Good afternoon. Welcome to Ollie’s Bargain Outlet Conference Call to Discuss Financial Results for the Second Quarter of Fiscal 2019. 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 remainder, this call will be recorded.On this 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. Good afternoon, everyone.

A press release covering the Company's second quarter 2019 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 and 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 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.With that said, I will turn the call over to Mark..

Thanks, Jean, and hello everyone. Thanks for joining our call today. No doubt, this was a tough quarter for us. We have high expectations of used to winning as demonstrated by our prior 20 consecutive quarters of great execution and great results.

I want to emphasize my continued bullishness on the business and confidence in our ability to execute going forward. In fact, the ongoing success of our new stores drove a 16% top line increase and stronger than ever new store payback.

However, we faced some challenges in the second quarter that are largely short-term in nature and more importantly are swiftly being addressed.We underestimated the impacts of these new stores and the rapid pace of openings on the business.

Specifically, the drivers of our headwinds included the opening of 29 stores in the first half of the year, more than double the number of stores opened in the same period last year including 13 former Toys “R” Us locations that we opportunistically acquired.

The exceptional productivity of these stores and the related inventory investments needed, the incredibly strong first year sales of the 2017 and 2018 new store classes normalizing as they entered the comp store base, as well as merchandise margin pressures driven from both the rate and a mix perspective which I’ll speak to shortly.As you saw in our release, we missed in comp store sales and gross margin.

I’ll start with the sales. We saw a bigger than expected impact on comp store sales from cannibalization and the recent classes of new stores as they entered the comp base. First, new stores opened since late last year included the former Toys “R” Us locations, have cannibalized sales from stores in existing markets at a higher than historical rates.

The Toys “R” Us stores in particular are larger boxes and in great locations, many within an existing market.Secondly, the 2017 and 2018 new store classes entering the comp base had a higher than normal impact on comparable store sales as these stores performance exceeded 100% productivity in their first year.

The 29 stores that we opened in the first half of the year was an all-time high for us. We underestimated the demand of initial inventory investment and replenishment for these new stores. This resulted in reduced inventory levels for our comp stores throughout much of the period.

Even with these itches, we’re thrilled to see the continued strength in our new stores. We’re absolutely committed to our long-term growth objectives driven by highly profitable new stores.

We look to broaden our geographic footprint with the opening of our third DC early next year allowing us to enter both new markets and new states.Moving on to gross margin, which was impacted by an increase in supply chain expenses and reduced merchandise margin.

Supply chain expenses deleveraged as we needed to boost labor to support the outsized inventory requirements for the new store, their larger square footage and the velocity of replenishment post grand opening due to their strong performance. We are now in a much better position within our supply chain and comp store inventories are back in line.

We’re working full steam to stay on top of the inventory flow, while better managing supply chain expenses.Merchandise margin was pressured due to the timing of deal flow which reduced markup on inventory purchases and a concentration of lower margin products sold during the period.As we’ve always said, the deals are going to vary quarter-by-quarter.

This quarter we purchased and sold the higher penetration of products with a lower markup. I can tell you we have outstanding deals in the pipeline for the second half of this year and our markup is back on track and in line with our expectations.

We are laser focused on the buys and continue to see incredible deals from new and existing vendors, deals that will benefit our top line and our gross margin, so tough quarter to be sure.All that said though, we remain incredibly bullish on the proven strength of our model of offering great deals, growing our store base, and leveraging and expanding Ollie’s Army.

We're going hard after the toy business once again with bigger buys than even last year. In fact, the deals are as good as I've seen across all departments.

The performance of our new stores continues to exceed our expectations and we see a tremendous runway for continued growth with the potential to expand our store base to over 950 locations across the country.

Facilitating this store growth is the construction of our third DC, which remains on budget and on schedule for operations in the first quarter of 2020.Ollie's Army keeps growing as well. The Bargain Battalion is now over 9.7 million strong, a 13.5% increase year-over-year.

These are our best customers and everything we do is focused on rewarding the tremendous loyalty of the army and keep them coming back. We have grown our organization over 8,000 team members and they're working harder than ever.

I want to thank everyone for their hard work and their dedication and reinforce how much I appreciate their efforts each and every day.So, in closing, while this quarter was challenging, I'm pleased with how we responded as a team and are making the appropriate adjustments to right the ship.

