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Can Five Below (FIVE) Maintain Earnings Beat Streak in Q3?

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Five Below, Inc. (FIVE - Free Report) is scheduled to report third-quarter fiscal 2018 results on Dec 5. In the trailing four quarters, this specialty value retailer has outperformed the Zacks Consensus Estimate by an average of 14.8%. Also, it delivered a positive earnings surprise of 10.5% in the last reported quarter. Let’s see what awaits this quarterly release.

How are Estimates Faring?

The Zacks Consensus Estimate for the quarter under review is pegged at 19 cents, a penny higher than 18 cents registered in the year-ago quarter. Notably, the consensus mark has been stable over the past 30 days. For revenues, the same is pegged at $303.5 million, up approximately 18% from the year-ago quarter number.

Five Below, Inc. Price, Consensus and EPS Surprise


Factors Holding Key

Five Below's commitment toward enhancement of digital and e-commerce channels, improvement in customers’ shopping experience, store openings as well as marketing efforts bode well for the stock. Apparently, the company has been registering comparable store sales (comps) growth for seven straight quarters now. For fiscal 2018 and the third quarter, Five Below expects comparable sales to increase in the band of 2.5-3% and 3-4%, respectively.

Additionally, the company’s primary focus on teens and pre-teens helped Five Below to enhance customer base by attracting shoppers. As it remains committed toward making innovations and refreshing product range per the evolving consumer trends, the company is well-known for its impressive range of merchandise. Also, Five Below’s consistent focus on achieving efficient cost structure, solid average net sales per store and supply-chain initiatives is encouraging.

However, SG&A expenses have been increasing for quite some time now. Management in its filing has mentioned that SG&A expenses are likely to increase in the near future due to store growth. Certainly, this will to an extent hurt the company's operating income, unless fully offset by substantial increase in net sales. Five Below expects third-quarter operating margin to contract 100 basis points, chiefly due to tax reform-related investments. Moreover, stiff competition from both brick-&-mortar and e-retailers raises concern.

What the Zacks Model Unveils

Our proven model shows that Five Below is likely to beat earnings estimates in third-quarter fiscal 2018. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Five Below has an Earnings ESP of +2.63% and a Zacks Rank #3.

Stocks With Favorable Combination

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post earnings beat.

The Michaels Companies, Inc. (MIK - Free Report) has an Earnings ESP of +2.86% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez (ZUMZ - Free Report) has an Earnings ESP of +0.69% and a Zacks Rank #3.

Dollar General (DG - Free Report) has an Earnings ESP of +1.59% and a Zacks Rank #3.

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