A month has gone by since the last earnings report for Five Below (FIVE Quick QuoteFIVE - Free Report) . Shares have added about 1.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Five Below due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Five Below Q2 Earnings & Sales Miss, Comps Decline Y/Y

Five Below, Inc. came up with second-quarter fiscal 2022 results, wherein the top and bottom lines missed the Zacks Consensus Estimate. While net sales grew year over year, earnings declined sharply from the year-ago period. This extreme-value retailer for tweens, teens and beyond continued with its sluggish comparable sales performance. The soaring inflation is impacting consumers’ purchasing behavior. Five Below revisited its full-year outlook to reflect the year-to-date performance.

Let’s Introspect

Five Below delivered second-quarter earnings of 74 cents a share, lower than the Zacks Consensus Estimate of 77 cents. The bottom line fell significantly from the earnings of $1.15 reported in the year-ago period.

Net sales of $668.9 million increased 3.5% year over year but missed the Zacks Consensus Estimate of $679.8 million. Comparable sales for the quarter under discussion declined 5.8% against an increase of 39.2% registered in the year-ago period. While comp tickets decreased 4.3%, comp transactions fell 1.7% in the reported quarter.

The gross profit slid 0.8% year over year to $228.5 million, while the gross margin contracted roughly 150 basis points to 34.2% due to occupancy deleverage and higher freight expenses.

We note that SG&A expenses shot up 19.7% to $172.5 million, while as a percentage of net sales, the same deleveraged 350 basis points to 25.8%. The operating income was $56 million for the quarter under discussion, down from the $86.2 million reported in the year-ago period. Also, the operating margin shrunk approximately 500 basis points to 8.4% during the quarter due to a lower gross margin and SG&A expenses.

Financials

Five Below ended the quarter with cash and cash equivalents of $155.1 million and short-term investment securities of $117.3 million. Total shareholders’ equity was $1,162.6 million as of Jul 30, 2022. Year to date, Five Below repurchased 247,132 shares for approximately $40 million in the quarter.

Five Below anticipates gross capital expenditures of approximately $235 million in fiscal 2022, excluding tenant allowances. This includes about 160 new store openings, more than 250 conversions to the Five Beyond format, the opening of a new distribution center in Indiana and investments in systems and infrastructure.

Store Updates

Five Below opened 27 new stores in the reported quarter. This took the total count to 1,252 stores in 40 states as of Jul 30, 2022, reflecting an increase of 11.7% from the year-ago count. The company plans to open about 45 new stores in the third quarter and 160 new stores in fiscal 2022. For the next fiscal year, it plans to open more than 200 stores.

Guidance

Five Below envisions third-quarter fiscal 2022 net sales in the range of $600 million-$619 million, the midpoint of which is higher than $607.6 million reported in the year-ago period.

The company expects a 7% to 9% decline in comparable sales in the third quarter against an increase of 14.8% registered in the year-ago period. Management anticipates third-quarter earnings between 8 cents and 19 cents per share. This suggests a decline from the earnings of 43 cents reported in the prior-year period.

Five Below foresees a contraction of about 540 basis points in the third-quarter operating margin due to the deleverage of fixed expenses on the negative comp, higher store expenses and increased marketing expenses, partly offset by disciplined expense management.

For the fourth quarter, management estimates a low-single-digit decline in comparable sales. However, it expects operating margin expansion in the final quarter versus last year.

Management projected fiscal 2022 net sales in the band of $2.97 billion-$3.02 billion. The current view is lower than the prior forecast of $3.04 billion to $3.12 billion. The company reported net sales of $2.85 billion last fiscal. Five Below anticipates comparable sales to be down 3-5% against an increase of 30.3% recorded in the prior year. The company had earlier projected comparable sales to be flat to down 2%.

Management guided earnings between $4.26 and $4.56 per share. The current view is also lower than the prior forecast of $4.85 to $5.24 per share. The company reported earnings of $4.95 in fiscal 2021. The company expects its operating margin to be approximately 11%, lower than the 13.3% reported last year, stemming from deleverage on fixed costs and higher SG&A expenses from more normalized marketing spend, partially offset by cost-containment efforts.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -52.94% due to these changes.

VGM Scores

Currently, Five Below has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Five Below has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Five Below is part of the Zacks Retail - Miscellaneous industry. Over the past month, Dick's Sporting Goods (DKS Quick QuoteDKS - Free Report) , a stock from the same industry, has gained 3.8%. The company reported its results for the quarter ended July 2022 more than a month ago.

Dick's reported revenues of $3.11 billion in the last reported quarter, representing a year-over-year change of -5%. EPS of $3.68 for the same period compares with $5.08 a year ago.

For the current quarter, Dick's is expected to post earnings of $2.21 per share, indicating a change of -30.7% from the year-ago quarter. The Zacks Consensus Estimate has changed +2.3% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Dick's. Also, the stock has a VGM Score of A.