By:
Nathan Zirpolo, 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 Holdings, Inc. (NYSE:OLLI) provides retail
of salvage merchandise, excess inventory and closeouts products. Products
include housewares, electronics, toys, and food offered to customers in 297
store locations across the Eastern half of the United States.
• Ollie’s experienced a
17.6% drop after the release of Q3 earnings, a very steep sell-off for a
company that reported better-than-anticipated revenue and earnings.
• Management has indicated
that it has plans to one day operate 950 stores nationwide.
• Ollie’s has fallen
close to 30% under the firm’s 52 week high of $97.61 due to the recent sell-off
of 17.6%.
• Due to third quarter
results, Ollie’s is using continued momentum to raise sales and earnings guidance
for the full year of 2018.
Key
points:
Despite a recent sell-off, Ollie’s Bargain Outlet Holdings, Inc. remains a buy. With a chance
at a possible recession in the near future, Ollie’s has made a strong effort to
decrease debt and plans to be debt free by the end of fiscal 2018.
With the goal of one day
operating 950 stores nationwide, Ollie’s has opened 37 new store in the current
year, using old Toys”R”Us locations. The company has acquired a total of 18
former Toys"R"Us sites, including 12 purchased properties and 6
leased. With a plan to open new stores at a 12.1% year-over-year rate, the
company just purchased land in Texas to build a new distribution center. The
615,000 square-foot center has the ability to service 150-200 stores, presenting
the large opportunity to increase market share in locations surrounding the
distribution center.
Higher supply chain
margins has served as a possible risk for the company, due to the company’s
gross margins being directly affected. In Q3, gross margin decreased 50 basis
points, but was partially offset by increased merchandise margin. A constant
increase in SG&A expenses also serve as a risk to the company. Increasing
11% in Q2 and 15.1% in Q3, the rise in SG&A expenses can be attributed to
increasing sales volume in existing stores and selling expenses from new
stores.
What
has the stock done lately?
Since reporting earnings
on December 4th, the company has decreased 17%. Given the fact the guidance
issued in the third quarter was an increase from the guidance issued in the
second quarter, the company sell off seems a little overdone. Furthermore, the
company has seen sales jump 19.1% YoY and EPS increase 45.5% YoY.
Past
Year Performance:
OLLI is currently trading
at $69.08, an increase in value of 29.73% over the past year. During 2018, the
company’s sales increased at a faster rate than their main competitors, a main
reason for the company’s success over the last year.
Source:
FactSet
My
Takeaway:
While there has been some
recent volatility, Ollie’s Bargain Outlet Holdings, Inc. has strong financials
due to strong cash generation and strong performance. Furthermore, management
has plans to continue to grow and expand to new markets, giving the company
long-term goals. Overall, the company is relatively safe and the recent
sell-off should not be a reason to trade the stock. By having long term goals
and a focus on increasing both retail stores and distribution centers, there is
a high chance that Ollie’s stable, long-term returns.
.
Source:
FactSet
