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Good afternoon, and welcome to the Ollie's Bargain Outlet Conference Call to Discuss Financial Results for the First Quarter of Fiscal 2020 [Operator Instructions]. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from Ollie's. As a reminder, this call is being recorded.
On the call today from management are John Swygert, President and Chief Executive Officer; and Jay Stasz, Senior Vice President and Chief Financial Officer. I will turn the call over to Jean Fontana, Investor Relations, to get started. Please go ahead, ma'am.
Thank you, and good afternoon, everyone. A press release covering the company's first quarter 2020 financial results was issued this afternoon and a copy of that press release can be found in the Investor Relations section of the company's website.
I 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 with respect 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 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 as well as our earnings release issued earlier today 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, 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 to the most closely comparable GAAP financial measures to these non-GAAP financial measures are included in our earnings release.
I will now turn the call over to John.
Thanks, Jean, and hello, everyone. Thanks for joining our call today. We hope that you and your families are staying safe and healthy. We appreciate you joining us and what we know is a very challenging time as we all deal with the impacts of COVID-19.
Our history demonstrates that Ollie’s has been remarkably consistent in both good and bad economic periods. In many respects, operating in the closed end industry for over 38 years sets us up well to effectively navigate uncertain times.
This quarter was unprecedented on many fronts, creating unique challenges and opportunities which our teams faced head on. We have the knowhow, the flexibility and liquidity managed through this crisis.
This is what we do and the results would deliver, reflect the strength of our model and our core competencies. I want to express my heartfelt thanks to the entire Ollie’s family for their tireless work to ensure the continued health and safety of our customers and each other. That has been remained our number one priority.
The team's efforts and ability to rally together during these times has been nothing short of extraordinary. Our stores have remained open and we work hard to provide a safe environment for our customers to buy what they need. Our teams had to move quickly and aggressively to meet sudden shifts in consumer demand during the quarter.
So let me break this down. As we shared with you last quarter, we experienced significant sales pressure in the initial consumer reaction to COVID-19. That volatility in our sales continued in the following weeks. We responded quickly to reassure customers that we are still open and here to serve their needs.
Our marketing message was very focused and deliberate. Our stores are open. We have the goods you need at great prices, and we are taking every precaution to keep you safe. We expanded our offerings of high demand items and sourced new products, including certain essential items unavailable in other stores, in addition to providing great deals across all our categories.
These actions resulted in broad based comp improvement across all departments. We then experienced a surge in sales in mid-April as people began to receive the stimulus monies. The rebound in our console enables to end the quarter down 3.3% a considerable improvement from trends discussed in our last call.
Now I'd like to share some insights of how we were able to move quickly to respond to the unique challenges caused by the pandemic and the resulting changes in consumer demand. It begins with the merchant team.
Our talented merchants leverage long standing vendor relationships, and source of new vendors to obtain essential products for our customers. While they remain laser focused on getting more of these necessities, they did not lose sight of opportunities across all categories.
Last quarter, I had mentioned my desire to maintain more capacity and are open to buy what I call dry powder to allow us to respond to changing consumer demands and opportunistic deals. I want us to be playing offense at all times.
And I think our recent sales have benefited greatly from this approach. We're chasing the business a little right now because of the significant uptick in our sales. But we're seeing lots of product availability in the marketplace and our deal flow is strong.
That said, as we've talked about before, it does take some time for the full impact of disruption to manifest and deals for us, so we expect bigger and better opportunities to come later this year. We're confident that we're in a great position to capitalize on the robust closeout environment.
The second part of the equation is our supply chain. All three DCs are operating at full steam. They processed substantially higher volumes in plan and aggressively pushing product and response to sales trends. Our DCs are handling the flow through and we're getting goods out to the stores to keep them stocked.
Our store associates are working very hard to continue to serve our customers adhering to required CDC guidelines for health and safety, cleaning our stores and restocking shelves during this busy time.
Turning to new stores. We opened 17 new stores during the quarter, 19 so far this year, all of which have been on schedule. We closed two stores, one permanently that was leased in and one temporarily due to a fire.
During this pandemic, our new store openings have been more subdued, ensuring that we adhere to CDC guidelines, including social distancing. However, we are pleased with the early performance of these stores.
We remain on track to open 47 to 49 stores this year. That said, given the disruption created by the state and local restrictions on construction and permitting due to the pandemic, there is potential for delays which could push some store openings to early next year.
As our results indicate we have the ability to navigate and perform in a difficult environment. The first quarter represented strong performance in challenging circumstances, and the second quarter is off to a very good start.
