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Five Below's (Five) Store Expansion Efforts Drive Growth

Five Below, Inc.’s FIVE focus on expanding its reach by increasing its store base across different locations bodes well. The company is known for its impressive range of merchandise per the evolving consumer trends. These factors, combined with its pricing strategy, enable it to cater to demographic shoppers and resonate with value-seeking customers.

Store Expansion Plan: Key Driver

In order to increase foot traffic and customer base, Five Below remains committed in expanding its network of stores and improving in-store experiences. The company believes that the expanding scale helps it gain access to renowned shopping centers, capitalize on emerging market trends and increase brand value.

At the end of fiscal 2022, Five Below had 1,340 locations, an increase of 150 locations or 12.6% from the prior year. The company anticipates great opportunities to grow its store network across the United States and plans to open in more than 3,500 locations. In fiscal 2023, FIVE plans to open about 200 new stores and convert 400 existing stores to the new Five Beyond format.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Other Growth Driving Factors

Five Below's business model, financial strength, store growth opportunities and upside potential offered by Five Beyond make us optimistic. Management foresees growth from increased penetration of Five Beyond and e-commerce business, new customer acquisition, sales lifts from remodels and conversions and selective merchandise price increases in response to inflation.

In the fiscal fourth quarter, FIVE enhanced its capabilities and distribution for both e-commerce and stores. It also completed its distribution channel in Indianapolis. This channel is expected to increase efficiencies and opportunity for improved operations for the chain.

The company also added assisted checkout capabilities and is committed to provide same-day delivery service to make shopping convenient. It is also going to accelerate the buy online and pick up in-store business model. Markedly, Five Below extended its partnership with Instacart to bring expedited same-day delivery to all its outlets. The addition of Venmo and PayPal as payment options also enriches customer experience.

Wrapping Up

Quite obviously, Five Below’s solid product offering, seamless in-store and online experience, and favorable pricing strategy are likely to remain key growth drivers. This was demonstrated by Five Below’s outstanding results in the final quarter of fiscal 2022.

In the fourth quarter of fiscal 2022, FIVE reported earnings per share of $3.07, which beat the Zacks Consensus Estimate of $3.06 and increased 23.3% year over year. Also, in the said period, net sales of $1,122.8 million increased 12.7% year over year and came ahead of the Zacks Consensus Estimate of $1,105 million. Comparable sales for the quarter under discussion increased 1.9%.

Following the sturdy fourth-quarter results, management provided compelling guidance for fiscal 2023. For the fiscal 2023, it expects net sales in the range of $3.49 billion to $3.59 billion, up from $3.1 billion reported in fiscal 2022. Also, comparable sales are expected to be up 1-4%. Management guided earnings between $5.25 and $5.76 per share for fiscal 2023, an increase from $4.69 reported in the year-ago period.

However, Five Below has been facing rising cost for a while now. During the fourth quarter, the company’s selling, general and administrative expenses increased year over year primarily due to higher store-related expenses to support new store growth, higher fixed cost and marketing expense.

Nonetheless, the benefits mentioned above will most likely assist Five Below in overcoming such obstacles.

Shares of this Zacks Rank #3 (Hold) company have rallied 44.9% in the past six months compared with the Zacks Retail – Miscellaneous industry’s rise of 22%.

3 Key Picks

Some top-ranked stocks are Build-A-Bear Workshop, Inc. BBW, Ulta Beauty ULTA and DICK'S Sporting DKS.

BBW has a trailing four-quarter earnings surprise of 17.4%, on average. Build-A-Bear currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Build-A-Bear Workshops’ current financial year sales and earnings suggests growth of 6.2% and 12.3%, respectively, from the year-ago reported numbers.

Ulta Beauty is a leading beauty retailer in the United States. It currently carries a Zacks Rank of 2 (Buy). ULTA has a trailing four-quarter earnings surprise of 26.2%, on average.

The Zacks Consensus Estimate for Ulta Beauty’s current financial year sales and earnings suggests growth of 8.5% and 5%, respectively, from the prior-year reported numbers.

DICK'S Sporting, operates as a major omni-channel sporting goods retailer, currently carries a Zacks Rank of 2. DKS has a trailing four-quarter earnings surprise of 10%, on average.

The Zacks Consensus Estimate for DKS’ current financial year sales and earnings suggests growth of 3% and 11%, respectively, from the corresponding year-ago reported figures.

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DICK'S Sporting Goods, Inc. (DKS) : Free Stock Analysis Report

Ulta Beauty Inc. (ULTA) : Free Stock Analysis Report

Build-A-Bear Workshop, Inc. (BBW) : Free Stock Analysis Report

Five Below, Inc. (FIVE) : Free Stock Analysis Report

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