This is a class action on behalf of investors that purchased Ollie’s securities between Mar. 26, 2019 and Aug. 28, 2019, seeking to pursue remedies under the Securities Exchange Act of 1934.
Ollie’s is a Harrisburg, Pennsylvania-based bargain retailer of closeout merchandise and excess inventory. Since its IPO in 2015, Ollie’s has embarked on an aggressive expansion campaign, growing from just 176 stores in 2014 to 324 stores in 25 states in 2019. The Company has outpaced competitors year-over-year by consistently posting comparable stores sales growth.
The case arises from Defendants’ misrepresentations and concealment of material facts about the Company’s expansion strategy, supply chain, quality of existing inventory, and prospects. Specifically, during the Class Period, Defendants assured investors and analysts that the Company had the necessary inventory to support both its expansion and comparable sales growth, stating that Ollie’s was “locked and loaded” with inventory for 2019, that the inventory “pipeline is full,” and that the Company’s deal flow was so strong that “we can very easily support our expansion efforts.” In turn, the Company provided rosy FY2019 earnings guidance, advising that investors should expect comparable stores growth of 1%-2%.
The operative complaint alleges that Defendants knew, however, that their statements about Ollie’s inventory and comparable store sales, as well as the FY2019 guidance, were false and materially misleading. According to the complaint, the Company was suffering from significant supply chain inventory issues, as well as a glut of low-margin inventory, since at least 1Q2019. Defendants also allegedly knew that Ollie’s rapid expansion efforts were negatively impacting comparable store sales, both because supply chain issues that began in 1Q2019 were resulting in a lack of sufficient inventory to fill its new stores, and because less high-end inventory had eaten into comparable store sales and revenues. According to the complaint, these issues forced Ollie’s existing stores to divert inventory to the Company’s new stores.
The market learned of the supply chain and inventory issues on Aug. 28, 2019, when the Company slashed its FY2019 guidance due to supply chain issues that Ollie’s COO, John Swygert, admitted existed “for most — all of Q2.” Due to the inventory supply chain issues and lower-margin inventory, the Company also reported a decrease in comparable store sales for the first time in five years.
On this news, Ollie’s shares plummeted almost 30%, thereby damaging investors.