Ollie's Bargain Outlet Holdings, Inc.

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes of Ollie’s Bargain Outlet Holdings, Inc. included in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2026, filed with the Securities and Exchange Commission, or SEC, on March 19, 2026 (“Annual Report”). As used in this Quarterly Report on Form 10-Q, except where the context otherwise requires or where otherwise indicated, the terms “Ollie’s,” the “Company,” “we,” “our,” and “us” refer to Ollie’s Bargain Outlet Holdings, Inc. and subsidiaries.

We operate on a fiscal calendar widely used by the retail industry that results in a fiscal year consisting of a 52- or 53-week period ending on the Saturday nearer to January 31^st of the following year. References to “fiscal year 2026” or “fiscal 2026” refer to the 52-week period of February 1, 2026 to January 30, 2027. References to “fiscal year 2025” or “fiscal 2025” refer to the 52-week period of February 2, 2025 to January 31, 2026. References to the “first quarter of fiscal 2026” and the “first quarter of fiscal 2025” refer to the thirteen weeks of February 1, 2026 to May 2, 2026 and February 2, 2025 to May 3, 2025, respectively.  Historical results are not necessarily indicative of the results to be expected for any future period and results for any interim period may not necessarily be indicative of the results that may be expected for a full year.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by words such as “could,” “may,” “might,” “will,” “likely,” “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “continues,” “projects,” and similar references to future periods, prospects, financial performance, and industry outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, capital market conditions, the economy, and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market, and regulatory conditions, including, but not limited to, supply chain challenges, legislation, national trade policy, and the following: our failure to adequately procure and manage our inventory, anticipate consumer demand, or achieve favorable product margins; changes in consumer confidence and spending; risks associated with our status as a “brick and mortar” only retailer; risks associated with intense competition; our failure to open new profitable stores, or successfully enter new markets, on a timely basis or at all; fluctuations in comparable store sales and results of operations, including on a quarterly basis; factors such as inflation, cost increases, and energy prices; the risks associated with doing business with international manufacturers and suppliers including, but not limited to, potential increases or changes in tariffs on imported goods; our inability to operate our stores due to civil unrest and related protests or disturbances; our failure to properly hire and to retain key personnel and other qualified personnel; changes in market levels of wages; risks associated with cybersecurity events, and the timely and effective deployment, protection, and defense of computer networks and other electronic systems, including e-mail; our inability to obtain favorable lease terms for our properties; the failure to timely acquire, develop, open and operate, or the loss of, disruption or interruption in the operations of, any of our centralized distribution centers; risks associated with our lack of operations in the growing online retail marketplace; risks associated with litigation, the expense of defense, and potential for adverse outcomes; our inability to successfully develop or implement our marketing, advertising, and promotional efforts; the seasonal nature of our business; risks associated with natural disasters, whether or not caused by climate change; outbreak of viruses, global health epidemics, pandemics, or widespread illness; changes in government regulations, procedures, and requirements; and our ability to service indebtedness and to comply with our financial covenants together with each of the other factors set forth under “Item 1A – Risk Factors” contained herein and in our filings with the SEC, including our Annual Report. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which such statement is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.  You are advised, however, to consult any further disclosures we make on related subjects in our public announcements and SEC filings.

 

Overview

 

Ollie’s Bargain Outlet is a leading off-price retailer of brand name household products.  Since our founding in 1982, the Company’s mission has been to sell Good Stuff Cheap®. We do this through a flexible buying model that focuses on closeout merchandise and excess inventory from suppliers and manufacturers around the world. Our stores offer Real Brands! Real Bargains! ® in a treasure hunt shopping environment at prices up to 70% below traditional retailers.

 

Our primary point of differentiation against other retailers is the pricing of our products. Our goal is to be the lowest priced retailer of any product offered by our stores. We believe our flexible business model, opportunistic buying strategy, low cost structure, experienced merchant team with deep relationships across the vendor community, and long history of experience of buying and selling closeout merchandise and excess inventory differentiates us from traditional retailers.

