It has been about a month since the last earnings report for Ollie's Bargain Outlet (OLLI - Free Report) . Shares have added about 16.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Ollie's Bargain Outlet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Ollie's Bargain Q4 Earnings Beat, Sales Miss Estimates
Ollie's Bargain Outlet Holdings, Inc. maintained a positive earnings surprise streak in fourth-quarter fiscal 2018. However, net sales fell short of the Zacks Consensus Estimate. Nevertheless, the company sustained its decent year-over-year improvement in both the top and bottom line, while reporting the 19th consecutive quarter of comparable-store sales growth.
In spite of a decent performance, management issued soft fiscal 2019 view, which did not go down well with the investors. The company now envisions fiscal 2019 adjusted earnings in the band of $2.10-$2.15. Management now forecasts net sales in the range of $1.436-$1.449 billion.
We note that the company reported fiscal 2018 adjusted earnings per share of $1.83 and net sales of $1,241.4 million.
Ollie’s Bargain delivered quarterly earnings of 71 cents a share, beating the Zacks Consensus Estimate by a penny. The figure also surged 39.2% from the year-ago quarter buoyed by top-line growth, gross margin expansion and cost-containment efforts.
Net sales of $393.9 million lagged the consensus mark of $398.1 million but rose 10.4% year over year. The rise in the top line can be attributed to a 13.1% jump in the number of stores and 5.4% growth in comparable-store sales on account of increase in average basket size and transactions. Excluding the impact of the 53rd week, net sales rose 15.8%. Notably, toys, housewares, floor coverings, health and beauty aids and candy 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 11.6% to $156.7 million. However, gross margin expanded 40 basis points to 39.8% on account of higher merchandise margin, partly offset by increased supply chain costs as a percentage of net sales. Operating income also rose 13.8% to $61.9 million, while operating margin expanded 40 basis points to 15.7%.
Adjusted EBITDA grew 14.4% to $67.7 million during the reported quarter, while adjusted EBITDA margin increased 60 basis points to 17.2%.
During the quarter under review, the company opened six outlets, thereby taking the total store count to 303 in 23 states. It opened 37 outlets, including one relocation, and closed two stores during fiscal 2018. In fiscal 2019, the company intends to open 42-44 new stores, comprising first outlets in Oklahoma and Massachusetts.
Ollie’s Bargain ended the reported quarter with cash and cash equivalents of $51.9 million, total borrowings (consisting solely of capital lease obligations) of $0.7 million, and shareholders’ equity of $942.7 million. The company repaid all of its term loan debt of $48.8 million during fiscal 2018. Its board of directors authorized a share repurchase of up to $100 million.
The company incurred capital expenditure of $74.2 million during the fiscal year owing to the acquisition of 12 former Toys “R” Us store sites, new store openings and investments in the third distribution center. Management now anticipates capital expenditure in the range of $75-$80 million for fiscal 2019.
Ollie's Bargain expects comparable-store sales growth of 1-2% for fiscal 2019, which is down from 4.2% reported in fiscal 2018. Operating income is projected in the range of $189-$193 million for the current fiscal year. Management anticipates gross margin to be flat and operating margin to expand 10-20 basis points.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -7.74% due to these changes.
At this time, 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.
Ollie's Bargain Outlet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.