| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
You should read the following discussion together with
“Item 6, Selected Consolidated Financial Data” and the
financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The statements in this discussion regarding expectations of our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Item 1A, Risk Factors” and “Cautionary“Cautionary note regarding forward-looking statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.
We operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a
52- or 53-week period ending on the Saturday closest tonearer January 31 of the following year. References to “fiscal year 2016”“2023” refer to the 53 week fiscal year ended February 3, 2024 and references to “2022” refer to the 52 week fiscal year ended January 28, 2017, references2023. References to “fiscal year 2015”“2024” refer to the 52-week fiscal year ended January 30, 2016 and references to “fiscal year 2014” refer to the fiscal year ended January 31, 2015. Each of fiscal years 2016, 2015 and 2014 consisted of a 52-week period. References to “fiscal year 2017” refer to the fiscal year ending February 3, 2018, which consists of a 53-week period.1, 2025.
Ollie’s is
a highly differentiated and fast-growing, extreme valueAmerica’s largest retailer of closeout merchandise and excess inventory. Our stores sell name brand name merchandisehousehold related items that consumers use in their everyday lives at drastically reduced prices.prices that are typically 20% to 70% below traditional retailers. 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 as evidenced by our store base expansion from 131345 stores to 234512 stores and net sales growth from $476.5 million$1.408 billion to $890.3 million$2.103 billion from 2019 to 2023 and average annual net sales per store ranging from $3.8of $4.3 million to $4.1 million between fiscal year 2012 and fiscal year 2016. Furthermore, our comparable store sales increased from $713.4 million in fiscal year 2015 to $736.0 million in fiscal year 2016, or 3.2%, and our non-comparable store sales increased from $49.0 million in fiscal year 2015 to $154.3 million in fiscal year 2016.for the five-year period.
Since the founding of Ollie’s in 1982, we have grown organically by backfilling existing markets and leveraging our brand awareness, marketing, and infrastructure to expand into new markets in contiguous states.
In 2003, Mark Butler, our co-founder, assumed his current role as President and Chief Executive Officer. Under Mr. Butler’s leadership, weWe have expanded
from 28to 512 stores located in
three states at the end of fiscal year 2003 to 234 stores located in 1930 states as of
January 28, 2017.February 3, 2024.
Our stores are supported by twothree distribution centers, one each in York, PA, and one in Commerce, GA, whichand Lancaster, TX. We completed the expansion of our York, PA distribution center in fiscal 2023 providing an additional 201,000 square feet of distribution capacity. In addition, we broke ground on construction of our fourth distribution center in Princeton, IL in April 2023, the distribution center is expected to be operational in the second half of fiscal 2024. With the expansion of our York, PA distribution center and the addition of our fourth distribution center, we believe canour distribution capabilities will support between 375up to 400 stores. 750 stores.
We have invested in our associates, infrastructure, distribution network, and information systems to allow us to continue to rapidly grow our store footprint, including:
growing our merchant buying team to increase our access to brand name/closeout merchandise;
adding members to our senior management team;
opening two new
expanding the capacity of our distribution centers since 2011 with a total capacity of approximately 1.6to their current 2.4 million square feet; and
investing in information technology, accounting, and warehouse management systems.
Our business model has produced consistent and predictable store growth over the past several years, during both strong and weaker economic cycles. We plan to continue to enhance our competitive positioning and drive growth in sales and profitability by executing on the following strategies:
increasing our offerings of great bargains; and
leveraging and expanding Ollie’s Army.
We have a proven portable, flexible, and highly profitable store model that has produced consistent financial results and returns. Our new store model targets a store size between 25,000 to 35,000 square feet and an average initial cash
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investment of approximately $1.0 million, which includes store fixtures and equipment, store-level and distribution center inventory (net of payables) and pre-opening expenses. We target new storesstore sales of $3.7 million.
approximately $4.0 million in their first full year of operations.
While we are focused on driving comparable store sales and managing our expenses, our revenue and profitability growth will primarily come from opening new stores. The core elements of our business model are procuring great deals, offering extreme values to our customers and creating consistent, predictable store growth, and margins. In addition, our new stores generally open strong,
immediately contributing to the growth in net sales and profitability of our business. From
fiscal year 20122019 to
fiscal year 2016,2023, net sales grew at a CAGR of
17.0%10.5%. We plan to achieve continued net sales growth, including comparable stores sales, by adding
additional stores to our store base and by continuing to provide quality merchandise at a value for our customers as we scale and gain more access to purchase directly from major manufacturers. We also plan to leverage and expand our Ollie’s Army database marketing strategies. In addition, we plan to continue to manage our selling, general, and administrative expenses
(“SG&A”) by continuing to make process improvements and by maintaining our standard policy of reviewing our operating costs.
Our ability to grow and our results of operations may be impacted by additional factors and uncertainties, such as consumer spending habits, which are subject to macroeconomic conditions and changes in discretionary income. Our customers’ discretionary income is primarily impacted by gas prices, wages,
rising interest rates, inflation, and consumer trends and preferences, which fluctuate depending on the environment. The potential consolidation of our competitors or other changes in our competitive landscape could also impact our results of operations or our ability
to grow, even though we compete with a broad range of retailers.
Our key competitive advantage is our direct buying relationships with many major manufacturers, wholesalers, distributors, brokers, and retailers for our brand name
and closeout products and unbranded goods. We also augment our product mix with private label brands. As we continue to grow, we believe our increased scale will provide us with even greater access to brand name
and closeout products as major manufacturers seek a single buyer to acquire an entire deal.
How We Assess the Performance of Our Business and Key Line Items
We consider a variety of financial and operating measures in assessing the performance of our business. The key measures we use are number of new stores, net sales, comparable store sales, gross profit and gross margin,
selling, general and administrative expenses,SG&A, pre-opening expenses, operating income, EBITDA, and Adjusted EBITDA.
The number of new stores reflects the number of stores opened during a particular reporting period. Before we open new stores, we
make initial capital investments in fixtures, equipment and inventory, which we amortize over time, and we incur pre-opening expenses described below under “Pre-Opening
Expenses.”Expenses” and we make an initial investment in inventory. We also make initial capital investments in fixtures and equipment, which we amortize over time.
We opened
3145 new stores in
fiscal year 2016.2023. We expect new store growth to be the primary driver of our sales growth. Our initial lease terms are
typically between five toapproximately seven years with options to renew for
two or three
to five successive five-year periods. Our portable and predictable real estate model focuses on backfilling existing markets and entering new markets in contiguous states. Our new stores often open with higher sales levels as a result of greater advertising and promotional spend in connection with grand opening events, but decline shortly thereafter to our new store model levels.
We recognize retail sales in our stores when merchandise is sold and the customer takes possession of the merchandise. Also included in net sales is revenue allocated to certain redeemed discounts earned via the Ollie’s Army loyalty program and gift card breakage. Net sales
constitute gross salesare presented net of returns and sales tax. Net sales consist of sales from comparable stores and non-comparable stores, described below under “Comparable Store Sales.” Growth of our net sales is primarily driven by
the expansion of our store base in existing and new markets. As we continue to grow, we believe we will have greater access to brand name
and closeout merchandise and an increased deal selection, resulting in more potential offerings for our customers. Net sales are impacted by product mix, merchandise mix and availability, as well as promotional activities and the spending habits of our customers. Our broad selection of offerings across diverse product categories supports growth in net sales by attracting new customers, which results in higher spending levels and frequency of shopping visits from our customers, including Ollie’s Army members.
The spending habits of our customers are subject to macroeconomic conditions and changes in discretionary income. Our customers’ discretionary income is primarily impacted by gas prices, wages,
inflation, and consumer trends and
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preferences, which fluctuate depending on the environment. However, because we offer a broad selection of merchandise at extreme values, we believe we are generally less impacted than other retailers by economic cycles. These cycles that correspond with declines in general consumer spending habits andhabits. We believe we also benefit from periods of increased consumer spending.
Comparable store sales measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of the previous year. Comparable store sales
consistsconsist of net sales from our stores beginning on the first day of the sixteenth full fiscal month following the store’s opening, which is when we believe comparability is achieved. Comparable store sales are impacted by the same factors that impact net sales.
We define comparable stores to be stores:stores that:
that
have been remodeled while remaining open;
that
are closed for five or fewer days in any fiscal month;
that
are closed temporarily and relocated within their respective trade areas; and
that
have expanded, but are not significantly different in size, within their current locations.
Non-comparable store sales consist of new store sales and sales for stores not open for a full 15 months. Stores which are closed temporarily, but for more than five days in any fiscal month, are included in non-comparable store sales beginning in the fiscal month in which the temporary closure begins until the first full month of operation once the store re-opens, at which time they are included in comparable store sales.
Opening new stores is the primary component of our growth strategy and as we continue to execute on our growth strategy, we expect a significant portion of our sales growth will be attributable to non-comparable store sales. Accordingly, comparable store sales are only one measure we use to assess the success of our growth strategy.
Gross Profit and Gross Margin
Gross profit is equal to our net sales less our cost of sales. Cost of sales includes merchandise costs,
transportation costs, inventory markdowns,
shrink,shrinkage and
certaintransportation, distribution,
warehousing and
storagewarehousing costs, including
depreciation.depreciation and amortization. Gross margin is gross profit as a percentage of our net sales. Gross margin is a measure used by management to indicate whether we are selling merchandise at an appropriate gross profit.
In addition, our gross
profit margin is impacted by product mix, as some products generally provide higher gross margins, by our merchandise mix and availability, and by our merchandise cost, which can vary.
Our gross profit is variable in nature and generally follows changes in net sales. We regularly analyze the components of gross profit, as well as gross
profit as a percentage of sales.margin. Specifically, our product margin and merchandise mix is reviewed by our merchant team and senior management, ensuring strict adherence to internal margin goals. Our disciplined buying approach has produced consistent gross margins and we believe helps to mitigate adverse impacts on gross profit and results of
operation.operations.
The components of our cost of sales may not be comparable to the components of cost of sales or similar measures of our competitors and other retailers. As a result, our gross profit and gross margin may not be comparable to similar data made available by our competitors and other retailers.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses
SG&A are comprised of payroll and benefits for store, field support, and support center associates.
Selling, general and administrative expensesSG&A also include marketing and advertising
expense, occupancy
utilities, supplies, credit card processing fees,costs for stores and the store support center, insurance,
corporate infrastructure, and
professional services.other general expenses. The components of our
selling, general and administrative expenseSG&A remain relatively consistent per store and for each new store opening.
Consolidated selling, general and administrative expensesSG&A generally increase as we grow our store base and as our net sales increase. A significant portion of our expenses is primarily fixed in nature, and we expect to continue to maintain strict discipline while carefully monitoring
selling, general and administrative expensesSG&A as a percentage of net sales.
We expect that our SG&A will continue to increase in future periods with future growth.
The components of our
selling, general and administrative expensesSG&A may not be comparable to the components of
SG&A or similar measures of
our competitors and other retailers.
We expect thatAs a result, our
selling, general and administrative expenses will continueSG&A may not be comparable to
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increase in future periods with future growth and in part due to additional legal, accounting, insurance, similar data made available by our competitors and other expenses as a result of being a public company, including compliance with the Sarbanes-Oxley Act and related rules and regulations.
Pre-Opening Expenses
Pre-opening expenses consist of expenses of opening new stores and distribution centers. For new stores, pre-opening expenses include grand opening advertising costs, payroll expenses, travel expenses, employee training costs, rent expenses and store setup costs, as well as store closing costs. Pre-opening expenses for new stores are expensed as they are incurred, which is typically within 30 to 45 days of opening a new store. For distribution centers, pre-opening expenses primarily include inventory transportation costs, employee travel expenses and occupancy costs.
Operating Income
Operating income is gross profit less selling, general and administrative expenses, depreciation and amortization and pre-opening expenses. Operating income excludes interest expense, net and income tax expense. We use operating income as an indicator of the productivity of our business and our ability to manage expenses.
retailers.
Depreciation and
amortization expensesAmortization Expenses
Property and equipment are stated at original cost less accumulated depreciation and amortization. Depreciation and amortization
expenses are calculated over the estimated useful lives of the related assets, or in the case of leasehold improvements, the lesser of the useful lives or the remaining term of the lease. Expenditures for additions, renewals, and betterments are capitalized; expenditures for maintenance and repairs are charged to expense as incurred. Depreciation
isand amortization are computed on the straight-line method for financial reporting purposes. Depreciation
and amortization as it relates to our distribution centers is included within cost of sales on the consolidated statements of income.
Pre-Opening Expenses
Pre-opening expenses consist of expenses of opening new stores and distribution centers, as well as store remodel and store closing costs. For opening new stores, pre-opening expenses include grand opening advertising costs, payroll expenses, travel expenses, employee training costs, rent expenses, and store setup costs. Pre-opening expenses for new stores are expensed as they are incurred, which is typically within 30 to 45 days of opening a new store. For opening distribution centers, pre-opening expenses primarily include inventory transportation costs, employee travel expenses, and occupancy costs. Store remodel costs primarily consist of payroll expenses, travel expenses, and store setup costs expensed as they are incurred. Store closing costs primarily consist of insurance deductibles, rent, and store payroll.
Operating Income
Operating income is gross profit less SG&A, depreciation and amortization, and pre-opening expenses. Operating income excludes net interest income or expense, and income tax expense. We use operating income as an indicator of the productivity of our business and our ability to manage expenses.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are key metrics used by management and our Board to assess our financial performance. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry. We use Adjusted EBITDA to supplement
GAAPU.S. Generally Accepted Accounting Principles (“GAAP”) measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to evaluate our performance in connection with compensation decisions and to compare our performance against that of other peer companies using similar measures. Management believes it is useful to investors and
analystanalysts to evaluate these non-GAAP measures on the same basis as management uses to evaluate the Company’s operating results. We believe that excluding items
from operating income, net income, and net income per diluted share that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude,
from operating income, net income and net income per diluted share, enhances the comparability of our results and provides a better baseline for analyzing trends in our business.
We define EBITDA as net income before net interest
income or expense,
loss on extinguishment of debt, depreciation and amortization expenses, and income taxes. Adjusted EBITDA represents EBITDA as further adjusted for non-cash
stock basedstock-based compensation expense
non-cash purchase accounting items, transaction related expenses and
debt financing expenses, which we do not consider representative of our ongoing operating performance.gains on insurance settlements. EBITDA and Adjusted EBITDA are non-GAAP measures and may not be comparable to similar measures reported by other companies. EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. In the future we may incur expenses or charges such as those added back to calculate Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items. For further discussion of EBITDA and Adjusted EBITDA and for reconciliations of
EBITDA and Adjusted EBITDA to net income, the most directly comparable GAAP measure,
to EBITDA and Adjusted EBITDA, see “Results of Operations.”
Factors Affecting
Results of Operations
This section includes comparisons of certain 2023 financial information to the
Comparabilitysame information for 2022. Year-to-year comparisons of the 2022 financial information to the same information for fiscal 2021, the 52-week period ended January 28, 2022 (“2021”), are contained in Item 7 of our
Results of OperationsOur results over the past three years have been affected by the following events, which must be understood in order to assess the comparability of our period-to-period financial performance and condition.
Initial Public Offering and Subsequent Equity Offerings
On July 15, 2015, we priced our initial public offering of 8,925,000 shares of our common stock. As a result of the IPO, we received net proceeds of $153.1 million, after deducting the underwriting fees of $11.1 million. We used the net proceeds from the IPO to pay off outstanding borrowings under our then-existing senior secured asset-based
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revolving credit facility (the “Old Revolving Credit Facility”) and a portion of the outstanding principal balance of our then-existing senior secured term loan facility (the “Old Term Loan Facility” and together, the “Old Credit Facilities”), which we had entered into in connectionForm 10-K for 2022 filed with the CCMP Acquisition described below. In advance ofSEC on March 24, 2023 and in connection withavailable through the IPO, on June 17, 2015, the Company effected a stock split of the Company’s common stockSEC’s website at a ratio of 115 shares for every share previously held. All common stock share and common stock per share amounts for all periods presented in these financial statements have been adjusted retroactively to reflect the stock split.
Following our IPO, we completed several secondary equity offerings of shares of common stock held by affiliates of our private equity sponsor, CCMP Capital Advisors, LLC (collectively “CCMP”) and other management stockholders. We were acquired by CCMP and certain members of management in September 2012 (the “CCMP Acquisition”). During fiscal year 2016, CCMP liquidated its ownership position in Ollie’s.
Financing Transactions and Payments to Stockholders
On April 11, 2014, we entered into an amendment to the Old Term Loan Facility, which allowed additional borrowings in an aggregate principal amount of $60.0 million, allowing us to distribute $58.0 million as a special cash dividend to common stockholders as consented by the original Old Term Loan Facility lenders. The proceeds received were net of $2.0 million in fees, of which $1.3 million was recognized as deferred financing fees, $0.4 million was recorded as additional original issue discount, and $0.3 million was recognized as selling, general and administrative expenses. In connection with this amendment, $0.4 million of debt issuance cost and $0.2 million of original issue discount were accelerated on the date of the amendment and included within loss on extinguishment of debt.
On May 27, 2015 we amended the credit agreements governing our Old Credit Facilities to, among other things, increase the size of the Old Revolving Credit Facility from $75.0 million to $125.0 million and to permit a dividend to holders of our outstanding common stock. We also drew $50.0 million of borrowings on the Old Revolving Credit Facility, the proceeds of which were used to pay an aggregate cash dividend of $48.8 million to holders of our common stock, $1.1 million of bank fees and $0.1 million of legal and other expenses.
On July 15, 2015, we priced our IPO of 8,925,000 shares of our common stock. As noted above, we used the net proceeds from the IPO to pay off outstanding borrowings under the Old Revolving Credit Facility and a portion of the outstanding principal balance of the Old Term Loan Facility.
On January 29, 2016, we completed a transaction in which we refinanced the Old Credit Facilities with the proceeds of our Credit Facilities, consisting of the $200.0 million Term Loan Facility and the $100.0 million Revolving Credit Facility, which includes a $25.0 million sub-facility for letters of credit and a $25.0 million sub-facility for swingline loans (the “Refinancing”). We incurred various arrangement fees and legal fees totaling $2.1 million in connection with the Refinancing, of which $2.0 million was recorded as deferred financing fees and $0.1 million was recognized as selling, general and administrative expense on the date of the Refinancing. See “Liquidity and Capital Resources.”
Store Openings
During fiscal years 2016, 2015 and 2014, we opened 31 new stores, opened 28 new stores and closed one store and opened 22 new stores, respectively. In connection with these store openings, we incurred pre-opening expenses of $6.9 million, $6.3 million and $4.9 million in fiscal years 2016, 2015 and 2014, respectively. In fiscal 2017, we expect to open between 33 and 35 new stores and enter the state of Rhode Island.
Distribution Center
In April 2014, we opened our second distribution center, located in Commerce, GA. We incurred certain start-up costs related to the opening of this distribution center, including costs associated with securing the 962,280 square foot site and entering into the lease arrangements. As of January 28, 2017, we are entitled to occupy 699,840 square feet of the facility and are under a lease obligation to incrementally add square footage up to 962,280 square feet through November 2017. In fiscal year 2014, we also incurred additional costs of $0.3 million associated with the opening and start-up of the Commerce, GA distribution center. In addition, we incurred costs related to hiring and training new associates for this distribution center. We expect to make additional expenditures related to our utilization of this additional space through 2017.
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Results of Operations
The following tables summarize key components of our results of operations for the periods indicated,2023 and 2022, both in dollars and as a percentage of our net sales.
