管理層發言
Good morning, and welcome to Ollie's Bargain Outlet's Conference Call to discuss financial results for the first quarter fiscal year 2026. 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. I would now like to introduce our host for today's call, John Rouleau, Managing Director of Corporate Communications and Business Development for Ollie's.
Thank you, Carmen. Good morning, everybody. We appreciate your time and participation. Joining me on today's call from Ollie's are Eric van der Valk, President and Chief Executive Officer; and Robert Helm, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions. Finally, let me remind you that certain comments made on today's call may constitute forward-looking statements, and these 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. Those risks and uncertainties are described in the company's earnings press release and filings with the SEC, including the annual report on Form 10-K and quarterly reports on Form 10-Q. Forward-looking statements made today are as of the date of this call, and the company does not undertake any obligation to update these statements.
On today's call, the company will be referring to certain non-GAAP financial measures. Reconciliation of the most closely comparable GAAP financial measures to the non-GAAP financial measures are included in the company's earnings press release. With all that said, and out of the way, it's my pleasure to turn the call over to Eric.
Good morning, and thank you for joining us today. We are pleased with our first quarter results and the outstanding performance of our team. We delivered strong earnings growth driven by solid top line results and unit growth, robust margins and disciplined expense control. These results underscore the durability of our business model, the strength of our value proposition and our ability to execute through a challenging consumer backdrop. Sales and traffic trends were strong across the board early in the quarter. As the quarter progressed, we began to see divergent trends across our different regions. The combination of unseasonable weather and surging fuel prices put pressure on a few key categories such as lawn and garden and summer furniture. With our stores being located in more rural and suburban areas, we also think the rapid spike in gas prices led to some trip consolidation, which impacted traffic.
Rob will speak to this in a few minutes, but the areas with more favorable weather significantly outperformed those with unseasonable weather. As we move through the second quarter, we think there is the potential to benefit from pent-up demand in weather-sensitive categories. Touching on the consumer for a moment. Customers are shopping closer to need more than ever before, but also remain resilient. In the first quarter, the environment shifted very quickly with surging gas prices impacting shopping patterns with a focus on trip consolidation. This primarily impacted the lower-income consumer, particularly those driving longer distances to the store. We saw further strengthening of trade-down, but typically in these moments of economic stress, lower-income consumers trade out more quickly than upper income trade-in. Our continued focus on productivity and efficiency initiatives throughout our model gives us the flexibility to strengthen our value proposition when the consumer needs it most.
As we move forward, we will further reinforce our strong value proposition with a renewed emphasis on exceptional deals that are extremely relevant in this moment. This fuels the closeout market and our business model. We benefit from disruption and volatility and we are seeing this in both the quantity and quality of the deals. Our deal flow has been extremely strong, which gives us an additional opportunity to further strengthen our value proposition and invest in price. Outside of this, we are focused on controlling what we can control and executing against our strategic priorities. We remain on target to open 75 stores this year, including having opened our first store in the great State of Minnesota, and we are growing rapidly in the Midwest. Our next priority is growing Ollie's Army loyalty program. These are our best customers who account for more than 80% of our sales. Our focus here is attracting new members to the program and retaining them through a variety of marketing channels.
Growth in our loyalty program was again strong in the quarter, increasing 13% to 17.5 million members. Our Ollie's Army members received special access to various events, deals and discounts. One of these events is Ollie's Army Night, which we hold twice a year. These exclusive shopping nights celebrate our best customers. The next event will take place on Sunday, June 14, from 5 to 9 p.m. The date is one week earlier than last year, which was moved up due to the Father's Day shift. We will also be running our annual Ollie's Days event in the second quarter. America loves the bargain, and we could not think of a better way to celebrate our country's 250th birthday than with a blowout event. We invite you to join us and see the amazing deals for yourself. If you're already a loyalty member, you will be hearing more about these events in the coming weeks. If you're not a member, why not? Signing up is free and easy.
One other note on event cadence. We routinely make adjustments based on timing of key events throughout the year. We are shifting one flyer event out of the third quarter and into the second quarter from August to July. On the top of things we can control is optimizing category mix to drive sales productivity. We went after the seasonal decor category last year with great success, and we continue to build on that success in the first quarter. Even with the headwind of an early Easter, seasonal decor was one of our top-performing categories. We also shrank our wall-to-wall carpet offering and replaced this with a limited assortment of living room furniture. This proved to be a good swap with the added furniture business improving sales productivity by over 100% in the same floor space. We are excited by these early wins and we'll apply our learnings to other areas of the store. We are working on rightsizing and optimizing the assortments of other downtrading categories, such as books and flooring.
