管理層發言
Good morning, and welcome to Ollie's Bargain Outlet Conference Call to discuss Financial Results for the Fourth Quarter and Fiscal Year 2024. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and interactive instructions will be provided at that time. Please be advised that this call is being recorded and the reproduction of this call in whole or in part is not permitted without the expressed written authorization of Ollie's. Joining us on the call today from Ollie's management are Eric van der Valk, President and Chief Executive Officer; and Robert Helm, Executive Vice President, Chief Financial Officer. Certain comments made today may constitute forward-looking statements and are made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements.
These risks and uncertainties are described in our annual report on Form 10-K and quarterly reports on Form 10-Q on file with the SEC and earnings press release. Forward-looking statements are made today are as of the date of this call and we do not undertake any obligation to update these statements. On today's call, the company will also refer to certain non-GAAP financial measures. Reconciliation of the most closely comparable GAAP financial measures to non-GAAP financial measures are included in our earnings press release. With that said, I'll now turn the program over to Mr. van der Valk. Please go ahead, sir.
Good morning. Thank you for your interest in Ollie's. Our teams did a great job of delivering strong fourth-quarter results and setting us up for accelerated growth. Our fourth quarter comparable store sales growth of 2.8% was in line with our expectations and we delivered better-than-expected adjusted earnings. We are particularly pleased with these results given the compressed holiday season, which required a back-to-back ad calendar and raised the operational complexity of the quarter. Our team executed very well and we were ready for the surge in demand that we saw in the days leading up to Christmas. In fact, December was our strongest month of the quarter. Consumers remain under pressure and are seeking value. Many retailers are closing stores or shutting down entirely. Tariffs are creating uncertainty across the retail landscape. This all bodes well for Ollie's. As a closeout retailer, we are constantly looking for the best product opportunities in the market.
The same goes for how we think about investing our capital to drive long-term shareholder value. With so many retailers closing stores or going bankrupt in the past year, there are a considerable number of abandoned customers, merchandise, real estate, and talent in the marketplace. We think there is an opportunity to take on some of these assets in a manner that strengthens our competitive positioning, broadens our footprint, and bolsters shareholder returns for years to come. We recently announced an agreement to acquire 40 additional store leases of former Big Lots locations. These stores are the right size, located in our existing trade areas, and have been serving a value-oriented shopper for many years. In addition, they come with below-market rents and long-term leases that give us control of these properties for upwards of 20 years to 30 years. As a result, these stores are capable of generating outsized profitability over the long term.
One of the hallmarks of Ollie's is our ability to generate profitable growth and consistent returns for our shareholders. This is a very stable business model. The closeout market is massive and there will always be merchandise available for a variety of reasons. Innovation, packaging changes, shifts in consumer demand, store closures, tariffs, uncertainty, and other unforeseen events, these are just some of the drivers of the closeout market. While sources of products are constantly changing, the availability of closeouts is stable and consistent. With our flexible buying model, we are in control of what we buy and when we buy it. If a product does not meet our requirements either from a pricing, quality, or branding perspective, we simply don't buy it. Price is certainly a very important component to our value proposition, but it's not the only component. We deliver value to our customers through a unique and ever-changing assortment of products that combine price, quality, and national brands.
Selling good stuff cheap has been our purpose since our founding over 42 years ago, and this remains our passion and motivation to this day. In closing, let me just say how excited I am about the future of Ollie's. With our strong value proposition, flexible buying model, profitable and portable store concept, fortress balance sheet, and talented hardworking associates, we are well-positioned to continue driving profitable growth. Now on to Rob, who will discuss our fourth-quarter results and guidance for the new fiscal year.
Thanks, Eric, and good morning, everyone. We were pleased with our results and trends in the fourth quarter. We grew comparable store sales in line with expectations and delivered adjusted earnings ahead of our expectations despite facing some pressure from unfavorable weather and the liquidation of the Big Lots stores. Before we run through the numbers, it's also important to point out that there are some transitory expenses related to bankruptcy-acquired stores and our accelerated growth. While this puts a little pressure on our near-term earnings growth, it should also lead to stronger earnings power for 2026 and beyond. In the quarter, net sales increased 3% to $667 million, driven by new stores and comparable sales growth, partially offset by the impact of last year's 53rd week. As a reminder, the 53rd week generated $34 million in sales and about $0.04 to earnings per share last year.
