Mark Butler - Chairman, President & CEO John Swygert - EVP & CFO Jay Stasz - SVP, Finance & CAO.

Matthew Boss - JP Morgan Dan Binder - Jefferies David Mann - Johnson Rice Brad Thomas - KeyBanc Capital Markets Peter Keith - Piper Jaffray Edward Kelly - Credit Suisse Patrick McKeever - MKM Partners.

Good afternoon and welcome to the Ollie's Bargain Outlet Conference Call to discuss Financial Results for the First Quarter of Fiscal 2017. At this time, all participants are in a listen-only mode. Later, we will 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 Ollie'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; John Swygert, Executive Vice President and Chief Financial Officer; and Jay Stasz, Senior Vice President of Finance and Chief Accounting Officer. I will now 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 first quarter fiscal 2017 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 website.

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 actual results could differ materially from those mentioned on today's call.

Any such items including our outlook for fiscal year 2017 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 or revise them for any new information or future events. Factors that might affect future results may not be in our control and are discussed in our filings with the SEC.

We encourage you to review these filings, including the Company's Annual Report on Form 10-K and quarterly reports on Form 10-Q, 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 adjusted operating income, 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 the most closely comparable GAAP financial measures are included in our earnings release. I will now turn the call over to Mark..

Thanks Jay and good afternoon. We had another strong quarter and we are very excited about our results. The strength in our results was broad-based and across the entire business. Strong deal flow, sales margins, tight expense control, new and existing stores and Ollie's Army were all contributors to the performance.

As we shared with you on our last earnings call, we did see some volatility during the quarter related to delay in tax refunds, winter storm stellar and the shift in the Easter holiday. However, the business accelerated nicely as the quarter progressed and we feel very good about where we ended up and the overall trends in the business.

In the quarter, comparable store sales increased 1.7% against a 6% increase in the first quarter of last year and a 14.8% increase on a two-year stack basis. We were very pleased with our same-store sales results and our ability to continue delivering sales growth in-line or better than our long-term targets.

Some of our best performing categories were electronic accessories, health and beauty aids, clothing, floor covering and pets; our customers shop our stores for real brands and real bargains and they responded to our merchandize offering in the quarter. Our new stores continue to perform very well and above expectations.

We feel good about our ability to open new stores and we're on-track to open 33 to 35 stores in fiscal 2017. We opened five stores in the first quarter including our first store in Rhode Island. Since the end of the quarter we've opened another seven stores, two today and have the majority of our leases signed for our 2017 openings.

Given everything that's going on with retailing today, we're seeing more and more leasing opportunities. Finally, our Ollie's Army membership levels continue to grow ahead of sales and members continue to spend significantly more than non-members.

As mentioned earlier, our deal flow remained strong; with our growing size and scale we're gaining better access to deals expanding our vendor base and building stronger direct relationships with major manufacturers. We are offering our customers what they want, brand name merchandize at drastically reduced prices.

There are a lot of disruptions in the retail marketplace today and our entire organization has been built from the ground-up to benefit from these situations; it's what we've done for the past 35 years.

Our experienced merchants have the relationships and the knowledge to react very quickly to deal, our supply chain and distribution teams have been built to quickly and efficiently receive and ship new merchandize to the stores; and our marketing team knows how to get the word out to customers and drive traffic into the stores and our store associates know how to handle deal flow and service the customer.

This is what we do, and I put our people, our experience and our execution up against anyone in retail. I want to thank everyone throughout the organization for their continued passion and dedication to our business and the Ollie's family.

In my almost 35 years in the business, it's always come down to people and we're very fortunate to have what I believe to be the best team in all of retail. Thank you very much for supporting Ollie's. I'll now turn the call over to John and he'll take you through our financial results in more detail..

Thanks Mark, and good afternoon everyone. We are pleased with our strong start to fiscal 2017 as we delivered another solid quarterly performance. In the first quarter, net sales increased 17.5% to $227.6 million.