For competitive reasons, we're going to be a bit guarded in how much we share publicly. Most importantly, I'm excited we have built the framework and a test-and-learn process that leverages data to make more informed merchandising decisions to drive productivity. On the supply chain side, we are reinvesting in our distribution centers to drive throughput, productivity and capacity. We completed the replacement of the warehouse execution system in our Texas distribution center early in the quarter. This was our last remaining distribution center to receive the upgrade, and we are seeing productivity benefits across the network. The expansion of our Texas distribution center is progressing as scheduled and should be completed early in the third quarter. Later this year, we will begin expanding our Illinois distribution center. The two expansions will increase our network capacity to over 850 stores.
On top of all of this, we bought back $53 million of our common stock in the quarter. We are an opportunistic retailer. Our business model thrives on buying good stuff, cheap. This quarter that included our own stock. Everyone loves a bargain and so do we. On that note, I'll turn the call over to Rob, who will take you through our financial results in more detail. Rob?
Thanks, Eric, and good morning, everyone. We are pleased with our execution and the positive impact this is having on our results across the P&L. This drove better-than-expected earnings growth in the quarter. New stores and customer acquisition remain our top two priorities, and we continue to deliver on both. We opened 27 new stores in the first quarter, an increase of more than 15% and ended the period with 672 stores in 35 states. At the same time, we added almost 500,000 net new Ollie's Army members in the quarter and grew our loyalty program by 13% to 17.5 million members. Now let me walk you through the P&L. Net sales increased 14% to $659 million, driven by new store openings and comparable store sales growth. Comparable store sales increased 1.7%, driven by an increase in basket. Top-performing categories were food, general merchandise, hardware, seasonal decor and stationery, while weather-sensitive categories underperformed, such as lawn and garden and summer furniture.
As Eric mentioned, performance varied by region, primarily driven by weather patterns with the East, Midwest and Central markets all outperforming their respective plans, while the South largely underperformed. The biggest drag in the South was the lawn and garden category. The slower selling of bulky seasonal products also led to throughput constraints in our Texas distribution center, which impacted the Southern region. Gross margin increased 80 basis points to 41.9%. This was above our expectation and driven by lower supply chain costs. Higher fuel costs were more than offset by lower tariff expenses. Merchandise margin was slightly higher. SG&A expenses were well managed and flat as a percentage of sales in the quarter. Preopening expenses were in line with expectations and decreased 3% to $6.4 million. The decrease was driven primarily by lower rent expense, specifically the dark rent associated with the bankruptcy acquired sites last year.
This was partially offset by a higher number of new store openings. Moving down to the bottom line. Adjusted net income increased 21% to $56 million and adjusted earnings per share increased to $0.91. Lastly, adjusted EBITDA increased 22% to $88 million, adjusted EBITDA margin increased 80 basis points to 13.3% for the quarter. Turning to the balance sheet. Our total cash and investments increased $111 million or 27% to $526 million, and we continue to have no meaningful long-term debt at the end of the quarter. With our strong balance sheet and the consistency of our earnings and cash flows, we stepped up our buyback and repurchased $53 million worth of our common stock in the quarter. As a reminder, we are targeting annual buyback levels at roughly 50% of free cash flow and raising our outlook to $125 million this year. Our buyback activity reflects our confidence in the durability and earnings power of our business model.
Inventories increased 12% year-over-year, primarily driven by our new store growth. Capital expenditures were $25 million in the quarter, with the majority of the spending going towards the opening of new stores, the improvement of existing stores and the expansion of our Texas distribution center. Let me wrap up with commentary about our outlook for the full fiscal year. First, we remain confident in our ability to deliver against our earnings algorithm of mid-teens growth. Solid sales growth, strong margins, controlled expenses and the stepped-up buyback all support earnings growth this year. At the same time, we are cognizant of the state of the consumer right now. They are prioritizing their spending around their needs and driving a little less if they can. Weather is still a bit of lingering factor, and we don't have the benefit of higher tax refunds to offset some of these pressures in the second quarter.
Our comp target remains a positive 2% for the full fiscal year. Our current trends are running below this level, primarily reflecting continued weather volatility and ongoing pressure on the lower-income consumer. While a significant portion of the quarter remains ahead of us and we could benefit from a normalization of weather patterns and lower income spending, we currently believe second quarter comps could look similar to the first quarter. As a result, we are making a small update to our full year sales outlook to reflect current trends and raising our full year earnings per share outlook to account for the results in the first quarter. All of our outlook figures are contained in the table in our earnings release posted this morning. Our full year guidance includes 75 new store openings, net sales of $2.98 billion to $3.0 billion, comparable store sales growth in the range of 2%, gross margin in the range of 40.7%, operating income of $340 million to $348 million, adjusted net income and adjusted net income per share of $271 million to $277 million and $4.45 to $4.55, respectively.
