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Ollie's Bargain Outlet (OLLI) Down 12.3% 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 12.3% 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 Q3 Earnings Top Estimates

Ollie's Bargain Outlet Holdings, Inc. reported better-than-expected third-quarter fiscal 2019 results, wherein both the top and bottom lines improved from the year-ago period. Margins also expanded on a year-over-year basis. However, the company continued to witness soft comparable-store sales performance. Nonetheless, management reaffirmed fiscal year sales and earnings view.

Management is optimistic about its business model of “buying cheap and selling cheap,” and remains focused on improving store productivity and expanding of customer reward program, Ollie's Army.

Quarterly Results

Ollie’s Bargain delivered adjusted earnings of 41 cents a share that beat the Zacks Consensus Estimate by a couple of cents and surged 28.1% from the year-ago quarter’s figure of 32 cents.   This year-over-year increase can be attributed to higher net sales and better expense management.

Notably, net sales improved 15.3% to $327 million and came ahead of the consensus mark of $322.8 million. The increase in the top line can be attributed to robust new store performance from the 42 stores opened in fiscal 2019, which includes 14 former Toys R Us locations.

However, comparable-store sales decreased 1.4% during the quarter under review, following a decline of 1.7% in the preceding period. We note that the reported figure compared unfavorably with the prior-year quarter’s increase of 4.6%.

Meanwhile, gross profit rose 15.5% to $133.3 million during the quarter. Again, gross margin expanded 10 basis points to 40.8% owing to higher merchandise margin, partly offset by increased supply chain costs as a percentage of net sales.

While operating income grew 22% to $35.7 million, operating margin increased 60 basis points to 10.9% on account of gross margin expansion and reduction of pre-opening expenses as a percentage of net sales. This was partly offset by deleveraging of depreciation and amortization expenses.

SG&A expenses jumped 15.4% to $90.5 million due to higher number of stores. However, as a percentage of net sales, SG&A expenses remained flat at 27.7%.

Adjusted EBITDA increased 22.5% to $42.6 million during the reported quarter, while adjusted EBITDA margin expanded 80 basis points to 13%.

Store Update

During the quarter under review, the company opened 13 outlets, thereby taking the total store count to 345 in 25 states as of Nov 2, 2019.

Financial Aspects

Ollie’s Bargain ended the quarter with cash and cash equivalents of $10.1 million, total borrowings (consisting solely of capital lease obligations) of $0.8 million, and shareholders’ equity of $1,006.9 million.

The company incurred capital expenditure of $24.2 million during the quarter under review thanks to investments in the third distribution center. Management anticipates capital expenditure in the range of $75-$80 million for fiscal 2019.

During the quarter, the company repurchased approximately 689,000 shares worth $40 million.  At the end of the quarter, the company had $60 million remaining under its current share repurchase program.

Guidance

Management continues to envision fiscal 2019 adjusted earnings in the band of $1.95-$2.00 per share, which is higher than $1.83 reported in fiscal 2018.

Ollie's Bargain reiterated net sales forecast of $1.419-$1.430 billion. The projected figure shows an improvement over $1.241 billion generated in the prior year. The company expects comparable-store sales to decrease in the range of 0.5-1.5%, which is down from 4.2% increase reported in fiscal 2018.

Operating income is projected in the band of $174-$178 million for the current fiscal year, up from $162.1 million reported in the prior year. Management anticipates gross margin to be 39.5%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Ollie's Bargain Outlet has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

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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