Ollie's Bargain Outlet (OLLI +7%) has surged to multi-year highs after JP Morgan upgraded the discount retailer to "Overweight" from "Neutral," citing accelerating growth prospects. Following a sharp pullback in April due to underwhelming FY25 (Jan) earnings and revenue guidance, shares have rebounded over 35%, reaching levels not seen since July 2021.
While buying at multi-year highs can add risk, OLLI's previous quarterly results highlight its ability to stand out among peers, likely driving additional market share capture amid a broad trade-down effect in a cumulative inflationary environment.
- After OLLI's Q1 (Apr) comps, revenues, and margins all exceeded expectations, the company raised its FY25 outlook. It now projects adjusted EPS of $3.18-3.28, revenues of $2.257-2.277 billion, and comps of +1.5-2.3%, up from +1.0-2.0%. Management noted the current economy is generating a strong closeout market, allowing OLLI to purchase goods at favorable prices and attract more consumers to discount retailers.
- OLLI's competitor, Big Lots (BIG, Financial), also buys excess inventory to sell at attractive prices. However, BIG has struggled due to its focus on highly discretionary products like furniture, which makes up a quarter of its annual revenues. In contrast, OLLI focuses on consumables, better shielding it from weak discretionary spending.
- By offering a favorable product mix, OLLI is attracting BIG shoppers with prices 20-70% below the original stores. This trend is expected to continue as large retailers frequently introduce new products and packaging, boosting the closeout industry. OLLI remains the largest buyer of closeout products, distancing itself from competitors.
OLLI has been performing exceptionally well. After a brief setback due to concerning FY25 guidance, investors have been bullish on the stock. The consistent uptrend is justified as OLLI continues to demonstrate its competitive edge in the discount retail market. Additionally, OLLI is undergoing a leadership transition, with CEO John Swygert moving to executive chairman early next year and Eric van der Valk, the current COO, stepping in as CEO. Given OLLI's recent success, significant changes are unlikely, though the transition could introduce some volatility.