I think our short-term pain will become our long-term gain, as the hard lessons of the second quarter will ultimately make us better. I feel good about the business and I'm confident in our ability to continue driving sales and profitable growth this year and into the future.Thank you for your support of Ollie's.

I'll now hand it over to Jay and he'll take you through our financial results and the 2019 outlook in more detail..

Thanks, Mark, and good afternoon, everyone. In the second quarter, net sales increased 15.9% to $333.9 million, driven by exceptional new store performance. Comparable store sales decreased 1.7% from a 4.4% increase in the prior year.

As Mark mentioned, comp sales were significantly impacted by cannibalization, prior year store classes with exceptionally strong productivity normalizing as they entered the comp store base and reduced comp store inventory levels throughout much of the quarter.

Comp store sales consisted of an increase in average basket offset by a decrease in transactions.During the quarter, we opened eight new stores for a total of 29 openings in the first half of the year ending with 332 stores in 23 states, an increasing store count of 17.7% year-over-year.

Our new stores continued to perform above our expectations across both new and existing markets, and we are very pleased with their productivity and ROI.Gross profit for the quarter totaled $124 million and gross margin dropped 190 basis points to 37.2%, as both merchandise margin and supply chain costs as a percentage of net sales were unfavorable to the prior year.

We had expected 20 to 30 basis points decrease in the quarter which we shared with you on our last call, but as Mark discussed, reduced mark up on our buys concentrated sales of lower margin product and increased supply costs, all put short-term pressure on margin.SG&A expenses increased to $87.4 million, primarily as a result of additional selling expenses from our new stores.

SG&A increased by 90 basis points to 26.2% of net sales, as the growth in expenses outpaced sales growth. Operating income decreased to $30.8 million in the quarter.

Operating margin decreased 290 basis points to 9.2% as a result of the decrease in gross margin and the deleveraging of SG&A.Net income totaled $25.2 million or $0.38 per diluted share, included in the $0.38 is a benefit of $0.03 from tax benefits related to stock-based compensation.

Adjusted net income, which excludes these benefits decreased to $23.5 million or $0.35 per diluted share from $26.1 million or $0.40 per diluted share in the prior year. Adjusted EBITDA decreased 6.8% to $37.5 million.At the end of the quarter, we had $78.5 million in cash and no outstanding borrowings under our revolving credit facility.

Inventory at the end of the quarter increased 23.4% over the prior year primarily due to new store growth and the timing of deal flow.

Capital expenditures increased to $20.2 million in the quarter compared to $5.5 million in the prior year period due to investments in our third distribution center, new stores and maintenance capital.Turning to our outlook. In light of the challenges in Q2 and expectations for the remainder of the year, we are revising our full-year guidance.

As always, we remain prudent in how we plan the business given that we operate in a deal driven environment and the very strong numbers that we are up against in the back half of the year.

That said, in the back half of 2019, we anticipate a return to the metrics of our long-term algorithm with mid-teens revenue growth and high-teens net income growth.For the full year, we now expect total net sales of $1.419 billion to $1.430 billion, a year-over-year increase of 14.8% at the midpoint of the range, a comparable store-sales decrease ranging from negative 0.5% to negative 1.5%.

The opening of 42 new stores with no planned relocations or closures, a gross margin rate of 39.5%; operating income of $174 million to $178 million; adjusted net income of $130 million to $133 million; and adjusted net income per diluted share of $1.95 to $2, both of which exclude excess tax benefits related to stock-based compensation and an after-tax gain from the insurance settlement in the first quarter; and CapEx unchanged from prior guidance at $75 million to $80million.A couple of additional points to help you in your modeling, we're guiding comp sale in the back half of the year in a range from flat to a decrease of 2%.

Due to the exceptional productivity of our recent new store classes we expect the outsized impacts of cannibalization and reverse waterfall to remain effective for the rest of the year. We also anticipate some level of continued headwinds from comp store inventories in the back half of the year.Some thoughts on gross margin.

We expect further deleveraging of supply chain costs in the back half. That's why we're guiding to a 39.5% full year margin, down slightly from our typical annual target of 40%.I will now turn the call back to the operator to start the Q&A session.

Operator?.

