Good afternoon and welcome to the Ollie’s Bargain Outlet Conference Call to discuss financial results for the Fourth Quarter and Full Year Fiscal 2018. 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. As a remainder, 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 Operating Officer; and Jay Stasz, Senior Vice President and Chief Financial Officer. I will turn the call over to Jean Fontana, Investor Relations, to get started. Please go ahead, ma'am..

Thank you, Sarah. Good afternoon, everyone. A press release covering the Company's fourth quarter and full-year fiscal 2018 financial results was issued this afternoon and a copy of that press release can be found in the Investor Relations section of the Company's website.

I want to remind everyone that management’s remarks on this call may contain forward-looking statements, including but not limited to predictions, expectations, or estimates that actual results could differ materially from those mentioned on today’s call.

Any such items, including our outlook for fiscal 2019 and 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 we undertake 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 SEC filings.

We encourage you to review these filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q, as well as our earnings release issued earlier today for a more detailed description of these factors.

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 our operating performance.

Reconciliations of the most closely comparable GAAP financial measures to these non-GAAP financial measures are included in our earnings release. And with that, I will turn the call over to Mark..

Thanks, Jean, and hello, everyone. Thanks for joining us on the call today. We capped off our best year ever with an incredible holiday season and another fantastic quarter. We’re very proud of our record top and bottom-line results for both the fourth quarter end the year. Strong deal flow drove a comparable store sales increase of 5.4% in Q4.

This was on top of a 4.4% increase in the prior year and marked our 19th consecutive quarter of positive comps. We did get impacted by winter storm Harper on our biggest holiday weekend in January, which caused us to slightly miss our top-line guidance for the quarter.

That said, we still beat our earnings guidance, and I'm extremely pleased with our performance as a whole. We had a terrific performance in toys which exceeded our expectations. We leaned into the unique opportunity that the Toys "R" Us bankruptcy presented. We were aggressive and our commitment paid off big time. This is what we do.

Other outstanding categories included housewares, floor coverings, health and beauty aids and candy. Strong sales, growth and increased gross margin combined with tight expense controls, drove a 40 basis-point improvement in operating margin and contributed to a 42% increase in adjusted net income for the fourth quarter.

Year-after-year, we delivered against our long-term goals. Key to this success is our focus on three strategic drivers, offering amazing deals, growing our store base, and leveraging and expanding Ollie's Army. It's always been about the deal and that will never change.

What has me really pumped is the continuation of the great closeout environment and our confidence that we're better positioned than anyone else to take advantage of it. Our pipeline is full, and we're getting great deals from new and existing vendors. Our recipe for success is offering great deals.

And believe me, in 2019, we'll have plenty of good stuff cheap for our customers. Our store growth strategy works hand in hand with our merchandising strategy. The more we grow our store base, the greater the opportunities for even more great deals.

At the same time, our deal flow is so strong that we can very easily support our expansion plans for the foreseeable future. New stores are in fact the biggest driver of our growth. We opened a total of 35 net new stores during 2018 and entered three new states in the year, Louisiana, Arkansas and Texas.

We've opened 12 new stores already in 2019 including seven former Toys "R" Us rough locations, and they're all off to a great start. We are very pleased with the productivity and profitability in both are new and existing stores. We expect our deals to resonate with even more customers as we continue to expand.

In 2019, we plan to open 42 to 44 new stores, in line with our long-term growth algorithm. We're really excited about adding two new states, Oklahoma and Massachusetts to the Ollie's map. We have a full lineup of locations ready to go, and we continue to make strategic investments to support expansion.

Our potential is for more than 950 stores nationwide, over three times our current store base, and that's a long runway. Supporting our continued growth will be our third distribution center, which we discussed on our last call.

Construction continues on the 615,000 square foot facility in Lancaster, Texas, and we expect to be operational during the first quarter of 2020. As we expand our retail presence, we're also growing and leveraging our base of loyal customers. Ollie's Army is now over 9 million Bargainot [ph] strong and makes up about 70% of our sales.

