| Basis of Presentation and Summary of Significant Accounting Policies | (1)
Basis of Presentation and Summary of Significant Accounting Policies
(a)
Description of Business Ollie’s Bargain Outlet Holdings, Inc. and subsidiaries (collectively referred to as the “Company” or “Ollie’s”) principally buys overproduced,
overstocked, and closeout merchandise from manufacturers, wholesalers, distributors, brokers, and other retailers. In addition, the Company augments its name-brand closeout deals with directly sourced private label products featuring names exclusive
to Ollie’s in order to provide consistently value-priced goods in select key merchandise categories. Since its first store opened in 1982, the Company has grown to 512 retail locations in 30 states as of February 3, 2024. Ollie’s Bargain Outlet retail locations are located in Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia,
Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia,
and West
(b)
Fiscal Year Ollie’s follows a 52/53-week fiscal year, which ends on the Saturday nearer to January 31st of the following calendar year. References to the fiscal
year ended February 3, 2024 refer to the 53-week period from January 29, 2023 to February 3, 2024 (“2023”). References to the fiscal year ended January 28, 2023 refer to the 52-week period from January 30, 2022 to January 28, 2023 (“2022”).
References to the fiscal year ended January 29, 2022 refer to the 52-week period from January 31, 2021 to January 29, 2022 (“2021”).
(c)
Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions have been eliminated in
consolidation.
(d)
Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(e)
Cash, Cash Equivalents, and Short-term Investments The Company considers cash on hand in stores, bank deposits, credit card receivables, and all highly liquid investments such as
(f)
Fair Value Disclosures Fair value is defined as the price which the Company would receive to sell an asset or
pay to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. In determining fair value, GAAP establishes a three‑level hierarchy used in measuring fair value, as follows:
●
Level 1 inputs are quoted prices available for identical assets and liabilities in active markets.
●
Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets or other inputs
that are observable or can be corroborated by observable market data.
●
Level 3 inputs are unobservable, developed using the Company’s estimates and assumptions, which reflect those that market participants would use. Ollie’s financial instruments consist of cash and cash equivalents, investment securities, accounts receivable, accounts payable, and the Company’s credit facilities. The carrying amounts of cash and cash equivalents,
accounts receivable, and accounts payable are representative of their respective fair value because of their short-term nature. The carrying amount of the Company’s credit facilities, see Note 7 to the Consolidated Financial Statements for
additional information related to our credit facility, approximates its fair value because the interest rates are adjusted regularly based on current market conditions. Under the fair value hierarchy, the fair market values of cash equivalents and
the investments in treasury bonds and corporate bonds are Level 1 while the investments in municipal bonds are Level 2. Since quoted prices in active markets for identical assets are not available, these prices are determined by the third-party
pricing service using observable market information such as quotes from less active markets and quoted prices of similar securities. As of February 3, 2024 and January 28, 2023
As of February 3, 2024
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Market Value
(in thousands)
Short-term:
Treasury Bonds
$
49,765
$
16
$
-
$
49,781
Municipal Bonds
10,136
-
(139
)
9,997
Corporate Bonds 27,079 22 - 27,101
Total
$
86,980
$
38
$
(139
)
$
86,879
As of January 28, 2023
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Market Value
(in thousands)
Short-term:
Treasury Bonds
$
55,274
$
-
$
(83
)
$
55,191
Municipal Bonds
4,891
-
(8
)
4,883
Corporate Bonds
-
-
-
-
Total
$
60,165
$
-
$
(91
)
$
60,074 Short-term investment securities as of February 3, 2024 and January 28, 2023 all mature in one year or less.
(g)
Concentration of Credit Risk A financial instrument which potentially subjects the Company to a concentration of credit risk is cash. Ollie’s currently
maintains its day‑to‑day operating cash balances with major financial institutions. The Company’s operating cash balances are in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. Ollie’s invests temporary excess cash
in overnight investments with expected minimal volatility, such as money market funds. Although the Company maintains balances which exceed the FDIC insured limit, it has not experienced any losses related to these balances.
