the ETS and enforcement of the ETS should be stayed pending further review. On January 26, 2022, OSHA withdrew the ETS as an enforceable emergency temporary standard but stated that the ETS will continue to serve as a proposed rule for a permanent standard under the Occupational Safety and Health Act of 1970.
As a company with about 10,000 employees, it is anticipated that, should the ETS or similar regulations go into effect, we could be subject to COVID-19 vaccination and/or testing mandates. Should the mandates apply to us, we may be required to implement a requirement that all of our employees get vaccinated or be frequently tested, subject to limited exceptions. At this time, it is not possible to predict the impact that a vaccine and testing mandate, or a vaccine requirement should we adopt one, will have on us or on our workforce. Any vaccine requirement or vaccine mandate, if implemented, may result in disruptions to our retail store operations, distribution operations, employee attrition and increased labor costs, which could materially and adversely affect our business and results of operations.
Our ability to generate revenues is dependent on consumer confidence and spending, which may be subject to
factors beyond our control, including changes in economic and political conditions.conditions, and health concerns.
The success of our business depends, to a significant extent, on the level of consumer confidence and spending. A number of factors beyond our control affect the level of customer confidence and spending on merchandise that we offer, including, among other things:
energy and gasoline prices;
disposable income of our customers;customers, which may be impacted by unemployment levels, personal debt levels and minimum wages;
discounts, promotions and merchandise offered by our competitors;
personal debt levels of our customers;
negative reports and publicity about the discount retail industry;
outbreak of viruses or widespread illness, including COVID-19, and behavioral changes from a fear of contracting such viruses or illness;
general economic and industry conditions;
interest rates;rates and inflation;
the state of the housing market;
customer confidence in future economic conditions;
fluctuations in the financial markets;
tax rates and policies; and
outbreak of viruses or widespread illness; and
natural disasters, war, terrorism and other hostilities.
Reduced customer confidence and spending
cut backscutbacks may result in reduced demand for our merchandise, including discretionary items, and may force us to take inventory markdowns. Reduced demand also may require increased selling and promotional expenses. Adverse economic conditions and any related decrease in customer demand for our merchandise could have a material adverse effect on our business, financial condition and results of operations.
For example, recent fears of contagion or disease related to the widespread outbreak of COVID-19 may cause customers to avoid shopping at brick and mortar retailers or reduce the number of trips they will make to our stores. Similarly, negative economic conditions related to this outbreak may limit the amount of disposable income available to our customers, which may limit our consumer demand.
Many of the factors identified above also affect commodity rates, transportation costs, costs of labor, insurance and healthcare, the strength of the U.S. dollar, lease costs, measures that create barriers to or increase the costs associated with international trade, changes in other laws and regulations and other economic factors, all of which may impact our cost of goods sold and our selling, general and administrative expenses, which could have a material adverse effect on our business, financial condition and results of operations.
We do not compete in the growing online retail marketplace, which could have a material adverse effect on our business, financial condition and results of operations.
Our long-term business strategy does not presently include the development of online retailing capabilities. To the extent that we implement online operations, we would incur substantial expenses related to such activities and would be exposed to additional cybersecurity risks. Furthermore, any development of an online retail marketplace is a complex undertaking, and there is no guarantee that any resources we apply to this effort will result in increased revenues or operating performance. However, with the growing acceptance of online shopping, which may have accelerated as a result of the COVID-19 pandemic, both among consumers who previously shopped online and consumers who did not previously do so, or did not do so as frequently, we may continue to face challenges related to customers shopping in brick and mortar stores. In addition, the increased proliferation of mobile devices, enhanced and robust connections to mobile networks, competition from other retailers in the online retail marketplace is expected to continue to increase and may negatively impact our results of operations. Certain of our competitors and a number of pure online retailers have established robust online operations. Increased competition from online retailers and our lack of an online retail presence may reduce our customers’ desire to purchase goods from us and could have a material adverse effect on our business, financial condition and results of operations. If consumers determine to shop more online due to cultural or health concerns, they may be less likely to return to brick and mortar retailers in the future.
Labor shortages and increased turnover or increases in employee and employee-related costs could have adverse effects on our profitability.
We have recently experienced increased labor shortages at some of our locations. While we have historically experienced some level of ordinary course turnover of employees, the COVID-19 pandemic and resulting actions and impacts have exacerbated labor shortages and increased turnover. A number of factors have had and may continue to have adverse effects on the labor force available to us, including reduced employment pools, federal unemployment subsidies, including unemployment benefits offered in response to the COVID-19 pandemic, and other government regulations, which include laws and regulations related to workers’ health and safety, wage and hour practices and immigration. Labor shortages and increased turnover rates within our team members have led to and could in the future lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees and could negatively affect our ability to efficiently operate our production facilities or otherwise operate at full capacity. An overall or prolonged labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material adverse impact on our operations, results of operations, liquidity or cash flows.
We face intense competition, which could limit our growth opportunities and adversely impact our financial
performance.We compete with a highly fragmented group of competitors, including discount, closeout, mass merchant, department, grocery, drug, convenience, hardware, variety, online and other specialty stores. We compete with these retailers with respect to product price, store location, supply and quality of merchandise, assortment and presentation and customer service. This competitive environment subjects us to the risk of an adverse impact to our financial performance because of the lower prices, and thus the lower margins, that are required to maintain our competitive position. A number of different competitive factors outside of our control could impact our ability to compete effectively, including:
entry of new competitors in our markets;
increased operational efficiencies of competitors;
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online retail capabilities of our competitors;
competitive pricing strategies, including deep discount pricing by a broad range of retailers during periods of poor customer confidence, low discretionary income or economic uncertainty;
continued and prolonged promotional activity by our competitors;
liquidation sales by our competitors that have filed or may file in the future for bankruptcy;
geographic expansion by competitors into markets in which we currently operate; and
adoption by existing competitors of innovative store formats or retail sales methods.methods, including online.
A number of our competitors also have greater financial and operational resources, greater brand recognition, longer operating histories and
a broader geographic
presencespresence than us. We remain vulnerable to the marketing power and high level of customer recognition of these larger competitors and to the risk that these or other competitors could attract our customer base, including, but not limited to, the members of Ollie’s Army.
In addition, if any of our competitors were to consolidate their operations, such consolidation may result in competitors with greatly improved financial resources, improved access to merchandise, greater market penetration and other improvements in their competitive positions, as well as result in the provision of a wider variety of products and services at competitive prices by these consolidated companies, which could adversely affect our financial performance.
We cannot guarantee that we will continue to be able to successfully compete against either existing or future competitors. Our inability to respond effectively to competitive pressures, improved performance by our competitors and changes in the retail markets could result in lost market share and have a material adverse effect on our business, financial condition and results of operations.
If we fail to open new profitable stores on a timely basis,
or successfully enter new markets
or implement other elements of our long-term growth strategy, our financial
performance could be materially adversely affected.Our primary growth strategy is to open new profitable stores and expand our operations into new geographic regions. We opened
37 and 3446 new stores in
2018each of 2021 and
2017, respectively,2020 as we continue to backfill in existing markets and expand into contiguous geographies. Our ability to timely open new stores depends in part on several factors, including the availability of attractive rents and store locations; the absence of occupancy delays; the ability to negotiate and enter into leases with acceptable terms; our ability to obtain
and retain permits and licenses; our ability to hire and train new personnel, especially store managers, in a cost effective manner; our ability to adapt and grow our distribution and other operational and management systems to a changing network of stores; the availability of capital funding for expansion; our ability to respond to demographic shifts in areas where our stores are located and general economic conditions.
We may not anticipate all of the challenges imposed by the expansion of our operations into new geographic markets. Some new stores may be located in areas with different competitive and market conditions, customer tastes and discretionary spending patterns than our existing markets. We may face a higher cost of entry,
difficulties attracting labor, alternative customer demands, reduced brand recognition and minimal operating experience in these areas. Although we are extremely sensitive to cannibalizing existing stores, opening new stores in our established markets may also result in inadvertent oversaturation, sales volume transfer from existing stores to new stores and reduced comparable store sales, thus adversely affecting our overall financial performance. We may not manage our expansion effectively, and our failure to achieve or properly execute our expansion plans could limit our growth or have a material adverse effect on our business, financial condition and results of operations.
We may not be able to retain the loyalty of our customers, particularly Ollie’s Army members, which could have
a material adverse effect on our business, financial condition and results of operations.We depend on our loyal customer base, particularly members of Ollie’s Army, for our consistent sales and sales growth. Competition for customers has intensified as competitors have moved into, or increased their presence in, our geographic markets and from the use of mobile and web-based technology that facilitates online shopping and real-time product and price comparisons. We expect this competition to continue to increase. Our competitors may be able to offer consumers promotions or loyalty program incentives that could attract Ollie’s Army members or divide their loyalty among several retailers. If we are unable to retain the loyalty of our customers, our net sales could
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decrease and we may not be able to grow our store base as planned, which could have a material adverse effect on our business, financial condition and results of operations.
Our success depends on our executive officers, our merchant team and other key personnel. If we lose key personnel or are unable to hire additional qualified personnel, it could have a material adverse effect on our business, financial condition and results of operations.
