Traffic and ticket improved and Ollie's Bargain Outlet (NASDAQ: OLLI) is lapping strong coffee comp sales better than expected, analyst Daniel Binder at Jefferies noted.

Management flowed Q3 upside into the full year expectations, raising the upper end of FY16 guidance ranges, but left their assumptions for Q4 unchanged. Valuation attractive at 1.2 PEG.

Traffic and ticket were both up (traffic more than ticket). New store productivity continued to be strong at around 95%. The majority of departments saw SSS increases in the midsingle-digit range or better. Coffee continued to perform better than expected even as the company lapped strong coffee. One weak spot was in housewares, as the company lapped a large deal last year and had a more seasonally oriented mix of product this year.

GM% increased 33 bps y/ y. The increase was driven by merchandise margin which increased 80 bps as the company finds more buying opportunities in the market. They believe this reflects the growing size of the chain and benefits from being a public company. This was partially offset by deleverage on the new DC (57 bps), which was expected and should begin to moderate by Q2 of next year.

The analyst believes that OLLI is an appealing growth story with the following attributes:

1) early-stage growth company with strong and visible unit expansion ahead

2) favorable new store economics with a cash payback of less than two years

3) strong and improving stable of brands

4) merchant-driven organization with fanatical focus on great closeout buys and low costs

5) strong pricing discipline with an intense focus on the value proposition

6) strong loyalty base with 5.2 million Ollie’s Army members at the time of the IPO

7) wide demographic appeal across a range of age groups and household income levels

The $23 price target is based on a PEG ratio of 1.7x (33 P/E) using FY16 EPS of $0.71. The analyst believes a premium multiple is warranted given OLLI’s appealing early stage growth stock attributes. Risks include: volatility in closeout buys and mix changes, ability to open new stores on time, economic slowdown.

For an analyst ratings summary and ratings history on Ollie's Bargain Outlet click here. For more ratings news on Ollie's Bargain Outlet click here.

Shares of Ollie's Bargain Outlet closed at $16.51 yesterday.