# Ollie's Bargain Outlet Holdings, Inc. (OLLI) FY 2025 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Ollie's Bargain Outlet Holdings, Inc.'s 10-K for fiscal year 2025.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1639300/000114036125010442/ef20040177_10k.htm
Accession: 0001140361-25-010442
Filing date: 2025-03-26
Report date: 2025-02-01
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/OLLI/
All MD&A years: /company/OLLI/mda/
Previous year: /company/OLLI/mda/fy2024/ (FY 2024)
Next year: /company/OLLI/mda/fy2026/ (FY 2026)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion together with the financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The statements in this
discussion regarding expectations of our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties,
including, but not limited to, the risks and uncertainties described in “Item 1A, Risk Factors” and “Cautionary note regarding forward-looking statements.” Our actual results may differ materially from those contained in or implied by any
forward-looking statements.

We operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the Saturday nearer
January 31 of the following year. References to “2024” refer to the 52-week fiscal year ended February 1, 2025 and references to “2023” refer to the 53-week fiscal year ended February 3, 2024.  References to “2025” refer to the 52-week fiscal year
ending January 31, 2026.

Overview

Ollie’s is America’s largest retailer of closeout merchandise and excess inventory. Our stores sell name brand household related items that consumers use in their everyday lives at
prices that are typically 20% to 70% below traditional retailers.  Known for our assortment of “Good Stuff Cheap®,” we offer customers a broad selection of brand name products, including housewares, bed and bath, food, floor coverings, health and
beauty aids, books and stationery, toys, and electronics.  Our differentiated go-to market strategy is characterized by a unique, fun, and engaging treasure hunt shopping experience, compelling customer value proposition and witty, humorous in-store signage and advertising campaigns. These attributes have driven our rapid growth and strong store performance as evidenced by our store base expansion from 388 stores to 559 stores and net sales
growth from $1.809 billion to $2.272 billion from 2020 to 2024 and average annual net sales per store of $4.3 million for the five-year period.

Our Growth Strategy

Since the founding of Ollie’s in 1982, our principal growth strategy has been the opening of new stores. Historically, we have expanded our store base by opening new stores organically. More recently, we have
expanded our store base through acquiring former store locations of bankrupt retailers through the bankruptcy auction process. Our growth strategy continuously evaluates the best opportunities in the marketplace and combines organic new store
openings with the acquisition of store locations. We follow a contiguous unit growth strategy that combines backfilling existing markets and states with entering new markets and states in a contiguous manner. As of February 1, 2025 we have grown to
559 stores in 31 states.

Our stores are supported by four distribution centers, one each in York, PA, Commerce, GA, Lancaster, TX, and Princeton, IL. We completed the construction of our Princeton,
IL distribution center in the second quarter of 2024 and began shipping product in July 2024. With the addition of our fourth distribution center, we believe our distribution capabilities will support up to 750 stores.

We have invested in our associates, infrastructure, distribution network, and information systems to allow us to continue to rapidly grow our store footprint, including:

[[GREPCENT_TABLE]]
[["","\u2022","growing our merchant buying team to increase our access to brand name/closeout merchandise;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","adding members to our senior management team;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","expanding the capacity of our distribution centers to their current 3.0 million square feet; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","investing in information technology, accounting, and warehouse management systems."]]
[[/GREPCENT_TABLE]]

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Our business model has produced consistent and predictable store growth over the past several years, during both strong and weaker economic cycles.  We plan to continue to enhance our competitive positioning and
drive growth in sales and profitability by executing on the following strategies:

[[GREPCENT_TABLE]]
[["","\u2022","growing our store base;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","increasing our offerings of great bargains; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","leveraging and expanding Ollie\u2019s Army."]]
[[/GREPCENT_TABLE]]

We have a proven portable, flexible, and highly profitable store model that has produced consistent financial results and returns.  Our new store model targets a store size between 25,000 to 35,000 square feet and an
average initial cash investment of approximately $1.0 million, which includes store fixtures and equipment, store-level and distribution center inventory (net of payables) and pre-opening expenses. We target new store sales of approximately $4.0
million in their first full year of operations.

While we are focused on driving comparable store sales and managing our expenses, our revenue and profitability growth will primarily come from opening new stores.  The core elements of our business model are
procuring great deals, offering extreme values to our customers and creating consistent, predictable store growth, and margins.  In addition, our new stores generally open strong, contributing to the growth in net sales and profitability of our
business. From 2020 to 2024, net sales grew at a CAGR of 5.9%. We plan to achieve continued net sales growth, including comparable stores sales, by adding stores to our store base and by continuing to provide quality merchandise at a value for our
customers as we scale and gain more access to purchase directly from major manufacturers. We also plan to leverage and expand our Ollie’s Army database marketing strategies.  In addition, we plan to continue to manage our selling, general, and
administrative expenses (“SG&A”) by continuing to make process improvements and by maintaining our standard policy of reviewing our operating costs.