Excluding the extra week of sales in the comparison, net sales increased 8.5%. Comparable store sales in the fourth quarter increased 2.8%, driven by fairly equal increases in both transactions and basket. Our best-performing categories in the quarter were Housewares, Food & Candy, Electronics, and room air. Ollie's army members increased over 8% to over 15.1 million members in the quarter, and sales to our members represented over 80% of total sales. Consistent with prior trends, we continue to drive growth in our younger customer demographic and the retention of higher-income customers. We ended the quarter with 559 stores in 31 states, an increase of 9% year-over-year. We opened 13 new stores in the quarter and 50 for the fiscal year. Our new stores continue to perform well, including the former 99 Cents Only Stores and the first wave of acquired Big Lots stores. Gross margin increased 20 basis points to 40.7%, primarily from lower supply-chain costs, partially offset by a slightly lower merchandise margin driven by mix.
SG&A expenses of $170 million included a one-time expense of $5.5 million for the accelerated expense resulting from the modification of existing equity awards for our Executive Chairman. Excluding this one-time expense, SG&A as a percentage of net sales increased 50 basis points to 24.6%, primarily from our accelerating store growth and the earlier timing of new store openings in fiscal 2025. Pre-opening expenses were $5 million in the quarter. Most of the increase was from the earlier timing of new store openings compared to fiscal 2024. We have already opened 16 stores in fiscal 2025. This time last year, we had not even opened a single store yet. Dark rent associated with the bankruptcy-acquired stores also contributed to the increase in pre-opening expenses and was $1 million in the quarter. Moving down to the bottom line, adjusted net income and adjusted earnings per share were $73 million and $1.19, respectively.
Lastly, adjusted EBITDA was $109 million and adjusted EBITDA margin was 16.4% for the quarter. Turning to the balance sheet. Our financial position remains very strong. Cash and short-term investments were $429 million at the end of the quarter and we had no outstanding borrowings on our revolving credit facility. Our strong balance sheet is a strategic asset for us. In 2024, we were able to deliver against our expectations while setting our path to accelerated growth in 2025. We opportunistically acquired a number of stores out of bankruptcy, began building the inventory to fill these stores, and made the necessary investments in our supply chain, all while remaining committed to our share repurchase program. Inventories increased 9% year-over-year, primarily driven by our accelerating store growth and the earlier cadence of new store openings in 2025. On a per-store basis, inventories were relatively flat year-over-year.
Capital expenditures totaled $24 million for the quarter with the majority of the spending going towards the opening of new stores, the maintenance of existing stores, and enhancements to our distribution centers. The Big Lots locations were generally well-maintained and have required limited build-out expenses to open thus far. Along with earnings today, we also announced a new $300 million share buyback program in a separate press release. While accelerated growth is our primary focus in the short term, we remain committed to returning capital to our investors through share repurchases, while balancing our strategic growth opportunities and working capital needs. Lastly, let me provide some commentary on our initial outlook and how we are thinking about the upcoming fiscal year. As most of you know, our long-term annual growth algorithm is 10% unit growth, comparable store sales growth of 1% to 2%, gross margin of 40%, slight SG&A expense leverage as a percentage of sales, some modest benefit from share repurchases and investment income, resulting in low double-digit adjusted earnings growth.
With the acquisition of the former Big Lots stores, we are uniquely positioned to accelerate our growth and gain market share. As Eric discussed, we have been building up to this moment and are well positioned to take advantage of this unique opportunity. Our current plan is to open approximately 75 new stores this year. New store openings will be more heavily weighted to the first half with approximately 21 stores in the first quarter and 65% in the first half. The Big Lots locations will incur higher pre-opening expenses because we take possession of these earlier than a typical opening. The dark rent is expected to be around $5 million for the year or $0.06 to adjusted earnings per share. We have included all of this in our initial guidance and we'll also quantify the dark rent expenses related to the acquired Big Lots locations as we report the quarters. Not included in our guidance is any benefit to comparable store sales from the Big Lots store closures.
