On Monday, BofA Securities updated its outlook on Ollie's Bargain Outlet (NASDAQ:OLLI), increasing the price target to $115 from the previous $102, while maintaining a Buy rating on the stock. The adjustment follows news of Big Lots (NYSE:BIG)' bankruptcy and its decision to shut down numerous stores, which is seen to benefit Ollie's market share.
Big Lots has recently announced its intention to close 296 stores by the end of October, with 100 of these stores located in the same trade areas as an Ollie's store. An additional 250 stores are slated for closure by the end of January 2025, with 50 locations already identified. This consolidation is anticipated to drive customer traffic towards Ollie's as shoppers seek alternative retail options.
According to A&G Real Estate Partners, the company handling lease negotiations for Big Lots, the number of store closures could further increase as the retailer continues to evaluate its real estate portfolio. This strategy may lead to more closures to meet the company's objectives. Currently, Big Lots operates over 1,300 stores.
Ollie's Bargain Outlet, which operates 530 locations, is positioned to capture a significant share of Big Lots' displaced customers. Notably, 415 of Ollie's stores, making up 78% of its total locations, have at least one Big Lots store within a 5-mile radius. This proximity suggests that Ollie's could become a preferred shopping destination for consumers affected by the Big Lots store closures.
In other recent news, Ollie's Bargain Outlet Holdings Inc. experienced a robust second fiscal quarter in 2024, with net sales surging by 12% to $578 million and a 5.8% increase in comparable store sales.
These strong results led the company to raise its sales and earnings guidance for the year. Amidst this, Loop Capital reaffirmed its Buy rating on Ollie's stock, maintaining a steady $110.00 price target. KeyBanc Capital Markets also expressed confidence, raising the stock's price target to $105 while sustaining an Overweight rating.
The potential bankruptcy of competitor Big Lots has been identified as a significant opportunity for Ollie's, with the possibility of increased sales, closeouts, and new store openings. Loop Capital and Piper Sandler both highlighted this development as a unique opportunity for Ollie's to enhance its market presence.
Despite management's projection of flat comparable store sales for the third fiscal quarter of 2024, Loop Capital suggests that this forecast may be conservative. This analysis reflects the firm's belief in Ollie's ability to deliver consistent sales growth and its resilience in a competitive retail environment.
InvestingPro Insights
The recent developments in the discount retail sector, particularly Big Lots' bankruptcy and store closures, align well with Ollie's Bargain Outlet's (NASDAQ:OLLI) current financial position and market outlook. According to InvestingPro data, Ollie's boasts a market capitalization of $5.95 billion and has demonstrated strong revenue growth of 14.15% over the last twelve months. This growth trajectory is likely to be further bolstered by the potential influx of customers from closing Big Lots stores.
InvestingPro Tips highlight that Ollie's is trading at a low P/E ratio relative to its near-term earnings growth, with a PEG ratio of 0.8. This suggests that the stock may be undervalued considering its growth prospects, which could be amplified by the market share gains from Big Lots' exit. Additionally, the company's strong financial health is underscored by another InvestingPro Tip indicating that Ollie's liquid assets exceed its short-term obligations, positioning it well to capitalize on expansion opportunities.
For investors seeking a deeper understanding of Ollie's potential in this changing retail landscape, InvestingPro offers 7 additional tips that could provide valuable insights into the company's future performance and market position.
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