Good afternoon, and welcome to the Ollie's Bargain Outlet Conference Call to discuss Fiscal 2015 Fourth Quarter and Full Year Financial Results. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session, and instructions will follow at that time.

Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from OLLI's. And as a reminder, this call is being recorded.

On the call today from management are Mark Butler, Chairman, President, and Chief Executive Officer; and John Swygert, Executive Vice President and Chief Financial Officer; Jay Stasz, Senior Vice President of Finance and Chief Accounting Officer. I will turn the call over to Mr. Stasz to get started. Please go ahead sir..

Thank you, and hello, everyone. A press release covering the company's 2015 fourth quarter and full year financial results was issued this afternoon, and a copy of that press release can be found in the Investor Relations section on the company's Web site.

I also want to remind everyone that management's remarks on this call may contain certain forward-looking statements including predictions, expectations, estimates or other information that might be considered forward-looking, and that the actual results could differ materially from those projected on today's call.

Any such items including targeted results for fiscal year 2016 and details relating to our future performance should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

You should not place undue reliance on these forward-looking statements, which speak only as of today, and the company undertakes no obligation to update them for any new information or future events.

Factors that might affect future results are discussed in our filings with the SEC, and we encourage you to review these filings including the company's quarterly reports on Form 10-Q, and it's prospectuses related to the company's IPO and secondary offering for a more detailed description of these factors.

Please also note that we will be referring to certain non-GAAP financial measures on today's call such as EBITDA, adjusted EBITDA, adjusted net income, and adjusted net income per diluted share that we believe may be important to investors to assess the operating performance of our business.

Reconciliations of these non-GAAP financial measures to GAAP financial measures are included in our earnings release. I will now turn the call over to Mark..

Thanks, Jay, and good afternoon everyone. As we reported our preliminary results in an 8-K filing on February 16, we had a very strong fourth quarter and full year.

Once again, the strength was broad-based and across the entire business; sales, margins, new store performance, expense control, deal flow, and Ollie's Army, you name it, it was all good in the quarter and the full year. On the sales side, comps increased 5% versus a 9% increase in the fourth quarter last year.

The majority of our 21 departments delivered a comp increase of mid single digits or better. Some of the best performing areas were books and stationary, electronics, accessories, food and candy, hardware, toys, bed, bath, and pets. Coffee continued to perform well, and comped positive to last year.

We also saw very consistent performance across the store base. This is the beauty of our model regardless of the location, the vintage, or co-tenancy; our stores generate consistent financial returns, and we have never had a store lose money in our 33-year history. On the margin side, operating margin increased to 170 basis points to 13.7%.

Higher merchandized margins, lower distribution costs, and tight expense control all benefited margins. New stores continued to perform in-line or above our expectations. We opened three new stores in the quarter and 27 net new stores for the full year.

We entered the state of Connecticut in 2015 and remain committed to opening stores in contiguous states. The deal flow was very strong in the quarter and we continued to gain better access to merchandise, expand our vendor base, and build more direct relationships.

Ollie's Army membership levels continued to grow well above sale, and members continue to spend significantly more than non-members. Ollie's Army Night was very strong in the fourth quarter, and this is a marquee event for us and the Army.

2015 was a tremendous year for Ollie's, and I want to congratulate the entire team for their dedication and execution.

They [ph], in 2015, we delivered record sales and profits, took the company public, opened our 200th store, entered our 17th state, completed Phase 1 of our loyalty management system, and continue to build our executive leadership team. Retail is detail, and it requires great people and execution every day to gain share and to grow the business.

This is Ollie's 33rd year in business, and many of our team members have been with the business, 10, 20, and even 30 years. It's the experience of the team, 100% commitment to the closeout business, and disciplined operating structure that makes Ollie's unique, and separates us from every other retailer in America.

The business had a lot of momentum in 2015, and we have seen that continue in early 2016. As we have discussed over the past few quarters, we are seeing better access to merchandise for a variety of reasons.

