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Item 2. Management’s Discussion and Analysis

2023-08-31 compared with 2023-06-07 · 217 added, 175 removed, 253 unchanged (61% of the section changed)

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

The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and

related notes of Ollie’s Bargain Outlet Holdings, Inc.

included in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and the related notes included in our Annual Report on Form 10-K filed with the Securities

and Exchange Commission, or SEC, on March 24, 2023 (“Annual Report”).

As used in this Quarterly Report on Form 10-Q, except where the context otherwise requires or where otherwise indicated, the terms “Ollie’s,” the “Company,” “we,” “our,” and

“us” refer to Ollie’s Bargain Outlet Holdings, Inc.

The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related

notes of Ollie’s Bargain Outlet Holdings, Inc.

included in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and the related notes included in our Annual Report on Form 10-K filed with the Securities and

Exchange Commission, or SEC, on March 24, 2023 (“Annual Report”).

As used in this Quarterly Report on Form 10-Q, except where the context otherwise requires or where otherwise indicated, the terms “Ollie’s,” the “Company,” “we,” “our,” and “us”

refer to Ollie’s Bargain Outlet Holdings, Inc.

and subsidiaries.

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References to “2022” refer to the 52-week period of January 30, 2022 to January 28, 2023.

References to the “first quarter of fiscal 2023” and the “first quarter of fiscal 2022” refer

to the thirteen weeks of January 29, 2023 to April 29, 2023 and January 30, 2022 to April 30, 2022, respectively.

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

period may not necessarily be indicative of the results that may be expected for a full year.

References to the “second quarter of fiscal 2023” and the “second quarter of fiscal 2022” refer

to the thirteen weeks of April 30, 2023 to July 29, 2023 and May 1, 2022 to July 30, 2022, respectively.

Year-to-date periods ended July 29, 2023 and July 30, 2022 refer to the twenty-six weeks of January 29, 2023 to July 29, 2023 and January 30,

2022 to July 30, 2022, respectively.

Historical results are not necessarily indicative of the results to be expected for any future period and results for any interim period may not necessarily be indicative of the results that may be expected for

Cautionary Note Regarding Forward-Looking Statements

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Private Securities Litigation Reform Act of 1995.

Forward-looking statements can be

identified by words such as “could,” “may,” “might,” “will,” “likely,” “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “continues,” “projects,” and similar references to future periods, prospects, financial

performance, and industry outlook.

Forward-looking statements can be identified

by words such as “could,” “may,” “might,” “will,” “likely,” “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “continues,” “projects,” and similar references to future periods, prospects, financial performance, and

industry outlook.

Forward-looking statements are based on our current expectations and assumptions regarding our business, capital market conditions, the economy, and other future conditions.

Because forward-looking statements

relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict.

As a result, our actual results may differ materially from those contemplated by the

forward-looking statements.

Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory

conditions, including, but not limited to, supply chain challenges, legislation, national trade policy, and the following:

our failure to adequately procure and manage our inventory, anticipate consumer demand, or achieve favorable product

changes in consumer confidence and spending;

Because forward-looking statements relate to the future,

by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict.

As a result, our actual results may differ materially from those contemplated by the forward-looking statements.

not limited to, supply chain challenges, legislation, national trade policy, and the following:

our failure to adequately procure and manage our inventory, anticipate consumer demand, or achieve favorable product margins;

changes in consumer

confidence and spending;

risks associated with our status as a “brick and mortar” only retailer;

risks associated with intense competition;

our failure to open new profitable stores, or successfully enter new markets,

on a timely basis or at all;

our failure to open new profitable stores, or successfully enter new markets, on a timely basis or at all;

fluctuations in comparable store sales and results of operations, including on a quarterly basis;

factors such as inflation, cost increases and energy prices;

the risks associated with doing business with

international manufacturers and suppliers including, but not limited to, potential increases in tariffs on imported goods;

the risks associated with doing business with international manufacturers and suppliers

including, but not limited to, potential increases in tariffs on imported goods;

our inability to operate our stores due to civil unrest and related protests or disturbances;

our failure to properly hire

and to retain key personnel and other qualified personnel;

our failure to properly hire and to retain key personnel and other

qualified personnel;

changes in market levels of wages;

risks associated with cybersecurity events, and the timely and effective deployment, protection, and defense of computer networks and other electronic

systems, including e-mail;

our inability to obtain favorable lease terms for our properties;

the failure to timely acquire, develop, open and operate, or the loss of, disruption or interruption in the operations of, any of our centralized

distribution centers;

risks associated with our lack of operations in the growing online retail marketplace;

