Ollie's Bargain Outlet (NASDAQ:OLLI) released second-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.
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Summary
Ollie's Bargain Outlet reported a 9.1% increase in net sales to $741 million, driven by new store openings despite a 1.8% decline in comparable store sales.
The company opened 50 new stores in Q2, bringing the total to 42 for the first half of the year, aiming for a full-year target of 75 new stores.
Gross margin rose by 360 basis points to 43.5%, primarily due to IEIPA tariff refunds, offsetting higher transport costs and price investments.
Adjusted net income increased 40% to $85 million, and adjusted EPS rose 43% to $1.42. The company repurchased $84 million of its stock in the quarter.
Ollie's updated its full-year guidance to reflect recent sales trends, forecasting net sales of $2.928 to $2.941 billion and comparable store sales growth of flat to positive 0.5%.
Management noted that the consumer remains resilient but selective, with higher-income customers trading down and lower-income customers prioritizing needs.
Strategically, the company focuses on optimizing its assortment and category mix, with a test-and-learn approach to improve merchandising and customer experience.
Ollie's is investing in its supply chain, having completed the expansion of its Texas distribution center and planning to expand its Illinois facility.
Despite a challenging Q2, management remains confident in long-term growth, emphasizing value and continued engagement with loyal customers.
Full Transcript
Carmen, Operator
Good morning and welcome to Ollie's Bargain Outlet conference call to discuss financial results for the second quarter of fiscal year 2026. Please be advised that this call is being recorded and the reproduction of this call in whole or in part permitted without the express written authorization of Ollie's. I would now like to introduce our host for today's call, John Rollo, Managing Director of Corporate Communications and Business Development for Ollie's. John, please go ahead.
John Rollo, Managing Director of Corporate Communications and Business Development
Thank you, Carmen. Good morning everybody. We appreciate your time and participation. Joining me on today's call from Ollie's are Eric van der Valk, President and Chief Executive Officer, and Robert Helm, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions. We ask that you please limit yourself to one question so that we can get to as many people as possible within the one hour time limit.
Finally, let me remind you that certain comments made on today's call may constitute forward-looking statements and these are made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in the Company's earnings press release and filings with the SEC, including the Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Forward-looking statements are made as of the date of this call and the Company does not undertake any obligation to update these statements on today's call. The Company will also be referring to certain non-GAAP financial measures. Reconciliations of the most closely comparable GAAP financial measures to the non-GAAP financial measures are included in the Company's earnings press release. With all of that said, it's now my pleasure to turn the call over to Eric.
Eric van der Valk, President & CEO
Good morning and thank you for joining us today. We delivered strong earnings growth in the second quarter and continue to execute against our strategic initiatives. Comparable store sales declined 1.8% against a challenging multi-year stack. We believe our sales results were negatively impacted by the combination of less favorable weather, continued economic pressure on the consumer, and an elevated promotional environment, which all led to a more challenging backdrop than we originally expected.
Outside of weather-impacted categories, the broader business performed generally in line with our expectations and we continue to see customers actively seeking value. The consumer remains resilient but increasingly selective in how they choose to spend. Lower-income customers are prioritizing needs over wants, shopping closer to need, and in many cases delaying discretionary purchases where they can, while higher-income customers continue to trade down in search of value.
For over 40 years we have combined extreme value, well-known brands, and an ever-changing assortment to deliver a treasure hunt shopping experience unlike anything else in retail. Our assortment spans both the consumable products that customers need and the discretionary products that they want. Customers come to Ollie's because they know they can find good stuff cheap and every visit offers something new and unexpected. The treasure hunt experience creates a sense of excitement and discovery that keeps customers coming back and helps build a deeper connection with our brand.
The combination of price, brands, newness, and unexpected finds remains a powerful differentiator for us. Many of the same pressures affecting consumers today are also expanding closeout availability. Our deal flow remains extremely strong, giving us additional opportunities to sharpen our value proposition. At the same time, we are focused on controlling what we can control by optimizing our assortment and category mix. Our flexible closeout model gives us the ability to pursue exceptional deals while strengthening categories that are driving demand.
We are all about growth and our growth starts with opening new stores and acquiring new customers. We opened 50 new stores during the second quarter and 42 during the first half of the year, more than halfway to our full year target of 75. We are investing in our loyal customer base through events and programs that strengthen engagement and deepen our connection with customers. During the quarter, we held another successful Ollie's Army Night and wrapped our annual Ollie Days events around our country's 250th birthday celebration.
Despite some weather-related challenges, both events drove even stronger customer acquisition engagement than the year before. Ollie's Army members increased 13% versus last year and we ended the period with over 18 million Bargainauts. At the same time, we are managing our assortment and floor space allocation to better align with today's customer while driving more value and newness. We are expanding categories with a strong product pipeline and white space in the market: protein and energy products, beverage, seasonal decor, and living room furniture as well as decorative pillows were great examples of this.