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

Mark, maybe just to start off, if we broke down the 1.7% comp decline, maybe three questions.

What exactly was the impact of cannibalization? And how long is this with you? I guess two, what was the supply chain impact at comps? How many quarters to normalize this? And then finally, what is the comp trend that you've seen here more near-term in August?.

Matt, this is Jay, and I'll start with some of the details, and I'm sure Mark will chime in. But obviously, the impact of cannibalization, the reverse waterfall, we do our best to quantify that and calculated. We're estimating approximately 150 to 200 basis points from cannibalization and the reverse waterfall.

We're estimating the impact from the inventory levels in the comp stores from the supply chain pressures to be approximately 150 to 200 basis points.And look the weather also during the quarter wasn't a friend to us, resulted in selling a lot of product towards the end of the quarter at a discount, which impacted margin which we’ll speak to more, but also impacted the sales.And finally, I think when we look in the back half we're expecting the headwinds from the cannibalization and the reverse waterfall to stick with us for the rest of this year.

And the supply chain as well, we're expecting that to moderate but also be with us maybe in about half of the amount that we experience in Q2 for the back half..

Yes, Matt, the early start to Q2 weather was just not our friend. And we took it on the chin on a lot of seasonally related products, and then got cherry picked on the back half by the consumer, they're brilliant, they're smart. So, July seemed to normalize. It was much more acceptable and the early results from August, I'm pleased.

We got our wings clipped here a little bit, but we're going to be better for it and I still feel good about the business. And I think the real -- the supply chain Matt is something that we could have been -- should have been able to get a little bit ahead of, we didn't anticipate that properly.

But the margin, the margin miss was timing, was cherry picking, was weather, was the amount of deals that we had that were offered to us at lower margin, but most importantly and paramount is that we offer the consumer bargain, but we got our wings clipped and I think we're righting the ship..

And just to follow up on gross margin.

Jay, help us to think about the third versus fourth quarter gross margin, any pockets of excess inventory out of 2Q? And Mark, maybe just higher level with a favorable closeout backdrop that we talk about, what explains the mix of lower margin product?.

I'll go first. So, the lower margin product, first of all Q2 of LY was exceptionally strong. I had anticipated us to be able to not only lap that, but I had anticipated us to be able to increase that. So certainly this year, I planned it to be better.

The timing of the deals and the margin profile of the product that we bought that was presented to, was lower IMU.Once again, we still agreed to buy it and get it to the stores and it, were lower margin goods.

With weather impacting us early and we generally as you well know, don't ever really talk about weather, but it was and it's there that impacted our seasonal -- our early seasonal sales.

And in particular, we've talked about it up at the Jefferies Conference, the air conditioner sales early, we weren't getting on them when we needed them when it did get hot, it came as a discount..

Matt, this is Jay. As far as the margin in the back half, I mean obviously from a full year basis, we're now guiding to the 39.5% versus right around the 40%. And what we have done in the model, we've added some additional supply chain costs primarily related to labor.

So when we look at Q3 and Q4, overall gross margin, we're probably going to de-lever 20 to 30 basis points in both of those quarters and getting back to the 39.5% for the full year..

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

I did want to dig just a little more to the cannibalization and the reverse waterfall. So, these are certainly on a cannibalization and that’s been around for years as part of your growth model.

When you’re quantifying that that 150 to 200 basis points, is that in aggregate or is it just maybe incremental to historical trends?.

Well Keith Peter, this is Jay. And it’s not an exact science when we’re trying to estimate that, but that’s what we believe to be an incremental impact. I mean we are seeing a heavy impact from the TRU sites that we acquired opportunistically and Baltimore is an example, and we’ve done this in a few of our markets.

We opened a good number of TRU sites in some premature markets. So, we’re seeing an outsized impact as a result of that..

Okay, so it’s running.

I guess, it’s running above but you have always had it around, so it’s slightly incremental headwind?.

For sure, it’s incremental. Yes, I mean it’s the normal impact that we see, I mean and you can look at our past results on an annual basis, we put up comps of 3 or 4, and we’ve absorb that impact. So, we’re seeing an outsized and an incremental impact of cannibalization from these TRU sites..

Okay fair enough. And then just to circle up to on the IMU third quarter because you guys are usually really rock solid on hitting your margin targets. So, it’s just a little bit unusual to see buys coming in at lower IMU or lower than you saw.

