Ollie’s Bargain Thrives on Business Model, Loyalty Program

Ollie’s Bargain Outlet Holdings, Inc.’s OLLI business operating model of “buying cheap and selling cheap”, cost-containment efforts, focus on store productivity and expansion of customer loyalty program — Ollie’s Army, reinforce its position in the Consumer Staples sector. These factors have been contributing to the company’s upbeat performance.

This Pennsylvania-based company continued with its stellar performance in second-quarter fiscal 2020, wherein both the top and the bottom line not only beat the Zacks Consensus Estimate but also grew year over year. In fact, this was the second straight quarter of positive sales and earnings surprises.

Notably, Ollie’s Bargain remained responsive to opportunities in the marketplace to meet higher customer demand amid the pandemic. The company also benefited from consumer spending related with receipt of federal relief funds for the pandemic. Impressively, it witnessed solid comparable store sales growth throughout the quarter. Comparable store sales increased 43.3% during the quarter driven by higher traffic levels and a significantly larger average basket.

We note that net sales surged 58.5% during the quarter under review. Ollie’s Army was a key catalyst behind robust sales as members shopped more often and spent more per visit.

A Synopsis

Ollie’s Bargain’s results are dependent on the availability of brand name and closeout merchandise at compelling prices, as the same represents roughly 70% of goods purchased. Moreover, the company sells merchandise at prices up to 70% lower than the department and fancy stores, and up to 20-50% lower than mass-market retailers.

As far as the company’s store growth strategy is concerned, management aims for a store count of more than 1,050 in the long run. Ollie’s Bargain has increased its store base at a CAGR of 14.1% from 203 stores in fiscal 2015 to 345 stores in fiscal 2019. We note that the company has opened 34, 37 and 42 stores in fiscals 2017, 2018 and 2019, respectively. The company plans to open 46 store locations, including one relocation and one closure, during fiscal 2020.

Taking a cue from the past we noticed that net sales have surged at a CAGR of 16.5% from $762 million in fiscal 2015 to $1,408 million in fiscal 2019, while net income has soared from $35.8 million to $141.1 million during the aforementioned period.

Wrapping Up

Quite apparent, Ollie’s Bargain strategic endeavors and long-term prospects position the stock firmly on growth trajectory. Markedly, the Zacks Consensus Estimate for its current financial year sales and earnings indicates an improvement of 26.9% and 54.6%, respectively, from the year-ago period. Notably, this Zacks Rank #2 (Buy) stock has soared 91.1% in the past six months, compared with the industry’s growth of 2.7%.

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Target TGT has a long-term earnings growth rate of 7.2% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kroger KR has a long-term earnings growth rate of 6.2% and a Zacks Rank #2.

Sprouts Farmers Market SFM, a Zacks Rank #2 stock, has a long-term earnings growth rate of 9.2%.

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