risks associated with cybersecurity events, and the timely and effective deployment, protection, and defense of computer networks and other electronic systems, including e-mail;

our inability

to obtain favorable lease terms for our properties;

the failure to timely acquire, develop, open and operate, or the loss of, disruption or interruption in the operations of, any of our centralized distribution centers;

risks associated with our

lack of operations in the growing online retail marketplace;

risks associated with litigation, the expense of defense, and potential for adverse outcomes;

our inability to successfully develop or

implement our marketing, advertising, and promotional efforts;

our inability to successfully develop or implement our marketing, advertising, and

promotional efforts;

the seasonal nature of our business;

risks associated with natural disasters, whether or not caused by climate change;

outbreak of viruses, global health epidemics, pandemics, or

widespread illness, including the continued impact of COVID-19 and continuing or renewed regulatory responses thereto;

outbreak of viruses, global health epidemics, pandemics, or widespread illness, including the continued

impact of COVID-19 and continuing or renewed regulatory responses thereto;

changes in government regulations, procedures, and requirements;

and our ability to service indebtedness and to comply with our

financial covenants together with each of the other factors set forth under “Item 1A - Risk Factors” contained herein and in our filings with the SEC, including our Annual Report.

Any forward-looking statement made by us in this Quarterly Report

on Form 10-Q speaks only as of the date on which such statement is made.

and our ability to service indebtedness and to comply with our financial covenants together with each of the

other factors set forth under “Item 1A - Risk Factors” contained herein and in our filings with the SEC, including our Annual Report.

Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which

such statement is made.

Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.

We undertake no

obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

You are advised, however, to consult any further disclosures we

make on related subjects in our public announcements and SEC filings.

We undertake no obligation to publicly update or revise any forward-looking

statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

You are advised, however, to consult any further disclosures we make on related subjects in our public announcements and SEC

Ollie’s is a highly differentiated and fast-growing, extreme value retailer of brand name merchandise at drastically reduced prices.

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contiguous states.

We have expanded to 476 stores located in 29 states as of April 29, 2023.

We have expanded to 482 stores located in 29 states as of July 29, 2023.

Our stores are supported by three distribution centers, one each in York, PA, Commerce, GA and Lancaster, TX.

We are in the process of expanding our York, PA distribution center, which will

provide an additional 201,000 square feet of distribution capacity and is expected to be completed in the first half of 2023.

In the first quarter of fiscal 2023, the Company acquired land in Princeton, IL, for the construction of its fourth

distribution center.

The Company expects to occupy the distribution center in the second quarter of fiscal 2024.

With the expansion of our York, PA distribution center and the addition of our fourth distribution center, we believe our

distribution capabilities will support over 700 stores.

We recently completed the expansion of our York, PA distribution center, which provides

an additional 201,000 square feet of distribution capacity.

In the first quarter of fiscal 2023, the Company acquired land in Princeton, IL, for the construction of its fourth distribution center.

The total cost of the land and building is expected

to be in the range of approximately $85 million.

The Company expects to occupy the distribution center in the first half of fiscal 2024.

With the expansion of our York, PA distribution center and the addition of our fourth distribution center, we

believe our distribution capabilities will support between 700 and 750 stores.

We have invested in our associates, infrastructure, distribution network and information systems to allow us to continue to rapidly grow our store footprint, including:

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adding members to our senior management team;

expanding the capacity of our distribution centers to their current 2.2 million square feet;

expanding the capacity of our distribution centers to their current 2.4 million square feet and constructing a fourth distribution center in Princeton, IL;

investing in information technology, accounting, and warehouse management systems.

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square feet and an average initial cash investment of approximately $1.0 million, which includes store fixtures and equipment, store-level and distribution center inventory (net of payables), and pre-opening expenses.

We target new store

sales of approximately $4.0 million in their first full year of operations.

We target new store sales of

approximately $4.0 million in their first full year of operations.

While we are focused on driving comparable store sales and managing our expenses, our revenue and profitability growth will primarily come from opening new stores.

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sales and profitability of our business.

We plan to achieve continued net sales growth, including comparable stores sales, by adding stores to our store base and by continuing to provide quality merchandise at a value for our customers as we

scale and gain more access to purchase directly from major manufacturers.

and gain more access to purchase directly from major manufacturers.

We also plan to leverage and expand our Ollie’s Army database marketing strategies.

In addition, we plan to continue to manage our selling, general, and administrative

expenses (“SG&A”) by continuing to make process improvements and by maintaining our standard policy of reviewing our operating costs.

In addition, we plan to continue to manage our selling, general, and administrative expenses

(“SG&A”) by continuing to make process improvements and by maintaining our strong expense control discipline.

