Five Below Soars Above Expectations, Signals Strong Guidance

Retailer’s sales jumped 17.6% to $199.5 million from $169.7 million in the year-ago period

f1Specialty value retailer Five Below Inc. (NASDAQ: FIVE) announced its Q3 FY16 financial results on December 01st, 2016.

The Philadelphia, Pennsylvania-based Company offers accessories, clothing, sunglasses, jewelry, beauty products and branded cosmetics; and everyday home décor items. Further, the company provides party goods, decorations, and greeting cards, as well as special occasion merchandise products and season-specific items. It primarily targets teen and pre-teen customers with an edited assortment of trend-right products, all priced at $5 and below, including select brands and licensed merchandise across categories such as Style, Room, Sports, Tech, Crafts, Party, Candy, and Now.

f2The company currently operates 517 stores in 31 U.S. states. Read more about Five Below’s financial results below.

Q3 FY16 financial highlights

During Q3 FY16, Five Below reported solid results, beating both sales and EPS estimates. Net sales jumped 17.6% to $199.5 million from $169.7 million in the year-ago same period, unlike specialty retailer Abercrombie & Fitch Co. (NYSE: ANF) and American Eagle Outfitters Inc. (NYSE: AEO) that reported tepid sales.

However, comparable store sales went into negative territory, falling 0.2%, breaking the streak of 41 consecutive quarters of positive comp growth. The Company’s gross profit jumped to $64 million in Q3 FY16, from $52.7 million in the year-ago period. Operating income jumped 23.4% to $8.63 million from $6.99 million in the year-ago period. As a result of operating margin expansion, net income grew to $5.4 million compared to $4.3 million in the year-ago period. Diluted EPS soared 25% to $0.10 compared to $0.08 per share in the year-ago same period.

Five Below made progress with its strategic initiatives, including the initial launch of its e-commerce platform and the hiring of key team members to further strengthen its merchandising capabilities. For the all-important holiday season, the company is looking to attract customers with a well-chosen product assortment preceded with the launch of marketing plans and a new TV campaign.

Other highlights

Store update: Five Below opened 26 new stores and ended the quarter with 517 stores in 31 states. This represents an increase in stores of 19.1% from the end of Q3 FY15. For the first nine months of FY16, the Company opened 80 new stores compared to 68 net new stores opened in the comparable period last year.

Guidance for Q4 FY16 and full year FY16

For Q4 FY16, Five Below expects net sales to be in the range of $391 million to $397 million based on opening 5 net new stores and assuming a 2% to 3% increase in comparable sales. Net income is expected to be in the range of $49.2 million to $50.6 million, with a diluted EPS range of $0.89 to $0.92 on approximately 55.3 million estimated diluted weighted average shares outstanding.

The company revised upwards its forecast for FY16, with net sales expected to be in the range of $1,003 million to $1,009 million based on opening 85 net new stores for FY16 and assuming a 2.3% to 2.7% increase in comparable sales. Net income is expected to be in the range of $71.3 million to $72.7 million, with a diluted EPS of $1.29 to $1.32 on approximately 55.3 million estimated diluted weighted average shares outstanding.

Stock Performance

f3Five Below’s stock ended the day at $43.12, gaining 2.23%, at the close on Tuesday, December 6th, 2016, having vacillated between an intraday high of $43.29 and a low of $41.62 during the session. The stock’s trading volume was at 1,113,052 for the day. The Company’s market cap was at $2.37 billion as of Tuesday’s close.

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