“We are not going to give you an AI target, an AI revenue line, or an AI timeline. If we start reporting a number like that, we will start managing to it,” Mark miller.

I don’t have much to add other than to compliment him for saying the quiet part out loud.

Most software companies are doing the opposite. They are busy proving to Wall Street that they are pivoting into an AI company. But we all know incumbents rarely out-adapt AI-native businesses. That race is not the one they can win. (at least for some of them)

In his opening remarks, Mark made his points clearly and he only emphasize on 2 things that differentiate them and others:

1. take care of your customers (stay close to them)

2. take care of your own people (finding the best talents and retain them)

It is that simple. I like to stick with companies that focus on things that don’t change. Regardless of whether AI ultimately affects them, as long as they continue to do the right things and execute well, I believe they will remain relevant. These are some rare qualities i see from the constellation software management teams.

After doing so many earnings analysis, i realised that my analysis lack of structure. So, going forward, i will try to standardised how i do it. Here is how i will sequence it and what you can expect.

1. The number first

2. Dissecting the earnings call

3. Valuation

4. Conclusion and my thoughts

The number first

To me, i will only track these few numbers and i think these are the key drivers for them.

1. The headline

Fundamentals keep growing.

Revenue up 17% to $3.34 billion. Free cash flow available to shareholders up 57% to $345 million. Over six months, revenue up 19% and FCFA2S up 48% to $1.08 billion.

Roughly 14 of those 17 points came from acquisitions. Organic growth contributed 3%, and only 1% after stripping out the weak dollar.

The market seems worried about that 1%.

I think that is the wrong thing to worry about.

CSI is a serial acquirer. That is the model. Organic growth was never the engine. The engine is return on invested capital, how much cash comes back for every dollar they put out.

2. Capital allocation

Sources: I borrowed this chart from the (Do consider to subsribe to them if you are interested in constellation software and their analysis.)

They put out a lot this quarter. $747 million on acquisitions. $1.59 billion in the first half against $604 million a year ago. Another $818 million committed after quarter end. It is much higher than their average as shown by the chart from the fat pitch. (Hi, the fat pitch, if you see this, please accept my apology for not asking in advance!)

3. Organic revenue growth

If you are worried about the organic growth, listen to what management said.

Altera is the main culprit. Maintenance organic growth was 2% at group level. Excluding Altera it was 4%. Altera alone printed negative 19%.

But look at why. Altera signed two contracts in Q2 last year that required $9 million recognised upfront, plus another $8 million on a contract amendment. Neither repeated this quarter.

That is $17 million of last year’s base that was never coming back. On a business doing $153 million a quarter, it is the whole gap.

So the negative 19% is an accounting comparison, not a business falling apart. The CFO said as much and expects it to revert next quarter.

Now step back and look at Altera as an investment.

Bought from Allscripts in May 2022 (paid roughly $725mil with only $360mil in cash). Four years on, it has thrown off roughly $400 million in cumulative free cash flow while revenue declined from just over $800 million to about $646 million.

That is the model working exactly as advertised. Buy a shrinking business cheap, run it for cash, get your money back before the decline matters.

Management said it is tracking the original investment thesis and actually running ahead of the expected IRR.

Three things that is worth pointing out

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I am trying to be transparent here and towards the end, i will add some comments on my own. If you only wanted to read human output, scroll to the end! Since it is AI output, it will not be paywalled!

Novo and Lilly reported within hours of each other on 5 August. One is a turnaround priced as a melting ice cube; the other is the most expensive mega-cap in healthcare and still beating its own numbers. Here is what the two quarters actually said.

Sources: Q2 2026 investor presentations & earnings-call transcripts · prices as of 10 August 2026

Part one — the numbers

Novo Nordisk: a better quarter than the guidance implies

Novo’s second quarter is easiest to read if you hold two facts side by side. Adjusted sales grew 7% at constant exchange rates and adjusted operating profit grew 11% — and yet full-year guidance still points to a decline. That gap is the whole Novo story right now.

All of the above is adjusted: it strips out the one-off, non-cash reversal of a USD 4.2bn sales-rebate provision tied to the US 340B programme. On a non-adjusted basis, the midpoint of full-year guidance implies sales growth of 5% and operating profit growth of 12% — a very different-looking company from the one in the headlines.

Gross margin is where the cost of the fight shows up: 78.2%, down from 82.7% a year ago. About DKK 3bn of that was a one-time charge for rightsizing manufacturing capacity agreements; the rest is lower realised prices, partly offset by mix and productivity. Sales & distribution rose 13% as Novo spent behind the Wegovy pill. R&D was up just 2%. Headcount is now ~66,700, roughly 12,000 fewer people than a year ago — a 15% reduction — and the DKK 8bn transformation savings programme is running ahead of plan.

Novo Nordisk, Q2 2026 adjusted growth at constant exchange rates

Positive bars extend right of the zero line, the negative bar left. Scale is common across all rows; every value is labelled. Source: Novo Nordisk Q2 2026 investor presentation and earnings call.

The last bar is the one that gets the attention. US injectable Wegovy fell 22% at CER even though prescriptions grew, because self-pay went from 10–15% of the mix a year ago to ~35% today at a much lower price point. Management was blunt that this is not a new pricing shock — it is the pricing environment they guided to in January, now working through the mix.

Against that, the launch metrics are genuinely strong. The Wegovy pill has passed 5 million cumulative US prescriptions in 30 weeks — the first million took 12 weeks, the most recent million took four. Weekly scripts were ~267,000 as of 17 July, roughly 90% of the US oral obesity market, with about 80% of users new to GLP-1s. Globally, ~1.5 million people are on the pill and Novo now treats nearly 5 million people for obesity, up ~70% year on year.

Guidance was raised for the second time this year: adjusted sales and operating profit growth both go to 0% to −6% CER from −4% to −12%, and free cash flow to DKK 45–55bn from DKK 36–46bn. Capex stays at around DKK 55bn.

Part two — the call

What management actually said

The 5 August call was CEO Mike Doustdar’s chance to set expectations before the September Capital Markets Day, and the tone was deliberately unheroic: “2026 continues to be a challenging year… the year is far from over, and we maintain mindful of the headwinds we are facing in the second half.”

The second half is worse on purpose

CFO Karsten Knudsen gave the cleanest bridge of the call. Take the 2% growth run rate from the first half, then subtract two things: semaglutide loss of exclusivity in Canada and Brazil, mostly back-end loaded into H2; and the absence of DKK 5bn of favourable gross-to-net effects that boosted Q3 and Q4 last year. Crucially, only one of those annualises into 2027 — the comparator effect drops out, the LOE drag does not.

The UK is the proof-of-concept for the pill outside the US

Novo made the pill broadly available in the UK in early July. Three weeks later it estimates ~300,000 patients had started, versus 48,000 in the equivalent US window. Novo’s UK obesity market share moved from ~30% before launch to ~45% after. Emil Kongshoej Larsen’s read: pent-up demand, no drug–drug interaction restrictions, and “the injection barrier is very real.” Germany launches in September.

ZEUS failed, and management refused to retreat from cardiovascular

Ziltivekimab missed its primary endpoint in 6,376 ASCVD/CKD patients — hazard ratio 0.99 (95% CI 0.88–1.11) — despite clean target engagement on IL-6 and hsCRP. Serious infections were higher on drug; all-cause mortality was neutral. R&D chief Martin Holst Lange argued the read-through is narrower than it looks: IL-6 may sit too far downstream, or the population may have been wrong. ARTEMIS (post-MI) and HERMES (HFpEF) continue, reading out in H1 2027. He also noted Novo had communicated a probability of success “around 50% or less” going in.

CagriSema is a weight-loss drug, not a diabetes drug

In the head-to-head REIMAGINE 4 trial, CagriSema hit 15.2% weight loss and 1.9pp A1c reduction against tirzepatide 15mg — non-inferior on weight, not non-inferior on A1c. That is a meaningful positioning constraint in diabetes, where glycaemic control is the scoreboard. The US obesity decision is still expected around year-end, with launch in 2027.

No transformational M&A

Asked directly about press reports of appetite for large deals, Doustdar drew the line clearly: bolt-ons that complement internal R&D, not a transformational acquisition. “I’m a person who never starts with a no. So one day maybe, but you have to be in a very different situation than Novo Nordisk is today.”

Part three

Five things that matter from here

1.The pill is expanding the market, not cannibalising the injection

Roughly 80% of Wegovy pill patients in the US are GLP-1 naive, and the UK data points the same way. If that holds through the Germany and EU rollouts, Novo’s ex-US obesity franchise is a growth story again in 2027 — which is exactly when the LOE drag is annualising against it. These two forces decide the year.

2.Price is still the binding constraint in the US

Volume grew; revenue didn’t. Self-pay mix, Medicaid coverage losses, and the most-favoured-nation agreement with the administration all pull realised price down. Novo’s answer — a subscription model for higher pill doses, with 20,000 enrolled — is deliberately surgical rather than a headline price cut. Whether that is discipline or under-reaction is the open question.

3.Medicare Bridge is real volume, and Novo is the more cautious of the two

The programme went live 1 July: ~20 million eligible seniors, $50 a month out of pocket. Both companies report 60–70% of Bridge starts are new to incretins. Lilly says roughly 80% of Bridge uptake is going to injectables — where it holds ~7 of every 10 US injectable scripts. Novo’s guidance deliberately assumes little.

4.The cost base is doing more work than the top line

Operating profit grew 11% on 7% sales growth with gross margin down 450bp. That is 12,000 fewer employees and a savings programme running ahead of schedule. It is real, and it is also finite — you cannot cut your way through a patent cliff twice.

5.The pipeline’s next act is zenagamtide, and the market is sceptical

After CagriSema’s dosing troubles and ZEUS’s failure, Novo is pushing an amylin/GLP-1 unimolecular into Phase 3 on the strength of 24% weight loss in six months in Phase 2. Management says it has added an extra titration step and applied every CagriSema learning. Investors have been told that before. The 21 September Capital Markets Day in London is where this has to be re-underwritten.

Part four

Compare and contrast: Lilly’s quarter was a different sport

Lilly reported the same morning. Revenue of $22.97bn, up 48% (46% CER); non-GAAP EPS of $8.38, up 33% — and that is after absorbing $3.03 per share of acquired IPR&D charges. Consensus was $6.58. It is the fourth consecutive quarter of a 19%+ EPS beat.

Mounjaro did $9.9bn (+91%) and Zepbound $4.9bn (+46%) — $14.9bn combined, adding $6.3bn of growth in a single quarter. That increment alone is roughly the size of Novo’s entire quarterly obesity-care business. Outside the incretins, the oncology/immunology/neuroscience key products grew 121%. Guidance went to $85–87bn for the year, a $2.5bn raise at the midpoint, implying 32% growth.

Incretin analogue market share, Q2 2026

That footnote matters more than it looks. Lilly leads on revenue everywhere; Novo still leads on volume outside the US. Novo sells more units at lower prices — the profile of a company defending share on access rather than on efficacy.

Where the two genuinely differ:

• Orals are the swing factor, and they are running in opposite directions. Novo’s Wegovy pill is a fast, dominant launch — 90% of the US oral market, 5 million scripts, now rolling out internationally. Lilly’s Foundayo (orforglipron) has been a slow US launch by its own admission: $98m in the quarter, of which $31m came from the UAE alone. But Lilly says the last week of July nearly doubled the prior month’s volume, prescribers went from 8,000 to 36,000, and the global rollout across 40+ markets lands in 2027. Novo has the head start; Lilly has a small molecule it can make at unlimited scale.