Is anything you need to the quarter with specifics on closeouts that you can call out to help us understand that? And is it the transitory issue to Q2?.

Yes, well I think that, I think I probably got a go to the LY whereas last year we some supersized margin opportunities, a couple of bankruptcies, and we could highlight them even within the sales of our departments, Peter. But I feel really good about the late trend in July on the IMU and the early returns in August.

And with great confidence, I'm telling you we’re back on track..

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

Hoping if you can just give us an assessment of inventories as it stands here today, obviously didn’t underwrite inventory where you wanted it in the stores in the quarter.

But it is up a bit more than sales in your store base today, how are you feeling about the degree of potentially marked down risk in 3Q?.

Yes, Brad, this is John. With regards to our inventory position, we feel pretty good where we’re at with the inventory position. The increase year-over-year as a percent is about 23.4% increase in inventory.

Most of that is timing of deals, specifically related to Toys we bought in earlier this year than last year and that there’s really no issues we have, or are worried about the markdown risk perspective.We did really get our stores back in inventory shape last week of July, so we’re still doing some fine tuning but we feel much better where we’re at today in the inventory position, but markdown risk I don’t think there is any in Q3 or Q4 from where we sit today..

And as you all kind of reflect on this quarter, and think about the pace of growth that’s right for the Company, this 40-ish level.

Is this perhaps a level to start moderating at and mute the store growth from that mid-teen that we have been for years? Or is it too early to really make that call here at this point?.

Yes, Brad. I don't think it’s a unit issue, I think it was the cadence of our store openings. We opened up 21 stores in the first quarter this year and a lot of those stores were the TRU sites that we purchased and bankruptcy which was about 20% larger than our average store.

So, there’s a lot of stores very rapidly in a very short period of time which put a little hiccup in the supply chain.

So, let's learn from our perspective, what would be is, we don't have an issue handling the number of stores we want to open.I think the cadence of the stores, we were running with the two DCs and getting ready to start the third DC was probably a little overly aggressive in the first half of the year.

But we will take that and we will adjust accordingly, but the cadence of store counts, we feel comfortable with the mid-teens unit growth. And as we said in the past, when we get to the 50 stores per year we will reevaluate as we think 50 per store feels about right one a week.

But right now we feel comfortable being able to still deliver what we delivered in the past..

Thank you. And our next question comes from line of Scott Ciccarelli with RBC Capital Markets. Your line is now open..

It's actually Gustavo Gonzalez on for Scott today. Thanks for taking our questions.

Just wanted to touch on tariffs a little bit here; first, even though you guys really work on secondhand goods, closeout inventory, have you historically seen any price elasticity as prices went higher for whatever reason? And if so, how would you sort of describe the magnitude? And then you previously stated under the 10% tariff regime, you haven't really seen any concrete outsized opportunities for deals from any disruption in retail, but with tariffs going at 25% and then sort of the new tariffs set to begin in September, has that dynamic changed at all?.

Yes. As far as the pricing, we’ve only seen modest price adjustments vis-à-vis the tariffs thus far.

I think it’s our experience and what we're hearing and for the relative amount of product that we're bringing in, for the most part, we've been able to go back and negotiate to get money from the manufacturers to mitigate the increase in the tariff and/or the exchange rate.So, we have not seen a lot of change.

There have been some things that have changed in the market. And we have made a modest adjustment. But I think it's still -- from our perspective it’s still very, very new are for everybody and we just haven't seen a big shift in that.

The second part of your question?.

Deals?.

Have we seen any deals that have come up? There haven't been anything of any magnitude, there have been some minor canceled orders. Although, I will tell you that things happen very, very slowly, when it happens overseas and we would expect to see some up-ticking calls on that..

Thank you. And our next question comes from line of Simeon Gutman with Morgan Stanley. Your line is now open..

Hi guys. This is Xian Siew on for Simeon.

Just wondering, it sounds like the supply chain issues are continuing, I mean it stepped up a bit but, but how we think about merchandise margins underlying that?.

Yes. So, Simeon, this is Jay. And from a modeling standpoint, when we're looking at the back half, we have largely kept our merchandise margin plan intact, really when the change ultimately was actualized in Q2, which we talked about the margin pressure there and then adding some cost on the labor side on supply chain.