This is allowing our buyers to be even more selective and offer our customers even better bargains on great quality branded merchandise each and every time they walk into one of our stores.

Real brands, real bargains, this is what's making our stores more of a destination for our existing customers, and what we believe what we're doing is attracting new customers each and every day.

We are the birthplace of bargains in the closeout industry, and we continue to develop direct relationships with consumer products companies, and source more products directly from major manufacturers.

In 2016, we expect to attend nearly every tradeshow that there is in America, including the National Hardware Show, the Houseware Show, the Global Pet Show, toy fairs in New York, and even Hong Kong. You name it, our buyers will be there making deals and building relationships.

In 2016, we look to implement Phase 2 of our customer loyalty management system. This should give us the ability to begin testing customized communication with Ollie's Army members late in the year. We think this could be an effective, very effective way to interact with our best customers and let them know when particular products are in our stores.

On the new store front, we plan to open 28 to 32 new stores this year, with our first stores in the states of Florida and Mississippi. We believe both new states should be great markets for us, and we also lots of opportunities in existing markets across our 17 states.

In summary, we feel very good about the outlook and the trends across our business right now, and we are focused on executing the strategy we laid out during our IPO process, which includes opening new stores in contiguous and existing states, strengthening our relationships with vendors, gaining better access to product, leveraging our second distribution center, investing back into the business, paying down debt, and generating strong returns for our shareholders.

With that, I will turn the call over to John, and he will take you through the financial results in more detail..

Thanks, Mark, and good afternoon everyone. As Mark indicated, the business continued to perform well in the fourth quarter, and we are very pleased with our results. Net sales increased 21.3% to $243.4 million. Comparable store sales increased 5% versus the 9% increase in the fourth quarter of last year.

The increase in comparable store sales was driven by an increase in the number of transactions and the basket. We opened three new stores in the quarter, ending with 203 stores in 17 states versus 176 stores in 16 states last year for an increase of 15.3%. Our new stores continue to perform in line or above our expectations.

We remain pleased with the new store productivity. Gross profit increased 24.6% to $98.8 million, and gross margin increased 110 basis points to 40.6%. The increase in gross margin was driven by higher merchandized margins and reduced transportation and distribution costs as a percent of net sales.

SG&A expenses increased 18.5% to $62.5 million in the quarter. The majority of the increase, or approximately $8.5 million was related to higher selling expenses from the 27 net new stores opened during the fiscal year and the increased sales volumes.

The remaining increase in SG&A was primarily related to investment in our store support center, support the continued growth in the business and public company expenses. As a percentage of net sales, SG&A decreased 60 basis points to 25.7% in the fourth quarter. Operating income for the fourth quarter increased 38.1% to $33.3 million.

Our effective tax rate declined to 37.8% from 38.4% in the fourth quarter of last year, as a result of employment-based tax credit and a slight reduction in the projected state tax rates. Net income increased 33.8% to $16.1 million, or $0.26 per diluted share.

Excluding the loss on extinguishment of debt, adjusted net income increased 56.4% to $18.8 million, or $0.31 per diluted share.

EBIDTA increased 35.6% to $35.7 million, and adjusted EBIDTA, which excludes non-cash based non-stock based compensation expense, pre-operating expenses, and non-cash purchase accounting expenses, increased 37% to $38.2 million.

As of January 30, 2016, we have $30.3 in cash and no outstanding borrowings under our $100 million revolving credit facility. During the quarter, we paid down approximately $40 [ph] million of term loan debt, and ended fiscal 2015 with total debt of $200.1 million versus $324.1 million at the end of fiscal 2014.

Capital expenditures were $3.3 million in the fourth quarter versus $2.0 million a year ago for the same period, and $14.2 million in fiscal 2015 versus $14.1 million in fiscal 2014. For fiscal year 2015, net sales increased 19.5% to $762.4 million.

Comparable store sales increased 6% versus a 4% increase last year, and the number of stores increased 15.3%. Gross margin was flat at 39.7%, and operating margins increased 60 basis points to 10.4%.

