ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as other information in this Annual Report on
Form 10-K, before deciding whether to invest in the shares of our common stock. The occurrence of any of the events described below could have a material adverse effect on our business, financial condition or results of operations. In the case of
such an event, the trading price of our common stock may decline and you may lose all or part of your investment.
RISK FACTOR SUMMARY
We are providing the following summary of the risk factors contained in our Form 10-K to enhance the readability and accessibility of our risk factor disclosures. We encourage our stockholders
to carefully review the full risk factors contained in this Form 10-K in their entirety for additional information regarding the risks and uncertainties that could cause our actual results to vary materially from recent results or from our
anticipated future results.
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Risks Related to Business and Operations
• We may not be able to execute our opportunistic buying strategy;
Risks Related to Legal and Regulatory Issues
• From time to time we are involved in legal proceedings from stockholders.
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Risks Related to Technology and Cybersecurity
Risks Related to Accounting and Financial Matters
Risks Related to Ownership of Our Common Stock and Corporate Governance
Risks Related to Our Indebtedness and Capitalization
• Our credit facility can limit our ability to find other sources of financing;
For a more complete discussion of the material risks facing our business, see below.
BUSINESS AND OPERATIONS
The COVID-19 pandemic has disrupted and is expected to continue to disrupt our business, which could have a material adverse impact on our business,
results of operations, liquidity and financial condition for an extended period of time.
During March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. The COVID-19 pandemic has significantly impacted health and economic conditions
throughout the United States, as public concern about becoming ill with the virus has led to the issuance of recommendations and/or mandates from federal, state and local authorities to practice social distancing or self-quarantine. Over the
course of 2021, we continued to operate our stores as we qualified under definitions of an “essential” business. In response to the challenges of COVID-19, at times we have had to implement reduced store hours, limit the number of customers in
our stores at any one time and implement social-distancing guidelines throughout our store operating space.
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If the classification of what is an “essential” business changes in jurisdictions where our stores are located, or the restrictions on retail operations in our markets are reinstituted, or
other government regulations are adopted pertaining to how we may operate our stores, we may be required to temporarily close or restrict operations at one or more, if not all, of our stores, which would significantly impact our sales and results
of operations. Also, if we do not respond appropriately to the pandemic, or if customers do not perceive our response to be adequate for a particular region or our company as a whole, we could suffer damage to our reputation and our brand, which
could adversely affect our business in the future, and subject us to costly litigation, enforcement actions and penalties.
COVID-19 has also impacted our supply chain for products we sell, particularly those products that are sourced internationally. To the extent one or more of our vendors is negatively impacted
by COVID-19, including due to the closure of its distribution centers or manufacturing facilities, we may be unable to maintain delivery schedules or adequate inventory in our stores.
The impacts of the uncertainties surrounding the outbreak of COVID-19 also make it more challenging for us to estimate future performance of the business, predict customer acceptance of new
products and offerings, and to develop growth strategies for the future. We are continuing to monitor the spread of COVID-19 and the related risks to our business and operations. The magnitude and duration of the pandemic and its impact on our
business, results of operations, cash flows, financial position, employees, and customers are uncertain as this situation continues to evolve globally.
The extent to which the COVID-19 outbreak impacts our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be
predicted, including, but not limited to the duration, spread, severity and impact of the COVID-19 outbreak, the effects of the outbreak on our customers, employees and vendors, the regulatory response and impact of stimulus measures adopted by
local, state and federal governments, and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we could experience materially adverse impacts to our business as a result of any
economic disruption that has occurred or may occur in the future due to a continued erosion in consumer sentiment or the effect of unemployment on our consumer base. Additionally, the consumer preferences for certain product categories that have
driven positive sales during the height of the COVID-19 outbreak may not continue after the outbreak has subsided, and any change in consumer preferences could negatively impact our results of operations. Furthermore, the financial condition of
our customers and vendors may be adversely impacted by the pandemic, which may result in a decrease in discretionary consumer spending and our store traffic and sales, and an increase in bankruptcies or insolvencies with respect to our vendors.
These events may, in turn, have a material adverse impact on our business, results of operations, liquidity and financial condition. In the event of a prolonged material economic downturn, including circumstances that require us to close a large
portion of our stores or cause us to experience a further reduction in store traffic, we may not be able to comply with the financial covenants in our credit facility, which could negatively impact our ability to borrow under that facility or
with other lenders and negatively impact our liquidity position.
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We may not be able to execute our opportunistic buying strategy, adequately manage our supply of inventory or anticipate customer demand, which could have
a material adverse effect on our business, financial condition and results of operations.
Our business is dependent on our ability to strategically source a sufficient volume and variety of brand name merchandise at opportunistic pricing. We do not have significant control over the
supply, design, function, cost or availability of many of the products that we offer for sale in our stores. Additionally, because a substantial amount of our store products are sourced by us from suppliers on a closeout basis or with
significantly reduced prices for specific reasons, we are not always able to purchase specific merchandise on a recurring basis. We do not have long-term contracts with our suppliers and, therefore, we have no contractual assurances of pricing or
access to products and any supplier could discontinue sales to us at any time or offer us less favorable terms on future transactions. We generally make individual purchase decisions for products that become available, and these purchases may be
for large quantities that we may not be able to sell on a timely or cost-effective basis. To the extent that certain of our suppliers are better able to manage their inventory levels and reduce the amount of their excess inventory, the amount of
discount or closeout merchandise available to us could also be materially reduced, potentially compromising profit margin goals for procured merchandise. Due to economic uncertainties, governmental orders, or other challenges relating to the
ongoing COVID-19 pandemic, one or more of our suppliers could become unable to continue supplying discounted or closeout merchandise on terms or in quantities acceptable or desirable to us. We also compete with other retailers, wholesalers and
jobbers for discounted or closeout merchandise to sell in our stores. Those businesses may be better able to anticipate customer demand or procure desirable goods. Shortages or disruptions in the availability of brand name or unbranded products
of a quality acceptable to our customers and us could have a material adverse effect on our business, financial condition and results of operations and also may result in customer dissatisfaction. In addition, we may significantly overstock
products that prove to be undesirable and be forced to take significant markdowns. We cannot ensure that our merchant team will continue to identify the appropriate customer demand and take advantage of appropriate buying opportunities, which
could have a material adverse effect on our business, financial condition and results of operations.
Risks associated with or faced by our suppliers could adversely affect our financial performance.
We source our merchandise from a variety of suppliers, and we depend on them to supply merchandise in a timely and efficient manner. If one or more of our current suppliers became unable to
supply goods, we believe we generally would be able to obtain alternative sources, but it could increase our merchandise costs and supply chain lead time, potentially resulting in temporary reduction in store inventory levels, and reduce the
selection and quality of our merchandise. An inability to obtain alternative sources could materially decrease our sales. Additionally, if a supplier fails to deliver on its commitments, we could experience merchandise out-of-stocks that could
lead to lost sales and reputational harm. Further, failure of suppliers to meet our compliance protocols could prolong our procurement lead time, resulting in lost sales and adverse margin impact. Changes to the prices and flow of certain goods
are, at times, for reasons beyond our control, such as political or civil unrest, acts of war, currency fluctuations, disruptions in maritime lanes, port labor disputes, economic conditions and instability in countries in which foreign suppliers
are located, the financial instability of suppliers, failure to meet our terms and conditions or our standards, issues with our suppliers’ labor practices or labor disruptions they may experience (such as strikes, stoppages or slowdowns, which
could also increase labor costs during and following the disruption), the availability and cost of raw materials, pandemic outbreaks, merchandise quality or safety issues, transport availability and cost, increases in wage rates and taxes,
transport security, inflation, and other factors relating to suppliers. Such changes could adversely affect our operations and profitability.
We rely on third parties to move goods through ports and transport them from ports to our centralized distribution centers.