• Efficacy ceiling. Retatrutide’s TRIUMPH results are the strongest weight-loss data yet disclosed: −28.3% at 80 weeks in obesity, −20.8% in patients with type 2 diabetes, −28.7% in the osteoarthritis study. Novo’s best comparable disclosed numbers are CagriSema at ~23% and zenagamtide’s 24% in Phase 2. Lilly plans a US submission in Q1 2027 — pending an unresolved dispute with the FDA over whether it can file as a biologic.

• Breadth. Strip out the incretins and Lilly still has Ebglyss (+131%), Jaypirca (+56%), Inluriyo leading the oral SERD market, Kisunla, a PCSK9 gene-editing programme that cut LDL 62%, and a shopping spree that added psychiatry and vaccines this quarter. Novo, by contrast, has deliberately narrowed: obesity, diabetes, comorbidities, and a smaller rare-disease book.

• Direction of travel on cost. Lilly’s marketing spend rose 25% and R&D 14% while margins expanded 8.9 points, because revenue grew faster. Novo expanded margin by shrinking. Both work; only one compounds.

• Generic semaglutide is now a live event. First entries have appeared in early-LOE markets. Lilly’s Patrik Jonsson said tirzepatide scripts kept growing after generic semaglutide launched in India and Brazil, and that generics have hit supply constraints. Novo says the market is expanding in those countries and it has held absolute volumes. Both can be true for a while. Only one of them is losing a molecule.

  ---

Part five

Novo’s ADR trades roughly 1:1 against the Copenhagen B share; DKK figures converted at ~6.35 DKK/USD. Novo EPS is normalised consensus in DKK; Lilly’s FY26 consensus of $35.01 sits inside its own guidance range of $35.50–36.50, which itself absorbs $3.03 of Q2 acquired IPR&D.

The arithmetic is stark. Lilly is worth 5.2× Novo’s market capitalisation on roughly 1.9× the revenue and 2.1× the earnings. Put differently, the market pays 2.4× the multiple for Lilly’s earnings — and on FY27 numbers that gap narrows to 1.9×, because Lilly is expected to grow EPS ~29% while Novo grows ~3%.

At 14× earnings with a 3.9% dividend, Novo is not priced as a slower grower. It is priced as a company whose earnings do not grow again.

Consensus makes that explicit: FY27 normalised net income of DKK 95bn is below FY26’s DKK 98bn. Novo’s answer on the call was pointedly non-committal — Knudsen would only say the GLP-1 market is growing near 40% on a moving-annual-total basis, that the starting point is the current run rate, and “don’t count us out yet.” Formal 2027 guidance comes in February.

Two things temper the cheapness. First, free cash flow is structurally suppressed: DKK 45–55bn guided against DKK 55bn of capex, so the FCF yield is only ~3.5% even though operating cash generation is far higher. That capex is building the API capacity Novo says it needs for the ex-US pill rollout — Knudsen described utilisation at the new plants as “very low,” which is either enormous latent capacity or enormous stranded cost depending on how the pill sells. Second, the sell-side mean target of DKK 314 sits just 4% above spot, with a low of 203 and a high of 453 — a standard deviation of 57 on a 303 stock. Nobody agrees on what this is worth.

Lilly’s problem is the mirror image. At 27× FY27 earnings, an enormous amount has to go right — retatrutide approved and launched, Foundayo inflecting globally, price erosion offset by volume as CVS access returns and Medicare Bridge scales. Management flagged that net price will fall as medical-exception scripts convert to formulary access. Its own mean target of $1,293 is 5% above spot. Both stocks, on the sell-side’s numbers, are fully valued. They just got there from opposite directions.

Part six

Concluding thoughts

The simplest framing: Lilly is being paid for winning; Novo is being paid for not losing. The quarter did nothing to change who is winning. Lilly took share in both the US and international incretin markets, delivered the best obesity data ever disclosed, and raised guidance while spending heavily on both promotion and acquisitions. Novo raised guidance too, but from a base that still contemplates a decline, and it did so partly on a rebate adjustment and partly on 12,000 fewer employees.

What has changed is the shape of the bear case. Six months ago, the argument against Novo was that it had lost the science and the market. The Wegovy pill undermines the second half of that: 5 million US scripts in 30 weeks, 90% of the oral market, and a UK launch that added 15 points of national obesity share in three weeks is not the behaviour of a company that cannot sell. The residual bear case is narrower and more honest — that Novo’s US pricing is deteriorating faster than its ex-US volume can compensate, that semaglutide’s patent cliff starts biting in 2027, and that the next-generation pipeline has now missed enough times that zenagamtide deserves no benefit of the doubt.

That is a real case. But at 14× earnings, a 3.9% dividend and total shareholder cash returns above DKK 60bn this year, it is also largely the case in the price. The asymmetry sits in what is not in the price: an ex-US oral launch that is tracking well ahead of the US equivalent, CagriSema’s US decision at year-end, and a Capital Markets Day on 21 September where a new CEO has to lay out what the company looks like in 2028. Any one of those landing well moves a 14× stock more than a similar surprise moves a 35× one.

For Lilly, the honest read is that execution has been close to flawless and the price reflects it. Nothing in the quarter suggests deceleration — the guidance implies a slower second half only because of one-off rebate adjustments and last year’s OUS launch bolus, which the CFO walked through explicitly. But 27× forward earnings leaves no room for a retatrutide regulatory delay, an FDA ruling against the BLA pathway, or the price erosion that management itself has flagged. The most likely disappointment for Lilly is not a bad quarter; it is a good quarter that isn’t good enough.

If you have to hold one, it depends entirely on which risk you would rather own: the risk that a great business is priced for perfection, or the risk that a merely good business is priced for decline. On today’s numbers, the second one is being compensated better.

This is analysis of publicly disclosed company materials, not investment advice. All figures are taken from the companies’ own Q2 2026 investor presentations and earnings-call transcripts dated 5 August 2026, with market data as of 10 August 2026. Novo Nordisk’s Q2 growth rates are at constant exchange rates and on an adjusted basis unless stated. Do your own work.

Human in the loop here! (100% human)

If you reach here, thanks for reading it. I know many substackers are against AI output as it is deemed as slop. However, i have a slightly different views on that but it will not be today discussion. Read the output and tell me what do you think.

I generally agree with claude analysis and as a quality investor myself, i try to find high quality businesses that compound for decades. Lily outclass novo on everything: pipeline, execution and also valuation. However, yet here i am, talking about why i owned Novo.

I think the main reason is because of loss aversion and partly also due to my value biased style. However, i find that my win rate is much higher when i owned a company that is priced for structurally declined but isn’t. I am somehow wired to perform better this way.

So, my view is that Novo is a fixable business priced as a dying business. Of course, i don’t want to overestimate myself because pharma investing is way out of my league. However, by looking at how the new management execute, i think they can overcome this challenges again.

Let me end this with Mike, the ceo quote here:

“Novo Nordisk hasn’t been around for 103 years because we’ve never had failures, but because we’ve had more successes than failures”

A small note here: Investseeker and researchpulse are some of the best x analysts that cover Novo. Do give them a follow.

For once, this is what it feels like to be a Gartner shareholder after a gruelling 12 months. I think this is the first quarter where we can finally allow ourselves to call it a small victory.

Small being the important word.

The recovery is still a long way from complete. For those who have not followed Gartner closely, the stock had fallen more than 60% from its peak. One strong quarter and one big move in the share price (up about 24% in a day and this is a normal move for companise nowadays) do not erase what came before it.

Last quarter, I wrote that “The Gartner Inflection Is Here.” You can read that piece above. I mention this not because I want to make a victory lap, but because I think there is value in putting your views down before you know the outcome.

I am not here to make calls with the benefit of hindsight, and I do not delete the calls I got wrong. If I am wrong, I will say I am wrong. Investing is difficult. Nobody gets every call right, and anyone who has been doing this long enough will have mistakes, bad timing and theses that simply did not work out.

I am also not writing this to collect as many subscribers as possible or to create an image that I somehow never make mistakes. What I hope to build instead is a circle of like-minded investors who genuinely enjoy thinking about businesses, challenging one another’s assumptions and getting better at investing over time.

People who care more about the process than pretending to be right all the time. So yes, this quarter feels good. After the last 12 months, I think Gartner shareholders have earned the right to enjoy a small victory.

But the work is not done. The inflection may be here. The recovery still has a long way to go. If this is for you, consider support me and help to grow this community together! Below is for the paid subcribers and i have added a bonus section where i have included replies from their investor relations.

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H1 revenue €38.6bn, +2% organic. Q2 accelerated to +3%, or +4% excluding the Middle East. Operating margin 22.5%. Free cash flow €4.1bn, net debt down €2bn, gearing 12%.

Fine numbers. Now the trend.

Revenue peaked at €86.2bn in FY23. Consensus has FY26 at €81.0bn. Three straight years without growth, and net income down 26% over the same stretch, from €15.2bn to €11.2bn.

If we look at the core, it still hasn’t turned.

Fashion & Leather Goods is 47% of sales and 71% of profit, and it fell 1%. Q2 got back to +1%, but Cabanis (CFO) confirmed that was price — volume and mix flat. Dior improving, Vuitton only “consistent with the average.” Celine and Fendi still negative.

The surprise is alcohol. Wines & Spirits +5%, and it’s the only division where growth came from volume. Champagne had volume, price and mix all contributing. Hennessy volumes returned, with V.S.O.P in China offsetting a soft US. EBIT +11%.

The rest carries an asterisk. Watches & Jewelry’s +9% is partly mix — Tiffany’s transformed 60% grows while the legacy 40% shrinks, so the blend flatters. Half of Sephora’s growth was new space.

So the profit engine grew on price alone, and the most neglected division grew on volume. Backwards from what a recovery looks like.

Two things stood out on the call.

One: growth came from price, not volume. Fashion & Leather Goods returned to growth in Q2, but Cabanis (CFO) confirmed it was moderate price with volume and mix flat. They sold no more bags than last year.

I read that as discipline, not weakness. This is a business that protects desirability by holding volume back. Hermès does the same thing and gets a 34x multiple for it. Growing by price on a stable volume base is the right way to run a luxury house.

Two: the margin hasn’t inflected yet, and it can’t until growth does. Cabanis (CFO) was clear that operating leverage only kicks in above 3–4% group growth. LVMH did +2% in H1. So the 22.5% margin was held by cost control, not by leverage and she called that “extra effort,” not a new rule.

That’s the whole thing in one line. LVMH doesn’t have a cost problem or a pricing problem. It has a volume problem, and until volume comes back the margin can’t expand. Growth first, margin second. Right now they’re stuck one step before the inflection.

2. Past growth and valuation

What ten years shows: where the growth came from

The index tells you who grew. It doesn’t tell you how, and that’s the part that matters.

Hermès — 3.2x, and essentially all of it organic. No meaningful acquisitions in a decade. It built its own capacity instead: one new leather workshop a year, its own tanneries, its own training school. Growth was capped by how fast it could train craftspeople, not by what it could buy. That is also why the margin never cracked, nothing was bolted on that needed fixing.

Richemont — 2.1x, steady. Cartier and Van Cleef grew on their own. The bolt-ons were small: Buccellati, Delvaux, Vhernier. The one big mistake was buying YNAP, and it corrected it by offloading the business.

