Good morning. Welcome to Ollie's Bargain Outlet Conference Call to discuss financial results for the first quarter fiscal 2022. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from Ollie. As a reminder, this call is being recorded. On today's call for 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. I would now like to hand the conference over to your host today, Jean Fontana with ICR. Please go ahead. Thank you. Good morning and welcome to Ollie's First Quarter Fiscal 2022 Earnings Conference Call. A press release covering the company's financial results was issued this morning, and a copy of the 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 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 the 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'll turn the call over to John. Thanks, Jean, and hello, everyone. Thank you for joining our call today. We are pleased with our first quarter sales results, given that we were up against strong stimulus-induced sales last year. During the quarter, sales of seasonal product were negatively impacted by cooler weather, and consumers experienced pressure from significant inflation, particularly on gas and food. We have seen meaningful improvement in our second quarter results with increased demand for warm weather seasonal products combined with our incredible deals and strong inventory position. Currently, our inventories are in terrific shape, and we continue to see compelling deals on great brands across our merchandise categories, especially those that are key to our business, including HBA, housewares, lawn and garden, air conditioning, and pets. In addition, our DCs are running well, and goods are flowing into our stores on a timely basis. While we've not yet seen the full benefit of consumers trading down due to economic pressures, we are doubling down our efforts to offer great values as consumers continue to feel inflationary pressures. Looking back at the first quarter, our comparable store sales decreased 17.3% compared to 2021, slightly below our expectations. This was largely due to softer performance in weather-dependent categories such as lawn and garden, air conditioning, pool, and seasonal sports-related items. We saw strength in hardware, HBA, as well as pets, where we have been building our assortments. We are even more enthusiastic with the quality and quantity of great closeout opportunities we are currently being presented with across many of our merchandise categories. These deals will enable us to deliver great brands and even better value to our customers. With the increasing inflationary pressure, we believe it is important for us to emphasize our extreme value proposition. We see an opportunity to generate excitement with even more aggressive pricing, so we are planning to reinvest some of our margin back into deals for our customers. Our store remodel program is well underway, with six stores completed so far, and we are pleased with the initial results. We are delivering a more compelling shopping experience through relocated and re-spaced merchandise categories, improved sight lines, and more exciting impulse merchandising. We remain on track to remodel approximately 30 stores by the end of this year. Moving to real estate. During the first quarter, we opened nine new stores and closed one in connection with the relocation, ending the quarter with 439 stores in 29 states. We are pleased with our new store productivity levels, which are in line with our year one store sales targets. We are still expecting to open between 46 and 48 new stores in 2022, including two relocations. However, we are seeing continued delays related to permitting and construction of our new stores. We remain confident that our model can support at least 1,050 stores nationwide. Ollie's Army continued to grow, reaching over 12.9 million active members, growing 7.7% over the prior year and reaching 80% sales penetration in the quarter. As part of our efforts to expand our new customer acquisition strategies, in the first quarter, we began building out what we call our civilian database, enabling us to capture customer information for non-Ollie's Army shoppers based on credit card information. We plan to leverage this information to better target our shoppers and lookalikes via digital advertising as well as direct mail in the future. During the quarter, we continued to leverage data analytics to create more targeted marketing by adding personalization to social media, which is generating improved engagement. In the second quarter, we will be testing other social media tools, including advertising on YouTube, TikTok, Yelp, and Pinterest. We are also testing an influencer strategy to broaden our reach to potential new customers. We are excited to share our 40th anniversary celebration with everyone. We have several special events planned, kicking off with America's Biggest Cheapskate contest, which began on May 22nd and will run through July third. During Ollie's Days this year, we are planning to highlight 40 great deals for our 40 years in business milestone. Turning to operations, we are pleased with the significant progress we have made on our distribution center network and overall supply chain. The work we have done to build talent across the supply chain and drive efficiencies is paying off. Distribution center throughput is meeting expectations and import containers are being received on a timely basis to support the needs of our