Ollie's Bargain Sales Surge And Margin Recovery Are Bullish Signs, Analyst Sees 27% Upside

KeyBanc Capital Markets analyst Bradley B. Thomas reiterated an Overweight rating on Ollie's Bargain Outlet Holdings, Inc. OLLI, raising the price target to $93 from $79.

The company reported Q2 FY23 sales growth of 13.7% Y/Y to $514.5 million, beating the consensus of $499.0 million. 

Comparable store sales increased 7.9% compared to a 1.2% increase last year.

According to the analyst, 2Q results were above expectations, benefiting from a favorable closeout environment, stronger traffic trends, and lower supply chain costs. 

Looking ahead, Thomas believes OLLI will continue to benefit from the robust closeout environment, a recovery in margins, its remodel program, and new store growth.

The analyst adds that the price target rise reflects a sequential improvement in comps, traffic trends, and customer acquisition. 

Thomas also believes OLLI can achieve gross margin and operating margin improvements in 2024, further benefiting from supply chain efficiencies and improved merchandise margins.

While the macro environment remains uncertain, with an overhang from student loan repayments beginning in October, the analyst believes the outlook for OLLI remains attractive given the new store remodel program (driving an MSD lift in comps) and the significant store growth potential.

For 3Q23 and 4Q23, the analyst revised EPS estimates to $0.42 and $1.12, respectively, from $0.49 and $1.04, respectively. 

As such, Thomas' 2023 EPS estimate goes to $2.70 from $2.59, and the 2024 EPS estimate goes to $3.10 from $2.92. 

Price Action: OLLI shares are trading lower by 4.77% to $73.40 on the last check Friday.