Ollie's Bargain Outlet Holdings, Inc. (OLLI) Q3 2017 Earnings Conference Call Transcript

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Ollie's Bargain Outlet Holdings, Inc. (NASDAQ: OLLI)
Q3 2017 Earnings Conference Call
Dec. 6, 2017, 4:30 p.m. ET

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Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the Ollie's Bargain Outlet conference call to discuss the financial results for the third quarter of fiscal 2017. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will follow at that time. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from Ollie's. And, as a reminder, this call is being recorded.

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On the call today from management are Mark Butler, Chairman, President, and Chief Executive Officer; John Swygert, Executive Vice President and Chief Financial Officer; and Jay Stasz, Senior Vice President of Finance and Chief Accounting Officer. I'll turn the call over to Mr. Stasz to get started. Please go ahead, sir.

Jay Stasz -- Chief Accounting Officer and Senior VP-Finance

Thank you, and hello everyone. A press release covering the company's third-quarter fiscal 2017 financial results was issued this afternoon, and a copy of that press release can be found in the investor relations section on the company's website. I want to remind everyone that management's remarks on this call may contain forward-looking statements, including but not limited to predictions, expectations, or estimates, and that actual results could differ materially from those mentioned on today's call. Any such items, including our outlook for fiscal year 2017 and our future performance, should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these forward-looking statements, which speak only as of today, and we undertake no obligation to update or revise them for any new information or future events.

Factors that might affect future results may not be in our control and are discussed in our SEC filings. We encourage you to review these filings, including our annual report on form 10-K and quarterly reports on Form 10-Q, for a more detailed description of these factors. We will be referring to certain non-GAAP financial measures on today's call, such as adjusted operating income, EBITDA, adjusted EBITDA, adjusted net income, and adjusted net income per diluted share that we believe may be important to investors to assess our operating performance. Reconciliations of these non-GAAP financial measures to the most closely comparable GAAP financial measures are included in our earnings release.

I will now turn the call over to Mark.

Mark Butler -- Chairman, President, and CEO

Thanks, Jay, and hello to everyone, and thanks for being with us on the call today. We had another strong quarter, and we are very excited about our results and the continued momentum in our business. Strong deal flow, great new store performance, and tight expense control drove our record results for the third quarter. Consistency and execution are two of our hallmarks that are critical to our success, and after 35 years are things that we will not change.

For the quarter, we delivered record top and bottom line results, with an 18% increase in sales, a 31% increase in adjusted net income. Comparable store sales increased 2.1% against a 1.8% increase in the third quarter of last year and a 5% increase on a two-year stack basis. Our sales strength was once again broad-based, with nearly half of our departments comping positive.

Some of our best performing categories were health and beauty aids, housewares, toys, furniture, and bed and bath. We continue to grow our vendor relationships with our increased size and scale, and we believe we're well-positioned to capitalize on the many buying opportunities in the marketplace. As we build these stronger direct relationships with major manufacturers, we're able to offer our customers what they want: brand name merchandise at drastically reduced prices. The best news is that we continue to see very strong deal flow.

Our new stores performed above our expectations during the quarter. We opened 15 locations during the third quarter, and since quarter end, we've opened another three, for a total of 34 new stores in fiscal 2017. We continue to see a strong pipeline of leasing opportunities.

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

Our busiest night of the year, Ollie's Army Night, is just around the corner, and we're excited to once again open our doors exclusively to Ollie's Army members. Our stores are packed with great deals, and our team is eager to welcome our most loyal bargainoughts. The event is this Sunday, December 10th. If you're a member, we hope to see you; if not, there's still time. Enlist in the army now and join us for a great, great night. The stores will be packed.

As we said before, we're celebrating our 35th birthday this year. We're proud of our long history of offering great deals to our customers and the successful expansion of Good Stuff Cheap to an ever-growing number of new markets. And we have no intention of slowing down.

I want to acknowledge our more than 7,000 team members for their hard work and their dedication that has taken us to where we are today. We know the holiday season places extra demands on our associates, and I sincerely thank them for all they do, not only at this time of year but each and every day. It's their passion and commitment that are truly the drivers of our success.