From a longer term perspective, as things get back to normal, our key priorities and strategies will remain the same and for good reason. Our model is proven and the underlying business is sound. Before turning it over to Jay, I want to provide more detail on our current trends.
Our strong finish in April has continued into May. While this spike in demand is exciting, a few words of caution are needed as to the sustainability of these heightened comp trends. While we know our business model is well suited for periods of economic downturn and uncertainty, no one can predict either the duration or the extent of this health and financial crisis, the related stimulus and how trends will be impacted when other retailers reopen.
It's important to not get over our skis when we think about our current trends. You know us. We're disciplined about how we go about our business and we're going to keep doing what we do; buy cheap and sell cheap.
As we get past the run of this pandemic, we believe we're well positioned to secure great deals at great prices for our customers. I'm very pleased with how we're operating the business very comfortable with how we are positioned as a company and extremely proud to be part of this organization.
The culture, we have built in all these has proven to be our most valuable asset as we continue to work through this crisis together. Our store associates, distribution centers, field management and store support center are working diligently to safely help our customers get what they need.
I want to thank our over 9,000 team members, truly are frontline heroes for their incredible dedication and contributions to the business particularly during this difficult period. We are grateful for all you do. You know what I'm going to say now. We are Ollie's.
I'll now hand the call over to Jay to take you through the financial results.
Thanks, John and good afternoon, everyone. I also want to express my gratitude to the entire Ollie's team for their amazing dedication and teamwork during this crisis. And recognize all the frontline heroes beyond boundaries those in healthcare, food production, trucking, everyone that is keeping our new way of life up and running. Thank you.
We're very pleased with the results of our business despite the challenging start to the quarter. We saw a substantial shift in our sales performance, and we're able to quickly respond to the spike in consumer demand.
In the first quarter net sales increased 7.5% to $349.4 million. Comparable store sales while volatile throughout the quarter rebounded nicely late in the quarter and were down only 3.3% following a 0.8% increase in the prior year.
Comp store sales consisted of an increase in average basket offset by a decrease in transactions. We saw units per transit -- we saw units per basket increased significantly as customers were making each trip count while shopping less frequently in response to shelter in place orders.
Best performing categories in the quarter included those departments that offered essential items our customers are seeking such as [indiscernible] aids, food and housewares. Bottom performing categories included more discretionary departments including books, domestics and electronics.
We opened 17 stores in the quarter and closed two ending the period with 360 stores in 25 states and 11.1% year-over-year increase in store count. Gross profit increased 5.7% to $140.4 million and gross margin decreased 70 basis points to 40.2%.
The decrease in gross margin is primarily due to the higher sales penetration of consumables, which generally carry below average gross margin rates and deleveraging of supply chain costs. SG&A expense increased to $89.7 million, primarily due to additional selling expenses from our new stores.
Despite heightened expenses associated with operating through this pandemic, including premium pay, we managed expenses, and were able to maintain an SG&A rate flat to the prior year. Preopening expenses decreased to $3.7 million due to the comparative timing in number of new store openings in the quarter.
As a percentage of net sales preopening expenses decreased 50 basis points to 1.1%. Adjusted operating income, which excludes a gain from an insurance settlement in the prior year increased 6.9% to $43 million in the quarter.
Adjusted operating margin decreased 10 basis points to 12.3% primarily due to the decrease in gross margin partially offset by the reduction in preopening expenses as a percentage of net sales. Adjusted net income, which excludes tax benefits related to stock based compensation and the after tax gain from the insurance settlement in the prior year, increased 6.7% to $32.2 million, or $0.49 per diluted share from $30.2 million or $0.46 per diluted share in the prior year.
Adjusted EBITDA increased 6.6% to $49.7 million in the quarter. Inventory at the quarter end increased 4.5% over the prior year primarily due to the new store growth and the timing of deal flow partially reduced by the spike in sales late in the quarter.
We worked quickly to ramp up receipts in response to the rebound and consumer demand. Today our inventory is in good shape. Our pipeline is strong and our DCs are keeping pace with demand.
Capital expenditures in the quarter totaled $12.4 million, compared with $20.1 million in the prior year quarter. Last year, expenditures included approximately $10.1 million for the construction of our new DC. At the end of the period, we had no outstanding borrowings under our $100 million revolving credit facility and $119 million in cash.
