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Bear of the Day: Ollie's Bargain Outlet (OLLI)

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Based in Harrisburg, PA, Ollie’s Bargain Outlet OLLI is a popular discount retailer that sells a wide range of products under the Ollie’s, Ollie’s Army, and Good Stuff Cheap, among others. As of this past May, the company operates 360 outlets in 25 states.

Q3 Earnings Miss Expectations

Shares of OLLI dived 20% last Friday following weaker-than-expected Q3 results.

Both Ollie’s top and bottom line lagged the consensus estimate. The retailer earned $0.34 per share on revenue of $383.5 million compared to expectations of $0.47 per share and revenue of $410.1 million.

Total sales were down 7.5% year-over-year.

On a two-year basis, comparable store sales were down 1.3% but slumped 15.5% versus the third-quarter period of 2020.

Gross profit slid 11% while gross margin shrunk by 160 basis points due to a rise in supply chain costs, higher import and trucking costs, and increased wage rates in the distribution centers.

But, Ollie’s opened 18 new stores during the quarter, bringing its total count to 426 stores throughout 29 states; store count grew 10.6% year-over-year.

Ollie’s now expects revenue to fall between $1.76 billion and $1.77 billion for fiscal 2021, down from $1.80billion reported in fiscal 2020. The company also anticipates fourth-quarter comps to be flat to down 2% compared to fiscal 2019.

Bottom Line

OLLI is now a Zacks Rank #5 (Strong Sell).

Five analysts have cut their full year earnings outlook over the past 60 days. Ollie’s bottom line is expected to decline about 23.7% year-over-year, and the consensus estimate has fallen 26 cents to $2.41 per share for fiscal 2021. Next year’s earnings consensus has dropped as well, but Wall Street expects earnings to increase by over 7% to $2.59 per share.

Shares have been volatile so far in 2021. Year-to-date, OLLI has fallen 37% compared to the S&P 500’s gain of almost 25%.

Ollie's Bargain Outlet Holdings, Inc. Price and EPS Surprise
Ollie's Bargain Outlet Holdings, Inc. Price and EPS Surprise

While CEO John Swygert and the rest of Ollie’s management team are still bullish about the company’s growth opportunities, as well as its ability to secure quality inventory for next year, business may still be rocky for the time being.

Supply chain challenges that have plagued the company this year don’t look to be easing in time for the holiday quarter. Until management is sure those issues are behind it, potential investors may want to wait on the sidelines until the near-term outlook improves.

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