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Ollie's Bargain Outlet (OLLI): 2019 Top Picks' Mid-Year Update

07/12/2019 5:00 am EST


Douglas Gerlach

President, ICLUBcentral, Inc.

Douglas Gerlach, editor of SmallCap Informer, selected Ollie's Bargain Outlet (OLLI) as his top investment idea for 2019. The discount retailing stock has since risen 31%. Here's his latest update.

Ollie’s Bargain Outlet Holdings operates a chain of 315 discount stores in 23 states. It sources from over 1,100 suppliers and offers customers savings up to 70% off name-brand merchandise from the likes of Kellogg’s, Black & Decker, Serta, Fisher-Price, and M&M Mars.

The high-flying stock saw its share price fall off its all-time highs in the last half of 2018 as management guided towards slower future growth, and the year-end general market sell-off pushed Ollie’s stock into deep-discount territory.

As can be common, investors overreacted to management’s warning, as the company’s new growth paradigm still provides for future growth of revenues and EPS of as much as 20% a year. That’s the kind of growth that can provide plenty of potential for market-beating share price appreciation.

In its fourth quarter ended February 2, 2019, Ollie’s sales increased 10.4% to $393.9 million; excluding the impact of the 53rd week in the prior fiscal year, net sales increased 15.8%.

Same-store sales increased an impressive 5.4%, and the company opened six stores during the quarter, ending the year with a total of 303 stores in 23 states, an increase in store count of 13.1% year over year. EPS after adjusting for the tax benefit increased 39.2% to $0.71.

For the full fiscal year, Ollie’s sales increased 17.1% after excluding the impact of the 53rd week in 2017. Same store sales increased 4.2% and Adjusted EPS increased 46.4% to $1.83.

In Q1, Ollie’s reported results that were generally better than expected. Sales increased nearly 18% aided by a 17% increase in store count. Management indicated it is seeing strong new store performance in both new and existing markets. Comparable store sales increased 0.8%, which was slightly below expectations.

Margins were negatively impacted by pre-opening expenses as Ollie’s opened 21 stores in the quarter versus eight in last year’s Q1. EPS excluding a gain from an insurance settlement and the tax benefit from stock-based compensation increased 12%.

Given the solid Q1 results, the company increased its full year 2019 sales and EPS guidance.  Sales are now expected to advance 16%-17% with adjusted EPS in the range of $2.13-$2.17, implying growth of 16%-19%. Management reiterated its expectation for comparable store sales to increase 1%-2% for the year.

The company continues to make progress on its third distribution center, which will be operational in Q1 next year. This distribution center results in total capacity to serve 500 stores versus the current store count of 324. Ollie's Bargain Outlet is a buy up to $97.

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