Ollie's Bargain Outlet Holdings, Inc. Q4 FY2025 Earnings Call

Good morning, and welcome to Ollie's Bargain Outlet Holdings, Inc. conference call to discuss financial results for the fourth quarter and fiscal year 2025. Please be advised that this call is being recorded and reproduction of this call in whole or in part is not permitted without the express written authorization of all these. I would now like to introduce our host for today's call, John Rouleau, Managing Director of Corporate Communications and Business Development for Ollie's. John, please go ahead.

Good morning. Thank you all for being here. We appreciate your time and participation. Joining me on the call today from Ollie's are Eric van der Valk, President and Chief Executive Officer, and Robert Helm, Executive Vice President and Chief Financial Officer. After their prepared remarks, we will open the call for questions. I want to remind you that some comments made during this call may be forward-looking statements, which are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ significantly from those statements. These risks and uncertainties are detailed in the company's earnings release and SEC filings, including the annual report on Form 10-K and quarterly reports on Form 10-Q. The forward-looking statements made today are as of this call's date, and the company does not have any obligation to update these statements. We will also discuss certain non-GAAP financial measures during this call. Reconciliations of the most comparable GAAP financial measures to the non-GAAP financial measures can be found in the company's earnings press release. With that, I will now turn the call over to Eric.