LVMH — 2.2x, but flattered. Tiffany, Belmond, Rimowa. The 2021 jump of 44% is partly the Tiffany consolidation, not demand. Strip the deals out and the organic growth is thinner than the line suggests.

Kering — 1.2x, and even that is portfolio surgery. It built an eyewear platform by acquisition, bought Creed and a stake in Valentino, then sold Puma, sold Beauté to L’Oréal, sold real estate. The reported line is deals, not trading. Underneath, Gucci went from €10.5bn at its peak to roughly half that.

Where they finish, 2016 = 100: Hermès 323, LVMH 215, Richemont 211, Kering 119.

The lesson is about durability. Bought growth works until you run out of things to buy, and it never fixes the core — Kering is the demonstration. Organic growth compounds on itself, because the capability that produced it is still there next year.

That is the real gap between Hermès at 19.8x EV/EBITDA and LVMH at 10.8x. Not this year’s growth rate. Whether the growth was sustainable or not.

Just a quick comment on their current valuation. We can clearly see that the market has low expectation on LVMH due to its sluggish growth and it is up to LVMH to prove otherwise.

It used to get a premium on the assumption that growth would continue, because it always had. Three flat years took the assumption away. It now has to show the growth before it gets paid for it.

Which is the honest position for a holder. The re-rating is paused, not finished. If Vuitton and Dior reaccelerate, 10.8x is too cheap. If low single digit is what LVMH now is, it isn’t.

3. Two anomalies worth flagging

Anomaly one: this is a hard-luxury recovery wearing a luxury-recovery costume.

Sources: Latest earning quarter for each of them. (It is in organic growth, not reported.)

Richemont Jewellery Maisons +24%. Kering Jewelry +20%. LVMH Watches & Jewelry +9% (Tiffany’s HardWear +75%, Knot +50%). Meanwhile LVMH Fashion & Leather Goods −1%, Kering F&LG −1%.

Hermès is the only group that inverts it. Leather +10% while Watches sat flat. Its problem is that it cannot make enough bags, not that people won’t buy them.

Strip Watches & Jewelry out of LVMH’s H1 and the group grew about 1%. Strip Jewelry and Eyewear out of Kering and Kering shrank. Soft luxury, 47% of LVMH’s revenue and roughly 71% of its EBIT is flat. Gold at $4,000 is doing a lot of the sector’s work, and that is a store-of-value bid, not a consumer recovery.

Anomaly two: luxury’s marginal buyer has quietly changed from Chinese to American and Korean due to AI boom.

Look at where the growth is. Richemont: Japan +36%, Americas +27%, APAC +21%. Kering North America +10%. Hermès Americas +15%. All four called out Korea as exceptional.

Korea is the cleanest evidence and the most uncomfortable. The KOSPI (Korea’s benchmark equity index) is up roughly 56% year-to-date, from 4,215 at end-2025 to 6,595 on 31 July, on the memory supercycle.

The wealth effect showed up in department store receipts with almost comic precision: in Q1, the Lotte (Korea’s largest department store chain) branch nearest Samsung’s Hwaseong complex grew 25%, and the Shinsegae (its main rival) branch closest to SK hynix’s Icheon fabs grew 21.2%, with chip-giant employees expecting large bonuses off record earnings.

Nobody is saying the quiet part. Luxury’s growth is now levered to AI capex. The Korean and American demand carrying this sector is a function of an equity market that fell 30% and recovered inside six weeks and there is no Chinese buyer underneath to catch it if the next drawdown sticks. That is a correlation these stocks have never had before, and I don’t think it’s in anyone’s model. If Q3 Korea prints soft, this is why.

4. So is luxury recovering?

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Sources: Netflix Chief on the Future of Hollywood

Let me start with where I stand.

I have no doubt about this management team. None.

Netflix has always been a counter-positioning company. That is the whole story of the business. Ted Sarandos, the co-CEO, laid it out himself in the interview I’ve embedded above on the future of Hollywood.

Watch it first if you can. It covers a lot of ground. His view that AI will not disrupt creativity, that AI is really about consistency, not imagination. They are long human. He talks about Netflix House, the 100,000 square foot spaces for people to hang out. Not a Disneyland. Serve wide range of audience, not niche and many more. It is worth your time, and it captures exactly why I trust this team.

Here is the pattern he described. In the DVD days, the enemy was Blockbuster and its video stores. What did people hate? Late fees. So Netflix became the no-late-fee company. A clean counter-position.

Then streaming arrived and the enemy became traditional TV. What did people hate about TV back then? Advertising, and waiting a week for the next episode. So Netflix launched with no ads and everything at once. Another clean counter-position.

And now watch how it evolves. Sarandos framed Netflix as a choice company. Give people options. Well, one option customers actually wanted was a lower price with ads. So Netflix built the ad tier. Not a reversal. Just the same choice philosophy, extended.

That is why I will not cover Netflix deeply as a company. The thesis is simple. Economies of scale, at true scale.

And let me be precise about what that scale buys, because people get this wrong. Netflix does not get cheaper in price. Price goes up over time. What gets cheaper is the value. The quality you get for every dollar you pay.

At true scale, Netflix spends more on content than anyone, then spreads that spend across the biggest member base in the world. So the cost per member falls even as the catalog grows. That shows up where it matters most: cost per hour of entertainment.

Bill Ackman has laid this out plainly. On a per-hour-of-entertainment basis, Netflix is the cheapest option out there. Management said the same thing this quarter. A US subscriber pays the least per hour of viewing of any comparable streaming service. In some cases a competitor costs twice as much per hour.

That is the moat. Most content, biggest audience, lowest cost per hour of joy delivered. Nobody else can match the math.

So this note is not a deep-dive on the business. It is a read on the quarter, the worries, and the price.

Let me walk through what actually happened, what the sell-side is worried about, and whether the price makes sense.

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It’s time for another earnings update on Ollie’s Bargain Outlet (OLLI) following the company’s Q1 FY26 release.

If last quarter was about scale beginning to change the economics of the business, this quarter was about something less comfortable: what happens to Ollie’s when the comp engine stalls.

Comparable sales decelerated to +1.7%, the softest print of the recent run, and management leaned heavily on the weather to explain it. Meanwhile, every off-price peer that reported in the same two weeks put up a far stronger number and raised guidance. Ollie’s trimmed its sales outlook.

That doesn’t break the long-term thesis. But it forces a question every holder now has to answer honestly: is this a weather-driven air pocket, or is the comp gap structural?

Management’s refrain was essentially that it gets hot every year, the bet being that pent-up demand returns the moment the weather turns. Much of the bull case for the rest of the year rests on whether you believe that.

What caught my eye, though, wasn’t the print. It was the pivot underneath it.

Ollie’s is visibly trying to manufacture the traffic engine it has never really had, leaning harder into online marketing, showing off product and price, and stocking more on-trend goods that sit slightly outside its usual closeout format. (Squishy dumplings seem like a five below thing to me)

None of it has shown up in sales yet, and I have real questions about whether a brand built on in-store discovery can advertise its way to growth without dulling the treasure-hunt magic that makes it work.

The metric I’m watching most closely is gross margin. For Ollie’s, price is the moat and the day they start charging more to please Wall Street instead of the customer is the day the thesis starts to break.

Below is how I’m reading the quarter.

Financial Performance

Q1 FY26 Highlights

• Net sales: ~$659 million, up ~14% YoY

• Comparable store sales: +1.7%

• Adjusted EPS: $0.91, up ~21% YoY

• Gross margin: 41.9%, up ~80 bps YoY

• Stores: ~685 locations across 35 states

• Ollie’s Army members: north of 17 million

• Buyback: ~$53 million repurchased in Q1; full-year target raised to ~$125 million (≈50% of FCF)

• Cash and investments: strong; no long-term debt

• Guidance: full-year sales outlook trimmed, EPS outlook raised; near-term comp running below the 2% long-term target

A clean beat on EPS and margin, sitting on top of a soft top line. The shape of the quarter, cut the sales guide, raise the EPS guide tells you most of the story before you read a word of the transcript.

Sales Growth

Sales grew ~14%, and once again the engine was almost entirely new stores rather than comp. Ollie’s opened stores again in the quarter and remains on track for ~75 openings in FY26, with most leases already secured.

The longer-term picture is unchanged: ~685 stores today against a target of 1,300+, so management still views the company as roughly halfway through its expansion runway. The ~10% unit growth plus low-single-digit comp continues to imply double-digit revenue visibility for years.

This is the crux of Ollie’s as an investment. For the off-price peers, comp is the lead engine. For Ollie’s, comp is the supporting act and unit growth carries the load. That works beautifully in a normal year. It looks exposed in a quarter where comp is the only thing the market wants to talk about.

Same Store Sales

The +1.7% comp was a clear step down from +3.6% in Q4, and the composition is the part worth dwelling on.

• The comp was driven almost entirely by basket.

• Traffic was only slightly positive versus Q4, when transactions made a real contribution.

• Regionally, cooler markets (East, Midwest, Central) beat plan by 100–200 bps, while the South, hot and drought-stricken, lagged by 100–300 bps. Lawn & garden was the single biggest drag.

• Core consumables comped well above the company average; the entire shortfall was outdoor/seasonal (lawn & garden, summer furniture).

Management’s explanation: weather, plus gas-driven trip consolidation. The “green shoots” claim is that even two or three favorable weather days produce a meaningful seasonal spike, and with seasonal at 15–20% of first-half sales, the math swings hard on it.

The cleanest quantitative break in the data, though, is traffic going near-flat. That points more toward consumer behavior than toward rain.

The Weather Story and the Consumer Underneath It

The weather case is more credible than the usual hand-wave: the regional split sorts the way weather would, and the misses are concentrated exactly where you’d expect (seasonal), while consumables stayed strong. If demand were broadly cracking, consumables would soften too and they didn’t.

But weather is not the whole story management actually told. In the same breath they described:

• High-income trade-down accelerating to its strongest in many quarters (>$100k households), but

• Low-income trade-out accelerating at the same time, so the two netted to roughly flat

That last set isn’t weather. The trade-down engine that usually carries Ollie’s through stress is being offset by its core low-income customer falling out the bottom. Tracing it back, the low-end softness has been building for three quarters, first flagged in Q3 (blamed on the government shutdown), persisting in Q4, and by Q1 strong enough to neutralize trade-down. That is a trend, and it predates the weather.

Peer Comparison

This is where the quarter gets uncomfortable, because the benchmark was unforgiving. Everyone reported the same two weeks, the same weather, the same gas spike:

Two read-throughs gut the easy excuses:

1. Burlington called its comp strong across geographic regions. Same calendar, same weather, no regional drag. So “the South was hot” doesn’t explain a sector-wide problem, because there wasn’t one.

2. Dollar General is the killer comparison. DG serves a more vulnerable rural, low-income customer than Ollie’s, faced the identical winter weather, $4+ gas and rural trip-consolidation, and still grew traffic +1.4% (its fourth straight quarter of traffic growth) while taking share including accelerating trade-in from the $100k+ cohort. If the low-income consumer were collapsing, DG would show it first and worst. Instead it raised guidance.

The winners are converting the value-migration into traffic through marketing, brand and loyalty flywheels; Ollie’s, whose growth has always come from opening doors rather than pulling more people through existing ones, isn’t.