We remain confident that this will be a net benefit to us in fiscal 2025, but it's difficult to predict how and when this will play out. The majority of the Big Lots stores are still in the process of closing or have very recently just closed and our sample size is still relatively small. In the handful of overlapping markets where the Big Lots stores have been closed for longer than a few weeks, our stores in these markets are comping better than our stores outside of those markets. With all of that said, our initial guidance for fiscal 2025 is the following. Approximately 75 new store openings, total net sales of $2.564 billion to $2.586 billion, comparable store sales growth of 1% to 2%, gross margin of approximately 40%, operating income of $283 million to $292 million, adjusted net income of $225 million to $232 million, and adjusted net income per diluted share of $3.65 to $3.75. These estimates assume depreciation and amortization expenses of $54 million, inclusive of $14 million within cost of goods sold, reopening expenses of $21 million, which include dark rent of approximately $5 million related to the acquired Big Lots locations, and an annual effective tax rate of 25%, which excludes the tax benefits related to stock-based compensation, diluted weighted-average shares outstanding of approximately $62 million and capital expenditures of approximately $83 million to $88 million, which includes the build-out of the Big Lots stores.
Lastly, let me give you some thoughts on how we're thinking about the quarterly comp cadence. The first quarter got off to a sluggish start. However, we have seen momentum start to build with a change in the weather. As we get further into the year, we face tougher comparisons in June and July from lapping the strong air-conditioner sales last year. Then in the back half, the comparisons start to ease a bit from lapping the Big Lots store closures. As a result, we're thinking that comp growth could be in the lower end of the 1% to 2% range for the first half and the midpoint to the higher end of the range for the 1% to 2% in the back half. Now back to Eric.
Thanks, Rob. This is a very exciting time for us at Ollie's. The foundation of our success is our people. I’m very appreciative and proud of what we have accomplished as a result of their hard work and commitment. Our people care deeply and find purpose in serving customers and stretching their hard-earned dollars. This is especially important in this moment. We are now happy to answer your questions.
分析師問答
Certainly. And our first question for today comes from the line of Steven Zaccone from Citi. Your question, please.
Hi, good morning. Thanks very much for taking my question. I was curious for your assessment on the consumer. You kind of gave some commentary there about how trends have performed quarter-to-date. But if you take a step back, how do you think about the state of your consumer? How has that factored into your outlook for 2025?
Thank you for the question. Consumers are still facing challenges, but we excel in these conditions. Ollie's is the go-to place for any type of disruption, whether it’s consumers under pressure, excess inventory due to store closures, tariff pressures, or staffing needs. Regarding consumers, our consumable business remains robust and attracts foot traffic, reflecting the current consumer mindset. Shoppers continue to respond positively to great deals across both discretionary and non-discretionary categories, with Ollie's offering exceptional value. However, sales of big-ticket items have been somewhat weaker. In terms of household income, we observe a trend of lower spending among higher-income consumers, defined as those earning over $100,000. We are also witnessing a retention of these customers. Meanwhile, we continue to see solid performance among low middle-income consumers in the $40,000 to $65,000 range, and our low-income segment has remained stable.
Okay, thanks for that. My follow-up is just on gross margin. So 2024 came in better than your 40% algo. The guide is for 40% this year. Can you just help us think through the puts and takes like can supply-chain costs still be a good guide as we think about 2025?
From a gross margin perspective, our algorithm shows 40%. Whenever we exceed 40%, we reinvest in customers and pricing to encourage loyalty. Regarding supply chain, we anticipate a mostly stable environment with supply chain costs remaining flat year-over-year, aided by the efficiencies from the Princeton distribution center we opened last year. We have factored in shrinkage similar to our 2024 projections, but we are noticing some easing of shrinkage challenges over the last couple of hundred stores we’ve monitored. Looking at the buying environment, we expect it to improve as we approach mid-year and the second half, influenced by a slowdown in consumer demand among some full-price retailers and the effects of tariffs. Overall, we are confident in maintaining our 40% gross margin, despite some minor tariff impacts in the short term, and believe we are well-prepared for 2025.