Comparable store sales increased 1.7% against a 6% increase in the first quarter of last year and a 14.8% increase on a two-year stack basis. The increase in comparable store sales was driven by an increase in the average basket size, partially offset by a slight reduction in transactions.

We opened five stores during the quarter, including our first store in Rhode Island. We ended the quarter 239 stores in 20 states, increased our store count by 14.9% year-over-year. Our new stores continue to perform above our expectations and we remain pleased with the productivity of our overall store base.

Gross profit increased 17.6% to $92.9 million and gross margin was flat at 40.8%. Favorable distribution center and transportation costs were offset by a decrease in merchandize margin.

SG&A expenses increased 12.6% to $61.7 million, this was primarily related to higher selling expenses from our new stores opened over the past year, increased sales volumes in our remaining store base, and investments in personnel to support our continued growth of the business.

As a reminder, last year's first quarter SG&A expenses included $890,000 of transaction-related expense, primarily related to a secondary stock offering. Excluding the transaction related expenses from last year, we leveraged SG&A expenses by 70 basis points to 27.1% of sales.

Operating income in the quarter increased 30.3% to $27.3 million and operating margin increased 120 basis points to 12%. Excluding the $890,000 of transaction related expense from last year, adjusted operating income increased 25% and adjusted operating margin increased 70 basis points.

Net income increased 61.4% to $19 million and net income per diluted share increased 52.6% to $0.29.

Excluding the loss on extinguishment of debt, transaction-related expenses and income tax benefits due to the accounting change for stock-based compensation, adjusted net income increased 30% to $16 million; and adjusted net income per diluted share increased 25% to $0.25.

Looking at a couple of other non-GAAP metrics; EBITDA increased 28.6% to $30.2 million and adjusted EBITDA increased 24% to $32.1 million in the first quarter. At the end of the quarter we had $33.7 million in cash and no outstanding borrowings under a $100 million revolving credit facility.

We made two debt payments during the quarter, a $40 million payment in March and a $25 million payment in April. In total, we paid down $66.3 million of our term loan debt and ended the quarter with total debt of $129 million compared to $198.8 million last year.

Capital expenditures totaled $3 million in the first quarter of fiscal 2017 versus $4.8 million in the first quarter of fiscal 2016. Now turning to our outlook for fiscal 2017.

We are raising our total net sales to a range of $1.032 billion to $1.04 billion, reiterating our comparable store sales range of 1% to 2%, reiterating our planned openings of 33 to 35 new stores and no closures, raising our operating income range to $123 million to $125 million, raising our net income per diluted share to a range of $1.18 to $1.21; and our adjusted net income per diluted share to $1.14 to $1.17.

Our revised outlook assumes an annual effective tax rate of 34.2% on a diluted share count of 64.7 million shares. We've adjusted our estimated full year tax rate down as a result of the tax rate realized in the first quarter and kept our full year diluted share account estimate unchanged.

With the two debt payments in the first quarter, our interest expense now is estimated to be between $5 million to $5.5 million. Capital expenditures are still expected to be $18 million to $20 million.

Total depreciation and amortization expense including the component that runs through cost of goods sold is still projected at $12 million to $12.5 million for the year. And as we pointed out on our last call, fiscal 2017 is a 53-week year with the extra week occurring in late January.

We continue to estimate the extra week will add approximately $18 million of incremental sales and less than half a penny to the diluted earnings per share. With that said, I'd like to turn the call back over to the operator to start the Q&A.

Operator?.

[Operator Instructions] Our first question is from Matthew Boss with JP Morgan. Your line is now open..

Thanks, congrats on a nice quarter.

So Mark, can you just touch on the close out availability today; I guess any comparisons to other times in your career that you've seen? And then just elaborate on the size and scale with that building; are you fielding calls from new vendors, are you seeing larger or more national deals coming your way?.

