Five Below Spins Its Way to a Beat and Raise

Five Below (FIVE -2.30%) announced fiscal second-quarter 2017 results on Wednesday after the market closed, highlighting exceptional comparable sales and the continued rapid expansion of the specialty retailer's store base. Given its relative outperformance in spite of today's difficult retail environment, Five Below also increased its full-year guidance.

Let's take a closer look at how Five Below ended the first half, as well as exactly what investors should expect for the rest of the year.

Image source: Five Below.

Five Below results: The raw numbers

Data source: Five Below, Inc. *For the quarter ended July 29, 2017. 

What happened with Five Below this quarter?

• Comparable sales increased 9.3%, good for the highest comps since Five Below went public five years ago.
• Five Below opened 31 new locations during the quarter, ending with 584 stores in 32 states (up 18.9% year over year).
• These results compare favorably to Five Below's guidance provided three months ago, which called for second-quarter sales in the range of $273 million to $280 million, assuming the opening of 27 new stores and 5% to 8% comparable-sales growth. Five Below also told investors to expect lower net income per share of $0.24 to $0.27.
• The company enjoyed solid broad-based performance, led by its Room, Tech, Create, and Candy categories, as well as a "strong contribution" from trends including spinners, slime, and smiley-related products.

What management had to say

Five Below CEO Joel Anderson added:

Our strong second quarter results demonstrate the amazing appeal of the Five Below brand. We exceeded the high end of our sales, comp and earnings outlook. Sales growth of 29% was led by strong new store performance and our transaction-driven comp of 9.3%, which was the highest since our IPO. We saw solid broad-based performance across our worlds, with notable contribution from the spinner trend. Our top line results were accompanied by strong margin expansion, resulting in over 70% net income growth. We are entering the second half of the year with momentum and believe we are well-positioned to deliver on our financial goals[...].

Looking forward

That said, during the subsequent conference call Five Below elaborated on the effects of Hurricane Harvey, noting that all 23 of its Houston Metro stores were closed for the safety of its store associates. Four of those stores have since reopened, and CFO Ken Bill indicated "a handful or less may have sustained major damage."

"If there is a need to provide an update to a lingering impact, we will do so," Bull added.

In any case, for the current fiscal third quarter, Five Below expects revenue to be in the range of $241 million to $246 million, assuming opening 35 new locations and 3% to 5% comparable-sales growth. On the bottom line, that should result in net income of $6.2 million to $7.4 million, or $0.11 to $0.13 on a per-share basis. For perspective, and while we don't usually pay close attention to Wall Street's demands, both ranges are roughly in line with the market's consensus expectations.

Finally, Five Below increased its full fiscal-year 2017 guidance to call for revenue of $1.236 billion to $1.248 billion (up from $1.227 billion to $1.242 billion previously), assuming 100 new locations and 3.5% to 4.5% comparable-sales growth (up from 3% to 4% previously). Five Below now expects fiscal 2017 earnings per diluted share to be in the range of $1.62 to $1.66, compared to prior guidance for EPS of $1.59 to $1.64. 

All things considered, this was a straightforward beat-and-raise scenario from Five Below, made all that much more impressive by the current challenging state of retail. As such, I think investors should be pleased with the company's position today.