Since the founding of Ollie’s in 1982, our principal growth strategy has been the opening of new stores. Historically, we have expanded our store base by opening new stores organically. More recently, we have expanded our store base through acquiring former store locations of bankrupt retailers through the bankruptcy auction process. Our growth strategy continuously evaluates the best opportunities in the marketplace and combines organic new store openings with the acquisition of store locations. We follow a contiguous unit growth strategy that combines backfilling existing markets and states with entering new markets and states in a contiguous manner. As of May 2, 2026 we have grown to 672 stores in 35 states.

While we are focused on driving comparable store sales and managing our expenses, the biggest driver of our net sales and profitability growth has historically been the opening of new stores.  As we continue to grow, we believe we will have greater access to brand name closeout merchandise and an increased deal selection, resulting in more potential offerings for our customers.

Management looks at a number of financial and operating measures in assessing the performance of the business, including new store openings, net sales, comparable store sales, gross profit and gross margin, operating expenses, operating income, earnings per share, EBITDA, and Adjusted EBITDA.

The number of new stores reflects the number of stores opened during a particular reporting period.  Before we open new stores, we incur pre-opening expenses described below under “Pre-Opening Expenses” and we make an initial investment in inventory.  We also make initial capital investments in fixtures and equipment, which we amortize over time.  Sales of new stores are typically strong in the first few months of operation because of the advertising and marketing spending associated with a new store grand opening and the word of mouth in the local community.

Comparable store sales measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of the previous year.  Comparable store sales consist of net sales from our stores beginning on the first day of the sixteenth full fiscal month following the store’s opening, which is when we believe comparability is achieved.  Stores that remain open during a remodel or refresh process, stores that are relocated within the same trade area, and stores that changed in size are generally classified in the same way as the original store, and we believe that the impact to our change in consolidated comparable store sales percentage is immaterial. Comparable store sales are also referred to as “same-store” sales by other retail companies.

Gross profit is equal to our net sales less our cost of sales.  Included in cost of sales are: merchandise costs, inventory markdowns, inventory shrinkage and transportation, distribution, and warehousing costs, including wages, benefits, and depreciation and amortization.

SG&A expenses are comprised of wages and benefits for store, field support, and support center associates.  SG&A expenses also include marketing and advertising expense, occupancy and operating costs for stores and the store support center, insurance, corporate infrastructure, and other general expenses.

Pre-opening expenses consist of all expenses associated with the opening of new stores and distribution centers, as well as all expenses associated with the remodel and/or closing of an existing store.

The method of calculating comparable store sales, gross profit, SG&A and pre-opening expenses varies across the retail industry. As a result, our calculation of these items may not necessarily be compatible with similarly titled measures reported by other retail companies.

EBITDA and Adjusted EBITDA are key metrics used by management and our Board to assess our financial performance.  EBITDA and Adjusted EBITDA are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry.  We use Adjusted EBITDA to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to evaluate our performance in connection with compensation decisions and to compare our performance against that of other peer companies using similar measures.  Management believes it is useful to investors and analysts to evaluate these non-GAAP measures on the same basis as management uses to evaluate the Company’s operating results.  We believe that excluding items from operating income, net income, and net income per diluted share that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude, enhances the comparability of our results and provides a better baseline for analyzing trends in our business.

We define EBITDA as net income before net interest income or expense, depreciation and amortization expenses, and income taxes. Adjusted EBITDA represents EBITDA as further adjusted for non-cash stock-based compensation expense and gains on insurance settlements.  EBITDA and Adjusted EBITDA are non-GAAP measures and may not be comparable to similar measures reported by other companies.  EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. In the future we may incur expenses or charges such as those added back to calculate Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items.  For further discussion of EBITDA and Adjusted EBITDA and for reconciliations of net income, the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA, see “Results of Operations.”

 

Factors Affecting the Comparability of our Results of Operations

 

Our results over the past two years have been affected by the following factors, which must be understood in order to assess the comparability of our period-to-period financial performance and condition.

 

Historical Results

 

Historical results are not necessarily indicative of the results to be expected for any future period.

 

Store Openings and Closings

 

We opened 27 new stores in the first quarter of fiscal 2026 and opened 25 new stores in the first quarter of fiscal 2025.  In connection with these store openings, we incurred expenses of $6.4 million and $6.7 million in the respective periods.