Our ability to grow and our results of operations may be impacted by additional factors and uncertainties, such as consumer spending habits, which are subject to macroeconomic conditions and

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Our customers’ discretionary income is primarily impacted by gas prices, wages, rising interest rates, and consumer trends and preferences, which fluctuate depending on the environment.

The potential

consolidation of our competitors or other changes in our competitive landscape could also impact our results of operations or our ability to grow, even though we compete with a broad range of retailers.

The potential consolidation

of our competitors or other changes in our competitive landscape could also impact our results of operations or our ability to grow, even though we compete with a broad range of retailers.

Our key competitive advantage is our direct buying relationships with many major manufacturers, wholesalers, distributors, brokers, and retailers for our brand name and closeout products and

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wages, rising interest rates, and consumer trends and preferences, which fluctuate depending on the environment.

However, because we offer a broad selection of merchandise at extreme values, we believe we are less impacted than other retailers

by economic cycles that correspond with declines in general consumer spending habits.

However, because we offer a broad selection of merchandise at extreme values, we believe we are less impacted than other retailers by

economic cycles that correspond with declines in general consumer spending habits.

We believe we also benefit from periods of increased consumer spending.

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Non-comparable store sales consist of new store sales and sales for stores not open for a full 15 months.

Stores which are closed temporarily, but for more than five days in any fiscal month,

are included in non-comparable store sales beginning in the fiscal month in which the temporary closure begins until the first full month of operation once the store re-opens, at which time they are included in comparable store sales.

Opening new stores is the primary component of our growth strategy and as we continue to execute on our growth strategy, we expect a significant portion of our sales growth will be attributable

to non-comparable store sales.

Stores which are closed temporarily, but for more than five days in any fiscal month, are

included in non-comparable store sales beginning in the fiscal month in which the temporary closure begins until the first full month of operation once the store re-opens, at which time they are included in comparable store sales.

Opening new stores is the primary component of our growth strategy and as we continue to execute on our growth strategy, we expect a significant portion of our sales growth will be attributable to

non-comparable store sales.

Accordingly, comparable store sales are only one measure we use to assess the success of our growth strategy.

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and merchandise mix is reviewed by our merchant team and senior management, ensuring strict adherence to internal margin goals.

Our disciplined buying approach has produced consistent gross margins and we believe helps to mitigate adverse

impacts on gross profit and results of operation.

Our disciplined buying approach has produced consistent gross margins and we believe helps to mitigate adverse impacts

on gross profit and results of operation.

The components of our cost of sales may not be comparable to the components of cost of sales or similar measures of our competitors and other retailers.

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SG&A are comprised of payroll and benefits for store, field support, and support center associates.

SG&A also include marketing and advertising expense, occupancy costs for stores and

the store support center, insurance, corporate infrastructure, and other general expenses.

SG&A also include marketing and advertising expense, occupancy costs for stores and the

store support center, insurance, corporate infrastructure, and other general expenses.

The components of our SG&A remain relatively consistent per store and for each new store opening.

The components of our SG&A may not be comparable

to the components of similar measures of other retailers.

The components of our SG&A may not be comparable to the

components of similar measures of other retailers.

Consolidated SG&A generally increase as we grow our store base and as our net sales increase.

A significant portion of our expenses is primarily fixed in nature, and we expect to

continue to maintain strict discipline while carefully monitoring SG&A as a percentage of net sales.

A significant portion of our expenses is primarily fixed in nature, and we expect to continue to

maintain strict discipline while carefully monitoring SG&A as a percentage of net sales.

We expect that our SG&A will continue to increase in future periods with future growth.

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Expenditures for additions, renewals, and betterments are capitalized;

expenditures for maintenance and repairs are

charged to expense as incurred.

expenditures for maintenance and repairs are charged

to expense as incurred.

Depreciation and amortization are computed on the straight-line method for financial reporting purposes.

Depreciation as it relates to our distribution centers is included within cost of sales on the condensed

consolidated statements of income.

Depreciation as it relates to our distribution centers is included within cost of sales on the condensed consolidated

statements of income.

Pre-Opening Expenses

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opening advertising costs, payroll expenses, travel expenses, employee training costs, rent expenses, and store setup costs.

Pre-opening expenses for new stores are expensed as they are incurred, which is typically within 30 to 45 days of

opening a new store.

Pre-opening expenses for new stores are expensed as they are incurred, which is typically within 30 to 45 days of opening

For opening distribution centers, pre-opening expenses primarily include inventory transportation costs, employee travel expenses, and occupancy costs.

Store remodel costs primarily consist of payroll expenses, travel

expenses, and store setup costs expensed as they are incurred.