Most importantly, we are doing this through a disciplined test-and-learn approach that allows us to move quickly, make better merchandising decisions, improve the customer experience, and increase sales productivity. Beyond merchandising, we continue to invest in our supply chain to support growth, improve efficiency across the network, and enhance our ability to serve our customers. We recently completed the expansion of our Texas distribution center and operations have now normalized.
In the coming months we will begin expanding our Illinois distribution facility with a planned completion date around this time next year. Together, these investments continue to expand capacity, improve execution, and support our long-term growth plans. While we are not satisfied with our second quarter sales performance, we are moving swiftly to execute against our key strategic initiatives with the guiding principle of always putting the needs of our customers first.
We are tempering our near-term expectations to reflect the current environment, but that does not diminish in any way our confidence in the long-term profitable growth of our business. Value always wins. It will remain our durable competitive advantage. Before I turn the call over to Rob, I want to thank our entire Ollie's team. Running a closeout retail business is hard work. It takes discipline, creativity, flexibility, and relentless execution every day.
Our associates continue to work hard servicing our customers and bringing good stuff cheap to our loyal Bargainauts and I appreciate them more than words could ever express.
Robert Helm, Executive Vice President and Chief Financial Officer
Thanks, Eric, and good morning, everyone. We delivered strong earnings growth in the second quarter amid a challenging environment. Earnings were better than expected driven by IEIPA tariff refunds received in the quarter despite net sales performance below our expectations. Now let me walk you through the results for the quarter. Net sales increased 9.1% to $741 million driven by new store openings. Comparable store sales decreased 1.8% driven by flat transactions and a decrease in basket.
As a reminder, the second quarter was a difficult comparison where we faced mid- to high-single-digit comp increases in each of the prior three years. Top-performing categories were toys, general merchandise, summer furniture, candy, and seasonal decor. We saw softer performance in weather-sensitive categories, particularly early in the quarter. Gross margin increased 360 basis points to 43.5%. The increase was driven primarily by IEIPA tariff refunds.
Tariff refunds benefited gross margin by 380 basis points in this year's second quarter. Merchandise margin decreased primarily related to investments in price. Transport costs remain elevated, but this was more than offset by lower tariff rates. SG&A expenses as a percentage of net sales increased 80 basis points to 26.6%, primarily driven by the deleverage of fixed costs from the decline in comparable store sales and higher marketing expenses related to one incremental merchandise flyer in the quarter.
Pre-opening expenses decreased 42% to $5 million, driven primarily from a fewer number of new store openings and lower dark rent expense. Moving down to the bottom line, adjusted net income increased 40% to $85 million and adjusted earnings per share increased 43% to $1.42. Lastly, adjusted EBITDA increased 36% to $127 million and adjusted EBITDA margin increased 330 basis points to 17.1% for the quarter. Turning to the balance sheet, our total cash and investments increased 10% to $507 million and we continue to have no meaningful long-term debt at quarter end.
We continue to deploy our capital opportunistically and again stepped up our buyback and repurchased $84 million of our common stock in the quarter. Through the first half of the year, we have bought back 1.6 million common shares at a cost of $137 million. At the end of the second quarter, $122 million remained available for future share repurchases under the current share repurchase authorization. Inventories increased 11% year over year, primarily driven by our new store growth.
Capital expenditures were $43 million in the quarter, with the majority of the spending going towards the opening of new stores, improvements to existing stores, and the expansion of our Texas distribution center. Now let me wrap up with commentary about our outlook for the full fiscal year. Our updated outlook reflects two key changes. First, we have updated our second half sales assumptions to better align with recent sales trends and the current environment.
Second, the outlook now includes IEIPA tariff refunds received in the second quarter, which we have already started deploying in additional price investments to strengthen our competitive position. Details of our revised fiscal 2026 outlook are included in our earnings press release issued this morning. At a high level, our outlook assumes 75 new store openings, 2 store closures from storm damage, net sales of $2.928 to $2.941 billion, comparable store sales growth of flat to positive 0.5%, gross margin in the range of 41.3%, operating income of $345 to $350 million, adjusted net income of $275 to $279 million, and adjusted net income per share of $4.57 to $4.65. Let me provide you with a little more color on our guidance starting with comps. We are now planning the back half in line with our second quarter two-year stack, which translates into comp growth close to flat in the third quarter and up 1% in the fourth quarter. Moving on to gross margin. There are a lot of dynamics at play here, but our core fundamental thinking around gross margin is unchanged. Our outlook now includes $28 million of tariff refunds net of a 50 basis point investment in price, some of which we've already begun to deploy in the second quarter.
