Ollie’s Bargain Outlet Is a Solid Buy For These Uncertain Times

It’s always good to find a bargain. And it’s especially good to make a dollar stretch further in uncertain economic times like these. That formula is working for Ollie’s Bargain Outlet (NASDAQ:OLLI). And investors will find out how well the discount chain is doing when they report earnings on August 27.

Consensus estimates have Ollie’s posting earnings per share (EPS) of 86 cents on revenue of $384 million. Both of those numbers would be significant beats from the prior quarter and on a year-over-year (YoY) basis. So why is Ollie’s surging?

A pandemic winner

It would be easy to say that Ollie’s is just one of many discount chains that are benefiting from bargain hunters. But that wouldn’t be completely true. The category is doing well. Dollar General (NYSE:DG) is up 26.9% for the year. Dollar Tree (NASDAQ:DLTR) is up over 9%. But OLLI stock is up 74.6% on the year (as of this writing).

Clearly, this is more than simply a story of consumers looking for a bargain. Ollie’s has done a great job of managing  its supply chain to make sure its stores were well stocked when consumers emerged from the extreme mitigation measures that were in place to slow the spread of the novel coronavirus.

One thing that certainly worked to Ollie’s advantage was that the stores never closed down. Like many discount chains, Ollie’s was deemed to be an “essential” business. This meant that stores were open when many households were stocking up in advance of being sheltered in place. And, Ollie’s was also a location that consumers could visit to spend money they received from their stimulus checks.

But here’s a statistic that I had to double-check. The discount chain opened up 17 new locations in the prior quarter. This meant, at the end of last quarter Ollie’s had 360 store locations in 25 states. And the company said, at that time, they were still on track to open 47 to 49 stores during the year.

I don’t think you can overstate the significance of the company’s performance. In a world that is clearly moving towards e-commerce, Ollie’s is getting strong brick-and-mortar sales. And the reality is as investors, we don’t have to look at Ollie’s as being a paradigm shift to appreciate what the company is managing to do.

This partially explains why OLLI stock has climbed over 218% since its low in March. And, the stock has stayed hot since the company last reported earnings in May. The stock is up nearly 25% since that time.

Ollie’s has set some ambitious goals

In July, Ollie’s offered some impressive guidance in advance of its quarterly earnings. This is always an interesting exercise that businesses go through. But it does give you an insight into how bullish or bearish the company is feeling. In the case of Ollie’s they must be feeling pretty good.

The company is projecting comparable store sales to increase by 40% in the quarter with gross margins increasing 39%.

Like many companies, Ollie’s declined to produce forward guidance for fiscal 2020 (which started with their last earnings report). That shouldn’t be a huge red flag for investors but it will be something to pay attention to when the company reports.

The company is forecasting growth to moderate somewhat in the second half of the year. And since back-to-school looks different for many retailers this year, it will be noteworthy to see what Ollie’s says about that in terms of its forward outlook.

However, with unemployment looking to remain uncomfortably high through the rest of 2020, it’s likely that Ollie’s will still be an attractive destination for holiday shoppers.

Analysts expect OLLI stock to climb

Since Ollie’s last reported earnings in May, the company has been rated by 11 analysts. Of those 11, eight analysts have given the stock a price target that is higher than where OLLI stock is currently trading. So while the consensus target suggests that OLLI stock may be overbought, the most recent price targets are more bullish.

It looks like OLLI stock is finding some resistance at its current level (which is an all-time high). A positive earnings report should be enough to push the stock past that level. And with more uncertainty in the economy, finding quality merchandise at a discount will remain one of the consumer’s main priorities.