Five Below (FIVE) Defies Industry Trend, Stock Up 65% YTD

The year has not been an encouraging one for Retail-Miscellaneous/Diversified industry so far but despite belonging to the same industry Five Below, Inc. (NASDAQ:FIVE) has managed to navigate smoothly. Year to date, the industry has witnessed a fall of 10.8%, while shares of Five Below have surged 64.8%.

Further, we noted that Barnes & Noble, Inc. (NYSE:BKS) , Dick's Sporting Goods, Inc. (NYSE:DKS) and Hibbett Sports, Inc. (NASDAQ:HIBB) , which belong to the aforementioned industry, have witnessed a decline of 37.7%, 44.6% and 45.6%, respectively.

The sluggish run of these stocks in the bourses have been mitigated to an extent by the exceptional performance of Five Below. The bullish run of the stock may arouse your curiosity about how Five Below managed to outperform the industry. Let’s find out the factors behind the stock’s upsurge.

Robust Sales and Earnings Performances

Five Below’s third-quarter fiscal 2017 results reiterated robust surprise trend. Evidently, the bottom line marked its ninth consecutive quarter of positive surprise, while the top line beat the Zacks Consensus Estimate for the fourth straight time. Further, sales grew 28.9%, while earnings soared 80%. Results were largely driven by solid comps, enhanced margins, effective execution of the strategic initiatives and store openings.

The company has been witnessing positive comps growth for four straight quarters now. Evidently, comps rose 1% in fourth-quarter fiscal 2016, and 2.6%, 9.3% and 8.5% in the first, second and third quarters of fiscal 2017, respectively. Third-quarter comps also exceeded the guided range of 3-5%.
Following the stupendous quarter, management raised sales, comps and earnings per share forecasts for fiscal 2017, which has caused an uptrend in the Zacks Consensus Estimate.

Product Range & Pricing a Major Driver

Five Below’s primary focus on teens and pre-teens, helps the company enhance customer base by attracting shoppers. Further, the company is known for its impressive range of merchandise, as the company remains committed toward making innovations and refreshing its product range per the evolving consumer trends. These factors combined with the company’s pricing strategy of selling products for $5 or below enable it to cater to demographic shoppers, alongside resonating with value-seeking customers.

We believe that Five Below’s wide assortment of trend right merchandise, solid in-store and online experience along with favorable pricing strategy are likely to remain major growth drivers.

Focus on Margin Expansion

Enhancing margins is one of Five Below’s key growth strategies. The company remains focused on achieving margin expansion through efficient cost structure, solid average net sales per store, supply-chain initiatives and focus on attaining economies of scale. Evidently, the company witnessed operating margin growth of 150 basis points in third-quarter fiscal 2017, backed by improved gross margin and lower SG&A expenses.

Five Belowcurrently sports a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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