Ollie's Bargain Outlet (OLLI), which is an extreme value retailer of brand name merchandise (housewares, food, bed/bath, toys, hardware, etc.), is under some pressure this morning after reporting Q1 (Apr) earnings results last night. Adjusted EPS rose 12% yr/yr to $0.46, which was a bit better than expected, while revenue rose 17.8% yr/yr to $324.9 mln, which also exceeded market expectations.
Why is the stock trading lower despite the revenue/EPS upside? We think it's mostly a reaction to the quarter's same store comps. They came in at just +0.8%, which was down up from +5.4% comps in JanQ and +4.6% comps in OctQ.
Oftentimes, when a company reports weak comps it's because it's lapping difficult comparisons in the prior year period. However, that was not the case here, as last year's comps were a pretty mediocre +1.9%. To put that into perspective, the +5.4% JanQ comps were lapping +4.4% comps in the prior year period. That really tells you how strong its comps were last quarter. So, while this was OLLI's 20th consecutive quarter of positive comps, this was definitely a disappointing number for them. On the call last night, CEO Mark Butler cited bad weather in many of its markets for impacting its seasonal business.
While comps were impacted by weather, a big part of OLLI's growth story is its rapid pace for opening new stores. The company hopes to grow from its current store base of 327 to 950 over the long term. OLLI has already opened 24 stores in 2019, including 12 in acquired former Toys "R" Us locations. It's on pace to open 42-44 stores this year and enter two new states (OK and MA).
Butler said that he expects the new stores "to continue to be a significant driver of our growth" and that the new stores in AprQ "crushed it," so OLLI tends to do very well when it opens new locations. Of note, OLLI recently built its third distribution center, meaning that it now has capacity to serve 500+ stores.
Despite OLLI's weakness today -- and we can give them a pass for the bad weather, as many other retailers have been saying the same thing -- we are generally fans of the story. It's an early stage retail growth story. It sort of reminds us of Five Below (FIVE) with its focus on value and fairly aggressive expansion plans. We also like its witty, self-deprecating, humorous in-store signage for "Good Cheap Stuff." OLLI attempts to make customers laugh as it pokes fun at itself and current events. The idea is to create a strong connection to its brand, and OLLI believes this sets it apart from more traditional retailers.