Good morning, and welcome to Ollie's Bargain Outlet Holdings, Inc. conference call to discuss financial results for the fourth quarter and fiscal year 2025. 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 all these. I would now like to introduce our host for today's call, John Rouleau, Managing Director of Corporate Communications and Business Development for Olis. John, please go ahead.

Good morning. Thank you, everybody. We appreciate your time and participation. Joining me on today's call from Ollie's are Eric van der Valk, President and Chief Executive Officer; and Robert Helm, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for questions. [Operator Instructions] Finally, let me remind you that certain comments made on today's call may constitute forward-looking statements, and these are made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in the company's earnings release and filings with the SEC, including the annual report on Form 10-K and the quarterly reports on Form 10-Q. Forward-looking statements made today are as of the date of this call, and the company does not undertake any obligation to update these statements. On today's call, the company will 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 the company's earnings press release. With all of that said, it's now my pleasure to turn the call over to Eric.

Good morning, and thank you for joining us today. We had a strong fourth quarter to cap off an exceptional year. Both comparable store sales and earnings were ahead of our expectations and we delivered on all of our strategic objectives in 2025. We entered last year with a number of ambitious goals. Most notable of these was to accelerate our growth and capitalize on opportunities in the market including real estate, merchandise, customers and talent. All of this required considerable planning and execution, and our team delivered. We opened a record 86 stores last year which was significantly higher than our previous record of 50 stores. All stores were opened in the first 3 quarters, another first for us. We moved to a soft opening strategy which simplified the process and improved our execution. Our next goal was to enhance and drive growth in the Ollie's Army loyalty program. We added in Ollie's Army night in June, we made our Ollie's Days event exclusive to members only. We gave members advanced notice on special events, and we rolled out the Ollie's credit card. Our stores did an amazing job communicating the benefits and enrolling customers in the loyalty program. Great job team, your efforts paid off. The result was stronger customer acquisition growth the entire year. New memberships in our Ollie's Army loyalty program increased 23%, and our total customer file increased by more than 12%. On top of the accelerated membership growth, we are welcoming a wider breadth of customers, America loves a bargain. And as we grow from East to West, we are expanding our customer demographics. Our unprecedented deals simply cannot be beat, and we are clearly benefiting from consumers seeking value and trading down. It's not just trade down, however. We are also reaching a…

Thanks, Eric, and good morning, everyone. We were very pleased with our fourth quarter results and the underlying trends in the business. Earnings were slightly ahead of our expectations, driven by solid comp growth, healthy margins and disciplined expense control. New stores and customer acquisition remain our 2 top priorities, and we continue to deliver on both of these. We opened a record 86 stores last year, an increase of more than 15% and membership growth in Ollie's Army remained strong, up more than 12% for the year to 17 million members. Now let me walk you through the P&L. Net sales increased 17% to $779 million, driven by new store openings and comparable store sales growth. Comparable store sales increased 3.6%, driven by an increase in both basket and transactions. Seasonal, consumables, hardware, stationery and sporting goods, were our top-performing categories. Our comp sales increase was above our expectations in the quarter, even more so when factoring in the impact of severe winter weather. Major storms around Black Friday weekend, the weekend of Ollie's Army Night, and the end of January caused a significant number of store closures and disruptions to the business. Given our store geography, we were particularly hard hit by the weather. While comp store sales were ahead of expectations, new store sales were slightly below our plan. This was a different trend than the rest of the year as our new stores outperformed expectations in the first 3 quarters. In hindsight, we underestimated the flattening of the reverse waterfall for the new stores in year 1 from the soft opening strategy. This proved to be more impactful in the fourth quarter than what we observed earlier in the year because of the higher engagement levels with our Ollie's Army members during the holiday season. The…

Thanks, Rob. In closing, I'd like to share that we are well positioned and laser-focused on continuing to deliver profitable growth. We are committed to driving strong and consistent execution every hour of every day. We are proud of what we do in service of our customers. We are excited about the opportunities ahead. And last, but certainly not least, we are Ollie's. Operator, we are now ready for questions.

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

Thank you. Good morning, everyone. Interesting on algo change, certainly exciting from moving from the historic 1% to 2% comp annual target up to now 2%. So kind of subtle, but I would still say meaningful. Could you give us a thought process and why you're doing that now? And maybe, I guess, even what gives you the confidence you can sustain that going forward?

Sure. Peter, thanks for your question. We do believe we're at an inflection point with the accelerated growth last year and looking at $3 billion in sales for next year. Our growing size of scale is leading to better access to merchandise and deals. It's allowing us to steer our merchandise selection and our category mix much more deliberately than we were able to do in the past. Our flexible buying model allows us to get in and out of products and categories fluidly. So with more consistent access to incredible deals and the improvements we've made throughout the business on the organization, we feel like a 2% comp algo is sustainable.