business. Eric van der Valk will continue to lead these efforts following the recent departure of our SVP of supply chain. In closing, we are encouraged by the sales trends we are seeing quarter to date and feel really good about our position heading into the summer season and the remainder of 2022. That said, we are operating in a highly uncertain and inflationary environment, and we remain focused on what we can control. Offering great deals at exceptional value, which we believe will become increasingly important as inflation continues to pressure consumers and they begin to trade down. Our long-term outlook for this business remains unchanged. Before turning the call over to Jay, I want to take a moment to discuss his departure, which we announced in our earnings release this morning. I would like to personally thank him for his partnership, hard work, and dedication to Ollie's over the past six-plus years. He has been a key member of our management team and has helped Ollie's grow into the company it is today. We will miss him and wish him well in his new endeavor. We have begun a national search for a new CFO and look forward to updating you on our progress. In the meantime, I will take on the additional role of interim CFO, which is a position I held from 2004 until 2018. I would like to thank our Ollie's team members who work hard every day to make Ollie's great. Thank you. 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 morning, everyone. For the quarter, net sales totaled $406.7 million, a 10.1% decrease from the prior year. Comparable store sales decreased 17.3% in the quarter compared with the prior year. As John mentioned, we were up against unprecedented stimulus last year while cooler weather impacted the sales of our seasonal product categories. In the quarter, we opened nine new stores, ending the period with 439 stores in 29 states, a 10% year-over-year increase in store count. Since the end of the first quarter, we've opened nine additional stores, including three that are having their grand opening this week. We plan to open 46-48 stores this fiscal year, including two relocations. Gross profit decreased 22.6% to $141.3 million, and gross margin decreased 560 basis points to 34.8% compared to 40.4% in the same period a year ago. The decrease in gross margin was due to increased supply chain costs, primarily the result of higher import and labor costs, partially offset by improvement in merchandise margin. SG&A expenses as a percentage of net sales increased to 28.6% in the first quarter of fiscal 2022 from 23.1% in the first quarter of fiscal 2021. The 550 basis point increase was primarily due to deleveraging as a result of lower sales. Operating income totaled $17.1 million compared to $71.2 million in the prior year. Operating margin decreased 1,150 basis points to 4.2% due to lower gross margin and deleveraging of SG&A expenses as a result of the decline in sales. Adjusted net income was $12.8 million and adjusted diluted earnings per share was $0.20. Adjusted EBITDA was $26.2 million and adjusted EBITDA margin decreased 1,100 basis points to 6.5% for the quarter. Capital expenditures totaled $9.7 million, primarily for new and existing stores. This compares with $9.5 million in the prior year. Inventories increased 45.6% to $517 million in the first quarter, compared with $355.2 million a year ago. Approximately 1/3 of the variance was 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 the first quarter of fiscal 2021 were lower due to heightened levels of sales productivity from increased consumer spending associated with stimulus. At the end of the period, we had no outstanding borrowings under our $100 million revolving credit facility and $205.5 million in cash. Subsequent to quarter end, we've invested $10 million to repurchase shares of our common stock. Now I will discuss our outlook for fiscal 2022. Our revised sales guidance reflects our first quarter results, a delay in the opening of some of our new stores to later in the year, as well as a slightly more measured outlook for the second half. In addition, we are moderating our gross margin outlook to reflect a continued shift in merchandise mix and the potential to reinvest in price as we lean into great deals for our customers. For the full year, we now expect total net sales of $1.87 billion-$1.9 billion, comp store sales of -2% to flat, the opening of 46-48 new stores, including two relocations. We expect to open approximately 10 stores in the second quarter, 19 in the third quarter and between eight and 10 stores in the fourth quarter. Full year gross margin of approximately 36.5% - 36.7%. Operating income of between $155 million-$168 million. Adjusted net income of between $115 million-$125 million. Adjusted net income per diluted share of $1.83-$1.98, 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 25.5%, 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 $50 million-$53 million related to new stores, store level initiatives, our York DC expansion and IT projects. For the second quarter, we expect total sales of approximately $450 million-$460 million. This reflects a recovery of some of the sales and non-seasonal items in the second quarter. Comp store sales of between flat to up 3%. Gross margin of approximately 34.5% consistent with our prior expectations. Operating income of $27 million-$30 million and adjusted net income of between $20 million and $22 million, and adjusted net income per diluted