What: Specialty value retailer Five Below (NASDAQ:FIVE) saw its stock fall 13% during the month of September, according to S&P Capital IQ data. The dip has left shareholders trailing the market by 9 percentage points so far this year. Five Below is also underperforming through the past 1-year and 5-year time frames.
So what: September's slip came courtesy of a weak second-quarter earnings report. The retailer on Sept. 2 announced that revenue rose by 19% to reach $182 million as comparable-store sales improved by just 3%. Three months prior, Five Below's management had forecast total revenue of $185 million along with a comps increase of between 4% and 5%. Wall Street tends to react negatively when a company fails to hit its own sales guidance.
But executives told shareholders that they believe the shortfall can be explained by a pair of "one-time factors that occurred in the middle of the quarter." First, Five Below's marketing team tested the removal of a piece of its summer advertising portfolio, which dampened store traffic. Second, the company suffered a supply hiccup from its transition into a new East Coast distribution center, leading to out-of-stock problems at many locations.
Now what: Yet Five Below left its full-year sales outlook unchanged despite the surprisingly weak second-quarter results. Revenue is still expected to come in at $824 million -- a full 20% above last year's haul. Keep in mind, though, that almost all of those gains are coming from an expanding store base, and not sharply increasing traffic at existing locations. Comps, in fact, are only expected to tick higher by 3% in 2015.
Still, management is confident that the anchors that held back Five Below's second quarter won't repeat over the next two quarters. "These one-time factors are behind us, and we believe we are well positioned from a merchandising, marketing and distribution standpoint to deliver on our plans for the second half of the year," CEO Joel Anderson said in a press release. Whether Five Below meets those objectives will depend on its ability to boost store traffic at existing locations while also smartly expanding into promising new geographies like the recently added Florida market.
Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool is short Five Below. The Motley Fool recommends Five Below. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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