Yes Matt, I think a little bit of both. I mean we're certainly more meaningful now that we've had more exposure, whether it be geographically or in our advertising, in our promotions or our interviews or our investor relations conferences; every time we get a chance to spread the gospel it seems like the next week we get a call.

The buying environment, the offer environment that we're living in right now in my opinion of 35 years in the business has never been stronger, we're more meaningful to these manufacturers, in particular, perhaps some of the CPG companies; and it seems as though the bigger we get, the larger the offerings and more meaningful that we are and you know, in some instances we're even lapping that and seriously sometimes these offers have babies because these manufacturers are also lapping these figures.

So it's very, very strong; I still feel Matt that we turned down probably eight or nine out of ten deal. And -- the stores are packed, the warehouse is full and we feel really good about where we're at..

Great. And then just a follow-up. John, on the margin front slight gross margin expansion in the first quarter -- it was pretty tough compare that you were up against, so pretty strong two year compare -- two year performance.

Did this exceed your internal expectations and then just a best way to think about merged margin versus transportation in 2Q and the back half of the year?.

Sure, Matt. The margin was pretty much right in line with our expectations, it's very, very slightly ahead of where we thought we would be for the quarter, and flat with last year as you know.

We are still guiding to the 40.3% for the full year margin, we've not changed our assumptions due to the fact that we are close to what our expectations were for Q1. In terms of the overall fuel and transportation cost, we do believe there is going to be a little bit of headwinds in the back half of the year, you know, Q2, Q3 and Q4.

And we are taking down additional warehouse square footage in May, in November of this year we have two traunches of the building and our coverage store is taking down some more additional space; so we think the 40.3 is a realistic number and we're going to maintain that for the full year basis as well..

Great. Best of luck..

Thanks, Matt..

Our next question is from Dan Binder with Jefferies. Your line is now open..

Thanks.

I was just curious was the transaction -- you mentioned it was down slightly and I'm assuming that was related to the volatility around tax refunds; I was just curious how that transaction data looked later in the quarter? And then actually if you comment on Ollie's Army sign-ups, you said it was higher than sales; I was just curious if you could maybe just go into little more detail on the number and the rate of growth?.

Sure Dan. With regards to the transactions; we were actually pretty pleased with the transactions being down slightly year-over-year.

Our last year in Q1, we actually had -- our transactions were up 5% year-over-year with the basket size being up about 1% to make up our overall positive 6% comp for the first quarter of last year and with some of the volatility in Q1 and coming up with a possible 1.7% comp I mean slightly down in transactions, we were -- we're definitely very excited about that and we thought that was very positive and there is no doubt that the transactions did accelerate in the back half of the quarter where after we cleared the storm stellar [ph], the tax refunds and then the Easter shift, we got out of the way in March, we actually saw some acceleration in April.

And then with regards to the Ollie's Army, membership grew at a normal rate of about 29% year-over-year with regards to the overall new members.

The members continue to spend about 40% more than the non-members and their visits are still maintained where they've been; so we're not really seeing a lot of changes keep out into the overall portfolio and I believe we have about 7.9 million members at the end of the quarter..

Great. Thank you..

Our next question is from David Mann with Johnson Rice. Your line is now open..

Yes, thank you, nice job this quarter. My question relates to some of the category performance.

HBA and I think electronic accessories, both started accelerating in the second quarter last year, so I'm just curious if you can talk a little bit more about what you're seeing in those categories and the ability to continue to draw performance there?.

David, this is Mark. And obviously you know me, I'm not going to tell you for competitive reasons but you're in the stores all the time, you can see the brands that we have.

You can see that we're more meaningful to some major, major manufacturers; and we continue to be able to react to their deals and help them out of their inventory log-jams in their situations.

So to answer your question, the continued flow is still happening, the relationships are getting bigger, better and stronger and we're -- you know, in some of the instances, and HBA in particular, it seems that it's helping to bring traffic into the stores and hopefully they are buying something else.