Great, thanks for all the detail.
Thanks, Steve.
Thank you. And our next question comes from the line of Chuck Grom from Gordon Haskett. Your question, please?
Hey, good morning, Eric. Good morning, Rob. On the Biggie front, was the headwind to sales commensurate with your plan of about 50 basis points in the fourth quarter? And more recently, now that liquidations have passed at most of the locations, have you seen an inflection in sales? And then just bigger-picture zooming out, what have been the biggest learnings thus far on the Big Lots from an operational and talent front?
Sure. I'll take the first part, and Eric will handle the second part. The Big Lots impact was not what we anticipated. When we provided guidance for the quarter in early December, we did not foresee the deal with Nexus falling through. The complete closure of the chain and liquidation in January and February was unexpected. To provide some clarity on what occurred during the quarter, we noticed some minor benefits in comparable sales from surrounding stores due to closures in October and November, which involved about 100 stores. Additionally, around 100 stores liquidated in the fourth quarter, and we did not experience as much of a negative impact as we had expected because those stores had strong holiday inventory that was redirected to the ongoing stores. After the announcement at the end of December and the subsequent liquidation in January and February, we faced significant challenges.
However, January and February also coincided with unusually cold weather and winter storms, making it difficult to determine the exact impact of the liquidations during those months. Now that the liquidation process is complete and the weather is improving, we have observed a notable increase in our momentum and comparables. It remains challenging to analyze this, so we didn’t include it in our guidance. As you are aware, we tend to be conservative. We strive to meet the expectations of our shareholders and investors, so we deemed it wise to provide a guidance range of 1% to 2%. Looking at the total market share potential for Big Lots, it's a unique situation since they didn’t close many stores while facing struggles in recent years. Their last reported annual revenue was around $4.5 billion. Considering that approximately 25% of their business was in furniture and accounting for markets we don’t participate in, which overlap about 80% to 85% with the original Big Lots locations, we arrive at an addressable market share opportunity of approximately $2.7 billion. We believe we have a strong chance to capture that market share.
Yes, Chuck, regarding your question about operational alignment with Big Lots employees, we've had significant success in recruiting leaders, particularly in the field, including store leaders and district-level positions. The companies' operations are similar enough that when Big Lots employees transition into the Ollie's environment, they adapt quickly. They are excellent individuals, and we are pleased to have them on our team. This helps us to operate swiftly, especially in the new stores we are acquiring from former Big Lots locations, as we bring in leaders and associates from those stores. This provides us with a quicker and more effective start as we prepare to open those stores. We are also discovering that converting Big Lots stores to Ollie's is proceeding even more smoothly than anticipated, at a quicker pace and potentially cost-effective. Overall, everything is aligning well for the Big Lots stores that are now in our pipeline to transition to Ollie's in 2025.
Great answer. That's great to hear. Just a quick follow-up. Just can you discuss the progress you made with the rollout of the private-label credit card and maybe how many states or stores now offer the card?
Sure. On the credit card, we've rolled it out to most stores. By the end of Q1, we will have rolled it out to the chain. It's too early to report in on what it's going to ultimately mean to our business. We love it as an enhancement to our Ollie's Army loyalty program. And we're seeing initially the basket size for an Ollie's credit card customer is fairly significantly higher than the basket size for an Ollie's Army customer who does not have a credit card. So it looks very promising. By the end of Q1, we'll be rolled out to the whole chain and we'll see what it means for the balance of the year.
Thank you. And our next question comes from the line of Alexia Morgan from Piper Sandler. Your question, please.
Hi, this is Alexia Morgan on for Peter Keith at Piper Sandler. Thanks for taking our question. I was wondering if you could speak more to the dark rent dynamic on a going-forward basis. You quantified dark rent as $5 million in 2025. So it seems like it could impact flow-through this year. So we were wondering then how to think about flow-through dynamics in the model from 2025 to 2026. How it could change?
