Good morning, and welcome to Ollie's Bargain Outlet Conference Call to discuss Financial Results for the First Quarter of Fiscal 2023. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and interactive instructions will follow 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 express written authorization of Ollie's. Joining us on today's call from Ollie's management are John Swygert, President and Chief Executive Officer; Eric van der Valk, Executive Vice-President and Chief Operating Officer; and Rob Helm, Senior Vice-President and Chief Financial Officer. A press release covering the company's financial results was issued this morning, and a copy of that press release can be found in the Investor Relations section of the company's website. I want to remind everyone that management's remarks on this call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may include, but not be limited to predictions, expectations or estimates, and actual results could differ materially from those mentioned on today's call. Discussions of future performance, financial outlook, trends, strategy, plans, assumptions, or intentions may also include forward-looking statements. All such items also should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these forward-looking statements, which speak only as of today, and except to the extent required by-law, we undertake no obligation to update or revise our forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. Although it is not possible to predict or identify all such risks and uncertainties, we encourage investors to read the risk factors described in our most recent annual and periodic reports filed with the Securities and Exchange Commission, as well as our earnings release issued earlier today for a more detailed description of those factors. We will be referring to certain non-GAAP financial measures on today's call, that we believe may be important for investors to access our operating performance. Reconciliation of these most closely comparable GAAP financial measures to non-GAAP financial measures are included in our earnings release. And with that, I'll turn the call over to Mr. Swygert. Please go ahead, sir.

Thank you and good morning, everyone. We had a strong first quarter and we are pleased with the momentum of our business. Our first quarter results exceeded our expectations and were driven by continued improvements in comparable store sales, new store productivity and gross margin. All while maintaining strong control of expenses. In the first quarter, comparable store sales increased 4.5%. Total net sales increased 12.9%. Gross margin increased 410 basis-points to 38.9%. Adjusted EBITDA increased 88.5% to $49.5 million, and we ended the quarter with over 13.3 million active Ollie's Army members, which accounted for slightly over 80% of our sales. Our comparable store sales growth in the quarter was driven by increased transactions, and we continue to see benefits from a wider customer-base that includes more higher income and younger age shoppers. This marks our fourth consecutive quarter of positive comps. On a product category basis, our sales strength was broad-based with almost 60% of our departments comping positive. As expected, our Consumables business was very strong in the quarter, and we saw some softness in certain home-related categories. Our top-performing categories were food, candy, health and beauty, lawn and garden and flooring. We know our customers respond to great deals. In late last year, we began testing changes to our print advertising strategy to reinforce the deal side of our business. During the quarter, we reduced the number of featured items to deliver a more focused and powerful merchandise story. The more concentrated assortment allowed us to tell you more targeted story around some of the higher demand deals in categories such as consumables. This helped us plan, execute and flow our inventory better into our stores. Lastly, the more streamlined advertising made it easier to showcase these items in our stores. All of this reinforced the…

Thanks, John, and good morning, everyone. We operate a very unique business with tremendous growth potential and have a super talented team. Everyone loves a bargain, and at a time when more and more customers need a bargain, we believe we are well positioned to continue growing our market share. We have laid out three strategic priorities that guide our decision-making around our business. The first is to offer the most compelling assortment of deals and values to our customers. The second is to expand our operating margin, and the third is to continue growing our store and customer-base. Starting with operating margin, import container rates have come down significantly over the past several months, and we are now approaching pre-pandemic levels. We expect to start realizing additional benefits of new ocean carrier contracts and lower spot market rates as we start selling through new inventory later in the year. We continue to make investments in our business and enhancements to improve execution and productivity levels at our distribution centers and stores. Investments in wages and material handling equipment, as well as process improvement and IT enhancements have resulted in better execution, which we believe is supporting the current momentum of our business. Our third priority is to grow our store and customer base. We opened nine stores and closed one during the quarter, and in the first quarter with 476 stores in 29 states. While the real estate and construction environment remains challenging, we are still tracking to open 45 stores in fiscal 2023. Our long-term target continues to be more than 1,050 stores with a goal to open 50 to 55 stores annually. In addition to opening new stores, we are also remodeling existing stores. This is something we started last year, and we are pleased with the…