On valuation, the silver lining: the stock has de-rated to ~18x forward earnings, now the cheapest of the off-price trio (TJX/Ross/Burlington all ~28–30x) and just above DG, despite carrying the second-highest forward EPS growth in the group (~14%).

Closeouts and Furniture — A Quick Follow-Up

The supply side remains a genuine tailwind. Deal flow is still described as strong, with both the quantity and quality of available closeouts increasing as retail consolidation feeds the pipeline. This matters because it confirms the constraint is not supply, it’s demand/traffic. Ollie’s has all the product it wants.

On the carpet-to-furniture initiative from last quarter: management has now reset roughly half the fleet, dropped wall-to-wall carpet from all new stores, and is pleased with early reads but tempered expectations, framing furniture as a ~1–2% business long-term.

Notably, they tested home delivery and customers simply wouldn’t pay for it (free delivery would have hurt the value proposition and margin), so they’ve settled on advance-purchase-and-pickup. Sensible, measured, and a reminder that, as flagged last quarter, furniture is harder than it looks.

Capital Return

The buyback stepped up meaningfully to ~$53 million in the quarter, with the full-year target raised from ~$100 million to ~$125 million (≈50% of FCF). The fortress balance sheet, strong cash, no long-term debt remains a real competitive advantage when sourcing large closeout deals.

It’s worth being clear-eyed about one thing, though: as the comp decelerated, the EPS algorithm leaned more on the buyback. The company trimmed its sales guide and raised its EPS guide in the same release.

Repurchases are doing more of the work of protecting the per-share number which is fine, but it’s not the same as the business comping.

Conclusion

The structural thesis behind Ollie’s is intact, and this quarter does not break it. The company still benefits from retail consolidation, growing scale in the closeout market, a long white-space runway toward 1,300 stores, and a balance sheet that lets it pounce on deals others can’t.

But I’d be doing readers a disservice to pretend this was a good quarter. It was the first one in a while where the comp gap versus peers looked less like noise and more like the model showing through.

Ollie’s competes on unit growth and gross margin; it does not, today, compete on same-store traffic and the current environment is rewarding precisely the traffic, marketing and assortment agility that a wait-for-the-deal closeout model is weakest at.

Management is clearly aware of this, and the Ollie’s Army push, the digital marketing shift and the category test-and-learn are all attempts to build a traffic engine the company has never really had.

So the one thing to watch is simple. Management has staked the guide on the weather normalizing and seasonal snapping back. If Q2 comp recovers as it warms, the de-rating to ~18x was a gift.

If it stays soft into a hot July, then it was never really the weather, it’s the low-end consumer and a structural traffic disadvantage and the discounted multiple is the market being right rather than wrong.

I remain a holder. But after this quarter, I’d characterize myself as a watchful one rather than a complacent one. The bar for blaming the weather has been set by a peer group that didn’t reach for the excuse.

Disclaimer: I have a position in the company mentioned and receive no fees for writing this post. This is not investment advice. Invest at your own discretion.

Sources: I am using Stock story for charts.

How They Make Money

🐉 Alibaba: The AI Trade-Off

Welcome to the Free edition of How They Make Money…

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3 months ago · 85 likes · App Economy Insights

Hello China Tech

Sell First or Build First

On May 13, Alibaba and Tencent reported quarterly earnings within hours of each other. Both missed revenue estimates. Both saw their US-traded shares rise…

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3 months ago · 9 likes · 1 comment · Poe Zhao

Most investors who follow Alibaba already know the cloud story. External revenue up 40%, AI products at 30% of that, MaaS ARR heading to RMB30 billion by year end. That part has been well covered.

What I want to do here is go deeper. Not on the numbers, but on what this quarter tells us about how China’s AI landscape is actually going to evolve. Because when you put Alibaba and Tencent’s earnings side by side, something more interesting emerges than a cloud growth story.

The most important thing said across both calls on May 13 wasn’t in either prepared statement. It was a direct contradiction between two CEOs about the most consequential question in Chinese AI right now and understanding that contradiction tells you more about where this is all going than any revenue number does.

I’m making this free because this conversation is more valuable with more people in it. Disagree with anything here? Leave a comment. The best thinking comes from the debate, not the monologue.

The Old Game Is Over

For twenty years, the logic of Chinese tech was simple. Get users. Get more users. Then figure out how to make money from them. MAU, DAU, time spent, these were the metrics that mattered because the marginal cost of serving one more user was essentially zero. Bandwidth was cheap. Compute sat on users’ devices. You could scale to a billion people and the unit economics actually got better as you grew.

AI breaks that logic completely.

Tencent’s Martin Lau said it more plainly than any analyst has:

“Every single delivery of a DAU actually costs you quite a bit. And as a result, you can’t just apply the same logic as internet and apply it to AI. The ability to find high-value use cases is going to be as important, if not more important, than just sort of blindly get a lot of DAU and user time.”

Every token served costs real money. A user who asks a hundred questions a day is not a MAU to celebrate, they are a cost centre unless they are generating revenue that exceeds what it costs to answer them.

This is not theoretical. Look at what has actually worked globally in AI so far.

Anthropic focused on coding and enterprise. Products where the value delivered is immediate, quantifiable, and large relative to cost. Claude Pro costs $20 a month. A developer who saves five hours a week pays that without thinking twice. The ROI is obvious. Anthropic didn’t try to be everything to everyone, they found the use cases where willingness to pay was highest and built for those first.

OpenAI tried to be everything. ChatGPT for consumers, APIs for developers, plugins for businesses, voice mode, image generation, search. Enormous user numbers. But monetisation has been harder than the user numbers suggest it should be, precisely because a huge portion of that usage is low-value, people asking trivia questions, students summarising essays, curiosity-driven interactions that generate no revenue. The DAU looks great. The revenue per DAU tells a more complicated story.

The lesson is not complicated. In AI, the metric that matters is value generated per token, not users per platform.

Both Companies Are Actually Playing Defence

Before getting to the contradiction, it’s worth being honest about something most coverage skips over. Neither Alibaba nor Tencent is purely on offence here. Both are reacting to a threat that AI poses to their existing businesses. And the nature of that threat is different for each of them, which explains why they are responding so differently.

Alibaba’s threat is more existential. Their entire business was built on one idea, aggregate consumers on a platform and charge merchants to reach them. Taobao, Tmall, CMR, the whole thing. That model depends on consumers actively opening Alibaba’s apps to discover and buy products.

AI agents break that model directly. If a consumer’s AI agent can shop on their behalf, comparing prices, placing orders, tracking deliveries, the consumer never needs to open Taobao. The agent does it. And the agent might choose JD or Pinduoduo instead.

Worse, if someone else’s agent becomes the default shopping interface for Chinese consumers, Alibaba becomes invisible. They get disintermediated from their own customers by a layer of software they don’t control.

This is why Alibaba is moving so aggressively and so broadly, quick commerce, Qwen app, Wukong enterprise agents, MaaS infrastructure, T-Head chips. It looks like a company trying to be everything at once because it is. They are trying to own the AI agent layer before the AI agent layer owns them. Eddie Wu’s factory analogy is the optimistic framing. The defensive framing is: if we don’t build this ourselves, someone else builds it and we become a warehouse with a website.

Tencent’s threat is different but equally real. Weixin’s dominance rests on being the first thing Chinese people open every day. Communication, payments, mini programs, content, it all flows through that first tap. The assumption baked into Tencent’s entire strategy is that this starting position is permanent.

But it isn’t guaranteed. If a standalone AI app, Doubao, Kimi, Qwen, or something not yet launched, becomes the habitual first open for Chinese users, Weixin loses its position as the ambient layer of Chinese digital life. The AI app becomes the new operating system. Weixin becomes just another app inside it.

Tencent’s response is to make sure AI lives inside Weixin rather than beside it. Agents controllable through Weixin. Mini Programs becoming AI Skills. WorkBuddy growing organically within the enterprise ecosystem. The bet is that the first open never changes, AI just gets embedded into it. But that bet requires Weixin to remain more useful than any standalone AI app, every single day, for a billion and a half people.

Neither company is in a comfortable position. They are both spending aggressively (Tencent only started recently when the Agent started to pick up) not just because the opportunity is large but because the cost of losing is catastrophic.

Two Companies, One Contradiction

Which brings us to May 13, and the question both Alibaba and Tencent answered differently.

Will Chinese consumers ever pay for AI?

Tencent’s Martin Lau said no, not at scale:

“The subscription model is not going to be that big for the China market. Every single user actually sort of costs you something in terms of variable cost.”

His argument is empirically grounded. Chinese consumers pay a fraction of what Western users pay for equivalent digital services. Music, video, everything, single digit paid penetration despite years of effort. AI subscriptions, he believes, will follow the same curve.

Alibaba’s Eddie Wu said the opposite:

“When the value provided by tokens exceeds the cost of those tokens, the demand for tokens will become infinite in a sense. We see growth in AI demand as a long-term certainty.”

One of them is wrong. But here is what I think both are missing.

The question is not whether Chinese people will pay for AI. The question is whether AI will deliver value so unambiguous and so immediate that payment feels like the obvious decision rather than a subscription choice. Chinese consumers already pay without hesitation for things where the ROI is crystal clear.

A tool that saves a small business owner three hours a week is not a subscription, it’s a productivity purchase with obvious payback. The reluctance to pay for Spotify is not about being cheap. It’s about the value not feeling worth it relative to free alternatives.

The AI products that unlock Chinese consumer payment are not chat assistants. They are agents that execute real tasks, book appointments, find suppliers, complete work, save hours. That’s what Alibaba’s Qwen app is trying to be. That’s what Tencent’s WorkBuddy already is in the enterprise context.

Lau has built the right product while simultaneously talking himself out of charging properly for it. That pre-acceptance of a lower monetisation ceiling before the product has had a chance to prove otherwise is Tencent’s strategic risk. And it matters because both CEOs actually agree on the fundamental problem:

“In the AI world, you actually have to find the high-value use case as opposed to sort of just purely focus on DAU, because the difference between the AI revolution and internet is that this is about intelligence, and intelligence sort of manifests its value in how much people are willing to pay for it.” — Martin Lau

They agree on the problem. They disagree violently on whether Chinese consumers will ever be part of the solution.

Why The Real Race Is About Locking In Enterprises Before H2

Both companies are operating under the same binding constraint, not enough AI chips. Every strategic decision this quarter flows from that scarcity.

Alibaba sold. Eddie Wu put it simply:

“There isn’t a single card on our servers that is idle. We see the ROI on this investment in the next three to five-year period as being extremely clear.”

Every chip is occupied. External cloud grew 40%. MaaS ARR hit RMB8 billion, heading to RMB30 billion by year end. T-Head’s proprietary chips give Alibaba supply independence no other Chinese cloud provider has. Wu described the strategy in manufacturing terms:

“What we’re doing today is investing capital to build two factories. The first we can call the AI training factory, the second we can call the inferencing factory.”

They are building enterprise switching costs right now, when a business embeds your models into workflows and integrates their data into your infrastructure, leaving becomes expensive.

Tencent built instead. James Mitchell was unusually candid about the trade-off:

“We have prioritised a multiplicity of internal services ahead of Tencent Cloud. We have been consciously late to monetize the AI opportunity through Tencent Cloud, because we’ve been simultaneously supporting a number of AI initiatives internally.”

