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Factors Likely to Shape Five Below's (FIVE) Earnings in Q2

Zacks Equity Research

Five Below, Inc. FIVE is scheduled to release second-quarter fiscal 2019 results on Aug 28, after the closing bell. In the trailing four quarters, the bottom line of this specialty value retailer has outperformed the Zacks Consensus Estimate by average of 6.7%. Let’s see how the company is positioned ahead of the upcoming quarterly results.

Estimates Look Bright

The Zacks Consensus Estimate for second-quarter earnings is pegged at 50 cents, indicating an increase of 19.1% from 42 cents reported in the year-ago quarter. Notably, the consensus mark has remained stable over the past 30 days.

For revenues, the consensus estimate stands at $422.5 million, suggesting a rise of about 21.5% from the year-ago quarter.

Five Below, Inc. Price, Consensus and EPS Surprise

Five Below, Inc. Price, Consensus and EPS Surprise

Five Below, Inc. price-consensus-eps-surprise-chart | Five Below, Inc. Quote

Factors at Play

Five Below’s impressive merchandise assortment, focus on pre-teen customers, enhancement of digital and e-commerce channels, and pricing strategy aids it to stand tall amid a competitive retail landscape. These, along with healthy performance of new outlets and sturdy comparable store sales (comps) run is likely to help propel the top line in the impending quarter. Moreover, management anticipates net sales between $417 million and $422 million and comparable sales growth of 2-3% for the second quarter.

Further, Five Below is known for its impressive range of merchandise, as it remains committed toward making innovations and refreshing its product range per the evolving consumer trends. It also remains focused on achieving efficient cost structure, solid average net sales per store, supply-chain initiatives and economies of scale.

Apart from these, the company is also expanding its store base. It believes expanding scale helps it gain access to renowned shopping centers, capitalize on the emerging market trends and increase brand value.  The company had earlier outlined its plan to open approximately 40 new stores in the second quarter. Together, these upsides might drive its performance in the quarter to be reported.

However, we note that SG&A expenses have been increasing for quite some time now. In the first quarter of fiscal 2019, the same increased 31.7% on account of store and corporate related expenses. Analysts believe that SG&A expenses are likely to rise in the near future due to store growth. Certainly, this will to an extent hurt the company's operating income, unless fully mitigated by substantial increase in net sales.

Moreover, Five Below expects operating margin to remain under pressure. The company had earlier guided second-quarter operating margin to shrink about 20 basis points.

What Our Model Says

Our proven model does not conclusively show that Five Below is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Five Below Earnings ESP of 0.00% combined with its Zacks Rank #4 (Sell) makes us apprehensive about an earnings beat. Markedly, we caution against sell-rated stocks (Zacks Rank #4 or 5) going into earnings announcement.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post earnings beat.

Casey's General Stores, Inc. CASY has an Earnings ESP of +8.43% and a Zacks Rank #1.

Burlington Stores, Inc. BURL has an Earnings ESP of +1.13% and a Zacks Rank #2.

Costco Wholesale Corporation COST has an Earnings ESP of +0.30% and a Zacks Rank #3.

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