Stocks were mixed on Thursday, with the with the Dow Jones Industrial Average (DJINDICES:^DJI) extending yesterday's surge and the S&P 500 (SNPINDEX:^GSPC) edging into negative territory when the closing bell rang.
Today's stock market
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Oil stocks jumped as the price of crude climbed amid a drop in exports from Venezuela, sending the SPDR S&P Oil & Gas Exploration and Production ETF (NYSEMKT:XOP) up 2.6%. But tech stocks helped pare the market's gains, with the Technology Select Sector SPDR Fund (NYSEMKT:XLK) down 0.9%.
Five Below reaches for the sky
Shares of Five Below jumped 21.9% after the discount retail chain announced stronger-than-expected quarterly results.
For its fiscal first quarter ended May 5, 2018, Five Below's net sales grew 27.2% year over year to $296.3 million, driven by contributions from new locations and a 3.2% increase in comparable-store sales. Net income jumped nearly 160% year over year to $21.8 million, or $0.39 per diluted share, though that includes a $0.04-per-share benefit related to accounting adjustments for stock-based compensation.
Even excluding that benefit, however, Five Below's results arrived well above guidance provided last quarter for revenue of $290 million to $294 million, and net income per share of $0.31 to $0.34.
"Our consistent performance continues to reinforce our confidence in the 2,500 plus nationwide store opportunity we see for Five Below," said CEO Joel Anderson. "We are making disciplined investments to support that future growth and are excited to announce our plans to build a new distribution center just south of Atlanta, which will provide us with capacity and flexibility as we continue to grow in the Southeast."
For perspective, Five Below ended the quarter with 658 stores in 32 states, so it still enjoys a long runway for growth to reach its 2,500-plus goal. Combined with its relative outperformance to start the new fiscal year, I think investors were right to bid the stock to an all-time high today.
Growing pains at United Natural Foods
Shares of United Natural Foods fell 14.3% even though the organic food specialist posted a strong quarterly report. Revenue climbed 11.8% year over year to $2.649 billion, and adjusted earnings per share rose 35.1% to $1.04. Both figures easily exceeded consensus estimates calling for earnings of $0.93 per share on revenue of $2.58 billion.
Chairman and CEO Steven Spinner rightly called it a "strong" quarter, stating, "UNFI continues to be an important connector between manufacturers, brick and mortar retailers as well as eCommerce customers."
But he also hinted at why the stock is down today, adding: "We are pleased with the continued momentum in our business and we continue to work to balance and improve upon the challenges associated with this higher-than-expected growth."
To be sure, gross margin during the quarter declined 5 basis points year over year to 15.41%, due to a combination of higher freight costs and a shift in customer mix, where growth from lower-margin customers outpaced the rest.
During the subsequent conference call, management also noted that higher demand is putting pressure on United Natural's supply chain, resulting in lower supplier inbound fill rates. Still, Spinner insisted they remain "dedicated to working with our suppliers, and to enhance alignment on demand signals."
Finally, United Natural increased its full-year guidance to call for revenue of $10.23 billion to $10.28 billion, and for full-year adjusted earnings per share of $3.18 to $3.23. Both ranges are well above consensus estimates, which had called for full-year earnings of $3.11 per share on revenue of $10.1 billion.
Though Wall Street frowned upon United Natural Foods' growing pains, I think it's an enviable problem to have. Assuming the company can adequately address its challenges in the coming quarters, I suspect its pullback will prove short-lived.