Good afternoon, and welcome to Ollie's Bargain Outlet conference call to discuss financial results for the fourth quarter and full year fiscal 2021. Currently, all participants are in 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. As a reminder, this call is being recorded. On today's call from management, we have John Swygert, President and Chief Executive Officer, Jay Stasz, Senior Vice President and Chief Financial Officer, and Eric van der Valk, Executive Vice President and Chief Operating Officer. Thank you, Jonathan. Good afternoon, and welcome to Ollie's Fourth Quarter and Full Year Fiscal 2021 earnings conference call. A press release covering the company's financial results was issued this afternoon, and a copy of their press release can be found on the investor relations section of the company's website. I want to remind everyone that management's remarks on this call may contain forward-looking statements, including but not limited to predictions, expectations, or estimates, and that actual results could differ materially from those mentioned on today's call. Any such items, including with respect to our future performance, should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these forward-looking statements, which speak only as of today, and we undertake no obligation to update or revise them for any new information or future events. Factors that might affect future results may not be in our control and are discussed in our SEC filings. We encourage you to review these filings, including our annual report on Form 10-K, quarterly reports on Form 10-Q, as well as our earnings release issued earlier today. For a more detailed description of these factors, we will be referring to certain non-GAAP financial measures on today's call that we believe may be important for investors to assess our operating performance. Reconciliation of the most closely comparable GAAP financial measures to the non-GAAP financial measures are included in our earnings release. With that, I will turn the call over to John. Thanks, Jean, and hello, everyone. Thank you for joining our call today. Looking back at 2021, we navigated through numerous headwinds, including unprecedented inflation in merchandise and transportation costs, shipping delays of imported product, and backlogs at our distribution centers. We worked aggressively to control what we could control by leveraging our vast network of vendor partners, improving efficiencies in our distribution centers, and initiating negotiations of import container contracts earlier than normal, all while continuing to execute our retail expansion strategy and delivering great deals to our customers. Importantly, the changes we have made to our supply chain will enable us to navigate even better going forward. During the fourth quarter, we delivered exceptional deals to our customers and made great progress getting our distribution centers back to desired throughput levels. We were able to secure additional import container capacity, which enabled us to deliver our spring merchandise on a timely basis to our stores. We believe we're well-positioned for the spring selling season. Turning to the fourth quarter results, compared to 2019, our comparable store sales decreased 2%, in line with our expectations. We've remained focused on offering the most compelling values to our customers and are excited about the closeout opportunities we're seeing in the market today due to package changes created by inflation, supply chain challenges, canceled orders, excess inventory, overruns, and product innovation. We expect to see more deals come our way due to late arriving canceled merchandise, and we'll remain nimble to ensure we capitalize on these deals. We're seeing strong deal flow in health and beauty aids, housewares, hardware, holiday seasonal, bed and bath, automotive and pets. This type of environment plays into our strengths. Our merchant teams are nimble and able to react quickly to secure great deals that we know our customers want. The value we provide is more critical than ever as we recognize that our customer is being impacted by the rapid rise in inflation as prices for everything from gas to groceries has risen dramatically. While this leaves our customers with less discretionary income, we expect value to become increasingly important to all consumers. In addition, there are several other dynamics impacting our customers, including a shift in spending from goods to services and experiences, a lack of stimulus, and timing of tax refunds. In the long run, we know that our unique offering of compelling value will ultimately win. Turning to real estate. During the fourth quarter, we opened five new stores, ending the year with 431 stores in 29 states. We are pleased with our new store productivity levels. We are currently experiencing delays related to permitting and construction of our new stores. As a result, we plan to open between 44-46 net new stores in 2022. We remain confident that our model can support at least 1,050 stores in total and plan to resume a normal store opening cadence between 50-55 stores annually in 2023. We are excited to announce that for the first time in our company's history, we are launching a store remodel program. We plan to remodel 30 stores to our newest merchandising format in 2022. The enhancements we are making to the stores are expected to improve our customer shopping experience and to drive higher store sales overall. Ollie's Army remains an important driver of our sales, reaching over 78% sales penetration in the quarter. The Army grew 8.5% over the prior year, ending the period with over 12.6 million active members. We were pleased with Ollie's Army Night, where we once again opened our doors exclusively to Ollie's Army members for an evening of shopping and special discounts. This year marks our 40th anniversary, and we have several special events planned to celebrate this milestone. For the first time since our 25th anniversary, we are holding a contest to crown America's biggest cheapskate by asking our customers to tell us why they deserve this distinguished honor. In addition, during our week-long Ollie's Army Days event, we will be including 40 terrific deals for our 40-year anniversary celebration. We have a lineup of other great events to create excitement, and we welcome you to join in. Operationally, we have made refinements and enhancements to our supply chain due to the tighter labor market and the ongoing impact of COVID. We continue to find ways to improve efficiencies in our distribution centers, and they are running well now. Our Pennsylvania and Georgia distribution centers have been operating at full throughput levels since the end of third quarter of 2021, and our Texas DC reached its desired level in late February of this year. The 200,000 sq ft expansion of our York distribution center is awaiting final permit approvals. We plan to start construction once permits are issued and at this point