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Ollie’s Has Been Beating Profit Estimates Handily

April 13, 2017 / By /
Stock (Symbol)

Ollie’s Bargain Outlet (OLLI)
Stock Price

$31
Sector
Retail & Travel
Data is as of
January 14, 2017
Expected to Report
Apr 4 – 10
Company Description
olli_store

Ollie’s Bargain Outlet Holdings, Inc. is a retailer of brand name merchandise. The Company’s product offerings include food, such as packaged food, including coffee, bottled non-carbonated beverages, salty snacks, condiments, sauces, spices, dry pasta, canned goods, cereal and cookies; housewares, such as cooking utensils, dishes, appliances, storage and garbage bags, detergents and cleaning supplies, cookware and glassware, frames and giftware; books and stationery, such as novels, business, cooking, inspirational and coffee table books along with digital versatile discs (DVDs), greeting cards and various office supplies and party goods, and bed and bath, such as household goods, including bedding, towels, curtains and associated hardware. It operates approximately 200 stores averaging over 33,000 square feet across approximately 20 contiguous states in the Eastern half of the United States. Source: Thomson Financial
Sharek’s Take
David SharekOllie’s Bargain Outlet (OLLI) has been a hot stock the last year as it consistently delivered results that beat analyst estimates. The last 4 qtrs analysts had estimated OLLI’s would grow profits 8%, 21%, 20% and 27%. Each time the company beat the street, and in turn delivered 19%, 43%, 40% and 55% profit growth. Those numbers are exceptional. Ollie’s delivers a treasure-hunt shopping experience in offering closeout products bought at a discount and selling them for 20-70% off retail and still making a healthy 15% pre-tax profit. The company was founded in 1982 in Pennsylvania but didn’t go public until July 2015 at $16 a share. Since 2011 the company has gone from 100 stores to 234 and has a total opportunity of 950 in the US. New stores cost $1,000,000 to build, do $3,700,000 in sales the first year and deliver pre-tax profit (EBITA) of around $550,000. From 2011 to 2015 OLLI grew sales and profits 18% a year and the Estimated Long-Term Growth Rate is 19% a year. At $31, this stock currently trades or 28x earnings, which is reasonable considering the recent +40% profit growth. But growth is expected to average just 13% the next 4 qtrs, so I think OLLI needs to keep on beating to keep rising. Retailers have been very weak lately, thus I’m staying on the sidelines for now and hoping this stock simmers down to around $25.
One Year Chart
Last qtr Ollie’s delivered 55% profit growth as sales rose 16% for the 2nd straight qtr. Same store sales increased 2%, and that’s not a great number. Yes OLLI did beat the street, and earnings estimates went up a bit, but qtrly profit Estimates are 13%, 15%, 10% and 12%. and that assumes slower growth is ahead. The company has beaten the street by 3 cents in each of the last 4 qtrs, so if that trend continues that could mean 23%, 30%, 24% and 29% profit growth.
Fair Value
My Fair Value on this stock is a P/E of 30. That equates to $33 a share for 2017. With the stock around $31 that’s not much upside. With Retail the worst sector in the stock market right now, I think its prudent to wait for a lower price before buying in.
 Bottom Line
Ollie’s Bargain Outlet provides good bargains to consumers, and that’s a good recipe for success in most any economy. There’s growth opportunity for this chain to increase its store count four-fold long-term, and perhaps the stock could do the same, but with retail weak right now I’m being more cautious with this stock and staying on the sidelines. Also, same store sales growth fell from 4% 2QtrsAgo to 2% LastQtr and top retail stocks have higher SSS growth. I’d like to buy OLLI around $25 a share.
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