Good morning, and thank you for joining us today. We had a strong fourth quarter to cap off an exceptional year. Both comparable store sales and earnings were ahead of our expectations, and we delivered on all of our strategic objectives in 2025. We entered last year with a number of ambitious goals. Most notable of these was to accelerate our growth and capitalize on opportunities in the market including real estate, merchandise, customers, and talent. All of this required considerable planning and execution, and our team delivered. We opened a record 86 stores last year, which was significantly higher than our previous record of 50 stores. All stores were opened in the first three quarters, another first for us. We moved to a soft opening strategy which simplified the process and improved our execution. Our next goal was to enhance and drive growth in the Ollie's Army loyalty program. We added in Ollie's Army night in June, we made our Ollie's Days event exclusive to members only. We gave members advanced notice on special events, and we rolled out the Ollie's credit card. Our stores did an amazing job communicating the benefits and enrolling customers in the loyalty program. Great job team, your efforts paid off. The result was stronger customer acquisition growth the entire year. New memberships in our Ollie's Army loyalty program increased 23%, and our total customer file increased by more than 12%. On top of the accelerated membership growth, we are welcoming a wider breadth of customers; America loves a bargain. As we grow from East to West, we are expanding our customer demographics. Our unprecedented deals simply cannot be beat, and we are clearly benefiting from consumers seeking value and trading down. It's not just trade down, however. We are also reaching a younger customer through digital marketing tactics. Finally, we are reinvesting in our stores and improving the customer shopping experience. All of this is driving an expanded customer base. Our next objective was to go after merchandise-related opportunities. Our mission is to sell good stuff cheap. We do this through a flexible off-price buying model that leverages our growing buying power across suppliers and manufacturers around the world. Our growing size and scale and continued consolidation in the retail industry has resulted in better access to merchandise, and our deal flow is off the charts. This gives us more control and flexibility in how we build our merchandise assortment. A good example of this were changes we made to the seasonal category. Seasonal Decor is an area that continues to grow in the marketplace, and there is a white space opportunity here. At the same time, Toys is an area that continues to evolve away from traditional to more interactive products. With this in mind, we increased our investments in seasonal decor and changed our approach to toys. These changes resonated with our customers and were big wins in the fourth quarter. Our last initiative was to continue reinvesting in our business to support future growth. We have strengthened our bench in many critical areas, including playing in allocation, marketing, and new store development. We also increased our distribution center throughput through expansion and automation and we continue to improve our store and customer experience. Looking ahead, we will build on our momentum and progress in pursuing these initiatives in 2026. Our flywheel for growth starts with the opening of new stores and the availability of real estate continues to be strong. We are planning to open 75 stores this year, and these will be a mix of new and existing markets as we continue to expand contiguously. We recently celebrated entering our 35th state with the opening of our store in Austin, Minnesota. We celebrated the grand opening last week with a long line of enthusiastic customers that stretched down the side of the building. It was great to meet and talk to so many good people. Austin loves deals, and we are proud to be part of your community. Thank you, Austin and Minnesota; the birthplace of bargains has arrived with more stores coming soon. In addition to Minnesota, we will also be entering New Mexico later this year. With a total of 658 stores in 35 states, we are only at the halfway mark of our long-term goal of more than 1,300 stores. It's such an invigorating time to be with Ollie's with so much growth ahead of us. While new stores remain the cornerstone of our growth, we are also focused on driving comparable store sales through better execution, leveraging our growing size and scale, and improving sales productivity. We touched on strengthening our product assortment. We are also seeing opportunities arise in areas such as real estate and talent. Would you combine this with the fact that we reinvested in the business every year because of our strong sales, profitability, cash generation, and balance sheet, it feels like we have reached an inflection point. With these dynamics, we are confident in our ability to continue executing the business and driving consistent results. Our growth and the continued consolidation of the retail sector is leading to more buying power and expanding our access to products. This gives us the ability to balance our value proposition with our margin profile and strengthen both over time. Based on the structural changes to our business, we feel a comp target of 2% and a gross margin target of 40.5% is sustainable and strikes the right balance between price and margin. We also believe that this stability and strong free cash flow now allows us to commit to returning higher levels of excess cash to shareholders through share repurchases. Combining 10% unit growth, 2% comp growth, and a commitment to stepping up share repurchases, we are confident in delivering consistent mid-teens EPS growth while reinvesting back into the business to support profitable long-term growth and reach our target of 1,300 stores. In 2026, our focus will be on improving the in-store customer shopping experience, sharpening our dynamic marketing media mix model, expanding our IT application development capabilities, and further integrating technology and data analysis across the enterprise, including leveraging proven AI with appropriate solutions for our business model, growing our planning and allocation pension capabilities, and increasing our distribution capacity by expanding our Texas and Illinois facilities and laying out plans for our fifth DC. There is so much potential to continue to develop and grow our business, but we are doing this in a calculated fashion, staying true to our business model, strong culture, and our new long-term growth algorithm. We are super proud of our achievements in fiscal 2025. We delivered against virtually every single metric and goal we set out for ourselves at the beginning of the year. But now that's behind us. We are focused on building on our success, seizing new opportunities, delivering another year of good stuff cheap to our customers and strong results for our shareholders. Let me wrap up by recognizing and thanking all of our dedicated associates and team members. Every one of you plays an important role in serving our loyal discount customers and fulfilling our mission, serving our communities by selling good stuff cheap is not just a tagline. It's our purpose, our passion, and our reason for being. Thank you for everything you do. Now let me turn the call over to Rob.

