The list of companies reporting earnings this week will include some of the remaining names in retail that have yet to release third-quarter statements. Ollie's Bargain Outlet (OLLI -3.89%) has been on a tear over the last few years and will be looking to improve on its slightly weaker second quarter. Dave & Buster's (PLAY -0.90%) has had a comp sales problem, and investors have been waiting to see if it can be rectified. lululemon athletica (LULU -0.61%) has been an excellent investment with strong financial growth, and markets will be looking for that to continue.
1. Ollie's Bargain Outlet (reports on Dec. 10)
Ollie's Bargain Outlet has quietly been one of the best-performing retailers in recent years. Through the last four fiscal years, Ollie's has handily delivered double-digit revenue growth annually.
Annual net income growth has been an even more impressive story. Earnings increased by 113.5% in fiscal 2018 alone. More recently, things have slowed down a bit. Though total net income is up through the first two quarters of the year, second-quarter net income declined 15.6% from year-ago figures. Adjusted net income for the second quarter declined by 9.9% year over year.
Comp-store sales declined by 1.7%. The company credited the decline to cannibalization from new locations as well as the after-effect experienced from the normalization of comp-store sales from new store locations. The company further noted that supply chain pressures affected comp sales thanks to the effects new store openings had on their supply lines. The lower comparable store inventory levels were expected to be a short-term event. It will be interesting to see if this carried into the third quarter.
What to watch: One of the biggest questions will have next week regards the sudden death of CEO Mark Butler, who was also a co-founder of the company. The late executive did a great job of creating momentum for Ollie's, and it will be important to find a replacement who can match Butler's efforts with the company.
Though the stock price gave up some gains in recent months, it has handily outperformed the S&P 500 over the last four years. That continued dominance is heavily dependent on Ollie's proving that the short-term trends related to new store openings will not be a long-term hindrance to what was an incredible story. Full-year guidance includes expectations for a 0.5% to a 1.5% decrease in comp-store sales.
The use of the term "cannibalization" in the company's second-quarter earnings results did raise concerns. It implies that one store could have had some of its sales taken by another new location. If that's the case, Ollie's might not be growing its network in the most efficient way. Of course, this is all a guess until we see its third-quarter results.
2. Dave & Buster's (reports on Dec. 10)
Dave & Buster's 2019 has been a story of revenue growth versus comp sales declines. The two might seem counterintuitive, but new stores have provided revenue boosts to the company, while weakness at established store locations has been partially cannibalizing top-line growth. Through the first six months of the year, revenue is up 8.7%. At the same time, comp-store sales declined by 0.3% year over year in the first quarter, and 1.8% in the second quarter.
The sports bar/arcade titan delivered some bad news with its second-quarter results when guidance was lowered for the full year. With comp sales previously expected to decline by 1.5% to 0.5%, the new revisions to declines of 3.5% to 2% were not what investors were hoping for.
What to watch: The stock is down for the year, and there hasn't been much to reinvigorate shares. Comp sales, coupled with any changes to full-year guidance, will be what to watch when Dave & Buster's reports earnings. The bar/arcade chain needs to show a demonstrated ability to revive its chain of established restaurants in conjunction with the revenue gains from new location openings.
It would also be nice to see the improvements in earnings per share stem from actual earnings rather than share buybacks. Net income was down 1.5% through the first six months of the year, while earnings per diluted share were up 7.9% to $2.03. This was thanks to an 8.9% decrease in the number of diluted shares outstanding.
3. Lululemon (reports on Dec. 11)
Lululemon has been one of the best-performing retail brands. Despite the big premiums asked for the stock, the company's consistently strong financial performance has kept shares rising. Revenue is up 21.2% through the first half of the year to $1.67 billion. Through that time, gross margin improved 50 basis points to 54.5%. Operating margin improved 40 basis points to 17.8%, and Lululemon's earnings per diluted share of $1.69 were 34% higher than last year.
In the second quarter, total comp store sales increased by 15%. Those gains were due to a 10% bump in comp-store sales and a 30% growth in direct-to-consumer revenue. Second-quarter diluted earnings grew 35.2% year over year to $0.96 per share.
The athleisure brand provided third-quarter guidance of $880 million to $890 million in net revenue for the third quarter, marking a significant 17.7% increase in year-over-year revenue. Guidance also called for earnings of $0.90 to $0.92 per diluted share. That would be a 26.7% increase in earnings from Q3 2018. It's pretty hard to find that kind of growth elsewhere in the industry.
What to watch: For Lululemon, it will be about keeping the show running as-is. With such strong direct-to-consumer growth, big overall revenue gains, and ever better net income, Lululemon seems poised to be one of the best names going into the holiday season. The company needs to hit its targets, and perhaps show us some revisions to the upside for the fourth quarter, and the stock should maintain momentum. Of course, the catch here is the effect that the valuation could have on an earnings miss.