On the supply chain side, we have assumed that current tariff rates and fuel costs remain in place for the balance of the fiscal year. Depreciation and amortization expense is planned at $62 million, inclusive of $15 million included in cost of goods sold; pre-opening expenses of $21 million; interest income of $22 million, which includes $1 million of interest associated with the tariff refund in the second quarter; an annual effective tax rate of approximately 25%, which excludes the tax benefits related to stock-based compensation; diluted weighted average shares outstanding of approximately 60 million, which now includes a higher share repurchase level of $175 million; and capital expenditures in the range of $103 to $113 million. In closing, while our outlook reflects a more measured view of the near term, our confidence in the long-term growth opportunity remains unchanged. We continue to see significant runway for growth, maintain a strong balance sheet, and are making disciplined investments to strengthen our value leadership position, support our future growth, and create long-term shareholder value.
Before turning it back to Eric, let me also express a heartfelt thanks to all of our hardworking team members across the country. I'm grateful for everything they do to serve our customers each day.
Eric van der Valk, President & CEO
Thanks, Rob. Our team is focused on execution across the business and passionately committed to serving our communities by delivering extreme value on products people want and need. We offer real bargains on real brands in a thrilling, fun, and quirky environment that is like no other in retail. The treasure hunt remains alive and well at Ollie's. Operator, we are now ready for questions.
Carmen, Operator
Thank you so much. And as a reminder, to ask a question, press star 11 on your telephone and wait for your name to be announced. To remove yourself, press star 11 again. And as a reminder, please limit your questions to one. One moment for our first question, please. It comes from Brad Thomas with KeyBanc Capital Markets. Please proceed.
Brad Thomas, Analyst at KeyBanc Capital Markets
Good morning. Thanks for taking the question. I appreciate the updated guidance and wanted to ask about changing behaviors on the consumer front. We know that that was starting to occur within 1Q to some extent and just wondering if you all could speak to how the consumer may be shopping stores differently or visiting less based on some of the factors out there like higher gasoline prices, price investments from the competitors, things like that.
Again, just speaking about what you're seeing from your consumer.
Carmen, Operator
Thank you.
Eric van der Valk, President & CEO
Sure. Thanks for your question, Brad. The consumer remains resilient. We do continue to see strong engagement. Traffic was—just to remind you—flat for the quarter, which was relatively consistent to the first quarter. Shopping frequency was down slightly and new customer acquisition was up consistent with the previous quarter. The lower-income consumer is being very selective, prioritizing needs, meaning a little bit heavier in the consumable-related businesses, shopping a little bit less frequently.
To your question about fuel, we're continuing to see that dynamic that started in March of Q1 where customers are staying closer to home if they live outside of a certain radius of our stores. And that does tend to connect to income, meaning the lower that consumer is on the income scale, the less likely it is for them to travel if they're outside of a certain radius. Depending on whether they're in a suburban or rural area, they're potentially willing to drive a little bit further in a rural area.
But when you look at this by region, in our western trade areas, which includes parts of the Midwest and Texas, we're seeing—where they tend to have longer drive times—that there's even more of a headwind related to fuel with that consumer. And finally, just to speak to the trade down, we are continuing to see higher-income customers trading down and we're drawing that line at around $100,000 in household income and above.
Carmen, Operator
One moment for our next question, please. It comes from Steve Shemesh with RBC Capital Markets. Please proceed.
Steve Shemesh, Analyst at RBC Capital Markets
Good morning and thank you for taking the question. As I think about your 2026 comp guide, it implies a modest acceleration in the back half if we adjust for the flyer timing shift. Can you speak to the comp cadence throughout the quarter, where you're trending 3Q to date, and just anything else that's giving you confidence in that acceleration? Thank you.
Robert Helm, Executive Vice President and Chief Financial Officer
Hi Steve, this is Rob. I'll take that question. So for the second quarter, high level, the weather just did not play out as favorably as we had hoped when we set the guidance in June. When you click into the trends, we entered the second quarter with a down transactions trend. We're very encouraged to see that during each month of the quarter that sequentially improved. We also actually ended the quarter with a positive transaction trend, so that was good to see.
Basket followed a very similar trajectory and basket ended the quarter flat. However, it wasn't enough to make up for the dip in seasonal performance early in the quarter as the weather-sensitive categories were most impacted. Consumables continue to perform well. We see that trend at mid-single digits, as we've seen in prior quarters. And then, similar to Q1, we saw some softness in the home improvement categories, which has more or less remained the same.
From an August-to-date perspective, we updated our guidance today. Our comp guidance is flat for the third quarter. Right now our August results are running ahead of the plan that we used to build that guidance. That assumes the flyer shift, as you mentioned, and a Labor Day shift as well.
Carmen, Operator
And for our next question, that comes from Randy Konik with Jefferies. Please proceed.
Randy Konik, Analyst at Jefferies
Thanks a lot and good morning. I guess maybe, Rob, for you, give us—maybe unpack the gross margin a bit—exiting the quarter and then looking at a bit longer term balance of the year and into next year. Just give us some perspective of how you guys are balancing price investment with margin generation as we think about tariffs and different moving pieces with the consumer going forward. Thanks, guys.