Thanks, Eric, and good morning, everyone. We are pleased to deliver a stronger than expected results, both on the top and bottom lines this quarter. Net sales increased 12.9% to $459 million and was driven by a 4.5% increase in comparable store sales, and an 8.4% increase in store count. During the quarter, we opened nine new stores and closed one, ending with 476 stores in 29 states. We are pleased with our early results in these new stores, which outperformed our expectations in the quarter. Gross margin improved 410 basis-points to 38.9%, in line with our expectations, driven primarily by favorable supply-chain costs, partially offset by lower merchandise margin related to shrink and a higher mix of consumables in the quarter. SG&A expenses as a percentage of net sales decreased 20 basis-points to 28.4%, driven primarily by the leverage of fixed expenses on the increase in comparable store sales, partially offset by higher levels of incentive compensation. Operating income increased 125% to $39 million and operating margin increased 420 basis-points to 8.4% in the quarter. Adjusted net income increased 141% to $31 million and adjusted earnings per share was $0.49, compared to $0.20 in last year's first quarter. Adjusted EBITDA increased 89% to $50 million and adjusted EBITDA margin increased 430 basis-points to 10.8% for the quarter. Turning to the balance sheet, our cash position remains strong with $276 million between cash on hand and short-term investments, and no outstanding borrowings under our revolving credit facility at quarter end. Inventory decreased 4% to $498 million in the quarter. Lower freight costs, combined with a normalization of lead times on our in-transit inventory represented a total decrease of $36 million. Adjusting for these items, our remaining inventory increased approximately 4%. Capital expenditures totaled $19 million in the quarter, and were…

Thanks, Rob. I would like to thank our more than 10,500 team members for their incredible hard work and dedication to Ollie's. This really is a unique business that is driven by passionate people that care for one another, and you always are working to help save our customers' money. We know it's a challenging time for many consumers out there, but this is the type of environment we're built for, to deliver great deals for our customers and strong returns for our shareholders. As we say, we are Ollie's. We will now take your questions, operator.

Certainly. [Operator Instructions] Our first question comes from the line of Peter Keith from Piper Sandler. Your question please.

Hi, thank you. Good morning, everyone. So, John, just regarding the closeout environment you described it today as very strong, and even in the past I think is one of the best in recent memory. So, what's your best sense today on how long this elevated closeout environment can continue? And then even just looking at this, there is a very strong closeout environment this year and inherently create a tough compare for next year.

Sure, Peter. Obviously, we've been doing this for a long time. In July, it will be 41 years, so closeouts exist each and every year, some years closeouts are better than others, but overall, we have a list of vendors that are over -- in excess of 1,000 different vendors, so deals continue to come each and every day. So, when it does slow down, just does it make it tougher for us? Sure it does, but it's what we do each and every day, and the merchants are always scouring the world and the country for the best deals. So, we feel that the robustness we are seeing right now and the pressure customers are dealing with, we can annualize them. Obviously, as we always say, it's not quarter-to-quarter, it is year-to-year, but we feel like we're in pretty good position as we continue to scale and become more meaningful to these vendors. It does become a little bit easier for us to annualize these when we see the year-over-year comparison.

Okay, that sounds good. And secondly, because you did mention shrink had pressured your merchandise margin, maybe you could just give us some context of how you actually conduct your shrink checks based on inventory and what defensive measures, if any, are you guys putting in place to try to bring that down?

Hey, Peter, this is Rob. We count our stores on a rolling basis, so we count throughout the course of the year based on a preset schedule going into the year. For the fourth quarter, we saw shrink definitely take up, and we saw that kind of spillover in the first quarter. It hasn't gotten any worse, but it hasn't really gotten any better. We are focused on it internally, and it's really our regional staff and loss prevention managers and field operations really getting into stores and conducting investigations and working with the teams closely to mitigate the impact.

And just with the investigations, is it just like everyone else you're seeing elevated shrink externally? Or is it that you are still find this elevated shrinkage that's internal.

I would say it's both.

