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Five Below (FIVE) Stock May Be a Smart Choice for 2021

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Zacks Equity Research
·4 min read
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Five Below, Inc. FIVE, an extreme-value retailer for tweens and teens, has exhibited an outstanding run on the bourses in the past six months. Thanks to its business model, financial strength and store growth opportunities, the stock has outpaced the Zacks Retail – Miscellaneous industry and the Retail-Wholesale sector. In the said period, shares of this Philadelphia, PA-based company have soared about 47.4% compared with the industry’s rally of 23.7%. Meanwhile, the sector has increased 3.3%.

Additionally, an uptrend in the Zacks Consensus Estimate echoes the same sentiment. The consensus estimates for the current and next financial year have increased about 3.5% and 2% to $4.17 and $5.05, respectively, over the past 30 days. Notably, this Zacks Rank #2 (Buy) stock’s long-term earnings growth rate of 32.8% and Growth Score of A indicates its inherent strength. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some Fact Checks

Five Below’s focus on providing trend-right products, improving supply chain, strengthening digital capabilities and delivering better WOW products bode well. The company maintained its stellar performance in fourth-quarter fiscal 2020, wherein both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. It marked the third straight quarter of sales and earnings beat. Notably, comparable sales increased significantly during the quarter under review. Stronger-than-expected results prompted management to provide an upbeat view for first-quarter fiscal 2021.

Taking into account the current trajectory and the expected benefit from the new coronavirus relief package, Five Below envisions first-quarter fiscal 2021 net sales in the range of $540 million to $560 million. Management forecast first-quarter earnings between 56 cents and 68 cents a share.

Undeniably, the company has been focusing on enhancing merchandise assortment, improving supply chain, strengthening digital footprint and achieving efficient cost structure. The company’s commitment toward enhancing customer experience via refresh store format and remodel program is also commendable. The company has been working on digitizing vendor transactions, implementing core merchandizing platform and rolling out cloud-based data and analytics platform to analyze demand, and accordingly manage inventory.

Five Below rolled out curbside pickup, launched the app and looks to accelerate buy online, pick up in-store business model. Its e-commerce business continues to grow at a pace faster than stores in the fourth quarter. Markedly, the company is now offering same-day delivery service in more than 350 locations in collaboration with Instacart. Moreover, to make shopping convenient, it is expanding self-checkout capabilities.

Now, talking of its store-related efforts, the company plans to open 170-180 new stores and complete approximately 30-35 remodels in fiscal 2021. The company will enter Utah and New Mexico this fiscal, which will expand its presence to 40 states. It plans to open about 60 new stores in the first quarter of fiscal 2021. Further, the company envisions a network of more than 2,500 stores in the United States in the long run. Five Below anticipates capital expenditures of approximately $315 million in fiscal 2021.

Bottom Line

Given the impressive prospects including prudent digital and store-growth strategies, we expect Five Below to be well-poised for growth in 2021 and beyond. We note that the Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 34% and 96.7%, respectively, from the year-ago period.

Other Key Picks

Boot Barn Holdings BOOT has a trailing four-quarter earnings surprise of 23.1%, on average. It carries a Zacks Rank #2.

MarineMax HZO, also a Zacks Rank #2 stock, delivered an earnings surprise of 99.9% in the last four quarters, on average.

Tapestry TPR has a long-term earnings growth rate of 10%. Currently, it carries a Zacks Rank #2.

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