 

Seasonality

 

There is some seasonality to our business. Net sales are generally the highest in our fourth fiscal quarter due to the holiday sales season.  To prepare for the holiday sales season, we must order and keep in stock more merchandise than we carry during other times of the year and generally engage in additional marketing efforts.  We expect inventory levels, along with accounts payable and accrued expenses, to reach their highest levels in our third and fourth fiscal quarters in anticipation of increased net sales during the holiday sales season.  As a result of this holiday-related seasonality and other variations in consumer spending habits, we experience fluctuations in net sales and working capital requirements during the year.  Because we offer a broad selection of merchandise at extreme values, we believe we are less impacted than other retailers by economic cycles which correspond with declines in general consumer spending habits, and we believe we still benefit from periods of increased consumer spending.

 

Results of Operations

 

The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales.

We derived the condensed consolidated statements of income for the first quarter of fiscal 2026 and the first quarter of fiscal 2025 from our unaudited condensed consolidated financial statements and related notes.  Our historical results are not necessarily indicative of the results that may be expected in the future.

	Thirteen weeks ended
	May 2, 2026				May 3, 2025
	( dollars in thousands)
Condensed consolidated statements of income data:
Net sales	$	658,928			$	576,767
Cost of sales		382,964				339,736
Gross profit		275,964				237,031
Selling, general and administrative expenses		188,682				164,832
Depreciation and amortization expenses		11,283				9,357
Pre-opening expenses		6,442				6,656
Operating income		69,557				56,186
Interest (income), net		(4,966	)			(4,788	)
Income before income taxes		74,523				60,974
Income tax expense		18,123				13,414
Net income	$	56,400			$	47,560
Percentage of net sales (1):
Net sales		100.0	%			100.0	%
Cost of sales		58.1				58.9
Gross profit		41.9				41.1
Selling, general and administrative expenses		28.6				28.6
Depreciation and amortization expenses		1.7				1.6
Pre-opening expenses		1.0				1.2
Operating income		10.6				9.7
Interest (income), net		(0.8	)			(0.8	)
Income before income taxes		11.3				10.6
Income tax expense		2.8				2.3
Net income		8.6	%			8.2	%
Select operating data:
Number of new stores		27				25
Number of stores open at end of period		672				584
Average net sales per store (2)	$	997			$	1,005
Comparable stores sales change		1.7	%			2.6	%

The following table provides a reconciliation of our net income to Adjusted EBITDA for the periods presented:

	Thirteen weeks ended
	May 2, 2026				May 3, 2025
	(in thousands)
Net income	$	56,400			$	47,560
Interest (income), net		(4,966	)			(4,788	)
Depreciation and amortization expenses (1)		14,934				12,809
Income tax expense		18,123				13,414
EBITDA		84,491				68,995
Non-cash stock-based compensation expense		3,401				3,164
Adjusted EBITDA	$	87,892			$	72,159

First Quarter of Fiscal 2026 Compared to First Quarter of Fiscal 2025

 

Net Sales

 

Net sales increased to $658.9 million in the first quarter of fiscal 2026 from $576.8 million in the first quarter of fiscal 2025, an increase of $82.1 million, or 14.2%.  The increase in net sales was the result of new store unit growth and a comparable store sales increase of 1.7%.

 

Comparable store sales increased 1.7% in the first quarter of fiscal 2026 compared with a 2.6% increase in the first quarter of fiscal 2025. The increase in comparable store sales in the first quarter of fiscal 2026 was driven by an increase in basket size.

 

Gross Profit and Gross Margin

 

Gross profit increased to $276.0 million in the first quarter of fiscal 2026 from $237.0 million in the first quarter of fiscal 2025, an increase of $39.0 million, or 16.4%. Gross margin increased 80 basis points to 41.9% in the first quarter of fiscal 2026 from 41.1% in the first quarter of fiscal 2025. The increase in gross margin was driven by lower supply chain costs and a modest increase in merchandise margin.

 

Selling, General, and Administrative Expenses

 

SG&A increased to $188.7 million in the first quarter of fiscal 2026 from $164.8 million in the first quarter of fiscal 2025, an increase of $23.9 million, or 14.5%, driven by higher selling expenses primarily related to new store growth. As a percentage of net sales, SG&A remained flat at 28.6% in the first quarter of fiscal 2026 and 2025, respectively.

