Consumer Staples
Brian McGough’s deep-dive store analysis suggests new unit productivity is deteriorating across OLLI’s 650-store base, signalling market saturation and making aggressive expansion value-destructive. While he doesn't doubt the group can get to 1,000 stores as it expands to the West Coast, it will likely have to pay egregious rents inherent to the region which destroys the company’s value proposition if it intends to maintain four-wall economics and will have to build expensive DC capacity to help it scale. At a minimum, OLLI can't add many more stores without materially eroding its margin and return structure. A 10x EBITDA multiple can't handle that - never mind 21x. Brian’s estimates are materially below consensus over a TAIL duration, leading to what could/should be ~50% downside in the stock.
Edition: 220
- 19 September, 2025
Consumer Staples
How NOT to run a discount retailer - management squanders its pandemic opportunity to capture incremental customers. John Zolidis sees three problems: 1) Chronic underinvestment in infrastructure. This explains the difficulty of dealing with supply chain challenges. 2) Must stop raising prices to protect “merchandise margins”. The value is not there, and that’s why traffic and loyalty members per store are falling. 3) Should staff its stores, rather than using labour as a lever to offset negative comps. Reflecting the reduced labour and service, S,G&A per avg. square foot has not increased in four years, in contrast to industry and competitor trends.
Edition: 132
- 01 April, 2022