Yeah. I would add to Peter that we've -- this is Eric -- our partnerships with police and local law enforcement are much stronger now. The use of social media in these local markets is also a great tool for us in terms of combating external shrink, so we're definitely on it.

The last thing I would add, Peter, just to wrap it up is, it's not as big a number relative to what some other peers are reporting, and other businesses that I've seen.

Okay, very good. Thanks so much and good luck.

Thanks, Peter.

Thank you. One moment for our next question. And our next question comes from the line of Brad Thomas from KeyBanc. Your question please.

Hi, thanks so much for taking my question, and congrats on the nice start to the year here. I was hoping you could just give us little more color on trends in the quarter and how 2Q has started. Obviously 2Q is a much more difficult comparison and many other retailers are talking about the backdrop having slowed, so just curious a little bit more the rationale behind you all raising your 2Q outlook based on what you're seeing. Thanks.

Sure. So from a quarterly flow for Q1, I would say that February was the strongest month of the quarter. February strength decelerated a little bit into March as I believe it was widely reported tax refunds have been down, and we feel like we saw a little bit of impact beginning part of March. April picked back up with some strong deal flow and content we had in stores, and we've seen strength continue into the month of May.

Okay. And on the remodeling program, I was wondering if you could give us any more color about how the stores that you've initially started with, how those are performing? What kind of lift do you think you may be able to get out of those and the optimism that maybe there are more stores that are candidates for remodels?

Sure, Brad. I'll take it. It's Eric. We're super excited by what we're seeing. Customer response is very positive, and we like the results we're seeing to date. Keep in mind, we only have a handful of stores that we've actually anniversaried at this point. So we've remodeled 32 stores since the inception of the program, but we started a little over a year ago. So it's still -- we're still -- it's still early. We're still in the test and learn mode, but we do expect a mid-single-digit sales lift. It's not a heavy capital requirement. The spend is probably between $125,000 and $200,000. The payback on average is about two years. And we like what we're seeing. So far we plan with the 30 to 40 stores we're committed to remodel this year. We'll continue to look at the results and see how we move through this. We would think we commit to probably a similar number for 2024.

That's great. Thank you very much.

Thanks, Brad.

Thank you. One moment for our next question. And our next question comes from the line of Jason Haas from Bank of America. Your question please.

Hey, good morning, and thanks for taking my questions. So maybe just the first one. I know you called out that you're seeing some higher income, some younger customers are shopping the stores more, which is great to hear. Do you have any sense for which categories on their shopping and what's tracking them down into shopping at Ollie's?

Sure, Jason, it's Eric. We don't track category performance by income cohort. So I don't have a sense for that. But I would probably add just a little bit of color on some of the strongest growth from an income standpoint is our higher income customer, the largest segment of growth is from the $100,000 to $150,000 income range. And we're seeing that there's a tendency towards lower net worth customers with higher income as well. So maybe that's indicative of dwindling savings and more trade down from that customer group. Also, there's -- we're seeing stabilization of the lower income customer continue from Q4 into Q2, which is encouraging. We've seen no discernible impact of SNAP benefits with that customer. Remember, we don't take Snap, but obviously, there's some impact to the economic dynamic of that customer. And also keep in mind lower income customers under index for us.

Got it, thank you. And then as a follow-up, could you talk about at what point, if any, in terms of, I guess, store count, you would start to consider adding more direct sourcing? I'm not sure if that's still on the potential road map or you're pretty happy with the closeout mix now. I think in the past, you've talked about at some store level, you would basically just consider, I guess you could -- once you get to a larger size, you can basically augment with some more direct sourcing. So I was curious if that's still a plan.

Yes, Jason, our goal, if we had our druthers is the more closeouts, the better for Ollie's. But as we get to a certain size, we do realize that there becomes some issues with some continuity of categories to where we may need to augment them a little bit. So we've always said at 500 to 600 stores, we may have to need to augment a little bit. We're almost to 500 stores right now. We're not having any real difficulty sourcing our closeouts in order to feed our stores. So we will make the appropriate adjustment at the time that is necessary. But our goal is to have closeouts in our store, and that's what we're built for. But we don't foresee a big change even if we -- when we did make that change. We're close to 65%, 70% closeouts today. Do we go down to 60% closeouts at full capacity? Probably, but I don't think the customer sees a difference. And just to remind everyone, the private label brands are not enhancers to our margin, closeouts have very similar profile to the overall private label brand so -- and sometimes better margins. So we really focus on the closeout and that's what we're trying to drive here.