The payoff is real, WorkBuddy is China’s most used productivity agent, Hunyuan 3 leads OpenRouter by token volume. But the plan to open the external cloud valve in H2 2026 when ASIC supply improves means Tencent arrives to the enterprise market after Alibaba has already been there for two quarters.

When asked about ARR targets for their agentic products, Mitchell refused to commit:

“We could set a target today and we’d be out by an order of magnitude 12 months from now in either direction, because that usage demand is so dynamic.”

Alibaba committed publicly to RMB10 billion MaaS ARR this quarter and RMB30 billion by year end. Tencent refused to set a number. One reading is that Alibaba is confident.

Another is that Tencent is wise, the market is moving too fast for targets to mean anything. But enterprise customers tend to trust vendors who are willing to be held accountable.

Enterprise AI is sticky. The relationships Alibaba is building now are not easily broken later.

Why Bet When You Can Own Both

Most analysis of this earnings season frames it as a competition. Alibaba versus Tencent. Full stack versus ecosystem. Sell first versus build first. Pick a side.

That’s the wrong frame.

Alibaba and Tencent are not really competing for the same thing. Alibaba is building the infrastructure layer - chips, cloud, MaaS that enterprises consume to run their AI. Tencent is building the distribution layer - Weixin, WorkBuddy, Mini Programs as AI Skills where AI reaches humans at scale. These are different layers of the same stack.

The companies that will extract the most value from Chinese AI over the next decade are not necessarily the ones that win the model race or the chip race or the consumer app race. They are the ones that sit at the intersection of where enterprises need compute and where consumers already live.

Alibaba owns the compute and the commerce data. Tencent owns the daily behaviour and the social graph. Neither has the full picture alone. And the Chinese enterprises that figure out how to use both. Alibaba’s infrastructure to run their AI, Tencent’s distribution to reach their customers are the ones who will generate the most value per token.

The honest truth after reading both transcripts carefully is that it is still too early to make a definitive call. Alibaba’s execution over the past two quarters has been solid, what they said they would deliver, they delivered.

Cloud accelerated, CMR recovered, AIDC nearly broke even, MaaS grew faster than their own language suggested. But they are burning cash heavily across multiple fronts simultaneously while defending their core commerce business from the very AI agents they are trying to build.

Tencent has a stronger balance sheet, a cleaner identity, and the most powerful distribution asset in Chinese digital life. But Lau’s pre-acceptance that Chinese consumers won’t pay may become a self-fulfilling prophecy, you don’t charge what you don’t believe you can get.

Both are under pressure. Both are responding rationally given their starting positions. Both could win on their respective layers. And both could lose if the AI agent era reshuffles the starting positions entirely.

So rather than bet on which strategy is right, I’d rather bet on scale. When the landscape is this uncertain and the stakes are this high, the companies with the most resources to absorb mistakes, pivot when needed, and outlast the transition are the ones most likely to still be standing when the dust settles. That means the largest players, not the most elegant strategists.

Tencent’s Mitchell put it well when describing how they have always managed uncertainty:

“We have not got that by limiting each new product, each new service to very near-term quantitative return on investment targets. We have got that by managing the portfolio as a portfolio and by managing products over their full lifecycle.”

Alibaba is making the same argument with harder numbers and more cash on the line.

Both understand that value per token, not users, not MAU, not DAU is the only metric in the AI era that actually matters. The question is who generates enough of it, fast enough, to justify the bet they are each making on themselves.

Disclaimer: The information in this newsletter is for educational and informational purposes only. I hold positions in the securities mentioned. This is not investment advice and should not be taken as a recommendation to buy or sell any security. Always conduct your own research before making investment decisions.

Revenue up 20% to $3.18 billion. Organic growth at 6%, but only 2% after adjusting for forex. Free cash flow available to shareholders up 44% to $733 million, the strongest quarter on record, though partly boosted by a non-cash accounting reversal rather than pure operational improvement.

By any traditional measure, a clean beat. Mr. Market clearly is not impress with it. That’s the world we’re in. If you’re not talking about AI, the market isn’t listening.

But for those of us who own CSI for what it actually is, a capital allocation machine that buys boring, sticky software businesses and compounds quietly for decades, this quarter told you everything you needed to know. And it was in the acquisitions section.

What happened in Q1 — and why the Q4 setup matters

To understand how significant the deployment pace is, you have to go back to where CSI ended 2025.

Full-year 2025 acquisition spend was $1.51 billion. Solid, but actually lower than 2024’s $1.68 billion. Meanwhile, operating cash flow ran at $2.73 billion for the year. Cash on the balance sheet ballooned from $1.98 billion at end-2024 to $3.09 billion by December 2025. CSI was generating more cash than it was putting to work. The war chest was growing whether they wanted it to or not.

Then Q1 2026 happened.

CSI deployed $809 million in a single quarter. More than half a full year’s worth of 2025 deployment in three months. Then in the subsequent events note, the section most people skip, they disclosed another $786 million completed or committed after quarter close.

Roughly $1.6 billion deployed or committed in about four months. That is a meaningful shift in pace.

Mark Miller put it plainly on the call: he’d rather get capital out early in the year than scramble at year-end. The war chest that had been quietly accumulating through 2025 is now being put to work.

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If you’ve been holding Novo over the past few months, there is only pain and disappointment. Even their shareholders (alot of them are from Denmark, known for being nice) are pissing at the management for their poor share price performance in their AGM. The company hits its lowest point since their launch of first weight loss drug at $35.

The market was sending a very clear message, Novo is out of the weight loss race, and what’s left is a declining diabetes business with heavy capex and a pipeline that can’t keep up. That’s not just pessimism. That’s the market effectively pricing Novo as structurally impaired.

I don’t think that view is entirely fair, but I understand how the market got there. Read my previous write up on Novo to follow the story how it evolved.

Q1 FY26 — Weak numbers, but expectations may have reset

Still under pressure, but no longer deteriorating

Q1 doesn’t immediately disprove the bear case.

Once you strip out the DKK 26.8B 340B reversal, adjusted sales were down 4%, operating profit down 6%, and gross margin compressed to 80.6%. The pressure is real, and it’s largely self-inflicted, Novo is clearly trading price for volume, especially with the pill at around $149/month. The US business remains a drag, with continued rebate pressure and Ozempic price erosion of around 10–15% annually.

But there is a subtle shift.

Management has already improved guidance slightly to around -4% to -12%, suggesting the worst of the downgrades may be behind. It’s still negative growth, but no longer collapsing expectations.

And importantly, the stock didn’t break.

The Pill — Demand is not the problem

Sources: Investor presentation

Scaling fast, and expanding the market

The clearest signal from Q1 is that demand is not the issue.

The pill is scaling at a pace we haven’t seen before:

• ~207,000 weekly TRx by mid-April

• 1.3 million prescriptions in Q1

• 1 million patients in ~16 weeks

• ~80% GLP-1 naive

This is not just share shift. This is market expansion.

Novo is also clearly regaining prescription momentum, with around ~65% NBRx share, up significantly from last year but importantly, this share is being captured at a lower price point.

More prescriptions, lower price.

That’s the trade-off. And if volume holds, it starts to matter more than pricing.

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Gartner reported Q1 2026 this morning.

On the surface, nothing changed. CV growth at 1%. Consulting still weak. Guidance unchanged. Same story as last quarter.

But something important shifted.

Three months ago, a similar setup triggered a 22% single-day collapse. Today, the stock was flat.

When a stock stops going down on similar bad news, it usually means one thing: expectations have fully reset and most of the forced selling is behind. That is not a small observation. That is often how bottoms are identified, not by the news getting better, but by the stock refusing to go lower on news that used to destroy it.

Click below for Q4FY2025 analysis.

I have been tracking this business closely for the past 17 quarters, and one thing is becoming clearer — CV is approaching an inflection point. The reported numbers may not show it yet, but the direction of travel is changing.

The setup today is very different from what the headline growth suggests.

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In his 2002 letter, Nick Sleep wrote:

“This is not a wholly theoretical discussion. Only this week Estée Lauder, a company which we much admire and would consider owning if only someone would sell it to us at a reasonable price, announced that earnings would decline as the firm had decided to invest in brand building instead.

Such investment could be expected to raise long term revenue growth and pricing power but, even so, the share price declined 15% on the news. The reason was that short term investors responded to the warning about next quarter’s profits and missed the long-term outlook. As Fred Schwed would say ‘pay no attention to this’. In effect the company had been punished by the markets for being sensible. It is this behaviour that gets us excited and sets up investment opportunities.”

Tencent’s latest quarter felt very similar.

The company reported strong results, yet the stock declined by roughly 5%. The reason was not weak fundamentals, but a shift in capital allocation towards AI investment, which may weigh on near-term profits.

For investors, especially those following Prosus, Tencent remains a must-follow asset, given its outsized contribution to Prosus’ NAV and long-term value creation.

If you find value in thoughtful, in-depth research, please consider subscribing. In the full write-up behind the paywall, I will take a deeper look at Tencent’s evolving AI investment strategy, how management is balancing near-term profitability with long-term positioning, and why its ecosystem advantage across Weixin, Mini Programs, and cloud may shape the company’s next phase of growth.

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It’s time for another earnings update on Ollie’s Bargain Outlet (OLLI) following the company’s Q4 FY25 earnings release.

If the previous quarter was about winning hearts and minds, this quarter was about something more structural:

scale is beginning to change the economics of the business.

Management made it clear that the company has reached what they describe as an inflection point, where growing size and industry disruption are creating better access to merchandise, better real estate opportunities, and stronger negotiating leverage with suppliers.

As CEO Eric van der Valk explained:

“Our growth and the continued consolidation of the retail sector is leading to more buying power and expanding our access to products.”

In other words, Ollie’s is no longer simply reacting to closeout opportunities.

It is beginning to shape them.

Financial Performance

Q4 FY25 Highlights

Net sales: $779 million, up 17% YoY

Comparable store sales: +3.6%

Adjusted EPS: $1.39, up 17% YoY

Adjusted EBITDA: $127 million, up 16% YoY

Gross margin: 39.9%

Stores: 658 locations across 35 states

Ollie’s Army members: 17 million

Cash and investments: $563 million

Long-term debt: none

The company also introduced a new long-term operating framework, targeting:

• ~10% annual store growth

• 2% comparable store sales growth

• 40.5% gross margin baseline

• mid-teens EPS growth

Sales Growth

Sales growth remained strong at 17%, driven primarily by new store openings.

The company opened 86 stores in 2025, significantly above its previous record of 50.

More importantly, management believes this pace is sustainable.

With 658 stores today and a long-term target of over 1,300 stores, Ollie’s believes it is only halfway through its store expansion opportunity.

For FY26, management expects to open 75 new stores, with most leases already secured.

This translates into roughly:

• ~10% unit growth

• ~2% comp growth

Together, this implies ~12–15% revenue growth visibility for several years.

Same Store Sales

Comparable store sales grew 3.6% in the quarter.

Growth was driven by both:

• basket size

• transaction growth

Basket accounted for roughly two-thirds of comp growth, with transactions contributing the remaining one-third.

Importantly, management noted that the quarter was negatively impacted by severe winter storms, which caused temporary store closures. Absent those disruptions, January would likely have been the strongest month of the quarter.

Momentum has reportedly continued into Q1.

Retail Consolidation Is Creating Opportunity

One of the most interesting themes from the call was the unusually strong deal flow environment.

Management described deal flow as:

“off the charts across just about every category.”