Robert Helm, Executive Vice President and Chief Financial Officer
Thanks, Randy. I'll take the first part and I'll hand it off to Eric for the second part. From the gross margin perspective, it was certainly a noisy quarter with the tariff refund. The tariff refund accounted for 380 basis points. As I mentioned in my prepared remarks, that was offset by a price investment related to those tariff refunds and mainly concentrated around weather-sensitive categories. To quantify that, about 70 basis points. Ex those, that's about 310 basis points.
Our gross margin would have been above our guide for the quarter, which was 39.9. We would have come in around 40.3 to 40.4.
Eric van der Valk, President & CEO
Yeah, I'll take the second part of your question. Just thinking about where we are, how we navigated Q2 and then how we're looking at the balance of the year. I think it's important to be said that we are an everyday low-priced retailer. We build trust with customers by being the lowest price in the market on items every day. Promotional pricing, like high-low pricing, excessive coupons, we believe for us erodes customer trust and damages our value proposition, which we take very seriously.
We balance price and margin very carefully, selectively around items, deals, and categories. So when you look back on the second quarter, our price investments were primarily in existing Ollie's Army loyalty events, making those events even more compelling. Like Ollie's Army Night and Ollie Days, we discounted seasonally relevant products such as fans and ACs, lawn and garden, and patio furniture. Extremely relevant. And they were businesses that were challenged as of mid-quarter, which timed well with our Ollie Day and Ollie's Army Night events.
We planned the event at seven days versus five days — so plus two days. In addition to that, which was really planned that way around Independence Day and the timing of Mega Pay Week, we also tested well. We extended that event by two days. As we looked at the promotional climate and the weather lineup, we ended up extending it by two days. We also tested a personalized offer to incentivize our customers, motivate them if they're outside of a certain drive radius of stores.
We call it Five for the Drive, which is a $5 discount on a basket threshold. On the product side, we invested in trend-right and seasonally relevant product that we know will drive traffic, meaning made price investments to make the prices even more sharp, to really get attention of customers. So some examples of that: trend toys, patio furniture, and pool chemicals. So that informs our strategy for the back half of the year. And we've learned as a result of some of these tactics we've deployed what is most productive in motivating the customer.
So as we move into the third quarter, we're lighter on Ollie's Army promotional activities. So our price investments are more focused on flyer events and special deals in flyers. We are planning for the full year to invest approximately $15 million in price investments and will not hesitate to invest beyond this level to strengthen our price leadership position. We do believe this is the most important element of our model customers and it's the best thing for us over the long term.
Carmen, Operator
Thank you. Our next question comes from Jeremy Hamling with Craig-Hallum Capital Group. Please proceed.
Jeremy Hamling, Analyst at Craig-Hallum Capital Group
Thanks for taking the question. So a lot of moving parts in here and just want to make sure to understand, you know, kind of the change in expectations. You know, first just in Q2, I think if we, you know, back out the tariff refunds, it looks like it's maybe about a 35 cent impact to EPS on the quarter. Just wanted to confirm that. And then as we think about the change in kind of comp expectations, you know, in what obviously didn't execute from early June when you guided through the end of the quarter to what you're expecting now.
I think you said that you're expecting flattish comps here in Q3 and then plus one in Q4. The compares are a little bit tougher in Q4. So just want to understand if that's more a reflection of thinking the price investments are going to have a more meaningful impact and then just confirming that you're running ahead of kind of that flat expectation in Q3 so far.
Robert Helm, Executive Vice President and Chief Financial Officer
Thanks, Jeremy. That's a mouthful. So I'll try to answer all those as succinctly as I can from a Q2 perspective. The quarter obviously did not play out as we had hoped when we set our guidance back in June. The major shortfall was on the top line, and it's hard for us to parse out how much that was weather versus promotional environment versus state of the consumer since all that more or less happened at the same time. Now, the environment around tariffs and the impacts, you're right, it's 35 cents.
That was offset by a 70 basis point investment in price, which we believe probably would not have happened if these tariff refunds were not available out there to fund promotions across the space. So we kind of tethered those both together, and that had an impact to other items within Q2. We continue to see shrink performing favorably. We continue to see supply chain efficiencies, and we're starting to burn in, really, the benefits from the Princeton D.C. and having that operating at scale. SG&A delevered, obviously, on the negative comp. But depreciation, pre-opening, taxes were all in line with our expectations. And then obviously share repo was opportunistic and above our expectations, which supported earnings. From an outlook perspective, we lowered the sales guidance in the second half. We did that to reflect the trends that we saw in the first half and the environment. There is a slight acceleration in the fourth quarter which I think Eric will touch on in a moment — our thought process there.
