Description

I'm a simple guy, and don't mind buying stocks that are likely to get hit on the way down.   OLLI is a simple story.

In 2015, they had (ended) 203 stores and made 35.8m in profits

In 2016, they had 234 stores and made 59.8m in profits

In 2017, they had 268 stores and made 81.1m in profits

In 2018, they had 303 stores and made 120.5m in profits

In 2019, they had 345 stores and made 129.1m in profits

In 2020, they had 388 stores and made  208.4m in profits

In 2021, they might not make 208.4m in profits because the 2H is being hit by supply chain issues and compares are tough.

In 2022, they might not make 208.4m in profits because the compare is still tough and maybe gvt will not issue free checks.  

What I do know is that they will have more stores in 2021, and more in 2022, and more in 2023 and more in 2024.  Still more in 2025.  Rinse and repeat.  The concept already works, so they will Borg it.

Thesis

Investors are not blind - if you pile up store counts and profits, the stock usually goes up at some point or another.   In my view, OLLI is a asset-lite multiple year compounder with a simple model which will always find a varying level of customers even if performance is not always set to go in a straight line.

Business

OLLI's is a closeout retailer written up as shorts on VIC with many well-reasoned entirely short-term thoughts in my view that came exactly true - timing was very good, and the stock is not much removed from the earlier writeup and well-below the later.  I am writing this up as a true 5 year idea - figuring sometime in the next 5 years, OLLI will be higher than the current price.   

Visiting a store on a regular basis actually counts as actual research, and the best way to view this concept is as the ever changing flea market with some interesting items at times and a whole lot of other stuff.  I have no facts and figures to support this but based on my regular shopping trips as an OLLI customer see little reason to think that 1200 can't be the saturation target*, and with smaller box sizes they could likely get to 1500 and more.  OLLI currently has 409 stores end of Q2 so there is a very long runway for growth with 50 or so stores opened a year.

Financials

The BS is exceptionally pretty.  Compared to most retailers, OLLI get's low rent cheap locations with cheap boxes and doesn't spend a lot on fixtures.  From 5 years to 2020, OLLI spent 218m in CapEx or roughly 43m a year to almost double their store base.  CFFO over this time was 756m, with NI+DA at 782m.  Thus, the BS is overcapitalized with cash equal to nearly $7 in cash (lease debt ignored).   And they do buy shares, but honestly i don't know if they buy shares intelligently yet.  Big unknown. 

Near Term

I don't care.  Sorry, really don't.  If you do, you can check out the latest calls where they talk about supply chain issues and the like.  I didn't hear anything that remotely changes the long-term story, and because I never buy a stock with a single purchase, I started buying the 60s and then after it shortly went up to 70s I paused and waited for it to go down again.   It does go down as short-term investors play the ranges (which can be exceptionally profitable).   There is a tough compare for both Q4 and Q1, so it could go down some more. 

Factoids

2022 – GM pressure increasing into 1H

bot shares so far this year - 46.8m; inventory finished Q2 up 14.2%

46-47 stores this year - below target - entirely due to permitting delays

New COO is overseeing supply chain

GM headwinds due to supply chain issues

12.2m active OLLI members

Per call, comps up 4% from 2019 and Q3 seen 3-5% vs 2019

7% of PPE sales last year 0% this year; some stores with not enough inventory but limited

Warehouse issues seen fixed by end of Q3; over 1200 vendors

  Pets at 2% of sales; goal is 3-4%; will shrink imported furniture

GM target is 39.7%; OM at 13%

Loyalty at 11.9m members; $41 loyalty ticket vs. $29 non

Stores only cost $250k; customer is 55-58; $55k income

only 16 to 18% products are imported

What is it a worth?

More than today.  I don't play these games.  I just think it is worth a lot more.  It was worth $123.52 to somebody within the last 52 weeks.  It was worth 97.6% in 2018.  It was worth $103 in 2019.   This is an asset lite fast grower.  In my experience, those stories get valued pretty highly at some point.

How would you own it?

I am buying today.  Given my view that this is a linear fast grower, I would buy logarithmic-ly over 5% and 10% increments (buy 1% here, buy 1.5% 5 to 10% lower, buy 3% 20% lower, buy 5 to 10% 40% lower, etc.)  I don't tend to time it, but I will let things go like this (reduce or sell outright) when they get out of control ala in 2020 and 2021.   

 P.S.

I am in late posting an idea VIC hell, so I can only post ideas every six months or so.  This is within that 6 month window so I get no credit for the posting (pls fix this VIC - why can't I just be required to post 2 ideas a year instead?).   Thus, if you don't like my writeup that's ok cause I'm being masochistic in posting it as a freebie.   

* BIG is large and going to expand.  DG is huge and expanding.  These things are all regional.  People who shop them shop them because the stores are near, and they don't do identical skus if you are worried about competition.  

Catalyst

 investors eventually ok with buying asset-lite linear fast growers stores that only lower income go into