Ollie's Bargain Outlet: Can Top-Line Momentum Outpace Margin Pressures in 2025?

Ollie's Bargain Outlet (NASDAQ: OLLI) has long been a retail disruptor, thriving in an era where discounters and value-driven brands dominate. Its Q1 2025 results, however, reveal a company at a crossroads: sustaining aggressive top-line growth while navigating margin headwinds and rapid expansion. For investors, the question is clear: Is Ollie's poised to capitalize on its strategic advantages, or will cost pressures and market risks undermine its ambitions?

A Strong Start to Fiscal 2025

Ollie's delivered a robust Q1, with net sales surging 13.4% year-over-year to $576.8 million, driven by a 2.6% comparable store sales increase and 25 new store openings. The latter includes 18 former Big Lots locations acquired through bankruptcy auctions—a strategic move that expanded its store count to 584 across 32 states, a 13.2% annual increase.

Adjusted net income per diluted share of $0.75 exceeded analyst expectations, while Adjusted EBITDA hit $72.2 million. Yet, the numbers also expose challenges. Selling, general, and administrative (SG&A) expenses rose 60 basis points to 28.6% of sales, driven by higher medical and casualty claims. Pre-opening costs jumped $3.9 million to $6.7 million, with $1.8 million attributed to “dark rent” from newly acquired Big Lots sites—a reminder that rapid growth carries upfront costs.

The Expansion Imperative: A Double-Edged Sword

Ollie's is doubling down on growth. In fiscal 2025, it plans to open 75 new stores, including more Big Lots relocations. This strategy leverages two key advantages:
1. Strategic Footprint Expansion: By acquiring underutilized locations at distressed prices, Ollie's avoids costly new-construction risks while tapping into established customer bases.
2. Countercyclical Resilience: As economic uncertainty looms, bargain hunters are turning to discounters. Ollie's loyalty program, Ollie's Army, now boasts 15.5 million members—a 9.2% increase from last year—ensuring repeat traffic.

Margin Pressures: A Manageable Hurdle or a Growing Threat?

While top-line growth is undeniable, margins remain under strain. SG&A's rise reflects rising operational costs, and pre-opening expenses suggest that scaling quickly isn't without pain. Yet, Ollie's has two critical buffers:
- Strong Cash Position: Total cash and investments jumped 21.5% year-over-year to $414.9 million, enabling a $17.1 million share repurchase and leaving $315.5 million remaining in buyback capacity.
- Cost Control Discipline: Management has historically prioritized efficiency. The 2.6% comp sales growth—despite inflationary pressures—suggests pricing power and customer loyalty are intact.

Navigating Risks: Tariffs, Inflation, and a Slowing Economy

The company's press release isn't oblivious to risks. Tariffs, supply chain volatility, and macroeconomic uncertainty are flagged as potential headwinds. But Ollie's countercyclical model—a retail sweet spot in downturns—could turn these risks into opportunities. As competitors struggle, Ollie's could gain share through its bargain-focused value proposition and acquisition-driven expansion.

The Investment Case: Buy Now, or Wait for Clarity?

The numbers paint a compelling picture: sustainable top-line growth, a fortress balance sheet, and a playbook proven in tough markets. Even with margin pressures, the stock's forward P/E of ~20 (based on the $3.65–3.75 EPS guidance) is reasonable for a company growing at mid-teens revenue rates.

Critics might argue that 75 new stores in a single year could strain operations, but Ollie's has a track record of absorbing acquisitions smoothly. Meanwhile, the loyalty program's growth and the strategic use of Big Lots locations suggest scalability without overextension.

Final Verdict: A Discount Retailer Built for Turbulence

Ollie's Bargain Outlet isn't just a retailer—it's a countercyclical growth engine in a sector ripe for consolidation. With a war chest to fund expansion, a customer base hungry for bargains, and a management team that's thrived in adversity, this is a stock primed to outperform in 2025.

For investors seeking resilience and growth in uncertain times, Ollie's is more than a quarter's surprise—it's a buy-and-hold opportunity. The margin pressures are real, but the upside of dominating a $100 billion-plus discount retail market outweighs near-term costs. Act now before the crowd catches on.