Ollie’s (OLLI) Q4 Miss: A Contrarian’s Opportunity in Discount Retail’s Resilience

The recent earnings report for Ollie’s Bargain Outlet (NASDAQ: OLLI) painted a mixed picture: Q4 revenue rose 2.8% to $667.1 million, but adjusted EPS dipped 3.8% to $1.19, missing estimates. The stock dipped briefly, but this is a contrarian’s moment. While the market fixates on short-term headwinds, OLLI’s long-term growth drivers—aggressive store expansion, strategic distressed asset acquisitions, and $300 million in share buybacks—are primed to deliver outsized returns. Let’s dissect why this Q4 miss is a buying opportunity in a sector ripe for consolidation.

The Q4 "Miss" in Context: A Strategic Trade-Off, Not a Failure

OLLI’s Q4 results were dragged down by $5.5 million in one-time costs (modified equity awards) and 133% surging pre-opening expenses ($4.8 million) due to accelerated store openings. However, core metrics remain robust:
- Comparable store sales grew 2.8%, outpacing Ross Stores (-1.3%) and Burlington (-0.5%).
- Adjusted EBITDA margins held steady at 13.8%, a testament to cost discipline.
- Cash reserves hit $428.7 million, up 21% year-over-year, fueling its growth thesis.

The dip in EPS was self-inflicted growth spending, not a sign of weakness. Management prioritized long-term gains by front-loading store openings and acquiring 40 Big Lots locations at below-market rents. These “dark rent” costs ($5 million in 2025) are a one-time drag on EPS but unlock prime real estate in value-conscious markets.

Why OLLI’s Expansion Pipeline is Undervalued

OLLI’s 2025 guidance calls for 75 new stores, a 40% jump from 2024’s 50 openings. This acceleration is a contrarian’s dream:
1. Acquisition of distressed assets: The 40 Big Lots locations provide $5 million in annual rent savings compared to market rates. These stores, often in declining malls, now serve as OLLI’s “moats” to scoop up abandoned customers.
2. Suburban dominance: OLLI targets underserved rural and suburban areas, where Five Below (NASDAQ:FIVE) and Dollar General (NYSE:DG) struggle to profitably scale. Its average store size (20,000 sq. ft.) and closeout inventory model cater to price-sensitive shoppers without the high labor costs of urban competitors.
3. Share repurchases: The newly authorized $300 million buyback (effective through 2029) will shrink its 62 million diluted shares, amplifying EPS growth once store openings stabilize.

Peer Performance: OLLI’s Resilience vs. Sector Struggles

While OLLI’s Q4 miss made headlines, its peers are facing structural challenges:
- Ross Stores (NASDAQ:ROST): Revenue fell 1.8% in Q4, with comparable sales down 1.3%, as apparel demand slumps. Its stock trades at 14x forward P/E, versus OLLI’s 11.5x—a premium for a company missing growth targets.
- Five Below (NASDAQ:FIVE): Despite strong revenue growth (14.7% in Q3), its net margin collapsed to 0.2% in Q3 due to inflation-driven costs. Its $85 stock price reflects a speculative premium to OLLI’s $110 valuation.
- TJX Companies (NYSE:TJX): Off-price retail giant TJX saw flat Q4 sales, with margins pressured by supply chain costs.

OLLI’s diversified strategy—combining physical expansion, distressed asset buys, and share repurchases—sets it apart. Its 13.8% EBITDA margin and $328 million in annual free cash flow (2024) are fuel for this playbook.

The Contrarian Thesis: Buy the Dip, Own the Consolidation

The discount retail sector is in a winners-take-all phase:
- Industry consolidation: Big Lots’ bankruptcy, Toys “R” Us’s collapse, and declining mall traffic have created opportunities for OLLI to acquire prime locations at fire-sale prices.
- Consumer trade-down: Inflation and wage stagnation are pushing shoppers to OLLI’s “extreme value” model (average ticket: $25–$30), which Five Below’s $5 price ceiling can’t replicate.
- Balance sheet flexibility: OLLI’s fortress balance sheet (no debt, $428 million cash) gives it the moat to outlast cycles.

Conclusion: OLLI’s Q4 Miss is a Buying Signal

OLLI’s stock is down 8% year-to-date, yet its 75-store 2025 target, $300 million buyback, and distressed asset plays position it to dominate the $400+ billion discount retail market. The Q4 miss was a strategic pivot, not a stumble.

Buy OLLI now at $110.50:
- Price Target: $145 by end-2025 (23% upside), driven by 13% EPS growth from store openings and buybacks.
- Risks: Dark rent costs, slower consumer spending.

This is a textbook contrarian opportunity: a leader in a resilient sector, trading at a discount to peers, with catalysts baked into 2025. The market’s focus on short-term noise is your chance to buy a growth machine at a value price.

Invest with discipline, act with conviction.