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Five Below (FIVE) Q4 Earnings Beat, Comparable Sales Up 13.8%

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Five Below, Inc. (FIVE - Free Report) maintained its stellar performance in fourth-quarter fiscal 2020, wherein both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. It marked the third straight quarter of sales and earnings beat. Notably, comparable sales increased significantly during the quarter under review. Stronger-than-expected results prompted management to provide an upbeat view for first-quarter fiscal 2021.

Undeniably, the company’s focus on providing trend-right products, improving supply chain, strengthening digital capabilities and delivering better WOW products bode well. Markedly, the company is now offering same-day delivery service in more than 350 locations in collaboration with Instacart. Moreover, to make shopping convenient, it is expanding self-checkout capabilities.

Markedly, Five Below rose 5.6% during the after-market trading session on Mar 17. We note that shares of this Zacks Rank #2 (Buy) company have gained 25.3% in the past three months compared with the industry’s rally of 11.5%.

Let’s Introspect

Five Below delivered fourth-quarter earnings of $2.20 per share that comfortably surpassed the Zacks Consensus Estimate of $2.11 and increased from $1.97 reported in the year-ago period that included a benefit of 1 cent from share-based accounting. The bottom line benefited from higher net sales.

Net sales of $858.5 million increased 24.9% year over year and topped the Zacks Consensus Estimate of $839.7 million, thanks to robust holiday season. Sales further got a boost in the month of January, following the second round of government stimulus.

We note that comparable sales rose 13.8% against a decline of 2.2% in the year-ago quarter. Comparable sales growth was driven by 15.9% rise in average ticket, partly offset by 1.8% drop in transactions. Management informed that e-commerce business continues to leap at a pace faster than stores.

Gross profit surged 17.9% year over year to $340.9 million, however, gross margin contracted 240 basis points to 39.7%.

We note that SG&A expenses climbed 18.1% to $171.3 million during quarter under review. Operating income amounted to $169.6 million, up 17.7% from the prior-year quarter. However, operating margin decreased 120 basis points to 19.8%.

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

Financials

Five Below ended the quarter with cash and cash equivalents of $268.8 million and short-term investment securities of $140.9 million. Total shareholders’ equity was $881.9 million as of Jan 30, 2021.

The company repurchased shares worth roughly $13 million during fiscal 2020. In March, the company’s board of directors authorized a new share repurchase program for up to $100 million through Mar 31, 2024.

Management incurred capital expenditures of approximately $200 million in fiscal 2020. The company invested in new stores and remodels, the new Texas distribution centers, and systems and infrastructure. Five Below anticipates capital expenditures of approximately $315 million in fiscal 2021. This reflects opening a new distribution center in Arizona and commencing construction on a new distribution center in the Midwest.

Store Updates

During the quarter, Five Below opened two new stores. This took the total count to 1,020 stores as of Jan 30, 2021, in 38 states, reflecting an increase of 13.3% from the year-ago count. Management plans to open 170-180 new stores in Five Beyond prototype in fiscal 2021. The company will enter the states of Utah and New Mexico this fiscal, which will expand its presence to 40 states. It plans to open about 60 new stores in the first quarter of fiscal 2021. We note that the company had opened 120 net new stores and remodeled 45 stores in fiscal 2020.

Guidance

Taking into account the current trajectory and the expected benefit from the new coronavirus relief package, Five Below envisions first-quarter fiscal 2021 net sales in the range of $540 million to $560 million. Management forecast first-quarter earnings between 56 cents and 68 cents a share.

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