Now turning to fiscal 2020, due to heightened uncertainty associated with the pandemic including the duration and impact on consumer demand, we are not providing fiscal 2020 earnings guidance. Forecasting in this environment is obviously difficult but I can share some high level thoughts on key drivers.
First sales. Our current trends are very strong as John mentioned. That said we expect continued volatility given the uncertainty around a number of factors, including consumer demand, continued changes to shelter in place and measures across regions throughout the remainder of the year, the impact of economic stimulus and on a competitive front the reopening of retail stores, and potential for large scale liquidation sales.
In terms of gross margin, we continue to manage to our long-term goal of 40%. As we've previously stated, we had assumed our gross margin for the year would be impacted by the usual 20 to 30 basis points of headwind from our new Texas DC. This rate will of course be impacted if we experienced significant changes in sales trends.
Other factors that may impact our gross margin rate would be a product mix shift in sales as well as potential promotional pressure that might occur if we see aggressive and widespread liquidation sales.
Finally, our expenses SG&A, as you know, we always have and always will keep a tight rein on our expenses. During the first quarter the teams did a great job controlling costs as we managed through a flat SG&A rate despite additional COVID-19 related costs. The largest being premium pay for associates. As we said before our leverage point on expenses is typically about a 1 to 1.5 comp. So if we do better than that we can expect some leverage.
Our current plans for 2020 include the following unchanged from what we provided on our last earnings call. The opening of 47 to 49 new stores with one planned closure and one unexpected temporary closure.
With regard to those store openings, we expect a more normalized cadence with 23 new stores in the first half, and the remainder in the second half with a handful pushing into early Q4. Given the practical realities created by the disruption from COVID-19 there is a potential for some of our openings to be delayed or pushed into next year.
We expect capital expenditures of $30 million to $35 million primarily for new stores, IT projects and store level initiatives. To-date, we are not deviating from these plans, but we are actively evaluating and will respond to the marketplace as necessary. Our proven model strong financial position track record of navigating disruption in long term growth opportunities, keep us excited about our future.
I'll now turn the call back to the operator to start the Q&A session. Operator?
Thank you. [Operator Instructions] Our first question comes from the line of Matthew Boss with JPMorgan. Your line is now open.
Great, thanks and congrats on a nice quarter and the momentum at the end of the quarter. John, maybe relative to positive low single digit comps in the front half of March and I know you had talked to when we entered the pandemic. Is there any way that you can help size up the trends that you're seeing in May?
Maybe what categories have you seen materially inflect in the second half of April and just your confidence in driving a positive comp for the second quarter and the back half of the year?
Sure Matt. With regards to the overall drivers as you know, we did see positive comps in early March. And then we went negative right after March 12, March 13 date, we did see a turn in the business when the stimulus money started to go out by April 15.
And the overall theme for April was people were still buying the essentials and necessities and buying the consumable products that we do offer. And they started to dabble a little bit more broadly in certain categories through April and we saw a nice uptick in April.
And when May started, we saw a really nice spike in the business. And the business has been very, very broad based. All of our categories are comping positive other than one which is luggage, which you would expect not to be comping positive, which is a very small category that we operate in.
But it's been very broad based and very strong. So we're excited about it. But in terms of giving specific color on values or comp percentages we're going to stay away from that at this point in time.
Great. And then a follow up on the gross margin. How best to think about the components of gross margin in the second quarter? And then as we think about the closeout backdrop, as you see it today, what's your confidence in picking up ground in the back half of the year on the gross margin front to potentially at that 39.7% [ph] original forecast for the year?
Yeah, Matt. This is Jay. And I can start and John might chime in. We had talked about on a normalized sales level that we were targeting that 39.7% on a full year basis. I think now, given the pressure that we've seen on Q1, if we go back and layer in our normalized sales model and planning, we'd be closer on an annual basis to 39.5%.
We do expect and again, we're not giving guidance, just because of the volatile nature of everything that's happened at the end of April and into May and what could happen for the remainder of the quarter with changes in consumer demand, changes in the sheltering in place not only in Q2 but for the rest of the year and certainly if liquidation sales come up.
But if we looked at kind of a normalized model, we would have expected an increase in Q2 and our reported margin overall, because if you recall, Q2 a year ago, was relatively low, at 37.2%. So we would have expected to pick up against that, maybe we pick up 60 to 80 basis points.
And we would have thought that would have been both on the merchandised margin side as well as a supply chain costs because in Q2, a year ago, we got hit on both of those [indiscernible] normal comp of zero to 2 call it. But we can't really handicap what's going to happen with the sales trends as well as the mix going forward for the remainder of Q2.