Our ability to timely and effectively deliver goods to our stores relies in part on shipping and transportation partners to timely and safely move our goods from manufacturing facilities to
ports and then onto oceangoing carriers. The demand for space onboard oceangoing vessels can vary and costs to secure space can vary greatly. We may be subject to higher transportation costs or be unable to secure space for containers on
economically reasonable terms. In addition, there may be labor or other disputes at either ports of departure or at ports of entry that may delay or otherwise hinder the flow of goods. Additional factors, such as customs or border control
policies, may further delay or hinder transportation of goods or the costs to obtain them. There are multiple factors in the transportation of goods from the manufacturer that are both outside of our control and which may negatively impact the
cost of the goods or the timeframes in which we receive them.
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In addition to the many and varied costs that are associated with COVID-19, our ability to predict healthcare and other benefit costs may be limited.
COVID-19 and the related testing and vaccination costs are inherently uncertain and therefore very difficult to predict. These costs, and the costs associated with other healthcare impacts of
COVID-19, may significantly impair our ability to timely and accurately forecast health care and other benefit costs for this or further periods. As a result, we may have difficulty establishing accurate budgetary reserves or estimates for these
and other costs, which could in turn, negatively impact our results of operations and expenses.
Factors such as inflation, cost increases and energy prices could have a material adverse effect on our business, financial condition and results of
operations.
Future increases in costs, such as the cost of merchandise, shipping rates, freight costs (including import costs) and store occupancy costs, may reduce our profitability, given our pricing
model. These cost increases may be the result of inflationary pressures, geopolitical factors or public policies, which could further reduce our sales or profitability. Increases in other operating costs, including changes in energy prices, wage
rates and lease and utility costs, may increase our cost of goods sold or selling, general and administrative expenses. Our low-price model and competitive pressures in our industry may have the effect of inhibiting our ability to reflect these
increased costs in the prices of our products and, therefore, reduce our profitability and have a material adverse effect on our business, financial condition and results of operations.
Vaccine mandates and other governmental regulations relating to the ongoing COVID-19 pandemic could have a material adverse impact on our business,
financial conditions, results of operations, and prospects.
On November 4, 2021, the U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”) issued an emergency temporary standard (“ETS”) regulation requiring all employers with
at least 100 employees have their employees be vaccinated or tested weekly. On January 13, 2022, the United States Supreme Court (“Court”) granted emergency relief and stayed implementation of the ETS. The Court held that the challengers were
likely to succeed on their argument that OSHA lacked the authority to promulgate the ETS and enforcement of the ETS should be stayed pending further review. On January 26, 2022, OSHA withdrew the ETS as an enforceable emergency temporary
standard but stated that the ETS will continue to serve as a proposed rule for a permanent standard under the Occupational Safety and Health Act of 1970.
As a company with about 10,000 employees, it is anticipated that, should the ETS or similar regulations go into effect, we could be subject to COVID-19 vaccination and/or testing mandates.
Should the mandates apply to us, we may be required to implement a requirement that all of our employees get vaccinated or be frequently tested, subject to limited exceptions. At this time, it is not possible to predict the impact that a vaccine
and testing mandate, or a vaccine requirement should we adopt one, will have on us or on our workforce. Any vaccine requirement or vaccine mandate, if implemented, may result in disruptions to our retail store operations, distribution operations,
employee attrition and increased labor costs, which could materially and adversely affect our business and results of operations.
Our ability to generate revenues is dependent on consumer confidence and spending, which may be subject to factors beyond our control, including changes in
economic and political conditions, and health concerns.
The success of our business depends, to a significant extent, on the level of consumer confidence and spending. A number of factors beyond our control affect the level of customer confidence and spending on
merchandise that we offer, including, among other things:
• energy and gasoline prices;
• discounts, promotions and merchandise offered by our competitors;
• negative reports and publicity about the discount retail industry;
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• general economic and industry conditions;
• food prices;
• interest rates and inflation;
• the state of the housing market;
• customer confidence in future economic conditions;
• fluctuations in the financial markets;
• tax rates and policies; and
• natural disasters, war, terrorism and other hostilities.
Reduced customer confidence and spending cutbacks may result in reduced demand for our merchandise, including discretionary items, and may force us to take inventory markdowns. Reduced demand also may require
increased selling and promotional expenses. Adverse economic conditions and any related decrease in customer demand for our merchandise could have a material adverse effect on our business, financial condition and results of operations. For
example, recent fears of contagion or disease related to the widespread outbreak of COVID-19 may cause customers to avoid shopping at brick and mortar retailers or reduce the number of trips they will make to our stores. Similarly, negative
economic conditions related to this outbreak may limit the amount of disposable income available to our customers, which may limit our consumer demand.
Many of the factors identified above also affect commodity rates, transportation costs, costs of labor, insurance and healthcare, the strength of the U.S. dollar, lease costs, measures that create barriers to or
increase the costs associated with international trade, changes in other laws and regulations and other economic factors, all of which may impact our cost of goods sold and our selling, general and administrative expenses, which could have a
material adverse effect on our business, financial condition and results of operations.
We do not compete in the growing online retail marketplace, which could have a material adverse effect on our business, financial condition and results of
operations.
Our long-term business strategy does not presently include the development of online retailing capabilities. To the extent that we implement online operations, we would incur substantial
expenses related to such activities and would be exposed to additional cybersecurity risks. Furthermore, any development of an online retail marketplace is a complex undertaking, and there is no guarantee that any resources we apply to this
effort will result in increased revenues or operating performance. However, with the growing acceptance of online shopping, which may have accelerated as a result of the COVID-19 pandemic, both among consumers who previously shopped online and
consumers who did not previously do so, or did not do so as frequently, we may continue to face challenges related to customers shopping in brick and mortar stores. In addition, the increased proliferation of mobile devices, enhanced and robust
connections to mobile networks, competition from other retailers in the online retail marketplace is expected to continue to increase and may negatively impact our results of operations. Certain of our competitors and a number of pure online
retailers have established robust online operations. Increased competition from online retailers and our lack of an online retail presence may reduce our customers’ desire to purchase goods from us and could have a material adverse effect on our
business, financial condition and results of operations. If consumers determine to shop more online due to cultural or health concerns, they may be less likely to return to brick and mortar retailers in the future.
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Labor shortages and increased turnover or increases in employee and employee-related costs could have adverse effects on our profitability.
We have recently experienced increased labor shortages at some of our locations. While we have historically experienced some level of ordinary course turnover of employees, the COVID-19
pandemic and resulting actions and impacts have exacerbated labor shortages and increased turnover. A number of factors have had and may continue to have adverse effects on the labor force available to us, including reduced employment pools,
federal unemployment subsidies, including unemployment benefits offered in response to the COVID-19 pandemic, and other government regulations, which include laws and regulations related to workers’ health and safety, wage and hour practices and
immigration. Labor shortages and increased turnover rates within our team members have led to and could in the future lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees and
could negatively affect our ability to efficiently operate our production facilities or otherwise operate at full capacity. An overall or prolonged labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material
adverse impact on our operations, results of operations, liquidity or cash flows.
We face intense competition, which could limit our growth opportunities and adversely impact our financial performance.
We compete with a highly fragmented group of competitors, including discount, closeout, mass merchant, department, grocery, drug, convenience, hardware, variety, online and other specialty stores. We compete with
these retailers with respect to product price, store location, supply and quality of merchandise, assortment and presentation and customer service. This competitive environment subjects us to the risk of an adverse impact to our financial
performance because of the lower prices, and thus the lower margins, that are required to maintain our competitive position. A number of different competitive factors outside of our control could impact our ability to compete effectively,
including:
• entry of new competitors in our markets;
• increased operational efficiencies of competitors;
• online retail capabilities of our competitors;
• continued and prolonged promotional activity by our competitors;
A number of our competitors also have greater financial and operational resources, greater brand recognition, longer operating histories and a broader geographic presence than us. We remain vulnerable to the
marketing power and high level of customer recognition of these larger competitors and to the risk that these or other competitors could attract our customer base, including, but not limited to, the members of Ollie’s Army.
