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Why Is Five Below (FIVE) Up 1.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Five Below (FIVE - Free Report) . Shares have added about 1.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Five Below due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Five Below Beats on Q3 Earnings & Sales, Raises View

Five Below, Inc. reported third-quarter fiscal 2018 results, wherein the company maintained a decent top- and bottom-line growth year over year, with the eighth successive quarter of comparable-store sales growth. The quarter also marked the continuation of a remarkable streak of positive earnings and sales surprises. The reported figures surpassed management’s expectation as well. Backed by the better-than-expected results, this Philadelphia, PA-based company raised its fiscal 2018 view.

Let’s Delve Deep

Adjusted earnings of 22 cents a share outpaced the Zacks Consensus Estimate of 19 cents and soared 22.2% year over year. Additionally, the bottom line exceeded the company’s guided range of 17-19 cents a share.

Net sales grew 21.6% to $312.8 million from the year-ago quarter figure and also came ahead of the Zacks Consensus Estimate of $304 million. The top line also surpassed the company’s guided range of $301-$304 million. Comparable sales (comps) increased 4.8% in the reported quarter and surpassed the company’s previous guidance of 3-4% growth. Notably, the rate of growth was up from 2.7% registered in the preceding quarter.

While gross profit improved 22.1% year over year to $102.1 million, gross margin expanded 10 basis points to 32.6%. Improved gross profit led operating income to increase 5% to $15.5 million despite higher SG&A expenses. However, operating margin contracted 80 basis points from the year-ago quarter to 5%. As a percentage of sales, SG&A expenses increased approximately 90 basis points to 27.7% in the quarter under review.

Financials

Five Below ended the quarter with cash and cash equivalents of $103.3 million and short-term investment securities of $85 million. At the end of the reported quarter, the company had no debt and total shareholders’ equity of $525.1 million. During the 39-week period (ended Nov 3, 2018) the company had net cash from operating activities of $1.6 million and incurred capital expenditures of $82 million.

Store Updates

During the third quarter, the company opened 53 new stores, taking the count to 745 stores across 33 states, reflecting a year-over-year increase of 19.2%. Five Below plans to launch 125 net new stores in fiscal 2018. For the fourth quarter, the company expects to open about five net new stores.

Outlook

Management is quite impressed with the company’s quarterly performance. Meanwhile, the company remains 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. For fiscal 2018, Five Below envisions net sales in the range of $1.550-$1.557 billion. The metric totaled $1,278.2 million in the last year. Also, comparable sales are expected to increase 3.3-3.7%. For the fourth quarter, management anticipates net sales between $593 million and $600 million. The metric amounted to $504.8 million in the year-ago quarter. Comparable sales are anticipated to grow 3-4%. The company forecast fourth-quarter and fiscal 2018 earnings in the range of $1.53-$1.57 per share and $2.60-$2.64 per share, respectively. Earlier, Five Below had anticipated fiscal 2018 net sales and earnings in the band of $1.528-$1.540 billion and $2.51-$2.57 per share, respectively.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Five Below has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Five Below has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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