Ollie's Bargain Outlet Holdings Inc (OLLI) 2018 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 of fiscal 2018. (Operator Instructions) Please be advised that the 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 Operating Officer; and Jay Stasz, Senior Vice President and Chief Financial Officer.

I will turn the call over to John Rouleau, Investor Relations, to get started. Please go ahead, sir.

Thank you, and hello, everybody. A press release covering the company's first quarter fiscal 2018 financial results was issued this afternoon and a copy of that press release can be found on the Investor Relations section of the company's website. I want to remind everybody 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 2018 and 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 undertake 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 metrics -- measures on this call today, such as 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 widely -- to the most closely comparable GAAP financial measures are included in our earnings release.

And with that out of the way, I'll turn the call over to Mark.

Thanks, John, and hello to everyone. Thanks for joining us today on our call. We had another very strong quarter building on our momentum from last year and giving us a solid start to 2018. Strong deal flow and new store performance drove our 21% increase in sales and our 16th consecutive quarter of positive comps. Comparable store sales increased 1.9% on top of a 7.7% increase on a 2-year stack basis. Our sales strength was once again broad-based with over half of our departments comping positive.

Some of our best performing categories were housewares, furniture, seasonal and automotive. Strong sales and margin combined with tight expense controls drove a 110 basis point improvement in operating margin and a 66% increase in adjusted net income. We are very pleased with the underlying trends in our business and we believe we are well positioned to continue to deliver strong results in 2018 and beyond. Our strategy remains centered on 3 key drivers: Offering great deals, growing our store base, and leveraging and expanding Ollie's Army.

We founded Ollie's almost 36 years ago based on the idea that everybody loves a bargain and our growth and success over these many years clearly prove that. Our ever-increasing size makes us more visible and important to major manufacturers as we continue to gain better access to merchandise. As we grow these direct relationships, we're able to offer our customers more of what they want: Brand name merchandise at drastically reduced prices.

Our new stores continue to perform above our expectations in the first quarter, benefiting from the great execution by our teams. We opened 8 locations during the quarter, including our first 2 stores in Arkansas. We've opened 1 additional store since quarter end. We have 3 grand openings scheduled for next week, including our first location in Louisiana, our 22nd state. We remain on track to open between 36 and 38 stores this year, right in line with our long-term growth expectations. We have a strong pipeline of leasing opportunities and we're excited about our prospects for additional stores in both new and existing markets. We have a tremendous runway for growth with the potential to expand our store base to over 950 locations across the country.

Ollie's Army is bigger and better than ever. The bargain battalion, now almost 9.3 million strong with growth in membership levels continuing to outpace our store growth. Importantly, members' average spend is significantly more than nonmembers, and the Army now makes up around 70% of our sales. As we've talked about before, we're rolling out some key initiatives for the Army. We are on target to launch Ollie's' mobile app in the second quarter. This app will make it easy for members to track their rewards and allow us to communicate the latest and the greatest deals. We'll also roll out ranks where Ollie's Army members will become 1, 2, or 3-star generals and receive different rewards and surprise offers based on their level of spending. These program improvements are designed to reward the loyalty of the Army and build lasting relationships with our bargainauts.

So to wrap it up, we continue to hit all of our marks and we remain laser-focused on growing our presence in the closeout industry. Our first quarter results were strong and I feel really good about the start to the second quarter. We have lots of momentum and we see a lot of opportunity ahead. Believe me, we're not slowing down. Our business is driven by really great bargains, tight expense control and successful new store openings. It's the consistency and strength of our model that gives us the confidence that we have a long runway of continued success ahead of us.

I'd like to take this moment to thank our 7,000 team members for their hard work, their dedication and to reinforce how much I appreciate their efforts each and every day. Thank you, again, for your support of Ollie's.

I'll now turn the call over to Jay to take you through our financial results and the 2018 outlook in more detail.

Thanks, Mark, and good afternoon, everyone. We're very pleased with our solid start to 2018 as we delivered another strong quarter. Net sales increased 21.1% to $275.7 million. Comparable store sales increased 1.9% on top of a 1.7% increase in the first quarter of last year and the 7.7% increase on a 2-year stack basis. The increase in comp store sales was driven by an increase in average basket, partially offset by a reduction in transactions.

