Olli - "Spinning the wheel"

An earning update on Ollie Bargain Outlet Q2FY25

Dear readers,

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.