Our ability to grow and our results of operations may be impacted by additional factors and uncertainties, such as consumer spending habits, which are subject to macroeconomic conditions and changes in discretionary
income.  Our customers’ discretionary income is primarily impacted by gas prices, wages, rising interest rates, inflation, and consumer trends and preferences, which fluctuate depending on the environment. The potential consolidation of our
competitors or other changes in our competitive landscape could also impact our results of operations or our ability to grow, even though we compete with a broad range of retailers.

Our key competitive advantage is our direct buying relationships with many major manufacturers, wholesalers, distributors, brokers, and retailers for our brand name closeout products and unbranded goods.  We also
augment our product mix with private label brands.  As we continue to grow, we believe our increased scale will provide us with even greater access to brand name closeout products as major manufacturers seek a single buyer to acquire an entire
deal.

How We Assess the Performance of Our Business and Key Line Items

We consider a variety of financial and operating measures in assessing the performance of our business.  The key measures we use are number of new stores, net sales, comparable store sales, gross profit and gross
margin, SG&A, pre-opening expenses, operating income, EBITDA, and Adjusted EBITDA.

Number of New Stores

The number of new stores reflects the number of stores opened during a particular reporting period.  Before we open new stores, we incur pre-opening expenses described below under “Pre-Opening Expenses” and we make
an initial investment in inventory.  We also make initial capital investments in fixtures and equipment, which we amortize over time.

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We opened 50 new stores in 2024.  We expect new store growth to be the primary driver of our sales growth. Our initial lease terms are approximately seven years with options to renew for three to
five successive five-year periods. Our portable and predictable real estate model focuses on backfilling existing markets and entering new markets in contiguous states. Our new stores often open with higher sales levels as a result of greater
advertising and promotional spend in connection with grand opening events, but decline shortly thereafter to our new store model levels.

Net Sales

We recognize retail sales in our stores when merchandise is sold and the customer takes possession of the merchandise.  Also included in net sales is revenue allocated to certain redeemed discounts earned via the
Ollie’s Army loyalty program, gift card breakage, and income from our co-branded credit card program.  Net sales are presented net of returns and sales tax. Net sales consist of sales from comparable stores and non-comparable stores, described
below under “Comparable Store Sales.”  Growth of our net sales is primarily driven by the expansion of our store base in existing and new markets.  As we continue to grow, we believe we will have greater access to brand name closeout merchandise
and an increased deal selection, resulting in more potential offerings for our customers.  Net sales are impacted by product mix, merchandise mix and availability, as well as promotional activities and the spending habits of our customers. Our
broad selection of offerings across diverse product categories supports growth in net sales by attracting new customers, which results in higher spending levels and frequency of shopping visits from our customers, including Ollie’s Army members.

The spending habits of our customers are subject to macroeconomic conditions and changes in discretionary income.  Our customers’ discretionary income is primarily impacted by gas prices, wages, inflation, and
consumer trends and preferences, which fluctuate depending on the environment.  However, because we offer a broad selection of merchandise at extreme values, we believe we are generally less impacted than other retailers by economic cycles that
correspond with declines in general consumer spending habits.  We believe we also benefit from periods of increased consumer spending.

Comparable Store Sales

Comparable store sales measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of the previous year.  Comparable store sales consist of
net sales from our stores beginning on the first day of the sixteenth full fiscal month following the store’s opening, which is when we believe comparability is achieved.  Comparable store sales are impacted by the same factors that impact net
sales.

We define comparable stores to be stores that:

[[GREPCENT_TABLE]]
[["","\u2022","have been remodeled while remaining open;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","are closed for five or fewer days in any fiscal month;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","are closed temporarily and relocated within their respective trade areas; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","have expanded, but are not significantly different in size, within their current locations."]]
[[/GREPCENT_TABLE]]

Non-comparable store sales consist of new store sales and sales for stores not open for a full 15 months.  Stores which are closed temporarily, but for more than five days in any fiscal month, are included in
non-comparable store sales beginning in the fiscal month in which the temporary closure begins until the first full month of operation once the store re-opens, at which time they are included in comparable store sales.

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Opening new stores is the primary component of our growth strategy and as we continue to execute on our growth strategy, we expect a significant portion of our sales growth will be attributable to non-comparable
store sales.  Accordingly, comparable store sales are only one measure we use to assess the success of our growth strategy.