Our future success depends to a significant degree on the skills, experience and efforts of our executive officers, our merchant team and other key personnel. The unexpected loss of services of any of our executive officers, particularly Mark Butler, our co-founder, Chairman, President and Chief Executive Officer, or senior members of our merchant team could materially adversely affect our business and operations. Competition for skilled and experienced management in the retail industry is intense, and our future success will also depend on our ability to attract and retain qualified personnel, including our merchant team, which is responsible for purchasing and negotiating the terms of our merchandise. Failure to attract and retain new qualified personnel could have a material adverse effect on our business, financial condition and results of operations.
Our new store growth is dependent on our ability to successfully expand our distribution network capacity, and failure to achieve or sustain these plans could affect our performance adversely.
We maintain distribution centers in York, PA and Commerce, GA and are building a third in Lancaster, TX to support our existing stores and our growth objectives. We continuously assess ways to maximize the productivity and efficiency of our existing distribution facilities and evaluate opportunities for additional distribution centers. Delays in opening our Lancaster, TX distribution center or any future new distribution centers could adversely affect our future operations by slowing store growth, which could, in turn, reduce sales growth. In addition, any distribution-related construction or expansion projects entail risks which could cause delays and cost overruns, such as shortages of materials, shortages of skilled labor or work stoppages, unforeseen construction, scheduling, engineering, environmental or geological problems, weather interference, fires or other casualty losses and unanticipated cost increases. The completion date and ultimate cost of future projects, including our Lancaster, TX distribution center, could differ significantly from initial expectations due to construction-related or other reasons. We cannot guarantee that any project will be completed on time or within established budgets.
The failure to timely acquire, develop,
open and
open,operate, or the loss of,
or disruption or interruption in the operations of, our
centralized distribution centers could materially adversely affect our business and operations.With few exceptions, inventory is shipped directly from suppliers to our distribution centers in York, PA,
and Commerce, GA,
and Lancaster, TX, where the inventory is then processed, sorted and shipped to our stores. We depend in large part on the orderly operation of this receiving and distribution process, which depends, in turn, on adherence to shipping schedules and effective management of our distribution centers. Increases in transportation costs (including increases in fuel costs), supplier-side delays, reductions in the capacity of carriers, changes in shipping companies,
the impact of COVID-19 on our workforce, labor strikes or shortages in the transportation industry and unexpected delivery interruptions also have the potential to derail our orderly distribution process. We also may not anticipate changing demands on our distribution system or timely develop and open any necessary additional facilities. In addition, events beyond our control, such as disruptions in operations due to fire or other catastrophic events or labor disagreements, may result in delays in the delivery of merchandise to our stores. While we maintain business interruption insurance, in the event our distribution centers are shut down for any reason, such insurance may not be sufficient, and any related insurance proceeds may not be timely paid to us. In addition, our new store locations receiving shipments may be further away from our distribution centers, which may increase transportation costs and may create transportation scheduling strains. Any repeated, intermittent, or long-term disruption in the operations of our distribution centers would hinder our ability to provide merchandise to our stores and could have a material adverse effect on our business, financial condition and results of operations.
Factors such as inflation, cost increases and energy prices could have a material adverse effect on our business, financial condition and results of operations.
Future increases in costs, such as the cost of merchandise, shipping rates, freight costs and store occupancy costs, may reduce our profitability, given our pricing model. These cost increases may be the result of inflationary pressures, geopolitical factors or public policies, which could further reduce our sales or profitability. Increases in other operating costs, including changes in energy prices, wage rates and lease and utility costs, may increase our cost of
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goods sold or selling, general and administrative expenses. Our low price model and competitive pressures in our industry may have the effect of inhibitingnew store growth is dependent on our ability to reflectsuccessfully expand our distribution network capacity, and failure to achieve or sustain these increased costsplans could adversely affect our performance.
We maintain distribution centers in
York, PA, Commerce, GA and Lancaster, TX to support our existing stores and our growth objectives. We continuously assess ways to maximize the
pricesproductivity and efficiency of our
productsexisting distribution facilities and
therefore,evaluate opportunities for additional distribution centers. Processing delays or difficulties in operations at our existing distribution centers or any future new distribution centers could adversely affect our current operations by causing existing stores to have insufficient inventory, and affect future operations by slowing store growth, which could, in turn, reduce
our profitabilitysales growth. In addition, any distribution-related construction or expansion projects entail risks which could cause delays and
have a material adverse effectcost overruns, such as shortages of materials, shortages of skilled labor or work stoppages, unforeseen construction, scheduling, engineering, environmental or geological problems, COVID-19 or other strains or types of contagion, weather interference, fires or other casualty losses and unanticipated cost increases. The completion date and ultimate cost of future projects could differ significantly from initial expectations due to construction-related or other reasons. We cannot guarantee that any project will be completed on
our business, financial condition and results of operations.time or within established budgets.
If we are not successful in managing our inventory balances, it could have a material adverse effect on our
business, financial condition and results of operations.Our inventory balance represented
61.5%53.3% of our total assets exclusive of
operating lease right-of-use assets, goodwill
and trade name
and other intangible assets, net, as of
February 2, 2019.January 29, 2022. Efficient inventory management is a key component of our profitability and ability to generate revenue. To be successful, we must maintain sufficient inventory levels and an appropriate product mix to meet our customers’ demands without allowing those levels to increase to such an extent that the costs to store and hold the goods adversely impact our results of operations. If our buying decisions do not accurately correspond to customer preferences, if we inappropriately price products or if our expectations about customer spending levels are inaccurate, we may have to take unanticipated markdowns to dispose of any excess inventory, which could have a material adverse effect on our business, financial condition and results of operations. We continue to focus on ways to reduce these risks, but we cannot ensure that we will be successful in our inventory management. If we are not successful in managing our inventory balances, it could have a material adverse effect on our business, financial condition and results of operations.
We may not be successful in the implementation of our long-term business strategy, which could materially adversely affect our business, results of operations, cash flows and financial condition.
Our success depends, to a significant degree, on our ability to successfully implement our long-term business strategy. Our ability to successfully implement our business strategy depends on a significant number of factors, including, but not limited to, our ability to:
expand our store base and increase our customers;
access an adequate supply of quality brand name and closeout merchandise from suppliers at competitive prices;
achieve profitable sales and to make adjustments as market conditions change;
foster customer acceptance of our marketing and merchandise strategies;
respond to competitive pressures in our industry;
attract and retain store-level and management-level associates;
properly respond to the dynamics and demands of our market;
maintain our relationships with our suppliers and customers;
achieve positive cash flow, particularly during our peak inventory build-ups in advance of the holiday sales season; and
adapt to any revised or new strategic initiatives and organizational structure.
Any failure to achieve any or all of our business strategiesInventory shrinkage could have a material adverse effect on our business, financial condition and results of operations.
We are subject to the risk of inventory loss and theft. We cannot ensure that actual rates of inventory loss and theft in the future will be within our estimates or that the measures we are taking will effectively reduce the problem of inventory shrinkage. Although some level of inventory shrinkage is an unavoidable cost of doing business, if we were to experience higher rates of inventory shrinkage or incur increased security costs and other costs to combat inventory theft, it could have a material adverse effect on our business, financial condition and results of operations.
Epidemic or pandemic outbreaks such as COVID-19, natural disasters, whether or not caused by climate change, unusual weather conditions, terrorist acts and political events could disrupt business and result in lower sales and otherwise adversely affect our financial performance.
The occurrence of one or more natural disasters, such as tornadoes, hurricanes, fires, floods and earthquakes, unusual weather conditions, epidemic outbreaks, terrorist attacks or disruptive political events in certain regions where our stores are located could adversely affect our business and result in lower sales. Epidemic or pandemic outbreaks, such as COVID-19, could impact our management and sales associates, our inventory supply, delivery schedules, our ability to keep our stores open due to mandatory governmental restrictions or may cause our customers to avoid shopping at brick and mortar retailers or reduce the number of trips they will make to our stores. To the extent these events also impact one or more of our key suppliers or result in the closure of one or more of our centralized distribution centers or our corporate headquarters, we may be unable to maintain delivery schedules or provide other support functions to our stores. This could have a sustained material adverse effect on our business, financial condition and results of operations.
In addition, severe weather, such as heavy snowfall or extreme temperatures, may discourage or restrict customers in a particular region from traveling to our stores, thereby reducing our sales and profitability. If severe weather conditions occur during the second or fourth quarter of our fiscal year, the adverse impact to our sales and profitability could be even greater than at other times during the year because we generate a larger portion of our sales and profits during these periods. Natural disasters, which may include tornadoes, hurricanes, floods and earthquakes, may impact our store locations or other operations. In addition, climate change may have an impact on the frequency and/or severity of such natural disasters. We have a growing number of store locations in areas that may be impacted by weather events and natural disasters such as the types listed above. To the extent that such weather events or natural disasters may damage our stores or other operations, we may be unable to operate stores or other facilitates and our consolidated financial results may be materially adversely affected.
Fluctuations in comparable store sales and results of operations, including fluctuations on a quarterly basis, could cause our business performance to decline substantially.
Our results of operations have fluctuated in the past, including on a quarterly basis, and can be expected to continue to fluctuate in the future.
Our comparable store sales and results of operations are affected by a variety of factors, including:
national and regional economic trends in the United States;
challenges and the impact of COVID-19 and related regulations;
changes in gasoline prices;
changes in our merchandise mix;
changes in the timing of promotional and advertising efforts; and
holidays or seasonal periods.
If our future comparable store sales fail to meet expectations, then our cash flow and profitability could decline substantially, which could have a material adverse effect on our business, financial condition and results of operations.
