Executive Summary / Key Takeaways

• Ollie's Bargain Outlet is strategically leveraging a turbulent retail environment, marked by competitor store closures, to accelerate its unit growth and capture market share, positioning itself for enhanced profitability.
• The company's differentiated business model, centered on opportunistic buying of closeout merchandise and a loyal customer base ("Ollie's Army"), provides a competitive moat and resonates strongly with value-seeking consumers, particularly in the current economic climate.
• First Quarter Fiscal 2025 results demonstrated solid performance, with net sales increasing 13.4% to $576.8 million and comparable store sales growing 2.6%, driven primarily by transaction growth and new store contributions.
• Management reaffirmed its full-year Fiscal 2025 outlook, targeting 75 new store openings, net sales of $2.579 billion to $2.599 billion, and adjusted EPS of $3.65 to $3.75, signaling confidence in executing its accelerated growth plan and maintaining profitability.
• Key factors to watch include the successful integration and performance of acquired store locations, the impact of tariffs on merchandise costs and availability, and the company's ability to continue driving transaction growth amidst a dynamic competitive landscape.

The Treasure Hunt Advantage in a Shifting Retail Landscape

Ollie's Bargain Outlet, Inc. (NASDAQ:OLLI) has carved out a unique niche in the U.S. retail sector since its founding in 1982. Its core business model revolves around the opportunistic acquisition of overproduced, overstocked, and closeout merchandise from a diverse network of manufacturers, wholesalers, and retailers. This inventory, ranging from household goods and food to toys and seasonal items, is then sold at deeply discounted prices—typically 20% to 70% below traditional retailers—creating a "treasure hunt" shopping experience that encourages frequent visits and impulse purchases. This model is augmented by a selection of private label goods, ensuring a consistent offering in key categories.

Historically, Ollie's growth was primarily driven by organic store expansion, strategically backfilling existing markets and entering contiguous states. This disciplined approach built a footprint that, as of May 3, 2025, spanned 584 stores across 32 states. More recently, the company has strategically capitalized on distress within the retail industry, opportunistically acquiring leases from bankrupt or struggling competitors like 99 Cents Only and, notably, Big Lots (BIG). This strategy leverages "warm boxes"—locations previously occupied by discount retailers with an established base of value-oriented shoppers—allowing for potentially faster and more economical new store ramps.

Ollie's competitive positioning is rooted in its differentiated buying model and its relationship with vendors. As the largest buyer of closeouts, its scale provides preferential access to deals, often allowing it to acquire entire lots of excess inventory that smaller players cannot. This cost leadership is a significant moat, enabling the company to maintain attractive price points for consumers while targeting a consistent 40% gross margin. The company competes with a broad range of retailers, including dollar stores like Dollar General (DG) and Dollar Tree (DLTR), other closeout retailers like Big Lots, and off-price retailers like TJX Companies (TJX). While DG and DLTR boast larger store counts and focus on everyday essentials, and TJX excels in off-price apparel and home goods with global sourcing, Ollie's distinct treasure-hunt format and focus on brand-name closeouts offer a unique value proposition. Financially, Ollie's has demonstrated strong profitability margins (TTM Gross Margin 40.27%, TTM Operating Margin 10.65%, TTM Net Margin 8.59%) that compare favorably to some competitors like DG (Gross Margin ~30%, Operating Margin ~4%) and BIG (Gross Margin ~33%, Operating Margin negative), although TJX (Gross Margin ~31%, Operating Margin ~11%) shows similar operating efficiency at a much larger scale. Ollie's TTM Debt/Equity ratio of 0.38 indicates a healthy balance sheet compared to DG (~2.36) or BIG (~8.00), providing financial flexibility.

Operational Backbone and Technological Enablement

Supporting Ollie's growth and operational efficiency are strategic investments in its infrastructure and technology. The company operates four distribution centers, including the Princeton, Illinois facility completed in Q2 2024, which significantly expanded capacity to service up to 750 stores. This network is critical for managing the unpredictable flow of closeout merchandise and efficiently distributing it across the growing store base. Management has highlighted that investments in distribution capabilities, alongside information systems and project management resources, were crucial lessons learned from past periods of accelerated growth, ensuring the ability to execute the current expansion plan without operational strain.

While Ollie's business model is not driven by cutting-edge product technology in the traditional sense, its operational and customer-facing technologies are key differentiators. The company has invested in enhancing its digital marketing capabilities, which allow it to reach new and younger customers more effectively and target specific consumer profiles, such as those previously shopping at closed competitor locations. This digital outreach complements its traditional advertising and in-store signage, which contribute to the brand's witty and humorous identity.