Gross Profit and Gross Margin

Gross profit is equal to our net sales less our cost of sales.  Cost of sales includes merchandise costs, inventory markdowns, shrinkage and transportation, distribution, and warehousing costs, including depreciation
and amortization. Gross margin is gross profit as a percentage of our net sales. Gross margin is a measure used by management to indicate whether we are selling merchandise at an appropriate gross profit.

In addition, our gross margin is impacted by product mix, as some products generally provide higher gross margins, by our merchandise mix and availability, and by our merchandise cost, which can vary.

Our gross profit is variable in nature and generally follows changes in net sales.  We regularly analyze the components of gross profit, as well as gross margin.  Specifically, our product margin and merchandise mix
is reviewed by our merchant team and senior management, ensuring strict adherence to internal margin goals.  Our disciplined buying approach has produced consistent gross margins and we believe helps to mitigate adverse impacts on gross profit and
results of operations.

The components of our cost of sales may not be comparable to the components of cost of sales or similar measures of our competitors and other retailers.  As a result, our gross profit and gross margin may not be
comparable to similar data made available by our competitors and other retailers.

Selling, General, and Administrative Expenses

SG&A are comprised of payroll and benefits for store, field support, and support center associates.  SG&A also include marketing and advertising expense, occupancy costs for stores and the store support
center, insurance, corporate infrastructure, and other general expenses. The components of our SG&A remain relatively consistent per store and for each new store opening. SG&A generally increase as we grow our store base and as our net
sales increase. A significant portion of our expenses is primarily fixed in nature, and we expect to continue to maintain strict discipline while carefully monitoring SG&A as a percentage of net sales.  We expect that our SG&A will continue
to increase in future periods with future growth.

The components of our SG&A may not be comparable to the components of SG&A or similar measures of our competitors and other retailers.  As a result, our SG&A may not be comparable to similar data made
available by our competitors and other retailers.

Depreciation and Amortization Expenses

Property and equipment are stated at original cost less accumulated depreciation and amortization. Depreciation and amortization expenses are calculated over the estimated useful lives of the
related assets, or in the case of leasehold improvements, the lesser of the useful lives or the remaining term of the lease. Expenditures for additions, renewals, and betterments are capitalized; expenditures for maintenance and repairs are charged
to expense as incurred. Depreciation and amortization are computed on the straight-line method for financial reporting purposes. Depreciation and amortization as it relates to our distribution centers is included within cost of sales on the
consolidated statements of income.

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Index

Pre-Opening Expenses

Pre-opening expenses consist of expenses of opening new stores and distribution centers, as well as store remodel and store closing costs.  For opening new stores, pre-opening expenses include grand opening
advertising costs, payroll expenses, travel expenses, employee training costs, rent expenses, and store setup costs.  Pre-opening expenses for new stores are expensed as they are incurred, which is typically within 30 to 45 days of opening a new
store. For opening distribution centers, pre-opening expenses primarily include inventory transportation costs, employee travel expenses, and occupancy costs. Store remodel costs primarily consist of payroll expenses, travel expenses, and store
setup costs expensed as they are incurred. Store closing costs primarily consist of insurance deductibles, rent, and store payroll.

Operating Income

Operating income is gross profit less SG&A, depreciation and amortization, and pre-opening expenses.  Operating income excludes net interest income or expense, and income tax expense.  We use operating income as
an indicator of the productivity of our business and our ability to manage expenses.

EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA are key metrics used by management and our Board to assess our financial performance.  EBITDA and Adjusted EBITDA are also frequently used by analysts, investors, and other interested
parties to evaluate companies in our industry.  We use Adjusted EBITDA to supplement U.S. Generally Accepted Accounting Principles (“GAAP”) measures of performance to evaluate the effectiveness of our
business strategies, to make budgeting decisions, to evaluate our performance in connection with compensation decisions and to compare our performance against that of other peer companies using similar measures.  Management believes it is useful to
investors and analysts to evaluate these non-GAAP measures on the same basis as management uses to evaluate the Company’s operating results.  We believe that excluding items from operating income, net income, and net income per diluted share that
may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude, enhances the comparability of our results and provides a better baseline for analyzing trends in our business.

We define EBITDA as net income before net interest income or expense, depreciation and amortization expenses, and income taxes. Adjusted EBITDA represents EBITDA as further adjusted for non-cash stock-based
compensation expense and gains on insurance settlements.  EBITDA and Adjusted EBITDA are non-GAAP measures and may not be comparable to similar measures reported by other companies.  EBITDA and Adjusted EBITDA have limitations as analytical tools,
and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. In the future we may incur expenses or charges such as those added back to calculate Adjusted EBITDA. Our presentation of Adjusted
EBITDA should not be construed as an inference that our future results will be unaffected by these items.  For further discussion of EBITDA and Adjusted EBITDA and for reconciliations of net income, the most directly comparable GAAP measure, to
EBITDA and Adjusted EBITDA, see “Results of Operations.”