Our success depends on our executive officers, our merchant team and other key personnel. If we lose key personnel or are unable to hire additional qualified personnel, it could have a material adverse effect on our business, financial condition and results of operations.
Our future success depends to a significant degree on the skills, experience and efforts of our executive officers, our merchant team and other key personnel. The unexpected loss of services of any of our executive officers or senior members of our merchant team could materially adversely affect our business and operations. Competition for skilled and experienced management in the retail industry is intense, and our future success will also depend on our ability to attract and retain qualified personnel, including our merchant team, which is responsible for purchasing and negotiating the terms of our merchandise. Failure to attract and retain new qualified personnel could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to attract, train and retain highly qualified managerial personnel and sales associates in our
stores and our distribution centers, our sales, financial performance and business operations may be materially adversely affected.We focus on providing our customers with a memorable and engaging shopping experience. To grow our operations and meet the needs and expectations of our customers, we must attract, train and retain a large number of highly qualified store management personnel and sales associates, while controlling labor costs. Our ability to control labor costs is subject to numerous external factors
and compliance with regulatory structures, including competition for and availability of qualified personnel in a given market, unemployment levels within those markets, governmental
regulatory bodies such as the Equal Employment Opportunity Commission and the National Labor Relations Board, prevailing wage rates and wage and hour laws, minimum wage laws, the impact of legislation governing labor and employee relations or benefits, such as the Affordable Care Act, health insurance costs and our ability to maintain good relations with our associates. We
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compete with other retail businesses for many of our store management personnel and sales associates in hourly and part-time positions. These positions have had historically high turnover rates, which can lead to increased training and retention costs. We also rely on associates in our distribution centers to ensure the efficient processing and delivery of products from our suppliers to our stores. If we are unable to attract and retain quality associates, and other management personnel, or fail to comply with the regulations and laws impacting personnel, it could have a material adverse effect on our business, financial condition and results of operations.
Our success depends on our marketing, advertising and promotional efforts. If we are unable to implement them successfully, or if our competitors are more effective than we are, it could have a material adverse effect on our business, financial condition and results of operations.
We use marketing and promotional programs to attract customers to our stores and to encourage purchases by our customers. Although we use various media for our promotional efforts, including regular and Ollie’s Army mailers, email campaigns, radio and television advertisements and sports marketing, we primarily advertise our in-store offerings through printed flyers. In 2021, approximately 63% of our advertising spend was for the printing and distribution of flyers. If the efficacy of printed flyers as an advertising medium declines, or if we fail to successfully develop and implement new marketing, advertising and promotional strategies, such as an effective social media strategy, our competitors may be able to attract the interest of our customers, which could reduce customer traffic in our stores. Changes in the amount and degree of promotional intensity or merchandising strategy by our competitors could cause us to have difficulties in retaining existing customers and attracting new customers. If the efficacy of our marketing or promotional activities declines or if such activities of our competitors are more effective than ours, or if for any other reason we lose the loyalty of our customers, including our Ollie’s Army members, it could have a material adverse effect on our business, financial condition and results of operations.
Because our business is seasonal, with the highest volume of net sales during the holiday season, adverse events during our fourth fiscal quarter could materially adversely affect our business, operations, cash flows and financial condition.
We generally recognize our highest volume of net sales in connection with the holiday sales season, which occurs in the fourth quarter of our fiscal year. In anticipation of the holiday sales season, we purchase substantial amounts of seasonal inventory and hire many part-time associates. Because a significant percentage of our net sales and operating income are generated in our fourth fiscal quarter, we have limited ability to compensate for shortfalls in our fourth fiscal quarter sales or earnings by changing our operations or strategies in other fiscal quarters. Adverse events, such as deteriorating economic conditions, higher unemployment, higher gas prices, public transportation disruptions, errors in anticipating consumer demand for our products, or unanticipated adverse or unseasonable weather conditions could result in lower than planned sales during the holiday sales season. If our fourth fiscal quarter sales results were substantially below expectations, we would realize less cash flows from operations, and may be forced to mark down our merchandise, especially our seasonal merchandise, which could have a material adverse effect on our business, financial condition and results of operations.
Our business requires that we lease substantial amounts of space and there can be no assurance that we will be
able to continue to lease space on terms as favorable as the leases negotiated in the past.We lease the majority of our store locations, our corporate headquarters and our distribution facilities in York, PA and Commerce, GA. Our stores are leased from third parties, with typical initial lease terms of approximately seven years with options to renew for three to five successive five-year periods. We believe that we have been able to negotiate favorable rental rates over the last few years due in large part to the general state of the economy, the increased availability of vacant big box retail sites and our careful identification of favorable lease opportunities. While we will continue to seek out advantageous lease opportunities, there is no guarantee that we will continue to be able to find low-cost second generation sites or obtain favorable lease terms. Many of our lease agreements have defined escalating rent provisions over the initial term and any extensions. Increases in our occupancy costs and difficulty in identifying economically suitable new store locations could have significant negative consequences, which include:
requiring that a greater portion of our available cash be applied to pay our rental obligations, thus reducing cash available for other purposes and reducing profitability;
increasing our vulnerability to general adverse economic and industry conditions; and
limiting our flexibility in planning for, or reacting to changes in, our business or in the industry in which we compete.
We depend on cash
flowflows from operations to pay our lease expenses and to fulfill our other cash needs. If our business does not generate sufficient cash
flowflows from operating activities to fund these expenses and needs and sufficient funds are not otherwise available to us, we may not be able to service our lease expenses, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which could harm our business. Additional sites that we lease may be subject to long-term non-cancelable leases if we are unable to negotiate our current standard lease terms. If an existing or future store is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. Moreover, even if a lease has an early cancellation clause, we may not satisfy the contractual requirements for early cancellation under that lease. In addition, if we are not able to enter into new leases or renew existing leases on terms acceptable to us, this could have a material adverse effect on our business, financial condition and results of operations.
We do not compete in
Risks associated with the
growing online retail marketplace, whichcurrent geopolitical climate could
have a material adverse effect onadversely affect our
business, financial condition, and results of operations. Our business, financial condition and results of operations may differ materially as we cannot predict the impact of the Russian invasion of Ukraine that has occurred and any heightened geopolitical instability or results that may follow. Risks associated with heightened geopolitical instability as a result of the Russia/Ukraine conflict include, among others, reductions in consumer confidence, heightened inflation, production disruptions, cyber disruptions or attacks, higher natural gas costs, higher manufacturing costs and higher supply chain costs.
Climate change may have a long-term impact on our business.
There are inherent climate-related risks wherever our business strategy does not presently includeis conducted. Changes in market dynamics, shareholder expectations, local, national and international climate change policies, and the developmentfrequency and intensity of online retailing capabilities. Toextreme weather events on critical infrastructure in the extent that we implement online operations, we would incur substantial expenses relatedUnited States and abroad, all have the potential to such activitiesdisrupt our business and be exposedoperations. Global climate change is resulting, and may continue to additional cybersecurity risks. Further, any development of an online retail marketplace is a complex undertaking, and there is no guarantee that any resources we apply to this effort will result, in increased revenuescertain natural disasters and adverse weather, such as drought, wildfires, storms, sea-level rise, and flooding, occurring more frequently or operating performance. However, with the growing acceptancegreater intensity. These events and their impacts could otherwise disrupt and adversely affect our business and could materially affect our financial condition and results of online shoppingoperations.
LEGAL AND REGULATORY
We are subject to governmental regulations, procedures and
the increased proliferation of mobile devices, competition from other retailersrequirements. A significant change in,
the online retail marketplace is expected to increase. Certain of our competitors and a number of pure online retailers have established robust online operations. Increased competition from online retailers and our lack of an online retail presence may reduce our customers’ desire to purchase goods from us andor noncompliance with, these regulations could have a material adverse effect on our business, financial condition and results of operations.
Our success depends on our marketing, advertising and promotional efforts. If we are unable to implement them successfully, or if our competitors are more effective than we are, it could have a material adverse effect on our business, financial condition and results of operations.
We use marketing and promotional programs to attract customers to our stores and to encourage purchases by our customers. Although we use various media for our promotional efforts, including regular and Ollie’s Army mailers,
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email campaigns, radio and television advertisements and sports marketing, we primarily advertise our in-store offerings through printed flyers. In 2018, approximately 70% of our advertising spend was for the printing and distribution of flyers. If the efficacy of printed flyers as an advertising medium declines, or if we fail to successfully develop and implement new marketing, advertising and promotional strategies, such as an effective social media strategy, our competitors may be able to attract the interest of our customers, which could reduce customer traffic in our stores. Changes in the amount and degree of promotional intensity or merchandising strategy by our competitors could cause us to have difficulties in retaining existing customers and attracting new customers. If the efficacy of our marketing or promotional activities declines or if such activities of our competitors are more effective than ours, or if for any other reason we lose the loyalty of our customers, including our Ollie’s Army members, it could have a material adverse effect on our business, financial condition and results of operations.
If we fail to protect our brand names, competitors may adopt trade names that dilute the value of these assets.
We may be unable or unwilling to strictly enforce our trademarks in each jurisdiction in which we do business. Also, we may not always be able to successfully enforce our trademarks against competitors or against challenges by others. Our failure to successfully protect our trademarks could diminish the value and efficacy of our brand recognition and could cause customer confusion, which could have a material adverse effect on our business, financial condition and results of operations.
Fluctuations in comparable store sales and results of operations, including fluctuations on a quarterly basis, could cause our business performance to decline substantially.
