Although President Donald Trump has taken credit for making the markets great again, what can’t be denied is that not all sectors are feeling the love. In particular, retail stocks have not enjoyed robust success. Both high-end stores like Macy’s Inc (NYSE:M) and discount retailers like Dollar Tree, Inc. (NASDAQ:DLTR) are in troubled waters. Somehow, though, Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI) stands apart from the crowd. Just what is its secret?
To understand how OLLI is beating everyone out, we have to acknowledge the ugliness in retail stocks. Public enemy number one, of course, is Amazon.com, Inc. (NASDAQ:AMZN).
The smiley-faced company gets a lot of heat, but much of it is not undeserved. According to the U.S. Bureau of the Census, e-commerce as a percentage of total retail sales has jumped from 0.6% in the fourth quarter of 1999 to 8.5% in Q1 of this year. Even worse for the brick-and-mortar operations, the trend is increasingly bullish.
This dynamic impacts the competitors to Ollie’s Bargain Outlet, but not OLLI stock itself. Amazon largely competes directly on the retail channel calendar. In other words, if a product is available at a brick-and-mortar location, it’s also available on Amazon.com. Thus, the consumer has a lot of choices. Increasingly in our digital age, they choose the convenience of e-commerce.
In sharp contrast, Ollie’s Bargain Outlet features mostly brand-name products that are heavily discounted due to “closeouts, overstocks, package changes, manufacturer refurbished goods, and irregulars.” Amazon really isn’t in that game, so it can’t negatively impact OLLI stock.
OLLI Stock Insulated From the Competition
Indeed, it’s hard for anybody to derail Ollie’s Bargain Outlet, and it’s not due to lack of competition. E-commerce retail stocks that specialize in discounted products, most notably Overstock.com, Inc. (NASDAQ:OSTK), run extensive operations. Yet OSTK is down nearly 6% year-to-date. On the flipside, OLLI stock is up a blistering 35%.
Just how is that possible? The people who are looking for bargains want to save money across the entire experience. OSTK offers free shipping, but only on orders above $45. Plus, one of online shopping’s biggest drag is the shipping wait time, according to The Wall Street Journal. You don’t have that problem with Ollie’s Bargain Outlet.
But if cheap prices and quick-and-easy physical locations are the paths to success, how come retail stocks DLTR and Dollar General Corp. (NYSE:DG) underperform? I think the key here is that OLLI focuses primarily on brand-name goods. Most “dollar stores” depend on a mix of brand-name and generic goods, and this is not always favorable.
I’ve had the distinct displeasure of being invited to parties thrown by miserly hosts in my life. Generic cola is an experience you try once, and to which you never, ever go back. You can trust my “primary research” — it’s putrid!
The broader economy also hurts retail stocks specializing in bargain-bin discounts. The civilian unemployment rate is currently 4.3%. While it’s not a perfect recovery, it’s still a recovery. And people with jobs don’t drink generic cola — it’s really that simple.
But they are willing to get great discounts on genuine, brand-name products. Asked about what makes OLLI stock tick, CEO Mark Butler replied, “Give them a bargain. It will never go out of style.”
Words to live by.
Keep It Simple, Stupid
As straightforward, almost blatantly obvious as it sounds, this is the secret to Ollie’s Bargain Outlet’s success. Anyone can sell a junk product for a junk price — that’s not a bargain, that’s just being cheap. And anyone can offer a deliberately stripped-down version of a brand-name product. It’s called a rip-off.
Click to Enlarge The evidence is in the technical charts. Since its initial public offering back in July of 2015, OLLI stock is up 104%. More impressive is the strength of its trend line.
Aside from the usual ebb-and-flow of the markets, Ollie’s Bargain Outlet doesn’t suffer from ambiguous interpretations. Now take a look at other retail stocks — most of the time, you can’t make out a discernible pattern.
For most traditional investors, the fundamentals represent the make-or-break argument. I would argue that here too, OLLI stock makes a strong case for itself. Revenue growth is robust, as is the bottom line. What really stood out to me is the inventory turnover. Good economy or not, consumers are flocking to Ollie’s.
Even though OLLI stock has already made plenty of money for early investors, I still think it has room to grow further. With retail stocks suffering a strategy and identity crisis, an organization that has their stuff together can do wonders.
But what truly separates OLLI from the crowd is the keep-it-simple approach. They’re not trying to be something they’re not. They’re simply relying on their core strengths, which is selling great products at a great price. Sometimes, the obvious answer is the answer!
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.