Investing.com -- Wells Fargo downgraded Ollie's Bargain Outlet Holdings, Inc. (NASDAQ:OLLI) to "equal weight," noting that the retailer may face a trickier environment as the favourable conditions that fuelled its recent growth begin to normalise.

“The best time to own OLLI may have passed,” analyst wrote

The closeout retailer thrived during a historic inventory glut in 2022, capitalizing on a surge in value-focused consumer demand. However, Wells Fargo (NYSE:WFC) said this cycle appears to be winding down, leaving Ollie’s to navigate tighter retail inventories, limited margin expansion, and uncertainty around cost leverage.

“Looking into 2025, tight retail inventories may lead to a less robust closeout buying backdrop, while gross margin upside seems limited with Ollie at its target. Cost leverage is also a question given Ollie’s record of tight expense control.”

While recent liquidations by competitor Big Lots (NYSE:BIG) provide opportunities for market share gains and real estate acquisitions, Wells Fargo warned that the upside from this catalyst may already be priced into the stock. Additionally, concerns over the scalability of Ollie’s business model and questions about its long-term growth trajectory persist.

The brokerage lowered its price target to $95, reflecting balanced risk-reward potential as the retailer contends with more challenging conditions ahead.

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