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Ollie's Bargain Outlet Holdings, Inc. OLLI announced an increase to its existing share repurchase program. The company’s board approved the buyback of up to $159.6 million. This includes the existing $59.6-million shares remaining under its previous repurchase authorization, which expires on Mar 26, 2021. The newly-authorized additional buyback of $100 million is set to expire on Jan 13, 2023.
Share repurchasing actions are a prudent way of maximizing shareholder’s wealth. Although the Ollie's Bargain had not been executing share buybacks for a while, the recent extension of the buyback authorization restores optimism. The repurchase is likely to be funded by the company through cash in hand or through its revolving credit facility.
Further, management informed that it may repurchase shares through open market transactions, privately-negotiated transactions, accelerated share repurchase programs, other derivative transactions, issuer self-tender offers or through any combination of these. Moreover, the company plans to exercise repurchase activities based on its discretion, after considering the market scenario, business condition and other factors.
A stable financial position backed by robust cash flows has enabled Ollie's Bargain to support growth initiatives and prudent capital allocation. This is likely to have encouraged the company to increase its share repurchase authorization. The company had $325.5 million in cash and cash equivalents at the end of third-quarter fiscal 2020, up from $305.1 million at the end of the second quarter. The company’s liquidity position remained strong, with no borrowings under its $100-million revolving credit facility and $95.3 million of availability under this facility, as at the end of the third quarter of fiscal 2020. Moreover, it generated cash from operating activities of $25.7 million during the third quarter.
Speaking of growth initiatives, Ollie's Bargain is on track with store expansion plans. Markedly, the company opened 46 new store locations during fiscal 2020. The company is committed to open 50-55 stores per year. Additionally, the company is strengthening its assortments, while boosting store productivity. Moreover, the company’s well-chalked business model enables it to offer a broad range of merchandise across various categories at significantly low prices. In fact, the company sells merchandise at prices of up to 70% lower than department stores, and up to 20-50% lower than mass-market retailers.
However, this Zacks Rank #4 (Sell) company has been witnessing higher selling, general and administrative (SG&A) expenses. During the third quarter, SG&A expenses increased 17% year on year due to increased number of stores as well as higher store payroll and variable selling expenses. Also, the softening of comparable store sales in the later part of third quarter and in the fourth quarter raised some concerns for the company. In fact, quarter-to-date, up until Dec 4, comparable store sales were tracking in the low single-digits. Going ahead, the company remains apprehensive regarding the potential adversities emerging from the COVID-19 pandemic on its business operations. Notably, shares of the company have declined 5.4% in the past three months compared with the industry’s rise of 2.7%.
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