Let me wrap up by saying how proud we are of our third quarter results and the overall trends we're seeing in the business. As I like to say, we're hitting all of our marks. The consistency and the strength of our model proves itself each quarter, with stores across every vintage, state, and co-tenancy performing well.

Our store openings are complete for the year, and we're building a full pipeline for the coming year, and our new stores continue to perform above our expectations across all geographies. We are laser-focused on the closeout industry, developing strong vendor relationships, and ensuring we are well-positioned in today's retail environment.

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

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

John W. Swygert -- CFO, Secretary, and Executive VP

Thanks, Mark, and good afternoon everyone. We are pleased to have delivered another solid quarter on top line sales increases, operating income leverage, strong adjusted net income, and EPS growth, all above our long-term expectations.

Net sales increased 17.9% to $238.1 million. Comparable store sales increased 2.1% against a 1.8% increase in the third quarter of last year and a 5% increase on a two-year stack basis. The increase in comparable store sales was driven by an increase in both average basket size and transactions.

We opened 15 stores during the quarter, ending the period with 265 stores in 20 states, an increase in our store base of 14.2% year-over-year. Subsequent to the quarter end, we opened three additional stores, for a total of 34 new stores in fiscal 2017. This brings our store count to 268 and completes our new store openings for the fiscal year. Our new stores continued to perform above our expectations across our new and existing markets, and we remain excited about the productivity of our overall store base.

Gross profit increased 16.4% to $98 million, and gross margin decreased 50 basis points to 41.2% of net of -- net sales. The decrease in gross margin was primarily due to a decrease in merchandise margin, partially offset by favorable supply chain cost.

SG&A expenses increased 12.6% to $68.1 million. The increase was primarily related to higher selling expenses from our new stores opened over the past year, increased sales volumes in our remaining store base, and investments in personnel to support our continued growth. As a percentage of net sales, we leveraged SG&A by 140 basis points to 28.6%. Excluding $600,000.00 of transaction-related expenses from prior year, we leveraged SG&A expenses by 110 basis points in the quarter.

Operating income increased 29.8% to $24.2 million, and operating margin increased 100 basis points to 10.2%. Excluding that $600,000.00 of transaction-related expenses from last year, adjusted operating income increased 25.9%, and adjusted operating margin increased 70 basis points.

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

EBITDA increased 28.2% to $27.3 million, and adjusted EBITDA increased 23.8% to $29.2 million in the third quarter.

At the end of the quarter, we had $42.2 million in cash and no outstanding borrowings under our $100 million revolving credit facility. We ended the quarter with total debt of $126.7 million, compared to $196.5 million last year. Subsequent to the quarter end, we paid down an additional $30 million of our term loan debt, resulting in a balance of $96.3 million.

Capital expenditures totaled $6.5 million in the third quarter of fiscal 2017, compared to $4.3 million in the third quarter of fiscal 2016. The increase was largely due to the timing of new store openings and expenditures associated with our new data center.

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

Excluding the impact of the accounting for stock-based compensation, our outlook assumes an effective tax rate of approximately 38% and a diluted share count of 65 million. Our interest expense is estimated to be in the range of $5 to $5.5 million. Capital expenditures are expected to be $18.5 to $20 million for the year. And total depreciation and amortization expense, including the component that runs through costs of goods sold, is still projected at $12 to $12.5 million for the year.

As a reminder, fiscal 2017 is a 53-week year, with the extra week occurring in late January. We continue to estimate the extra week will add approximately $18 million in sales and less than $0.005 to diluted earnings per share.

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

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you do have a question at this time, please press the * then the 1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, you may press the # key. As well, we do ask that once you have asked your question, you please place your line on mute to prevent any background noise from entering the conference.

Our first question comes from Matthew Boss with J.P. Morgan. Your line is open.

Matthew Boss -- JPMorgan Chase & Co. -- Analyst

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

John W. Swygert -- CFO, Secretary, and Executive VP

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

Matthew Boss -- JPMorgan Chase & Co. -- Analyst

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

John W. Swygert -- CFO, Secretary, and Executive VP

Sure. Matt, the new stores are performing well, and actually, in fact, above our expectations. And they've been performing well for several years now, but we are seeing a pretty good class of stores here in 2016 and 17 that definitely are above what we would have expected based on our new store model. But the deals are driving what's in the box, and we're continuing to see that revenue increase in our stores based on the deal flow that the merchants are able to get. And as you know, we've delivered a very consistent model year after year, so we're very excited about it.