In addition, if any of our competitors were to consolidate their operations, such consolidation may result in competitors with greatly improved financial resources, improved access to merchandise, greater market
penetration and other improvements in their competitive positions, as well as result in the provision of a wider variety of products and services at competitive prices by these consolidated companies, which could adversely affect our financial
performance.
We cannot guarantee that we will continue to be able to successfully compete against either existing or future competitors. Our inability to respond effectively to competitive pressures, improved performance by our
competitors and changes in the retail markets could result in lost market share and have a material adverse effect on our business, financial condition and results of operations.
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If we fail to open new profitable stores on a timely basis, successfully enter new markets or implement other elements of our long-term
growth strategy, our financial performance could be materially adversely affected.
Our primary growth strategy is to open new profitable stores and expand our operations into new geographic regions. We opened 46 new stores in each of 2021 and 2020 as we continue to backfill
in existing markets and expand into contiguous geographies. Our ability to timely open new stores depends in part on several factors, including the availability of attractive rents and store locations; the absence of occupancy delays; the ability
to negotiate and enter into leases with acceptable terms; our ability to obtain and retain permits and licenses; our ability to hire and train new personnel, especially store managers, in a cost effective manner; our ability to adapt and grow our
distribution and other operational and management systems to a changing network of stores; the availability of capital funding for expansion; our ability to respond to demographic shifts in areas where our stores are located and general economic
conditions.
We may not anticipate all of the challenges imposed by the expansion of our operations into new geographic markets. Some new stores may be located in areas with different competitive and market
conditions, customer tastes and discretionary spending patterns than our existing markets. We may face a higher cost of entry, difficulties attracting labor, alternative customer demands, reduced brand recognition and minimal operating experience
in these areas. Although we are extremely sensitive to cannibalizing existing stores, opening new stores in our established markets may also result in inadvertent oversaturation, sales volume transfer from existing stores to new stores and
reduced comparable store sales, thus adversely affecting our overall financial performance. We may not manage our expansion effectively, and our failure to achieve or properly execute our expansion plans could limit our growth or have a material
adverse effect on our business, financial condition and results of operations.
We may not be able to retain the loyalty of our customers, particularly Ollie’s Army members, which could have a material adverse effect
on our business, financial condition and results of operations.
We depend on our loyal customer base, particularly members of Ollie’s Army, for our consistent sales and sales growth. Competition for customers has intensified as competitors have moved into,
or increased their presence in, our geographic markets and from the use of mobile and web-based technology that facilitates online shopping and real-time product and price comparisons. We expect this competition to continue to increase. Our
competitors may be able to offer consumers promotions or loyalty program incentives that could attract Ollie’s Army members or divide their loyalty among several retailers. If we are unable to retain the loyalty of our customers, our net sales
could decrease and we may not be able to grow our store base as planned, which could have a material adverse effect on our business, financial condition and results of operations.
The failure to timely acquire, develop, open and operate, or the loss of, disruption or interruption in the operations of, our
centralized distribution centers could materially adversely affect our business and operations.
With few exceptions, inventory is shipped directly from suppliers to our distribution centers in York, PA, Commerce, GA, and Lancaster, TX, where the inventory is then processed, sorted and
shipped to our stores. We depend in large part on the orderly operation of this receiving and distribution process, which depends, in turn, on adherence to shipping schedules and effective management of our distribution centers. Increases in
transportation costs (including increases in fuel costs), supplier-side delays, reductions in the capacity of carriers, changes in shipping companies, the impact of COVID-19 on our workforce, labor strikes or shortages in the transportation
industry and unexpected delivery interruptions also have the potential to derail our orderly distribution process. We also may not anticipate changing demands on our distribution system or timely develop and open any necessary additional
facilities. In addition, events beyond our control, such as disruptions in operations due to fire or other catastrophic events or labor disagreements, may result in delays in the delivery of merchandise to our stores. While we maintain business
interruption insurance, in the event our distribution centers are shut down for any reason, such insurance may not be sufficient, and any related insurance proceeds may not be timely paid to us. In addition, our new store locations receiving
shipments may be further away from our distribution centers, which may increase transportation costs and may create transportation scheduling strains. Any repeated, intermittent, or long-term disruption in the operations of our distribution
centers would hinder our ability to provide merchandise to our stores and could have a material adverse effect on our business, financial condition and results of operations.
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Our new store growth is dependent on our ability to successfully expand our distribution network capacity, and failure to achieve or sustain these plans
could adversely affect our performance.
We maintain distribution centers in York, PA, Commerce, GA and Lancaster, TX to support our existing stores and our growth objectives. We continuously assess ways to maximize the productivity
and efficiency of our existing distribution facilities and evaluate opportunities for additional distribution centers. Processing delays or difficulties in operations at our existing distribution centers or any future new distribution centers
could adversely affect our current operations by causing existing stores to have insufficient inventory, and affect future operations by slowing store growth, which could, in turn, reduce sales growth. In addition, any distribution-related
construction or expansion projects entail risks which could cause delays and cost overruns, such as shortages of materials, shortages of skilled labor or work stoppages, unforeseen construction, scheduling, engineering, environmental or
geological problems, COVID-19 or other strains or types of contagion, weather interference, fires or other casualty losses and unanticipated cost increases. The completion date and ultimate cost of future projects could differ significantly from
initial expectations due to construction-related or other reasons. We cannot guarantee that any project will be completed on time or within established budgets.
If we are not successful in managing our inventory balances, it could have a material adverse effect on our business, financial
condition and results of operations.
Our inventory balance represented 53.3% of our total assets exclusive of operating lease right-of-use assets, goodwill and trade name as of January 29, 2022. Efficient inventory management is
a key component of our profitability and ability to generate revenue. To be successful, we must maintain sufficient inventory levels and an appropriate product mix to meet our customers’ demands without allowing those levels to increase to such
an extent that the costs to store and hold the goods adversely impact our results of operations. If our buying decisions do not accurately correspond to customer preferences, if we inappropriately price products or if our expectations about
customer spending levels are inaccurate, we may have to take unanticipated markdowns to dispose of any excess inventory, which could have a material adverse effect on our business, financial condition and results of operations. We continue to
focus on ways to reduce these risks, but we cannot ensure that we will be successful in our inventory management. If we are not successful in managing our inventory balances, it could have a material adverse effect on our business, financial
condition and results of operations.
Inventory shrinkage could have a material adverse effect on our business, financial condition and results of operations.
We are subject to the risk of inventory loss and theft. We cannot ensure that actual rates of inventory loss and theft in the future will be within our estimates or that the measures we are
taking will effectively reduce the problem of inventory shrinkage. Although some level of inventory shrinkage is an unavoidable cost of doing business, if we were to experience higher rates of inventory shrinkage or incur increased security costs
and other costs to combat inventory theft, it could have a material adverse effect on our business, financial condition and results of operations.
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Epidemic or pandemic outbreaks such as COVID-19, natural disasters, whether or not caused by climate change, unusual weather conditions, terrorist acts
and political events could disrupt business and result in lower sales and otherwise adversely affect our financial performance.
The occurrence of one or more natural disasters, such as tornadoes, hurricanes, fires, floods and earthquakes, unusual weather conditions, epidemic outbreaks, terrorist attacks or disruptive
political events in certain regions where our stores are located could adversely affect our business and result in lower sales. Epidemic or pandemic outbreaks, such as COVID-19, could impact our management and sales associates, our inventory
supply, delivery schedules, our ability to keep our stores open due to mandatory governmental restrictions or may cause our customers to avoid shopping at brick and mortar retailers or reduce the number of trips they will make to our stores. To
the extent these events also impact one or more of our key suppliers or result in the closure of one or more of our centralized distribution centers or our corporate headquarters, we may be unable to maintain delivery schedules or provide other
support functions to our stores. This could have a sustained material adverse effect on our business, financial condition and results of operations.
