Ollie's Bargain Outlet (OLLI) might be one of the best-performing names in brick and mortar. That's right, the discount retailer of basically anything they can get their hands on is putting up some of the best numbers I've seen so far for 2019. Unfortunately, the stock's valuation makes me think it's a little late to chase it.
Ollie's reported net sales growth of 17.8% year over year in the first quarter. That brings their Q1 net sales revenue to $324.9 million. Breaking these sales down, the growth came from comparable-store growth of 0.8% and a 17.4% in the number of stores open. It's worth noting that the comp-store sales growth was slower than last year's 1.9%, and below some analyst expectations, but retail is not quite as strong right now.
The retailer increased its operating income by 13.3% to $40.8 million. Adjusted operating income increased 11.8%. Note that adjusted operating margins decreased to 11.8% of sales compared to 13.1% in 2018 thanks to pre-opening expenses.
Net income was strong on both an adjusted and non-adjusted basis. Ollie's reported GAAP net income of $38.7 million, marking a 27.1% increase. That income breaks down to $0.59 per diluted share compared to $0.46 per diluted share in 2018. On an adjusted basis, that doesn't include things like tax benefits -- the company had net income growth of 13.5%. That brings adjusted net income to $30.2 million. Adjusted income would break down to $0.46 per diluted share vs. $0.41 per diluted share in Q1 2018.
The stock was up in after hours trading Thursday night in response to the good earnings news. These figures beat out many estimates, and prove that the discount retailer continues to excel in a retail environment that is causing headaches for many other brick and mortar style establishments. Ollie's has a 5 year trend of double digit annual sales growth. On top of that, the retailer has experienced exceptional earnings growth rates through that time frame. 2018 marked a stall on the earnings front, but the first quarter results indicate that Ollie's still has something left in the tank.
For the full year 2019, Ollie's anticipates net sales of $1.44 billion to $1.45 billion. That would mark an increase over last year's $1.24 billion. It would be slightly slower than the growth put together in 2017, but it still exceeds many forecasts for other retailers.
Ollie's is forecasting comparable-store sales growth of 1% to 2%. That's slower than last year's full-year comp growth of 4.2%, but it's still not bad. The company plans to open a total of 42 to 44 new stores within 2019, and these should provide a continued boost to total sales. On an adjusted basis, Ollie's is forecasting earnings of $2.13 to $2.17 per diluted share for the year.
Ollie's is trading at roughly 43x the company's full-year adjusted earnings guidance. Therein lies the rub. Granted these adjusted earnings don't take into account tax benefits and other items that Ollie's recorded in the first quarter, but it's still quite a premium for a retailer.
I've noticed a bit of irony in the fact that a lot of discount retail names command quite a premium for their stock. Considering their success when others are suffering, it's partially justified. Still, the premium really takes a lot of the attraction out of this one.
Ollie's Bargain Outlet exceeded its own guidance last year, and it could very easily happen again. Nonetheless, the stock feels a bit expensive given the current volatility within the market. Were we to see a correction, these shares might become more attractive. Discount retailers certainly carry a bit more protection against recessions, but OLLI is pretty pricey. I'd rate OLLI a "hold" at this time.