Discount retailer Five Below (FIVE) reported better-than-expected earnings after the close Wednesday, as same-store sales growth more than doubled expectations. FIVE stock initially popped overnight on the strong results, but turned slightly lower.
XFive Below Earnings
Estimates: Analysts expect Five Below earnings per share of 20 cents on revenue of $444.9 million. Same-store sales were seen rising 5.3%.
Results: Five Below earnings surged 88% to 32 cents a share with revenue up 26% to $476.61 million. Same-store sales jumped 12.8%.
Foot Traffic Increases
It's been a tough year for retailers like Five Below. The pandemic shut down stores for months earlier in the year. In March, the Philadelphia-based retailer of teen-oriented merchandise priced generally at $5 and below shut down all of its 950 stores in 38 states. As a result, the retailer's customer visits were down 93.4% from 2019 levels during April, according to industry tracker Placer.ai.
In May, Five Below reopened 75% of its stores. Since then, the retailer has mounted a comeback. Retailers like Five Below found ways to drive customers back into stores like jump-starting holiday promotions in October.
"Visits in August, September and October were up 7.2%, 5.2%, and 9.9% respectively year over year," wrote Ethan Chernofsky in the Placer Bytes blog.
Five Below Stock
Five Below stock fell 0.5% in extended trade after initially rising more than 4%, near Tuesday's all-time high. Shares closed down 3.7% to 156.07 on the stock market today.
Five Below stock clawed back from a steep drop on March 13 when lockdowns were announced.
FIVE stock broke out of a cup-with-handle base in early September, according to MarketSmith chart analysis. Shares ran up 41% from that 115.27 buy point to Tuesday, when they hit a record 162.12. FIVE stock also cleared a short consolidation in early November after rebounding from the 10-week moving average.
The relative strength line has been rallying strongly since March to a 52-week high, reflecting Five Below stock's strong outperformance vs. the S&P 500 index. The RS line is the blue line in the chart below.
IBD's Stock Checkup shows FIVE stock's EPS Rating is just 67. The retailer reported flat earnings in Q2 after posting a 93-cent loss the prior quarter. Five Below stock has a Composite Rating of 83 out of a possible 99.
Five Below stock ranks No. 6 in IBD's Retail Discount & Variety group. Rival Dollar Tree (DLTR) is No. 4 and Dollar General (DG) holds the No. 2 spot. Dollar Tree stock fell 0.7%, while Dollar General stock declined 1.1%. DLTR stock is holding its gains after an earnings gap-up. DG stock is holding near its 50-day line in a short consolidation, with earnings due early Thursday.
Closeout retailer Big Lots (BIG) is No. 1 in the group. BIG stock sank 4.8% to 52.45, back below a 54.80 early entry within a three-month consolidation after a strong move Tuesday. Big Lots reports earnings early Friday.
Five Below Competitive Advantage
Analysts say Five Below serves a niche in the value-oriented teen and tween demographic.
"FIVE's competitive advantage lies in its track record of quickly spotting and capitalizing on trends (e.g. spinners), a differentiated shopping experience catered to Generation Z (which prefers shopping in-store), and powerful store economics (new stores average payback period less than a year)," said CFRA Research analyst Camilla Yanushevsky. "Our research has found that FIVE has a price advantage over peers, due to low-cost operating structure and merchandising strategy to take advantage of closeout channels, which gives it significant purchasing power."
Yanushevsky, who has a Buy rating for Five Below stock, says the company competes with a broad range of retailers including discount, mass merchandise and grocery stores with both an online and physical presence. She says the company's teen and preteen focus differentiates it from Dollar Tree and Dollar General. Yanushevsky adds that online retail giant Amazon (AMZN) also doesn't pose a significant threat to Five Below.
"We view FIVE and its off-price retailers to be immune from the impact of Amazon's rapid growth, due to its significantly lower pricing, unique product assortment, and differentiated shopping experience," she said. "FIVE refreshes products frequently and maintains a floor layout that is easy to navigate."
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