As Mark said, we opened 8 stores during the quarter, ending the period with 276 stores in 21 states, an increase in our store base of 15.5% year-over-year. Our new stores continued to perform above our expectations across both new and existing markets, and we remain very pleased with the productivity of our entire store base.

Gross profit for the quarter increased 21.5% to $112.9 million, and gross margin increased 10 basis points to 40.9%. The increase in gross margin was driven by an increase in merchandise margin, partially offset by higher supply chain costs as a percentage of net sales.

SG&A expenses increased 17.2% to $72.4 million, primarily the result of additional selling expenses from our new stores, increased sales volume in our remaining store base and investments in personnel to support continued growth.

We leveraged SG&A expenses by 90 basis points to 26.2% of net sales. Operating income increased 31.6% to $36 million and operating margin increased 110 basis points to 13.1%.

Net income increased 60.6% to $30.5 million and net income per diluted share increased 58.6% to $0.46. Included in the $0.46 is $0.06 of excess tax benefits related to stock-based compensation. Adjusted net income, which excludes this benefit as well as the after-tax loss on extinguishment of debt, increased 66.4% to $26.6 million or $0.41 per diluted share from $16 million or $0.25 per diluted share in the prior year.

Adjusted EBITDA increased 27.7% to $41 million in the first quarter and adjusted EBITDA margin increased 80 basis points to 14.9%.

Turning to the balance sheet. At the end of the period, we had $27.6 million in cash and no outstanding borrowings under our revolving credit facility. We paid down $25 million in term loan debt during the first quarter and ended the period with total borrowings of $24.2 million. Inventory at the end of the first quarter increased 11.9% over the prior year, primarily due to new store growth and the timing of deal flow. Capital expenditures were $4.7 million in the quarter compared to $3 million in the prior year as we continued to invest in new store growth.

Turning to our outdated -- our updated outlook for fiscal 2018. We are raising our full year sales and earning guidance to account for the upside in the first quarter and leaving the remaining quarters unchanged. As such, for the year, we now expect total net sales of $1.207 billion to $1.215 billion, comparable store sales growth of 1% to 2%, the opening of 36 to 38 new stores and 1 relocation, operating income of $152 million to $154 million, adjusted net income of $112 million to $114 million, and adjusted net income per diluted share of $1.69 to $1.72, both of which exclude the excess tax benefits related to stock-based compensation and the after-tax loss on extinguishment of debt. An effective tax rate of 26%, which also excludes excess tax benefits related to stock-based compensation. Diluted weighted average shares outstanding of 66 million and capital expenditures of $23 million to $25 million.

In addition, as we mentioned on our last call, for the second quarter, we are forecasting a total sales increase in the low-double digits and a comp store sales increase at the low end of our 1% to 2% guidance.

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

(Operator Instructions) Our first question comes from the line of Matthew Boss of JPMorgan.

So could you speak to the monthly cadence of trends in the first quarter? I think any color on the trends that you saw in May would be helpful, as I know weather can shift some seasonal in lawn and garden between the first and second quarter. And then, finally, what if anything have you embedded in terms of a lift from the launch of loyalty that will be taking place in the second quarter? Any color would be helpful.

Matt, this is Jay Stasz. And I can start with that. And to start with your last question first. We didn't really embed anything on the lift with loyalty. So we've baked nothing in for that. We're very conservative. Like we said, we're going to crawl and then walk and run. In terms of the cadence, during the quarter, we did see the comp sales growth throughout the quarter. They got stronger as the quarter went on. We don't speak to specific months. But we're right in line with our comp guidance for the quarter, and we were right in line with our plan by month. I mean it was a funny month because of the shift back to the 52-week year, the shift of the Easter holiday as well. We had some ad shifts within the quarter. So it was pretty lumpy. But over the course of those months, the comp did get progressively stronger.

