Ollie's Bargain Outlet Holdings Inc (OLLI) 2015 Q2 法說會逐字稿

Good afternoon and welcome to the Ollie's Bargain Outlet conference call to discuss FY15 second-quarter financial results.

(Operator Instructions)

Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Ollie's. And as reminder this call is being recorded. On the call today from management are Mark Butler, Chairman, President, and Chief Executive Officer, and John Swygert, Executive Vice President and Chief Financial Officer.

I will turn the call over to Mr. Swygert to get started. Please go ahead, sir.

Thank you. And hello, everyone.

Mark will review our business and I'll discuss the second-quarter financial results and our outlook for FY15. We will then open the call for questions. A press release covering the Company's second-quarter FY15 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 also want to remind everyone that management's remarks on this call may contain certain forward-looking statements, including predictions, expectations, estimates, or other information that might be considered forward-looking, and that actual results could differ materially from those projected on today's call. Any such items, including targeted results for FY15, and the details relating to our future performance, should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

You should not place undue reliance on these forward-looking statements, which speak only as of today. And the Company undertakes no obligation to update them for any new information or future events. Factors that might affect future results are discussed in our filings with the SEC, and we encourage you to review these filings, including the Company's initial public offering prospectus dated July 15, 2015 for a more detailed description of these factors.

Please also note that we will be referring to certain non-GAAP financial measures on today's call, such as EBITDA, adjusted EBITDA, and adjusted net income, that we believe may be important to investors as metrics to assess the operating performance of our Business. Reconciliation of these non-GAAP financial measures to GAAP financial measures are included in our earnings release. I will now turn the call over to Mark.

Thank you, John. Thanks and good afternoon, everyone. It's a pleasure to be speaking to you on our first earnings call as a public company.

I was one of the co-founders of the business over 33 years ago and it's been amazing for me to lead the growth and the development over the years. It's an incredible business, and we've come a long way, but in many ways we feel like we're just beginning to scratch the surface and there is so much growth ahead of us.

Everyone loves a bargain and we've built a unique business that we believe is capable of delivering sustainable, long-term growth and shareholder value. The Ollie's formula for success is relatively simple and straightforward but difficult to replicate. We offer high-quality brand-name products that people need every day and we sell them cheap. Good Stuff Cheap has been our tagline for more than 33 years and it's as true today as it was when we started the business.

We sell a huge assortment of products across 21 different departments, including housewares, bed and bath, floor coverings, food, hardware, books, stationary, seasonal and toys. Our merchandise is constantly changing, but we always have brand-name products in all of our departments. And customers know they're going to find a bargain when they shop our stores. This goes for both our core and seasonal departments.

Seasonal is an important part of our business and our customers want to buy lawn and garden products in the spring, air conditioners in the summer, heaters in the winter, candy at Easter and Halloween, and toys at Christmas. Our buying team is constantly scouring the market for great deals, no matter what time of year. In fact, our toy buyer, he's been buying toys all year long, so we'll be able to provide a great selection of brand-name toys to our customers this holiday season.

We think this is what makes our stores so appealing to the American consumer. There is really something for everyone in our stores and people shop Ollie's knowing they're always going to find a bargain. Our list of loyal customers continues to grow at a faster rate than our new store growth. Ollie's Army is our customer loyalty program and we're proud to say that it is 5.2 million members strong.

Our stores are highly profitable and have delivered consistent results across every geography, demographic, and real estate format. We currently operate in 16 different states in the eastern half of the United States, and our new stores continue to perform at or above our expectations. With 187 stores open at the end of the second quarter, we believe there's tremendous growth potential ahead of us.

Supporting that growth are investments we've made back into the business. We've opened up a second state-of-the-art distribution facility, invested in best-of-class warehouse systems, and hired top talented people to manage this side of the business. We've raised the execution level of the distribution side of the business and are well positioned for future growth.

