Ollie's Bargain Outlet (OLLI 87.95, -0.55, -0.62%) is trading modestly lower today
despite reporting upside Q2 (Jul) results.
Ollie's Bargain Outlet is an extreme value retailer of brand name merchandise 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 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 285 stores in 22 states across the Eastern half of the U.S. and believes that there is a longer-term opportunity for growing to more than 950 Ollie's locations across the U.S.
Turning to the Q2 (Jul) results, non-GAAP EPS rose 48% year/year to $0.40, which was a good bit better than market expectations. Revenue rose 13.1% year/year to $288.1 mln, which was also above market expectations. Operating margin increased 40 basis points to 12.1% from 11.7% last year, largely due to tight expense control and leveraging of SG&A expenses. Adjusted EBITDA margin improved to 14.0%, up from 13.7% in the prior year period. In terms of the FY19 outlook, non-GAAP EPS guidance was increased to $1.73-1.76 from $1.69-1.72. Revenue is expected to come in at $1.222-1.227 bln.
As ever, comparable store sales is a crucial metric for retailers. JulQ comps came in at +4.4% -- a nice improvement from +1.9% comps in AprQ -- which was right in-line with the +4.4% comps in JanQ. OLLI has now reported 17 consecutive quarters of positive comps. These are good comps in a tough retail environment for brick-and-mortar retailers. In terms of FY19 guidance, OLLI increased its full year comp guidance to +2.5-3.0% from prior guidance of +1-2%. In terms of new store openings, OLLI opened six stores, ending the quarter with 282 locations (up from 250 in the prior year quarter), and entered one new state during JulQ. The company’s goal is to add 36-38 stores this year, including its first stores in Arkansas and Louisiana.
In sum, this was another good quarter with a nice beat-and raise. So why has the stock traded lower today? Our sense is that the turn comes because the stock has been on a huge run during the past few weeks, up 26% since late July. Investors had been seeing big moves in big box retailers like Wal-Mart (WMT) and Target (TGT) as they reported strong JulQ results. Stocks like OLLI went up in sympathy. OLLI reported nice results, but investors may be using the reporting event as an excuse to lock in some profits.
From a broader perspective, the stock has continued to perform well since its IPO debut in July 2015. OLLI strikes us as an attractive buy-and-hold type of stock; it delivers steady earnings/comps, and this consistency in combination with its continued efforts to expand its store base helps the company to continue to remain 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 latest big run, but the long-term growth story accompanying this company appears to be intact.
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