In addition, severe weather, such as heavy snowfall or extreme temperatures, may discourage or restrict customers in a particular region from traveling to our stores, thereby reducing our sales
and profitability. If severe weather conditions occur during the second or fourth quarter of our fiscal year, the adverse impact to our sales and profitability could be even greater than at other times during the year because we generate a larger
portion of our sales and profits during these periods. Natural disasters, which may include tornadoes, hurricanes, floods and earthquakes, may impact our store locations or other operations. In addition, climate change may have an impact on the
frequency and/or severity of such natural disasters. We have a growing number of store locations in areas that may be impacted by weather events and natural disasters such as the types listed above. To the extent that such weather events or
natural disasters may damage our stores or other operations, we may be unable to operate stores or other facilitates and our consolidated financial results may be materially adversely affected.
Fluctuations in comparable store sales and results of operations, including fluctuations on a quarterly basis, could cause our business performance to
decline substantially.
Our results of operations have fluctuated in the past, including on a quarterly basis, and can be expected to continue to fluctuate in the future.
Our comparable store sales and results of operations are affected by a variety of factors, including:
• national and regional economic trends in the United States;
• challenges and the impact of COVID-19 and related regulations;
• changes in gasoline prices;
• changes in our merchandise mix;
• the weather;
• changes in pricing;
• changes in the timing of promotional and advertising efforts; and
• holidays or seasonal periods.
If our future comparable store sales fail to meet expectations, then our cash flow and profitability could decline substantially, which could have a material adverse effect on our business, financial condition and
results of operations.
Our success depends on our executive officers, our merchant team and other key personnel. If we lose key personnel or are unable to hire additional
qualified personnel, it could have a material adverse effect on our business, financial condition and results of operations.
Our future success depends to a significant degree on the skills, experience and efforts of our executive officers, our merchant team and other key personnel. The unexpected loss of services of
any of our executive officers or senior members of our merchant team could materially adversely affect our business and operations. Competition for skilled and experienced management in the retail industry is intense, and our future success will
also depend on our ability to attract and retain qualified personnel, including our merchant team, which is responsible for purchasing and negotiating the terms of our merchandise. Failure to attract and retain new qualified personnel could have
a material adverse effect on our business, financial condition and results of operations.
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If we are unable to attract, train and retain highly qualified managerial personnel and sales associates in our stores and our distribution centers, our
sales, financial performance and business operations may be materially adversely affected.
We focus on providing our customers with a memorable and engaging shopping experience. To grow our operations and meet the needs and expectations of our customers, we must attract, train and retain a large number
of highly qualified store management personnel and sales associates, while controlling labor costs. Our ability to control labor costs is subject to numerous external factors and compliance with regulatory structures, including competition for
and availability of qualified personnel in a given market, unemployment levels within those markets, governmental regulatory bodies such as the Equal Employment Opportunity Commission and the National Labor Relations Board, prevailing wage rates
and wage and hour laws, minimum wage laws, the impact of legislation governing labor and employee relations or benefits, such as the Affordable Care Act, health insurance costs and our ability to maintain good relations with our associates. We
compete with other retail businesses for many of our store management personnel and sales associates in hourly and part-time positions. These positions have had historically high turnover rates, which can lead to increased training and retention
costs. We also rely on associates in our distribution centers to ensure the efficient processing and delivery of products from our suppliers to our stores. If we are unable to attract and retain quality associates, and other management personnel,
or fail to comply with the regulations and laws impacting personnel, it could have a material adverse effect on our business, financial condition and results of operations.
Our success depends on our marketing, advertising and promotional efforts. If we are unable to implement them successfully, or if our competitors are more
effective than we are, it could have a material adverse effect on our business, financial condition and results of operations.
We use marketing and promotional programs to attract customers to our stores and to encourage purchases by our customers. Although we use various media for our promotional efforts, including
regular and Ollie’s Army mailers, email campaigns, radio and television advertisements and sports marketing, we primarily advertise our in-store offerings through printed flyers. In 2021, approximately 63% of our advertising spend was for the
printing and distribution of flyers. If the efficacy of printed flyers as an advertising medium declines, or if we fail to successfully develop and implement new marketing, advertising and promotional strategies, such as an effective social media
strategy, our competitors may be able to attract the interest of our customers, which could reduce customer traffic in our stores. Changes in the amount and degree of promotional intensity or merchandising strategy by our competitors could cause
us to have difficulties in retaining existing customers and attracting new customers. If the efficacy of our marketing or promotional activities declines or if such activities of our competitors are more effective than ours, or if for any other
reason we lose the loyalty of our customers, including our Ollie’s Army members, it could have a material adverse effect on our business, financial condition and results of operations.
Because our business is seasonal, with the highest volume of net sales during the holiday season, adverse events during our fourth fiscal quarter could
materially adversely affect our business, operations, cash flows and financial condition.
We generally recognize our highest volume of net sales in connection with the holiday sales season, which occurs in the fourth quarter of our fiscal year. In anticipation of the holiday sales
season, we purchase substantial amounts of seasonal inventory and hire many part-time associates. Because a significant percentage of our net sales and operating income are generated in our fourth fiscal quarter, we have limited ability to
compensate for shortfalls in our fourth fiscal quarter sales or earnings by changing our operations or strategies in other fiscal quarters. Adverse events, such as deteriorating economic conditions, higher unemployment, higher gas prices, public
transportation disruptions, errors in anticipating consumer demand for our products, or unanticipated adverse or unseasonable weather conditions could result in lower than planned sales during the holiday sales season. If our fourth fiscal
quarter sales results were substantially below expectations, we would realize less cash flows from operations, and may be forced to mark down our merchandise, especially our seasonal merchandise, which could have a material adverse effect on our
business, financial condition and results of operations.
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Our business requires that we lease substantial amounts of space and there can be no assurance that we will be able to continue to lease space on terms as favorable as the
leases negotiated in the past.
We lease the majority of our store locations, our corporate headquarters and our distribution facilities in York, PA and Commerce, GA. Our stores are leased from third parties, with typical initial lease terms of
approximately seven years with options to renew for three to five successive five-year periods. We believe that we have been able to negotiate favorable rental rates over the last few years due in large part to the general state of the economy,
the increased availability of vacant big box retail sites and our careful identification of favorable lease opportunities. While we will continue to seek out advantageous lease opportunities, there is no guarantee that we will continue to be able
to find low-cost second generation sites or obtain favorable lease terms. Many of our lease agreements have defined escalating rent provisions over the initial term and any extensions. Increases in our occupancy costs and difficulty in
identifying economically suitable new store locations could have significant negative consequences, which include:
We depend on cash flows from operations to pay our lease expenses and to fulfill our other cash needs. If our business does not generate sufficient cash flows from operating activities to fund these expenses and
needs and sufficient funds are not otherwise available to us, we may not be able to service our lease expenses, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which could harm our business.
Additional sites that we lease may be subject to long-term non-cancelable leases if we are unable to negotiate our current standard lease terms. If an existing or future store is not profitable, and we decide to close it, we may nonetheless be
committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. Moreover, even if a lease has an early cancellation clause, we may not satisfy the contractual
requirements for early cancellation under that lease. In addition, if we are not able to enter into new leases or renew existing leases on terms acceptable to us, this could have a material adverse effect on our business, financial condition and
results of operations.
Risks associated with the current geopolitical climate could adversely affect our business, financial condition, and results of operations.
