Ollie’s Bargain Outlet Hits Rock-Bottom After Q3: Buy the Dip?

Key Points

• Ollie's Bargain Outlet is accelerating growth and is likely to outperform its guidance in the upcoming quarters.
• Analysts and institutions are accumulating the stock in 2025, underpinning market support.
• December's price pullback is a sign of market capitulation, likely leading to a rebound in early 2026.

Ollie’s Bargain Outlet NASDAQ: OLLI stock had been under pressure since late summer but found support and flashed a solid buy signal following its Q3 earnings report in December. Concerns of valuation caused the sell-off amid a rapidly improving growth outlook. The company’s decision to buy out now-bankrupt Big Lots locations and convert them to Ollie’s formats was slow to gain traction but is paying off. 

The trigger for December’s move was tepid performance in the face of high expectations, with performance the critical factor. Ollie’s is growing at more than three times the industry average, claiming market share, accelerating on a year-over-year (YOY) basis, and is expected to remain robust in the upcoming calendar year. 

Ollie’s Bargain Outlet Accelerates Growth, Widens Margin

Ollie’s Bargain Outlet had a robust quarter, marred only by the analysts' expectations. The company reported a record quarterly net revenue of $613.6 million, up 18.6% from the prior year. The net is less than the analysts' consensus reported by MarketBeat, but the miss is slim, fractions of a percentage point, and offset by improving leverage and operational quality. Revenue strength was driven by an 18% YOY increase in new stores, underpinned by a 3.3% increase in comp sales, in turn driven by higher transaction volume. 

Margin news is impressive. The company’s gross margin and operating costs reflect higher costs, including input costs tied to new store openings, but the net result is an improvement over last year. The 10-basis-point contraction in gross margin was offset by a 50-basis-point improvement in SG&A, leaving the operating margin up 40 basis points (bps). Operating income grew at an accelerated 24.5% pace, leaving the adjusted EPS at 75 cents, up 30% YOY, and 270 bps above expectations despite the top line “weakness.” 

The guidance is also robust, aligning with an outlook for accelerating business and outperformance. Management increased its targets for store count growth, revenue, and earnings, with the low end of the revenue range above the previous high and the earnings midpoint by 100 bps. Assuming the company continues to fire on all cylinders as it has, the likely outcome is that results come in at the high end of the range or higher.

Analysts Trends Point to New Highs for OLLI Stock

No analyst revisions were triggered immediately after Ollie’s report, but commentaries were positive, noting execution, substantial client acquisition, and the market’s negative response to the news. The negative response indicates that some participants had expected significantly more, but the 2025 sell-off is likely to be over. The 6% price plunge at the open bears the hallmarks of capitulation, including a high-volume intraday price rebound. It indicates that buyers, likely to be of institutional quality, are taking advantage of the dip, confirming the support shown by price action in mid-November. The likely outcome is that OLLI stock will continue to rebound from this level and complete a market reversal by early 2026. 

Institutional trends suggest the rebound in OLLI stock could be robust. The group owns approximately 99.5% of the stock; short interest is around 7%; and the group has been buying each quarter. This suggests a solid support base at/near the early December price levels and a robust tailwind for price action in 2026. The question is whether retail investors will be interested in this stock, and they should be. It trades at a significant discount to its peers and long-term forecasts, suggesting its price could increase by 100% or more in the upcoming quarters. 

The driver for the price gain will be growth, earnings and the value they create for investors. The balance sheet is a fortress, allowing it to invest in growth and convert the investment into significant equity gains. The takeaway from Q3 is that equity improved by 12% and is likely to continue growing in 2026.