Shares of major discount chain Ollie’s Bargain Outlet (OLLI) rose sharply after the company reported a better-than-expected second-quarter sales outlook in the same second-quarter stores. However, the retailer’s disappointing financial performance in the first quarter could shake investors. Also, given that rising inflation and declining consumer sentiment may weigh heavily on the retail chain, will the stock be able to maintain its momentum? Keep reading.
Pennsylvania-based discount settlement retailer Ollie’s Bargain Outlet Holdings, Inc. (OLLI) offers products and merchandise from famous brands at drastically reduced prices. OLLI shares gained 13.9% over the past five days after the company reported earnings for the first quarter of fiscal 2022 with an updated outlook for the second quarter of 2022. The discount chain expects comparable store sales that they range from 3% to 3% and a gross margin of approximately 34.5%.
However, the retailer did not live up to Wall Street’s expectations for top and bottom results. OLI’s comparable store sales fell 17.3% from 18.8% the previous year. While the company expects to see an increase in demand for seasonal products for warm weather during the second quarter, there are several headwinds, including consumers facing the the worst inflation in almost 40 years and an impending recession, could be a major sign of concern for the stock market. Shares are currently trading at 43.8% below their 52-week high of $ 95.43.
In addition, as the extreme value retailer continues to see an increase in supply chain costs due to higher import and labor costs, the stock could witness a decline in the coming months. .
Here’s what could affect UCI’s short-term performance:
Winds against the retail sector
According to a report by the Bureau of Labor Statistics last month, the consumer price index for all items rose 8.6% from a year ago, the first increase of 10% or more since 1981. Consumers are changing their discretionary spending habits as they continue to worry about rising costs. According to a poll conducted by Toluna from March 23 to 29 on more than 1,000 adults, almost 61% of Americans say they are worried about their financial situation due to rising prices.
Historic lows in consumer sentiment amid fears of recession could adversely affect the retail sector. As softer demand is expected to hold as consumers look at their budget, retail chains like OLLI may see a drop in sales in the short term.
OLLI’s net total sales decreased 10.1% year-on-year to $ 406.7 million during the first quarter ended April 30, 2022, primarily due to a comparable decrease in in-store sales. of 17.3%. The operating income of the discount chain operator fell 75.9% to $ 17.1 million, while its operating margin decreased 1,150 basis points to 4.2%. In addition, the company’s net income decreased 77.3% year-on-year to $ 12.5 million, and the EPA decreased 76.2% year-over-year to 0, $ 20. His EBITDA adjusted it was down 66.9% from $ 26.2 million last year.
A story of bleak growth
Analysts expect OLI’s EPA to decline 36.5% in the current quarter (ending July 2022) and 20.3% in fiscal year 2023. In addition, the retailer did not exceed estimates. of Street in three of the following four quarters.
Its EBIT and net income decreased by a CAGR of 3.4% and 7.1%, respectively, over the last three years. And its EPS decreased at an annualized rate of 6.7% during this period.
POWR ratings reflect bleak prospects
OLLI has a general rating of D, which translates to Sell to ours POWR ratings system. POWR scores are calculated taking into account 118 different factors, with each factor weighted to an optimal degree.
Our own rating system also evaluates each value based on eight different categories. OLLI has a D rating for feeling and stability. Analysts’ expectations that OLI’s EPS will decline in the current quarter are consistent with the Sentiment note. And the relatively high beta of the 1.09 stock is in sync with the degree of stability.
In addition to the qualifications I have highlighted, you can check out OLI’s additional assessments for growth, momentum, value and quality. here.
OLLI ranks 37th out of 45 shares in the C rating Specialty stores industry.
While OLI’s efforts to increase the number of stores year after year could help improve its current sales trends, concerns about higher inflationary pressures and low consumer sentiment could limit its growth potential. . In addition, its bleak outlook and falling financial data could see its stock fall further in the coming months. So it is best to avoid it now.
How does Ollie’s Bargain Outlet Holdings (OLLI) compare to its peers?
While OLLI has a D rating in our proprietary rating system, you may want to consider taking a look at your industry peers, ODP Corp. (ODP), which has an A (Strong Purchase) rating.
OLLI shares were trading at $ 53.00 per share on Monday morning, down $ 0.66 (-1.23%). To date, OLLI has gained 3.54%, compared to a -20.25% increase in the S&P 500 benchmark index over the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with a passion for financial research and writing. He began his career at Kantar IMRB, a leading market research and consumer consulting organization.
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