Good morning and welcome to Ollie's Bargain Outlet Conference Call to discuss the Financial Results for the Third Quarter of Fiscal Year 2024. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and interactive instructions will follow at that time. Please be advised this call is being recorded and a reproduction of this call, in whole or in part, is not permitted without express written authorization of Ollie's. Joining us on the call today from Ollie's management are John Swygert, Chief Executive Officer; Eric van der Valk [Technical Difficulty]. Certain comments made today may constitute forward-looking statements are made pursuant to the certain comments made today may constitute forward-looking statements and are made pursuant and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties are described in our annual reports on Form 10-K and quarterly reports on Form 10-Q on file with the SEC and in the earnings press release. Forward-looking statements made today are as of today's date of the call and we do not undertake any obligation to update these statements. On today's call, the company will also 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 our earnings press release. With that said, I'll turn the call over to Mr. Swygert, please go ahead.

Thank you and good morning, everyone. We appreciate you joining our call today. We had another great quarter and are pleased with our results. We delivered strong earnings on higher sales, gross margin and disciplined expense control. Even more important, we also took advantage of a number of real estate opportunities that strengthen our new store pipeline and enhance our competitive positioning for the future. In the quarter, we saw strong demand for everyday consumables such as cleaning supplies, food and candy. As we have discussed before, our growing relationships with major manufacturers of these categories is leading to strong product flow and a more consistent assortment of everyday merchandise. We had a great selection of consumables and we're ready for the strong demand. Outside of consumables, we also saw strong demand for certain discretionary related categories, such as furniture and outdoor living. We believe the warm weather in October, along with the late timing of Thanksgiving impacted our sales of seasonal goods in the third quarter. As the weather normalized and we approached the Thanksgiving holiday, we saw accelerating trends in our seasonal categories. We were pleased with our Black Friday weekend sales and the current momentum in our business. Now more than ever, consumers want value and suppliers need bigger partners. We are benefiting from these 2 trends and our buyers are doing an amazing job of finding a great assortment of exciting deals. We sell good stuff cheap and we have been in the closeout business for more than 42 years. Our value proposition is selling quality name brand products that people need and want for their everyday lives at prices typically 20% to 70% below the fancy stores. Anyone can sell cheap products but we're all about real brands, real bargains. This has been our value…

Thanks, John and good morning, everyone. We are pleased with our third quarter performance. The process improvements and investments we have made in our people, supply chain stores and marketing continue to result in better and more consistent execution. The third quarter was a great example of this. We delivered earnings that were in line with expectations despite some temporary headwinds. We also opportunistically acquired a number of real estate sites that bolstered our new store pipeline and competitive positioning. The first of these opportunities was the former 99 Cents Only Stores in Texas. We acquired these stores out of bankruptcy in May and shifted our organic new store pipeline to prioritize opening these first. In August, we soft opened several of these stores as a test minimizing the dead rent and reducing the operational burden of opening so quickly after assuming possession of the sites. Given these stores have been open and active with discount shoppers just a few months prior, we expect that they might ramp faster than our typical new stores. Several were top-performing stores right out of the gate. We later followed up with an official grand opening event and could not be happier with the quick ramp and performance of these stores. The second real estate opportunity is the closing Big Lots stores. To date, we have acquired 17 store locations and we were the winning bidder on an additional 7 stores last Friday. Similar to the 99 Cents Only Stores, these stores are the right size, located in good trade areas, have attractive rents and leasing structures and have been serving value-oriented customers for many years. We will prioritize the opening of the acquired stores that expect to have these opened by the end of the first quarter next year. With these additional stores,…