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Results of Operations

This section includes comparisons of certain 2024 financial information to the same information for 2023.  Year-to-year comparisons of the 2023 financial information to the same information for fiscal 2022, the
52-week period ended January 28, 2023 (“2022”), are contained in Item 7 of our Form 10-K for 2023 filed with the SEC on March 27, 2024 and available through the SEC’s website at  https://www.sec.gov/edgar/searchedgar/companysearch.html.

The following tables summarize key components of our results of operations for 2024 and 2023, both in dollars and as a percentage of our net sales.

We derived the consolidated statements of income for 2024 and 2023 from our consolidated financial statements and related notes. Our historical results are not necessarily indicative of the results that may be
expected in the future.

[[GREPCENT_TABLE]]
[["","","2024","","","2023"],["","","(dollars in thousands)"],["Net sales","","$","2,271,705","","","$","2,102,662"],["Cost of sales","","","1,357,253","","","","1,270,297"],["Gross profit","","","914,452","","","","832,365"],["Selling, general, and administrative expenses","","","612,406","","","","562,672"],["Depreciation and amortization expenses","","","33,224","","","","27,819"],["Pre-opening expenses","","","19,319","","","","14,075"],["Operating income","","","249,503","","","","227,799"],["Interest income, net","","","(16,311",")","","","(14,686",")"],["Income before income taxes","","","265,814","","","","242,485"],["Income tax expense","","","66,052","","","","61,046"],["Net income","","$","199,762","","","$","181,439"],["Percentage of net sales(1):"],["Net sales","","","100.0","%","","","100.0","%"],["Cost of sales","","","59.7","","","","60.4"],["Gross profit","","","40.3","","","","39.6"],["Selling, general, and administrative expenses","","","27.0","","","","26.8"],["Depreciation and amortization expenses","","","1.5","","","","1.3"],["Pre-opening expenses","","","0.9","","","","0.7"],["Operating income","","","11.0","","","","10.8"],["Interest income, net","","","(0.7",")","","","(0.7",")"],["Income before income taxes","","","11.7","","","","11.5"],["Income tax expense","","","2.9","","","","2.9"],["Net income","","","8.8","%","","","8.6","%"],["Select operating data:"],["Number of new stores","","","50","","","","45"],["Number of store closings","","","(3",")","","","(1",")"],["Number of stores open at end of period","","","559","","","","512"],["Average net sales per store (2)","","$","4,271","","","$","4,286"],["Comparable stores sales change","","","2.8","%","","","5.7","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Components may not add to totals due to rounding."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Average net sales per store represents the weighted average of total net weekly sales divided by the number of stores open at the end of each week for the respective periods presented."]]
[[/GREPCENT_TABLE]]

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Index

The following table provides a reconciliation of our net income to Adjusted EBITDA for the periods presented:

[[GREPCENT_TABLE]]
[["","","2024","","","2023"],["","","(dollars in thousands)"],["Net income","","$","199,762","","","$","181,439"],["Interest income, net","","","(16,311",")","","","(14,686",")"],["Depreciation and amortization expenses (1)","","","44,128","","","","35,120"],["Income tax expense","","","66,052","","","","61,046"],["EBITDA","","","293,631","","","","262,919"],["Non-cash stock-based compensation expense","","","19,445","","","","12,237"],["Adjusted EBITDA","","$","313,076","","","$","275,156"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Includes depreciation and amortization relating to our distribution centers, which is included within cost of sales on our consolidated statements of income."]]
[[/GREPCENT_TABLE]]

2024 Compared with 2023

Net Sales

Net sales increased to $2.272 billion in 2024 from $2.103 billion in 2023, an increase of $169.0 million, or 8.0%.  The increase in net sales was the result of new store unit growth and a comparable store sales
increase of 2.8%. Excluding the 53rd week, sales increased 9.8% year over year.

Comparable store sales increased 2.8% in 2024 compared with a 5.7% increase in 2023.  The increase in comparable store sales consisted of an increase in the number of transactions and basket size.

Gross Profit and Gross Margin

Gross profit increased to $914.5 million in 2024 from $832.4 million in 2023, an increase of $82.1 million, or 9.9%.  Gross margin increased 70 basis points to 40.3% in 2024 from 39.6% in 2023.  The increase in gross
margin in fiscal 2024 is primarily due to favorable supply chain costs.

