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Here's Why Five Below (FIVE) is a Hot Investment Pick

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Five Below, Inc.’s (FIVE - Free Report) focus on pre-teen customers, improvement of digital and e-commerce channels, impressive merchandise assortment, and pricing strategy help it maintain its ground in a changing retail scene. Also, it remains focused on increasing store base.

As a result, the stock has surged and outpaced the industry in the past six months. Shares of this Zacks Rank #2 (Buy) stock have rallied approximately 63%, outperforming the industry’s and S&P 500 index’s growth of 17.1% and 8.7%, respectively.



So, let’s check out the factors driving it.

Growth Strategies

Five Below’s primary focus on teens and pre-teens helps the company enhance customer base by attracting shoppers. Furthermore, the company is known for its impressive range of merchandise as it remains committed toward making innovations and refreshing its product range per the evolving consumer trends. These factors combined with the company’s pricing strategy of selling products for $5 or below enable it to cater to demographic shoppers, besides resonating with value-seeking customers. Also, Five Below remains focused on achieving efficient cost structure, solid average net sales per store, supply-chain initiatives and economies of scale.

The company also remains committed toward expanding its store base as well as enhancing the in-store experience to draw traffic and increase customer base. Incidentally, Five Below opened 103 new stores during fiscal 2017 and plans to open 125 new stores during fiscal 2018, with 50 outlets expected to be launched in the third quarter. Further, the company envisions of having a network of more than 2,500 stores in the long run.

Remarkable Comps Performance

Five Below has been witnessing positive comparable store sales (comps) growth for seven straight quarters now. Evidently, comps rose 1% in fourth-quarter fiscal 2016, and 2.6%, 9.3%, 8.5% and 5.9% in the first, second, third and fourth quarter of fiscal 2017, respectively. Comparable sales increased a respective 3.2% and 2.7% in the first and second quarter of fiscal 2018. The company now expects comparable sales to increase in the band of 2.5-3% during fiscal 2018 and 3-4% in the third quarter.

Positive Earnings & Sales Surprise Streak

Five Below continued with its streak of positive earnings and sales surprises for the seventh straight quarter, when it reported second-quarter fiscal 2018 results. Also, the company maintained a decent year-over-year improvement in both the top and bottom line.

Backed by better-than-expected performance in the second quarter, the company raised its fiscal 2018 view. Five Below now envisions net sales in the range of $1.528-$1.540 billion, reflecting an increase of 21-22% year over year. Earnings are expected to lie between $2.51 and $2.57 per share. Management had earlier guided fiscal 2018 net sales in the range of $1.502-$1.517 billion and earnings in the band of $2.42-$2.48 per share.

Moreover, impressive estimate revisions for the current and next fiscal seem to boost investors’ confidence. The Zacks Consensus Estimate for fiscal 2018 and 2019 moved up by 3 cents to $2.57 and $3.11, respectively, in the past 30 days.

3 More Stocks You Can Vouch Upon

Urban Outfitters, Inc. (URBN - Free Report) pulled off an average positive earnings surprise of 17.7% in the trailing four quarters. It has a long-term earnings growth rate of 12.8% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The TJX Companies, Inc. (TJX - Free Report) delivered an average positive earnings surprise of 7.3% in the trailing four quarters. The company has a long-term earnings growth rate of 10.9% and a Zacks Rank #2.

Ross Stores, Inc. (ROST - Free Report) came up with an average positive earnings surprise of 5.1% in the trailing four quarters. It has a long-term earnings growth rate of 10% and a Zacks Rank of 2.

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