in time, expect to have it completed by the end of this year. This expansion will provide us the ability to service an additional 50 stores for a total of 200-210 stores from this location. This brings the total number of stores that we can service from our distribution centers to over 550. As we continue to expand our footprint, we plan to open our fourth distribution center in the second quarter of 2024. In summary, we are excited about our 40th anniversary, our store remodel program, and the incredible deals we're seeing in the market. We feel good about our inventory position and have a strong offering of spring seasonal product for our customers. That said, we recognize that we are navigating an uncertain, highly inflationary environment. While we are confident that we will return to our long-term algorithm, we anticipate c ontinued pressure in the first half of 2022. We expect to see trends improve as we move through the second half of the year, position us to return to our long-term algorithm. We are focused on what we can control and believe that our business will benefit from an increased need for value, driving consumers to trade down. We are well-positioned to capture this customer as a closeout retailer that delivers extreme value and a treasure hunt experience. The long-term potential of our business remains firmly intact. We have a long runway to at least 1,050 stores. We have a highly loyal customer base that generates almost 80% of our sales, and our stores generate a ton of free cash flow. We remain committed to returning value to our shareholders as reflected in our increased share buyback program that we announced in December. In closing, I would like to thank the entire Ollie's team for their hard work and dedication during what has been one of the most dynamic and challenging environments in our company history. We appreciate all that you have done to serve our communities and offer the best possible experience to our customers. As we say, "We are Ollie's." I will now hand the call over to Jay to take you through our financial results. Thanks, John, and good afternoon, everyone. I want to start by thanking the entire Ollie's team for their incredible teamwork and dedication throughout the year. For the quarter, net sales totaled $501.1 million, a 2.8% decrease from the prior year. Comparable store sales decreased 10.5% in the quarter compared with the prior year. Comparable store sales compared to 2019 declined 2%. Late deliveries of key seasonal product negatively impacted early holiday sales. We had hoped that as our in-stock position improved as we moved through the quarter, we would benefit from last-minute shopping. However, we found that many of our customers shopped earlier in the holiday season. In the quarter, we opened five new stores, ending the period with 431 stores in 29 states, an 11.1% year-over-year increase in store count. Since the end of the fourth quarter, we've opened five additional stores. We plan to open 46-48 stores in 2022, including two relocations. Gross profit decreased 10.6% to $183 million, and gross margin decreased 320 basis points to 36.5% compared to 39.7% in the same period a year ago. The decline in margin was due primarily to supply chain costs, which more than offset the 170 basis point increase in merchandise margin. SG&A expenses, excluding a $100,000 gain on an insurance settlement in the quarter, increased 160 basis points to 23.8% because of deleveraging due to the decrease in sales. Adjusted operating income, which excludes the insurance settlement gain, totaled $57.3 million, a 32.1% decrease from the prior year. Adjusted operating margin decreased 500 basis points to 11.4% due to lower gross margin and deleveraging of SG&A expenses as a result of the decline in sales. Adjusted net income, which excludes the insurance gain and tax benefits related to stock-based compensation, was $43.9 million, and adjusted diluted earnings per share was $0.69. Adjusted EBITDA was $66.1 million, and Adjusted EBITDA margin decreased 470 basis points to 13.2% for the quarter. For the full year of 2021, net sales totaled $1.753 billion, a decrease of 3.1% compared to the prior year. Comparable store sales decreased 11.1% for the year and increased to 3.6% compared to 2019. Adjusted net income in 2021, which excludes the insurance gain and tax benefits related to stock-based compensation, was $152.9 million, and adjusted net income per diluted share was $2.36. Capital expenditures for the year totaled $35 million, primarily for new and existing stores. This compares with $30.5 million in the prior year. Inventories increased 32.1% to $467.3 million, compared with $353.7 million as of the end of fiscal 2020, with almost half of the variance attributable to increased supply chain costs and the remainder driven by the increased number of stores and the timing of merchandise receipts. In addition, inventories as of the end of fiscal 2020 were reduced due to heightened levels of sales productivity throughout the fourth quarter last year. Most importantly, we are comfortable with the quantity and quality of our inventory in our stores today and believe we are well positioned for the spring selling season. At the end of the period, we had no outstanding borrowings under our $100 million revolving credit facility and $247 million in cash. During the fourth quarter, we invested $20 million to repurchase approximately 435,000 shares of our common stock. For the full year, we invested $220 million to repurchase approximately 3.1 million shares of our common stock. We currently have approximately $180 million remaining on our share repurchase program. I will share some high-level thoughts on fiscal 2022. Our full year comp guidance is within the range of our long-term algorithm on a three-year basis. That said, we recognize that we are navigating an uncertain and highly inflationary environment while lapping significant stimulus in the first quarter. At the same time, we continue to face higher transportation, product, and labor costs. We believe that these factors will have a bigger impact on our first half results as we lap these headwinds and begin to benefit from the actions we are taking to offset these pressures in the second half. Based on these dynamics for the full year, we expect total net sales of $1.908 billion-$1.926 billion. Comp store sales of flat to +1% are in line with our long-term algorithm on a three-year geometric stack basis. The opening of 46-48 new stores, including two relocations. We expect to open eight stores in the first quarter, 12 in the second, 17 in the third quarter, and between 9 and 11 in the fourth quarter. We expect full year gross margin of approximately 37.2%, reflecting increased supply chain costs, especially during the first half of the year. We expect this margin pressure in the first half to result in similar year-over-year declines in gross margin in each of Q1 and Q2. We expect some sequential improvement in Q3 