Store remodel costs primarily consist of payroll expenses, travel expenses, and

store setup costs expensed as they are incurred.

Store closing costs primarily consist of insurance deductibles, rent, and store payroll.

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evaluate these non-GAAP measures on the same basis as management uses to evaluate the Company’s operating results.

We believe that excluding items from operating income, net income and net income per diluted share that may not be indicative of,

or are unrelated to, our core operating results, and that may vary in frequency or magnitude, enhances the comparability of our results and provides a better baseline for analyzing trends in our business.

We believe that excluding items from operating income, net income and net income per diluted share that may not be indicative of, or

are unrelated to, our core operating results, and that may vary in frequency or magnitude, enhances the comparability of our results and provides a better baseline for analyzing trends in our business.

We define EBITDA as net income before net interest income or expense, depreciation and amortization expenses and income taxes.

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Store Openings and Closings

We opened 9 new stores and closed 1 store in the first quarter of fiscal 2023 and opened 9 new stores and closed one store in connection with a relocation in the first quarter of fiscal 2022.

connection with these store openings and closings, we incurred expenses of $2.1 million and $2.7 million in the respective periods.

We opened 6 new stores in the second quarter of fiscal 2023 and opened 11 new stores and closed one store in the second quarter of fiscal 2022.

We opened 15 new stores and closed one store in the

twenty-six weeks ended July 29, 2023 and opened 20 new stores and closed two stores, one in connection with a relocation, in the twenty-six weeks ended July 30, 2022.

Our business is seasonal in nature and demand is generally the highest in our fourth fiscal quarter due to the holiday sales season.

To prepare for the holiday sales season, we must order and

keep in stock more merchandise than we carry during other times of the year and generally engage in additional marketing efforts.

We expect inventory levels, along with accounts payable and accrued expenses, to reach their highest levels in our

third and fourth fiscal quarters in anticipation of increased net sales during the holiday sales season.

As a result of this seasonality, and generally because of variation in consumer spending habits, we experience fluctuations in net sales and

working capital requirements during the year.

Because we offer a broad selection of merchandise at extreme values, we believe we are less impacted than other retailers by economic cycles which correspond with declines in general consumer

spending habits, and we believe we still benefit from periods of increased consumer spending.

To prepare for the holiday sales season, we must order and keep

in stock more merchandise than we carry during other times of the year and generally engage in additional marketing efforts.

We expect inventory levels, along with accounts payable and accrued expenses, to reach their highest levels in our third

and fourth fiscal quarters in anticipation of increased net sales during the holiday sales season.

As a result of this seasonality, and generally because of variation in consumer spending habits, we experience fluctuations in net sales and working

capital requirements during the year.

Because we offer a broad selection of merchandise at extreme values, we believe we are less impacted than other retailers by economic cycles which correspond with declines in general consumer spending habits,

and we believe we still benefit from periods of increased consumer spending.

Results of Operations

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

We derived the condensed consolidated statements of income for the first quarter of fiscal 2023 and the first quarter of fiscal 2022 from our unaudited condensed consolidated financial statements

We derived the condensed consolidated statements of income for the thirteen and twenty-six weeks ended July 29, 2023 and July 30, 2022 from our unaudited condensed consolidated financial statements

and related notes.

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Thirteen weeks ended

Twenty-six weeks ended

( dollars in thousands)

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Operating income

Interest (income) expense, net

Interest income, net

Income before income taxes

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Operating income

Interest (income) expense, net

Interest income, net

Income before income taxes

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Select operating data:

Number of new stores

New store openings

Number of closed stores

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Thirteen weeks ended

(in thousands)

Interest (income) expense, net

Twenty-six weeks ended

Interest income, net

Depreciation and amortization expenses (1)

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Includes depreciation and amortization relating to our distribution centers, which is included within cost of sales on our condensed consolidated statements of income.

First Quarter of Fiscal 2023 Compared to First Quarter of Fiscal 2022

Net sales increased to $459.2 million in the first quarter of fiscal 2023 from $406.7 million in the first quarter of fiscal 2022, an increase of $52.5 million, or 12.9%.

Second Quarter of Fiscal 2023 Compared to Second Quarter of Fiscal 2022

Net sales increased to $514.5 million in the second quarter of fiscal 2023 from $452.5 million in the second quarter of fiscal 2022, an increase of $62.0 million, or 13.7%.

The increase was the

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The increase in non-comparable store sales was driven by new store unit growth.

Comparable store sales increased 4.5% in the first quarter of fiscal 2023 compared with a 17.3% decrease in the first quarter of fiscal 2022.

The increase in comparable store sales consisted of

an increase in the number of transactions.