Perfect.
Matt I would add to that is as long as things remain more normalized, we don't see a real contraction on consumer spending habits or a massive breakout of COVID again in the back half of the year and we have to close down. The contrary I would say that we're probably going to be able to make up some of our margin and be in pretty good shape some of the deals we're expecting to see on the back half of the year for sure.
Perfect. And then just one housekeeper. No change to 25% incremental bottom line flow through an incremental topline dollars. Is that still the way the model flows?
The 25% on a pretax basis? Yes.
Thank you. Our next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Your line is now open.
Hi, good afternoon John and Jay and congrats on execution there in the quarter.
Thanks Brad.
I wanted to follow up on the inventory and purchasing side of things. Maybe two parts. The first is, John, your comment that you've been chasing the business a little bit. Can you talk about how much that might've played a role and what trends have looked like, which categories are you maybe behind in?
And then as a second part, I was hoping you could talk a little bit about, the cadence with which you think you will see some of this interesting close out availability that may be coming pretty quickly down the pipeline.
Sure. Brad, with regards to the availability of product, as we said, sometimes it takes a little bit of time to manifest itself and become available because of the manufacturer has to have a little bit of pain and have some time with that product in order to get to our pricing levels.
So I would say we expect to see that in the next three to six months at the outskirt maybe nine months that we'll start to see a little bit more on the deal flow that becomes true close outs that we may able to collapse on.
We are starting to see some of these already, but I think the significant portions will start a little bit later on in the year. Your other question, I can't remember what you said, Brad. Sorry.
With respect to sort of chasing the business off late, that the sales really accelerated after having been weak. Just where inventory stands today and which categories you feel the best about your inventory and which you maybe are quite [indiscernible].
I would say I feel pretty good with all of our businesses right now. Everything's working very, very well. We're chasing every single department. There's really nothing that is stale or nothing that we have excess inventory in.
The seasonal business has been very strong. HBA, housewares has been very strong. Domestics has been very strong. Everything's working very well right now. So, we're chasing the business. The merchants are having a great time buying. We're finding a position where we're just buying as much as we possibly can to bring it into the chain. And we're excited to be able to operate this way.
Great. Thank you so much.
Thanks, Brad.
Thank you. Our next question comes from the line of Peter Keith with Piper Sandler. Your line is now open.
Hey, good afternoon. Thanks for taking the question. On close out availability, there's been some chatter out there that the availability of consumables or essentials might start to dry up in the closeout world. Just some chatter that some of the larger CPG companies might be donating product to charities, now instead of setting it to the liquidation or closeup channel.
John, is there anything that you're starting your rumblings on or might that cause your consumables mix to dip down a little bit in the coming quarter or quarters?
We haven't heard that yet, Peter. But I had suspected that we would, not necessarily from donating the product, but just from the sheer velocity when you look in March and April go to the grocery stores to go to any other mass merchant retailer, the shelves were wiped of any of the consumables that they had.
So I would have expected that to lead to a shortage of consumable opportunities from some of these major CPG companies back half of this year. I still probably feel that way that there could be a shortage on a consumable front.
But I will tell you our merchants are working hard each and every day to offset and compensate for that shortage as some of that product that may not be available in sourcing other products that may be on the private label front and not necessarily the CPG label that you might normally see. But we think we'll be well positioned to be able to capitalize on the need for the essentials or the consumables that people are looking for.
Okay. Very good. And then, just kind of going back to last year and the issues around cannibalization and the reverse waterfall, we think maybe you're starting to lap some of those dynamics. Could you maybe just tee up the current perspective on either one of those headwinds and how they're, they're starting to play out?
Yes, Peter, like we talked about on past calls, we did expect it to certainly start to lap that in Q1 and may really be fully lapped as we got into the back half of this year. Obviously, given the environment and the dynamics, it's not something that we've really paid a lot of attention to or focused on, especially in environments like this with the earnings call. I mean, we expect it to be in the rearview mirror and not something that we'd be bringing up going forward.
Okay. Sounds good guys. Thanks a lot and good luck.
Thanks Peter.
Thank you. Our next question comes from the line of Randy Konik with Jefferies. Your line is now open.
Can you hear me?
We got you Randy.
Hey, John, how are you? Just real curious from a strategy perspective as you kind of navigate through the COVID here. Anything you did from a top level executive perspective to implement some process change that helped you improve productivity or really navigate, even faster to these real time changes that you feel that you'll implement more on a long-term basis at all to help the business continue to respond reacting faster as they pop up in the future? Just any thought there anything you change process wise?