But from the rest of the guide, gross margin was higher between I think it was like 52 or 53 basis points, which is really driven by the tariff refund, which is roughly 100 basis points on the year, offset by 50 basis points of price investment including what we've already done in the second quarter. We also flowed through a small benefit relative to lower shrink and supply chain costs. There is some slight deleverage in the lower sales, and we did take the opportunity to step up the share repurchase in our guidance to $175 million today.
Eric van der Valk, President & CEO
Yes, I think, Jeremy, just to add a little color on Q4. We're particularly excited about Q4 in part because there are some really big shopping days and events that occur in Q4 — Black Friday, as an example, or Ollie's Army Night in the days leading up to Christmas, which have been increasingly strong for us over the years. And we're very excited about the deal flow that we're seeing and what we're able to secure to excite the customer in that period.
And also we have a little bit of flexibility around how we invest in those events that time of the year — just a different time of the year. Also, on a macro basis, we're seeing customers shop closer to need and that tends to be sort of the nature of the holiday season. So we kind of like the macro setup, but this is more about deal flow and Ollie's Army loyalty-related events are, let's say, slight optimism on the acceleration in Q4 in the Q4 guide.
Carmen, Operator
Thank you. One moment for our next question. It comes from Steven Chalcone with Citi. Please proceed.
Steven Chalcone, Analyst at Citi
Good morning. Thanks very much for taking my question. I wanted to follow up on the category performance in the second quarter. Can you help us isolate how much seasonal weather drag and then help us understand some of the category productivity initiatives you have and more color on some of the merchandise assortment changes you're making.
Robert Helm, Executive Vice President and Chief Financial Officer
Hey Steve, it's Rob. I can quantify the seasonal drag. So just a straight math on lawn, garden and room air. The categories themselves would have been just over 100 basis points of drag year over year. However, those are businesses that drive traffic and drive folks into our store. And you've been to our store before, it's hard not to put another item in your basket. So given the attachment and everything else associated with that, we'd anticipate the drag to be even more meaningful than that.
Calling out an exact number, it's hard to parse out the difference between weather, the consumer, and the elevated promotional environment. So I don't want to give you an imprecise number, but it was meaningful and above the straight category math.
Eric van der Valk, President & CEO
Yeah, Steve, in terms of category performance, we're pleased with the progress that we're making in improving category productivity, especially in seasonal and the furniture businesses. It's not necessarily material enough for us to move the needle in Q2, but we are continuing to make progress. We're taking this test-and-learn approach informed by both data analysis and qualitative evaluation of categories — reallocating inventory and space to categories where we see the white space in the market, away from categories with low sales productivity that we believe are crowded by competition.
Most importantly, decisions to introduce or expand categories start with the existence of a robust sourcing pipeline of deep-discount closeout product. We've been methodical in our approach to ensure we understand the customer response before we make any major changes. So test and learn in a handful of stores and really try to understand what's working, what isn't working, and then roll from there. So a lot more to come on this. We're very excited about the progress.
Carmen, Operator
Thank you. Our next question comes from Edward Kelly with Wells Fargo. Please proceed.
Edward Kelly, Analyst at Wells Fargo Securities
Yeah, hi, good morning, guys. Thanks for taking my question. Eric, can we just take a step back on the comp, and I'm just kind of curious as you sort of assess things in here. You talk a little bit about assortment optimization and I'm curious as to whether you think any of the weakness in the business relates to the availability of, let's call it, you know, wow, discretionary items — let's call it newness in the flyer, newness in the stores — and the availability of that product versus, you know, what we know is availability of closeout overall.
Is that having any impact? And then the second question here, just again trying to dissect comps. How are the Big Lots stores comping as they are rolling in relative to the base?
Eric van der Valk, President & CEO
Sure, yeah, Ed, I'll take the first part of the question. The closeout pipeline continues to be strong, so the short answer to your question is no. Closeout availability is not a reason for a softer comp in Q2. I would point to all the things Rob just mentioned — kind of the collision of a promotional environment, unfavorable weather, and a consumer that's under some pressure is more the reason for Q2 coming in below expectations. You think about the product categories that are most important that time of the year.
We were very happy with the deal flow related to those categories, but they don't — the categories don't necessarily resonate when the weather doesn't cooperate. It's an opportunity too to just talk about deal flow in general. As we move forward and where we sit, we feel very good about our deal flow. It remains strong. We look at this environment we're in and causation of deal flow in this moment, and this competition for customer attention — especially some of these very rapidly moving price investments — tend to be focused more on consumables or, if you look back on Q2, on some of the seasonal categories that I believe we were all struggling to sell, especially the first half of the quarter. Those price investments, that price competition, that competition for market share, for attention — they all create closeouts. And we're seeing that. And then the other comment to add color is the deal flow in summer seasonal, weather-impacted categories is especially strong in this moment. So that makes for a very good setup for next year in terms of the value we could deliver to the consumer when we come up on Q2.
