Ollie's Bargain (OLLI) Q3 Earnings & Sales Miss, Comps Down

Supply chain bottlenecks hurt Ollie's Bargain Outlet Holdings, Inc.’s OLLI third-quarter fiscal 2021 performance. The company reported lower-than-expected results, wherein both the top and the bottom lines decreased year over year. This Harrisburg, PA-based company also continued with its dismal comparable store sales run.

As a result, shares of this Rank #3 (Hold) company plummeted 19.4% during the after-market trading session on Dec 2. The stock has fallen 12.4% in the past three months compared with the industry’s decline of 9.4%.

Here’s How the Top & the Bottom Lines Fared

Ollie's Bargain posted adjusted earnings of 34 cents a share that fell short of the Zacks Consensus Estimate of 47 cents, thus marking the second straight miss. The bottom line declined significantly from 65 cents reported in the year-ago quarter. This year-over-year decrease was due to lower net sales and higher SG&A expenses.

Net sales fell 7.5% year over year to $383.5 million, and missed the consensus mark of $410.1 million for the second successive quarter. Soft comparable store sales performance hurt the metric. However, this was partly offset by new store unit growth.

Comparable store sales slid 15.5% against an increase of 15.3% in the prior-year period. Comparable store sales fell 1.3% compared with third-quarter fiscal 2019. Fourth-quarter to date, comparable store sales are tracking down low single digits compared with the same period in fiscal 2019.

Management highlighted that supply chain related headwinds, including shipping delays of imported seasonal and other products, and subsequent backlogs in its distribution centers resulted in lower-than-anticipated sales results.

Nonetheless, John Swygert, president and CEO said, “Despite the near-term challenges, longer term, we remain bullish on the growth opportunities that lie ahead for several reasons. First, we are seeing incredible deals being presented to us each and every day and we expect to continue to capitalize on market disruptions, including order cancellations and abandoned goods associated with import shipping delays. Second, we have made meaningful progress in driving improved efficiencies and increased throughput across our distribution centers. Third, we continue to deliver extreme value to our customers, which is particularly important in inflationary times.”

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

A Look into Margins

Gross profit declined 11% to $152.6 million during the quarter under review. Gross margin shrunk 160 basis points to 39.8% primarily due to rise in supply chain costs, higher import and trucking costs, and increased wage rates in the distribution centers. These were partly offset by 120 basis points increase in merchandise margin.

SG&A expenses rose 7.8% to $114 million from the prior-year quarter’s levels owing to increased selling expenses associated with 41 net additional stores and higher wage rates in select markets. As a percentage of net sales, SG&A expenses increased 420 basis points to 29.7% due to deleveraging as a result of lower sales.

Adjusted operating income plunged 48.3% to $29.9 million, while adjusted operating margin shriveled 610 basis points to 7.8% primarily due to contraction in gross margin and the deleveraging of SG&A expenses stemming from lower sales.

Adjusted EBITDA decreased 41.9% to $37.9 million during the quarter under review. Adjusted EBITDA margin contracted 590 basis points to 9.9%.

Store Update

During the third quarter, Ollie’s Bargain opened 18 new stores, bringing the total count to 426 stores in 29 states at the end of the period. This reflected an increase of 10.6% in store count on a year-over-year basis.

Other Financial Aspects

Ollie’s Bargain ended the quarter with cash and cash equivalents of $229.7 million (as of Oct 30, 2021). The company had no borrowings outstanding under its $100 million revolving credit facility and $86.4 million of availability under the facility, as of the end of third-quarter fiscal 2021.

As of Oct 30, 2021, its total borrowings (consisting solely of finance lease obligations) were $1.1 million. Inventories, as of the end of the third quarter, increased 19.5% to $471.8 million. The company incurred capital expenditures of $11.9 million during the quarter, primarily for new and existing stores.

During the third quarter, the company invested nearly $164.7 million in cash to repurchase 2,249,329 shares. At the end of the third quarter, the company had $33,000 worth shares remaining under its current repurchase program, which expires on Jan 13, 2023. This November, the company’s board of directors authorized an additional $200 million to repurchase stock.

Outlook

Management envisions fiscal 2021 total net sales between $1.762 billion and $1.772 billion, down from $1.809 billion reported in fiscal 2020. Ollie’s Bargain anticipates comparable store sales to increase in the band of 3.5-4% as compared with fiscal 2019. However, fourth-quarter comparable store sales are expected to be flat to down 2% compared with fiscal 2019.

Ollie’s Bargain now envisions a gross margin rate of approximately 38.6% to 38.8%, down from the prior-view of 39.4% to 39.5% owing to higher-than-expected inbound transportation costs. The company had reported a gross margin of 40% in the last fiscal year. The company guided fiscal 2021 adjusted earnings in the range of $2.30 to $2.35 per share, down from adjusted earnings of $3.16 reported last fiscal.

3 Hot Stocks to Consider

Some better-ranked stocks include United Natural Foods UNFI, MGP Ingredients MGPI and Target TGT.

United Natural Foods, which distributes natural, organic, specialty, produce, and conventional grocery and non-food products, flaunts a Zacks Rank #1 (Strong Buy). UNFI has a trailing four-quarter earnings surprise of 13.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for United Natural Foods’ current financial year sales and earnings per share (EPS) suggests growth of 4.1% and 5.2%, respectively, from the year-ago period.

MGP Ingredients (MGPI), a leading producer of premium distilled spirits, branded spirits, and food ingredient solutions, sports a Zacks Rank #1. MGPI has a trailing four-quarter earnings surprise of 117.6%, on average.

The Zacks Consensus Estimate for MGP Ingredients’ current financial year sales and EPS suggests growth of 55.5% and 61.4%, respectively, from the year-ago period.

Target, a general merchandise retailer, carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 19.7%, on average.

The Zacks Consensus Estimate for Target’s current financial year sales and EPS suggests growth of 14.3% and 39.9%, respectively, from the year-ago period. TGT has an expected EPS growth rate of 14.4% for three-five years.

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