Randy, the answer on that as we haven't changed much. I mean, the biggest thing that we had talked about even prior to the COVID that my strategy was a little bit different than March in terms of working with the merchants to maintain dry powder and maintain open to buy to be able to react to opportunistic deals that are currently available.
This just heightens the awareness much more. Our merchant team is very, very nimble. We've always built our model to react quickly. We don't have a lot of overhead in our business. We make decisions rapidly companywide to what's the best interest for the company and the consumer.
So really no changes. We just really got to put our skill set to work. And like I said, the merchants are reacting. And they're buying up as fast as they can. All the products in the marketplace and we're doing great with it.
That's great to hear. Sure, the model really shows shine through here. What about any updated perspective you can give us on real estate performance by geography in terms of how you're thinking about the consumers responding during the pandemic?
And any type of indicators of new customer acquisition that you were able to pick up during the quarter and kind of help you as we continue to go throughout the balance of the year and into next year?
Yes, Randy, this is Jay and I can start on the regional performance and John might speak to the new customer acquisition. But it's been a relatively consistent by region. I think it ebbs and flows, as we see shelter in place orders changing or evolving.
So it's been fairly consistent. But you can see pockets maybe that have been open longer starting to come down from their peaks. And you can see areas that are recently open peeking and then maybe trending down.
But ultimately, at the end of the day when we started to see the strength in late April, and then early May. For the most part over that period of time, it's been pretty consistent. I think in terms of new customer acquisition, I mean, certainly we are seeing new customers come into our stores, especially recently our trends and transactions are strong, certainly at the end of the quarter and into May.
So we do have new customers in the box, which is great thing. And we're signing up those people in Ollie's as best we can. I mean, bear in mind that the stores are having to adhere to CDC guidelines. So we're limiting capacity.
We're running every other register. And we're doing sizeable volumes. So we're maybe not getting quite as many of those folks signed up as we would like. But we are definitely seeing an increase in that.
Helpful. Thanks, guys.
Thanks Randy. Operator? Hello?
Thank you. Scot Ciccarelli, your line is now open.
We need to upgrade the systems reason there. How are you guys?
So I think they're working from home Scot, it was a little challenging for them.
Nothing embarrassing. No. I know you guys don't want to extrapolate your current results. The stimulus tie starts to fade. But is it fair to assume you guys were still running comps call it the negative mid to upper teens range through the end of March? Because it sounds like that was not the worst sales period for most retailers.
That's there in front of the -- from middle March through early April. Absolutely. 100%, Scott.
Okay. Got it. And then I guess the second question is just regarding how you guys think about the potential impact for more discounted products in the marketplace overall as a lot of these retailers have been closed for a couple months. They're going to start to reopen, they're going to have older goods. Some of that overflow may reach your buying parameters.
But do you think that that potentially creates a little bit of exhaustion from the customers just because you're going to have a lot of other people selling stuff pretty cheap, pretty low high value rate?
And I think that's part of what our rationale for not providing any guidance in the remainder of Q2. Because there is a lot of uncertainty when people reopen what they're going to do. There is a sense of comfortableness that we have is that a lot of our, I will call it first tier competitors have been opened the entire period of time.
The Walmart's, The Targets, Home Depot, Lowe's, all those guys have been open. So the hard lines retailers are not really a problem for us, and that's the crux of our business. But there will still be some discounting in the home area for the folks who start to open up there. The clothing will be nominal, but there'll be some big discounting going on there.
But that's definitely part of our caution for the back half of this quarter we're currently in and then obviously back half of the year. But that's definitely something that is going to be out there. And we think it's going to happen.
Got it. Okay. I appreciate that. Thanks.
Thanks, Scott.
Thank you. Our next question comes from the line of Mike Kessler with Morgan Stanley. Your line is now open.
Hey, everyone. It's Simeon, hopeful as well. My first question, it's a little bit of a follow up to a previous one. You mentioned that the cadence was somewhat consistent I think late April and May. Can you talk about some of the states that you operate in that have reopened?
And we have, I don't know, a couple weeks maybe worth of trend. And if there's any nuance between the performance of that group of stores versus ones where states are still closed?
Simeon this is John. I would say it's been very -- it's still we're -- we're such an early stages I think. I would tell you it's been very, very consistent across all of our regions. There's been a couple regions that have gotten a little warmer than others and we've started to sell air conditioners before other regions have gotten warm yet.