Net income increased 33.2% to $35.8 million or $0.64 per diluted share, and adjusted net income increased 47.1% to $40.2 million or $0.72 per diluted share. EBITDA increased 24.2%, to $88.9 million, and adjusted EBITDA increased 25%, to $100.4 million. Now let me conclude with come commentary on our outlook for fiscal 2016.

As you are aware, we are an extreme value retailer of brand name merchandise, and the majority of our merchandise comes from opportunistic closeout buys. The closeout nature of our business can lead to some fluctuations in our business to make it difficult to predict comparable store sales.

With that said, however, we are seeing better access to merchandise, which is allowing our merchants to be more selective and opportunistic with their buys. We have historically planned the growth in the business around pre-primary metrics. The first is a mid-teens percentage increase in store growth.

The second is mid-teen percentage increase in annual sales growth. And the third is annual net income growth of approximately 20%. Better access to merchandise and strength in the food category has boosted comparable store sales over the past two years, and been a nice tailwind to our business.

While our business continues to perform well, we do face the very challenging comparisons for the strong comps -- from the strong comps in both 2014, and 2015. As a result, we believe it is prudent to take a conservative approach to planning the business for fiscal 2016. We currently estimate the following results for fiscal 2016.

Total net sales of $865 million to $875 million, comparable store sales growth of 1.5% to 2.5%, the opening of 28 to 32 new stores and no planned closures, operating income between $90 million and $93 million, net income between $51 million and $52 million, net income per diluted share between $0.82 and $0.84 on a diluted average share outstanding base of approximately 62 million.

Excluding expenses related to our secondary offering filed in February 18, of 2016, we expect net income of $51.4 million to $52.4 million, and adjusted net income per diluted share of $0.82 to $0.85 per share, capital expenditures of $14 million to $15 million. A few other items may be helpful.

We estimate annual interest expense between $8 million to $8.3 million, depreciation and amortization expense between $10.5 million and $10.8 million, and an effective tax rate of 38.5%. On a two-year stack basis, we've based our least challenging sales comparison in the first quarter of this year.

This combined with a strong start to the spring selling season, and the continued momentum in the business, we'd likely -- we will likely generate higher comparable store sales in the first quarter than the rest of the year. We expect our SG&A ratio to be relatively flat on a full-year basis.

We expect our expense ratio to increase on a year-over-year basis in the first-half, primarily from investments at our store support center, and public company expenses. And with that said, we would like to turn the call back over to the operator to start Q&A session.

Operator?.

Thank you. [Operator Instructions] And our first question comes from Brad Thomas from Key Capital Markets. Your line is open..

Yes, hi, thank you guys, and congratulations on the great quarter and year. I wanted to first ask about the outlooks for same store sales, as you just commented on, John.

How are you thinking about comps as we move into the back half, as you get against these more difficult comparisons? Is that something you think you can comp against, or is there perhaps some nature to the buys that you've had in the last couple of quarters that might make far more difficult comparisons?.

Sure. Brad, this is John.

With regards to the overall sales and what we're looking at, obviously we're not looking to give real quarterly guidance at this point, but we are wanting to add a little bit of color to our first quarter sales trends, and we believe our first quarter is going to be somewhere in the mid single digits on the positive front, and we're really guiding to a 1% to 2% comp on the next three quarters for the remaining part of the year..

Perfect. Thank you.

And then if I could ask a follow-up about Ollie's Army, as you look ahead here to Phase 2 and rolling out to custom communication, could you give a sense of maybe how broad those tests could be? What if any benefit is baked into your guidance for this year, and how quickly might that be able to become a meaningful driver for you? Thank you..

Sure. Brad, I'll take part of the question, and then Mark will probably finish it, but with regards to how much of the benefit is baked into our overall guidance, our numbers for 2016, we're really giving very, very little impact to our sales guidance for the year.

We basically expect to be able to crawl and start the implementation of this program some time in 2016. So we've not expected –- we've not baked in any benefit at this point in time with regards to overall sales numbers as a result of the Phase 2 implementation of loyalty management system..

