Ollie’s Is Spending a Windfall to Protect the Price Gap

Ollie’s Bargain Outlet’s 43% EPS growth is the least useful number from the second quarter.

Adjusted EPS reached $1.42 and adjusted EBITDA margin expanded 330 basis points to 17.1%, but the quarter included a 380-basis-point gross-margin benefit from IEEPA tariff refunds. Management also used part of that windfall to cut prices. Excluding both the refund and roughly 70 basis points of related price investment, CFO Robert Helm said gross margin would have been approximately 40.3%–40.4%, still modestly ahead of the company’s 39.9% expectation.

That normalization changes the interpretation. The tariff refund manufactured most of the headline earnings acceleration, but underneath it Ollie’s still produced some genuine operating improvement from lower shrink and supply-chain efficiencies, including benefits from its Princeton distribution center operating at scale.

The more consequential development is what Ollie’s is doing with the windfall: spending some of it to defend its price gap while the consumer weakens and competitors become unusually promotional.

The Sales Reset Is Real

Net sales rose 9.1% to $741 million, supported by new stores, while comparable-store sales declined 1.8%. Transactions were flat and average basket declined. Ollie’s responded by cutting its full-year comp outlook from roughly 2% to 0%–0.5% and reducing expected sales from $2.98–$3.00 billion to $2.928–$2.941 billion.There is evidence that the headline comp understates the underlying demand trend. Lawn and garden and room air alone reduced the comp by slightly more than 100 basis points, and management believes the total effect was larger because those categories normally generate additional purchases elsewhere in the store. Transactions improved sequentially every month and finished the quarter positive, while basket ended flat. Consumables continued growing at a mid-single-digit rate, and August was running ahead of the company’s flat third-quarter comp plan when results were reported.But weather does not explain everything.

Lower-income customers are shopping less frequently and increasingly prioritizing needs over discretionary purchases. Management places that pressure primarily among households earning below roughly $65,000. Higher-income households above approximately $100,000 continue to trade down into Ollie’s, while elevated fuel prices are particularly affecting customers with longer drives to stores in parts of Texas and the Midwest.Ollie’s therefore has two opposing consumer forces operating simultaneously: trade-down is expanding the potential customer base, but financial pressure on its core value shopper is reducing frequency and discretionary basket.

The Tariff Refund Became a Pricing Budget

Ollie’s received $28.3 million of tariff refunds during the quarter. Rather than allowing the entire benefit to flow through earnings, management has already begun recycling some of it into sharper prices and now expects roughly 50 basis points of full-year price investment associated with the refund.

CEO Eric van der Valk described Ollie’s positioning as everyday low price rather than high-low promotion. Yet the company lengthened promotional events, discounted weather-sensitive inventory, sharpened prices on traffic-driving products and even tested a “Five for the Drive” offer aimed at customers living farther from stores. Ollie’s expects approximately $50 million of price investment during the year and says it will spend beyond that if necessary to maintain its price leadership.This creates an unusual economic loop for an off-price retailer.

Competitors receiving their own tariff benefits and clearing weather-sensitive merchandise created more promotional pressure during Q2. That hurt Ollie’s current-period sales and forced it to respond on price. But those same inventory imbalances and aggressive clearance decisions are also creating future closeout merchandise for Ollie’s buyers.

Management explicitly rejected merchandise availability as an explanation for the weak comp. Deal flow remains strong, with particularly heavy availability in summer seasonal merchandise. The competitive disruption hurting Ollie’s today may therefore improve its purchasing environment later.

Store Growth Still Works, but It Cannot Hide the Comp Forever

Ollie’s opened 15 stores during Q2 and 42 during the first half, bringing the chain to 686 locations. The company continues to target 75 openings this year, and management said most of its 2027 real-estate pipeline is already secured.The acquired Big Lots locations also appear to be settling into the model reasonably well. Ollie’s normally expects stores entering their second year to experience a mid- to high-single-digit negative comp as grand-opening volumes normalize. The former Big Lots locations are running closer to low- to mid-single-digit declines, which management attributes partly to their softer opening strategy.

Meanwhile, Ollie’s Army membership increased roughly 13% to more than 18 million, new-customer acquisition increased, and management is seeing particular progress attracting customers aged 35–45 through more sophisticated digital marketing.That gives Ollie’s considerable room to keep growing even with muted same-store sales. It also raises the standard for interpreting that growth. Negative comps caused SG&A to deleverage by 80 basis points this quarter, demonstrating that store openings cannot indefinitely substitute for productivity within the existing fleet.

The next proof point is therefore not EPS.

Ollie’s is planning approximately flat comps in Q3 and 1% growth in Q4 while maintaining its long-term gross-margin framework near 40.5%. The tariff refunds temporarily make the trade-off between price and profit easier. Management itself describes those dollars as finite.

If transactions and basket recover as that subsidy disappears, Ollie’s will have demonstrated that the current price investment protected customer economics rather than simply purchasing short-term demand. If comps remain around zero once the tariff windfall is gone, store growth can still expand revenue, but the quality of that growth will look considerably different.