Let me give you some of the additional assumptions behind these numbers. Starting with tariffs. We benefited from the lower levels provided by the Supreme Court decision and assume these remain in place through July. In the back half of the year, we have left the higher pre-decision tariff assumptions in our guidance. Lastly, we have not considered the benefit of any tariff refunds in our outlook. Our earnings guidance also assumes higher fuel costs for the balance of the year. Depreciation and amortization expenses of $63 million, inclusive of $15 million within cost of goods sold; preopening expenses of $22 million; an annual effective tax rate of approximately 25%, which excludes the tax benefits related to stock-based compensation; diluted weighted average shares outstanding of approximately 60.9 million, which now includes a higher share repurchase level of $125 million; and capital expenditures are expected in the range of $103 million to $113 million, which includes almost $20 million for the expansion of our Texas and Illinois distribution centers. In closing, let me thank all of our hard-working team members across the country. It is what you do day in, day out that makes Ollie's a special company. Now let me turn the call back over to Eric.
Thanks, Rob. Our team did a great job navigating a far more dynamic and challenging environment than we've seen in quite some time. The consumer today is under pressure and increasingly focused on stretching their hard-earned dollars. We remain focused on our strategic priorities, executing with discipline and most importantly, continuing to serve our customers. This is at the core of what we do best. For more than 40 years, our commitment to our customers has been to make their lives better by selling good stuff cheap. We will continue to uphold that commitment by managing our cost and pricing to deliver the best value in retail today. We are executing well and delivering strong results. We are investing in our future and excited about the opportunities that lie ahead. We are committed to supporting loyal bargainauts in their time of need. We are proud to say, we are Ollie's. Operator, we're ready for questions.
分析師問答
One moment for our first question, please. It comes from Matthew Boss with JPMorgan.
So Eric, maybe could you elaborate on the cadence of comps that you spoke to in the first quarter? Maybe if we thought about it relative to plan and just your confidence in delivering roughly 2% comps for the year? And then near term, is there a way to break out maybe the trends that you're seeing by category or by region in order to parse through the impact of weather that you may be seeing that seems to give you the confidence in delivering similar comps in the second quarter to what you've delivered in the first quarter despite the softer start?
Sure. Yes, Rob will take that.
Matt, this is Rob. I'll take that. So for the first quarter, all three months of the quarter were positive, which was encouraging. February was the strongest month. That was up about mid-single digits. March was positive and then April ticked up slightly, which was notable because we had the Easter shift into March this year. As I mentioned in the call, we saw divergent trends across the quarter, across the country when the gas prices started to spike and the weather didn't really shift as quickly as it normally does. The East, Midwest and Central all experienced more normalized conditions and they beat plan by 100 to 200 basis points. The South where it was hot and we saw drought-like conditions, that region lagged between 100 to 300 basis points. The biggest drag on those regions was clearly lawn and garden. From a second quarter perspective, we talked about our trends quarter-to-date.
We are running behind our full quarter guide for the second quarter. Comp trends in what we call our core comp categories, the consumables categories, remain strong. It's really outdoor seasonal product that we're seeing the biggest impact. We do think that the weather will change. It always gets hot every year. We're seeing some of that weather come this weekend. So there is a potential for pent-up demand. But we have a lot of quarter ahead of us. We have a big Ollie's Days, big Ollie's Army Night plans in celebration of the 250th birthday this year. So we're confident that we have what we need to deliver on the guidance.
That's great color. And then maybe, Rob, just to switch gears. Could you break apart the drivers of your raised gross margin outlook? And maybe a different way to think about it is, what's the best way to consider the potential flow-through of better buying relative to opportunities that this provides you to reinvest into value?
Yes. From a gross margin perspective, most of our elevated gross margin guide is coming off of our outperformance in the first quarter. We left most of the gross margin in place for the balance of the year. We are buying better, as we mentioned in the call. And we do think that gives us the opportunity to invest in price. Our bias continues to be market share, to reinvest in customer loyalty and to drive the top line while delivering on what we guided to originally when we entered the year.
Our next question comes from Randal Konik with Jefferies.
It will be really helpful if we could, I guess, double-click on the consumer environment, give us some initial broad strokes about trip consolidation, some trade-down or trade-out, trade-in. And it would be really helpful if you can kind of just elaborate on that a bit more, some more granularity. What you're seeing in the quarter? Any kind of changes, particularly in the South if weather has changed in a couple of markets, a couple of stores would be helpful as well. Just a little flavor there would be great.
Sure, Randal. I'll take that. I would say I'll start with your last question first. We have seen green shoots as the weather changes regionally even for moments. Two or three days of a weather trend that's more favorable, we're seeing green shoots in our business, where we see a meaningful spike in the overall business and traffic in these stores and a recovery of the seasonal businesses. So it does give us confidence that when the weather is a little bit more cooperative in these areas that the business comes back and that confidence in our guide for Q2 or our thoughts around comps for Q2. In terms of the state of the consumer I said that we saw a meaningful change over the last few months that really started at the beginning of March, coming out of the geopolitical environment and then the spike that happened almost overnight in gas prices coupled with extreme weather, uncertainty around the economic backdrop, we did see a meaningful change in shopping patterns.