As far as the other thing, Brad, with Ollie's Army is that, Ollie's Army now is 6.4 million members strong. It continues to grow. Certainly that's a byproduct of the store growth, but we've been able to, even in our existing markets, continue to sign-up people. They're responding.

We know they're responding bigger and better than ever, and certainly more than non-Ollie's Army member customer..

Great. Thank you very much..

Thanks, Brad..

Thanks, Brad..

Thank you. Our next question comes from Dan Binder from Jefferies. Your line is open..

Hi, it's Dan Binder. Thanks, and congrats on a good quarter. I was hoping that you could talk a little bit more about the direct relationships, the better access. I don't know if you can be more specific, but in light of some news out there recently that one of your competitors is getting into this space in a more meaningful way.

I'm just curious how you're feeling about the ability to continue getting access to product, and what you expect on the direct side this year in terms of a percentage of your business?.

Dan, I'm all over this, and obviously I'm not in a position to talk about somebody else's business, but I can tell you that in the closeout business, we're at the top of many, if not most, major manufacturers' first call, if not all of them, and we've certainly -- after 33 years, the closeout business isn't an easy business.

And been doing this for 33 years, and we've demonstrated to the manufacturers and continue to especially on these new relationships, that we can take the goods and we can pay for the goods. And like I said, the closeout industry, like all businesses, it's tough. We have the expertise and the willingness to deal with the closeout industry.

And then most importantly, and you've been around, Dan, you've been in our stores, you know we know how to manage the profits and the deals from the beginning, the middle, and then most importantly the end.

So there's a lot of things that impact our business in the closeout business, any kind of a disruption, whether it be a major retailer getting in, or a major retailer getting out of merchandising.

What I can tell you is that we've been seeing more and more access to merchandise, more and more phone calls coming in, and we're getting bigger, better, brighter, and broader deals. So I'm really, really excited. I have not seen any change in the competitive landscape to-date other than we're buying more and more than we ever have before..

And then just a follow-up question on the Ollie's Army, you commented on the size of it.

I'm just curious, are you seeing anything meaningful in terms of the behavior of the Ollie Army members that you've added over the last year as you've opened new stores versus what you've seen historically? Are they better or worse, about the same in terms of they're expecting and when they're doing it?.

Dan, this is John. The overall growth of the Army, and then the vintage of the individuals is very, very consistent. The amount they're spending per visit and their frequency of visit is pretty much right in line with our mature or older class of stores. So we're seeing very much a consistent response from those overall as Ollie's Army members.

We are seeing an increase in the overall mix in terms of how much of our overall sales have come from Ollie's Army members versus non-Ollie's Army members, and that's increasing. And we've seen the amount that Ollie's Army members are spending is increasing as well over non-Ollie's Army members year-over-year..

Great, thanks..

Thank you..

Thanks, Dan..

Thank you. Our next question comes from Matthew Boss from JPMorgan. Your line is open..

Hey, congrats on a great quarter..

Thanks..

On the store pipeline, what's the timing of your Florida entrance this year? How big do you think that opportunity can be? And then can you just speak to the initial reception around your Connecticut launch, and just the potential Northeast opportunity as you see it over time?.

Yes, in Florida, we expect to open on May 4, and that's going to be in Orlando, on West Colonial Drive.

We think that we will probably have six to nine stores in the state of Florida this year, one to two stores in the state of Mississippi, or the Orlando store in particular, again first week of May, I was there about 10 days ago, and I am really pumped about that site, it's going to look all of ours, but I got a real good vibe there.

So I think it's going to perform very, very well. Connecticut has performed at or above our expectation doing just fine, and we are looking to expand that market as well, Matt..

Great.

And then just a follow-up, what's the best way to think about the -- how do you guys think about the back and forth between expanding the top line and expanding the merchandise margins, more so, if you are going to see an expansion of vendor relationships in the closeout pipeline is as robust as you speak to it on a multiyear basis, what prevents merchandise margin expansion? How do you kind of focus on the value to the customer and the deal versus flowing some additional to the bottom line?.

