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Ollie's Bargain (OLLI) Business Model, Loyalty Program Bode Well

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Ollie's Bargain Outlet Holdings, Inc.’s (OLLI - Free Report) business operating model of “buying cheap and selling cheap”, cost-containment efforts, focus on store productivity and expansion of customer loyalty program — Ollie's Army, reinforce its position.

Let’s Delve Deep

Ollie's Bargain’s focus on value-driven merchandise assortment positioned it well to capitalize on opportunities in the marketplace and effectively meet consumer demand amid the ongoing pandemic. Ollie's Army continued to be a major sales driver with membership just kept increasing. In fiscal 2020, more than 75% of sales were from Ollie’s Army members, and the company increased its base of loyal members by 13.6% to 11.6 million as of Jan 30, 2021.

We also note that shift in consumer spending from COVID-impacted categories, such as travel, dining and experiences, to retail, and federal stimulus funds as part of the recently enacted COVID-Related Tax Relief Act of 2020 have been benefiting the company.

Impressively, net sales improved 22.1% year over year in the final quarter of fiscal 2020. This surge in the top line can be attributed to comparable store sales increase and new store unit growth coupled with sturdy performance. Comparable store sales climbed 8.8% during the quarter, driven by a significant rise in average basket.

On its last earnings call, management informed that current sales trends are impressive while comparable store sales are tracking up in the high-single digits quarter-to-date through Mar 18. It also added that the company is well on track to deliver robust performance in first-quarter fiscal 2021. Notably, the Zacks Consensus Estimate for first-quarter sales and earnings suggests growth of 21% and 32.7%, respectively, from the year-ago period.

Few Fact Checks

Ollie's Bargain’s results are dependent on the availability of brand name and closeout merchandise at compelling prices. Brand name and closeout merchandise represented about 65% and non-closeout goods and private label products accounted for roughly 35% of fiscal 2020 merchandise purchases, reflecting the increase in purchase of personal protective equipment due to the ongoing pandemic.

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 13.4% from 234 stores in fiscal 2016 to 388 stores in fiscal 2020. We note that the company has inaugurated 46 stores in fiscal 2020. Management plans to open 50 stores including three to four relocations in fiscal 2021. Meanwhile, management is planning to bring the Ollie's brand to three new states — Kansas, Missouri and Vermont.

Taking a cue from the past we noticed that net sales have surged at a CAGR of 19.3% from $890.3 million in fiscal 2016 to $1,809 million in fiscal 2020, while net income has soared from $59.8 million to $242.7 million during the aforementioned period.

Wrapping Up

Quite apparent, Ollie's Bargain strategic endeavors position the stock firmly for growth. However, uncertainty related to the pandemic still cannot be ignored. The company is likely to witness tough year-over-year comparison as COVID-19 benefits are lapped. The company highlighted that second-quarter fiscal 2021 will witness most difficult comparison from both sales and net income point of view, given outstanding performance in fiscal 2020. We note that this Zacks Rank #3 (Hold) stock has risen 9.2% so far in the year, almost in line with the industry’s rise of 9.3%.

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