Ollies' Q2 2026: Contradictions Emerge on Tariffs, Pricing Strategy, Marg

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $680.0M, up 18% YOY
• EPS: $0.99 adjusted EPS, up 26.9% YOY
• Gross Margin: 39.9%, up 200 basis points YOY

Guidance:

• FY2025 net sales: $2.631B–$2.644B
• FY2025 comps: 3.0%–3.5%
• FY2025 gross margin: ~40.3%
• FY2025 operating income: $292M–$298M
• FY2025 adjusted net income: $233M–$237M; adjusted EPS: $3.76–$3.84; diluted shares ~62M
• 85 new store openings (majority of remaining in Q3)
• Q3 comps ~3% (above 1–2% algo); Q4 comps just below 2%
• Assumes current tariffs remain in place
• D&A: $54M (incl. $14M in COGS); pre-opening: $23M (incl. ~$5M dark rent)
• Capex: $83M–$88M; tax rate ~25%

Business Commentary:

* Store Growth and Market Expansion: - Ollie's Bargain Outlet opened 54 new stores in the first six months of 2025, surpassing the previous year's full-year record. - This rapid expansion was driven by the opportunity to gain market share due to the closure of numerous retailers and the acquisition of well-suited stores.

• Strong Financial Performance and Gross Margin Improvement:
• Net sales increased 18% to $680 million, with gross margin improving by 200 basis points to 39.9%.

• The improvement in gross margin was attributed to lower supply chain costs and higher merchandise margins due to strong deal flow and reduced shrink.

• Customer Acquisition and Loyalty Program:

• Ollie's Army members increased by 10.6% to 16.1 million, driven by the revamped Ollie's Days event and targeted acquisition strategies.

• The event contributed to a 100 basis points increase in comparable store sales for the quarter and boosted new member sign-ups.

• Impact of Tariffs and Disruption:

• The company benefited from tariffs creating market disruption, resulting in additional buying opportunities and increased merchandise margins.
• Ollie's strategic sourcing and buying power were leveraged to capitalize on these disruptions, ensuring the maintenance of price gaps and value proposition.

Sentiment Analysis:

• Management reported a very strong Q2 with net sales +18%, comps +5%, gross margin +200 bps to 39.9%, and adjusted EPS +26.9% to $0.99. They raised full-year sales and earnings outlook, now expecting Q3 comps around 3% and reaffirming elevated unit growth (85 openings). Commentary highlighted strong deal flow, lower supply chain costs, and improving shrink, with loyalty initiatives adding ~100 bps to the quarter’s comp.

Q&A:

• Question from Matthew Boss (JPMorgan): Can you elaborate on Q2 comp cadence, August trends, and the state of deal flow amid tariffs?
  Response: Deal flow remains very strong due to tariff disruption and bankruptcies; inventory +20% supports this. Comps: May ~flat, June accelerated (helped by Ollie’s Army night), July was strongest.

• Question from Peter Keith (Piper Sandler): How did the revamped Ollie’s Army Night compare with December, and what did you learn?
  Response: Event exceeded expectations—~100 bps comp lift, gross margin neutral, weekly customer acquisition up ~60%, and sales surpassed December’s night; learnings will inform future events.

• Question from Chuck Grom (Gordon Haskett): Thoughts on 2026 store growth and earnings power; gross margin trajectory?
  Response: Expect elevated openings again in 2026 (above 10% long-term unit growth). 2026 could see double-digit top-line with mid-teens bottom-line growth; long-term gross margin framework unchanged around 40%.

• Question from Brad Thomas (KeyBanc Capital Markets): SG&A leverage outlook and cultural shift toward new initiatives?
  Response: SG&A pressured by medical/casualty but expected to leverage in H2; guidance intact. Culturally, pursuing targeted tweaks (not model changes), especially enhancing loyalty to drive relevance.

• Question from Stephen Chacon (Citi): How are new stores performing and when is the next DC needed?
  Response: New stores are above plan with mid-teens four-wall margins; bankruptcy-acquired stores have longer paybacks due to dark rent/buildout. TX and IL DCs expand in ~18 months (adds ~100-store capacity); fifth DC in 3–4 years.

• Question from Kate McShane (Goldman Sachs): What did Army Night do for acquisition and cohort mix, and how have supply chain changes helped?
  Response: New customers increased, skewing toward mid/upper incomes; the file is getting younger via digital. Supply chain/automation improvements and freight procurement are supporting growth and cost efficiency.

• Question from Scott Ciccarelli (Truist): How are markets performing where Big Lots closed, and any reverse waterfall risk into 2026?
  Response: Overlap stores where Big Lots closed (not reopened) are comping low-to-mid single digits above chain; most new stores are over plan. Too early to call reverse waterfall; monitoring.

• Question from Steven Chamish (RBC Capital Markets): With a strong Q2 exit rate, how should we view Q3 comps and what drove higher gross margin?
  Response: Q3 comps guided to ~3% with conservative posture. Gross margin strength driven by better buying/scale, lower supply chain costs/markdowns, and improved shrink.

• Question from Jeremy Hamblin (Craig Hallum): Incremental medical/casualty costs and what drove outsized Q2 gross margin?
  Response: Medical was essentially all deleverage; slight H2 improvement assumed. Gross margin benefited from stronger deals and consumables driving frequency; closeout market consolidation favors Ollie’s.

• Question from Mark Carden (UBS): Differences in warm-box Big Lots conversions vs organic openings and Army sign-ups?
  Response: Top-line similar; converted sites have better flow-through due to lower rents. Army sign-ups are accelerating in new stores, especially converted Big Lots, aided by customer familiarity with deep value.

• Question from Lauren Ng (Morgan Stanley): What specifically lifted merchandise margin, and how broad-based were comps across vintages?
  Response: Higher merchandise margin from strong deal flow and lower shrink; comps were strong across all store cohorts.

• Question from Edward Kelly (Wells Fargo): Why guide lower H2 gross margin and how are tariffs/mix managed; any rise in made-for-Ollie’s?
  Response: Guidance is conservative to preserve price-investment flexibility; Q4’24 outperformance not assumed. Tariffs managed to maintain price gaps and mix via counter-sourcing; remain opportunistic, not shifting to contracted manufacturing.