Selling, General, and Administrative Expenses

SG&A increased to $612.4 million in 2024 from $562.7 million in 2023, an increase of $49.7 million, or 8.8%.  Included in SG&A expenses in 2024 is a one-time expense of $5.5 million for the accelerated
expense resulting from the modification of existing equity awards for our Executive Chairman. Excluding this one-time expense, SG&A increased 7.9% to $606.9 million in 2024 from $562.7 million in 2023. This increase was primarily driven by
higher selling expenses associated with our new store unit growth.  As a percentage of net sales, SG&A, exclusive of the one-time stock awards expense, decreased 10 basis points to 26.7% in 2024 from 26.8% in 2023. This decrease is primarily
the result of increased leverage of fixed expenses from the increase in comparable store sales.

Depreciation and Amortization Expenses

Depreciation and amortization expenses increased to $33.2 million in 2024 from $27.8 million in 2023, an increase of $5.4 million, or 19.4%, the result of the increased asset
base due to new store growth and investments in existing stores.

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Index

Pre-Opening Expenses

Pre-opening expenses increased to $19.3 million in 2024 from $14.1 million in 2023, an increase of $5.2 million, or 37.3%. The increase is primarily due to the earlier timing of new store openings in fiscal 2025 as
compared to fiscal 2024, start-up costs related to opening the Princeton, IL distribution center, and dark rent expense associated with the bankruptcy acquired new store locations. We opened 50 new stores and closed three stores in 2024 compared
with having opened 45 new stores and closed one store in 2023. As a percentage of net sales, pre-opening expenses increased 20 basis points to 0.9% in 2024 from 0.7% in 2023.

Interest Income, Net

Interest income, net was $16.3 million in 2024 compared with $14.7 million in 2023. The increase in interest income, net in 2024 is primarily due to higher average cash and cash equivalent and short-term investments
balances compared to 2023.

Income Tax Expense

Income tax expense increased to $66.1 million in 2024 from $61.0 million in 2023, an increase of $5.0 million, or 8.2%.  The effective tax rates for 2024 and 2023 were 24.9% and 25.2%, respectively.  The variance in
the effective tax rates between the periods was primarily due to an increase in discrete tax benefits related to stock-based compensation. Discrete tax benefits totaled $2.8 million and $1.1 million in 2024 and 2023, respectively. For further
information, see Note 8 under “Notes to Consolidated Financial Statements.”

Net Income

As a result of the foregoing, net income increased to $199.8 million in 2024 from $181.4 million in 2023, an increase of $18.3 million, or 10.1%.

Adjusted EBITDA

Adjusted EBITDA increased to $313.1 million in 2024 from $275.2 million in 2023, an increase of $37.9 million, or 13.8%.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are net cash flows provided by operating activities and available borrowings under our $100.0 million Revolving Credit Facility. As of February 1, 2025, we had $428.7 million of cash
and cash equivalents and short-term investments on hand and $85.8 million available to borrow under our Revolving Credit Facility. For further information regarding our Revolving Credit Facility, see Note 7 under “Notes to the Consolidated
Financial Statements.”

Our primary cash needs are for capital expenditures and working capital.  Additionally, we have made and may continue to make discretionary share repurchases (see “Share Repurchase Program” below for further
discussion).

Our capital expenditures are primarily related to new store openings, lease acquisitions and related build-out costs, store resets, which consist of improvements to stores as they are needed, expenditures related to
our distribution centers, and infrastructure-related investments, including investments related to upgrading and maintaining our information technology systems.  We spent $120.6 million and $124.4 million for capital expenditures in 2024 and 2023,
respectively.  We opened 50 new stores and closed three store in 2024.

Capital expenditures in 2025 are planned to be approximately $83 to $88 million, primarily for the opening of 75 new stores, store-level initiatives at our existing stores, as well as general corporate capital
expenditures, including information technology.  We have experienced, and may continue to experience, delays in construction and permitting of new stores and other projects.

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Index

Our primary working capital requirements are for the purchase of merchandise inventories, payroll, store rent associated with our operating leases, other store operating costs, distribution costs, and general and
administrative costs.  Our working capital requirements fluctuate during the year, rising in our third fiscal quarter as we increase quantities of inventory in anticipation of our peak holiday sales season in our fourth fiscal quarter. 
Fluctuations in working capital are also driven by the timing of new store openings.

A financial instrument which potentially subjects the Company to a concentration of credit risk is cash. Ollie’s currently maintains its day-to-day operating cash balances with major financial institutions. The
Company’s operating cash balances are in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. From time to time, Ollie’s invests temporary excess cash in overnight investments with expected minimal volatility, such as money
market funds. Although the Company maintains balances which exceed the FDIC insured limit, it has not experienced any losses related to these balances.