This environment has been driven largely by retail consolidation.

Over the past two years, several value-oriented chains have either closed stores or entered restructuring, including:

• Big Lots

• Value City Furniture

• American Freight

For Ollie’s, these disruptions create opportunity across multiple fronts:

1. Real estate availability

2. Access to inventory and closeouts

3. Hiring experienced retail staff

4. Customer demand migrating to remaining players

Stores located near former Big Lots locations have reportedly been among the strongest performing in the fleet.

Carpet Out, Furniture In

Another important metric for discount retailers is store productivity, usually measured by sales per store or per square foot. TJX and Ross have been the most successful off-price retailers largely because they consistently improved sales per store over time.

“We’ve also been on a journey thinking about this, how we value store space, how we drive higher space productivity within the box for multiple years at this point. Beginning with some of the learnings that we took away from our remodel program several years ago and it’s resulted in our confidence to accelerate some investments in the business and to steer categories in a more deliberate way.”

By contrast, Ollie’s sales per store have remained relatively flat at around $4.1 million annually. This makes management’s comments about optimizing category mix and store space, such as replacing carpet with furniture, particularly encouraging if it can help improve store productivity over time.

Management explained that wall-to-wall carpet has historically been a category with low productivity per square foot.

As a result, Ollie’s has begun replacing that space with entry-level furniture offerings, particularly living room furniture.

This decision is partly driven by the same retail consolidation mentioned earlier. With chains like American Freight disappearing, a gap has opened in the deep discount furniture market.

Furniture also offers several advantages within Ollie’s treasure-hunt model:

• higher ticket items

• strong demand during tax refund season

• visually compelling in-store displays

• better productivity per square foot

The initiative is still early and management noted the rollout is only about seven weeks in but early results have been encouraging.

That said, furniture may not be as straightforward as it appears even best-in-class operators like TJX have struggled to replicate the same success in furniture as in their core categories, and Ollie’s will likely have to compete directly with these experienced players. Below are some challenges i might think of:

• Bulky logistics and inventory management, making furniture harder to handle than smaller closeout items.

• Slower inventory turnover, which could pressure store productivity and working capital.

• Execution risk, as furniture merchandising requires different expertise than Ollie’s traditional closeout categories.

Peer Comparison

The off-price retail sector provides an interesting benchmark for evaluating Ollie’s positioning for FY2025 result.

Several observations stand out.

First, Ollie’s revenue growth is roughly double that of its peers, largely driven by store expansion.

Second, the company’s net margin remains comparable to the larger players, suggesting that despite its smaller scale, Ollie’s is still able to earn similar profitability.

Finally, despite these characteristics, Ollie’s currently trades at the lowest valuation multiple among the group.

The central question for investors is therefore not whether Ollie’s is growing quickly today, but whether that growth and margin structure can remain intact as the company scales toward 1,300 stores.

Balance Sheet

The balance sheet remains a strategic advantage.

The company ended the quarter with:

• $563 million in cash

• no meaningful long-term debt

Management also announced a commitment to return roughly 50% of free cash flow through share repurchases, beginning with approximately $100 million in buybacks during FY26.

This combination of strong cash generation and minimal leverage gives Ollie’s considerable flexibility when sourcing large closeout deals.

Conclusion

Q4 reinforced the core thesis behind Ollie’s.

The company continues to benefit from three powerful structural forces:

1. Retail industry consolidation

2. Scale advantages in the closeout market

3. A disciplined treasure-hunt merchandising model

As management put it:

“The most challenging decisions we have to make is what not to buy.”

When the primary constraint of a closeout retailer becomes selectivity rather than supply, the business is operating from a position of strength.

Ollie’s is still early in its store expansion journey, yet the advantages of scale are already beginning to appear in sourcing, real estate, and customer acquisition. I remain a confident long-term holder.

Disclaimer: I have a position in the company mentioned and receive no fees for writing this post. This is not investment advice. Invest at your own discretion.

Sources: I am using Stock story for charts.

Q4 2025 Earnings Snapshot

Constellation Software delivered another quarter that reflects its familiar operating model: steady organic growth, strong cash generation, and continued reinvestment into acquisitions.

Revenue grew 18% year-over-year to $3.18 billion, driven largely by acquisitions, while organic growth came in at 6% (2% FX-adjusted). For the full year, revenue increased 15% to $11.6 billion, with organic growth of 4% (3% FX-adjusted).

Reported earnings were weaker. Quarterly net income fell 61% to $110 million, primarily due to accounting revaluation charges related to the Topicus / Asseco investment structure rather than deterioration in the underlying businesses.

Cash generation remained strong. Operating cash flow reached $788 million in the quarter, while free cash flow available to shareholders was $423 million, bringing the full-year total to $1.68 billion, up 14% year-over-year.

Consistent with CSU’s capital allocation strategy, most of this cash continues to be reinvested. During 2025 the company deployed approximately $2.1 billion of capital, including $1.58 billion in acquisitions and $530 million of other investments, such as its stake in Asseco Poland.

Looking ahead, Constellation has already identified roughly $802 million of acquisitions pending after year-end.

While this represents about half of annual free cash flow, it should be viewed as the starting pipeline rather than the full-year investment level, as CSU typically sources additional deals throughout the year.

Overall, the results reinforce the company’s core model: modest organic growth, high cash generation, and disciplined capital allocation through acquisitions, which remains the primary driver of Constellation’s long-term compounding strategy.

If you find value in thoughtful, in-depth research, please consider subscribing. In the full write-up behind the paywall, I will take a deeper look at Constellation Software’s evolving capital allocation strategy, why the software acquisition landscape has not unfolded as many investors expected, and how new initiatives including minority investments and strategic stakes may shape CSU’s next phase of growth.

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Source: Dataroma

Superinvestors, Key Moves This Quarter

Closing Out 2025

Q4 marks the end of 2025. Let’s look at some of the more interesting moves made by the investors I track closely.

Across the board, one theme stands out:

More trimming than adding. More rotation than expansion.

Let’s break it down.

Berkshire Hathaway, An Interesting Pair

Berkshire bought New York Times while selling Amazon, an interesting pair trade.

At the same time, it continued trimming Apple. More notable was the absence of any buyback this quarter, which stands out given Berkshire’s cash pile.

The message feels cautious. Less enthusiasm for mega-cap tech, more selectivity, and patience.

Terry Smith, Continued Reductions

Terry Smith continued to reduce allocations, including selling more than half of Alphabet.

My suspicion is that part of this may be driven by redemptions following his weaker recent performance. The selling pattern suggests capital outflows rather than aggressive repositioning.

Interestingly, Bill Ackman made a similar move on Alphabet.

Chris Hohn, Mostly Quiet

Not much changed this quarter aside from selling Canadian National Railway (CNR).

Looking ahead, I’ll be watching Q1 2026 closely. If AI “disruption” continues to pressure names like S&P Global and Moody’s, it will be interesting to see whether he adds to those positions.

Chuck Akre, Staying Consistent

Akre continued adding to Copart and CCC, following his existing trend.

Copart in particular might be an interesting play here. The debate around competition versus structural disruption remains unresolved, but Akre’s conviction hasn’t wavered.

François Rochon, New Position: Bright Horizons

Rochon initiated Bright Horizons Family Solutions.

It is the largest provider of employer-sponsored child care in the United States and also provides back-up child care, elder care, tuition program management, education advising, and student loan repayment programs.

Li Lu, A Contrarian Bet

Li Lu initiated Crocs.

It may be one of the cheapest branded footwear companies today. An interesting contrarian bet.

Norbert Lou, Quiet

No major changes. Staying patient.

Rob Vinall, Continued discipline

It’s not surprising to see Rob Vinall trim Carvana given how sharply the stock has run, and aside from that there were no major changes;

More interestingly, he hinted that he may initiate select software names if valuations become more attractive, something to watch closely heading into Q1 2026.

Bill Ackman, Rotation Within Mega Caps

Ackman sold most of his Alphabet stake (a major winner for him) but added roughly a $2 billion position in Meta.

His playbook appears clear: sell overvalued MAG7 names and rotate into relatively cheaper large-cap value within the group.

Final Thoughts

Across the board, this quarter felt more defensive than aggressive.

More trimming, selective rotation, and discipline. No major AI related trades other than Mag 7.

As usual, thanks to Dataroma to compile 13f of fund managers.

That’s all for now. Until next time!

Disclaimer: I might have positions in the above posts and receive no fees for writing the post. I am not affiliated or have any role with the company. Opinion is my own and this post is just for educational purpose. It is not an advice to buy or sell the stocks. Invest at your own discretion.

Novo Nordisk continues to prove me wrong.

On paper, this should have been one of the easiest investments to hold. A duopoly market structure. A massive and still underpenetrated obesity market. Strong brands. Years of scientific credibility.

And yet, holding Novo Nordisk has been anything but easy. I keep asking myself the same uncomfortable question: how can a company with such a strong starting position repeatedly disappoint its shareholders?

This frustration is not emotional. It is analytical. And the latest earnings call materially changed how I think about Novo’s future. If you’re interested in understanding why the stock sold off, what the market is likely extrapolating from the 2026 guidance, and how I’m thinking about this position from here, I’ve laid out my full reasoning in the rest of this note for paid subscribers.

This includes the key assumptions embedded in management’s outlook, the execution gap versus peers, and the decision framework I’m using to assess whether Novo remains worth holding.

If you find value in this kind of independent, long-term analysis, consider becoming a paid subscriber. Work like this only remains possible when readers who benefit from it choose to support it, and that support genuinely matters for analysts trying to stay thoughtful, disciplined, and free from short-term noise.

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Gartner has been one of my more painful holdings so far. It has also been one of the most volatile positions in my portfolio. I’ve lived through two major drawdowns back to back, roughly 30% in Q3 and another 20% in Q4.

Talk about pain!

That said, this was one of the more important earnings calls in recent years, not because of the headline numbers, but because of how management is responding under pressure, and what that reveals about the company’s medium-term trajectory.

One uncomfortable question keeps resurfacing for me, capital allocation.

Either management is being reckless, continuing to buy back stock in what ultimately proves to be a melting ice cube, or they are deploying capital aggressively at prices that will look obvious in hindsight. There is rarely a comfortable middle ground.

What genuinely gives me pause is the pace of the buybacks. Roughly $2 billion (or 8% of its market capitalization) in 2025 was followed almost immediately by a ~20% drawdown in the stock recently. It is never flattering to highlight buybacks right before a sharp decline, and in the short term, it certainly doesn’t feel like value creation.

But shareholder value is not created, or destroyed, quarter by quarter. It is determined by whether capital was allocated when intrinsic value materially exceeded price, not by whether management timed the next drawdown correctly.

If management is right about engagement-led reacceleration and the medium-term recovery they continue to point toward, these buybacks will eventually be seen as disciplined and accretive.

If they are wrong, they will be remembered as a costly misread.

There’s no way around it. The truth will only be clear in hindsight.

If you’re interested in why the stock sold off, what the market may be extrapolating from the guidance, and how I’m thinking about this position from here, I’ve laid out my full reasoning in the rest of this note for my paid subscribers.

For those who find value in this kind of work, consider becoming a paid subscriber. Independent analysis only works if readers who benefit from it choose to support it, and your vote genuinely matters for analysts like us who are trying to stay thoughtful, long-term, and free from noise.

