On Monday, RBC (TSX:RY) Capital maintained its positive stance on Ollie's Bargain Outlet (NASDAQ:OLLI) Holdings Inc (NASDAQ: OLLI), reiterating an Outperform rating and a $130.00 price target. This outlook follows recent developments concerning Big Lots (NYSE:BIG), a competitor in the discount retail space.
On December 19, 2024, Big Lots disclosed that its asset purchase agreement with Nexus Capital Management would not proceed as planned. The company is exploring an alternative transaction that would allow it to continue operations, aiming to finalize a deal by early January. Concurrently, Big Lots is preparing to initiate liquidation sales across its stores.
Analysts at RBC Capital project that the liquidation sales at Big Lots could initially present a headwind for Ollie's comparable store sales during the fourth quarter of 2024 and the first quarter of 2025. However, they also foresee a significant opportunity for Ollie's to capture market share once Big Lots stores close.
The geographical overlap between the two retailers is substantial, with approximately 668 Big Lots stores situated within 10 miles of at least one Ollie's location, and 449 within a 5-mile radius. According to RBC Capital's estimates, if Ollie's were to capture about 5% of Big Lots' non-furniture sales from these stores, it could lead to a 5% increase in comparable sales for Ollie's in 2025. An estimated 10% market share capture could potentially result in a 7% comp and earnings per share of $4.18 for Ollie's.
The analysis from RBC Capital suggests that Ollie's Bargain Outlet is well-positioned to benefit from the market space potentially vacated by Big Lots, which may bolster Ollie's financial performance in the coming year.
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