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What Is Lifting Five Below's Stock to All-Time Highs?


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Discount retailer Five Below FIVE has been on a staggering uptrend recently, soaring 62.8% so far this year and reaching an all-time high of $108.96 per share on Thursday.

That impressive momentum is even more significant when it is compared to Five Below's Retail-Wholesale peers. Over the same time period, the Retail-Wholesale sector, consisting of 214 companies, has only seen an increase of 14.3%.

Moreover, Five Below's more direct competitors in value retailing have had even worse performances. For example, Dollar Tree DLTR has dropped by 23% and Dollar General DG has only gained 6% year to date.

A major key to the success of Five Below has been its first-quarter fiscal 2018 results, which revealed a positive earnings and sales surprise for the sixth straight quarter. That June Q1 earnings report made the stock jump 38% in the month alone.

Earnings and sales growth should continue to propel Five below for the rest of 2018. The retailer has a Zacks Consensus EPS estimate of $2.47 for 2018-an increase of 37.99% from the prior year. Moreover, net sales are projected to grow 18.79% to reach $1.52 billion for the year.

Key Initiatives

In addition to recent performance being driven by remarkable earnings and sales surprises and a positive outlook, Five Below's growth and encouraging future can also be traced back to the strategic moves the company has made.

Ever since the first store was opened, Five Below has made it a priority to expand its store front. The company currently operates roughly 650 stores, with 103 new stores launched in fiscal 2017 and plans to open 125 in 2018. The successful aggressive store growth strategy will be maintained moving forward, as CEO Joel Anderson has stated a goal of 2,500 locations by 2020.

Five Below's focus on mainly selling to teens and pre-teens, along with its unique pricing strategy, has also helped the company stand out in the retail industry. By only selling products, such as toys, crafts, or candy, that are $5 or under, Five Below can easily cater to the younger demographic of shoppers.

Five Below's young consumer base particularly paid off for the company when Toys R US was officially shut down and closed its final store in late June. The company is in an ideal position to gain from the shutdown by introducing former Toys R US customers to the Five Below brand.  On a call with analysts, Anderson said that Five Below has been "introduced to several new vendors as the Toys R Us transition [has] taken place."

As a final testament to the progress of Five Below, the retailer recently announced that it is set to open a store in November on the legendary Fifth Avenue in New York City. Launching a store on a street known for luxury reveals the power of value retailing and Five Below's ability to manifest that. The company will now have the huge opportunity to bring in massive amounts of New Yorkers and tourists to the store.

Bottom Line

Five Below has outpaced the retailing industry so far this year, and the company's stellar growth should continue in the future. This rise has been backed by prosperous strategies and a string of stellar earnings reports. All of these factors point to why the stock currently holds a Zacks Rank #2 (Buy).

In a time of e-commerce and often pricey consumer trends, it truly is fascinating that a value retailer like Five Below has been able to achieve what it has. It is a story and company that will be captivating to follow over time.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Stocks
Referenced Symbols: DLTR , DG , FIVE



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