Ollie's Bargain Outlet Holdings Inc (OLLI) 2017 Q3 法說會逐字稿

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

On the call today 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'll 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 third quarter fiscal 2017 financial results was issued this afternoon, and a copy of that press release can be found on the Investor Relations section on the company's website.

I want to remind everyone that management's remarks on this call may contain forward-looking statements including, but not limited to, predictions, expectations or estimates and that actual results could differ materially from those mentioned on today's call. Any such items, including our outlook for fiscal year 2017 and 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 we undertake no obligation to update or revise them for any new information or future events. Factors that might affect future results may not be in our control and are discussed in our SEC filings. We encourage you to review these filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q for a more detailed description of these factors.

We will be referring to certain non-GAAP financial measures on today's call, such as adjusted 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 our operating performance. 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 hello to everyone, and thanks for being with us on the call today. We had another strong quarter, and we're very excited about our results and the continued momentum in our business. Strong deal flow, great new store performance and tight expense control drove our record results for the third quarter. Consistency and execution are 2 of our hallmarks that are critical to our success, and after 35 years are things that we will not change. For the quarter, we delivered record top and bottom line results with an 18% increase in sales, a 31% increase in adjusted net income. Comparable store sales increased 2.1%, against the 1.8% increase in the third quarter of last year and a 5% increase on a 2-year stack basis. Our sales strength was once again broad-based with nearly half of our departments comping positive. Some of our best performing categories were health and beauty aids, housewares, toys, furniture, and bed and bath. We continue to grow our vendor relationships with our increased size and scale. And we believe we're well-positioned to capitalize on the many buying opportunities in the marketplace. As we build the stronger direct relationships with major manufacturers, we're able to offer our customers what they want, brand name merchandise at drastically reduced prices. The best news is that we continue to see very strong deal flow. Our new stores performed above our expectations during the quarter. We opened 15 locations during the third quarter and since quarter-end, we've opened another 3 for a total of 34 new stores in fiscal 2017.

We continue to see a strong pipeline of leasing opportunities. Ollie's Army is stronger than ever. Growth of the Army continues to outpace sales with members spending significantly more than nonmembers. Next year, we plan to launch some exciting enhancements to the program that we've been working on for some time. We're introducing ranks for the Army members, which will enable us to reward our most active customers. Members will receive different rewards and surprise offers based on their level of spending. We're also working on a mobile app that will allow us to communicate the latest and the greatest deals to our best customers.

Our busiest night of the year, Ollie's Army Night is just around the corner, and we're excited to once again open our doors exclusively to Ollie's Army members. Our stores are packed with great deals and our team is eager to welcome our most loyal bargainers. The event is this Sunday, December 10. If you're a member, we hope to see you, if not, there's still time to enlist in the Army now and join us for a great, great night. The stores will be packed. As we've said before, we're celebrating our 35th birthday this year. We're proud of our long history of offering great deals to our customers and the successful expansion of Good Stuff Cheap to an ever-growing number of new markets, and we have no intention of slowing down. I want to acknowledge our more than 7,000 team members for their hard work and their dedication that has taken us to where we are today. We know the holiday season places extra demands on our associates. And I sincerely thank them for all they do, not only at this time of the year, but each and every day. It's their passion and commitment that are truly the drivers of our success.

Let me wrap up by saying how proud we are of our third quarter results and the overall trends we're seeing in the business. As I'd like to say, we're hitting all of our marks. The consistency in the strength of our model proves itself each quarter with stores across every vintage, state and cotenancy performing well. Our store openings are complete for the year, and we're building a full pipeline for the coming year. And our new stores continue to perform above our expectations across all geographies.