Our business, financial condition and results of operations may differ materially as we cannot predict the impact of the Russian invasion of Ukraine that has occurred and any heightened geopolitical instability or
results that may follow. Risks associated with heightened geopolitical instability as a result of the Russia/Ukraine conflict include, among others, reductions in consumer confidence, heightened inflation, production disruptions, cyber
disruptions or attacks, higher natural gas costs, higher manufacturing costs and higher supply chain costs.
Climate change may have a long-term impact on our business.
There are inherent climate-related risks wherever our business is conducted. Changes in market dynamics, shareholder expectations, local, national and international climate change policies, and the frequency and
intensity of extreme weather events on critical infrastructure in the United States and abroad, all have the potential to disrupt our business and operations. Global climate change is resulting, and may continue to result, in certain natural
disasters and adverse weather, such as drought, wildfires, storms, sea-level rise, and flooding, occurring more frequently or with greater intensity. These events and their impacts could otherwise disrupt and adversely affect our business and
could materially affect our financial condition and results of operations.
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LEGAL AND REGULATORY
We are subject to governmental regulations, procedures and requirements. A significant change in, or noncompliance with, these
regulations could have a material adverse effect on our business, financial condition and results of operations.
We routinely incur significant costs in complying with federal, state and local laws and regulations. The complexity of the regulatory environment in which we operate, and the related cost of
compliance are increasing due to expanding and additional legal and regulatory requirements and increased enforcement efforts. New laws or regulations, including those dealing with healthcare reform, product safety, consumer credit, privacy and
information security and labor and employment, among others, or changes in existing federal, state and local laws and regulations, particularly those governing the sale of products and food safety and quality (including changes in labeling or
disclosure requirements), federal or state wage requirements, employee rights, health care, social welfare or entitlement programs such as health insurance, paid leave programs, other changes in workplace regulation, and compliance with laws
regarding public access to our stores, may result in significant added expenses or may require extensive system and operating changes that may be difficult to implement and/or could materially increase our cost of doing business. Untimely
compliance or noncompliance with applicable laws or regulations or untimely or incomplete execution of a required product recall can result in the imposition of penalties, including loss of licenses or significant fines or monetary penalties,
class action litigation or other litigation, in addition to reputational damage. Additionally, changes in tax laws, the interpretation of existing laws, or our failure to sustain our reporting positions on examination could materially adversely
affect our effective tax rate and could have a material adverse effect on our business, financial condition and results of operations.
If we fail to protect our brand names, competitors may adopt trade names that dilute the value of these assets.
We may be unable or unwilling to strictly enforce our trademarks in each jurisdiction in which we do business. Also, we may not always be able to successfully enforce our trademarks against
competitors or against challenges by others. Our failure to successfully protect our trademarks could diminish the value and efficacy of our brand recognition and could cause customer confusion, which could have a material adverse effect on our
business, financial condition and results of operations.
We rely on manufacturers in foreign countries for merchandise and a significant amount of our domestically-purchased merchandise is
manufactured abroad. Our business may be materially adversely affected by risks associated with international trade.
We purchase merchandise directly from suppliers outside of the United States. In 2021, substantially all of our private label inventory purchases were direct imports. Additionally, a
significant amount of our domestically-purchased merchandise is manufactured abroad. Our ability to identify qualified suppliers and to access products in a timely and efficient manner is a significant challenge, especially with respect to goods
sourced outside of North America. Global sourcing and foreign trade involve numerous factors and uncertainties beyond our control, including possible changes to U.S. trade policy, including potential changes in response to the widespread outbreak
of COVID-19 (coronavirus), increased shipping costs, the timing of shipments, increased import duties, more restrictive quotas, loss of most favored nation trading status, currency, work stoppages, transportation delays, port of entry issues,
economic uncertainties such as inflation, foreign government regulations, political unrest, natural disasters, war, terrorism, trade restrictions, political instability, the financial stability of vendors, merchandise quality issues, unexpected
contagion, existing viruses or illnesses, and tariffs. Moreover, negative press or reports about internationally manufactured products may sway public opinion, and thus customer confidence, away from the products sold in our stores. These and
other issues affecting our international vendors could have a material adverse effect on our business, financial condition and results of operations.
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The cost of compliance with product safety regulations and risks related to product liability claims and product recalls could damage our reputation,
increase our cost of doing business and could have a material adverse effect on our business, financial condition and results of operations.
New federal or state legislation, including new product safety laws and regulations, may negatively impact our operations. Future changes in product safety legislation or regulations may lead
to product recalls and the disposal or write-off of merchandise. While we work to comply in all material respects with applicable legislation and regulations, and to execute product recalls in a timely manner, if our merchandise, including food
and consumable products and flooring, does not meet applicable governmental safety standards or our customers’ expectations regarding quality or safety, we could experience lost sales and increased costs, be exposed to legal and reputational risk
and face fines or penalties which could materially adversely affect our financial results. We also purchase a material portion of our products on a closeout basis. Some of these products are obtained through brokers or intermediaries rather than
through manufacturers. The closeout nature of a portion of our products sometimes makes it more difficult for us to investigate all aspects of these products. Furthermore, customers have asserted claims, and may in the future assert claims, that
they have sustained injuries from merchandise offered by us, and we may be subject to lawsuits relating to these claims. There is a risk that these claims may exceed, or fall outside the scope of, our insurance coverage. Even with adequate
insurance and indemnification from third-party suppliers, such claims, even if unsuccessful or not fully pursued, could significantly damage our reputation and customer confidence in our products. If this occurs, it may be difficult for us to
regain lost sales, which could have a material adverse effect on our business, financial condition and results of operations.
Our current insurance program may expose us to unexpected costs and negatively affect our financial performance.
Our insurance coverage reflects deductibles, self-insured retentions, limits of liability and similar provisions that we believe are prudent based on the nature of our operations. However,
there are types of losses we may incur but against which we cannot be insured or which we believe are not economically reasonable to insure, such as losses due to acts of war, employee and certain other crime, wage and hour, and certain other
employment-related claims, public accommodation claims, class actions, and some natural disasters. If we incur these losses and they are material, our business could suffer. Certain material events may result in sizable losses for the insurance
industry and adversely impact the availability of adequate insurance coverage or result in excessive premium increases. To offset negative insurance market trends, we may elect to self-insure, accept higher deductibles or reduce the amount of
coverage in response to these market changes. In addition, we self-insure a significant portion of expected losses under our workers’ compensation, general liability and group health insurance programs. Unanticipated changes in any applicable
actuarial assumptions and management estimates underlying our recorded liabilities for these losses, including expected increases in medical and indemnity costs, could result in materially different expenses than expected under these programs,
which could have a material adverse effect on our results of operations and financial condition. We continue to maintain property insurance for catastrophic events at our store support center, distribution centers, and stores. In addition,
because of ongoing changes in healthcare law, among other things, we may experience an increase in participation in our group health insurance programs, which may lead to a greater number of medical and related claims. While we have coverage for
some cyber-related incidents, the nature and scope of any potential attack or breach may result in substantial costs that would exceed the scope of coverage or limits of coverage. If we experience a greater number of these losses than we
anticipate, it could have a material adverse effect on our business, financial condition and results of operations.
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We face litigation risks from customers, associates, suppliers, stockholders and other third parties in the ordinary course of business.
Our business is subject to the risk of litigation by customers, current and former associates, suppliers, stockholders, intellectual property rights holders, government agencies and others
through private actions, class actions, collective actions, administrative proceedings, regulatory actions, or other litigation. From time to time, such lawsuits are filed against us and the outcome of any litigation, particularly class or
collective action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such
lawsuits may remain unknown for substantial periods of time. The cost to defend any such lawsuits may be significant and may negatively affect our operating results if changes to our business operations are required. There may also be negative
publicity associated with litigation that could decrease customer acceptance of merchandise offerings, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our
business, financial condition, results of operations or liquidity.