In the closeout business, we're always working to find the next deal, and we've continued to see a consistent trend of better deal flow. We think there are a number of reasons for this. First is our growing size and scale. As we become larger we're gaining better access to product and working directly with more major manufacturers. Many of these manufacturers are coming to us on a more regular basis, and we are buying more deals than ever before.

The second is the experience of our buyers and the dedication to the closeout industry. And I can't emphasize this enough: it's a highly competitive market that moves really fast. You need relationships, experience, and execution to be successful in this business -- relationships to get the calls from the vendors, experience to negotiate the deals, and execution to make it all happen.

Take it and pay for it is what we say around here, and do it in a way that strengthens our relationship with our vendor partners. Our relationships and experience have been developed and built over many years. Our merchant team is one of the best in the business. They are growing existing relationships and starting new ones each and every day and their experience in the market is the lifeline to the business.

The third is visibility and credibility. And, again, this isn't something you can build on overnight. It's taken us 33 years to build the type of visibility and credibility we have in the marketplace. And our recent IPO has only served to improve this with our vendor partners. Since the announcement of our IPO, we've seen a nice pick up in the amount of inbound calls we're seeing on the merchandise front.

Our deal flow continues to be strong and we think this is reflected in our second-quarter results. Comparable store sales increased 7.8% in the quarter and the increase was very broad-based. The vast majority of our 21 departments delivered positive comparable store sales in the quarter and the majority of these were up mid single digits or higher. Our top-performing department was lawn and garden, and other standouts were pets, food, electronics, bed and bath, and hardware.

We're not going to be commenting on the performance of any individual deal or product, but we are starting to lap the strong coffee deals of last year, and we'll tell you that coffee continues to perform well. It was a very good all-around quarter that benefited from strong deals and favorable weather. Weather can play a factor in any retail business, particularly with the sale of seasonal products.

Our customers know that when the weather turns nice and they want to get outside and get going, they can turn to Ollie's for great deals on their outdoor and seasonal needs. The second quarter benefited from a strong performance of brand-name merchandise that we carry in our core departments and from strong sales of seasonal specific merchandise.

On the seasonal side of the business, the lawn and garden department showed a strong performance, driven with things like gardening tools, outdoor pottery, grass seed and fertilizer. We had sporting-goods department with drivers like fishing supplies, outdoor games, pool toys and chemicals. In the summer furniture department, cables, umbrellas and chairs, they all sold well. And on the core side of the business, paint, luggage, tools, electronics, bedding, candy, coffee, mattresses and pet supplies, they were all really good sellers in the quarter.

We opened up seven new stores in six dates and closed one store in the quarter. New stores continue to perform very well, and we opened up new stores in Ohio, Kentucky, South Carolina, Georgia, Alabama, and Tennessee.

We are disciplined in how we open new stores. We capitalize on low-cost second-generation properties, build them in strict leasing criteria, and open stores on a contiguous geographic basis.

The Southeast is an important growth area and our new distribution facility is allowing us to better serve these stories and expand our footprint in this region. We think this was a big contributor to our second-quarter results. It's one thing to get great buys, but it's another thing to manage inventory effectively and efficiently and make sure that the stores are always full of the best of assortment of products. We are buying great merchandise and doing an excellent job managing the distribution and logistics side of the business, and the entire team is to be congratulated here.

Ollie's Army is our customer loyalty program and these members continue to be some of our best customers. As I mentioned, we now have 5.2 million Ollie's Army members and they continue to spend 37% more than non-members per shopping trip. We communicate directly with Ollie's Army members through emails and direct mail, and are working on better ways to communicate on a go-forward basis. While it's difficult to measure market share, we think we're attracting a wider customer base, turning them onto bargains, and becoming more meaningful to the communities that we serve.

In summary, we feel very good about the business right now. Everybody knows we're up against a challenging comparison in the second half of the year, but we are seeing great access to product and executing very well. So, we are very excited about the business and remain cautiously optimistic on the near term, and remain confident in the long-term outlook for Ollie's.