We are laser focused on the closeout industry, developing strong vendor relationships and ensuring we are well positioned in today's retail environment. Our third quarter results were strong and early fourth quarter trends are encouraging. As a result, we're raising our full year guidance, which John will give you more detail in a moment. In our business, it begins and it ends with deals. Bargains is our middle name, and we're living up to expectations by offering customers great deals on brand name merchandise. We're well-positioned to continue to deliver those bargains to our customers and in turn deliver against our long-term objectives for our shareholders.

Thank you, once again for your support of Ollie's. And I'll now turn the call over to John to take you through our financial results and outlook in more detail.

Thanks, Mark, and good afternoon, everyone. We're pleased to have delivered another solid quarter on top line sales increases, operating income leverage, strong adjusted net income and EPS growth, all above our long-term expectations. Net sales increased 17.9% to $238.1 million. Comparable store sales increased 2.1% against a 1.8% increase in the third quarter of last year and a 5% increase on a 2-year stack basis. The increase in comparable store sales was driven by an increase in both average basket size and transactions. We opened 15 stores during the quarter, ending the period with 265 stores in 20 states, an increase in our store base of 14.2% year-over-year. Subsequent to year-end -- to the quarter-end, we opened 3 additional stores for a total of 34 new stores in fiscal 2017. This brings our store count to 268 and completes our new store openings for the fiscal year. Our new stores continued to perform above our expectations across our new and existing markets, and we remain excited with the productivity of our overall store base.

Gross profit increased 16.4% to $98 million and gross margin decreased 50 basis points to 41.2% of net sales. The decrease in gross margin was primarily due to a decrease in merchandise margin, partially offset by favorable supply-chain cost. SG&A expenses increased 12.6% to $68.1 million. The increase was primarily related to higher selling expense from our new stores opened over the past year, increased sales volumes in our remaining store base and investments in personnel to support our continued growth.

As a percentage of net sales, we leveraged SG&A expenses by 140 basis points to 28.6%. Excluding $600,000 of transaction-related expenses from prior year, we leveraged SG&A expenses by 110 basis points in the quarter.

Operating income increased to 29.8% to $24.2 million, and operating margin increased 100 basis points to 10.2%. Excluding the $600,000 of transaction-related expenses from last year, adjusted operating income increased 25.9% and adjusted operating margin increased 70 basis points.

Net income increased 80.3% to $18.9 million and net income per diluted share increased 70.6% to $0.29. Excluding the income tax benefits due to the accounting change for stock-based compensation this year, and transaction-related expenses net of taxes in the prior year, adjusted net income increased 31.3% to $14.2 million and adjusted net income per diluted share increased 29.4% to $0.22. EBITDA increased 28.2% to $27.3 million and adjusted EBITDA increased 23.8% to $29.2 million in the third quarter.

At the end of the quarter, we had $42.2 million in cash and no outstanding borrowings under our $100 million revolving credit facility. We ended the quarter with total debt of $126.7 million compared to $196.5 million last year. Subsequent to the quarter-end, we paid down an additional $30 million of our term loan debt resulting in a balance of $96.3 million. Capital expenditures totaled $6.5 million in the third quarter of fiscal 2017 compared to $4.3 million in the third quarter of fiscal 2016. The increase was largely due to the timing of new store openings and expenditures associated with our new data center.

Turning to the outlook for fiscal 2017. As Mark discussed, we are raising our full year guidance. As such, we are raising our total net sales expectations to a range of $1.062 billion to $1.065 billion. We expect comparable store sales to increase between 2% to 2.5%. We are raising our operating income expectations to a range of $131 million to $132 million. We are raising our expectations for net income per diluted share to a range of $1.36 to $1.37, and our adjusted net income per diluted share to $1.21 to $1.22.

Excluding the impact of the accounting for stock-based compensation, our outlook assumes an effective tax rate of approximately 38% in a diluted share count of $65 million. Our interest expense is estimated to be in the range of $5 million to $5.5 million. Capital expenditures are expected to be $18.5 million to $20 million for the year. And 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. As a reminder, fiscal 2017 is a 53-week year, and the extra week occurring in late January. We continue to estimate the extra week will add approximately $18 million in sales and less than $0.005 to diluted earnings per share.

