What happened

Shares of Ollie's Bargain Outlet (OLLI -0.47%) were gaining this week after the discount retailer posted strong results in its fourth-quarter earnings report. According to data from S&P Global Market Intelligence, the stock was up 11.6% for the week as of Thursday's close.

So what

In a difficult retail environment, Ollie's reported a comparable-store sales increase of 3%, up from a decline of 10.5% in the year-ago quarter. Net sales in the quarter, which benefited from new store openings, increased 9.7% to $549.8 million, which topped the analyst consensus of $542.2 million.

In the quarter, Ollie's opened five new stores and finished the period with 468 locations in 29 states, increasing its store count by 8.6%. 

The company also saw strong gains in profitability with adjusted operating income increasing 16.5% to $66.8 million and adjusted operating margin improving 70 basis points to 12.1%.

On the bottom line, adjusted earnings per share rose from $0.69 to $0.84, which beat expectations of $0.79 a share.

CEO John Swygert said, "Our team executed well in a highly promotional environment and delivered a 110 basis point increase in gross margin compared to last year," and added, "For 2023, we are focused on offering great deals, expanding operating margins, and growing our store base, all of which will position us to deliver consistent, long-term growth for our shareholders.

Ollie's, whose business involves taking advantage of closeout sales and other opportunities to buy cheap merchandise, also had essentially flat inventories in the quarter, showing it's managing inventory well at a time when many of its retail peers are struggling with excess inventory.

Several analysts raised their price targets on the stock following the report, with Wall Street crediting improvement in operating margin and sequential comparable sales.  

Now what

Looking ahead for 2023, the company offered solid guidance, calling for total revenue of $2.036 billion to $2.058 billion, which is up 12% at the midpoint from $1.827 billion and better than the consensus of $2 billion. However, it only sees comparable sales growth of 1% to 2% as it plans to open 45 new stores and close 1.

On the bottom line, management called for adjusted earnings per share of $2.49 to $2.58, up from $1.62 in 2022 and above estimates of $2.38.

Based on those numbers, it's not surprising to see the stock rising as Ollie's is delivering steady growth and has a long runway to open new stores.