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What Makes Five Below (FIVE) an Attractive Investment Pick?

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Shares of Five Below, Inc. (FIVE - Free Report) have skyrocketed 82.9% in the past six months, thanks to its robust business strategies. In addition, the company’s recently-reported sturdy holiday results defying coronavirus blues was well perceived by investors. Impressive performance prompted this specialty value retailer to provide an upbeat view for the final quarter of fiscal 2020. This further boosted the Zacks Rank #1 (Strong Buy) stock, which has outperformed the industry’s mere 35.3% rally. You can see the complete list of today’s Zacks #1 Rank stocks here.

Undeniably, the Philadelphia, PA-based company’s focus on enhancing merchandise assortment, improving supply chain, strengthening digital capabilities and delivering better WOW products bode well.

Sound Fundamentals

Strength in digital strategy, expansion of supply chain network, enhancement of overall distribution capabilities and focus on merchandise assortment including essential items are working in favor of Five Below. The company’s commitment toward enhancing customer experience via refresh store format and remodeling program is also commendable.

With respect to merchandise, the company is focusing on essential goods, consumables and everyday items such as health- and personal-care products. On the marketing front, the company is focusing on digital advertising. Moreover, the company continues to build new prototype Five Beyond with vast majority of products priced between $6 and $10.

Five Below has been working on digitizing vendor transactions, implementing core merchandizing platform and rolling out cloud-based data and analytics platform to analyze demand and accordingly manage inventory. Meanwhile, the company rolled out curbside pickup, launched the app and looks to accelerate the buy online, pick up in-store business model. Markedly, the company is now offering same-day delivery service in roughly 300 stores.

Impressive Holiday Sales

Amid a challenging retail backdrop, Five Below’s robust holiday sales results surpassed management’s expectations. Management cited that the company’s Wow offering at exciting values coupled with a flexible model and robust merchandise assortment aided performance. This extreme-value retailer for tweens and teens registered the strongest comparable sales increase this festive season since 2011. Five Below highlighted that net sales for the holiday period surged 21.1%. Markedly, comparable sales for the holiday shopping season rose 10.1%.

As a result, management now projects fourth-quarter fiscal 2020 net sales in the band of $835-$840 million, indicating improvement of 21.5-22.2% from the year-ago period. The company forecasts comparable sales increase of about 11%. For fiscal 2020, Five Below envisions net sales in the band of $1.939-$1.944 billion, which suggests year-over-year growth of 5-5.2%. While the Zacks Consensus Estimate for the quarter is pinned at $839.4 million, the same stands at $1.94 billion for fiscal 2020. It anticipates earnings in the range of $2.08-$2.12 per share for the final quarter and $2.07-$2.11 per share for the fiscal year. The current Zacks Consensus Estimate is pegged at $2.08 for the quarter and $2.09 for fiscal 2020.

Bottom Line

We believe that Five Below’s wide assortment of right merchandise, solid in-store and online experience along with favorable pricing strategy are likely to remain major growth drivers. The company is known for its impressive range of merchandise as it remains committed toward making innovation and refreshing its product range per the evolving consumer trends.

Moreover, the company has a long-term expected earnings growth rate of 21%, ahead of that of the industry’s 13.2%. This coupled with a Momentum Score of B further speaks of the stock’s inherent potential.

More Key Picks in Retail

Hibbett Sports (HIBB - Free Report) has a long-term earnings growth rate of 17% and currently sports a Zacks Rank #1.

DICK’S Sporting Goods (DKS - Free Report) , also a Zacks Rank #1 stock, has a long-term earnings growth rate of 5.6%.

Tractor Supply (TSCO - Free Report) has a long-term earnings growth rate of 11.7% and a Zacks Rank #2 (Buy).

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