Stock Wars: Big Lots Vs. Ollie's Bargain Outlet

Benzinga’s Stock Wars series matches up two leaders in a major industry sector, with the goal of letting readers decide which company is the better investment.

In this week’s installment, we present a duel between two of the leading U.S. discount retail chains: Big Lots, Inc. BIG and Ollie's Bargain Outlet Holdings Inc OLLI.

While the retail sector as a whole felt the blunt trauma of the economic havoc created by the COVID-19 pandemic, discount retailers like Big Lots and Ollie’s came through this period in vibrant financial health.

The Skinny on Big Lots: Founded in 1967 and headquartered in Columbus, Ohio, Big Lots operates 1,410 stores in 47 states. Its merchandise inventory runs the gamut with furniture, grocery, health and beauty products, pet supplies, small appliances, toys, jewelry and apparel.

During the pandemic, Big Lots introduced curbside pickups and same-day delivery partnerships with Instacart and Pickup, which the company credited with growing its e-commerce growth platform. The company’s Broyhill furniture line launched in the spring, which was very good timing considering the sudden growth of work- and school-from-home shoppers.

The company ended its fiscal year 2020 with $629.2 million in net income, or $16.11 per diluted share. Net sales for fiscal 2020 totaled $6.1 billion, up 16.5% increase from $5.3 billion one year earlier, with the rise attributed to a comparable sales increase of 16.1% and sales growth in high volume new and relocated non-comp stores.

Big Lots’ board declared a quarterly cash dividend of $0.30 per common share that was paid on April 2.

President and CEO Bruce Thorn looked back on fiscal year 2020 “as the strongest year in the history of Big Lots, occurring against the backdrop of an unprecedented year of uncertainty for our nation and industry.” He also called attention to the Broyhill furniture brand’s more than $400 million in first year's sales, adding “we firmly believe it is on track to being a $1 billion brand.”

Yet, Thorn admitted 2020 had its rough spots, particularly in a “clearly softer December” as the pandemic’s continuing resonance and shifts in shopping patterns played out in-store traffic.

“We incurred more than $50 million in COVID-related expenses, including health and safety measures as well as incremental pay bonuses to stores and distribution center associates,” he said. “We expect to incur further expense in 2021, albeit at a lower level.”

Big Lots closed Tuesday at $67.28, closer to its 52-week high of $72.77 and far from its 52-week low of $17.77.

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Ollie’s Odyssey: Harrisburg, Pennsylvania-headquartered Ollie’s was founded as Bargain Holdings Inc. in 1982 and took on its current name in 2015. The chain consists of 395 stores in 25 states, with two more retail outlets opening this month in Frederick, Maryland, and Sherman, Texas.

The Ollie’s product line-up includes housewares, bed and bath items, food, floor coverings, health and beauty aids, books and stationery, toys, pet goods, lawn and garden products and electronics.

The 11.6 million loyal shoppers who participate in the store membership rewards program carry the nickname “Ollie’s Army” and the store’s website highlights how its “buyers scour the world looking for closeouts, overstocks, package changes, manufacturer refurbished goods, and irregulars.”

There was nothing irregular about Ollie’s FY2020 performance: Net sales totaled $1.8 billion, 28.4% from $1.408 billion one year earlier. The company attributed this performance to a comparable store sales increase of 15.6% and the opening of 46 new stores.

Ollie’s gross profit increased 30.2% to $723.4 million in fiscal 2020 from $555.6 million in fiscal 2019 while gross margin increased 50 basis points to 40% from 39.5% over the same period.

“Throughout this year we successfully leveraged our expertise and relationships in the closeout industry to secure the very best deals for our customers’ changing needs,” said President and CEO John Swygert, who added the company is aiming to open 50 new stores this year, including the introduction of the Ollie’s brand in Kansas, Missouri and Vermont.

“We have a tremendous runway for growth, with the potential to expand our store base to over 1,050 locations nationwide,” Swygert added. “We feel good about the significant white space and the availability of high-quality sites. The value-driven consumers clearly are not going away and by most measures value is gaining in importance. With this in mind, we feel very confident in our runway for growth.”

But unlike Big Lots, Ollie’s did not offer a dividend. Executive Vice President and CFO Jay Stasz warned not everything could be copacetic for the company in the near future.

“While we are optimistic about the momentum of our business, there remains uncertainty related to COVID-19 and its potential impacts on the economy, the consumer and our 2021 results,” he said, citing expense management pressures and supply chain issues including increased trucking costs. “For these reasons, we will not be providing specific guidance at this time.”

Ollie’s closed Tuesday at $89.92, closer to its 52-week high of $123.52 than to its 52-week low of $50.84.

The Verdict: Both companies are in a very strong financial position, having weathered the worst of the pandemic while maintaining a wide brick-and-mortar presence across the country. The respective leaderships are frank and honest about the challenges ahead, yet their 2020 performances show they are clearly up to handling the worst that the economy can throw their way.

This Stock Wars battle ends in a draw: both companies — and, by extension, their investors — are winners in this bout, and the two stocks represent a smart long-haul presence in any portfolio.

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(Top photo of Big Lots exterior by Mike Mozart / Flickr Creative Commons. Photo of Big Lots in the early evening by Thomas / Flickr Creative Commons. Photo of Ollie’s exterior by Dwight Burdette / Wikimedia Commons.)