Thanks, Eric and good morning, everyone. We are very pleased with our third quarter results. We delivered a 14% increase in adjusted EPS driven by an 8% increase in sales, a 100 basis point increase in gross margin and disciplined expense control. We also opened 24 new stores in the quarter which was a record number for us. In the third quarter, we faced a number of short-term headwinds that impacted sales. These included a shift of 1 flyer out of the third quarter and into the fourth quarter, the 2 major hurricanes, the Big Lots store closures and liquidations and unseasonably warm temperatures. Despite these headwinds, we still delivered earnings that were in line with our expectations and our outlook for the fourth quarter is largely unchanged. Now, let me take you through the third quarter numbers. Net sales increased 8% to $517 million, driven by new store growth. Comparable store sales declined 0.5%, with both transactions and basket down slightly. Demand for everyday consumer staples was strong throughout the quarter and our best performing categories were food, candy, housewares and furniture. Ollie's Army membership increased 8% to 14.8 million members and sales to our members represented over 80% of total sales. Consistent with prior trends, we're seeing growth in our younger customer demographic and retention of higher income customers. We ended the quarter with 546 stores in 31 states, an increase of 8% year-over-year. As mentioned, we opened a record of 24 new stores and closed 3 stores. Of the 3 closures, 1 was a temporary closure from a store that was flooded due to Hurricane Helene and 2 were store leases that we chose not to renew. We are pleased with the performance of our new stores, including the former 99 Cents Only Stores which are off…

Thanks, Rob. I would like to thank the entire Ollie's team for everything they do. It's truly the combined experience, passion and commitment from everyone that makes Ollie's successful. I cannot be proud of what we have accomplished and look forward to our future success. As we say, we are Ollie's. That concludes our prepared remarks and we are now happy to take your questions. Operator?

[Operator Instructions] Our first question comes from Matthew Boss with JPMorgan.

John, congrats on the transition. You'll be missed.

Thanks, Matt. I'll be around, don't forget that. I'm not disappearing.

Always, always. So could you maybe speak to the cadence of 3Q comps maybe parsing through best you can, some of the transitory headwinds that you faced -- and then on November and 4Q, maybe best you can, if you could elaborate on November trends that you've seen in the business. And just your confidence in above algorithm comps in the fourth quarter despite consolidation disruption in the shortened calendar, just how you kind of put it all together?

Matt, it's Rob. I'll take that one. From a quarterly flow on the comps for Q3, August was down slightly which was better than our plan because the flyer shift shifted out of August in that month. September was up slightly positive which we thought was really good considering that was the month in which the -- we were impacted by the hurricanes which was about call it, a 50 basis point impact to our comp overall for the quarter. And then lastly, we ended in October. And October was the softest month of the quarter. It was down, call it, negative low single digits. And that's really where the warm weather started to impact us in our seasonal categories. Coming into the fourth quarter, our trends are good. We were pleased with the Black Friday weekend and holiday, we've seen, as we're getting closer to the Christmas holiday, our trends continue to strengthen. And from an over algo perspective from the fourth quarter, Remember, we do have that flyer shift that flipped -- shifted out of August and shift it into this quarter. So that gives us about an extra 100 basis points of comp. And that flyer is still sits ahead of us today.

Great. And then maybe, Eric, as a follow-up, could you just elaborate on the white space unit growth opportunity, multiyear, you see just puts and takes to consider relative to the 10% plus unit growth for next year. And just as the fleet expands, what are you seeing from vendor related...

You lost audio. Let me unmute my line here, see if that helps here.

Hello, can you guys hear me?

Yes. Can you hear me?

One moment, ladies and gentlemen, please standby. Once again, ladies and gentlemen, please standby. The conference call will resume momentarily. [Operator Instructions] Your line is open and unmuted. Can you hear me?

I can hear you. You want me to ask the second question?

No. One moment, Matthew. [Operator Instructions] Can you hear me?

We can hear you. Can you hear us?

Yes. We can hear you now.

We dialled in our mobile, we got whatever phone problems we're having -- we just dialled through my mobile number now.

Okay. So go ahead with your question, Matthew.

Okay, great. So Eric, could you elaborate on the white space unit growth opportunity multi-year? Any growth governors to consider relative to the 10% unit growth minimum that you cited for next year? And just with the greater size and scale, what are you seeing with vendor relationships and closeout opportunities?

