Updated: Oct 22, 2020
" Ollie's Bargain Outlet (Ticker: OLLI) is a popular retailer of closeout merchandise and excess inventory. It's a great treasure hunting retailer with incredible bargains in its 378+ stores in 25 states."
By: Allan R Kirby
Ollie’s Bargain Outlet store - An off-price thriving retailer
Ollie’s Bargain Outlet store (OLLI) opened in Mechanicsburg, Pennsylvania on July 29, 1982 by four founders Mark Butler, Mort Bernstein, Oliver “Ollie” Rosenberg, and Harry Coverman. Soon after Ollie's opened a second store and thus began a journey that would result in then Chairman, President and CEO Mark Butler ringing the opening bell on NASDAQ on July 16, 2015, the day Ollie’s became a public company trading under the symbol OLLI
Today Ollie's is considered one of the largest retailers of closeout merchandise and excess inventory with a total of 378+ stores in 25 states. Ollie's Bargain Outlet does have a website however they do not sell any of their merchandise online so they are not an online retailer. Although all sales are in store they are not like most traditional retailers so potential investors need to understand why Ollie's could be a great investment.
What does Ollie's Bargain Outlet have?
Ollie's works by purchasing inventories from companies that are liquidating as well as closeouts, overstocks, package changes, manufacturer refurbished goods, and irregulars. As a result, you really never know what you can find at Ollie's Bargain Outlet, but generally speaking, they sell the following items:
Kitchen and Cookware
Bedding and Bath
Carpets and Rugs
Toys and Books
Is Ollie's cheaper?
Yes, Ollie's has incredible deals and is generally cheaper than even Walmart (WMT) and Target (TGT). They also tend to sell a lot more consumer goods than what you can find at Dollar General (DG) or Dollar Tree (DLTR). This is why the retailer is popular with its customers, they have good products and a great price. This is treasure hunting at its best and has worked even during COVID-19. Ollie's was one of the few stores that continued to stay open during the shutdown. It was not difficult since they could adjust their product mix very easy to focus more on household items and consumer staples that continue to be in big demand. Ollie's is priced more like a Dollar General and Dollar Tree but with a wider selection of consumer goods such as Target or Walmart, this is why the stock is popular with many investors.
The last quarterly results were really good, something I cannot say often about a brick and mortar retailers:
Comparable Store Sales Increase 43.3%
Operating Margin Increases 820 Basis Points to 17.4%
Diluted EPS Increases 294.7% to $1.50
Adjusted Diluted EPS Increases 197.1% to $1.04
As a comparison, Walmart's (WMT) Operating Margin was 4.40%, while another place I tend to go to BJ's Wholesale Club (BJ) which has an operating margin of just 2%. At a high of 17.4% Ollie's is a retailer that really stands out and is why I like this company's long term prospects.
Total net sales increased 58.5% to $529.3 million.
Comparable store sales increased 43.3%.
The Company opened 6 stores, ending the quarter with 366 stores in 25 states, a year-over-year increase in store count of 10.2%.
Operating income increased 199.3% to $92.0 million and operating margin increased 820 basis points to 17.4%.
Net income increased 294.8% to $99.4 million and net income per diluted share increased 294.7% to $1.50.
Adjusted net income(1) increased 193.5% to $68.9 million and adjusted net income per diluted share(1) increased 197.1% to $1.04.
Adjusted EBITDA(1) increased 164.9% to $99.4 million.
Great Balance Sheet
If there is one thing I learned about retail, is that debt really adversely affects the company's ability to adapt to change, I saw this with J.C. Penny, which had too much debt. This is not that case with Ollie's, as outlined in their last earnings release "The Company had no borrowings outstanding under its $100 million revolving credit facility and $92.0 million of availability under the facility as of the end of the second quarter of fiscal 2020. The Company ended the period with total borrowings, consisting solely of finance lease obligations, of $0.9 million compared with total borrowings of $0.8 million as of the end of the second quarter of fiscal 2019.
Why is Ollie's stock appreciation?
From its March lows of $28.83, the stock had run-up to a 52 week high of $112.58 but has since settled around the high 80's to mid $90 range. I believe the run-up can be attributed not only to the great numbers produced by Ollie's but also because they fit perfectly with the apparent trends that are developing in the retail market. Which is off-price and online retail, these two segments are on fire and where the growth is. At the beginning of the pandemic, Jim Cramer of CNBC's Mad Money made the correct call that off-price and online retail are two segments within retail that will do well during the pandemic. This has played out and will likely continue to put pressure on traditional retailers long after the pandemic. Except for a few retailers, most of the traditional retailers have been hit with mass closings and bankruptcies. Unless you're off-price like Ollie's or Online direct to sales, it will be a tough environment for years to come.
The great news does not end with their last earnings release, Ollie's is one of those few retailers that is expanding. Currently, they are opening stores at a rate of one store a week or about 52 to 55 stores per year. Secondly, we like the fact that Ollie's is not located in the malls they have no interest in opening stores at a mall anytime soon. As outlined by CEO John Swygert in Q2 2020 Earnings Conference Call where he stated that "We're not a real big fan of malls. "
However, the only downside we see is Mr. Swygerts comments about the second half of the fiscal year 2020. Mr. Swygert stated that “We continue to be pleased with customer response to our great deals, with comparable store sales trends currently tracking in the high teens. However, we fully expect sales growth to continue to slow as we progress through the second half of the year. Due to the uncertainty related to COVID-19, we are not providing guidance for the second half of fiscal 2020. We remain confident that we are very well-positioned to benefit from the continued disruption in the marketplace as we continue to leverage our strong vendor relationships and the expertise of our teams. It’s the effectiveness of our model, our strong financial position and long-term growth opportunities that keep us very excited about our future.”
"Does Ollie's Bargain Outfit (OLLI) have a dividend? No, Ollie's is a great off priced retailer that is a growth story, not a dividend play."
The stock took a hit from these comments, however, this does not change the fact that Ollie's is rapidly growing, with high-profit margins, and is an area of retail that has seen continued strong demand.
Is Ollie's Bargain Outfit (OLLI) a good stock to buy?
A few years back I bought JC Penny as a turnaround speculative buy, I liked the story that was being told such as their new drive to sell major appliances. It sounded like a great turnaround stock. That all changed when I decided to go to a local J.C. Penny, I was not impressed and sold my stocks immediately. I learned that you need to see and understand a retail business before investing in it. This is why I love Ollie's, I've been to their stores and enjoy the experience of finding stuff and saving.
Ollie's Bargain (OLLI) is a growth stock and does not pay a dividend, you are paying for growth, additionally, the current Price Target for OLLI is around $115.00 to $120.00, with a current price in the $90's, the stock is considered slightly undervalued. So is Ollie's Bargain Outfit a good buy?
We believe this is a good stock to own as a long-term investment with great margins, low debt, and longer-term expansion there is a lot to like. Potential investors should take a serious look at this great retail company as an investment. Do your research and see if this great stock is worth adding to your portfolio. Better yet, go to one of their stores and experience the great deals and treasure hunting offered. You will not be disappointed.
Apparel Stocks to Buy
There are other highly rated ESG consumer discretionary stocks that are doing well in this current environment such as Levi Strauss & Co. (LEVI) and Tapestry Inc (TPR). These may be other stocks to take a look at.
Disclosure: mysmallbank.com nor the author received any compensation from the mentioned security for this article. The article is our opinion only and is written to help readers learn more about the stock mentioned in this article. Consider this as basic information only and utilize professional services and additional sources before making an investment decision.