Ollie's Bargain Outlet Holdings Inc (OLLI) 2017 Q1 法說會逐字稿

Good afternoon and welcome to the Ollie's Bargain Outlet conference call to discuss financial results for the first quarter fiscal 2017. (Operator Instructions) Please be advised that reproduction of this call in whole or in part is not permitted without written permission authorization from Ollie's. And as a reminder, this call is being recorded.

On today's call from management are Mark Butler, Chairman, President, and Chief Executive Officer; John Swygert, Executive Vice President and Chief Financial Officer; and Jay Stasz, Senior Vice President of Finance and Chief Accounting Officer.

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

Thank you and hello, everyone. A press release covering the Company's first-quarter fiscal 2017 financial results was issued this afternoon. And a copy of that press release can be found in the investor relations section on 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 mentioned on today's call. Any such items, including our outlook for fiscal year 2017 and 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 or revise them for any new information or future events. Factors that might affect future results may not be in our control and are discussed in our filings with the SEC. We encourage you to review these filings, including the Company's annual report on Form 10-K and quarterly reports on Form 10-Q 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 adjusted operating income, EBITDA, adjusted EBITDA, adjusted net income, and adjusted net income per diluted share, that we believe may be important to investors to assess the operating performance of our business. Reconciliations of these non-GAAP financial measures to the most closely comparable GAAP financial measures are included in our earnings release.

I will now turn the call over to Mark.

Thanks, Jay, and good afternoon. We had another strong quarter and we are very excited about our results. The strength in our results was broad-based and across the entire business. Strong deal flow, sales margins, tight expense control, new and existing stores, and Ollie's Army were all contributors to the performance.

As we shared with you on our last earnings call, we did see some volatility during the quarter related to the delay in tax refunds, Winter Storm Stella, and the shift in the Easter holiday. However, the business accelerated nicely as the quarter progressed and we feel very good about where we ended up and the overall trends in the business.

In the quarter, comparable store sales increased 1.7% against a 6% increase in the first quarter of last year and a 14.8% increase on a two-year stack basis. We were very pleased with our same-store sales results and our ability to continue delivering sales growth in line or better than our long-term targets.

Some of our best-performing categories were electronic accessories, health and beauty aids, clothing, floor covering, and pets. Our customers shop our stores for real brands and real bargains and they responded to our merchandise offerings in the quarter.

Our new stores continue to perform very well and above expectations. We feel good about our ability to open new stores and we are on track to open 33 to 35 stores in fiscal 2017. We opened 5 stores in the first quarter, including our first store in Rhode Island.

Since the end of the quarter, we've opened another 7 stores, 2 today, and have the majority of our leases signed for our 2017 openings. Given everything that's going on with retailing today, we are seeing more and more leasing opportunities. Finally, our Ollie's Army membership levels continue to grow ahead of sales, and members continue to spend significantly more than nonmembers.

As mentioned earlier, our deal flow remains strong. With our growing size and scale, we are gaining better access to deals, expanding our vendor base, and building stronger direct relationships with major manufacturers. We are offering our customers what they want: brand-name merchandise at drastically reduced prices.

There are a lot of disruptions in the retail marketplace today and our entire organization has been built from the ground up to benefit from these situations. It's what we've done for the past 35 years.

Our experienced merchants have the relationships and the knowledge to react very quickly to deals. Our supply chain and distribution teams have been built to quickly and efficiently receive and ship new merchandise to the stores. And our marketing team knows how to get the word out to customers and drive traffic into the stores. And our store associates know how to handle deal flow and service the customer. This is what we do and I'd put our people, our experience, and our execution up against anyone in retail.

I want to thank everyone throughout the organization for their continued passion and dedication to our business and the Ollie's family. In my almost 35 years in the business, it's always come down to people and we are very fortunate to have what I believe to be the best team in all of retail. Thank you very much for supporting Ollie's.

I will now turn the call over to John and he will take you through our financial results in more detail.

Thanks, Mark, and good afternoon, everyone. We are pleased with our strong start to fiscal 2017, as we delivered another solid quarterly performance.

In the first quarter, net sales increased 17.5% to $227.6 million. Comparable store sales increased 1.7% against a 6% increase in the first quarter of last year and a 14.8% increase on a two-year stack basis. The increase in comparable store sales was driven by an increase in the average basket size, partially offset by a slight reduction in transactions.

We opened 5 stores during the quarter, including our first store in Rhode Island. We ended the quarter with 239 stores in 20 states, increasing our store account by 14.9% year over year. Our new stores continue to perform above our expectations and we remain pleased with the productivity of our overall store base.

