Jefferies has upgraded Ollie's Bargain Outlet to a 'buy' rating, highlighting its scalable business model in buying excess inventory and setting a price target that indicates a potential 42% surge.
Upgrade Details
- Jefferies raised its rating on Ollie's Bargain Outlet (OLLI) from 'hold' to 'buy' on Thursday.
- The price target was increased to $130 from $120, implying approximately 42% upside.
- Shares of OLLI rose more than 3% in after-hours trading following the announcement.
Competitive Advantage
- Ollie's has a unique moat in purchasing cheap excess inventory at scale.
- The company operates 645 stores, significantly more than its next closest competitor with 159 stores.
- It has twice as many distribution centers as competitors, enhancing its national reach.
Growth Prospects
- Management sees an opportunity to expand to 1,300 stores from the current base.
- The deliberate soft opening strategy for new stores smooths ramp-ups and could unlock comparable sales upside.
- Unit growth is positioned to improve as store cohorts mature.
Industry Context
- According to analyst Randal Konik, the closeout industry is shifting from a tactical outlet to a structural channel due to big-box rationalization.
- Retail stress increases the flow of clearance goods, but Ollie's no longer relies on such stress for product sourcing.
- The firm's scale is critical in the current environment where vendor pricing power is reduced.