By: Sarfaraz Mohammed, AIM student at
Marquette University
Disclosure: The AIM Equity
Fund currently holds this position. This article was written by myself, and it
expresses my own opinions. I am not receiving compensation for it and I have no
business relationship with any company whose stock is mentioned in this
article.
Summary
•
Ollie’s Bargain Outlet Holding’s Inc. (NASDAQ:OLLI)
is a holding company which consists of the retail of closeouts, excess
inventory and salvage merchandise. The
company offers a selection of brand name products including food, housewares,
books and stationery, healthcare, clothing, sporting goods, appliances, toys,
electronics and more.
•
From 2012 to 2016, Ollie’s grew from 131 store locations to 234 store
locations. As of January 28, 2017,
Ollie’s operates in 271 stores across 20 states in the Eastern half of the
United States. Ollie’s is continuing to
open new locations as it has plans for openings in Albemarle, NC on 03/21/18,
Toccoa, GA and Pine Bluff, AR on 04/04/18 and Muskegon, MI on 04/11/18 as per
their website.
•
Ollie’s aim is to provide a “treasure-hunt” shopping experience as they have
something for everyone, pushing towards a universal customer appeal. In
addition to the universal appeal, Ollie’s is truly attractive for its cheap
prices as they sell either overstocked or old-packaged brand name
products.
•
Management expects its future store potential to grow by 3.5x as its given an
estimate to increase to 950 stores in the future. They aim to take advantage of the tremendous
white space opportunity and keep expanding.
•
OLLI is poised for another good year as 4th quarter earnings
expectations are high and management expects to keep expanding and improving
their stores.
Key points: Ollie’s Bargain Outlet Holding’s Inc. first
major initiative is to take advantage of its white space opportunity. From 2011-2017, Ollie’s has proven its
portability of a new store model as it entered 10 new states and opened 173 new
stores. Ollie’s stores are supported by
two distribution centers in York, PA and Commerce, GA, which management believes
can support 375-400 stores. 34 stores were opened in FY 17 and management
expects future potential in stores to grow by 3.5x to eventually reach 950.
In
addition to expanding its store locations, Ollie’s also aims to increase its
offerings of great bargains as well. It
has partnerships with brands such as P&G, Kellogg’s Hasbro, and Rust-Oleum
Brands. They aim to increase buying
power and their ability to buy directly from vendors.
Ollie’s
main promotional slogan is “Good Stuff Cheap.”
As a retailor that buys excess of brand name products that have not been
sold or repackaged, it allows customers to choose from a variety of products
all across the board. Moreover, Ollie’s
culture seems to be that of a playful, relaxed culture as can be seen on their
website. The colors used are eye
catching and their logo is a cartoon as well.
This is indeed to catch the customer’s attention and provide for a
welcoming shopping experience.
It
should be noted that OLLI’s stock price may be affected by other big retailers,
as Ollie’s is a “second hand retailer.”
For example, in February, Walmart’s profit guidance was below
expectations, which affected other retailers including OLLI. If other retailers are not doing well, this could
affect OLLI’s stock price.
What has the stock done
lately?
Over
the past month, OLLI has steadily risen from $55.00 to $58.70. In the past few weeks, the stock has dropped
in price a bit as it was over $60, but has come back down to its current price
of $58.70. Their Q4 earnings calls is
coming up on April 4, 2018. Earnings
expectations are high, so it should be interesting to see what results are
produced then.
Past Year Performance: OLLI has increased by a staggering 83.69%
over the past year from $32.50 to $59.70 in its most recent close. Ollie’s has been consistently beating its
quarterly earnings expectations. In its
most recent quarter (Q3), it beat earnings expectations by $.008 and previously
in Q2, earnings beat expectations by $0.237.
Source: FactSet
My Takeaway
Ollie’s
Bargain Outlet Holding’s Inc. has had an outstanding year as it has grown
83%. I really like where the company is
heading in terms of store expansion and the process of acquiring more
vendors. The welcoming nature of the
store also provides for a great shopping experience, which in turn should
provide more traffic and therefore sales.
If Ollie’s can continue to work and expand on their successful business
model thus far, I can see it being even more successful in the future. For now, however, I recommend a hold on this
position since it’s had such a great year, and expectations may be too high for
this positon.
Source: FactSet