But other than that the overall broad based benefits that we're seeing are across all of our stores and all of our geographies.
Got it. And then you mentioned right all these factors and not providing guidance, which makes sense, it's pretty tricky at this moment. You have an internal guess regarding how stimulus has helped the business?
And thinking from an internal or planning perspective, right, you're selling at a pretty high rate. You're turning over at a high rate. And yet, you still have to have the proper amount of inventory month to month.
So I guess, how are you going through that process? And do you have your own best guess that you probably won't share with us on the stimulus benefit. But do you have a sense of what that could be?
I probably wouldn't share that with you, as you would expect. And I would tell you, it definitely -- we saw an immediate impact in the business when the stimulus checks started coming out April 15. So as you guys know that those funds are continuing to go out into the marketplace I believe through August.
So we definitely believe that's a benefit to all of us retailers and all of our businesses. But in quantifying, we're not going to do that. We're looking that are open to buy on a weekly basis, and we're managing it four or five weeks out.
So we're just continuing to make adjustments where we need to and continue to chase the business and the merchants continue to push along as we see it. And we think we're in a great position to continue to capitalize on the opportunities that arise at the marketplace.
Great, thank you.
Thanks Simeon.
Thank you. Our next question from a line of Edward Kelly with Wells Fargo, Your line is now open.
Yeah, hi, guys. Good afternoon. I was just wondering if taking a step back and thinking about the opportunity that is out there associated with disruption especially as we think about the back half of the year. And the experience is that you guys have in running this business. Is there any way you can help give us some perspective on how big this opportunity is?
If we think about the size of the closeout business regularly, how much could this be up? I mean, is this something we're talking about 20%, could it double? I'm just kind of curious, if you have any thoughts around how the size of the prize here.
I don't think I can put a percentage with it Ed, but I would tell you that this is probably something we've never seen. We experienced '08, '09. I think this is going to be something even larger than that and there's going to be a lot more opportunities out there and they probably going to be a little more immediate than what we saw between '08-'09.
How large it's going to be, I don't know. But there's definitely going to be problems out there. We're starting to see cracks already, as you guys would imagine. And we're seeing opportunities that are presenting themselves as we speak today.
So we're excited about it. And we definitely will tell you our financial position is going to put us in a great situation to be able to capitalize on these opportunities as they do come about. And we're excited about it.
As you think about the opportunity and I guess storage capacity, I would imagine that you guys might want to buy some of these products as much as you can and maybe even pack it away if you can. How much capacity is there out there for you to do things like that?
There we have quite a bit of capacity. And obviously with our new distribution center that we just opened up in Texas, which is 618,000 square feet. And that's for us to grow into in the future and that's fully built out already. So there's a lot of capacity from a holding perspective that we can take down quite a bit of inventory, if it was called A goods that we could not pass on that we wanted to have control off that didn't have any dating issues. We could probably take down, I probably tell you we could take down a $100 million of inventory pretty quickly.
Okay. And then just last one for you. If there has been other players talking about the opportunity in close outs. And I'm just kind of curious how you're looking at competition through this cycle or is the opportunity just so big that it's just not really going to matter?
Yes, I think it's the latter part of it. I think the opportunity is so big, it's not going to matter. And I think a lot of people do talk about getting into the closeout business, but as we've already said, it's not that easy just to decide to become a closeout retailer and do a close out product.
So, I think people talk about it, but when they get down to the end of the game, it's hard for them to make deals happen that makes sense for the person trying to sell to them and then for them to handle it. So, while they -- I think they're talking about it and there's opportunities for them. I think the price is going to be so big that there'll be enough for us to go around and be able to be find here.
Thank you. Our next question comes from the line of Rick Nelson with Stephens. Your line is now open.
Thanks, good afternoon. John, can you comment to the real estate market, what you're seeing there quality sites came available, would you accelerate your store opening plans?
Sure Rick. We haven't seen a big change in commercial real estate as of yet. I think that's a real lagging piece of the business and that I think would take a couple of years to come out for us in terms of opportunities.
But in terms of sites becoming available and our acceleration of store growth greater than our normal cadence that we've talked about our long-term algorithm, the answer to that would be no, we would not push the envelope.
We feel that our growth rate is appropriate. It's in control. And our results we're able to deliver by growing with the white space we have. We're going to continue to do what we do and continue to grow in the mid-teens as we have for a very long period of time.
And that's not going to change, even based on availability of real estate. We'll just work on the, as you know, we take second generation sites. So we'll work on them with the landlords and we'll take them when they're appropriate for us to take.
