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Ollie's Bargain Outlet (OLLI) Down 23.7% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Ollie's Bargain Outlet (OLLI - Free Report) . Shares have lost about 23.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ollie's Bargain Outlet due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Ollie's Bargain Beats on Q3 Earnings, Raises View

Ollie's Bargain Outlet Holdings, Inc.’s continued with its positive earnings and sales surprise streak in third-quarter fiscal 2018 as well. The company also sustained its decent year-over-year improvement in both the top and bottom line, while reporting 18th consecutive quarter of comparable-store sales growth. Impressive quarterly results prompted management to lift fiscal 2018 view.

Ollie’s Bargain delivered quarterly earnings of 32 cents a share beating the Zacks Consensus Estimate by a penny. The figure also surged 45.5% from the year-ago period. Net sales of $283.6 million also came ahead of the consensus mark of $280.6 million and rose 19.1% year over year.

The year-over-year increase in the top line can be attributable to 12.1% jump in the number of stores and 4.6% growth in comparable-store sales on account of increase in average basket size. Notably, toys, housewares, electronics, floor coverings and automotive were the best performing categories.

Ollie's Bargain’s business model of “buying cheap and selling cheap”, cost-containment efforts, focus on store productivity, sturdy comparable-store sales performance and expansion of customer reward program, Ollie's Army, fortify its position. These initiatives positioned the stock to augment both its top and bottom-line performance in the long run.

Gross profit rose 17.8% to $115.4 million, however, gross margin contracted 50 basis points to 40.7% on account of increase in supply chain costs as a percentage of net sales, partly negated by higher merchandise margin. Operating income also soared 21% to $29.3 million, while operating margin expanded 10 basis points to 10.3%.

Adjusted EBITDA grew 18.9% to $34.7 million during the reported quarter, while adjusted EBITDA margin decreased 10 basis points to 12.2%.

Store Update

During the quarter under review, the company opened 17 outlets, including one relocation and shuttered two outlets. The company ended the quarter with a total of 297 stores in 23 states. Management expects to take the store count to more than 950.

Financial Aspects

Ollie’s Bargain ended the reported quarter with cash and cash equivalents of $736,000, total debt (including the current portion) of about $19.2 million, and shareholders’ equity of $888.8 million. The company incurred capital expenditures of $52.5 million during the quarter owing to the acquisition of former Toys “R” Us store sites and new store openings. The company purchased Toys “R” Us properties for about $42 million in cash.

Management now anticipates capital expenditures in the range of $75-$80 million during fiscal 2018 due to the recent buyout of former Toys “R” Us properties and purchase of land for the new distribution center.

Guidance

Management now forecasts fiscal 2018 net sales in the band of $1.226-$1.231 billion, up from its previous projection of $1.222-$1.227 billion. Ollie's Bargain anticipates comparable-store sales growth of 3-3.5% up from 2.5-3% expected earlier. The company now envisions adjusted earnings in the band of $1.74-$1.77, up from its prior forecast of $1.73-$1.76 per share.

Operating income is expected to be in the range of $155-$157 million for the fiscal year, up from $154-$156 million projected previously. Management continues to envision fiscal 2018 gross margin to be 40.1% with 20-30 basis points improvement expected in the final quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Ollie's Bargain Outlet has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Ollie's Bargain Outlet has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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