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Five Below (FIVE) Up on Q2 Earnings & Sales Beat, Lifted View

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Shares of Five Below, Inc. (FIVE - Free Report) rose roughly 10% during after-market trading on Sep 6, marking the continuation of a remarkable streak of positive earnings and sales surprises with the second quarter of fiscal 2018. The company also maintained a decent year-over-year improvement in both the top and bottom lines, with the seventh successive quarter of comparable-store sales growth.

The figures not only surpassed analysts’ expectations but also beat management’s guidance. Consequently, better-than-expected results prompted the Philadelphia, PA-based company to raise the fiscal 2018 view. Certainly, the company’s strategic endeavors and upbeat performances have led this Zacks Rank #2 (Buy) stock to rise 70% in the past six months compared with the industry’s growth of 19%.

Let’s Delve Deep

Adjusted earnings of 42 cents a share beat the Zacks Consensus Estimate of 38 cents and soared 40% year over year. Additionally, the bottom line exceeded the company’s guided range of 36-38 cents a share.

Net sales grew 22.7% to $347.7 million from the year-ago quarter and also came ahead of the Zacks Consensus Estimate of $335 million. Further, the top line surpassed the company’s guided range of $332-$335 million.

Comparable sales (comps) increased 2.7% in the reported quarter and surpassed the company’s previously provided guidance of flat comps. However, the rate of growth decelerated from 3.2% in the preceding quarter.

Gross profit improved 23.6% year over year to $121.8 million and gross margin expanded 20 basis points to 35%. Improved gross profit led operating income to jump 15.7% to $30.4 million in spite of higher SG&A expenses. However, operating margin contracted 60 basis points from the year-ago quarter to 8.7%. As a percentage of sales, SG&A expenses increased approximately 80 basis points to 26.3% in the quarter.

Five Below, Inc. Price, Consensus and EPS Surprise

 

Five Below, Inc. Price, Consensus and EPS Surprise | Five Below, Inc. Quote

Financials

Five Below ended the quarter with cash and cash equivalents of $133.3 million and short-term investment securities of $131.4 million. Notably, the company had no debt and total shareholders’ equity of $508 million at the end of the reported quarter.

During the 26-week period ended Aug 4, 2018, the company had net cash from operating activities of $44.4 million and incurred capital expenditures of $46.5 million. Management expects to incur capital expenditures of roughly $130 million during fiscal 2018 on the of new store opening, distribution center, current store base and infrastructure.

Store Updates

During the quarter, the company opened 34 new stores, taking the count to 692 stores across 33 states, reflecting a year-over-year increase of 18.5%. The company plans to launch 125 new stores in fiscal 2018. During the third quarter, the company expects to open about 50 stores. The company also sees a potential of 2,500 plus stores in the long run.

Outlook

Management is quite impressed with quarterly performance. Meanwhile, the company is committed to strategic initiatives such as enhancement of digital and e-commerce channels, improvement in customers’ shopping experience, store openings as well as marketing efforts.

Five Below envisions fiscal 2018 net sales in the range of $1.528-$1.540 billion, with comparable sales expected to increase 2.5-3%. Net sales show a rise of 21-22% year over year. For the third quarter, management anticipates net sales between $301 million and $304 million and comparable sales growth of 3-4% compared with 8.5% in the year-ago quarter. Net sales show an increase of 17-18% year over year.

The company forecast third quarter and fiscal 2018 earnings in the range of 17-19 cents and between $2.51 and $2.57 per share, respectively. The Zacks Consensus Estimate for third quarter and fiscal 2018 is currently pegged at a respective 17 cents and $2.48.

Five Below had earlier guided fiscal 2018 net sales in the range of $1.502-$1.517 billion and earnings between $2.42 and $2.48 per share.

The company expects third-quarter operating margin decline of 100 basis points principally due to tax reform-related investments. It expects the metric to shrink again by 100 basis points in the fourth quarter.

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