Increases in food, candy, health and beauty aids, lawn & garden, and flooring departments were offset by declines in certain home-related categories.

Comparable store sales increased 7.9% in the second quarter of fiscal 2023 compared with a 1.2% increase in the second quarter of fiscal 2022.

The increase in comparable store sales consisted of an

increase in the number of transactions.

Gross Profit and Gross Margin

Gross profit increased to $178.6 million in the first quarter of fiscal 2023 from $141.3 million in the first quarter of fiscal 2022.

Gross margin increased 410 basis points to 38.9% in the first

quarter of fiscal 2023 from 34.8% in the first quarter of fiscal 2022.

The increase in gross margin in the first quarter of fiscal 2023 is primarily due to favorable supply chain costs, partially offset by lower merchandise margin related to

shrink and a higher mix of consumables.

Gross profit increased to $196.7 million in the second quarter of fiscal 2023 from $143.6 million in the second quarter of fiscal 2022, an increase of $53.1 million, or 37.0%.

increased 650 basis points to 38.2% in the second quarter of fiscal 2023 from 31.7% in the second quarter of fiscal 2022.

The increase in gross margin in the second quarter of fiscal 2023 is primarily due to favorable supply chain costs as well as

higher merchandise margins.

Selling, General, and Administrative Expenses

SG&A increased to $130.3 million in the first quarter of fiscal 2023 from $116.3 million in the first quarter of fiscal 2022, an increase of $14.0 million, or 12.0%, primarily driven by

higher selling expenses related to new store openings and incentive compensation.

As a percentage of net sales, SG&A decreased to 28.4% in the first quarter of fiscal 2023 compared to 28.6% the first quarter of fiscal 2022 primarily the

result of leverage of fixed expenses on the increase in comparable store sales partially offset by higher incentive compensation.

SG&A increased to $134.6 million in the second quarter of fiscal 2023 from $118.5 million in the second quarter of fiscal 2022, an increase of $16.2 million, or 13.6%, primarily driven by

higher selling expenses related to new store openings and higher incentive compensation.

As a percentage of net sales, SG&A remained flat at 26.2% in the second quarter of fiscal 2023 compared to the second quarter of fiscal 2022, primarily

the result of higher incentive compensation, offset by the leverage of fixed expenses on the increase in comparable store sales.

Pre-Opening Expenses

Pre-opening expenses for new stores increased to $3.3 million in the first quarter of fiscal 2023 from $2.7 million in the first quarter of fiscal 2022 primarily driven by incremental investments

in our store remodel program, partially offset by timing of new stores.

We opened 9 new stores in the first quarter of fiscal 2023 and fiscal 2022, respectively.

As a percentage of net sales, pre-opening expenses remained flat at 0.7% in the

first quarter of fiscal 2023 compared to the first quarter of fiscal 2022.

Interest (Income) Expense, Net

Net interest income was $2.7 million in the first quarter of fiscal 2023 compared with net interest expense of $0.1 million in the first quarter of fiscal 2022.

The increase in interest income in

the first quarter of fiscal 2023 is primarily due to favorable interest rates and higher average cash and cash equivalent and short-term investments balances compared to the first quarter of fiscal 2022.

Pre-opening expenses decreased to $2.9 million in the second quarter of fiscal 2023 from $3.0 million in the second quarter of fiscal 2022 due to timing of new stores, partially offset by the

impact of incremental investments in our store remodel program.

We opened 6 and 11 new stores in the second quarters of fiscal 2023 and fiscal 2022, respectively.

As a percentage of net sales, pre-opening expenses decreased to 0.6% in the second

quarter of fiscal 2023 from 0.7% in the second quarter of fiscal 2022.

Interest Income, Net

Net interest income was $3.4 million in the second quarter of fiscal 2023 compared with $0.1 million in the second quarter of fiscal 2022.

The increase in interest income in the second quarter of

fiscal 2023 is primarily due to favorable interest rates and higher average cash and cash equivalent and short-term investments balances compared to the second quarter of fiscal 2022.

Income Tax Expense

Income tax expense increased to $10.2 million in the first quarter of fiscal 2023 compared to $4.5 million in the first quarter of fiscal 2022.

The effective tax rates for the first quarters of

Income tax expense increased to $13.8 million in the second quarter of fiscal 2023 compared to $2.6 million in the second quarter of fiscal 2022.

The effective tax rates for the second quarters of

fiscal 2023 and fiscal 2022 were 24.6% and 15.4%, respectively.

The decrease in the effective tax rate in the quarter was primarily due to an increase in excess tax benefits related to stock-based compensation.