So we're really, really happy with the performance, it's been that way for a while and let's face it, you were asking me what was going to be the next item that was going to help us in our growth and these are two of the items that are helping us with our growth..

That's great. For follow-up, just curious if you look at last year in terms of seasonal category performance; obviously it's very choppy last year. I think it was pretty good in April and slow in May.

Can you just give us a sense on where you stand in terms of the cadence on seasonal sell-through? And also any commentary on where you are in May? Did the trend in April continue in May? Thank you..

David, this is John. With regards to the trend in May, we're not going to comment on the current quarter that we're in other than say that the trends in Q1 ended nicely and we're very comfortable with where we sit today. With regard to the seasonal business, seasonal was a little choppy just like the rest of the quarter was when it first started out.

Our largest seasonal business does occur in Q2 which we're in currently today, so we were pretty comfortable with where we came out in the quarter for the seasonal categories and we feel pretty good where we stand and we believe we'll be in pretty good shape by the end of the second quarter with the inventory we have and the offerings we have for our customers..

Yes, and also David I'll add -- you know, that choppiness in the first quarter, you know, there were three major things that happened and we're just pleased the way it all fell out and certainly the tax refunds and we found nicely winter storm stellar.

And then the change in the Easter holiday changed our advertising cadence as well but overall you know, we're very, very pleased with our performance and we're quite happy..

Thank you and good luck..

Thanks, David..

Our next question is from Brad Thomas with KeyBanc Capital Markets. Your line is now open..

Good afternoon Mark, John and Jay; and let me add my congratulations as well. I wanted to first ask you about new store productivity; it looks like that's coming in very strong; you obviously referenced it in your prepared remarks.

Could you just talk a little bit more about what it is? It's maybe helping to drive the strong results at our new stores?.

Well, I think it's our overall -- the thing that drives our business is the deals and I know you get that. So obviously we have really, really good deals and we have what America wants, which is brand names at drastically reduced prices.

I'm really pleased with our locations that we're opening up, I don't think that there is a remarkable difference between stores that we've opened up this year, last year, three years ago, four years ago other than Florida, Florida has been doing very, very well and we're very pleased down there.

But you know, so has Rhode Island and so has Pennsylvania with a new store here in Pennsylvania.

So overall, we're just -- we're pleased with the new store performance, I think that the overall visibility of the company and as we have opened up in particular perhaps down in Georgia, and Alabama and Mississippi and Florida; you know, more people from the north were more familiar with us; they see, they hear, they know a lot more about us and that's -- it's a good double-edge sword because we're getting the benefit from the consumer and we're also getting the benefit from the exposure to be able to get deals.

So I think this is two plus two equals about six..

Great.

And then John, as we look at our models and think about forecasting the next few quarters; I know you don't give explicit guidance but any recommendations you would make to us since we think about comparisons using -- and the same-store sales cadence through the balance of the year?.

Yes, with regards to the overall guidance and cadence we were looking out right now; we're obviously holding to the 1% to 2% comp on a full year basis coming up for 1.7% for Q1.

We're -- from a modeling perspective, I probably tell you Q2 -- I probably guide to the higher end of the 1% to 2%; in Q3 probably in the mid-point and then Q4 in the lower end of the 1% to 2%..

Great.

And if I could just sneak one in on inventory, up 19.5%; any color you can provide about just quality of your inventory today and how you're feeling about it?.

Brad, this is Jay. Just -- I'll start with that and Mark and John can chime in. But obviously the deal flow has been very strong as Mark alluded to, and really the increase in the inventory year-over-year is strictly timing; we've got a lot of good deals coming in. We think we're well positioned for the quarter ahead..

Perfect, thanks so much..

Our next question is from Peter Keith with Piper Jaffray. Your line is now open..

Thanks and I give my congratulations as well. John, just a quick question around freight rates; so it looks like the ocean container rate pricing has come down in recent months, perhaps since when you gave guidance.

Is that -- have any potential coming in lower than what you're anticipating?.