Gross profit increased 17.6% to $92.9 million and gross margin was flat at 40.8%. Favorable distribution center and transportation costs were offset by a decrease in merchandise margin.

SG&A expenses increased 12.6% to $61.7 million. This was primarily related to higher selling expenses from our new stores opened over the past year, increased sales volume in our remaining store base, and investments in personnel to support our continued growth of the business.

As a reminder, last year's first-quarter SG&A expenses included $890,000 of transaction-related expenses, primarily related to a secondary stock offering. Excluding the transaction-related expenses from last year, we leveraged SG&A expenses by 70 basis points to 27.1% of sales.

Operating income in the quarter increased 30.3% to $27.3 million and operating margin increased 120 basis points to 12%. Excluding the $890,000 of transaction-related expenses from last year, adjusted operating income increased 25% and adjusted operating margin increased 70 basis points.

Net income increased 61.4% to $19 million and net income per diluted share increased 52.6% to $0.29. Excluding a lost on extinguishment of debt, transaction-related expenses, and income tax benefits due to the accounting change for stock-based compensation, adjusted net income increased 30% to $16 million and adjusted net income per diluted share increased 25% to $0.25.

Looking at a couple other non-GAAP metrics, EBITDA increased 28.6% to $30.2 million and adjusted EBITDA increased 24% to $32.1 million in the first quarter. At the end of the quarter, we had $33.7 million in cash and no outstanding borrowings under our $100 million revolving credit facility.

We made 2 debt payments during the quarter: a $40 million payment in March and a $25 million payment in April. In total, we paid down $66.3 million of our term line debt and ended the quarter with total debt of $129 million compared to $198.8 million last year. Capital expenditures totaled $3 million in the first quarter of fiscal 2017 versus $4.8 million in the first quarter of fiscal 2016.

Now turning to our outlook for fiscal 2017. We are raising our total net sales to a range of $1.032 billion to $1.04 billion, reiterating our comparable store sales range of 1% to 2%, reiterating our planned openings of 33 to 35 new stores and no closures, raising our operating income range to $123 million to $125 million, raising our net income per diluted share to a range of $1.18 to $1.21 and our adjusted net income per diluted share to $1.14 to $1.17.

Our revised outlook assumes an annual effective tax rate of 34.2% and a diluted share count of 64.7 million shares. We've adjusted our estimated full-year tax rate down as a result of the tax rate realized in the first quarter and kept our full-year diluted share count estimate unchanged.

With the two debt payments made in the first quarter, our interest expense now is estimated to be between $5 million to $5.5 million. Capital expenditures are still expected to be $18 million to $20 million. Total depreciation and amortization expense, including the component that runs through cost of goods sold, is still projected at $12 million to $12.5 million for the year.

And as we pointed out on our last call, fiscal 2017 is a 53-week year, with the extra week occurring in late January. We continue to estimate the extra week to add approximately $18 million of incremental sales and less than $0.005 to the diluted earnings per share.

With that said, I'd like to turn the call back over to the operator to start Q&A session. Operator?

(Operator Instructions) Matthew Boss, JPMorgan.

Congrats on a nice quarter, guys. So Mark, can you just touch on the closeout availability today? I guess any comparisons to other times in your career that you've seen. And then just elaborate on the size and scale. With that building, are you fielding calls from new vendors? Are you seeing larger, more national deals coming your way?

Yes, Matt, I think a little bit of both. We are certainly more meaningful now that we've had more exposure, whether it be geographically or in our advertising and our promotions or our interviews or our investor relations conferences. Every time we get a chance to spread the gospel, it seems like the next week we get a call.

The buying environment, the offer environment that we are living in right now, in my opinion of 35 years in the business has never been stronger. We are more meaningful to these manufacturers, in particular perhaps some of the CPG companies.

And it seems as though the bigger we get, the larger the offerings, the more meaningful that we are. And in some instances, we are even lapping that. And mysteriously, sometimes these offers have babies because these manufacturers are also lapping these figures.

So it's very, very strong. I still feel, Matt, that we turn down probably 8 or 9 out of 10 deals. And stores are packed, the warehouse is full, and feel really good about where we are at.

Great. And then just a follow-up. John, on the margin front, slight gross margin expansion in the first quarter, but it was a pretty tough compare that you were up against. So a pretty strong two-year compare at two-year performance. Did this exceed your internal expectations? And then just the best way to think about merch margin versus transportation in 2Q and the back half of the year.