Sure. I'll take that. It's Rob. We're very excited about what accelerated growth means for 2025 and what it means for 2026 and beyond. The Big Lots store closures have given us a unique opportunity to really improve our strategic positioning, broaden our footprint, and boost our returns. The bankruptcy-acquired stores require that we're on the clock for rent as soon as the store is turned over to us. In that model, we have to take on, on average about four months of dark rent versus typical Ollie's opening, which is four to five weeks. But these stores come with below-market rents and long-term leases, which allow for outsized profitability for this segment of stores. Given that these stores are going to open midway through the year into the back half of the year, you don't get as much flow-through on the earnings for the store for the year and it is burdened with the dark rent, which makes it about $300,000 or so a store. In a normal year, we would deliver, say, low-teens earnings growth. And when I'm talking about 2026, we'd expect 2026 to be to mid-teens earnings growth, maybe even approaching high-teens earnings growth and that's casting aside any market-share grab or outsized comp that we would deliver in 2025 or 2026 by virtue of acquiring the Big Lots market share aside from the real estate.
Okay. Thank you. And then maybe just one more. You had already talked a little bit about the Big Lots opportunity, but one more about that. How are you thinking about the new Big Lots stores opening as compared to the new 99 Cents Only Stores, which you had acquired, which seems to be very strong and successful right out of the gate? So we were just wondering how the Big Lots stores could have a similar experience.
Sure, Alexia. We view them quite similarly. In fact, we are more optimistic about the Big Lots conversion than we were about the 99 Cent Only conversion, and as you know, we had high hopes for the 99 Cent Only transition. The main advantage these two companies offer us is that they come with warm boxes. Many of the locations we've traditionally worked with over the years are second-generation sites that have been empty for so long that you forget who the previous retailer was. These sites are not cold; they are warm. Furthermore, they come with customers who are accustomed to shopping in a store concept that is similar to ours and who belong to a customer demographic that aligns closely with ours. We have had some experience with Big Lots conversions so far, only a few have been completed, but we are pleased with the results we are seeing in terms of customer enthusiasm. Therefore, we believe the initial sales performance will be at least as strong, if not stronger, than the conversions we achieved with 99 Cents Only.
Great. Thank you.
Thank you. And our next question comes from the line of Matthew Boss from J.P. Morgan. Your question, please.
Great. Thanks. So Eric, maybe could you elaborate on the cadence of first quarter to date same-store sales? What you saw early versus the exit rate in February and more recent trends you've seen in March? And have you embedded any lift in the full-year guide for potential market-share opportunity tied to Big Lots?
Sure. Great question, Matt. I'm going to ask Rob to address.
Hey, Matt, how are you? February was quite challenging due to several factors. There were weather issues, Big Lot store closures, and a delay in tax refunds, although that has improved and is now picking up speed. Additionally, there have been widespread reports about a slowdown in consumer demand, making it a volatile month. However, towards the end of February and into early March, we have noticed a positive change that aligns with the Big Lot closures and a shift in weather patterns. Right now, we have good momentum. Currently, our quarter-to-date performance is in line with our same-store sales guidance for the first quarter, but there's still a lot of spring selling ahead. The weather hasn't fully changed yet, but we're confident in our ability to deliver results. As you know from following our story, we always keep the registers open.
Got it. And then maybe just a follow-up. Eric, could you argue Ollie's could actually be a net beneficiary of tariffs as we tie in availability and product that you're seeing? And Rob, on the SG&A front, if we exclude the dark rent, how best to think about the comp needed to leverage SG&A in 2025? And then multiyear, what's the right comp leverage point you think for the model?
Yes, Matt, regarding tariffs, it's similar to how I addressed the consumer's state. Tariffs can be disruptive, particularly when they fluctuate frequently. We actually thrive on such disruption. This situation is a prime example of that. In the short term, we act as a price follower. Our priority is to maintain a price advantage over our competitors and offer strong value. We are not obligated to purchase anything. If a product's price aligns with our margin structure, we buy it. If not, we opt not to. Our model is very adaptable. We have designed our business to navigate situations like this, where certain products carry additional costs. We can choose not to purchase them or adjust our prices according to the market. Regarding product availability, yes, looking back at our history with tariffs, we've seen that they typically lead to excess inventory that we can buy back. We anticipate this occurring again, likely in the latter half of 2025 if it aligns with past trends from when tariffs were raised about five years ago.
