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Ollie's Bargain (OLLI) Business Operating Model Bodes 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 in the industry.

Let’s Introspect

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. Ollie's Army continued to be a major sales driver with membership increasing continuously. In first-quarter fiscal 2021, Ollie's Army grew 13.7%, ending the period with more than 11.9 million active members.

We also note that higher consumer spending stemming from the third-round of federal relief funds for the ongoing COVID-19 pandemic has benefited the company.

Impressively, net sales increased 29.5% year over year during the first quarter. Surge in the top line can be attributed to comparable store sales increase and new store unit growth coupled with sturdy performance. Further, management highlighted that sales during the quarter benefited from the company’s efforts to create an alignment between value driven merchandise and customer demand.

Markedly, comparable store sales climbed 18.8% during the quarter, driven by significant rise in average basket and transactions. On its last earnings call, management informed that comparable store sales are progressing ahead of expectations.


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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 two relocations in fiscal 2021.

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 cannot be ignored. The company is likely to witness tough year-over-year comparison as COVID-19 benefits are lapped. We note that this Zacks Rank #3 (Hold) stock has appreciated 5.2% so far in the year compared with the industry’s growth of 3.2%. Remarkably, the stock has advanced 11.4% in a month.

3 Stocks to Consider

Target (TGT - Free Report) has a long-term earnings growth rate of 13.3%. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores (BURL - Free Report) has a trailing four-quarter earnings surprise of 74.7%, on average. The stock sports a Zacks Rank #1.

Dollar General (DG - Free Report) has a long-term earnings growth rate of 11.3%. It presently carries a Zacks Rank #2 (Buy).

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