Wells Fargo Downgrades Ollie's Bargain Outlet Holdings

Summary

Wells Fargo has downgraded Ollie's Bargain Outlet Holdings, Inc. (NASDAQ:OLLI) to "equal weight," as favorable growth conditions begin to normalize for the retailer.

Analyst Insights

The analyst noted, "The best time to own OLLI may have passed." Ollie's historically thrived during a 2022 inventory glut, driven by increased demand from value-focused consumers. However, the brokerage believes that this cycle is ending, compelling Ollie's to manage tighter retail inventories, limited margin expansion, and uncertainties surrounding cost leverage.

Looking Ahead

As we approach 2025, tight retail inventories might lead to a less favorable closeout buying environment, with limited gross margin improvement expected. Furthermore, concerns arise regarding Ollie's ability to manage costs, given its history of stringent expense controls.

Competition and Market Share

While liquidations by competitor Big Lots (NYSE:BIG) present opportunities for market share growth and real estate gains, Wells Fargo suggests the potential benefits may already be reflected in the stock price. Moreover, questions linger about Ollie's scalability and its long-term growth prospects.

Revised Price Target

Consequently, the brokerage has lowered its price target for Ollie’s to $95, indicating a balanced risk-reward assessment as the retailer faces forthcoming challenges.