And next year, we believe we have a nice full pipeline for the new store growth. That's shaping up nicely, and we expect to see mid-teens growth in new store count next year as well.

Matthew Boss -- JPMorgan Chase & Co. -- Analyst

Great, best of luck guys.

Operator

Thank you. Our next question comes from Brad Thomas, with Keybanc Capital Markets. Your line is open.

Brad Thomas -- Keybanc Capital Markets -- Analyst

Hey, good afternoon guys, and let me add my congratulations as well. I guess first a question on the start here to the fourth quarter. Any more color on where you guys are running and, maybe more explicitly, what your comp expectations may be for this fourth quarter?

Mark Butler -- Chairman, President, and CEO

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

Jay Stasz -- Chief Accounting Officer and Senior VP-Finance

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

Brad Thomas -- Keybanc Capital Markets -- Analyst

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

John W. Swygert -- CFO, Secretary, and Executive VP

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

Brad Thomas -- Keybanc Capital Markets -- Analyst

Great, thank you so much.

Mark Butler -- Chairman, President, and CEO

Thanks, Brad.

Operator

Thank you. Our next question comes from Peter Keith with Piper Jaffray. Your line is open.

Bobby Freenor -- Piper Jaffray & Co. -- Analyst

Hi guys, it's actually Bobby Freenor on for Peter today. Thanks for taking my question. I just wanted to ask about the closeout opportunities you're seeing, specifically pertaining to consumables and branded CPG companies. I think that has pricing in an area where it remains hyper-competitive. A lot of retailers are moving more to private label, and you're seeing these branded CPGs look for new points of distribution. So, is this a dynamic you're benefiting from? If you could you just discuss the trends you're seeing in branded CPGs, that would be great. Thank you.

Mark Butler -- Chairman, President, and CEO

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

Bobby Freenor -- Piper Jaffray & Co. -- Analyst

Alright, great, and just a quick follow-up with consumables at 20% of sales, I believe. Have you given any thought to where this figure could go over the next couple years?

John W. Swygert -- CFO, Secretary, and Executive VP

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

Bobby Freenor -- Piper Jaffray & Co. -- Analyst

Alright. Thanks a lot. Good luck this quarter.

John W. Swygert -- CFO, Secretary, and Executive VP

Thank you.

Operator

Thank you. Our next question comes from Scot Ciccarelli with RBC Capital Markets. Your line is open.

Robert Iannarone -- RBC Capital Markets -- Analyst

Hey guys, actually Robert Iannarone on for Scot today. Congrats on a good quarter.

Mark Butler -- Chairman, President, and CEO

Thanks, Rob.

Robert Iannarone -- RBC Capital Markets -- Analyst

You're very welcome. Just wanted to quickly touch on the inventory growth. It's been a little bit higher, and actually this first time, I think it's just a touch higher than sales this quarter. Did that have to do with the timing of store openings, gearing up for the holidays, or just deal flow? Is there anything there that you guys can speak to?

Jay Stasz -- Chief Accounting Officer and Senior VP-Finance

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

Robert Iannarone -- RBC Capital Markets -- Analyst

Great, glad to hear it. And just one follow-up, unrelated, but more toward the Ollie's Army. Can you give us any updated metrics on member count? Kind of what percent of sales maybe those guys are doing now?

Jay Stasz -- Chief Accounting Officer and Senior VP-Finance

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

Robert Iannarone -- RBC Capital Markets -- Analyst

Thanks a lot, guys. Congrats again.

Mark Butler -- Chairman, President, and CEO

Thanks, Rob.

Operator

Thank you, our next question comes from Rick Nelson, with Stephens. Your line is open.

  1. Richard Nelson, Jr. -- Stephens Inc. -- Analyst

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

John W. Swygert -- CFO, Secretary, and Executive VP

Yeah, Rick, this is John. It's predominantly mixed shift that we're seeing in the consumable category that's driving the margin down. And we've talked about this for several quarters now, so it's not a big surprise to us, and it was expected, as we guided last year from a much higher gross margin down to the number we're at this year. So, not a big surprise there. We also had a slight improvement in the supply chain cost for the quarter as well, which is a little bit less than we had expected in that facet of the business. We're seeing a little bit of pressure on the inbound and outbound freight cost post-hurricanes, with the -- not a lot of availability on the trucking side of the business.