TECHNOLOGY AND CYBERSECURITY
Any disruptions to our information technology systems or breaches of our network security could disrupt or interrupt our operations,
compromise our reputation, expose us to litigation, government enforcement actions and costly response measures and could have a material adverse effect on our business, financial condition and results of operations.
We rely on the integrity, security and successful functioning of our information technology systems and network infrastructure across our operations, including point-of-sale processing at our
stores. In connection with sales, we transmit encrypted confidential credit and debit card information.
As of the end of 2021, we are compliant with the Payment Card Industry Data Security Standard (“PCI”) issued by the Payment Card Industry Security Standards Council. However, there can be no
assurance that in the future we will be able to operate our facilities and our customer service and sales operations in accordance with PCI or other industry recommended or contractually required practices. We expect to incur additional expenses,
and the time and effort of our information technology staff, to maintain PCI compliance. Even though we are compliant with such standards, we still may not be able to prevent or timely detect security breaches.
An increasingly significant portion of our sales depends on the continuing operation of our information technology and communications systems, including, but not limited to, our point-of-sale
system and our credit card processing systems. Our information technology, communications systems and electronic data may be vulnerable to damage or interruption from computer viruses, ransomware attacks, loss of data, unauthorized data breaches,
usage errors by our associates or our contractors or other attempts to harm our systems, including cyber-security attacks or other breaches of cardholder data, earthquakes, acts of war or terrorist attacks, floods, fires, tornadoes, hurricanes,
power loss and outages, computer and telecommunications failures. Some of our systems are not fully redundant, and our disaster recovery planning cannot account for all eventualities. The occurrence of intentional sabotage, unauthorized access,
natural disaster, or other unanticipated problems could result in lengthy interruptions in our service. Any errors or vulnerabilities in our systems, or damage to or failure of our systems, could result in interruptions in our services,
non-compliance with certain regulations, substantial remediation costs, and liability for lost or stolen information, any of which could have a material adverse effect on our business, financial condition and results of operations.
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Data protection requirements increase our operating costs and a breach in information privacy or other related risks could negatively
impact our operations.
We have access to, collect or maintain private or confidential information regarding our customers, associates and suppliers, as well as our business. The protection of our customer, associate,
supplier and company data is critical to us. In recent years, there has been increasing regulation, enforcement and litigation activity in the area of privacy, data protection and information security in the United States and in various other
countries, with the frequent imposition of new and changing requirements across the many states in which we conduct our business. For example, the European Union’s General Data Protection Regulation (“GDPR”) expands the scope of EU data
protection law to all foreign companies processing personal data of EU residents and imposes a strict data protection compliance regime with significant monetary penalties. The state of California passed the California Consumer Privacy Act of
2018 (“CCPA”), which went into effect on January 1, 2020. The CCPA and other state privacy acts have imposed and likely will impose additional data protection obligations on companies considered to be doing business in California and provides for
substantial fines for non-compliance and, in some cases, a private right of action to consumers who are victims of data breaches. Complying with the GDPR, the CCPA and similar emerging and changing privacy, data protection and information
security requirements may cause us to incur substantial costs or compliance risks due to, among other things, system changes and the development of new processes and business initiatives. Our failure to comply with privacy, data protection and
information security laws could result in potentially significant regulatory and/or governmental investigations and/or actions, litigation, fines, sanctions, ongoing regulatory monitoring and customer attrition.
In addition, our customers have a high expectation that we will adequately protect their personal information from cyber-attack or other security breaches. We have procedures in place to
evaluate the integrity of our systems, and to safeguard such data and information. However, the landscape is evolving at a rapid pace, and we may be unable to effectively anticipate or respond to attacks to or breaches of our security systems or
implement adequate preventative measures. A breach of customer, employee, supplier, or company data could attract a substantial amount of negative media attention, damage our customer and supplier relationships and our reputation, and result in
lost sales, costly fines, other expenses and/or lawsuits, any of which could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to maintain or upgrade our information technology systems or if we are unable to convert to alternate systems in an
efficient and timely manner, our operations may be disrupted or become less efficient.
We depend on a variety of information technology systems for the efficient functioning of our business. We rely on certain hardware, telecommunications and software vendors to maintain and
periodically upgrade many of these systems so that we can continue to support our business. Various components of our information technology systems, including hardware, networks and software, are licensed to us by third party vendors. We rely
extensively on our information technology systems to process transactions, summarize results and manage our business. We are in compliance with PCI as of the end of 2021, and compliance with PCI and implementing related procedures, technology and
information security measures requires significant resources and ongoing attention. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology such as those necessary to achieve
compliance with PCI or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations. Any material interruptions or failures in our payment-related systems could have a material adverse
effect on our business, financial condition and results of operations.
If our information technology systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them. If there are amendments to PCI, the cost of
re-compliance could also be substantial and we may suffer loss of critical data and interruptions or delays in our operations as a result. In addition, we may have to upgrade our existing information technology systems from time to time in order
for such systems to withstand the increasing needs of our expanding business. Any material interruption experienced by our information technology systems could have a material adverse effect on our business, financial condition and results of
operations. Costs and potential interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of our existing systems could disrupt or reduce the efficiency of our business.
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ACCOUNTING AND FINANCIAL
If our estimates or judgments relating to our significant accounting policies prove to be incorrect, our operating results could be
adversely affected.
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts
reported in the accompanying consolidated financial statements and notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates
form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Our operating results may be adversely affected if our
assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price.
Changes to accounting rules or regulations could have a material adverse effect on our business, financial condition and results of
operations.
Changes to existing accounting rules or regulations may impact our future results of operations or cause the perception that we are more highly leveraged. Other new accounting rules or
regulations and varying interpretations of existing accounting rules or regulations have occurred and may occur in the future. Future changes to accounting rules or regulations could have a material adverse effect on our business, financial
condition and results of operations.
RISKS RELATED TO COMMON STOCK AND CORPORATE GOVERNANCE
As a public company, our management is required to devote substantial time to compliance initiatives.
The Sarbanes-Oxley Act and rules implemented by the SEC and the NASDAQ Stock Market LLC (“NASDAQ”) have imposed various requirements on public companies, including establishment and maintenance of effective
disclosure and financial controls and corporate governance practices. Implementing and maintaining internal controls is time consuming and costly. If we fail to maintain an effective internal control environment or to comply with the numerous
legal and regulatory requirements imposed on public companies, we could make material errors in, and be required to restate, our financial statements. Any such restatement could result in a loss of public confidence in the reliability of our
financial statements and sanctions imposed on us by the SEC. If we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil
litigation.
Anti-takeover provisions in our third amended and restated certificate of incorporation and fourth amended and restated bylaws and under Delaware law could
make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.
Provisions in our third amended and restated certificate of incorporation and fourth amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our
third amended and restated certificate of incorporation and fourth amended and restated bylaws include provisions that:
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• prohibit cumulative voting in the election of directors; and
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board, which is
responsible for appointing the members of our management.
Our third amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be
initiated by our stockholders, which could increase costs of bringing a claim, discourage claims, or limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Specifically, the certificate of incorporation provides that, unless we consent in writing in advance to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and
exclusive forum, to the fullest extent provided by law, for the following types of actions or proceedings:
• any derivative action or proceeding brought on behalf of the Company;
• any action asserting a claim governed by the internal affairs doctrine.