Customers bought what they needed, very close to need. Consumables were very strong, and customers deferred purchases on nonessentials, including weather-related items. They also shop stores closer to home. We saw an acceleration of high-income customers, actually the most significant acceleration we've seen in quite some time. So the trade-down was very strong in higher income. We're defining here as over $100,000 in household income. The pace of the trade-out also accelerated, and it netted out about flat, where when you look at previous quarters, either the low-income consumer was a bit more stable or there was a slight trade-out of low-income consumers and the higher-income consumer more than made up for that trade-out. So for the quarter, it ended up netting out flat. We also see, just to add a little bit more color, a higher concentration of older fixed income customers that are a relatively weak cohort for us in the quarter, which was new for us.
We do know that for all the years we've been in business that value always wins. We believe we're very well positioned with a strong value proposition as customers continue to adjust to the environment and that we will win, too.
Great. Super helpful. And then just following up, if you think about your comp guide for the year, how should we be thinking about traffic versus ticket contribution given what we saw in the first quarter. Just any thoughts there would be helpful. And then I remember last year, maybe it was the fourth quarter where new store productivity was a little underwhelming given the way you opened stores, I guess, soft versus grand opening. Just give us some thoughts on how you're thinking about these openings this year, how that's going to change perhaps or not change versus last year? And how you think about new store productivity trends in this year's cohort versus last year?
Sure. I'll answer the traffic versus ticket. Rob will take the new store productivity. We— I guess the real transparent answer is we don't really think about traffic versus ticket. So it's always our goal to drive traffic, and that's the most positive way to continue growing our business, and we've been very successful at that for many, many quarters and for the history of the company. So that is our goal. That is our priority. But we don't really think about the components because it's a very dynamic environment in terms of how we buy; it's an opportunistic business model. You'll remember last year in Q2 moving into Q3, we had a bit of a ticket drag due to the nature of the deal flow, and we drove a bit of a lower ticket which resulted in very strong transaction lift, and we were very happy with that even though there was a ticket drag. So we manage it according to the deal flow environment and we're never—we never shy away from a deal that we believe is compelling and will excite a customer, no matter what the ticket might be.
From a new store productivity perspective, I would say that the new stores were similarly impacted, so some of the impacts that we saw in the comp base. So it makes it a little bit more difficult to assess what the true impact of that soft opening was. Overall, we're pleased with the 2026 store openings. And the new store productivity came in only slightly below our original plan.
Our next question comes from Steven Shemesh with RBC Capital Markets.
I wanted to follow up on an earlier one on reinvestment. So you said you'll reinvest in price but also raised the gross margin guidance. I was hoping you can maybe speak to how consumers are responding to price investment or promotions that you've already put in the market that gives you confidence that you've embedded enough cushion to actually move the needle on top line?
Sure. Thanks, Steve. Rob mentioned it earlier, our bias is always to drive market share and invest in prices the way that we do it. We know how to motivate customers through compelling deals. That's probably the simplest way to answer the question, and we deliver compelling deals. Our growing buying power and better execution resulted in stronger margins, which gives us the confidence we can continue to invest in price and maintain strong product margins as we move forward. It will further reinforce the strength of our value proposition, our emphasis on exceptional deals, an extremely relevant product in this moment. So for competitive reasons, we don't share a lot of details, but I'll highlight a handful. We do have an aggressive plan as we move through Q2. We're not waiting for the weather to break. We have an aggressive plan to invest in price. It starts with the most compelling deals.
I call it lighting up deals and making the deals even more compelling than they were, so that really means simply put that the price gaps on some of our deals will be even wider than they were. Although we're happy with our price gaps and our price gaps are very similar in Q1 to where they've been running, we're going to get even wider on select deals. Those price changes are intended as everyday low price adjustments; we're fiercely committed to everyday low price. So this isn't some temporary promotion. These are adjustments to price that are the ongoing price and prevailing price for the item for us. We're investing in trend in highly relevant product, which is also a reflection of our growing size and scale and buying power. We're enhancing Ollie's Army events. So anything that we consider even semi-promotional in nature is an investment or a reward for a loyal customer that's in the Army, which includes stimulating customers who live at a bit of a distance from stores where we've seen less frequency over the last couple of months. And we're continuing to press forward with speed on our sales productivity initiatives.
That's very helpful. I appreciate the color there. And then just as a follow-up, obviously a very challenging consumer environment, a lot changed very quickly during the quarter, but we also did have higher tax refunds that other companies have called out as a benefit. So question is, do you think you received any benefit from the tax refunds being higher on a year-over-year basis? And if not, why do you think that was the reason?