Members shop with us more often and their average spend is considerably more than non-members. We’re coming off of a record Ollie’s Army Night in December, which undoubtedly contributed to our outstanding holiday performance.

Our goals for 2019 are to attract new Ollie’s Army members and remain top of mind with current members to drive continued loyalty. We aimed for its long lasting relationships with the Bargain Battalion and just keep them coming back. We're confident in our ability to continue to drive sales and profitable growth.

We feel great about our incredible offering, strong deal flow, and new stores. Like a number of other retailers have called out, the weather has not been favorable in the early weeks of Q1. But, with the shift in the holiday of Easter, we have lots of business ahead of us in the quarter and I feel good about the trends that we are seeing.

We have many exciting things going on Ollie’s. I've been here since the very beginning and there's much energy and enthusiasm as I've ever seen. We're bullish on the closeout industry and our ability to successfully execute in 2019 and beyond. I’m very pleased to announce that we are introducing our first ever share repurchase program.

This action is consistent with our commitment to driving shareholder value and our confidence in our long-term growth prospects. At this moment, I'd like to express my sincere appreciation to the almost 8,000 team members for their incredible work and dedication to the businesses.

It’s the combined experience, the passion, the commitment of the team that makes Ollie’s successful. Thank you for your support of Ollie’s. I'll now turn the call over to Jay, and he'll take you through our 2018 financial results and 2019 outlook in more detail..

Thanks, Mark, and good afternoon, everyone. We're very pleased to have delivered a record quarter and fiscal year. As a reminder, 2018 included 52 weeks as compared to 53 weeks in 2017. For the quarter, net sales increased 10.4% to $393.9 million.

On a 13-week basis which excludes $16.5 million from the additional week in 2017, net sales increased 15.8%. Comparable store sales increased 5.4%, resulting in a two-year stack of 9.8% and our 19th consecutive quarter of positive comps. The increase in comp store sales was driven by increases in both, average basket and transactions.

While very pleased with our overall performance, we did see some weather-related headwinds in January due to winter storm Harper, as Mark mentioned. However, we still delivered strong results, exceeding EPS expectations by $0.02.

During the quarter, we opened six new stores ending the year with 303 stores in 23 states and increasing our store count at 13.1% year-over-year. Our new stores continued to perform above our expectations across both new and existing markets, and we remain very pleased with the productivity of our entire store base.

Gross profit for the quarter increased 11.6% to $156.7 million and gross margin increased 40 basis points to 39.8%. The increase in gross margin is due to increased merchandise margin, partially offset by higher supply chain costs as a percentage of net sales.

SG&A expenses increased 7.8% to $89 million, primarily the result of additional selling expenses from our new stores and increased sales volume in our existing store base. We leveraged SG&A expenses by 50 basis points to 22.6% of net sales.

Preopening expenses increased to $2.7 million and deleveraged 40 basis points due to the number and timing of new store openings year-over-year, including several stores planned to open in early fiscal 2019 as well as costs associated with our acquired Toys "R" Us sites.

Operating income increased 13.8% to $61.9 million and operating margin increased 40 basis points to 15.7%. Net income in the fourth quarter totaled $49.9 million and net income per diluted share was $0.76. Included in the $0.76 is the $0.04 tax benefit related to stock-based compensation.

In the fourth quarter of 2017 net income totaled $70.1 million and net income per diluted share was $1.07. Included in the $1.07 is a $0.50 benefit related to the 2017 Tax Act and the $0.07 benefit related to stock-based compensation.

Adjusted net income which excludes these benefits as well as the after tax loss on extinguishment of debt, increased 41.9% to $47 million, and adjusted net income per diluted share increased 39.2% to $0.71. Adjusted EBITDA increase 14.4% and 60 basis points to $67.7 million in the fourth quarter. For 2018, net sales increased 15.3% for $1,241 million.

On a 52-week comparative basis excluding the 53rd week from 2017, net sales increased 17.1%. Comparable store sales for 2018 increased 4.2%, resulting in a two-year stack of 7.5%. Adjusted net income for the year increased 48.6% to $120.5 million and adjusted net income per diluted share increased 46.4% to $1.83.