Thanks for that. Also in terms of merchandise categories any [indiscernible] new buyers that to hired to take advantage of potential close outs?
No, there's no new buyers that we've hired as it relates to this. We have our normal process of our merchant team. We're fully intact. Everyone's executing there. We definitely have chased some of the, I'll call the essential necessary items people are looking for.
Categorically that has been pretty powerful for us. We jumped on it quickly, like we always do, and we're probably the first to market and a couple items within our stores that had benefited us from the consumers demand and what they needed during this period of time.
But other than that, we have not made a real big change. We're just -- we're replenishing the businesses that are selling and moving quickly on us.
Thanks, and good luck.
Thanks Rick.
Thanks Rick.
Thank you. Our next question comes from the line of Judah Frommer with Credit Suisse. Your line is open.
Yeah. Hi, guys. Thanks for taking the question and congrats on the execution here. My first one just kind of high level. If we think about kind of the opportunity for the closeout business and Ollie in particular, do you see the opportunity born out of COVID as potentially kind of extending the market size opportunity or does it potentially move the Ollie's story forward in terms of new customers? Kind of how are you thinking about further executing on just how big this opportunity is going to be?
Judah, I would say it's probably both, I see it's going to increase the -- at least temporarily it is going to increase the availability of close outs for folks who are distressed and need to move product. And I also think that based on consumer situation with the high unemployment and the situation people find them in, I think we're going to be unnatural, along with some other discount retailers where you'll have another trade down impact it's going to take place with folks coming down to the discounters in times of need, and I think we're actually both of those take place here.
Okay, that makes sense. And then just more on the housekeeping side, you mentioned premium pay, I don't know if you guys have disclosed exactly what you've done there in terms of bonuses or whether it's hourly and kind of what the plan is there? And can you tie that into just general maybe changes in the labor environment?
Sure, Judah. I'll cover the generalities and then Jay can probably get into the numerics. But we started to provide premium pay to our store associates and our distribution centers associates back about March 22nd.
And what we did, we increased the, the pay for the hourly, the hourly full time and hourly part time associates in the stores. And we also gave a weekly bonus to the management staff as well. And we've continued that through today.
And right now we're planning on running that for now, through I believe, June 13th. And we'll evaluate it on a biweekly basis to decide if we want to or need to continue to premium pay, but that's something as long as these frontline workers are continuing to work very hard and provide the environment for our consumers to shop in. We feel that it's imperative that we take care of them.
And Judah, this is Jay. In the quarter, we incurred it. It wasn't a lot. We're not taking charges like some of these other companies, but it was about $1 million, $1.5 million of incremental expense related to the premium pay.
Okay. Great. Thank you.
Thank you. Our next question comes from the line of Chandni Luthra from Goldman Sachs. Your line is now open.
Hi. Thank you so much for taking my question. Nice quarter guys. I was wondering if you could perhaps throw some more light on, you talked about new customer acquisition in this environment. But is there a way to sort of get into some more color into that around the market share gains that you've got just by token of your retailers, most retailers being closed?
And then what are you doing to ensure, it is sticky going forward? And then did anything change in the way you disseminated your marketing message to your customers that you have essentially been and you are open? Just trying to assess that. Thank you.
Sure. With regards to the overall acquisition of the new Ollie's Army customer. It's probably too early for us to actually comment on the specifics related to that. It's only been a few weeks. So I think it'd be too premature for us to say too much about that. We got to get into that data and figure it out. We have not done that as of yet. With regards to -- what was your other question, I'm sorry.
Just dissemination of your marketing message, what has changed there? Not just what's in the message but how you are communicating it?
Yes, our message is primarily imprint and that has not changed. We made a few little minor adjustments to our marketing campaign during the quarter to go a little bit more digital. But we're basically testing working with Facebook and doing that on a very small scale.
But most of it's all been emailed to our Ollie's Army customers directly focusing on communicating in our print advertising. And we have essential product for our consumer base and calling out a lot of the essential items that we have available to them.
But nothing real major has changed and making sure they know we were open was a big deal. Because I don't know if when things first started, everyone knew that we were open for business. So we had to get that word out to the marketplace as well.
Got it. Thank you so much.
Thank you.
Thank you. Our next question comes from the line of Liz Suzuki with Bank of America. Your line is now open.