Our results of operations have fluctuated in the past, including on a quarterly basis, and can be expected to continue to fluctuate in the future.
Our comparable store sales and results of operations are affected by a variety of factors, including:
national and regional economic trends in the United States;
changes in gasoline prices;
changes in our merchandise mix;
changes in pricing;
changes in the timing of promotional and advertising efforts;
holidays or seasonal periods; and
the weather.
If our future comparable store sales fail to meet expectations, then our cash flow and profitability could decline substantially, which could have a material adverse effect on our business, financial condition and results of operations.
We rely on manufacturers in foreign countries for merchandise and a significant amount of our domestically-purchased merchandise is manufactured abroad. Our business may be materially adversely affected by risks associated with international trade.
We purchase merchandise directly from suppliers outside of the United States. In 2018, substantially all of our private label inventory purchases were direct imports. Our direct imports represented approximately 20% at cost of our total merchandise purchases in 2018. Additionally, a significant amount of our domestically-purchased merchandise is manufactured abroad. Our ability to identify qualified suppliers and to access products in a timely and efficient manner is a significant challenge, especially with respect to goods sourced outside of North America. Global sourcing and foreign trade involve numerous factors and uncertainties beyond our control, including possible changes to U.S. trade policy, increased shipping costs, the timing of shipments, increased import duties, more restrictive quotas, loss of most favored nation trading status, currency, work stoppages, transportation delays, port of entry issues, economic uncertainties such as inflation, foreign government regulations, political unrest, natural disasters, war, terrorism, trade restrictions, political instability, the financial stability of vendors, merchandise quality issues, and tariffs. Moreover, negative press or reports about internationally manufactured products may sway public opinion, and thus customer confidence, away from the products sold in our stores. These and other issues affecting our international vendors could have a material adverse effect on our business, financial condition and results of operations.
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We are subject to governmental regulations, procedures and requirements. A significant change in, or noncompliance with, these regulations could have a material adverse effect on our business, financial condition and results of operations.
We routinely incur significant costs in complying with federal, state and local laws and regulations. The complexity of the regulatory environment in which we operate, and the related cost of compliance are increasing due to expanding and additional legal and regulatory requirements and increased enforcement efforts. New laws or regulations, including those dealing with healthcare reform, product safety, consumer credit, privacy and information security and labor and employment, among others, or changes in existing federal, state and local laws and regulations, particularly those governing the sale of products and food safety and quality (including changes in labeling or disclosure requirements), federal or state wage requirements, employee rights, health care, social welfare or entitlement programs such as health insurance, paid leave programs, other changes in workplace regulation, and compliance with laws regarding public access to our stores, may result in significant added expenses or may require extensive system and operating changes that may be difficult to implement and/or could materially increase our cost of doing business. Untimely compliance or noncompliance with applicable laws or regulations or untimely or incomplete execution of a required product recall can result in the imposition of penalties, including loss of licenses or significant fines or monetary penalties, class action litigation or other litigation, in addition to reputational damage. Additionally, changes in tax laws, the interpretation of existing laws, or our failure to sustain our reporting positions on examination could materially adversely affect our effective tax rate and could have a material adverse effect on our business, financial condition and results of operations.
Data protection requirements increase
If we fail to protect our operating costs and a breachbrand names, competitors may adopt trade names that dilute the value of these assets.
We may be unable or unwilling to strictly enforce our trademarks in
information privacy or other related risks could negatively impact our operations.We have access to, collect or maintain private or confidential information regarding our customers, associates and suppliers, as well as our business. The protection of our customer, associate, supplier and company data is critical to us. In recent years, there has been increasing regulation, enforcement and litigation activity in the area of privacy, data protection and information security in the United States and in various other countries, with the frequent imposition of new and changing requirements across the many stateseach jurisdiction in which we conductdo business. Also, we may not always be able to successfully enforce our business. For example, the European Union’s General Data Protection Regulation (“GDPR”), which went into effect on May 25, 2018, expands the scope of EU data protection law to all foreign companies processing personal data of EU residents and imposes a strict data protection compliance regime with significant monetary penalties. The state of California recently passed the California Consumer Privacy Act of 2018 (“CCPA”), which will go into effect on January 1, 2020. The CCPA is expected to impose additional data protection obligations on companies doing business in California and provides for substantial fines for non-compliance and, in some cases, a private right of action to consumers who are victims of data breaches. Complying with the GDPR, the CCPA and similar emerging and changing privacy, data protection and information security requirements may cause us to incur substantial coststrademarks against competitors or compliance risks due to, among other things, system changes and the development of new processes and business initiatives.against challenges by others. Our failure to comply with privacy, data protectionsuccessfully protect our trademarks could diminish the value and information security laws could result in potentially significant regulatory and/or governmental investigations and/or actions, litigation, fines, sanctions, ongoing regulatory monitoring and customer attrition.
In addition, our customers have a high expectation that we will adequately protect their personal information from cyber-attack or other security breaches. We have procedures in place to evaluate the integrityefficacy of our systems,brand recognition and to safeguard such data and information. However, we may be unable to effectively anticipate attacks to or breaches of our security systems or implement adequate preventative measures. A breach ofcould cause customer employee, supplier, or company data could attract a substantial amount of negative media attention, damage our customer and suppler relationships and our reputation, and result in lost sales, fines and/or lawsuits, any ofconfusion, which could have a material adverse effect on our business, financial condition and results of operations.
Any disruptions to our information technology systems or breaches of our network security could disrupt or interrupt our operations, compromise our reputation, expose us to litigation, government enforcement actions and costly response measures and could have a material adverse effect on our business, financial condition and results of operations.
We rely on the integrity, securitymanufacturers in foreign countries for merchandise and successful functioninga significant amount of our information technology systemsdomestically-purchased merchandise is manufactured abroad. Our business may be materially adversely affected by risks associated with international trade.
We purchase merchandise directly from suppliers outside of the United States. In 2021, substantially all of our private label inventory purchases were direct imports. Additionally, a significant amount of our domestically-purchased merchandise is manufactured abroad. Our ability to identify qualified suppliers and
network infrastructure acrossto access products in a timely and efficient manner is a significant challenge, especially with respect to goods sourced outside of North America. Global sourcing and foreign trade involve numerous factors and uncertainties beyond our
operations,control, including
point-of-sale processing atpossible changes to U.S. trade policy, including potential changes in response to the widespread outbreak of COVID-19 (coronavirus), increased shipping costs, the timing of shipments, increased import duties, more restrictive quotas, loss of most favored nation trading status, currency, work stoppages, transportation delays, port of entry issues, economic uncertainties such as inflation, foreign government regulations, political unrest, natural disasters, war, terrorism, trade restrictions, political instability, the financial stability of vendors, merchandise quality issues, unexpected contagion, existing viruses or illnesses, and tariffs. Moreover, negative press or reports about internationally manufactured products may sway public opinion, and thus customer confidence, away from the products sold in our stores.
In connection with sales, we transmit encrypted confidential creditThese and
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As of the end of 2018, we are compliant with the Payment Card Industry Data Security Standard (the “PCI Standard”) issued by the Payment Card Industry Security Standards Council. However, there can be no assurance that in the future we will be able to operateother issues affecting our facilities and our customer service and sales operations in accordance with PCI or other industry recommended or contractually required practices. We expect to incur additional expenses, and the time and effort of our information technology staff, to maintain PCI compliance. Even though we are compliant with such standards, we still may not be able to prevent or timely detect security breaches.
An increasingly significant portion of our sales depends on the continuing operation of our information technology and communications systems, including, but not limited to, our point-of-sale system and our credit card processing systems. Our information technology, communication systems and electronic data may be vulnerable to damage or interruption from computer viruses, ransomware attacks, loss of data, unauthorized data breaches, usage errors by our associates or our contractors or other attempts to harm our systems, including cyber-security attacks or other breaches of cardholder data, earthquakes, acts of war or terrorist attacks, floods, fires, tornadoes, hurricanes, power loss and outages, computer and telecommunications failures. Some of our systems are not fully redundant, and our disaster recovery planning cannot account for all eventualities. The occurrence of intentional sabotage, unauthorized access, natural disaster, or other unanticipated problems could result in lengthy interruptions in our service. Any errors or vulnerabilities in our systems, or damage to or failure of our systems, could result in interruptions in our services, non-compliance with certain regulations, substantial remediation costs, and liability for lost or stolen information, any of whichinternational vendors could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to maintain or upgrade our information technology systems or if we are unable to convert to alternate systems in an efficient and timely manner, our operations may be disrupted or become less efficient.
We depend on a variety of information technology systems for the efficient functioning of our business. We rely on certain hardware, telecommunications and software vendors to maintain and periodically upgrade many of these systems so that we can continue to support our business. Various components of our information technology systems, including hardware, networks and software, are licensed to us by third party vendors. We rely extensively on our information technology systems to process transactions, summarize results and manage our business. Additionally, because we accept debit and credit cards for payment, we are subject to the PCI Standard, which contains compliance guidelines with regard to our security surrounding the physical and electronic storage, processing and transmission of cardholder data. We are in compliance with the PCI Standard as of the end of 2018, and compliance with the PCI Standard and implementing related procedures, technology and information security measures requires significant resources and ongoing attention. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology such as those necessary to achieve compliance with the PCI Standard or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations. Any material interruptions or failures in our payment-related systems could have a material adverse effect on our business, financial condition and results of operations.