Sure, Matt. As we look into '25 and '25 and beyond but certainly in '25, we've looked at real estate on really an opportunistic basis and there are a lot of opportunities out there in this moment. In addition to Big Lots, there are several other retailers that are in either state of distress or liquidation and we're looking at all of the real estate. We're in the process, whether it's through an option process or working direct with landlords if we're able to. And opportunistically, we'll accelerate beyond the 10%. Can't really talk too much beyond '25 as the pipeline is built out for '25 at this point, moving into '26. The governor in this moment, we've invested in infrastructure to support opening as many as 75-ish to 80 stores and that's an operational kind of self-imposed governor based on the infrastructure we have in place today. So what I don't want to do is get ahead of ourselves and guide '25 in any way, shape or form but we are giving direction growth [ph] with opportunities to accelerate beyond that. What we've been seeing in terms of closeout flow and product availability is that our size and scale have been actually very helpful in giving us access to more closeouts. We've developed more direct relationships, some larger important vendor relationships, especially in the consumables world and our ability to be able to take all of the deal is a differentiator, it's a somewhat competitive advantage. And I'll just remind you and everyone that -- and Rob stated in his remarks that our balance sheet remains very strong in an environment that we're working in today, that strong balance sheet attracts vendors to us to sell with great payment terms and liquidity and the insurance that they will get paid.

Our next question comes from Peter Keith of Piper Sandler.

John, Mike, congratulations to you. I know you're not leaving but it has been a great pleasure working with you on these types of calls. I did want to dig into the dynamic around the Big Lots store closures. I think you called it out as a headwind to Q3. I wonder if there's any quantification there. And then we do have a lot more closures happening in Q4. Could that be a potential headwind as well that we should be contemplating as the quarter progresses?

Thanks, Peter. This is Rob. I'll take that question. So when we had our third quarter call, there were only about 300 announced closures that Big Lots had announced with about 100 of those store closures impacting us. That impact for the third quarter ended up being in the range of 50 basis points of drag against our comp. Since that time, they've announced another 250 store closures, give or take, for a cumulative total of 550 store closures. These closures commence very late in the third quarter and will be taking place through the end of the holiday season. So we embedded a similar amount of drag, so call it 50 basis points in our fourth quarter guide.

Okay. Very helpful. And then related to the store acquisitions, so I guess the math is I think you've acquired 17and then you've got a potential 7 more Big Lots stores that could be up to 24. I guess what's your thinking around these? I was intrigued to hear that the 99 Cents Only Stores are opening up quite strong does that inform any thinking around these stores that you're buying now and how they could open up in early 2025?

It certainly does inform how we think about it. We think that the stores could ramp very quickly. We're excited about these acquisitions. It's great lease economics, good customer demographic, strong street visibility and great box sizes. So we're really excited about these.

Next question comes from Brad Thomas with KeyBanc Capital Markets.

And John, all the best to you as well. I wanted to first ask about just operations and how you plan the organization for this accelerating square footage growth just to ensure that these new stores are as strong as they can be out of the gate and how other stores don't suffer as you get inventory to this accelerating amount of square footage growth? And then I know you don't have a lot of commentary on 2025 financially but just at a high level, if there's any margin puts and takes that we should be thinking about?

Sure, Brad. It's Eric. I'll take the first question. We have invested in our infrastructure anticipating both supporting the 10% unit growth plan going forward as well as the potential to accelerate in '25. Project management resource is one of the bigger areas that we've invested in which is construction and our new store setup teams, ensuring that we're hiring ahead making sure we have the leadership in place, infrastructure and store leadership in general. And then the DC network which I talked a little bit about in my opening remarks, is another one that we've gotten a head on with now the -- you see network able to support 750 stores. We have no concern about bandwidth throughput on the DC side as well.

From an earnings outlook on 2025, we typically don't give too much color on our third quarter call around that. What I would say is that when you think about 2025, it's firmly going to be steeped in the long term, our long-term algo working our way back to 14% EBITDA. And there's potential for outsized EPS growth because of the front loading of the store opening schedule which is something we haven't seen for several years here.

Our next question comes from Chuck Grom with Gordon Haskett.

Can we just double-click on the acceleration in your business over the past few weeks? And I guess, can you also dig into why you think the consolidated calendar could accelerate business in the coming weeks. And I think, Rob, you said that you still have 1 flyer to come. Can you just confirm that?

Yes, it's Eric. So from where we sit today, there is a lot of meaningful business still in front of us with the calendar shift in the condensed calendar. The flyer shift is in front of us, meaning it's ahead of us and it's planned in a week when you look at how the -- we expect the business to flow. It's [indiscernible] in a week that is very, very meaningful and we're putting some great deals out there to attract customers into the stores on a somewhat last-minute [ph] basis as we approach the holiday. Also, keep in mind that between now and Christmas, there are 2 additional shopping days even though there were fewer in the total season. So we're reading the business to date and the business to come and we feel good about where we're at.