So, we will be able to navigate through it, and we still are confident with north of 40% gross margins for the full-year basis. We had it previously guided to about a 40.3%. Right now, we're closer to about a 40.2% on a full-year basis, from a gross margin perspective.

  1. Richard Nelson, Jr. -- Stephens Inc. -- Analyst

Gotcha, thanks for that color. Also, would like to follow up on the hurricanes: if you think that, in fact, was a headwind to the comp in the period.

John W. Swygert -- CFO, Secretary, and Executive VP

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

  1. Richard Nelson, Jr. -- Stephens Inc. -- Analyst

Gotcha. Finally, if I could ask on the HPA. You've called that out now as an area of strength for five consecutive quarters, so you're lapping some big numbers a year ago. How much more opportunity do you see in that category?

Mark Butler -- Chairman, President, and CEO

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

  1. Richard Nelson, Jr. -- Stephens Inc. -- Analyst

Sounds good. Thanks, guys, good luck.

Mark Butler -- Chairman, President, and CEO

Thanks, Rick.

Operator

Thank you. Once again, ladies and gentlemen, if you do have a question, please press * then 1 on your touchtone telephone. Our next question comes from Edward Kelly with Wells Fargo. Your line is open.

Edward Kelly -- Wells Fargo and Company -- Analyst

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

John W. Swygert -- CFO, Secretary, and Executive VP

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

Edward Kelly -- Wells Fargo and Company -- Analyst

So, just looking forward, the leverage point doesn't change very much, do you think?

John W. Swygert -- CFO, Secretary, and Executive VP

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

Edward Kelly -- Wells Fargo and Company -- Analyst

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

Mark Butler -- Chairman, President, and CEO

Yeah, I'll go first, and as I mentioned in the prepared comments, I've been wanting to do ranks for ages and ages and ages and just did not have the capabilities -- the internal capabilities of doing it. And then, of course, we've been telling everybody about phase one and phase two and the systems so that we can get our fingers around a lot more of the data that we've been gathering throughout the year. So, we're gonna be able to do the ranks, and we're gonna have a one-star, a two-star, and a three-star. And obviously, a one-star is going to be somebody who spends a certain amount of money in the year, a two-star will be more, and the three-star -- and perhaps we'll offer them additional discounts or incentives, or perhaps we'll offer them deals that might be exclusive to them only.

But everybody has to stay with me on the Ollie's Army. I'm not gonna kill these people; these are our customers. We're protected of them. We're gonna talk to them in the fashion that we know that they wanna hear from us, and we're not embedding any underlying huge numbers to it. We know what they wanna hear, we know how they wanna hear it, we know how to motivate them. We think we're gonna have additional opportunities, but I'm asking everybody to stay with us, stay with me on the planning, and I wouldn't go planning or modeling any great advantages to it.

Edward Kelly -- Wells Fargo and Company -- Analyst

Okay, excellent. Thanks, and best of luck in Q4.

Mark Butler -- Chairman, President, and CEO

Thank you.

Operator

Our next question comes from Patrick McKeever with MKM Partners. Your line is open.

Patrick McKeever -- MKM Partners -- Analyst

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

John W. Swygert -- CFO, Secretary, and Executive VP

Yeah, Patrick, this is John. With regards to the overall site selection process, we've not changed our site selection process whatsoever. We have the same team, the same individuals have head up the real estate department for many, many years. So, we are going to market the same way we have for a long period of time. Our preopening process or cadence is very, very consistent. We're doing the same thing we've done for a long period of time, so there's been really no -- nothing -- no big changes to speak of that we've done that would be driving the incremental business that we're seeing.