We derived the consolidated statements of income for
fiscal years 2016, 20152023 and
20142022 from our consolidated financial statements and related notes. Our historical results are not necessarily indicative of the results that may be expected in the future.
| Fiscal year |
| 2016 | 2015 | 2014 |
| (dollars in thousands) |
Net sales | $ | 890,315 | | $ | 762,370 | | $ | 637,975 | |
Cost of sales | | 529,904 | | | 459,506 | | | 384,465 | |
Gross profit | | 360,411 | | | 302,864 | | | 253,510 | |
Selling, general and administrative expenses | | 242,891 | | | 209,783 | | | 178,832 | |
Depreciation and amortization expenses | | 8,443 | | | 7,172 | | | 6,987 | |
Pre-opening expenses | | 6,883 | | | 6,337 | | | 4,910 | |
Operating income | | 102,194 | | | 79,572 | | | 62,781 | |
Interest expense, net | | 5,935 | | | 15,416 | | | 18,432 | |
Loss on extinguishment of debt | | — | | | 6,710 | | | 671 | |
Income before income taxes | | 96,259 | | | 57,446 | | | 43,678 | |
Income tax expense | | 36,495 | | | 21,607 | | | 16,763 | |
Net income | $ | 59,764 | | $ | 35,839 | | $ | 26,915 | |
Percentage of net sales (1):
| | | | | | | | | |
Net sales | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of sales | | 59.5 | | | 60.3 | | | 60.3 | |
Gross profit | | 40.5 | | | 39.7 | | | 39.7 | |
Selling, general and administrative expenses | | 27.3 | | | 27.5 | | | 28.0 | |
Depreciation and amortization expenses | | 0.9 | | | 0.9 | | | 1.1 | |
Pre-opening expenses | | 0.8 | | | 0.8 | | | 0.8 | |
Operating income | | 11.5 | | | 10.4 | | | 9.8 | |
Interest expense, net | | 0.7 | | | 2.0 | | | 2.9 | |
Loss on extinguishment of debt | | — | | | 0.9 | | | 0.1 | |
Income before income taxes | | 10.8 | | | 7.5 | | | 6.8 | |
Income tax expense | | 4.1 | | | 2.8 | | | 2.6 | |
Net income | | 6.7 | % | | 4.7 | % | | 4.2 | % |
Select Operating Data:
| | | | | | | | | |
Number of new stores | | 31 | | | 28 | | | 22 | |
Number of store closings | | — | | | (1 | ) | | — | |
Number of stores open at end of period | | 234 | | | 203 | | | 176 | |
Average net sales per store (2) | $ | 4,050 | | $ | 4,007 | | $ | 3,815 | |
Comparable stores sales change | | 3.2 | % | | 6.0 | % | | 4.4 | % |
| | 2023 | | | 2022 | |
| | (dollars in thousands)
| |
| | | | | | |
| Net sales | | $ | 2,102,662 | | | $ | 1,827,009 | |
| Cost of sales | | | 1,270,297 | | | | 1,170,915 | |
| Gross profit | | | 832,365 | | | | 656,094 | |
| Selling, general and administrative expenses | | | 562,672 | | | | 490,569 | |
| Depreciation and amortization expenses | | | 27,819 | | | | 22,907 | |
| Pre-opening expenses | | | 14,075 | | | | 11,700 | |
| Operating income | | | 227,799 | | | | 130,918 | |
| Interest expense (income), net | | | (14,686 | ) | | | (2,965 | ) |
| Income before income taxes | | | 242,485 | | | | 133,883 | |
| Income tax expense | | | 61,046 | | | | 31,093 | |
| Net income | | $ | 181,439 | | | $ | 102,790 | |
Percentage of net sales(1): | | | | | | | | |
| Net sales | | | 100.0 | % | | | 100.0 | % |
| Cost of sales | | | 60.4 | | | | 64.1 | |
| Gross profit | | | 39.6 | | | | 35.9 | |
| Selling, general and administrative expenses | | | 26.8 | | | | 26.9 | |
| Depreciation and amortization expenses | | | 1.3 | | | | 1.3 | |
| Pre-opening expenses | | | 0.7 | | | | 0.6 | |
| Operating income | | | 10.8 | | | | 7.2 | |
| Interest expense (income), net | | | (0.7 | ) | | | (0.2 | ) |
| Income before income taxes | | | 11.5 | | | | 7.3 | |
| Income tax expense | | | 2.9 | | | | 1.7 | |
| Net income | | | 8.6 | % | | | 5.6 | % |
| Select operating data: | | | | | | | | |
| Number of new stores | | | 45 | | | | 40 | |
| Number of store closings | | | (1 | ) | | | (3 | ) |
| Number of stores open at end of period | | | 512 | | | | 468 | |
Average net sales per store (2) | | $ | 4,286 | | | $ | 4,043 | |
| Comparable stores sales change | | | 5.7 | % | | | (3.0 | )% |
| (1) | Components may not add to totals due to rounding. |
| (2) | Average net sales per store represents the weighted average of total net weekly sales divided by the number of stores open in each case at the end of each week in each fiscal period.for the respective periods presented. |
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The following table provides a reconciliation of our net income to Adjusted EBITDA for the periods presented:
| Fiscal year |
| 2016 | 2015 | 2014 |
| (dollars in thousands) |
Net Income | $ | 59,764 | | $ | 35,839 | | $ | 26,915 | |
Interest expense, net | | 5,935 | | | 15,416 | | | 18,432 | |
Loss on extinguishment of debt | | — | | | 6,710 | | | 671 | |
Depreciation and amortization expenses (1) | | 10,668 | | | 9,342 | | | 8,785 | |
Income tax expense | | 36,495 | | | 21,607 | | | 16,763 | |
EBITDA | $ | 112,862 | | $ | 88,914 | | $ | 71,566 | |
Non-cash stock based compensation expense | | 6,685 | | | 5,035 | | | 3,761 | |
Non-cash purchase accounting items (2) | | (134 | ) | | (284 | ) | | (383 | ) |
Transaction related expenses (3) | | 1,736 | | | 322 | | | — | |
Debt financing expenses (4) | | — | | | 89 | | | 446 | |
Adjusted EBITDA | $ | 121,149 | | $ | 94,076 | | $ | 75,390 | |
| | | 2023 | | | 2022 | |
| | | (dollars in thousands) | |
| Net income | | $ | 181,439 | | | $ | 102,790 | |
| Interest expense (income), net | | | (14,686 | ) | | | (2,965 | ) |
Depreciation and amortization expenses (1) | | | 35,120 | | | | 28,903 | |
| Income tax expense | | | 61,046 | | | | 31,093 | |
| EBITDA | | | 262,919 | | | | 159,821 | |
| Gains from insurance settlements | | | - | | | | (897 | ) |
| Non-cash stock-based compensation expense | | | 12,237 | | | | 9,951 | |
| Adjusted EBITDA | | $ | 275,156 | | | $ | 168,875 | |
| (1) | Includes depreciation and amortization relating to our distribution centers, which is included within cost of sales on our consolidated statements of income. |
| (2) | Includes purchase accounting impact from unfavorable lease liabilities related to the CCMP Acquisition. |
2023 Compared with 2022
| (3) | Represents professional services and one-time compensation expenses related to the fiscal year 2015 IPO and the fiscal year 2016 secondary offering transactions. |
| (4) | Represents fees and expenses related to amendments to our Old Credit Facilities in fiscal years 2014 and 2015. |
Fiscal year 2016 compared to fiscal year 2015
Net Sales
Net sales increased to
$890.3 million for fiscal year 2016$2.103 billion in 2023 from
$762.4 million for fiscal year 2015,$1.827 billion in 2022, an increase of
$127.9$275.7 million, or
16.8%15.1%. The increase
in net sales was the result of
new store unit growth, a comparable store sales increase of
$22.6 million, or 3.2%5.7%, and
a non-comparable store$34.0 million of sales
increase of $105.3 million. Our increase in
non-comparable storethe 53rd week. Excluding the 53rd week, sales
was primarily driven by the timing of new stores which opened during fiscalincreased 13.2% year
2015 but were not open for a full 15 months during fiscal year 2016, as well as 31 new stores which opened during fiscal year 2016.over year.
Comparable store sales increased
3.2% for fiscal year 20165.7% in 2023 compared
towith a
6.0% increase for fiscal year 2015.3.0% decrease in 2022. The increase in comparable store sales
during fiscal year 2016 was driven byconsisted of an increase in the number of
customer transactions as well as an increase in the average transaction size. On a department basis, the increase was primarily driven by strong results in the health and beauty aids, electronics, food and candy, seasonal and toy departments, slightly offset by decreases in our books and stationery, furniture and hardware departments.Cost of Sales
Cost of sales increased to $529.9 million for fiscal year 2016 from $459.5 million for fiscal year 2015, an increase of $70.4 million, or 15.3%. The increase in cost of sales was primarily a result of increased net sales.
transactions.
Gross Profit and Gross Margin
Gross profit increased to $360.4$832.4 million for fiscal year 2016in 2023 from $302.9$656.1 million for fiscal year 2015,in 2022, an increase of $57.5$176.3 million, or 19.0%26.9%. The increase in gross profit was primarily the result of new store growth and increases in comparable store sales. Our grossGross margin increased 370 basis points to 40.5%39.6% in 2023 from 39.7% for fiscal years 2016 and 2015, respectively.35.9% in 2022. The increase in gross margin in fiscal year 2016 was2023 is primarily due to lower distributionfavorable supply chain costs.
Selling, General and transportationAdministrative Expenses
SG&A increased to $562.7 million in 2023 from $490.6 million in 2022, an increase of $72.1 million, or 14.7%. The dollar increase in SG&A was primarily driven by higher selling expenses associated with our new store unit growth, as well as higher incentive compensation. As a percentage of net sales, SG&A decreased 10 basis points to 26.8% in 2023 from 26.9% in 2022. This decrease is primarily the result of leverage of fixed expenses, partially offset by higher incentive compensation expense.
Included in SG&A in 2022 is $0.9 million, respectively, of income related to gains from insurance settlements. Excluding the gains in both years, SG&A decreased 10 basis points as a percentage of net sales in 2023.
Depreciation and Amortization Expenses
Depreciation and amortization expenses increased to $27.8 million in 2023 from $22.9 million in 2022, an increase of $4.9 million, or 21.4%, the result of the increased asset base due to new store growth and investments in existing stores.
Pre-Opening Expenses
Pre-opening expenses increased to $14.1 million in 2023 from $11.7 million in 2022, an increase of $2.4 million, or 20.3%. The increase is primarily due to
lower fuel costsadditional store openings and
import container rates.Selling, Generalremodels. We opened 45 new stores and Administrative Expenses
Selling, generalclosed one store in 2023 compared with having opened 40 new stores and administrative expenses increased to $242.9 million for fiscal year 2016 from $209.8 million for fiscal year 2015, an increase of $33.1 million, or 15.8%.closed three stores in 2022. As a percentage of net sales, selling, general and administrativepre-opening expenses decreased 20 basis points to 27.3% for fiscal year 2016was 0.7% in 2023 from 0.6% in 2022.
Interest (Income) Expense, Net
Interest income, net was $14.7 million in 2023 compared
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2015.with $3.0 million in 2022. The increase in selling, general and administrative expenses was primarily the result of increasesinterest income, net in store-related expenses of $25.8 million to support new store growth. These increased expenses consisted primarily of store payroll and benefits, store occupancy costs, and other store-related expenses, as well as investments in general and administration infrastructure to support continued growth in the business, public company expenses and costs related to our secondary offering transactions.
Depreciation and Amortization Expense
Depreciation and amortization expenses increased to $8.4 million for fiscal year 2016 from $7.2 million for fiscal year 2015, an increase of $1.3 million, or 17.7%. The increase2023 is primarily a result of new store growth.
Pre-Opening Expenses
Pre-opening expenses increased to $6.9 million for fiscal year 2016 from $6.3 million for fiscal year 2015, an increase of $0.5 million, or 8.6%. The increase primarily relates to expenses incurred in opening 31 stores during fiscal year 2016 compared to opening 28 stores and one store closing during fiscal year 2015.
Interest Expense, Net
Net interest expense decreased to $5.9 million for fiscal year 2016 from $15.4 million for fiscal year 2015, a decrease of $9.5 million or 61.5%. The decrease in fiscal year 2016 was primarily due to proceeds from the IPO reducing borrowings on our Credit Facilities. Additionally, the effectivefavorable interest rate on our Credit Facilities decreased as a result of the Refinancing that occurred on January 29, 2016.
rates and higher average cash and cash equivalent and short-term investments balances compared to 2022.
Income tax expense increased to
$36.5$61.0 million
for fiscal year 2016in 2023 from
$21.6$31.1 million
for fiscal year 2015,in 2022, an increase of
$14.9$29.9 million, or
68.9%96.3%.
ThisThe effective tax rates for 2023 and 2022 were 25.2% and 23.2%, respectively. The variance in the effective tax rates between the periods was primarily due to state tax rate changes, offset by an increase in
incomediscrete tax
expense was primarily the result of the $38.8benefits related to stock-based compensation. Discrete tax benefits totaled $1.1 million
increaseand $0.3 million in
pre-tax net income, or 67.6%. Our effective tax rate increased2023 and 2022, respectively. For further information, see Note 8 under “Notes to
37.9% for fiscal year 2016 from 37.6% for fiscal year 2015.Consolidated Financial Statements.”
As a result of the foregoing, net income increased to
$59.8$181.4 million
for fiscal year 2016in 2023 from
$35.8$102.8 million
for fiscal year 2015,in 2022, an increase of
$23.9$78.6 million, or
66.8%76.5%.
Adjusted EBITDA increased to
$121.1$275.2 million
for fiscal year 2016in 2023 from
$94.1$168.9 million
for fiscal year 2015,in 2022, an increase of
$27.1$106.3 million, or
28.8%62.9%.
The increase in Adjusted EBITDA for fiscal year 2016 is due primarily to our increase in net sales, which was driven by a 3.2% increase in comparable store sales and a 15.3% increase in store count over fiscal year 2015. We achieved increased gross profit dollars due to the increased sales volume as well as an 80-basis-point increase in our gross margin rate, largely driven by reduced distribution and transportation costs in fiscal year 2016. Additionally, as a result of the sales increase in fiscal year 2016, our selling, general and administrative expenses as a percentage of net sales decreased by 20 basis points, all resulting in the improvement of our Adjusted EBITDA performance compared to the same period last year.Fiscal year 2015 compared to fiscal year 2014
Net Sales
Net sales increased to $762.4 million for fiscal year 2015 from $638.0 million for fiscal year 2014, an increase of $124.4 million, or 19.5%. The increase was the result of a comparable store sales increase of $36.5 million, or 6.0% and a non-comparable store sales increase of $87.9 million. Our increase in non-comparable store sales was primarily driven by the timing of new stores, which opened during fiscal year 2014, but were not open for a full 15 months during fiscal year 2015, as well as 28 new stores which opened during fiscal year 2015.
Comparable store sales increased 6.0% for fiscal year 2015 compared to a 4.4% increase for fiscal year 2014. The increase in comparable store sales during fiscal year 2015 was driven by increased sales volume and increased
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customer visits at our locations. On a department basis the increase was primarily driven by strong results in the food and candy, electronic accessories and the books and stationery departments, slightly offset by decreases in our housewares department as predominately mild weather during the last months of the fiscal year negatively impacted the sales of heaters.
Cost of Sales
Cost of sales increased to $459.5 million for fiscal year 2015 from $384.5 million for fiscal year 2014, an increase of $75.0 million, or 19.5%. The increase in cost of sales was primarily a result of increased net sales and to a lesser extent increased transportation and distribution expenses.
Gross Profit and Gross Margin
Gross profit increased to $302.9 million for fiscal year 2015 from $253.5 million for fiscal year 2014, an increase of $49.4 million, or 19.5%. The increase in gross profit was primarily the result of new store growth and increases in comparable store sales. Our gross margin remained at 39.7% for fiscal years 2015 and 2014. The consistency in gross margin was primarily attributable to favorable increases in our merchandise margin for fiscal year 2015 and was partially offset by increased distribution center costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $209.8 million for fiscal year 2015 from $178.8 million for fiscal year 2014, an increase of $31.0 million, or 17.3%. As a percentage of net sales, selling, general and administrative expenses decreased 50 basis points to 27.5% for fiscal year 2015 compared to 28.0% for fiscal year 2014. The increase in selling, general and administrative expenses was primarily the result of increases in store-related expenses of $26.2 million to support new store growth. These increased expenses consisted primarily of store payroll and benefits, store occupancy costs, and other store related expenses, as well as, investments in general and administration infrastructure to support continued growth in the business, public company expenses and costs related to our IPO.
Depreciation and Amortization Expense
Depreciation and amortization expenses increased to $7.2 million for fiscal year 2015, from $7.0 million for fiscal year 2014, an increase of $0.2 million, or 2.7%. The increase is primarily a result of new store growth and the annualized impact of the opening of the Commerce, GA distribution center in April 2014.
Pre-Opening Expenses
Pre-opening expenses increased to $6.3 million for fiscal year 2015 from $4.9 million for fiscal year 2014, an increase of $1.4 million, or 29.1%. The increase primarily relates to the pre-opening expenses incurred in opening 28 stores and closing one store during fiscal year 2015 compared to 22 store openings during fiscal year 2014. The increase in pre-opening expenses was partially offset by reductions in the expense from the Commerce, GA distribution center which opened in April 2014.
Interest Expense, Net
Net interest expense decreased to $15.4 million for fiscal year 2015 from $18.4 million in fiscal year 2014, a decrease of $3.0 million or 16.4%. Proceeds from the IPO were used to reduce borrowings on the Term Loan Facility and the Revolving Credit Facility, which primarily caused the decrease in interest expense for fiscal year 2015.
Loss on extinguishment of debt
Loss on extinguishment of debt increased to $6.7 million for fiscal year 2015 from $0.7 million for fiscal year 2014, an increase of $6.0 million. The loss on extinguishment of debt for fiscal year 2015 represents the write off of debt issuance costs and original issue discount due to the pay down of a portion of the Term Loan Facility using the proceeds from the IPO in July 2015 and the Refinancing on January 29, 2016. The loss on extinguishment of debt for fiscal year 2014 relates to the debt issuance cost and original issue discount which was written off as a result of the second amendment to the Old Term Loan Facility which occurred in April 2014.
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Income Tax Expense
Income tax expense increased to $21.6 million for fiscal year 2015 from $16.8 million for fiscal year 2014, an increase of $4.8 million, or 28.9%. This increase in income tax expense was primarily the result of the $13.8 million increase in pre-tax net income, or 31.5%. Our effective tax rate decreased to 37.6% for fiscal year 2015 from 38.4% for fiscal year 2014. The effective tax rate for fiscal year 2015 was lower than the prior year effective tax rates primarily as a result of a discrete tax benefit related to the impact from the finalization of employment-based tax credits associated with fiscal years 2015 and 2014 and the impact from a slight reduction in the projected state effective tax on the net deferred income tax liabilities.
Net Income
As a result of the foregoing, net income increased to $35.8 million for fiscal year 2015 from $26.9 million for fiscal year 2014, an increase of $8.9 million, or 33.2%.
Adjusted EBITDA
Adjusted EBITDA increased to $94.1 million for fiscal year 2015 from $75.4 million for fiscal year 2014, an increase of $18.7 million, or 24.8%. The increase in Adjusted EBITDA for fiscal year 2015 is due primarily to our increase in net sales which was driven by a 6.0% increase in comparable store sales and a 15.3% increase in store count over fiscal year 2014. Also, as a result of the sales increase, we were able to leverage a 50 basis point decrease in our selling, general and administrative expenses as a percentage of net sales for fiscal year 2015, all resulting to improve our Adjusted EBITDA performance compared to the same period last year.
Liquidity and Capital Resources
Our primary sources of liquidity are net cash flows provided by operating activities and available borrowings under our $100.0 million Revolving Credit Facility. As of February 3, 2024, we had $353.2 million of cash and cash equivalents and short-term investments on hand and $90.0 million available to borrow under our Revolving Credit Facility. For further information regarding our Revolving Credit Facility, see Note 7 under “Notes to the Consolidated Financial Statements.”
Our primary cash needs are for capital expenditures and working capital.
As of January 28, 2017,Additionally, we
had $98.8 million availablehave made and may continue to
borrow under our $100.0 million Revolving Credit Facility and $98.7 million of cash and cash equivalents on hand. We had $195.0 million of outstanding borrowings under our Term Loan Facility. On May 27, 2015, we amended the credit agreements governing our Old Credit Facilities to, among other things, increase the size of the Old Revolving Credit Facility from $75.0 million to $125.0 million and to permit a dividend to holders of our outstanding common stock. We also drew $50.0 million of borrowings on the Old Revolving Credit Facility, the proceeds of which were used to pay an aggregate cash dividend of $48.8 million to holders of our common stock. We repaid borrowings under our Old Revolving Credit Facility and a portion of our Old Term Loan Facility with the proceeds of our IPO. On January 29, 2016, we completed the Refinancing, in which we refinanced the Old Credit Facilities with the proceeds of the Credit Facilities, consisting of the $200.0 million Term Loan Facility and the $100.0 million Revolving Credit Facility, which includes a $25.0 million sub-facilitymake discretionary share repurchases (see ‘Share Repurchase Program’ below for
letters of credit and a $25.0 million sub-facility for swingline loans. See “—Factors affecting the comparability of our results of operations—Financing transactions and payments to stockholders” and “—Credit facilities.”further discussion).
Our capital expenditures are primarily related to new store openings, store resets, which consist of improvements to stores as they are needed, expenditures related to our distribution centers, and infrastructure-related investments, including investments related to upgrading and maintaining our information technology systems. For fiscal year 2016, weWe spent $16.4$124.4 million and $51.7 million for capital expenditures compared to $14.2 million for fiscal year 2015. We expect to fund capital expenditures from net cash provided by operating activities.in 2023 and 2022, respectively. We opened 3145 new stores duringand closed one store in 2023.
Capital expenditures in 2024 are planned to be approximately $85 million, primarily for the construction of our fourth distribution center, which is anticipated to be operational in the second half of fiscal year 2016 and expect to open between 33 and 352024, as well as the opening of 50 new stores,
during fiscal year 2017. We also expect to invest instore-level initiatives at our
distribution centers, store resets andexisting stores, as well as general corporate capital expenditures, including information
technology,technology. We have experienced, and may continue to experience, delays in
fiscal year 2017.Historically, we have funded our capital expendituresconstruction and working capital requirements during the fiscal year with cash on handpermitting of new stores and borrowings under our revolving credit facility. When we have used our revolving credit facility, the amount of indebtedness outstanding under it has tended to be the highest in the beginning of our fourth fiscal quarter. Over the past two fiscal years, to the extent we have drawn on the revolving credit facility, we have paid down the borrowings before the end of December each fiscal year with cash generated during our peak selling season in our fourth fiscal quarter.
other projects.
