Five Below, Inc. FIVE has been focusing on enhancing merchandise assortment, improving its supply chain, strengthening digital capabilities and delivering WOW products, including the Five Beyond offering. The company’s efforts to digitize vendor transactions, implement a core merchandising platform and apply cloud-based data and analytics have been helping it analyze demand and manage inventory effectively. It also remains focused on enhancing its capabilities and distribution for both e-commerce and stores.
The company has been progressing well with the Five Beyond growth initiative, converting approximately 250 stores to the new store format in both fiscal 2022 and the first quarter of fiscal 2023. FIVE’s focus on operational execution, enhancement of in-store and online experience, along with favorable pricing strategy, are likely to remain major growth drivers. Moving ahead, its focus on achieving solid average net sales per store, supply-chain initiatives and cost-management actions are also likely to be beneficial.
The company remains committed to expanding its store base and enhancing the in-store experience to boost its customer base. Exiting the first quarter of fiscal 2023, FIVE had 1,367 stores, reflecting an increase of 142 stores or 11.6%, year over year. It opened 27 new stores across 19 states in the first quarter. The company remains on track to open more than 200 new stores and convert 400 stores to the new Five Beyond format in fiscal 2023.
For fiscal 2023, Five Below expects to generate net sales of $3.50-$3.57 billion, indicating a year-over-year increase of 14%. Comparable sales are anticipated to grow by 1-3%. Also, earnings are projected to be between $5.31 and $5.71 per share for fiscal 2023, an increase from $4.69 reported in the year-ago period.
However, the company has been grappling with higher operating costs and expenses for a while. In the fiscal first quarter, its cost of goods sold increased 13.5% from the year-ago quarter to $491.4 million. Also, selling, general and administrative expenses shot up 17% to $192.4 million, while as a percentage of net sales, the same increased 80 basis points to 26.5%. The increase was driven by higher store-related expenses to support new store growth as well as higher marketing and other expenses.
Also, Five Below’s customers remain sensitive to macroeconomic factors, including interest rate hikes, increases in fuel and energy costs, credit availability, unemployment levels and high household debt levels, which might adversely impact their sentiment.
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The Zacks Rank #3 (Hold) company’s shares have gained 13.5% in the past six months against the industry’s 2.2% decline.
Key Picks
Some top-ranked stocks are Urban Outfitters, Inc. URBN, MINISO Group Holding Limited MNSO and BARK, Inc. BARK. While URBN sports a Zacks Rank #1 (Strong Buy), MNSO and BARK carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Urban Outfitters specializes in the retail and wholesale of general consumer products. The Zacks Consensus Estimate for URBN’s current financial-year sales suggests 5.1% growth, while earnings per share are expected to rise by 57.1% from the corresponding year-ago reported figures. The company has a trailing four-quarter earnings surprise of 12.2%.
MINISO Group operates as a retailer and wholesaler of lifestyle products. The Zacks Consensus Estimate for MNSO’s current financial-year sales and earnings per share suggests growth of 5.3% and 128.6%, respectively, from the corresponding year-ago reported figures.
BARK is engaged in providing products, services and content for dogs. The Zacks Consensus Estimate for BARK’s current financial year sales suggests a decline of 2.4%, while earnings are likely to grow 80.7% from the prior-year reported numbers. It has a trailing four-quarter earnings surprise of 10.4%, on average.
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