Is Five Below the Perfect Stocking Stuffer?

With money tight, everybody is looking for a feel-good bargain this holiday season, especially when it comes to gift giving. Five Below (NASDAQ: FIVE  ) is in the ultimate position as it offers a wide assortment of products that are perfect as small gifts and stocking stuffers. As Dollar Tree (NASDAQ: DLTR  ) and Dollar General (NYSE: DG  ) are also doing exceedingly well, it seems like any chain with a cheap price tag in its title stands to benefit.

Five Below results
Five Below reported its fiscal third-quarter results on Dec. 5. Net sales popped 27.9% to $86.6 million. Same-store sales jumped 9%, which for anybody in retail is an amazing growth number. Adjusted net income exploded 62.5% to $2.6 million or $0.05 per share. The year-over-year growth in new stores rose 25% for a store count of 304.

CEO Thomas Vellios credited the success to the "value proposition" with everything priced in the $1 to $5 range, and Five Below's ability to bring in "trend-right product[s]" that appeal to teens and pre-teens. The holiday season is Five Below's biggest seasonal quarter by far. Vellios said the company got well prepared in advance with a "broad assortment of giftable merchandise."

For the fourth quarter, Five Below guided for sales between $214 million and $217 million, an increase of 23% to 25% compared to last year. Same-store sales are expected at 4%. Adjusted net income is expected to be between $26.8 million and $27.9 million for an increase of between 25.2% and 30.4%. This is solid growth across the board.

Conference call
In the call, Vellios pointed out that the solid growth guidance comes despite the "most compressed holiday season in 10 years" due to the calendar. For the company overall, going forward he sees a "tremendous store growth opportunity that we will realize over the coming years." He believes Five Below can grow its number of stores by more than 20% a year while at the same time growing same-store sales by 4% and earnings by 25% to 30% for many years to come. Don't you wish all CEOs said and did that?

Dollar Tree
In many ways, the value-appeal element of Dollar Tree is similar to that of Five Below. CEO Bob Sasser of Dollar Tree said that more people than ever are coming through its doors due to personal budget constraints in a "very cautious consumer environment." The cheap price points are paying off for Dollar Tree. Last quarter, sales leaped 9.5% to $1.88 billion. Same-store sales bumped up 3.1%. Adjusted earnings per share rose 13.7% to $0.58. It was a record quarter that was "relatively consistent across the country" at Dollar Tree stores everywhere. Sasser mentioned that Dollar Tree began the holiday season by outpacing guidance.

Dollar General
Meanwhile, Dollar General had a similar story to tell. Last quarter, sales popped 10.5% to $4.38 billion. Same-store sales bumped up 4.4%. Earnings per share surged 14% to $0.72. It was the 23rd quarter in a row of increased guest count and average revenue per guest. CEO Rick Dreiling stated that Dollar General is continually gaining market share. People love low price points!

Foolish final thoughts
The economy may be hurting right now, but Five Below makes it look easy. If you believe its growth targets -- and judging by history they seem achievable -- then Five Below may prove to be a great long-term investment. It currently trades at a P/E over 44 based on analyst estimates for next year, so it may be a bit pricey and it could get a bit cheaper in the short term. Fools should watch Five Below like a hawk for a possible entry. 

Keep the holiday season going forever
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