Our primary working capital requirements are for the purchase of
inventory,merchandise inventories, payroll,
store rent
associated with our operating leases, other store operating costs, distribution costs, and general and administrative costs. Our working capital requirements fluctuate during the year,
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rising in our third fiscal quarter as we increase quantities of inventory in anticipation of our peak holiday sales season in our fourth fiscal quarter. Fluctuations in working capital are also driven by the timing of new store openings.
Based on
Historically, we have funded our new store growth plans, wecapital expenditures and working capital requirements during the fiscal year with cash flows from operations.
A financial instrument which potentially subjects the Company to a concentration of credit risk is cash. Ollie’s currently maintains its day-to-day operating cash balances with major financial institutions. The Company’s operating cash balances are in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. From time to time, Ollie’s invests temporary excess cash in overnight investments with expected minimal volatility, such as money market funds. Although the Company maintains balances which exceed the FDIC insured limit, it has not experienced any losses related to these balances.
We believe our cash and cash equivalents
and short-term investments position, net cash provided by operating activities and availability under our Revolving Credit Facility will be adequate to finance our planned capital expenditures, working capital requirements,
and debt service,
and other financing activities over the next 12 months. If cash provided by operating activities and borrowings under our Revolving Credit Facility are not sufficient or available to meet our capital requirements,
then we will be required to obtain additional equity or debt financing in the future. There can be no assurance equity or debt financing will be available to us when
we need itneeded or, if available, the terms will be satisfactory to us and not dilutive to our then-current stockholders.
Share Repurchase Program
On December 15, 2020, the Board of Directors of the Company authorized the repurchase of up to $100.0 million of shares of the Company’s common stock. On March 16, 2021, the Board of Directors of the Company authorized an increase of $100.0 million in the Company’s share repurchase program, 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. On November 30, 2023, the Company’s Board of Directors authorized an extension to the existing share repurchase program set to expire on December 15, 2023, until March 31, 2026. The shares to be repurchased may be purchased from time to time in open market conditions (including blocks), privately negotiated transactions, accelerated share repurchase programs or other derivative transactions, issuer self-tender offers or any combination of the foregoing. The timing of repurchases and the actual amount purchased will depend on a variety of factors, including the market price of our shares, general market, economic and business conditions, and other corporate considerations. Repurchases may be made pursuant to plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, which could allow us to purchase our shares during periods when we otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. Repurchases are expected to be funded from cash on hand or through the utilization of our Revolving Credit Facility. The repurchase authorization does not require the purchase of a specific number of shares and is subject to suspension or termination by our Board of Directors at any time.
During 2023, we repurchased 808,669 shares of our common stock for $52.5 million, inclusive of transaction costs, pursuant to our share repurchase program, and during 2022, we repurchased 848,133 shares of our common stock for $41.8 million, inclusive of transaction costs. These expenditures were funded by cash generated from operations. As of February 3, 2024, we had approximately $85.7 million remaining under our share repurchase authorization. There can be no assurances that any additional repurchases will be completed, or as to the timing or amount of any repurchases.
A summary of our cash flows from operating, investing, and financing activities is presented in the following table:
| Fiscal year |
| 2016 | 2015 | 2014 |
| (in thousands) |
Net cash provided by operating activities | $ | 67,088 | | $ | 45,848 | | $ | 31,842 | |
Net cash used in investing activities | | (16,423 | ) | | (14,337 | ) | | (14,007 | ) |
Net cash provided by (used in) financing activities | | 17,759 | | | (23,204 | ) | | (8,049 | ) |
Net increase during period in cash | $ | 68,424 | | $ | 8,307 | | $ | 9,786 | |
| | | 2023 | | | 2022 | |
| | | (in thousands) | |
| Net cash provided by operating activities | | $ | 254,497 | | | $ | 114,346 | |
| Net cash used in investing activities | | | (150,087 | ) | | | (111,454 | ) |
| Net cash used in financing activities | | | (48,744 | ) | | | (39,273 | ) |
| Net increase (decrease) in cash and cash equivalents | | $ | 55,666 | | | $ | (36,381 | ) |
Cash Provided
Byby Operating Activities
Net cash provided by operating activities
for fiscal year 2016 was $67.1in 2023 totaled $254.5 million
an increase from $45.8compared with $114.3 million
for fiscal year 2015.in 2022. The increase in net cash provided by operating activities
in 2023 was primarily
the result of increaseddue to higher net income
due to the opening of 31 new stores and increased profitability.Net cash provided by operating activities for fiscal year 2015 was $ 45.8 million, an increase from $31.8 million for fiscal year 2014. The increase in fiscal year 2015 net cash provided by operating activities was primarily the result of increased income due to the opening of 27 net new stores and increased profitability. In addition, increases in accrued expenses were offset by a decrease in accounts payable due to the timing of rent and other payments.
over year.
Cash Used in Investing Activities
Net cash used in investing activities
increased for fiscal year 2016 to $16.4totaled $150.1 million
from $14.3in 2023 compared with $111.5 million
for fiscal year 2015.in 2022. The increase in cash used in investing activities
relatesis primarily due to
a larger investment in capital expenditures
for 31 new store openingsrelated to the completion of the Company’s distribution center expansion in
fiscal year 2016 compared to 28 new store openings in fiscal year 2015York, PA and
a purchase of onethe construction of our
store locationsnew distribution center in
fiscal year 2016.Net cash usedPrinceton, IL, and purchases of short-term investments of $273.5 million in investing activities for fiscal year 2015 was $14.3 million, an increase from $14.0 million for fiscal year 2014. The increase in cash used in investing activities relates to capital expenditures for 28 new store openings in fiscal year 2015 compared to 22 new store openings in fiscal year 2014. The increase in cash used in investing activities can also be attributed to the purchase of certain tradenames during fiscal year 2015.
Cash Provided by/Used In Financing Activities
Net cash provided by financing activities for fiscal year 2016 was $17.8 million and net cash used in financing activities for fiscal year 2015 was $23.2 million. The current year, favorable variance primarily reflects the $48.8 million dividend paymentpartially offset by maturities of short-term investments of $247.4 million.
Cash Used in
fiscal year 2015, with no similar payments in fiscal year 2016.Financing Activities
Net cash used in financing activities
for fiscal years 2015 and 2014 was $23.2totaled $48.7 million
and $8.0in 2023 compared with $39.3 million
respectively.in 2022. The
increasechange in
net cash
usedoutflow in
financing activities for fiscal year 2015 was2023 is primarily
relateddue to
the repayment$52.5 million of
debt offset by a decrease in the dividend paymentshares repurchased in fiscal
year 2015 when2023 as compared to
the dividend paymentshare repurchases of $41.8 million in fiscal
year 2014.Credit facilities
On January 29, 2016, the Borrowers completed a transaction in which they refinanced the Old 2022.
Credit Facilities with the proceeds of the Credit Facilities, consisting of the $200.0 million Term Loan Facility and the
The Company’s credit facility (the “Credit Facility”) provides for a five-year $100.0 million
Revolving Credit Facility,revolving credit facility, which includes a
$25.0$45.0 million sub-facility for letters of credit and a $25.0 million
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sub-facility for swingline loans. The proceedsloans (the “Revolving Credit Facility”). In addition, the Company may at any time add term loan facilities or additional revolving commitments up to $150.0 million pursuant to terms and conditions set out in the Credit Facility. On January 9, 2024, the Company refinanced its credit facility (the “Credit Facility”), pursuant to which the maturity date for any loans under the revolving credit facility was extended for a period of five years and a zero percent (0.0%) interest rate floor was added to the Termoption for the SOFR Loan Facility, together with cash on hand, were used to repayRate (as defined in the existing Old Credit Facilities.Amendment). Loans under the Revolving Credit FacilitiesFacility mature on January 29, 2021. 9, 2029.
The interest rates for the Credit
Facilities are not subject to a floor andFacility are calculated as
follows: for ABR Loans, the
higherhighest of the Prime Rate, the Federal Funds Effective Rate plus 0.50%
orand Term SOFR with a term of one-month in effect on such day plus the
Eurodollar RateSOFR Spread Adjustment plus 1.0%, plus the Applicable Margin, or, for
EurodollarSOFR Loans, the
EurodollarSOFR Loan Rate plus the Applicable
Margin.Margin plus the SOFR Spread Adjustment. The Applicable Margin will vary from
0.75%0.00% to
1.25%0.50% for an ABR Loan and 1.00% to 1.50% for a
Base Rate Loan and 1.75% to 2.25% for a EurodollarSOFR Loan, based on
reference to the total leverage ratio (total debt to Adjusted EBITDA, as defined in the agreement).The credit agreement governingavailability under the Credit Facilities provides that the Borrowers may request increased commitments under the Revolving Credit Facility and additional term loans or additional term facilities under the TermFacility. The SOFR Loan Facility, in each case, subject to certain conditions and in an aggregate principal amount not to exceed (x) $100.0 million, plus (y) in the case of any incremental term loans that serve to effectively extend the maturity of the Term Loan Facility, an amount equal to the reductions in the Term Loan Facility to be replaced thereby plus (z) an additional amount, subject to compliance on a pro forma basis with a total leverage ratio of no greater than 3.25: 1.00 as of January 28, 2017. The effective yield for any such incremental facility under the Term Loan Facility will beRate is subject to a “most favored nation” pricing protection provision with a cushion of 0.50%. The incurrence of any incremental facility under the Term Loan Facility is subject to customary conditions precedent.
As of January 28, 2017, the Term Loan Facility is subject to amortization with principal payable in quarterly installments of $1.25 million to be made on the last business day of each fiscal quarter. The quarterly installment payments increase after January 29, 2018 to $2.50 million. The remaining initial aggregate advances under the Term Loan Facility are payable at maturity.
0% floor.
Under the terms of the Revolving Credit Facility,
as of February 3, 2024, we
cancould borrow up to 90.0% of the most recent appraised value (valued at cost, discounted for the current net orderly liquidation value) of our eligible inventory, as defined, up to $100.0 million.
The Revolving Credit Facility includes a $25.0 million sub-facility for letters of credit and a $25.0 million swingline loan facility. A variable unused line fee will be charged on the average daily unused portion of the Revolving Credit Facility of 0.375% per annum if the total leverage ratio is greater than 3.25: 1.00 or 0.250% if the total leverage ratio is less than 3.25: 1.00. A letter of credit fee will accrue on the aggregate face amount of outstanding letters of credit under the Revolving Credit Facility equal to the interest rate margin for Eurodollar Loans under the Revolving Credit Facility. In addition, a fronting fee will be paid to the letter of credit issuer on the aggregate face amount of outstanding standby letters of credit not to exceed 0.125% per annum, which fee shall be calculated based upon the actual number of days elapsed over a 360 day year and payable in arrears, on the first day of each quarter.The Credit Facilities require the Borrowers to prepay, subject to certain exceptions, outstanding term loans with:
100% of net cash proceeds of any incurrence, issuance or sale of indebtedness, other than the net cash proceeds of indebtedness permitted under the Credit Facilities; and
100% of net cash proceeds of asset sales, subject to reinvestment rights and certain other exceptions.
The Revolving Credit Facility requires the Borrowers to first prepay outstanding loans and then cash collateralize outstanding letters of credit if at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and outstanding letters of credit under the Revolving Credit Facility exceeds the Line Cap, in an aggregate amount equal to such excess.
The Borrowers may voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans under the Credit Facilities at any time without premium or penalty other than customary “breakage” costs with respect to Eurodollar borrowings.
There is no scheduled amortization under the Revolving Credit Facility. The Revolving Credit Facility has a maturity date of January 29, 2021. The term loans under the Term Loan Facility mature on January 29, 2021. The Borrowers are required to repay installments on the term loans in quarterly principal amounts of (i) for each payment date that occurs on or prior to January 29, 2018, $1.25 million or (ii) for each payment date that occurs after January 29, 2018, $2.50 million, with the remaining amount payable on the maturity date.
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All obligations under the Credit Facilities are unconditionally guaranteed by Bargain Parent, Inc. and certain of Ollie’s Holdings, Inc. existing and future direct and indirect wholly-owned domestic subsidiaries. All obligations under the Credit Facilities, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of Ollie’s Holdings, Inc.’s assets and the assets of the guarantors, including:
A first-priority pledge of all of Ollie’s Bargain Outlet, Inc.’s capital stock directly held by Ollie’s Holdings, Inc., a first-priority pledge of all of Ollie’s Holdings, Inc.’s capital stock directly held by Bargain Parent, Inc. and a first-priority pledge of all of the capital stock directly held by Ollie’s Holdings, Inc. and its subsidiary guarantors (which pledge, in the case of the capital stock of any foreign subsidiary or any “disregarded” domestic subsidiary, will be limited to 65% of the stock of such subsidiary); and
A first-priority security interest in substantially all of Ollie’s Holdings, Inc.’s and the guarantors’ tangible and intangible assets, including certain deposit accounts.
The Credit Facilities contain a number of restrictive covenants that, among other things and subject to certain exceptions, restrict the Borrowers’ ability and the ability of its subsidiaries to:
incur additional indebtedness;
pay dividends on our capital stock or redeem, repurchase or retire our capital stock;
make investments, acquisitions, loans and advances;
create negative pledge or restrictions on the payment of dividends or payment of other amounts owed to us from our subsidiaries;
engage in transactions with our affiliates;
sell, transfer or otherwise dispose of our assets, including capital stock of our subsidiaries;
materially alter the business we conduct;
modify material debt documents and certain other material documents;
change our fiscal year;
merge or consolidate;
enter into any sale and lease-back transactions;
incur liens; and
make payments on material subordinated or other debt.
In addition, we are subject to a consolidated fixed charge coverage ratio test of at least 1.1 to 1.0, tested quarterly. We also were subject to a total leverage ratio test of 4.00:1.00 through October 29, 2016 and are hereafter subject to a total leverage ratio test of 3.50:1.00.
The Credit Facilities also contain certain customary representations and warranties, affirmative covenants and reporting obligations. In addition, the lenders under the Credit Facilities will be permitted to accelerate the loans and terminate commitments thereunder or exercise other specified remedies available to secured creditors upon the occurrence of certain events of default, subject to certain grace periods and exceptions, which will include, among others, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain material indebtedness, certain events of bankruptcy and insolvency, certain pension plan related events, material judgments and any change of control.
As of January 28, 2017,February 3, 2024, we had $195.0 million of outstanding borrowings on the Term Loan Facility and no outstanding borrowings under the Revolving Credit Facility, with $98.8$90.0 million of borrowing availability, letteroutstanding letters of credit commitments of $1.0$9.7 million and $0.2 million of rent reserves. The interest rate on the outstanding borrowings under the Term Loan Facility was 1.75% plus the 30-day Eurodollar Rate, or 2.53%. The Revolving Credit Facility also contains a variable unused line fee ranging from 0.250%0.125% to 0.375%0.250% per annum. We incurred unused line fees of $0.3approximately $0.1 million $0.4 millionin each of 2023 and $0.2 million for fiscal years 2016, 20152022.
The Credit Facility is collateralized by the Company’s assets and 2014, respectively.equity and contains a financial covenant, as well as certain business covenants, including restrictions on dividend payments, which we must comply with during the term of the agreement. The loans underfinancial covenant is a consolidated fixed charge coverage ratio test of at least 1.0 to 1.0 applicable during a covenant period, based on reference to availability. We were in compliance with all terms of the Credit Facilities matureFacility during 2023.
The provisions of the Credit Facility restrict all of the net assets of the Company’s consolidated subsidiaries, which constitutes all of the net assets on
January 29, 2021.our consolidated balance sheet as of February 3, 2024, from being used to pay any dividends or make other restricted payments to the Company without prior written consent from the financial institutions that are a party to the Credit Facility, subject to material exceptions including proforma compliance with the applicable conditions described in the Credit Facility. TABLE OF CONTENTS
We enter into long-term contractual obligations and commitments in the normal course of business, primarily operating leases.
As of January 28, 2017, The following table summarizes our material cash requirements over the next several periods from known contractual obligations, and other commitments were:
| Less than
1 year | 1-3 Years | 3-5 Years | Thereafter | Total |
| (in thousands) |
Operating lease obligation (1) | $ | 44,664 | | $ | 80,950 | | $ | 57,715 | | $ | 55,008 | | $ | 238,337 | |
Principal payments of debt (2) | | 5,077 | | | 20,182 | | | 170,000 | | | — | | | 195,259 | |
Interest on long-term debt (3) | | 5,045 | | | 9,272 | | | 4,223 | | | — | | | 18,540 | |
Total | $ | 54,786 | | $ | 110,404 | | $ | 231,938 | | $ | 55,008 | | $ | 452,136 | |
including contractual lease obligations:
| | | Less than 1 year | | | 1-3 Years | | | 3-5 Years | | | Thereafter | | | Total | |
| | | (in thousands) | |
Operating leases (1) | | $ | 106,625 | | | $ | 181,855 | | | $ | 136,762 | | | $ | 132,033 | | | $ | 557,275 | |
| Finance leases | | | 1,011 | | | | 835 | | | | 13 | | | | | | | | 1,859 | |
Purchase obligations (2) | | | 21,400 | | | | - | | | | - | | | | - | | | | 21,400 | |
| Total | | $ | 129,036 | | | $ | 182,690 | | | $ | 136,775 | | | $ | 132,033 | | | $ | 580,534 | |
| (1) | Includes the initialOperating lease termpayments exclude $26.6 million of legally binding minimum lease payments for leases signed, but not yet commenced. |
| (2) | Purchase obligations are primarily for materials and optional renewal terms that are included in the lease term ofconstruction agreement for our store andfourth distribution center leases in accordance with accounting guidance related to leases.Princeton, IL. |
| (2) | Includes the aggregate principal payments under the Term Loan Facility and assumes no borrowings under our Revolving Credit Facility. |
| (3) | Represents the expected cash payments for interest on our long-term debt based on the interest rates in place and the amounts outstanding as of the end of each period. |
Off-Balance Sheet Arrangements
Except for operating leases entered into in the normal course of business, weWe do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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.
Critical Accounting PoliciesEstimates
Our consolidated financial statements have been prepared in accordance with GAAP. A summary of our significant accounting policies can be found in Note 1 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The preparation of these consolidated financial statements requires us to make judgments and Estimatesestimates that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. These judgments and estimates are based on historical and other factors believed to be reasonable under the circumstances.
We have identified the policies below as critical to our business operations and understanding of our results of operations.
The impact and any associated risks related to these policies on our business operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” where such policies affect our reported and expected financial results. Our financial statements, which have been prepared in accordance with GAAP, require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. For a detailed discussion on the application of these and other accounting policies, See Note 1 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Inventories are stated at the lower of cost or market determined using the retail inventory method on a first-in, first-out basis. The cost of inventories includes the merchandise cost, transportation costs, and
certain distribution and storage costs. Such costs are thereafter expensed as cost of sales upon the sale of the merchandise.
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Under the retail inventory method, which is widely used in the retail industry, inventory is segregated into departments of merchandise having similar characteristics,characteristics. The valuation of inventories and the resulting gross profit is stated at its current retail selling value. Inventory retail values are converted to a cost basisderived by applying specific average cost factorsa calculated cost-to-retail ratio to the retail value of inventories for each merchandise department. Cost factors represent
Inherent in the
average cost-to-retail ratio for each merchandise department based on beginning inventory and the current period purchase activity.The retail inventory method inherently requiresare certain management judgments and estimates such asincluding, among others, merchandise markups, the amount and timing of permanent markdowns, to clear unproductive or slow-moving inventory,and shrinkage, which may significantly impact both the ending inventory valuation as well asand gross margins.
Permanent markdowns designated for clearance activity are recorded when the utility of the inventory has diminished. profit.
Factors considered in the determination of permanent markdowns include
uncertainties related to inventory obsolescence, excess inventories, current and anticipated demand,
customer preferences, and age of the
merchandise. When a decision is made to permanently markdown merchandise
the resulting gross profit reduction is recognized in the period the markdown is recorded. Demand for merchandise can fluctuate greatly.and customer preferences. A significant increase in the demand for merchandise could result in a short-term increase in inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on-hand. If our inventory is determined to be overvalued in the future, we would be required to recognize such costs in
costscost of
goods soldsales and reduce operating income at the time of such determination. Therefore, although every effort is made to ensure the accuracy of forecasts of merchandise demand, any significant unanticipated changes in demand or in economic conditions within our markets could have a significant impact on the value of our inventory and reported operating results.
Similarly, if higher than anticipated levels of shrinkage were to occur, it could have a material effect on our results of operations. We calculate our shrink provision based on actual physical inventory results during the fiscal period and an accrual for estimated shrink occurring subsequent to a physical inventory through the end of the fiscal reporting period. This accrual is calculated as a percentage of sales for each retail store, at a department level, based on the company’s most recent historical shrink rate adjusted, if necessary, for current economic conditions and business trends. To the extent that subsequent physical inventories yield different results than the estimated accrual, our effective shrink rate for a given reporting period will include the impact of adjusting to the actual results.
We have not made any material changes in the methodology used to recognize permanent markdowns or inventory shrinkage in the financial periods presented nor do we anticipate material changes in assumptions we use for permanent markdowns or shrinkage. As previously stated, however, if our actual experience does not accurately reflect our assumptions and forecasts, we may be exposed to losses or gains that could be material. We believe a 10% change in our assumptions as of February 3, 2024 would have impacted net income by approximately $1.0 million in 2023.
