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Ollie's Bargain Outlet (OLLI +7%) marches to multi-year highs today after JP Morgan upgraded the discount retailer to "Overweight" from "Neutral," as it sees accelerating growth over the near term. Following a sharp pullback in April, shortly after OLLI issued underwhelming FY25 (Jan) earnings and revenue guidance, shares have moved over +35% higher, reaching levels not achieved since July 2021.

Briefing.com notes that buying in at multi-year highs adds risk as scrutiny becomes heightened and profit-taking jitters begin creeping in. However, OLLI's previous quarterly results showcase its impressive ability to stand out among its peers, likely driving additional market share capture as it capitalizes on a broad trade-down effect amid a cumulative inflationary environment.

• After OLLI's Q1 (Apr) comps, revs, and margins all topped expectations, it raised its FY25 outlook, projecting adjusted EPS of $3.18-3.28, revs of $2.257-2.277 bln, and comps of +1.5-2.3%, up from +1.0-2.0%. Management reiterated that the current economy is generating a strong closeout market -- allowing OLLI to snatch up goods at favorable prices -- and a strained end-consumer -- nudging them toward discount retailers more frequently.
• OLLI is not alone in the discount retail market. One of its closest rivals, Big Lots (BIG), operates similarly, snatching up goods from companies with excess inventory and selling them at its locations at attractive prices. However, BIG has struggled extensively despite selling into an environment similar to OLLI. The key difference is that BIG offers significantly more highly discretionary products, such as furniture, which comprises a quarter of its annual revs. Meanwhile, OLLI focuses on consumables, better shielding it from the continued weakness in discretionary spending.
• By offering a more favorable mix of products, OLLI is attracting BIG shoppers into its doors, taking advantage of prices 20-70% below the stores the products originated. This dynamic is expected to persist over the near term. OLLI mentioned earlier this month that large retailers supplied by prominent manufacturers are constantly introducing new products and packaging, leading to a noticeable uptick in the closeout industry. OLLI remains the largest buyer of closeout products, putting further distance between it and its next-closest competitor.

OLLI has been firing on all cylinders. After a brief hiccup sparked by concerning FY25 guidance, investors have been piling into the stock. The consistent uptrend is not without good reason as OLLI continues to demonstrate its competitive edge in the discount retail market. Lastly, it is worth noting that OLLI is amid a leadership transition, announcing that CEO John Swygert will move to executive chairman early next year. He will be succeeded by Eric van der Valk, OLLI's prior COO. Given OLLI's success over the past few years, the incoming CEO may not implement any sweeping changes. However, the transition could generate volatility.