At the end of the year, we had $51.9 million in cash and no outstanding borrowings under our revolving credit facility. During the fourth quarter, we paid down our remaining $19 million of term loan debt, ending the year with only $700,000 of capital lease debt.

Inventory at the end of the year increased 16.2% over the prior year, primarily due to new store growth and the timing of deal flow.

Capital expenditures increased to $74.2 million in the year compared to $19.3 million in the prior year, comprised mainly of our purchase of the former Toys "R" Us store sites, investments in new stores and the start of construction of our third distribution center. Turning to our outlook for fiscal 2019.

While confident and optimistic, we remain prudent in how we plan the business in light of the deal nature of our business and the fact that we’re lapping a very strong year. Our plans are in line with our long-term annual targets of mid-teen growth, a 1% to 2% comp store sales increase, which drives adjusted net income growth of approximately 20%.

Given that framework, for the year, we expect total net sales of $1,436 million to $1,449 million, an increase of 16.2% at the midpoint of the range.

Comparable store sales growth of 1% to 2%, the opening of 42 to 44 new stores with no planned relocations or closures, operating income margin to expand between 10 to 20 basis points, reflecting a flat gross margin, and an approximate 10 basis-point improvement in SG&A, depreciation and amortization expense in the range of $17 million to $17.5 million, including approximately $2.5 million that runs through cost of goods sold, net interest expense decreasing to approximately $500,000 given the payoff of our term loan debt in 2018, adjusted net income of $140 million to $144 million and adjusted net income per diluted share of $2.10 to $2.15, both of which exclude the tax benefits related to stock-based compensation, an effective tax rate of 25.5% which also excludes the tax benefits related to stock-based compensation, diluted weighted average shares outstanding of 66.8 million and capital expenditures totaling $75 million to $80 million, driven by the construction and build out of our new DC in Texas and investments in new and existing stores.

Let me add a few additional items that might help you in your quarterly modeling. We expect Q1 and Q4 comps at the lower end of our annual guidance of 1% to 2%, and Q2 and Q3 comps at the higher end of our annual guidance. The cadence of our new store openings is approximately 60% in the front half and 40% in the back half.

We are forecasting preopening expenses of approximately $11 million for 2019. Given the frontloading of our store openings, timing of preopening expenses will change by quarter this year versus last year. We expect to incur approximately 45% of preopening expenses in Q1, 20% in Q2, 25% in Q3 and 10% in Q4.

As Mark mentioned, our Board authorized the repurchase of up to $100 million of our common stock over a two-year term. Our strong balance sheet and consistent cash flow generation allow us to opportunistically and strategically buy back shares and is another vehicle to drive shareholder value.

I'll now turn the call back over to the operator to start the Q&A session.

Operator?.

Thank you. [Operator instructions] Our first question comes from the line of Matthew Boss with JP Morgan. Your line is now open..

Thanks Congrats on a nice quarter. Mark, maybe you mentioned the strong closeout pipeline on the call.

How would you bring category opportunities this year? And can you speak to trends that you're seeing in some of the newer regions where you've opened stores?.

Yes. We're really, really confident. I mean, we are really, really locked and loaded. The deals have been flying. I absolutely am speaking in 100% confidence, as I did about two years ago that I've never seen it better; it continues. We are ready for the spring selling season.

Yes, I just need a little break on this weather, but I got all the confidence we're ready to roll. We've done quite well, as I told you, although it's not going to move the needle Matt. But in the clothing area, most recently, obviously, we had the run on the toys, we had a great houseware Q4.

We did very well in candy, but the HBA continues to be strong. I really feel good about where we're at..

That's great. And then, maybe a follow-up on the margin front, on the gross margin.

What's the best way to think about the underlying merchandise margins this year? And then on the expense front, what's the comp needed to leverage SG&A this year?.

Oh, yes. Sure, Matt. This is Jay and I can take those questions. From a margin standpoint, as we said, we're planning margin to be flat at the 40.1% year-over-year.