share of $0.32-$0.35, both of which exclude excess tax benefits related to stock-based compensation. In this highly inflationary environment, we believe that price becomes increasingly important. We remain focused on offering compelling value to our customers each and every day and believe we are well-positioned to benefit as consumers' dollars continue to be stretched further and they trade down to Ollie's. In closing, I would like to thank John and Eric and the entire Ollie's team for their support. I'm proud of all that we've accomplished during my time here. I remain confident in the growth opportunities that lie ahead for this unique business model, and I'm leaving the company with a strong management team. I'll now turn the call back to the operator to start the Q&A session. Operator? Thank you. If you have a question at this time, please press star then one on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from the line of Jason Haas with Bank of America. Your line is open. Please go ahead. Hey, good morning, and thanks for taking my questions. The first, John, I was curious if you could provide some more color on what you're seeing in regards to the closeout opportunities that are out there, what categories you're seeing the most opportunity, and, if you could provide any color on what sort of sources, where they're coming from these days, that'd be helpful. Thank you. Yeah, Jason, I would never divulge who we're getting the product from. That's not what we do. Obviously, you've been in the stores a lot and you'd know, you know we source a lot of times. With regards to the flow, it's getting pretty general in almost all of our categories. We're seeing an outsized flow right now in the HBA categories and the housewares categories. We're starting to see some goods pop in sporting goods, that's starting to push pretty good. We're seeing some goods flow in the food category. Starting to see some in bed and bath or domestics area. Lawn and garden has been in some special categories this year so far, so starting to see some breakthrough in the toys. We're starting to see it everywhere, and I think that's not a surprise to anybody probably on the call that things are changing in the marketplace and we're starting to see some pretty large opportunities for us and our customers. Thanks. That's great to hear. As a follow-up question, I know you'd mentioned trade down. I think you had said you're not seeing the full benefit yet. I'm curious, are you starting to see any evidence that customers are starting to trade down into your channel? Or, are you not seeing it yet and there should be a full benefit to come? I think, Jason, it's hard to tell with that perspective, but I do think we're seeing a little bit, but I don't think we're not seeing what we would expect to see yet. I think there's still more to come. I think there's probably another, you know, and sometimes we're ahead of it too far, but probably another three - six months before we see the full benefit come through. Thanks. That's great to hear. Just wanted to say, Jay, it's been a pleasure working with you and wanted to wish you the best of luck in your next opportunity. Thank you, Jason. Appreciate it. Same to you. Thank you. Our next question comes from the line of Peter Keith with Piper Sandler. Your line is open. Please go ahead. Hey, good morning, everyone. Thanks for taking the question. John, I guess it sounds like the closeouts are getting better, maybe three-six months to get trade down. At the same time, it sounds like you guys are taking a more cautious view in the back half of the year. Could you just kind of frame up what you're seeing right now that results in that lower second half comp outlook? Yeah, I think, Peter, it's just some, you know, we wanna be conservative in how we manage the business. We don't wanna get ahead of ourselves. We'd rather chase it than be too far ahead of our skis and then have an issue with the inventory that we would not be able to get rid of. We're just taking it easy, and we're gonna push when the time comes to push and push hard. The opportunities are out there to be had, and our merchants will be patient, and we'll be able to close on the deals when it's time. Okay. As you're probably seeing out there's quite a bit of promotion and markdown activity across retail, as a lot of retailers are over inventoried. Obviously, that's gonna create closeouts for you. What's the competitive landscape right now for you just competing against this highly promotional environment? Yeah, Peter, we watch it each and every day, and our merchants have been looking at what the big box retailers have been doing with some of their price reductions to try to move some of their inventory out. Everything we look at thus far, it's either a non-competitive issue that we don't have the same product that they're moving through, or we still have a nice value proposition compared to what their reduced price is anyway. We're not finding any problems with our current pricing. As we always say, we will be the low price leader. If there's someone who has the same item that we do and they're beating us on price, we will take the markdown accordingly, but we're not seeing that yet. Okay. Sounds good. Thanks. Good luck. Jay, I wish you nothing but the best. Thanks, Peter. Appreciate it. Thank you. Our next question comes from the line of Mark Carden with UBS. Your line is open. Please go ahead. Good morning. Thanks a lot for taking