Ollie's Bargain Outlet: Beneficiary Of This Tough Macro Backdrop

seekingalpha04-23

I gave a buy rating due to OLLI's ability to benefit from the weak macro backdrop and consumers' desire for value buys. The company has a strong track record of execution and is well-...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nOllie's Bargain Outlet: Beneficiary Of This Tough Macro Backdrop\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-23 21:06 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4685266-ollies-bargain-outlet-beneficiary-of-this-tough-macro-backdrop><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>I gave a buy rating due to OLLI's ability to benefit from the weak macro backdrop and consumers' desire for value buys.\n        The company has a strong track record of execution and is well-...</p>\n\n<a href=\"https://seekingalpha.com/article/4685266-ollies-bargain-outlet-beneficiary-of-this-tough-macro-backdrop\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4155","symbol_name":"大卖场与超市","start_time":0,"source_url":"https://seekingalpha.com/article/4685266-ollies-bargain-outlet-beneficiary-of-this-tough-macro-backdrop","article_id":"2429719408","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/136645098/image_136645098.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2429719408","pubTimestamp":1713877598,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"I gave a buy rating due to OLLI's ability to benefit from the weak macro backdrop and consumers' desire for value buys.The company has a strong track record of execution and is well-positioned to open more stores and capture market demand.Ollie's reported strong earnings, beating estimates, and has a conservative guidance for FY24.","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4155":"大卖场与超市","BK4103":"百货商店","OLLI":"Ollie's Bargain Outlet Holdings, Inc.","BK4504":"桥水持仓","BK4588":"碎股","DLTR":"美元树公司","M":"梅西百货","BK4114":"综合货品商店","BK4220":"综合零售","LU0006061336.USD":"Blackrock US Small and MidCap Opportunities A2 USD","BK4585":"ETF&股票定投概念"},"translate_title":"奥利的便宜货出口：艰难宏观背景的受益者","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"DLTR":1,"M":1,"OLLI":1},"content_text":"I gave a buy rating due to OLLI's ability to benefit from the weak macro backdrop and consumers' desire for value buys.\n        The company has a strong track record of execution and is well-positioned to open more stores and capture market demand.\n        Ollie's reported strong earnings, beating estimates, and has a conservative guidance for FY24.\n           Paper Boat Creative Investment action Based on my current outlook and analysis of Ollie’s Bargain Outlet (NASDAQ:OLLI), I recommend a buy rating. My thesis is that OLLI will continue to benefit from the current weak macro backdrop as consumers continue to look for value buys. The closure of competitors’ stores and migration trends also provide more room for OLLI to open its stores. Historically, OLLI has had a very good track record of execution; as such, I believe management can successfully execute their growth strategy (open more stores). Basic Information OLLI operates as a retailer that offers consumers a wide range of products, ranging from food products to household products to toys, etc., sold at discount and closeout prices to US consumers (100% of revenue). As of 4Q23, OLLI has 512 operating stores in the US, an increase of 7 stores from 505 stores in 3Q23. OLLI wins against smaller competitors (the industry is very fragmented, as mentioned in the 4Q23 earnings call), largely because of its ability to source and negotiate for lower costs of inventory acquisition because it has the scale (large purchasing power) and resources (enough manpower to source across the country). However, against a similar-sized competitor, OLLI's competitive advantage comes down to execution, which I am positive of given how it has managed its gross margin (maintained at ~40%) and EBIT margin (at ~10% range) for the past decade while growing revenue from $335 million to $2.1 billion in FY23. Review Quick review of OLLI’s 4Q23 financials (reported earnings on March 20th), EPS saw $1.23, beating consensus estimates of $1.16, driven by 3.9% same-store sales [SSS] growth and a gross margin expansion of 290bps to 40.5%. The major highlight is that the SSS growth performance of 3.9% represents the 7th consecutive quarter of positive growth, which supports the bullish sentiment that OLLI continues to benefit from the macro environment (i.e., more consumers trading down) and also reflects OLLI’s continuous strong execution. I believe OLLI is well positioned to continue riding this momentum, potentially beating management’s FY24 guidance. As a refresher, the FY24 guide includes a revenue range of $2.248 to $2.273 billion (implying 7.5% growth at the midpoint) and SSS growth of 1% to 2%. I believe the top-line guidance is conservative due to a couple of reasons. Firstly, demand momentum has not seen any signs of slowdown yet. In the earnings call, management even called out 1Q24 SSS strength, which they expect to come in slightly above the high-end of the FY24 guide (specifically noted as consistent against 4Q23 SSS performance). In addition, OLLI is still seeing a steady stream of deals flow, and there are chances to step up in existing relationships with suppliers across categories. This bodes well for an increase in customer traffic as OLLI can continue to