Five Below (FIVE) Q2 Earnings Meet, Sales Miss Estimates

Five Below, Inc. FIVE reported second-quarter fiscal 2019 results, wherein adjusted earnings per share came in line with the Zacks Consensus Estimate, while net sales missed the same. Nonetheless, this specialty value retailer posted decent year-over-year improvement in both the top and the bottom line. Moreover, the company continues to exhibit comparable sales growth, however, the rate of growth decelerated on a sequential basis.

Management highlighted that it remains committed toward enhancing customer experience via refresh store format, remodel program and Ten Below test. The company is focusing on improving supply chain and delivering better WOW products. The company also informed that start to the third quarter remains satisfactory with back to school assortments finding favor with customers.

Management also shed some light on the recent tariff increase. The company is steadily raising prices on selective items, moving production to other countries and negotiating with vendors.

Further, the company provided third-quarter sales and earnings per share guidance that was below the current Zacks Consensus Estimate. However, it raised fiscal year revenue forecast range by $7 million and increased earnings per share projection range.

Meanwhile, shares of this Zacks Rank #4 (Sell) company have fallen 9% in the past three months compared with the industry’s decline of 14%.

Five Below, Inc. Price, Consensus and EPS Surprise


Five Below, Inc. Price, Consensus and EPS Surprise

Five Below, Inc. price-consensus-eps-surprise-chart | Five Below, Inc. Quote

Let’s Delve Deeper

Adjusted earnings of 50 cents a share met the Zacks Consensus Estimate and improved from 42 cents reported in the year-ago period. Meanwhile, net sales grew 20% to $417.4 million from the year-ago quarter but came below the Zacks Consensus Estimate of $422.5 million.

Comparable sales rose 1.4% during the quarter under review following an increase of 3.1% in the preceding period and 2.7% reported in the year-ago quarter. The company registered 1% improvement in transactions. Comparable sales performance came below management’s expectation of 2-3%.

Gross profit grew 20.1% year over year to $146.2 million on account of higher sales, while gross margin remained flat at 35%. We note that SG&A expenses increased 20.6% to $110.1 million, while as a percentage of net sales the same expanded 10 basis points to 26.4% owing to depreciation expenses associated with opening of new Southeast distribution center and adoption of the new lease accounting standard.

Operating income came in at $36 million, up 18.4%, while operating margin shrunk roughly 10 basis points to 8.6%. The company now envisions operating margin to decline about 175 basis points in the third quarter and deleverage slightly in fiscal 2019.


Five Below ended the quarter with cash and cash equivalents of $178.8 million and short-term investment securities of $90.3 million. Notably, the company had no debt. Total shareholders’ equity was $651.9 million at the end of the reported quarter.

During the quarter, the company bought back approximately 146,185 shares at a total cost of $16.6 million. Management expects to incur capital expenditure of approximately $210 million in fiscal 2019.

Store Updates

During the quarter under review, the company opened 44 new stores. This took the total count to 833 stores in 36 states, which reflects an increase of 20.4% from the year-ago period store count. The company plans to open approximately 55 new stores in the third quarter, and around 150 new stores in the fiscal year.


Five Below continues to envision fiscal 2019 net sales in the range of $1.872-$1.892 billion, with comparable sales expected to improve 3%. We note that fiscal 2018 net sales came in at $1,559.6 million, while comparable sales rose 3.9%. The company had earlier forecast net sales in the band of $1.865-$1.885 billion. Management now projects earnings between $3.08 and $3.19 per share.

The Zacks Consensus Estimate for fiscal 2019 sales and earnings is currently pegged at $1.9 billion and $3.17, respectively.

For the third quarter, management anticipates net sales between $369 million and $374 million and comparable sales growth of 2-3%. We note that third-quarter fiscal 2018 net sales came in at $312.8 million, while comparable sales improved 4.8%. The company forecasts third quarter earnings in the range of 14-17 cents, down from 22 cents reported in the prior year.

The Zacks Consensus Estimate for third-quarter sales and earnings currently stands at $377.5 million and 25 cents, respectively.

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