Got it. It makes sense. Thank you.

Thanks, Jason.

Thank you. One moment for our next question. And our next question comes from the line of Edward Kelly from Wells Fargo. Your question please.

Yes. Hi guys, good morning. I was hoping a little bit more color on the May comp strength that you're seeing. Just more color around what you're seeing from consumers here, and how do the comparisons look this quarter, sort of like May, June, July? I'm just wondering, you have this tougher multi-year compare. Is that lying in May? Does that give you confidence to raise the comp guidance or is that tougher comparisons ahead? Just some additional color there would be helpful.

Sure, this is Rob. We're seeing strong comps in Q2 quarter-to-date. Our strong consumable business that we saw in Q1 has spilled over, but we're seeing some weakness in seasonal related categories that are linked to the cooler temps. That's the biggest wildcard going forward. If the weather breaks and it gets hot, we're well positioned from an inventory perspective to deliver those seasonal businesses. From a comparison perspective, I would say, May was the easiest. June ticked up a little bit and July is probably the toughest compare.

Okay. And then in terms of May, is May running in that 2% to 3% range? Or 2% to 3% anticipate that you'll have a harder compare and -- the deal with -- in July?

Yes, Ed, we're not really going to get into where we're at quarter-to-date, but obviously it's not, and you've been with us for a long time, it's not our normal mode of operation to increase our comps above our one to two guide. So we feel really good where we are sitting today and we feel we're in a good position to deliver those numbers, we are comfortable with it.

All right. That's clear. Thanks, John. One last follow-up on the gross margin, could you give us a little bit more color around the cadence of how you're thinking about the gross margin for the remainder of the year?

Sure. This is Rob again. So Q2's gross margin expansion is going to clearly be the biggest for the year. I think that last year, in the second quarter, we did a 31.7%. So several hundred basis points there. Q3 and Q4 will not be a significant expansion because we didn't have as much of an impact last year. But we do expect to definitely make more progress towards an on algo gross margin and to be exiting the year much closer to the on algo gross margin than what we entered.

All right. Thank you.

Thanks, Ed.

Thank you. One moment for our next question. And our next question comes from the line of Randy Konik from Jefferies. Your question please.

Thanks guys. You talked a little bit about investment in wages that's been ongoing. Where do you think we are in that kind of investment cycle? Just on labor rates and where do you think we go from here ahead.

Sure, Randy, It's, Eric. I'll answer that. We have made meaningful investments in wages over the last couple of years. We make investments at the local level, so individual markets for stores and for our DCs as well. We like where we're sitting today. We feel that we're relatively competitive. Our candidate flow has been relatively strong, especially in the DCs over the past several months. Our turnover remains high for people who are tenure of less than 90 days. It's a day-to-day local battle to ensure that we remain competitive, and we continue to fight it. It's hard to say what will happen in the next 12 months, but we have built in an assumption of a mid-single digit increase in wages for this year. And so far, that seems to be a reasonable assumption, and we should be okay. I can't really speak to what it may look like in the future. We do continue to work very hard on process improvement and make investments to offset some of this wage pressure that we've been experiencing, and will continue to experience.

Yes. Super helpful. And then I think you gave earlier on the Q&A, you gave some good perspective on how much the remodels cost are not that much. Can you maybe just go back and remind us the breakdown on the CapEx? Because what I'm trying to kind of figure out is what normalized kind of CapEx looks like because you're -- obviously, the margins are improving. The free cash flow is to the balance sheet is super strong. You've been buying back stock. So I think that kind of cycle or kind of feels like it's going to continue in terms of cash generation, accelerating share repurchase activity being constant. Just maybe give us some perspective on what the CapEx looks like breaking it down. Thanks.

