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Here's Why Investors Should Bet on Five Below (FIVE) Right Now

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Five Below, Inc. (FIVE - Free Report) has been taking up several initiatives to adapt to the changing dynamics of its industry. Notably, this Philadelphia, PA-based company looks well poised to improve in 2019 on steady economic growth, buoyant consumer confidence and rising disposable income.

Investments in long-term endeavors may exert pressure on margins in the near term. Nonetheless, looking beyond the short-term impediments, these steps are vital for attaining long-term goals. Clearly, this Zacks Rank #2 (Buy) company has managed a decent run on the bourses in a year.

We note shares of this specialty value retailer have risen roughly 84.7% in a year. In fact, the stock has fared better than the Zacks Retail - Miscellaneous industry’s growth of 3.5%. Meanwhile, the Zacks Retail-Wholesale sector has declined 2%.

Let’s Analyze

Five Below’s impressive merchandise assortment, focus on pre-teen customers, enhancement of digital and e-commerce channels, and pricing strategy aids the company to stand tall amid a tough retail landscape. These along with healthy performance of new outlets and decent comparable sales run are likely to propel the top line.

Management’s primary focus on teens and pre-teens, helps the company enhance customer base by attracting shoppers. 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.

We believe that Five Below’s wide assortment of trend right merchandise, solid in-store and online experience along with favorable pricing strategy are likely to remain primary growth drivers. Further, the company remains focused on achieving efficient cost structure, solid average net sales per store, supply-chain initiatives and economies of scale.

These endeavors have helped Five Below to score decent comparable sales growth. Comparable sales increased 3.2%, 2.7% and 4.8% in the first, second and third quarter of fiscal 2018, respectively. The company now anticipates comparable sales to increase in the band of 3.3-3.7% during fiscal 2018 and between 3-4% in the final quarter. The company’s solid store remodeling is a major reason behind its healthy comparable sales performance.

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



Wrapping Up

Five Below’s strategic initiatives remain well on track and are likely to fuel top-line growth in fiscal 2019 and 2020. The Zacks Consensus Estimate for the current and next financial year reflects a year-over-year increase of 21.8% and 21.7% to $1.56 billion and $1.90 billion, respectively.

3 More Hot Stocks Awaiting Your Look

Casey's General Stores (CASY - Free Report) has a long-term earnings growth rate of 8.9% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Foot Locker, Inc. (FL - Free Report) delivered average positive earnings surprise of 6.8% in the trailing four quarters. It carries a Zacks Rank #2.

Tapestry (TPR - Free Report) delivered average positive earnings surprise of 11.7% in the trailing four quarters. It has a long-term earnings growth rate of 11.3% and a Zacks Rank #2.

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