It has been about a month since the last earnings report for Five Below (FIVE). Shares have added about 12.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Five Below due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Five Below Q4 Earnings & Sales Surpass Estimates
Five Below, Inc. 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.
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.
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 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.
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.
Management 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. 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%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.43% due to these changes.
Currently, Five Below has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Five Below has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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