and a return to normalized overall gross margin levels in the fourth quarter. We expect operating income of between $182 million-$187 million. Adjusted net income of between $136 million-$140 million. Adjusted net income per diluted share of $2.15-$2.22, both of which exclude excess tax benefits related to stock-based compensation. Depreciation and amortization expense in the range of $28 million-$29 million, including approximately $6 million that runs through cost of goods sold. An effective tax rate of 25.4%, which excludes the tax benefits related to stock-based compensation, and diluted weighted average shares outstanding of approximately 63 million. We expect capital expenditures of $53 million-$58 million related to new stores, store level initiatives, our York DC expansion and IT projects. For the first quarter, we expect total sales of approximately $417 million-$422 million. We expect comp store sales to be down 15%-14% as compared to 2021. On a three-year geometric stack basis, we expect to be slightly negative in Q1 as we lap unprecedented stimulus. Gross margin is expected to be approximately 35.8%. Operating income of $26.5 million-$28 million. Adjusted net income of between $20 million and $21 million. Finally, adjusted net income per diluted share of $0.31-$0.33, both of which exclude excess tax benefits related to stock-based compensation. In closing, while we'll have pressures in the first half of 2022, we expect improvement in our margins and metrics in the back half with the expectation of returning to our long term algorithm. I'll now turn the call back to the operator to start the Q&A session. Operator? Certainly. Ladies and gentlemen, if you have a question at this time, please press star then one on your touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Bradley Thomas from KeyBanc Capital Markets. Your question, please. Hi, good afternoon, John Swygert and Jay Stasz. Wanted to ask about how you're thinking about same-store sales as we progress through the year. I think if we try and do some quick math on it, given how difficult the comparison is in Q1 to get to the full year guidance, it does imply that perhaps you may be above your normal comp outlook as we get into later quarters. Any more color you could provide on how you're thinking about comps through the year would be very helpful. Yeah, Brad, this is Jay. We really focus on the three-year geometric stack calculation, so using 2019 as the base and going, you know, forward from there. On a full year basis, that comes in at about 104%, which is right in the range of 1%-2% for those three years. To your point, Q1 is gonna be off of that, you know, by call it 4 or 5%, right? It's gonna be under, you know, it's gonna be closer to 99%, say -1% in Q1. We will have to make that up in Q2, Q3 and Q4. When we do that math, that equates to about a 105.5, call it, on a three-year geometric basis for those remaining quarters, which on a three-year average will be about 1.8%. Still within the range. That's how we're thinking of it. That's very helpful, Jay. I thought the remodeling program sounds pretty encouraging. I was hoping you could just talk a little bit more about what that entails, how much you're gonna be spending, and what sort of uptick you're looking for from those investments. Sure. Brad, this is Eric. I'll take the question. We're super excited about this initiative. We have an aging fleet of stores which will benefit from some attention. Our primary objective is to enhance the customer experience, how the customer experiences our merchandise. We're right sizing, repositioning categories to reflect our current new store format. One example is we're decreasing the linear feet committed to our books business and increasing the space we give to pets. One, I think, very good example of what we're doing. We're also improving the in-store shopping experience. Many of our older stores do not have racetracks installed, so we're installing racetracks, enhancing existing racetracks in the stores that do have them. Reconfiguring the front end, which includes adding register queues in many of these stores. I think keep in mind, and I'll get to the question, Brad, about what we're spending in a sec. We are in the deep discount business, and it's important that we retain what we like to refer to as our semi-lovely charm and that the store environment is part of how we communicate our value proposition to the customer. Our spend on average is gonna be $125,000 per store. We're in test and learn mode now. We completed two, and we just completed them in the last several weeks, so it's very early. We're pleased with what we're seeing so far. We expect the payback to be in line with the return we get on new stores. Not ready yet to say what that means in terms of a cost sales lift 'cause it's just a little bit early in the process to be able to speak to that. We'll commit in future quarters to talk more about this as we get more experience remodeling additional stores. Yeah, I think, Brad, the only thing, the only other thing I'd add to it is it's only 30 stores out of 440, so it's relatively small percentage. It's really this is the year of test and learn and see what we learn from it, and then we can step on the pedal with it in 2023 and out years. Very helpful. Thank you all so much. Thanks, Brad. Thanks, Brad. Thank you. Our next question comes from the line of Kate McShane from Goldman Sachs. Your question please. Thanks. Good afternoon. Thanks for taking our question. We wondered if you could talk a little bit about traffic and how it trended throughout the quarter. Have you seen an improvement in traffic quarter to date? Just from a first half, back half standpoint, with regards to the comp, why do you think second half will be better? Is it more commentary on what you will be lapping, or is it the fact that we'll be further away from that March stimulus? If you could give a little color around that would be helpful. Thank you. Kate, this is John. Let me answer your last question first, and then maybe Jay can handle the question with regards to the fourth quarter. With regards to 2022 in the back half, we just believe that first and foremost, lapping the stimulus and getting all the stimulus out of the way is paramount to us getting back to running our normal business. Most importantly, we believe the second half we'll be able to lap what we had talked about a lot in Q3 of last year with regards to the delayed shipments, the challenges we had with the late arriving import product and the holiday product that basically collided with all of our closeout goods that were domestically sourced, and we had to prioritize the way we moved our product through last year and the disruption we created with that. We just believe we're set up and we're positioned in a much better shape this year with our supply chain. Our distribution centers are running at the right throughput levels that we'll be in much better position to really kick