my questions. To start, another one in consumer behavior. Are you guys seeing any notable traffic or ticket shifts between your Ollie's Army and non-Ollie's Army shoppers? With regards to the ticket or the basket, we've always have seen a notable difference between the Ollie's Army shopper and the non-Ollie's Army shopper. I think the spend is about 40% greater for the Ollie's Army shopper versus the non-Ollie's Army shopper, and that's been consistent. What we, you know, in terms of number of visits and transactions for the non-Ollie's Army shopper, we don't know that. We don't know who they are, so we couldn't answer that. We know the spend for the Ollie's Army shopper is much, much stronger. Great. Just in terms of the supply chain, where would you guys say the biggest unanticipated pain points are today, and how do they compare with what you're anticipating at this point last quarter? This is Eric, Mark. I'll answer. I don't think we have an unanticipated pain point at this point in time. We do have challenges that we continue to face, but our throughput is where we need it to be to serve the business in all three distribution centers, and we have the import international transportation capacity to ensure goods flow and that we can properly support our business, especially our seasonal business, which was problematic last year. Our last kind of remaining challenge of any consequence is getting our Texas building to be more efficient. Throughput's where we need it to be, but efficiency is an opportunity. Great. That's helpful. Thanks so much, and best of luck, Jay. Thank you. Thank you. Our next question comes from the line of Edward Kelly with Wells Fargo. Your line is open. Please go ahead. Yeah. Hi, guys. Good morning. I wanted to ask you about inventory. You know, there has been some, you know, talk this morning about inventory up a lot year over year. But inventory per store versus 2019 is only up about maybe 16% or so, and you're guiding comps up, you know, probably mid-singles from there. How are you thinking about, you know, your inventory level overall? You know, how much of the increase here is, you know, just sort of amortized supply chain costs? You know, how are you feeling about, you know, like, unit volumes of inventory, and does this impact your ability to go after, you know, the closeout opportunity that's ahead? Ed, this is Jay, and I'll start on this. You know, we feel good about our inventory levels. To your point, a large chunk of that increase is the increased supply chain costs. When we look at 2019, you know, we think we're in good shape from an inventory level standpoint. Obviously, we had a little bit of a shift in sales from Q1 - Q2. We expect the sales going forward in Q2, you know, Q3, Q4 to be strong. We would expect the inventory levels overall to kinda normalize as, you know, really closer to the end of Q4, and kinda sequentially step down between then and now. We feel fine where we're at. Add a little color on that. With regards to the Obviously, it's hard for you guys to see from the financial statements what the in-store inventory is versus what's in the DC and what the capitalized costs are. Compared to 2019, we are almost right about in line on an inventory per store, in the actual comp stores looking 2019 - 2022, not adjusting for inflation. I don't think we are sitting heavy at all, in the stores when you adjust for the price changes that have occurred with the inflationary pressure we've seen. I think there's still opportunity for us, but I think you won't see such a large disparity to 2021 as we move through the year, as Jay had mentioned. Okay. Then just a follow-up, and this is for you, I think, John. You know, I'm interested in sort of open to buy and, you know, how you're thinking about positioning yourself for, you know, the opportunity that's ahead, right? I mean, we're hearing large retailers now canceling orders. Clearly it seems like, you know, there's gonna be some very big opportunity from a deal flow perspective. How do you think about running the business from an open to buy standpoint? You know, there's obviously like an AUR component of that. How do you feel about taking risk where it's appropriate, leaning into the opportunity, and do you have the capacity to do all of that? Yeah. I think, Ed, the big thing is that we go back to the concept of dry powder, and that's our merchants being very patient and confident that the deals are gonna come and make sure they wait for the absolute A plus plus deals. We are severely focused on that today, and every merchant has been spoken to, and they are fully aware of how this is gonna work in the back half of the year. We basically are keeping dry powder, keeping nimble, and being very selective on what we're gonna buy and being aggressive on our offers. 