Application of the choice of forum provision may be limited in some instances by law. Section 27 of the Securities Exchange Act of 1934 (“Exchange Act”) provides for exclusive federal court jurisdiction over
Exchange Act claims. Accordingly, to the extent the exclusive forum provision is held to cover a shareholder derivative action asserting claims under the Exchange Act, such claims could not be brought in the Delaware Court of Chancery and would
instead be within the jurisdiction of the federal district court for the District of Delaware. Section 22 of the Securities Act of 1933 (“Securities Act”) creates concurrent jurisdiction for federal and state courts over all suits brought to
enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Moreover, our stockholders will not be deemed by operation of our choice of forum provision to have waived our compliance with the federal
securities laws and the regulations promulgated thereunder. It is also possible that, notwithstanding the forum selection clause, a court could rule that such a provision is inapplicable or unenforceable, which could adversely impact our results
of operations, financial position and cash flows.
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If securities analysts or industry analysts downgrade our shares, publish negative research or reports or do not publish reports about our business, our share price and
trading volume could decline.
The trading market for our common stock is to some extent influenced by the research and reports that industry or securities analysts publish about us, our business and our industry. If no or few analysts commence
coverage of us, the trading price of our stock could decrease. Even if we do obtain analyst coverage, if one or more analysts adversely change their recommendation regarding our shares or our competitors’ stock, our share price might decline. If
one or more analysts cease coverage of us or fail to regularly publish reports on us, we might lose visibility in the financial markets, which, in turn, could cause our share price or trading volume to decline.
Future sales of our common stock in the public market could cause the market price of our common stock to decrease significantly.
Sales of substantial amounts of our common stock in the public market by our existing stockholders or upon the exercise of outstanding stock options or grant of stock options or restricted
stock units in the future may cause the market price of our common stock to decrease significantly. As of January 29, 2022, we have an aggregate of 1,234,798 shares of common stock issuable upon exercise of outstanding options and the vesting of
restricted stock units under the 2015 Equity Incentive Plan (the “2015 Plan” and together with the 2012 Equity Incentive Plan, the “Equity Plans”) (400,996 of which are fully vested).
The perception that such sales could occur could also depress the market price of our common stock. Any such sales could also create public perception of difficulties or problems with our
business and might also make it more difficult for us to raise capital through the sale of equity securities in the future at a time and price that we deem appropriate.
Ollie’s Bargain Outlet Holdings, Inc. (“Holdings”) is a holding company and relies on dividends and other payments, advances and
transfers of funds from its subsidiaries to meet its obligations and pay any dividends.
Holdings has no direct operations and no significant assets other than ownership of 100% of the capital stock of its subsidiaries. Because Holdings conducts operations through subsidiaries, it
depends on those entities for dividends and other payments to generate the funds necessary to meet financial obligations and to pay any dividends with respect to its common stock. Legal and contractual restrictions in the Credit Facility (defined
below) and other agreements which may govern future indebtedness of subsidiaries, as well as the financial condition and operating requirements of subsidiaries, may limit its ability to obtain cash from subsidiaries. The earnings from, or other
available assets of, subsidiaries might not be sufficient to pay dividends or make distributions or loans to enable Holdings to pay any dividends on its common stock or other obligations. Any of the foregoing could materially and adversely affect
our business, financial condition, results of operations and cash flows.
We do not expect to pay any cash dividends for the foreseeable future.
The continued operation and expansion of our business will require substantial funding. We do not anticipate that we will pay any dividends to holders of our common stock for the foreseeable
future. Any payment of cash dividends will be at the discretion of our Board and will depend on our financial condition, capital requirements, legal requirements, earnings and other factors. Our ability to pay dividends is restricted by the terms
of our Credit Facility and might be restricted by the terms of any indebtedness that we incur in the future. Accordingly, realization of any gain on our common stock will depend on the appreciation of the price of the shares of our common stock,
which may never occur.
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INDEBTEDNESS AND CAPITALIZATION
Indebtedness may limit our ability to invest in the ongoing needs of our business and if we are unable to comply with our financial covenants, it could have
a material adverse effect on our liquidity and our business, financial condition and results of operations.
On May 22, 2019, the Company completed a transaction in which it refinanced its credit facility (the
“Credit Facility”) which includes a revolving credit facility (the “Revolving Credit Facility”). As of January 29, 2022, we had no outstanding borrowings on the Revolving Credit Facility,
with $84.7 million of borrowing availability. We may, from time to time, incur additional indebtedness.
The agreements governing our Credit Facility place certain conditions on us, including that they:
• increase our vulnerability to adverse general economic or industry conditions;
Our Credit Facility places certain limitations on our ability to incur additional indebtedness. However, subject to the qualifications and exceptions in our Credit Facility, we may be permitted to incur substantial
additional indebtedness and may incur obligations that do not constitute indebtedness under the terms of the Credit Facility. Our Credit Facility also places certain limitations on, among other things, our ability to enter into certain types of
transactions, financing arrangements and investments, to make certain changes to our capital structure and to guarantee certain indebtedness. Our Credit Facility also places certain restrictions on the payment of dividends and distributions and
certain management fees. These restrictions limit or prohibit, among other things, our ability to:
• pay dividends on, redeem or repurchase our stock or make other distributions;
• incur or guarantee additional indebtedness;
• sell stock in our subsidiaries;
• create or incur liens;
• make acquisitions or investments;
• enter into certain transactions with our affiliates.
Failure to comply with certain covenants or the occurrence of a change of control under our Credit Facility could result in the acceleration of our obligations under the Credit Facility, which
would materially adversely affect our liquidity, capital resources and results of operations.
Under certain circumstances, our Credit Facility requires us to comply with certain financial covenants regarding our fixed charge coverage ratio. Failure to comply could result in a default
and an acceleration of our obligations under the Credit Facility, which could have a material adverse effect on our liquidity and our business, financial condition and results of operations. See “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Liquidity and Capital Resources – Credit Facilities.”
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We may be unable to generate sufficient cash flows to satisfy debt service obligations, which could have a material adverse effect on our business,
financial condition and results of operations.
Our ability to make principal and interest payments on and to refinance indebtedness will depend on our ability to generate cash in the future and is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our control. If our business does not generate sufficient cash flows from operations, in the amounts projected or at all, or if future borrowings are not available to us in
amounts sufficient to fund our other liquidity needs, our business, financial condition and results of operations could be materially adversely affected. If we cannot generate sufficient cash flows from operations to make scheduled principal and
interest payments in the future, we may need to refinance all or a portion of indebtedness on or before maturity, sell assets, delay capital expenditures or seek additional equity. The terms of future debt agreements, including our Credit
Facility, may also restrict us from affecting any of these alternatives. Further, changes in the credit and capital markets, including market disruptions and interest rate fluctuations, may increase the cost of financing, make it more difficult
to obtain favorable terms, or restrict our access to these sources of future liquidity. If we are unable to refinance indebtedness on commercially reasonable terms or at all or to effect any other action relating to indebtedness on satisfactory
terms or at all, it could have a material adverse effect on our business, financial condition and results of operations.
We cannot guarantee that our share repurchase program will be fully consummated or that it will enhance long-term stockholder value.
We have adopted a share repurchase program under which we are currently authorized to repurchase up to $200.0 million of shares of our common stock through December 2023. While the
authorization of the repurchase program has an expiration date, the authorizations are subject to extension or earlier termination by the Board of Directors at any time and we are not obligated to repurchase a specified number or dollar value of
shares under our share repurchase program. Even if our share repurchase program is fully implemented, it may not enhance long-term stockholder value. Also, the amount, timing, and execution of our share repurchase program may fluctuate based on
our priorities for the use of cash for other purposes and because of changes in cash flows, tax laws, and the market price of our common stock
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease the majority of our retail stores, often in second generation sites ranging in size from 23,000 to 50,000 square feet. Our corporate headquarters, located in Harrisburg, PA, is 58,200
square feet and is leased under an agreement that expires in February 2033, with options to renew for three successive five-year periods. Our corporate data center and additional office space is 19,800 square feet. We exercised our purchase
option and acquired the space on August 31, 2021 for $1.2 million. Our 603,000 square foot distribution center located in York, PA is leased under an agreement that expires in March 2028 with options to renew for two successive five-year
periods. Our 962,000 square foot distribution center in Commerce, GA is leased under an agreement that expires in April 2024 with options to renew for three successive five-year periods. In 2019, we constructed our 615,000 square foot
distribution center in Lancaster, TX. The distribution center became fully operational during the first quarter of 2020. As of January 29, 2022, there were 431 Ollie’s Bargain Outlet locations across 29 contiguous states in the eastern half of
the United States.