off once we clear the stimulus here that started March of last year, and we think ran through a good part of May, almost the end of May. I think once we see that get out of the way and the position of inventory and stores being in much better condition, we'll be ready to go. Also, I think one of the big takeaways I didn't even mention or forgot about is the deal flow is really starting to pick up and we're starting to see some things shake loose, and I think we're in a position here. I'm very sure of it, we're gonna see some big benefits. Kate, this is Jay. Just to add on to that, the first part of your question. We're not gonna get too granular on the current quarter trends, so can't give you transactions. I will say that the comp that we're seeing so far is a little bit better than the guide. With that said, we're coming into the heat of stimulus from a year ago, so the next four to five weeks were super strong last year because of that stimulus. Hence, we've got a long way to go and hence why the guide is where it's at, but we're right now currently trending a little bit ahead of that. Thank you. Thanks, Kate. Thank you. Our next question comes from the line of Peter Keith from Piper Sandler. Your question please. Hey, good afternoon, everyone. John, I wanted to ask as a follow-up, but you're talking about some closeouts are starting to shake loose that you're pretty excited about. I just was hoping you could reflect back on 2021. You've been adamant that closeouts throughout the year have been pretty strong, but I'm wondering if there's a quality versus quantity issue. Maybe there's been a good quantity of closeouts, but do you feel like the last 12 months, the quality that you've been able to get has been maybe a bit depleted just given the global supply chain challenges? Yeah, Peter, we haven't felt that the quality of the closeouts have been impacted. I think our ability to move the goods through our network was the biggest impact we experienced last year. I think that was one of the big takeaways. Our merchants really struggled because they had the product purchase for specific times when they needed to arrive for certain ads and certain periods with the seasonal selling season. It just didn't happen. When you put the merchants on that back burner like that and they can't execute what they're used to seeing, it makes it very difficult for us to put our ads right, put the right items in the ads that we have in all the locations. I don't think it was a quality issue. Obviously, you need, you know, a couple big hot deals and needle movers that we look for. Last year, with all of our struggles in the supply chain, we couldn't execute at that level. I believe this year we're seeing good quality and good quantity of inventory, and we're able to move it through the network into the stores on a timely basis. The merchants have their momentum back and their confidence back to be able to execute, and that's why we're coming from a position of strength. We're starting to see very recently that the closeout funnel is starting to open up as we had expected it to. It's just starting right now, but we're starting to see some real strong deal flow. I don't wanna get into any details. I think that's a competitive issue that I create for myself when I talk about things. I'm gonna let it just let it be that it's strong and we're feeling good where we're sitting, and the numbers will show it. Okay. All right. That's encouraging. Maybe, Stephanie, maybe talk to Jay on this one, but the merchandise margin, I think up 170 basis points, so it's accelerating a little bit from Q3. Just in regard to that, is it pricing? Are you guys being able to take a little more price than you were earlier in 2021? Maybe the competition has loosened up a little bit. Can you talk about how you're maybe offsetting some of these elevated freight costs? Yeah, Peter, that's a good call. Yeah, I think, you know, to your point, we were able to take some price in the quarter. We talked about that on the last call, so that did come to fruition. I mean, obviously it's very important that we maintain our value proposition. Yeah, we merch margin is up 170 basis points, and then, the overall was down 320. The supply chain was the remainder of that. When we look to, you know, our plan for 2022, I mean, we are expecting, you know, some level of expansion on merchandise margin to continue. Obviously, we're gonna continue to have headwinds on the supply chain side, but those are heaviest in the first half. They start to abate in the third quarter, and then, you know, the fourth quarter is really kind of a normalized historical margin. Okay. Sounds good, guys. Good luck. Thanks, Peter. Thank you. Our next question comes from the line of Matthew Boss from J.P. Morgan. Your question, please. Great. Thanks. John, on the top line, maybe could you just speak to any behavior changes that you're seeing from your low-income consumer potentially tied to inflation or any trade down that you're seeing yet from the middle-income consumer? Jay, tied to that, as we bridge the first quarter down mid-teens, so that full year flat to up one comp, are you embedding today's macro backdrop, or are you baking in any impact from potentially higher gas prices as the year progresses? Yeah, Matt, this is John. Let me answer the first question with regards to the lower income consumer. What we can see and what we feel mainly is we believe that the very low end consumer, people who are on fixed incomes, people who are on welfare, they're getting crunched pretty good right now, and they've been getting crunched for a while. When you go grocery shopping, you get a big shocker now and look at the price where it was before, where it is today. Obviously with the gas spike most recently in the last month, that just adds more pain for these folks. I do believe that the folks who are on a very tight fixed income, we're seeing them get crunched a little bit. You know, fortunately for us, it's not a huge percentage of our business. You know, we don't take EBT cards. We don't have perishable foods in our stores. We've always said we have discretionary non-discretionary items in our stores, but it's somewhere between 22%-25% of our business. The rest is all discretionary. We cater to a very wide range of folks in our market. I don't think we've seen the trade down effect hit us yet, but I got a real strong feeling it's coming pretty soon. Once people start putting gas in their tanks for the, you know, three, four or five weeks in a row and pay for groceries, not pay higher utility costs, I believe it's coming, and it's something that everyone's gonna see here in very short order. I think we're positioned, and we're feeling that we're in the right position right now and starting to see the deal flow that's gonna benefit us in the second half of the year. Matt, to answer your question about the guidance, I mean, obviously the comp guidance is right, you know, in the sweet spot of our