From an SG&A perspective, for 2025, we'd expect SG&A leverage to be pretty much at the midpoint of the 1% to 2% positive comp. We operate off a relatively low G&A base and we have the corporate investments in place to be able to support our accelerated growth. There may be some wiggling from quarter to quarter from an SG&A expense leverage flow-through perspective as we're accelerating growth and we're putting in some of those upper field investments to be able to build out new markets. But on the year, we'd expect it to be closer to the midpoint.
It's great color. Best of luck.
Thanks, Matt.
Thank you.
Thank you. And our next question comes from the line of Brad Thomas from KeyBanc Capital Markets. Your question, please.
Hi, thanks, and good morning. Maybe just a follow-up on Matt's question on tariffs. Can you talk a little bit more about how those are baked into your guidance overall and the exposure that you have on the direct import side?
Sure. Exposure on the direct import side, again, very, very short-term. It's about 50% of our business that comes out of China, which is primarily where the pressure is, although there could be some pressure with other countries in the future. China is certainly the biggest. Again, with that 50% of our business, we're a price follower and there's nothing in that 50% that we absolutely have to buy. So we're not overly concerned about it, but it does present a little bit of a short-term challenge. Long-term, we like our chances.
In terms of gross margin and guidance, we're very comfortable with our 40% for the year. We've considered some small tariffs impact in the very immediate term, but we believe in that in the medium and longer term, this will be a great buying opportunity and demand opportunity for us.
Great. And if I could follow-up just on the store growth outlook, looking past 2025, really feels like you have an incredible pipeline and opportunity in front of you with all the retailers that are closing stores in the United States right now. I guess, could you just speak to your confidence in driving growth and what you think that right growth rate will be over the next few years?
Sure, Brad. Our long-term algo is 10% annual unit growth. We feel very, very good about our pipeline, meeting and beating this target. With all the closings that you mentioned, the bankruptcies that are out there, we had a unique opportunity to accelerate growth, good locations, below-market rent, great long-term leases. We're prioritizing these stores, these leases that we picked up through bankruptcies. It pushed out our organic pipeline into late 2025 and early 2026, which makes for a very strong setup for 2026. So with the high number of store closures, it's increasing the availability of second-generation sites that we can pursue outside of bankruptcy and we're absolutely capitalizing on this. So we feel very good about both 2025 and 2026 at this point to exceed that 10% long-term algo. I can't really speak beyond 2026, but we feel very, very good about our chances for the next two years.
Very helpful. Thank you so much.
Thanks, Brad.
Thank you. And our next question comes from the line of Simeon Gutman from Morgan Stanley. Your question, please.
Hi, this is Lauren Ng on for Simeon. Thank you for taking our questions. Our first one is on the ramp of the 24 Big Lots stores you purchased in the back half of 2024. Could you give any more color or early reads from the productivity of these boxes out of the gate? And our second question is on just the comp perspective. Is there anything to call out from the timing of the Easter shift for this year? Thank you.
Sure, this is Rob. I'll take that one. In terms of Big Lot openings, we just opened our first set of Big Lot stores in February. We opened several stores in Wisconsin, which allowed us to establish a presence in that market quickly, and we're seeing some exciting results there. As for the other stores, it's really too early to provide any details, but we're fairly confident that they'll perform well initially due to the factors Eric mentioned regarding the warmer stores. Can you repeat the second part of the question, please?
Yes. So second question was just anything to call out on the Easter shift timing for Q1?
Oh, for sure. So the Easter shift gives us a little bit of an elongated spring selling season right up through the Easter. With the weather breaking a little bit later and not quite with the spring weather, it gives us the opportunity to have an elongated spring selling season which we believe will bode well in our favor.
Thank you. And our next question comes from the line of Scot Ciccarelli from Truist. Your question, please.
Good morning, guys. I know it's very early, but you did comment that the stores near the Big Lots locations that have closed are comping better than the base. Can you give us any color on the magnitude of that performance gap?
I would say that it's difficult to say. There are a lot of crosswinds and cross dynamics, but I would say low-single digits to mid-single digits for positive mid-single digits for a bunch of them. But we'll give you more color as we clear out past the complete liquidation.