If our information technology systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them. If there are amendments to the PCI Standard, the cost of re-compliance could also be substantial and we may suffer loss of critical data and interruptions or delays in our operations as a result. In addition, we may have to upgrade our existing information technology systems from time to time in order for such systems to withstand the increasing needs of our expanding business. Any material interruption experienced by our information technology systems could have a material adverse effect on our business, financial condition and results of operations. Costs and potential interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of our existing systems could disrupt or reduce the efficiency of our business.
Because our business is seasonal, with the highest volume of net sales during the holiday season, adverse events during our fourth fiscal quarter could materially adversely affect our business, operations, cash flow and financial condition.
We generally recognize our highest volume of net sales in connection with the holiday sales season, which occurs in the fourth quarter of our fiscal year. In anticipation of the holiday sales season, we purchase substantial amounts of seasonal inventory and hire many part-time associates. Because a significant percentage of our net sales and operating income are generated in our fourth fiscal quarter, we have limited ability to compensate for shortfalls in our fourth fiscal quarter sales or earnings by changing our operations or strategies in other fiscal quarters. Adverse events, such as deteriorating economic conditions, higher unemployment, higher gas prices, public transportation
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disruptions, or unanticipated adverse weather conditions could result in lower than planned sales during the holiday sales season. If our fourth fiscal quarter sales results were substantially below expectations, we would realize less cash from operations, and may be forced to mark down our merchandise, especially our seasonal merchandise, which could have a material adverse effect on our business, financial condition and results of operations.
The cost of compliance with product safety regulations and risks related to product liability claims and product recalls could damage our reputation, increase our cost of doing business and could have a material adverse effect on our business, financial condition and results of operations.
New federal or state legislation, including new product safety laws and regulations, may negatively impact our operations. Future changes in product safety legislation or regulations may lead to product recalls and the disposal or write-off of merchandise. While we work to comply in all material respects with applicable legislation and regulations, and to execute product recalls in a timely manner, if our merchandise, including food and consumable products and flooring, does not meet applicable governmental safety standards or our customers’ expectations regarding quality or safety, we could experience lost sales and increased costs, be exposed to legal and reputational risk and face fines or penalties which could materially adversely affect our financial results. We also purchase a material portion of our products on a closeout basis. Some of these products are obtained through brokers or intermediaries rather than through manufacturers. The closeout nature of a portion of our products sometimes makes it more difficult for us to investigate all aspects of these products. Furthermore, customers have asserted claims, and may in the future assert claims, that they have sustained injuries from merchandise offered by us, and we may be subject to lawsuits relating to these claims. There is a risk that these claims may exceed, or fall outside the scope of, our insurance coverage. Even with adequate insurance and indemnification from third-party suppliers, such claims, even if unsuccessful or not fully pursued, could significantly damage our reputation and customer confidence in our products. If this occurs, it may be difficult for us to regain lost sales, which could have a material adverse effect on our business, financial condition and results of operations.
We face litigation risks from customers, associates and other third parties in the ordinary course of business.
Our business is subject to the risk of litigation by customers, current and former associates, suppliers, stockholders, intellectual property rights holders, government agencies and others through private actions, class actions, collective actions, administrative proceedings, regulatory actions, or other litigation. From time to time, such lawsuits are filed against us and the outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend any such lawsuits may be significant and may negatively affect our operating results if changes to our business operations are required. There may also be negative publicity associated with litigation that could decrease customer acceptance of merchandise offerings, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our business, financial condition, results of operations or liquidity.
Natural disasters, whether or not caused by climate change, unusual weather conditions, epidemic outbreaks, terrorist acts and political events could disrupt business and result in lower sales and otherwise adversely affect our financial performance.
The occurrence of one or more natural disasters, such as tornadoes, hurricanes, fires, floods and earthquakes, unusual weather conditions, epidemic outbreaks, terrorist attacks or disruptive political events in certain regions where our stores are located could adversely affect our business and result in lower sales. Severe weather, such as heavy snowfall or extreme temperatures, may discourage or restrict customers in a particular region from traveling to our stores, thereby reducing our sales and profitability. If severe weather conditions occur during the second or fourth quarter of our fiscal year, the adverse impact to our sales and profitability could be even greater than at other times during the year because we generate a larger portion of our sales and profits during these periods. Natural disasters, including tornadoes, hurricanes, floods and earthquakes, may damage our stores or other operations, which may materially adversely affect our consolidated financial results. To the extent these events also impact one or more of our key suppliers or result in the closure of our centralized distribution centers or our corporate headquarters, we may be unable to maintain inventory balances, maintain delivery schedules or provide other support functions to our stores. This could have a sustained material adverse effect on our business, financial condition and results of operations.
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Our current insurance program may expose us to unexpected costs and negatively affect our financial performance.
Our insurance coverage reflects deductibles, self-insured retentions, limits of liability and similar provisions that we believe are prudent based on the
dispersionnature of our operations. However, there are types of losses we may incur but against which we cannot be insured or which we believe are not economically reasonable to insure, such as losses due to acts of war, employee and certain other crime, wage and hour, and certain other employment-related claims, public accommodation claims, class actions, and some natural disasters. If we incur these losses and they are material, our business could suffer. Certain material events may result in sizable losses for the insurance industry and adversely impact the availability of adequate insurance coverage or result in excessive premium increases. To offset negative insurance market trends, we may elect to self-insure, accept higher deductibles or reduce the amount of coverage in response to these market changes. In addition, we self-insure a significant portion of expected losses under our workers’ compensation, general liability and group health insurance programs. Unanticipated changes in any applicable actuarial assumptions and management estimates underlying our recorded liabilities for these losses, including expected increases in medical and indemnity costs, could result in materially different expenses than expected under these programs, which could have a material adverse effect on our results of operations and financial condition.
Although weWe continue to maintain property insurance for catastrophic events at our store support center, distribution centers, and
stores, we are not self-insured for other property losses.stores. In addition, because of ongoing changes in healthcare law, among other things, we may experience an increase in participation in our group health insurance programs, which may lead to a greater number of medical
and related claims. While we have coverage for some cyber-related incidents, the nature and scope of any potential attack or breach may result in substantial costs that would exceed the scope of coverage or limits of coverage. If we experience a greater number of these losses than we anticipate, it could have a material adverse effect on our business, financial condition and results of operations.
Inventory shrinkage
We face litigation risks from customers, associates, suppliers, stockholders and other third parties in the ordinary course of business.
Our business is subject to the risk of litigation by customers, current and former associates, suppliers, stockholders, intellectual property rights holders, government agencies and others through private actions, class actions, collective actions, administrative proceedings, regulatory actions, or other litigation. From time to time, such lawsuits are filed against us and the outcome of any litigation, particularly class or collective action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend any such lawsuits may be significant and may negatively affect our operating results if changes to our business operations are required. There may also be negative publicity associated with litigation that could decrease customer acceptance of merchandise offerings, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our business, financial condition, results of operations or liquidity.
TECHNOLOGY AND CYBERSECURITY
Any disruptions to our information technology systems or breaches of our network security could disrupt or interrupt our operations, compromise our reputation, expose us to litigation, government enforcement actions and costly response measures and could have a material adverse effect on our business, financial condition and results of
operations. We rely on the integrity, security and successful functioning of our information technology systems and network infrastructure across our operations, including point-of-sale processing at our stores. In connection with sales, we transmit encrypted confidential credit and debit card information.
As of the end of 2021, we are subject tocompliant with the risk of inventory loss and theft. Although our inventory shrinkage rates have not been material, or fluctuated significantly in recent years, we cannot ensurePayment Card Industry Data Security Standard (“PCI”) issued by the Payment Card Industry Security Standards Council. However, there can be no assurance that actual rates of inventory loss and theft in the future we will be withinable to operate our estimatesfacilities and our customer service and sales operations in accordance with PCI or thatother industry recommended or contractually required practices. We expect to incur additional expenses, and the measurestime and effort of our information technology staff, to maintain PCI compliance. Even though we are taking will effectively reducecompliant with such standards, we still may not be able to prevent or timely detect security breaches.
An increasingly significant portion of our sales depends on the
problemcontinuing operation of
inventory shrinkage. Although some levelour information technology and communications systems, including, but not limited to, our point-of-sale system and our credit card processing systems. Our information technology, communications systems and electronic data may be vulnerable to damage or interruption from computer viruses, ransomware attacks, loss of
inventory shrinkage is an unavoidable costdata, unauthorized data breaches, usage errors by our associates or our contractors or other attempts to harm our systems, including cyber-security attacks or other breaches of
doing business, if we werecardholder data, earthquakes, acts of war or terrorist attacks, floods, fires, tornadoes, hurricanes, power loss and outages, computer and telecommunications failures. Some of our systems are not fully redundant, and our disaster recovery planning cannot account for all eventualities. The occurrence of intentional sabotage, unauthorized access, natural disaster, or other unanticipated problems could result in lengthy interruptions in our service. Any errors or vulnerabilities in our systems, or damage to
experience higher ratesor failure of
inventory shrinkageour systems, could result in interruptions in our services, non-compliance with certain regulations, substantial remediation costs, and liability for lost or
incur increased security costs to combat inventory theft, itstolen information, any of which could have a material adverse effect on our business, financial condition and results of operations.
Indebtedness may limit
Data protection requirements increase our abilityoperating costs and a breach in information privacy or other related risks could negatively impact our operations.