Okay, great. And then, just on Ollie's Army, over 80% of sales. You talked earlier in your prepared remarks about getting younger with your customer. I was wondering if you could dig into that a little bit more for us. It seems like a big opportunity for you guys.

Sure. Yes, Ollie's Army. We continue to see strength in attracting younger customers. Our strongest growth segment now consistently for several quarters, has been the 18- to 45-year-old segment. So that's very encouraging. We do believe that our digital marketing efforts are continuing to pay off. We've made investments over several years now, including bringing on a new advertising agency that specializes in retail digital marketing programs and it seems to be going very, very well for us. And then we're also pretty good product that is more attractive to the other customer that also lends itself to attracting those customers.

Our next question comes from Scot Ciccarelli with Truist.

I know you talked about the negative impact of the Big Lot store liquidations but what are your early reads from a sales capture perspective from the sales that are orphan from those closed stores? And then another question about kind of the go-forward earnings flow-through. Any kind of notable investments that are going to be needed that would create a headwind to margin. Rob, obviously, you just talked about above algo for '25. But just as we kind of think about the longer-term growth opportunity, whether it's DCs, whether it's technology, anything we should be kind of thoughtful of.

Scot, it's Rob. I'll take that. We're relatively early days post liquidation. The first round of liquidation is only around about a month ago. We've seen some glimmers of pickup since the nearby stores have closed. But it's not -- it's too early to give a solid readout on it yet. From an investment perspective for the accelerated growth. We've already made a bunch of those investments this year and readying ourselves for next year. So there's no -- you're not going to see any significant investment in SG&A, significant investment in technology. We have what we need in place. One thing that you'll see over the years with accelerated growth is we'll continue to make supply chain investments in the form of distribution centers. And that the faster that we grow the sooner we'll get to our fifth distribution center which is still a couple of years off at this point.

To add a little bit of color. We have the ability to expand 2 of our existing buildings as well. The building in Texas, the building in Illinois, both have an opportunity to expand 200,000 square feet each. So we don't necessarily have to run fast into a fifth building. We could expand those 2 buildings. And we -- from a road map standpoint, we have thought process around that in years 2026 and beyond.

Our next question comes from Kate McShane with Goldman Sachs.

We wanted to ask a couple of questions around gross margin. Can you just talk about how mix impacted the margin in the quarter, just given the strength in some of the consumables and if that's increased as a mix of overall sales? And just how should we -- how long will you benefit from the lower freight costs?

Kate, this is Rob. From a mix perspective, I would say that consumables had a 20-point drag on the quarter, in addition to what we contemplated when we originally guided our margin. Can you repeat the second question? I didn't get the second question.

Yes. Just how many more quarters can we see a benefit from freight?

I would say that this is the last quarter of significant benefit of freight. We're constantly doing what we can to make ourselves more efficient throughout our business and that's true of supply chain as well. So you'll see a little improvement in terms of contracting and how we flow product and operations with our distribution centers but they're going to be fairly muted relative to what we've seen in the pickup coming off of the supply chain crunch from the last couple of years.

Our next question comes from Jeremy Hamblin with Craig-Hallum Capital Group.

I wanted to start by asking about preopening expense. Rob, I think you noted it's going to be a little bit higher than what you had previously anticipated which I think was about $17 million for the year. I wanted to see if you could quantify, given the stores that you're bringing on, how much that would change here in '24. And also as we look ahead to '25, if you can kind of give us an early read of how we should be thinking about that year. And then my second question is just getting a bit more granular on the performance of the new stores, understanding how are the 99 Cents Only legacy stores performing relative to the typical Ollie's and then what you're thinking about in terms of the Big Lots legacy stores versus your typical Ollie's?

Sure. From a preopening perspective, for the fourth quarter, there's about an additional, call it, $0.01 of EPS drag relative to the Big Lot stores. We take those stores over and pay the dead rent as soon as we acquire the lease. So that's contemplated in our guidance for this year. For next year, no really big changes in how we're thinking about reopening aside from just the front loading of expense that you're seeing a little bit in the fourth quarter as well there. But it's kind of status quo for next year, we'd expect.

