Ollie's Sees Up to 17% Stock Jump as Shoppers Seek Discounts

Key Takeaway

• Ollie's Bargain Outlet (OLLI) benefits from consumer trade-down amid economic pressures, with analysts projecting up to 17% stock upside.
• Analysts highlight Ollie's resilience in past slowdowns and current tailwinds from direct manufacturer purchases and retail sector challenges.
• FirstCash also seen as a beneficiary of the trend towards value, with a potential 19% jump in shares as consumers seek pawn services.

Consumer Caution Shapes Market

Recent earnings reports from major consumer-facing companies like Starbucks, McDonald’s, and Amazon have highlighted a growing concern over consumer spending amidst persistent inflation and rising interest rates. These companies, which serve as bellwethers for consumer demand, have reported downturns in demand, signaling a potential shift in consumer behavior. Starbucks, for instance, reported its first quarterly sales decline since 2020, while McDonald’s US comparable-sales growth fell short of expectations. Amazon’s e-commerce business also saw weaker-than-expected sales, further evidencing the trend of consumers trading down to save money.

Ollie’s Bargain Outlet: A Bright Spot

In contrast to the broader consumer market's challenges, Ollie’s Bargain Outlet emerges as a beneficiary of the current economic environment. With consumers increasingly looking to stretch their dollars further, Ollie’s, known for its closeout inventory and significantly lower price points compared to giants like Amazon and Walmart, is well-positioned to attract cost-conscious shoppers. Analysts from Bank of America and Loop Capital have highlighted Ollie’s value proposition, with BofA reinstating coverage of the stock at a buy rating and a price target suggesting significant upside. The company’s past performance during economic downturns, such as the Global Financial Crisis where same-store sales climbed 7.9% in 2009, bolsters the case for Ollie’s resilience amidst current market conditions.

Retail Earnings in Focus

The upcoming earnings reports from Walmart and Target are now in the spotlight, serving as critical indicators of consumer spending trends. With retail shares lagging behind the broader market in 2024, and companies becoming increasingly cautious about future growth prospects, these reports are awaited with bated breath by investors and analysts alike. The performance of these retail giants is seen as a proxy for consumer strength, potentially swaying expectations for economic growth. Analysts tracked by Bloomberg expect Walmart to report the slowest sales growth in three years, underscoring the high stakes for retail earnings in shaping investor sentiment.

Street Views

• Anthony Chukumba, Loop Capital (Bullish on Ollie’s Bargain Outlet):

  "You still have this consumer who is wary. That all really kind of plays right into Ollie’s hands."

• Melanie Nuñez, Bank of America (Bullish on Ollie’s Bargain Outlet):

  "We think that Ollie’s is positioned well to benefit from trade-down and expect resilience from its core consumers looking to stretch their dollar."

• Scot Ciccarelli, Truist (Bullish on Ollie’s Bargain Outlet):

  "In addition to liking the 'increasingly powerful' focus on value, Ciccarelli said Ollie's is also in the process of 'reverting back' to what has been the company's steady growth."