'Cause the main key from our perspective is we have to give the consumer a great value, and that also assists in the trade down effect, because if I give someone a compelling value they can't resist, they're gonna come to the store to save money. That's where we're at in our piece of the puzzle. To your point, the Open to Buy is very fluid at Ollie's and always has been. There's a lot more art than science here, the way we operate the business. We do have our parameters. We do have the ability to collapse on deals that we believe are home runs and have the ability to hold them in the DCs. We are nimble, so we will not pass on a deal if it's what I call gold. We are working accordingly. The merchants are pushing hard on their Open to Buy, but we are not gonna get over our skis. As you know, Ed, following us for many years, we are not fast fashion where we're end of life in the cycle for a lot of items, so there's not a lot of risk with what we're buying. We're buying general merchandise, hard goods, that are not fashion driven, and we're already buying last year's model, so that plays into how we operate. Great. Thank you, and good luck, Jay. Thanks, Ed. Thank you. Our next question comes from the line of Kate McShane with Goldman Sachs. Your line is open. Please go ahead. Hi. Thanks for taking our questions. I guess, just to round out the last question, we just wondered if, you know, closeouts are still going to represent about 70% of sales for the year, or could it maybe be more given the circumstances going into the back half? Kate, I would always answer this question with Mark in the past. We'd love closeouts to be 100%, but we know that's not possible. History would tell you, Kate, it's about 70%. If we got to 75%, that'd be a big, big move. But we are pushing very hard. We are definitely favoring domestically sourced product versus import, so the buyers are working diligently on that. The more closeouts we can find domestically, that would be great. But there are gonna be closeouts, what we call stock lots in Asia as well, from a lot of the cancel orders that won't even make it here yet from the other retailers have canceled them out. Those will become closeouts as well. Wherever the closeout's located, we're gonna go after it and go after it hard. We've always run the business that closeouts are first and then everyday value goods are second. We will mix that in accordingly. Okay. Thank you. Our second question was just about how traffic trended through the quarter. Are you able to walk us through the cadence by month and how that may be improved in May? Yeah. Kate, this is Jay. We don't get into intra-quarter trends, but I can say our comp was a - 17.3% in the first quarter, obviously going up against the stimulus. About 90% of that was driven by a decrease in transactions. The rest was a slight decrease to 10% in average basket, and that was really driven by AUR, with some of that is driven by the shift of those higher-ticket items, seasonal items out of Q1. Then the trends so far, and we're not gonna get specific, but they have improved materially, really across all fronts. You know, we're seeing, as the weather has cooperated, the trends on both transaction and average basket are getting stronger, and we're comfortable with our guidance for the first quarter. I'm sorry, the second quarter of flat to + 3%. Okay. Thank you. Best wishes, Jay. Thank you very much. Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open. Please go ahead. Hey, everyone. It's Simeon Gutman. You mentioned we're not seeing the trade down yet. Can you give us a clearer picture of what the buildup looks like, whether it's traffic, ticket items in the basket? What does the buildup mean, and why are you signaling that we're getting to that point? Simeon, obviously, this is part of the art of the business. It's not the science here to be able to know exactly when it's happening. The reality is, we will all know when the trade down effect has really gotten to full force because our comps will start driving on an outsized basis, as they have historically. I view that to come here in the next several months. But with regards to actually knowing where it's coming from and how, it's too early for me to tell you that. I think I forecast this probably before anybody else did last year, that something was coming and we were seeing pressures everywhere, and now everyone's starting to see it now. We just saw it earlier, and I think we'll see the benefits earlier as well. I think we're moving towards that. It's just strictly math. You know, consumers only have so much disposable income, and every single week they put more gas in the car and they go to the grocery store, they have less disposable income and they start to feel the pressure, regardless of who you are. That I believe is coming. Most importantly, where the compelling deals and the opportunities for us to give them a price they can't resist, I think is right around the corner. Okay. Fair enough. A follow-up, maybe two parts. First, back to inventory. The dollars are up a lot. Ed mentioned not as much on a per store basis. Can you talk about that means you're gonna have higher costs and you're probably gonna raise price. Another, I guess, going back to the inventory question, why isn't there risk of elevated markdown risk for the rest of the year? The second part of the question is the acceleration in the stacks on a three-year basis, which adjusts out for stimulus is pretty significant going from Q1 - Q2. What is driving that sequentially? That was a lot more than two questions, Simeon. That was a boat by itself. Simeon, I can address a couple of those things. I mean, I think on the cost piece, right, you know, we've talked about those increased supply chain and import costs. Those are even during Q1, the cost came in line. We had a little headwind on margin just because they delevered because of the sales drop. Look, going forward, and we've given guidance on the margin, those costs are baked in to our gross margin estimates. You know, we think we're in good shape there. To your point on a markdown risk, I mean, we feel