Thanks, Eric, and good morning, everyone. We were very pleased with our fourth quarter results and the underlying trends in the business. Earnings were slightly ahead of our expectations, driven by solid comp growth, healthy margins, and disciplined expense control. New stores and customer acquisition remain our two top priorities, and we continue to deliver on both of these. We opened a record 86 stores last year, an increase of more than 15%, and membership growth in Ollie's Army remained strong, up more than 12% for the year to 17 million members. Now let me walk you through the P&L. Net sales increased 17% to $779 million, driven by new store openings and comparable store sales growth. Comparable store sales increased 3.6%, driven by an increase in both basket and transactions. Seasonal, consumables, hardware, stationery, and sporting goods were our top-performing categories. Our comp sales increase was above our expectations in the quarter, even more so when factoring in the impact of severe winter weather. Major storms around Black Friday weekend, the weekend of Ollie's Army Night, and the end of January caused a significant number of store closures and disruptions to the business. Given our store geography, we were particularly hard hit by the weather. While comp store sales were ahead of expectations, new store sales were slightly below our plan. This was a different trend than the rest of the year as our new stores outperformed expectations in the first three quarters. In hindsight, we underestimated the flattening of the reverse waterfall for the new stores in year one from the soft opening strategy. This proved to be more impactful in the fourth quarter than what we observed earlier in the year because of the higher engagement levels with our Ollie's Army members during the holiday season. The majority of our new stores be planned for this full year and the flattening of the reverse waterfall is something we continue to study. Gross margin of 39.9% was above plan for the quarter but approximately 80 basis points lower than last year, which was largely due to planned investments in prices. SG&A expenses were well managed in the quarter. Excluding the $5 million of one-time expense related to the modification of equity awards for our Executive Chairman in last year's third quarter, SG&A expense as a percentage of net sales decreased 40 basis points to 24.2%. The decrease was primarily driven by the leverage of our fixed costs from the increase in comparable store sales and benefits from our optimization efforts in marketing. Preopening expenses decreased 53% to $2.3 million, driven by the earlier timing of new store openings this year versus last year. Moving down to the bottom line. Adjusted net income increased 16% to $85 million and adjusted earnings per share increased 17% to $1.39. Lastly, adjusted EBITDA increased 16% to $127 million, and adjusted EBITDA margin decreased 10 basis points to 16.3% for the quarter. Turning to the balance sheet. Our total cash and investments increased by more than 31% or $134 million to $563 million, and we had no meaningful long-term debt at the end of the quarter. We remain committed to maintaining a very strong balance sheet because of the credibility this gives us with our various partners across the industry. Inventories increased 18% year-over-year, primarily driven by our new store growth and strong deal flow. Capital expenditures were $18 million for the quarter, with the majority of the spending going towards the opening of new stores, the improvement of existing stores and, to a lesser degree, investments in our supply chain. We did pull some new stores forward in early 2026, which drove CapEx and preopening a little higher than our expectations. We bought back $34 million worth of our common stock in the quarter and $74 million for the full fiscal year. At year-end, we had $259 million remaining under our current share repurchase authorization. We are stepping up the buyback in 2026, and I will speak to this more in a moment. Lastly, let me run through the way we are thinking about the business and our initial outlook for fiscal year 2026. Let me start with tariffs. The tariff situation obviously remains very fluid, and the current lower levels could be temporary. Bigger picture, tariffs are just another form of disruption, and we benefit from disruption. Whatever happens, we would expect to mitigate any margin pressure from tariffs. Before running through our guidance for 2026, let me comment on how we are thinking about our new long-term growth algorithm that Eric quickly touched on. We operate a flexible and fluid business that generates stable returns and very strong cash flows. Our strong growth, along with the consolidation of retail, gives us greater ability to scale and drive the business. With all of this, we feel confident in targeting annual comparable store sales growth of 2% and annual gross margin of 40.5% moving forward, acknowledging that there will be some variability to comps and margin between the quarters based on deal flow, seasonality and a few other factors. The 40.5% annual gross margin target is our current baseline target. And our thought process is to reinvest anything over and above this back into our value proposition to our customers. Lastly, we are targeting to return approximately 50% of our free cash flow back to investors through share repurchases going forward. Our first and best use of cash is and will always be reinvesting into the business to support long-term growth. However, between our very strong balance sheet and stable cash generation, we are confident in committing to a higher level of share repurchases that benefits long-term EPS growth. Our initial guidance figures reflect these changes and are contained in the table in our earnings release posted this morning, and they include 75 new store openings, net sales of $2.985 billion to $3.013 billion, comparable store sales growth in the range of 2%, gross margin in the range of 40.5%, operating income of $339 million to $348 million, and adjusted net income and adjusted net income per share of $270 million to $277 million, and $4.40 to $4.50, respectively. These estimates assume depreciation and amortization expenses of $63 million, inclusive of $15 million within cost of goods sold, preopening expenses of $22 million with the majority of this in the first half of the year, an annual effective tax rate of approximately 25%, which excludes the tax benefits related to stock-based compensation. The tax rate is slightly higher than 2025 due to higher levels of nondeductible compensation. Diluted weighted average shares outstanding of approximately $61.4 million, which includes a stepped-up share repurchase level of approximately $100 million. And finally, capital expenditures are expected to be in the range of $103 million to $113 million, which includes almost $20 million for the expansion of our Texas and Illinois distribution centers. Similar to last year, we expect our new store openings to again be front-end weighted with the majority of openings planned for the first half. In closing, let me also acknowledge and congratulate my fellow team members. While we continue to integrate technology into how we do things, we will always be a people-led business that relies on each and every team member to play their part. 2025 was a terrific year on all accounts, and I am excited about the opportunities that lie ahead for our team. Now let me turn the call back over to Eric.