 

Pre-Opening Expenses

 

Pre-opening expenses decreased to $6.4 million in the first quarter of fiscal 2026 from $6.7 million in the first quarter of fiscal 2025, a decrease of $0.3 million, or 3.2%. The decrease was primarily driven by lower dark rent expense associated with the bankruptcy acquired stores, partially offset by an increase in store openings. In the first quarter of fiscal 2026, we incurred rent expense on 24 bankruptcy acquired stores, compared with 66 such stores in the first quarter of fiscal 2025, and these stores carry higher levels of dark rent. We opened 27 stores in the first quarter of fiscal 2026, compared to 25 stores in the first quarter of fiscal 2025. As a percentage of net sales, pre-opening expenses decreased to 1.0% in the first quarter of fiscal 2026 compared to 1.2% in the first quarter of fiscal 2025.

 

Interest Income, Net

 

Interest income, net was $5.0 million in the first quarter of fiscal 2026 compared with $4.8 million in the first quarter of fiscal 2025. The increase is primarily due to higher average cash and cash equivalent and investments balances, partially offset by lower interest rates.

 

Income Tax Expense

 

Income tax expense in the first quarter of fiscal 2026 was $18.1 million compared to $13.4 million in the first quarter of fiscal 2025. The effective tax rates for the first quarters of fiscal 2026 and fiscal 2025 were 24.3% and 22.0%, respectively. The change in the effective income tax rate was driven by the impact of discrete items recognized, primarily excess tax benefits related to stock-based compensation, and the expiration of the Work Opportunity Tax Credit.

 

Net Income

 

As a result of the foregoing, net income increased to $56.4 million in the first quarter of fiscal 2026 from $47.6 million in the first quarter of fiscal 2025, an increase of $8.8 million or 18.6%.

 

Adjusted EBITDA

 

Adjusted EBITDA increased to $87.9 million in the first quarter of fiscal 2026 from $72.2 million in the first quarter of fiscal 2025, an increase of $15.7 million, or 21.8%.

 

Liquidity and Capital Resources

 

Overview

 

Our primary sources of liquidity are net cash flows provided by operating activities and available borrowings under our $100.0 million Revolving Credit Facility.  Our primary cash needs are for capital expenditures and working capital.  As of May 2, 2026, we had $89.6 million available to borrow under our Revolving Credit Facility and $249.6 million of cash and cash equivalents and short-term investments on hand. For further information regarding our Revolving Credit Facility, see Note 7 under “Notes to Unaudited Condensed Consolidated Financial Statements.”

 

Our capital expenditures are primarily related to new store openings, lease acquisitions and related build-out costs, store resets, which consist of improvements to stores as they are needed, expenditures related to our distribution centers, and infrastructure-related investments, including investments related to upgrading and maintaining our information technology systems. We spent $25.5 million and $26.7 million for capital expenditures during the first quarters of fiscal 2026 and fiscal 2025, respectively. We opened 27 new stores during the first quarter of fiscal 2026 and opened 25 new stores during the first quarter of fiscal 2025.

 

Capital expenditures in fiscal 2026 are planned to be approximately $103 to $113 million, primarily for the opening of 75 new stores, store-level initiatives at our existing stores, the expansion of two existing distribution centers, as well as general corporate capital expenditures, including information technology.  We have experienced, and may continue to experience, delays in construction and permitting of new stores and other projects.

 

Our primary working capital requirements are for the purchase of merchandise inventories, payroll, store rent associated with our operating leases, other store operating costs, distribution costs, and general and administrative costs.  Our working capital requirements fluctuate during the year, rising in our third fiscal quarter as we increase quantities of inventory in anticipation of our peak holiday sales season in our fourth fiscal quarter.  Fluctuations in working capital are also driven by the timing of new store openings.

Historically, we have funded our capital expenditures and working capital requirements during the fiscal year with cash flows from operations.

