Ollie's Bargain Outlet: Thriving in Retail's Ashes – A Stock to Buy Now?

The retail landscape is littered with casualties: Big Lots, 99 Cents Only, and others have closed stores, leaving behind customers hungry for discounts and space in prime locations. Enter Ollie's Bargain Outlet (NASDAQ: OLLI), a discount retailer turning these ashes into gold. With aggressive store openings, a killer loyalty program, and a balance sheet that's bulletproof, OLLI is proving that in retail's Darwinian battleground, the adaptable survive—and thrive.

The Warm Box Play: Exploiting Retail's Downfall

OLLI's secret weapon? Warm box acquisitions—snapping up shuttered stores from bankrupt competitors like Big Lots and 99 Cents Only. In fiscal 2025 alone, the company has already opened 25 new stores, 18 of which are converted Big Lots locations. These deals are win-win: OLLI pays pennies for prime real estate (often with below-market leases), while customers in those neighborhoods already know the discount game.

By year-end 2024, OLLI had 584 stores (up 13% from 2024), with plans to hit 75 new openings in 2025. This isn't just growth—it's a land grab. The strategy's cost efficiency is clear: dark rent expenses (for newly acquired stores) totaled just $1.8M in Q1 2025, a small price for 25 new locations.

Operational Resilience: Sales and Cash Flow Hold Up

The numbers back this expansion. Q1 2025 revenue jumped 13.4% to $576.8M, driven by new stores and a 2.6% rise in comparable sales. While adjusted EBITDA margins dipped slightly to 12.5%, gross margins stayed steady at 41.1%, and net income rose to $47.6M.

Crucially, OLLI's cash machine is firing on all cylinders. The company holds $414.9M in cash and investments, up 21.5% year-over-year. With no debt and a $615M share repurchase war chest (including a new $300M authorization), management isn't just expanding—it's rewarding shareholders.

The Loyalty Program: A Retention Engine

OLLI's Ollies Army loyalty program has 15.5 million members—a 9.2% jump in just a year. This isn't just a gimmick: members drive repeat visits and higher average baskets. As competitors bleed customers, OLLI is locking them in with exclusive deals and personalized offers.

Is This Growth Sustainable?

The skeptics will ask: Can OLLI keep this up? The answer hinges on two factors: market saturation and macro risks.

• Geographic Reach: OLLI operates in 32 states, but there's still room to expand into untapped regions. The 75-store target for 2025 is ambitious but achievable, especially with warm boxes providing low-cost entry points.
• Margin Management: While SG&A expenses rose slightly (to 28.6% of sales), OLLI's focus on cost discipline and scale should keep these in check.

Valuation: Is OLLI Overpriced?

At current prices, OLLI trades at roughly 25x trailing earnings—a premium to its 5-year average of ~20x. But growth is real: the stock has outperformed the S&P 500 by a wide margin over the past three years.

Investors must decide: Is the premium worth paying for a company nailing execution in a tough sector? The $3.65–3.75 EPS guidance for 2025 suggests 6–7% earnings growth—steady, not explosive.

Risks to Watch

• Higher Costs: Insurance claims and labor expenses could pressure margins further.
• Economic Sensitivity: Discount retailers thrive in recessions but stagnate in booms. If inflation spikes or unemployment drops, OLLI's customer base could shrink.
• Competitor Pushback: Dollar General and others are also targeting lower-income shoppers.

The Bottom Line: Buy the Disruptor

OLLI isn't just surviving—it's dominating. With a “fortress balance sheet”, a clear playbook for growth, and a loyal customer base, this stock is a buy for long-term investors.

Action Alert: For growth-oriented portfolios, OLLI is a must-own. Just keep an eye on those margins and macro headwinds. In a world where retail is a war of attrition, OLLI's strategy is winning—store by store, dollar by dollar.