What happened
Shares of discount retail chain Ollie's Bargain Outlet (OLLI -0.67%) surged on Wednesday after the company announced financial results for the fiscal fourth quarter of 2022, ended Jan. 28. As of 9:45 a.m. ET, Ollie's stock was up almost 11%.
So what
In 2022, Ollie's had net sales of $1.8 billion, which was only up 4% from 2021. And the gain was entirely due to opening new stores -- same-store sales actually fell 3%. Also, the company's gross margin declined from about 39% to about 36% -- a substantial year-over-year drop. And net income plunged 35% to $103 million. None of this sounds worthy of an 11% jump in the stock price, but there's much more to the story.
Ollie's business performance improved in Q4 compared to 2022 as a whole. In Q4, the company's same-store sales were up 3% from the prior year, gross margin expanded from 36.5% to 37.6%, and net income surged almost 19% to $53 million.
In summary, Ollie's faced headwinds early in 2022, including difficult year-over-year comparisons and temporarily elevated expenses such as shipping. But it's moving past the tough comparisons and expenses are moderating, setting it up well heading into the new year.
Now what
At the midpoint of its guidance, Ollie's management expects revenue to grow 12% in 2023 compared to 2022. Throughout the year, it will be opening new stores (guiding for 45 openings) and building a new fulfillment center to support its long-term growth plans. Long-term, management believes it can have at least 1,050 locations compared to its 475 locations at the end of 2022.
Moreover, Ollie's management expects to earn between $2.49 per share and $2.58 per share in adjusted profits in 2023, up 54% to 59% from 2022 and well ahead of consensus analyst estimates.
With growth potential and better-than-expected profits, investors probably shouldn't overlook Ollie's stock as a long-term investment opportunity.
