OLLI - NASDAQ

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 younger customer through digital marketing tactics. Finally, we are reinvesting in our stores and improving the customer shopping experience. All of this is driving an expanded customer base. Our next objective was to go after merchandise-related opportunities. Our mission is to sell good stuff cheap. We do this through a flexible off-price buying model that leverages our growing buying power across suppliers and manufacturers around the world. Our growing size and scale and continued consolidation in the retail industry has resulted in better access to merchandise, and our deal flow is off the charts. This gives us more control and flexibility in how we build our merchandise assortment. A good example of this were changes we made to the seasonal category. Seasonal Decor is an area that continues to grow in the marketplace, and there is a white space opportunity here. At the same time, Toys is an area that continues to evolve away from traditional to more interactive products. With this in mind, we increased our investments in seasonal decor and changed our approach to toys. These changes resonated with our customers and were big wins in the fourth quarter. Our last initiative was to continue reinvesting in our business to support future growth. We have strengthened our bench in many critical areas, including playing in allocation, marketing and new store development. We also increased our distribution center throughput through expansion and automation and we continue to improve our store and customer experience. Looking ahead, we will build on our momentum and progress in pursuing these initiatives in 2026. Our flywheel for growth starts with the opening of new stores and the availability of real estate continues to be strong. We are planning to open 75 stores this year, and these will be a mix of new and existing markets as we continue to expand contiguously. We recently celebrated entering our 35th state with the opening of our store in Austin, Minnesota. We celebrated the grand opening last week with a long line of enthusiastic customers that stretched down the side of the building. It was great to meet and talk to so many good people. Austin loves deals, and we are proud to be part of your community. Thank you, Austin and Minnesota, the birthplace of bargains has arrived with more stores coming soon. In addition to Minnesota, we will also be entering New Mexico later this year. With a total of 658 stores in 35 states, we are only at the halfway mark of our long-term goal of more than 1,300 stores. It's such an invigorating time to be with Ollie's with so much growth ahead of us. While new stores remain the quarterstone of our growth, we are also focused on driving comparable store sales through better execution, leveraging our growing size and scale and improving sales productivity. We touched on strengthening our product assortment. We are also seeing opportunities arise in areas such as real estate and talent. Would you combine this with the fact that we reinvested in the business every year because of our strong sales, profitability, cash generation and balance sheet, it feels like we have reached an inflection point. With these dynamics we are confident in our ability to continue executing the business and driving consistent results. Our growth and the continued consolidation of the retail sector is leading to more buying power and expanding our access to products. This gives us the ability to balance our value proposition with our margin profile and strengthen both over time. Based on the structural changes to our business, we feel a comp target of 2% and a gross margin target of 40.5% is sustainable and strikes the right balance between price and margin. We also believe that this stability and strong free cash flow now allows us to commit to returning higher levels of excess cash to shareholders through share repurchases. Combining 10% unit growth, 2% comp growth and a commitment to stepping up share repurchases, we are confident in delivering consistent mid-teens EPS growth while reinvesting back into the business to support profitable long-term growth and reach our target of 1,300 stores. In 2026, our focus will be on improving the in-store customer shopping experience, sharpening our dynamic marketing media mix model expanding our IT application development capabilities and further integrating technology and data analysis across the enterprise, including leveraging proven AI with appropriate solutions for our business model, growing our planning and allocation pension capabilities and increasing our distribution capacity by expanding our Texas and Illinois facilities and laying out plans for our fifth DC. There is so much potential to continue to develop and grow our business, but we are doing this in a calculated fashion, staying true to our business model, strong culture, and our new long-term growth algorithm. We are super proud of our achievements in fiscal 2025. We delivered against virtually every single metric and goal we set out for ourselves at the beginning of the year. But now that's behind us. We are focused on building on our success, seizing new opportunities, delivering another year of good stuff cheap to our customers and strong results for our shareholders. Let me wrap up by recognizing and thinking all of our dedicated associates and team members. Every one of you plays an important role in serving our loyal discount customers and fulfilling our mission, serving our communities by selling good stuff cheap is not just a tagline. It's our purpose, our passion and our reason for being. Thank you for everything you do. Now let me turn the call over to Rob.