Goodwill/Intangible
assetsAssets
We amortize intangible assets over their useful lives unless
it is determinedwe determine such lives
areto be indefinite. Goodwill and intangible assets having indefinite useful lives are not amortized to earnings, but instead are subject to annual impairment testing or more frequently if events or circumstances indicate that the value of goodwill or intangible assets having indefinite useful lives might be impaired.
Entities
Goodwill and intangible assets having indefinite useful lives are tested for impairment annually in the fiscal month of October. We have an option to perform a qualitative assessment to determine whether further impairment testing on goodwill is necessary. Specifically, an entity has the option to first assessevaluate qualitative factors to determine if it is more likely than not that the carrying amount of our sole reporting unit or our nonamortizing intangible assets (consisting of a tradename) exceed their implied respective fair value and whether it is necessary to perform a quantitative analysis to determine impairment. As part of this qualitative assessment, we weigh the two-step quantitative test. The goodwill quantitative impairment test is a two-step test. Underrelative impact of factors that are specific to our sole reporting unit or our nonamortizing intangible assets as well as industry, regulatory and macroeconomic factors that could affect the first step,inputs used to determine the fair value of the reporting unitassets.
If management determines a quantitative goodwill impairment test is compared with its carrying value (including goodwill). Ifrequired, or it elects to perform a quantitative test, the test is performed by determining the fair value of our sole reporting unit. Fair value is determined based on our public market capitalization. The carrying value of goodwill is considered impaired when the reporting unitunit’s fair value is less than its carrying value and the Company would record an indicationimpairment loss equal to the difference, not to exceed the total amount of goodwill impairment exists forallocated to the reporting unitunit.
If management determines a quantitative analysis of intangible assets having indefinite useful lives is required, the test is performed using the discounted cash flow method based on management’s projection of future revenues and an estimated royalty rate to determine the enterprise must perform step twofair value of the impairment test (measurement). Under step two, anasset, specifically, our tradename. An impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwillasset over the implied fair value of that goodwill. The impliedasset.
Our impairment calculations contain uncertainties as they require management to make assumptions and apply judgment to qualitative factors as well as estimate future cash flows by forecasting financial performance. Our policy is to conduct impairment testing based on our most current business plans, which reflect anticipated changes in the economy and the retail industry. Should significant changes in our overall business strategy, future results or economic events cause us to adjust our projected cash flows, future estimates of fair value of goodwill is determined by allocatingmay not support the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after the allocation is the implied fair value of the reporting unit goodwill. Fair value of the sole reporting unit for our most recent quantitative test was determined utilizing a combination of valuation methods including both the income approach (including a discounted cash flow analysis) and market approaches (including prior transaction method and comparable public company multiples). The fair value estimates utilized in the impairment testing reflect the use of Level 3 inputs. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount the quantitativeof these assets. If actual results prove inconsistent with our assumptions and judgments, we could be exposed to an impairment charge.
For 2023 and 2022, we completed an impairment test
is required. Otherwise, no further testing is required. We have selected the fiscal month ending date of
October as the annual impairment testing date. For fiscal years 2016, 2015our goodwill and
2014, we completed a qualitative impairment test. Based upon the procedures described above,determined that no impairment of goodwill existed.
We are also required to perform Similarly, for 2023 and 2022, we completed an impairment tests annually or more frequently if events or circumstances indicate that the valuetest of our nonamortizing intangible assets might be impaired. Our nonamortizing intangible assets as of January 28, 2017tradename and January 30, 2016 consisted of a tradename. Entities have an option to perform a qualitative assessment to determine whether further impairment testing of nonamortizing intangible assets is necessary. Specifically, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform a quantitative test. We perform the quantitative impairment test using the discounted cash flow method based on management’s projections to determine the fair value of the asset. The carrying amount of the asset is then compared to the fair value. If the carrying amount is greater than fair value, an impairment loss is recorded for the amountdetermined that fair value is less than the carrying amount. If an entity believes, as a result of its qualitative assessment, that it is more
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likely than not that the fair value is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. For fiscal years 2016, 2015 and 2014, we completed a qualitative impairment test. Based upon the procedures described above, no impairment of the tradenameasset existed.
Intangible assets with determinable useful lives are amortized over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.
Impairment of long-lived assets
Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
We believe that impairment assessment of long-lived assets is critical to the financial statements because the recoverability of the amounts, or lack thereof, could significantly affect our results of operations. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, amount of such cash flows, and the asset’s residual value, if any. Measurement of an impairment loss, if any, requires a determination of fair value, which is based on the best information available. We use internal discounted cash flow estimates and independent appraisals as appropriate to determine fair value. We derive the required cash flow estimates from our historical experience and our internal business plans and apply an appropriate discount rate. We group and evaluate long-lived assets for impairment at the individual store level, which is the lowest level at which individual identifiable cash flows are available.
Revenue recognition
Ollie’s recognizes retail sales in its stores when merchandise is sold and the customer takes possession of merchandise. Net sales are presented net of returns and sales tax. We provide an allowance for estimated retail merchandise returns based on prior experience.
Stock-based compensation
Our share-based compensation expense is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense on a straight-line basis over the associate’s requisite service period (generally the vesting period of the equity grant). We recognize compensation expense based on the estimated grant date fair value using the Black-Scholes option-pricing model for grants of stock options. The determination of the grant date fair value is based on our expected stock price volatility over the expected term of the options, stock option exercise and cancellation behaviors, risk-free interest rates and expected dividends. As a result, if any of the inputs or assumptions used in the Black-Scholes model change significantly, share-based compensation for future awards may differ materially compared with the awards granted previously.
There are significant judgments and estimates inherent in the determination of fair value of share-based awards. These judgments and estimates include determinations of an appropriate valuation method and the selection of appropriate inputs to be used in the valuation model. The use of alternative assumptions, including expected term, volatility, risk-free interest rate and dividend yield, could cause share-based compensation to differ significantly from what has been recorded in the past. Future share-based compensation cost will increase when we grant additional equity awards. Modifications, cancellations or repurchases of awards may require us to accelerate any remaining unearned share-based compensation cost or incur additional cost.
Determination of the fair value of common stock on grant date.
Prior to the consummation of the IPO, our associates were eligible to receive awards as part of our equity incentive plan (the “2012 Plan”). Following the consummation of the IPO, associates are eligible to receive awards from our 2015 Plan. Our stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally represents the vesting period, and includes
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an estimate of the awards which will be forfeited. Prior to the IPO, we were a private company with no active public market for our common stock. Therefore, prior to the IPO, in connection with each grant of stock options, the fair value of the common stock underlying the awards was determined by and approved by our Board with the assistance of management, which intended all stock options granted to be exercisable at a price per share not less than the per share fair value of our common stock. Given the absence of a public trading market for our common stock, estimating the fair value of our common stock has required complex and subjective judgments and assumptions, including:
valuations of our common stock at each grant date based on our actual operational and financial performance and current business conditions; and
the trading multiple of companies which we have deemed guideline companies based on a number of factors, including similarity to us with respect to industry, business model, and growth profile.
For the period from September 28, 2012 to March 11, 2014 the Board considered alternative valuation methodologies but determined the best indication of the fair value of our common stock was the value at which the CCMP Acquisition occurred.
Stock option grants
We granted stock options at an exercise price of $8.70 per share pursuant to our 2012 Plan and determined that the fair value of the common stock on the date of grant was $8.70 per share for the following grant dates:
Issuance date
| Number of
options issued
|
September 28, 2012
| | 5,152,575
| |
March 13, 2013
| | 304,750
| |
June 11, 2013
| | 28,750
| |
September 10, 2013
| | 34,500
| |
December 10, 2013
| | 11,500
| |
March 11, 2014
| | 362,250
| |
In assessing the reasonableness of the fair value of our common stock for the above grants, we considered the following:
the grants that were issued on September 28, 2012 were concurrent with the CCMP Acquisition, which occurred at a value per common stock share of $8.70, which therefore, was determined to be the fair value of the common stock for purposes of the grants.
for the period from September 28, 2012 to March 11, 2014, no material changes had occurred to the variables impacting the fair value of our common stock that would result in a better indication of fair value than the price at which the CCMP Acquisition was completed.
On April 11, 2014, we entered into an additional term loan borrowing of $60.0 million as described above in “—Factors affecting the comparability of our results of operations—Financing transactions and payments to stockholders.” The proceeds were used for a special cash dividend to our stockholders.
Pursuant to the anti-dilutive clause in the 2012 Plan, the option exercise price for all options issued prior to the dividend date was reduced to $7.49 from $8.70.
On June 10, 2014, we granted stock options to purchase a total of 408,250 shares of common stock at an exercise price of $9.04 per share pursuant to the 2012 Plan. We determined that the fair value of the common stock on the date of grant was $9.04 per share. To assess the reasonableness of the fair value of our common stock on this date, we considered a valuation approved by the Board (or its compensation committee) utilizing the above valuation method that indicated a valuation price of $9.04 per common share as of May 3, 2014 financial statement date.
Changes from our previous valuation were primarily due to the following:
multiples of our guideline public company peer group were generally higher than at the time of our previous valuation; and
continued growth in our last 12 months Adjusted EBITDA.
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On September 9, 2014 we granted stock options to purchase a total of 86,250 shares of common stock at an exercise price of $9.99 per share pursuant to the 2012 Plan. We determined the fair value of the common stock on the date of grant was $9.99 per share. To assess the reasonableness of the fair value of our common stock on this date, we considered a valuation approved by the Board utilizing the above valuation method which indicated a valuation price of $9.99 per common share as of August 2, 2014 financial statement date.
Changes from our previous valuation were primarily due to the following:
multiples of our guideline public company peer group were generally higher than at the time of our previous valuation; and
continued growth in our last 12 months Adjusted EBITDA.
On December 9, 2014, we granted stock options to purchase a total of 63,250 shares of common stock at an exercise price of $11.62 per share pursuant to the 2012 Plan. We determined the fair value of the common stock on the date of both grants was $11.62 per share. To assess the reasonableness of the fair value of our common stock on these dates, we considered a valuation approved by the Board utilizing the above valuation method which indicated a valuation price of $11.62 per common share as of November 1, 2014 financial statement date.
Changes from our previous valuation were primarily due to the following:
multiples of our guideline public company peer group were generally higher than at the time of our previous valuation; and
continued growth in our last 12 months Adjusted EBITDA.
For valuations after the consummation of the IPO, our Board (or its compensation committee) will generally determine the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the date of grant.
On March 10, 2015, we granted stock options to purchase a total of 770,500 shares of common stock at an exercise price of $12.56 per share pursuant to the 2012 Plan. We determined the fair value of the common stock on the date of both grants was $12.56 per share. To assess the reasonableness of the fair value of our common stock on these dates, we considered a valuation approved by the Board utilizing the above valuation method which indicated a valuation price of $12.56 per common share as of January 31, 2015.
Changes from our previous valuation were primarily due to the following:
multiples of our guideline public company peer group were generally higher than at the time of our previous valuation; and
continued growth in our last 12 months Adjusted EBITDA.
For valuations after the consummation of the IPO, our Board (or its compensation committee) will generally determine the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the date of grant.
On May 27, 2015, we amended the Term Loan and Revolving Credit Facility to, among other things, increase the size of the Revolving Credit Facility from $75.0 million to $125.0 million and to permit a dividend to holders of our outstanding common stock. On May 27, 2015, we borrowed $50.0 million under the Revolving Credit Facility and the proceeds were used to pay an aggregate cash dividend of $48.8 million to holders of outstanding common stock. In addition, pursuant to the anti-dilutive clause in the 2012 Plan, the option exercise price for all options issued prior to the dividend date were reduced as follows:
Grant Date | Pre-dividend
exercise price | Post-dividend
exercise price |
All grants on or before March 11, 2014 | $ | 7.49 | | $ | 6.48 | |
June 10, 2014 | | 9.04 | | | 8.03 | |
September 9, 2014 | | 9.99 | | | 8.97 | |
December 9, 2014 | | 11.62 | | | 10.60 | |
March 10, 2015 | | 12.56 | | | 11.54 | |
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Income taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax-planning strategies in making this assessment. As of January 28, 2017 and January 30, 2016, we have a net deferred tax liability of $89.2 million and $87.2 million, respectively.
We have no material accrual for uncertain tax positions or interest or penalties related to income taxes as of January 28, 2017 or January 30, 2016, and have not recognized any material uncertain tax positions or interest or penalties related to income taxes during fiscal years 2016, 2015 or 2014.
Recently Issued Accounting Pronouncements
Recently issued accounting standards are discussed in Note 1(w) to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
| Item 7A. | Quantitative and Qualitative Disclosures Aboutabout Market Risks |
Our operating results are subject to risk from interest rate fluctuations on our Credit
Facilities,Facility, which
carrycarries variable interest rates.
OurAs of February 3, 2024, our Credit
Facilities include a Term Loan Facility
andconsisted solely of a Revolving Credit Facility with advances tied to a borrowing base. Because our Credit
Facilities bearFacility bears interest at a variable rate, we are exposed to market risks relating to changes in interest rates. As of
January 28, 2017,February 3, 2024, we had no outstanding variable rate debt under our Revolving Credit
Facility and $195.0 million of outstanding variable rate debt under our Term Loan Facility.
Based on our January 28, 2017 Term Loan Facility balance, an increase or decrease of 1% in the effective interest rate would cause an increase or decrease in interest cost of approximately $2.0 million over the next 12 months. We do not use derivative financial instruments for speculative or trading purposes, but this does not preclude our adoption of specific hedging strategies in the future.
Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our historical results of operations and financial condition have been immaterial. We cannot be assured that our results of operations and financial condition will not be materially impacted by inflation in the future.
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| Item 8: | Financial Statements and Supplementary Data. |
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
| Page |
| | | 53
|
| |
Consolidated Financial Statements:
| | | |
| | | |
| 54 |
| |
| 55 |
| |
| 56
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| 57
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| 58
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Report of Independent Registered Public Accounting Firm
The
To the Stockholders and Board of Directors and Stockholders
Ollie’s Bargain Outlet Holdings, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Ollie’s Bargain Outlet Holdings, Inc. and subsidiaries (the Company) as of February 3, 2024 and January 28, 2017 and January 30, 2016, and2023, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended January 28, 2017.February 3, 2024, and the related notes and financial statement schedule I - condensed financial information of registrant (collectively, the consolidated financial statements). In connection with our audits ofopinion, the consolidated financial statements wepresent fairly, in all material respects, the financial position of the Company as of February 3, 2024 and January 28, 2023, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended February 3, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial statement Schedule 1. reporting as of February 3, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 27, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements
and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements
and financial schedule based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
supportingregarding the amounts and disclosures in the
consolidated financial statements.
An auditOur audits also
includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial
statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion
on the
consolidated statements referred to above present fairly, in all material respects, the financial position of Ollie’s Bargain Outlet Holdings, Inc. and subsidiaries as of January 28, 2017 and January 30, 2016, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended January 28 2017, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements, taken as a whole,
present fairly, in all material respects,and we are not, by communicating the
information set forth therein.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Ollie’s Bargain Outlet Holdings, Inc.’s internal control over financial reporting as of January 28, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 29, 2017 expressed an unqualifiedcritical audit matter below, providing a separate opinion on the effectivenesscritical audit matter or on the accounts or disclosures to which it relates.
Evaluation of store shrink
As discussed in Note 1(h) to the consolidated financial statements, inventories are valued at the lower of cost or market determined using the retail inventory method on a first-in, first-out basis. The retail inventory method is based on a number of factors such as markups, markdowns, and shrinkage (or shrink). The Company calculates the shrink provision based on actual physical inventory results during the fiscal period and estimated shrink occurring subsequent to a physical inventory through the end of the fiscal reporting period. This accrual is calculated as a percentage of sales for each retail store, at a department level, based on the Company’s most recent historical shrink rate adjusted, if necessary, for current economic conditions and business trends. The Company’s inventories were $505.8 million as of February 3, 2024.
We identified the evaluation of the estimation of store shrink occurring between the physical inventory counts and the fiscal year-end as a critical audit matter. Evaluation of the Company’s estimation of shrink at the end of the fiscal year involved subjective auditor judgment due to the estimation uncertainty associated with the shrink rate assumption.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal
controlcontrols related to the estimation of store shrink. We evaluated the appropriateness of the Company’s shrink accrual at the end of the fiscal year by (1) evaluating the shrink rate used by comparing to historical shrink rates, (2) testing the application of the method and certain assumptions used, and (3) performing a sensitivity analysis over
financial reporting.the shrink reserve estimate.
/s/KPMG LLP
Philadelphia, Pennsylvania
March 29, 2017
We have served as the Company’s auditor since 2009. Harrisburg, Pennsylvania
March 27, 2024
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
Statements of Income(In thousands, except per share amounts)
| January 28,
2017 | January 30,
2016 |
Assets
| | | | | | |
Current assets:
| | | | | | |
Cash and cash equivalents | $ | 98,683 | | $ | 30,259 | |
Inventories | | 210,107 | | | 190,608 | |
Accounts receivable | | 301 | | | 183 | |
Prepaid expenses and other assets | | 3,739 | | | 2,756 | |
Total current assets | | 312,830 | | | 223,806 | |
Property and equipment, net of accumulated depreciation of $38,393 and $28,270, respectively | | 46,333 | | | 39,292 | |
Goodwill | | 444,850 | | | 444,850 | |
Trade name and other intangible assets, net of accumulated amortization of $1,636 and $1,259, respectively | | 232,977 | | | 233,354 | |
Other assets | | 2,385 | | | 2,520 | |
Total assets | $ | 1,039,375 | | $ | 943,822 | |
Liabilities and Stockholders’ Equity
| | | | | | |
Current liabilities:
| | | | | | |
Current portion of long-term debt | $ | 5,077 | | $ | 5,018 | |
Accounts payable | | 50,448 | | | 52,075 | |
Income taxes payable | | 4,548 | | | 4,102 | |
Accrued expenses | | 44,748 | | | 35,573 | |
Total current liabilities | | 104,821 | | | 96,768 | |
Revolving credit facility | | — | | | — | |
Long-term debt | | 188,923 | | | 193,433 | |
Deferred income taxes | | 89,224 | | | 87,171 | |
Other long-term liabilities | | 5,146 | | | 4,501 | |
Total liabilities | | 388,114 | | | 381,873 | |
Stockholders’ equity:
| | | | | | |
Preferred stock - 50,000 shares authorized at $0.001 par value; no shares issued | | — | | | — | |
Common stock - 500,000 shares authorized at $0.001 par value; 60,756 and 58,807 shares issued, respectively | | 61 | | | 59 | |
Additional paid-in capital | | 565,861 | | | 536,315 | |
Retained earnings | | 85,425 | | | 25,661 | |
Treasury - common stock, at cost; 9 shares | | (86 | ) | | (86 | ) |
Total stockholders’ equity | | 651,261 | | | 561,949 | |
Total liabilities and stockholders’ equity | $ | 1,039,375 | | $ | 943,822 | |
| | Fiscal year ended | |
| | | February 3, | | | January 28, | | | January 29, | |
| | | 2024 | | | 2023 | | | 2022 | |
| Net sales | | $ | 2,102,662 | | | $ | 1,827,009 | | | $ | 1,752,995 | |
| Cost of sales | | | 1,270,297 | | | | 1,170,915 | | | | 1,071,749 | |
| Gross profit | | | 832,365 | | | | 656,094 | | | | 681,246 | |
| Selling, general and administrative expenses | | | 562,672 | | | | 490,569 | | | | 447,615 | |
| Depreciation and amortization expenses | | | 27,819 | | | | 22,907 | | | | 19,364 | |
| Pre-opening expenses | | | 14,075 | | | | 11,700 | | | | 9,675 | |
| Operating income | | | 227,799 | | | | 130,918 | | | | 204,592 | |
Interest (income) expense, net | | | (14,686 | ) | | | (2,965 | ) | | | 209 | |
| Income before income taxes | | | 242,485 | | | | 133,883 | | | | 204,383 | |
| Income tax expense | | | 61,046 | | | | 31,093 | | | | 46,928 | |
| Net income | | $ | 181,439 | | | $ | 102,790 | | | $ | 157,455 | |
| Earnings per common share: | | | | | | | | | | | | |
| Basic | | $ | 2.94 | | | $ | 1.64 | | | $ | 2.44 | |
| Diluted | | $ | 2.92 | | | $ | 1.64 | | | $ | 2.43 | |
| Weighted average common shares outstanding: | | | | | | | | | | | | |
| Basic | | | 61,741 | | | | 62,495 | | | | 64,447 | |
| Diluted | | | 62,068 | | | | 62,704 | | | | 64,878 | |
See accompanying notesNotes to the consolidated financial statements.
Consolidated Financial Statements.
