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It has been about a month since the last earnings report for Ollie's Bargain Outlet (OLLI). Shares have added about 11.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Ollie's Bargain Outlet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Ollie's Bargain Q4 Earnings Beat, Comps Increase 8.8%
Ollie's Bargain Outlet Holdings, Inc. posted fourth-quarter fiscal 2020 results, wherein adjusted earnings of 97 cents a share 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. Management informed that current sales trends remained impressive while first-quarter fiscal 2021 comparable store sales were tracking up in the high-single digits quarter-to-date through Mar 19. It also added that the company is well on track to deliver robust performance in the first quarter.
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.
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 through Mar 19 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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 7.1% due to these changes.
Currently, Ollie's Bargain Outlet has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Ollie's Bargain Outlet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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