U.S. Markets open in 9 hrs 16 mins

Ollie's Bargain Soft Comps Performance May Hurt Top Line

Zacks Equity Research

Persistence of sluggish comparable-store sales performance may hurt Ollie's Bargain Outlet Holdings, Inc. OLLI top line. We note that comparable-store sales — an important indicator of a retailer's health — declined 1.7% during the second quarter of fiscal 2019, following an increase of 0.8% in the preceding period. The figure also compared unfavorably with an improvement of 4.4% in the prior-year quarter.

Cannibalization of comparable stores and short-term supply chain pressures hurt the comparable-store sales performance. Management now expects comparable-store sales to decrease in the range of 0.5-1.5%, which is down from an increase of 4.2% reported in fiscal 2018. The company had earlier forecast comparable-store sales growth of 1-2% for fiscal 2019.

Apart from this dismal margin performance also remains a concern. Notably, gross margin shriveled 190 basis points to 37.2% owing to deleverage in supply chain costs and lower merchandise margin. Meanwhile, operating margin shrunk 290 basis points to 9.2% on account contraction in gross margin and increase in SG&A expenses.

The aforementioned factors and lower-than-expected second-quarter fiscal 2019 results compelled this discount retailer to trim fiscal year view. Management now envisions operating income in the band of $174-$178 million for the current fiscal year, down from the prior estimate of $190-$194 million. Gross margin is anticipated to be 39.5% down from 40.1% projected previously.

The company now envisions fiscal 2019 adjusted earnings in the band of $1.95-$2.00 per share down from the prior estimate of $2.13-$2.17. Net sales are projected between $1.419 billion and $1.430 billion, down from $1.440-$1.453 billion estimated earlier. These were enough to trigger downward spiral in shares.

The past three months have not been a smooth ride for Ollie's Bargain, as shares of this Zacks Rank #5 (Strong Sell) company have fallen 30.4% compared with the industry’s decline of 17.1%. Since the announcement of results, the stock has plunged almost 23%.

3 Hot Stocks Awaiting Your Look

Target TGT has an average positive earnings surprise of 4.6% for the trailing four quarters. It carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Burlington Stores BURL has a long-term earnings growth rate of 15.9% and a Zacks Rank #2.

Dollar General DG has a long-term earnings growth rate of 9.6% and a Zacks Rank #2.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +98%, +119% and +164% in as little as 1 month. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Ollie's Bargain Outlet Holdings, Inc. (OLLI) : Free Stock Analysis Report
Burlington Stores, Inc. (BURL) : Free Stock Analysis Report
Dollar General Corporation (DG) : Free Stock Analysis Report
Target Corporation (TGT) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research