Ollie's Bargain Confronts Weak Consumer Spending and Higher Costs

Scott Peters
08 Jun, 2022
New York City

Ollie's Bargain Outlet sales sales, earnings and margins dropped sharply on lower sales, higher inventories amid challenging economic environment. 

Net sales in the first quarter ending in April declined 10.1% to $406.7 million on 17.3% fall in comparable sales. 

Sales in the quarter year ago were lifted higher on new store openings and also the third round of stimulus lifted consumer spending.  

Net income decreased 77.3% to $12.5 million and net income per diluted share decreased 76.2% to $0.20 from a year ago. 

Gross margin decreased 560 basis points to 34.8% on higher import and labor costs partially offset by merchandise price increase. 

Selling, general and administrative expense as a percentage of sales increased 550 basis points to 28.6% partially because of deleveraging as a result of lower sales compared to a year ago. 

Lower gross margin and higher selling and general expenses dragged the operating margin down 150 basis points to 4.2%. 

Net income plunged 77.3% to $12.5 million, or $0.20 per diluted share compared to $55.2 million or $0.84 per diluted share a year ago.

Net income margin dropped to 3.1% from 12.2% a year ago. 

Cash and cash equivalents balance at the end of the quarter declined to $205.5 million from $472.2 million and the retailer had no borrowings outstanding under its $100 million revolving credit facility and $90.9 million of availability under the facility at the end of the first quarter.

The retailer ended the quarter with total borrowings, consisting solely of finance lease obligations, of $1.1 million.

After the close of the quarter, the company invested $10.0 million of cash to repurchase 238,485 shares of its common stock, and has $170.0 million remaining under its current share repurchase program.

Inventories at the end of the quarter increased 45.6% to $517.0 million compared with $355.2 million and about one third of the increase was linked to higher merchandise cost, timing of the purchase, and higher number of stores. 

The higher sales activities in the quarter a year ago also depressed the inventories in the quarter a year ago. 

Capital expenditure in the quarter was $9.7 million compared to $9.5 million a year ago.  

The company opened 9 new stores and closed one store in connection with a relocation, ending the quarter with 439 stores in 29 states, an increase of 10.6% from a year ago.

Guidance and Outlook 

For the second quarter of fiscal 2022, the company anticipates sales between $450.0 million and $460.0 million and comparable sales to range between flat to 3% increase. 

In the second quarter, gross margin is expected to be stable at 34.5% and  operating income of $27.0 million to $30.0 million. 

In the fiscal 2022, net sales are expected to range between $1.870 billion to $1.900 billion and comparable sales to range between 2% decline and flat. 

The gross margin is expected to hover between 36.5% and 36.7% and operating income between $155.0 million and $168.0 million and capital expenditure between $53.0 million and $58.0 million. 

The company plans to open 46 to 48 new stores, including two relocations and expand its distribution center in York, Pennsylvania. 

• Company and Stock 
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Ollie's Bargain Outlet Holdings is headquartered in Harrisburg, Pennsylvania and operates 439 stores in 29 states as of the end of April 2022 and employs about 8,500 people.  

Ollie's Bargain declined 6.8% to $50.99 after the deep discount retailer released earnings but managed to close up 4.7% to $53.38. 

In the year so far, Ollie's Bargain has increased 1.9%.