I first brought Ollie’s Bargain Outlets (OLLI) to the attention of this board after some light research about, oh, sixteen months ago: http://discussion.fool.com/ollie39s-bargain-outlet-olli-32451512…
I didn’t get much feedback and kinda lost touch with the stock for a bit which is a pity, because it’s up about 110% in the interim. Since its IPO in the summer of 2015, it is up about 165%.
Ollie’s is “one of America’s largest retailers of closeout merchandise and excess inventory.” Think other discount retailers like Dollar General, Dollar Tree, Big Lots, and you’re on the right track. But, because Ollie’s is far from a national presence, investors can get that extra driver of store growth as it expands its presence.
The company does not report earnings until next month, but its third quarter earnings were solid: Net sales rose to $238.1 million, an 18% increase year over year, and adjusted net earnings per share grew to $0.22, up 29%. The strong top- and bottom-line growth was driven by a mixture in same-store-sales growth of 2.1% and the opening of 33 new store locations over the trailing 12 months, good for a 14% store count increase.
Here are some quick numbers:
Net Sales (millions) Q1 Q2 Q3 Q4 2014 150 201 2015 162 182 175 243 2016 194 211 202 283.4 2017 227.6 254.6 238.1 EPS (adjusted) Q1 Q2 Q3 Q4 2014 0.10 0.24 2015 0.13 0.15 0.11 0.31 2016 0.20 0.21 0.17 0.39 2017 0.25 0.27 0.22 Store Count Q1 Q2 Q3 Q4 2014 167 173 176 2015 181 187 200 203 2016 208 216 232 234 2017 239 250 265 Comparable Same Store Sales (%) Q1 Q2 Q3 Q4 2014 2015 7.8 3.2 5.0 2016 6.0 3.5 1.8 2.0 2017 1.7 4.5 2.1
2017 Q3 Net Sales Growth (millions)
2016 TTM Q3 = 850
2017 TTM Q3 = 1003.7
YOY TTM Revenue Growth = 18.1%
2017 Q3 EPS Growth (adjusted)
2016 TTM Q3 = 0.89
2017 TTM Q3 = 1.13
YOY TTM EPS Growth = 27.0%
P/E (Check Current Price) = 56.55/1.13 = 50
1YPEG = 50/27 = 1.85
Management takes pride on getting name brands at discount prices. Whether its a marketing gimmick or not, they say they can’t even advertise some of the products they carry because these brands do not want it known how cheap they are letting their products being sold at Ollie’s. From the last conference call, CEO Mark Butler commented on how strong this pipeline of cheap goods was:
[W]e are laser-focused on getting name brands at drastically reduced prices, and some of the greatest names in America are in our stores, of which I will tell you none of them. But it’s certainly exciting the consumer. They’re responding; we’re offering them bargains; we’re developing these relationships; we’re strengthening these relationships. And the entire environment – consistent with what I think I’ve said two or three quarters is, this is the best closeout buying environment that I’ve seen, and I’ve been doing this for 35 years, so – and obviously that’s in relation here to Ollie’s. So, it’s the strongest that I’ve ever seen, and our pipeline is full, our brands are big, bright, and beautiful, and they’re bargains, so I feel really good about where we’re at.
In a recent article I wrote about the company, I discussed the company’s customer loyalty program which is named Ollie’s Army:
Ollie’s Army is the company’s customer loyalty program. Customers can request a card at any Ollie’s location and, upon filling out the requisite information, begin receiving discount offers in the mail. The company publicizes the program using its characteristic humor, saying, “The bigger the cheapskate you are, the more you’ll save!” Once a year, just before Christmas, the company’s locations host Ollie’s Army Night, an evening of shopping reserved just for members of the program, with plenty of special discounts. It is consistently the company’s busiest night of the year.
In the third quarter, Ollie’s Army’s ranks swelled to 8.1 million members, a 22% increase year over year. Members of the program spend more than non-members and comprise 65% of the company’s total sales.
In a move Butler has been telegraphing for a while, the company will be adding ranks to Ollie’s Army to further engage its members this coming year. The ranks will range from one to three stars and will be dependent upon how much the customers spend and frequent Ollie’s stores. The higher the rank, the more discount offers members will receive. The move also comes as Ollie’s has added internal capabilities that will allow it to gather and compile more data on its customers’ habits.
Ollie’s finished the 3rd quarter with 265 store locations, which is up from 232 at the end of 2016’s 3Q. Management is guiding for a mid-teen percentage store count growth in 2018. It will also benefit immensely from the new tax law. Its tax rate in the 3rd quarter was 38%.
I have yet to initiate a position, but am strongly considering pulling the trigger, probably for a small position initially.
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