Is Ollie’s Bargain Outlet Making Money?

America’s great retail apocalypse and economic decline could be accelerating. Stock prices and financial numbers show some retailers are in deep trouble.

A prime example of such a dying retailer is Ollie’s Bargain Outlet Holdings Inc. (NASDAQ: OLLI). Ollie’s is a chain of 430 stores that sell merchandise other retailers cannot sell at discount prices. For example, overstock, old merchandise, unsold merchandise, closeouts, and other goods competitors cannot sell.

Thus, Ollie’s (OLLI) is a bottom-feeding discounter similar to Big Lots (NYSE: BIG) and Overstock.com (NASDAQ: OSTK). I think chains such as Ollie’s can show us how America’s economy is performing because they cater to working and lower-middle-class customers. To elaborate, Ollie’s financial numbers can show how much money working Americans are spending.

Is Ollie’s (OLLI) Making Money?

Ollie’s (NASDAQ: OLLI) makes a little money. However, Ollie’s is making less money than it did during the pandemic.

For example, Ollie’s quarterly operating income fell from $57.78 million on 31 October 2020 to $30.21 million on Halloween 2021. Similarly, Ollie’s quarterly gross profit fell from $167.37 million to $147.60 million in the same period. Significantly, Ollie’s quarterly revenues fell from $414.38 million on 31 October 2020 to $383.49 million.

Hence, Ollie’s is making less money, but why? I can offer a few speculations why Ollie’s is making less money.

First, the supply chain crisis means other retailers are not dumping off-brand and overstock merchandise. Instead, those companies are keeping such merchandise in order to have something to sell on their stores. Thus, there could be less stock and fewer purchases at Ollie’s.

Second, Ollie’s lower-income customers have less money to spend because the pandemic stimulus payments are ending. For example, the federal government sent two stimulus payments to most Americans in 2020. The payments were $1,200 and $600, plus additional funds for kids. Hence, lower-income people had more money to spend in 2020.

Third, the pandemic recession and unemployment scared many people into bargain hunting. However, the great resignation and the labor shortage could have convinced consumers they could soon have better jobs and more money. Hence, they will less reason for bargain hunting or shopping at Ollie’s.

How Much Cash can Ollie’s Generate?

Ollie’s Bargain Outlet (OLLI) is burning cash. For instance, Ollie’s reported a negative quarterly operating cash flow of -$39.16 million on 31 October 2021.

The quarterly operating cash flow fell from $1.72 million on 31 July 2021 and $25.72 million on 31 October 2020. Disturbingly, Ollie’s quarterly ending cash flow fell from $472.17 million on 30 April 2021 to -$27.91 million on 31 July 2021 to -$214.54 million on 31 October 2021. Furthermore, the quarterly ending cash flow fell from $20.41 million on 31 October 2020.

Disturbingly, I think Ollie’s is borrowing money to survive. For example, the negative quarterly financing cash flow fell from -$5.67 million on 30 April 2021 to -$24.29 million on 31 July 2021 and -$163.62 million on 31 October 2021.

Consequently, Ollie’s Total Debt grew from $398 million on 30 April 2021 to $404 million on 31 July 2021 to $419 million on 31 October 2021. Hence, Ollie’s has less cash and more debt.

What Value Does Ollie’s Have?

Ollie’s (OLLI) lost value in 2021. For instance, the total assets fell from $2.117 billion on 31 January 2021 to $1.947 billion on 31 October 2021.

Similarly, the cash and short-term investments fell from $447 million on 31 January 2021 to $230 million on 31 October 2021. Thus, Ollie’s cannot retain cash and value as it loses money.

I believe Ollie’s could collapse because it is not generating enough cash. Instead, the company survives on debt. When the debt runs out, or interest rates rise, the company runs out of money. Hence, I think Ollie’s is on the verge of the retail death spiral.

Mr. Market Overprices Ollie’s

I suspect Ollie’s (NASDAQ: OLLI) is one of many companies that will soon enter the retail death spiral. Hence, the retail apocalypse is worsening as the economy recovers.

Frighteningly, Mr. Market cannot see this catastrophe occurring. I think Mr. Market overpriced Ollie’s at $50.65 on 28 December 2021.

Stupidly, Mr. Market paid far more for Ollie’s in 2021. For instance, Mr. Market paid $83.89 for Ollie’s on 28 December 2020 and $106.23 for Ollie’s on 27 January 2021. Hence, Ollie’s shares lost over 50% of their value in 2021.

Hence, Ollie’s stock price is collapsing as the company burns cash. I consider that a sure symptom of the retail death spiral. I expect Ollie’s stock price to fall far lower and other retailers to follow it.

I advise investors to stay away from bottom-feeding retailers such as Ollie’s  and Dollar General (DG). One big reason to stay away from Ollie’s is that it pays no dividend. Investors need to avoid such discounters because I believe they cannot survive in today’s economy.

I expect to see many more retail bankruptcies and thousands more empty stores across America.