 

A financial instrument which potentially subjects the Company to a concentration of credit risk is cash. Ollie’s currently maintains its day-to-day operating cash balances with major financial institutions. The Company’s operating cash balances are in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. From time to time, Ollie’s invests temporary excess cash in overnight investments with expected minimal volatility, such as money market funds. Although the Company maintains balances which exceed the FDIC insured limit, it has not experienced any losses related to these balances.

 

We believe our cash and cash equivalents and short-term investments position, net cash provided by operating activities and availability under our Revolving Credit Facility will be adequate to finance our planned capital expenditures, working capital requirements, debt service and other financing activities over the next 12 months.  If cash provided by operating activities and borrowings under our Revolving Credit Facility are not sufficient or available to meet our capital requirements, we will then be required to obtain additional equity or debt financing in the future.  There can be no assurance equity or debt financing will be available to us when needed or, if available, the terms will be satisfactory to us and not dilutive to our then-current stockholders.

 

Share Repurchase Program

 

In December 2020, our Board of Directors authorized common stock repurchases under a share repurchase program.  The authorized amount of the program, which has been increased from time to time, is authorized for up to $700.0 million of the Company’s stock as of May 2, 2026.  The share repurchase program is effective through March 31, 2029.  The shares to be repurchased may be purchased from time to time in open market conditions (including blocks), privately negotiated transactions, accelerated share repurchase programs or other derivative transactions, issuer self-tender offers or any combination of the foregoing.  The timing of repurchases and the actual amount purchased will depend on a variety of factors, including the market price of our shares, general market, economic and business conditions, and other corporate considerations.  Repurchases may be made pursuant to plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, which could allow us to purchase our shares during periods when we otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods.  Repurchases are expected to be funded from cash on hand or through the utilization of our Revolving Credit Facility.  The repurchase authorization does not require the purchase of a specific number of shares and is subject to suspension or termination by our Board at any time.

During the first quarter of fiscal 2026, we repurchased 542,486 shares of our common stock for $53.4 million, inclusive of transaction costs, pursuant to our share repurchase program.  During the first quarter of fiscal 2025, we repurchased 159,757 shares of our common stock for $17.1 million, inclusive of transaction costs, pursuant to our share repurchase program.  These expenditures were funded by cash generated from operations.  As of May 2, 2026, we had approximately $205.4 million remaining under our share repurchase authorization.  There can be no assurances that any additional repurchases will be completed, or as to the timing or amount of any repurchases.

 

Summary of Cash Flows

A summary of our cash flows from operating, investing, and financing activities is presented in the following table:

	Thirteen weeks ended
	May 2, 2026				May 3, 2025
	(in thousands)
Net cash provided by operating activities	$	45,501			$	28,702
Net cash used in investing activities		(49,561	)			(18,266	)
Net cash used in financing activities		(57,947	)			(16,541	)
Net increase (decrease) in cash and cash equivalents	$	(62,007	)		$	(6,105	)

Cash Provided by Operating Activities

 

Net cash provided by operating activities in the first quarters of fiscal 2026 and fiscal 2025 was $45.5 million and $28.7 million, respectively. Operating cash flow was positively impacted by higher net income and higher operating expense related accruals, partially offset by an increase in inventory resulting from new store growth and the timing of merchandise payments.

 

Cash Used in Investing Activities

 

Net cash used in investing activities in the first quarters of fiscal 2026 and fiscal 2025 was $49.6 million and $18.3 million, respectively. Cash used in investing activities includes purchases of property and equipment of $25.5 million and purchases of investments, net of maturities, of $24.5 million.

 

Cash Used in Financing Activities

 

Net cash used in financing activities in the first quarters of fiscal 2026 and fiscal 2025 was $57.9 million and $16.5 million, respectively. Cash used in financing activities reflects payments of $53.4 million for the repurchase of common stock and $4.8 million for taxes related to restricted stock vestings.

 

Contractual Obligations

 

We enter into long-term contractual obligations and commitments in the normal course of business, primarily operating leases. Except as set forth in Note 4 of the accompanying unaudited condensed consolidated financial statements, there have been no material changes to our contractual obligations as disclosed in our Annual Report, other than those which occur in the ordinary course of business.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. There have been no significant changes in the significant accounting policies and estimates.

Recently Issued Accounting Pronouncements

 

Not applicable.