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Why Ollie's Bargain Outlet Stock Went Up 25% Last Year

By Jon Quast - Jan 4, 2021 at 10:36AM

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With new leadership and beneficial positioning during the pandemic, the company saw record profits in 2020.

What happened

Shares of discount retail-chain Ollie's Bargain Outlet Holdings ( OLLI 7.38% ) shot up 25.2% in 2020, according to data provided by S&P Global Market Intelligence. The stock surged in the first half of the year, due to the company's unexpected return to robust sales growth. However, shares have pulled back as investor enthusiasm has cooled, and the stock is currently down around 26% from its 52-week highs.

So what

It may be hard to remember now, but Ollie's stock was down more than 40% in the back half of 2019. Back then, the company's comparable-sales growth had stalled. (Comp sales measure sales at stores that have been open a while, so a drop is something investors don't like to see.)

Then in December of 2019, the company's founder and CEO Mark Butler tragically passed away. Stalled growth and questions regarding the future leadership of the company led to the stock's big decline.

A businessman draws a rising arrow over a graph.

Image source: Getty Images.

However, Ollie's Bargain Outlet was quick to replace Butler with longtime company executive John Swygert. Shortly thereafter, the COVID-19 pandemic unexpectedly boosted the company's sales, most notably in the second quarter. In Q2, comp-sales skyrocketed 43.3% higher. With the company solidly profitable and growing, investors' love for Ollie's stock was rekindled, sending it higher in 2020.

Now what

Investors should keep in mind that Ollie's Bargain Outlet's comp sales will likely regress in 2021. The retail chain benefited from being able to stay open when other stores were closed during lockdowns in 2020. Furthermore, the stimulus checks likely aided Ollie's top-line growth.

It's true that Americans are currently receiving a second round of stimulus checks, and there's a third round on the table. However, more companies have stores open right now to compete with Ollie's for that stimulus spending.

Simply put, Ollie's faces a tough year-over-year comparison in 2021. That said, the benefits of 2020 have multiyear positive implications for the company. For example, Ollie's has recorded $178 million in net income through the first three quarters of 2020, up 96% year over year. Sure, this record profit will likely start to slip soon, but Ollie's is flush with cash now.

Having a pile of cash (currently over $300 million with less than $1 million in debt) is helpful when you're aggressively expanding your chain and want to reward shareholders. Ollie's is doing both. The company opened nearly 50 new locations in 2020 and has a total of 370 stores right now. However, it plans to have 1,050 long term, leaving plenty of room for future growth. And it just authorized a new $100 million stock-buyback program to go along with the $59.6 million it had left over on its old authorization.

Long-term shareholders will benefit from Ollie's new stores and stock-buyback plan, and the company has plenty of capital to turn these plans into reality, thanks to 2020. This is why I believe Ollie's is a stock that can keep making investors rich in 2021

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Ollie's Bargain Outlet Holdings, Inc. Stock Quote
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