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Five Below, Inc. (FIVE - Snapshot Report) came up with better-than-expected second-quarter fiscal 2013 results. The quarterly earnings of 11 cents per share surpassed the Zacks Consensus Estimate by a couple of cents and increased almost threefold year over year.

Including one-time charges, quarterly earnings came in at 7 cents as against a loss of $3.41 per share in the prior-year period.

Robust top-line growth and increased margins drove the better-than-expected results. However, rising expenses were a headwind.

Quarter Details

Net sales increased 34.9% year over year to $117.1 million and handily surpassed the Zacks Consensus Estimate of $113.0 million.

Comparable same store sales increased 6.6% as against an 8.6% rise in the prior-year period, primarily driven by strong performances across all categories. This quarter marks the 29th consecutive quarter in which the company posted positive comps.

Gross profit increased 37.1% year over year to $39.4 million. Gross profit margin expanded 60 basis points (bps) to 33.7%, mainly due to occupancy expense leverage, partly offset by the deleverage of distribution expenses from the new Olive Branch distribution center.

Adjusted operating income jumped 55.2% to $9.7 million on a year-over-year basis whereas operating margin expanded 110 bps to 8.3%.

Store Update

During the quarter, the company opened 18 new outlets. At the end of the quarter, the company had 276 stores in 19 states, a 22% rise from the prior-year period.

Other Financial Aspects

This Zacks Rank #2 (Buy) company ended the quarter with cash and cash equivalents of $21.1 million, notes payable of $19.5 million and shareholders’ equity of $82.0 million.

During the first-half of fiscal 2013, net cash used in operating activities was $5.7 million and incurred capital expenditures of $15.1 million.

Outlook for Third-Quarter 2013

For the third quarter, net sales are expected to be $107-$109 million based on the 24 new store openings and assumption of a mid single-digit rise in comparable store sales.

Adjusted net income is expected to be around $1.5-$2.1 million resulting in earnings per share (EPS) of 3-4 cents. On GAAP basis, net income is expected to be in the band of $0.6-$1.2 million, coming to EPS of 1-2 cents.

For fiscal 2013, net sales are expected to be $531-$536 million based on the 60 new store openings in the whole year and assumption of a 5% rise in comparable store sales.

Adjusted net income is expected to be between $37.1 million and $38.8 million, resulting in EPS of 68-71 cents. On GAAP basis, net income is expected to be around $32.3-$34.0 million, with EPS in the range of 60-63 cents.

The Zacks Consensus Estimate for the third quarter and fiscal 2013 stands at 4 cents and 71 cents, respectively.  

Other Stocks to Consider

Other stocks worth considering in the retail sector include Citi Trends, Inc. (CTRN - Analyst Report), Kirkland's Inc. (KIRK - Analyst Report) and PCM, Inc. (PCMI - Snapshot Report). All of these carry a Zacks Rank #1 (Strong Buy).

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