By:
Jack Blum, 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) Ollie’s is a
retain chain of general merchandise primarily offering closeout deals on brand
name goods. They specialize in overstocks, package changes, irregulars, and
refurbished goods. Their products include bed and bath items, houseware items,
and electronics. They were founded in 1982 in Harrisburg, PA.
• Ollie’s shares have
experience volatility in the past year due in the most part to missed sales and
EPS in Q2 of 2019.
• Due to these miss fires,
management lower FY19 sales guidance. The stock tumbled down 20-25% after these
announcements.
• Ollie’s is in the midst
of one of their largest expansion periods in their history. From 2014-2018 they
have expanded their store base from 176 stores to 303 stores and entered seven
new states. Net sales grew at 18.1%, while comparable stores only grew at 4.1%.
These new stores and expansion into new states is expected to continue to drive
growth.
• Management is confident
that the missed targets were just a blip on the radar screen and Ollie’s will
continue their stellar performance.
Key
points:
Ollie’s has had an extremely volatile year to say the least.
In August, after receiving their second quarter earnings results management
adjusted their guidance for net sales. They decreased the target from $1.430
billion to $1.419 billion. These adjustments directly resulted in the stock
price tumbling by up to 25%.
Ollie’s has a strong track
record to back themselves up on. In a little over two years the stock has
doubled in price from around $32 a share in early 2017 to its current price of
$67. This is due in large part to their increased store growth over the years,
and their advantage in their purchases of retail space. Ollie’s relies heavily
on their relationships with top name brands such as P&G, Kellogg’s, Hasbro,
GE, and Johnson and Johnson. When these retailers are unable to sell-through
their inventory, they turn to Ollie’s to buy up their products. This allows Ollie’s
to then turn around and sell these items at up to 70% off factory store prices
and back up their trademarked slogan of “Good Stuff Cheap.”
They have benefited largely
from the purchase of their new retail space at low prices. They purchased 13
former Toys R Us locations, and this strategy will be one of the reasons how
they will be able to continue their expansion while also still growing and meeting
sales estimates. The ability for the company to expand beyond the eastern seaboard,
is another reason for positivity as they have only expanded as far west as
Texas.
What
has the stock done lately?
The
stock has decreased in price since their miss in Q3 earnings. However, based on
their store expansion and their market expansion there is no reason to believe that
they will not continue on their track of growth that they have been on the past
couple of years. The negative sentiment of the earnings miss, and the subsequent
market reaction has caused the stock price to drop well below its true value.
Past
Year Performance:
Over
the past year (November 2018-2019), Ollie’s is down 27.73%. But I remain optimistic that the
stock price will continue to grow back up towards $70-80 range, due to its
business model and continued growth strategies.
Source:
FactSet
My
Takeaway:
Ollie’s
has faced some negativity lately but overall the stock has been one of the main
bright spots in consumer discretionary sector of the AIM portfolio. After being
added in 2017 with a price target of $44.22, the stock has absolutely smashed
expectations. Even though the stock has experienced some turbulence in the past
couple months I do not think that this is indicative for the future of the company.
My recommendation is that we let this winner recover and show that they still are
the solid company that we said they were.
Source:
FactSet
