Five Below Earnings Will Have a Lot to Live Up To

Five Below (FIVE 1.55%) will release its quarterly report on Monday, but investors remain confident in the stock's prospects for future growth. The question, though, is whether Five Below earnings can keep growing quickly enough to sustain the current stock price.

Five Below has done an admirable job of tapping into the retail potential of the teen and preteen segment, with low-priced products appealing even to budget-conscious young shoppers. But with so many teen-oriented retailers having struggled lately, can Five Below keep bucking the trend with strong performance? Let's take an early look at what's been happening with Five Below over the past quarter and what we're likely to see in its report.

Stats on Five Below

Source: Yahoo! Finance.

How can Five Below earnings surprise investors?
Analysts have gotten just a bit more excited about the prospects for continued Five Below earnings growth in recent months, having boosted their estimates for the July quarter and the full fiscal year by $0.01 per share. The stock has inched up in response, gaining 3% since early June.

Five Below surprised investors with strong first-quarter results, releasing its quarterly report in June and revealing that the company managed to post same-store sales gains of 4.2%. Combined with new store locations, net revenue rose 33%, and Five Below reversed a year-ago loss to post a profit of $0.05 per share. Even better, Five Below boosted its guidance for the year, increasing its expected sales range by about 1.5%, and adding as much as 5% to earnings expectations.

But Five Below faced some speed bumps in its stock-price growth when it announced a secondary offering of shares from company insiders. With managers and directors selling a total of 6 million shares, Five Below itself didn't get anything from the sale, and a hiccup that led to about a week's delay in the offering led to volatile share-price swings as the stock fell once the offering was priced.

Moreover, Five Below faces strategic threats on two fronts. On one hand, dollar stores Dollar General (DG -0.36%) and Dollar Tree also carry similarly priced accessories, like bracelets. It wouldn't be a huge shift for them to aim more toward younger shoppers, and with Dollar Genera,l in particular, seeking a huge expansion in the near future, it could swamp Five Below if it made an effort to cater to the teen and preteen niche. On the other hand, Apollo Global Management (APO) is in the process of bringing its Claire's Stores accessory chain public, and a newly energized Claire's could make a foray toward making its offerings more attractive from a price standpoint in order to fight back against Five Below.

In the Five Below earnings report, watch to see whether the company can deliver on its aggressive goals for future growth. If the teen and preteen economy falters, then it could spell a big problem for Five Below shareholders going forward.

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