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Reasons Behind Ollie's Bargain's Dismal Run On The Bourses

By Zacks Investment ResearchSep 22, 2019 09:25PM ET
www.investing.com/analysis/reasons-behind-ollies-bargains-dismal-run-on-the-bourses-200467034
Reasons Behind Ollie's Bargain's Dismal Run On The Bourses
By Zacks Investment Research   |  Sep 22, 2019 09:25PM ET
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The past three months have not been a smooth ride for Ollie's Bargain Outlet Holdings, Inc. (NASDAQ:OLLI) , as shares of this discount retailer have fallen 29.3% compared with the industry’s decline of 22.8%. This Zacks Rank #5 (Strong Sell) stock came under pressure following the company’s lower-than-expected second-quarter fiscal 2019 results and soft view. Since the announcement of results, the stock has plunged almost 20%.

Analysts have grown pessimistic regarding the stock over time, as evident from downward revision in the Zacks Consensus Estimate. We note that the Zacks Consensus Estimate for earnings for fiscal 2019 and 2020 have moved south by 20 cents and 22 cents in the past 30 days to $1.97 and $2.32, respectively. The consensus mark for the third quarter of fiscal 2019 has moved down by 3 cents in the past aforementioned period.

Let’s Analyze

Ollie's Bargain’s softer-than-expected second-quarter fiscal 2019 results, dismal comparable-store sales (comps) performance and weak margins compelled management to trim fiscal year view. 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. These were enough to trigger downward spiral in shares.


Comps fell 1.7% during the quarter under review, following an improvement of 0.8% in the preceding period. The figure also compares unfavorably with the prior-year quarter’s increase of 4.4%. Cannibalization of comparable stores and short-term supply chain pressures hurt the comps. The company now expects comps to decline in the range of 0.5-1.5%, against an improvement of 4.2% reported in fiscal 2018. The company had earlier forecasted comps growth of 1-2% for fiscal 2019.

Margin, an important financial metric, remains under pressure. Gross margin shriveled 190 basis points to 37.2% owing to deleverage in supply chain costs and lower merchandise margin. We also note that operating income declined 11.8% to $30.8 million, while operating margin shrunk 290 basis points to 9.2% on account of contraction in gross margin and deleveraging of SG&A expenses.

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.

Notwithstanding this short-term blip, management is optimistic about its business model of “buying cheap and selling cheap,” and remains focused on containing costs, improving store productivity and expanding customer reward program, Ollie's Army.

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Dollar General (NYSE:DG) has an average positive earnings surprise of 3.6% in the trailing four quarters. The company carries a Zacks Rank #2.

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

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Ollie's Bargain Outlet Holdings, Inc. (OLLI): Free Stock Analysis Report

Target Corporation (TGT): Free Stock Analysis Report

Dollar General Corporation (DG): Free Stock Analysis Report

Burlington Stores, Inc. (BURL): Free Stock Analysis Report

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Reasons Behind Ollie's Bargain's Dismal Run On The Bourses
 
Reasons Behind Ollie's Bargain's Dismal Run On The Bourses

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