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Five Below (FIVE) Q4 Earnings & Sales Surpass Estimates

Zacks Equity Research

Five Below, Inc. FIVE reported fourth-quarter fiscal 2018 results, continuing its remarkable streak of positive earnings and sales surprise. This specialty value retailer also posted decent year-over-year improvement in both the top and the bottom lines, with the ninth successive quarter of comparable sales growth.

In spite of posting better-than-expected results, management issued a soft view, which did not go down well with investors. The company forecast first quarter and fiscal 2019 earnings in the range of 32-35 cents a share and between $3.00 and $3.07 per share, respectively. The Zacks Consensus Estimate for the quarter and fiscal year is currently pegged at a respective 38 cents and $3.13.

Nevertheless, the company highlighted that it remains committed toward enhancing customer experience, improving supply chain and delivering better WOW products. Also, it remains focused on expanding store base and targets a network of more than 2,500 outlets in the long run.

The company’s strategic endeavors have led this Zacks Rank #3 (Hold) stock to rise approximately 17% in the past three months compared with the industry’s growth of 22%.

Let’s Delve Deeper

Adjusted earnings of $1.58 per share came a penny ahead of the Zacks Consensus Estimate and increased from $1.18 reported in the year-ago period. Net sales grew 19.4% to $602.7 million from the year-ago quarter and also came ahead of the Zacks Consensus Estimate of $601.7 million. Comparable sales (comps) increased 4.4% in the reported quarter driven by 2.3% increase in average ticket and 2.1% jump in transactions.

Gross profit grew 17.6% year over year to $244 million on account of increased sales, however, gross margin contracted 60 basis points to 40.5%. In spite of higher SG&A expenses, operating income rose 12.6% to $116.5 million but operating margin shrunk 120 basis points to 19.3%. As a percentage of net sales, SG&A expenses increased approximately 60 basis points to 21.2% in the quarter.

Five Below, Inc. Price, Consensus and EPS Surprise

Five Below, Inc. Price, Consensus and EPS Surprise | Five Below, Inc. Quote

Financials

Five Below ended the quarter with cash and cash equivalents of $251.7 million and short-term investment securities of $85.4 million. Notably, the company had no debt. Total shareholders’ equity was $615.1 million at the end of the reported quarter. Management expects to incur capital expenditure of approximately $170 million in fiscal 2019.

During the quarter, it bought back shares worth approximately $2 million. The company still has $98 million available under its $100 million share buyback program.

Store Updates

During the final quarter, the company opened five net new stores, taking the total openings to 125 in fiscal 2018. The company ended the quarter under review with 750 stores, reflecting an increase of 20% from the year-ago period. During the first quarter of fiscal 2019, the company plans to open approximately 35 new stores while in the fiscal year it intends to open approximately 145-150 new stores.

Outlook

Five Below envisions fiscal 2019 net sales in the range of $1.865-$1.885 billion, with comparable sales expected to increase 3%. We note that fiscal 2018 net sales came in at $1,559.6 million, while comparable sales rose 3.9%.

For the first quarter of fiscal 2019, management anticipates net sales between $361 million and $366 million and comparable sales growth of 3-4%. We note that first-quarter fiscal 2018 net sales came in at $296.3 million, while comparable sales improved 3.2%.

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