Thanks, Rob. In closing, I'd like to share that we are well-positioned and laser-focused on continuing to deliver profitable growth. We are committed to driving strong and consistent execution every hour of every day. We are proud of what we do in service of our customers. We are excited about the opportunities ahead. And last, but certainly not least, we are Ollie's. Operator, we are now ready for questions.

Our first question comes from Peter Keith with Piper Sandler.

Thank you. Good morning, everyone. Interesting on the algo change, certainly exciting from moving from the historic 1% to 2% comp annual target up to now 2%. So kind of subtle, but I would still say meaningful. Could you give us a thought process and why you're doing that now? And maybe, I guess, even what gives you the confidence you can sustain that going forward?

Sure. Peter, thanks for your question. We do believe we're at an inflection point with the accelerated growth last year and looking at $3 billion in sales for next year. Our growing size and scale are leading to better access to merchandise and deals. It's allowing us to steer our merchandise selection and our category mix much more deliberately than we were able to do in the past. Our flexible buying model allows us to get in and out of products and categories fluidly. So with more consistent access to incredible deals and the improvements we've made throughout the business on the organization, we feel like a 2% comp algo is sustainable.

Our next question comes from the line of Chuck Grom with Gordon Haskett.

I'd read that chance, the 9.5%, I think, this morning, nice effort. My question is on sales productivity. You've noted changes being made to the size of certain assortments such as shrinking carpeting books and toys just now. Where are you guys in that journey and that in sales per square foot? I'm curious for your best stores where that productivity sits. And then last question would be in our field work, we've observed furniture in stores. Is that just a seasonal drop? Or are you guys leaning into that category more deeply?

Thank you, Chuck. I appreciate it. I believe my score was 1.0 on the previous topic, which is acceptable, but there's room for improvement. We acknowledge that. Regarding space productivity, our approach has evolved. We now focus on providing the best value in key merchandise categories while pursuing closeout opportunities. It's important to highlight the adaptability of our business model, which often aligns with the closeout pipeline. Our growth and scale enhance our ability to access deals, leading to more long-term partnerships with vendors and the community. This broader access to merchandise allows us to better manage categories and assortments. We've been reevaluating how we value store space and enhance productivity for several years now, starting with insights gained from our remodel program. This has increased our confidence to make investments and steer categories more strategically. We're also investing in planning and allocation within stores to capitalize on these opportunities. Furniture is a prime example of a category where we've identified significant market potential due to recent retail consolidations. Retailers like Big Lots, Value City, and American Freight have opened new opportunities in the deep discount furniture market. We're focusing on living room furniture with our opportunistic buying model, positioning ourselves well to enter and exit categories effectively. We began testing expanded furniture offerings last year and are pleased with the results. We anticipate a strong tax refund season, which presents a unique opportunity to introduce our furniture business widely across stores. To address whether this initiative is temporary or a deal for the future: We're still in the early stages, about seven weeks into the furniture introduction, which effectively kicked off over President's Day weekend. We believe there is a long-term place for this category in our stores, likely in most of them, though possibly not every store. A key decision we face is determining what not to invest in—whether that involves deals or categories. We've decided to exit the wall-to-wall carpet business as it's not very productive and we see furniture as a more viable option for generating sales. We're optimistic about furniture and believe it will yield better sales productivity compared to wall-to-wall carpet in more than half of our stores. Overall, we are early in this process and like what we see so far. I can't provide specific projections about sales per square foot at this moment, but we do have strategies for category mix management to enhance productivity moving forward. We’re not committing to any specific outcomes for future years at this time.

