Shares of Ollie's Bargain Outlet Holdings, Inc. OLLI rose 2.8% during the after-market trading session on May 28. The stock surge was driven by the better-than-expected top- and bottom-line performance in first-quarter fiscal 2020 despite the impacts of the COVID-19 outbreak.
Management highlighted that the fiscal first quarter was quite challenging due to the coronavirus outbreak, which dented earnings and sales to some extent. Notably, the company delivered positive comps by the end of the quarter, which negated the steep decline witnessed somewhere in the middle of the quarter due to the coronavirus outbreak. Further, Ollie’s Bargain witnessed higher costs of operating stores and distribution centers, with safety protocols as well as premium pay to associates during the pandemic. Nonetheless, its cost-containment efforts did provide some cushion.
Further, the company has noted that initial sales for the fiscal second quarter remained strong. It expects to steer through the current environment with caution, cost containment and improved cash position. Given the expectations of unprecedented impacts from the pandemic, including the duration and effects on consumer demand, the company refrained from providing earnings guidance for fiscal 2020 at this time.
Ollie’s Bargain expects uncertainty regarding consumer demand, changes in shelter-in-place orders, the impacts of economic stimulus, and the reopening of retail stores and potential for increased liquidation sales to have a bearing on its sales results, going forward. Further, the company expects the product mix shift in sales and potential promotional pressure from aggressive and widespread liquidation sales to hurt the gross margin rate.
Ollie’s Bargain delivered adjusted earnings of 49 cents a share that beat the Zacks Consensus Estimate of 35 cents and improved 6.5% from the year-ago quarter. The improvement can be attributed to higher net sales and better expense management.
Ollies Bargain Outlet Holdings, Inc. Price, Consensus and EPS Surprise
Ollies Bargain Outlet Holdings, Inc. price-consensus-eps-surprise-chart | Ollies Bargain Outlet Holdings, Inc. Quote
Net sales improved 7.5% to $349.4 million and surpassed the consensus mark of $312.5 million. The increase in the top line can be attributed to robust new store performance.
However, comparable-store sales decreased 3.3% during the quarter under review, following a decline of 4.9% in the preceding quarter. We note that the reported figure compared unfavorably with the prior-year quarter’s increase of 0.8%. The inflection in comps trend can be attributed to the company’s ability to respond quickly to consumer needs amid the pandemic.
The company’s comps remained volatile in the quarter due to the adverse reaction during the initial announcement of the coronavirus pandemic, which led to soft traffic and a significant decline in sales. As its stores remained open, comps picked up in the latter part of the quarter, driven by efforts to effectively respond to changing consumer needs. Moreover, comps gained from the federal relief funds for the pandemic, which boosted consumer spending.
Meanwhile, gross profit rose 5.7% to $140.4 million. However, gross margin shriveled 70 basis points to 40.2%, owing to increased sales of consumables, which are low-margin products, as well as a deleverage in supply-chain cost rate due to lower-than-planned sales.
Adjusted SG&A expenses jumped to $89.7 million from $83.3 million on account of increased selling expenses related to new stores. However, as a percentage of net sales, SG&A expenses remained flat at 25.7%, driven by expense management initiatives, despite increased expenses to remain operational during the pandemic, which included premium pay to staff. Pre-opening expenses declined 28.8% to $3.7 million, owing to the comparative timing in the number of store openings in the quarter. As a percentage of sales, pre-opening expenses were down 50 bps to 1.1%.
Adjusted operating income grew 6.9% to $43 million. However, adjusted operating margin shrunk 10 basis points to 12.3% on account of gross margin contraction, partly offset by a decline in pre-opening expense rate.
Adjusted EBITDA rose 6.6% to $49.7 million, while adjusted EBITDA margin decreased 10 basis points to 14.2%.
During first-quarter fiscal 2020, Ollie’s Bargain opened 17 stores and closed two, taking the total count to 360 stores in 25 states.
Despite the widespread headwinds related to the COVID-19 outbreak, the company reiterated its plans to open 47-49 stores and close one in fiscal 2020. In addition, it expects another unexpected temporary store closure for the fiscal year due to smoke damage from fire at an adjacent tenant that occurred in the first quarter.
Earlier, management predicted 23 store openings in the first half of fiscal 2020 and the rest in the second half, with the handful in the early fourth quarter. However, due to the disruptions caused by the COVID-19 outbreak, the company now expects some openings to be delayed or pushed back to the next year.
Ollie’s Bargain, carrying a Zacks Rank #2 (Buy) at present, ended the quarter with cash and cash equivalents of $119.4 million, reflecting significant growth from $90 million at the end of the prior quarter. The company’s liquidity position remained strong, with no borrowings under its $100-million revolving credit facility and $94.9-million availability under the facility as of the end of the first quarter of fiscal 2020. As of May 2, 2020, its total borrowings (comprised solely of finance lease obligations) were $0.9 million and shareholders’ equity was $1,094.2 million.
Management incurred capital expenditure of $12.4 million in the fiscal first quarter. For fiscal 2020, the company expects capital expenditure of $30-$35 million directed toward store openings, IT projects and store-level initiatives.
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