We have access to,
investcollect or maintain private or confidential information regarding our customers, associates and suppliers, as well as our business. The protection of our customer, associate, supplier and company data is critical to us. In recent years, there has been increasing regulation, enforcement and litigation activity in the
ongoing needsarea of
our businessprivacy, data protection and
if we are unable to comply with our financial covenants, it could have a material adverse effect on our liquidityinformation security in the United States and our business, financial condition and results of operations.As of February 2, 2019, we had no outstanding borrowings on the senior secured term loan facility (the “Term Loan Facility”) and no outstanding borrowings under the revolving credit facility (the “Revolving Credit Facility,” and togetherin various other countries, with the Term Loan Facility,frequent imposition of new and changing requirements across the “Credit Facilities”), with $98.9 million of borrowing availability. We may, from time to time, incur additional indebtedness.
The agreements governing our Credit Facilities place certain conditions on us, including that they:
increase our vulnerability to adverse general economic or industry conditions;
limit our flexibility in planning for, or reacting to, changes in our business or the industriesmany states in which we operate;
make us more vulnerableconduct our business. For example, the European Union’s General Data Protection Regulation (“GDPR”) expands the scope of EU data protection law to increases in interest rates, as borrowings under our Credit Facilities are at variable rates;
limit our ability to obtain additional financing inall foreign companies processing personal data of EU residents and imposes a strict data protection compliance regime with significant monetary penalties. The state of California passed the future for working capital or other purposes;
require us to utilize our cash flow from operations to make paymentsCalifornia Consumer Privacy Act of 2018 (“CCPA”), which went into effect on indebtedness, reducing the availability of our cash flow to fund working capital, capital expenditures, development activityJanuary 1, 2020. The CCPA and other general corporate purposes;state privacy acts have imposed and
place likely will impose additional data protection obligations on companies considered to be doing business in California and provides for substantial fines for non-compliance and, in some cases, a private right of action to consumers who are victims of data breaches. Complying with the GDPR, the CCPA and similar emerging and changing privacy, data protection and information security requirements may cause us at a competitive disadvantage compared to our competitors that have less indebtedness.
Our Credit Facilities place certain limitations on our ability to incur additional indebtedness. However, subject to the qualifications and exceptions in our Credit Facilities, we may be permitted to incur substantial additional
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indebtedness and may incur obligations that do not constitute indebtedness under the terms of the Credit Facilities. Our Credit Facilities also place certain limitations on,costs or compliance risks due to, among other things, our ability to enter into certain typessystem changes and the development of transactions, financing arrangementsnew processes and investments, to make certain changes to our capital structure and to guarantee certain indebtedness.business initiatives. Our Credit Facilities also place certain restrictions on the payment of dividends and distributions and certain management fees. These restrictions limit or prohibit, among other things, our ability to:
pay dividends on, redeem or repurchase our stock or make other distributions;
incur or guarantee additional indebtedness;
sell stock in our subsidiaries;
create or incur liens;
make acquisitions or investments;
transfer or sell certain assets or merge or consolidate with or into other companies;
make certain payments or prepayments of indebtedness subordinated to our obligations under our Credit Facilities; and
enter into certain transactions with our affiliates.
Failure to comply with certain covenants or the occurrence of a change of control under our Credit Facilities could result in the acceleration of our obligations under the Credit Facilities, which would materially adversely affect our liquidity, capital resources and results of operations.
Under certain circumstances, our Credit Facilities require us to comply with certain financial covenants regarding our fixed charge coverage ratio and total leverage ratio. Changes with respect to the total leverage ratio may increase our interest rate and failure to comply with each covenantprivacy, data protection and information security laws could result in potentially significant regulatory and/or governmental investigations and/or actions, litigation, fines, sanctions, ongoing regulatory monitoring and customer attrition.
In addition, our customers have a
default and an accelerationhigh expectation that we will adequately protect their personal information from cyber-attack or other security breaches. We have procedures in place to evaluate the integrity of our
obligations undersystems, and to safeguard such data and information. However, the
Credit Facilities, which could havelandscape is evolving at a
material adverse effect on our liquidityrapid pace, and
our business, financial condition and results of operations. See “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facilities.”Wewe may be unable to generate sufficient cash floweffectively anticipate or respond to satisfy debt service obligations, whichattacks to or breaches of our security systems or implement adequate preventative measures. A breach of customer, employee, supplier, or company data could haveattract a material adverse effect onsubstantial amount of negative media attention, damage our business, financial conditioncustomer and results of operations.
Our ability to make principalsupplier relationships and interest payments onour reputation, and to refinance indebtedness will depend on our ability to generate cashresult in the future and is subject to general economic, financial, competitive, legislative, regulatory andlost sales, costly fines, other factors that are beyond our control. If our business does not generate sufficient cash flow from operations, in the amounts projected expenses and/or at all, or if future borrowings are not available to us in amounts sufficient to fund our other liquidity needs, our business, financial condition and results of operations could be materially adversely affected. If we cannot generate sufficient cash flow from operations to make scheduled principal and interest payments in the future, we may need to refinance all or a portion of indebtedness on or before maturity, sell assets, delay capital expenditures or seek additional equity. The terms of future debt agreements, including our Credit Facilities, may also restrict us from affectinglawsuits, any of these alternatives. Further, changes in the credit and capital markets, including market disruptions and interest rate fluctuations, may increase the cost of financing, make it more difficult to obtain favorable terms, or restrict our access to these sources of future liquidity. If we are unable to refinance indebtedness on commercially reasonable terms or at all or to effect any other action relating to indebtedness on satisfactory terms or at all, itwhich could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to maintain or upgrade our information technology systems or if we are unable to convert to alternate systems in an efficient and timely manner, our operations may be disrupted or become less efficient.
We depend on a variety of information technology systems for the efficient functioning of our business. We rely on certain hardware, telecommunications and software vendors to maintain and periodically upgrade many of these systems so that we can continue to support our business. Various components of our information technology systems, including hardware, networks and software, are licensed to us by third party vendors. We rely extensively on our information technology systems to process transactions, summarize results and manage our business. We are in compliance with PCI as of the end of 2021, and compliance with PCI and implementing related procedures, technology and information security measures requires significant resources and ongoing attention. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology such as those necessary to achieve compliance with PCI or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations. Any material interruptions or failures in our payment-related systems could have a material adverse effect on our business, financial condition and results of operations.
If our information technology systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them. If there are amendments to PCI, the cost of re-compliance could also be substantial and we may suffer loss of critical data and interruptions or delays in our operations as a result. In addition, we may have to upgrade our existing information technology systems from time to time in order for such systems to withstand the increasing needs of our expanding business. Any material interruption experienced by our information technology systems could have a material adverse effect on our business, financial condition and results of operations. Costs and potential interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of our existing systems could disrupt or reduce the efficiency of our business.
ACCOUNTING AND FINANCIAL
If our estimates or judgments relating to our significant accounting policies prove to be incorrect, our operating
results could be adversely affected.The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements and notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price.
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Changes to accounting rules or regulations could have a material adverse effect on our business, financial condition and results of operations.
Changes to existing accounting rules or regulations may impact our future results of operations or cause the perception that we are more highly leveraged. Other new accounting rules or regulations and varying interpretations of existing accounting rules or regulations have occurred and may occur in the future. Future changes to accounting rules or regulations could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Ownership of Our Common Stock
RISKS RELATED TO COMMON STOCK AND CORPORATE GOVERNANCE
As a public company, our management is required to devote substantial time to compliance initiatives.
The Sarbanes-Oxley Act and rules implemented by the SEC and the NASDAQ Stock Market LLC (“NASDAQ”) have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Implementing and maintaining internal controls is time consuming and costly. If we fail to maintain an effective internal control environment or to comply with the numerous legal and regulatory requirements imposed on public companies, we could make material errors in, and be required to restate, our financial statements. Any such restatement could result in a loss of public confidence in the reliability of our financial statements and sanctions imposed on us by the SEC. If we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.
Our Chief Executive Officer owns a substantial percentage of our outstanding common stock and his interests may be different from or conflict with those of our other stockholders.
As of February 2, 2019, Mark Butler, our co-founder, Chairman, President and Chief Executive Officer, beneficially owns 13.6% of our outstanding common stock. Accordingly, Mr. Butler is able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of directors, a merger, consolidation or sale of all or substantially all of our assets, and any other significant transaction. Our principal stockholder’s interests might not always coincide with our interests or the interests of our other stockholders.
Anti-takeover provisions in our
secondthird amended and restated certificate of incorporation and
fourth amended and restated bylaws and under
Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.Provisions in our secondthird amended and restated certificate of incorporation and fourth amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our secondthird amended and restated certificate of incorporation and fourth amended and restated bylaws include provisions that:
authorize our Board to issue, without further action by the stockholders, up to 50,000,000 shares of undesignated preferred stock;
subject to certain exceptions, require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;
specify that special meetings of our stockholders can be called only by a majority of our Board or upon the request of the Chairperson of the Board or the Chief Executive Officer;
establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our Board;
establish that our Board is divided into three classes until the annual meeting of the stockholders to be held in 2022, with each classdirector serving three-year staggered terms;a one-year term;
prohibit cumulative voting in the election of directors; and
provide that vacancies on our Board may be filled only by a majority of directors then in office, even though less than a quorum.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board, which is responsible for appointing the members of our management.