Matt, I'll chime in on the progression of the quarter. And we're certainly expecting to be asked about the weather. And certainly we had the choppiness like everybody else. But on an overall basis, we generally don't focus on the weather. Our stores now we're going to be in 22 states. We're up and down the East Coast all the way. We're on the West side of the Mississippi in one store. So we don't think that that had any major, major impact. And we did well and, as expected, right up and down the line.

Got it. And then just a follow up. On gross margin, how much was merchandise margin up in the quarter? And I guess how best to think about merchandise margin opportunity versus higher supply chain costs as we think about the second quarter and the back half of the year?

Sure, Matt, this is Jay. The merchandise margin was up 80 basis points in the quarter and that was offset by the increased supply chain costs, which were up by about 70 basis points. So as you know, we really haven't changed our annual gross margin target this year. We had talked about 40.1% on the last call and that's still what we are targeting. So we knew, we've anticipated that the supply chain costs are going to be increased and we are expecting that to continue. But we also expect that we've got to focus on merchandise margin and we think we're going to be able to offset that increase in supply chain side with improved merchandise margin. And Q1 was a good start to that. Certainly having merchandise margin up 80 bps is a strong performance. So again we're looking at margin overall -- gross margin is flat year-over-year at 40.1%.

Our next question comes from the line of Daniel Binder of Jefferies.

It's Dan Binder. Two-part question. The first is just a tack onto Matt's question. With regard to merchandise margin, was the source of that simply just better buying or better price management? And did the value proposition change in any way as a result? And then the second question was around transactions. I think you noted a slight decline. I was just curious, any thoughts around that given all the good work you've been doing on the buying side?

Dan, I think that it -- obviously, the cake mix was a little bit of both. As I said, that the buying environment has and continues to be quite vibrant. And we were able to leverage some of those situations. And really paramount to what we do is to try to give America bargains. That's never going to change. We were able to get some greater deals, step up to the plate, of which I'm not going to tell you about any of them. And we were able to leverage that situation a little bit and increase the margin when and where possible. On the second part of the question, I'll let the boys go.

Sure. I can talk to that, Dan. Right, the comp was the 1.9%. Average basket was up about 300 basis points. So the comp was driven by that. Transactions were down about 110 basis points. And like we've said before, we don't look at those metrics and try to manage the business to those metrics. Really those are a byproduct of the sales mix and the deals in any given quarter. It's not something we try to manage to. Obviously, with the top departments that Mark talked about, housewares, furniture, I mean that's going to have an average -- higher average ticket. So we're not surprised that that was the driver. And again, we're pretty happy with the 16 consecutive quarters of positive comp. We're more focused on the deal versus some of those metrics, but understand we need to talk through those.

Our next question comes from Peter Keith of Piper Jaffray.

Refreshing to have a company report and not blame weather. The new store metrics were quite strong and I don't know if it's due to the week shift in sales. But at least in our model, it looks like your new store productivity ticked up quite a bit. And I was wondering if there's anything to that with some of the newer stores.

Peter, this is Jay. And certainly because of the shift back to the 52 weeks and the shift in the sales week, there is a little bit of a tailwind on the new store productivity calc at least the way we calc it. But it's still performing north of 100 even on a shifted basis.

Yes. And Peter, this is John. Just one thing to add to that. One, keep in mind, what you will see as well and we expect to see is probably a little bit of headwinds on those new stores in Q2 and that's why we kind of have the overall total sales on the lower end of the spectrum that we've kind of alluded to in the call earlier today.

Okay. Very good. And then, I'm always curious around the food and consumables business and how that might be trending. I know consumables as a whole isn't broken out separately. But maybe just give us a little bit of color on how some of the opportunities there are shaping up?

Yes. We find the buying opportunities to be very, very strong. Our position at the moment is very, very strong. Coffee continues to perform at our expectations. We've been doing it for quite some time and it's a major, major piece of our business and we're very pleased with it. So the stock level, the inventory, the availability, the offerings, our buying, our margin, everything I feel good about, Peter.

This is John. Just a little more color on the food category. There is definitely deflationary pressures sitting on the coffee K-Cups as we've alluded to prior. That continues to be a very competitive marketplace that we're dealing with. So we're definitely having some pressures in the overall food category. We're holding our own and we're comfortable with where we are at.