Yes, Randy. I'll take the first part of your question related to remodels and Rob will take the second part about CapEx in total. For remodels, the CapEx portion is less than 50% on average. Depends a little bit on the store and its condition, but it's less than 50%. The majority of the spend is on relocating and remerchandising the store -- relocating the merchandise and remerchandising the store, moving existing fixtures around and not necessarily investing in replacement fixtures or new fixtures. Go ahead, Rob.

From a CapEx perspective, can you just clarify your question a little bit?

Yes. Look, your CapEx is at $125 million guided. You look historically, the CapEx is obviously lower. I know that's a lot of it's for DC. So I just want to get some perspective how that CapEx breaks down, so that we can get some perspective on what normalized run rate CapEx should probably look like in years ahead because to get some perspective on free cash flow generation, which, again, you're being -- you're using to continue to buy back the stock.

Yes. I would answer it in a slightly different way. I would say that CapEx is probably about 2% of our free cash flow going forward -- or top line going forward. So say, in the range of $50 million. The bucket from year-to-year may swing from remodels to general corporate, but I would say in the range of 2%.

Understood. Thanks, guys.

Thanks, Randy.

Thank you. One moment for our next question. And our next question comes from the line Eric Cohen from Gordon Haskett. Your question please.

Hi, thanks, good morning. You guys had a really strong comp this quarter. Just curious why the flow-through might not have been a little bit stronger. And looking at the guidance for the rest of the year, the guidance increase, with comps now 2% to 2.8%, which is above the 1.5%, 2% you would typically leverage expenses at. How come the flow-through the EBIT margin seems to be in-line with the prior guidance. So how come there is not a better flow-through with the higher topline?

Well, I would say there's two dynamics happening here. And we called out coming in the year that this is going to be a year that we're going to work back towards the long-term algo but not necessarily be there yet. The first dynamic is, we do have the higher capitalized cost or the supply chain cost coming off the balance sheet into gross margin. That continues to be a headwind for gross margin for the first half and starts to abate in the second half, like I mentioned earlier. The second piece is a put back of incentive compensation that was reduced last year based on our performance.

And I think, one big thing, Eric, in addition to that is, our op margins are still going to be double digit, which is a pretty impressive swing from what we've seen in the past. And the selling to more consumables obviously makes our lives a little bit more challenging from a margin perspective. And to be able to still maintain the 31 to 39 on the guide with the consumable increase is pretty -- from our perspective, we're pretty excited about it and then double-digit op income from the period of time we're sitting in. I think we're really, really doing a good job controlling it.

Makes sense. Like Bed, Bath is closing a whole bunch of stores. And do you guys see opportunity to maybe accelerate store growth and take advantage of some of that real estate? Or does it improve maybe your landlord negotiations and improving the rent cost for you?

Sure, Eric, I'll take that. This is Eric. Typically, for us, I mean, any distant in real estate is a good thing for us. Typically, landlords need to sit on real estate for a little while for our type of deal that makes sense. So it's not an immediate impact, but we do like this disruption. We like Bed, Bath and several other retailers that were -- are struggling right now because it does make landlords a little bit more anxious, and we're willing to do our deals. But more often than not, let’s say, a 12 to 18 month cycle before we see more -- enough inventory of real estate to accelerate in any way. I think your -- part of your question is, would we consider more than 50 stores or exceeding 55 stores in the future if we were to see additional real estate opportunities? And I guess, it remains to be seen. We're committed to the 50 to 55 stores at this moment in time.

Thanks a lot.

Thanks, Eric.

Thank you. One moment for our next question. And our next question comes from the line of Jeremy Hamblin from Craig-Hallum. Your question please.

Thanks, and congrats on the strong results. I wanted to get into the category performance a little bit. I think you cited food, candy, health and beauty, and lawn and garden in the first quarter as strong performers. You noted here in the second quarter, of course, there's been some negative impact from weather on seasonal goods. I want to get a sense for -- I think the call out in lawn and garden actually is a contrast to a lot of your peers, which didn't cite that -- cited as a negative in the first quarter, but wanted to get a sense for contribution and potential negative impact here that you're seeing in Q2 kind of an estimate or a range of estimate on what you think that might be dragging on your overall comps?