Robert Helm, Executive Vice President and Chief Financial Officer
From a Big Lots stores perspective, we talked about this a bit over the last couple of quarters. They're in the second year now, up against the honeymoon period from the grand opening. Typically our model would be to see a reverse waterfall where we'd see a negative mid-single-digit to even a high-single-digit negative in the second year. We're seeing that moderate in part because of the soft opening approach that we've taken. So we're seeing more of a low to mid, and that trend still is holding.
Carmen, Operator
One moment for our next question. That comes from Matthew Boss with J.P. Morgan. Please proceed.
Matthew Boss, Analyst at JPMorgan
Great, thanks. So Eric, on the flat same-store sales this year versus the 2% algorithm that you had laid out multi-year. So continued strong deal flow you cited and the price investment this year — I guess what do you think is making up the 200 basis point delta for this year, and then what's your confidence to anniversary all of these actions and reaccelerate comps next year?
Eric van der Valk, President & CEO
Sure. So when you look at Q2, a lot of this pressure that we're talking about occurred through the first half of the quarter, and it was challenging to have the crystal ball as to how the quarter would play out related especially to the pressure on seasonal business. So we believe that as we move into Q2 of next year, first of all that we'd have a more average weather-related condition. And we believe that a lot of what we were doing with price investments is a reaction to the competitive environment and ensuring that our values continue to stand out in an environment where a lot of our competitors were investing in price, especially the liquidation of weather-impacted categories. So that's an unusual environment. So, like I guess Matt said in very plain English, there isn't going to be this windfall of tariff refund to the extent that we know it this time next year, which doesn't provide the checkbook for accelerated price investments, along with weather that just did not cooperate. I can't speak for the state of the consumer a year from now. I have a hard time speaking for the state of the consumer a month from now.
So that's a question. Where fuel prices may land too is a question. And then Matt, overall our model is built to comp. Our buyers are able to buy the best values in the marketplace, which gives us the opportunity to drive comps year in, year out. Stores of all vintages continue to comp, even some of our oldest stores. And as you know, you've been following the story a very long time. Our track record on comp has been very good over the 10-year time horizon where we've been a public company — I think only three years where we've negatively comped during that time period.
And most of that was related to COVID and some of our own internal challenges. So I think after this environment clears, to Eric's point, I think that this is a weird year and that we'll be back to operating like Ollie's in ’27 and beyond.
Matthew Boss, Analyst at JPMorgan
Helpful color. Best of luck.
Eric van der Valk, President & CEO
Thanks, Matt.
Carmen, Operator
Thank you. And our next question comes from Anthony Chukumba with Loop Capital Markets. Please proceed.
Anthony Chukumba, Analyst at Loop Capital Markets
Good morning. Thank you so much for taking my question. So I had a question about seasonal, more from the perspective of is there anything we have to be concerned with with winter? In other words, obviously you were definitely negatively impacted in air conditioners and outdoor furniture — as you said, it was at least 100 basis points of comp, probably more. Is there any big winter product, seasonal sales that we need to kind of be aware of or keep an eye on?
Or is it much more of kind of a summer phenomenon?
Eric van der Valk, President & CEO
Thank you. Thanks, Anthony. It's definitely more of a summer phenomenon. So when you look at the back half of the year, there's a little bit of question around kind of October, November, as you're kind of transitioning from Q3 into Q4 as to where the weather falls — has some impact, but it's really a matter of weeks. You look at the meaningfulness, the materiality of the winter weather-impacted categories and it's less than it is in the summer. So it's not nothing, but it's less material.
Robert Helm, Executive Vice President and Chief Financial Officer
And so when we look at stacks, Anthony, as well, the third and fourth quarter — when you look farther back in the three- and four-year stacks — we're up against much more moderated stacks. The second quarter was by far the toughest comparison that we're going to have all year long, and probably one of the toughest comparisons we've had as a company, because we've had multiyear strength in the second quarter.
Carmen, Operator
Thank you. Our next question is from Peter Keith with Piper Sandler. Please proceed.
Sarah Morenheim, Analyst at Piper Sandler (for Peter Keith)
Hi, good morning, this is Sarah Morenheim for Peter Keith. Thanks for taking our question. Just looking towards 2027, how much visibility do you have into the new store pipeline, and have you been seeing any changes in quality or availability of the locations given the current retail environment?
Eric van der Valk, President & CEO
No real changes to the environment. Real estate availability remains very good. We continue to be ahead of the pipeline and we feel very confident about next year. We have our pipeline mainly in place for the upcoming year. 2028 and beyond, we're not speaking about yet and we'll update it at a point in the future.
Carmen, Operator
One moment for our next question. It comes from Scott Ciccarelli with Truist. Please proceed.
