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Five Below (FIVE) Down 6% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Five Below (FIVE - Free Report) . Shares have lost about 6% 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 catalysts.

Five Below Q1 Earnings Beat, Sales Miss, Comps Decline

Five Below, Inc. came up with first-quarter fiscal 2022 results. The company reported lower-than-expected sales and provided 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.

Financials

The company 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.

The company expects 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.

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.

For the third quarter, the company assumes lower sales than originally planned and year-over-year operating margin contraction of approximately 350 basis points due to fixed cost deleverage, higher store expenses and increased marketing spend. However, it expects sales trends to improve in the final quarter, when compared with the third and second quarter, and anticipates significant operating leverage.

Management projected fiscal 2022 net sales in the band of $3.04 billion to $3.12 billion. The current view is 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, the mid-point of which is higher than earnings of $4.95 per share reported 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.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -33.79% due to these changes.

VGM Scores

At this time, Five Below has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Five Below has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Five Below belongs to the Zacks Retail - Miscellaneous industry. Another stock from the same industry, Dick's Sporting Goods (DKS - Free Report) , has gained 4.3% over the past month. More than a month has passed since the company reported results for the quarter ended April 2022.

Dick's reported revenues of $2.7 billion in the last reported quarter, representing a year-over-year change of -7.5%. EPS of $2.85 for the same period compares with $3.79 a year ago.

Dick's is expected to post earnings of $3.52 per share for the current quarter, representing a year-over-year change of -30.7%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.5%.

Dick's has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.


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