And the way we think of that internally as a merchandise margin improvement of about 25 to 30 basis points, and that will be offset by increased supply chain costs by about 25 to 30 basis points. So, those two will net out. And if we look at the cadence by quarter, we think that generally speaking each quarter, the margin would be flat year-over-year.

And in terms of the SG&A leverage, obviously, we got a great deal of leverage this year with a strong sales performance that we had. And like we've talked about before, the leverage point, the way we think of it and plan it for the SG&A is right around the 1 to a 1.5 comp.

So, if we start get sales in excess of that, that's where we start to see leverage..

Thank you. Our next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Your line is now open..

Yes. Hey, guys. Let me add my congratulations as well on a great year. So, I want to follow up on the topic of Ollie's Army. Wondering if you could give us an update on what your learnings really have been on the use of ranks.

And how much more if any to any degree, you think that initiative might drive the business this upcoming year?.

Yes. Brad, this is John. With regards to the Ollie's Army, as guys know, we rolled out the ranks in the new app in the first part of Q3 of 2018, which we're still I would say in the very early innings of tracking the impacts of what the ranks are going to be able to do from the overall business. We saw some nice movements in Q3 and Q4.

But, we really believe we need to have about a year under our belt to really see a full cycle of what happens between this, the one-star, two-star three-star ranks within the Army before we really have a real measurable item to give back to you guys in the investment community. But, overall, what we're seeing initially, we're very excited about it.

We think it's working as we have planned. I would not give any real credence to the comp store performance in Q4 related to the ranks at this point in time. I think, they worked well, but nothing material that you should bake into your numbers..

Great. And if I could ask a follow-up on the closeout inventory environment, clearly seems still very favorable. A longstanding player in the closeout world recently said that they're going to be increasing the amount of closeout activity that they do.

I was curious, if this is an area where you're seeing any increase in the number of bids on items or if that's affecting you at all yet at this stage, and more broadly, maybe how you're thinking about that?.

Yes. Brad, I haven’t seen and I don't believe that perhaps that associated retailer has ever truly exited the closeout business. And I can confidently tell you, we have not seen any change from Ollie's on the competitive landscape in any of the food and/or consumable items. So, I’d say that with complete confidence..

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

Hey, thanks. Good afternoon, guys. Somewhat short-term question.

I was curious if you had any quantification on what that whether disruption was for either January or for the Q4 as a whole?.

Yes. Peter, this is Jay. Really no, we don't have anything that we're going to speak to. We just know that really we had one big holiday weekend in the month of January. And that's when we run an ad. So, it's a big week for us and that coincided with winter storm Harper. So, we saw some pretty big drops during that week..

Okay, fair enough. And then, maybe bigger picture question. I'm curious on the merchandising team, maybe you guys have some long tenured people. But I'm curious also with the continued closeout opportunities.

How you're expanding that team? And if you're it deepening positions in the current categories or even looking to expand your merchandising team into new categories, if you could maybe give us some perspective on how you're thinking about that asset for you?.

Yes. Peter, we've done I think a very good job of being able to add to our merchandising team. And not only that, as you know, with me being such a sports nut, our minor leagues, all of a sudden, these people are getting some trips to the plate now. So, our young ones [ph] are coming along. So, I'm really, really happy about it.

We have strategically invested in some associates that will have a little bit of an impact, as I mentioned to you last time we were together with the, perhaps in the clothing, perhaps in the housewares, perhaps in the furniture. And these are retail savvy, retail veterans. I'm very excited to have them.

And I believe we're appropriately adding to that staff. That being said, Howard is still here, he's still around. So, I'm really happy of where we're at..

Thank you. Our next question comes from the line of Rick Nelson with Stephens. Your line is now open..

Thanks, and my congrats as well on great results. So, you've been talking now for a while about a 950-store opportunity over the long term.

With some of the retail shake out, your ability to put scores closer together, I'd like to get your updated thoughts on that target, is there potential for more than that?.

Rick, this is John. With regards to the overall footprint or the overall store count we think we can go to, we have not done any updated studies. But, intuitively, we do believe and feel that we would be able to grow our chain above the 950-store account basis. But right now, we're at 300, just north of 300. We feel there's so much more runway.