Steve, I would say that the way we've talked about tax refunds in the past and really nothing has changed is that more money in the consumer's wallet is always better. But we didn't see any notable spikes or green shoots of sales as the tax refund season rolled out. So I don't think it was meaningful, but it's hard to assess.
Understood. I appreciate all the color. Best luck moving forward.
Our next question comes from Edward Kelly with Wells Fargo.
Eric, a question for you and then maybe like a follow-up from Rob here. So regarding the flyer, philosophically, can you just maybe give us some context on like the shifting that's been taking place. So you had one that moved a little bit earlier in April. Obviously, now you had one coming in July. I think investor perception is that this is happening in response to sales, but I think you maybe have some operational reason for this stuff. And then in the context of that flyer moving forward into July, Rob, how are you thinking about the second half outlook? I mean you do have some easier compares. Just curious how you're thinking about the balance of the year after the Q2 lap that we all are talking about here?
Sure. Thanks, Ed. And as always, I appreciate your flyer question. So—and I've been reflective since the last call on how I answered the question when you asked and we did offer a little more color on this call about a flyer shift. We didn't have a shift in Q1 just to reinforce that. I've been a bit reticent to share details on flyer shifts or any event shifts for competitive reasons. I've reflected on that, and I'm still reticent to share details, but I think it's a good question to answer about our thought process on flyers, Ed, and to kind of debunk the assumption that our flyer timing is somehow dynamic enough that we would shift intra-quarter. We make all our flyer event decisions in January in that period, and we don't shift. I can't remember in my time here ever shifting a flyer event after we set the calendar, which is before the fiscal year starts. And at that point, we've set Q1 permanently and we're just refining and setting more permanently the balance of the year.
So we're not making decisions about flyer shifts in real time. We make these decisions way upfront. We make decisions based on the timing of events typically and of course, we look back on our history on the performance of the events related to the timing. When I say events, primarily they are holidays we're talking about in Easter. As it moves around year-to-year, it's one of those events that we need to plan around. I mentioned earlier Father's Day is another one. We're not going to hold Ollie's Army Night on Father's Day, although perhaps some families just kick their family out of the house and send them to Ollie's, which we'd appreciate. But we do make those decisions based on the timing of holidays well in advance. In the case of moving a flyer from Q3 to Q2, I will give you a little bit of color that we have a very significant gap in the calendar between our last June event and our first August event, and that's always bothered us, and we really haven't ever done anything about it.
We miss a period of time in the month of July that is very back-to-school oriented. And so we wanted to see what we could do with that, spacing our events out a little more like we space events out the rest of the year and trying something a little bit different with a certain time of the year that typically we don't try to play as strongly in. So that was our thought process around Q2.
And in terms of the full year guide, I just want to put into perspective, we're talking about tens of basis points below the 2% in the first half and potentially tens of basis points above the 2% in the second half. And to Eric's point, for the third quarter, we've planned this flyer shift since January. We understand the impact of flyers, and we understand what we're up against when we shift one. So we're set up with the plan. We're set up with the product, and we know what we need to do to be able to drive the sales in the third quarter.
Our next question comes from Mary Sport with Bank of America.
I was wondering if you could give us an update on the state of the closeout environment and just what you're seeing there?
Sure. The closeout environment, it's been a highly disruptive environment for the consumer, which creates opportunities for us. We continue to benefit also from the consolidation of retail. In terms of the strength of the pipeline and the consolidation of retail customers that are out there buying closeouts, that has continued to be very helpful to us. But most importantly, consumers under pressure, suppliers are under pressure, inventories are out of balance, and suppliers are more motivated to move product. The larger deals, we continue to see consolidation of the buyers' results in larger deals available for our ability to buy all of what a supplier potentially is offering. That continues to be a story for us. It has been a story for us probably for the last year or two at this point, and we continue to gain momentum at it. So simply put, we're continuing to see an increase in both the quantity and the quality of the deals.
One moment for our next question, please. It comes from Brad Thomas with KeyBanc Capital Markets.
Eric, since you've taken over as CEO, I think you've really tried to be proactive about playing offense and driving sales, bringing in new customers. I was wondering if you could just speak to where you're seeing the biggest opportunities as we think about the balance of the year. In particular, how are you thinking about the effectiveness of the second time of doing an annual Ollie's Army Night in June?
Sure. When you look at it overall, we are very aggressive about driving compelling deals, newness and managing the space productivity in our stores. So those are things we're doing more incrementally as we move forward and have been. It all starts with product: product being strong deals with meaningful price gaps and also highly relevant product, which includes trend product, which isn't a foreign concept for Ollie's. We've been in and out of trend product over the years, but I believe we can do trend product even better. There are many examples of that, and it could vary category by category, but we are driving a lot more trend product as well. Those are the main ways in which we're proactively driving the top line. I would mention Ollie's Army as well, and I'll come back to the Ollie's Army Night question. The Ollie's Army has been an even larger priority for us in driving the growth of the program.