Discrete tax benefits totaled $0.2

million in the first quarter for fiscal 2023 compared to discrete tax expense of $0.2 million in the first quarter of fiscal 2022.

As a result of the foregoing, net income increased to $31.0 million in the first quarter of fiscal 2023 from $12.5 million in the first quarter of fiscal 2022, an increase of $18.5 million or

The increase in the effective tax rate in the second quarter of fiscal 2023 was primarily due to a decrease in discrete tax benefits related to stock-based compensation and state tax

rate changes.

Discrete tax benefits totaled $0.5 million in the second quarter of fiscal 2023 compared to discrete tax benefits of $1.5 million in the second quarter of fiscal 2022.

As a result of the foregoing, net income increased to $42.2 million in the second quarter of fiscal 2023 from $14.1 million in the second quarter of fiscal 2022, an increase of $28.1 million or

Adjusted EBITDA

Adjusted EBITDA increased to $49.5 million in the first quarter of fiscal 2023 from $26.2 million in the first quarter of fiscal 2022, an increase of $23.3 million, or 88.5%.

Adjusted EBITDA increased to $64.0 million in the second quarter of fiscal 2023 from $25.9 million in the second quarter of fiscal 2022, an increase of $38.1 million, or 146.7%.

Year-to-Date Fiscal 2023 Compared to Year-to-Date Fiscal 2022

Net sales increased to $973.7 million in the twenty-six weeks ended July 29, 2023 from $859.1 million in the twenty-six weeks ended July 30, 2022, an increase of $114.5 million, or 13.3%.

increase was the result of a comparable store sales increase of $52.3 million and an increase in non-comparable store sales of $62.2 million.

The increase in non-comparable store sales was driven by new store unit growth.

Comparable store sales increased 6.3% in the twenty-six weeks ended July 29, 2023 compared with a 8.5% decrease in the twenty-six weeks ended July 30, 2022.

The increase in comparable store sales

consisted of an increase in the number of transactions.

Gross Profit and Gross Margin

Gross profit increased to $375.3 million in the twenty-six weeks ended July 29, 2023 from $284.9 million in the twenty-six weeks ended July 30, 2022.

Gross margin increased 530 basis points to

38.5% in the twenty-six weeks ended July 29, 2023 from 33.2% in the twenty-six weeks ended July 30, 2022.

The increase in gross margin in the twenty-six weeks ended July 29, 2023 is primarily due to favorable supply chain costs as well as higher

merchandise margins, partially offset by the unfavorable impact of a higher mix of consumables in the quarter.

Selling, General, and Administrative Expenses

SG&A increased to $264.9 in the twenty-six weeks ended July 29, 2023 from $234.7 million in the twenty-six weeks ended July 30, 2022, an increase of $30.2 million, or 12.8%, primarily driven by

higher selling expenses related to new store openings and higher incentive compensation.

As a percentage of net sales, SG&A decreased 10 basis points to 27.2% in the twenty-six weeks ended July 29, 2023 from 27.3% in the twenty-six weeks ended

July 30, 2022.

The decrease was primarily due to leverage of fixed expenses on the increase in comparable store sales, partially offset by higher levels of incentive compensation.

Pre-Opening Expenses

Pre-opening expenses increased to $6.2 million in the twenty-six weeks ended July 29, 2023 from $5.7 million in the twenty-six weeks ended July 30, 2022 due to the timing of new stores and

incremental investments in our store remodel program.

During the twenty-six weeks ended July 29, 2023, we opened 15 new stores and closed one store.

During the twenty-six weeks ended July 30, 2022, we opened 20 new stores and closed two stores,

one in connection with a relocation.

As a percentage of net sales, pre-opening expenses decreased 10 basis points to 0.6% in the twenty-six weeks ended July 29, 2023 from 0.7% in the twenty-six weeks ended July 30, 2022.

Interest Income, Net

Net interest income in the twenty-six weeks ended July 29, 2023 was $6.1 million compared with net interest income of $0.1 million in the twenty-six weeks ended July 30, 2022.

The increase in

interest income in the twenty-six weeks ended July 29, 2023 is primarily due to favorable interest rates and higher average cash and cash equivalent and short-term investments balances compared to the twenty-six weeks ended July 30, 2022.

Income Tax Expense

Income tax expense in the twenty-six weeks ended July 29, 2023 was $24.0 million compared to income tax expense of $7.1 million in the twenty-six weeks ended July 30, 2022.

The effective tax rates

for the twenty-six weeks ended July 29, 2023 and July 30, 2022 were 24.7% and 21.0%, respectively.

The increase in the effective tax rate in the twenty-six weeks ended July 29, 2023 was primarily due to a decrease in discrete tax benefits related

to stock-based compensation and state tax rate changes.

