The SSS increase of 3.5 percent came in ahead of Jefferies and the Street's expectations for +1.0 percent. The company continues to expand the vendor base and is seeing better buying opportunities, particularly in CPG categories including HBA, food, candy and pets.
"The quarter started slow in May due to unfavorable weather but then bounced back post Memorial Day and stayed strong through June and July," analyst Daniel Binder wrote in a note.
Further, gross margin increased 120 bps year-over-year, with merchandise margin up 30 bps. Also, labor costs are not expected to be a big headwind as management doesn't anticipate the need to move to a $10 starting wage.
"Momentum reflects a favorable buying environment, better access to deals and more direct relationships. Meanwhile, Ollie's Army is growing faster than expected and with deepening customer relationships. We expect shares to move higher as estimates get revised upward," Binder highlighted.
Binder also raised his price target to $31 from $30, based on shares selling at a PEG ratio of 1.5x (30 P/E) using his FY18 EPS estimate of $1.02.
"We believe a premium multiple is warranted given OLLI's appealing early stage growth stock attributes, including its mid-teen unit growth, strong new store economics, and growing loyalty base of Ollie's Army members," Binder added.
At time of writing, shares of Ollie's Bargain had climbed 9.28 percent on the day to trade at $27.78.
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