Dive Brief:
- Net sales at Ollie’s Bargain Outlet rose nearly 13% in Q1 to $459 million, the retailer said in a Wednesday earnings announcement. Comparable store sales for the quarter also rose 4.5%, up from a prior year decline of about 17%.
- Ollie’s said its first-quarter operating income rose nearly 125% to $38.5 million from $17 million, while gross profit increased 26% to $178.6 million. Inventory decreased 3.7% to $498 million, down from $517 million a year ago.
- As Ollie’s store footprint approaches 500, with 45 new stores planned to open this year, CEO John Swygert said the retailer might add more direct sourcing to supplement its core closeout merchandising model. While there are no current issues with closeout merchandise sourcing, “we will make the appropriate adjustment” to more direct sourcing if necessary, Swygert said.
Dive Insight:
Swygert said the company’s preference “is the more closeouts, the better for Ollie’s.”
But as the company pushes toward its long-term goal of opening 1,000 stores, Swygert acknowledged that keeping its merchandise mix closeout heavy might become a challenge since “as we get to a certain size, we do realize that there becomes some issues with continuity of categories to where we may need to augment them a little bit.” Currently, Swygert said the company’s offering is about 65% to 70% closeout merchandise.
Ollie’s on Wednesday raised its full-year sales and earnings outlook on its strong Q1 performance. The company now forecasts net sales will range from about $2.05 billion to $2.07 billion, up from $2.04 billion to $2.06 billion. Comp store sales are expected to rise, ranging from 2% to 2.8%, up from 1% to 2%. Ollie’s adjusted net income for the year is now forecast to reach $160 million to $165 million, up from $156 million to $163 million.
During Q1, Ollie’s says $19 million in capital expenditures supported new store development, remodeling of existing stores, the expansion of a Pennsylvania distribution center, and the development of a new distribution center in Illinois. Ollie’s opened nine new stores and closed one in the first quarter, giving the company 476 stores as of April 29.
UBS analysts led by Mark Carden characterized Ollie’s Q1 as “a solid set of results.”
“Notably, [Ollie’s] saw accelerating transaction trends as customers responded favorably to its deals in a challenging macro,” the UBS analysts said in a note. “It also benefitted from trade in from both higher income and younger shoppers.
Although Ollie’s positions itself as an extreme value discount retailer that specializes in closeout merchandise, the company is attracting higher-income customers as all shoppers continue to seek deals in the current inflationary environment.
Erik van der Valk, executive vice president and chief operating officer, said the company’s most substantial growth from an income standpoint is customers who make $100,000 to $150,000. “And we're seeing that there's a tendency towards lower net worth customers with higher income as well,” van der Valk said in response to an analyst’s question during the earnings call. “So maybe that's indicative of dwindling savings and more trade down from that customer group.”
“The company maintained its gross margin outlook, with mix slightly worse, freight coming in better, [initial markup] robust but trending in line, and shrink a pressure but not more than expected,” Wells Fargo analysts led by Edward Kelly said in a note. Their takeaway: “[Ollie’s] appears to be having its time in the sun as others struggle. A robust close-out offering and trade down are finally driving improved performance.”