Peter, from our perspective the freight rates and the way that they look like they're coming in for us from a contractual perspective which is -- our contract starts May 1 of each year is pretty much right in line with what we budgeted and what our expectations were from a freight perspective.

So one could say, we might have been a little aggressive with the rates coming down and we had expected them to come down but they are right in-line with what we were thinking and we don't think that there is going to be any benefit of detriment on the freight way as we look at them for the full year basis..

Okay, very good. And then a separate question just on the new store proto-type; usually, I think averaging at around 30,000 square feet.

Is there any thought as you are looking at [indiscernible] and perhaps even better deal flow that you want to take up the store-size or even take it down as it -- I guess, any general change in the outlook there based on what's available?.

Well, you know, it depends on the deal and we go after our leases just like we do our merchandise. So we do have a couple of stores that we opened in low 40s or high 30s down in Florida and that's because it was a more beneficial deal for us to get whatever we got on the lease.

But that being said, we have not changed our prototype of the belly size to be 30,000 to 33,000 square feet; we've also opened up a store to probably in the mid-20s but that's because perhaps we wanted – we did like that site and you know, that is one of the smaller stores but our belly size remains the same, of 30,000 to 33,000 square feet..

Okay, thank you very much and good luck..

Thank you..

Our next question is from Curtis [ph] with Bank of America. Your line is now open..

Great, thanks very much for taking the call. Just a quick one on SG&A and I guess, how should we think about it through the rest of the year on a per store basis; it came in -- I guess, a little bit higher than we had expected.

Should that tail-off or how should we think about modeling it?.

This is John. With regards to the SG&A for Q1, especially; we were actually very pleased to being able to leverage 70 bips better than last year on apples-to-apples basis. So we thought that was pretty strong leverage at 1.7% comp for the quarter.

And with regards to on a full year basis, we're probably looking at a slight leverage on the SG&A perspective, assuming the 1% to 2% comp range; so our model would tell you to be pretty comparable to last year, maybe slightly lower on an SG&A perspective in Q2, Q3 and Q4..

Okay, thanks very much..

Our next question is from Scot Ciccarelli with RBC Capital Markets. Your line is now open..

This is Rob [ph] on for Scot Ciccarelli, congrats on a good quarter. I had two quick questions for you; first, coming off that sort of a real estate availability question.

Is there anything you're seeing in store availability out there as you enter new states; do you think it's going to potentially harder or easier to find -- you know, the stores that fit your model and sort of your belly size, people use your language there?.

Yes, we haven't struggled at all. We just returned from the Shopping Center Show in Las Vegas and we're already working diligently on 2018. 2017 stores are all virtually locked up, all but executed; we're -- like get that almost at the very, very finish line.

So there is no issue there and we saw a lot of great sites, lot of towns that are -- it would be really, really good always bargain outlets and we -- with their shift simply no shortage for us in those sites.

And I think a lot of it has to do with our flexibility because we can go down to 25,000 square feet and we can go upto 40,000 or 45,000 square feet, if we choose so.

And if we think -- so it doesn't have to be 30,000 to 33,000; we can go up, we can go down and you know, that flexibility allows us to have more availability and more choices on the real estate side..

Great, thanks for that.

And one follow-up again on the personal side, are you seeing any differences in sort of hiring and retaining good talent, any tightening in labor market there or pressures in recruiting those guys?.

This is John. With regards to our ability to retain and attract new employees, I believe we're very successful at doing so.

We're not seeing any real struggles in doing either one of the two of those, so I think with the work environment we give, the pay that we offer for the associates; we're pretty good preferred employer for folks that come work with. So we're not seeing any major issues or any wage pressures as well outside of what we're normally used to paying..

Great, thanks guys and congrats again..

[Operator Instructions] Our next question is from Edward Kelly with Credit Suisse. Your line is now open..