Sure, Matt. The margin was pretty much right line with our expectations, just very, very slightly ahead of where we thought we would be for the quarter, and flat with last year, as you know.

We are still guiding to the 40.3% for the full-year margin. We have not changed our assumptions due to the fact that we were very close to what our expectations were for Q1.

In terms of the overall fuel and transportation costs, we do believe there's going to be a little bit of headwind in the back half of the year: Q2, Q3, and Q4. And we are taking down additional warehouse square footage in May and November of this year.

So we have two tranches of the building in Commerce, Georgia, to take down some more additional space. So we think the 40.3% is a realistic number and we're going to maintain that for the full-year basis as well.

Great. Best of luck.

Dan Binder, Jefferies.

I was just curious -- was the transaction -- you mentioned it was down slightly. I'm assuming that was related to the volatility around tax refunds. I was just curious how that transaction data looked later in the quarter.

And then if you could comment on Ollie's Army sign-ups. You said it was higher than sales. I was just curious if you could maybe just go into a little more detail on the number and the rate of growth.

Sure, Dan. With regards to the transactions, we were actually pretty pleased with the transactions being down slightly year over year. Last year in Q1, we actually -- our transactions were up 5% year over year with the basket size being up about 1% to make up our overall positive 6% comp for the first quarter of last year.

And with some of the volatility in Q1 and coming out with a positive 1.7% comp and being slightly down on transactions, we were definitely very excited about that and we thought that was very positive.

There is no doubt that the transactions did accelerate in the back half of the quarter. Right after we cleared the Storm Stella, the tax refunds, and then Easter shift got out of the way in March, we actually saw some nice acceleration in April. And then with regards to the --

Regarding Ollie's Army?

Yes, the Ollie's Army membership grew at our normal rate of about 29% year-over-year with regards to the overall new members. The members continue to spend about 40% more than the nonmembers and their visits are still maintaining where they've been. So we are not really seeing a lot of change; we just keep adding to the overall portfolio. And I believe we have about 7.9 million members at the end of the quarter.

Great, thank you.

David Mann, Johnson Rice.

Nice job this quarter. My question relates to some of the category performance. HBA and I think electronic accessories both started accelerating in the second quarter last year. So I'm just curious if you can talk a little bit more about what you are seeing in those categories and the ability to continue to drive outperformance there.

Obviously, you know me; I'm not going to tell you for competitive reasons. But you are in the stores all the time. You can see the brands that we have, you can see that we are more meaningful to some major, major manufacturers, and we continue to be able to react to their deals and help them out of their inventory logjams and their situations.

So to answer your question, the continued flow is still happening; the relationships are getting bigger, better, and stronger. And in some of the instances, in HBA in particular, it seems that it's helping to bring traffic into the stores and hopefully they are buying something else.

So we are really, really happy with the performance. It's been that way for a while. And let's face it: you were asking me what was going to be the next item that was going to help us in our growth. And these are two of the items that are helping us with our growth.

That's great. For a follow-up, just curious if you look at last year in terms of the seasonal category performance, obviously, it was very choppy last year. I think it was pretty good in April and then slow in May.

Can you just give us a sense on where you stand in terms of the cadence on seasonal sellthrough? And also any commentary on where you are in May. Did the trend in April continue in May? Thank you.

With regards to the trend in May, we are not going to comment on the current quarter that we are in, other than to say that the trends in Q1 ended nicely and we are very comfortable with where we sit today.

With regard to the seasonal business, seasonal was a little choppy, just like the rest of the quarter was when we first started out. Our largest seasonal business does occur in Q2, which we are in currently today.

So we were pretty comfortable where we came out in the quarter for the seasonal categories and we feel pretty good where we stand. And we believe we'll be in pretty good shape by the end of the second quarter with the inventory we have and the offerings we have for our customers.

And also David, I will add that that choppiness in the first quarter -- there were three major things that happened and we're just pleased the way it all fell out. And that's certainly the tax refunds and we bounced nicely; Winter Stella -- Winter Storm Stella. And then the change in the Easter holiday changed our advertising cadence as well. But overall, we are very, very -- we are pleased with our performance and we are quite happy.

Thank you and good luck.

Brad Thomas, KeyBanc Capital Markets.

Let me add my congratulations as well. Wanted to first ask about new store productivity. It looks like that's coming in very strong. You obviously referenced it in your prepared remarks. Could you just talk a little bit more about what it is that's maybe helping to drive these strong results out of new stores?

