One of last week's biggest winners was Five Below (FIVE -0.07%), which soared 41.3% after posting blowout financial results and boosting its top- and bottom-line guidance for all of fiscal 2018. At least seven different analysts would go on to jack up their price targets on the stock.
Five Below has been a haven for budget-conscious teens and tweens for years. The fast-growing retailer sells trendy items that -- true to its signage -- are priced at $5 or below. A year ago, the chain's success was widely credited to the booming popularity of fidget spinners, but clearly there's more to this story than one hot fad. Sales keep growing at the store level, which -- paired with brisk expansion -- is resulting in healthy double-digit-percentage revenue growth.
Image source: Five Below.
Rising above
Net sales surged 27% to hit $296.3 million for the fiscal first quarter ending in early May. The buildout of new stores continues to be the primary driver of top-line gains. There are now 658 Five Below stores open, 19% more than what the cheap-chic empire had a year earlier. Comparable-store sales rose 3.2%.
Five Below's bottom line is growing even faster, as gross margins widen. Leveraging corporate overhead and a lower projected tax rate also helped with the earnings explosion. Net income more than doubled, soaring 160% to $21.8 million at $0.39 a share.
The chain's own guidance back in March was calling for just $0.31 to $0.34 in EPS, with $290 million to $294 million in net sales growth. Analysts were hovering near the low end of Five Below's earlier forecast, looking for a profit of $0.32 a share on $291 million in net sales. Many of them have naturally gone on to rethink their conservative stances.
J.P. Morgan, MKM Partners, RBC Capital, Deutsche Bank, Buckingham, and Wells Fargo analysts boosted their price targets from double digits to triple digits. A seventh Wall Street pro -- Judah Frommer at Credit Suisse -- is the relative laggard in the lot by only raising his price target from $88 to $98. The stock would go on to top $100 for the first time ever on Thursday, following that up with yet another all-time high on Friday.
Retail can be fickle, but Five Below has been a consistent performer. Net sales have risen by at least 20% every year since going public six summers ago, and it's well on its way to stretching that streak for another year.
The good times should continue for Five Below, a stock that has already doubled over the past year. Five Below now sees revenue of $1.502 billion to $1.517 billion in net sales this year, up from $1.495 billion to $1.51 billion. It continues to expect to open 125 new stores this fiscal year, with comps clocking in with a gain of 1% to 2%. The retailer's EPS target now stands at $2.42 to $2.48, up from $2.36 to $2.42.
Higher guidance is naturally a good look, but where it landed relative to its public expectations during the first quarter accounts for more than half the net sales increase for all of fiscal 2018 and more than the earnings revision. In short, it's not as ringing an endorsement for the next three quarterly reports as the stock's beefy gains last week would seem to suggest. Five Below had a great quarter, and it has outlived the fidget spinner craze. It will need another strong quarter to justify and build on last week's monster surge.