I will now turn the call back over to the operator to start Q&A session. Operator?

(Operator Instructions) Our first question comes from Matthew Boss with JPMorgan.

So when we think about your model, if you exclude the fidget spinners last quarter, you've been pretty consistent, 2% comp story now for really the last 5 quarters straight and actually consistent at that level really for the last 10 years plus. So I guess, my question, at a 2% comp, are you still comfortable with the model generating mid-teens top line and mid-teens EBITDA dollar growth going forward? Is that the best way to think about things?

Matt, this is John. Absolutely, 100%. Based on the 1% to 2% top line the -- each comp store sales growth, we expect to be able to generate the mid-teens revenue and the approximately 20% net income growth year-after-year, yes.

Great. And then just a follow-up. John the new store productivity just continues to accelerate. I think the returns this year are the best historically that we've seen in the model. I guess, what do you see driving the performance of these most recent openings? And how do you see the store pipeline shaping up as we think about next year?

Sure. Matt, the new stores are performing well and actually, in fact, above our expectations. They've been performing well for several years now. But we're seeing a pretty good class of stores here in 2016 and '17. That are definitely above of what we expected based on our new store model. But we -- the deals are driving what's in the box and we're continuing to see that revenue increase in our stores based on the deal flow that the merchants are able to get. And as you know, we've delivered a very consistent model year-after-year. So we're very excited about it. Next year, we believe we have a nice full pipeline for the new store growth, shaped up pretty nicely. And we expect to see mid-teens growth in new store count next year as well.

Our next question comes from Brad Thomas with KeyBanc Capital Markets.

I guess, first a question on the start here to the fourth quarter. Any more color on where you guys are running and maybe more explicitly what your comp expectations maybe for this fourth quarter?

Yes, I'll go first, Brad. Thank you for your comments. Typically, we don't give the monthly guidance range or quarter trends. I can tell you Thanksgiving weekend was very consistent with our expectations. We were pleased with our results. We're off to a good start in Q4. But as you know, as we are in everything there is a lot of big days between now and the holiday of Christmas, inclusive of one coming Sunday night, a lot of it is predicated on weather. But all that being said, feel really good about where we are. As far as guidance, Jay?

Yes. I can speak to that one, Brad. This is Jay Stasz. And just to add on what Mark said, and the other thing we talk about is just coming up against our own good numbers, we're facing a 2-year stack of 7% and a 3-year stack of 16% in the fourth quarter. But with that said, the last quarter we talked about Q4 being in the low end of the 1% to 2% comp range, really not a major shift, but what we're thinking of is the comp range for the quarter now is probably in the mid to the high 1% to 2% range.

Great. And then just a follow-up on the earlier question about the long-term financial outlook. I guess, just explicitly as we think about 2018, obviously, we need to adjust for the extra week you have this year. But any other early thoughts, John, for us as we start to fine tune our model on a annual and quarterly basis for 2018?

Yes, Brad, we're not going to give a whole lot of color on 2018. But I would tell you as we've said for a long period of time now that we've been public. Really go back to the long-term consistent algorithm that we've given to you guys of top line -- mid-teens top line growth, 1% to 2% comps, gross margins right at about 40% and net income growth close to 20%. So if you model that out, it can be pretty consistent. As you know, we levered pretty well once we get above the 1% to 1.5% comp store sales, but we don't build it our infrastructure to do that. And we don't actually have -- we don't build our model as well and sort of get our sales behind the eight ball of sales do slow down a little bit. So same model parameters that we've given to you in the past we'd stick to on the long-term basis.

Our next question comes from Peter Keith with Piper Jaffray.