We're going to focus to get the 600 before we focus to get greater than 950. But intuitively, we believe we could be north of a 1,000 but we've not had the study updates on that yet..

Okay, fair enough. Thanks. So, your target for mid teens store growth, which looks like that's in store for the current fiscal year.

In the past, you've talked about when you get to 50 to 55 stores, you think that that's a level that you can support, could mean mid-teens store growth be potentially drawn up beyond 2020, which is the year when we think you hit that threshold..

Rick, this is Jay. When we start to model out kind of our high level five-year plan, we do think -- and again, there's nothing scientific to it, but we're thinking a cap of about 55 stores is what makes sense to us from a growth model. And the way we model that out, that would probably be in 2021 when we would start to hit that..

Got you, okay. Thank you. And also, curious if you -- in the past, you've talked about being a 20% earnings grower; your guidance for this year suggests something less than that. I know you talked about being prudent, but any color you can share would be good..

Sure, Rick. When we talk about 20%, we're always right in the range, high teens to 20. So, I think our guidance for this year gets us right on that growth..

Thank you. Our next question comes from the line of Judah Frommer with Credit Suisse. Your line is now open..

Hi, guys. Thanks for taking the question. I want to move over to the balance sheet for a second and the inventory growth. I'm not sure if you guys have seen some press recently picking at inventory growth and specifically quality of inventory over time.

Is there anything you'd call out beyond the store growth, beyond the timing of deals? Is there anything for tariffs, kind of forward purchasing of inventory in there, and how do you feel in general about your inventory position?.

Hi, Judah. This is Jay, and I'll start on that. And yes, our growth -- we're not concerned at all. It is right in line. We like our inventory growth to be about what our sales growth is. And for the year, we had a 17% increase in sales, so the 16% inventory growth, it’s right in line with our expectations.

We don't have any concerns with inventory valuation, right? We've seen some articles about that. And it's just not accurate, the way we value our inventory and look at it and assess it on a weekly basis, all that stuff gets recorded into gross margin.

We did bring in some air conditioners and things early that we talked about, to try to avoid the tariffs but really nothing material that would cause a swing in the inventory. And really, if Mark had it [indiscernible] the inventory would increase higher..

Yes, I believe that.

And is there anything baked into your guidance in 2019 for tariffs, or any reprieve there?.

Yes. When we talked -- I talked about the margin, we've got the increase in the merchandise margin of about 25 to 30 basis points offset by increased supply chain costs of about the same amount. And the way we record the tariffs for us, it actually flows through on the supply chain side.

So, we have -- the tariff headwinds for us are in the supply chain cost increase. And bear in mind, since there was no increase in the tariffs from the 10% to the 25%, it’s still not hugely impactful for us, but there is a headwind embedded in our supply chain guidance..

Okay, got it. And quickly, on the share repo authorization.

How should we think about share repurchase and how do you guys think about kind of the opportunity there? Obviously, it's tough to argue if this stock’s, you’re going to be opportunistic, is this more to offset dilution from some share growing, and how should we think about that activity?.

Yes. Well, look, we just announced it, so we're excited about that. It's $100 million over two years. We think it does address the capital allocation question that we're getting. We think it's a great lever to pull.

But, as we talk about how are we going to go forward from here, really, we're focused on buying things, buying that -- the buyback will be opportunistic and strategic in nature. Again, the evaluation, we let you guys value the stock. We're going to keep running a good business.

But, if there's a dip in the stock that we think warrants activity and the purchase will do that, but it's really TBD..

Thank you. Our next question comes from the line of Paul Lejuez with Citigroup. Your line is open..

Hey, thank you. Guys, can you talk a little bit about what you've seen thus far in the first quarter? It sounds like you saw some fluctuations in the business.

Do you tribute that more to refund, delays, weather? And if you can provide any color in terms of maybe what you've seen in certain regions performing better or worse than others as weather has changed? And then, separately, saw that you recently had a big wedding dress buy.