Sure. Matt, this is John.

With regards to that, I believe we've kind of discussed through the entire IPO process, we are really focused on a 40% gross margin, and we feel very -- feel very important that we continue to deliver great values to our customers, and we believe that once we get back to the 40% gross margin, we are not quite there yet, we are getting back and we are pretty close now, but we will continue to focus on 40% margins and then share, and we believe that will drive additional sales with our consumer base..

Great. Best of luck..

Thank you..

Thanks, Matt..

[Operator Instructions] And our next question comes from Edward Kelly from Credit Suisse. Your line is open..

Yes. Hi, guys. It's actually Jude on for Ed.

I was just hoping, if you could give us an indication of some of the categories, where the strong deals are coming now that we are entering the spring season, is there any color you can give us there?.

Yes. This is Mark. I can tell you from the fourth quarter that some of our -- as I did mentioned, some of our better performing categories were books and stationery, electronic accessories, food and candy; of course, toys was strong, and I think hardware was right up there.

On the bottom side, because that might and should be your next question, what were the lesser contributors? And that would have been like housewares, floor covering, and definitely deal-related in particular, maybe a deal which I am obviously not going to even say what it was last year, but I will tell you that heaters because it was an unusually warm winter for where the majority of our stores are.

So we didn't sell as many heaters this year as last year. What we are covering was absolutely deal-related. Again, I am not going to get into that.

In the spring, we have -- I am very pleased with where we're at, and obviously that means that the lawn and garden, the spring product, because of the change in the weather patterns has proven favorable to us. So I am really, really pleased where we are at..

Okay, great.

And then maybe just more high level on the holiday selling season, obviously it was a great one for you guys, but as more sales move online for holiday, can you talk a bit about how your model is really insulated from that trend, both this year and going forward?.

Yes, I think it's got to do -- and you know, you've heard me speak before. I think it's got to do with the treasure hunt shopping mentality. We have a shopping experience in our brick and mortar situation. It's just not duplicated online.

And when you come in looking for a particular item that you might be responding to an ad with the vast array of the offering in main brands that drastically reduce prices that you see in our stores, you come in for one thing and you buy another.

And I think that's playing a strong part, it's obviously the merchandise in the store, and that being able to add on those sales, and the treasure hunt shopping mentality is just in my mind very, very, very difficult to duplicate online..

Got it. Okay, thanks, and congrats..

Thanks, Jude..

Thanks, Jude..

Thank you. Our next question comes from Peter Keith from Piper Jaffray. Your line is open..

Hi, good afternoon. Thanks for taking the call.

John, I was curious just on the gross margin strength during the quarter, you did have a bit of an easier comparison [ph], but was there something abnormally good with regards to the merchandise margin, perhaps with some of the better buys that you are getting?.

Peter, I think it was mixed in terms of the overall impact as we had kind of spoke previously was -- in fourth quarter, the prior year, we had gotten hit pretty hard with freight costs, with the port disruptions and whatnot. So we are annualizing that.

So we levered our -- and obviously bringing our DC up to speed and more online than had been in 2014, neutralizing some of those fixed costs, we are able to lever our DC operating expense structure. We did see a better improvement in the merchandise margin.

Part of that was related to better access to merchandise, and stronger deal flow, and as you know, we're going to be little more selective to be able to get our margins up to where we want to see them at..

Okay, that's helpful. Thank you.

And then I wanted to dig into coffee a little bit, and I was wondering if you could refresh us on the number of visits that your average customer makes per year, and then if you have been able to then dissect that down to the number of visits per year that a coffee buyer might -- making, I am curious, if we are now seeing a healthy traffic benefit from that category..

Sure. Pete, I will take a crack at that, and Mark may chime in a little bit. We've never actually commented on the frequency of our overall shopper biz [ph]. We don't know the non-Ollie's Army member frequency of visits.

