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Why Ollie's Bargain Outlet Crashed 17.6% Today

By Todd Campbell - Dec 6, 2018 at 5:02PM

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Investors balked at guidance that was shy of what they were expecting.

What happened

Although the company reported better-than-anticipated revenue and earnings last quarter, Ollie's Bargain Outlet Holdings ( OLLI -0.60% ) shares lost 17.6% of their value on Thursday after financial guidance failed to excite investors.

So what

The discount retailer's shares ended up in the bargain bin today despite sales jumping 19.1% year over year to $283.6 million and adjusted earnings per share (EPS) increasing 45.5% year over year to $0.32.

A man staring at a chart of a declining stock price holds his head in his hands.

IMAGE SOURCE: GETTY IMAGES.

The company's top-line results last quarter benefited from sales growth at existing locations, and new store openings. Specifically, comparable-store sales improved 4.6% and the store count grew 12.1% from one year ago to 297 stores.

The third-quarter performance was solid, but investors sold shares after management updated them on its outlook for the remainder of the year.

Ollie's Bargain Outlet is forecasting full year revenue of between $1.226 billion and $1.231 billion, comparable-store sales growth of at least 3%, and adjusted net income of $1.74 to $1.77 per share. It also expects capital expenditures of up to $80 million, including its previously reported purchase of 12 former Toys R Us properties in August and a recent purchase of land for a new distribution center in Texas. For perspective, analysts were modeling for $1.23 billion in sales and adjusted EPS of $1.76.

Now what

The guidance is arguably at the lower end of what industry-watchers were hoping, but today's sell-off does feel overdone given the quarter's performance, and the fact that the guidance was actually an increase from the guidance issued following the fiscal second quarter. At that time, management expected sales of between $1.222 billion and $1.227 billion, comparable-store sales growth of at least 2.5%, and adjusted EPS of $1.73 to $1.76.

The company's shares were, however, priced for perfection heading into the third-quarter report, so investors could simply be locking in some profit. Shares were up 80% year to date at one point this fall, making Ollie's Bargain Outlet not much of a bargain. Its price-to-sales ratio was nearly 5.5 and its price-to-earnings ratio was north of 40.

Today's sell-off makes this stock much more attractive, but it's still not cheap. Nevertheless, Ollie's Bargain Outlet is only a third of the way toward the total number of stores it thinks it can operate in the U.S., and shoppers still love a bargain. Therefore, risk-tolerant growth investors might want to add this one to their portfolios following today's drubbing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Ollie's Bargain Outlet Holdings, Inc. Stock Quote
Ollie's Bargain Outlet Holdings, Inc.
OLLI
$51.22 (-0.60%) $0.31

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