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We maintain a focused and disciplined approach to entering into lease arrangements. All leases are approved by our real estate committee, which is comprised of senior management and executive
officers. Our leases generally have an initial term of approximately seven years with options to renew for three to five successive five-year periods and generally require us to pay a proportionate share of real estate taxes, insurance and common
area or other charges.
Item 3. Legal Proceedings
From time to time we are involved in claims and legal actions that arise in the ordinary course of our business. We cannot predict the outcome of any litigation or suit to which we are a party.
However, we do not believe that an unfavorable decision of any of the current claims or legal actions against us, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations, liquidity or
capital resources.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Our common stock is traded on NASDAQ under the symbol “OLLI.” The following tables set forth for the periods indicated the high and low sales prices of our common stock on NASDAQ.
High Low
High Low
As of January 29, 2022, we had approximately 400 stockholders of record.
Stock Performance Graph
The graph set forth below compares the cumulative stockholder return on our common stock between January
28, 2017 and January 29, 2022 to the cumulative return of (i) the NASDAQ Composite Total Return index and (ii) the NASDAQ US Benchmark Retail Index over the same period. This graph assumes an initial investment of $100 on January 28, 2017 in
our common stock, the NASDAQ Composite Total Return index and the NASDAQ US Benchmark Retail Index and assumes the reinvestment of dividends, if any. Such returns are based on historical results and are not intended to suggest future
performance.
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Dividends
Our common stock began trading on July 16, 2015. Since then, we have not declared any cash dividends nor do we expect to in the foreseeable future as we intend to retain our earnings to finance
the development and growth of our business and operations.
The Credit Facility contains a number of restrictive covenants that, among other things and subject to certain exceptions, restrict Ollie’s Bargain Outlet, Inc.’s and Ollie’s Holdings, Inc.’s (together the
“Borrowers”) ability and the ability of their subsidiaries to pay dividends on our capital stock or redeem, repurchase or retire our capital stock.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by this Item will be set forth in the Proxy Statement and is incorporated herein by reference.
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Information on Share Repurchases
Information regarding shares of common stock the Company repurchased during the thirteen weeks ended January 29, 2022 is as follows:
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Item 6. [Reserved]
You should read the following discussion together with the financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The statements in
this discussion regarding expectations of our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and
uncertainties, including, but not limited to, the risks and uncertainties described in “Item 1A, Risk Factors” and “Cautionary note regarding forward-looking statements.” Our actual results may differ materially from those contained in or implied
by any forward-looking statements.
We operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the Saturday nearer
January 31 of the following year. References to “2021” refer to the fiscal year ended January 29, 2022 and references to“2020” refer to the fiscal year ended January 30, 2021. 2021 and 2020 each consisted of 52 weeks. References to “2022” refer
to the 52-week fiscal year ending January 28, 2023.
Overview
Ollie’s is a highly differentiated and fast-growing, extreme value retailer of brand name merchandise at drastically reduced prices. Known for our assortment of “Good Stuff
Cheap®,” we offer customers a broad selection of brand name products, including housewares, bed and bath, food, floor coverings, health and beauty aids, books and stationery, toys and electronics. Our differentiated go-to market strategy is
characterized by a unique, fun and engaging treasure hunt shopping experience, compelling customer value proposition and witty, humorous in-store signage and advertising campaigns. These attributes
have driven our rapid growth and strong store performance as evidenced by our store base expansion from 268 stores to 431 stores and net sales growth from $1.077 billion to $1.753 billion from 2017 to 2021 and average annual net sales per store
of $4.4 million for the five-year period.
COVID-19 Update
The COVID-19 pandemic has significantly impacted the U.S. and global economies, resulting in business slowdowns or shutdowns, reduced economic activity, changes in consumer behavior, and changes in the mindset and
availability of the labor force. We continue to monitor the impact of the pandemic on our business, including on our associates, customers, business partners and supply chain.
We continue to take measures to protect the health and safety of our associates and customers, a primary concern of our management team. We have also taken measures to support the communities that we serve to
address the challenges posed by the pandemic.
Following the onset of the pandemic through the first quarter of 2021, our net sales benefited from increased consumer spending associated with federal stimulus funds for said pandemic. At this point, there is
uncertainty with regard to any additional stimulus measures and, as a result, there may be potential changes in consumer spending behavior or demand. In addition, we are experiencing labor pressures at both our stores and distribution centers,
higher import and trucking costs, and supply chain disruptions due to the impacts of COVID-19 and related measures. We are increasing our hiring efforts in certain impacted markets and working closely with our suppliers and transportation
partners to mitigate the impact of the supply chain challenges. The potential significance and duration of these elevated costs is uncertain, and we will continue to assess and respond to current and evolving conditions.
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As we continue to monitor the COVID-19 pandemic and potentially take actions based on the requirements and recommendations of federal, state and local authorities, we intend to focus on managing the business for
future, long-term growth. In certain circumstances, there may be developments outside our control, including resurgences of COVID-19 and, in particular, new and more contagious or vaccine resistant variants, requiring us to refine our
operations. As such, given the evolving nature of the pandemic, we cannot reasonably estimate its impact on our financial condition, results of operations or cash flows in the future.
For further discussion of the risks and uncertainties associated with the COVID-19 pandemic, see “Part 1. Item 1A. Risk Factors.”
Our Growth Strategy
Since the founding of Ollie’s in 1982, we have grown organically by backfilling existing markets and leveraging our brand awareness, marketing and infrastructure to expand into new markets in contiguous states. We
have expanded to 431 stores located in 29 states as of January 29, 2022.
Our stores are supported by three distribution centers, one each in York, PA, Commerce, GA, and Lancaster, TX. We believe our current distribution capabilities can support a range of 500 to 600 stores over the next
several years.
We have invested in our associates, infrastructure, distribution network and information systems to allow us to continue to rapidly grow our store footprint, including:
• adding members to our senior management team;
Our business model has produced consistent and predictable store growth over the past several years, during both strong and weaker economic cycles. We plan to continue to enhance our competitive positioning and
drive growth in sales and profitability by executing on the following strategies:
• growing our store base;
• increasing our offerings of great bargains; and
• leveraging and expanding Ollie’s Army.
We have a proven portable, flexible, and highly profitable store model that has produced consistent financial results and returns. Our new store model targets a store size between 25,000 to 35,000 square feet and
an average initial cash investment of approximately $1.0 million, which includes store fixtures and equipment, store-level and distribution center inventory (net of payables) and pre-opening expenses. We target new store sales of approximately
$4.0 million in their first full year of operations.
While we are focused on driving comparable store sales and managing our expenses, our revenue and profitability growth will primarily come from opening new stores. The core elements of our business model are
procuring great deals, offering extreme values to our customers and creating consistent, predictable store growth and margins. In addition, our new stores generally open strong, contributing to the growth in net sales and profitability of our
business. From 2017 to 2021, net sales grew at a CAGR of 13.0%. We plan to achieve continued net sales growth, including comparable stores sales, by adding stores to our store base and by continuing to provide quality merchandise at a value for
our customers as we scale and gain more access to purchase directly from major manufacturers. We also plan to leverage and expand our Ollie’s Army database marketing strategies. In addition, we plan to continue to manage our selling, general
and administrative expenses (“SG&A”) by continuing to make process improvements and by maintaining our standard policy of reviewing our operating costs.