I’m curious about sell throughs of that product, whether you're bringing in a new customer into the store. And along those same lines, what your split between male, female within Ollie's Army organization, and how has that changed over time? Thanks..

Okay. First thing was -- first one was Q1. The weather hasn't been great, but it is the same, my first rodeo, this doesn't bother me. I feel good about where we are. We're locked; we’re loaded. It just hasn't been a great. We're ready for the spring selling season.

And today, at least in Central Pennsylvania, it's the first nice stay in a real, real long time. So, the Easter shift makes a difference as well. Whether or not we're selling Easter candy and that kind of stuff, which is big for us. So, I feel really good where the recent trends are and where we're going. But, it just hasn't been stable weather.

And like I said, I've been doing this for 37 years. So, I've seen this before. Wedding dresses was -- is one cool deal. Wedding dresses is not moving the needle, I'm not going to talk about any of the results. But, I will tell you that the publicity that we got is unprecedented, I love it. I love what happens in the stores.

It's only been maybe in 48 to 55 stores, and we're rolling it out a bit at a time. But, it's nothing that is big enough that we would ever talk about, other than the publicity. And I want you to go on YouTube or whatever and Google it and you'll see some pretty cool stuff. I could not pay for that publicity. The last question was….

Ollie’s Army, male, female..

70% female, 30% male Ollie’s Army..

And how has that changed over time?.

Paul, that's been really, really consistent over time, very little change to that mix..

Paul, I think your comment about the branding and attracting new customers with the wedding dress is right. That's spot on..

Yes, I would say so. Yes, we had some -- really, really cool. I'm thrilled..

Thank you. Our next question comes from the line of Vincent Sinisi with Morgan Stanley. Your line is now open..

Hey, great. Thanks very much guys for taking my question and nice end to the year here. Maybe just thinking actually on maybe not wedding dresses but just in terms of marketing, and what you are learning now several quarters in with the Army ranks and mobile being more a part of things.

Anything that you can share more at a qualitative level, about what does attract new customers in? And then also, maybe for the first quarter specifically, any differences in your marketing campaigns or maybe use of mobile, as we get more toward the Easter season?.

Yes. I think that's a great question. I will tell you that we're going to dance with [indiscernible]. Coming off the greatest year in the history of the company, we have a strategy and a go-to-market. And what absolutely motivates the Ollie’s Army consumer is a deal.

If we have a name brand and sell it at drastically reduced price, we are going to do business, certainly, whether it be the weather or these things happen all the time and the shift in the Easter holiday happens all the time. So, we're going to be selling a lot more Easter candy in the next couple of weeks than we did -- we're analyzing it now.

So, I feel really, really good about where we're at. Certainly on the electronic side of our marketing, we are doing more and more with not only the app, which is just what 6, 7, 8, 9 months old, but with our email with our Ollie’s Army email, being able to communicate with the customer and some of our target marketing.

I still think we're -- not still think, I know we're instant in it. And I think that it can continue to help to drive the business. But I think it’s really, really early for us, keeping in mind that we are primarily a print advertiser, and our business has simply just -- last year was the greatest year we ever had..

Okay, all right. That's helpful. Thank you. And then, maybe just a quick follow-up. Just going to gross margin, I know you mentioned still of course higher freight costs.

Just how are you thinking about that for 2019 specifically? Do you see leveling off, is it kind of stabilizing at a just higher level or how do you see that for this year?.

I think, generally right now, the market is kind of stabilizing at that higher level. It's a little bit of the new normal, where do the spot rates maybe get a little easier, has diesel come down, it’s come down a little bit, but it's still at a very high level, comparatively.

We're still seeing high costs on import containers, we're still seeing wage pressures at our DCs. So, I think on the trucking aspect as well as at the DCs, we're kind of at a new normal..

Thank you. Our next question comes from the line of Jason Haas with Bank of America. Your line is now open..

Great. Thanks for taking my question.

I was curious on just the sourcing environment, on how much benefit you think you’ve seen from all this talk of tariffs, a lot of retailers having to change around their supply chains, or is it more just kind of a general malaise in retail that's continued that you think has driven a lot of this inventory availability?.

