While each quarterly earnings report contains plenty of news for investors, Five Below's (NASDAQ:FIVE) upcoming announcement is even more important. Its last round of earnings raised a few key questions about its growth outlook that will be clarified on Wednesday, Dec. 4. Meanwhile, this report comes following the traditional kick-off to the all-important holiday shopping season, and executives should have an unusually clear view into their operating trends for the full year.
With that big picture in mind, let's look at the main questions that Five Below should answer for investors this week.
Did customer traffic rebound?
Five Below maintained its impressive streak of more than 20% sales growth last quarter but through surprising means. The company benefited less from sales gains at existing locations and more from its aggressive store expansion pace that saw 83 locations added to its base over the past six months compared to 67 in the year-ago period.
It's good news that Five Below is finding room to expand into both new markets and existing ones. Yet investors were concerned to hear that customer traffic growth slowed to a crawl last quarter and comparable-store sales missed management's targets. That whiff means the focus will be on whether these core operating metrics improved, as executives predicted they would, or continued slowing in the third quarter.
Are shoppers paying more than $5?
Tariffs on Chinese imports pose a unique challenge for the retailer, since they're pushing prices above the $5 mark it has established as core to its branding. But that problem could turn into a major boon for the business.
Rising prices have convinced Five Below to explore offering more expensive items like video games, snacks, and apparel. The risk is that customers will reject the products or that the move will dilute the chain's brand appeal. On the other hand, Five Below might find ways to broaden its sales base and lift its margins while keeping its young shoppers happy. With access to a full quarter of demand data, CEO Joel Anderson and his team should have some conclusions to share with investors about this new strategy on Wednesday.
How did the holiday kickoff go?
Since so much of a retailer's annual earnings are generated in the weeks around the Christmas holiday, it's a boon for shareholders that Five Below's third-quarter report follows the Black Friday weekend. That timing means Anderson will have hard shopping data to share when the company issues the final official update of its 2019 outlook.
As it stands today, that prediction calls for comps to rise by roughly 3% compared to the 2.2% increase the company achieved through the first six months of the year. Five Below's accelerating growth outlook predicts a rebound in the third quarter of between 2% and 3% and similarly strong growth in the fourth quarter. Investors might react to a deviation from these forecasts in either direction by sending shares higher or lower.
Five Below is also predicting earnings per share of between $3.08 and $3.19 this year compared to $2.66 in 2018. That range should shrink and might move higher, depending on how effective the retailer has been in its latest marketing and pricing strategies around the holiday shopping sales peak.