Boyan 89
we have traded Orly Discount Stores Holdings (Nasdaq: Ollie) bought the stock several times over the past few years, but haven’t revisited the stock in the months since our last buy trade Last March. We made a solid gain of nearly 50% on that buy, but now we think it’s time to take some profits. We would not rate the stock a Sell, but a Hold at these levels. A good approach is to sell your initial investment plus a 20% profit and let the gains run. Turning this into a long-term investment is something we encourage in our service. That said, we hold this view because we believe that if there is a small recession eventually, discounter type stores like this will benefit as consumers cut prices. Ollie’s had mixed operating results depending on its merchandise acquisitions Policy and how it is passed on to consumers. It’s volatile, with some quarters being very strong and others weak. Management is focused on expanding the business, opening new stores and attracting new customers. The company has been dealing with supply chain issues, labor shortages and rising shipping costs, among other issues. In addition, high inflation has been affecting the company’s ability to buy heavily discounted goods at good prices and sell them to customers. Despite competing against big box stores and low-end dollar stores with overstocked items, Orly’s discounted pricing worked, and the company grew its market share.
We strongly recommend waiting for a pullback as the share price needs a breather. Frankly, we think the $60 stock is more attractive, if not the $50, so after this run, it’s a bit overvalued relative to the growth being offered. Growth in revenue and solid earnings performance. The just-reported second-quarter results were mixed, but solid relative to consensus. The company’s sales and earnings rose from a year ago, and while that was expected, it was stronger than expected, but the outlook was murky. Let’s discuss it.
Ollie’s Bargain Outlet Holdings Q2 Results
In the second quarter, OLLI’s net income tripled from a year ago to $42.2 million from $14.1 million. Adjusted diluted net income per diluted share rose to $0.67, beating consensus estimates by $0.06 and up from $0.22 last year. EBITDA rose 146% to $64 million and margin expanded 670 basis points to 12.4%.
The earnings growth was helped by strong sales figures. Second-quarter sales of $514.5 million beat consensus estimates by $15 million. Net sales rose 13.7% year-over-year. Of course, the one number we’re most concerned about is comparable sales. Comparable sales increased 7.9% from the prior year and 1.2% year-over-year. This is a very healthy growth.
front view
The company is in a strong position, which is why we want to own the stock, but it would be foolish not to book some profits for the next opportunity. However, we would like investors to take positions based on operating performance and expected trends. The CEO acknowledged this advantage and stated:
We’re very pleased with the current trends and momentum in our business. With over 40 years of clearance buying experience and growing industry relationships, we’ve seen a very strong deal flow and a clear response from our customers. Same-store sales rose 7.9% in the second quarter, with nearly 70% of product categories contributing to the growth. In addition to strong deal flow, changes to our marketing programs and investments in our people and supply chain are driving better execution and a more exciting shopping experience for our customers. Given the better-than-expected second quarter results and continued momentum in the business, we are raising our full-year guidance and remain confident in our long-term algorithm of returning to double-digit sales growth and 40% gross margin. , and double-digit EBITDA growth
Yes, it was a big jump, with operating income rising from $211 to $216 million and EPS from $2.61 to $2.70. Still, despite this welcome news, valuations are a bit stretched, but the balance sheet is strong.
Ollie’s Bargain Outlet Holdings’ Balance Sheet
There is no question that the company has a healthy balance sheet. OLLI’s cash and cash equivalents balance was $310 million at the end of the second quarter, up from $218 million at the end of the second quarter of 2022. At the end of the year, there were no outstanding borrowings under OLLI’s $100 million revolving credit facility, and funds available under that facility were $91.6 million for the quarter. OLLI’s total borrowings (including finance lease obligations only) at the end of the period were $1.7 million. That hardly counts as any debt. The company also spent $26 million in capital expenditures and spent $16.7 million in cash repurchasing shares.
Ollie’s Bargain Outlet Holdings Stock Valuation
Currently, growth has resumed, but we believe that the rate of growth will normalize and slow down again. The value here doesn’t justify future growth from here. OLLI does buy back stock, but it doesn’t pay a dividend. This is still a slight negative. Despite the strong outlook for the year, we currently trade at a slightly lower multiple of 28 times forward earnings estimates. That’s expensive relative to many niche retailers. We think this valuation is too expensive. Our last buy was at a higher FWD multiple. Our initial EPS forecast for 2024 is around 3.00, or around 10% growth. A bit expensive for 28 times 2023 EPS, but still priced at 25 times 2024 EPS estimates. While the company is doing well, we think a lot of that is already priced in. Get some profit.
final thoughts
It’s a great stock to trade and we’ve had strong gains for several months. We think it’s a smart move to run a company here. Overvalued, we think the share price needs to take a breather.