long-term outlook of one-two comp. We're a little more cautious about Q1 just because it seems like it's been such a dynamic environment with all these factors that we're talking about with the consumer right now. To John's point, we're not necessarily seeing that trade down effect yet. Historically that has happened and we have great deals. I don't think there's anything really for the macro items that are out of our control. We haven't embedded additional conservatism per se in this guidance other than maybe a little bit in Q1. Great. Maybe just one follow-up on the expense front. Any reinvestments to consider this year? Or just help us to think about the historical. I think it was 1-1.5 comps for leverage as we think about SG&A or maybe just any puts and takes on the expense front. Yeah. Matt, this is Jay. You know, when we look at it, you know, we're expecting a little slight deleverage on our SG&A, you know, call it 10 or 20 basis points, I would say, in our plan versus last year. You know, we have made 2021 we made significant investments at the store level and the DCs, but that's obviously captured in the gross margin on the DC front. We did make significant investments in the stores. We made investments this year related to the merit increase for the year, but we're not expecting a major step up in 2022 like we saw in 2021. We will have some additional investments around just some simple things like starting to get the teams together again, with travel and with meetings. We have a little deleverage from that. We've got a little deleverage from the incentive comp, which obviously in 2021 wasn't as high as it will be at least in the plan for 2022. Great. Best of luck. Thanks, Matt. Thanks, Matt. Thank you. Our next question comes from the line of Simeon Gutman from Morgan Stanley. Your question, please. Hey, John and Jay, this is Michael Kessler on for Simeon. Thanks for taking our questions. Michael. Hey, guys. I wanted to ask about the 2022 guide in a broader sense. If you look at the implied midpoint for EBIT, the comp from using 2018 or 2019 as a baseline points to around, you know, 3-ish%, 3.5% annualized growth, which is, you know, below where I think you have historically been on a growth rate, or we might expect, and there's been a lot of puts and takes over that period of time. As we think about 2022 and then moving onwards, is this, you know, the right, potentially the right new baseline, level of operating income for the business? Is there potential for some, I guess, you know, recapture of growth in 2023 to the extent that some of the headwinds that are still playing out in 2022 abate? Just how do we think about 2022 in the broader sense of how you plan the business and the go-forward growth profile? Thank you. Yeah, Michael, I think the biggest thing that it's focused on is the impact of the gross margin, when you look back at 2018 or 2019. This year, there's significant pressure in the margin that we discussed in pretty great detail for 2022. We totally expect that for 2023, we'll be back to our long-term algo and back to very close to the 40% gross margin. The EBIT margin should be back to very close to what historically they've been, and the growth should be pretty consistent as well. This year is just contracted a little bit because of our gross margin pressure that we have with the supply chain costs that we have to work through the first two to three quarters of this year. Okay, great. Maybe just a quick follow-up on your last point there on that 40% gross margin target and goal to get back there. Can you first talk a little bit about, I guess, what are the biggest levers of how you're offsetting the increased transportation and supply chain costs? I know price, and we talked about the merchandise margin expansion earlier. How big of a role is that playing versus other mitigation actions? And then just one last one on the pricing that you have taken. Any, you know, response from the customer as far as the recognition, you know, trading within the store or anything to call out as far as the willingness of the consumer to accept those higher prices? Let me take the easy one first, and I'll give the second part to Eric. With regards to the increased pricing in the stores, that's obviously been very selective on our behalf, and it's all been comp shopped against competitors. We've still maintained the value proposition. For instance, if Walmart didn't go up an item, neither do we. If Walmart finally went up or someone else went up that had a comparable item, we would go up accordingly but we would keep the same or similar profile from a value proposition. That's not something that we're losing. That's our model. We stay true to that very heavily. The merchants watch that each and every day from a value proposition. I can let Eric talk about some of the puts and takes on the margin. Thanks, John. Michael, you mentioned what's one of the most significant actions we're taking to mitigate the gross margin pressure and import container costs is by far and away the number one action and the number one incremental expense in terms of how it impacts margin. John referenced in his opening remarks that we started to negotiate container contracts much earlier this year than in a typical year, really several months earlier. We've made a ton of progress. We're very pleased with the support that we're seeing from the carrier community. We've started a number of new meaningful relationships. We've significantly increased the overall capacity at contract rates. In previous quarters, we've been discussing how reliant we've been on the spot market. In 2021, about 80% of our import freight was procured on the spot market. In 2022, we expect that to be less than 20%. The inverse of what we experienced in 2021. The costs that we're expecting to see in 2022 are certainly higher than our historical average, but they're significantly lower than the spot market rates we were experiencing in 2021. We believe the rates are in line with where the market is, our sense of where the market generally is for this next year. The reason why you're seeing kind of more of the benefit in the back half of the year is our contract year starts in Q2. It starts actually in May, so we begin to experience the benefits in Q3 and then kind of the full benefit of those new contract rates in Q4. Great. Thank you, Eric. Thanks, guys. Thanks, Michael. Thank you. Our next question comes from the line of Scot Ciccarelli from Truist Securities. Your question, please. Hey, guys. Scot Ciccarelli. It sounds like you guys were obviously negatively surprised by the magnitude of supply chain issues kind of throughout the year. John, you doubled down on that idea with your comments about the difficulty in flowing goods. I think Eric was just talking about kind of the change from spot to contract rate. Can you guys provide any other examples, you know, specific examples as to why the supply chain issues won't be as substantial in 2022, at