good with our inventory. I mean, I review the aging in detail every quarter. We don't have any aging problem. You know, look, if the environment. We don't know what's gonna happen with the promotional environment in the next coming months. You know, but we have our standard cadence of promotions with Ollie's Days and other clearance events. We don't expect there to be significant markdown risk going forward. As far as the comps, you know, to your point, and again, the way we look at it is a three-year geometric stack basis. I mean, we're starting to anniversary that a little bit and talk about comps in a normal way with a zero-three for Q2. You know, higher than that, like we've talked about on the last call for the back half in Q3 and Q4, mid-single digits. We had an inherent acceleration built in when we gave the guidance last time. Now this time, we do forecast a slight incremental uptick in Q2 because of the shift of the seasonal sales out of Q1 into Q2. We've actually tempered our back half forecast by about a point. Generally speaking, I would say we have the seasonal shift into Q2. We have a better overall inventory position as we go through Q2 and Q3, and even Q4 for that matter. If you recall last year, we did have some timing delays of shipment of key categories, seasonal categories, both late in Q3 and in Q4. That's. You know, we just think that and coupled with the deal flow, and what we're seeing, we think we're very well positioned to drive these sales, and we don't think it's overly aggressive for the remainder of the year. Okay, thank you both. Good luck, Jay. Thank you. Thank you. Our next question comes from the line of Matthew Boss with JPMorgan. Your line is open. Please go ahead. Great. Thanks. John, maybe at the category level, could you just elaborate a little on top line performance in May? Where have you seen the sequential improvement exactly? How are you thinking about June and July comps relative to May in that second quarter outlook? Maybe just on Simeon's question, if we're thinking about your core customer, they're clearly under increased pressure relative to pre-pandemic. Your stores are a destination given the higher gas prices. I guess what's giving you this confidence in the back half for mid-single digit comps or a full return to algorithm? I think, Matt, the biggest part is the trade down effect. That's definitely gonna play into our hand. The core customer, our core customer is not on a fixed income. That's a misnomer. Our average household income is about $55,000. It's not somebody who's at a poverty level or that's that strapped that they can't do anything. There's a portion of them, without a doubt, that I think all of us have in the portfolio, but we have a wide range of customers that we deal with. You know, there's a big piece that are out there that, and we've seen it historically, when people get strapped, the trade down effect comes to us. A lot of it's based on the deal flow we're able to get and the ability to motivate the consumer to come in the building. We believe that's on its way. I think everyone's aware that retailers are having some struggles right now. When retailers struggle, that is ability for us to see some great product and give a great value to the consumer. That piece I feel pretty good with. I don't know the timing, but we'll know the timing when it happens, and then we'll see the results, and we'll be able to deliver. That piece I'm comfortable with. What was your other question, Matt? On the cadence of the comps in the quarter, it's pretty consistent by month. Not a whole lot of difference between those three. Okay, great. Jay, just on the gross margin as a follow-up. If we think about the first quarter, what accounted for, I think it was about 100 basis points missed versus forecast. Could you just walk through distribution versus merch margin as we're thinking about the second quarter, and what now are you embedding for the year on the distribution headwind? Yeah. So Matt, to your point, we are about 100 basis points off forecast. About 60% of that was driven on the merch margin side. We did have 130 basis points improvement in our merch margin year-over-year, but we had forecasted even more. Then on the supply chain side, we had a headwind, but that was really, as I said, attributable primarily to just deleveraging those costs on the sales. We didn't have a miss from a dollar standpoint, and we're right in line. Looking forward, you know, we haven't really changed our forecast on the supply chain side of things. I mean, obviously it's gonna be elevated year-over-year just like it has been. The way we think about it is that in the first quarter, year-over-year was about a net 560 basis point degradation in margin. We would expect that in Q2. You know, we've given you that guide, but year-over-year, it probably gets better by about 90 basis points-100 basis points. Q3 then becomes about half of that, from a year-over-year headwind. Then finally, as we've talked about, in Q4, we get back to much more normal. We're expecting to be above 39, maybe a little haircut from where we were on the last call, but not significantly different. Really, Q4 is when we expect to kinda normalize across the board and get closer to the long-term algorithm. Matt, just to add a comment to Eric. The supply chain expense improvement is primarily driven by better container costs for imports moving forward under our new contracts. Great. Best of luck. Thanks, Matt. Thank