We believe our cash and cash equivalents and short-term investments position, net cash provided by operating activities and availability under our Revolving Credit Facility will be adequate to finance our planned
capital expenditures, working capital requirements, debt service, and other financing activities over the next 12 months.  If cash provided by operating activities and borrowings under our Revolving Credit Facility are not sufficient or available
to meet our capital requirements, we will be required to obtain additional equity or debt financing in the future.  There can be no assurance equity or debt financing will be available to us when needed or, if available, the terms will be
satisfactory to us and not dilutive to our then-current stockholders.

Share Repurchase Program

On December 15, 2020, the Board of Directors of the Company authorized the repurchase of up to $100.0 million of shares of the Company’s common stock. On March 16, 2021, the Board of Directors of the Company
authorized an increase of $100.0 million in the Company’s share repurchase program, resulting in $200.0 million approved for share repurchases through January 13, 2023.  On November 30, 2021, the Board authorized an additional $200.0 million to
repurchase stock pursuant to the Company’s share repurchase program, expiring on December 15, 2023.  On November 30, 2023, the Company’s Board of Directors authorized an extension to the existing share repurchase program set to expire on December
15, 2023, until March 31, 2026.  On March 19, 2025, the Company announced the Board of Directors approved a new share repurchase authorization of an additional $300.0 million of the Company’s outstanding common stock, effective through March 31,
2029.  The shares to be repurchased may be purchased from time to time in open market conditions (including blocks), privately negotiated transactions, accelerated share repurchase programs or other derivative transactions, issuer self-tender
offers or any combination of the foregoing.  The timing of repurchases and the actual amount purchased will depend on a variety of factors, including the market price of our shares, general market, economic and business conditions, and other
corporate considerations.  Repurchases may be made pursuant to plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, which could allow us to purchase our shares during periods when we otherwise might be prevented from
doing so under insider trading laws or because of self-imposed trading blackout periods.  Repurchases are expected to be funded from cash on hand or through the utilization of our Revolving Credit Facility.  The repurchase authorization does not
require the purchase of a specific number of shares and is subject to suspension or termination by our Board of Directors at any time.

During 2024, we repurchased 639,788 shares of our common stock for $53.0 million, inclusive of transaction costs, pursuant to our share repurchase program, and during 2023, we repurchased 808,669 shares of our common
stock for $52.5 million, inclusive of transaction costs.  These expenditures were funded by cash generated from operations.  As of February 1, 2025, we had approximately $32.7 million remaining under our share repurchase authorization.  There can
be no assurances that any additional repurchases will be completed, or as to the timing or amount of any repurchases.

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Summary of Cash Flows

A summary of our cash flows from operating, investing, and financing activities is presented in the following table:

[[GREPCENT_TABLE]]
[["","","2024","","","2023"],["","","(in thousands)"],["Net cash provided by operating activities","","$","227,454","","","$","254,497"],["Net cash used in investing activities","","","(255,341",")","","","(150,087",")"],["Net cash used in financing activities","","","(33,252",")","","","(48,744",")"],["Net increase (decrease) in cash and cash equivalents","","$","(61,139",")","","$","55,666"]]
[[/GREPCENT_TABLE]]

Cash Provided by Operating Activities

Net cash provided by operating activities in 2024 totaled $227.5 million compared with $254.5 million in 2023.  The decrease in net cash provided by operating activities in 2024 was primarily due to changes in
working capital, most notably the timing of tax and merchandise payments, partially offset by higher net income year over year.

Cash Used in Investing Activities

Net cash used in investing activities totaled $255.3 million in 2024 compared with $150.1 million in 2023.  The increase in cash used in investing activities is primarily due to a larger investment in capital
expenditures related to the development of new stores, the completion of our fourth distribution center in Princeton, IL, the acquisition of former 99 Cents Only Store locations and the acquisition of former Big Lots store leases, and purchases of
short-term investments of $482.7 million in the current year, partially offset by maturities of short-term investments of $347.5 million.

Cash Used in Financing Activities

Net cash used in financing activities totaled $33.3 million in 2024 compared with $48.7 million in 2023.  The change in cash outflow in 2024 is primarily due to $24.0 million of proceeds from stock option exercises
in fiscal 2024 as compared to $6.7 million of proceeds from stock option exercises in fiscal 2023.

Credit Facilities

The Company’s credit facility (the “Credit Facility”) provides for a five-year $100.0 million revolving credit facility, which includes a $45.0 million sub-facility for letters of credit and a
$25.0 million sub-facility for swingline loans (the “Revolving Credit Facility”).  In addition, the Company may at any time add term loan facilities or additional revolving commitments up to $150.0 million pursuant to terms and conditions set out
in the Credit Facility. On January 9, 2024, the Company refinanced its credit facility (the “Credit Facility”), pursuant to which the maturity date for any loans under the revolving credit facility was extended for a period of five years and a zero
percent (0.0%) interest rate floor was added to the option for the SOFR Loan Rate (as defined in the Amendment). Loans under the Revolving Credit Facility mature on January 9, 2029.