sustain its value pricing strategy. Secondly, given the uncertain macro conditions, OLLI value strategy (current product offerings are ~50–60% below national store prices on average) should continue to resonate with consumers as they seek cheaper alternatives. Thirdly, I see opportunity for OLLI to accelerate its rate of store growth given the attractive industry backdrop (from other retailers closing stores). In particular, OLLI should benefit from the recent announcements of store closures by Macy's (M) of 150 stores by 2026 (these stores, in most markets, are termed “unproductive” which I take as not profitable) and Family Dollar (DLTR) of approximately 1,000 stores (stores are spread across the nation without concentration, as per DLTR 4Q24 earnings call), with 600 of those stores expected to close in 1H24. For the case of DLTR, my inference from the call is that the demand is just not up to expectations (not profitable), hence, it is better to close them. Based on M and DLTR managements’ comment, the stores to-be-closed are across the country, which I expect will overlap with OLLI in some regions. These are “air pockets” of demand in the industry that OLLI could capture as consumers look for alternative places to shop and/or OLLI opens a store in these areas to capture the demand. For reference, in contrast, OLLI actually increased their long-term store targets (discussed more below), sending very positive signals on the demand trend it is seeing. Stepping back and looking at the longer-term growth outlook, the total addressable market for store openings has become a lot larger due to the migration trends out of larger metropolitan areas into more rural areas. The hurdle would be whether OLLI can continue to execute and capture these new market demands. On this front, OLLI has shown very strong execution, where it has delivered against its FY23 targets. In 4Q23, OLLI reached its 45 new store target for the year by opening 7 stores in the fourth quarter. Of the 45 new stores, 30 were opened in 2H23, which was a record for the company. Indeed, management has increased their long-term store target to 1,300 (from 1,050), with 2/3 of the future growth planned in new markets. I would further note that the 1,300 target is not an aggressive target either, as Family Dollar currently has 8,359 stores as of 4Q23, which is more than 6x the size of OLLI’s long-term target. Assuming OLLI continues to execute and opens the same number of stores as it did for FY23, this implies 17.5 years of growth runway, or ~9% store growth contribution per year. Drawing back to the FY24 guide being conservative, this ~9% store growth contribution plus SSS growth expectation of 1-2% bridges to low-teens revenue growth in FY24, which is ~300 bps more than the implied FY24 growth guide. OLLI's strong balance sheet instills confidence that they can continue to open 45 stores a year with ease. In FY23, OLLI reported a total CAPEX of $124.4 million, which consists of new store CAPEX and maintenance CAPEX. With $353 million of cash and a negligible amount of debt (<$2 million, excluding lease liabilities), OLLI can easily finance the ~2 years+ of CAPEX with the current cash position. Moreover, OLLI has a good history of generating positive FCF, at an average of ~60% conversion from earnings, and with the positive growth outlook, FCF should increase accordingly, thereby giving OLLI more cash to reinvest for growth. As such, I do not see any balance sheet risk. Valuation   Author's workI believe OLLI can grow at ~10% in the near term, driven by ~9% store growth and 100–200 bps of SSS growth (SSS growth is guided by management). However, I do not expect strong earnings margin expansion as OLLI is likely to continue reinvesting in the business. Specifically, the opening of new stores would typically weigh on margins as they gradually ramp up the maturity curve. Given that management cited the possibility of accelerated store openings (which I believe is to take advantage of peers’ closing their stores), this could weigh on near-term margins. Nonetheless, OLLI screens very strongly, with revenue growth and margins above peers’ averages. Relatively, OLLI should trade at least in line, or at a premium, given the delta in operating metrics. I am assuming an in-line multiple of ~22x for my model, leaving any positive revision as potential upside (note that OLLI is trading at -1 standard deviation forward PE over the past 10 years). Author's workRisk While OLLI benefits from a weak macro environment as consumers tend to seek cheaper alternatives to value buys, a drastic and major recession is likely to cause more harm than benefit as consumers look to reduce purchases rather than trade down. In this case, management’s strategy to step up store growth might backfire. Consumers reducing their purchases will lead to slower revenue growth, which puts more margin pressure on stores as they take longer to mature. Final thoughts  My recommendation is a buy due to OLLI’s strong position in the current economic climate. OLLI should continue to benefit from consumers seeking value given its value pricing strategy. I also expect OLLI to continue seeing healthy runway of store opening growth ahead due to the migration trends in the long-term, and retailers closing stores in the near-term. OLLI's financials are healthy and support its expansion plans.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2429719408"}