OLLI Expands With 7 Big Lots Stores: What More Should Investors Know?

Ollie's Bargain Outlet Holdings, Inc. OLLI is set to enhance its retail footprint following the acquisition of seven former Big Lots store leases won through a recent bankruptcy auction. This acquisition comes as part of the ongoing restructuring efforts of Big Lots, which included the closure of 143 stores.

Details of OLLI's Acquisition of 7 Big Lots' Stores

Of the seven stores, Ollie's Bargain has received the final clearance and approval for six stores from the United States Bankruptcy Court for the District of Delaware. The seventh store is expected to receive the necessary approvals soon.

What makes these stores an ideal choice is that these have the required size, situated in prime trade areas and align with OLLI's commitment to serving value-oriented customers. Not only this but these stores also are located in the Midwest, a region where OLLI sees significant growth potential and has opened a new distribution center.

Similar to the 99 Cent Only stores' acquisition, OLLI's primary focus is on opening the acquired Big Lots stores while adjusting the schedule for other planned store openings in its pipeline to optimize productivity and reduce pre-opening costs. For fiscal 2024, the company anticipates 50 new stores and two planned closures.

Ollie's Bargain's acquisition of former Big Lots stores signifies a strategic growth initiative within the competitive retail landscape. Currently, OLLI operates 541 stores across 31 states. The company's long-term plan is to operate 1300 stores across the United States.

What More Should Investors Know About OLLI?

Ollie's Bargain business model of "buying cheap and selling cheap", cost-containment efforts, focus on store productivity and expansion of customer reward program and Ollie's Army reinforce its position in the industry. Ollie's Army continues to be a significant sales driver in the second quarter of fiscal 2024 with the increasing membership. The company ended the quarter with 14.5 million active Ollie's Army members, which accounted for more than 80% of sales. Collectively, these initiatives position the company for sustained growth.

OLLI delivered a strong performance in the second quarter. It emphasizes value-driven merchandise assortments, which allowed the company to seize market opportunities and meet consumer demand effectively. Comparable store sales rose 5.8% in the quarter, driven by growth in transactions and basket size. Ollie's Bargain has now achieved nine consecutive quarters of comparable store sales growth.

The improved business performance prompted management to lift its fiscal 2024 view. OLLI now expects net sales in the range of $2.276-$2.291 billion compared with $2.257-$2.277 billion stated earlier. Ollie's Bargain now anticipates comparable store sales to rise in the band of 2.7-3.2% compared with 1.5-2.3% previously stated. The company has revised adjusted EPS to be in the band of $3.22-$3.30, up from the earlier estimated range of $3.18-$3.28.

How is the Zacks Consensus Estimate Faring for OLLI?

Reflecting the positive sentiment around OLLI, the Zacks Consensus Estimate for EPS has seen upward revisions. In the past 60 days, analysts have increased their estimates for the current and next fiscal year by 0.3% to $3.28 and 1.1% to $3.72 per share, respectively. These estimates indicate expected year-over-year growth of 12.7% and 13.4%, respectively.

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Does OLLI Stock Look Attractive?

In the past six months, OLLI's shares have gained 38.5%, outpacing the industry and the S&P 500's growth of 6.8% and 9.9%, respectively.

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OLLI stock has been a strong performer, but its valuation remains a topic of debate. Currently, the stock trades at a premium relative to the industry, with a price-to-earnings ratio indicating that its growth potential may already be factored into price.

OLLI's forward 12-month price-to-earnings ratio stands at 26.7X, higher than the industry's ratio of 18.6X. This suggests that investors are paying a premium compared with the company's expected earnings growth. OLLI has a Value Score of D.

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How to Play OLLI Stock?

Ollie's Bargain is well-positioned to enhance its market presence, drive sales and deliver value to its customers, leading to improved financial performance in the coming quarters. Investors with a long-term horizon may stay invested in this Zacks Rank #3 (Hold) stock but potential investors should look for a better entry point, given its higher valuation.

Stocks to Consider

Here, we have highlighted three better-ranked stocks, namely Sprouts Farmers Market, Inc. SFM, Burlington Stores, Inc. BURL and Chewy, Inc. CHWY, currently carrying a Zacks Rank # 2 (Buy) each.

Sprouts Farmers engages in the retailing of fresh, natural and organic food products under the Sprouts brand in the United States. SFM has a trailing four-quarter earnings surprise of nearly 12%, on average.

The Zacks Consensus Estimate for Sprouts Farmers' current-fiscal year's sales and earnings indicates growth of 9.6% and 18.7%, respectively, from the year-ago reported numbers.

Burlington Stores operates as a retailer of branded merchandise in the United States. BURL has a trailing four-quarter earnings surprise of 18.4%, on average.

The Zacks Consensus Estimate for Burlington Stores' current-financial year's sales and earnings implies a rise of 10.1% and 30.5%, respectively, from the year-earlier reported figures.

Chewy engages in the pure-play e-commerce business in the United States. CHWY has a trailing four-quarter earnings surprise of 50.9%, on average.

The Zacks Consensus Estimate for Chewy's current-financial year's sales and earnings indicates an increase of 5.7% and 65.2%, respectively, from the year-ago reported numbers.

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