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Bear of the Day: Ollies Bargain Outlet (OLLI)

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Ollies Bargain Outlet (OLLI) is a Zacks Rank #5 (Strong Sell) that is a value retailer of brand name merchandise at low prices. The company offers products under Ollie’s, Ollie’s Bargain Outlet, Good Stuff Cheap, Ollie’s Army, Real Brands Real Cheap!, Real Brands! Real Bargains!, Sarasota Breeze, Steelton Tools, American Way and Commonwealth Classic

The stock has pulled back significantly after reporting a miss on EPS. Investors are now scratching their head and wondering if its time to buy more or let the stock settle.

More about OLLI

Ollie’s was founded in 1982 and is headquartered in Harrisburg, PA. As of January 30, 2021, it operated 388 stores in 25 states in the eastern half of the United States. Ollies employs 4400 people and has a market cap just under $5 billion.

The company offers housewares, bed and bath, food, floor coverings, health and beauty aids, books and stationery, toys, and electronics; and other products, including hardware, candy, clothing, sporting goods, pet and lawn, and garden products.

The stock has a Zacks Style Score of “A” in Growth. However, the stock is rated “C” in Value and “F” in Momentum.

Q2 Earnings

In late August, the company reported Q2 earnings, seeing a 9% miss. Revenue also came in below expectations and the company stressed uncertainties regarding the pace of the economic recovery. For that reason, the company didn’t guide for fiscal 2021.

Additionally, Ollies reported Same Store Sales down 28% and lower margins of 13%. Management commented that they expect Q3 SSS growth of 5-7% on a two-year stack basis. The company is seeing supply chain issues, but remain confident in the ability to drive growth and shareholder value in the future.

The stock was smashed after EPS, falling from $83 to $66 overnight. The reasoning behind the aggressive selling had to do with the second half of 2021 and the sales/margin guidance.

While the stock has rallied, estimates are falling, which will likely keep the bulls away short term.

Estimates

Over the last 30 days, analysts have taken down Ollie’s numbers. For the current quarter, estimates have fallen 13%, from $0.55 to $0.48. For the current year, numbers have fallen by 6%.

Despite the numbers heading lower, price targets remain above current trading levels. However, a number of analysts took their targets lower, such as Pacific Crest. The firm kept their Overweight rating, but lowered their targets to $95 from $105.

The Technicals

The stock fell below all moving averages after the earnings report and put in new 2021 lows. Investors could eye the $60 level as a potential spot to buy long-term. This is the 61.8% retracement drawn from COVID lows to 2020 highs.

In Summary

Ollie's is having some short-term issues that the market punished them for. Looking at earnings estimates, it seems like the trouble could persist into years end. This would keep the stock down around current levels and potentially give long-term investors an opportunity around the $60 level.

For those interested in the consumer staples space, Tupperware Brands (TUP) might be a better bet. This company is seeing estimates trend higher for the current year and is a Zacks Rank #1 ( Strong Buy).
 


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