Strength in Ollie’s Bargain Outlet (NASDAQ: OLLI) results, including market-leading growth and broader margins, suggests this stock is a buy on post-release weakness. Nothing in the report was bad, but strength was expected, so a sell-the-news event caused a marginal reduction in the price. The stock will likely trend higher because the company outperforms the retail industry, raising its guidance and long-term store count target. How high it gets depends on the upcoming results, but details suggest this stock could more than double over the coming years.
Ollie’s Leads Retailers in Q4: Guides Higher
Ollie’s had a robust quarter with top-line growth of 18%. The growth is impacted by an extra week in the quarter, but even at the adjusted rate, growth outperformed the retail sector by more than double. Ollie’s adjusted revenue and earnings growth also led off-price retail, including industry-leader TJX Companies (NYSE: TJX).
The problem with share prices today is that the 18% growth was expected and provided no catalyst for the market. Growth is driven by a 3.9% increase in comp store sales compounded by new store growth. The company added seven stores in the quarter for net growth of 9% YOY. Ollie’s now operates in thirty states and still has a solid growth trajectory ahead.
Margin news is among the most compelling news in the report. The company widened its gross and operating margins to drive solid cash flows and accelerated earnings growth. Margin strength is due primarily to reduced shrinkage and supply costs offset by slightly higher operating expenses.
The salient detail is that the operating margin improved by 270 basis points to leave the adjusted EPS up 45% at $1.23, $0.07 better than the consensus reported by Marketbeat. Adjusting for the extra week, earnings are up about 35% YOY and are $0.03 ahead of consensus.
The guidance provides a double catalyst for Ollie’s investors because 2025 will be strong, and the long-term outlook improved by 23%. The guidance for F2025 has revenue and earnings well above the consensus estimates and may be cautious, given the outlook for store count growth. The company plans to add forty-eight new stores, or another 9.4% and lifted the long-term store count target by 250. The latest target is the result of new data that shows that migration to suburban areas continues, growing the addressable market for Ollie’s Bargain Outlet.
Ollie’s Bargain Outlet Is a Sound Investment
Ollie’s cash flow and balance sheet make it a sound investment. The cash flow allows the company to internally fund growth without leaning on debt. There is some debt on the balance sheet, but leverage is nearly non-existent, leaving the company in a robust position. Highlights at the end of 2024 include a 25% increase in cash, a 12% increase in total assets, and a 10% increase in shareholder equity.
Share repurchases aided shareholder value, which reduced the count by 0.7% YOY. The company has $85.6 million left under the current authorization, about 1.8% of the market cap with shares near $75, and can be expected to increase the amount when it runs out.
Ollie’s Uptrend Is Intact, But Market Struggles With Traction
The uptrend in Ollie’s share price is intact, but the post-release action shows that the market is struggling with traction. Solid support at the 150-day EMA faces stiff resistance at the 30-day EMA, with risk favoring the long-term investor. Assuming support near $75 remains solid, this stock should rebound soon and may set a new high by summer. If not, shares of Ollie’s may retreat to more attractive levels. In that scenario, the best targets for solid support are $72.50 and $70.