A significant technological and strategic initiative is the rollout of the co-branded Visa credit card, completed in the first quarter of Fiscal 2025. This program, designed with features like higher approval rates and no annual fees tailored to value-conscious customers, serves multiple purposes. It enhances the "Ollie's Army" loyalty program by offering additional points and benefits, aiming to increase customer spending and frequency. Crucially, it provides valuable insights into customer spending patterns, both within Ollie's stores and elsewhere, which can inform merchandising and marketing strategies. Management expects this program to be slightly accretive to the margin rate over time. The "Ollie's Army" itself, accounting for over 80% of sales, is a powerful data-driven loyalty platform that fosters repeat business and provides a direct channel for targeted promotions, such as the newly introduced second private shopping event in June and making the "Ollie's Days" promotion exclusive to members. These technological and operational investments, while not revolutionary product innovations, are foundational to executing the company's growth strategy, enhancing customer engagement, and maintaining cost efficiency in a competitive market.

Recent Performance and Financial Strength

Ollie's demonstrated solid financial performance in the first quarter of Fiscal 2025, reflecting the initial benefits of its accelerated growth strategy and the continued resonance of its value proposition. Net sales increased by 13.4% to $576.8 million compared to $508.8 million in the prior year period. This growth was fueled by a 2.6% increase in comparable store sales, driven by higher transaction counts, and the significant contribution from new store openings. The company opened a record 25 new stores in Q1 2025, ahead of its internal plan, with many being former Big Lots locations that management noted were performing strongly out of the gate.

Gross profit rose to $237.0 million, maintaining a flat gross margin of 41.1% year-over-year. This was attributed to favorable supply chain costs offsetting a slightly lower merchandise margin due to changes in product mix. Selling, general, and administrative expenses increased by 15.7% to $164.8 million, primarily driven by costs associated with new store growth. As a percentage of net sales, SGA increased slightly to 28.6% from 28.0%, impacted by higher medical and casualty claims and increased pre-opening expenses. Pre-opening expenses surged to $6.7 million from $2.7 million, reflecting the accelerated pace of new store openings and approximately $1.8 million in dark rent for acquired, not-yet-opened locations.

Despite the increase in operating expenses, operating income remained relatively stable at $56.2 million compared to $56.5 million in the prior year. Net income increased to $47.6 million from $46.3 million, resulting in diluted earnings per share of $0.77 compared to $0.75. Adjusted EBITDA for the quarter was $72.2 million, up 3.9% year-over-year.

The company maintains a strong financial position. As of May 3, 2025, cash and cash equivalents totaled $199.0 million, with an additional $170.5 million in short-term investments and $45.4 million in long-term investments, totaling $414.9 million in cash and investments. The company has no outstanding borrowings under its $100 million Revolving Credit Facility, with $91.9 million available to borrow. Capital expenditures in Q1 2025 were $26.7 million, primarily directed towards new stores and supply chain investments. Ollie's actively returns capital to shareholders through share repurchases, buying back $17.1 million of common stock in Q1 2025. A new $300 million share repurchase authorization was approved in March 2025, with $315.5 million remaining as of quarter-end. This robust liquidity and flexible balance sheet are strategic assets, enabling the company to fund its accelerated growth plans and opportunistic acquisitions.

Competitive Dynamics and Market Share Opportunity

The current retail environment, marked by significant store closures and bankruptcies among competitors, presents a substantial market share opportunity for Ollie's. Management has explicitly stated that they are aggressively pursuing this opportunity. The acquisition of former Big Lots and 99 Cents Only locations is a direct manifestation of this strategy. These "warm boxes" come with a pre-existing base of discount-oriented customers who are already familiar with shopping in a value format, potentially accelerating the ramp-up period and profitability of these new stores compared to typical second-generation sites. Ollie's is prioritizing the opening of these acquired locations, with approximately 65% of its planned 2025 openings scheduled for the first half of the year.

Management estimates the addressable market share opportunity from Big Lots closures alone to be around $2.7 billion. While acknowledging that mass merchants and dollar stores will likely capture some of this share, Ollie's believes it is well-positioned to benefit significantly, potentially capturing a meaningful portion due to its differentiated model and focus on brand-name closeouts. Capturing even 5% of this opportunity could translate to over $100 million in additional sales, representing a notable boost to comparable store sales growth.

