Bear of the day: Ollie’s Bargain Outlet (OLLI) – December 8, 2021
Based in Harrisburg, PA, Ollie’s Bargain Outlet (OLLI – Free report) is a popular discount retailer that sells a wide range of products under the Ollie’s, Ollie’s Army, and Good Stuff Cheap brands, among others. As of May, the company operated 360 outlets in 25 states.
Third quarter results are not in line with expectations
OLLI shares plunged 20% last Friday after weaker than expected third quarter results.
Ollie’s results were both below the consensus estimate. The retailer earned $ 0.34 per share on revenues of $ 383.5 million, compared to expectations of $ 0.47 per share and revenues of $ 410.1 million.
Total sales were down 7.5% year-on-year.
Over two years, same store sales were down 1.3% but were down 15.5% from the third quarter of 2020.
Gross margin declined 11% while gross margin declined 160 basis points due to rising supply chain costs, rising import and trucking costs, and increased wages in distribution centers.
But, Ollie’s opened 18 new stores during the quarter, bringing its total number to 426 stores in 29 states; the number of stores increased 10.6% year-on-year.
Ollie’s now expects revenue to fall to between $ 1.76 billion and $ 1.77 billion in fiscal 2021, from $ 1.80 billion reported in fiscal 2020. The company predicts also that the composition of the fourth quarter will be stable at 2% compared to the 2019 financial year.
OLLI is now a Zacks Rank # 5 (strong sell).
Five analysts have slashed their outlook for annual earnings in the past 60 days. Ollie’s net income is expected to decline about 23.7% year-over-year, and the consensus estimate has fallen 26 cents to $ 2.41 per share for fiscal 2021. The consensus on next year’s profits also fell, but Wall Street expects profits to rise more than 7% to $ 2.59 per share.
Shares have been volatile so far in 2021. Since the start of the year, OLLI has fallen 37% from the S&P 500’s nearly 25% gain.
While CEO John Swygert and the rest of Ollie’s management team are still optimistic about the company’s growth opportunities, as well as its ability to secure quality inventory for the next year, business can still be difficult at the moment.
The supply chain challenges that have plagued the company this year don’t appear to be easing in time for the holiday quarter. Until management is certain these issues are behind them, potential investors may want to sit on the sidelines until the near-term outlook improves.