It has been about a month since the last earnings report for Five Below (FIVE Quick QuoteFIVE - Free Report) . Shares have lost about 0.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Five Below due for a breakout? 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 Q4 Earnings Beat, Comparable Sales Up 13.8%

Five Below, Inc. 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. The company is also piloting curbside pickup in select stores.

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. The company witnessed strength throughout the store, especially in room, style, sports and tech worlds.

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%.

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. We note that the company had opened 120 net new stores and remodeled 45 stores in fiscal 2020. Management plans to open 170-180 new stores in Five Beyond prototype and complete approximately 30-35 remodels 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.

The customer has been favorably responding to new Five Beyond assortment, which is filled with fresh, amazing value items and new categories. In fiscal 2020, the Five Beyond permanent section was in roughly 140 stores. The company plans to more than double that number in fiscal 2021, making it available in approximately 30% of chain by year-end.

The company added a system self-checkout to more than 250 more stores, including the majority of new stores and remodels, bringing the total stores with assisted self-checkout to about 60% of chain.

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, which suggests an increase from $200.9 million reported in the year-ago period. Management forecast first-quarter earnings between 56 cents and 68 cents a share against loss of 91 cents reported in the prior-year period.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 67.4% due to these changes.

VGM Scores

At this time, Five Below has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

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