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Where’s Ollie’s Bargain Outlet Stock Headed Now?

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Dec. 6 2018, Updated 12:35 p.m. ET

Stock up 63.1% YTD

Ollie’s Bargain Outlet Holdings (OLLI) announced strong third-quarter results on December 4 after market hours. Despite better-than-expected results, the stock fell 5.5% in aftermarket trading that day. However, on a YTD basis, Ollie’s stock was up 63.1% as of December 4.

Meanwhile, Dollar General (DG) and Five Below (FIVE) were up 11.9% and 57.7%, respectively, YTD, as of December 4. However, Dollar Tree (DLTR) stock is down 19.6% YTD.

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Can the stock sustain its momentum?

Ollie’s Bargain Outlet’s third-quarter adjusted EPS rose 45.4%, and sales grew 19.1% on a YoY basis. Lower tax and top-line growth cushioned bottom-line numbers for this bargain retailer. Store openings, deals, and strong comps led to continued top-line growth.

Ollie’s Bargain Outlet’s low pricing is its biggest strength. It remains focused on getting good bargains from vendors and offering bargain deals to its buyers.

Ollie’s Bargain Outlet is working to expand its store footprint. The company estimates a total of 37 new stores, which includes one relocated store and two store shutdowns for fiscal 2018.

It considers the new store growth model as favorable for sales growth and generating higher cash flows. The company seeks low-value second-generation real estate for store sites. There is no scarcity in second-generation real estate availability due to the ongoing disruption in the retail sector.

Ollie’s has raised its fiscal 2018 guidance. For fiscal 2018, sales are now anticipated to be in the band of $1.226 billion to $1.231 billion as against the earlier guided range of $1.222 billion to $1.227 billion.

However, the company recently spent $42 million to acquire 12 former Toys “R” Us locations, which significantly depleted its cash reserves. As of November 4, 2018, cash and cash equivalents were $0.7 million. The company has also started working on a distribution center in Lancaster, expected to be operational by 2020. The distribution center will have the capacity to serve about 150 to 200 stores.

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