Ollie’s Bargain Outlet Holdings, Inc.’s OLLI business operating model of “buying cheap and selling cheap”, cost-containment efforts, focus on store productivity and expansion of customer reward program — Ollie’s Army, reinforce its position in the Consumer Staples sector. These factors position the company well to augment both top and bottom line performance even amid the coronavirus crisis.
Synopsis
The company’s results are dependent on the availability of brand name and closeout merchandise at compelling prices, as the same represents roughly 70% of goods purchased. Moreover, the company sells merchandise at prices up to 70% lower than the department and fancy stores, and up to 20-50% lower than mass-market retailers.
As far as the company’s store growth strategy is concerned, management aims for a store count of more than 1,050 in the long run. Ollie’s Bargain has increased its store base at a CAGR of 14.1% from 203 stores in fiscal 2015 to 345 stores in fiscal 2019. We note that the company has opened 34, 37 and 42 stores in fiscal 2017, 2018 and 2019, respectively. The company plans to open 47-49 new stores during fiscal 2020.
Taking a cue from the past we noticed that net sales have surged at a CAGR of 16.5% from $762 million in fiscal 2015 to $1,408 million in fiscal 2019, while net income has soared from $35.8 million to $141.1 million during the aforementioned period.
Key Factors
Notably, this Zacks Rank #1 (Strong Buy) stock has more than doubled in the past three months, outperforming the industry’s rally of 16.6%. In a month, shares of this Pennsylvania-based company have soared 31%. The stock got a boost following the company’s better-than-expected performance in first-quarter fiscal 2020 despite the COVID-19 pandemic. Notably, both the top and the bottom line continued to improve year over year. Further, the company saw comparable sales turning positive, following a sharp fall mid-quarter.
Management informed that stores have remained open and continued to operate as an essential business during the quarter. As a result, comparable store sales subsequently improved driven by efforts to effectively respond to changing consumer needs. Moreover, the metric gained from the federal relief funds for the pandemic, which boosted consumer spending. Notably, initial sales for the second quarter remained robust. The company anticipates to steer through the current environment with caution, cost containment and improved cash position.
Quite apparent, Ollie’s Bargain strategic endeavors and long-term prospects place the stock firmly on growth trajectory. Notably, the Zacks Consensus Estimate for fiscal 2020 earnings has moved up by 19% to $2.24 in the past 30 days. This indicates an improvement of 14.3% from the year-ago period. Again, the consensus estimate for revenues for the current financial year is pegged at about $1.59 billion, which suggests growth of roughly 12.6% from the year-ago period.
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