least once we get past the first quarter here? Yeah, let me answer a little bit, Scot, and then Eric may have to add some fine-tuning points to it. With regards to why do we feel better than we did last year, I think very easy put, we've invested a lot into our distribution center network. We've made a lot of changes. We made process changes. We've basically invested in a new head of distribution center to run the business who we think is more able to do and grow with the company. But I think the biggest takeaway is we invested a lot in labor to get our head count where it needed to be, and then invested in processes to increase efficiencies in the building, buildings. We're heavily focused on that today. We feel good where we're sitting. You know, obviously there's one piece is the distribution center operations, but the other piece is the inability to move your import freight in a timely fashion and having it collide with all your other product and then having to try to work through the inefficiency you created on the arrival of goods that are late to the party and trying to get them to the store. With those things behind us, I would tell you, we feel very confident where we're at. We were successful in Q4, and I think as I said in my opening remarks, we feel well positioned for our spring selling season, and we focus very heavily on the import container movement early in the season. We got our goods into the funnel, and we're positioned well. We know. We learned a lot through a lot of pain we went through last year. I would tell you, I think we know how to avoid those pitfalls going forward. I think the contract discussion Eric had a few minutes ago is vital to making sure we've got the right contract commitment and the right container commitment to move the goods in a timely fashion. Yeah. Thanks, Scot. John did a great job articulating some of the details here. I would just say when I answered Michael's question, I was more focused on the cost implications of these contracts. The capacity benefits are huge for us. We certainly scrambled and worked very quickly in Q2 moving into Q3 of last year to make sure we secured capacity, but the capacity secured at spot market rates. Now we have contracted capacity at a more favorable rate. So that capacity means that we can flow our goods more fluidly when we need them, which helps with throughput in our distribution centers as well because we don't get the log jam of goods arriving kind of out of cycle when, you know, when we're supposed to get those goods and having to deal with kind of the spikes of inbound associated with that. I guess I'll just really quickly add on the distribution side, and John touched on this. You know, we did invest in people, including leadership in many different important positions in our organization. We invested in people from a wage standpoint. We've made numerous process improvements over the course of the last nine or 10 months, including investing in our systems on the IT side and making adjustments to parameters and making adjustments to systems and handheld devices we've talked about on previous calls. Just final note is we continue to invest in material handling equipment of buildings. Our primary focus has been in the Commerce facility. We're continuing those investments to help that building with throughput, with speed, with efficiency. The York expansion is also a reflection of getting both capacity to service more stores out of that building and more throughput to service spikes in demand. Got it. Okay. Thanks a lot, guys. Thanks, Scot. Thank you. Our next question comes from the line of Edward Kelly from Wells Fargo. Your question, please. Hi, guys. Good afternoon. I was curious about on the inventory side. It looks like you ended the year with inventory per store up solidly above 2019 now. Just any additional color here. I don't know how much of this is. I think you did carry some product forward from holiday that kind of came in late. I don't know how much of that's just higher acquisition cost versus just generally, John, like, how do you think inventory stands today in terms of like how you know you would like it to be as you start thinking about you know sales and quality of what's available in the coming months? I'll take part of it and let Jay give you the technicalities. With regards to the overall inventories, the inventories are actually inflated over 2019, 2018, 2020, whatever years you wanna look at, just because of the increased supply chain costs that are caught up in the cost of the product. I would tell you the actual in-store inventory over 2019 would not be higher in the store. That would be not a right number because we were actually a lot higher in 2019 than I would've liked to seen ourselves. There is obviously the inflationary pressures on the product. There's some of that embedded in the numbers that we have as at the end of 2021. Overall, I would expect that we would see increased inventory levels, compared to 2021 in the first half of the year be pretty significant, with the increased supply chain costs rolling out, eventually after the first half of the year and then just the inflationary pressure of the goods. I would expect you to probably see close to 25% increases year-over-year and then moderating to about store growth in the back half of 2022. The overall inventory position, we feel really strong where we're sitting. Obviously, like I said, the deal flow is a by-product of that as well. Okay. The other thing I wanted to ask you about is on the flyer side. Can you just talk about, you know, how, like, the issues that you've had with supply chain has impacted, you know, the product that you've been able to put into the flyer? I guess, you know, potentially how that also may play some role in, you know, in-store traffic. Sure. That's obviously a bigger challenge than one might think. The lead time we have from going to press and putting the flyer to print and having goods available in the DCs is very integral in the merchants being able to advertise the product they've purchased and to give us continuity and confidence the goods will be here. That definitely created some issues in the back half of last year as well that we had to navigate through. It wasn't for a lack of product per se. There's a lack of continuity in all three buildings to be able to put the flyer together. The timing of receiving the product. Obviously, seasonal product that wasn't here in time, we couldn't put it in print. You weren't sure if it was gonna be here in time. That obviously created some challenges in 2021 that we don't expect to have in 2022 when we plan to be back at a normal cadence when the merchants are ready to put an ad together that we know where the products in and when it's gonna be here and available for the stores on a timely basis. That is a big part for us and a big part of our confidence going forward as well. Great. Thank you. Thanks, Ed. Thank you. Our next question comes from