Are we getting slightly better sites in certain situations where we've had other retailers go out, that we've been able to secure the site that we may not have got in the past? Possibly. But I would not say that's the majority of what we're able to do. We're pretty much getting the same or similar sites that we've had in the past, and we would always say that the deal is gonna drive the performance of the stores and the excitement in the stores, that when we get the customers in, they see what we have, and they're gonna buy and spend more money. So, that's what we're seeing, from our perspective, and we're excited to see it. And one thing we'd say, it's been broad-based; it's been across all of our stores. It's not just been one geographic area; we're seeing it consistently in all of the stores we've opened this year and last year as well.

Patrick McKeever -- MKM Partners -- Analyst

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

Mark Butler -- Chairman, President, and CEO

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

Patrick McKeever -- MKM Partners -- Analyst

Got it. Okay, thanks, Mark.

Mark Butler -- Chairman, President, and CEO

Thank you.

Operator

Thank you. Once again, ladies and gentlemen, if you do have a question, please press * then 1 on your touchtone telephone. Our next question comes from Vincent Sinisi with Morgan Stanley. Your line is open.

Vincent Sinisi -- Morgan Stanley -- Analyst

Hey, terrific. Thanks, guys, very much for taking my question, and nice quarter there. Wanted to go back to one of Ed's questions, just on the SG&A opportunity. I know that you mentioned a couple times kinda above that 1-1.5 comp is where you really do see that nice leverage start to kick in, but can you just remind us a little bit with some of the -- kinda within that line where some of your bigger levers and bigger future opportunities may be going forward?

John W. Swygert -- CFO, Secretary, and Executive VP

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

Vincent Sinisi -- Morgan Stanley -- Analyst

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

Mark Butler -- Chairman, President, and CEO

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

John W. Swygert -- CFO, Secretary, and Executive VP

One thing to add to that, Vince, probably what we would expect is we would probably have both of those rolled out sometime by the first half of 2018. Obviously, it would not come together, but they'd be lined up back to back. But hopefully, both will be out by the first half of next year.

Vincent Sinisi -- Morgan Stanley -- Analyst

Okay, perfect. Thanks very much. Good luck guys.

Mark Butler -- Chairman, President, and CEO

Thank you.

Operator

Our next question comes from Alvin Concepcion with Citi. Your line is open.

Alvin Concepcion -- Citigroup -- Analyst

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

Mark Butler -- Chairman, President, and CEO

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

John W. Swygert -- CFO, Secretary, and Executive VP

1 to 2.

Jay Stasz -- Chief Accounting Officer and Senior VP-Finance

1 to 2, but we go back ten years.

Mark Butler -- Chairman, President, and CEO

1 to 2. I'm sorry. 2% comp. So, I think it's the consistency in the model. We went Q1 at a 1-7, Q2 at a 4-5, the spinners were in there, and Q3, we're at a 2-1. That's what I'm asking. We're asking everybody to stick with, everybody to understand how we run the business, how we budget the business, how we model the business, and then as I've said, as we've said, we just don't turn the registers off when we hit 2. If we can get more, we're gonna get more, but this is the way we run the business, and we think that's the right way and the most prudent and appropriate way to run the business.

Alvin Concepcion -- Citigroup -- Analyst

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

 John W. Swygert -- CFO, Secretary, and Executive VP

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

Alvin Concepcion -- Citigroup -- Analyst

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

Jay Stasz -- Chief Accounting Officer and Senior VP-Finance

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

Alvin Concepcion -- Citigroup -- Analyst

Thank you very much.

Jay Stasz -- Chief Accounting Officer and Senior VP-Finance

Thank you.

Operator

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

Mark Butler -- Chairman, President, and CEO

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

Operator

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

Duration: 40 minutes

Call participants:

Jay Stasz -- Chief Accounting Officer and Senior VP-Finance

Mark Butler -- Chairman, President, and CEO

John W. Swygert -- CFO, Secretary, and Executive VP

Matthew Boss -- JPMorgan Chase & Co. -- Analyst

Brad Thomas -- Keybanc Capital Markets -- Analyst

Bobby Freenor -- Piper Jaffray & Co. -- Analyst

Robert Iannarone -- RBC Capital Markets -- Analyst

  1. Richard Nelson, Jr. -- Stephens Inc. -- Analyst

Patrick McKeever -- MKM Partners -- Analyst

Vincent Sinisi -- Morgan Stanley -- Analyst

Alvin Concepcion -- Citigroup -- Analyst

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