Olli – “Winning hearts and minds”
An earning update on Ollie Bargain Outlet Q3FY25
An earnings update on Ollie’s Bargain Outlet Q3 FY25
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.