Our third amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could increase costs of bringing a claim, discourage claims, or limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Specifically, the certificate of incorporation provides that, unless we consent in writing in advance to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum, to the fullest extent provided by law, for the following types of actions or proceedings:
any derivative action or proceeding brought on behalf of the Company;
any action asserting a claim of breach of a fiduciary duty owed by, or any wrongdoing by, any director, officer or employee of the Company to the Company or the Company’s stockholders;
any action asserting a claim arising pursuant to any provision of the Delaware General Corporate Law, the certification of incorporation (including as it may be amended from time to time), or the fourth amended and restated bylaws;
any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or the fourth amended and restated bylaws; or
any action asserting a claim governed by the internal affairs doctrine.
Application of the choice of forum provision may be limited in some instances by law. Section 27 of the Securities Exchange Act of 1934 (“Exchange Act”) provides for exclusive federal court jurisdiction over Exchange Act claims. Accordingly, to the extent the exclusive forum provision is held to cover a shareholder derivative action asserting claims under the Exchange Act, such claims could not be brought in the Delaware Court of Chancery and would instead be within the jurisdiction of the federal district court for the District of Delaware. Section 22 of the Securities Act of 1933 (“Securities Act”) creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Moreover, our stockholders will not be deemed by operation of our choice of forum provision to have waived our compliance with the federal securities laws and the regulations promulgated thereunder. It is also possible that, notwithstanding the forum selection clause, a court could rule that such a provision is inapplicable or unenforceable, which could adversely impact our results of operations, financial position and cash flows.
If securities analysts or industry analysts downgrade our shares, publish negative research or reports or do not publish reports about our business, our share price and trading volume could decline.
The trading market for our common stock is to some extent influenced by the research and reports that industry or securities analysts publish about us, our business and our industry. If no or few analysts commence coverage of us, the trading price of our stock could decrease. Even if we do obtain analyst coverage, if one or more analysts adversely change their recommendation regarding our shares or our competitors’ stock, our share price might decline. If one or more analysts cease coverage of us or fail to regularly publish reports on us, we might lose visibility in the financial markets, which, in turn, could cause our share price or trading volume to decline.
Future sales of our common stock in the public market could cause the market price of our common stock to
decrease significantly.Sales of substantial amounts of our common stock in the public market by our existing stockholders or upon the exercise of outstanding stock options or grant of stock options or restricted stock units in the future may cause the market price of our common stock to decrease significantly. As of
February 2, 2019,January 29, 2022, we have an aggregate of
3,966,6221,234,798 shares of common stock issuable upon exercise of outstanding options and the vesting of restricted stock units under the 2015 Equity Incentive Plan (the “2015 Plan” and together with the 2012 Equity Incentive Plan, the “Equity Plans”)
(2,387,429(400,996 of which are fully vested).
The perception that such sales could occur could also depress the market price of our common stock. Any such sales could also create public perception of difficulties or problems with our business and might also make it more difficult for us to raise capital through the sale of equity securities in the future at a time and price that we deem appropriate.
Ollie’s Bargain Outlet Holdings, Inc. (“Holdings”) is a holding company and relies on dividends and other
payments, advances and transfers of funds from its subsidiaries to meet its obligations and pay any dividends.Holdings has no direct operations and no significant assets other than ownership of 100% of the capital stock of its subsidiaries. Because Holdings conducts operations through subsidiaries, it depends on those entities for dividends and other payments to generate the funds necessary to meet financial obligations and to pay any dividends with respect to its common stock. Legal and contractual restrictions in the Credit
FacilitiesFacility (defined below) and other agreements which may govern future indebtedness of subsidiaries, as well as the financial condition and operating requirements of subsidiaries, may limit its ability to obtain cash from subsidiaries. The earnings from, or other available assets of, subsidiaries might not be sufficient to pay dividends or make distributions or loans to enable Holdings to pay any dividends on its common stock or other obligations. Any of the foregoing could materially and adversely affect our business, financial condition, results of operations and cash flows.
We do not expect to pay any cash dividends for the foreseeable future.
The continued operation and expansion of our business will require substantial funding. We do not anticipate that we will pay any dividends to holders of our common stock for the foreseeable future. Any payment of cash dividends will be at the discretion of our Board and will depend on our financial condition, capital requirements, legal requirements, earnings and other factors. Our ability to pay dividends is restricted by the terms of our Credit FacilitiesFacility and might be restricted by the terms of any indebtedness that we incur in the future. Accordingly, realization of any gain on our common stock will depend on the appreciation of the price of the shares of our common stock, which may never occur.
INDEBTEDNESS AND CAPITALIZATION
Indebtedness may limit our ability to invest in the ongoing needs of our business and if we are unable to comply with our financial covenants, it could have a material adverse effect on our liquidity and our business, financial condition and results of operations.
On May 22, 2019, the Company completed a transaction in which it refinanced its credit facility (the “Credit Facility”) which includes a revolving credit facility (the “Revolving Credit Facility”). As of January 29, 2022, we had no outstanding borrowings on the Revolving Credit Facility, with $84.7 million of borrowing availability. We may, from time to time, incur additional indebtedness.
The agreements governing our Credit Facility place certain conditions on us, including that they:
increase our vulnerability to adverse general economic or industry conditions;
limit our flexibility in planning for, or reacting to, changes in our business or the industries in which we operate;
make us more vulnerable to increases in interest rates, as borrowings under our Credit Facility are at variable rates;
limit our ability to obtain additional financing in the future for working capital or other purposes;
require us to utilize our cash flows from operations to make payments on indebtedness, reducing the availability of our cash flows to fund working capital, capital expenditures, development activity and other general corporate purposes; and
place us at a competitive disadvantage compared to our competitors that have less indebtedness.
Our Credit Facility places certain limitations on our ability to incur additional indebtedness. However, subject to the qualifications and exceptions in our Credit Facility, we may be permitted to incur substantial additional indebtedness and may incur obligations that do not constitute indebtedness under the terms of the Credit Facility. Our Credit Facility also places certain limitations on, among other things, our ability to enter into certain types of transactions, financing arrangements and investments, to make certain changes to our capital structure and to guarantee certain indebtedness. Our Credit Facility also places certain restrictions on the payment of dividends and distributions and certain management fees. These restrictions limit or prohibit, among other things, our ability to:
pay dividends on, redeem or repurchase our stock or make other distributions;
incur or guarantee additional indebtedness;
sell stock in our subsidiaries;
make acquisitions or investments;
transfer or sell certain assets or merge or consolidate with or into other companies;
make certain payments or prepayments of indebtedness subordinated to our obligations under our Credit Facility; and
enter into certain transactions with our affiliates.
Failure to comply with certain covenants or the occurrence of a change of control under our Credit Facility could result in the acceleration of our obligations under the Credit Facility, which would materially adversely affect our liquidity, capital resources and results of operations.
Under certain circumstances, our Credit Facility requires us to comply with certain financial covenants regarding our fixed charge coverage ratio. Failure to comply could result in a default and an acceleration of our obligations under the Credit Facility, which could have a material adverse effect on our liquidity and our business, financial condition and results of operations. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Credit Facilities.”
We may be unable to generate sufficient cash flows to satisfy debt service obligations, which could have a material adverse effect on our business, financial condition and results of operations.
Our ability to make principal and interest payments on and to refinance indebtedness will depend on our ability to generate cash in the future and is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If our business does not generate sufficient cash flows from operations, in the amounts projected or at all, or if future borrowings are not available to us in amounts sufficient to fund our other liquidity needs, our business, financial condition and results of operations could be materially adversely affected. If we cannot generate sufficient cash flows from operations to make scheduled principal and interest payments in the future, we may need to refinance all or a portion of indebtedness on or before maturity, sell assets, delay capital expenditures or seek additional equity. The terms of future debt agreements, including our Credit Facility, may also restrict us from affecting any of these alternatives. Further, changes in the credit and capital markets, including market disruptions and interest rate fluctuations, may increase the cost of financing, make it more difficult to obtain favorable terms, or restrict our access to these sources of future liquidity. If we are unable to refinance indebtedness on commercially reasonable terms or at all or to effect any other action relating to indebtedness on satisfactory terms or at all, it could have a material adverse effect on our business, financial condition and results of operations.
We cannot guarantee that our share repurchase program will be fully consummated or that it will enhance long-term stockholder value.
We have adopted a share repurchase program under which we are currently authorized to repurchase up to $200.0 million of shares of our common stock through December 2023. While the authorization of the repurchase program has an expiration date, the authorizations are subject to extension or earlier termination by the Board of Directors at any time and we are not obligated to repurchase a specified number or dollar value of shares under our share repurchase program. Even if our share repurchase program is fully implemented, it may not enhance long-term stockholder value. Also, the amount, timing, and execution of our share repurchase program may fluctuate based on our priorities for the use of cash for other purposes and because of changes in cash flows, tax laws, and the market price of our common stock
| Item 1B. | Unresolved Staff Comments |
None.