It's actually Bobby Friedner on for Peter today. I just want to ask about the closet opportunities you're seeing specifically pertaining to consumables and branded CPG companies. Do you think that as pricing area remains type of competitive. A lot of retailers are moving more to private label and you're seeing new branded CPGs that's for new points of distribution. So just a dynamic you're benefiting from. If you could just discuss the trends you're seeing in branded CPGs that would be great?

Yes, I don't know if anybody else has switched to private label is driving any CPG availability. To be honest with you, I would tell you that our focus, we are laser focused on getting name brands at drastically reduced prices and some of the greatest names in America are in our store -- stores, which I will tell you none of them. It's -- but it's certainly exciting the consumer, they're responding, we're offering them bargains, we're developing these relationships, we're strengthening these relationships. And the entire environment consistent with what I think I've said 3 -- 2 or 3 quarters, this is the best closeout buying environment that I've seen that I've been doing this for 35 years. So obviously, that's a relation here to Ollie. So it's the strongest that I've ever seen. And our pipeline is full, our brands are big, bright and beautiful and they're bargains. So I feel really good about where we're at.

Great. Just a quick follow-up with consumables at 20% sales, I believe, given any thought to where this figure could go over the next couple of years?

Yes, Bobby, this is John. With regards to the consumables, we're obviously not making a concerted effort to increase our consumable penetration in our model. As you know, we go where the deals come from the overall vendor base. So where this consumables go, potentially could go up 200 or 300 basis points. But I would say, we don't want it to increase much more than where it's at today. As you know, that puts additional margin pressure on the mix that we sell to the stores. But if we can drive additional volume and additional traffic in the store from consumables we would take that any day.

Our next question comes from Scot Ciccarelli with RBC Capital Markets.

This is Robert Iannarone on for Scott today. Just wanted to touch on quickly the inventory growth. It's been a little bit higher and actually this is first time, I think, it just touched higher than sale. Now this quarter -- it had to do with timing of store openings, gearing up with the holidays or just deal flows or anything there that you guys can speak to?

Yes, Rob, this is Jay. And I can speak to that. I mean you're right. It is just a tick higher than our sales trend, but we're happy with our inventory position. It's really a byproduct and a reflection of the strong deal flow as well as to your point there is a little bit of timings of store openings in there. But really it's the byproduct of the strong deal flow that we're seeing. And we're happy with the inventory position as we head into the remainder of the holiday season.

Great. Glad to hear it. And just one follow-up unrelated, but more towards the Ollie's Army. Can you give us any update or metrics around your member count on kind of what percent of sales maybe those guys are doing now?

Yes, sure. The current membered count is 8.1 million versus 6.7 million a year ago at the third quarter, which is about 22% increase and they -- the metrics continue to be very consistent. They're making up over 65% of our sales, which is consistent with what we've had in the past.

Our next question comes from Rick Nelson with Stephens.

Also, I'd like to follow-up on the merchandise margin pressures which you discussed. Is that mix shift driven toward consumables or other factors weighing into that margin?

Yes, Rick, this is John. It's predominately mix shift that we're seeing in the consumable category that's driving the margin down. We've talked about this for several quarters now. So not a big surprise to us and it was expected as we guided last year from a much higher gross margin down to the number we're at this year. So not a big surprise there. We also had a slight improvement in the supply chain cost for the quarter as well, which is a little bit less than we had expected in that facet of the business we're seeing a little bit of pressure on the inbound and outbound freight cost post hurricanes with the -- not a lot of availability in the trucking side of the business. So we'll able to navigate through it, and we still are confident with north of 40% of gross margins for the full year basis. We had previously guided to about 40.3%. Right now, we're closer to about 40.2% on a full year basis from a gross margin perspective.

Also I'd like to follow-up on hurricanes. If you think that, in fact, was a headwind to the comp in the period?

