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Five Below (FIVE) Stock Up Despite Wider-Than-Expected Q1 Loss

Zacks Equity Research
·4 min read

Five Below, Inc. FIVE posted dismal first-quarter fiscal 2020 results, wherein loss per share was wider than the Zacks Consensus Estimate. Also, sales tumbled year over year and delivered a negative surprise. Results were marred by store closures undertaken by the company in the wake of coronavirus. Further, the company did not offer any top or bottom-line guidance for the second quarter, given the uncertainty surrounding the pandemic.

Despite the weak performance, the company’s shares rallied 11.1% during the after-market trading session on Jun 9, courtesy of store reopenings. Markedly, the company started reopening stores in late April itself and had about 90% of its stores reopened as of Jun 9, depicting impressive initial sales trends. This has been spurring investors’ confidence in the stock that has gained 14.1% in the past three months compared with the industry’s growth of 28.5%.

Amid the crisis, Five Below undertook several cost-cutting measures to preserve its financial position.  To this end, the company had furloughed most of its store and distribution center workers, canceled merchandise orders, procrastinated payments and curtailed capital expenditure plan for 2020. Now with most of its stores operational, the company believes that it is well positioned on all fronts.

Let’s Delve Deeper

This Zacks Rank #5 (Strong Sell) company posted a quarterly loss of 91 cents per share, which includes a benefit of 2 cents related to share-based accounting. The Zacks Consensus Estimate stood at a loss of 35 cents.

Five Below, Inc. Price, Consensus and EPS Surprise

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

Net sales slumped 44.9% to $200.9 million from the year-ago quarter and fell short of the Zacks Consensus Estimate of $225.6 million. Results were affected by coronavirus-led store closures. Like other retailers, such as DICK’S Sporting DKS, Ulta Beauty ULTA and Sally Beauty SBH, Five Below also had to temporarily close stores to contain the spread of COVID-19. Incidentally, all stores were closed from Mar 20, which considerably affected the company’s results. However, e-commerce sales grew more than four times in the quarter, though it still formed a very small portion of the top line.

Comparable sales tumbled 51.8% during the quarter under review following a dip of 2.2% in the preceding period. This was accountable to the store closures as well as loss of Easter selling days. Results were only partly cushioned by e-commerce strength. Till Mar 11 (when coronavirus was declared a pandemic), comparable sales registered a rise of 2.9%.

Gross profit collapsed considerably to $20.5 million compared with $120 million in the year-ago period. Again, gross margin contracted from 32.9% to 10.2%. This was accountable to lower sales stemming from store closures as well as the related fixed-cost deleverage.

We note that SG&A expenses dipped nearly 3% to $92.7 million, while as a percentage of net sales the same expanded from 26.2% to 46.1%. Five Below posted an operating loss of $72.2 million against an operating income of $24.5 million in the same period last year.

Financials

It ended the quarter with cash and cash equivalents of $69.8 million and short-term investment securities of $69.2 million. Total shareholders’ equity was $689.8 million at the end of the reported quarter.

Till the middle of first-quarter fiscal 2020, the company bought back 137,023 shares for about $12.7 million. Additionally, Five Below expanded its line of credit by $175 million to $225 million as of the quarter-end.

Store Updates

During the quarter, the company opened 20 net new stores. This took the total count to 920 stores in 36 states, reflecting an increase of 16.6% from the year-ago period’s store count. The company still expects to open 100-120 net new stores in 2020.

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Ulta Beauty Inc. (ULTA) : Free Stock Analysis Report
 
DICKS Sporting Goods, Inc. (DKS) : Free Stock Analysis Report
 
Sally Beauty Holdings, Inc. (SBH) : Free Stock Analysis Report
 
Five Below, Inc. (FIVE) : Free Stock Analysis Report
 
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