the line of Randal Konik from Jefferies. Your question please. Hi, this is Corey Tarlowe on for Randal Konik. Thanks for taking our questions. First on customer acquisition efforts, can you maybe highlight some of these recent efforts to enhance new customer acquisition? How has retail customer traffic conversion been to Ollie's Army? Sure, Corey. With regards to our. We obviously, as we said, we've been working on I'll call it a digital transformation at Ollie's and what we need to do differently than just print on the long term with the changes that the world's going through. Obviously, I think three of the strongest pieces that we've introduced and we feel good about is using Stitcher Ads, either on Facebook or Instagram. We think that's a very powerful Google Local, and then using Sasha with Cardlytics. I think those are our biggest three pieces right now that we've been able to see a benefit on from a digital perspective. In 2022, we're gonna be testing TikTok, which I would have never thought I'd say that out loud, YouTube, Pinterest, and using influencers in certain areas that work for Ollie's that we'll continue to work through. Print is still very, very important for Ollie's, where we're still committed heavily to print, but we understand that the customer's changing and we need to change with the customer. The digital world is where it's all going. We still have our fair share of older customers, so we're gonna continue to do both and just have a small decrease in the print as we continue to invest in the digital front. Right. On the retail traffic conversion to Ollie's Army? We're strong in conversion compared to previous years, to answer your question, Corey. We're seeing Great. better conversion at the point of sale than in any previous year. Great. Thanks very much. Just to follow up on deal flow, I believe you mentioned strength in health and beauty, automotive and pets. Are there any categories that have been a little bit more difficult? As of most recent, Corey, I would say, and some of this is just timing of deal flows and how deals come about, but I would tell you in some areas in our food category, it's been a little tighter than we'd like to see it. Food and the timing of some of our candy deals have been a little tighter this year than we'd like to see from that perspective. We're working on some other value programs to try to augment any pressure we have with these two categories. Other than that, it's been pretty free flowing and pretty powerful. Understood. Thank you very much, and best of luck. Thanks, Corey. Thank you. Thank you. Our next question comes from the line of Jeremy Hamblin from Craig-Hallum Capital. Your question, please. Thanks for taking the questions. I wanted to start first with the store openings, and understanding better the expectations around the cadence of your openings, through the course of the year, you know, kind of starting with Q1 first half and moving into the back half of the year. Yeah. Jeremy, this is Jay. We talked about the openings by quarter in the prepared remarks. Can you just refresh them? Because I didn't capture all of them. That'd be great. Yeah, for sure. We have we're planning eight stores in the first quarter, 12 in the second quarter, 17 in the third quarter, and between nine and 11 in the fourth quarter. Okay, great. Thank you. Just coming back to the gross margin for a second. You know, I think back in December, you were looking at Q1 gross margins in like 35% flat range. Looks like you're expecting a little bit better than that now at 35.8%. In terms of thinking about the rest of the year, I think it sounds like you're expecting it back to be kind of 39% plus by Q4. You know, is there going to be a similar type of year-over-year decline in Q2? I guess a significant improvement by Q3, but still down year-over-year. Any color that you could share there would be helpful. We are expecting the year-over-year decline in gross margin in Q1 and Q2 to be consistent. We expect some sequential improvement in Q3, you know, so maybe it's about half of that. We get back to normal in Q4. Got it. The last one from me. On the labor side, you know, in terms of wage pressure that's out there, but not just wage pressure, also retention of employees. Can you provide some color on, you know, the turnover you're seeing, you know, kind of the year-over-year hourly wage cost increase and whether or not you feel like you need to take it even higher, the rest of the year or what's embedded within your plan? Thanks. Yeah. Jeremy, this is John. With regards to the hourly employee at store level has and continues to be a very transient worker. We're making some changes in shifting the thought process between part-time versus full-time employees. In terms of the overall hourly investment, we've always said we look at it and we adjust it market by market by market. We don't just make a global change. We have made a lot of investments last year in the stores in certain markets where it was necessary, but we just don't make a blanket adjustment. We react every time that something happens. We don't sit on our laurels and just not do anything. We don't expect any major shifts this year in incremental pay at store level, and we don't have anything like that baked into our plans. We've had what we had, let's say, a moderate increase, and we've done a lot of changes already in 2021 that we're carrying through in 2022. We're working on increasing efficiency in the stores as well as the DCs to be able to pay for some of that. But that's what we're looking at. The turnover is not much different at the hourly associate level than it has been historically from our perspective. A little bit harder to find people to work now, whether it be for unemployment or there's people out of the market, but I think that's gonna be changing here in short order as well. Great. Thanks for the call. Our best wishes. Thank you. Thank you. Our next question comes from the line of Brandon Cheatham from Citi. Your question please. Hey, guys. Can you talk about what percent of your sales are currently on closeout product? How did that look in 2021 versus 2019? Just how are you thinking about that for 2022 and beyond? Then kind of a similar question in terms of the percent of your goods that are imported. What did that look like in 2021 versus 2019 and how are you thinking about it in 2022? Thanks. Yeah, Paul. With regards to our closeouts in 2021 versus our closeouts in 2019, we were at about a 65% closeout rate in 2021. 