Five Below (FIVE 127.78, +7.77, +6.47%) is sort of a dollar store but everything is
below $5, hence the name Five Below. The stock is up nicely today after the
company reported strong Q4 (Jan) results last night. Adjusted EPS rose 30% yr/yr
to $1.58 (excluding a $0.01 accounting benefit) from $1.21 in the prior year
period. This was above prior guidance of $1.53-1.57.
Revenue rose 19.4% yr/yr to $602.7 mln, also a good bit above prior guidance of $593-600 mln. However, the guidance for the spring Q1 (Apr) period was not so good. FIVE expects AprQ EPS of $0.32-0.35 and revenue of $361-366 mln. Revenue is in-line with market expectations but the EPS guidance was a good bit below expectations. FIVE expects AprQ comps of +3-4%.
Same store comps are always a key metric for retailers. FIVE's JanQ comps came in at +4.4%, which was above prior guidance of +3-4% comps. It was pretty comparable to Q3 (Oct) comps of +4.8%. Full year comps came in at +3.9%. As such, 2018 marked FIVE's 13th consecutive year of same store comp growth on an annual basis. FIVE is guiding to full years comps of +3%.
Growing the store base is a big part of FIVE's growth story. It ended the year with 750 stores, which still represents less than a third of the 2,500-plus store potential FIVE sees in the US. FIVE expects to open 145-150 new stores this year. FIVE just entered Iowa and Nebraska a few weeks ago and will add Arizona to its state footprint in Q2 (Jul).
On the call, FIVE said that it saw broad-based performance throughout several of its categories, led by tech, sports, create and candy. The toy opportunity this holiday season was even better than expected and drove the outperformance in sales. In addition, other continuing trends like slime, squishy and unicorn also drew customers into the stores.
With respect to merchandising for the holiday quarter, FIVE offered an attractive and diverse selection of affordable options for gift giving such as desktop diffusers and rock salt lamps in room, plush loungewear and face masks in style, wireless earbuds in tech, action figures and board games in sports, as well as craft kits in create. FIVE says its overall assortment continues to get better and better.
On the marketing front, FIVE continued to shift its efforts into TV and digital advertising, while using e-commerce and e-mail to feature its holiday campaign. This year marked FIVE's fifth year of holiday TV campaigns and the company was especially pleased with the results.
FIVE has been undertaking a well-planned store remodeling process. It's now in a position to roll out a formal multiyear program beginning with approximately 50 stores in 2019. The refresh store is designed to create a better shopping experience, which should drive more repeat visits and foster even more loyalty. These remodels, combined with 145 to 150 new stores opening in 2019, will bring the total stores in the fresh format at the end of 2019 to nearly half of the chain.
Something we thought was interesting is that FIVE is now testing a new offering within its Five Below stores to deliver extreme value at a slightly higher price point currently up to $10. Some of the stores have a separate area for these products, while others have only an eight-foot section. FIVE is testing products for this area and there is initial positive customer reaction. FIVE plans to expand the test in 2019 to about 20 more stores.
In sum, so why is the stock up despite the EPS miss and the weak EPS guidance for AprQ? It seems investors are focusing more on the strong comps in the quarter and the bullish comments made on the call last night. A few years ago, FIVE was pretty hit-or-miss around earnings, which frustrated investors. However, a series of strong quarters recently has us thinking FIVE has gotten its problems in the rear-view mirror. On the new store front, FIVE has been stepping on the gas. With a long-term goal of 2,500+ stores, FIVE still has a lot of growth ahead.
- OUR VIEW
- LEARNING CENTER