Ollie’s Bargain Outlet (NASDAQ: OLLI) had a solid quarter in Q2, with only one thing overshadowing the results: margins. The company’s gross margin remained steady despite the influence of competing factors, but increased costs, including start-up and dark rent, eroded the profit outlook. While revenue is growing robustly for this retailer due to the expansion into vacated Big Lots locations, profits are not keeping pace. 

The critical details for investors are that today’s increased costs are positioning the company for future growth and earnings leverage. Not only are comp sales growing at a modest single-digit pace in the existing business, but the new stores will drive a systemwide acceleration and improve operating leverage as unused square footage gets put to use.

Until then, the company’s profits are sufficient to sustain its growth trajectory, maintain a healthy balance sheet, and support capital returns. 

Yes, Ollie’s Accelerates Growth in 2025 

Ollie’s move to acquire bankrupt Big Lots locations was a good one, allowing it to accelerate its growth. Revenue grew by 13.4% in Q1, outpacing the consensus estimates by 190 basis points on a 13.2% YOY increase in store count. Growth is also driven by comp-store gains of 2.4%, which is entirely due to transaction volume.

Loyalty membership is another area of strength, indicating long-term growth, which is up 9% and is expected to continue increasing as new stores are added and penetration gains are made. 

The margin contracted, but there is good news.

The margin contracted, but less than expected, resulting in adjusted net income and earnings increasing by about 3%. The critical factor is that guidance was improved, including the anticipated impact from tariffs. The revenue forecast was increased due to accelerated store count growth and comp-store strength, and will outpace competitors.

Still, the earnings forecast was maintained, including the impact of dark rents, with improving operational leverage offsetting the effects of tariffs. 

Ollie’s also accelerated its shareholder value gain. Highlights from the balance sheet are overwhelmingly positive, with cash, investments, inventory, current, and total assets all increasing, more than offsetting the increases in liabilities. The balance sheet remains net cash, long-term debt has declined, and total liabilities are extremely low at roughly 0.35 times the equity, which has increased by 13%.

Regarding capital returns, Ollie’s doesn’t yet pay dividends and only repurchases enough shares to offset dilutive actions, but it is in a position to begin accelerating its return soon. 

Sell-Side Activity Supports the Uptrend in Ollie’s Share Price

Sell-side activity, including analysts, institutions, and short-sellers, aligns with an uptrend in Ollie’s stock price. The 14 analysts tracked by MarketBeat rate the stock as a Moderate Buy with a bullish bias. Coverage is firm, with a consensus price target that forecasts a 10% upside in early June, and the revision trend is trending towards the high-end range.

Institutions, which own nearly 100% of the stock, have been buying on balance this year and provide a strong support base, while short-sellers were covering as of the May 15 report. 

The price action in OLLI shares pulled back in premarket trading following the release, opening a likely buying opportunity. The trend in the action since 2022 is bullish, and the Q1 2025 report aligns with acceleration, not deceleration, which is a bullish catalyst.

The critical support target is near the 150-day EMA; a move below that could lead to sideways movement in 2025.

However, assuming support remains solid, this stock is likely to continue trending higher, potentially reaching the consensus target of $124 by year's end and setting a new all-time high. 

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