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Five Below Q2 Preview: Can Shares Find Strength?

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The Zacks Retail and Wholesale Sector has tumbled YTD, declining nearly 20% in value and widely lagging behind the S&P 500’s performance.

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Image Source: Zacks Investment Research

A widely-popular company in the sector with a unique business model, Five Below (FIVE - Free Report) is on deck to unveil Q2 earnings on Wednesday, August 31st, after market close.

Five Below is a specialty value chain retailer that provides a wide range of premium quality and trendy merchandise for $5 or below.

In addition, Five Below carries a Zacks Rank #4 (Sell) with an overall VGM Score of a C. How does the retailer shape up heading into the print? Let’s take a closer look.

Share Performance & Valuation

It’s been a challenging road for all retailers in 2022, and Five Below has been no exception – shares are down nearly 40% YTD.

Zacks Investment Research
Image Source: Zacks Investment Research

Over the last month, FIVE shares have continued to lag behind the general market, declining approximately 4%.

Zacks Investment Research
Image Source: Zacks Investment Research

FIVE carries a 26.1X forward earnings multiple, undoubtedly pricey. Still, the value is nowhere near its five-year median of 40.5X.

Zacks Investment Research
Image Source: Zacks Investment Research

Quarterly Estimates

Analysts have been bearish in their earnings outlook over the last 60 days, with four negative estimate revisions hitting the tape. The Zacks Consensus EPS Estimate of $0.78 reflects a disheartening 32% Y/Y drop in quarterly earnings.

Zacks Investment Research
Image Source: Zacks Investment Research

However, the company’s top-line appears to be in much better shape – the Zacks Consensus Sales Estimate of $680 million reflects year-over-year revenue growth of 5.2%.

Quarterly Performance & Market Reactions

Five Below has been on a rock-solid earnings streak, exceeding the Zacks Consensus EPS Estimate in eight consecutive quarters. Just in its latest print, the retailer penciled in a 1.7% bottom-line beat.

Top-line results have primarily been mixed – FIVE has exceeded revenue estimates in half of its previous ten releases. Below is a chart illustrating the company’s revenue on a quarterly basis.

Zacks Investment Research
Image Source: Zacks Investment Research

Additionally, it’s worth noting that shares have moved downwards following each of the company’s previous four quarterly reports.

Putting Everything Together

Five Below shares have tumbled year-to-date and over the last month, with sellers remaining in control of the retail sector all year long.

Shares trade at pricey multiples, but the company’s forward earnings multiple is well below its five-year median and just a hair above its Zacks Sector.

Analysts have primarily lowered their outlook for the quarter, and estimates reflect a decline in earnings but an increase in revenue – a reflection of margin compression.

Further, the company has consistently exceeded bottom-line estimates, but revenue results have been primarily mixed.

Heading into the print, Five Below (FIVE - Free Report) carries a Zacks Rank #4 (Sell) with an Earnings ESP Score of -5%.


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