And Peter, this is Jay. The penetration of consumables overall has stayed consistent as of late. It's a little bit north of 20 like we've talked about, really hasn't changed a whole lot in the last couple of quarters.

Okay. Very good. And maybe just, John, just a follow-up on that. Is there deflationary pressures beyond coffee in your food category? Or can you guys manage through that with your pricing strategy?

I think -- yes, Peter, I think, we can manage through that. There's very, very little in very specific categories. But I think we can manage through that without too many issues. The coffee is definitely a headwind that we have to deal with and I think that's here to stay.

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

I actually have a follow-up to Peter's, it's a little bit of a different angle, I guess, on the new store productivity. What would you guys point to as key reasons why the NSP has ticked up the way it has? I mean typically you would see that metric spike just mathematically when comps spike. But that's not really what we've seen and yet NSP continues to trend higher than it has historically.

I think -- Scot, this is John. I'll take the first swipe at this. But with regards to the new store productivity increasing over what we've seen in the past, a lot of that's going to be deal-driven in nature, which is, if you look at our comps over the last 4 years, we continue to comp against the comp and we're up against our own strong numbers. So the numbers have increased substantially on a per store average basis as well. And I think the attachment to the brand that we're carrying in these new markets and the visibility and notoriety of the name, I think, people are attracting to us on a stronger basis than they had in the past. And that's what I think we continue to see.

And any kind of shift in terms of real estate with just -- with all the real estate being abandoned by so many other retailers. Is there more repurposing going on than what you guys have historically done?

I would say there is a little bit but I wouldn't say significantly more. We are in certain cases getting a little bit better real estate sites for some of our stores. We've been able to capitalize on some of the hhgregg sites, which typically have been a little bit better real estate. But overall, we've been pretty much tried and true to our model. We haven't really stepped outside of our normal comfort spot for the most part and our real estate strategies remain pretty consistent.

Our next question comes from the line of Rick Nelson of Stephens.

So retailers overall are seeing a little better macro backdrop, more traffic to their stores, a little better sales. Can you speak to that and how that might impact your business and the quality of your buys?

Well, yes, I think, Rick, twofold. I think that we feel good about where we're at. We feel as though we are seeing perhaps the customer with more money in their pockets and that gives us a greater opportunity to sell them bargains. We think that certainly if there is more vibrancy, we think that we win on both sides of the equation when business goes down and there is a creation of new product or we win on both sides with obsolescence. That creates new product or a new product creates obsolescence. So any time we can offer, any time there is a disruption or an increase in business, we have the opportunity to get bigger, better, brighter, broader deals and that's how we make a living, is by buying deals direct from the manufacturer and selling them to the customer. When the customer has more money, that's really good too. So it's -- we feel really good about where we're at and how we're performing. We had a great quarter.

It certainly does. So speaking of opportunistic buys, if you could speak to the toy category, what you're seeing there in terms of merchandise availability for holiday and maybe store sites that might be available to you.

Yes. Well, the -- on the toys, what we are -- certainly we are excited about the Toys "R" Us opportunity. We're active in the market. We're buying when the opportunities present themselves. We've certainly been in the toy business for many, many, many years. And this is what we do for a living. So we think that there is going to be a demand to be able to sell toys. But we also think there's going to be a demand for us to be able to buy toys. And we're doing just fine within my expectations and I feel really, really good about that. As far as the locations, we're actively as we are -- as we always do, in the marketplace, trying to get the best sites we possibly can. In some instances, those sites have come up. In many instances, it takes a little bit of a while for this whole situation to be able to flush itself out. And we are expecting to be able to hopefully take advantage of the real estate opportunities as well.

Yes, Rick. Let me add a little color on the real estate, Rick. With regards to the Toys "R" Us situation, there's north of about 200 sites that are going out on auction here on June 11, and we're taking a look at a handful of them. We're not taking a look at that -- most of them don't fit into our geographic area or the size of the box doesn't work or the location doesn't work. But there's a handful of them where we are taking a peek at and we're focusing pretty heavily on that we think will be the right locations for us where we don't currently have a presence and we're paying a lot of attention to that there.

