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Why Five Below (FIVE) Stock Is Marching Ahead in Retail

Zacks Equity Research

Renowned accessories retailer Five Below, Inc. FIVE is seeing momentum of late, thanks to its business strategies. In addition, the company has been reopening stores and witnessing impressive initial sales trends. The Philadelphia, PA-based company’s shares have climbed as much as 66.2% over the past three months, rallying ahead of its industry’s 55.2% growth.

Let’s Delve Deeper

Five Below’s commitment toward enhancing customer experience is commendable. The company has been focusing on enhancing merchandise assortment, improving supply chain, strengthening digital capabilities and delivering better WOW products.

Moreover, as part of its digital endeavors, the company acquired the e-commerce platform, fulfillment operation and certain other assets of Hollar.com. It also rolled out curbside pickup, and is focused to accelerate its buy online, pick up in-store business model.

E-commerce sales grew more than four times during the first quarter of fiscal 2020, despite stores being closed owing to the pandemic. Management anticipates e-commerce penetration to remain in the low single-digit range in relation to overall sales for fiscal 2020. Nevertheless, the company witnessed a dismal first quarter of fiscal 2020, wherein it reported a wider-than-expected loss per share with a sales miss.

The COVID-19 pandemic, which led to store closures, had a profound impact on its performance. Given the uncertainty tied to the pandemic, management refrained from providing any outlook for the fiscal second quarter.

However, the company is gaining strength as it started reopening stores as  lockdown restrictions eased. Markedly, the company started reopening stores in late April itself, and had about 90% of its stores reopened as of Jun 9, depicting impressive initial sales trends. Management informed that comparable sales for the reopened stores, including the e-commerce business, were up approximately 8% for the second quarter through Jun 9.

Five Below is registering higher average tickets in the stores, partly offset by certain lower transactions. We note that the company’s second-quarter results are likely to benefit from pent-up demand and government stimulus program to an extent.

Apart from improving digitally, Five Below is focused on expanding its store base with impressive in-store experiences. During the first quarter of fiscal 2020, the company opened 20 net new stores defying coronavirus woes. Following this, the company’s total store count reflected an increase of 16.6% from the year-ago period.

Management now expects to open 100-120 net new stores in 2020, representing 11-13% growth over 2019. Meanwhile, the company is focusing on essential goods, consumables and everyday items such as healthcare and personal care that customers are looking for nowadays.

Wrapping Up

That said, Five Below seems well poised on its robust digital and store-growth endeavors. Adding to positives, the stock currently carries a Zacks Rank #3 (Hold) and boasts an impressive long-term expected earnings growth rate of 19.5%.

Key Picks in Retail

Sprouts Farmers Market SFM has a trailing four-quarter positive earnings surprise of 37.2% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SpartanNash SPTN, also a Zacks Rank #1 stock, has a positive earnings surprise of 76.3% for the last reported quarter.

Dollar General DG has a long-term earnings growth rate of 12.4%. Currently, it carries a Zacks Rank #1.

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Dollar General Corporation (DG) : Free Stock Analysis Report
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