Our next question comes from the line of Matthew Boss with JPMorgan.

So Eric, on the inflection point that you cited to kick off the call. So two questions. First, could you elaborate on the comp strength relative to plan that you saw in November and December? How best to quantify the weather impact on the fourth quarter? And have you seen any change in comp momentum so far in the first quarter relative to the three to four comps that you delivered in the fourth quarter? And Rob, separately, I guess, could you just elaborate on the performance that you're seeing in your new stores relative to plan and just expectations for productivity that you embedded in the guide for this year relative to 2025?

This is Rob, and I will address this. We were satisfied with the comparable results in Q4, which were driven by increases in transaction volume and basket size, with baskets accounting for two-thirds of the growth and transactions making up the remaining third. The monthly trends remained fairly stable. We were happy with the holiday season, which went very well. In January, our exit rate would have represented the strongest comparable for the quarter, excluding the significant impact of the winter storm that forced the closure of hundreds of stores for several days in the last week. This momentum has carried into Q1. We are content with our positioning and confident we can meet our guidance. Our deal flow is excellent, and our selection for the spring season is outstanding. From a new store perspective, it's important to consider the overall context. Most of our planned stores for the full year are on track, which is encouraging. Additionally, the new stores were disproportionately affected compared to the comparable stores during that final week due to their locations. What we experienced in Q4 involved a timing dynamic related to our soft opening strategy, which flattened the early sales curve but enhanced the execution at these stores. This better execution allowed us to open stores earlier and significantly increased our openings from 50 stores to 86 stores this past year. We expected this to influence the maturity curve to some degree. However, we believe it affects the shape of the curve without compromising the long-term productivity, profitability, or potential of these stores. With respect to our guidance, we have factored in the fourth-quarter performance and the productivity of our new stores. The way the market measures new store productivity is slightly elevated this year compared to last year, given the increase from the 86 new stores entering our base. We are confident in our guidance and believe we are well-positioned to achieve our goals.

Our next question comes from Steven Shemesh with RBC Capital Markets.

Great. I appreciate you taking the time. There are clearly several consumer factors at play right now. With the changing tariff situation and the potential rise in inflation affecting tax refunds, along with the Middle East situation impacting gas prices and consumer confidence, could you provide insights on the overall state of the consumer and what you're observing regarding consumer behavior? Additionally, there seems to be an ongoing discussion about closeout availability, which you mentioned earlier. Could you provide an update on that as well, particularly regarding your confidence in maintaining high quality in stores as you increase store growth?

Sure. Thanks, Steve, for your questions. Regarding the current state of the consumer, we see that consumers are looking for value, and we're prepared to meet those needs. Our upper-income customers are continuing to trade down, showing positive momentum, whereas the lower-income group is slightly weaker; however, the trade down more than compensates for this weakness. We're also experiencing strong performance in consumables, which reflects the consumer mindset and remains a robust area for us. The deal flow is exceptionally promising, linking strongly to the consumer demand for consumables. With significant retail consolidation over the past year, we are witnessing remarkable deal flow across nearly all categories. Consumables, in particular, have shown a strong pipeline. As an extreme value retailer, we feel confident about our competitive pricing strategy, and we believe we are well-positioned moving forward.

Our next question comes from Steven Zaccone with Citi.

I wanted to ask about the real estate environment. Just help us understand how you're balancing new store growth versus investing in some of these initiatives to drive higher store productivity. And then this year calls for 75 new stores, which is slightly above 10% unit growth. Should we expect this unit growth above 10% to continue for a couple of years?