Before I turn the call over to John to review our second-quarter results in more detail, I want to take a moment to thank our over 5,000 team members and dedicated associates. We've built an experienced team here at Ollie's and they are the ones who execute the business. Building a strong team and Company culture is something we're passionate about and work on each and every day.

The initial public offering was a huge milestone and something everyone can be proud of. While being public comes with great responsibility, it also comes with great opportunity. And I want to thank all of you for your hard work, your passion, and your dedication. And I'm honored to be leading this organization. Together we built a great business and together we are going to build an even better future.

With that, I'll hand the call over to John Swygert.

Thanks, Mark. Good afternoon, everyone.

The business performed very well in the second quarter and we are pleased with our results. Net sales increased 19% to $181.9 million. Comparable store sales increased 7.8% compared to a 3.8% increase in the second quarter of last year. Similar increases in both the number of transactions and the average basket drove our comparable store sales growth. As Mark indicated, the vast majority of our merchandise departments generated positive comps in the quarter, with most of these being mid single digit or higher.

The top five departments from a comp dollar perspective were lawn and garden, food, electronics, bed and bath and hardware. As Mark noted earlier, we will not be commenting on the performance of any particular deals or products, with the exception of coffee. Comp sales of coffee in the overall food department were above the Company's average in the quarter and continued to perform very well. But it was not the primary driver of the strong comparable store sales growth in the second quarter.

During the second quarter we opened seven new stores and closed one for a net of six new stores. The one store closing was in Pasadena, Maryland. This was on a month-to-month lease in which the landlord exercised the option to recapture the premises in order to renovate the property. We ended the quarter with 187 stores in 16 states, versus 167 stores in 16 states last year, an increase of 12%. New stores continue to perform in line or above expectations and we remain pleased with the new store productivity.

Gross profit increased 18.4% to $70.1 million. The gross margin declined slightly by 20 basis points to 38.5%. The decline in gross margin was driven by higher distribution expenses related to the opening of our second distribution center in Commerce, Georgia last April, and higher transportation costs related to increases in import container prices. Partially offsetting this was higher merchandise margin, which increased 25 basis points in the quarter compared to last year.

As Mark discussed, we're seeing better access to merchandise across the board, and this is allowing our teams to be more selective and opportunistic with their buys. Selling, general and administrative expenses increased 17.9% to $49.6 million. The majority of the increase, or approximately $6.1 million, was related to higher selling expenses from the 20 new stores opened in the past year in FY14. Growth at the store support center accounted for approximately $1.1 million of the increase, and the remaining $0.3 million was incremental transaction-related expenses incurred in connection with our IPO. As a percentage of sales SG&A decreased 25 basis points to 27.2% in the second quarter.

Depreciation and amortization remained flat at $1.8 million, and pre-opening expenses increased to just under $600,000 to $1.9 million. The higher pre-opening expenses during the quarter were related to one additional store opening and the timing of future store openings expense compared to last year. As a result, operating income for the second quarter increased 20.2% to $16.8 million.

Excluding non-cash-based compensation expense, pre-opening expenses, non-cash purchase accounting expenses, debt financing expenses, and transaction-related expenses, adjusted EBITDA increased 22% to $22.5 million in the second quarter. The transaction-related expenses included professional services and one-time compensation expenses in connection with the Company's initial public offering.

Our effective tax rate declined to 36.9% from 38.4% compared to the second quarter of 2014. Therefore, net income was $6.4 million or $0.12 per diluted share in the second quarter of FY15. Excluding the loss on extinguishment of debt and transaction-related expenses incurred in connection with our IPO, adjusted net income was $8 million or $0.15 per diluted share. For a reconciliation of EBITDA, adjusted EBITDA and adjusted net income, please see the related tables in the earnings press release.

As of August 1, 2015 we had $800,000 in cash and $111.2 million of availability under our $125 million revolving credit facility. In the quarter we paid down $108.4 million of term loan debt, and total debt was $224.5 million at the end of the quarter versus $350.5 million at the end of the second quarter last year.