Our next question comes from the line of Chuck Grom with Gordon Haskett.

I'd read that chance, the 9.5%, I think, this morning, nice effort. My question is on sales productivity. You've noted changes being made to the size of certain assortments such as shrinking carpeting books and toys just now. Where are you guys in that journey and that in sales per square foot. I'm curious for your best stores where that productivity sits. And then last question would be in our field work, we've observed furniture in stores. Is that just a seasonal drop? Or are you guys leaning into that category more deeply?

Thanks, Chuck. Appreciate it. I think I was at 1.0 on the [indiscernible] it's all right. You could be a 9.5. Room or improvement. We like that, yes. That's right. In terms of space productivity, we are thinking about space productivity differently now than we have in the past. We first consider where we provide the best values in the most relevant merchandise categories where we can chase a closeout pipeline. So I would stress the fluidity, the flexibility of our business in the category mix is sometimes a following of the closeout pipeline. But our growing size and scale gives us better access to deals, which I said earlier, results in -- it's resulting in more long-term partnerships with the vendor community and more partnerships with the better community. The more expansive access to the merchandise is putting us to the driver seat in steering categories and assortments. We've also been on a journey thinking about this, how we value store space, how we drive higher space productivity within the box for multiple years at this point, beginning with some of the learnings that we took away from our remodel program several years ago, and it's resulted in our confidence to accelerate some investments in the business and to steer categories in a more deliberate way. We're also making investments, as I mentioned on the call, in planning allocation and stores to further seize these opportunities. Furniture is a great example. I'm glad you brought it up of a category that we've looked at, where there's tremendous white space in the market as a result of retail consolidation. So I throw out there, Big Lots, Value City, American Freight are good examples of retail consolidation that's happened sublet recently and it's opened up white space and what I would…

Our next question comes from the line of Matthew Boss with JPMorgan.

So Eric, on the inflection point that you cited to kick off the call. So 2 questions. First, could you elaborate on the comp strength relative to plan that you saw in November and December? How best to quantify the weather impact on the fourth quarter? And have you seen any change in comp momentum so far in the first quarter relative to the 3 to 4 comps that you delivered in the fourth quarter? And Rob, separately, I guess, could you just elaborate on the performance that you're seeing in your new stores relative to plan and just expectations for productivity that you embedded in the guide for this year relative to 2025?

This is Rob, I think I'll take all of that. So the comps at Q4, we were pleased with the comp results. It was driven by both increases in transactions and baskets -- it was back at led with basket taking 2/3 of it and transactions a third. The monthly cadence traded in a pretty tight range. We were pleased with the holiday season. We had a very nice holiday season. In January, our exit rate would have been the strongest comp of the quarter had it not been for the winter storm impact, which was very significant, where we had hundreds of stores closed for a number of days in that last week of the quarter. And momentum is spilled over into Q1. We're pleased with where we're positioned. We feel like we can deliver on our guidance. Our deal flow is amazing, and our assortment for the spring season is incredible. From a new store perspective, I think it's important to put all of it into context. First, the majority of our stores [ be ] planned for the full year. So we're very pleased with that result. Second, the new stores were impacted actually disproportionately from the comp stores during that last week of the quarter because of geographies. So that was also a piece. But in terms of trend and what we're seeing, what we saw in Q4 was the timing dynamic, which related to our soft opening strategy, which flat in the early sales curve, but it improved execution of these stores. This improved execution helped us open the stores earlier and really helped us step up from the historical cadence from 50 stores to 86 stores this last year. We knew this would impact the maturity curve in some way. But what we feel that it does is we feel that it impacts the shape of the curve, but not the long-term productivity, profitability or opportunity in any of these stores over the longer term. In terms of what we've embedded in guidance, we've considered this performance in the fourth quarter into our guidance, into our new store productivity. way that the Street calculates new store productivity is slightly higher this year versus last year because of the step-up in the 86 stores coming into the store base. But we're comfortable with our guidance, and we feel that we're in a good position to deliver.

Our next question comes from Steven Shemesh with RBC Capital Markets.

Great. I appreciate you taking the -- there are obviously a lot of consumer cross currents at the moment. If we think about an evolving tariff landscape inflation may be picking up a bit on your tax refunds as you alluded to and now the Middle East situation impacting gas prices and consumer confidence. Anything you can share on the overall state of the consumer and kind of what you're seeing from a consumer behavior standpoint. And a related question, I mean, I think there's always an ongoing debate about closeout availability, you somewhat alluded to this in your response to an earlier question, but maybe just a state of the union there as well of you're confident in maintaining a high degree of quality in stores, especially as you ramp up store growth.