Yes, Jeremy, I'll first off talk about the Q1 category performance. And obviously, lawn and garden was -- is different from what you've heard from others. I think one of the big differences that we have that others -- that we don't have that others had was, we're not West Coast based at this point in time. We'll go as far west as Texas. And I think there was a lot of unfavorable weather on the West Coast that impacted some of these other companies on the lawn and garden front. So -- and I will tell you, honestly, we had some great deals in the lawn and garden category with some great brand names that were some big motivators for our customers. And they responded to it. It's just the way the model is built. So we would tell you that we do -- we think we have very similar result even with weather wasn't really there because customers sort of bought these brands that we have in our stores as we had lined up some pretty good deals late last year for the early season in lawn and garden. With regards to pressures for Q2, we continue to see pretty good momentum in our business, as we said on the call. With regards to the pressure we have from a seasonal category perspective, with the weather being a little cooler than normal, it's really focused on the -- what we call room air, which is our AC business. That -- we need a little bit more heat in order for that to move. I always tell everyone that it's going to get hot. We just don't always know when it's going to get hot. So that's one category right now that has been a little -- put a little bit of pressure on the overall sales for the quarter. But even taking into consideration, we're pretty comfortable where we're sitting today. So there's -- in our world, we think that's really an opportunity for us to even perform a bit better than where we're at today. So we're -- but we're going to obviously reserve the right to see how the weather -- how and when the weather turns and what it does for the quarter.

Got it. Thanks for that color. And then just a couple of follow-up questions here on margin impacts. You cited that freight should continue to improve from here in terms of impact on your gross margin. Want to see if you could characterize kind of magnitude of impact here and let's say, in Q2 and then the remainder of the year from freight benefit. But then also, as you progress and open the -- or you get the DC done here in Q2 and then I think in 2024 in Illinois, wanted to just see if you could provide a little color on what you think the margin impact of that would be.

Sure. This is Rob. The year-end call, we called out that supply chain costs for last year were in the range of, call it, 13%. This year, we -- our guide implies around 10%. The first quarter was closer to 11%. So if you do the math, we expect sequential improvement throughout the course of the year to be sub-10% to be exiting the year closer to, say, the 9%, 9.5% range.

And Jeremy, just to clarify that, that's pretty much -- that's back-half loaded. The back half is where we think we get back to our -- really close to our long-term algo. And I think Rob said it earlier on the call, but that's where we start to see some more normalization in the margin and the supply chain cost.

And then the magnitude and kind of the timing and impact of the distribution centers?

Yes. I don't -- we don't expect any impact on the margin for the expansion of the York DC. That's not something we're ever going to discuss. It shouldn't be anything that is more of a rounding error. The firing up of DC number four, which we expect to bring that online midyear of 2024, that will really start to create more impact probably in Q4 of 2024 and into 2025 as we ramp it up but it won't have a material impact on 2024. I think that, that would not change our overall perception of our annual guide and maybe 10, 20 bps on a full year basis, but it won't be a real heavy lift there to get through 2024 with the new DC.

Thanks for that color and good luck on the rest of the year.

Thanks, Jeremy.

Thank you. [Operator Instructions] And our next question comes from the line of Matthew Boss from JPMorgan. Your question please.

Great. Thanks. So John, could you elaborate on new store performance, what you're seeing from your more recent cohorts, maybe touch on new unit economics? And just what drove the material acceleration in new store productivity that really stood out this quarter? And maybe just larger picture, John, could you just elaborate on the white space long-term opportunity? Any changes as you think about new unit growth multiyear?

Sure. Matt, I'll take the white space, and then I'll let Rob talk about the new store productivity performance. With regards to the white space, obviously, we've always said around 150 stores, say, we're still shy of 500, and we're in 29 states. So there's still a ton of white space available for this model that we have. And it is -- and you've been with us a long time, Matt, and you know this has been always one of our key focuses, this is not a comp story. This is a growth story. One of the few growth stories that are out there. We have the ability to continue to grow our store base for many, many years and continue to deliver great returns to our shareholders by continuing to drive the business. So the comp that I always say is icing on the cake but we always say we don't turn the registers off either. So we do our best to try to drive the comps as we know the flow through there for the comp perspective. But our new stores are a real strong component and a very key integral part of us being able to grow successfully. So the white space out there is still a lot to go, and we're excited about the opportunities we see out there in the market.

