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Five Below Stock Declines 8% in a Month: Is Revival Likely?

Zacks Equity Research
·3 min read

Five Below, Inc. FIVE has been putting up a dismal show on the bourses of late. In a month, shares of the Philadelphia, PA-based company have declined 8.3%, wider than the industry’s 0.8% fall. The stock came under pressure following the company's lower-than-expected holiday sales results. Six fewer shopping days between Thanksgiving and Christmas hurt comparable sales performance. Although net sales during Nov 3, 2019, through Jan 4, 2020, grew 13.4%, comparable sales fell 2.6%.

Consequently, management trimmed fourth quarter and fiscal 2019 view. Five Below now envisions earnings per share in the band of $1.93-$1.96 for the final quarter and $3.07-$3.10 for fiscal 2019. This is below the earlier projection of $1.97-$2.05 and $3.11-$3.19 for the aforesaid corresponding periods.

The guidance cuts were enough to trigger a downward revision in the Zacks Consensus Estimate.  The current consensus estimate of $1.94 for the quarter and $3.10 for the fiscal year portray a decline of about 4% and 2%, respectively, in a 30-day span.


 

Comparable sales are now anticipated to decline 2-2.5% for the fourth quarter, while the metric is expected to improve a marginal 0.5-0.7% for the fiscal. The company had earlier anticipated comparable sales growth of 2-3% and 2.5% for the respective periods.

Is Five Below Still Worth Keeping an Eye On?

Five Below is committed toward enhancing customer experience via refresh store format, remodel program and Ten Below test. The company has been focusing on improving supply chain and delivering better WOW products. Despite soft sales performance in the holiday season, the company informed that it expects to meet gross margin expectations on the back of effective inventory management and cost-containment efforts.

Moreover, the Zacks Rank #3 (Hold) company is expanding its store base, as well as enhancing the in-store experience to draw traffic and enhance customer base. Management intends to incorporate a Ten Below zone in most of the new and remodeled stores. It also acquired e-commerce platform, fulfillment operation and certain other assets of Hollar.com. to reinforce digital capabilities.

Certainly, Five Below’s dismal performance on the bourses cannot be ignored. However, we expect the company to regain its lost sheen in the coming period given its strategic line of action, including store-expansion plans and innovative efforts. It announced plans to open 180 new stores in 2020 despite the rising popularity of online shopping.

Key Picks in Retail

DICK'S Sporting Goods, Inc DKS outpaced earnings estimates in three of the trailing four quarters, the average beat being 11.5%. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chico's FAS, Inc. CHS has an impressive long-term earnings growth rate of 15% and a Zacks Rank of 1.

Zumiez Inc. ZUMZ, also a Zacks Rank #1 stock, has an expected long-term earnings growth rate of 12%.

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