you. Our next question comes from the line of Paul Lejuez with Citi. Your line is open. Please go ahead. Hey, thanks, guys. Curious just on inventory, are there any categories that you have large increases above and beyond or what you'd like right now? I'm curious also if you have any where you feel like the availability is not as good as you would hope. Second, just to understand on the SG&A line, you know, if results were to come in, you know, any different than planned, you know, how much flexibility do you feel that you have on the SG&A line given some of the inflationary pressures out there? Thanks. Yeah, Paul, with regards to the inventory, I would tell you, we don't have any pockets of over-inventory position that we're concerned with as a company right now. There's no areas we think there's risk today. With regards to areas that we'd like to see more flow, I'd say the one and only area that today still exists, it's getting a little bit better, but it's not where we'd like to see it, would probably be in the packaged food category. There's still not a lot of breakthroughs there yet, and I'm not sure how much will come. You know, we've seen a little bit of improvement in the last several weeks, but we're still getting our fair share, but we'd like to get more of it. Other than that, we're seeing great flow. We don't think there's any risk with what we're carrying right now. Paul, this is Jay. On the SG&A side, you know, I would tell you, we run pretty lean already. Obviously, you know, payroll would be the lever we would look to pull. That's our biggest impact on the expenses. If sales are softer than what we're forecasting, we would attempt to recover some portion of that in payroll. We can't obviously get it all back. Otherwise, yeah. I think, you know, we run pretty lean. We are seeing some cost pressures on our advertising from a print standpoint, the cost of printing has gone up, and then also, utilities are significantly up year-over-year. So, we've got those things embedded into our model, and it's not huge dollars, but adding a little bit of headwind. So, I think, you know, that's how I would answer that. Got it. Thank you. Good luck. Thanks, Paul. Thanks. Thank you. Our next question comes from the line of Scot Ciccarelli with Truist. Your line is open. Please go ahead. Hey, good morning. This is Josh Young on for Scot. Our question is on the remodels. Can you guys provide any more detail on the costs there and maybe any early results you're seeing in terms of the comp lift from those stores? Sure, Josh. This is Eric. I'll take the question. We're not gonna go into the specifics on comp lift. It's only six stores, so keep that in mind, that we completed. We're on track to complete 30 stores. The six stores are in line with our expectations, meeting our expectations, and our expectations are an average investment of $125,000 will get a return in two years or less. Those six stores are meeting that expectation. We're gonna continue to move forward and read customer feedback and results and update again in a quarter. Got it. Thank you. Thanks, Josh. Thanks, Josh. Thank you. Our next question comes from the line of Jeremy Hamblin with Craig-Hallum. Your line is open. Please go ahead. Thanks for taking the questions. Wanna come back to the gross margins for a second. So, the guidance change about 60 basis points, you noted a couple of factors in that. Supply chain, maybe still a little bit worse than expected, but also, a product mix shift, I think was called out. Could you quantify, the split between those two and the 60 basis point change for the year? And which, you know, which particular product categories that, you know, in that negative mix shift that would be driving that downside? Yeah, Jeremy, this is Jay, and I can start to address that. I mean, for our internal model, we had about a 50, you know, 50 basis points change. Part of that, to your point, is absorbing the, you know, actualizing Q1 and then the mix, you know, the mix component that we're estimating going forward. I would say it's about half and half between those two components. You know, there's also a little deleveraging on the sales, given that we took down the back half, you know, but that's probably 10 basis points of it. Then, you know, going forward, obviously, and John Swygert or Eric van der Valk might speak to this as well, you know, but we're seeing strong sales trends in the consumables, so that's putting pressure on the mix. At the same time, right, it's the other side of the equation. Some of the products, the categories, that aren't moving as strong, that we would typically have a higher margin on, you know, whether that's books or domestics. You know, eventually all of that will shake out. Part of our margin guidance is the focus on making sure that we provide value to the consumer. At this point in this environment, we think that's critical moving forward. Got it. That's helpful. Just on a go-forward basis, so it sounds like by Q4, you are feeling pretty good that you're gonna be back to 39% or maybe slightly better than that, more normalized margins. If we can, you know, take the crystal ball and look ahead a little bit, you know, there's obviously a lot of noise, supply chain, and so forth, but in terms of thinking about 2023, and you're now seeing your normalized sales levels that have gotten back above the 2019 levels, you know, from a gross margin standpoint, is there anything that you see