Why is Five Below (FIVE) Up 6.9% Since Its Last Earnings Report?
A month has gone by since the last earnings report for Five Below, Inc. FIVE. Shares have added about 6.9% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is FIVE 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 drivers.
Five Below Q4 Earnings & Sales Beat, Guides FY18
Five Below, Inc. delivered better-than-expected top and bottom lines for the fifth and tenth straight quarter, respectively, when it posted fourth-quarter fiscal 2017 results.
Let’s Delve Deep
Adjusted earnings of $1.18 per share came a penny ahead of the Zacks Consensus Estimate and also surged 31.1% year over year. Additionally, the bottom line exceeded the company’s guided range of $1.09-$1.16 per share. The uptick can be attributable to higher sales and operating margin expansion.
Net sales grew 30.1% to $504.8 million from the year-ago quarter and also came ahead of the Zacks Consensus Estimate of $501.5 million. Also, the top line surpassed the company’s guided range of $491-$503 million. The improvement was due to solid comparable sales growth and new store openings. Net sales in the 53rd week were $15.7 million, while excluding the same net sales rose 26%.
Comparable sales increased 5.9% in the reported quarter and came almost in line with the upper end of the previously provided guidance of 4-6%. This was primarily driven by 4% growth in comp transactions.
Gross profit improved 30.2% year over year to $207.5 million, while gross margin remained flat at 41.1%. Meanwhile, improved gross profit led operating income to jump 31.2% to $103.5 million, in spite of higher SG&A expenses. Further, operating margin increased 20 basis points from the year-ago quarter to 20.5%.
Five Below ended the quarter with cash and cash equivalents of $112.7 million and short-term investment securities of $132 million. Notably, the company had no debt and total shareholders’ equity was $458.6 million at the end of the reported quarter.
During fiscal 2017, the company generated net cash from operating activities of $167.4 million and incurred capital expenditures of $67.8 million.
Management expects to incur capital expenditures of roughly $137 million during fiscal 2018 on the opening of new stores and distribution center, and in systems and infrastructure. The company also announced a $100 million share buyback program.
During fiscal 2017, the company opened 103 stores bringing the total count to 625 stores as of Feb 3, 2018. The company plans to open 30 and 125 new stores during the first quarter and fiscal 2018, respectively.
Management remains impressed with quarterly performance. Going forward, 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.
The company also hinted that lower tax burden on account of recent tax reform will allow it to reinvest certain percentage of the surplus money in enhancing customer experience and systems and infrastructure. Management stated that this may hurt full year operating margins by 50 basis points.
The company aims to attain top-line increase of 20% and bottom-line growth of more than 20% through 2020. The company also sees a potential of 2,500 plus stores in the long run.
Five Below now envisions fiscal 2018 net sales in the range of $1.495-$1.510 billion with comparable sales expected to increase in the band of 1-2%. For the first quarter, management expects net sales between $290 million and $294 million with comparable sales growth of 3-4%.
The company forecast first quarter and fiscal 2018 earnings in the range of 31-34 cents and between $2.36 and $2.42 per share, respectively.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter.
Currently, FIVE has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for growth and momentum investors than value investors.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, FIVE has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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