Thanks, Steve. It's Rob. I'll take that question. The real estate environment remains strong, and availability is very good. 2025 was actually one of the biggest years of store closures that we've seen over the last 10. But we're focused on building a long-term durable business model that compounds earnings growth year after year. We feel that the best way to do this now is by balancing our new store growth with other initiatives to improve the in-store shopping experience across the remainder of our fleet. But touching on the go forward, we think that 10% unit growth is probably the right way to think about it. beyond 2026. 2025 and 2026 were really above algorithm because of the outsized consolidation of stores that we've seen in the last 12 to say, 24 months.

Our next question comes from the line of Kate McShane with Goldman Sachs.

Is there a way to quantify the comp growth of Ollie's membership versus what is coming from new store growth? And we were wondering if the Ollie's Army demographic is changing in line with what you're seeing just in the stores.

I'll take the first part, and then I'll hand it off to Eric for the second part. We haven't separated that out in the past historically. We think about Ollie's Army as a single metric. And we're looking to grow it through new stores predominantly. But what I would say is all vintages continue to comp on Ollie's Army store growth. And it's an important goal that we set for our store teams in communicating the benefits out to our customers each and every day.

Yes. We are very pleased with the performance of Ollie's Army this quarter and throughout the year in terms of growth, customer excitement around the program, the enhancements made, the conversions our stores have achieved with customers, and the new customers joining our loyal bargain-hunting Ollie's family. We are fully engaged in our efforts regarding Ollie's Army.

Our next question comes from Anthony Chukumba with Loop Capital Markets.

Congrats on a strong 2025. I was interested in the seasonal business in the fourth quarter, specifically, how much of that strength was closeout as opposed to some of the direct source stuff that you did, particularly in terms of decorations and also gifts?

Sure. The seasonal business typically is more non-closeout, more source, more production goods. Last year, we did see a fairly healthy pipeline of closeout goods from ex-inhibitory that was out there as a result of retail consolidation with manufacturers and product that was left behind from retailers that are out of business that was in transit, etc. So it was a combination. I'm not going to quote the percentage on it, but it was actually a fairly healthy combination of closeouts that is somewhat unusual for that business. Gifts are the same to the extent we don't usually get into specific deals on this call, but we did have outsized gift-related deals. A year ago, we were up against that were closeout related. Some of what we bought was closed out and so what we bought was production, and we had a very strong gift business this year. So we were able to comp our business that was a little bit more closeout driven in '24, with a little bit less closeout-driven product in '25, and we were very proud of our value proposition, our price gaps on that product. It does speak to the evolution of our business as we continue to grow, being maybe more like an off-pricer with closeouts as the most important driver of our value proposition. And that's how we see our business as we move forward, especially as we continue to grow in size and scale.

Our next question comes from the line of Simeon Gutman with Morgan Stanley.

Good job in '25. If you take the sort of this newer financial algorithm compared to previous, so two, it's a little bit higher than what you were comfortable underwriting. Gross margin is certainly higher. Can you just tell us then what happens on the other side of it? Are you saying that margin grows at a faster rate to an EPS growth faster? Or is there something inhibiting higher SG&A? I'm sorry if I missed that piece, but I'm trying to put on the before and after together.

This is Rob. I'll address that question. We are not viewing margin growth differently under the algorithm. We are transitioning from a 1% to 2%, which reflects our confidence at this inflection point due to our size and scale. We are considering our margin as the current baseline target, aiming not to exceed 40.5% in the short term. We believe this strikes the right balance between price and margin for now. If we have the opportunity to exceed that, we would reinvest it into our value proposition to boost market share at this time. From the SG&A perspective, with a 2% comp, we expect to achieve 10 basis points of leverage, which is included in our guidance. We anticipate EPS will grow in the mid-teens on the bottom line, supported by share repurchases, but that is not our primary method. Our growth is driven by the core strength of the algorithm throughout the entire P&L.

Yes, Simeon, I just want to stress the point on margin about reinvesting in price. Nothing has changed here. We reinvested in price; 40.5% is the new 40. Period.

