Shares of Ollie’s Bargain Outlet (NASDAQ: OLLI) are heading higher following the Q1 release and will likely continue rallying this year because of its market-leading growth. The company is a growing opportunity in off-price retail, outpacing the industry trend. The latest report includes outperformance, increased guidance, and an improved long-term target that suggests the rally may go on for years. 

The stock is not cheap, trading at 25X this year’s guidance, but the valuation is warranted given the growth outlook. Analysts already forecasting significant growth in 2025 are now underestimating the business. The company announced the purchase of eleven new stores in Texas, further cementing its foothold in that market. Industry trends led management to increase the long-term store count target by 25%, lifting the long-term outlook for the stock price.

Among the takeaways from the report are the company’s growing influence. In the words of CEO John Swygert, the company has become meaningful to its vendor partners, improving the deal flow and opportunities, as seen in the margin. 

Ollie’s Bargain Outlet is a Growing and Gaining Share

Ollie’s strong quarter is highlighted by a 3% comp store growth and an 8.4% increase in the store count. The 3% growth aligns with industry trends and is compounded by accelerated store count growth. The company reported $508.8 million in net revenue for a gain of 10.8% compared to last year, outpacing off-price leaders like The TJX Companies (NYSE: TJX) by more than 400 basis points. 

The growth and improved market position led to a significant increase in margin. Gross margin widened 220 basis points on supply chain costs and merchandise margin and was compounded by improved SG&A. SG&A increased by 9.3% to lag the top-line growth as scale provided leverage and aided a 270 basis point improvement in generally accepted accounting principles (GAAP) and a 280 basis point improvement in the adjusted operating margin. The net result is a 50% increase in GAAP and adjusted earnings, with margin strength expected to continue in Q2 and the remainder of the year. 

Guidance is moving the market. The company raised its guidance for the year to above the analysts' consensus and may be cautious. The addition of new stores, improving relevancy in the marketplace, and market share gains set it up to outperform 

Ollie’s is a Cash Flow Machine 

Ollie’s cash flow was negative in the quarter due to investments and financing activities, but that is the worst that can be said for this business. Operations over the last quarter increased the company’s cash position by 23% while keeping it debt-free and unencumbered. The total liabilities are less than 0.35X the assets and 0.5X the equity, leaving it in a nimble condition to continue investing in growth. As it is, the company is self-funding the latest acquisitions, which are expected to close by summer. 

The analysts have yet to issue revisions based on the updated guidance but are unlikely to alter the trend. The revision trend has raised the sentiment to Moderate Buy from Hold since the Q4 2023 report was released, and the price target is up 40% in the last twelve months. The consensus assumes fair value near current levels, but the latest targets are leading the market to the high end of the analysts' range. A move to the high-end target of $104 is worth 20% to investors. 

Ollie’s Bargain Outlet Advances and Confirms a Reversal

Ollie’s Bargain Outlet is up nearly 10% following the release and is likely to increase. The price action confirms support at a critical level and breaks to a new high to align with a market reversal. In this scenario, shares of Ollie’s could advance to $100 within a few weeks and exceed $110 by the end of the year.