We're aggressive in how we market it and making some of these events like the second Ollie's Army Night or Ollie's Days event and some other things we're doing even more exclusive and more special for the customer, making the program more compelling, which helps to attract new customers to the program and helps with retention. Our stores and our cashiers are doing an even better job in convincing people to join the Ollie's Army program, which you think is an easy sales pitch, but some customers can be a bit resistant to sharing personal information. So they're doing a great job of selling the program in. We're supporting our cashiers by making the program even more compelling, which gives them even more selling points with the consumer to get those new customers that come into our store convinced to sign up immediately, which gives us the ability to understand that customer better and market to them and tailor marketing to them, which plays into the trend product concept as well.
When we have trend product, we can deliver marketing to these customers in various digital channels very directed to drive urgency around some of this trend product we have in stores. So we're very excited about how all that comes together. As far as Ollie's Army Night is concerned, we feel very good about the event. We are going to be making a small adjustment to the event that hasn't yet been communicated to the public. For competitive reasons, I'm not going to share that adjustment, but we do look at these events as opportunities to stimulate and reward our customers. We're always looking at opportunities to make adjustments to make the events even more compelling and convince people to shop the exclusive event.
That's great. And if I could ask a follow-up on gross margin to Rob. Just as we think about some of the moving pieces here, the flyer, what's happening in seasonal right now. Any more details that you'd be able to share about how to think about the cadence of gross margin through the year?
We'd expect the cadence of gross margin to be very similar for the balance of the year to what we saw last year. I think that's the best way to model it. That includes some tariff relief in the second quarter, which is offset by higher fuel prices. And then we've run the higher fuel prices out for the balance of the year, and we have some other offsets in there. But overall, cadence is very similar for the balance of the year.
Our next question comes from Peter Keith with Piper Sandler.
Curious on the furniture offering that started in the quarter. Is this going to be something now that you're going to keep in stores on a go-forward basis as you reflect on Q1? Or do you think there's things that you could be doing better with furniture to improve that productivity? And then lastly, with that 100% improvement in space productivity, did that actually drive any benefit to comp? It seems like it could have had maybe a 50 basis point lift overall.
Sure, Peter. We identified furniture as a white space opportunity, a replacement to a very low productivity category, wall-to-wall carpet, which had been downtrending for us for years. We reset approximately 50% of the stores over the course of the quarter. It's not a big business overall—it's never been a significant business. It's been roughly a 1%-ish business and wall-to-wall carpet was worth even less than that. So it's not necessarily a material impact on Q1, but we do believe this and other sales productivity initiatives, when you add them all up, as we get them all moving along, will become a meaningful comp mover. But this one on its own in Q1 did help move the comp, but not necessarily in a material way. We were very pleased with the early performance of the business. We put furniture in all stores as part of a deal in February. It was advertised, but the intention to replace the wall-to-wall carpet was only to go forward in 50% of the stores, at least at this point in time.
We're learning and making adjustments. We'll expand into additional stores as we continue the re-performance. I think the adjustments I would characterize as continuing to bring some newness to the customer and make sure that the product offering is in scale. That being said, there are certain components of the business that are more basics oriented that may not change as much. But having a nice rotation of styles out there is important in our business model to continue to reinforce the surprise and delight aspect of our business. And then the other comment I'll share is that we have the confidence based on what we've seen in the business to date, which included testing in Q4, that we are no longer putting wall-to-wall carpet in any new stores going forward and furniture is being set in the majority of those stores. A handful of smaller footprint stores may not set furniture, but the vast majority of stores will have furniture going forward.
Our next question comes from Steven Zaccone with Citi.
Could we talk about SG&A planning for the rest of the year. And I'm curious, since you're running behind from a comp perspective here in the second quarter to date, talk about the ability to flex SG&A if comps come in a little bit below plan?
SG&A guidance is similar to what we guided originally for the year. In the first quarter, the pressures that we had seen in the past—medical expenses, workers' comp and casualty claims—came in pretty neutral. So that was a good sign to see. Some of the things that we've done to moderate that expense have taken hold. For the first quarter, we were actually up against elevated utilities expense. That was almost a deleverage of about 15 basis points in the quarter alone. We wouldn't expect that to really repeat. A lot of it was coming off of the winter conditions. But we're in a position where our bias is to invest to drive market share. We were driving gross margins on the top side of the P&L. So we feel well positioned with our guidance that we're able to invest where we need to, particularly in marketing to drive sales in the back half of the year.
Okay. Great. And then the follow-up I had is just trying to understand the commentary about running behind. First, does that mean you're decelerating from April and are you running negative? And help us understand the level of pent-up demand in seasonal that can get you to accelerate on top of tougher compares as you go over the next couple of months?
