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Bear of the Day: Ollie's Bargain Outlet

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Ollie’s Bargain Outlet Holdings (OLLI - Free Report) is a value retailer of brand name merchandise at reduced prices. As of this past August, Ollie’s operated over 300 outlets in 23 states under the Ollie’s Bargain Outlet, Good Stuff Cheap, and other names.

Second Quarter Earnings Disappoint

Both adjusted earnings of 35 cents per share and revenue of $334 million missed the Zacks Consensus Estimate. EPS declined 12.5% year-over-year, while revenue did see growth of almost 16% from the prior-year period.

Comparable-store sales, however, fell 1.7%, missing the company’s own long-term guidance of positive 1%-2% growth. Management said that this decline was driven by three things: tough year-over-year comparisons, larger-than-normal number of store openings in the first half of 2019, and a big amount Toys-R-Us store conversions that “cannibalized” existing Ollie’s store sales.

Ollie’s did lower its full-year guidance—after raising its outlook in Q1—and now expects total 2019 sales to fall between $1.419 billion and $1.43 billion, gross margin of 39.5%, and adjusted EPS between $1.95 and $2.00.

Analysts have since turned bearish on Ollie’s, with eight cutting estimates in the last 60 days for fiscal 2019.

While earnings are expected to see positive growth for the year, the Zacks Consensus Estimate has dropped 19 cents during that same time period from $2.16 to $1.97 per share. This sentiment has stretched into 2020. While earnings could continue positive growth, our consensus estimate has dropped 22 cents in the past two months.

OLLI is now a Zacks Rank #5 (Strong Sell).

Shares of the value retail stock have slumped about 7.6% since January compared to the S&P 500’s gain of almost 20%.

Bottom Line

Looking ahead, Ollie’s management believes it has overcome the temporary headwinds it experienced in Q2, but investors will want to keep a close eye on same-store sales and gross margin expansion and future growth plans.

Investors who are interested in adding a retail peer to their portfolio should take a look at Zacks Rank #2 (Buy) ranked Burlington Stores (BURL - Free Report) , up almost 60% year-to-date.

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