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Ollie's Falls on Analyst Downgrades Despite Earnings Beat

Analysts raise concerns about a slowdown in sales in spite of Ollie's 'high quality' earnings beat.
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Analysts were downgrading Ollie's Bargain Outlet OLLI on Friday even after the discount store operator beat Wall Street's third-quarter earnings expectations.

Shares of the Harrisburg, Penn.-based company were falling 9.47% to $81.01 at last check.

"We downgrade OLLI to Neutral from Buy after the company reported 3Q results that revealed a sharp slowdown in 4th quarter-to-date trends and alluded to uncertainty around the timing of mega deals (bigger closeout deals) in 2021," Goldman Sachs analyst Chandni Luthra said in an investors' note.

Ollie's reported earnings of $45.2 million, or 68 cents a share, in the quarter, compared with $27 million, or 41 cents a share, a year ago. Adjusted earnings came to 65 cents a share, while analysts polled by FactSet had expected Ollie to report adjusted earnings of 58 cents a share.

"We continue to view OLLI as a strong operator and a unit growth story offering extreme value to customers in a unique treasure hunt format, but we expect valuation to be range-bound in the near-term, especially with tougher compares looming in 2021," said Luthra, who cut her price target to $95 a share from $122.

Net sales increased 27% to $414.4 million, compared with FactSet's call for $406 million in sales. Same-store sales increased 15.3%.

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John Swygert, president and CEO, said in a statement that "this holiday season is subject to many uncertainties regarding the impact of the pandemic and there are a lot of large volume days still ahead of us."

Craig-Hallum analyst Jeremy Hamblin lowered his price target on Ollie's to $100 from $128, while keeping a buy rating on the shares, according to the Fly.

Despite the company's "high quality" beat in the third quarter, Hamblin noted a larger-than-expected comp deceleration to the low-single-digit range, which he believes was likely driven by the pull forward by most retailers of Black Friday promotions into October and November.

However, Hamblin said he thinks Ollie's is on track for record results in fiscal year 2020 despite coronavirus challenges, and feels the long-term growth dynamic remains firmly intact.

RBC Capital analyst Scot Ciccarelli lowered his price target on Ollie's to $92 from $104 and maintains an outperform rating on the shares.

Ciccarelli said that the company's "strong" third-quarter results were overshadowed by a "sharp" slowdown in November sales, which reflects the extension of Black Friday sales by other retailers that reduced Ollie's value shopping appeal.

While Ciccarelli said he remains a "buyer" of Ollie's on the reset of expectations, he also warns that shares could be in the "penalty box" for the next several months.