I'll take part of this and Mark might kick in a little bit here, Rick. With regards to the hurricane, we did not see a big impact on our business. We don't -- a lot of our stores down in the Florida markets are not comparable stores yet. So we did have some disruption in the Florida market, nothing significant. We're very lucky and fortunate not to have any stores damaged in any material way. We had some closed store days, but the comps in the hurricane areas was not impactful enough for us to really call off for the quarter. But probably a little bit tiny impact, but we don't believe that, that was something to speak to on a material basis.

Got you. Finally, if I could ask on the HBA, you've called that out our scenario strength for 5 consecutive quarters. So you're lapping some big numbers a year ago. How much more opportunity do you see in that category?

Well, we think that because of our relationships and the growing scale and our ability to take more products from these major CPG companies that we think that we have a -- I'm very bullish on the outlook on a go-forward basis, obviously, we wouldn't come up with numbers for you. But when you come into our stores, you'll see incredible name brands in America at bargained prices. And we're very, very excited about the prospects. So we think that it's helping us. We think that it's breaking the basket, getting people started and we're excited about it.

(Operator Instructions) Our next question comes from Edward Kelly with Wells Fargo.

I just wanted to touch on SG&A. You have seen a tremendous amount of leverage in this line item over the last year plus, I guess. Total cost growing at a rate of less than square footage growth previous quarters. I guess, what I'm trying to get is, how we've been able to keep cost down with the store expansion that you've seen particularly even with going into new markets?

Yes, Ed, I'll take part of this and Jay and Mark might wrap it up here for me. But with regards to the overall SG&A cost, we're pretty much, as we said before, if we can greater than 1% to 1.5% comp. We're going to be able to lever pretty heavily. So we have a pretty light load on the SG&A front in the way we, obviously, run the business. So that's a positive piece of it. We're able to drive with incremental sales volume. We have -- we run a tight control of expenses in our business and as we continue to grow the top line sales or G&A our goal is to continue to lever that G&A number as we continue to grow the sales base. And I think we'll be able to do that pretty successful as we continue to expand. And there's some one-time cost that we're not lapping related to become sort of box compliant that we're investing there.

So just looking forward, the leverage point doesn't change very much, I think.

Well, right now, with where we're at, we think we can lever at 1% to 1.5%. We have said in the past, there are certain times when we have a little bit heavier investment that we have to make on the people side of the business. So this year was a little bit lighter than normal on the people side and next year it may be a little bit heavier. So I would not expect anywhere near the same leverage you've seen this year while we outpaced -- we've outpaced the 1% to 1.5% comp, we're getting a lot of leverage ultimately there. But when we build the model next year at the 1% to 2% comp, I would expect our SG&A ratios to stay pretty consistent to where they would be this year or maybe a 10 to 20 basis point leverage point when you model out for 2018.

Okay. And then you had mentioned just some changes around Ollie's Army next year. I was just hoping maybe you could provide a bit more color as to what you're looking to do? And potentially any impact that you would expect on sales. I don't know if there is a margin impact associated to all this. Just any other color there would be helpful?

Yes, I'll go first. And as I mentioned in the prepared comments, I've been wanting to do ranks for ages and ages and ages. And just did not have the capabilities, the internal capabilities of doing it. And of course, we've been telling everybody about Phase 1 and Phase 2 and the other systems so that we can get our fingers around the lot more of the data that we've been gathering throughout the year. So we're going to be able to do the ranks, and we're going to have 1 star, 2 star, and 3 star. And obviously 1 star is going to be somebody who spends a certain amount of money in the year, a 2 star might be more and the 3 star and perhaps will offer them additional discounts or incentives, perhaps will offer them deals that might be exclusive to them only, but everybody has to stay with me on the Ollie's Army. You got -- I'm not going to kill these people. These are my -- these are our customers. We're protected of them. We're going to talk to them in a fashion that we know that they want to hear from us. And we're not embedding any underlying huge numbers to it. We know what they want to hear, we know how they want to hear it, we know how to motivate them. We think we're going to have additional opportunities. But I'm asking everybody to stay with us, stay with me on the planning. And I wouldn't go planning or modeling any great advantages to it.

