Ollie’s Bargain Outlet (NASDAQ: OLLI) had a solid quarter in Q2, with only one thing overshadowing the results: margins. The company’s gross margin remained steady despite the influence of competing factors, but increased costs, including start-up and dark rent, eroded the profit outlook. While revenue is growing robustly for this retailer due to the expansion into vacated Big Lots locations, profits are not keeping pace.
The critical details for investors are that today’s increased costs are positioning the company for future growth and earnings leverage. Not only are comp sales growing at a modest single-digit pace in the existing business, but the new stores will drive a systemwide acceleration and improve operating leverage as unused square footage gets put to use.