2019 was probably close to 70%, which would be closer to our historical average that we as a company strive to be at. I would tell you in 2022, we're gonna do everything in our power to be at 70% closeout because that's what makes this model special. I think there's gonna be a big opportunity in that area. Somewhere between 65% and 70% in 2022 is what I would project from a closeout perspective. Don't expect a big change in our import component that we work on. I think our imports come in at about 18% of our overall business. Love to see imports down to 10%, but I'm sure that won't be able to happen. We'll be pretty consistent in our overall metrics in terms of the breakdown of our product and how we move it. Got it. Just a follow-up. Sorry if I missed it, but as you think about your comp expectations for the rest of the year beyond Q1, how are you thinking about it from a traffic versus ticket perspective? Like, how much does pricing play a role in the comps that you expect to achieve in quarters two through four? Thanks. Yeah, I think, Paul. We don't look at the transaction versus the ticket. We look at the value in the deal, what motivates the consumer to come in the store. It's the strength of our deals, and I think obviously another piece that we've talked about is our ability to get our product in the stores on a timely basis in the seasons that we need to have them in to be able to motivate the consumer. That's a big piece that will be a driver to our business. But it's really what drives the customers, the value that we give to them and the deals we give to them. Being late to holiday with your toys and late to holiday with your seasonal doesn't help your business and obviously when that's late, something else gets substituted for it and sits behind, doesn't get into the stores as well. With us being able to get our throughput levels where they're at today and get everything to the stores timely, that's gonna be the benefit we're gonna be able to bring to the bottom line. Okay, thanks. Good luck. Thanks, Brandon. Thank you. Our next question comes from the line of Brian McNamara from Berenberg Capital Markets. Your question please. Hey, thanks for taking my question. Having 80% of your import freight in the spot market in 2021 slipped to less than 20% in 2022, I'm curious, is that a permanent change away from your previous opportunistic approach or are you simply adapting temporarily to some shorter-term supply demand dynamics? If so, what's the risk that you're contracting at a potentially inopportune time as capacity comes back online and rates and such normalize? This is Eric, Brian. The super honest answer to your question is I don't know. We really don't know what this year's gonna bring or what future years are gonna bring. It's a super dynamic market out there. We're doing some things to somewhat hedge our bet on this, leaving enough volume out there for spot market to be opportunistic. A little bit of flexibility around kinda how we're writing our contracts as well. I'm not really sure. I know there were some companies out there doing multiple multi-year deals. We resisted that and said, we're gonna contract, you know, just for the one year and we'll see what happens. The question about long term, what this thing's gonna look like, I'm not sure. I think we're gonna have to navigate the market over the next two-three years to kind of see where things land. I would expect if they're closer to kinda normal, that we would want a fairly large percentage of our freight to be under contract in a normal year. That you're mitigating risk by having more freight under contract. If rates aren't moving in a significant way up and down, it's just a better position to be in. We're flexible and I'm not sure that the model that we were all used to for many years until the pandemic happened is going to work in the future. Got it. Just a quick follow-up. In your big four pandemic quarters from Q2 2020 to Q1 2021, I think you recruited about 1.4 million Army members. Can you speak to the engagement of these specific members? Are they still engaged? Are their spend and frequency trends better or worse or in line with the rest of the Army? Thank you. This is Eric again, Brian. We're seeing good engagement, good retention from those customers. When I say good, I mean similar to previous years' engagement. Our retention is good. We're satisfied with it. In terms of the overall spend, it's pretty consistent compared to previous years, maybe slightly better compared to the non-Ollie's Army members versus previous years, but I would consider it to be pretty consistent. We do like the behavior of those customers from what we've seen so far. Thank you. Our next question comes from the line of Mark Carden from UBS. Your question please. Good afternoon. Thanks a lot for taking my questions. First, quick follow-up on the store remodel program. There's obviously a lot of moving pieces right now with the supply chain and macro backdrop. Just given all the noise, what jumps out to you that led you to decide that this is the right time to start the program? I think in visiting and from my part in this, visiting many stores, dozens of stores over the last six-nine months, it seemed readily apparent that we have an opportunity to reface our stores, and that opportunity seems significant enough that we should begin getting experience as quickly as possible. It doesn't create strain on the supply chain in any way, shape, or form because we're moving product around in the store that's already in the store, supplementing certain categories that we expand and contracting other categories, so it nets no impact on the supply chain. Ultimately, we're where the business has been most stressed. You know, we get super excited as we walk some of our older stores that we opened in the eighties and nineties and recognize that they really just don't reflect our most current thinking and how we wanna present ourselves to the customer. You know, no time like the present to start to learn. Fair enough. That makes sense, and that's helpful. Then just as a follow-up, how much of an impact did Omicron have on your supply chain? It was immaterial, but it felt painful in the moment. We gave you a little bit of color. Our Pennsylvania distribution center actually was most significantly impacted, and the impact was for maybe 10 days, fairly significant in terms of our call-out rate. It felt like more than 10 days, but it was about 10 days in reality, and we were also in the middle of taking our inventories in all three buildings, which added a little bit more stress. It was a relatively short period where we experienced some impact, and we managed through it. It was also. The impact we felt was at the beginning of January, beginning to middle of January primarily, which is, you know, kind of absolute low point in the season, which helped as well. If Omicron had happened in November, I might have a different story for you, but so immaterial impact on the quarter. Got it. Thanks so much, and best of luck. Thanks, Mark. Thank you. This does conclude the question- and- answer session of today's program. I'd like to hand the program back to John Swygert for any further remarks. Thank you everyone for participating in today's call and continued support. We look forward to updating you on our first quarter results in our next earnings call. Stay safe. Thank you. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.