Well, I think it's our overall -- the thing that drives our business is the deals, and I know you get that. So obviously we have really, really good deals and we have what America wants, which is brand names at drastically reduced prices.

I'm really pleased with our locations that we are opening up. I don't think that there is a remarkable difference between stores that we opened up this year, last year, three years ago, four years ago, other than Florida. Florida has been doing very, very well and we are very pleased down there. But so has Rhode Island and so has Pennsylvania with the new store here in Pennsylvania.

So overall, we are just -- we are pleased with the new store performance. I think that the overall visibility of the Company. And as we have opened up, in particular, perhaps, down in Georgia and Alabama and Mississippi and Florida, more people from the north were more familiar with us.

They see, they hear, they know a lot more about us. And that's -- it's a good double-edge sword because we are getting the benefit from the consumer and we are also getting the benefit from the exposure to be able to get deals. I think this is two plus two equals about six.

Great. And then, John, as we look at our models and think about forecasting the next few quarters, I know you don't give explicit guidance. But any recommendations you'd make to us as we think about comparisons easing and the same-store sales cadence through the balance of the year?

Yes, Brad, with regards to the overall guidance and cadence that we are looking at right now, we are obviously holding to the 1% to 2% comp on a full-year basis coming off the 1.7% for Q1. We -- from a modeling perspective, I'd probably tell you Q2, I'd probably guide to the higher end of the 1% to 2%. On Q3, probably in the midpoint and then Q4 on the lower end of the 1% to 2%.

Great. And if I could just sneak one in on inventory -- up 19.5%. Any color you can provide about just the quality of your inventory today and how you are feeling about it?

I will start with that and Mark or John can chime in. But obviously, the deal flow has been very strong, as Mark alluded to. And really the increase in the inventory year over year is strictly timing. We've got a lot of good deals coming in. We think we are well positioned for the quarter ahead.

Perfect. Thanks so much.

Peter Keith, Piper Jaffray.

Thanks and give my congratulations as well. John, just a quick question around freight rates. So it looks like the ocean container rate pricing has come down in recent months, perhaps since when you gave guidance. Does that have any potential of coming in lower than what you are anticipating?

Peter, from our perspective, the freight rates and the way that they look like they are coming in for us from a contractual perspective, which is -- our contract starts May 1 of each year -- is pretty much right in line with what we budgeted and what our expectations were from a freight perspective.

So one could say we might have been a little aggressive with the rates coming down and we had expected them to come down, but they are right in line with what we were thinking. And we don't think that there's going to be any benefit or a detriment on the freight rates as we look at them for the full-year basis.

Okay, very good. And then a separate question just on the new store prototype. Usually I think averaging out around 30,000 square feet. Is there any thought as you are looking at lease availability and perhaps even better deal flow that you'd want to take up the store size or even take it down? I guess any general change in the outlook there based on what's available.

Yes, well, it depends on the deal. And we go after our leases just like we do our merchandise. So we do have a couple of stores that we opened in the low 40,000s or high 30,000s down in Florida and that's because it was a more beneficial deal for us to get whatever we got on the lease.

But that being said, we have not changed our prototype of the belly size to be 30,000 to 33,000 square feet. We've also opened up a store or 2 probably in the mid-20,000s. But that's because perhaps we wanted -- we did like that site and that is one of the smaller stores. But our belly size remains the same of 30,000 to 33,000 square feet.

Okay, thank you very much and good luck.

Thank you.

Curtis Nagle, Bank of America.

Great, thanks very much for taking the call. Just a quick one on SG&A. And I guess how should we think about it through the rest of the year on a per-store basis. It came in I guess a little bit higher than we had expected. Should that tail off or how should we think about modeling it?

With regards to the SG&A for Q1 especially, we were actually very pleased being able to lever it 70 bps better than last year on an apples-to-apples basis. So we thought that was pretty strong leverage on a 1.7% comp for the quarter.

And with regards to on a full-year basis, we are probably looking at a slight leverage to LY on the SG&A perspective, assuming a 1% to 2% comp range. So our model would tell you it would be pretty comparable to last year, maybe slightly lower on an SG&A perspective in Qs 2, 3, and 4.

Okay, thanks very much.

Scot Ciccarelli, RBC Capital Markets.

Rob Iannarone on for Scot Ciccarelli. Congrats on a good quarter. I had two quick questions for you. First, coming off that real estate availability question, is there anything you are seeing in store availability out there? As you enter new states, do you think it's getting potentially harder or easier to find the stores that fit your model and your belly size, to use your language there?

