Ollie's Bargain Outlet Holdings (OLLI) delivered a "near flawless" Q2, even as the duration of its EPS growth seems to be "underappreciated" by investors, RBC Capital Markets said in a note issued on Thursday.

The discount closeout retailer's comparable sales momentum at the end of the quarter was "strong" with a 5% increase driven by transaction growth, suggesting that its Q3 guidance of 3% growth is likely understated, RBC analysts said. Considering performance over the last two years, excluding Ollie's Army promotion, Q3 comparable sales could be around 10%, they said.

Ollie's Q2 gross margin increased by 205 basis points year on year to 39.9%, driven by lower supply chain costs and and higher merchandise margins, the analysts said. Strong deal flow and continued control over shrinkage should remain positive factors, implying that actual gross margin maybe higher than the given guidance, they said.

The company is confident in double-digit growth for at least the next three years, with tailwinds such as consolidation among closeout retailers and retail bankruptcies, the analysts said.

RBC said it has increased its 2025 sales estimate for the company to 4.9% from 4.1%, as well as its EPS to $4 from $3.93. The firm said it has also maintained Ollie's stock rating at outperform and raised the price target to $149 from $144.