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 majority of our new stores be planned for this full year and the flattening of the reverse waterfall is something we continue to study. Gross margin of 39.9% was above plan for the quarter but approximately 80 basis points lower than last year which was largely due to planned investments in prices. SG&A expenses were well managed in the quarter. Excluding the $5 million of onetime expense related to the modification of equity awards for our Executive Chairman in last year's third quarter, SG&A expense as a percentage of net sales decreased 40 basis points to 24.2%. The decrease was primarily driven by the leverage of our fixed costs from the increase in comparable store sales and benefits from our optimization efforts and marketing. Preopening expenses decreased 53% to $2.3 million, driven by the earlier timing of new store openings this year versus last year. Moving down to the bottom line. Adjusted net income increased 16% to $85 million and adjusted earnings per share increased 17% to $1.39. Lastly, adjusted EBITDA increased 16% to $127 million, and adjusted EBITDA margin decreased 10 basis points to 16.3% for the quarter. Turning to the balance sheet. Our total cash and investments increased by more than 31% or $134 million to $563 million, and we had no meaningful long-term debt at the end of the quarter. We remain committed to maintaining a very strong balance sheet because of the credibility this gives us with our various partners across the industry. Inventories increased 18% year-over-year, primarily driven by our new store growth and strong deal flow. Capital expenditures were $18 million for the quarter, with the majority of the spending going towards the opening of new stores, the improvement of existing stores and, to a lesser degree, investments in our supply chain. We did pull some new stores forward in early 2026, which drove CapEx and preopening a little higher than our expectations. We bought back $34 million worth of our common stock in the quarter and $74 million for the full fiscal year. At year-end, we had $259 million remaining under our current share repurchase authorization. We are stepping up the buyback in 2026, and I will speak to this more in a moment. Lastly, let me run through the way we are thinking about the business and our initial outlook for fiscal year 2026. Let me start with tariffs. The tariff situation obviously remains very fluid, and the current lower levels could be temporary. Bigger picture, tariffs are just another form of disruption, and we benefit from disruption. Whatever happens, we would expect to mitigate any margin pressure from tariffs. Before running through our guidance for 2026, let me comment on how we are thinking about our new long-term growth algorithm that Eric quickly touched on. We operate a flexible and fluid business that generate stable returns and very strong cash flows. Our strong growth, along with the consolidation of retail gives us greater ability to scale and drive the business. With all of this, we feel confident in targeting annual comparable store sales growth of 2% and annual gross margin of 40.5% moving forward acknowledging that there will be some variability to comps and margin between the quarters based on deal flow, seasonality and a few other factors. The 40.5% annual gross margin target is our current baseline target. And our thought process is to reinvest anything over and above this back into our value proposition to our customers. Lastly, we are targeting to return approximately 50% of our free cash flow back to investors through share repurchases going forward. Our first and best use of cash is all -- is and will always be reinvesting into the business to support long-term growth. However, between our very strong balance sheet and stable cash generation, we are confident in committing to a higher level of share repurchases that benefits long-term EPS growth. Our initial guidance figures reflect these changes and are contained in the table in our earnings release posted this morning, and they include 75 new store openings, net sales of $2.985 billion to $3.013 billion, comparable store sales growth in the range of 2%, gross margin in the range of 40.5%, operating income of $339 million to $348 million and adjusted net income and adjusted net income per share of $270 million to $277 million, and $4.40 to $4.50, respectively. These estimates assume depreciation and amortization expenses of $63 million, inclusive of $15 million within cost of goods sold, preopening expenses of $22 million with the majority of this in the first half of the year, an annual effective tax rate of approximately 25%, which excludes the tax benefits related to stock-based compensation. The tax rate is slightly higher than 2025 due to higher levels of nondeductible compensation. Diluted weighted average shares outstanding of approximately $61.4 million, which includes a stepped-up share repurchase level of approximately $100 million. And finally, capital expenditures are expected to be in the range of $103 million to $113 million, which includes almost $20 million for the expansion of our Texas and Illinois distribution centers. Similar to last year, we expect our new store openings to again be front-end weighted with the majority of openings planned for the first half. In closing, let me also acknowledge and congratulate my fellow team members. While we continue to integrate technology into how we do things, we will always be a people-led business that relies on each and every team member to play their part. 2025 was a terrific year on all accounts. and I am excited about the opportunities that lie ahead for our team. Now let me turn the call back over to Eric.

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 characterize as the deep discount furniture business with kind of opening price point. Living room furniture is kind of what we're going after with our opportunistic buy model, we are well positioned to chase the business and move in and out of categories. We begin testing expanded furniture last year, actually late last year in some stores, and we like the results of the test. We were looking forward at what we believe to be an outsized tax refund season it sees what we thought would be a unique opportunity to introduce the business in a very big way in almost every store at the same time as the tax refunds were coming in. But to answer your question about is this transitory? Is it deal? Are we driving it now? And what does it mean for the future? We're early innings at this, we're about 7 weeks or so into the introduction of the business. President's Day weekend was the kind of the grand introduction of it. We do believe it has a place in our stores long term. and we're going to stay at the business. It may not be every store, but it's probably most stores or at least more than half of the stores. This being said, the most challenging decisions that we make here are what not to buy, whether that's deals or categories. So those challenging decisions we have to make that we have made for about half the stores is that we're going to exit the wall to wall carpet business, which is relatively unproductive. And we like what we're seeing at furniture. We believe that's an adequate replacement and that we'll get more sales productivity out of furniture versus wall to wall carpet in, again, more than half of our stores. So again, early read, we like what we see. I wouldn't speak today about -- you quoted the $130 sales per square foot about what the road map looks like around that. At this point, we have strategies around category mix management. that will drive improved selling productivity. We're not making a specific commitment to what that looks like in future years today.

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

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.