Capital expenditures were $3.5 million in the quarter, and $6 million for the first half of the year compared to $3.2 million in the second quarter of 2014, and $9.8 million in the first half of 2014. Our initial public offering transaction closed on July 21, 2015. After IPO fees the net proceeds received by Ollie's were $153.1 million, and these were used to pay down debt.

Now let me conclude with some commentary on our outlook for FY15. As you are aware, we are an extreme value retailer of brand-name merchandise and the majority of our merchandise come from opportunistic closeout buys. The closeout nature of our Business can lead to some fluctuations in our business and make it difficult to predict comparable store sales. With that said, however, we are seeing better access to product, and this is allowing our merchants to be more selective and opportunistic with their buys.

We have historically planned the growth of our Business around two primary metrics. The first is a mid-teen increase in new store growth. The second is low single-digit increases in comparable store sales.

Better access to merchandise and strength in the food category from the addition of new coffee products has boosted comparable store sales over the past year and have been a nice tailwind to our Business. While the business continues to perform well, we do face strong comparisons in the back half of the year and expect the impact of coffee to moderate. So, we are cautiously optimistic in the outlook for the remainder of the year.

Given our strong second-quarter results, we believe comparable store sales could be in the range of 3.3% to 3.8% for FY15. This range is based off a modest comp store increase in the third quarter and a modest comp store decrease in the fourth quarter. The fourth quarter represents our most difficult comparison for the year, with comparable store sales increasing 9% in the fourth quarter of FY14 and 3.2% in the fourth quarter of 2013.

We are planning to open between 25 to 30 net new stores in FY15, which would increase our store count by 14% to 17% for the year. We have opened 15 new stores year to date and expect to open the majority of the remaining stores by early November.

Capital expenditures for 2015 are expected to be in the range of $13 million to $14.5 million, of which approximately half is for new store openings. Income from operations for 2015 is expected to be in the range of $72.4 million to $73.1 million, or 9.8% to 9.9% of sales. Net income for FY15 is expected to be in the range of $33.5 million to $33.9 million, or $0.59 to $0.60 per diluted share based on an estimated diluted weighted average share count of 56.3 million shares.

These are all GAAP estimates that include transaction-related expenses incurred in connection with our IPO and the loss on extinguishment of debt. Excluding the loss on extinguishment of debt and the transaction-related expenses, adjusted net income is expected to be in the range of $35.2 million to $35.5 million for FY15 or $0.62 to $0.63 per diluted share for the year.

With that, we would like to turn the call back over to the operator to start the Q&A session. Operator?

(Operator Instructions)

Matthew Boss, JPMorgan.

Congrats on a great quarter, guys. As we think about building a bottoms up comp in the back half of the year, out there broader retail trends have been pretty hit or miss recently. Have you seen the momentum in your business continue quarter to date? I know you talked about a modest increase for 3Q. And then just touch on the availability of deals today, and more so your ability to capitalize on maybe some of the more choppy retail trends that we're seeing out there.

Sure, Matt. With regards to our current progress for the quarter, as we stated in the press release we are assuming a modest comp store increase in Q3 of this year. And based on our current trend in our first six weeks of the quarter we feel pretty comfortable with that result as we move forward.

Matt, this is Mark. As far as what we're seeing, our phone is absolutely ringing more. I firmly believe that our visibility now through the IPO allows the manufacturers to look at us in a little bit of a different light. And we've been seeing a real strong offering of closeout products come across our board.

Great. And then just a follow-up -- on the store growth, your new store productivity points to continued strong performance from some of the more recent openings, it seems. Can you just talk about some of the more recent builds, maybe some of the highlights? And then on the Florida opportunity, when will you be opening there for the first time? And maybe just touch on the market opportunity over time.

Sure, Matt. This is John. With regards to the new store productivity, as we've stated in the past, the consistency of our new stores and our ability to continue to deliver those strong performances is staying right in line with what we've done historically. And we are in line, like we said, to deliver 25 to 30 net new stores for this year, and the new stores are performing very well, in line with our expectations, slightly above, as well.

