Company Overview
Ollie's Bargain Outlet Holdings, Inc. (NASDAQ:OLLI) has carved out a unique niche in the retail landscape as a leading off-price discount retailer. With a focus on procuring brand-name merchandise at deeply discounted prices, Ollie's has established itself as a go-to destination for bargain-seeking shoppers across the United States.
Founded in 1982 in Mechanicsburg, Pennsylvania by Mark Butler and Mort Bernstein, Ollie's has grown from a single store to a formidable network of 546 locations spanning 31 states as of November 2024. The company's success is rooted in its ability to source an ever-changing assortment of brand-name goods, from housewares and electronics to sporting goods and toys, at substantial discounts typically ranging from 20% to 70% off regular retail prices.
Historical Growth and Challenges
In its early years, Ollie's faced challenges as a small, emerging discount retailer in a competitive industry. However, the company successfully established its "good stuff cheap" brand promise and value proposition, which helped differentiate it from competitors and drive steady growth. Over the past two decades, Ollie's has navigated various economic cycles, including the Great Recession in the late 2000s. The company's flexible and value-focused business model allowed it to continue expanding during this period, as cost-conscious consumers increasingly sought out discount retailers.
Financials
Ollie's financial performance has been consistently strong, with the company reporting annual revenue of $2.10 billion and net income of $181.44 million in fiscal year 2024. The company's EBITDA margin has remained stable at around 14% over the past three years, showcasing its ability to maintain profitability even as it expands its store footprint.
In the third quarter of fiscal 2024, Ollie's reported net sales of $517.43 million, representing a 7.8% increase compared to the same period in the prior year. Gross profit for the quarter increased by 10.5% to $214.46 million, with gross margin expanding by 100 basis points to 41.4%. Adjusted EBITDA, a key profitability metric, grew by 17% to $59.84 million.
The company's annual operating cash flow for fiscal year 2024 was $254.50 million, with free cash flow of $130.09 million. As of the most recent quarter end, Ollie's had $128.69 million in cash and cash equivalents, and $175.23 million in short-term investments, for a total of $303.92 million in cash and short-term investments.
Ollie's maintains a strong balance sheet with a Debt/Equity ratio of 0.34 as of the most recent fiscal year end. The company also has access to a $100 million revolving credit facility, of which $92.10 million was available to borrow as of the end of Q3 2024. Ollie's current ratio and quick ratio as of the end of Q3 2024 were 2.91 and 1.00, respectively, indicating a healthy liquidity position.
Key Success Factors
One of the key drivers of Ollie's success is its unique buying strategy. The company leverages its strong relationships with major manufacturers and retailers to secure deals on excess inventory, closeouts, and overstocked merchandise. This allows Ollie's to offer a constantly changing, "treasure hunt" shopping experience for its customers, who are drawn to the prospect of finding brand-name products at deeply discounted prices.
Ollie's has also been proactive in diversifying its product mix, with a growing focus on everyday consumable items such as food, health and beauty aids, and cleaning supplies. This strategic shift has helped the company cater to the evolving needs of its customer base, providing a steady stream of essential products alongside the more discretionary merchandise.
Product Segments
Ollie's offers a broad selection of brand name merchandise across several key categories:
1. Housewares: Kitchen gadgets, dining and entertaining essentials, organizational solutions, and home décor items.
2. Bed and Bath: Linens, towels, bath accessories, and other bedroom and bathroom items.
3. Food: Non-perishable grocery items, including canned goods, packaged snacks, and other consumables.
4. Floor Coverings: Rugs, mats, and other flooring accessories.
5. Health and Beauty Aids: Personal care items, cosmetics, fragrances, and over-the-counter medications.
6. Books and Stationery: Bestselling books, office supplies, greeting cards, and other paper products.
7. Toys and Electronics: Brand name toys, electronics, and novelty items.
The company's ability to procure these products at closeout prices allows it to offer significant savings to customers across all categories.
Recent Performance
In the third quarter of fiscal 2024, Ollie's reported a 7.8% year-over-year increase in net sales, driven by both new store openings and a 0.5% decline in comparable store sales. Gross margin expanded by 100 basis points to 41.4%, reflecting the company's ability to manage its supply chain and merchandise mix effectively.
The company's Q3 2024 results were in line with expectations despite some temporary headwinds. Ollie's reported an 8% increase in sales, a 100 basis point increase in gross margin to 41.4%, and a 14% increase in adjusted EPS.
Future Growth Prospects
Looking ahead, Ollie's management remains optimistic about the company's growth prospects. The company plans to open approximately 50 new stores in fiscal 2024, with a focus on acquiring former Big Lots and 99 Cents Only store locations. These acquisitions not only provide Ollie's with a ready-made footprint but also enable the company to capitalize on the disruption in the retail landscape, as competitors shutter underperforming stores.
For fiscal 2025, Ollie's is targeting a minimum of 10% new unit growth, with new store openings more heavily weighted to the first half of the year. The company plans to open a minimum of 56 new stores in fiscal 2025, leveraging recent real estate acquisition opportunities.
Ollie's has also made strategic investments in its supply chain infrastructure, including the opening of a new 615,000-square-foot distribution center in Princeton, Illinois, in the second quarter of fiscal 2024. This facility, along with the company's three existing distribution centers, provides Ollie's with the capacity to support up to 750 stores, allowing for continued expansion in the years ahead.
Guidance and Outlook
For the fourth quarter of fiscal 2024, Ollie's has narrowed its net sales guidance to $2.27 billion to $2.28 billion, with comparable store sales guidance narrowed to 2.7% to 3%. The company's gross margin outlook of 40% remains unchanged, and the adjusted net income and adjusted EPS outlook ranges are also unchanged.
For the full fiscal year 2024, Ollie's has reaffirmed its current guidance while providing an optimistic outlook for accelerated new store growth in fiscal 2025.
Resilience in Challenging Environments
Despite the challenges posed by macroeconomic headwinds, such as inflationary pressures and the potential for reduced consumer spending, Ollie's remains well-positioned to navigate these uncertainties. The company's flexible business model, emphasis on value-oriented merchandise, and strong vendor relationships have historically enabled it to thrive in both strong and weaker economic environments.
Customer Loyalty
Furthermore, Ollie's loyal customer base, as evidenced by its growing Ollie's Army loyalty program (which boasted 14.8 million members as of the third quarter of fiscal 2024), underscores the company's ability to cultivate a dedicated following of bargain-seeking shoppers.
Conclusion
In conclusion, Ollie's Bargain Outlet Holdings, Inc. has demonstrated its resilience and adaptability in the ever-evolving retail landscape. By capitalizing on the abundance of excess inventory in the market and providing customers with a unique, treasure hunt-style shopping experience, the company has established itself as a leading off-price retailer poised for continued growth and success. With a strong financial position, a clear growth strategy, and a loyal customer base, Ollie's is well-positioned to continue its expansion and deliver value to both customers and shareholders in the years to come.