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Five Below (FIVE) Up 1.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Five Below (FIVE - Free Report) . Shares have added about 1.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Five Below due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Five Below Q2 Earnings Beat, Revenues Increase Y/Y

Five Below, Inc. delivered stronger-than-anticipated second-quarter fiscal 2020 performance. The company’s digital strategy, expansion of supply chain network, enhancement of overall distribution capabilities and focus on merchandise assortment, including essential items, contributed to the results.

This specialty value retailer posted quarterly earnings of 53 cents a share, up 3.9% year over year driven by better expense management. Excluding share-based accounting benefit of 3 cents, quarterly earnings were 50 cents, flat year over year. The Zacks Consensus Estimate stood at 14 cents for the quarter under review.

In spite of store closures at some point of time during the quarter, net sales grew 2.1% to $426.1 million from $417.4 million in the year-ago period. Management informed that owing to the temporary closure of stores, total operating days were down approximately 3% year over year. Nonetheless, the top line also surpassed the Zacks Consensus Estimate of $409.7 million, following a miss in the preceding quarter.

Let’s Delve Deeper

Markedly, Five Below started reopening stores in late April itself, and substantially all of its stores were opened by the end of June.

Comparable sales for the reopened period grew roughly 6% with stores increasing approximately 4% and e-commerce contributing approximately 2% to the improvement. However, we note that comparable sales for the full second quarter fell 12.2% owing to 19% decline in comparable operating days. Nevertheless, management informed that so far in the third quarter total comparable sales are tracking up approximately 6%.

E-commerce sales grew more than four times in the quarter but it still represented a low single-digit percentage of total sales.

Gross profit declined 4.3% year over year to $139.8 million, while gross margin shrunk 220 basis points to 32.8% due to occupancy cost deleverage and the timing of certain merchandise costs that shifted from the second quarter to the third quarter in the prior year.

We note that SG&A expenses dipped 3.1% to $106.7 million, while as a percentage of net sales, the same decreased 140 basis points to 25% owing to lower marketing and store expenses. Operating income came in at $33.1 million, down 8% from the year-ago quarter. Also, operating margin contracted 80 basis points to 7.8%.

After containing and delaying expenses in the first half of fiscal 2020 owing to the pandemic, the company is restoring expenses in the back half of the year. As a result of this, it anticipates third-quarter operating margin to decline marginally.


Five Below ended the quarter with cash and cash equivalents of $160.3 million and short-term investment securities of $41.7 million. Total shareholders’ equity was $724 million at the end of the reported quarter. The company has nothing outstanding under its $225 million line of credit.

Management expects to incur capital expenditures of approximately $200 million in fiscal 2020. The company plans to invest in new stores and remodels, the new distribution centers, and systems and infrastructure.

Store Updates

During the quarter, Five Below opened 62 net new stores. This took the total count to 982 stores in 38 states, reflecting an increase of 17.9% from the year-ago period’s store count. The company remodeled eight additional stores during the quarter.

Management expects to open 110-120 net new stores in fiscal 2020. Furthermore, the company plans to remodel about 45 stores and add self-checkout capabilities to more than 100 additional existing stores.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Five Below has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Five Below has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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