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Dear readers,

It’s time for another earnings update on Ollie’s Bargain Outlet (OLLI) for Q3 FY25. (FYI: This remains the only stock I cover quarterly.)

If Q2 was about spinning the wheel, Q3 was about deliberately leaning into price, traffic, and customer acquisition even at the expense of near-term optics. Management wasn’t optimizing for a clean quarter; they were investing in lifetime value.

“We like this investment in price. We’re in this for the long haul in terms of customer acquisition and retention.” Q3FY25

Despite another earnings beat and raised full-year guidance, the market reacted negatively. In my view, that reaction completely missed the point.

Disclosure: I have an interest in this company. Click below to read the previous update.

The Quarter’s Theme: Winning Hearts and Minds

Q3 wasn’t about maximizing basket size or massaging margins. It was about using an exceptional closeout environment to widen price gaps, drive traffic, and lock in customers for life.

CEO Eric van der Valk put it plainly on the call:

“But what I would say broadly about gross margin is we manage this business, as Eric said, to price gaps to the fancy stores. Our price gaps have expanded at a time that we’ve also expanded margins, so that feels quite good.” Q3FY25

“But we do have a flexible buying model where if we can’t be the lowest price in the market and we can’t have that wide of a price gap, we simply won’t buy the item and we’ll move on to the next item.” Q3FY25

Ollie’s intentionally leaned into lower AUR deals, particularly in consumables and seasonal categories, to pull forward customer growth. The result was strong traffic, accelerating memberships, and clear evidence that the flywheel is still turning just at a deeper layer of the model.

Financial Performance

Q3 FY25 Highlights

• Net sales: $614 million, up 19% YoY

• Comparable store sales: +3.3%, driven by mid-single-digit transaction growth

• Adjusted EPS: $0.75, up 29% YoY (beat expectations)

• Adjusted EBITDA: $73 million, up 22% YoY

• Gross margin: 41.3%, down just 10bps despite aggressive price investment

• Store growth: 32 new stores opened, ending the quarter with 645 stores (+18% YoY)

• Ollie’s Army members: 16.6 million, up 12% YoY

Full-year guidance was raised again, now calling for:

Sources: Ollie Bargain outlet Q3FY25 earnings release

Sales growth

Sales growth continued to run at an elevated level, with revenue up 18% year-over-year, driven primarily by the accelerated pace of new store openings. This is important. The growth is not dependent on unusually strong same-store sales or short-term promotions, but instead comes from adding productive square footage into proven markets.

New stores are opening into a highly favorable environment: abundant real estate, limited competition, and strong closeout availability. Management continues to note that these locations are performing at or above plan.

Record Store Growth: With Better Quality

Q3 marked another operational milestone:

• 86 stores opened year-to-date, all before Q4 (to capture the holiday flow)

• Over 85% of new stores are beating plan

• “Warm box” locations from Big Lots closures are outperforming the chain

Importantly, the company’s shift to soft openings is flattening the historical “reverse waterfall”:

• Year-2 comps at former 99 Cents Only locations are holding up far better

• This improves comp durability in years 3 and 4

Management also made it clear that this pace of expansion is not a one-off. The long-term plan is to maintain at least a 10% annual store growth rate, and visibility into next year is already unusually high. For FY26, management expects to open at least 75 new stores, with the majority of leases already signed, making this plan highly certain. Off a base of roughly 645 stores, this implies ~11.6% unit growth next year alone.

When combined with a reasonable 3% same-store sales growth, Ollie’s is effectively set up for ~15% top-line growth with a high degree of confidence. At first glance, paying ~30x earnings for a discount retailer can look expensive. However, for a business with clear unit economics, strong balance sheet, and visible mid-teens growth, that multiple is not obviously unreasonable especially when growth is driven by stores, not leverage or accounting.

Same store sales growth

Comparable store sales rose 3.3% quarter-over-quarter, exceeding guidance of 3%. This was driven by a mid-single-digit increase in transactions, building on Q2 trends, while average unit retail or selling price (AUR), which had previously declined in the high single digits, rebounded to a low single-digit increase by the end of the quarter.

Momentum returned in October as the weather improved, and they exited the quarter with strong trends that have continued into November. Seasonal products and key categories like food, hardware, stationery, and lawn & garden helped capture customer interest and drive repeat visits. Overall, they are confident in delivering guidance for the fourth quarter and the full year.

Ollie’s Army: The Real Moat Is Deepening

Customer acquisition was one of the strongest in company history:

• New memberships up 30% YoY

• Younger customers (18–34) were the fastest-growing cohort

• Higher-income households were also growing fastest

Members:

• Shop more frequently

• Spend 40% more per visit

• Are far more likely to stick

The company continues to refine Ollie’s Army Night, pulling start times earlier based on customer feedback and driving real traffic without sacrificing profitability.

This is how you build a loyalty moat without bloating SG&A.

Digital Marketing Is Quietly Transforming the Model

One of the most underappreciated developments this quarter was marketing efficiency.

By cutting non-responsive print postcards and reallocating spend to digital:

• Marketing became more targeted

• Costs came down

• October sales were the strongest month of the quarter

Balance Sheet: Still a Fortress

• $432 million in cash and investments

• No meaningful long-term debt

• $293 million remaining on share repurchase authorization

• Inventory up 16%, fully aligned with accelerated store growth and strong deal flow

As management reiterated, balance sheet strength remains a strategic asset especially in closeouts. The seller needed to know that they have the firepower to buy when they needed them.

Conclusion

Q3 was another excellent quarter even if the stock price didn’t act like it.

Ollie’s continues to demonstrate why scale matters in the closeout business. What once was a sourcing advantage is now becoming strategic control. As the company grows, management is no longer simply reacting to what shows up, they are actively shaping the mix, the brands, and the categories that define the Ollie’s value proposition.

As management put it:

“As we continue to grow, though, we’re seeing opportunities to leverage our size and scale to more overtly steer our category mix, whether that’s steering our closeout mix into new brands, new vendors, new categories, or emphasizing categories. We’re much more in the driver’s seat than we’ve been in the past.

Given the sheer amount of product that’s being presented to us on an ongoing basis, given our size and scale, the most challenging decisions we have to make is what not to buy, and that’s becoming more and more challenging as we continue to move forward.” Q3FY25

That last line says everything. When a closeout retailer’s biggest problem is deciding what not to buy, you are looking at a business operating from a position of strength. Ollie’s is scaling into an increasingly advantaged position, with better deals, better stores, better customers, and more control over its own destiny.

The model is working, the flywheel is intact, and the long-term compounding story remains firmly on track.

The stock is no longer cheap on near-term multiples, but the quality of execution continues to improve. I remain a confident long-term holder. If it is trading at lower than 25x forward P/E, i will consider to add further.

Disclaimer: I have a position in the company mentioned and receive no fees for writing this post. This is not investment advice. Invest at your own discretion.

It’s time for another earnings update for Ollie's Bargain Outlet (OLLI) for Q2FY25. (FYI": This will be the only stock i cover quarterly) In my last post, we discussed management’s plan to aggressively expand. In this quarter, we can start seeing the flywheel is spinning.

Disclosure: I have interest in this company. Click below to read the previous update.

The theme this quarter is acceleration. If Q1 was about executing the plan, Q2 was about spinning the wheel. Management is masterfully pressing its advantage in a disrupted market, using what CEO Eric van der Valk calls their "flywheel for growth": expanding the store footprint, acquiring displaced customers, and converting them into loyal Ollie's Army members.

This isn't growth for growth's sake; it's a calculated land grab while competitors retreat. Van der Valk's confidence on the call was palpable:

“With so many retailers closing stores or going bankrupt in the past year, there's an opportunity to gain market share through expanding our footprint, acquiring new customers, and turning these customers into loyal Ollie's Army members. This is our flywheel, our formula for growth and we are all over it.”

Ollie’s is seizing a unique moment to solidify its dominance. The combination of abundant real estate, a torrent of closeout deals, and a proven value proposition is creating a powerful, self-reinforcing cycle of growth.

Financial Performance

Q2 and Fiscal 2025 Performance:

• Net sales rocketed up 18% to $680 million, crushing expectations.

• Comparable store sales increased a stellar 5.0%, driven entirely by higher customer transactions.

• Gross margin expanded an impressive 200 basis points to 39.9%, thanks to lower supply chain costs and higher merchandise margins.

• Adjusted net income was 61million (0.99 per share), a 27% increase year-over-year.

• Store Growth hit a record pace, opening 29 stores in the quarter to end with 613, a 17% increase year-over-year.

• Full-Year Outlook was raised across the board for sales, comps, and earnings.

Sales growth

Net sales increased at its fastest pace in the past few years. This strong growth was driven by the company's accelerated pace of new store openings. Management noted that these new stores are performing above plan, with the "warm box" locations acquired from bankrupt rivals providing a particular lift.

Record-Paced Store Growth

The store expansion story is simply phenomenal. In the first six months of this year, Ollie's opened 54 new stores, more than four times the number from the same period last year and already surpassing any previous full-year record. This is a testament to the team's improved execution and the unique real estate opportunities available.

Reflecting this momentum, management raised its new store target for the year from an already aggressive number to an incredible 85 new stores. This acceleration is de-risked, profitable, and lays the groundwork for compounding growth in the years ahead.

Robust Comp Sales & Strong Deal Flow

A 5% comp is strong on its own, but the underlying trend is even more impressive. Sales accelerated throughout the quarter, with July being the strongest month. This momentum, combined with the tailwind from closing competitor stores, gives me confidence in their newly raised guidance.

The engine behind it all, the closeout pipeline, remains in overdrive. Management feels like a "broken record" because the story is unchanged: deal flow is exceptionally strong. The consolidation in the closeout market means fewer buyers are competing for deals, and Ollie's, as the largest and most reliable partner, is capturing that share. As the CEO noted:

“...there aren't as many buyers out there for closeouts. And so as the biggest buyer, we believe in the country for closeouts that market share of closeouts comes to us.”

Expanding Profitability

While SG&A saw some temporary pressure from higher-than-normal medical claims, the core profitability of the model is shining through. The ability to source better deals due to their increased scale, combined with operational efficiencies and lower shrink, is allowing them to expand margins while still delivering "Good Stuff Cheap."

Ollie's Army: A Strategic Masterstroke

While new stores drove the top-line, the most significant strategic development was the successful revamp of their "Ollie's Days" event. By making the promotion exclusive to Ollie's Army members and adding a members-only shopping night, they transformed a simple sales event into a powerful loyalty-building machine.

The results were, in management’s words, a "huge success" that "exceeded all expectations."

• It added approximately 100 basis points to the quarterly comp.

• It drove a nearly 60% increase in new member sign-ups during the event week.

• Crucially, it was accretive to both sales and earnings.

This is a brilliant, low-cost strategy to deepen the moat. They are rewarding their best customers, driving immense new member acquisition, and reinforcing the exclusivity and value of the loyalty program, which now boasts over 16 million members.

Balance Sheet

The balance sheet remains a "fortress," as management calls it. With total cash and investments growing to $460 million and no meaningful long-term debt, Ollie's has maximum flexibility. This financial strength is a strategic weapon, allowing them to aggressively pursue both real estate and inventory deals that smaller, weaker players simply cannot. The company also continues to opportunistically repurchase shares.

Conclusion

This was an absolute blowout quarter that validates every pillar of the investment thesis. Ollie's is not just growing; it is strategically accelerating into the space vacated by weaker retailers. The spectacular success of the revamped Ollie's Army event shows a management team that is making smart, shareholder-friendly decisions to widen its competitive moat.