Our next question comes from Patrick McKeever with MKM Partners.

Just on the new store performance, which came in certainly ahead of my number and I think the street number as well even though comps were relatively in line. And I know you've talked about it a little bit already. But any significant changes in terms of the site selection process or the locations that you're getting as other retailers close stores. Are you doing anything different just with the pre-openings routine or the marketing or anything like that, that would play into the strong new store performance?

Yes, Patrick, this is John. With regards to the overall site selection process, we've not changed our site selection process, whatsoever. We have the same team, the same individuals has head up the real estate department for many, many years. So we're going to the market the same what we have for a long period of time. Our pre-opening process Arcadians is very, very consistent. We're doing the same thing we've done for a long period of time. So that there has been no -- nothing -- no big changes to speak of that we've done that would be driving the incremental business that we're seeing. Are we getting slightly better sites in certain situations where we've had other retailers go out, we have been able to secure the site that we may not have gotten in the past possibly. But I would not say that's the majority of what we were able to do. We're pretty much getting the same or similar sites that we've in the past. And we would always say, the deal is going to drive the performance of the stores and the excitement in the stores that when we get the customers in, we feel we have and they're going to buy and spend more money. So that's what we're seeing from our perspective, and we're excited to see it. And one thing we say it's been broad-based, it's been across all of our stores. It is not just in one geographic area, we're seeing it consistently in all of the stores we've opened this year and last year as well.

And that I know you don't want to talk too much about the fourth quarter to date or the fourth quarter guidance -- sales guidance. But looking at Thanksgiving, I know you weren't open on Thanksgiving, but Black Friday early in the morning and then through the Thanksgiving weekend and on Cyber Monday, could you see any -- even, let's say, subtle change in store traffic patterns on those days that would give you any indication that your core customer might be spending a little bit more online? Or was it relatively consistent with last year in terms of the basic pattern?

Yes, Patrick, we didn't see any of that at all. What we saw was a consistent response. And you know my biggest -- our biggest and greatest deals flew first, that's no different than any other year. When we opened our stores, we had people waiting to get into the stores. But we absolutely saw no adverse effects, whatsoever, very consistent with previous years, and we were very pleased with the weekend, very pleased with the early trends so far to Q4.

(Operator Instructions) Our next question comes from Vincent Sinisi with Morgan Stanley.

Wanted to go back to one of Ed's questions, just on the SG&A opportunity -- I know that you mentioned a couple of times kind of above that 1%, 1.5% comp is where you really do see that nice leverage start to kick in. But can be just remind us a little bit with some of the kind of within that line where some of your bigger levers and bigger future opportunities may be going forward?

Yes, Vincent, this is John. With regards to the biggest opportunity or biggest lever we'd able to pull in the SG&A side is 1% to 1.5% we'd expect pretty much no -- like very, very little to 0 leverage and most all leverage is coming out above that's going to be focused more on the G&A front. Store piece, we do get a small component of it, but the way we run our stores, there is a big fixed component in the store side. We're not going to get the lever until we get above that 1.5%, but the G&A is where we're go pull the -- pull this -- pull the levers and see the biggest opportunity there as we go forward in our long-term basis. But like we said, we don’t expect to see a lot of leverage coming out of the model. When we model out 2018, we're going to be remodeling our consistent 1% to 2% comp, and you're going to see very little leverage about 10 to 20 bps in the SG&A side compared to this year.

Okay. Perfect. That is very helpful. And then just a very quick follow-up on the enhancements to the Ollie's Army program. Should we think of -- how should we think of progression there? Is that going to be kind of on day 1 with both the ranks and the mobile app that it's going to be launched storewide? Are you going to do different geographies kind of step at a time? How should we think of that timing?