I'm not exactly comfortable given exactly where we are quarter-to-date sharing detailed daily trends. We typically don't give that kind of color. We wanted to give the color in this moment about running behind our full quarter guidance, but we're going to leave it at that. From a seasonal perspective, our seasonal business in the first half is very meaningful to us. It could be 15% to 20% of our sales for any given quarter. So that bodes nicely for the fact that we didn't see those sales come in in the first quarter. We know that it's going to get warm and the season is going to change, and it bodes well that there's pent-up demand for the second quarter. What that number is and where we'll ultimately land, I'll have to pull out my crystal ball, but I'll tell you it gets hot every year.
Our next question comes from Simeon Gutman with Morgan Stanley.
One more stab at that same question. Can you just give us a perspective that that seasonal category needs to grow mid-single digits or double digits now to make up for the plan in order to get back to where you'd like to be? And then I have one follow-up.
I'm not sure how to answer that precisely. In terms of the seasonal business, we've seen when there are green shoots of demand from a daily basis, the comp can be in excess of double digits, well in excess of double digits. When it gets hot, consumers run to the store and they buy the products they need for the outdoor seasonal. So we're confident, and we've seen that as the weather normalizes in those regions, the sales come back. The other piece that we're encouraged by is that our core comp, our core category comp—consumables—remains very strong. And that's well in excess of what the overall company's comp is. And we think that when the weather moderates, they'll come back in line together.
We own the inventory. The values are compelling. We shop the competition often to make sure our price gaps are solid, wide enough, super compelling deals. And I'll just remind you, we're also not waiting for the weather to break. We're taking aggressive action to invest in price, to light up key deals, investing in trend and highly relevant product, making our Ollie's Army events extremely compelling, stimulating customers who are driving a bit longer distances from stores. So all those things, along with what we hope is improving weather, should get us closer and potentially in excess of our target for Q2.
Our next question comes from Anthony Chukumba with Loop Capital Markets.
So you mentioned downsizing books and flooring. Maybe you don't want to answer this question for competitive reasons, but just any sense for what you'd replace that square footage with, any general ideas?
I appreciate the question. Yes, we have a plan and no, I'm not going to answer for competitive reasons. I was actually reticent to even share that we're looking at books and flooring. But those are two businesses that have been downtrending in the industry. Flooring may be a little bit more transitory when you look at some other retailers that are in the flooring business related to housing and pressure on housing. We look at flooring not as a business that we would exit, but as a business that we need to reposition to ensure that we have a reason for being in flooring and that we're competitively positioned where we want to be there in whatever white space we could find. And books has been a downtrending business for years, and that's a macro trend that I think everybody is familiar with. For us, books is a bit of a reassorting to make sure that we are carrying the most relevant books, which is somewhat about the different subcategories of books that we're in, but it's also continuing to recognize, and we've been on this path for years now, that as we move forward with new stores and with some of the remodel initiatives, downspacing books in favor of other categories and even moving books, which used to be in the front of every store in front of the door, to a secondary space in the store and downsizing.
So this is just a continuation of that, potentially an acceleration of that. But we're going to stay in the book business. We're committed to the book business. We're going to stay in the flooring business. We're committed to those two businesses. And yes, we do have a plan for what would go in its place, and we'll share it when it becomes customer-facing.
Got it. And just as a quick follow-up on furniture. I know one of the things that you guys had been thinking about with furniture is that you don't offer delivery and some of the furniture pieces are quite large. Any updated thoughts there and maybe partnering up with someone or is it just still going to be kind of like borrow your cousin's pickup truck to throw the recliner in the back?
It's a good question. We have considered delivery and financing and how you think about credit related to furniture and deferred payments. They are all things we've considered. Keep in mind, it's maybe a 1% to 2% business long term. It's not meaningful enough for us to become a full-service furniture destination. We don't think of the business that way. We think of the growth of the business. We didn't want to be in the wall-to-wall carpet business anymore, so this was a good alternative. On delivery, we tested it and the customer didn't respond well to free delivery; if we give away the delivery, then our value proposition suffers or there's margin compression. When we price delivery to cover the cost, the customer is often not willing to pay. So the jury is not necessarily out, but our initial test didn't give us the result we wanted. We're currently not offering delivery broadly. Customers seem to figure it out—many will purchase in advance and pick up later when they have access to a vehicle. We let people reserve a piece and pick it up later, and we're seeing many customers take advantage of that. The credit aspect is to be determined. We do have an Ollie's credit card and that's something we could consider for big-ticket businesses like mattresses. So that's TBD.
Our next question comes from Charles Grom with Gordon Haskett.
On Q1, can you provide the composition of the comp between traffic and ticket just so we have it? And then for Q2, to clarify, it sounds like you expect the quarter to be up roughly 1 point but you're behind that today. I just want to get that right?
You're correct on the second part. For the first quarter comp dynamics, it was almost entirely basket. Traffic was positive but only slightly positive. We believe that trip consolidation weighed in.
