A month has gone by since the last earnings report for Five Below (FIVE Quick QuoteFIVE - Free Report) . Shares have lost about 5.9% 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 its most recent earnings report in order to get a better handle on the important drivers.

Five Below Q2 Earnings Beat Estimates, Comps Rise Y/Y

In spite of a challenging backdrop, Five Below, Inc. delivered a decent performance in second-quarter fiscal 2021, wherein both the top and the bottom lines not only improved year over year but also surpassed the pre-pandemic level. While earnings per share beat the Zacks Consensus Estimate for the fifth straight quarter, net sales fell short of the same.

Nonetheless, Five Below stated that the third quarter is off to a robust start from a sales perspective. The company’s focus on providing trend-right products, improving supply chain, strengthening digital capabilities and delivering better WOW products bode well. It is expanding self-checkout capabilities and committed toward providing same-day delivery service to make shopping convenient. Comparable sales increased significantly during the quarter under review.

Let’s Introspect

Five Below delivered second-quarter fiscal 2021 earnings of $1.15 per share that topped the Zacks Consensus Estimate of $1.11. Impressively, the bottom line improved sharply from earnings of 53 cents in second-quarter fiscal 2020 and 51 cents in second-quarter fiscal 2019.

Net sales of $646.6 million missed the Zacks Consensus Estimate of $658.2 million. However, the metric surged 51.7% from $426.1 million in the second quarter of fiscal 2020 and rose 54.9% from $417.4 million in the second quarter of fiscal 2019. The company witnessed strength in the Sports, Tech, Style, Candy and Room worlds.

We note that comparable sales for the quarter under review climbed 39.2% against a decline of 12.2% in the year-ago quarter. For the comparable subset of stores that were open in both the second quarter of fiscal 2019 and the second quarter of fiscal 2021, sales jumped 21%.

Gross profit surged 64.7% year over year to $230.3 million, while gross margin expanded 280 basis points to 35.6%. We note that SG&A expenses climbed 35.1% to $144.2 million during the quarter. Operating income amounted to $86.2 million during the quarter under discussion, up 160% from $33.1 million in the second quarter of fiscal 2020 and 139.2% from $36 million in the second quarter of fiscal 2019.

Financials

Five Below ended the quarter with cash and cash equivalents of $126.2 million and short-term investment securities of $286.9 million. Total shareholders’ equity was $1,002.5 million as of Jul 31, 2021.

Management incurred capital expenditures of approximately $134.6 million during the 26-week period ended Jul 31, 2021. Five Below continues to anticipate capital expenditures of approximately $315 million in fiscal 2021, excluding the impact of tenant allowances. This includes opening of a new ship center in Arizona, construction of a new ship center in Indiana, opening new stores and executing remodels, and investing in systems and infrastructure.

Store Updates

During the quarter, Five Below opened 34 new stores across 19 states, bringing total openings for the first half to a record 102 new stores. This took the total count to 1,121 stores in 39 states, as of Jul 31, 2021, reflecting an increase of 14.2% from the year-ago count. The company plans to open about 40-45 new stores in the third quarter. Management plans to open 170-175 new stores in fiscal 2021. The company expects to complete about 30 remodels during the fiscal year.

Approximately 270 stores featured the five beyond section at the end of the second quarter. The company expects approximately 30% of stores to offer five beyond by the end of fiscal 2021 and roughly 50% of the chain by the end of fiscal 2022.

Guidance

Five Below envisions third-quarter fiscal 2021 net sales in the range of $550 million to $565 million compared with $476.6 million reported in the year-ago period. The company guided mid-single digit growth in comparable sales. Management forecast third-quarter earnings between 23 cents and 30 cents a share compared with 36 cents in the prior-year period.

Management expects third-quarter operating margin to deleverage by more than 100 basis points versus the prior year period, with the majority of this deleverage to occur within SG&A expenses. It also anticipates gross margin to deleverage when compared with the last year owing to higher inbound freight costs resulting from supply chain disruptions.

Although Five Below did not provide fiscal 2021 view, it highlighted that if full-year net sales rise at a low-20s CAGR relative to 2019, it is likely to deliver operating margin expansion of roughly 50 basis points from fiscal 2019 level. This is better than the earlier projection of roughly 30 basis points expansion, despite additional freight pressures.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 18.94% due to these changes.

VGM Scores

At this time, Five Below has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly 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.