Great, thank you. So you mentioned new customer acquisition and you bet that basket size also increased. I mean, I guess in the data that you're getting through Ollie's Army are you finding any existing customers are cross shopping in categories that they weren't shopping in before to consolidate shopping trips or are they mostly just buying up three bottles of shampoo instead of one just to make sure that they don't need to come in as frequently? Like, where are you seeing those increases in basket size?
Basically, Liz, we're seeing them buy a lot of the central product and cross dropping departments they already purchased from before. So as we said earlier, it's been very broad base. They're buying wide within the store in terms of dissecting that information down to the customer level. We've not had time to do that as of yet.
Okay. And then sort of a follow up on the question about closeout inventory and available categories coming up. I mean just given the potential opportunity in categories like clothing and other retail categories that are seeing some real pressure and we're seeing more broader industry bankruptcies. I mean anything maybe you can give out and how you would position your product lineup differently based on what's coming up and what's available.
Well, we're not going to change our overall business strategy. Because we were not going to get into fast fashion. I think the clothing that comes about -- if it's basic in nature, and it's not really fashion oriented, we would definitely take a look at it. But the other fashion clothing that may come about, I'll leave that for the TJs and the Ross's to have their day adapt because that's not something we need to get involved with.
But in terms of hard lines and hard goods and home goods that come about available in the marketplace we will be ready willing and able to take those deals. So we're already starting to see some of those pop up from other retailers that have canceled orders or in fact filed bankruptcy. So we're active right now.
And Liz this is Jay. And just to add on to that. I mean, we've gotten a lot of questions about strategically how we're thinking about it in new categories, new buyers. But I think ultimately, like John said, we're going to stick to what we do.
And ultimately, we're going to -- the merchants do this every day and scour to get new deals. And if we get good strong deals, in the categories that we're historically in that's going to win the day for us both on retaining our existing customers, as well as getting the new customers that we've gotten during this time to come back in.
Yeah. Makes sense. Thank you.
Thank you, Liz.
Thank you. Our next question comes from the line of Jeremy Hamblin with Craig-Hallum Capital. Your line is now open.
Thanks. Congrats guys. Wanted to start with the store openings and you mentioned potential for delays. In terms of getting through the crisis, we don't have a second wave here. Are you seeing permanent blades or other things that are currently impacting store openings or is there something that is hypothetical in the back half of the year?
Hey, Jeremy, what we're seeing is the some of the local municipalities are starting to reopen, but they are very far behind. So there is definitely a risk for some of the work that needs to get done by the landlords to turn the buildings over to us to be able to get them done on time.
There's probably a handful of stores today that we've actually seen delays in that we've had to push out into the early fourth quarter period that Jay had mentioned earlier on the call. Those stores are definitely at risk.
So there's -- it's not -- we're not ready to take the store. The leases are signed. It's just the landlords having trouble getting the work done in certain situations. We're pushing very hard to get those all in and get those done, but we're not in control of what the local governments do from a probate perspective. So there is work that's got to be done that may be delayed.
Okay, understood. And then just as a follow-up to that, I think you had quantified CapEx expectations in the $35 million range. Is that still the number that you're looking at?
Yes, it is.
Okay. Lastly is just in terms of store staffing levels, it's such an unusual situation. Are you seeing any changes in terms of your labor matrix, need more personnel in-stores or potentially going with fewer people in stores simply because you're trying to have a lot of people on top of each other?
Yeah, Jeremy, we've always been a low touch business with low customer service and not a lot of employees in our boxes. So with regards to our number of employees in our overall square in our boxes, we've always been pretty light.
We definitely, with the uptick in sales, since third week of April, we have been using more hours in the stores and we've been hiring additional people, so there's more man hours needed and more bodies needed in the store, but nothing material.
We don't have 100 employees in our stores, we average anywhere from 15 to 25 associates in the store. So it's not that we have an overwhelming need for our employee base and with the social distancing and then following the CDC guidelines at our stores we're running every other register from a spacing perspective. So we don't have a tremendous need there, but we definitely are pushing out more hours with the increased sales volumes.
Is any of that over time hours?
Yes, sure.
Okay. And what's your overtime as a percent of your store payroll on a typical year?
I don't have that, but it's not material. We manage it pretty closely. We don't really like to pay over time, we like to have the right bodies in the right place at the right time.
Thanks guys. Great job. Good luck.
Thanks Jeremy.
Thank you.
Thank you. This concludes today's question-and-answer session. I would now like to turn the call back to John Swygert for closing remarks.
Thank you, operator. Thanks everyone for your participation and continued support. We look forward to sharing our second quarter results with you on our next earnings call.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.