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Ollie's Bargain (OLLI) Set to Replicate Decent Show in 2019

Zacks Equity Research

Ollie's Bargain Outlet Holdings, Inc. OLLI is well poised to usher in the New Year with the same vigor it has shown this year. Shares of this Harrisburg, PA-based company have surged roughly 22.7% so far in year. This Zacks Rank #2 (Buy) stock has not only fared better than the industry’s decline of 11.4% but also the Zacks Consumer Staples sector’s fall of 19.7%.

The company’s business model of “buying cheap and selling cheap”, cost-containment efforts, focus on store productivity, sturdy comparable-store sales (comps) performance and expansion of customer reward program, Ollie's Army, reinforce its position. Cumulatively, these have positioned the stock to augment both the top and bottom line performance in the long run. The stock’s expected earnings per share growth rate of 24.7% for 3-5 years indicates the same.

Taking a cue from the past we noticed that net sales have surged at a CAGR of 18.8% from $540.7 million in fiscal 2013 to $1.077 billion in fiscal 2017, while net income has soared from $19.5 million to $127.6 million during the aforementioned period.

Management now envisions fiscal 2018 net sales in the band of $1.226-$1.231 billion and adjusted earnings in the range of $1.74-$1.77 per share. This portrays a sharp improvement from net sales of $1.077 billion and adjusted earnings of $1.25 per share recorded in fiscal 2017.

The company’s results are highly dependent on the availability of closeout merchandise at compelling prices, as the same represents roughly 70% of goods purchased. Moreover, the company sells merchandise at prices up to 70% lower than the department and fancy stores, and up to 20-50% lower than mass-market retailers.

Notably, the company’s comparable-store sales performance has exhibited an impressive run. Comparable-store sales have increased 6%, 3.2% and 3.3% in fiscal 2015, 2016 and 2017, respectively. During the third quarter of fiscal 2018, the metric rose 4.6%, marking the 18th straight quarter of growth. Notably, toys, housewares, electronics, floor coverings and automotive were the best performing categories. Ollie's Bargain anticipates comparable-store sales growth of 3-3.5% up from 2.5-3% expected earlier.

Clearly, you can see from above that there are plenty of reasons to be optimistic about the stock going into 2019.

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