Discount retail company Ollie’s Bargain Outlet (NASDAQ:OLLI) fell short of the market’s revenue expectations in Q4 CY2024 as sales rose 2.8% year on year to $667.1 million. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $2.58 billion at the midpoint. Its non-GAAP profit of $1.19 per share was in line with analysts’ consensus estimates.

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“We were very pleased with our financial results and the underlying trends in our business. At a time when consumers need it most, we are delivering unprecedented value through an ever-changing assortment that combines quality, national brands, and pricing in a way that can only be found at Ollie’s,” said Eric van der Valk, President and Chief Executive Officer.

Company Overview

Often located in suburban or semi-rural shopping centers, Ollie’s Bargain Outlet (NASDAQ:OLLI) is a discount retailer that acquires excess inventory then sells at meaningful discounts.

Discount Retailer

Discount retailers understand that many shoppers love a good deal, and they focus on providing excellent value to shoppers by selling general merchandise at major discounts. They can do this because of unique purchasing, procurement, and pricing strategies that involve scouring the market for trendy goods or buying excess inventory from manufacturers and other retailers. They then turn around and sell these snacks, paper towels, toys, clothes, and myriad other products at highly enticing prices. Despite the unique draw and lure of discounts, these discount retailers must also contend with the secular headwinds of online shopping and challenged retail foot traffic in places like suburban strip malls.

Sales Growth

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $2.27 billion in revenue over the past 12 months, Ollie's is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers. On the bright side, it can grow faster because it has more white space to build new stores.

As you can see below, Ollie's grew its sales at a decent 10% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts) as it opened new stores and increased sales at existing, established locations.

This quarter, Ollie’s revenue grew by 2.8% year on year to $667.1 million, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 13.6% over the next 12 months, an acceleration versus the last five years. This projection is eye-popping and indicates its newer products will spur better top-line performance.

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Store Performance

Number of Stores

A retailer’s store count influences how much it can sell and how quickly revenue can grow.

Ollie's sported 559 locations in the latest quarter. Over the last two years, it has opened new stores at a rapid clip by averaging 8.6% annual growth, among the fastest in the consumer retail sector. This gives it a chance to scale into a mid-sized business over time.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales is an industry measure of whether revenue is growing at those existing stores and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Ollie’s demand has been spectacular for a retailer over the last two years. On average, the company has increased its same-store sales by an impressive 4.3% per year. This performance suggests its rollout of new stores is beneficial for shareholders. We like this backdrop because it gives Ollie's multiple ways to win: revenue growth can come from new stores, e-commerce, or increased foot traffic and higher sales per customer at existing locations.

In the latest quarter, Ollie’s same-store sales rose 2.8% year on year. This growth was a deceleration from its historical levels, showing the business is still performing well but losing a bit of steam.

Key Takeaways from Ollie’s Q4 Results

It was encouraging to see Ollie's beat analysts’ gross margin expectations this quarter. On the other hand, its full-year EPS guidance missed and its revenue fell slightly short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 2.9% to $96.21 immediately following the results.

So should you invest in Ollie's right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.