Okay. Great. And then, Eric, just on the comment regarding more price actions here in the second quarter, it doesn't sound like you have any anticipation for that to impact the overall gross margin rate. I just want to clarify if that's the case. Historically, when you've invested in price, what's the success you've had with those actions?
We remain confident in delivering the margin for Q2 and for the year, which is a testament to our consolidation of buyers in the closeout space and better execution. We remain confident that we have the margin that we can invest in price as we move forward. We have been quite effective at this over time. It's part of what we do. We may be getting more aggressive in this moment based on where we see the state of the consumer and where we read into some of what happened in Q1 and looking at our seasonal businesses as well. But we have levers to pull, and we like where we're positioned, especially given strong deal flow and the ability to bring great deals to the consumer that will motivate them to shop.
Our next question comes from Jeremy Hamblin with Craig-Hallum Capital Group.
In a hypothetical, Rob, if you had a minus 2% comp in Q2 or a plus 2%, that type of hypothetical range, what would the impact be on full year EPS, which you're guiding to about $4.50 this year? Are we talking about a $0.10 difference or $0.20?
Very immaterial. For the second quarter alone, a swing from minus 2% to plus 2% would be immaterial to our full year EPS outlook.
Got it. And then just in terms of unit growth, you've had pretty consistent unit growth here. You're reiterating the 75 unit growth guidance for the year. As you look ahead and you guys have approached unit growth in very much a contiguous market fashion, is there any expectation that there would be a change in that contiguous growth and the types of numbers here, the 75 units or so that you're going to do this year? Is there anything that you see in the outlook for the market that would make that change in the coming years?
No. We don't see a change. The real estate pipeline has been strong and has remained strong. A lot of vacancies out there related to the consolidation of retail, many closed stores, and we have become an even more attractive tenant to landlords. So we have confidence we can continue to deliver. Seventy-five stores is a little ahead of 10% unit growth for this year, but it's pretty close. We don't see anything that would give us less confidence. We can continue to deliver at least through 2027. It's hard to have visibility beyond that, but we have confidence at least for the next two years. And the contiguous growth strategy remains our approach.
Our next question comes from Scot Ciccarelli with Truist Securities.
Another gross margin question. As it's been pointed out, you do have a bit more of a mix shift to consumables. That's typically lower margin, you're being more aggressive on pricing to provide more value, also potentially gross margin negative. So what are the positive offsets that help us reconcile to the higher gross margin guide for the year?
The number one starts and stops with our size and scale and the consolidation of closeout buys. We're getting better margins on closeout buys across the landscape, including the food and consumables space. In addition to that, productivity benefits— we're improving on the supply chain lines. The fuel headwind is a relatively minor headwind for us, call it 20 to 30 basis points. Tariffs more than offset that in the first quarter and in the second quarter. The last piece I would point out is we are experiencing lower shrink. That was a headwind that we saw for several years and we're continuing to do better there.
Got it. And then just a follow-up. Given your balance sheet, cash flow and where cash yields are today, can we see the buyback program scale even beyond the new $125 million target?
There is potential for that. We are committed to returning roughly 50% of free cash flow to buybacks. As we drive our cash flows higher, we will reinvest in a number of areas in the business, including the buyback. I would expect the buyback at these levels to be similar in Q2 as it was in Q1.
Our next question comes from Mark Carden with UBS.
So the first one is to follow up right there on fuel. You called out building in higher prices earlier into the balance of the year. So if we see a resolution to the conflict on the sooner side, would you expect to recover a good chunk of those 20 to 30 basis points you just outlined? Just trying to piece out how much of an impact this dynamic may have given how fluid it has been.
We would invest it in price, but sure.
It's hard to tell; it's an uncertain and rapidly shifting environment. We thought it was good to be conservative on our gross margin guide with all the different factors and pieces we've discussed today. But there was some relief in Q1, and as Eric said, we would consider investing any incremental margin in driving market share while delivering on our numbers.
Got it. That's helpful. And then as a follow-up, you called out consolidation for some of your more rural customers given the higher fuel prices that they're facing. Have you historically seen this behavior accelerate or decelerate when fuel prices cross certain psychological thresholds like $4 a gallon or $5 a gallon or is it tended to be less cut and dry?
It's a little less cut and dry. This year and the first quarter was really about the speed of the increase and the rapid nature of what we've seen here. We think that consumers will rationalize this over time. We've seen them be resilient and shop closer to need. Weather is also a major driver of need, and if the weather is not cooperating and there's not a need for seasonal product, customers will defer, especially in the current environment.
And I would add that the trade-down and the acceleration of trade-down that we saw in Q1 was notable. We believe that acceleration can help offset trade-out pressures.
This concludes our Q&A session and conference for today. We want to thank everyone for participating. You may now disconnect.