(h)
Inventories Inventories are stated at the lower of cost or market determined
using the retail inventory method on a first-in, first-out basis. The cost of inventories includes the merchandise cost, transportation costs, and certain distribution and storage costs. Such costs are thereafter expensed as cost of sales upon the
sale of the merchandise. Inherent in the retail inventory method are certain management
judgments and estimates including, among others, merchandise markups, the amount and timing of permanent markdowns, and shrinkage, which may significantly impact both the ending inventory valuation and gross profit. Factors
considered in the determination of permanent markdowns include inventory obsolescence, excess inventories, current and anticipated demand, age of the merchandise, and customer preferences. Pursuant to the retail inventory method, permanent
markdowns result in the devaluation of inventory and the resulting gross profit reduction is recognized in the period in which the markdown is recorded. We calculate our shrink provision based on actual physical
inventory results during the fiscal period and an accrual for estimated shrink occurring subsequent to a physical inventory through the end of the fiscal reporting period. This accrual is calculated as a percentage of sales for each retail store,
at a department level, based on the company’s most recent historical shrink rate adjusted, if necessary, for current economic conditions and business trends.
(i)
Property and Equipment Property and
equipment are stated at original cost less accumulated depreciation and amortization. Depreciation and amortization are calculated over the estimated useful lives of the related assets, or in the case of leasehold improvements, the lesser of the
useful lives or the remaining term of the lease. Expenditures for additions, renewals, and betterments are capitalized; expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed on the straight-line
method for financial reporting purposes. The useful lives for the purpose of computing depreciation and amortization are as
follows:
Software
3 years
Automobiles
2 - 5 years
Computer equipment
5 years
Furniture, fixtures, and equipment
7 - 10 years
Buildings
40 years
Leasehold improvements
Lesser of lease term or useful life
(j)
Goodwill/Intangible Assets The Company amortizes intangible assets over their useful lives unless it determines such lives to be indefinite. Goodwill and intangible assets
having indefinite useful lives are not amortized to earnings, but instead are subject to annual impairment testing or more frequently if events or circumstances indicate that the value of goodwill or intangible assets having indefinite useful lives
might be impaired. Goodwill and intangible assets having indefinite useful lives are tested for impairment annually in the fiscal month of October. The Company has the
option to evaluate qualitative factors to determine if it is more likely than not that the carrying amount of its sole reporting unit or its nonamortizing intangible assets (consisting of a tradename) exceed their implied respective fair value and
whether it is necessary to perform a quantitative analysis to determine impairment. As part of this qualitative assessment, the Company weighs the relative impact of factors that are specific to its sole reporting unit or its nonamortizing
intangible assets as well as industry, regulatory and macroeconomic factors that could affect the inputs used to determine the fair value of the assets. If management determines a quantitative goodwill impairment test is required, or it elects to perform a quantitative test, the test is performed by
determining the fair value of the Company’s sole reporting unit. Fair value is determined based on the Company’s public market capitalization. The carrying value of goodwill is considered impaired when the reporting unit’s fair value is less than
its carrying value and the Company would record an impairment loss equal to the difference, not to exceed the total amount of goodwill allocated to the reporting unit. For 2023, 2022, and
2021, the If management determines a quantitative analysis of intangible assets having indefinite useful lives is required, the test is performed using the
discounted cash flow method based on management’s projections of future revenues and an estimated royalty rate to determine the fair value of the asset, specifically, the Company’s tradename. An impairment loss is recognized for any excess of the
carrying amount of the asset over the implied fair value of that asset. For 2023, 2022, and 2021
(k)
Impairment of Long-Lived Assets Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its
carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined
through various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
(l)
Stock-Based Compensation The Company measures the cost of employee services received in exchange for stock-based compensation based on the grant date fair value of the
employee stock award. For stock option awards, the Company estimates grant date fair value using the Black-Scholes option pricing model. For restricted stock unit awards, grant date fair value is determined based on the closing trading value of the
Company’s stock on the date of grant. In both cases, stock-based compensation is recorded on a straight-line basis over the vesting period for the entire award.
(m)
Cost of Sales Cost of sales includes merchandise costs, inventory markdowns, shrinkage and transportation, distribution and warehousing costs, including
depreciation and
amortization
(n)
Selling, General, and Administrative Expenses Selling, general, and administrative expenses (“SG&A”) are comprised of payroll and benefits for stores, field support, and support center
associates. SG&A also include marketing and advertising expense, occupancy costs for stores and the store support center, insurance, corporate infrastructure, and other general expenses.
(o)
Advertising Costs Advertising costs primarily consist of print flyers, digital media, email campaigns, and media broadcasts and are generally expensed the first time the advertising occurs. Advertising expense for 2023, 2022, and 2021 was .
