Discount retail company Ollie’s Bargain Outlet (NASDAQ:OLLI) reported Q2 FY2023 results exceeding Wall Street analysts' expectations, with revenue up 13.7% year on year to $514.5 million. Turning to EPS, Ollie's made a non-GAAP profit of $0.67 per share, improving from its profit of $0.22 per share in the same quarter last year.

Is now the time to buy Ollie's? Find out by accessing our full research report, it's free.

“We feel very good about the current trends and momentum of our business. With over 40 years of closeout buying experience and growing relationships across the industry, we are seeing very strong deal flow, and our customers are clearly responding. In the second quarter, comparable store sales increased 7.9%, with nearly 70% of our product categories contributing to the increase. On top of the strong deal flow, changes to our marketing program and investments in our people and supply chain are driving better execution and an even more exciting shopping experience for our customers. This is raising productivity levels across the organization, which contributed to the more than doubling of our adjusted EBITDA margin in the second quarter to 12.4% of sales,” said John Swygert, President and Chief Executive Officer.

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.

Broadline 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, 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

Ollie's is a small retailer, which sometimes brings disadvantages compared to larger competitors that benefit from economies of scale.

As you can see below, the company's annualized revenue growth rate of 9.79% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was decent as it opened new stores and grew sales at existing, established stores.

This quarter, Ollie's reported robust year-on-year revenue growth of 13.7% and its revenue of $514.5 million exceeded analysts' expectations by 3.1%. Looking ahead, the analysts covering the company expect sales to grow 11.8% over the next 12 months.

While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Number of Stores

A retailer's store count often determines on how much revenue it can generate.

When a retailer like Ollie's is opening new stores, it usually means that demand is greater than supply, and in turn, it's investing for growth. Since last year, Ollie's store count increased by 43 locations, or 9.58%, to 492 total retail locations in the most recently reported quarter.

Over the last two years, the company has opened new stores rapidly, averaging 9.76% annual growth in its physical footprint. This store growth is among the fastest in the consumer retail sector. With an expanding store base and demand, revenue growth can come from multiple vectors: sales from new stores, sales from e-commerce, or increased foot traffic and higher sales per customer at existing stores.

Same-Store Sales

Same-store sales growth is an important metric that tracks demand for a retailer's established brick-and-mortar stores and e-commerce platform.

Ollie's demand within its existing stores has generally risen over the last two years but lagged behind the broader consumer retail sector. On average, the company's same-store sales have grown by 3.4% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, Ollie's is reaching more customers and growing sales.

In the latest quarter, Ollie's same-store sales rose 7.9% year on year. This growth was an acceleration from the 1.2% year-on-year increase it posted 12 months ago, which is always an encouraging sign.

Key Takeaways from Ollie's Q2 Results

Sporting a market capitalization of $4.63 billion, Ollie's is among smaller companies, but its more than $310.2 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

It was good to see Ollie's beat analysts' revenue and EPS expectations this quarter. The company also broadly raised its full year outlook for sales, profits, and EPS again after raising the outlook less than three months ago when reporting the previous quarter. Management sounds bullish, saying "We feel very good about the current trends and momentum of our business." The stock is up 2.2% after reporting and currently trades at $76.49 per share.

So should you invest in Ollie's right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned in this report.