Ollie's Bargain Outlet: A Discount Retail Gem Poised for Margin Recovery and Share Buyback Fuelled Growth

Ollie's Bargain Outlet (OLLI) is setting itself up for a breakout year in 2025, leveraging strategic store expansions, a sticky loyalty program, and a fortress balance sheet to drive operational leverage and margin expansion. With the acquisition of former Big Lots locations, a 9% surge in loyalty membership, and $315 million remaining in buyback capacity, OLLI is primed to outperform in a challenging retail environment. Here's why this discount retail disruptor deserves investor attention now.

The Big Lots Acquisition: A Masterstroke in Operational Leverage

The acquisition of 40 Big Lots locations in 2023–2024 was a stroke of genius. Secured via bankruptcy auctions, these stores come with below-market leases in prime trade areas, reducing occupancy costs and accelerating returns. Crucially, these locations already serve Ollie's core value-driven customer base, minimizing onboarding risks.

The $5 million in annual dark rent (a $0.06 per share hit) is a small price to pay for 25 new stores already opened this year, with 75 total new units planned for 2025. As these stores ramp up, their contribution margins will expand sharply, as occupancy costs are fixed while sales grow. This is operational leverage at its finest—a 1% comp store sales lift could translate to a 10% jump in operating income over time.

Loyalty Program Momentum: Retaining High-Spending Customers

Ollie's Army loyalty program is the unsung hero of its growth. With 15.5 million members (+9% QoQ) now accounting for 80% of sales, this cohort spends 40% more per visit and shops more frequently than non-members. The program's exclusive events—like the new June Ollie's Army Night and the June Ollie's Days promotion (now member-only)—are masterclasses in retention.

The rollout of a co-branded credit card in Q1 is a game-changer. Early data shows cardholders spend more and visit more often, while the program's data insights let Ollie's tailor offers to high-value segments. This isn't just customer retention—it's margin-friendly sales growth, as loyal customers are less price-sensitive and more predictable.

Margin Recovery: The 2025 Turnaround Play

While Q1's flat gross margin (41.1%) and rising SG&A (up 60bps to 28.6%) reflect short-term headwinds like medical claims and new store prep costs, the path to margin expansion is clear:

1. Store Maturity: New Big Lots locations will hit full productivity by late 2025, reducing per-store costs.
2. Loyalty Leverage: Higher member sales mean lower marketing spend per dollar of revenue.
3. Buyback Boost: With $315M remaining in buybacks and 159,757 shares repurchased in Q1 alone, OLLI can shrink its share count by ~2% in 2025, amplifying EPS growth.

Balance Sheet Strength: Fuel for Expansion and Shareholder Returns

OLLI's $414.9 million cash hoard (up 21.5% YoY) provides a cushion for its aggressive 75-store 2025 plan, while leaving ample dry powder for opportunistic acquisitions. The company's conservative leverage (net debt-to-EBITDA near 0.5x) ensures it can weather any economic volatility.

Analysts are taking notice. The $123.08 consensus price target (8.6% upside) reflects confidence in OLLI's ability to execute. JPMorgan's $137 target highlights the margin upside, while KeyBanc's $135 price tag underscores the buyback tailwind.

Why Act Now?

• Near-Term Catalyst: Q2 2025 results will show further Big Lots store contributions and loyalty-driven sales trends.
• Valuation: At $113/share, OLLI trades at 20x 2025E EPS—cheap versus its 25%+ long-term growth rate.
• Risk-Adjusted Opportunity: A discount retailer with pricing power, a moat against inflation, and a proven acquisition strategy.

Conclusion: OLLI's Turnaround is Just Beginning

Ollie's Bargain Outlet is at an inflection point. The Big Lots locations provide a low-cost growth engine, the loyalty program locks in high-margin customers, and the buyback program ensures every dollar of cash flow boosts shareholder value. With a $123 consensus target and catalysts lined up for 2025, now is the time to act before the market catches on.

Investors who move swiftly can secure a position in a company set to dominate the discount retail space—good stuff, indeed.

Disclosure: This analysis is for informational purposes only and not a recommendation to buy or sell securities.