Yes. Jeremy, just a little more color on we call them warm stores for new stores or stores that were open somewhat recent past. You remember a lot of the real estate that we take on in our organic pipeline in second-generation real estate. And the retailer that we're replacing has been out of business for 5-plus years oftentimes and we have to kind of rack or brands remember even do they were because some of this is some very cold boxes. So what we found with 99 Cents is that there were customers showing up to the stores that thought the store was still 99 Cents and discovered that it wasn't anymore, we're not disappointed because it is a discount-oriented customer. And our business model though somewhat different from 99 Cents was similar enough that the customers found it to be appealing and attractive. And it's too early to quantify what all that means but I said in my opening remarks that we were very happy with the additional response of customers with almost no marketing or grand opening event. We were doing volume in some of these stores that was kind of the equivalent of a post grand opening halo period. We would expect the same for Big Lots stores, we believe. We haven't opened any that we've acquired in the various auctions yet but we expect to see something similar. These boxes will have been cold for 90 days, maybe 120 days. So we would expect something similar or a fairly quick ramp.

Our next question comes from Anthony Chukumba with Loop Capital Markets.

So in terms of the Big Lots and the 99 Cents Only Stores, are there any noticeable differences from your core store base? In other words, like, are they significantly bigger or smaller in size? Are they more in sort of urban locations relative to your stores? Just anything that you think is worth pointing out in terms of any differences?

Sure, Anthony. It's Eric. The 99 Cents Stores were slightly smaller than the average store that we opened. They were in the mid-20s and our average typically runs a little over 30,000 square feet. So there are slightly smaller. There were a couple of them that were actually sub-20,000 feet which is very unusual for us but the majority of them were above 20 and again, average in the mid-20s. For the Big Lots stores, the gross square footage of the total box is very similar to ours but they have larger backrooms. So we're making some adjustments to the selling square footage in some of those stores to ensure that it's more similar to our box size. But I would expect the Big Lots stores to be slightly smaller on average in terms of selling square footage than our average store.

Got it. And then just one quick follow-up. So you talked about that flyer that shifted out of the third quarter into the fourth quarter. Any -- and maybe this is too granular but any thought in terms of what the comp hit might have been from that? Or another way to think about what the comp benefit will be in the fourth quarter?

For the third quarter, we think that it was slightly less than 100 basis points but just about there. For the fourth quarter, we'd expect about 100 basis points of improvement.

Our next question comes from Melanie Nunez with Bank of America.

I just wanted to talk on gross margin for a second. I know you talked about some of the mix impact. Just anything to think about for 4Q in terms of the merch margin and how your mix changes in this quarter.

Our fourth quarter guidance carries over a little bit of the mix. We thought that, that was prudent because we have seen our consumers responding to consumer staples. I think I mentioned in an earlier question, the supply chain improvement is much more muted as we lap costs. Aside from that, everything else is pretty status quo. Shrink is pretty stable. So we're planning to shrink pretty stable, albeit at a higher level. But nothing else really to comment on the gross margin.

Our next question comes from Simeon Gutman with Morgan Stanley.

This is Zach [ph] on for Simeon. Inventory was up 14% in the third quarter, a bit higher than sales growth of 7.8%. And you did call out new unit growth and the timing of receipts. So it seems like it's mostly just normal course of business. But can you speak to the -- if there was any pull forward of product for the holiday season or also perhaps in front of any potential tariffs.

Nothing significant to call out about inventory growth. We have been playing a little bit of catch-up in inventory growth for the last couple of years relative to our unit growth and we feel really good and confident about our 14% unit inventory growth. We are locked and loaded with deals for the holiday season.

Our next question comes from Edward Kelly with Wells Fargo.

Congrats as well, John, on a successful career there. My first question, can you -- I wanted to ask you about SG&A and labor. You made some changes around the workforce, full-time, part-time curious as to what you're seeing there, sort of like cost versus benefit. And then as we think about like going forward into '25 and beyond, are you still comfortable with the leverage point on SG&A at around a 1% comp? Or is that just kind of inching a little bit higher based upon some of the changes on labor?

Sure, Ed, I'll take the questions. We are still in the early stages of testing the benefits to the full-time part time, mix change. Just to remind everybody, we're currently 60% part time and are moving to 50-50 ratios. So we're in a few dozen stores testing that change. We also are testing a leadership structure change that we believe will help us to better execute the stores alongside the full-time part-time mix change. So a lot of the stores better covered from a leadership standpoint. It will help us to better execute. We ultimately look at this as expense neutral. We look at our investment in leadership in a full-time person being more productive and career-oriented person offsets the wage investment that we make in full-time people and is net neutral. The leverage point for SG&A is closer to 2% going forward based on the investments we've made in the business.

