Please ensure Javascript is enabled for purposes of website accessibility

Five Below Stock Has a Lot to Prove on Thursday

By Rick Munarriz – May 31, 2017 at 1:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The fast-growing "cheap chic" retailer gears up for an important report.

There aren't too many retailers still waiting to talk about their fiscal first-quarter results, but one of them is Five Below (FIVE -2.38%). The trendy retailer that, true to its name, stocks a wide array of merchandise priced at $5 or less will report fresh financials after Friday's market close.

Five Below's own guidance back in March is calling for $228 million to $232 million in net sales with earnings per share clocking in between $0.12 and $0.14. The chain's outlook would represent 19% top-line growth at the midpoint and marginal improvement over the $0.12 a share it posted a year earlier. Five Below also sees same-store sales coming in flat to up 2% for the period, an important metric to watch since one of the reasons that the stock commands a healthy market multiple is that it's defying the fickle nature of its retailing peers by posting 11 consecutive years of positive comps.

Exterior shot of a Five Below store.

Image source: Five Below.

Let's go shopping

Five Below has an ambitious "20/20 through 2020 strategy" where it's targeting 20% annual growth at both ends of the income statement through at least 2020. The lofty goal is easier stated than done. Growth has decelerated in each of the six previous fiscal years, according to data from S&P Global Market Intelligence, going from 57.6% growth in net sales to 20.2% in its latest fiscal year. It's also coming off back-to-back quarters of year-over-year growth in the high teens, a feat that will be repeated on Thursday unless it lands at the high end of its guidance. Thursday should also be the second quarter in a row where earnings growth fails to keep pace with Five Below's 20% annual goal.

Expansion is obviously the key to Five Below's top-line growth. After opening 71 net new stores in fiscal 2015 and 85 units last year, the chain is eyeing 100 new locations going up this year. Its mid-March forecast was calling for 26 new stores opening by the end of April, a goal it clearly hit since it announced that it opened its 555th store -- meaning 33 stores since its fiscal 2017 began in late January -- on May 5. 

Wall Street generally likes what it sees. Jefferies analyst Daniel Binder bumped his price target on the stock from $55 to $62 earlier this month. Binder's field checks indicate that comps should come in at the high end of its earlier guidance, or closer to 2% growth. He is sticking to his Buy rating, naturally. 

If Binder's right it would mean accelerating growth in terms of both comps (same-store sales rose just 1% during the holiday-including fiscal fourth quarter) and net sales. The bottom line remains a mystery, as Five Below's initial outlook implies contracting margins. Five Below stock is trading 31% higher so far in 2017, and as long as it's able to stick to the "20/20 through 2020" game plan, those gains should stick. However, with top- and bottom-line growth struggling to get theirs chins up above that 20% bar lately, it's not safe to assume that anything is guaranteed.

Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Five Below. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Five Below Stock Quote
Five Below
FIVE
$157.00 (-2.38%) $-3.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
351%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.