Well, I think that it's our increased capacity and ability to be able to buy bigger and better deals and the visibility and notoriety that's really, really driving it. I think that whether it being the CPG companies or any of the hard goods manufacturers, there just has been a wealth of product available. And we are appropriately overbought.

I like it, I buy more. And we just have to keep beating the bushes and attending all the trade shows. But, I just -- I think that we're just set up to take advantage of all of the situations.

I'm not necessarily sure that we most recently have any disruption that I could point out, like perhaps what we got ahead of the toy and the toy business last year, of which I have every intention -- because I know the question is coming up, I have every intention of lapping that toy business this year.

And we're aggressively out buying and have been buying. But, I don't see any macro bankruptcy or any situation, like we did with the toys that's affecting our opportunities right now..

Got it. Thanks.

And could you say how much -- I know you don't usually disclose this, but could you say how much the toys contributed to the comp in the fourth quarter?.

Yes. No, we won't disclose that..

That's okay. If I could squeeze in another one….

Jason, I think one, big takeaway from that though is, we won't disclose the list on toys, but backing out toys, we would have still been at the very high end of our revised guidance we've given to you guys previously. So, we still had a very strong quarter even backing out the toys..

Okay. That's great. And then, just as a quick follow-up.

For the fourth quarter, could you say -- could you quantify how much the gross margin change was due to merchandise margin, I guess relative to supply chain costs?.

For the Q4?.

Yes..

Yes. So, the merchandise margin increased about 50 basis points, and the supply chain cost increased about 20 basis points, getting us to the 40 basis-point improvement year-over-year..

Thank you. Our next question comes from the line of Edward Kelly with Wells Fargo. Your line is now open..

Hey, guys. This is actually Anthony Bonadio on for Ed. Thanks for taking our questions. So, could you just quickly comment on what you're seeing in terms of the health of your consumer and your core customer? And just on the back of this, any color you might be able to add around tax refund trends would be helpful..

Yes. I think, we're -- we certainly think that any slowdown we did feel was either related to something that we couldn't control which would have either been whether, or we never bought big into the tax refund. We were told at ICR, how all the tax refunds, it was going to be so much more.

We never baked any of that into to our thought process because we just didn't know. And it certainly appears from all the data that we've been told that the tax refunds might be slightly less than what they were last year. But that being said, we feel really, really great about where we are. So….

And the tax refunds, the statistics that we're seeing currently is, while the average refund is about flat, the actual dollars that have been issued to this refund, they are down 3%. So, maybe could that catch up, maybe it does catch up over time..

That’s helpful.

And just quickly on Texas, now that you’re up and running there, can you give us some early thoughts on performance and your latest thoughts the opportunity set?.

With regard -- we think Texas is a huge opportunity for us, Anthony. We've got our new distribution center going in here in the first quarter of 2020. We think that's -- that market is a very large market for us and be very strong. We got four stores in there right now, plan to have five by the end of fiscal 2019.

But, we're -- what we're seeing in our early reads, Texas going to be a very strong market for us. We're excited to be there and excited to bring more opportunities for people as well there. We would expect -- we're going to add somewhere between 10 to 12 new stores in the Texas market in 2020, as well..

Thank you. Our next question comes from the line of Anthony Chukumba with Loop Capital Markets. Your line is now open..

Thank you for taking my question. So, you mentioned in terms of the Q4 comp that average basket size and transactions both increased, which is obviously encouraging. I was just wondering if you can even just directionally give us a breakdown in terms of the average basket size and transaction increases..

Sure. The transaction was about 30% of that and the average basket drove about 70% of that..

Okay, great. That answers my question. I'll leave it to someone else. Thank you..

Okay. Thank you..

Thank you. We have no further questions at this time. I would now like to turn the call back to Mark Butler for any further remarks..

Thank you. And thanks, everyone for participating in our call, and for your support of Ollie’s. As you just heard, we're coming off of a fantastic year and we're excited for the continued growth in 2019. We look forward to sharing our results with you on our first quarter call in early June. Thank you very much and everybody have a good day..

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