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Ollie's Bargain (OLLI) Q3 Earnings Top Estimates, Comps Up

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Ollie's Bargain Outlet Holdings, Inc. (OLLI - Free Report) maintained stellar performance in third-quarter fiscal 2020, wherein the top and the bottom line not only surpassed the Zacks Consensus Estimate but also improved year over year. It was the third straight quarter of sales and earnings beat. Notably, the company witnessed decent comparable store sales growth.

In spite of the aforementioned tailwinds, shares of this Zacks Rank #3 (Hold) company fell about 8.9% during after-market trading session on Dec 3. This Harrisburg, PA-based company highlighted that comparable store sales moderated in the latter part of the third quarter and continued to do so in the fourth quarter. It added that quarter to date, comparable store sales are tracking in the low single-digits.

Management also cautioned about uncertainty related to the pandemic and said that it is hard to predict the impact of the health and financial crisis on consumer behavior. Meanwhile, CEO John Swygert stated, “This holiday season is subject to many uncertainties regarding the impact of the pandemic and there are a lot of large volume days still ahead of us.”

So far this year, shares of Ollie's Bargain have increased 37% against the industry’s decline of 3.4%.

Here’s How the Top & Bottom Line Fared

Ollie’s Bargain delivered adjusted earnings of 65 cents a share that beat the Zacks Consensus Estimate of 58 cents and surged from 41 cents reported in the year-ago quarter. The improvement can be attributed to higher net sales and better expense management.

Net sales improved 26.7% year over year to $414.4 million and surpassed the consensus mark of $407.8 million. The increase in the top line can be attributed to comparable store sales growth and robust new store performance.

Comparable store sales increased 15.3% during the quarter driven by higher transactions and a significantly larger average basket. The company’s top-performing categories were housewares, bed and bath, health and beauty aids, flooring and food.

The company’s business operating model of “buying cheap and selling cheap” and focus on value-driven merchandise assortment positioned it well to grab opportunities in the marketplace and effectively meet changes in consumer demand amid the pandemic.

Management stated that shift in consumer spending from COVID-19 impacted categories, such as travel, dining and experiences, to retail, and the stimulus related to the Coronavirus Aid, Relief, and Economic Security (Cares) Act in the early part of the quarter benefited the company.

Sneak Peek Into Margins

Gross profit surged 28.7% year over year to $171.5 million during the quarter under review, while gross margin expanded 60 basis points to 41.4%. This expansion can be attributed to improvement in the merchandise margin, driven by higher markup and lower markdowns, partly offset by increased supply chain costs, as a percentage of net sales.

SG&A expenses climbed 17% to $105.8 million from the prior-year period on account of increased number of stores and higher store payroll and variable selling expenses. However, as a percentage of net sales, SG&A expenses shrunk 220 basis points to 25.5%. The decrease was owing to significant leverage in occupancy and other costs owing to comparable store sales growth and cost-containment efforts. This was partly offset by certain increased expenses, such as premium pay, associated with operating in pandemic-hit environment.

Operating income soared 61.7% to $57.8 million, while operating margin expanded 300 basis points to 13.9% owing to higher gross margin and the leveraging of all expense components due to the increase in comparable store sales.

Adjusted EBITDA rose to $65.3 million during the quarter under review from $42.6 million in the year-ago period, while adjusted EBITDA margin expanded 280 basis points to 15.8%.

Store Update

During the third quarter, Ollie’s Bargain opened 19 stores, including one relocation, thereby taking the total count to 385 stores in 25 states. Since the end of the quarter, the company has opened four more stores, resulting in 46 new stores for the year. Management intends to open 50 stores, including up to four relocations, in fiscal 2021.

Financial Aspects

Ollie’s Bargain ended the third quarter of fiscal 2020 with cash and cash equivalents of $325.5 million, reflecting significant growth from $10.1 million at the end of the third quarter of fiscal 2019. The company’s liquidity position remained strong, with no borrowings under its $100-million revolving credit facility and $95.3 million of availability under the facility, as of the end of the third quarter of fiscal 2020.

As of Oct 31, 2020, its total borrowings (comprising solely of finance lease obligations) were $1 million and stockholders’ equity was $1,267.5 million. Inventories, as of the end of the third quarter, grew 2.5% to $394.9 million. Management incurred capital expenditures of $7.8 million in the third quarter.

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