What happened

Shares of Ollie's Bargain Outlet (OLLI -0.48%) jumped 13.2% this week compared to where they closed out last Friday, according to data from S&P Global Market Intelligence, after the discount chain reported first-quarter results that missed analyst expectations on the top and bottom lines.

While that seems like the opposite of what should have happened, Wall Street apparently liked the guidance the retailer offered, leading analysts to raise their price targets on the stock.

So what

Ollie's quarter wasn't pretty. Net sales tumbled 10% to $406.7 million, comparable store sales plummeted 17.3% from the year-ago period, and operating profits were virtually wiped out, falling more than 75% to $17 million. Net profits also evaporated with a 77% dive to $12.5 million, or $0.20 per share.

However, Ollie's said last year's results were inflated because of the third round of stimulus checks consumers received. Many economists feel those checks greatly contributed to the rampant inflation we're currently experiencing, which the Federal Reserve estimates alone raised the inflation rate by 3 percentage points last year.

Ollie's says inflation is one of the headwinds it faced this quarter and is why many retailers are seeing their businesses harmed as consumers rein in their spending.

Now what

Ollie's says the second quarter is doing much better and trends are looking up. It forecasts sales will be in the range of $450 million to $460 million and comps will come in a range of flat to up 3% for the period, with operating income between $27 million and $30 million. Adjusted earnings are forecast to be between $0.32 and $0.35 per share.

In an economy that's in a state of flux with CFOs expecting a recession to finally arrive in the first half of 2023, discount chains like Ollie's ought to do better than most other mass merchandisers because they help consumers stretch their dollars.

That could be why numerous Wall Street analysts raised their ratings and price targets on the bargain outlet. Citi, Truist, and RBC Capital are just a few of the investment firms that upgraded their outlooks while Craig-Hallum analyst Jeremy Hamblin told investors in a research note that Ollie's is "in a great position to outperform."

He raised his rating on the stock from hold to buy, and greatly boosted his price target to $75 per share from $43 per share. Ollie's Bargain Outlet closed out the week at $53.66 per share, suggesting there's still 40% upside left in its shares.