Got it. And then given the acceleration of store openings in 2025, what are you guys building in for cannibalization? And then how do investors get comfortable that we won't see any kind of operational strains like the company had back during the Toys 'R' Us acquisition phase?
From a cannibalization perspective, that's something that we were pretty sophisticated on and we've been working through for many years being a high-growth retailer. We use an outside party that runs algorithms and math around customer demographics and surrounding existing stores. So that's an important dynamic when making real estate decisions and something that we very much considered when we acquired the Big Lot store. So we view our chances to grow seamlessly with very limited cannibalization as extremely high.
Yes, what was the question on operations?
Operational. I mean, I know this before.
I mean, I know this before.
Our operational dynamics versus 2019. So in 2019, the dynamic was a supply chain that did not have the capacity to service the accelerated growth. You'll remember back in 2019, we didn't have our third distribution center, Lancaster, Texas up and running. That was the main challenge that we had in 2019. So we have capacity now with four distribution centers to service up to 750 stores. So we're way short of the throughput. We have more than enough throughput to service the stores that are in the pipeline now. We've also been investing in our infrastructure. Some of this is formed by the pandemic surge of business and some of the challenges that we had through the pandemic, we've been investing in our business to ensure that we have stability in executing as we move forward. And those investments are really paying off as we're accelerating growth in 2025.
Got it. Thanks, guys.
Thank you. And our next question comes from the line of Kate McShane from Goldman Sachs. Your question, please.
Hi, good morning. I wanted to follow up on the earlier question about gross margins. It seems that merchandise margins were lower because of the mix and the consumables. Was this more than you anticipated? Can we expect consumables to continue impacting merchandise margin mix through 2025? Additionally, in the long term, you have previously mentioned the possibility of allowing gross margin to increase to counter the inflation we are experiencing in labor costs within SG&A. Should we reconsider that perspective for the long-term gross margin outlook?
Sure, I’ll address that. It’s Rob. We really appreciate the consumables business. It’s a high-frequency, high-retention segment that significantly contributes to the stability of our model. Customers come in weekly for consumables, but they also take advantage of additional deals. Therefore, consumables are essential for driving our overall business. From a gross margin standpoint, it's aligned with our expectations. We’ve increased the speed of consumables turnover over the last two years, so this isn’t surprising. As we look to 2025, we've factored this trend into our guidance and are confident about achieving the 40%. Regarding the possibility of exceeding gross margins, we currently have a unique opportunity to capture market share. Therefore, leveraging pricing for extra margin isn’t our strategic focus at this time. While that opportunity may arise later, it’s not right now. Concerning SG&A, to revisit your earlier question, the wage and employment dynamics that emerged post-pandemic have started to ease. This reduces the pressure on the SG&A rate and diminishes the need to increase gross margins. We are currently confident in achieving the 40% this year while also working to capture market share.
I'd just add one comment. We continue to be focused on improving productivity, enhancing processes, especially in stores, and we look at those enhancements as an offset to any incremental wage pressure that we may see in the coming year or coming couple of years.
Thank you. And then our second question, you quantified that it could be $2.7 billion in addressable sales that were left behind here by the bankruptcy. Do you have an estimate of how much you can capture over time or what the transfer rate could look like given your overlap with other retailers?
I'd say that we stand to benefit from the Big Lots closures as much as anyone. I would imagine that the mass merchants and the dollar stores pick up some share as well. But even if we pick up, say, 5% of the $2.7 billion, that's a well over $100 million sales opportunity for us, which on our comp base is a couple of hundred basis points of positive comp.
Thank you. And our next question comes from the line of Anthony Chukumba from Loop Capital Markets. Your question, please.
Good morning, and thank you for taking my question. So I couldn't help but notice at the end of your prepared remarks, the timing was a little bit off with the Ollie's chant. Is that something that investors should be concerned with?
I love it.
Yes, we really blew it, Anthony.
Yes, right. We had some recent changes that we've had to work through in terms of our Executive Chairman transition. So we're hitting on the chant.
Got it. Fair enough.
