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Ollie's Bargain (OLLI) Stock Declines on Q4 Earnings Miss

Zacks Equity Research

Shares of Ollie's Bargain Outlet Holdings, Inc. OLLI declined roughly 7.4% during the after-market trading session on Mar 19. The decline can be attributed to the company’s lower-than-expected fourth-quarter fiscal 2019 results. Moreover, the company continued to witness soft comparable-store sales performance. Margins also contracted on a year-over-year basis.

Management highlighted that the fourth quarter was quite challenging in terms of sales, as the company’s significant investment in toy category impacted the performance of other key merchandise categories. Further, six fewer shopping days between Thanksgiving and Christmas impacted sales. Nonetheless, the company’s cost containment efforts did provide some cushion.

The company is optimistic about its business model of “buying cheap and selling cheap,” and remains focused on improving store productivity. Notably, both the top and bottom lines improved year over year during the quarter under review. However, given the coronavirus outbreak, the company has decided not to provide fiscal 2020 guidance.

Quarterly Results

Ollie’s Bargain delivered adjusted earnings of 74 cents a share that missed the Zacks Consensus Estimate by a couple of cents but improved 4.2% from the year-ago quarter’s figure of 71 cents. This year-over-year increase can be attributed to higher net sales and better expense management.

Notably, net sales improved 7.2% to $422.4 million but lagged the consensus mark of $436.7 million. The increase in the top line can be attributed to robust new store performance from the 42 stores opened in fiscal 2019, which includes 14 former Toys R Us locations.

However, comparable-store sales decreased 4.9% during the quarter under review, following a decline of 1.4% in the preceding period. We note that the reported figure compared unfavorably with the prior-year quarter’s increase of 5.4%.

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

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

Ollie's Bargain Outlet Holdings, Inc. price-consensus-eps-surprise-chart | Ollie's Bargain Outlet Holdings, Inc. Quote

Meanwhile, gross profit rose 5.6% to $165.5 million during the quarter. However, gross margin shriveled 60 basis points to 39.2% owing to increased supply chain costs as a percentage of net sales, partly offset by higher merchandise margin.

Adjusted operating income grew 3.6% to $64.1 million, however, adjusted operating margin shrunk 50 basis points to 15.2% on account of gross margin contraction and deleveraging of depreciation and amortization expenses. This was partly offset by reduction of pre-opening expenses as a percentage of net sales.

Adjusted SG&A expenses jumped to $95.4 million from $89 million on account of increased selling expenses related to new stores. However, as a percentage of net sales, SG&A expenses remained flat at 22.6%.

Adjusted EBITDA increased 2.4% to $69.3 million during the reported quarter, however, adjusted EBITDA margin decreased 80 basis points to 16.4%.

Store Update

During fiscal 2019, Ollie’s Bargain opened 42 new stores taking the total count to 345 stores in 25 states. The company plans to open 47-49 stores and close one in fiscal 2020. So far this year, the company has opened nine stores. Management believes that there is a significant room to increase store count to approximately 1,050 stores on a national scale, up from prior estimate of 950.

Financial Aspects

Ollie’s Bargain, which carries a Zacks Rank #3 (Hold), ended the quarter with cash and cash equivalents of $90 million, total borrowings (consisting solely of finance lease obligations) of $0.8 million and shareholders’ equity of $1,058.9 million.

Management incurred capital expenditure of $77 million in fiscal 2019 thanks to investments in the third distribution center and new stores. During fiscal 2019, the company repurchased approximately 689,000 shares worth $40 million.  At the end of the fiscal year, the company had $60 million remaining under its current share repurchase program.

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