Discrete tax benefits totaled $0.7 million in the twenty-six weeks ended July 29, 2023 compared to discrete tax benefits of $1.3 million in the twenty-six weeks ended July 30, 2022.

As a result of the foregoing, net income increased to $73.2 million in the twenty-six weeks ended July 29, 2023 from $26.6 million in the twenty-six weeks ended July 30, 2022, an increase of $46.5

million or 174.8%.

Adjusted EBITDA

Adjusted EBITDA increased to $113.4 million in the twenty-six weeks ended July 29, 2023 from $52.2 million in the twenty-six weeks ended July 30, 2022, a increase of $61.3 million, or 117.4%.

Liquidity and Capital Resources

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capital expenditures and working capital.

As of April 29, 2023, we had $91.6 million available to borrow under our Revolving Credit Facility and $275.5 million of cash and cash equivalents and short-term investments on hand.

information regarding our Revolving Credit Facility, see Note 7 under “Notes to Unaudited Condensed Consolidated Financial Statements.”

Our capital expenditures are primarily related to new store openings, store resets, which consist of improvements to stores as they are needed, expenditures related to our distribution centers,

and infrastructure-related investments, including investments related to upgrading and maintaining our information technology systems.

We spent $19.0 million and $9.7 million for capital expenditures during the first quarters of fiscal 2023 and

As of July 29, 2023, we had $91.6 million available to borrow under our Revolving Credit Facility and $310.2 million of cash and cash equivalents and short-term investments on hand.

For further information

regarding our Revolving Credit Facility, see Note 7 under “Notes to Unaudited Condensed Consolidated Financial Statements.”

Our capital expenditures are primarily related to new store openings, store resets, which consist of improvements to stores as they are needed, expenditures related to our distribution centers, and

infrastructure-related investments, including investments related to upgrading and maintaining our information technology systems.

We spent $26.2 million and $14.0 million for capital expenditures during the second quarters of fiscal 2023 and

fiscal 2022, respectively.

We expect to fund capital expenditures from cash on hand generated from operations.

We opened 9 new stores and closed one store during the first quarter of fiscal 2023 and we expect to open approximately 45 stores

during fiscal 2023.

Included in our plans is the construction of our fourth distribution center, the completion of the expansion of our York, PA distribution center, as well as store-level initiatives at our existing stores, and general corporate

capital expenditures, including information technology.

Once complete, the 201,000 square foot expansion of our York, PA distribution center, will provide us the capacity for an additional 50 stores.

We have experienced, and may continue to

experience, delays in construction and permitting of new stores and other projects.

Our primary working capital requirements are for the purchase of merchandise inventories, payroll, store rent associated with our operating leases, other store operating costs, distribution

costs, and general and administrative costs.

Our working capital requirements fluctuate during the year, rising in our third fiscal quarter as we increase quantities of inventory in anticipation of our peak holiday sales season in our fourth

fiscal quarter.

For the twenty-six weeks ended July 29, 2023, we spent $45.2 million for capital expenditures compared to $23.7 million for the twenty-six weeks ended July 30, 2022.

We expect to fund capital expenditures from cash on

hand generated from operations.

We opened 15 new stores and closed one store during the twenty-six weeks ended July 29, 2023, and we recently completed the expansion of our York, PA distribution center, which provides an additional 201,000 square

feet of distribution capacity.

We expect to open approximately 45 stores during fiscal 2023.

Included in our plans is the construction of our fourth distribution center in Princeton, IL, as well as store-level initiatives at our existing stores,

and general corporate capital expenditures, including information technology.

We have experienced, and may continue to experience, delays in construction and permitting of new stores and other projects.

Our primary working capital requirements are for the purchase of merchandise inventories, payroll, store rent associated with our operating leases, other store operating costs, distribution costs,

and general and administrative costs.

Our working capital requirements fluctuate during the year, rising in our third fiscal quarter as we increase quantities of inventory in anticipation of our peak holiday sales season in our fourth fiscal

Fluctuations in working capital are also driven by the timing of new store openings.

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This initial tranche expired on March 26, 2021.

Board authorized the repurchase of another $100.0 million of our common stock on December 15, 2020 and a $100.0 million increase on March 16, 2021, resulting in $200.0 million approved for share repurchases through January 13, 2023.

authorized the repurchase of another $100.0 million of our common stock on December 15, 2020 and a $100.0 million increase on March 16, 2021, resulting in $200.0 million approved for share repurchases through January 13, 2023.

On November 30, 2021,

the Board authorized an additional $200.0 million to repurchase stock pursuant to the Company’s share repurchase program, expiring on December 15, 2023.