So -- and like Mark expressed, I mean based on what he’s seeing and the deals we’re seeing the margin -- the merchandise margin plan is intact basically with what it was originally..

Got it, make sense.

And then just thinking about kind of the underlying trends of the business, for the spend per Ollie’s member, how has that been trending? Or is there anything you can point to that?.

The Ollie’s Army customer, we’re glad to say has been very consistent, very strong. The overall spend and the frequency of visit continues to remain very constant.

The Ollie’s Army shopper as we said earlier is spending over 40% more than a non-Ollie’s army shopper and that continues to be one of our strengths in the business, and we have year-over-year growth of about 13.5% which is, for us, very positive in nature. So, we’re excited about how the army is responding to us..

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

Mark, I think you used the term saying that you’re back on track and I was just curious. What does that mean? What exactly of the issues that you saw in 2Q? Which are back on track and which ones do you still need a little bit more time to kind of get there? And then second, last quarter I think you used the term appropriately overbought.

And I guess I'm just wondering as we look back at this quarter, do you look back and say that you didn’t have the right stuff in the stores? Or was it that you simply couldn’t get product that you thought you needed? And I guess in which categories did you feel maybe were not as well stocked in stores? And then just last, I’m wondering, how we should be thinking about the long-term comp rate, did this quarter change your view in anyway? Thanks..

Paul, this is John, I’ll take the first part with regards to the impact with supply chain in the quarter. We obviously had mentioned, we underestimated the impact of the new store openings and the cadence of the openings and the pressure they put on the supply chain.

What happened with that is we got behind the eight ball on the supply chain front and we’re not able to get as much inventory out of the boxes as we needed to and the comp store inventory suffered because of that.That existed for most all of Q2 and was corrected basically in the last week of the quarter.

So, that definitely impacted our sales and our ability to get the inventory out of the distribution centers into the stores and at some level impacted our ability to get the goods into the distribution centers out to the stores as well.

So, there was definitely a bottleneck issue we had in dealing with supply chain, but that definitely has been corrected and addressed. And we feel pretty good where we stand today, and we’ll be in good shape for the back half of the year..

Yes, as far as the merchandise margin, Paul, last year as I said a little earlier on the call, merchandise margin in Q2 was exceptionally strong and I’d even planned it to be a little bit better this year.

The timing of the deals and the margin profile of the product that was offered to us and we subsequently bought, was lower margin than what we had anticipated.

Again, most importantly is to make sure that, it was a -- it is and was a bargain to the consumer and it is.The margin was also pressured by the seasonally related products and we had a lot of it left in the stores late, late in the quarter.

And unfortunately, the consumer came in and sure he picked us and bought it at a discount in particular maybe through Olli Days and some clearances that we had throughout the quarter.

What is back on track, we feel good about the supply chain, any initiatives we've taken to strengthen our supply chain.And then, the recent opportunities and offers and buys that we've made have been very strong. I'm very pleased that happened late in the quarter and early this quarter.

And the visibility to the extent of the deals that we are working on now, I feel very -- that are subsequently coming in, I feel really good about the margin and we're back on track to our original plan for the rest of the year..

And then on those long-term comp outlook?.

Go ahead, Jay..

Yes. So I mean, Paul, basically we view these headwinds, and like we've talked about, we think they're going to persist through the rest of this year, the supply chains lessening versus the cannibalization, reverse waterfall. But there's nothing wrong with model or different with the model from our perspective.

And when we look at next year, we anticipate to get right back to the 1 and 2 comps that we've talked about for many, many quarters..

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

Maybe also just kind of rolling the Q2 and back half of 2019 issues forward, it does sound like you feel like 2020 should be back to the kind of usual algorithm. But you've talked in the past of not having a ton of insight into comps more than a few months ahead of achieving them.

So is there anything about the back half of the year beyond the cannibalization that tells you deal flow might not be as solid or you’re just kind of staying in your kind of typical conservative guidance range on the comps especially for Q4 this year?.

Yes, this is Jay. And I can start. Really from a back half planning standpoint, there's nothing unusual and Mark can speak to the deal flow. I think he feels good about that. It's really -- we see the headwinds from the cannibalization and the reverse waterfall continuing.