Hi guys, good afternoon. Maybe just to start John, a question for you; sort of a follow-up on SG&A. When you guys -- when public -- you know, SG&A leverage I don't think was that big of a part of a story, but if we sort of look back here on a last few years, you've driven a lot of leverage in that line item.

So as we think about things going forward, and this is not just like this quarter or next quarter or this year but overtime; how should we be thinking about the ability to scale this business and generate earnings growth out of leverage on the SG&A front?.

Sure. And from our perspective, and we have leveraged SG&A pretty well since gone public but we've had some pretty robust comp years as well.

You know, 2014 we had a 4.4% comp and then a 6% comp and then 3.2% comp; so we've come out with our long-term half [ph] that we need about 1% to 1.5% comp store increase in order to maintain or slightly lever our SG&A expenses and we've outperformed that significantly since becoming public.

So the way we model our business and we grow it as to basic budget of 1% to 2% comp and then we are able to slightly lever our SG&A expense, so we're able to do better on the sales front, we'll actually lever heavier than that; so that's kind of the algorithm we've built into the model and we believe we can continue that on a long-term basis and continue to slightly lever the SG&A with modest comp growth..

Okay.

And then Mark, a question for you getting back to the HBA category and the products that you've added; can you provide a little bit more color on what the initiative is doing for the business from an overall traffic standpoint; maybe the ability to offer everyday consumable; similar sort of like what you did with coffee [ph] and the traffic that drove -- it gets customers into the stores more often, you get the round [ph] more often with your product.

Just thoughts on what that initiative means for you overtime?.

Well, I think you pretty much gave the answer. I think that it's in particular Ed that you come in and you see the differences; that if you come into our store and you see a name brand shampoo; our customer knows that it's here today and it's gone tomorrow; when it's gone, it's gone.

So you might not find that same shampoo in our store next week but you might find another shampoo that that major manufacturer makes or another competitive CPG company would make.

I think that we become more meaningful to these companies, I think that the product offerings have become and grown and become larger and it's -- while its product that people want every day, there is still that great consistency about Ollie's that you never know what you're going to find.

And when -- you know, you better buy it because it's today, gone tomorrow.

So there is -- I think that what it has done is, and you will see because we've reaped some pretty good results is more of a consistency because we're concentrating more on those categories and we mean more to these major manufacturers; so there will be a consistency I believe you will see within the HBA and/or chemicals, consumables, that kind of thing within the stores, there would most likely -- and to be honest with you, I kind of hope a great inconsistency on the product because that's part of the charm of Ollie's is it's here today and gone tomorrow..

Okay. And then just one last question if I could sneak it in for -- back to John is just the thought process around that levels, you know, what to do with free cash flow; you guys are paying down debt for growing EBITDA pretty rapidly. I mean as a company, you're really deleveraging.

Should you be continued to be paying down debt here? I mean, how do you think about other options in terms of returning cash to shareholders? What's the philosophy here from you?.

Ed, we've not made any real final decisions; as you know, we just paid down $65 million incremental debt during the first quarter and used some excess cash we've built up from last year. The board continues to review all of our options for excess cash that we have, that would include paying down debt, buying back stock or paying a dividend.

Right now we've made the decision today to pay down additional debt and we're going to keep our options from a stock buyback perspective or paying a dividend but right now we've not made any additional or further determinations of where we're going to develop the cash results up from the future years..

Okay, thanks guys..

Alright, thanks Ed..

Our next question is from Patrick McKeever with MKM Partners. Your line is now open..

Okay, thank you.

Just a few quick ones, maybe or maybe they are not that quick but -- Mark, you talked about the deal environment just being as good as you've seen it in your years at Ollie's; so my question is, if you're -- you know, just thinking about where some of the store closures are taking place a lot in the apparel space, the department store space, the footwear as well.