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Consolidated
Statements of Income
Balance Sheets(In thousands, except per share amounts)
| Fiscal year ended |
| January 28,
2017 | January 30,
2016 | January 31,
2015 |
Net sales | $ | 890,315 | | $ | 762,370 | | $ | 637,975 | |
Cost of sales | | 529,904 | | | 459,506 | | | 384,465 | |
Gross profit | | 360,411 | | | 302,864 | | | 253,510 | |
Selling, general and administrative expenses | | 242,891 | | | 209,783 | | | 178,832 | |
Depreciation and amortization expenses | | 8,443 | | | 7,172 | | | 6,987 | |
Pre-opening expenses | | 6,883 | | | 6,337 | | | 4,910 | |
Operating income | | 102,194 | | | 79,572 | | | 62,781 | |
Interest expense, net | | 5,935 | | | 15,416 | | | 18,432 | |
Loss on extinguishment of debt | | — | | | 6,710 | | | 671 | |
Income before income taxes | | 96,259 | | | 57,446 | | | 43,678 | |
Income tax expense | | 36,495 | | | 21,607 | | | 16,763 | |
Net income | $ | 59,764 | | $ | 35,839 | | $ | 26,915 | |
Earnings per common share:
| | | | | | | | | |
Basic | $ | 0.99 | | $ | 0.67 | | $ | 0.56 | |
Diluted | $ | 0.96 | | $ | 0.64 | | $ | 0.55 | |
Weighted average common shares outstanding:
| | | | | | | | | |
Basic | | 60,160 | | | 53,835 | | | 48,202 | |
Diluted | | 62,415 | | | 55,796 | | | 48,609 | |
| | February 3, | | | January 28, | |
| Assets | | 2024 | | | 2023 | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 266,262 | | | $ | 210,596 | |
Short-term investments
| | | 86,980 | | | | 60,165 | |
| Inventories | | | 505,790 | | | | 470,534 | |
| Accounts receivable | | | 2,223 | | | | 2,374 | |
| Prepaid expenses and other assets | | | 10,173 | | | | 10,627 | |
| Total current assets | | | 871,428 | | | | 754,296 | |
| Property and equipment, net | | | 270,063 | | | | 175,947 | |
| Operating lease right-of-use assets | | | 475,526 | | | | 436,326 | |
| Goodwill | | | 444,850 | | | | 444,850 | |
| Trade name | | | 230,559 | | | | 230,559 | |
| Other assets | | | 2,168 | | | | 2,118 | |
| Total assets | | $ | 2,294,594 | | | $ | 2,044,096 | |
| Liabilities and Stockholders’ Equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Current portion of long-term debt | | $ | 639 | | | $ | 430 | |
| Accounts payable | | | 128,097 | | | | 90,204 | |
| Income taxes payable | | | 14,744 | | | | 3,056 | |
| Current portion of operating lease liabilities | | | 89,176 | | | | 88,636 | |
| Accrued expenses and other | | | 82,895 | | | | 76,959 | |
| Total current liabilities | | | 315,551 | | | | 259,285 | |
| Revolving credit facility | | | - | | | | - | |
| Long-term debt | | | 1,022 | | | | 858 | |
| Deferred income taxes | | | 71,877 | | | | 70,632 | |
| Long-term operating lease liabilities | | | 397,912 | | | | 351,251 | |
| Other long-term liabilities | | | - | | | | 1 | |
| Total liabilities | | | 786,362 | | | | 682,027 | |
| Stockholders’ equity: | | | | | | | | |
Preferred stock - 50,000 shares authorized at $0.001 par value; no shares issued | | | - | | | | - | |
Common stock - 500,000 shares authorized at $0.001 par value; 66,927 and 66,672 shares issued, respectively | | | 67 | | | | 67 | |
| Additional paid-in capital | | | 694,959 | | | | 677,694 | |
| Retained earnings | | | 1,167,951 | | | | 986,512 | |
Treasury - common stock, at cost; 5,473 and 4,664 shares, respectively | | | (354,745 | ) | | | (302,204 | ) |
| Total stockholders’ equity | | | 1,508,232 | | | | 1,362,069 | |
| Total liabilities and stockholders’ equity | | $ | 2,294,594 | | | $ | 2,044,096 | |
See accompanying notesNotes to the consolidated financial statements.
Consolidated Financial Statements.
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(In
thousands, except per share amounts) | Common stock –
Class A | Common stock | Treasury stock | Additional
paid-in
capital | Retained
earnings | Total
stockholders’
equity |
| Shares | Amount | Shares | Amount | Shares | Amount |
Balance as of February 1, 2014 | | 48,203 | | $ | 48 | | | — | | $ | — | | | — | | $ | — | | $ | 423,668 | | $ | 20,423 | | $ | 444,139 | |
Stock-based compensation expense | | — | | | — | | | — | | | — | | | — | | | — | | | 3,761 | | | — | | | 3,761 | |
Dividend paid ($1.20 per share) | | — | | | — | | | — | | | — | | | — | | | — | | | (34,351 | ) | | (23,600 | ) | | (57,951 | ) |
Purchase of treasury stock | | — | | | — | | | — | | | — | | | (3 | ) | | (29 | ) | | — | | | — | | | (29 | ) |
Net income | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 26,915 | | | 26,915 | |
Balance as of January 31, 2015 | | 48,203 | | | 48 | | | — | | | — | | | (3 | ) | | (29 | ) | | 393,078 | | | 23,738 | | | 416,835 | |
Stock-based compensation expense | | — | | | — | | | — | | | — | | | — | | | — | | | 5,035 | | | — | | | 5,035 | |
Proceeds from stock options exercised | | 5 | | | — | | | 335 | | | 1 | | | — | | | — | | | 2,270 | | | — | | | 2,271 | |
Excess tax benefit related to exercises of stock options | | — | | | — | | | — | | | — | | | — | | | — | | | 1,068 | | | — | | | 1,068 | |
Conversion of Class A and Class B common stock to a single class of common stock | | (48,208 | ) | | (48 | ) | | 48,208 | | | 48 | | | — | | | — | | | — | | | — | | | — | |
Proceeds from issuance of common stock, net of expenses | | — | | | — | | | 10,264 | | | 10 | | | — | | | — | | | 149,796 | | | — | | | 149,806 | |
Dividend paid ($1.01 per share) | | — | | | — | | | — | | | — | | | — | | | — | | | (14,932 | ) | | (33,916 | ) | | (48,848 | ) |
Purchase of treasury stock | | — | | | — | | | — | | | — | | | (6 | ) | | (57 | ) | | — | | | — | | | (57 | ) |
Net income | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 35,839 | | | 35,839 | |
Balance as of January 30, 2016 | | — | | | — | | | 58,807 | | | 59 | | | (9 | ) | | (86 | ) | | 536,315 | | | 25,661 | | | 561,949 | |
Stock-based compensation expense | | — | | | — | | | — | | | — | | | — | | | — | | | 6,685 | | | — | | | 6,685 | |
Proceeds from stock options exercised | | — | | | — | | | 1,949 | | | 2 | | | — | | | — | | | 13,302 | | | — | | | 13,304 | |
Excess tax benefit related to exercises of stock options | | — | | | — | | | — | | | — | | | — | | | — | | | 9,559 | | | — | | | 9,559 | |
Net income | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 59,764 | | | 59,764 | |
Balance as of January 28, 2017 | | — | | | — | | | 60,756 | | $ | 61 | | | (9 | ) | $ | (86 | ) | $ | 565,861 | | $ | 85,425 | | $ | 651,261 | |
| | Common stock | | | Treasury stock | | | Additional paid-in capital | | | Retained earnings | | | Total stockholders’ equity | |
| | | Shares | | | Amount | | | Shares | | | Amount | | |
Balance as of January 30, 2021 | | | 66,165 | | |
| 66 | | | | (702 | ) | |
| (40,401 | ) | |
| 648,949 | | |
| 726,267 | | |
| 1,334,881 | |
| Stock-based compensation expense | | | - | | | | - | | | | - | | | | - | | | | 8,042 | | | | - | | | | 8,042 | |
| Proceeds from stock options exercised | | | 305 | | | | 1 | | | | - | | | | - | | | | 8,634 | | | | - | | | | 8,635 | |
| Vesting of restricted stock | | | 62 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Common shares withheld for taxes | | | (16 | ) | | | - | | | | - | | | | - | | | | (1,332 | ) | | | - | | | | (1,332 | ) |
| Shares repurchased | | | - | | | | - | | | | (3,114 | ) | | | (219,971 | ) | | | - | | | | - | | | | (219,971 | ) |
| Net income | | | - | | | | - | | | | - | | | | - | | | | - | | | | 157,455 | | | | 157,455 | |
Balance as of January 29, 2022 | | | 66,516 | | | | 67 | | | | (3,816 | ) | | | (260,372 | ) | | | 664,293 | | | | 883,722 | | | | 1,287,710 | |
| Stock-based compensation expense | | | - | | | | - | | | | - | | | | - | | | | 9,951 | | | | - | | | | 9,951 | |
| Proceeds from stock options exercised | | | 119 | | | | - | | | | - | | | | - | | | | 4,032 | | | | - | | | | 4,032 | |
| Vesting of restricted stock | | | 50 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Common shares withheld for taxes | | | (13 | ) | | | - | | | | - | | | | - | | | | (582 | ) | | | - | | | | (582 | ) |
| Shares repurchased | | | - | | | | - | | | | (848 | ) | | | (41,832 | ) | | | - | | | | - | | | | (41,832 | ) |
| Net income | | | - | | | | - | | | | - | | | | - | | | | - | | | | 102,790 | | | | 102,790 | |
Balance as of January 28, 2023 | | | 66,672 | | | | 67 | | | | (4,664 | ) | | | (302,204 | ) | | | 677,694 | | | | 986,512 | | | | 1,362,069 | |
| Stock-based compensation expense | | | - | | | | - | | | | - | | | | - | | | | 12,237 | | | | - | | | | 12,237 | |
| Proceeds from stock options exercised | | | 180 | | | | - | | | | - | | | | - | | | | 6,686 | | | | - | | | | 6,686 | |
| Vesting of restricted stock | | | 103 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Common shares withheld for taxes | | | (28 | ) | | | - | | | | - | | | | - | | | | (1,658 | ) | | | - | | | | (1,658 | ) |
| Shares repurchased | | | - | | | | - | | | | (809 | ) | | | (52,541 | ) | | | - | | | | - | | | | (52,541 | ) |
| Net income | | | - | | | | - | | | | - | | | | - | | | | - | | | | 181,439 | | | | 181,439 | |
Balance as of February 3, 2024 | | | 66,927 | | | $ | 67 | | | | (5,473 | ) | | $ | (354,745 | ) | | $ | 694,959 | | | $ | 1,167,951 | | | $ | 1,508,232 | |
See accompanying notesNotes to the consolidated financial statements.
Consolidated Financial Statements.
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
| Fiscal year ended |
| January 28,
2017 | January 30,
2016 | January 31,
2015 |
Cash flows from operating activities:
| | | | | | | | | |
Net income | $ | 59,764 | | $ | 35,839 | | $ | 26,915 | |
Adjustments to reconcile net income to net cash provided by operating activities:
| | | | | | | | | |
Depreciation and amortization of property and equipment | | 10,291 | | | 8,913 | | | 8,051 | |
Amortization of debt issuance costs | | 746 | | | 1,273 | | | 1,471 | |
Amortization of original issue discount | | 25 | | | 436 | | | 579 | |
Loss on extinguishment of debt | | — | | | 6,710 | | | 671 | |
Amortization of intangibles | | 377 | | | 428 | | | 734 | |
Gain on disposal of assets | | (4 | ) | | — | | | (14 | ) |
Deferred income tax provision (benefit) | | 1,867 | | | (1,731 | ) | | (3,419 | ) |
Deferred rent expense | | 1,369 | | | 1,873 | | | 1,144 | |
Stock-based compensation expense | | 6,685 | | | 5,035 | | | 3,761 | |
Excess tax benefit related to exercises of stock options | | (9,559 | ) | | (1,068 | ) | | — | |
Changes in operating assets and liabilities:
| | | | | | | | | |
Inventories | | (19,499 | ) | | (20,736 | ) | | (23,654 | ) |
Accounts receivable | | (118 | ) | | 135 | | | 21 | |
Prepaid expenses and other assets | | (1,264 | ) | | (730 | ) | | 3,220 | |
Accounts payable | | (1,822 | ) | | 1,543 | | | 13,113 | |
Income taxes payable | | 10,005 | | | 468 | | | (2,330 | ) |
Accrued expenses and other liabilities | | 8,225 | | | 7,460 | | | 1,579 | |
Net cash provided by operating activities | | 67,088 | | | 45,848 | | | 31,842 | |
Cash flows from investing activities:
| | | | | | | | | |
Purchases of property and equipment | | (16,438 | ) | | (14,203 | ) | | (14,110 | ) |
Acquisition of intangible assets | | — | | | (157 | ) | | — | |
Proceeds from sale of property and equipment | | 15 | | | 23 | | | 103 | |
Net cash used in investing activities | | (16,423 | ) | | (14,337 | ) | | (14,007 | ) |
Cash flows from financing activities:
| | | | | | | | | |
Borrowings on revolving credit facility | | 946,683 | | | 858,053 | | | 674,457 | |
Repayments on revolving credit facility | | (946,683 | ) | | (858,053 | ) | | (674,457 | ) |
Borrowings on term loan | | — | | | 200,000 | | | 59,592 | |
Repayments on term loan and capital leases | | (5,104 | ) | | (324,076 | ) | | (7,612 | ) |
Proceeds from issuance of common stock, net of expenses | | — | | | 149,806 | | | — | |
Proceeds from stock option exercises | | 13,304 | | | 2,271 | | | — | |
Excess tax benefit related to exercises of stock options | | 9,559 | | | 1,068 | | | — | |
Payment of debt issuance costs | | — | | | (3,368 | ) | | (2,049 | ) |
Payment of dividend | | — | | | (48,848 | ) | | (57,951 | ) |
Purchase of treasury stock | | — | | | (57 | ) | | (29 | ) |
Net cash provided by (used in) financing activities | | 17,759 | | | (23,204 | ) | | (8,049 | ) |
Net increase in cash and cash equivalents | | 68,424 | | | 8,307 | | | 9,786 | |
Cash and cash equivalents at the beginning of the period | | 30,259 | | | 21,952 | | | 12,166 | |
Cash and cash equivalents at the end of the period | $ | 98,683 | | $ | 30,259 | | $ | 21,952 | |
Supplemental disclosure of cash flow information:
| | | | | | | | | |
Cash paid during the period for:
| | | | | | | | | |
Interest | $ | 5,179 | | $ | 13,829 | | $ | 19,867 | |
Income taxes | $ | 24,859 | | $ | 22,824 | | $ | 22,703 | |
Non-cash investing activities:
| | | | | | | | | |
Accrued purchases of property and equipment | $ | 1,009 | | $ | 402 | | $ | 437 | |
| | Fiscal year ended | |
| | | February 3, | | | January 28, | | | January 29, | |
| | | 2024 | | | 2023 | | | 2022 | |
Cash Flows from Operating Activities: | | | | | | | | | |
| Net income | | $ | 181,439 | | | $ | 102,790 | | | $ | 157,455 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
| Depreciation and amortization of property and equipment | | | 34,936 | | | | 28,689 | | | | 24,894 | |
| Amortization of debt issuance costs | | | 267 | | | | 256 | | | | 256 | |
| Gain on sale of assets | | | (304 | ) | | | (325 | ) | | | (213 | ) |
| Deferred income tax provision | | | 1,245 | | | | 4,453 | | | | 1,115 | |
| Stock-based compensation expense | | | 12,237 | | | | 9,951 | | | | 8,042 | |
| | | (723 | ) | | | — | | | | — | |
| Changes in operating assets and liabilities: | | | | | | | | | | | | |
| Inventories | | | (35,256 | ) | | | (3,228 | ) | | | (113,602 | ) |
| Accounts receivable | | | 151 | | | | (1,002 | ) | | | (751 | ) |
| Prepaid expenses and other assets | | | 341 | | | | 375 | | | | (3,895 | ) |
| Accounts payable | | | 38,250 | | | | (20,379 | ) | | | (11,116 | ) |
| Income taxes payable | | | 11,688 | | | | 500 | | | | (8,404 | ) |
| Accrued expenses and other liabilities | | | 10,226 | | | | (7,734 | ) | | | (8,748 | ) |
| Net cash provided by operating activities | | | 254,497 | | | | 114,346 | | | | 45,033 | |
Cash Flows from Investing Activities: | | | | | | | | | | | | |
| Purchases of property and equipment | | | (124,404 | ) | | | (51,667 | ) | | | (34,989 | ) |
| Proceeds from sale of property and equipment | | | 409 | | | | 378 | | | | 3,159 | |
| Purchases of short-term investments | | | (273,522 | ) | | | (60,165 | ) | | | — | |
Maturities of short-term investments
| | | 247,430 | | | | — | | | | — | |
| Net cash used in investing activities | | | (150,087 | ) | | | (111,454 | ) | | | (31,830 | ) |
Cash Flows from Financing Activities: | | | | | | | | | | | | |
| Repayments on finance leases | | | (1,027 | ) | | | (891 | ) | | | (684 | ) |
Payment of debt issuance costs
| | | (204 | ) | | | — | | | | — | |
| Proceeds from stock option exercises | | | 6,686 | | | | 4,032 | | | | 8,635 | |
| Common shares withheld for taxes | | | (1,658 | ) | | | (582 | ) | | | (1,332 | ) |
| Payment for shares repurchased | | | (52,541 | ) | | | (41,832 | ) | | | (219,971 | ) |
| Net cash used in financing activities | | | (48,744 | ) | | | (39,273 | ) | | | (213,352 | ) |
| Net increase (decrease) in cash and cash equivalents | | | 55,666 | | | | (36,381 | ) | | | (200,149 | ) |
Cash and cash equivalents, beginning of the period | | | 210,596 | | | | 246,977 | | | | 447,126 | |
Cash and cash equivalents, end of the period | | $ | 266,262 | | | $ | 210,596 | | | $ | 246,977 | |
| Supplemental disclosure of cash flow information: | | | | | | | | | | | | |
| Cash paid during the year for: | | | | | | | | | | | | |
| Interest | | $ | 419 | | | $ | 343 | | | $ | 358 | |
| Income taxes | | $ | 48,601 | | | $ | 26,566 | | | $ | 54,690 | |
| Non-cash investing activities: | | | | | | | | | | | | |
| Accrued purchases of property and equipment | | $ | 11,270 | | | $ | 7,918 | | | $ | 3,189 | |
See accompanying notesNotes to the consolidated financial statements.
Consolidated Financial Statements.
TABLE OF CONTENTSOLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| (1) | (1) | OrganizationBasis of Presentation and Summary of Significant Accounting Policies |
| (a) | Description of Business |
Ollie’s Bargain Outlet Holdings, Inc. and subsidiaries (collectively
referencedreferred to as
“the Company”the “Company” or “Ollie’s”)
, principally buys overproduced, overstocked, and closeout merchandise from manufacturers, wholesalers,
distributors, brokers, and other retailers. In addition, the Company augments its name-brand closeout deals with directly sourced private label products featuring names exclusive to Ollie’s in order to provide consistently value-priced goods in select key merchandise categories.
Since theits first store opened in 1982, the Company has grown to 234 Ollie’s Bargain Outlet512 retail locations in 30 states as of January 28, 2017.February 3, 2024. Ollie’s Bargain Outlet retail locations are currently located in 19 states (Alabama,Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, and West Virginia).Virginia.
Ollie’s follows a 52/53-week fiscal year, which ends on the Saturday nearestnearer to January 31st.31st of the following calendar year. References to the fiscal year ended February 3, 2024 refer to the 53-week period from January 29, 2023 to February 3, 2024 (“2023”). References to the fiscal year ended January 28, 20172023 refer to the 52-week period from January 31, 201630, 2022 to January 28, 20172023 (“fiscal year 2016”2022”). References to the fiscal year ended January 30, 201629, 2022 refer to the 52-week period from February 1, 2015January 31, 2021 to January 30, 201629, 2022 (“fiscal year 2015”2021”). References to the fiscal year ended January 31, 2015 refer to the period from February 2, 2014 to January 31, 2015 (“fiscal year 2014”). Fiscal years 2016, 2015 and 2014 each include 52 weeks.
| (c) | Principles of Consolidation |
The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principlesgenerally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| (e) | (e)Cash, Cash Equivalents, and Short-term Investments |
The Company considers cash on hand in stores, bank deposits, credit card receivables, and all highly liquid investments such asmoney market funds, treasury bonds and municipal bonds with remaining maturities of three months or less at the date of acquisition to be cash and cash equivalents. Investments with maturities greater than three months, but less than 1 year at the date of acquisition are classified as short-term investments. Amounts receivable from credit card issuers are typically converted to cash within one to two business days of the original sales transaction.
| (f) | Fair Value Disclosures |
Fair value is defined as the price which the Company would receive to sell an asset or pay to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. In determining fair value, GAAP establishes a
three-levelthree‑level hierarchy used in measuring fair value, as follows:
Level 1 inputs are quoted prices available for identical assets and liabilities in active markets.
Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data.
| ● | Level 1 inputs are quoted prices available for identical assets and liabilities in active markets. |
Level 3 inputs are less observable and reflect the Company’s assumptions.
| ● | Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data. |
| ● | Level 3 inputs are unobservable, developed using the Company’s estimates and assumptions, which reflect those that market participants would use. |
Ollie’s financial instruments consist of cash and cash equivalents, investment securities, accounts receivable, accounts payable, and the Company’s term loan.credit facilities. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximateare representative of their respective fair value because of their short maturities.short-term nature. The carrying amount of the Company’s term loancredit facilities, see Note 7 to the Consolidated Financial Statements for additional information related to our credit facility, approximates its fair value because the interest rates are adjusted regularly based on current market conditions. Under the fair value hierarchy, the fair market values of cash equivalents and the investments in treasury bonds and corporate bonds are Level 1 while the investments in municipal bonds are Level 2. Since quoted prices in active markets for identical assets are not available, these prices are determined by the third-party pricing service using observable market information such as quotes from less active markets and quoted prices of similar securities.
As of February 3, 2024 and January 28, 2023, the Company’s investment securities are classified as held-to-maturity since the Company has both the intent and ability to hold the investments to maturity. Such securities are carried at amortized cost plus accrued interest and consist of the following:
| | | As of February 3, 2024 | |
| | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Market Value | |
| | | (in thousands) | |
| Short-term: | | | | | | | | | | | | |
| Treasury Bonds | | $ | 49,765 | | | $ | 16 | | | $ | - | | | $ | 49,781 | |
| Municipal Bonds | | | 10,136 | | | | - | | | | (139 | ) | | | 9,997 | |
| | | 27,079 | | | | 22 | | | | - | | | | 27,101 | |
| Total | | $ | 86,980 | | | $ | 38 | | | $ | (139 | ) | | $ | 86,879 | |
| | | As of January 28, 2023 | |
| | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Market Value | |
| | | (in thousands) | |
| Short-term: | | | | | | | | | | | | |
| Treasury Bonds | | $ | 55,274 | | | $ | - | | | $ | (83 | ) | | $ | 55,191 | |
| Municipal Bonds | | | 4,891 | | | | - | | | | (8 | ) | | | 4,883 | |
| Corporate Bonds | | | - | | | | - | | | | - | | | | - | |
| Total | | $ | 60,165 | | | $ | - | | | $ | (91 | ) | | $ | 60,074 | |
Short-term investment securities as of February 3, 2024 and January 28, 2023 all mature in one year or less.
| (g) | (f) | Cash and Cash Equivalents |
The Company considers cash on hand in stores, bank deposits, credit card receivables, and all highly liquid investments with remaining maturities of three months or less at the date of acquisition to be cash and cash equivalents. Amounts receivable from credit card issuers are typically converted to cash within one to two business days of the original sales transaction.
| (g) | Concentration of Credit Risk |
A financial instrument which potentially subjects the Company to a concentration of credit risk is cash. Ollie’s currently maintains its day-to-dayday‑to‑day operating cash balances with major financial institutions. The Company’s operating cash balances are in excess of the Federal Deposit Insurance Corporation (FDIC)(“FDIC”) insurance limit. From time to time, Ollie’s invests temporary excess cash in overnight investments with expected minimal volatility, such as money market funds. Although the Company maintains balances which exceed the FDIC insured limit, it has not experienced any losses related to this balance, and Ollie’s believes the credit risk to be minimal.these balances.
Inventories are stated at the lower of cost or market determined using the retail inventory method on a first-in, first-out basis. The cost of inventories includes the merchandise cost, transportation costs, and certain distribution and storage costs. Such costs are thereafter expensed as cost of sales upon the sale of the merchandise. The
Inherent in the retail inventory method usesare certain management judgments and estimates for shrinkincluding, among others, merchandise markups, the amount and timing of permanent markdowns, to calculate ending inventory. These estimates made by management couldand shrinkage, which may significantly impact both the ending inventory valuation at costand gross profit.
Factors considered in the determination of permanent markdowns include inventory obsolescence, excess inventories, current and anticipated demand, age of the merchandise, and customer preferences. Pursuant to the retail inventory method, permanent markdowns result in the devaluation of inventory and the resulting gross margin.profit reduction is recognized in the period in which the markdown is recorded.
We calculate our shrink provision based on actual physical inventory results during the fiscal period and an accrual for estimated shrink occurring subsequent to a physical inventory through the end of the fiscal reporting period. This accrual is calculated as a percentage of sales for each retail store, at a department level, based on the company’s most recent historical shrink rate adjusted, if necessary, for current economic conditions and business trends.
| (i) | Property and Equipment |
Property and equipment are stated at original cost less accumulated depreciation and amortization. Depreciation and amortization are calculated over the estimated useful lives of the related assets, or in the case of leasehold improvements, the lesser of the useful lives or the remaining term of the lease. Expenditures for additions, renewals, and betterments are capitalized; expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed on the straight-line method for financial reporting purposes.
The useful lives for the purpose of computing depreciation and amortization are as follows:
Software | 3 years |
Automobiles | 2 - 5 years |
Computer equipment | 5 years |
Furniture, fixtures, and equipment | 7-107 - 10 years
|
Buildings | 27.540 years
|
Leasehold improvements | Lesser of lease term or useful life |
| (j) | Goodwill/Intangible Assets |
| (j) | Goodwill/Intangible Assets |
The Company amortizes intangible assets over their useful lives unless it determines such lives to be indefinite. Goodwill and intangible assets having indefinite useful lives are not amortized to earnings, but instead are subject to annual impairment testing or more frequently if events or circumstances indicate that the value of goodwill or intangible assets having indefinite useful lives might be impaired.
Entities have an option to perform a qualitative assessment to determine whether further
Goodwill and intangible assets having indefinite useful lives are tested for impairment testing on goodwill is necessary. Specifically, an entityannually in the fiscal month of October. The Company has the option to first assessevaluate qualitative factors to determine if it is more likely than not that the carrying amount of its sole reporting unit or its nonamortizing intangible assets (consisting of a tradename) exceed their implied respective fair value and whether it is necessary to perform a quantitative analysis to determine impairment. As part of this qualitative assessment, the two-step quantitative test. The goodwill quantitative impairment test is a two-step test. UnderCompany weighs the first step,relative impact of factors that are specific to its sole reporting unit or its nonamortizing intangible assets as well as industry, regulatory and macroeconomic factors that could affect the inputs used to determine the fair value of the reporting unitassets.
If management determines a quantitative goodwill impairment test is
compared with its carrying value (including goodwill). Ifrequired, or it elects to perform a quantitative test, the test is performed by determining the fair value of the
Company’s sole reporting
unitunit. Fair value is determined based on the Company’s public market capitalization. The carrying value of goodwill is considered impaired when the reporting unit’s fair value is less than its carrying value
and the Company would record an
indicationimpairment loss equal to the difference, not to exceed the total amount of
TABLE OF CONTENTS
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes goodwill allocated to Consolidated Financial Statements
goodwill impairment exists for the reporting unitunit.
For 2023, 2022, and 2021, the enterprise must perform step twoCompany completed an impairment test of its goodwill and determined that no impairment of goodwill existed.
If management determines a quantitative analysis of intangible assets having indefinite useful lives is required, the test is performed using the discounted cash flow method based on management’s projections of future revenues and an estimated royalty rate to determine the fair value of the impairment test (measurement). Under step two, anasset, specifically, the Company’s tradename. An impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwillasset over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocatingasset.
For 2023, 2022, and 2021, the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after the allocation is the implied fair value of the reporting unit goodwill. Fair value of the sole reporting unit for the most recent quantitativeCompany completed an impairment test
was determined utilizing a combination of valuation methods including both the income approach (including a discounted cash flow analysis) and market approaches (including prior transaction method and comparable public company multiples). The fair value estimates utilized in the impairment testing reflect the use of Level 3 inputs. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. If an entity believes, as a result of its
qualitative assessment,tradename and determined that
it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The Company has selected the fiscal month ending date of October as the annual impairment testing date. For fiscal years 2016, 2015 and 2014, the Company completed a qualitative impairment test. Based upon the procedures described above, no impairment of goodwill existed.The Company is also required to perform impairment tests annually or more frequently if events or circumstances indicate that the value of its nonamortizing intangible assets might be impaired. The Company’s nonamortizing intangible assets as of January 28, 2017 and January 30, 2016 consisted of a tradename. Entities have an option to perform a qualitative assessment to determine whether further impairment testing of nonamortizing intangible assets is necessary. Specifically, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform a quantitative test. The Company performs the quantitative impairment test using the discounted cash flow method based on management’s projections to determine the fair value of the asset. The carrying amount of the asset is then compared to the fair value. If the carrying amount is greater than fair value, an impairment loss is recorded for the amount that fair value is less than the carrying amount. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. For fiscal years 2016, 2015 and 2014, the Company completed a qualitative impairment test. Based upon the procedures described above, no impairment of the tradenameasset existed.
Intangible assets with determinable useful lives are amortized over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.
| (k) | Impairment of Long-Lived Assets |
Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
| (l) | Stock-Based Compensation |
The Company measures the cost of employee services received in exchange for
share-basedstock-based compensation based on the grant date fair value of the employee stock award. For stock option awards, the Company estimates grant date fair value using the Black-Scholes option pricing model. For restricted stock unit awards, grant date fair value is determined based
uponon the closing trading value of the Company’s stock on the date of grant. In both cases, stock-based compensation is recorded on a straight-line basis over the vesting period for the entire award.
Excess tax benefits related to stock option exercises were reflected as financing cash inflows in fiscal years 2016, 2015 and 2014.
| (m) | Revenue RecognitionCost of Sales |
Ollie’s recognizes retail sales in its stores when merchandise is sold and the customer takes possession of merchandise. Net sales are presented net of returns and sales tax. The Company provides an allowance for estimated retail merchandise returns based on prior experience. The following table provides a reconciliation of the activity related to the Company’s sales returns allowance (in thousands):
| Fiscal year ended |
| January 28,
2017 | January 30,
2016 | January 31,
2015 |
Beginning balance | $ | 247 | | $ | 247 | | $ | 207 | |
Provisions | | 34,995 | | | 30,835 | | | 27,292 | |
Sales returns | | (34,903 | ) | | (30,835 | ) | | (27,252 | ) |
Ending balance | $ | 339 | | $ | 247 | | $ | 247 | |
Cost of sales includes merchandise cost, transportation costs, inventory markdowns, shrink,shrinkage and transportation, distribution and warehousing costs, including depreciationand storage costs.
amortization.
| (o)(n) | Selling, General, and Administrative Expenses |
Selling, general, and administrative expenses (“SG&A”) are comprised of payroll and benefits for stores, field support, and support center employees. Selling, general and administrative expensesassociates. SG&A also include marketing and advertising expense, occupancy costs for stores and the store support center, insurance, corporate infrastructure, and other selling, general and administrative expenses.
Advertising costs primarily consist of newspaper circulars,print flyers, digital media, email campaigns, and media broadcasts and prominent advertising at professional and collegiate sporting events and are charged to expensegenerally expensed the first time the advertising occurs. Advertising expense for fiscal years 2016, 20152023, 2022, and 20142021 was $28.0 $64.5 million, $25.8$62.4 million, and $23.1$52.2 million, respectively.respectively.
Other than one store location, which is owned, the
The Company generally leases its store locations, distribution centers and office facilities. Many of the lease agreements contain rent holidays, rent escalation clauses and contingent rent provisions – or some combination of these items. For leases of store locations and the store support center,centers, the Company recognizes rent expense in selling, general and administrative expenses.SG&A. For leases of distribution centers, the Company recognizes rent expense within cost of sales. All rent expense is recorded on a straight-line basis over the accounting lease term, which includes lease renewals determined to be reasonably assured. Additionally,certain.
The Company recognizes operating lease assets and liabilities at the lease commencement date in accordance with ASC 842, Leases (Topic 842). Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent the accounting lease term reflects the earlier of the date the Company becomes legally obligatedCompany’s right to use an underlying asset for the lease payments or the dateterm. The Company’s lessors do not provide an implicit rate, nor is one readily available, therefore the Company takes possessionuses its incremental borrowing rate based on the portfolio approach, which applies one rate to leases within a given period. The incremental borrowing rate is used to discount future cash flows and is an estimate which is determined by an analysis of the building for initial construction and setup. The excess rent expense over the actual cash paid for rent is accounted for as deferred rent. Leasehold improvement allowances received from landlords and other lease incentives are recorded as deferred rent liabilities and are recognized in selling, general and administrative expensesrate of interest it would have to pay on a straight-linecollateralized basis overto borrow an amount equal to the accounting lease term.payments under similar terms and current market conditions.
| (r)(q) | Pre-Opening CostsExpenses |
Pre-opening costs (costsexpenses consist of expenses of opening new stores and distribution facilities, includingcenters, as well as store remodel and store closing costs. For opening new stores, pre-opening expenses include grand opening promotions,advertising costs, payroll expenses, travel expenses, employee training costs, rent expenses, and store setup costs. Pre-opening expenses for new stores are expensed as they are incurred, which is typically within 30 to 45 days of opening a new store. For opening distribution centers, pre-opening expenses primarily include inventory transportation costs, employee travel expenses, and occupancy costs. Store remodel costs primarily consist of payroll expenses, travel expenses, and store setup costs as well as store closing costs) are expensed as they are incurred. 56
Store closing costs primarily consist of insurance deductibles, rent, and store payroll.
| (s)(r) | Debt Issuance Costs and Original Issue DiscountSelf‑Insurance Liabilities |
Debt issuance costs and original issue discount are amortized to interest expense using the effective interest method, over the life of the related debt. As of January 28, 2017 and January 30, 2016, debt issuance costs, net of accumulated amortization, were $2.8 million and $3.6 million, respectively, and original issue discount, net of accumulated amortization, was $0.1 million for both periods. The amortization expense for debt issuance costs was $0.7 million, $1.3 million and $1.5 million, respectively, and the amortization expense for the original issue discount was $25,000, $0.4 million and $0.6 million, respectively, for fiscal years 2016, 2015 and 2014. The write off of unamortized debt issuance and original issue discount costs recorded in loss on extinguishment of debt on the consolidated statements of income totaled $0.0 million, $6.7 million and $0.7 million, respectively, for fiscal years 2016, 2015, and 2014.
| (t) | Self-Insurance Liabilities |
Under a number of the Company'sCompany’s insurance programs, which include the Company'sCompany’s employee health insurance program, its workers'workers’ compensation and general liability insurance programs, the Company is liable for a portion of its losses. Ollie’s is self-insured for certain losses related to the company sponsored employee health insurance program. The Company estimates the accrued liabilities for its self-insurance programs using historical claims experience and loss reserves. To limit the Company’s exposure to losses, a stop-lossstop‑loss coverage is maintained through third-partythird‑party insurers.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized.
Ollie’s files consolidated federal and state income tax returns. For tax years before 2012,prior to 2018, the Company is no longer subject to U.S. federal income tax examinations. State income tax returns are filed in various state tax jurisdictions, as appropriate, with varying statutes of limitation and remain subject to examination for varying periods up to three to four years depending on the state.
| (v)(t) | Earnings per Common Share |
Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding, after giving effect to the potential dilution, if applicable, from the assumed exercise of stock options into shares of common stock as if those stock options were exercised and the assumed lapse of restrictions on restricted stock units.
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes those effects for the diluted earnings per common share calculation (in thousands, except per share amounts):
| Fiscal year ended |
| January 28,
2017 | January 30,
2016 | January 31,
2015 |
Net income | $ | 59,764 | | $ | 35,839 | | $ | 26,915 | |
Weighted average number of common shares outstanding – Basic | | 60,160 | | | 53,835 | | | 48,202 | |
Incremental shares from the assumed exercise of outstanding stock options and vesting of restricted stock units | | 2,255 | | | 1,961 | | | 407 | |
Weighted average number of common shares outstanding - Diluted | | 62,415 | | | 55,796 | | | 48,609 | |
Earnings per common share – Basic | $ | 0.99 | | $ | 0.67 | | $ | 0.56 | |
Earnings per common share - Diluted | $ | 0.96 | | $ | 0.64 | | $ | 0.55 | |
| | Fiscal year ended | |
| | | February 3, | | | January 28, | | | January 29, | |
| | | 2024 | | | 2023 | | | 2022 | |
| | | (in thousands)
| |
| Weighted average number of common shares outstanding – Basic | | | 61,741 | | | | 62,495 | | | | 64,447 | |
| Incremental shares from the assumed exercise of outstanding stock options and vesting of restricted stock units | | | 327 | | | | 209 | | | | 431 | |
| Weighted average number of common shares outstanding – Diluted | | | 62,068 | | | | 62,704 | | | | 64,878 | |
Weighted
The effect of the weighted average assumed exercise of stock option sharesoptions outstanding totaling 81,616, 651,400582,645, 858,413, and 2,971,140 425,718 as of February 3, 2024, January 28, 2017, January 30, 2016,2023, and January 31, 2015,29, 2022, respectively, were excluded from the calculation of diluted weighted average common shares outstanding because the effect would have been antidilutive.
The effect of weighted average non-vested restricted stock units outstanding totaling 11,717, 39,342, and 22,546 as of February 3, 2024, January 28, 2023, and January 29, 2022, respectively, were excluded from the calculation of diluted weighted average common shares outstanding because the effect would have been antidilutive.
| (w)(u) | RecentRecently Issued Accounting PronouncementsStandards |
Revenue
In
May 2014,November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2014-09, Revenue from Contracts with Customers2023-07, “Improvements to Reportable Segment Disclosures,” which modifies reportable segment disclosure requirements. This ASU expands annual and interim reportable segment disclosures, including: disclosure of the title and position of our chief operating decision maker (“CODM”),
which requires an entityinterim and annual disclosure of significant reportable segment expenses that are components of segment profit or loss information provided to
recognize the
amountCODM, and interim disclosure of
revenue to which it expectsall annual reportable segment profit or loss and asset data currently only required to be
entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The amendments in ASU 2014-09 were originally effective for reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with early application not permitted. In July 2015, the FASB deferred the effective date of ASU 2014-09 for one year, while also permitting early application. With these changes, ASU 2014-09 will become effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017, with adoption permitted as of the original effective date. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. While the Company is still evaluating ASU 2014-09, at this time it is not expected that the adoption of ASU 2014-09 will have a material impact on the Company’s consolidated financial statements.Leases
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires that lease arrangements longer than 12 months result in an entity recognizing a right-of-use asset and lease liability. The updateddisclosed annually. This guidance is effective for interim and annual periods beginning after December 15, 2018,2023 and earlyinterim periods within fiscal years beginning after December 15, 2024. The adoption of this standard is permitted. Substantially allnot expected to have an impact on our financial statements the Company is comprised of one operating segment.
In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures,” which modifies the disclosure requirements for income taxes. This ASU requires disclosure of tabular statutory to effective rate reconciliation in both percentages and dollars, additional disaggregated rate reconciliation categories and disaggregation of both income taxes paid and income tax expense by jurisdiction. This guidance is effective for annual periods beginning after December 15, 2024. We expect this ASU to only impact our disclosures with no impact to our result of operations, cash flows and financial condition.
Ollie’s recognizes retail sales in its stores when merchandise is sold and the customer takes possession of merchandise. Also included in net sales is revenue allocated to certain redeemed discounts earned via the Ollie’s Army loyalty program and gift card breakage. Net sales are presented net of returns and sales tax. The Company provides an allowance for estimated retail merchandise returns based on prior experience.