And we see -- the supply chain like John said, the inventories are back in line overall. We've got some fine tuning to do. So while we think that is going to moderate, but we think we could have a little bit of a headwind.

So, we really think with our guidance to the flat to negative two for the back half is driven by those headwinds and not something underlying or bigger with the business.

And Mark you can speak to that?.

Yes, on the deal flows Judah, I feel good about where we're at. I like our inventory. I like our position on the toys. Toys are going to be a big part of our what we're coming up against, but we're locked and we're loaded to battle that and I feel good about where we're at..

And then maybe just following-up on that.

In your mind, is there any way that 2019 is setting up as a relatively easier or comp year for 2020? Or is it that you still have the Toys “R” Us pulling that cannibalization next year, you're opening a DC next year, like there are other aspects of the business that that are still somewhat headwinds next year?.

I think Judah that's an interesting question, but obviously we think that the last 20 quarters have been pretty stellar quarters for us as well. And just this little bump in the road doesn't necessarily make next year a layup year.

So, the 1 to 2 is going back to our algorithm that we set out for a long period of time, and we still do have some headwinds to deal with the Toys “R” Us sites annualizing. So we do believe that we can get to the 1 to 2 and we don't believe that's a layup either. So it's just something we feel comfortable with..

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

Anthony Bonadio on for Ed. Thanks for taking my question. I just wanted to dig on the SG&A deleverage a little bit. It’s historically been pretty impressive for you guys as I look back over the last few years.

Can you just help us understand what exactly changed this quarter outside the softer comp, is it mostly labor related or should we be thinking about something else in the back half?.

Yes. Anthony, this is Jay. To your point, I mean, the biggest reason for the deleverage was the change in the drop in the sales.

And like you said, it really was labor related and one of the reasons why we really couldn’t take our foot off the gas more than what we did was the fact that we were starting to ramp up receipts into the comp stores especially on product late in the quarter so that required that we had staffing in the stores to be able to handle the freight that was coming in.

So, kind of a double-edged sword with the sales drop and then the increased freight flow late in the quarter..

Thank you. [Operator Instructions] And our next question comes from the line of Jason Haas with Bank of America Merrill Lynch. Your line is now open..

So, I think that you said in the past that about 3% to 4% of your products are direct imports on tariff List 1, 2, 3.

Could you say what percentage of products are on List 4? And then just, if guidance now includes, what we know the tariffs so far so the 25% tariffs on and then 10% on List 4?.

Right. So, we from a guidance standpoint, really what we have baked into our guidance for margin is really up the List 3. And even with that, we don't necessarily have the full 25% baked in.

We're expecting that we're going to be able to be effective in getting some of that back on the buy and potentially coming that back on the price.From a List 4 standpoint, the biggest impact to us would be on toys and things that are Christmas related which are going to coming now later in December.

And we don't -- it's not like we have a huge exposure to that. Just the way we go to market a lot of our purchases are domestic. Like you said, we only had about 3.5%, previously.

We don't see anything more -- we're going to have some impact from List 4, but we haven't calculated the exact impact, but we don't expect any material from the receipts standpoint..

And then I wanted to focus in on toy specifically. Just curious, if you could speak to maybe the quality of inventory you're seeing this year versus last year? And then, we saw on the flyer that you bought to be -- what you did last year as you guys have said.

So I'm just curious now with kind of the results in the quarter and the restated guidance, I mean, is there risks here that you might have to take higher markdowns or anything like that related to that toy inventory that seems to be maybe a little aggressive now, given the lower comp guidance?.

I don't think it's aggressive at all. I think it's proper planning. I think we are spot on, and I think I'm going to do it. So, I don't think I have any risk. As far as the quality of the product, I think that the merchant did a great job. I think we're going to see some pretty dug on good results, and I'm really, really happy with where we're at.

I don't see any markdown risk whatsoever, anything greater than what we had last year or any of the previous decades before..

Thank you. And that does conclude today's question-and-answer session. I would now like to turn the call back to Mark Butler for any further remarks..

Thanks everyone for participating in our call and your support of Ollie’s. We remain confident and excited for continued growth in 2019. We look forward to sharing our results with you on our third quarter call in December. Thank you and have a great 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 wonderful day..