We haven't struggled at all. We just returned from the shopping center show in Las Vegas and we are already working diligently on 2018. 2017 stores are all virtually locked up, all but executed. We are almost at the very, very finish line. So there is no issue there.

And we saw a lot of great sites, a lot of towns that would be really, really good Ollie's Bargain Outlets. There's just simply no shortage for us in those -- and I think a lot of it has to do with our flexibility. Because we can go down to 25,000 square feet and we can go up to 40,000 or 45,000 square feet if we choose so.

And if we think -- so it doesn't have to be the 30,000 to 33,000. We can go up, we can go down, and that flexibility allows us to have more availability and more choices on the real estate size.

Great, thanks for that. And one follow-up, again it's on the personnel side. Are you seeing any differences in hiring and retaining good talent? Any tightening in the labor market there or pressures in recruiting those guys?

With regards to our ability to retain and attract new employees, I believe we are very successful at doing so. We are not seeing any real struggles in doing either one of the two of those.

So I think with the work environment we give, the pay that we offer for the associates, we are a pretty good preferred employer for folks to come work with. So we are not seeing any major issues or any wage pressures as well, outside of what we are normally used to paying.

Great. Thanks, guys, and congrats again.

(Operator Instructions) Edward Kelly, Credit Suisse.

Maybe just to start, John, a question for you, sort of a follow-up on SG&A. When you guys went public, SG&A leverage, I don't think, was that big of a part of the story. But if we sort of look back here on the last few years, you've driven a lot of leverage in that line item.

So as we think about things going forward, and this is not just like this quarter or next quarter or this year, but over time, how should we be thinking about the ability to scale this business and generate earnings growth out of leverage on the SG&A front?

From our perspective, and we have levered SG&A pretty well since going public, but we've had some pretty robust comp years as well. In 2014, we had a 4.4% comp and then a 6% comp and then 3.2% comp.

So we've come out with our long-term algorithm that we need about a 1% to a 1.5% comp store increase in order to maintain or slightly lever our SG&A expenses. And we have outperformed that significantly since becoming public.

So the way we model our business and we grow it is to basically budget a 1% to 2% comp and then we are able to slightly lever our SG&A expenses. If we're able to do better on the sales front, we'll actually lever heavier than that. So that's kind of the algorithm we've built into the model and we believe we can continue that on a long-term basis and continue to slightly lever the SG&A with modest comp growth.

Okay. Mark, a question for you, getting back to the HBA category and the products that you've added. Can you provide a little bit more color on what the initiative is doing for the business from an overall traffic standpoint? The ability to offer everyday consumables, similar to what you did with coffee and the traffic that drove?

It gets customers into the stores more often; you get to wow them more often with your product. Just thoughts on what that initiative means for you over time.

Well, I think you pretty much gave the answer. I think that if in particular, Ed, that you come in and you see -- the difference is that if you come into our store and you see a name-brand shampoo, our customer knows that it's here today and it's gone tomorrow. When it's gone, it's gone.

So you might not find that same shampoo in our store next week. But you might find another shampoo that that major manufacturer makes or another competitive CPG company would make.

I think that we've become more meaningful to these companies. I think that the product offerings have become and grown and become larger. And while its product that people want every day, there's still that great consistency about Ollie's that you never know what you're going to find. And you better buy it because it's here today, gone tomorrow.

I think that what it has done is -- and you will see because we have reaped some pretty good results -- is more of a consistency because we are concentrating more and more on those categories. And we mean more to these major manufacturers.

So there will be a consistency I believe you'll see within the HBA and/or chemicals, consumables, that kind of thing within the stores. There would most likely -- and to be honest with you, I kind of hope a great inconsistency on the product. Because that part of the charm of Ollie's is it's here today and gone tomorrow.

Okay. And then just one last question, if I could sneak it in, for -- back to John. Just the thought process around debt levels, what to do with free cash flow. You guys are paying down debt, but growing EBITDA pretty rapidly, and as a Company, you are really deleveraging.

Should you continue to be paying debt down here? How do you think about other options in terms of returning cash to shareholders? What's the philosophy here from you?

Ed, we have not made any real final, final decisions. As you know, we just paid down $65 million of incremental debt during the first quarter and used some excess cash we'd built up from last year.

The Board continues to review all of our options for excess cash that we have, which include paying down debt, buying back stock, or paying a dividend. Right now, we've made the decision today to pay down additional debt and we are going to keep our options open.