(Operator Instructions) Our next question comes from the line of Judah Frommer of Crédit Suisse.

Maybe first just a follow-up on the real estate. I think previously you had said that about 1/3 of stores this year would open in the first half. Is that still the case? And I think the relocation in guidance is new, can you give us any color what's going on with that store?

Sure. Judah, the cadence of the stores has not changed. It's about the 1/3 the first half and 2/3 the second half. There are obviously some timing issues we may have to deal with on the back half of the year from a cadence perspective. They might slip 1 week or 2 here or there. But we think we can maneuver through that without any issues that we need to discuss. At this point in time, we still believe and we're comfortable with the 36 to 38 store guidance that we've discussed previously as well.

With regards to the relocation, that was an opportunistic situation that came up since our last call. It happens to be right here in our backyard. There was an hhgregg that went out of business literally right across the street from our store in Pennsylvania here, which happens to be the first store we've ever opened. So we're going to relocate that store probably about 50 feet away to a larger box, a lot, lot brighter, newer look to it and we're excited about it. So it's right here in our backyard, so it will be a good thing to do.

Nice. And one a little more high level. I mean you guys -- you called it out in the release and John said, you guys are -- you're clearly comping the comp and have been able to do that since coming public. Has there been any change to the internal planning process? I know historically you've basically said you don't have much visibility on comp beyond kind of the current or the next quarter, but has anything changed given your buying availability?

Judah, this is John. I would tell you the overall process of how we go to market and when we go to market and how we buy, whether it be seasonally or out of season for the next season, nothing has really changed in our process for a very, very long period of time. So visibility remains about the same. It's really the momentum and what we feel we can do and the scalability of the model, we continue to see the deals present themselves very strong quarter-after-quarter. So we've not changed anything in our planning process or how we go to market either.

Our next question comes from the line of Chris Prykull of Goldman Sachs.

How are you thinking about your capital structure or the allocation of capital given it looks like you've now swung to a net cash position? Could you potentially accelerate store growth? Is share buyback on the table? Any color would be helpful.

Chris, this is Jay and I can start and these guys might chime in. But yes, we haven't really changed anything in terms of our capital allocation strategy. And so what that means is, our leaning is to pay down the debt first. So we've got another $24 million-or-so of debt to pay down. We'll probably do that later this year. And then we're going to step back and like you said, we're going to be in a cash position at the end of the year. We're going to assess our options.

We are not going to accelerate growth. That's something we don't do. Mark and team have been churning out this pace of growth for many, many years. And we think that's the right thing to do from the business standpoint. We're not going to do an acquisition or anything like that. But we would look at an opportunistic buyback. We would look at -- we're looking at a D.C. down the road like we've talked about before late '19, '20. Typically we would lease those if the economics were viable to buy and it made more sense, we might look at using some of the cash for that. But the short answer is, we're going to look at buybacks and we're going to keep our options open and we're going to talk to the board and our advisers when the time is right.

Great. That's helpful. And then just a question on Ollie's Army. I know you had said there was no real lift embedded within the guidance for the mobile app or changes to the program. Have you done any work to look at either past mobile app rollouts or loyalty program revamps across restaurant or retail to show what the potential opportunity might look like?

Chris, this is John. The answer on that this is, no, we have not. That's not necessarily our style on how we do things. But the reality is, 70% of our sales currently come from the Ollie's Army. So we've always told everyone to kind of just sit back, let's see where it goes. We don't expect any earth-shattering results from the Army. When you drive already 70%, you haven't really done anything on the digital front to change the expectations from the consumer. So we do think the app is going to be a nice addition to the customer. We don't necessarily view that as a sales driver.

The ranks is something that's neat, that we hope we can drive incremental visits from the customers based on their ranks in the overall Army. But as we've always told everyone, stay with us, let us continue to drive the business. There's no need to embed a higher comp from the process change we're trying to do. And if we can get more, we'll get more. But right now, we're not getting ahead of ourselves. We plan the model the same way each and every year. And that's the right way we think to run the business. So if we do get more from the changes we've made, we'll put them to the bottom line and the shareholders see the results that we were able to deliver.