The competitive landscape is dynamic. While competitor liquidations can create short-term disruption in surrounding areas, Ollie's flexible buying model allows it to capitalize on the resulting excess inventory, securing favorable deals. The company is also seeing "abandoned pipelines" of products, particularly in consumables and CPG categories, where some struggling competitors were previously strong buyers. Ollie's increasing scale and direct relationships with manufacturers provide a competitive edge in securing these deals. The company's strategic response involves not only accelerating store growth but also enhancing its digital marketing to attract new customers and strengthening its loyalty program to retain them, aiming to convert shoppers from closing competitors into dedicated Ollie's Army members.

Outlook and Growth Trajectory

Ollie's management reaffirmed its full-year Fiscal 2025 financial outlook, signaling confidence in its ability to execute its accelerated growth strategy and deliver profitable results despite potential headwinds. The company targets opening approximately 75 new stores, a pace above its long-term 10% unit growth algorithm, reflecting the opportunistic real estate environment.

The guidance projects net sales between $2.579 billion and $2.599 billion, representing growth of 13.6% to 14.5% over Fiscal 2024. Comparable store sales growth is expected to be between 1.4% and 2.2%, within the company's long-term algorithm of 1% to 2%. Management anticipates the quarterly comp cadence to be at the lower end of the 1-2% range in Q2, facing tougher comparisons, and at the higher end of the 1-2% range in the back half of the year as comparisons ease.

The outlook maintains a gross margin target of approximately 40%, consistent with historical performance and reflecting confidence in the buying environment and operational efficiency despite potential tariff impacts and mix shifts. Operating income is projected to be between $283 million and $292 million, and adjusted net income between $225 million and $232 million, translating to adjusted diluted EPS of $3.65 to $3.75. This implies adjusted EPS growth of approximately 13% to 16% over Fiscal 2024's adjusted EPS of $3.23.

Key assumptions underpinning the guidance include approximately $21 million in pre-opening expenses, reflecting the accelerated store opening schedule and around $5 million in dark rent for acquired locations. Capital expenditures are planned at $83 million to $88 million, primarily for new store build-outs and infrastructure investments. The guidance assumes current tariffs remain in effect and does not include any explicit benefit from competitor store closures, providing a degree of conservatism. The strong Q1 performance, exceeding internal expectations, provides a solid foundation for achieving the full-year targets.

Risks and Challenges

While the outlook is positive, several risks and challenges could impact Ollie's performance. Macroeconomic conditions, including inflation, interest rates, and consumer confidence, directly influence discretionary spending and could pressure sales, particularly in non-consumable categories. Although Ollie's value proposition is appealing in challenging economic times, a severe downturn could still impact transaction frequency or basket size.

Supply chain disruptions, whether from global events, port issues, or changes in trade policy like tariffs, can affect merchandise availability and costs. While Ollie's flexible buying model and diversified vendor base help mitigate this, significant or prolonged disruptions could impact gross margins or inventory levels. Management noted that current tariffs are assumed to remain in place and are factored into the 40% gross margin target, but any escalation could pose a challenge.

Execution risk related to the accelerated store growth plan is also present. While investments have been made in infrastructure and personnel, opening a record number of stores in a short period requires significant operational coordination, from site selection and build-out to staffing and initial inventorying. Delays in construction or permitting, or challenges in hiring and retaining qualified store personnel, could impact the timing and initial performance of new locations.

Competition remains intense across the discount retail sector. While competitor closures present opportunities, remaining players like DG, DLTR, and TJX are formidable rivals with significant scale and resources. Their strategic responses, including pricing actions or expansion plans, could impact Ollie's ability to capture market share or maintain price gaps. The impact of competitor liquidation sales, while expected to be a net benefit long-term, could cause short-term volatility in comparable store sales in affected markets.

Conclusion

Ollie's Bargain Outlet is strategically positioned to capitalize on the current disruption within the retail industry. Its core value proposition, rooted in opportunistic buying and a compelling treasure-hunt experience, resonates strongly with consumers seeking value. The company's robust balance sheet and recent investments in its operational infrastructure and customer-facing technologies provide the foundation for accelerated growth.

The strong performance in the first quarter of Fiscal 2025 and the reaffirmed full-year guidance underscore management's confidence in executing its plan to open a record number of new stores, many acquired opportunistically from struggling competitors. While macroeconomic pressures, supply chain risks, and intense competition remain factors to monitor, Ollie's differentiated model and strategic initiatives to capture market share from a shifting landscape present a compelling investment narrative focused on profitable growth and expanding reach. The successful integration of acquired locations and the continued strength of the closeout buying environment will be key indicators to watch as the company progresses through Fiscal 2025 and beyond.