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Ollie's Bargain Outlet Holdings, Inc. OLLI maintained stellar performance in fourth-quarter fiscal 2020, wherein both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. It was the fourth straight quarter of sales and earnings beat. Notably, the company witnessed decent comparable store sales growth.
Markedly, shares of Ollie's Bargain rose 4.6% during the after-market trading session on Mar 18, 2021. Evidently, stronger-than-anticipated results and upbeat commentary on first-quarter fiscal 2021 performance buoyed investor sentiment.
Management informed that current sales trends are impressive while comparable store sales are tracking up in the high-single digits quarter-to-date. It also added that the company is well on track to deliver robust performance in the first quarter.
We note that this Zacks Rank #3 (Hold) stock has risen 4.5% in the past three months against the industry’s decline of 13.8%.
Here’s How the Top & the Bottom Lines Fared
Ollie’s Bargain posted adjusted earnings of 97 cents a share that beat the Zacks Consensus Estimate of 85 cents and surged from 74 cents reported in the year-ago quarter. This year-over-year improvement was fueled by higher net sales, gross margin expansion and better expense management.
Net sales improved 22.1% year over year to $515.8 million and surpassed the consensus mark of $486.1 million. This surge in the top line can be attributed to comparable store sales increase and new store unit growth coupled with sturdy performance.
Comparable store sales climbed 8.8% during the quarter, driven by a significant rise in average basket, partly offset by fewer transactions. The company’s top-performing categories were bed and bath, housewares, flooring, food, health and beauty aids, and seasonal.
The company’s business operating model of “buying cheap and selling cheap” and focus on value-driven merchandise assortment positioned it well to grab opportunities in the marketplace and effectively meet consumer demand amid the ongoing pandemic. Management stated that shift in consumer spending from COVID-impacted categories, such as travel, dining and experiences, to retail, and federal stimulus funds as part of the recently enacted COVID-Related Tax Relief Act of 2020 benefited the company.
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
A Sneak Peek Into Margins
Gross profit surged 23.6% year over year to $204.7 million during the quarter under review, while gross margin expanded 50 basis points to 39.7%. The increase in the metric can be attributed to improvement in the merchandise margin and leveraging of supply chain expenses due to higher sales.
SG&A expenses jumped 20.3% to $114.2 million from the prior-year period on account of increase in number of stores and higher store payroll and variable selling expenses. Excluding the gains from insurance settlements, SG&A expenses increased 20% to $114.4 million in the quarter.
However, as a percentage of net sales, SG&A expenses — exclusive of the insurance settlements gains — declined 40 basis points to 22.2%. The decrease was owing to significant leverage in occupancy and other costs owing to comparable store sales growth and cost-containment efforts. This was partly offset by certain increased expenses, such as premium and incentive pay, associated with operating in pandemic-hit environment.
Excluding the gains from the insurance settlements, adjusted operating income rose 31.7% to $84.5 million in the final quarter. Again, adjusted operating margin expanded 120 basis points to 16.4% owing to higher gross margin and the leveraging of expense components due to the increase in comparable store sales.
Adjusted EBITDA increased 32.9% to $92.1 million during the quarter under review. Adjusted EBITDA margin increased 150 basis points to 17.9%.
During the fourth quarter, Ollie’s Bargain opened four new stores and closed one location, thereby taking the total count to 388 stores in 25 states. We note that the company opened 46 new locations in fiscal 2020 and plans to open 50 stores including three to four relocations in fiscal 2021. The company informed that so far this year it has opened seven stores, including one relocation. Meanwhile, management is planning to bring the Ollie's brand to three new states — Kansas, Missouri and Vermont.
Other Financial Aspects
Ollie’s Bargain ended the quarter with cash and cash equivalents of $447.1 million (as of Jan 30, 2021), reflecting significant increase from $90 million as of Feb 1, 2020. The company had no borrowings under its $100 million revolving credit facility and $92 million of availability under the facility, as of the end of fiscal 2020.
As of Jan 30, 2021, its total borrowings (comprising solely of finance lease obligations) were $1 million and stockholders’ equity was $1,334.9 million. Inventories, as of the end of fiscal 2020, grew 5.5% to $353.7 million. The company incurred capital expenditures of $30.5 million in fiscal 2020. Management anticipates capital expenditures of $40-$45 million in fiscal 2021, principally for new outlets, IT projects and store level initiatives.
The company’s board of directors authorized a $100 million increase in the share buyback program on Mar 16. This resulted in $200 million approved for share buyback through these programs which expire on Jan 13, 2023.
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