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Five Below Jumps 9% on Outstanding Q3 Beat

American specialty discount chain Five Below, Inc. (FIVE) delivered outstanding third-quarter results, with both earnings and sales exceeding estimates by a huge margin. Following the news, shares jumped 9.4% during the extended trading session on December 1.

The company did well despite the ongoing supply chain problems, and attracted both new and existing customers to its stores. The company also provided guidance for both Q4 and FY21, which fell in line with consensus estimates.

Outstanding Results

The company’s earnings rose 19% year-over-year to $0.43 per share and 14 cents higher than analysts’ estimates of $0.29 per share.

Furthermore, net sales came in at $607.64 million, a 27.5% increase compared to the year-ago period outpacing analysts’ estimates of $563.68 million.

The company’s comparable sales grew 14.8% compared to Q3FY20. At quarter-end, the company had 1,173 operational stores across 40 states.

Management Comments

President and CEO of Five Below, Joel Anderson, said, “The teams are working diligently across our key strategic priorities of product, experience, and supply chain to give our customers an amazing Five Below shopping experience for the holidays. We believe we are well-positioned to continue to delight customers with our extreme value Wow assortment, including the Five Beyond offering.”

Mr. Anderson concluded, “As we look ahead, we are confident that we will continue to drive sustainable long-term growth while realizing our 2,500-plus store potential in the U.S.”

Guidance

Based on the current business momentum and the upcoming holiday season, FIVE forecasts fourth-quarter net sales to be in the range of $985 million to $1,005 million, against the consensus of $1,000 million.

Similarly, Q4 earnings are projected to be between $2.36 per share and $2.48 per share, while the consensus estimate is pegged at $2.49 per share.

Additionally, the company expects full-year fiscal 2021 net sales to fall in the range of $2.837 billion and $2.857 billion, while earnings are forecast to be between $4.82 per share and $4.94 per share.

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Analysts’ Take

Responding to FIVE’s quarterly performance, Berenberg Bank analyst Brian McNamara, said, “ The management team continues to execute at a high level and while these significantly above-trend sales results have lasted longer than we expected, we do not believe double-digit comps are the new norm and expect eventual mean reversion.”

McNamara maintained a Hold rating on the stock with a price target of $184, which implies 2.7% downside potential to current levels.

Overall, the stock has a Moderate Buy consensus rating based on 4 Buys and 2 Holds. The average Five Below price target of $239.17 implies 26.4% upside potential to current levels. Shares have gained 21.2% over the past year.

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