Great. Appreciate the color. And one last high-level one, if I can sneak it in. Is there an opportunity to leverage packaway to any greater degree in certain categories like some of the apparel off-price players do?

Are you talking about buying out of season, Chris?

Yes, yes.

We do that -- yes, we do that every day, all day long and have for 36 years. So we would perhaps be buying air conditioners at the end of August or September when I had stores-only in the Northeast. We would buy pool chemicals then when I had geographically the same amount. So we buy out of season what we just referred to moments ago as packaways all the time because that's the most opportune time for us to get the best deal and be the most meaningful to the manufacturer.

Any sense for what packaway or what out-of-season inventory is generally as a percentage of the total and how that has looked over time?

Chris, this changes on a seasonal basis, but we kind of use a barometer, it's probably about 10%, 12% of the overall inventory that sits in the distribution centers at any given point in time based on the seasonal time of the year we're looking at.

Our next question comes from the line of Elizabeth Suzuki of Bank of America Merrill Lynch.

Just a follow-up on Rick's question. Were you selling any Toys "R" Us inventory in the first quarter to the extent that it had a measurable impact on your comps or earnings? Or do you see most of that opportunity as being on the horizon for the back half of the year?

Yes, well, we certainly had some -- what happened with Toys "R" Us came as no surprise for the toy industry. So last year we had toys and we sold a lot of toys. It was no impact whatsoever to the first quarter. Not anything that would be notable. And certainly, we don't know how this entire thing will shake out. We think it's going to be a win-win on both the procurement and the selling side. But we just want to remind you that this is what we do for a living. And if it's toys this year, it might have been hardware last year or it might have been housewares last year. This is what we do. So we happen to be excited about it. We think the customers are going to be excited about it, just like they perhaps might have been on Rachael Ray or a Sunbeam coffee maker.

Great. And regarding your SG&A investments, are you still expecting about 20 to 30 basis points of deleverage this year? I think that was the last number I had in my notes and just given the fact that in the first quarter like you kind of beat on the SG&A side versus what we were expecting at least.

Sure, Elizabeth. This is Jay. And -- yes, we did have a good performance in the first quarter on the SG&A front and we had modeled that to have a good decrease year-over-year. We maybe exceeded that a little bit given the strong sales that we had. But overall, yes, we're still expecting a deleveraging of about 20 basis points, I'd say. And remember that a function of that is we've got a 40 basis point investment embedded in SG&A related to the reinvestment of the tax benefit from the second quarter forward.

Our next question comes from the line of Vincent Sinisi of Morgan Stanley.

Just going to the supply chain cost, I know you said that kind of in the sense that you had a little bit more maybe flexibility or line of sight given the closeout nature with the higher freight cost. So would you say that what you are seeing to date is kind of in line with your expectations? And then just maybe any thoughts for your outlook for the rest of the year? What specifically for freight is embedded in there?

This is John. With regards to the first quarter, the supply chain costs were pretty much right in line with our expectations. And we do expect those to be continued headwinds in the overall remaining part of the year. We don't have any significant headwinds planned. So if fuel continues to go up 10% or 20% more than where it is at today, that could present a challenge for us in order to offset it with the increased merch margin. But right now we think we're -- we've got the numbers baked in pretty sufficient in order to still come out at the 40.1% gross margin on a full year basis with where we sit on the pressures on the supply chain continuing year-over-year. I think you'll start to see them lessen as we get later in the year. But they were obviously increasing last year in the latter part of the year. So we shouldn't see as significant when we get towards Q3 and Q4 so we should be able to moderate that barring any big changes. We think, on the import front, we're in pretty good shape right now, but the domestic side of the business, we expect that to continue the remainder of the year.

Okay, perfect. That's helpful. And then maybe just one fast follow-up for the 2Q rollout of the mobile app and the ranks for the Army. I think in the past, you had said they would kind of start end to end in 2Q, be done by 3Q. So just quickly, is that still the case? And is that something that kind of the light gets flipped on for both of those things across the base all at once? Or how should we think about that rollout during the quarter?