The shares to be repurchased may be purchased from time to time in open market

conditions (including blocks or in privately negotiated transactions).

The timing of repurchases and the actual amount purchased will depend on a variety of factors, including the market price of our shares, general market, economic, and

business conditions, and other corporate considerations.

Repurchases may be made pursuant to plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, which could allow us to purchase our shares during periods when we

otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods.

The shares to be repurchased may be purchased from time to time in open market conditions

(including blocks or in privately negotiated transactions).

The timing of repurchases and the actual amount purchased will depend on a variety of factors, including the market price of our shares, general market, economic, and business conditions,

and other corporate considerations.

Repurchases may be made pursuant to plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, which could allow us to purchase our shares during periods when we otherwise might be

prevented from doing so under insider trading laws or because of self-imposed trading blackout periods.

Repurchases are expected to be funded from cash on hand or through the utilization of our Revolving Credit Facility.

repurchase authorization does not require the purchase of a specific number of shares and is subject to suspension or termination by our Board of Directors at any time.

During the first quarter of fiscal 2023, we repurchased 215,522 shares of our common stock for $12.3 million, inclusive of transaction costs, pursuant to our share repurchase program.

first quarter of fiscal 2022, no share repurchases occurred.

These expenditures were funded by cash generated from operations.

As of April 29, 2023, we had $125.9 million remaining under our share repurchase authorization.

There can be no

assurances that any additional repurchases will be completed, or as to the timing or amount of any repurchases.

The repurchase

authorization does not require the purchase of a specific number of shares and is subject to suspension or termination by our Board of Directors at any time.

During the twenty-six weeks ended July 29, 2023, we repurchased 492,280 shares of our common stock for $29.0 million, inclusive of transaction costs, pursuant to our share repurchase program.

During the twenty-six weeks ended July 30, 2022, we repurchased 238,485 shares of our common stock for $10.0 million inclusive of transaction costs, pursuant to our share repurchase program.

These expenditures are funded by cash generated from

As of July 29, 2023, we had $109.2 million remaining under our share repurchase authorization.

There can be no assurances that any additional repurchases will be completed, or as to the timing or amount of any repurchases.

Summary of Cash Flows

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

Thirteen weeks ended

Twenty-six weeks ended

(in thousands)

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Net cash used in investing activities

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Cash Provided by Operating Activities

Net cash provided by operating activities in the first quarter of fiscal 2023 was $35.8 million as compared to net cash used in operating activities of $31.5 million in the first quarter of

The increase in net cash provided by operating activities in the first quarter of fiscal 2023 was primarily due to decreased working capital needs, largely due to a decrease in capitalized costs in inventory, as well as timing of

inventory receipts and payments and higher net income year over year.

Net cash provided by operating activities was $109.5 million for the twenty-six weeks ended July 29, 2023 as compared to $4.0 million for the twenty-six weeks ended July 30, 2022.

The increase in

net cash provided by operating activities for the twenty-six weeks ended July 29, 2023 was primarily due to timing of inventory receipts and payments and higher net income year over year.

Cash Used in Investing Activities

Net cash used in investing activities in the first quarters of fiscal 2023 and fiscal 2022 was $99.3 million and $9.6 million, respectively.

The increase in cash used in investing activities is

primarily due to purchases of short-term investments of $85.4 million, in addition to an increase in capital expenditures in the current year, partially offset by maturities of short-term investments of $5.0 million.

Net cash used in investing activities was $113.6 million for the twenty-six weeks ended July 29, 2023 as compared to $23.5 million for the twenty-six weeks ended July 30, 2022.

The increase in

cash used in investing activities is primarily due to purchases of short-term investments of $160.7 million, in addition to an increase in capital expenditures in the current year, partially offset by maturities of short-term investments of $92.1

Cash Used in Financing Activities

Net cash used in financing activities in the first quarters of fiscal 2023 and fiscal 2022 was $12.2 million and $0.4 million, respectively.

The increase in cash used in financing activities is

primarily due to shares repurchased in the first quarter of fiscal 2023 of $12.3 million compared to no repurchases in the first quarter of fiscal 2022.

Net cash used in financing activities was $25.1 million for the twenty-six weeks ended July 29, 2023 as compared to $9.4 million for the twenty-six weeks ended July 30, 2022.

The increase in cash

used in financing activities is primarily due to shares repurchased in the twenty-six weeks ended July 29, 2023 of $26.1 million compared to shares repurchased of $10.0 million in the twenty-six weeks ended July 30, 2022.

Contractual Obligations

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What changed 10-Q

Item 2. Management’s Discussion and Analysis