We do know our Ollie's Army membership frequency has ticked up very, very slightly on an aggregate basis, but we are -- we do believe, and we are seeing more response to the coffee shopper coming more frequently and buying more product, but we have not been able to data mine that data yet, and we are hopeful with LMA Phase 2 we will be able to do more of that and get a better understanding of the frequency and the buying habits of the consumer.

That's to come later on in 2016, but we do know the average shopper shops about 3.5 times per year, per visit. Our best customer shop close to eight times per year, and that's Ollie's Army only so..

Yes. Okay, that's great.

One last question, if I could just sneak in; you talked about getting better buying opportunities, you become public company, I was curious on the real estate front as you are looking at new stores, do you find that perhaps you have a better negotiating power with leases and real estate overall?.

Yes.

Peter, we believe there is some benefit there, and definitely our balance sheet looks a lot better than it used to look post-IPO, but the notoriety, the folks who own the real feel much better working with the public company, as they get lot more information than you normally would with the non-public company, and we are definitely seeing better results with the sites we are able to -- to be able to secure at this point in time..

Okay, sounds good. Thanks a lot. Keep up the good work..

Thanks, Peter..

Thanks, Peter..

Thank you. Our next question comes from David Mann, Johnson Rice and Company. Your line is open..

Yes, thank you. Good afternoon. Let me add my kudos to the quarter and the year.

Question about back on gross margin and the Georgia distribution center, can you talk a little bit about the cost headwinds you are seeing there, and when you would expect those to abate?.

Yes. David, we are actually starting to see those abate, and that was obviously part of the positive impact in Q4, with regards to lower transportation costs and distribution center cost. The DC is starting to become more utilized. We would hope to see continued leverage in the distribution center in part of -- in all of fiscal 2016.

My expectation would be when we get to full utilization, which is some time in late 2017 you should start to see us maximize the efficiency in that building..

Great, and then to follow up, we are starting to see an increase in bankruptcies in retail among suppliers, I am just curious let's say with the large sporting goods retailer that's filed and then some other pressure in that industry.

First, are you seeing opportunities there and how quickly are you able to capitalize on things like that to get that into stores?.

Well, anytime, David as we've talked about, anytime there is a disruption in the market, whether it might be a sporting goods company that's going out of business, or retail that's going out of business, or a major retailer, that might be reducing the amount of SKUs, anytime there is a change in the buyer at a major retailer, anytime there is something that happens in the market, it could prove positive to us.

Now, how quickly can we react, like this afternoon, and that's the beauty of our model, because we have to be nimble enough to be able to react like that because when the product is available and we are asking someone to sell to us at little or no profit and/or loss, we've got to be able to buy the goods, take the goods, say, yes.

They want to get rid of the problem today and not have it linger. Now, specifically have we seen more offerings in that type of category? I would say, not yet, but sometimes it takes a little time to get there.

Sometimes even the -- it's not generally the retailer that's going to offer us the product, it's the retailers' supplier that might have a backlog, and sometimes for that backlog to really become inventory constipation, it takes a little time, so….

Thank you very much..

Thanks, David..

Thanks, David..

Thank you [Operator Instructions] And our next question is a follow-up from Dan Binder from Jefferies. Your line is open..

Yes, thanks. I just had a question around the weather.

You noted that was helping the first quarter, do you expect that you'll pull forward some business, or just in aggregate sell more and not have a meaningful impact on Q2?.

Well, of course, we are not giving you guidance on the rest of the quarters, but I am telling you I feel really, really good about where we are at now. Anything weather-related, lawn and garden related is performing well right now, and we are hoping Dan that we are going to sell lot more of it this year.

That's our goal, but I am telling you, I am feeling really, really good where we are right now..

Okay, great. Thanks..

Thanks, Dan..

Thanks, Dan..

Thank you. And I am now showing no further questions. I would now like to turn the conference over to Mark Butler for any closing remarks..

Okay. Thank you everyone. We are pleased with our fourth quarter results and the momentum of the business into 2016. We look forward to speaking to you again on our first quarter call, currently planned for June 1. Thank you very much and everybody have a good day..

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day..