And from a productivity perspective, we're not doing anything differently. I would say over the last couple of years, productivity has recovered with COVID. We saw that new store productivity dip during the pandemic. The stores that we opened during the first quarter just happened to be great locations. I mean sometimes you hit it out of the park, and we did with some of these stores.

Great. And then maybe just a follow-up, John, could you speak to the macro versus the micro for your top line? And maybe look back historically during times of consumer disruption. I guess as we think about your comps right now, you're clearly bucking the macro trend and the general, I would say, lateral trend, especially across low middle-income consumer. So what are you seeing from customer trade down maybe relative to customer trade-out as inventory across broader retail does seem like it's moving to a more rational position?

Yes. And Matt, this is obviously -- I like to say this is what we're built for. Consumers are under a ton of pressure right now, and they're flocking to value, and we are definitely bucking the trend. We actually -- we talked about this last year, late in the year in Q3, Q4, and we had kind of said 2023 should really set up to be a great year for us and should play right into our model, and we're seeing it happen. We're kind of -- I'll call this, this time, what we're seeing is really countercyclical to what everyone is saying. I think people are scratching their heads on how Ollie's coming out and raising Q2 guidance where we're else taking guidance down the full year. It's because we're seeing customers really stick to the model and come back -- come to us and shop us more frequently than they were before and they're -- what they're seeing in our stores and the deals we're getting are resonating. So this is, I think, going to be a nice stand-up year for Ollie's. I don't think it's going to be anything like we saw in 2009 where we had almost 8% comp. But we're set pretty good to drive a nice comp into the year. So there's still a lot of uncertainty in the back half. So we're kind of maintaining the back half at this point. We'll see where we go with it and we'll adjust accordingly.

I think, Matt, I'd just add a comment on the age of our customers, too, is encouraging. We tend to have more customers in the older, more mature age category, 61 and up. Plus trip consolidation is helping drive sales of those customers, potentially cola has some impact on that. And then we're seeing the age cohort of 40 to 55 years old. We're seeing strength in new customer acquisition in that category. So from an age standpoint, it would appear we're also winning.

It's great color. Best of luck.

Thank you. One moment for our next question. And our next question comes from the line of Scot Ciccarelli from Truist. Your question please.

Hi, good morning. This is Josh Young on for Scott. Could you just talk through the path you guys see to get back to that 40% gross margin level?

Hi. It's Rob, I'll take that. Like I said earlier on the call, a big part of it is gross margin and supply chain costs. The capitalization that we kind of took into the year and the overhang of those costs impact the first half. We expect for that impact to sequentially be in line throughout the year, and the gross margin will be much closer to an on algo result. From an SG&A perspective, SG&A, we are seeing wage pressure. We talked about it earlier. It is an impact. I don't think that we get back to an on algo SG&A range. So I think that it's a combination of additional sales leverage, some of the process improvements that Eric mentioned in the store that helps us get back to the net bottom line on algo for next year and beyond.

Okay. Got it. That’s helpful. Thanks.

Thank you. One moment for our next question. And our next question comes from the line of Mark Carden from UBS. Your question please.

Good morning. Thanks a lot for taking the questions. So to start another one on shrink. Within your gross margin guidance, are you expecting shrink to become any more of a headwind than you were at this point last quarter, perhaps being offset by the tailwinds? And then what do you think has allowed you to really avoid the same degree of headwinds on this front relative to some of your competitors?

This is Rob again. From a shrink perspective, our guidance, we were pretty sober coming into the year after our Q4 accounts. So we were -- pitched it pretty conservatively. So we don't anticipate any additional impact from trade relative to our guidance. From a competitor set perspective, we just -- our shrink is a lower quotient of our overall gross margin relative to some of the other peers in terms of the absolute number. So when you think about the impact and it getting worse, it can't get as worse as some of the others are seeing just because it's starting as a smaller number.