The interest rates for the Credit Facility are calculated as follows: for ABR Loans, the highest of the Prime Rate, the Federal Funds Effective Rate plus 0.50% and Term SOFR with a term of one-month in effect on such
day plus the SOFR Spread Adjustment plus 1.0%, plus the Applicable Margin, or, for SOFR Loans, the SOFR Loan Rate plus the Applicable Margin plus the SOFR Spread Adjustment. The Applicable Margin will vary from 0.00% to 0.50% for an ABR Loan and
1.00% to 1.50% for a SOFR Loan, based on availability under the Credit Facility. The SOFR Loan Rate is subject to a 0% floor.

Under the terms of the Revolving Credit Facility, as of February 1, 2025, we could borrow up to 90.0% of the most recent appraised value (valued at cost, discounted for the current net orderly liquidation value) of
our eligible inventory, as defined, up to $100.0 million.

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As of February 1, 2025, we had no outstanding borrowings under the Revolving Credit Facility, with $85.8 million of borrowing availability, outstanding letters of credit commitments of $14.0 million and $0.2 million
of rent reserves.  The Revolving Credit Facility also contains a variable unused line fee ranging from 0.125% to 0.250% per annum. We incurred unused line fees of approximately $0.1 million in each of 2024 and 2023.

The Credit Facility is collateralized by the Company’s assets and equity and contains a financial covenant, as well as certain business covenants, including restrictions on dividend payments, which we must comply
with during the term of the agreement.  The financial covenant is a consolidated fixed charge coverage ratio test of at least 1.0 to 1.0 applicable during a covenant period, based on reference to availability.  We were in compliance with all terms
of the Credit Facility during 2024.

The provisions of the Credit Facility restrict all of the net assets of the Company’s consolidated subsidiaries, which constitutes all of the net assets on our consolidated balance sheet as of February 1, 2025, from
being used to pay any dividends or make other restricted payments to the Company without prior written consent from the financial institutions that are a party to the Credit Facility, subject to material exceptions including proforma compliance
with the applicable conditions described in the Credit Facility.

Contractual Obligations

We enter into long-term contractual obligations and commitments in the normal course of business, primarily operating leases. The following table summarizes our material cash requirements over the next several periods from known contractual
obligations, including contractual lease obligations:

[[GREPCENT_TABLE]]
[["","","Less than 1 year","","","1-3 Years","","","3-5 Years","","","Thereafter","","","Total"],["","","(in thousands)"],["Operating leases (1)","","$","108,249","","","$","217,754","","","$","153,559","","","$","188,025","","","$","667,587"],["Finance leases","","","961","","","","721","","","","-","","","","-","","","","1,682"],["Purchase obligations (2)","","","12,795","","","","-","","","","-","","","","-","","","","12,795"],["Total","","$","122,005","","","$","218,475","","","$","153,559","","","$","188,025","","","$","682,064"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Operating lease payments exclude $20.0 million of legally binding minimum lease payments for leases signed, but not yet commenced."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Purchase obligations are primarily for materials and construction agreements for new store build-outs and purchase commitments for material handling equipment at the Company\u2019s distribution centers."]]
[[/GREPCENT_TABLE]]

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Seasonality

Our business is seasonal in nature and demand is generally the highest in our fourth fiscal quarter due to the holiday sales season.  To prepare for the holiday sales season, we must order and keep in stock more
merchandise than we carry during other times of the year and generally engage in additional marketing efforts.  We expect inventory levels, along with accounts payable and accrued expenses, to reach their highest levels in our third and fourth
fiscal quarters in anticipation of increased net sales during the holiday sales season.  As a result of this seasonality, and generally because of variation in consumer spending habits, we experience fluctuations in net sales and working capital
requirements during the year.  Because we offer a broad selection of merchandise at extreme values, we believe we are generally less impacted than other retailers by economic cycles which correspond with declines in general consumer spending habits
and we believe we still benefit from periods of increased consumer spending.

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Critical Accounting Estimates

Our consolidated financial statements have been prepared in accordance with GAAP.  A summary of our significant accounting policies can be found in Note 1 to our audited
consolidated financial statements included elsewhere in this Annual Report on Form 10-K.  The preparation of these consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets,
liabilities, revenues, expenses, and related disclosures.  These judgments and estimates are based on historical and other factors believed to be reasonable under the circumstances.  We have identified the policies below as critical to
our business operations and understanding of our results of operations.