Sure. Thanks, Steve. Thanks for your questions. In terms of the state of the consumer, consumers are seeking value and we're here for them. The strength we're seeing in trade down has continued with our upper income cohorts. It's there's momentum there in trade down. The lower income -- the lowest of our cohorts a little bit weak, the trade down is more than offsetting the weakness in the lower income cohorts. We're also seeing strength in consumables, which is an indication of where the consumer's mind set is it's continuing to be a very strong business for us. The deal flow is lining up very, very nicely, which is a good segue into deal flow with the consumer demand consumables for us. Deal flow for us, it's off the charts. With the consolidation of retail that's taking place, definitely outsized consolidation in retail over the past year. We are seeing deal flow in just about every category that's off the charts. And again, I mentioned consumables, but that's definitely been a strong pipeline for us in consumables. So we're extreme value retailer. We're comfortable with where we are from a price gap standpoint very competitively positioned. So we're in good shape.

Our next question comes from Steven Zaccone with Citi.

I wanted to ask about the real estate environment. Just help us understand how you're balancing new store growth versing investing in some of these initiatives to drive higher store productivity. And then this year calls for 75 new stores, which is slightly above 10% unit growth, should we expect this unit growth above 10% to continue for a couple of years.

Thanks, Steve. It's Rob. I'll take that question. The real estate environment remains strong, and availability is very good. 2025 was actually one of the biggest years of store closures that we've seen over the last 10. But we're focused on building a long-term durable business model that compounds earnings growth year after year. We feel that the best way to do this now is by balancing our new store growth with other initiatives to improve the in-store shopping experience across the remainder of our fleet. But touching on the go forward, we think that 10% unit growth is probably the right way to think about it. beyond 2026. 2025 and 2026 were really above algo because of the outsized consolidation of stores that we've seen in the last 12 to say, 24 months.

Our next question comes from the line of Kate McShane with Goldman Sachs.

Is there a way to quantify the comp growth of Ollie membership versus what is coming from new store growth. And we were wondering if the Ollie Army demographic is changing in line with what you're seeing just in the stores.

I'll take the first part, and then I'll hand it off to Eric for the second part. We haven't separated that out in the past historically. We think about Ollie's Army as a single metric. And we're looking to grow it through new stores predominantly. But what I would say is all vintages continue to comp on Ollie's Army store growth. And it's an important goal that we set for our store teams in communicating the benefits out to our customers each and every day.

Yes. I mean we're very pleased overall with the Ollie's Army performance on the quarter and on the year in terms of the growth, the excitement that our customers have around the program, the enhancements of the program, the conversion that our stores have driven with the customers, the new customers that are coming in to make them part of the Army to make them part of our loyal bargainauts, Ollie's family. So that's -- we're firing on all cylinders as it concerns Ollie's Army.

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

Congrats on a strong 2025 I was interested in the seasonal business in the fourth quarter, specifically, how much of that strength was close out as opposed to some of the direct source stuff that you did, particularly in terms of decorations and also gifts?

Sure. The seasonal business typically is more non closeout, more source, more production goods. Last year, we did see a fairly healthy pipeline of closeout goods of ex inhibitory that was out there as a result of retail consolidation with manufacturers and product that was left behind from retailers that are out of business that was in transit, et cetera. So it was a combination. I'm not going to quote the percentage on it, but it was actually a fairly healthy combination of closeouts that is somewhat unusual for that business. Gift is the same to the extent we don't usually get into specific deals on this call, but we did have outsized gift-related deals. A year ago, we were up against that were closeout related. Some of what we bought was closed out and so what we bought was production, and we had a very strong gift business this year. So we were able to comp our business that was a little bit more closeout driven in '24, with a little bit less closeout-driven product in '25, and we were very proud of our value proposition, our price gaps on that product. It does speak to the evolution of our business as we continue to grow, being maybe more like an off-pricer with close out is the most important driver of our value prop. And that's how we see our business as we move forward, especially as we continue to grow in size and scale.

Our next question comes from the line of Simeon Gutman with Morgan Stanley.

Good job in '25. If you take the sort of this newer financial algo compared to previous, so two, it's a little bit higher than what you were comfortable underwriting. Gross margin is certainly higher. Can you just tell us then what happens on the other side of it? Are you saying that margin grows at a faster rate to an EPS grows faster? Or is there something inhibiting higher SG&A? I'm sorry if I missed that piece, but I'm trying to put on the before and after together.