Vincent, our personality is walk before we run. There is no way we would do both programs at the exact same time, but we do expect to have them rolled out this year. We think that the ranks are going to be perceived as pretty cool by the Army. They're going to like it. But we wouldn't do them both at the same time. Now that you say, would we do it geographically, that is perhaps -- that would fit our personality. So you're probably spot on.

And one thing to add, Vincent, probably what we would expect is, we would probably have both of those rolled out sometime by the first half of 2018. Obviously, they would not come together, but they would be lined up back-to-back. But hopefully, both by the first half of next year.

Our next question comes from Alvin Concepcion with Citi.

Comps for the quarter seem to be pretty much as you expected maybe a little bit better, so great job on that. But investors have become accustomed to larger upside surprises. Do you think we reached an area where people should change their view and look at your guidance as something that should be relied upon more and not something that's conservative?

Yes. Well, Alvin, anybody who has been involved with us since we started talking about the IPO process has heard us -- me say 1% to 2%. The way I've always announced it is that we -- that's our comp, that's where we think we're going to be, we're growth story. We've been nothing, but consistent as I think on the first call -- or the first question from what Matt said, you go deeper, I think we are only allowed to go back 10 years or whatever, and we averaged about 10% comp.

1% to 2%.

1% to 2%, but we could go back 10 years, 1% to 2% -- I'm sorry, 2% comp. So I think it's the consistency in the model. We went Q1 at 1.7%, Q2 at 4.5%, the spinners were in there and the Q3 we're at 2.1%. I -- that's what I'm asking, we're asking everybody to stick with, everybody to understand how we run the business, how we budget the business, how we model the business. And then as I've said, as we've said, we just don't turn the registers off when we hit 2%. If we can get more, we're going to get more. But this is the way we run the business, and we think that's the right way and the most prudent and appropriate way to run the business.

And just a follow-up on your guidance. I think I heard you say, you're expecting a mid-to-high 1% to 2% comp in the fourth quarter. If you use a midpoint of that, that seems to be a slowdown on a 1-year and possibly 2-year basis relative to what you saw in the third quarter. So is that view reflecting what you're seeing today? Or is it conservatism or are there is some unfavorable items we should be considering in the fourth quarter?

Yes, Alvin, this is John. I would say that it's not anything that we're afraid of. It's the way we run the business. It is our conservative nature we have. But like Jay has alluded to I think earlier, we're up against 16% 3-year stack. We're not going up against easy numbers here. So we've had 3 or 4 years in a row where we've had positive comparable store sales. So we don't look at that as slowing down. We look at more from a maintenance perspective and keeping customers continue to drive positive comparable store sales. So we're excited where we're at, what we're seeing right now, business is very strong and like we said we're going up against some very big numbers now to be able to beat them. It makes us very, very excited.

Great. And last one from me, just wanted to get your views on tax reforms if it passes. What do you expect to do with that benefit? Or would you think it'd be competed away and just related to that if your customers get a higher personal income tax return, do you see that spending come through your stores in a bigger way? I mean, is that something you've seen in the past?

Alan, this is Jay Stasz. And I'm going to start with that. In regards to the tax reform it's awfully early to figure out exactly what's going to happen or if the reform will become effective. I mean, we are a full taxpayer, so any reduction in the corporate rate will benefit us. And generally speaking from the consumer standpoint, if they've got more discretionary income in their pockets we don't view that as a bad thing certainly.

I'm not showing any further questions in queue. So I'd like to turn the call back over to Mr. Butler for closing remarks.

Okay. Thank you, operator. Our stores are stocked with incredible deals, and we encourage all of you to get out there and shop at Ollie's. We believe we're well positioned for the remainder of the holiday season. Thanks to everybody for participating in the third quarter earnings call. And thanks again to all of our Ollie's associates. We wish everyone a happy and a safe holiday season and look forward to speaking to you again on our fourth quarter call in late March. Thank you very much and have a good day.

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may all disconnect. Have a wonderful day.