Physical retailing has become a dicey business given the continuing growth of e-commerce, but a select few chains are still attracting sound investor interest. Ollie's Bargain Outlet ( OLLI -2.26% ) certainly has its share of proponents: Shares have appreciated nearly 350% since the company's July 2015 IPO.
However, Ollie's stock is perhaps too dear at the moment, as it trades at the premium price of 37 times forward one-year earnings. Below, I've picked three impressive numbers from the eclectic discount chain's fiscal first-quarter 2019 results that provide at least some rationale for the rather elevated market price of its shares.
1. 18% year-over-year revenue growth
Ollie's first-quarter revenue expanded by 17.8% year over year -- a torrid pace for a store-based retailer. Comparable-store sales rose 0.8%, marking the company's 20th consecutive quarter of positive comps. The sales improvement was paced by the opening of 21 stores during the period. Ollie's ended the quarter with 324 stores -- a 17.4% jump in store count versus the prior-year period.
That Ollie's can continue to open new stores at a rapid pace while many other retail chains are shrinking speaks to the company's attractive discount value proposition. We'll return to the theme of store openings below.
2. A 17% gross profit increase
Ollie's dedicated team of buyers has recently chosen well among closeouts, liquidated inventory, overstocks, and the like, which find their way to the company's shelves. Gross profit rose 17.6% against the prior year in the first quarter to $132.7 million. The company's gross margin, however, remained unchanged at 40.9%. Not only did margins on purchased merchandise hold steady, but the organization also managed to keep supply chain costs flat versus the first quarter of 2018. Controlling cost of sales helped Ollie's to leverage its top-line improvement over the last three months.
While part of the higher gross profit contribution was offset by rising selling, general, and administrative expenses, as well as higher store pre-opening costs, Ollie's still improved operating income by nearly 14% over the comparable quarter, to $40.8 million.
3. 43 new store openings (with a twist)
Ollie's first-quarter report presents the company's full-year fiscal 2019 outlook, which among other benchmarks, anticipates the opening of 42 to 44 stores this year -- we'll split the difference at 43. Because Ollie's opened 21 stores during the first quarter, meeting or surpassing the total 2019 goal shouldn't be difficult.
It's notable that Ollie's will end this fiscal year with an expansion of 14% over its year-end 2018 store base of 303 units. But more impressive is that the 43-store target is given on a gross basis.
Usually, when retail companies present location expansion targets, they do so on a net basis, meaning that the projected tally of openings accounts for relocated and shuttered units. That Ollie's doesn't anticipate any relocations or closures within its portfolio is atypical, and it implies that the company really has a shrewd grasp of real estate development. Investors can infer that the chain is finding locations at affordable lease rates that fit desired profitability parameters, while avoiding the over-cannibalization of existing locations.
Other metrics point to above-average store-level success. Between 2013 and 2017, Ollie's newly opened stores, typically between 25,000 and 35,000 square feet, averaged $4.2 million in sales in their first full operating year. This figure is more than four times the average $1 million in cash invested in each new store. As you might surmise, it saw a fairly quick return on its investment for this cohort: The stores' average investment payback period was just two years.
Ollie's also exhibits an opportunistic streak in its real estate program. On May 31, roughly four weeks after the end of the quarter, the company conducted a sale-leaseback transaction on 12 stores it had acquired from bankrupt retailer Toys R Us last year. Ollie's sold the locations for $42 million, and is now leasing each one back from the buyer and operating them as Ollie's stores.
It shouldn't come as a surprise that management intends to invest the proceeds from the sale-leaseback deal into its third distribution center. This facility, slated to come on line in 2020, will bring the company's total distribution capacity to 500 stores, a significant step toward achieving Ollie's eventual goal of tripling its store base to 950 stores.