Right now, Vincent, we are looking at the mobile app and the ranks to be rolled out pretty much in their entirety by the end of Q2, the very early part of Q3. So we will be doing actual testing, latter part of Q2 here where we will looking at the mobile app getting some more traction. We've soft launched it. We're using it today. Have about 1,500, 1,600 people that are on it and testing it and working out the bugs in it. The ranks, we're going to do just a geographic rollout later here, probably in the month of July, and we'll be ready to go here at the end of July with both of those applications. So I think it will be in early Q3 when they'll both be up and running and being used by our consumers.

This is Mark. Nobody is more excited about the mobile app than me. Don't get ahead of me. Stick with us on the comps, just -- it's going to be really, really exciting. It's going to be in a tip sense with letting people know we've got deals. Just it's nobody's more wound up than I'm. But everybody stick with me.

Our next question comes from the line of Edward Kelly of Wells Fargo.

My first question is just on Q1. I'm just trying to better understand the new store productivity number that's coming through in the model. Was there any positive calendar shifts in Q1? I know there was a shift in weeks. I'm just wondering the NSP number, should we be just taking what we've got here and extrapolating that going forward or there is something unusual in it?

This is Jay, and I'll start. I mean certainly, there was -- we've talked about the total sales shifting, being higher in Q1 and Q3 and at the lower end of Q2 and Q4. And a function of that is the calendar shift back to a 52-week year. So there is certainly an impact from that into Q1. I mean, when I do my rough math, right, my new store productivity number is about 124 or something.

On a shifted basis, if you go back to a normalized shift apples-for-apples on an as-reported -- moving away from the as-reported basis, it's probably just north of 100%. And I think, right, that's closer to what we've been running. Last year I think we were about 109, 108. I mean all of that's historically higher than what we've been running. We plan the business closer to the low- to mid-90s. That's how we think about it. That's how we plan the business. But we have been exceeding that. But we haven't been exceeding it at 124. We've been exceeding north of 100.

That's helpful. And then I just wanted to ask a question about health and beauty aids. This by far has been your fastest growing category the last 2 years. Clearly, it's been a traffic driver. You didn't mention in the category this quarter. I'm just hoping you could talk about where you stand in term of adding assortment, expected performance of the category in 2018?

This is John. With regards to HBA, obviously, last year HBA was a real strong performer for us. We had a lot of new access to product that we haven't had in the past. And as any part of our business, it is deal driven. So we move in and out of categories all the time. HBA is performing just fine. It's still comping positive compared to last year, but it just wasn't one of our top 5. And so we expect HBA to continue to move forward in the right direction. But last year was a new -- we introduced new items and new categories; so now we are up against our own good numbers again. So that guy's kind of just leveled off and has continued to move in the right direction. So there's nothing wrong with it by any means, but it's something that we're sitting there and seeing it annualize on a positive basis. So we're excited about it.

And our availability from the CPG just continues to get stronger. The offerings are bigger and better. We -- and name brands that are really, really meaningful to the consumer. So we're really excited about where we're at. We're excited about the product we have in the store and the rate that it is selling to the consumer.

And Mark, just one last one for you. So in terms of traffic, if we think about the last few years, consumables played overall a pretty big role it seems, right, with K-Cups, HBA, a couple of years of that. Is the traffic that we're seeing today just a function of cycling a lot of that? And then as we think about, obviously, you're always getting asked about like the next driver, is the next driver really loyalty? Or are there other things out there that you're also thinking about?

So -- and this is Jay and I can start with that. I mean certainly, right, we don't have -- we don't measure traffic. We don't have traffic counters. So we go by transaction and use that as a guide. And you are spot on. I mean, if we look at '16 and '15 and look back, especially in the first quarter, I mean, those were strong comps and we had strong, strong transaction numbers. So there's no doubt we're coming up against that.