With regards to the entrance into Florida, it looks like as we sit today that our first store will be opening in the state of Florida in the first quarter of next year, more likely than not in February. We had planned to get it open in the latter part of 2015 but we just weren't able to get a deal done in time and get the construction completed. But we will be in Florida in the first quarter of next year.

And in terms of the overall potential there, we will expect to do 50-plus stores in that marketplace where we think the sweet spot will be. And also, just as a follow on, one thing that came up to us here recently that we were not aware of the last time we had spoken to the group is we will actually be opening our 17th state this year but the 17th state will actually be Connecticut. There will be a site that we'll be opening here in the latter part of the third quarter, early part of fourth quarter.

That's great. Best of luck, guys.

Thanks, Matt. I'd also like to point out that I think really that proves the flexibility of the Company, the organization and our real estate model. We had firmly -- and we are working on Florida and will be in Florida and it's going to be exciting for us. But as we told you before, when a site pops up and it's a good deal, we're ready to rock and roll on it. So, we're excited about Connecticut.

Dan Binder, Jefferies.

Hi. It's Dan Binder. My question is related to the deal activity, as well, just as a follow on to Matt. What level of deal activity would you say is above and beyond what you would normally expect given the port disruptions earlier in the year? And is that primarily what you're seeing or do think there's something more than that going on?

Dan, this is Mark. We didn't get and aren't getting a tremendous pop from the port disruption. We got a couple of deals, and we're doing very well. There was perhaps a bankruptcy that happened in one of the markets that provided a little bit more of an opportunity, but that's not a needle mover for us.

What has happened is, as we got, as we've been able to scale and we've been able to get more visibility, we've been able to have further discussions, as we previously pointed out. We get the manufacturers to be -- maybe their destinations or their closeouts for their reconditioned products, for their discontinued items. And the phone is definitely -- it's continuing to ring. And the product, we're being able to be picky, choosy, and pick and choose our spots on what product we want to get in and what we want to sell. So, we feel really good about the merchant position. The toy merchant has been buying all year long, as you know. He's buying in December of last year for this year. So, he seems to be locked and loaded and we feel good about our position there.

And then just as a follow-up, separate topic, but merchandise margin you mentioned was up. I think you have some natural headwinds from food increasing in the mix and probably books coming down in the mix. So, how are you overcoming that and achieving the higher merchandise margin? Is it just adjusted doing better deals? Is it related to scale? Are you finding pricing is easier to get? Maybe a little bit more color on that would be helpful.

Yes, Dan, this is John. With regards to the -- obviously the 25 basis point improvement on the overall merchandise margin compared to LY, we are seeing, with the better access to product, the more availability of the product, we are seeing a stronger margin in the other categories that we've been able to continue to push the business in. While food has expanded, it has moderated slightly. But overall the annualization of the merchandise margin has been impacted by our ability to buy more selectively and the overall product availability in the marketplace is helping us get a little more margin there.

Interestingly enough, Dan -- this is Mark -- we have seen an uptick in our book business, as well. So, what we have experienced over the last three, four, five years, we're not seeing that now. So, we're definitely holding our own there and that's having a nice impact to us, as well. Not a tremendous, but it all adds in.

That's great news. Thanks so much.

Denise Chai, Bank of America.

Thanks. My first question relates to renminbi depreciation. When would you expect this to flow-through? What are the offsets to this benefit? And do you plan on passing it on or basically keeping it?

Denise, I missed your question. Can you reiterate that one more time?

Sure. About renminbi depreciation -- when would you expect this to flow through? And, really, what are the offsets to the benefit? And do you think about passing it on or basically pocketing it?

I'm not sure if I understand -- oh, the currency.

Yes.

Okay. I missed the question. With regards to that side of the business, obviously, as you know, we do import our fair share of product but it is a very relatively small aspect of our overall business model, about 12%. With regards to the overall impact, we don't see that as a material benefit for Ollie's today. That could be something that, as goods that were bought more opportunistically by what I'll call the in-line retailers as they become closeouts later on in their life cycle, we might see a benefit to that on a bigger scale. But we don't see a huge upside to our model as we sit and look at this year or in the next 12 months.

