Why Ollie's Bargain Outlet Is Thriving in Inflation: A Q1 2025 Deep Dive

The discount retail sector has emerged as a rare bright spot in an inflation-plagued economy, and Ollie's Bargain Outlet (OLLI) is proving itself the sector's most nimble player. The company's Q1 2025 results, released this week, underscore its ability to grow revenue, expand its footprint, and maintain pricing power even as rivals struggle. Let's dissect the numbers to see why OLLI isn't just surviving—it's positioning itself to dominate.

The Numbers: Revenue Growth, Store Expansion, and a Strong Balance Sheet

Ollie's reported a 13.4% surge in Q1 revenue to $576.8 million, driven by 25 new store openings—including 18 former Big Lots locations acquired at fire-sale prices—and a 2.6% jump in comparable store sales. This isn't just about scale; it's about strategy. The company now operates 584 stores in 32 states, with plans to open 75 more this year, capitalizing on the collapse of weaker competitors and the enduring demand for deep discounts.

Net income rose to $47.6 million, or $0.77 per share, a modest gain from $0.75 per share in Q1 2024. While adjusted EBITDA margins dipped to 12.5% from 13.6% a year ago, this was largely due to one-time costs, including $6.7 million in pre-opening expenses and higher insurance claims. Crucially, OLLI's liquidity remains rock-solid: $369.5 million in cash, plus $315.5 million remaining in its share repurchase authorization, signals confidence in its ability to outmaneuver rivals.

Why Inflation Is OLLI's Friend

In an era where consumers are cutting back on discretionary spending, discount retailers like OLLI thrive. The company's “closeout” business model—buying overstocked or discontinued goods at steep discounts—gives it pricing power. Its loyalty program, Ollie's Army, now with 15.5 million members, ensures repeat traffic, while the acquisition of Big Lots stores provides prime locations in struggling markets.

The key here is agility. OLLI isn't just selling cheap goods; it's leveraging its network to snap up distressed inventory from bankrupt retailers, turning others' pain into its profit. Meanwhile, its focus on small-store formats (averaging ~13,000 sq. ft.) keeps overhead low and adaptability high—critical in an uncertain economy.

Margin Pressures Are Manageable, Not Existential

Critics will point to the 13.6% to 12.5% EBITDA margin drop as a red flag. But dig deeper:
- SG&A costs rose to 28.6% of sales, up 60 basis points, due to higher medical and casualty claims—a temporary issue tied to specific risks, not structural inefficiency.
- Pre-opening expenses spiked, including $1.8 million in “dark rent” from newly acquired stores. These are costs of growth, not a sign of mismanagement.

Compare this to peers like Ross Stores (ROST) or TJX Companies (TJX), which have also faced margin pressure but lack OLLI's geographic expansion opportunities. The company's Q1 results show it's willing to invest in long-term growth, even at the expense of short-term margins.

The Bull Case: 75 New Stores, 15M Members, and a Retail Darwinism Play

OLLI's 2025 outlook—$2.579–$2.599 billion in revenue and $3.65–$3.75 adjusted EPS—hints at steady momentum. With 75 new stores planned, it's doubling down on a strategy that's worked: buying distressed real estate and converting it into cash machines. The 1.4–2.2% comparable sales growth guidance may seem modest, but in a sluggish economy, it's a win.

Meanwhile, its stock repurchases—$17.1 million in Q1 alone—suggest management believes the shares are undervalued. At current prices (~$140), OLLI trades at around 38x trailing 12-month EPS, a premium to ROST (24x) but justified by its higher growth trajectory.

Risks? Yes—but the Upside Is Clear

No investment is risk-free. OLLI faces headwinds like tariff volatility and the risk that inflation eases too quickly (though the Fed's recent hints at further hikes suggest that's unlikely). Still, the company's flexibility—its ability to pivot inventory, renegotiate supplier terms, and expand into underserved markets—gives it a durable edge.

The Bottom Line: OLLI Isn't Just a Discount Store—It's an Inflation Hedge

In a world where consumer spending is constrained, OLLI's model is a textbook play on value-seeking behavior. Its Q1 results confirm it's executing flawlessly: growing revenue, expanding its footprint, and building a loyal customer base. With a solid balance sheet and a clear path to 75 new stores this year, this is a stock to own for the next leg of the discount retail boom.

If you're looking to bet on inflation resilience, OLLI isn't just a safe harbor—it's a speedboat.