From a stock buyback perspective, we are paying a dividend. But right now, we've not made any additional or further determinations of where we are going to go with the cash we build up in the future years.

Okay, thanks, guys.

Patrick McKeever, MKM Partners.

Okay, thank you. Just a few quick ones. Maybe. Maybe they are not that quick. But just, Mark, you talked about the deal environment just being as good as you've seen it in your years at Ollie's.

So my question is just thinking about where some of the store closures are taking place, a lot in the apparel space, the department store space, footwear as well. And my question is how much might you flex the merchandise assortment at Ollie's to accommodate, for lack of a better word, some of the product, the merchandise deals that might be out there?

You don't do a lot of apparel; you don't do much in footwear. You do some. Would you flex more into that area to take advantage of maybe some really good buying opportunities? Or do you want to maintain the same basic percentages in terms of the different departments across the store?

And then kind of a similar question for real estate. With the real estate opportunities that are out there, are you sticking to your basic site selection process and just looking for lower rents? Or would you change or move into a location that you might not normally consider just given the potential opportunities that are out there?

Yes, I will answer the second one first. And then I might need help on the -- because that was a pretty long question on the --.

Yes, it was. I guess it was not so straightforward or simple.

But the first answer is, Patrick, nothing has changed at Ollie's. We are consistent. We would have taken the same store five years ago as we did this year as we did two years ago as we did three years ago.

We have not jumped the state. We have contiguous geographic growth. There is absolutely nothing that has changed with our philosophy, our negotiations. Nothing has changed, except that I believe that we are more attractive to the landlord because we are a publicly traded company and people can see our financials. And it means something to them for their financing and their leverage capabilities.

As far as -- I believe it was the merchandise, Jay?

Going into more footwear and apparel. And opportunities of what's available.

Okay, yes. Would we -- if that was the question, would we buy footwear, would we buy apparel? Very selectively, but it's not our main business. Our main business is hard goods.

As far as the flexibility of scaling down a department or two based on a smaller store, a bigger store, we do that all the time. That's no different than what we've done. I've had a 25,000-square-foot store for probably 20 or 25 years, and I've had a 50,000-square-foot store since August of 2003.

So we go up or we go down. That's what's so cool about the model is that we are so flexible, we can shrink or grow and take advantage of these opportunities. And that's probably one of the reasons why we're not struggling in getting the real estate. So Pat, did I hit all your answers -- the questions?

Yes, yes, definitely. And then on the -- and I apologize if this already came up, but I've been doing a little multitasking. On direct marketing, last call, you said you were just kind of testing the waters there. Not expecting a material impact to business this year from some of the direct marketing to Ollie's Army. Just wondering if you could give us an update there.

With regards to the direct marketing, and as we said earlier, we are not planning to have any impact in our modeling from the overall efforts that we have on the digital marketing side of the business. We continue to run small tests, as we had mentioned on our last call.

We continue to try to learn and understand the data a little bit better. And that's what we are working on more diligently today in terms of the BI tool that we are implementing and trying to get our hands around that piece of the puzzle. But we believe for 2017, no impact on the business.

And then long term, we are still trying to figure out how do we motivate that customer to come in the stores more frequently without making it a discount-driven communication. We want to be able to drive them in the store more frequently with the deals and get them motivated that way. So we are still doing a little bit of testing and figuring out there as we move forward.

We are real, real careful and sensitive to this, because we don't want anybody running Shanghai on us here. Because this is -- we are talking to these people in a tip sense. So we are not giving them a discount when we are attempting to do this. What we are trying to do is let them know we got a deal.

So we are really, really guarded on this; we are really, really protective. We don't want to -- we work really, really hard to not go into spam and not go into junk mail. And we just want to make sure that we are letting the consumer know that we got a product.

And if we offer them the product or let them know we've got the product, we are not upset if they don't come in at that week as long as they come in. If they don't come in, then I'm kind of upset.

But it's a tip sense; it's to let them know we got the deals. So it's really, really important to us, our protective nature of Ollie's Army. These are -- these people account for nearly I think 65% of our business now. So we are really, really ultrasensitive to it.

Got it. All right, I am going to Google running Shanghai when I hang up. Thank you very much.

And I'm showing no further questions. I would now like to turn the call back to Mark Butler for any further remarks.

Okay, thank you very much to everyone for listening to our first-quarter earnings call. We are off to a strong start to the year, and we look forward to speaking to you again on our next earnings call in late August.

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