This is Rob, Simeon. I'll take that question. We're not thinking about margin growth necessarily differently under the algo. What we're moving from is the 1% to 2% which shows the confidence that we have based on this inflection point based on our size and scale. Margin, we're thinking as the current baseline target. We're thinking not to exceed 40.5% in the short term. We think that this is the right balance between price and margin at the moment. And if we have the opportunity to exceed, we would reinvest that back into customer loyalty to drive additional market share at this moment. From an SG&A perspective, as the 2% comp, we would expect for 10 basis points of leverage, which is built into our guidance. And then EPS will grow in the mid-teens on the bottom line. And that will be supplemented by share repurchases, but that's not -- that's not how we're getting there. We're getting there through the core strength of the algo throughout the P&L.

Yes, Simeon, I just want to stress the point on margin about reinvesting in price. Nothing has changed here. We reinvested price, 40.5% is the new 40. Period.

Our next question comes from Scott Ciccarelli with Truist.

This is Josh Young on for Scott. So how much benefit do you think you're capturing at this stage for big lots? And could we see sales slow in the back half as you cycle those orphan sales that you were able to capture?

This is Rob. I'll take that one. The stores that have overlapped the the former big loss locations, whether they closed never came back or they closed and reopened under the variety of wholesalers umbrella, are some of the strongest locations in our fleet over the past year. But similar to COVID, when we were talking about 2-year, 3-year, 4-year comstack, big losses in the rearview mirror and what they were is not coming back. We will continue to benefit from their absence in real estate, in access to product and sourcing and talent, all while continuing to wear share of wallet with our incredible deals and bargains -- but our model has always thrived on the long-term consolidation of retail and Big Lots is no different.

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

And I'll add my congratulations on the really strong year. I wanted to ask about dark grant, which you saw impact in 2025. What was the total dark rent in '25? And if you have some dark rent that you're expecting in 2026, what would that amount be? And then also, you talked about returning capital to shareholders maybe in a little bit bigger way. You've got over $0.5 billion in cash and generated about $300 million of operating cash flow in '25. Would you think about stepping up like the share repurchase plan to a $300 million, $400 million level? Just something that given the cash flow that you generate and current balance and strong balance sheet. Just curious if that's under consideration.

Sure. This is Rob. I'll take those questions. Dark rent expense was $5 million for the Big Lots locations in 2025. Not all of this was incremental. And typically, our organic locations incur some level as dark rent. It's typically in the range of a month or so as we merchandise the store. We do have more normalized assumptions included within preopenness last year. But as you do the math, I think the piece that you're trying to solve for is our investment in improving the shopping experience and the remodel program, which we have now added back into 2026 has included our guidance numbers. So that's on the preopening side. On the buyback side, the way we're thinking about buybacks is it's a supplement to our algo. It's not a substitute for earnings growth. We're very comfortable with the commitment of returning 50% of our free cash flow generation back to the shareholders. The $100 million, we believe, is a conservative target. If we are able to generate higher levels of operating cash flow, we'll aim to stick to that 50% return of free cash flow. We're not looking to do a short-term pop. We're looking for steady compounding earnings growth over time.

We have a question from Edward Kelly with Wells Fargo.

Nice quarter. On the marketing side, I was hoping that you could touch on maybe some of the changes in the marketing strategy, and you mentioned optimization. And then related to this on the flyer, any shifts on the flyer that we should be thinking about this year or other special promotions for '26?

I love that you asked flyer questions and count offers and flyers as well. On the marketing question, before I get into flyers, we continue to optimize our marketing through our dynamic media mix model. It allows us to reallocate spend towards higher-return channels and it's more fluid in terms of timing. This has been a journey, multiyear journey at this point as we reduce our reliance on what I call the inevitable reduction of print media. It's been in decline for many, many years, continues to be a decline. It's really not about spending more, it's about using data to be more precise and more efficient. We've already seen the result of some of that work over the past 6 months, as you can see from a reduction of marketing spend over the last 6 months. Again, it's not about reducing, it's about a more efficient spend. We also have meaningfully reduced our print spend over time, a little ahead of the decline of the print media that's available to purchase, which is where all the reduction is coming from. The approach gives us much more flexibility, as I touched on. Digital is much more flexible, which helps facilitate responding to deal flow, seasonality. Customer engagement is much more fluid and flexible, it's a near real time and we can stay very disciplined on expense control. In terms of your flyer-related questions. We -- so we -- our history here is that flyers are big events in the material over the quarter. We're not thinking of it that way anymore. And I am not going to talk about changes to flyer timing going forward. I get a little bit concerned with our growing size and scale and approaching $3 billion in sales next year with, Uncle Ben from Spider-Man, "with great power comes great responsibility". And we have great buying power in the closeout business. And I'd rather not project to the vendor community and to our competitors out there, what we're doing with flyers or what we're doing with managing our mix on a go-forward basis, et cetera. So we're committed to the 2% algo period every quarter. So that's how we're looking at it. So that is the answer to your flyer question.

Thank you. And ladies and gentlemen, this will conclude our conference for today. Thank you for participating. You may now disconnect.