Makes sense. And then on the higher income and younger shoppers, how has conversion been for these customers to Ollie's Army? And then what steps do you expect to be most impactful for holding on to them longer term?

Yes, I'll take that, Mark. The -- our acquisition numbers are very, very healthy in total. Acquisition was actually up 15% over last year. And we're seeing strong acquisition in that younger customer cohort that I mentioned 40- to 55-year-old customer, definitely some strong acquisition in that segment in particular. And then acquisition in higher-income customers is also very healthy. So it's following kind of where that customer is leading. The acquisition numbers are following the strength of those cohorts I mentioned.

Okay. Great. And then just in terms of the conversion to Ollie's Army, that's been more or less in line with what you've been seeing across the store?

The Ollie's Army -- meaning conversion into the Army, so acquisition of new customers into the Army is up 15%. So I don't know if you're asking a question about converting to sale, but converting into the Army is a sale. So they're kind of one and the same.

That clarifies it. That's very helpful. Thanks so much.

Yes. Thank you.

Thank you. One moment for our next question And our next question comes from the line of Simeon Gutman from Morgan Stanley. Your question please.

Thanks. Good morning, guys. Related to new space productivity, we don't see the cohort. Curious on how the relative performance of cohorts look given that the sales per store relative to 2019 is down? And is it entirely explained by some of the newer cohorts weighing that down? Or are some of the older ones also still down over that time frame?

Yes. Simeon, we don't get too much into those details. But I would tell you, the older cohorts are more productive than the newer cohorts as we always say. Our new stores are very productive in year 1 with the grand opening impacts to the stores and they start to comp after month 15. And they typically have a drag on the overall comp as they enter the new base. But the -- I would tell you the biggest thing to take away is 2019 is very different than 2023 for everybody in this world. Our stores are performing very well, and we're very excited about what we're seeing and the customer responses that we're seeing in the stores. And the overall metrics are working very, very well for us. So the new store performance in new store productivity as we even signaled last year, we're going to have to get some -- a lot of noise back in 2020 and 2021 and even 2022 with the supply chain disruptions. We've got our -- our lives is almost back to normal. So we're starting to see a more normal productivity in our stores and what the stores are producing.

Got it. And then a quick follow-up. Your best gauge of price? I know it's hard in the business since you're not selling the same items over and over again. But if you were to guess or guesstimate what price in terms of inflation year-over-year, either on an item basis or a basket, how that's impacting the comp?

Very hard -- to your point, Simeon, very, very hard because we don't carry the same things year over year over year. So -- and obviously, as we said, ACs has been a little bit slower in sales than we had last year and expected. So -- and AC sell on a unit is much higher than our average unit sale. So it's very difficult. I would say there is definitely some inflation in the food category that we're dealing with as everyone else is, but we're obviously not seeing the same rate of inflation as others but that's definitely a driver. We've not quantified it and pulled out how much is that impacting the overall comp. It's real hard for us to do that was on comparable items sitting in our stores year-over-year.

Got it. Okay. Thanks. Appreciate it.

Thank you. One moment for our next question. And our next question comes from the line of Paul Lejuez from Citi. Your question please.

Thanks, guys. Can you talk about your pure merchandise margin ex-freight, ex-strength? Just curious like the deal is getting versus the out-the-door price, how that came in relative to your expectation in 1Q and what your outlook is just directionally for the rest of the year? And then also curious if you change your interest income, I think it came in a little bit better. Sorry if I missed it, just in your guidance, how that changed? And then how many stores get pushed out from 2Q into the second half?

Yes, Paul, I'll take the merch margin. With regards to the components are, obviously, the IMU, the markdowns and the shrink. We don't typically break those out. But our current merch margin is sitting close to 50 points, which is elevated from prior years due to the, obviously, the offset of the supply chain cost and also the strength of the closeout market we're sitting in. So that's a very strong number that we are very proud to have.

And from a store pushout perspective, I want to say it was six to seven stores for the second quarter.

And then interest income?

No change.

Thank you. This does conclude the -and-answer session of today's program. I'd like to hand the program back to John Swygert for any further remarks.

Thank you for your support of Ollie's. We look forward to updating you on our results next quarter. Have a great day.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.