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Five Below (FIVE) Q1 Earnings Beat, Sales Miss, Comps Decline

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Shares of Five Below, Inc. (FIVE - Free Report) fell 8.3% during the after-market trading hours on Jun 8, following the company’s first-quarter fiscal 2022 results. The investors fretted over lower-than-expected sales and a muted view for the fiscal year. Although disciplined expense management helped post better-than-expected bottom-line results, the same declined sharply from the year-ago period.

Let’s Introspect

Five Below delivered first-quarter earnings of 59 cents a share that came a penny ahead of the Zacks Consensus Estimate. However, the bottom line fell significantly from earnings of 88 cents reported in the year-ago period.

Net sales of $639.6 million increased 7% year over year but came below the Zacks Consensus Estimate of $653.2 million. Comparable sales for the quarter under discussion declined 3.6% against an increase of 162% registered in the year-ago period. While comp tickets decreased 1.9%, comp transactions fell 1.7% in the reported quarter.

Gross profit climbed 2.9% year over year to $206.8 million; however, the gross margin contracted 130 basis points to 32.3%, owing to fixed cost deleverage.

We note that SG&A expenses shot up 19.9% to $164.4 million, while as a percentage of net sales, the same deleveraged 280 basis points to 25.7%. Operating income was $42.3 million for the quarter under discussion, down from $63.7 million reported in the year-ago period. Also, operating margin shrunk 410 basis points to 6.6% during the quarter due to lower gross margin and SG&A expenses.

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

This presently Zacks Rank #3 (Hold) player ended the quarter with cash and cash equivalents of $120.5 million and short-term investment securities of $189.1 million. Total shareholders’ equity was $1,114.9 million as of Apr 30, 2022. Five Below repurchased 247,132 shares for approximately $40 million in the quarter.

Five Below anticipates gross capital expenditures of approximately $225 million in fiscal 2022, excluding tenant allowances. This includes about 160 new store openings, more than 200 conversions to the Five Beyond format, the opening of a new distribution center in Indiana, and investing in systems and infrastructure.

Store Updates

Five Below opened 35 new stores in the reported quarter. This took the total count to 1,225 stores as of Apr 30, 2022, reflecting an increase of 12.7% from the year-ago count. The company plans to open roughly 30 new stores in the second quarter and 160 new stores in fiscal 2022. For the next fiscal year, it plans to open more than 200 stores.

Guidance

Five Below envisions second-quarter fiscal 2022 net sales in the range of $675 million to $695 million compared with $646.6 million reported in the year-ago period. We note the company’s sales projection was shy of the Zacks Consensus Estimate of $733 million.

The company expects a 2% to 5% decline in comparable sales in the second quarter against an increase of 39.2% registered in the year-ago period. Management anticipates second-quarter earnings between 74 cents and 86 cents per share. This suggests a decline from earnings of $1.15 reported in the prior-year period. The Zacks Consensus Estimate for the second-quarter earnings per share currently stands at $1.22.

Five Below foresees a contraction of about 450 basis points in second-quarter operating margin, driven by deleverage in both gross profit and SG&A expenses.

Management projected fiscal 2022 net sales in the band of $3.04 billion to $3.12 billion, below the consensus estimate of $3.22 billion. The current view is also lower than the earlier forecast of $3.16-$3.26 billion. The company had reported net sales of $2.85 billion last fiscal.

Five Below anticipates comparable sales to be flat to down 2% against an increase of 30.3% recorded in the prior year. Management guided earnings between $4.85 and $5.24 per share, falling short of the consensus mark of $5.49. The company had reported earnings of $4.95 in fiscal 2021.

The company expects its operating margin to be approximately 12.2%, lower than 13.3% reported last year, stemming from deleverage in both gross profit and SG&A expenses.

Over the past six months, shares of Five Below have fallen 32.8% compared with the industry’s decline of 28.4%.

Key Picks in Retail

Here we have highlighted three better-ranked stocks, namely, Steven Madden (SHOO - Free Report) , Boot Barn Holdings (BOOT - Free Report) and G-III Apparel (GIII - Free Report) .

Steven Madden is a leading designer and marketer of fashion-forward footwear, accessories and apparel for women, men and children. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Steven Madden’s current financial year revenues and EPS suggests growth of 15.2% and 19.6%, respectively, from the year-ago reported figure. SHOO has a trailing four-quarter earnings surprise of 44%, on average.

Boot Barn Holdings, a lifestyle retailer of western and work-related footwear, apparel and accessories, flaunts a Zacks Rank #1. BOOT has an expected EPS growth rate of 20% for three-five years.

The Zacks Consensus Estimate for Boot Barn Holdings’ current financial year sales and EPS suggests growth of 17% and 4.4%, respectively, from the year-ago period.

G-III Apparel designs, sources and markets apparel and accessories under owned, licensed and private label brands. The stock currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for G-III Apparel’s current financial year revenues and EPS suggests growth of 8.8% and 7.2%, respectively, from the year-ago reported figure. G-III Apparel has a trailing four-quarter earnings surprise of 97.5%, on average.