(p)
Operating Leases The Company generally leases its store locations, distribution centers and office facilities. Many of the lease agreements contain rent holidays, rent
escalation clauses and contingent rent provisions – or some combination of these items. For leases of store locations and the store support centers, the Company recognizes rent expense in SG&A. For leases of distribution centers, the Company
recognizes rent expense within cost of sales. All rent expense is recorded on a straight-line basis over the accounting lease term, which includes lease renewals determined to be reasonably certain. The Company
recognizes operating lease assets and liabilities at the lease commencement date in accordance with ASC 842, Leases (Topic 842). Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets
represent the Company’s right to use an underlying asset for the lease term. The Company’s lessors do not provide an implicit rate, nor is one readily available, therefore the Company uses its incremental borrowing rate based on the portfolio
approach, which applies one rate to leases within a given period. The incremental borrowing rate is used to discount future cash flows and is an estimate which is determined by an analysis of the rate of interest it would have to pay on a
collateralized basis to borrow an amount equal to the lease payments under similar terms and current market conditions.
(q)
Pre-Opening Expenses Pre-opening expenses consist of expenses
of opening new stores and distribution centers, as well as store remodel and store closing costs. For opening new stores, pre-opening expenses include grand opening advertising costs, payroll expenses, travel expenses, employee training costs,
rent expenses, and store setup costs. Pre-opening expenses for new stores are expensed as they are incurred, which is typically within 30 to 45 days of
(r)
Self ‑ Under a number of the Company’s insurance programs, which include the Company’s employee health insurance program, its workers’ compensation and
general liability insurance programs, the Company is liable for a portion of its losses. The Company estimates the accrued liabilities for its self-insurance programs using historical claims experience and loss reserves. To limit the Company’s
exposure to losses, a stop‑loss coverage is maintained through third‑party insurers.
(s)
Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company recognizes the effect of income tax positions only if those positions are more
likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Ollie’s files consolidated federal and state income tax returns. For tax years prior to 2018, the Company is no longer subject to U.S. federal income
tax examinations. State income tax returns are filed in various state tax jurisdictions, as appropriate, with varying statutes of limitation and remain subject to examination for varying periods up to three
(t)
Earnings per Common Share Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per
common share is computed by dividing net income by the weighted average number of common shares outstanding, after giving effect to the potential dilution, if applicable, from the assumed exercise of stock options into shares of common stock as if
those stock options were exercised and the assumed lapse of restrictions on restricted stock units. The following table summarizes those effects
for the diluted earnings per common share calculation:
Fiscal year ended
February 3,
January 28,
January 29,
2024
2023
2022
(in thousands)
Weighted average
number of common shares outstanding – Basic
61,741
62,495
64,447
Incremental shares
from the assumed exercise of outstanding stock options and vesting of restricted stock units
327
209
431
Weighted average
number of common shares outstanding – Diluted
62,068
62,704
64,878 The effect of the weighted average assumed exercise of stock options outstanding totaling 582,645, 858,413, and 425,718 as of February 3, 2024, January 28,
2023, and January 29, 2022, respectively The effect of weighted average non-vested restricted stock units outstanding totaling 11,717, 39,342, and 22,546 as of February 3, 2024, January 28, 2023, and January 29, 2022, respectively
(u)
Recently Issued Accounting Standards In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Improvements to Reportable
Segment Disclosures,” which modifies reportable segment disclosure requirements. This ASU expands annual and interim reportable segment disclosures, including: disclosure of the title and position of our chief operating decision maker (“CODM”),
interim and annual disclosure of significant reportable segment expenses that are components of segment profit or loss information provided to the CODM, and interim disclosure of all annual reportable segment profit or loss and asset data currently
only required to be disclosed annually. This guidance is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The adoption of this standard is not expected to have
an impact on our financial statements the Company is comprised of one operating segment. In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures,” which modifies the disclosure requirements for income taxes.
This ASU requires disclosure of tabular statutory to effective rate reconciliation in both percentages and dollars, additional disaggregated rate reconciliation categories and disaggregation of both income taxes paid and income tax expense by
jurisdiction. This guidance is effective for annual periods beginning after December 15, 2024. We expect this ASU to only impact our disclosures with no impact to our result of operations, cash flows and financial condition. |