Got it. Thanks. And, also, you mentioned higher transportation costs coming from higher import container prices. Should we expect this to continue or is it something port related so therefore it's over with now?

We believe it was port related and it's over with now.

Okay. Great. Thank you.

(Operator Instructions)

Edward Kelly, Credit Suisse.

Hi, guys. It's actually Judah on for Ed. First, I just wanted to get back to the sales in the quarter and going forward. It certainly sounds like access to deals is better than it's been. And how far out can you actually plan with your deals? Do you have confidence in Q3 and into Q4 or is it shorter term? Can you just remind us of that?

Yes. Ed, this is Mark. It's certainly very short term or shorter term. When we're going into the fourth quarter or into the seasonal aspect of the business, both in toys and Christmas and/or lawn and garden and patio and seasonal stuff like that in the spring, we're buying that off-season. So, our merchants are looking at deals now, they are looking at air-conditioners now, they are looking at pool chemicals now. We haven't got across the finish line of many of those deals, but we do buy them at the end of the previous season. The fourth quarter, other than toys, is not really seasonal for us. We do rely on a lot of the gift-giving and we do have some Christmas product. But it's primarily everyday products, the housewares, the bed and bath, the books. But I would say that our outlook and our visibility is relatively short term, absent of those seasonal type items.

Okay. That makes sense. And maybe related to that, it sounds like the guidance that you've given, it's really updating your expectations based on what happened in Q2 and maybe thus far in Q3. But beyond that, it's cautiously optimistic, like you said, for the rest of the year.

Yes. Judah, this is John. And that's absolutely the case. We're going up against a pretty strong -- actually a really strong fourth quarter. We had a 9% comp last year in Q4, and the year prior to that we had a 3.2% positive comp. So, we're running up against some pretty challenging numbers there so we're cautiously optimistic where we are at today. But we don't want to get ahead of ourselves at this point.

Okay. Great. Thanks.

Peter Keith, Piper Jaffray.

Thanks and congrats on the nice quarter, started off with the first call. I was curious on the coffee impact. I think you now anniversaried it. It sounds like it's moderating a bit. So, to frame it up, I think it's been about a 2% to 3% benefit to comp. Or would you suggest it's now below that range for the second quarter since it's been anniversaried?

Peter, this is John. It is slightly below that number on an anniversary basis. So, our 7.8% comp, as we mentioned, definitely coffee was not the main driver for our comparable store sales performance. Many other departments performed very well. As we continue to lap that coffee, it will decelerate and moderate. We're definitely seeing the business carry itself, as well. While coffee is performing against the numbers from last year, we're not seeing as much of an impact as we did really in the second half of last year.

Okay. Fair enough. And seeing some of the coffee brands at the store, it looks like there's several brands that are available. I don't have the comparisons from a year ago, but I thought it was primarily one main vendor. My question would be, with the success have you now broadened the supplier support within coffee that maybe gives you a broader offering overall?

Yes. I think that with our success we were able to gain a lot of -- this is Mark, by the way -- we've been able to gain a lot of education on what the consumer likes. And, by the way, keeping in mind that the brands that we do sell, while it is a private label maker, it is only available at Ollie's. And we've certainly developed a following of that. We've also been able to, with the education, the success that we had, have been able to strike relationships with other major manufacturers. And we've been seeing a little flow of merchandise from them and developing a relationship with theirs. It's a great question and the answer is yes.

Okay, terrific. And one last question for John, then. Just going back to the transportation and distribution costs, you've now anniversaried the opening of the commerce stores at DC. When would we think about maybe that distribution center impact being neutral to gross margin, maybe framed up by a certain quarter?

I think we'll start to see some of that here in the back half of the year. But I think we'll start to see the true numbers start to normalize for FY16.

Okay. Very good. Thank you very much.

