Five Below Earnings: An Early Look

Earnings season is just about over, with almost all companies already having reported their quarterly results. But there are still a few companies left to report, and Five Below (NASDAQ: FIVE  ) is about to release its quarterly earnings. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

The teen and preteen retail market is a tough place to be, with fickle customers moving quickly from one hot trend to the next without building much loyalty along the way. But Five Below hopes to tap the success of the dollar-store retail trend and adapt it to accessories and other merchandise, keeping prices of all of its products at $5 or less. Let's take an early look at what's been happening with Five Below over the past quarter and what we're likely to see in its quarterly report on Wednesday.

Stats on Five Below

Analyst EPS Estimate

$0.38

Change From Year-Ago EPS

153%

Revenue Estimate

$170.2 million

Change From Year-Ago Revenue

35%

Earnings Beats in Past 2 Quarters Since IPO

2

Source: Yahoo! Finance.

Will Five Below give investors what they want this quarter?
Analysts have stuck by their original estimates on Five Below's earnings in recent months, keeping their calls unchanged both for the just-ended holiday quarter and the full 2014 fiscal year. The stock, though, has rocketed higher, jumping 25% since mid-December.

We've already received some positive signs about Five Below's holiday quarter, as the company released early guidance back in January. With an increase in its anticipated ranges for revenue and earnings, Five Below said that same-store sales rose 4.2% for the first 11 weeks of the quarter. Even though existing major shareholders took the opportunity to announce a secondary offering of 8.1 million shares, the stock rallied in response.

The key to Five Below's success is capitalizing on cash-strapped kids. Dollar Tree (NASDAQ: DLTR  ) and Family Dollar (NYSE: FDO  ) established the success of that business model in general merchandise retail, one-upping behemoth discounters with their deeper-discount strategy and gaining market share during the recession and slow recovery over the past several years. Similarly, Five Below hopes to grab share from privately held competitors Claire's Stores and Forever 21 as young customers seek to economize.

In its quarterly report, watch for Five Below to discuss its expansion plans into Texas. With expectations to open 15 stores in the Lone Star State, Five Below believes that the strong Texas economy should translate into strong sales there. If it's right, then Five Below could be entering another big growth spurt.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only the most forward-looking and capable companies will survive, and they'll handsomely reward investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

Click here to add Five Below to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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