The market has rewarded this performance, and the stock is no longer the bargain it once was. However, I remain a very confident long-term holder. Ollie’s is executing flawlessly, and the runway for compounding value on its march to 1,000+ stores looks clearer and more certain than ever.

Resources: https://stockstory.org/us/stocks/nasdaq/olli#research-report

Disclaimer: I have a position in the company mentioned and receive no fees for writing the post. I am not affiliated or have any role with the company. This post is just for educational purposes and it is not advice to buy or sell stocks. Invest at your own discretion.

It’s time for another earnings update for Ollie's Bargain Outlet (OLLI) for Q1FY25. (FYI": This will be the only stock i cover quarterly) In my last post, we discussed management’s plan to aggressively expand.

This quarter, we see that plan shift from ambition to action, and the results speak for themselves. Ollie’s continues to prove why its unique model is built to thrive in a chaotic retail environment.

Disclosure: I have interest in this company. Click below to read the previous update.

Let’s dive into the company results!

Big Picture

The theme this quarter is execution. Ollie’s is not just talking about growth; it’s delivering it at a record pace while its competitors falter. The company is masterfully turning widespread retail disruption into a powerful tailwind for both store expansion and inventory acquisition.

This acceleration is happening for a reason. The environment is ripe with opportunity, and Ollie’s is one of the few players with the operational flexibility and financial strength to seize it. Van der Valk highlighted this unique position:

“The significant number of retail store closures and supply chain disruptions have created a tremendous amount of access to inventory… This gives us ultimate flexibility when it comes to navigating a choppy environment, and puts us in a very strong position versus most retailers.”

Ollie’s is not just surviving the retail apocalypse; it’s feasting on the spoils. With a strong balance sheet and a proven model, they are solidifying their role as the go-to partner for vendors needing to move excess goods.

Financial Performance

Q1 and Fiscal 2025 Performance:

• Comparable store sales grew 2.6%, driven by a strong increase in customer transactions.

• Net sales increased 13% to $577 million, well ahead of expectations.

• Adjusted net income was $46.1 mil (0.75 per share), beating forecasts.

• Gross margin held flat at 41.1%, as lower supply chain costs were offset by merchandise mix.

• SG&A expenses rose as a percentage of sales, primarily due to higher medical claims and costs related to the accelerated new store growth.

• Ended the quarter with 584 stores, an increase of 13% year-over-year.

Sales growth

The acquisition of former Big Lots stores is proving to be a masterstroke. These "warm boxes" are outperforming, validating management's thesis that a built-in discount shopper base would lead to a faster ramp-up. As van der Valk noted:

“These stores are off to a very strong start. We appear to be benefiting from the fact that these are warm boxes with a built-in discount shopper customer base, which was our hypothesis going in.”

This successful integration has de-risked their accelerated growth plan and gives me confidence in their pipeline. In fact, management hinted at another "above algo year in '26 in terms of real estate," suggesting this pace may be the new normal for the medium term.

As CEO Eric van der Valk confirmed, the strategy is paying off immediately:

“We opened 25 new stores in the first quarter, a record for any period in our history… The team has done an excellent job prioritizing these openings in 2025, while advancing our pipeline for 2026 and beyond.”

Same Store Sales Growth

While the new stores are the headline, the performance of the existing base is equally impressive. The 2.6% comp growth is solid, but the underlying data is even more telling. Management quantified both the headwind and tailwind from the Big Lots closures:

• The Headwind: Liquidations at closing Big Lots stores created a minor drag of about 25 basis points on the total company comp during Q1.

• The Tailwind: More importantly, existing Ollie’s stores near a previously closed Big Lots are seeing a sustained low-to-mid-single-digit sales lift.

This confirms that Ollie’s is successfully capturing displaced customers and market share, a trend that should continue to benefit same-store sales for quarters to come.

Enhanced Loyalty: The Ollie’s Army Focus

Perhaps the most exciting strategic update is the doubling down on their loyalty program, "Ollie's Army," which already accounts for over 80% of sales. To further strengthen this moat, they announced two key enhancements:

1. A new exclusive shopping night in June for members, mirroring their highly successful December event.

2. The "Ollie's Days" promotion will now be exclusive to Ollie's Army members.

As van der Valk explained, this is about rewarding their best customers and making the program stickier:

“We are constantly looking for ways to better serve our Ollie's Army members… Members will now have 2 special nights each year to shop and save.”

This is a smart, low-cost way to drive loyalty and create a feeling of exclusivity that mass-market retailers can't replicate.

Profitability

Ollie’s gross margin remained strong at 41.1%, reaffirming its long-term target of 40%. The company’s discipline here remains a cornerstone of my thesis. They continue to use any excess margin to reinvest in lower prices for the customer, which drives traffic and deepens loyalty. This philosophy protects their value proposition and is exactly what I want to see from management.

Inventory & Deal Flow

The closeout pipeline is the engine of Ollie's, and right now, that engine is firing on all cylinders. The deal flow is so strong that management noted they’ve “had to hold our buyers back.” Crucially, this isn't just about more inventory; it’s about gaining access to strategic product lines previously locked up by a fragmented field of competitors.

Management highlighted that they are now seeing product pipelines from the exits of major players like Big Lots, but also from smaller, specialized chains. As the CEO pointed out, even the bankruptcy of a company like Bargain Hunt, which he noted had a "pretty meaningful pipeline of consumable goods" is freeing up valuable CPG inventory for Ollie's.

Gaining access to the supply chains of these fallen rivals is a significant, long-term advantage, ensuring a fresh and compelling 'treasure hunt' experience for shoppers.

Balance Sheet

The balance sheet is as pristine as ever, with $415 million in cash and investments and no meaningful long-term debt. This financial fortress gives them the firepower to remain opportunistic on both real estate and inventory deals, a critical advantage in the current environment. The company continues to buyback albeit at slower pace, it is still highly encourage.

Tariff

Tariffs are creating retail uncertainty, but Ollie’s remains well-positioned. Management has already baked the impact into their 40% full-year gross margin target. Direct imports from China now make up just ~10% of their mix (down from 15%), and their closeout model gives them unmatched flexibility, they buy only when deals make sense. If tariffs hurt one deal, they simply move on to the next. This agility helps protect margins and reinforces their “Good Stuff Cheap” value promise.

Conclusion

This was a fantastic quarter that demonstrated Ollie's ability to execute on an ambitious strategy. The renewed focus on enhancing the Ollie's Army loyalty program further widens their competitive moat. My bet on their dominance in the closeout space feels stronger than ever.

That said, the market has taken notice, and the stock's valuation reflects much of this good news. I remain a confident holder, believing Ollie's is well-positioned to compound value for years to come as they continue their march toward 1,000+ stores.

Resources: Ollie's (NASDAQ:OLLI) Surprises With Q1 Sales by stockstory

Disclaimer: I have position in the company mentioned and receive no fees for writing the post. I am not affiliated or have any role with the company. This post is just for educational purpose and it is not an advice to buy or sell the stocks. Invest at your own discretion.

This quarter’s 13F season came and went without much action. Most high-profile fund managers took a cautious approach—likely a reflection of stubborn valuations, election-year uncertainty, and general macro hesitation. But dig a little deeper, and a few moves stand out.

Note: These portfolio disclosures represent holdings as of the end of Q1 and may not reflect more recent adjustments. Fund managers can, and often do, alter positions after the reporting period. As such, 13F filings should be considered one input—not a complete picture—within a broader investment research process.

What follows is a curated selection of respected fund managers and other notable investors whose moves we believe are worth monitoring.

Pabrai’s No-Brainer Bet?

Mohnish Pabrai initiated a position in Valaris Plc as well as Noble corp, offshore drilling contractors. This is textbook Pabrai: a simple, misunderstood, high-upside situation where, as he says, you don’t need Excel—just common sense. He always like to invest in cyclical companies, believing that market sentiment often swings between excessive optimism and pessimism, creating opportunities for significant returns.

He made a similar call years ago with Frontline, a crude tanker business that played out handsomely. In a recent interview, he reiterated his preference for “no-brainer bets” that don’t require complex models, just patience and conviction. Highly recommend for anyone who wanted to learn about investing, i certainly do.

Bill Ackman big bet

Bill Ackman made a bold new bet on Uber, initiating a significant position that aligns with his knack for high-profile, transformative businesses. Meanwhile, he pivoted his Nike exposure, switching from shares to call options, a tactical move likely aimed at maintaining upside while reallocate the capital for his new conviction - Uber.

Other Quiet Signals

• Chuck Akre nibbled on Airbnb—a rare move from a usually concentrated investor.

• David Einhorn and Guy Spier both added to Core Natural Resources, signaling a commodity-cycle optimism. However, a word on Einhorn: while I respect his track record, his recent Peloton bet raises questions.

  He wrote an optimistic letter on Nov 2024 touting its potential, only to exit more than half the position after a single quarter. This quick flip suggests he may have been seeking exit liquidity rather than holding with conviction. I could be mistaken, but such a short holding period after public enthusiasm gives pause.

• Terry Smith added Texas Instruments, continuing his trend of buying durable compounders.

• Robert Vinall added to H World Group—still bullish on the China travel recovery.

• Norbert Lou reduced his Berkshire Hathaway stake significantly—likely a move to recycle gains. Surprisingly, he added significantly on PDD.

• Warren Buffett, as highlighted in his recent annual meeting, continues to sit on a massive $300 billion cash pile, patiently awaiting his “bet of a lifetime.” Berkshire Hathaway showed minimal activity this quarter, reflecting his disciplined restraint. Notably, Buffett’s surprise step-down as CEO shifts future capital allocation to Greg Abel, his successor. Still, I’m confident Buffett won’t fully “retire” and will occasionally offer his timeless insights.

• Chris Hohn (TCI Fund) further increased his stakes in Microsoft and Meta, reinforcing his high-conviction, concentrated approach. I recently discovered Chris Hohn through an insightful interview by In Good Company, and his disciplined investment philosophy resonates deeply with my own.

  This alignment has led me to track him more closely, replacing Seth Klarman, whose Baupost Group has become increasingly diversified, making its moves harder to follow with precision. Highly recommend for anyone who is interested to learn more about him.

Three Notable Adds Worth Watching:

• Dollar Tree – a defensive move amid macro pressure or value play?

• ASML – a rare candidate

• Intuit – an interesting bet by Terry Smith given his previous criticism on its valuation and misuse of share option scheme

A Quiet Q1, But Q2’s Wild Ride

Q1 was subdued, but Q2 proved pivotal. The U.S.-China tariff escalation drove the S&P 500 down over 20% from its peak, signaling turbulence. Historically, such dislocations spark bold repositioning, and the next 13F filings may reveal aggressive bets from managers with cash and conviction.

Yet, here’s the twist: if you’d slept through the past month, you’d wake thinking the market was dull and uneventful. What a rollercoaster we didn’t see coming!

That’s all for now. Until next time!

As always, a sincere thanks to Dataroma for their excellent work in compiling 13F filings. Their platform remains a valuable resource for tracking fund manager activities.

Disclaimer: I might have positions in the above posts and receive no fees for writing the post. I am not affiliated or have any role with the company. Opinion is my own and this post is just for educational purpose. It is not an advice to buy or sell the stocks. Invest at your own discretion.