now that you're seeing better throughput, improvements in deal flow, presumably maybe a more normalized return on the product mix where your gross margins wouldn't be returning to what your typical levels would be in that kind of 39.5%-40% for the full year? Jeremy, this is John. I would tell you for 2023, I feel pretty confident that we would see a normalized gross margin rolling out as early as Q1. I don't foresee too much pressures in 2023 once we annualize the heavy load we're carrying right now with the import cost and whatnot and the increased supply chain. I think you start to see the benefit in Q4, and I think we'll be back to pretty much normalized levels in Q1 in full year 2023. Great. Thanks for taking the questions. Best wishes, Jay. Thank you. Thank you. Our next question comes from the line of Randal Konik with Jefferies. Your line is open. Please go ahead. Yeah, thanks, guys. How are you? I think there was mention before, earlier in the call, around container rates improving. Can you just expand upon that a little bit and give us some perspective on how much improvement you've seen and when those improvements start to take hold, I guess, in the contracted rates? Sure. The most of our contracts, Randy, start May first. We begin to incur the benefit of those contracts when they sail, which is starting in June. We're kinda right on top of beginning to realize some of the savings. When you look at last year, we hit peak import rates around kinda the peak of the market, say, starting in August into September, October. It really didn't stop. At some of the absolute peaks, spot market rates were right at that September-October timeframe. We're up against rates when we hit peak versus contract. We're approximately 50% less on contract versus some of the peak spot rates we were paying. I'm not gonna get into too many specifics on our contract rates, but also know that we've lost some flexibility to leverage spot market as we move into the back half of the year with at least some expectation that spot market rates could be favorable this year. Super, super helpful. Then I guess the press release also talked about higher wages in select markets was the exact kinda quote. Can you give us maybe an update on labor market, labor wage increases? Are we starting to see that start to peak out in areas? Just kinda what's the outlook there for wages and so on and so forth? Thanks. Yeah, I think, Randy, from the wage perspective as well, we've always said we adjust wages market by market by market. So whenever we see, especially going into a new market, we adjust according to what other retailers are paying. If we're an existing market and we start to see pressures with hiring, we will adjust accordingly. Not seeing a ton of change in the existing market that we're in, existing markets we're in today. New markets, we're working through as we go through them. The DCs, you know, knock on wood, have been pretty stable. When I say that, it could change tomorrow. I don't hang my hat on the DC wages because that world is evolving each and every day. We watch it, but we've been pretty steady for a while, so I'll just leave it at that. If we have adjustments we need to make, we will make them accordingly to keep the supply chain stable because it's more costly not to have people working than not. We feel pretty good. We feel pretty good where we're sitting. I think things are changing in the world, so we'll see where it goes. We're gonna continue to be competitive to get the workers and be able to run the model properly. I guess last thing to just ask is, I guess, for Jay, is when you then kinda think about what we just talked about, where it sounds like there's more visibility in the freight costs, you know, losing flexibility or on the spot market, but you have more visibility, and it sounds like there's more stabilization around labor and wages. I guess what I'm trying to ask is there more kind of a clearer picture in kinda being able to make that annual guide, you know, at this point of the year versus, you know, maybe what you kinda guided to obviously at the beginning of the year? There's just more visibility towards the model. Is that fair? Yeah. I think on the supply chain side of things, I think that's a fair comment. I think on the store labor front, you know, we have visibility to that, too, and it is a dynamic market. Obviously, we still have a big bogey if, you know, we talk about it every call, but if we had to adjust wages, you know, to like $15 an hour across the board, which we would never do, that's a big nut. Yeah, I agree with you, Randy. I would say that, you know, a couple components that come to my mind that are maybe a little more uncertain would be, you know, bunker fuel, diesel fuel rates, obviously. We've got a forecast, and we're doing our best, but that's a volatile market. I think the you know what we've already talked about on the merchandise mix side, and you know how that plays out in the future on what consumers are buying and what we do to lean in on price. Great. Thanks, guys. Thank you. Thanks, Randal. Thank you. I'm showing no further questions at this time, and I would like to turn the conference back over to John Swygert for any further regards. Thank you, everyone, for your participation in today's call and continued support. We look forward to updating you on our second quarter results on our next earnings call. Stay safe. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.