We lease the majority of our retail stores, often in second generation sites ranging in size from
22,00023,000 to 50,000 square feet. Our corporate headquarters, located in Harrisburg, PA, is
28,12858,200 square feet and is leased under an agreement that expires in February 2033, with options to renew for three successive five-year periods. Our corporate data center and additional office space is
14,10719,800 square
feetfeet. We exercised our purchase option and
is under an agreement that expires Julyacquired the space on August 31,
2020, with an option to purchase or an option to renew2021 for
two successive two-year periods.$1.2 million. Our 603,000 square foot distribution center located in York, PA is leased under an agreement that expires in March 2028 with options to renew for two successive five-year periods. Our
962,280962,000 square foot distribution center in Commerce, GA is leased under
TABLE OF CONTENTS
| Item 5.
| Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Our common stock is traded on NASDAQ under the symbol “OLLI.” The following tables set forth for the periods indicated the high and low sales prices of our common stock on NASDAQ.
| 2018 |
| High | Low |
First Quarter | $ | 64.45 | | $ | 50.65 | |
Second Quarter | $ | 77.50 | | $ | 62.00 | |
Third Quarter | $ | 97.61 | | $ | 68.85 | |
Fourth Quarter | $ | 94.73 | | $ | 59.72 | |
| 2017 | | 2021 | |
| High | Low | | High | | Low | |
First Quarter | $ | 38.88 | | $ | 28.90 | | | $ | 98.58 | | $ | 80.64 | |
Second Quarter | $ | 45.55 | | $ | 37.60 | | | $ | 95.43 | | $ | 75.75 | |
Third Quarter | $ | 46.90 | | $ | 41.31 | | | $ | 94.68 | | $ | 57.86 | |
Fourth Quarter | $ | 58.50 | | $ | 42.36 | | | $ | 75.27 | | $ | 42.40 | |
| | | 2020 | |
| | | High | | | Low | |
| First Quarter | | $ | 72.77 | | | $ | 28.83 | |
| Second Quarter | | $ | 110.17 | | | $ | 64.55 | |
| Third Quarter | | $ | 112.58 | | | $ | 83.08 | |
| Fourth Quarter | | $ | 123.52 | | | $ | 76.74 | |
As of
February 2, 2019,January 29, 2022, we had approximately 400 stockholders of record.
The graph set forth below compares the cumulative stockholder return on our common stock between
July 16, 2015 (the first day of trading following our initial public offering (“IPO”))January 28, 2017 and
February 2, 2019January 29, 2022 to the cumulative return of (i) the NASDAQ Composite Total Return index and (ii) the NASDAQ US Benchmark Retail Index over the same period. This graph assumes an initial investment of $100 on
July 16, 2015January 28, 2017 in our common stock, the NASDAQ Composite Total Return index and the NASDAQ US Benchmark Retail Index and assumes the reinvestment of dividends, if any. Such returns are based on historical results and are not intended to suggest future performance.
| 7/16/15 | 1/30/16 | 1/28/17 | 2/3/18 | 2/2/19 |
Ollie’s Bargain Outlet Holdings, Inc. | $ | 100.00 | | | 105.67 | | | 138.77 | | | 254.14 | | | 375.18 | |
NASDAQ Global Market Composite Index | $ | 100.00 | | | 65.56 | | | 78.42 | | | 100.90 | | | 106.07 | |
NASDAQ US Benchmark Retail Index | $ | 100.00 | | | 93.65 | | | 101.74 | | | 135.34 | | | 140.30 | |
25
| | | 1/28/17 | | | 2/3/18 | | | 2/2/19 | | | 2/1/20 | | | 1/30/21 | | | 1/29/22 | |
| Ollie’s Bargain Outlet Holdings, Inc. | | $ | 100.00 | | | | 183.13 | | | | 270.36 | | | | 180.72 | | | | 322.76 | | | | 153.08 | |
| NASDAQ Composite Total Return Index | | $ | 100.00 | | | | 128.66 | | | | 135.26 | | | | 161.67 | | | | 283.88 | | | | 171.84 | |
| NASDAQ US Benchmark Retail Index | | $ | 100.00 | | | | 133.02 | | | | 137.90 | | | | 162.10 | | | | 222.50 | | | | 231.26 | |
Our common stock began trading on July 16, 2015. Since then, we have not declared any cash dividends nor do we expect to in the foreseeable future as we intend to retain our earnings to finance the development and growth of our business and operations.
The Credit
Facilities containFacility contains a number of restrictive covenants that, among other things and subject to certain exceptions, restrict Ollie’s Bargain Outlet, Inc.’s and Ollie’s Holdings, Inc.’s (together the “Borrowers”) ability and the ability of their subsidiaries to pay dividends on our capital stock or redeem, repurchase or retire our capital stock.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by this Item will be set forth in the Proxy Statement and is incorporated herein by reference.
Information on Share Repurchases
Information regarding shares of common stock the Company repurchased during the thirteen weeks ended January 29, 2022 is as follows:
| Period | | Total number of shares repurchased (1) | | | Average price paid per share (2) | | | Total number of shares purchased as part of publicly announced plans or programs (3) | | | Approximate dollar value of shares that may yet be purchased under the plans or programs (3) | |
| October 31, 2021 through November 27, 2021 | | | — | | | | — | | | | — | | | $ | 32,562 | |
| November 28, 2021 through January 1, 2022 | | | — | | | | — | | | | — | | | $ | 200,032,562 | |
| January 2, 2022 through January 29, 2022 | | | 434,474 | | | $ | 46.04 | | | | 434,474 | | | $ | 180,028,248 | |
| Total | | | 434,474 | | | | | | | | 434,474 | | | | | |
(1) | Consists of shares repurchased under the publicly announced share repurchase program. |
(2) | Includes commissions for the shares repurchased under the share repurchase program. |
(3) | On March 26, 2019, the Board of Directors of the Company authorized the repurchase of up to $100.0 million of shares of the Company’s common stock. This initial tranche expired on March 26, 2021. The Board authorized the repurchase of another $100.0 million of the Company’s common stock on December 15, 2020 and a $100.0 million increase on March 16, 2021, resulting in $200.0 million approved for share repurchases through January 13, 2023. On November 30, 2021, the Board authorized an additional $200.0 million to repurchase stock pursuant to the Company’s share repurchase program, expiring on December 15, 2023. Shares to be repurchased are subject to the same considerations regarding timing and amount of repurchases as the initial authorization. As of January 29, 2022, the Company had approximately $180.0 million remaining under its share repurchase program. For further discussion on the share repurchase program, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources, Share Repurchase Program.” |
| Item 6. | Selected Consolidated Financial Data[Reserved] |
The following tables set forth Ollie’s Bargain Outlet Holdings, Inc.’s selected historical consolidated financial and other data for the periods ending on and as of the dates indicated. We derived the consolidated statement of income data and consolidated statement of cash flow data for 2018, 2017 and 2016 and the consolidated balance sheet data as of February 2, 2019 and February 3, 2018 from our audited consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. We derived the consolidated statement of income data and consolidated statement of cash flow data for 2015 and 2014 and the consolidated balance sheet data as of January 28, 2017, January 30, 2016, and January 31, 2015 from our audited consolidated financial statements and related notes thereto not included in this Annual Report on Form 10-K.
Each of 2018, 2016, 2015, and 2014 consisted of 52-week periods. 2017 consisted of 53 weeks.
The historical consolidated statement of income data, consolidated statement of cash flow data and consolidated balance sheet data presented in the following tables are not necessarily indicative of the results expected for 2019 or for any future period. You should read the information set forth below together with the consolidated financial statements and accompanying notes and the information under “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K.
| 2018 | 2017 | 2016 | 2015 | 2014 |
| (in thousands, except per share amounts) |
Consolidated Statement of Income Data:
| | | | | | | | | | | | | | | |
Net sales | $ | 1,241,377 | | $ | 1,077,032 | | $ | 890,315 | | $ | 762,370 | | $ | 637,975 | |
Cost of sales | | 743,726 | | | 645,385 | | | 529,904 | | | 459,506 | | | 384,465 | |
Gross profit | | 497,651 | | | 431,647 | | | 360,411 | | | 302,864 | | | 253,510 | |
Selling, general and administrative expenses | | 312,790 | | | 278,174 | | | 242,891 | | | 209,783 | | | 178,832 | |
Depreciation and amortization expenses | | 11,664 | | | 9,817 | | | 8,443 | | | 7,172 | | | 6,987 | |
Pre-opening expenses | | 11,143 | | | 7,900 | | | 6,883 | | | 6,337 | | | 4,910 | |
Operating income | | 162,054 | | | 135,756 | | | 102,194 | | | 79,572 | | | 62,781 | |
Interest expense, net | | 1,261 | | | 4,471 | | | 5,935 | | | 15,416 | | | 18,432 | |
Loss on extinguishment of debt | | 150 | | | 798 | | | — | | | 6,710 | | | 671 | |
Income before income taxes | | 160,643 | | | 130,487 | | | 96,259 | | | 57,446 | | | 43,678 | |
Income tax expense | | 25,630 | | | 2,893 | | | 36,495 | | | 21,607 | | | 16,763 | |
Net income | $ | 135,013 | | $ | 127,594 | | $ | 59,764 | | $ | 35,839 | | $ | 26,915 | |
Earnings per common share:
| | | | | | | | | | | | | | | |
Basic | $ | 2.16 | | $ | 2.08 | | $ | 0.99 | | $ | 0.67 | | $ | 0.56 | |
Diluted | $ | 2.05 | | $ | 1.96 | | $ | 0.96 | | $ | 0.64 | | $ | 0.55 | |
Weighted average common shares outstanding:
| | | | | | | | | | | | | | | |
Basic | | 62,568 | | | 61,353 | | | 60,160 | | | 53,835 | | | 48,202 | |
Diluted | | 65,905 | | | 64,950 | | | 62,415 | | | 55,796 | | | 48,609 | |