Inventories

Inventories are stated at the lower of cost or market determined using the retail inventory method on a first-in, first-out basis. The cost of inventories includes the merchandise cost,
transportation costs, and certain distribution and storage costs. Such costs are thereafter expensed as cost of sales upon the sale of the merchandise.

Under the retail inventory method, which is widely used in the retail industry, inventory is segregated into departments of merchandise having similar characteristics.  The valuation of
inventories and the resulting gross profit is derived by applying a calculated cost-to-retail ratio to the retail value of inventories for each department.

Inherent in the retail inventory method are certain management judgments and estimates including, among others, merchandise markups, the amount and timing of permanent markdowns, and shrinkage,
which may significantly impact both the ending inventory valuation and gross profit.

Factors considered in the determination of permanent markdowns include uncertainties related to inventory obsolescence, excess inventories, current and anticipated demand, age of the merchandise
and customer preferences.  A significant increase in the demand for merchandise could result in a short-term increase in inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory
quantities on-hand.  If our inventory is determined to be overvalued in the future, we would be required to recognize such costs in cost of sales and reduce operating income at the time of such determination.  Therefore, although every effort is
made to ensure the accuracy of forecasts of merchandise demand, any significant unanticipated changes in demand or in economic conditions within our markets could have a significant impact on the value of our inventory and reported operating
results.  Similarly, if higher than anticipated levels of shrinkage were to occur, it could have a material effect on our results of operations. We calculate our shrink provision based on actual physical inventory results during the fiscal period
and an accrual for estimated shrink occurring subsequent to a physical inventory through the end of the fiscal reporting period. This accrual is calculated as a percentage of sales for each retail store, at a department level, based on the
company’s most recent historical shrink rate adjusted, if necessary, for current economic conditions and business trends. To the extent that subsequent physical inventories yield different results than the estimated accrual, our effective shrink
rate for a given reporting period will include the impact of adjusting to the actual results.

We have not made any material changes in the methodology used to recognize permanent markdowns or inventory shrinkage in the financial periods presented nor do we anticipate material changes in
assumptions we use for permanent markdowns or shrinkage.  As previously stated, however, if our actual experience does not accurately reflect our assumptions and forecasts, we may be exposed to losses or gains that could be material.  We believe a
10% change in our assumptions as of February 1, 2025 would have impacted net income by approximately $1.0 million in 2024.

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Goodwill/Intangible Assets

We amortize intangible assets over their useful lives unless we determine such lives to be indefinite. Goodwill and intangible assets having indefinite useful lives are not amortized to earnings,
but instead are subject to annual impairment testing or more frequently if events or circumstances indicate that the value of goodwill or intangible assets having indefinite useful lives might be impaired.

Goodwill and intangible assets having indefinite useful lives are tested for impairment annually in the fiscal month of October. We have the option to evaluate qualitative factors to determine if
it is more likely than not that the carrying amount of our sole reporting unit or our nonamortizing intangible assets (consisting of a tradename) exceed their implied respective fair value and whether it is necessary to perform a quantitative
analysis to determine impairment. As part of this qualitative assessment, we weigh the relative impact of factors that are specific to our sole reporting unit or our nonamortizing intangible assets as well as industry, regulatory and macroeconomic
factors that could affect the inputs used to determine the fair value of the assets.

If management determines a quantitative goodwill impairment test is required, or it elects to perform a quantitative test, the test is performed by determining the fair value of our sole
reporting unit. Fair value is determined based on our public market capitalization. The carrying value of goodwill is considered impaired when the reporting unit’s fair value is less than its carrying value and the Company would record an
impairment loss equal to the difference, not to exceed the total amount of goodwill allocated to the reporting unit.

If management determines a quantitative analysis of intangible assets having indefinite useful lives is required, the test is performed using the discounted cash flow method based on management’s
projection of future revenues and an estimated royalty rate to determine the fair value of the asset, specifically, our tradename.  An impairment loss is recognized for any excess of the carrying amount of the asset over the implied fair value of
that asset.

Our impairment calculations contain uncertainties as they require management to make assumptions and apply judgment to qualitative factors as well as estimate future cash flows by forecasting
financial performance.  Our policy is to conduct impairment testing based on our most current business plans, which reflect anticipated changes in the economy and the retail industry. Should significant changes in our overall business strategy,
future results or economic events cause us to adjust our projected cash flows, future estimates of fair value may not support the carrying amount of these assets. If actual results prove inconsistent with our assumptions and judgments, we could be
exposed to an impairment charge.

For 2024 and 2023, we completed an impairment test of our goodwill and determined that no impairment of goodwill existed.  Similarly, for 2024 and 2023, we completed an impairment test of our
tradename and determined that no impairment of the asset existed.

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