After a quarter that seemed to defy recent retail trends and
strong guidance, shares of retailer Five Below (FIVE
98.26, +16.98, +20.9%) trade to all-time highs.
The company operates on the premise that everything in the store is $5 or below, a higher price point than discount retail names Dollar Tree (DLTR 81.95, +0.36, +0.4%) and Dollar General (DG 94.52, -0.11, -0.1%) and yet it seems customers were more willing to pay $5 instead of $1 this quarter.
Turning to the first quarter results, Five Below seems to have gotten the recipe right in a tough brick-and-mortar retail environment.. First quarter earnings of $0.35 and revenue growth of 27% to $296.32 mln were enough to edge out the Street views on both metrics.
Comparable sales increased by 3.2%, driven by average ticket. As expected, transactions were down slightly, largely due to the unusually cold and wet weather during the quarter and lapping the spinner craze, which began to ramp in mid-April last year. All told, Five Below opened 33 new stores, ending the quarter with 658 stores in 32 states.
Gross margins were up about 110 basis points to 32.8% on gross profit which increased 31.8% to $97.2 mln from $73.8 mln reported in Q1 2017. As a percentage of sales, SG&A for Q1 2018 decreased about 170 basis points to 24.5% from 26.2% in Q1 2017.
Guidance was strong as well. Five Below issued a second quarter outlook for EPS between $0.36-0.38 with revenues between $332-335 mln on flat comps. Management highlighted on the conference call that Five Below is cycling a very high transaction-led comp from last year due to the spinner craze, and the company has reflected this in its Q2 outlook.
Five Below also raised its full year of fiscal 2018 EPS guidance to $2.42-2.48 from the previous $2.36-2.42. Revenue guidance was also upped, now at $1.502-1.517 bln from $1.495-1.51 bln. The company kept its comp guidance for the year unchanged at 1-2%.
Shares are unfazed despite adding about 15% into the report, tacking on another +20% today juxtaposed against a retail space (XRT 49.47, +0.64, +1.3%) which notches a fresh two-year high.
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