There are several stocks with huge potential that investors might miss, and Ollie’s Bargain Outlet Holdings Inc. (OLLI, Financial) is one of them.
Since its IPO on July 16, 2015, this extreme value retailer is playing well and has opened 38 new locations and entered three new states. Ollie’s grew its second-half 2015 and first-half 2016 total net sales by 19.2% and 17.6%. It has also completed phase one of Ollie’s Army customer loyalty management system.
The company posted excellent quarterly results including a 15.72% increase in net sales. Ollie’s has opened 16 new stores during the quarter, resulting in a total of 232 stores in 19 states at the end of the quarter. The company’s total store count has increased 16% year over year.
Ollie’s is an extreme value retailer and offers name brand products –Â "Real Brands! Real Bargains!"Â –Â in every department including housewares, food, books and stationery, bed and bath, floor coverings, toys, curtains and associated hardware, and other categories at significantly reduced prices.
Strong third-quarter results
On Dec. 7, 2016 the Harrisburg, Pennsylvania-based company reported its financial results for the third quarter ended Oct. 29, 2016. The company’s net sales increased 15.72% to $202 million compared to $174.56 million for the comparable prior-year period. Gross profit for the reported quarter increased 20.42% to $84.2 million compared to $69.92 million in the prior-year period. Ollie’s gross profit margin increased 20.42% from 40.06% in the same period last year.
The company’s operating income increased 33.79% to $18.65 million, compared to $13.94 million in the year-ago quarter. Operating income as a percentage of net sales increased 9.23% from 7.98% in the same period last year. Excluding transaction-related expenses of $586,000, adjusted operating income was $19.23 million compared to $13.94 million in the year-ago quarter.
Ollie’s net income increased 54.73% to $10.46 million, or 17 cents per diluted share, compared to $6.76 million, or 11 cents per diluted share for the comparable prior-year period. Net income as a percentage of net sales increased 5.18% from 3.87% in the same period last year. Adjusted net income (excluding transaction-related expenses) was $10.82 million compared to $6.76 million in the year-ago quarter.
The company’s EBITDA increased 30.8% to $21.32 million compared to $16.3 million for the comparable prior year period. Adjusted EBITDA increased 34.03% to $23.59 million compared to $17.6 million in the year-ago quarter.
Ollie’s cost of sales increased 12.58% to $117.8 million compared to $104.64 million. On the other hand, cost of sales as a percentage of net sales decreased to 58.32% compared to 59.94% in the prior-year period. Selling, general and administrative expenses for the reported quarter increased 16.83% to $60.52 million compared to $51.8 million in the same period last year.
Ollie’s ended the quarter with cash and cash equivalents of $35.96 million, compared to $3.96 million in the year-ago quarter. Inventories increased 13.26% to $240.77 million compared to $212.58 million for the comparable prior-year period. Long-term debt for the reported quarter decreased 8.4% to $190.10 million compared to $206.07 million for the comparable prior-year period.
Strong attributes of the quarter
Ollie’s net sales increased primarily due to a 1.8% increase in comparable store sales and increased store count compared to third-quarter 2015. Gross profit increased mostly due to lower transportation and distribution costs. Inventory increased primarily due to new store growth.
Projections
For the fiscal year ending Jan. 28, Ollie’s expects its total net sales in the range of $882 million to $885 million and comparable store sales growth of 2.5% to 3.0%. The company plans to open 31 new stores and expects its net income per diluted share in the range of 91 cents to 92 cents. Operating income and capital expenditures are expected to be in the range of $100 million to $101 million and $17.0 million to $18.0 million. Ollie’s expects its adjusted net income per diluted share in the range of 92 cents to 93 cents and estimated weighted diluted average shares outstanding of approximately 62.5 million.
Ollie’s Bargain’s specialty
To attract more and more customers, Ollie’s frequently changes the assortment of famous brand-name products and claims that it has something for everyone. Ollie’s prices are up to 70% below department and specialty stores and up to 20% to 50% below mass market retailers. Further, the company’s deal-driven buying philosophy creates newness and “shop now” sense of urgency.
Growth strategies and opportunities
Ollie’s has a portable, flexible and low-cost new store model that generates strong, consistent cash flow and attractive return on investment. The company’s disciplined approach to real estate selection and the new store model has proven successful.
Ollie’s has significant white space opportunity to grow its store base by more than 950 units and has proven portability of the new store model. The company expects that its product offerings will be enhanced with expanded access to bargain as it grows. It will leverage and expand its Ollie’s Army customer loyalty management system by recruiting new members and by building brand awareness. From 2011 to 2015, Ollie’s Army membership grew at a CAGR of 34.3%.
On a concluding note
Overall, Ollie’s is a rock-solid company with a strong balance sheet, remarkable white space opportunity, distinctive brand and engaging shopping experience, strong and consistent store model built for growth and experienced management team.
From 2011 to 2015, Ollie’s store growth and net sales and comparable store sales grew at a CAGR of 15.9% and 17.8%. Further, from 2011 to 2015, gross profit and adjusted EBITDA grew at a CAGR of 17.8% and 20.3%. Finally, with the recent quarterly release, the company is aiming for a better future and is set to deliver greater shareholder returns.
Disclosure: I do not hold any position in the company.
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