Revenue Recognition
Revenue is deferred for the Ollie’s Army loyalty program where members accumulate points that can be redeemed for discounts on future purchases. The Company has determined it has an additional performance obligation to Ollie’s Army members at the time of the Company’s store locationsinitial transaction. The Company allocates the transaction price to the initial transaction and distribution centersthe discount awards based upon its relative standalone selling price, which considers historical redemption patterns for the award. Revenue is recognized as those discount awards are redeemed. Discount awards issued upon the achievement of specified point levels are subject to operating lease arrangements. Information under existing lease guidance with respectexpiration. Unless temporarily extended, the maximum redemption period is 45 days. At the end of each fiscal period, unredeemed discount awards and accumulated points to rent required under non-cancelable operating leases, including option renewal periodsearn a future discount award are reflected as a liability. Discount awards are combined in one homogeneous pool and are not separately identifiable. Therefore, the revenue recognized consists of discount awards redeemed that are reasonably assured, that have an initial or remaining lease term in excess of one year iswere included in Note 7. The Company is currently evaluating the impactdeferred revenue balance at the beginning of the adoptionperiod as well as discount awards issued during the current period. The following table is a reconciliation of the liability related to this new standard on its consolidated financial statements and related disclosures, and anticipates it will result in significant right-of-use assets and related liabilities on its consolidated balance sheets.
| | Fiscal year ended | |
| | | February 3, | | | January 28, | | | January 29, | |
| | | 2024 | | | 2023 | | | 2022 | |
| | | | | | (in thousands)
| | | | |
| Beginning balance | | $ | 8,130 | | | $ | 7,782 | | | $ | 8,113 | |
| Revenue deferred | | | 16,141 | | | | 14,446 | | | | 15,290 | |
| Revenue recognized | | | (14,112 | ) | | | (14,098 | ) | | | (15,621 | ) |
| Ending balance | | $ | 10,159 | | | $ | 8,130 | | | $ | 7,782 | |
Gift card breakage for gift card liabilities not subject to escheatment is recognized as revenue in proportion to the FASB issued ASU 2016-09, Stock Compensation, whichredemption of gift cards. Gift cards do not expire. The rate applied to redemptions is intended to simplifybased upon a historical breakage rate. Gift cards are combined in one homogenous pool and are not separately identifiable. Therefore, the accounting for share-based payment award transactions. The new standard will modify several aspectsrevenue recognized consists of gift cards that were included in the liability at the beginning of the accounting and reporting for employee share-based payments and related tax accounting impacts, including the presentation in the statements of operations and cash flows of certain tax benefits or deficiencies and employee tax withholdings,period as well as gift cards that were issued during the accounting for award forfeitures over the vesting period. The guidancefollowing table is effectivea reconciliation of the gift card liability:
| | Fiscal year ended | |
| | | February 3, | | | January 28, | | | January 29, | |
| | | 2024 | | | 2023 | | | 2022 | |
| | | | | | (in thousands) | | | | |
| Beginning balance | | $ | 2,527 | | | $ | 2,291 | | | $ | 1,902 | |
| Gift card issuances | | | 5,150 | | | | 4,948 | | | | 5,433 | |
| Gift card redemption and breakage | | | (5,027 | ) | | | (4,712 | ) | | | (5,044 | ) |
| Ending balance | | $ | 2,650 | | | $ | 2,527 | | | $ | 2,291 | |
Sales return allowance is recorded on a gross basis on the consolidated balance sheets as a refund liability and an asset for fiscal years beginning after December 15, 2016, including interim periods within that year, and will be adopted byrecovery. The allowance for estimated retail merchandise returns is based on prior experience. The following table provides a reconciliation of the Company in the first quarter of fiscal 2017. The Company anticipates the new standard will result in an increase in the number of shares used in the calculation of diluted earnings per share and will add volatilityactivity related to the Company’s effective tax rate and income tax expense. The magnitude of such impacts will depend in part on whether significant employee stock option exercises occur.sales returns allowance:
| | Fiscal year ended | |
| | | February 3, | | | January 28, | | | January 29, | |
| | | 2024 | | | 2023 | | | 2022 | |
| | | | | | (in thousands) | | | | |
| Beginning balance | | $ | 1,170 | | | $ | 1,101 | | | $ | 1,060 | |
| Provisions | | | 57,684 | | | | 56,989 | | | | 54,475 | |
| Sales returns | | | (57,784 | ) | | | (56,920 | ) | | | (54,434 | ) |
| Ending balance | | $ | 1,070 | | | $ | 1,170 | | | $ | 1,101 | |
Certain prior-year amounts have been reclassified to conform to current-year presentation.
| (2)(3) | Property and Equipment |
Property and equipment consists of the
following (in thousands): | January 28,
2017 | January 30,
2016 |
Land | $ | 1,601 | | $ | — | |
Building | | 1,225 | | | — | |
Furniture, fixtures, and equipment | | 71,621 | | | 58,713 | |
Leasehold improvements | | 8,641 | | | 7,530 | |
Automobiles | | 1,638 | | | 1,319 | |
| | 84,726 | | | 67,562 | |
Less accumulated depreciation | | (38,393 | ) | | (28,270 | ) |
| $ | 46,333 | | $ | 39,292 | |
| | February 3, 2024 | | | January 28, 2023 | |
| | | (in thousands)
| |
| Land | | $ | 9,894 | | | $ | 7,942 | |
| Buildings | | | 34,608 | | | | 34,608 | |
| Furniture, fixtures and equipment | | | 262,571 | | | | 224,999 | |
| Leasehold improvements | | | 78,099 | | | | 55,945 | |
| Automobiles | | | 3,449 | | | | 2,839 | |
Construction in Progress
| | | 65,643 | | | | - | |
| | | | 454,264 | | | | 326,333 | |
| Less: Accumulated depreciation and amortization | | | (184,201 | ) | | | (150,386 | ) |
| | | $ | 270,063 | | | $ | 175,947 | |
Depreciation and amortization expense of property and equipment was $10.3$34.9 million, $8.9$28.7 million, and $8.1$24.9 million for fiscal years 2016, 2015,in 2023, 2022, and 2014,2021, respectively, of which $8.4$27.8 million, $7.2$22.9 million, and $7.0$19.4 million respectively, is included in the depreciation and amortization expensesin 2023, 2022, and 2021, respectively, on the consolidated statements of income. The remainder, as it relates to the Company’s distribution centers, is included within cost of sales on the consolidated statements of income.
| (4) | (3) | Goodwill and Other Intangible AssetsLeases |
Goodwill
The Company accounts for its leases under ASC 842, Leases (Topic 842). Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and
other intangible assets consistare recorded on the balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease, if available. The Company’s lessors do not provide an implicit rate, nor is one readily available, therefore the Company uses its incremental borrowing rate based on the portfolio approach, which applies one rate to leases within a given period. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the
following (in thousands): | January 28,
2017 | January 30,
2016 |
Non-amortizing intangible assets:
| | | | | | |
Goodwill | $ | 444,850 | | $ | 444,850 | |
Tradename | | 230,559 | | | 230,559 | |
Amortizing intangible assets:
| | | | | | |
Favorable leases | | 4,054 | | | 4,054 | |
Accumulated amortization:
| | | | | | |
Favorable leases | | (1,636 | ) | | (1,259 | ) |
| $ | 677,827 | | $ | 678,204 | |
In calculating the right-of-use asset and lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.
Ollie’s generally leases its stores, offices, and distribution facilities under operating leases that expire at various dates through 2038. These leases generally provide for fixed annual rentals. A majority of the Company’s leases also require a payment for all or a portion of common-area maintenance, insurance, real estate taxes, water and sewer costs, and repairs, on a fixed or variable payment basis, the cost of which, for leases existing as of the adoption of ASC 842, is charged to the related expense category rather than being accounted for as rent expense. For leases entered into after the adoption of ASC 842, the Company accounts for lease components together with non-lease components as a single component for all classes of underlying assets. Most of the leases contain options to renew for three to five successive five-year periods. The Company is generally not reasonably certain to exercise renewal options; therefore, the options are not considered in determining the lease term, and associated potential option payments are excluded from the lease payments. Ollie’s lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.
TABLE OF CONTENTS
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amortization expense for fiscal years 2016
Store and 2015 was $0.4 million, which was charged to rent expense for favorable leases. Amortization expense foroffice lease costs are classified in SG&A and distribution center lease costs are classified in cost of sales on the consolidated statements of income.
The following table summarizes the maturity of the Company’s operating lease liabilities by fiscal year
2014 was $0.7 million, which included amortization for favorable leases and the customer database. Estimated amortization expense of intangible assets during the next five fiscal years and thereafter is shown below (in thousands):Fiscal year ending:
| | | |
February 3, 2018 | $ | 338 | |
February 2, 2019 | | 335 | |
February 1, 2020 | | 310 | |
January 30, 2021 | | 281 | |
January 29, 2022 | | 237 | |
Thereafter | | 917 | |
Total remaining amortization | $ | 2,418 | |
Favorable lease intangible assets are being amortized on a straight-line basis over their respective lease terms plus assumed option renewal periods (weighted average remaining life of approximately 8.7 and 9.4 years as of January 28, 2017February 3, 2024:
| | | February 3, | |
| | | 2024 | |
| | | (in thousands) | |
| 2024 | | $ | 106,625 | |
| 2025 | | | 93,148 | |
| 2026 | | | 88,707 | |
| 2027 | | | 76,591 | |
| 2028 | | | 60,171 | |
| Thereafter | | | 132,033 | |
Total undiscounted lease payments (1) | | | 557,275 | |
| Less: Imputed interest | | | (70,187 | ) |
| Total lease obligations | | | 487,088 | |
| Less: Current obligations under leases | | | (89,176 | ) |
| Long-term lease obligations | | $ | 397,912 | |
| (1) | Lease obligations exclude $26.6 million of minimum lease payments for leases signed, but not commenced. |
The following table summarizes other information related to the Company’s operating leases as of and January 30, 2016, respectively).for the respective periods:
| | | Fiscal Year Ended | |
| | | February 3,
| | | January 28,
| | | January 29, | |
| | | 2024 | | | 2023 | | | 2022 | |
| | | (dollars in thousands) | |
| Cash paid for operating leases | | $ | 114,184 | | | $ | 94,909 | | | $ | 85,923 | |
| Operating lease cost | | | 106,302 | | | | 95,176 | | | | 86,516 | |
| Variable lease cost | | | 12,463 | | | | 10,512 | | | | 7,848 | |
| Non-cash right-of-use assets obtained in exchange for lease obligations | | | 53,138 | | | | 54,705 | | | | 59,696 | |
| Weighted-average remaining lease term | | 6.52 years | | | 6.4 years | | | 6.6 years | |
| Weighted-average discount rate | | | 3.9 | % | | | 3.4 | % | | | 3.4 | % |
| (5) | (4)Commitments and Contingencies |
Contingencies
From time to time the Company may be involved in claims and legal actions that arise in the ordinary course of its business. The Company cannot predict the outcome of any litigation or suit to which it is a party. However, the Company does not believe that an unfavorable decision of any of the current claims or legal actions against it, individually or in the aggregate, will have a material adverse effect on its financial position, results of operations, liquidity or capital resources.
Accrued expenses consist of the
following (in thousands): | January 28,
2017 | January 30,
2016 |
Compensation and benefits | $ | 12,136 | | $ | 10,775 | |
Advertising | | 5,594 | | | 3,519 | |
Freight | | 5,429 | | | 3,620 | |
Real estate related | | 3,464 | | | 2,659 | |
Insurance | | 3,418 | | | 2,605 | |
Sales and use taxes | | 2,564 | | | 2,278 | |
Other | | 12,143 | | | 10,117 | |
| $ | 44,748 | | $ | 35,573 | |
| | February 3, 2024 | | | January 28, 2023 | |
| | | (in thousands)
| |
| Compensation and benefits | | $ | 20,535 | | | $ | 14,751 | |
| Deferred revenue | | | 12,809 | | | | 10,657 | |
| Sales and use taxes | | | 10,234 | | | | 6,567 | |
| Insurance | | | 9,671 | | | | 9,141 | |
| Real estate related | | | 4,680 | | | | 6,283 | |
| Freight | | | 4,359 | | | | 2,641 | |
| Advertising | | | 1,780 | | | | 6,582 | |
| Other | | | 18,827 | | | | 20,337 | |
| | | $ | 82,895 | | | $ | 76,959 | |
| (5)(7) | Debt Obligations and Financing Arrangements |
Long-term debt consists of the following (in thousands): | January 28,
2017 | January 30,
2016 |
Term loan | $ | 193,740 | | $ | 198,385 | |
Capital lease | | 260 | | | 66 | |
Total debt | | 194,000 | | | 198,451 | |
Less: current portion | | (5,077 | ) | | (5,018 | ) |
Long-term debt | $ | 188,923 | | $ | 193,433 | |
As of January 28, 2017, the scheduled principal payments of debt are as follows (in thousands):
Fiscal year ending:
| | | |
February 3, 2018 | $ | 5,077 | |
February 2, 2019 | | 10,091 | |
February 1, 2020 | | 10,091 | |
January 30, 2021 | | 170,000 | |
Total cash principal payments | | 195,259 | |
Less: Unamortized original issue discount | | (87 | ) |
Less: Unamortized term loan deferred financing fees | | (1,172 | ) |
Total cash principal payments, net | $ | 194,000 | |
finance leases.
TABLE OF CONTENTS
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On September 28, 2012, the Company entered into twoThe Company’s credit agreements withfacility (the “Credit Facility”) provides for a total value of $300.0 million. The $300.0 million was comprised of a $75.0five-year $100.0 million revolving credit facility, (“Revolving Credit Facility”) and a $225.0 million term loan (“Term Loan”). On February 26, 2013, the Company entered into a First Amendment to the Term Loan which allowed the Company to borrow an additional principal amount of $50.0 million.
On April 11, 2014, the Company entered into a Second Amendment to the Term Loan (“Amended Term Loan”) which allowed the Company to borrow an additional principal amount of $60.0 million. The primary purpose of the additional term loan borrowing was to distribute $58.0 million as a cash dividend to common shareholders as consented by the original Term Loan lenders. The total dividend amount was recorded as a reduction of retained earnings of $23.6 million to reduce the retained earnings balance as of the dividend date to zero and the additional $34.4 million was recorded as a reduction of additional paid-in capital. The proceeds received were net of $2.0 million, of which $1.3 million was recognized as deferred financing fees, $0.4 million was recorded as additional original issue discount, and $0.3 million was recognized as selling, general and administrative expenses. In connection with this amendment, $0.4 million of debt issuance cost and $0.2 million of original issue discount were accelerated on the date of the amendment and included in loss on extinguishment of debt.
On May 27, 2015, the Company amended the Term Loan and Revolving Credit Facility (collectively the “Senior Secured Credit Facilities”) to, among other things, increase the size of the Revolving Credit Facility from $75.0 million to $125.0 million and to permit a dividend to holders of the Company’s outstanding common stock. On May 27, 2015, the Company borrowed $50.0 million under the Revolving Credit Facility and the proceeds were used to pay an aggregate cash dividend of $48.8 million to holders of outstanding common stock. The total dividend amount was recorded as a reduction of retained earnings of $33.9 million to reduce the retained earnings balance as of the dividend date to zero and the additional $14.9 million was recorded as a reduction of additional paid-in capital.
In July 2015, the Company repaid $50.0 million on the Revolving Credit Facility and $103.1 million of principal on the Amended Term Loan using proceeds from the initial public offering (“IPO”). In connection with this repayment of debt, $1.5 million of debt issuance costs and $0.8 million of original issue discount were written off and included in loss on extinguishment of debt.
On January 29, 2016, the Company completed a transaction in which it refinanced the Senior Secured Credit Facilities with the proceeds from a new credit facility (“New Credit Facilites”). The New Credit Facilities consist of the $200.0 million term loan (“New Term Loan Facility”) and the $100.0 million new revolving credit facility (“New Revolving Credit Facility”), which includes a $25.0$45.0 million sub-facility for letters of credit and a $25.0 million sub-facility for swingline loans. The proceedsloans (the “Revolving Credit Facility”). In addition, the Company may at any time add term loan facilities or additional revolving commitments up to $150.0 million pursuant to terms and conditions set out in the Credit Facility. On January 9, 2024, the Company refinanced its credit facility (the “Credit Facility”), pursuant to which the maturity date for any loans under the revolving credit facility was extended for a period of five years from the New Term Loan Facility together with cash on hand were used to repay the existing Senior Secured Credit Facilities. The Company incurred various arrangement fees and legal fees totaling $2.1 million, of which $2.0 million was recognized as deferred financing fees and $0.1 million was recognized as selling, general and administrative expenses. In connection with the termination of the Senior Secured Credit Facilities, $2.9 million of debt issuance cost and $1.4 million of original issue discount were accelerated on theeffective date of January 9, 2024 and a zero percent (0.0%) interest rate floor was added to the amendment and includedoption for the SOFR Loan Rate (as defined in loss on extinguishment of debt.the Amendment). Loans under the NewRevolving Credit FacilitiesFacility mature on January 29, 2021.
9, 2029.
As a result of the anticipated discontinuation of LIBOR in 2023, on January 24, 2023, the Company amended its Credit Facility to replace the LIBOR-based interest rates included therein with SOFR-based interest rates and to modify the provisions for determining an alternative rate of interest upon the occurrence of certain events relating to the availability of interest rate benchmarks. The interest rates for the
New Credit
Facilities are not subject to a floor andFacility are calculated as
follows: for ABR Loans, the
higherhighest of the Prime Rate, the Federal Funds Effective Rate plus 0.50%
orand Term SOFR with a term of one-month in effect on such day plus the
Eurodollar RateSOFR Spread Adjustment plus 1.0%, plus the Applicable Margin, or, for
EurodollarSOFR Loans, the
EurodollarSOFR Loan Rate plus the Applicable
Margin.Margin plus the SOFR Spread Adjustment. The Applicable Margin will vary from
0.75%0.00% to
1.25%0.50% for an ABR Loan and 1.00% to 1.50% for a
Base Rate Loan and 1.75% to 2.25% for a EurodollarSOFR Loan, based on
reference to the total leverage ratio (total debt to Adjusted EBITDA, as defined in the agreement). As of January 28, 2017, the interest rate on the outstanding borrowingsavailability under the
New TermCredit Facility. The SOFR Loan
Facility was 1.75% plus the 30-day Eurodollar Rate
or 2.53%.The New Term Loan Facility is subject to amortization with principal payable in quarterly installments of $1.25 million, to be made on the last business day of each fiscal quarter prior to maturity, which commenced on April 29, 2016. The quarterly installment payments increase after fiscal year ending February 3, 2018 to $2.5 million. The remaining initial aggregate advances under the New Term Loan Facility are payable at maturity.
a 0% floor.
TABLE OF CONTENTS
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of January 28, 2017 and January 30, 2016, the amounts outstanding under the New Term Loan Facility are net of unamortized original issue discount of $0.1 million and deferred financing fees of $1.2 million and $1.5 million, respectively.
Under the terms of the New Revolving Credit Facility, as of January 28, 2017,February 3, 2024, the Company could borrow up to 90.0% of the most recent appraised value (valued at cost, discounted for the current net orderly liquidation value) of its eligible inventory, as defined, up to $100.0 million.
As of
January 28, 2017, Ollie’sFebruary 3, 2024, the Company had
$195.0 million of outstanding borrowings on the New Term Loan Facility and no outstanding borrowings under the
New Revolving Credit Facility, with
$98.8$90.0 million of borrowing availability,
letteroutstanding letters of credit commitments of
$1.0$9.7 million, and $0.2 million of rent reserves. The
New Revolving Credit Facility also contains a variable unused line fee ranging from
0.250%0.125% to
0.375%0.250% per annum. The Company incurred unused line fees of
$0.3$0.1 million
$0.4 millionin each of the years ended 2023, 2022, and
$0.2 million for fiscal years 2016, 2015 and 2014, respectively.2021.
The
New Credit
Facilities areFacility is collateralized by the Company’s assets and equity and
containcontains a financial
covenants,covenant, as well as certain business covenants, including restrictions on dividend payments, which the Company must comply with during the term of the
agreements.agreement. The financial
covenants includecovenant is a consolidated fixed charge coverage ratio test of at least
1.11.0 to 1.0
and total leverage ratio test of 3.50applicable during a covenant period, based on reference to
1.0.availability. The Company was in compliance with all terms of the
New Credit
FacilitiesFacility during
and as of the fiscal year ended January 28, 2017.2023.
The provisions of the New Credit FacilitiesFacility restrict all of the net assets of the Company’s consolidated subsidiaries, which constitutes all of the net assets on the Company’s consolidated balance sheet as of January 28, 2017,February 3, 2024, from being used to pay any dividends or make other restricted payments to the Company without prior written consent from the financial institutions that are a party to the Company’s New Credit Facilities,Facility, subject to certain exceptions.material exceptions including proforma compliance with the applicable conditions described in the Credit Facility.