Great. Okay. And just a quick follow-up related to the Big Lots opportunity. Any sort of thoughts on the Big Lots planned going forward? And I ask this question because they've had some stores were liquidated that are no longer going to close. It's like, I don't know, 70 stores or so that are now going to remain open. I think some of the discounts that they're running on these liquidations has been decreasing versus where they were historically and there's been talk coming out of, I think, Big Lots around maybe a strategy that might lean a bit more on the closeouts. So I'm just kind of curious as to how you're thinking about this going forward as you sort of look at your competitive landscape?

Yes, it's hard to say. We're focused on running our business. We're not real focused on Big Lots except to the extent that the liquidations are somewhat disruptive. We're excited as they do closed stores for the opportunity to pick up market share because the share basket is fairly meaningful between our customers. The category mix is somewhat similar, although they play very heavy in the big-ticket businesses where we don't play. So we're excited for the opportunity and we think we're very, very strong closeout deep discount player with a very loyal customer that attracts new and younger customers on a day-to-day basis with a very strong loyalty program and we like our chances in terms of the competitive environment, whether it's Big Lots or anyone else out there that chooses to go after the deep discount closeout business.

[Operator Instructions] Our next question comes from Mark Carden with UBS.

So on tariffs, your commentary has been helpful. How do you think about the balance of incremental purchasing costs relative to the potential for higher demand that could come -- if customers become more pressed in their spending.

I guess I'm not understanding your question, the impact...

Just in terms of -- yes, just in terms of the incremental costs that could come from higher purchasing that basically would be impacted by when you think about your imports in China versus prices across the board for customers going up and seeing more customers looking to trade into Ollie's, if that makes sense.

We generally thrive on disruption and the tariffs are one of those disruptive events. We think that if anything, the tariffs could create an additional closeout opportunity where some other traditional retailers may be priced out of goods because of the incremental tariffs that we may be able to get that -- get those products at a bargain and share those bargains with our customers. So being a price follower, it positions us well to navigate through the tariff situation.

Got it. That's helpful. And then, I know it's early days but any takeaways from your initial credit card rollout in Pennsylvania -- and just how does this customer compare to your typical Ollie's Army number?

Yes Mark, it's Eric. The rollout is going well. We -- we're in about 70 stores. Now it's a test and learn phase. We're trying to understand best what's the most effective way to continue to roll out the program in 2025. We'll take probably most of '25 to complete the rollout. It's going better than expected in certain ways. The approval rates are a bit higher than we expected and the spend is higher than we expected. So it's off to a very good start. I can't answer the question on how the demographics compare. That's a good question. It's something we haven't studied yet but we will.

Our next question comes from Paul Lejuez with Citi.

Curious if maybe you could talk a bit more about the buying environment, where you're seeing increased availability. I think you mentioned in the consumables category but also curious if there are any pockets where you're not seeing as great of availability? And then second, just as we think about the gross margin structure longer term, is there anything to think about as consumables take up or a larger percentage of sales, how do you think about gross margin targets, any different, if at all?

Yes, Paul, this is John. With regards to the overall deal flow, it's been pretty wide all the way around all of our departments. We're not seeing a shortage in any category. It's been pretty strong and it continues to flow very well. There is a small period of time where there's a little bit of slowness in HBA but that has turned around and we're seeing some good deal flow in the HBA front. But overall, we're very excited about what we're seeing. I do believe that with the disruption that's been out there and the changes that are taking place in the marketplace, we're seeing a lot more product go out there with regards to the overall deal flow. Rob, can answer you on the overall margin and the impact of the consumables?

From a gross margin perspective, we're not thinking about the gross margin target is much different. The algo is 40, remains 40. We would say we are seeing a slightly higher drag relative to consumer staples but we love those businesses because it has built in frequency and customer visits that bring our customers back for the consumables as well as the great deals. The drag on the gross margin, we think we'll be able to offset operational efficiencies through supply chain.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Eric.

I would like to thank everyone for their time and interest in Ollie's. We look forward to updating you on our continued progress on our next earnings call. Thank you.

Thank you, ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.