Ollie's Bargain Outlet Excels In Q3, But Is The Growth Story Already Priced In?

Ollie's Bargain Outlet Holdings Inc OLLI reported a top and bottom line beat in its third quarter earnings and guided its fourth quarter outlook above what Wall Street had previously modeled.

The Analyst

Morgan Stanley's Vincent Sinisi maintains an Equal-weight rating on Ollie's stock with a price target raised from $46 to $48.

The Thesis

Ollie's not only reported a top and bottom-line beat, but a 2.1 percent comp increase due to improvements in ticket size and traffic, Sinisi said in a note. But on a two-year stack basis comps did fall to 3.9 percent from the 8.0 percent stack in the second quarter. Gross margin also fell by 53 basis points to 41.1 percent and was impacted by increased consumables.

Encouragingly, store count rose 14 percent from a year ago to 265 units with 105.6 percent new store productivity by the analyst's calculations. Meanwhile, Ollie's Army continues to gain traction and membership growth continues to outpace sales growth and enhancements to the loyalty program and the launch of a mobile app should help the business even more.

Despite clear momentum in the business and a "white space store growth opportunity," the stock's current valuation already prices in an expansion to 950 units over time.

Price Action

Shares of Ollie's have gained nearly 80 percent since the start of 2017.

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Image credit: Dwight Burdette (Own work) [CC BY 3.0], via Wikimedia Commons