Yes. And I think that our increasing as it has, we've been public for nearly 3 years now. So as the visibility of the company goes up, both in the overall persona and in the general geographic locations that we're at, we're just getting more and more and bigger offerings and we make ourselves available to take additional distribution centers throughout the country. So as we've talked before, when we opened up Commerce, Georgia, that made the southeast distribution centers for many of the CPGs more viable for them and for us. And when we eventually open our third distribution center, we think the same thing will happen. So we're just operating at a -- or hitting all of our marks. We are operating at a very high level and developing and maintaining and strengthening these relationships that we have with the CPGs, we can take a lot of product and we can sell a lot of product and we make their headaches go away quietly.

Our next question comes from the line of Patrick McKeever of MKM Partners.

Just a question on store labor and wages and benefits and some of those things where we are seeing a fair bit of pressure across retail. And I know you are redirecting a good portion of the tax savings toward employees. So my question is, do you think it's enough? Have you seen any even more recent changes in things like employee turnover, store manager turnover, that would indicate there might be some additional pressure in that area beyond what you've embedded into the guidance for the year? So that's my first question. And then just the second question is on the second quarter and the guidance for the reaffirmation of the same-store sales guidance below and of the 1% to 2% range for the year. Just try -- I understand it's a reaffirmation, but also just trying to reconcile that with the positive comments in the press release about the early trends in the quarter. So I mean -- on the guiding more toward the 1% for the second quarter, is that more a function of the comparisons especially with the fidget spinner last year. But I know the 2-year comparison is difficult as well in the second quarter. So just any color around that would be helpful.

Patrick, this is John. I'll take the labor piece. I'll let Jay take the comp store sales piece. So with regards to labor, we are -- and we've mentioned in the last several calls, we have seen labor pressures in our distribution centers more so than anywhere else in the business. I think that's just a function of the tight labor market and the need for warehouse workers has increased and we have been dealing with that since last year and we continue to deal with that and we're adjusting accordingly in order to reduce turnover and attract new people in those boxes. That's something that we continue to work on. It's not a material part of the overall reinvestment of the tax savings, but it's there and it's real.

We have made some changes on the benefits side for our employees and invested some dollars in the benefits side of the world for them that will be effective on July 1, that will be part of the tax savings that we will be putting to work for the employee base. And then most importantly, at the store level, the reinvestment dollars are really set aside for the hourly workers. Our management teams and whatnot, our turnover has remained very consistent. As we have talked in the past, we're not seeing an increase on the turnover on the management front. So the dollars that have been set aside to react to any issues we may have on a market-by-market basis or an overall macro situation would be to adjust the hourly workers at store level.

We have not seen significant pressures there in the markets we work in. We believe we provide a fair wage already today. We have a good work environment. We have a good benefits package, and most importantly, a nice employee discount for the employees. So we continue to monitor that on a very serious basis and we'll adjust accordingly. That's why we're kind of having everyone, don't flowing that to the bottom line, we'll use it if we have to. If we don't need to use it, we won't use it and it will flow back to the shareholders. But at this point in time we think it's coming and we will react when the time is right. With regards to comps, I'll let Jay address that with you.

Yes, Patrick, on the comps, I mean, you're spot on, we did kind of reaffirm that low end of 1% to 2% for the second quarter. And as you know, we're always going to remain conservative in our outlook. You said it, we are a victim of our own success, coming up against our own big numbers. And to your point, right, last year, Q2 had the spinners in there, which was a little bit just south of a 2-point impact on the comp. So we want to make sure that we got that appropriate. We think it's the right way to plan the business given the deal nature of the business and the strong comp last year in Q2 in the spinners. Of course, we're not going to shut off the registers, if we can do better than that. But I would think -- we're off to a good start so far, but we've got a long way to go in the quarter.

Did the spinners have a material impact on the gross margin in the quarter last year, second quarter?

No, they did not.

At this time, I would like to turn the call over to Mark Butler for any closing remarks. Sir?

Okay, thanks, everyone, for participating in our call and your support of Ollie's. We feel great about our results to start the year, encouraged by our current trends and are confident in our ability to continue driving sales and profitable growth. We look forward to sharing our results with you on our second quarter call in early September. Thank you, and have a good day.

Thank you, sir, and thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day. You may disconnect at this time.