Scott Ciccarelli, Analyst at Truist
Good morning, guys. Thanks for the time. I guess I still have some questions around your comments on the promotional environment. I guess just given your closeout model, I don't really recall competitive promotions as a big factor you've historically faced or at least noted in the past, so any color around that would be helpful. And then also, why couldn't we see an acceleration in promotional intensity, as it seems like a lot of retailers are planning to invest back in price in the back half.
Eric van der Valk, President & CEO
I'm not sure I understand the second part of your question, but what do you mean by acceleration, Scott?
Scott Ciccarelli, Analyst at Truist
Well, just in terms of most of the companies that have reported over the last couple weeks, they're all talking about investing more in price in the back half. And so if we saw heightened promotional activity for you guys in the second quarter, is that kind of built into the model? You guys are assuming it's going to be even deeper promotions from all the competitors out there.
Eric van der Valk, President & CEO
I got you. Okay. Yeah, in the second quarter — you're right in what you're saying, Scott — we typically don't talk about the promotional environment. This was a highly unusual environment. I think with the combination of tariff-fueled price investments that were more exaggerated in the middle of the quarter, in addition to drag on seasonal weather, summer weather-impacted categories, and some of the clearance activity that took place out there that was much more aggressive than we've seen in the past, it did cause us to think a little bit differently about how we liquidate businesses and how we price certain goods.
And I called out some examples earlier. As you look into the back half of the year, we've communicated that we're spending $15 million over the course of the year, and I think $10 million-ish of that is in the back half. So we are expecting to continue to invest in price. And I'll just emphasize, not knowing with certainty what the environment is going to look like from a promotion standpoint, that if we need to invest more than $15 million, we will.
We'll ensure that we are the price leader. We'll ensure that we maintain our price gaps and that we have the attention of the customer as we move into the back half of the year. I can't speak to what retailers did in Q2 versus the back half of the year and how they chose to report that out, how they invested, and whether some of those investments are more back-half weighted. I can only tell you what we're doing, and primarily that is to make sure we're the best price in the market.
Scott Ciccarelli, Analyst at Truist
Understood. Thank you.
Carmen, Operator
Thank you. Our next question comes from Simeon Gottman with Morgan Stanley. Please proceed.
Simeon Gottman, Analyst at Morgan Stanley
Hey, thanks. Good morning, guys. So if you look back at when Ollie's had comped negative, it was almost always lapping a big compare the prior year — which you are a little bit — following a lot of rapid store growth, which you've had. And then you've also cited some weather effects and you've always recovered from it. But can you try to isolate the weather effects? Not all regions probably have the same impact. And then, as far as rapid store growth, are there regions where there's perhaps less cannibalization?
So are you able to pinpoint maybe with more precision some of these sort of one-time headwinds to your comp so we can understand, I guess, the recovery back? Thank you.
Robert Helm, Executive Vice President and Chief Financial Officer
Sure. Simeon, this is Rob. I'll take that. I gave some quantification earlier — that's about the best that I can quantify. I can add the qualitative that we've seen the most softness in comp in parts of the Midwest and Texas. The challenge that we have in terms of isolating and pinpointing is there are two dynamics at play in those regions. One, they had the greatest degree of unseasonable weather, and two, they happen to have the longest driving times, which are impactful when you're thinking about an elevated gas price environment.
Both of those phenomena we would deem to be somewhat transitory. So I hope in a nutshell in there that gives you the answer that you're looking for in terms of when you can think about a return to a more regular comp cadence.
Simeon Gottman, Analyst at Morgan Stanley
Thank you.
Carmen, Operator
Thank you so much. Our next question is from Chuck Grom with Gordon Haskett. Please proceed.
Chuck Grom, Analyst at Gordon Haskett
Hey, thanks. Just as we exit 2026, can you clarify what the jumping point is going to be for gross margins? You know you're guiding to 41.3. I think there's a 50 basis point net positive impact here from the refunds. Just how do we think about the jumping point from that? And then can you just remind us, when you move a circular or a flyer from one quarter to another, how much that positively impacted 2Q results? And then the last one for me, just on the quarter to date — I know you don't like to go there, but it does sound like it's positive.
But I think you're net neutral now on flyers. I know you just dropped one this morning, so just three quick ones for me. Thank you.
Robert Helm, Executive Vice President and Chief Financial Officer
I'll answer about the gross margin algo, and then I think Eric will take the flyer, and then hopefully somebody else will take the third question. From an algo perspective, you know, our views on the business haven't really changed over the longer term. Even though we're in this short-term kind of moment in time, we are still on the long-term target of 40.5%. You're right to call out the additional 50 bps from the net tariff noise — from the refunds, less the price investments in the short term.
Our view is the current pricing environment is being fueled in large part by tariff refunds, which are limited, finite in terms of dollars, and represent a moment in time. We think that likely plays out over the balance of this year. To some of the earlier comments that were made, zooming out beyond this year, our strategy remains being the lowest price in the market anywhere and maintaining our leadership position in value and price gaps over retailers.