The components of income tax provision (benefit) are as
follows (in thousands): | Fiscal year ended |
| January 28,
2017 | January 30,
2016 | January 31,
2015 |
Current:
| | | | | | | | | |
Federal | $ | 29,280 | | $ | 19,625 | | $ | 16,760 | |
State | | 5,348 | | | 3,713 | | | 3,422 | |
| | 34,628 | | | 23,338 | | | 20,182 | |
Deferred:
| | | | | | | | | |
Federal | | 1,829 | | | (849 | ) | | (2,114 | ) |
State | | 38 | | | (882 | ) | | (1,305 | ) |
| | 1,867 | | | (1,731 | ) | | (3,419 | ) |
Income tax expense | $ | 36,495 | | $ | 21,607 | | $ | 16,763 | |
| | Fiscal year ended | |
| | | February 3, 2024 | | | January 28, 2023 | | | January 29, 2022 | |
| | | (in thousands)
| |
| Current: | |
| |
| Federal | | $ | 45,871 | | | $ | 20,541 | | | $ | 35,657 | |
| State | | | 13,930 | | | | 6,099 | | | | 10,156 | |
| | | | 59,801 | | | | 26,640 | | | | 45,813 | |
| Deferred: | | | | | | | | | | | | |
| Federal | | | 1,915 | | | | 5,588 | | | | 802 | |
| State | | | (670 | ) | | | (1,135 | ) | | | 313 | |
| | | | 1,245 | | | | 4,453 | | | | 1,115 | |
| Income tax expense | | $ | 61,046 | | | $ | 31,093 | | | $ | 46,928 | |
A reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate is as follows:
| Fiscal year ended |
| January 28,
2017 | January 30,
2016 | January 31,
2015 |
Statutory federal rate | | 35.0 | % | | 35.0 | % | | 35.0 | % |
State taxes, net of federal benefit | | 3.6 | | | 3.2 | | | 3.2 | |
Other | | (0.7 | ) | | (0.6 | ) | | 0.2 | |
| | 37.9 | % | | 37.6 | % | | 38.4 | % |
| | Fiscal year ended | |
| | | February 3, 2024 | | | January 28, 2023 | | | January 29,
2022 | |
| Statutory federal rate | | | 21.0 | % | | | 21.0 | % | | | 21.0 | % |
| State taxes, net of federal benefit | | | 4.3 | | | | 2.9 | | | | 4.1 | |
| Excess tax benefits related to stock-based compensation | | | (0.3 | ) | | | (0.2 | ) | | | (1.7 | ) |
| Other | | | 0.2 | | | | (0.5 | ) | | | (0.4 | ) |
| | | | 25.2 | % | | | 23.2 | % | | | 23.0 | % |
TABLE OF CONTENTS
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Deferred income taxes reflect the effect of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the carrying amounts used for income tax reporting purposes. Significant components of deferred tax assets and liabilities are as follows
(in thousands):
| January 28,
2017 | January 30,
2016 |
Deferred tax assets:
| | | | | | |
Inventory reserves | $ | 1,378 | | $ | 1,236 | |
Deferred rent | | 2,343 | | | 1,815 | |
Stock-based compensation | | 4,783 | | | 4,753 | |
Other | | 2,048 | | | 3,918 | |
Total deferred tax assets | | 10,552 | | | 11,722 | |
Deferred tax liabilities:
| | | | | | |
Tradename | | (89,520 | ) | | (89,669 | ) |
Depreciation | | (9,345 | ) | | (8,217 | ) |
Leases | | (911 | ) | | (1,007 | ) |
Total deferred tax liabilities | | (99,776 | ) | | (98,893 | ) |
Net deferred tax liabilities | $ | (89,224 | ) | $ | (87,171 | ) |
| | February 3, 2024 | | | January 28, 2023 | |
| | | (in thousands) | |
| Deferred tax assets: | | | | | | |
| Inventory reserves | | $ | 871 | | | $ | 732 | |
| Lease liability | | | 122,006 | | | | 110,100 | |
| Stock-based compensation | | | 4,738 | | | | 4,448 | |
| Deferred revenue | | | 2,544 | | | | 2,034 | |
| Other | | | 4,014 | | | | 3,370 | |
| Total deferred tax assets | | | 134,173 | | | | 120,684 | |
| Deferred tax liabilities: | | | | | | | | |
| Tradename | | | (57,721 | ) | | | (57,664 | ) |
| Depreciation | | | (29,242 | ) | | | (24,485 | ) |
| Operating lease right-of-use assets | | | (119,087 | ) | | | (109,167 | ) |
| Total deferred tax liabilities | | | (206,050 | ) | | | (191,316 | ) |
| Net deferred tax liabilities | | $ | (71,877 | ) | | $ | (70,632 | ) |
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent
uponon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. Based
uponon the level of historical taxable income and projections for future taxable income and the scheduled reversal of deferred liabilities over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these
deductible differences as of February 3, 2024 and January 28, 2017 and January 30, 2016.2023
.
Ollie’s has no material accrual for uncertain tax positions or interest or penalties related to income taxes on the Company’s consolidated balance sheets as of February 3, 2024 or January 28, 2017 or January 30, 2016,2023, and has not recognized any material uncertain tax positions or interest or penalties related to income taxes in the consolidated statements of income for fiscal years 2016, 2015,2023, 2022 or 2014.2021.
| (7) | Commitments and Contingencies |
Other than one store location, which is owned, Ollie’s leases its stores, office, and distribution facilities under operating leases that expire at various dates through 2031. These leases generally provide for fixed annual rentals; however, several provide for minimum annual rentals plus contingent rentals based on a percentage of annual sales. A majority of the Company’s leases also require a payment for all or a portion of insurance, real estate taxes, water and sewer costs, and repairs, the cost of which is charged to the related expense category rather than being accounted for as rent expense. Most of the leases contain multiple renewal options, under which Ollie’s may extend the lease terms for five years. Minimum rents on operating leases, including agreements with step rents, are charged to expense on a straight-line basis over the lease term.
Rent expense on all operating leases consisted of the following (in thousands):
| Fiscal year ended |
| January 28,
2017 | January 30,
2016 | January 31,
2015 |
Minimum annual rentals | $ | 36,970 | | $ | 32,263 | | $ | 28,707 | |
Contingent rentals | | 110 | | | 123 | | | 78 | |
| $ | 37,080 | | $ | 32,386 | | $ | 28,785 | |
TABLE OF CONTENTS
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following is a schedule by year of future minimum rental payments required under non-cancelable operating leases, including option renewal periods that are reasonably assured, that have initial or remaining lease terms in excess of one year as of January 28, 2017 (in thousands):
Fiscal year ending:
| | | |
February 3, 2018 | $ | 44,664 | |
February 2, 2019 | | 42,741 | |
February 1, 2020 | | 38,209 | |
January 30, 2021 | | 32,489 | |
January 29, 2022 | | 25,226 | |
Thereafter | | 55,008 | |
Total minimum lease payments | $ | 238,337 | |
Ollie’s is subject to litigation in the normal course of business. The Company does not believe such actions, either individually or collectively, will have a significant impact on Ollie’s financial position or results of operations.
| (8)(9) | Equity Incentive PlanPlans |
During 2012, Ollie’s established an equity incentive plan (the “2012 Plan”)
, under which stock options were granted to executive officers and key employees as deemed appropriate under the provisions of the 2012 Plan, with an exercise price at the fair value of the underlying stock on the date of grant. The vesting period for options granted under the 2012 Plan is five years (20% ratably per year). Options granted under the 2012 Plan are subject to employment for vesting, expire 10 years from the date of grant, and are not transferable other than upon death. As of July 15, 2015, the date of the pricing of the
IPO (see Note 10),Company’s initial public offering, no additional equity grants will be made under the 2012 Plan.
In connection with
the IPO,its initial public offering, the Company adopted the 2015 equity incentive plan (the “2015 Plan”) pursuant to which the Company’s Board of Directors may grant stock options, restricted shares or other awards to employees, directors and consultants. The 2015 Plan allows for the issuance of up to 5,250,000 shares. Awards will be made pursuant to agreements and may be subject to vesting and other restrictions as determined by the Board of Directors or the Compensation
Committee.Committee of the Board. The Company uses authorized and unissued shares to satisfy share award exercises. As of
January 28, 2017,February 3, 2024, there were
4,146,5451,957,583 shares available for grant under the 2015 Plan.
The exercise price for stock options is determined at the fair value
onof the underlying stock on the date of grant. The vesting period for awards granted under the 2015 Plan is generally set at four years (25% ratably per year). Awards are subject to employment for vesting, expire 10 years from the date of grant, and are not transferable other than upon death.
TABLE OF CONTENTS
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of the Company’s stock option activity and related information follows for fiscal years 2014, 20152021, 2022 and 2016 (in thousands, except share and per share amounts):
| Number of
options | Weighted
average
exercise
price | Weighted
average
remaining
contractual
term (years) | Aggregate
intrinsic
value |
Outstanding at February 1, 2014 | | 5,279,075 | | $ | 6.48 | | | | | | | |
Granted | | 920,000 | | | 7.68 | | | | | | | |
Forfeited | | (188,600 | ) | | 6.57 | | | | | | | |
Outstanding at January 31, 2015 | | 6,010,475 | | | 6.66 | | | | | | | |
Granted | | 1,403,500 | | | 13.61 | | | | | | | |
Forfeited | | (82,500 | ) | | 7.91 | | | | | | | |
Exercised | | (339,650 | ) | | 6.69 | | | | | | | |
Outstanding at January 30, 2016 | | 6,991,825 | | | 8.04 | | | | | | | |
Granted | | 518,277 | | | 20.37 | | | | | | | |
Forfeited | | (135,390 | ) | | 9.09 | | | | | | | |
Exercised | | (1,948,752 | ) | | 6.83 | | | | | | | |
Outstanding at January 28, 2017 | | 5,425,960 | | | 9.62 | | | 6.8 | | $ | 107,028 | |
Exercisable at January 28, 2017 | | 2,924,654 | | | 7.32 | | | 6.1 | | $ | 64,442 | |
| | Number of options | | | Weighted average exercise price | | | Weighted average remaining contractual term (years) | | | Aggregate intrinsic value | |
| | | (in thousands, except share and per share amounts) | |
Outstanding at January 30, 2021 | | | 1,244,235 | | | $ | 42.39 | | | |
| | | |
| |
| Granted | | | 298,990 | | | | 84.48 | | | | | | | | | |
| Forfeited | | | (129,233 | ) | | | 61.98 | | | | | | | | | |
| Exercised | | | (304,677 | ) | | | 28.34 | | | | | | | | | |
Outstanding at January 29, 2022 | | | 1,109,315 | | | | 55.30 | | | | | | | | | |
| Granted | | | 328,938 | | | | 43.97 | | | | | | | | | |
| Forfeited | | | (110,295 | ) | | | 59.60 | | | | | | | | | |
| Exercised | | | (118,707 | ) | | | 33.97 | | | | | | | | | |
Outstanding at January 28, 2023 | | | 1,209,251 | | | | 53.92 | | | | | | | | | |
| Granted | | | 144,630 | | | | 57.91 | | | | | | | | | |
| Forfeited | | | (54,119 | ) | | | 62.90 | | | | | | | | | |
| Exercised | | | (180,278 | ) | | | 37.09 | | | | | | | | | |
Outstanding at February 3, 2024 | | | 1,119,484 | | | | 56.71 | | | | 6.6 | | | $ | 23,406 | |
Exercisable at February 3, 2024 | | | 582,221 | | | | 57.67 | | | | 5.4 | | | $ | 11,843 | |
The intrinsic value of stock options exercised for
fiscal years 20162023, 2022 and
20152021 was
$43.9$5.8 million, $3.5 million and
$5.3$17.0 million, respectively.
The
Company uses the Black-Scholesweighted average grant date fair value per option
pricing model to value its stock option awards.for options granted during 2023, 2022 and 2021 was $29.07, $20.62, and $33.38, respectively. The
assumptions used in calculating the fair value of
stock-based awards represent management’s best estimates and involve inherent uncertainties andeach option award is estimated on the
applicationdate of
management’s judgment. As a result, if factors change and management uses differentgrant using the Black-Scholes option-pricing model that used the weighted average assumptions
stock-based compensation expense could be materially different for future awards.in the following table:
| | Fiscal Year Ended | |
| | | February 3, 2024 | | | January 28, 2023 | | | January 29, 2022 | |
| Risk-free interest rate | | | 3.36 | % | | | 2.63 | % | | | 1.33 | % |
| Expected dividend yield | | | — | | | | — | | | | — | |
| Expected life | | 6.25 years | | | 6.25 years | | | 6.25 years | |
| Expected volatility | | | 47.16 | % | | | 44.40 | % | | | 38.39 | % |
The expected life of stock options is estimated using the “simplified method,” as the Company has nodoes not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock priceexpected volatility, the Company uses comparable public companies as a basis for its historical information over the expected volatilitylife of the option granted to calculate the fair value of option grants. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option.The weighted average grant date fair value per option for options granted during fiscal years 2016, 2015 and 2014 was $6.47, $5.05 and $3.57, respectively. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that used the weighted average assumptions in the following table:
| Fiscal Year Ended |
| January 28,
2017 | January 30,
2016 | January 31,
2015 |
Risk-free interest rate | | 1.72 | % | | 1.99 | % | | 2.22 | % |
Expected dividend yield | | — | | | — | | | — | |
Expected life (years) | 6.25 years | 6.25 years | 6.5 years |
Expected volatility | | 28.52 | % | | 31.56 | % | | 34.80 | % |
TABLE OF CONTENTS
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Restricted Stock Units
Restricted stock units (“RSUs”)
RSUs are issued at a value not less than the fair market valueclosing price of the Company’s common stock on the date of the grant. RSUs granted to dateoutstanding vest ratably over three or four years or cliff vest inone or four years. Awards are subject to employment for vesting and are not transferable other than upon death.
A summary of the Company’s RSU activity and related information for
fiscal year 20162021, 2022 and 2023 is as follows:
| Number
of shares | Weighted
average
grant date
fair value |
Nonvested balance at January 30, 2016 | | — | | $ | — | |
Granted | | 137,458 | | | 20.36 | |
Forfeited | | (740 | ) | | 20.26 | |
Nonvested balance at January 28, 2017 | | 136,718 | | | 20.36 | |
Stock Based| | | Number of shares | | | Weighted average grant date fair value | |
Nonvested balance at January 30, 2021 | | | 148,838 | | | $ | 52.28 | |
| Granted | | | 59,195 | | | | 83.18 | |
| Forfeited | | | (19,887 | ) | | | 62.27 | |
| Vested | | | (62,663 | ) | | | 44.51 | |
Nonvested balance at January 29, 2022 | | | 125,483 | | | | 69.15 | |
| Granted | | | 235,754 | | | | 44.04 | |
| Forfeited | | | (35,457 | ) | | | 51.49 | |
| Vested | | | (49,502 | ) | | | 67.33 | |
Nonvested balance at January 28, 2023 | | | 276,278 | | | | 50.32 | |
| Granted | | | 205,663 | | | | 58.10 | |
| Forfeited | | | (27,783 | ) | | | 53.24 | |
| Vested | | | (103,354 | ) | | | 52.70 | |
Nonvested balance at February 3, 2024 | | | 350,804 | | | | 53.94 | |
Stock-Based Compensation Expense
The compensation cost for stock options and RSUs which has been recorded within selling, general and administrative expenses related to the Company’s equity incentive plansSG&A was $6.7$12.2 million, $5.0$10.0 million, and $3.8$8.0 million for fiscal years 2016, 20152023, 2022 and 2014,2021, respectively. The Company recognized $2.5 million, $1.9 million and $1.4 million in income tax benefit for fiscal years 2016, 2015 and 2014, respectively, in the consolidated statements of income for share-based award compensation.
As of January 28, 2017,February 3, 2024, there was $12.6$22.1 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 2.42.5 years. Compensation costs related to awards are recognized using the straight-line method.
| (9)(10) | Employee Benefit Plans |
Ollie’s sponsors a defined contribution plan
(“the Plan”(the “Plan”), qualified under Internal Revenue Code
(IRC)(“IRC”) Section 401(k), for the benefit of employees. An employee becomes eligible to participate in the Plan upon attaining at least 21 years of age and completing three months of full-time employment. An employee may elect to contribute annual compensation up to the maximum allowable under the IRC. The Company assumes all administrative costs of the Plan and matches the employee’s contribution up to 25% of the first 6% of their annual compensation. The portion that the Company matches is vested ratably over six years.
Beginning January 2024, the Company increased matches for employee contributions to 100% of the first 3% contributed of employee’s annual compensation, and 50% of the next 2% contributed for a total match of up to 4%. The enhancements to the plan also include 100% immediate vesting of the portion that the Company matches. The employer matching contributions to the Plan were
$0.4 million, $0.3 million, and $0.2 million for
fiscal years 2016, 20152023, 2022 and
2014.2021, respectively.
In addition to the regular matching contribution, the Company may elect to make a discretionary matching contribution. Discretionary contributions shall be allocated as a percentage of compensation of eligible participants for the Plan year. There were no discretionary contributions for fiscal years 2016 and 2015. Discretionary contributions were $0.3 million for fiscal year 2014.in 2023, 2022 or 2021.
Stockholders Agreement
Common Stock
The
Company and its shareholders have entered into a Stockholders Agreement dated September 28, 2012, which provides for, among others, certain covenants and conditions, information, first refusal, take along, come along and rightsCompany’s capital structure consists of
participation.Initial Public Offering
In connection with the Company’s July 15, 2015 IPO, the Company amended its existing Stockholders Agreement, in which a number of provisions, including provisions relating to the election of directors and certain transfer restrictions, were automatically terminated. Immediately prior to the IPO, the Company amended and restated its certificate of incorporation to reflect the conversion of all Class B common stock to
TABLE OF CONTENTS
OLLIE’S BARGAIN OUTLET HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Class A common stock. In addition, all shares of Class A common stock were recapitalized into a single class of common stock. As part of the IPO, thestock with one vote per share. The Company increased itshas authorized common stock500,000,000 shares to 500,000,000 at $0.001 par value per share andshare. Additionally, the Company has authorized 50,000,000 shares of preferred stock at $0.001 par value per share.
The Company issued 8,925,000share; to date, however, no preferred shares have been issued. Treasury stock, which consists of itsthe Company’s common stock, in connection with its IPO. In addition, on July 17, 2015,is accounted for using the underwriterscost method.
Share Repurchase Program
On December 15, 2020, the Board of Directors of the IPO exercised their optionCompany authorized the repurchase of up to purchase an additional 1,338,750 shares$100.0 million of common stock from the Company. As a result, 10,263,750 shares of common stock were issued and sold by the Company at a price of $16.00 per share.As a result of the IPO, the Company received net proceeds of $153.1 million, after deducting the underwriting fees of $11.1 million. The Company used the net proceeds from the IPO to pay off outstanding borrowings under the Revolving Credit Facility and a portion of the outstanding principal balance of the Term Loan. See Note 5, “Debt Obligations and Financing Arrangements.”
Secondary Offerings
On February 18, 2016, the Company completed a secondary offering of 7,873,063 shares of common stock, of which 1,152,500 shares were sold by certain directors, officers and employees upon the exercise of stock options in connection with the offering. In addition, on February 19, 2016, the underwriters exercised their option to purchase an additional 1,180,959 shares of the Company’s common stock from certain selling stockholders. As a result, 9,054,022 sharesstock. On March 16, 2021, the Board of common stock were sold by certain selling stockholders at a priceDirectors of $19.75 per share in this secondary offering. Thethe Company did not sell any shares in or receive any proceeds from this secondary offering, except for $7.5authorized an increase of $100.0 million of proceeds from the exercise of stock options. The Company incurred expenses of $0.6 million related to legal, accounting and other fees in connection with the secondary offering, which are included in selling, general and administrative expenses in the consolidated statementCompany’s share repurchase program. Both of income for fiscal year 2016.
these authorizations were authorized to be executed through January 2023. On June 6, 2016,November 30, 2021, the Company completed a secondary offering of 12,152,800 shares of common stock. In addition, on June 10, 2016, the underwriters exercised their option to purchaseBoard authorized an additional 1,822,920$200.0 million to repurchase stock pursuant to the Company’s share repurchase program, expiring on December 15, 2023. On November 30, 2023, the Company’s Board of Directors authorized an extension to the existing share repurchase program set to expire on December 15, 2023, until March 31, 2026.
The shares
to be repurchased may be purchased from time to time in open market conditions (including blocks), privately negotiated transactions, accelerated share repurchase programs or other derivative transactions, issuer self-tender offers, or any combination of the foregoing. The timing of repurchases and the actual amount purchased will depend on a variety of factors, including the market price of the Company’s
common stock from certain selling stockholders. As a result, 13,975,720 shares,
of common stock were sold by certain selling stockholders at a price of $25.00 per share in this secondary offering. The Company did not sell any shares in or receive any proceeds from this secondary offering. The Company incurred expenses of $0.6 million related to legal, accountinggeneral market, economic and business conditions, and other
fees in connectioncorporate considerations. Repurchases may be made pursuant to plans intended to comply with
this secondary offering,Rule 10b5-1 under the Securities Exchange Act of 1934, which
are included in selling, general and administrative expenses in the consolidated statement of income for fiscal year 2016.On September 6, 2016,could allow the Company completedto purchase its shares during periods when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. Repurchases are expected to be funded from cash on hand or through the utilization of the Company’s Revolving Credit Facility. The repurchase authorization does not require the purchase of a secondary offeringspecific number of 13,725,798 shares and is subject to suspension or termination by the Company’s Board of common stock. The shares were sold by certain selling stockholdersDirectors at a price of $26.07 per share in this secondary offering. The Company did not sell any shares in or receive any proceeds from this secondary offering. The Company incurred expenses of $0.6 million related to legal, accounting and other fees in connection with this secondary offering, which are included in selling, general and administrative expenses in the consolidated statement of income for fiscal year 2016.
Treasury Shares
During fiscal years 2015 and 2014, the Company repurchased 5,750 and 2,875 Class A common stock shares, respectively, from shareholders for $9.99 per share. The Company records the value of its common stock held in treasury at cost. There were no additional shares purchased during fiscal year 2016.
| (11) | Transactions with Affiliates and Related Parties |
time. The Company has entered into five non-cancelable operating leases with related parties for office and store locations that expire at various dates through 2023. The annual lease payments are $1.3 million for the next five years and the total remaining payments after the next five years are $3.2 million.
During fiscal years 2016, 2015 and 2014, the Company paid $0.1 million, $0.2 million and $0.2 million, respectively, for the use of an airplane owned by a related party.
During 2023, the Company repurchased 808,669 shares of its common stock for $52.5 million, inclusive of transaction costs, pursuant to its share repurchase program. During 2022, the Company repurchased 848,133 shares of its common stock for $41.8 million, inclusive of transaction costs, and during 2021, it repurchased 3,113,981 shares of its common stock for $220.0 million, inclusive of transaction costs. These expenditures were funded by cash on hand. As of February 3, 2024, the Company had $85.7 million remaining under its share repurchase authorization. There can be no assurances that any additional repurchases will be completed, or as to the timing or amount of any repurchases.
The information required by this Item will be set forth in the Proxy Statement and is incorporated herein by reference.
The information required by this Item will be set forth in the Proxy Statement and is incorporated herein by reference.
The information required by this Item will be set forth in the Proxy Statement and is incorporated herein by reference.