Sure. I mean, those businesses continue to be strong. Our size and scale are, as we continue to grow along with our fortress balance sheet, are our big differentiators in terms of our ability to buy. A lot of CPG companies out there like the simplicity of selling all of whatever it is they have to just one customer, whomever that might be, and we are the biggest customer for what you consider closeouts or excess inventory in CPG. I think the other thing to point out, Anthony, is that the consolidation in the closeout space to whatever extent Big Lots played in a meaningful way, along with companies like Essex, Bargain Hunt, we're buyers and consumers of CPG products. So there's more out there now as well, which lines up really nicely to what the consumer is most interested in buying in this moment.
Got it. That's very helpful. Thank you.
Thank you. And our next question comes from the line of Jeremy Hamblin from Craig-Hallum Capital Group. Your question, please.
Thanks, and congrats to the team on the success. I wanted to talk about category performance as we've moved into fiscal '25. You noted some choppiness in February and you've also noted some improvements here in recent weeks since the end of February. I wanted to get a sense for where you're seeing some of that category performance. If you could get a little bit granular in terms of where maybe you saw some softness in February and where you've now seen some pick-up here as we've moved into March?
Hi, Jeremy. The details are a bit more specific than we usually share regarding the inter-quarter category mix. However, it aligns with what we experienced in the fourth quarter. Our consumable businesses remain strong, while the more discretionary, big-ticket items are still a challenge. Weather impacts business flow over a quarter, or even two, especially for lawn and garden and patio sectors when the weather isn't favorable; these areas are down. This was evident in the earlier part of the quarter due to unusually cold weather, which kept people from working on their lawns or gardens or investing in outdoor furniture. Additionally, the shift of Easter presents both advantages and disadvantages; the candy business tends to be less robust when Easter is pushed back by three weeks. Ultimately, it balances out, and we've experienced strong demand in the candy category, leading us to believe we will finish strong in those areas. However, the dynamics of the quarter have been affected by the late Easter.
Yes. I'm sorry, in terms of pre-opening expense as $21 million for the year, wanted to see if you could provide us with a little bit more guidance in terms of how you expect that to play out or unfold over the course of the year. I think you said 65% of your store openings you expect in the first half of the year; how do you expect that pre-opening expense to flow? Well, we would expect that pre-opening follows the store cadence. So we would expect two-thirds of the pre-opening expense to flow through the first half of the year with the second quarter actually being the highest amount for the year. Third quarter will start to tail off a little bit from there. And the fourth quarter should be relatively low. We are not currently planning to open any stores in the fourth quarter. So that pre-opening expenses would be lower there. Thank you.
Thank you. And our next question comes from the line of Mark Carden from UBS. Your question, please.
Hi, this is Matt Rothway on for Mark. I was wondering if you can talk about the 99 Cents Stores and when you think they might reach full sales productivity. It sounds like they've opened up really nicely. And then a quick follow-up. I couldn't hear if you mentioned how long the lease agreements are for the Big Lots stores that you acquired. Thank you.
Sure, Matt. Regarding 99 Cents Only, we opened in the middle of last year and they started off strong. As you may know, stores usually perform better in their opening year due to the excitement surrounding the grand opening. Initially, the results are stronger, then they taper off a bit, and we typically see full maturity in years three or four. It’s still too early for us to predict where we will end up with 99 Cents Only Stores, but we are pleased with our current position.
In terms of real-estate terms, that's one of the most important things that we look at when we look to acquire a lease through bankruptcy. If you're buying a lease, you want to make sure that it has sufficient term. Some of the Big Lots stores go out as far as 20 years to 30 years. So we have great amounts of term on most of the leases that we did acquire. And that's actually why we didn't acquire more leases through the bankruptcy process. What we haven't reported on today yet is approximately 600 Big Lot stores made it through the bankruptcy auction process and are still vacant and out there for the taking. Those are for the most part, stores where they didn't have term or they had some other restriction that we would not be able to step into the lease. So that's what gives us the confidence in 2026 and beyond to keep the accelerated growth and potentially deliver over the 10% algo for a second year.
Thank you. This does conclude the question-and-answer session as well as today's program. Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day.