U.S. markets open in 6 hours 6 minutes

Why Is Five Below (FIVE) Up 55.6% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Five Below (FIVE). Shares have added about 55.6% 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 catalysts.

Five Below Q4 Earnings Beat Estimates, Increase Y/Y

Five Below, Inc. reported fourth-quarter fiscal 2019 results, wherein the top line met the Zacks Consensus Estimate, while the bottom line surpassed the same. Notably, both net sales and earnings per share improved year over year.

However, this specialty value retailer witnessed a decline in comparable sales. Management had earlier informed that six fewer shopping days between Thanksgiving and Christmas hurt comparable sales performance.

Certainly, the company remains concerned about the coronavirus outbreak, and in response it has decided to keep stores closed from today evening till March 31st. The company also decided not to provide first quarter or fiscal 2020 view.

The company’s commitment toward enhancing customer experience via refresh store format, remodel program and Ten Below test is commendable. Moreover, it has been focusing on enhancing merchandise assortment, improving supply chain, strengthening digital capabilities, delivering better WOW products and reimagined front-end.

Let’s Delve Deeper

The quarterly earnings of $1.97 per share, improved 23.9% from $1.59 reported in the year-ago period. The company highlighted that the fourth quarter of both fiscal 2019 and fiscal 2018 include benefit from share-based accounting of approximately 1 cent. Excluding the same, earnings came in at $1.96 per share, up 24.1% year over year. The bottom line surpassed the Zacks Consensus Estimate of $1.94.

Meanwhile, net sales grew 14% to $687.1 million from the year-ago quarter, and came in line with the Zacks Consensus Estimate.

Comparable sales fell 2.2% during the quarter under review following an increase of 2.9% in the preceding period and 4.4% in the year-ago quarter. The company registered 3.6% decline in comp transactions, partly offset by 1.4% rise in comp average ticket.

Gross profit grew 18.5% year over year to $289.1 million due to higher sales. Again, gross margin expanded 160 basis points to 42.1% on account of improvement in merchandise margins, lower incentive compensation and distribution efficiencies, partly offset by deleverage in store occupancy costs.

We note that SG&A expenses rose 13.7% to $145 million, while as a percentage of net sales the same decreased 10 basis points to 21.1%. Operating income came in at $144.1 million, up 23.7%, while operating margin expanded 165 basis points to 21%.

Financials

Five Below ended the quarter with cash and cash equivalents of $202.5 million and short-term investment securities of $59.2 million. Notably, the company had no debt. Total shareholders’ equity was $759.8 million at the end of the reported quarter. During fiscal 2019, the company bought back approximately 338,000 shares at a total cost of about $37 million. Management incurred capital expenditure of approximately $212 million in fiscal 2019.

Store Updates

During the quarter under review, Five Below opened six new stores. This took the total count to 900 stores in 36 states, reflecting an increase of 20% from the year-ago period store count. The company has opened 150 new stores in fiscal 2019 compared to 125 net new stores opened in the prior year. The company remodeled 50 stores during fiscal 2019.

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 -125% due to these changes.

VGM Scores

Currently, Five Below has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Five Below has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.



Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Five Below, Inc. (FIVE) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research