Five Below (FIVE -2.39%) stock could be in for a bumpy week ahead. The specialty retailer is set to announce its earnings results for the fourth quarter and full fiscal 2021 in a few days. Investors are ready to learn whether Five Below's impressive growth momentum held up through the key holiday season.
They have a few big concerns too, including spiking costs, staffing challenges, and a potential customer traffic slowdown ahead.
With that big picture in mind, let's look at the trends worth watching in the upcoming report on Wednesday, March 30.
Image source: Getty Images.
Hitting the targets
You wouldn't know it just from looking at its stock price trends, but Five Below's business entered Q4 with fantastic momentum. Sales jumped 28% in the prior quarter, easily surpassing the 15% increase that most investors were looking to see. "We delivered record-setting third-quarter performance on top of a record third quarter last year," CEO Joel Anderson said in early December.
A few negative trends hit the industry shortly after those comments, including the omicron variant's surge. Five Below likely had some trouble keeping its stores fully staffed and stocked with the right merchandise as well. Still, Wall Street is expecting sales to land at $1 billion in Q4, or right on the forecast level that executives issued back in December.
Margin pressures
Five Below managed to boost its profitably in Q3, but earnings pressures will have likely become more pronounced in recent weeks. Its peers have complained about supply chain challenges and soaring costs for labor, transportation, and merchandise. Many retailers reported declining margins over the holiday period, and we'll learn this week whether Five Below had a similar experience.
For context, gross profit margin ticked up to 33% of sales last quarter from 32% of sales a year earlier. Operating margin is likely to set a new record for the full 2021 year of 13% of sales compared to 11.8% of sales back in 2019.
Looking ahead
Heading into the report, most investors are expecting Five Below to project that sales gains will decelerate to about 16% in 2022 from nearly 50% this past year. Management's official outlook might differ from that estimate, though, depending on how well customer traffic is holding up through price hikes.
The long-term growth picture is bright, considering that the company has room to expand to as many as 2,500 locations in the U.S., compared to its current base of about 1,200.
The surest sign that management is still confident that they can hit that result will be their new store launch plans. Look for that metric to hit another record in 2022 after the company opened roughly 170 additional locations in the past year.