Our flexible buying model allows us to drive this value with customers while delivering great returns to shareholders. And we continue to see more leverage from scale. But we're not ready to change any thinking relative to how we think about gross margin.
Eric van der Valk, President & CEO
Yeah, Chuck, I'll take the flyer question. You know, it's probably important to talk about why we did what we did, and I think we talked a little bit about this on the Q1 call. You know, we do routinely make changes to flyer timing based on the way the calendar sets up. Primarily in this case, we actually made the change because in the past we've not run a flyer event between holidays and early to mid August. So we've been kind of dark on communicating in that way to the customer over a fairly elongated period of time.
When you consider we're out there at least monthly, if not more often the rest of the year. We saw white space in deep-discount closeout product for back to school and back to college and didn't like that we were dark for that elongated period of time. So we shifted the flyer, as you indicated, from August into the last week of July. I think it's important to consider that that flyer occurred at the very end of July, so it was just a handful of days that fell into August.
And the reason I think the setup for the thought process on why we made the move is important is it was the launch introduction of newness with the back to college, back to school businesses. So it wasn't just about the flyer event and the impact of marketing around that event on one quarter versus another. It was about getting out in front of the customer with product that we felt was very relevant at a time that aligned with need. And we liked what we saw out of that.
It had a relatively immaterial impact on Q2, but it's definitely been more meaningful for Q3. And again, that's not about the flyer shift, it's about the setup of those businesses. I don't know. The quarter-to-date question I think was the last—the flyer shift in the. Well, the flyer shift is we literally get no benefit from it as of yet, Chuck, because it just literally dropped this morning. Our stores are just opening now.
Robert Helm, Executive Vice President and Chief Financial Officer
Yeah. I think the advice for those that are looking at the weekly or daily cadence of our business is to wait until end of next week—not this week, but next week—because there are inter-quarter shifts we're making as well. So I would attempt to read our business mid September. Trying to compare quarter-to-date trends to last quarter is extremely difficult. We've done it, and it's informed our guide. So I think that's the most important point to make to everyone out there.
Chuck Grom, Analyst at Gordon Haskett
Thanks guys.
Carmen, Operator
Thank you so much. One moment for our next question. It comes from Mary Sport with Bank of America. Please proceed.
Mary Sport, Analyst at Bank of America
Hey guys, good morning. I was wondering if you could just provide a few more details on performance by income cohort. I know you mentioned that you're still seeing high income trading down, but what did you see for the middle and lower incomes, and if there was some trade-out, did you see a return of those customers after you were able to implement some of those price investments during the quarter? Thanks.
Eric van der Valk, President & CEO
Sure. Yeah. When you look at Q2, it was relatively consistent to Q1. We saw on the income side—I already mentioned we saw the higher-income consumer trading down, kind of drawing the line around $100,000 household income. On the trade-out side—or not trade-out, but less frequent shopping headwind that we were seeing with lower-income consumer—we saw that relatively consistent to Q1, and we're drawing that line at $65,000 income or below. I think it's also important to note, because we're very focused on attracting a younger customer, that we're continuing to see great momentum in attracting and retaining younger consumers.
And I'm going to define it today as ages 35 to 55, especially with some strength in the 35 to 45 range. So we're very encouraged by that. We do think that our product offering has become—some of our product anyway—has become more appealing to younger customers, and that is deliberate. And we're shouting about it to consumers in a place where they tend to be looking, meaning in various digital platforms, so that we're able to reach them with our continued increasing sophistication in digital marketing.
Did I get all your questions, Mary? I don't know if I missed—
Mary Sport, Analyst at Bank of America
Yeah, super helpful.
Eric van der Valk, President & CEO
Thank you. All right, thanks.
Carmen, Operator
Thank you. One moment for our next question. It comes from Mark Cardin with UBS. Please proceed.
Matthew Rothway, Analyst at UBS (for Mark Cardin)
Hi, this is Matthew Rothway on for Mark. Thank you for taking our question. So, as it relates to your fuel price assumptions, are you still expecting a roughly 20 to 30 basis point margin headwind from fuel? Has anything changed around your thinking there? And then any initial thoughts on how you're approaching your fuel assumptions for next year? Thank you.
Robert Helm, Executive Vice President and Chief Financial Officer
Thanks. I'll take that. You're spot on. The fuel pressure continues to be in the range of, say, 20 or 30 basis points. That's what we saw in the second quarter and that's what we've got baked into the balance of the year, which is not new news—we had that in our previous guidance. As of the last call in the second quarter, however, that was completely offset, more than offset, by tariff refunds. When we think out to next year, it's just a little bit early for us to start talking about guidance for next year.
We still have a lot of year to go this year. We'll give you an update when we have our third quarter call.
Carmen, Operator
Ladies and gentlemen, this will conclude our Q and A session and conference for today. We want to thank everyone for participating and you may now disconnect.
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