Ollie's Bargain Outlet (OLLI 77.40, +2.10, +2.79%) opened lower today despite
reporting upside Q1 (Apr) results. The problem influencing the low open appears to be a somewhat soft
same store comp number. Also, the stock has been running quite a bit in recent
weeks, so expectations were high.
Ollie's Bargain Outlet is an extreme value retailer of brand name merchandise offered at drastically reduced prices. The company is known for its assortment of merchandise offered as "Good Stuff Cheap" with witty, humorous in-store signage and advertising campaigns. OLLI offers a treasure hunt shopping experience by selling name-brand products, Real Brands! Real Bargains!, in departments spanning housewares, food, books and stationery, bed and bath, floor coverings, toys, hardware, and other categories.
Its distinctive and often self-deprecating humor and highly recognizable caricatures are used in its stores, flyers, mailers, website, and email campaigns. OLLI attempts to make customers laugh as it pokes fun at itself and at current events. This model endeavors to create a strong connection between customers and the OLLI brand, and OLLI believes this sets it apart from more traditional retailers. It currently operates 277 stores in 21 states across the Eastern United States. OLLI believes there is a longer-term opportunity for growing to more than 950 Ollie's locations across the US.
Turning to the Q1 (Apr) results, non-GAAP EPS rose 64% year/year to $0.41/share, which was a good bit better than market expectations. Revenue rose 21.1% year/year to $275.7 mln, which was also above market expectations. Operating margin increased 110 basis points year/year to 13.1% while adjusted EBITDA margin improved to 14.9%, up from 14.1% in the prior year period. In terms of FY19 guidance, non-GAAP EPS is expected to be $1.69-1.72, which is up from prior guidance of $1.65-1.69. Revenue is expected to come in at $1.207-1.215 bln.
As always, same store comps is a key metric for retailers. AprQ comps came in +1.9%, which was down a bit from +4.4% comps in JanQ. Full year FY18 came in at +3.3%. OLLI has now reported 16 consecutive quarters of positive comps. These are pretty decent comps in a tough retail environment for brick-and-mortar retailers. However, they are slightly on the weak side among growing retailers. For FY19 guidance, OLLI reaffirmed prior full year comp guidance of +1-2%. In terms of new store openings, OLLI opened eight stores and entered one new state during AprQ. The company’s goal is to add 36-38 stores this year, including its first stores in Arkansas and Louisiana.
In sum, it was a decent quarter for OLLI, but the same store comp performance is being seen as a disappointment. Also, the stock had rallied more than 20% since May 1 heading into this report, suggesting that investor expectations were running pretty high. And while the AprQ results were above market expectations, the sequential decline in same store comp number seems to be impacting the stock.
From a broader perspective, the stock has been doing quite well since its IPO debut in July 2015. OLLI strikes us as an attractive buy-and-hold type of stock as it delivers steady earnings/comps and remains attractive as an early-stage-retail-growth story. Overall, OLLI’s funny, light-hearted, self-deprecating advertising campaign seems to resonate with customers and build loyalty. The stock probably needed a bit of a pullback after its big run, but the company’s long-term growth story appears to be intact.
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