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Five Below (FIVE) Q1 Earnings Meet Estimates, Sales Miss

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Five Below, Inc. (FIVE - Free Report) reported first-quarter fiscal 2019 results, wherein adjusted earnings per share came in line with the Zacks Consensus Estimate, while net sales marginally fell short of the same. Nonetheless, this specialty value retailer posted decent year-over-year improvement in the top line, while the bottom line remained flat year over year. Moreover, the company continues to register comparable sales growth.

The company highlighted that it remains committed toward enhancing customer experience, improving supply chain and delivering better WOW products. Further, it remains focused on expanding store base and targets a network of more than 2,500 outlets in the long run. Management also shed some light on the recent tariff increase from 10% to 25%. The company said that it may raise prices on selective items steadily.

Notably, the company’s strategic endeavors have aided this Zacks Rank #2 (Buy) stock to rise approximately 29% in the past six months outperforming the industry’s growth of 14%.

Let’s Delve Deeper

Adjusted earnings of 35 cents a share met the Zacks Consensus Estimate and also came in line with the year-ago period. Meanwhile, net sales grew 23.1% to $364.8 million from the year-ago quarter but came below the Zacks Consensus Estimate of $366 million. Comparable sales (comps) increased 3.1% in the reported quarter driven by 1.6% increase in average ticket and 1.5% jump in transactions.

Gross profit grew 23.4% year over year to $120 million on account of higher sales, while gross margin expanded 10 basis points to 32.9%. We note that SG&A expenses increased 31.7% to $95.5 million, while as a percentage of net sales the same contracted 170 basis points to 26.2%.

Operating income came in at $24.5 million, down 1% owing to initial expenses related to new Southeast distribution center, adoption of new lease accounting standard and tax reform related investments that commenced in the second quarter of fiscal 2018. Operating margin shrunk roughly 160 basis points to 6.7%. The company now envisions operating margin to decline about 20 basis points in the second quarter and deleverage slightly in fiscal 2019.

Five Below, Inc. Price, Consensus and EPS Surprise

 

Five Below, Inc. Price, Consensus and EPS Surprise

Five Below, Inc. price-consensus-eps-surprise-chart | Five Below, Inc. Quote

Financials

Five Below ended the quarter with cash and cash equivalents of $220.8 million and short-term investment securities of $67.9 million. Notably, the company had no debt. Total shareholders’ equity was $636 million at the end of the reported quarter. Management expects to incur capital expenditure of approximately $205 million in fiscal 2019.

Store Updates

During the quarter under review, the company opened 39 new stores. This took the total count to 789 stores in 36 states, which reflects an increase of 19.9% from the year-ago period store count. The company plans to open approximately 40 new stores in the second quarter, and around 145-150 new stores in the fiscal year.

Outlook

Five Below continues to envision fiscal 2019 net sales in the range of $1.865-$1.885 billion, with comparable sales expected to increase 3%. We note that fiscal 2018 net sales came in at $1,559.6 million, while comparable sales rose 3.9%.

For the second quarter, management anticipates net sales between $417 million and $422 million and comparable sales growth of 2-3%. We note that second-quarter fiscal 2018 net sales came in at $347.7 million, while comparable sales improved 2.7%.

The company forecasts second quarter and fiscal 2019 earnings in the range of 48-51 cents and between $3.11 and $3.18 per share, respectively. The Zacks Consensus Estimate for the quarter and fiscal year is currently pegged at 50 cents and $3.06, respectively.

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