Ollie’s Impacted By Growing Pains In Q2

Miscalculations about the effect of more rapid store growth hurt second quarter results at Ollie’s Bargain Outlets.

In the quarter, net income was $25.2 million, or 38 cents per diluted share, versus $29.8 million, or 45 cents per diluted share, in the year-earlier quarter. Adjusted net income, disregarding one-time effects, decreased 9.9% to $23.5 million, and adjusted net income per diluted share decreased 12.5% to 35 cents.

The company missed a MarketBeat-published analyst consensus adjusted net income per diluted share estimate of 46 cents.

Comparable sales decreased 1.7% in the quarter year over year.Net sales were $333.9 million versus $288.1 million in the year-previous quarter. Operating income was $30.8 million compared with $34.9 million.

Mark Butler, Ollie’s chairman, president and CEO, stated, “This was certainly, by Ollie’s standards, a tough quarter. Despite the challenges we faced, we grew our top line by nearly 16%, driven, in part, by strong sales from the 29 stores we opened in the first half of the year, more than double the number opened in the same period last year, including 13 former Toys ‘R’ Us locations. The exceptional strength, rapid pace of openings and larger footprint of these new stores impacted comparable store sales through increased cannibalization and supply chain pressures that reduced comparable store inventory levels. Comparable store sales were also affected by headwinds from store classes with exceptionally strong first-year sales now normalizing as they entered the comparable store base. Our gross margin in the quarter was pressured by both unfavorable merchandise margin as well as deleveraging of supply chain costs as we underestimated the impact of our accelerated new store growth on our operations. That said, we have made great strides in correcting these short-term issues, with comparable store inventory levels now back in line with our expectations. With our deal flow as strong as ever, we’re delivering great bargains to our customers. The strength of our new stores is, undoubtedly, the fuel for our growth. Despite the short-term impact on second quarter results, we are thrilled to see continued strength in these store openings, and we remain committed to our long-term objectives driven by highly profitable new stores. We remain confident and bullish on the strength of our model and our ability to deliver strong results and continued growth.”