And my question is, how much might you flex the merchandise assortment at Ollie's to accommodate sort of lack of a better word, some of the product, the merchandise deals that might be out there; I mean you don't do a lot of apparel, you don't do much in footwear, you do some; would you flex more into that area to take advantage of maybe some really good buying opportunities or do you want to maintain the same basic percentages in terms of the different departments cost the store? And then kind of a similar question for real estate; you know, with the real estate opportunities that are out there are you sticking to your basic site selection process and just looking for lower rents or would you change or move into a location that you might not normally consider just given the potential opportunities that are out there?.

Yes, I'll answer the second one first and then I might need help on the -- because that was a pretty long question..

Yes, it was. I guess it's not so straight forward or simple..

Yes, but the first answer is; Patrick, nothing has changed at Ollie's.

We are consistent, we would have taken the same-store five years ago as we did this year, as we did two years ago, as we did three years ago; we have not jumped to state, we have been contiguous geographic growth, there is absolutely nothing that has changed with our philosophy, our negotiations, any -- nothing has changed, except that I believe that we're more attractive to the landlord because we're a publicly traded company and people can see our financials and it means something to them for their financing and their leverage capabilities.

As far as I believe the -- it was a merchandize, Jay?.

Going into more footwear and apparel; taking opportunities of what's available..

Okay. Yes, we -- I mean, would we -- if that was the question, would we buy footwear, would we buy apparel; very selectively but that's not our main business, our main business is hard goods.

As far as the flexibility of scaling down a department or two based on a smaller store, a bigger store, we do that all the time; that's no different than what we've done, you know, I've had a 25,000 square foot store for probably 20 or 25 years and I've had a 50,000 square foot store since August of 2003.

So you know, we go up or we do down, if that's what's so cool about the model is that we're so flexible, we can shrink or grow and take advantage of these opportunities and that's probably one of the reasons why we're not struggling in getting the real estate.

So Pat, did I hit all your answers -- the questions?.

Yes, definitely. And then on the -- and I apologize if this already came up and I've been doing a little multi-tasking; on direct marketing, in the last call you said you were just kind of testing the waters there; not expecting a material impact to business this year from some of the direct marketing to Ollie's Army.

Just wondering if you could give us an update there?.

Patrick, this is John. With regards to the direct marketing, as we said earlier, we're not planning to have any impact in our modeling from the overall efforts that we have on the digital marketing side of the business.

We continue to run small test as we have mentioned on our last call, we continue to try to learn and understand the data a little bit better and that's where we're working on more diligently today in terms of the BI tool that we're implementing and trying to get our hands around that piece of puzzle but we believe for '17, no impact on the business.

And then long-term, we're still trying to figure out how do we motivate that customer to come in the stores more frequently without making it a discount driven communication; I want to be able to drive them in the store more frequently with the deals and get them motivated that way.

So we're still doing a little bit testing and figuring out there as we move forward..

Pat, this is Mark. You know, we're real, real careful and sensitive to discuss; we don't want anybody run in Shanghai onus here because this is -- you know, we're talking to these people in a tip sense; so we're not giving them a discount when we're attempting to do this. What we're trying to do is let them know we got a deal.

So we're really, really guarded on this, we're really, really protective.

We don't want to -- we work really, really hard to not go into spam and not go into junk mail, and we just want to make sure that we're letting the consumer know that we've got a product and if we offer them the product or let them know we got the product -- we're not upset if they don't come in at that week, as long as they come in.

If they don't come in, then I'm kind of upset; but it's a tip sense, it's let them know we've got the deal. So it's really, really important to us, our protective nature of Ollie's Army; these are -- you know, these people account for nearly 65 -- I think 65% of our business now. So we're really, really ultra-sensitive to it..

Got it. Alright, I'm going to Google running Shanghai when I hang up. So, thank you very much..

Do go into one of our stores. Thanks..

Thank you..

Thanks, Patrick..

And I'm showing no further questions. I would now like to turn the call back to Mark Butler for any further remarks..

Okay, thank you very much to everyone for listening to our first quarter earnings call. We're off to a strong start for the year and we look forward to speaking to you again on our next earnings call in late August..

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