(Operator Instructions)

Brad Thomas, KeyBanc Capital Markets.

Hi. Good afternoon, Mark and John. And let me add my congratulations, as well. Wanted to first ask about inventory -- up, I think, about 7% year over year. And if you could just give us some more sense about how you feel about the inventory today and where you think that balance might be at the end of the year.

Sure. Brad, this is John. With regards to the inventory, obviously we're very excited to be able to have a 7% increase in our overall inventory levels and drive our comps by 7.8%. Most of our inventory levels are not always predicated on how low they can go or how they could be in relation to our overall sales growth. A lot of it has to do with the timing of our deal flow and where we're at in our buying process. In terms of where we think we will be for the end of the year, I would expect it to be more of a normalized increase year over year -- 10%, 12%, 13% increase in inventory over the same period last year when the year ends. Right now we're just chasing sales a little bit heavier than we had expected so we're seeing a little bit of benefit on the overall inventory increase.

Great. And then if I could follow up and ask about wages, obviously in an environment where some of your retail competitors are raising wages, what are you all seeing in terms of competition for employees? And how can you mitigate potentially some pressure that you might see?

Sure, Brad. This is an area obviously that people are paying a lot of attention to. Right now, we're not seeing a lot of wage pressures in the markets that we operate in. We are paying a lot of attention to the wage pressures and we do believe that those will be coming in short order. We do pay what we believe to be a very fair, very competitive wage, and offer a good benefit package for our associate base. So, we're not seeing the impact today but obviously next year, as they continue to rise, I would believe that that's something that we've got to pay a lot of attention to and that could impact us but we have not measured that fully today.

Great. Thank you very much.

Brad, I'd also point out that since the IPO we've seen a raised interest in people wanting to join our organization. And we find that to be very exciting, as well.

That's definitely exciting. Good to hear that we're getting a nice halo effect from being a public company. Congratulations again.

Dan Binder, Jefferies.

Hi. I just had a couple follow-ups for you. Just to be clear on the whole coffee discussion, as you look at that business quarter to date, is that progressing more or less as you expected? And if you could just remind us, how much of the comp strength in the back half of last year would you attribute to coffee?

Dan, this is John. With regards to the overall coffee, as you know, we are lapping the numbers from last year, so we're definitely seeing a deceleration and moderation in that category. It is still comping positive. It's not, obviously, nearly as what it was relative to last year. It was a big driver in our overall comparable store sales for the back half of last year. And this year, as we stated earlier, in the first half of the year it's not been as impactful as it was last year. So, we are seeing the overall core business is driving while coffee is actually moderating and we're able to see some nice impacts there.

And then with regard to your comp store sales increase, was that predominantly traffic or was ticket as much as half of that?

This first half of the year, it's about half and half on terms of traffic and ticket. I really wouldn't call it traffic; it's more transaction, Dan.

And what do you think that would look like in the back half? How does that change, do you think?

I would not be able to add color on that because we don't really track our business that way. It's going to be a calculation of what the overall deal flow is in the marketplace and what customers are reacting to. We really don't track traffic and the impact there.

Okay. And then, lastly, anything new on Ollie's Army in terms of what you do next with that?

As we had mentioned to you previously, that we are in the process of increasing our ability to be able to communicate with the Ollie's Army customers. As we had mentioned, we expect this to be a rollout in 2016. But we're making progress with it, and we'd like to tell you that Ollie's Army members are continuing to shop, they are continuing to buy bargains, and they spend more than the non-Ollie's Army member. So, we have a really concerted effort to try to sign up more and more people in our existing stores and certainly in our new stores. We feel really strongly about Ollie's Army.

Great. Thanks.

I see no further questions in queue at this time. I would like to turn the conference back to Ollie's management for any closing comments.

Great. Thank you. Folks, we had a very good second quarter. We are pleased with our results and the trends in the business. We're up against some very challenging comparisons in the third and fourth quarters but we feel good about our momentum and our ability to deliver sustainable growth over the long term. Thank you very much.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day.