Our next question comes from Scott Ciccarelli with Truist.

This is Josh Young on for Scott. So how much benefit do you think you're capturing at this stage for big lots? And could we see sales slow in the back half as you cycle those orphan sales that you were able to capture?

This is Rob. I’ll address that question. The stores that took over the previous big lots locations, whether they never reopened or were replaced by various wholesalers, are some of our strongest locations this past year. However, similar to the COVID situation when we discussed two-year, three-year, and four-year comparable stack data, the past significance of big lots is not returning. We will continue to benefit from their absence regarding real estate, access to products and sourcing, and talent, while also maintaining our share of consumer spending with our fantastic deals and bargains. Our model has always succeeded through the long-term consolidation of retail, and the situation with Big Lots is no exception.

Our next question comes from the line of Jeremy Hamblin with Craig-Hallum Capital Group.

And I'll add my congratulations on the really strong year. I wanted to ask about dark rent, which you saw impact in 2025. What was the total dark rent in '25? And if you have some dark rent that you're expecting in 2026, what would that amount be? And then also, you talked about returning capital to shareholders maybe in a little bit bigger way. You've got over $0.5 billion in cash and generated about $300 million of operating cash flow in '25. Would you think about stepping up like the share repurchase plan to a $300 million, $400 million level? Just something that given the cash flow that you generate and current balance and strong balance sheet. Just curious if that's under consideration.

Sure. This is Rob. I'll take those questions. Dark rent expense was $5 million for the Big Lots locations in 2025. Not all of this was incremental. And typically, our organic locations incur some level of dark rent. It's typically in the range of a month or so as we merchandise the store. We do have more normalized assumptions included within preopenness last year. But as you do the math, I think the piece that you're trying to solve for is our investment in improving the shopping experience and the remodel program, which we have now added back into 2026 has included our guidance numbers. So that's on the preopening side. On the buyback side, the way we're thinking about buybacks is it's a supplement to our algo. It's not a substitute for earnings growth. We're very comfortable with the commitment of returning 50% of our free cash flow generation back to the shareholders. The $100 million, we believe, is a conservative target. If we are able to generate higher levels of operating cash flow, we'll aim to stick to that 50% return of free cash flow. We're not looking to do a short-term pop. We're looking for steady compounding earnings growth over time.

We have a question from Edward Kelly with Wells Fargo.

Nice quarter. On the marketing side, I was hoping that you could touch on maybe some of the changes in the marketing strategy, and you mentioned optimization. And then related to this on the flyer, any shifts on the flyer that we should be thinking about this year or other special promotions for '26?

I appreciate your questions about flyers and marketing strategies. Regarding marketing, we are continuously enhancing our approach using a dynamic media mix model, which allows us to shift our spending towards more effective channels in a timely manner. This has been an ongoing effort over several years as we decrease our dependence on print media, which has been in steady decline. It's not about increasing our budget; rather, it's about leveraging data for more targeted and efficient use of our resources. We have already noticed positive outcomes from this work, evidenced by a decrease in marketing expenses over the last six months. It's about spending more efficiently rather than just spending less. Additionally, we've significantly cut our print expenditures ahead of the overall decline in available print media, which is the source of most of these reductions. This strategy provides us greater flexibility, particularly with digital media, which allows us to respond more easily to changes in demand and seasonal trends. Customer engagement is also more adaptable and real-time, enabling us to maintain strict control over our expenses. Regarding the flyer questions, historically, flyers have been significant events during the quarter, but we no longer view them in that light. I will refrain from discussing any future changes to flyer timings. Given our expanding size and approaching $3 billion in sales next year, I am cautious about revealing our flyer strategies to vendors and competitors. However, we are committed to maintaining a 2% algorithm period each quarter. That sums up my response to your flyer inquiry.

Thank you. And ladies and gentlemen, this will conclude our conference for today. Thank you for participating. You may now disconnect.