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Five Below Q3 Earnings Surpass Estimates, Gross Margin Rises Y/Y
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Five Below, Inc. (FIVE - Free Report) reported third-quarter fiscal 2024 results, wherein both top and bottom lines beat the Zacks Consensus Estimate. Also, net sales and earnings increased year over year. As a result, shares of FIVE rose 14.6% during the after-market trading session yesterday.
Third-quarter results surpassed expectations, with notable improvements across a wider array of merchandise categories and stronger operational performance. Strategic initiatives focused on introducing fresh offerings and providing value in key areas delivered strong results.
The dedication of merchant and operational teams to the key priorities of product, value and store experience was instrumental in driving these outcomes. Looking forward, the focus will be on maintaining this momentum and successfully addressing customer needs during the critical fourth quarter.
Five Below, Inc. Price, Consensus and EPS Surprise
More on Five Below’s Q3 Results & Insight Into Margins
Five Below posted adjusted earnings per share of 42 cents in the third quarter, which beat the Zacks Consensus Estimate of 16 cents. Also, the figure increased 61.5% from 26 cents reported in the year-ago quarter.
Net sales of $843.7 million increased 14.6% year over year. Also, this metric surpassed the Zacks Consensus Estimate of $801 million. Comparable sales (comps) increased 0.6% year over year, driven by a 1.2% increase in comp ticket, partially offset by a 0.6% decline in transaction volume.
Adjusted gross profit grew 25.7% year over year to $280.1 million. We note that the adjusted gross margin increased approximately 290 basis points (bps) year over year to 33.2%. This increase was primarily due to lapping the roughly 180 bps shrink true-up from the year-ago quarter, along with the timing of certain product margin benefits, including freight improvements and efficiencies in distribution.
We note that selling, general and administrative (SG&A) expenses rose 24.4% to $215.4 million. Also, SG&A expenses, as a percentage of net sales, increased approximately 200 bps to 25.5%. This was mainly driven by higher store payroll expenses, including increased investments in labor hours and wages, along with fixed cost deleverage. These impacts were partially offset by cost management initiatives that provided some leverage. We estimated SG&A expenses to rise 28.7% year over year for the quarter under review.
Adjusted operating income was $27.6 million compared with $16.1 million in the third quarter of fiscal 2023. The adjusted operating margin increased approximately 110 bps to 3.3%. This was primarily due to lower-than-anticipated fixed cost deleverage, driven by the sales fee.
FIVE’s Financial Snapshot: Cash and Equity Overview
Five Below ended the fiscal third quarter with cash and cash equivalents of $169.7 million and short-term investment securities of $46.9 million. Total shareholders’ equity was $1.62 billion as of Nov. 2. The company repurchased approximately 267,000 shares in the past nine months for about $40 million.
Five Below Provides Q3 Store Update
The company opened 82 new stores and ended the quarter with a total of 1,749 stores across 44 states. This represents an 18.1% increase in the number of stores from the end of the third quarter of fiscal 2023.
The company plans to open approximately 227 stores by the end of fiscal 2024, thereby taking the total count to 1,771 stores.
Image Source: Zacks Investment Research
What Lies Forward in Q4 for FIVE?
For the fourth quarter of fiscal 2024, the company expects net sales to be in the range of $1.35-$1.38 billion, indicating growth of 5-7%, driven by the opening of approximately 22 net new stores and an anticipated 3% to 5% decrease in comps.
Adjusted gross margin at the midpoint is projected to decline approximately 90 basis points. While a 100-basis point benefit is expected from lapping last year’s shrink true-up, this is expected to be more than offset by fixed cost deleverage from the negative comps and the timing of certain product costs, including freight.
Adjusted SG&A as a percentage of sales is forecasted to increase approximately 120 basis points at the midpoint, driven by fixed cost deleverage and investments in store hours and wages, partially offset by lower incentive compensation. These factors are expected to result in an adjusted operating margin decline of approximately 210 basis points at the midpoint compared to the prior year’s fourth quarter.
Net income for the fourth quarter is expected to fall between $174 million and $184 million, while adjusted net income is projected to be in the band of $179-$189 million. Earnings per share are expected between $3.15 and $3.33, and adjusted earnings per share are expected to range from $3.23 to $3.41.
Five Below’s Fiscal 2024 Outlook
For fiscal 2024, the company expects net sales to grow between 9% and 10% and be in the range of $3.84-$3.87 billion, reflecting the opening of approximately 227 net new stores and an estimated 3% decrease in comps.
Adjusted gross margin at the midpoint is expected to decrease about 20 basis points due to fixed cost deleverage on the negative comps, partially offset by lower inbound freight costs during the first half of the year, lapping last year’s shrink reserve true-up, and efficiencies in distribution centers.
Adjusted SG&A as a percentage of sales is expected to increase approximately 150 basis points at the midpoint, reflecting fixed cost deleverage and continued investments in store hours and wages, partially offset by lower incentive compensation. The adjusted operating margin is expected to be approximately 9%, representing a decline of 170 basis points compared to the previous year.
Net income for the full year is projected to be between $240 million and $250 million, with adjusted net income expected to fall between $265 million and $275 million. Earnings per share for the year are anticipated to range from $4.34 to $4.52 and adjusted earnings per share are expected to be in the band of $4.78-$4.96. Gross capital expenditures for fiscal 2024 are expected to be approximately $340 million in fiscal 2024.
Shares of this Zacks Rank #3 (Hold) company have gained 38% in the past three months compared with the industry’s 7.8% growth.
Gap is a premier international specialty retailer offering a diverse range of clothing, accessories and personal care products. It presently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Gap’s fiscal 2025 earnings and sales indicates growth of 40% and 0.8%, respectively, from fiscal 2024 reported figures. GAP has a trailing four-quarter average earnings surprise of 101.2%.
Abercrombie is a specialty retailer of premium, high-quality casual apparel. It sports a Zacks Rank of 1 at present.
The Zacks Consensus Estimate for Abercrombie’s fiscal 2025 earnings and sales indicates growth of 67.5% and 14.9%, respectively, from the fiscal 2024 reported levels. ANF has a trailing four-quarter average earnings surprise of 14.8%.
Steven Madden designs, sources, markets and sells fashion-forward name-brand and private-label footwear. It currently has a Zacks Rank of 2.
The Zacks Consensus Estimate for Steven Madden’s 2024 earnings and sales indicates growth of 8.6% and 13.6%, respectively, from the year-ago actuals. SHOO has a trailing four-quarter average earnings surprise of 9.8%.
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Five Below Q3 Earnings Surpass Estimates, Gross Margin Rises Y/Y
Five Below, Inc. (FIVE - Free Report) reported third-quarter fiscal 2024 results, wherein both top and bottom lines beat the Zacks Consensus Estimate. Also, net sales and earnings increased year over year. As a result, shares of FIVE rose 14.6% during the after-market trading session yesterday.
Third-quarter results surpassed expectations, with notable improvements across a wider array of merchandise categories and stronger operational performance. Strategic initiatives focused on introducing fresh offerings and providing value in key areas delivered strong results.
The dedication of merchant and operational teams to the key priorities of product, value and store experience was instrumental in driving these outcomes. Looking forward, the focus will be on maintaining this momentum and successfully addressing customer needs during the critical fourth quarter.
Five Below, Inc. Price, Consensus and EPS Surprise
Five Below, Inc. price-consensus-eps-surprise-chart | Five Below, Inc. Quote
More on Five Below’s Q3 Results & Insight Into Margins
Five Below posted adjusted earnings per share of 42 cents in the third quarter, which beat the Zacks Consensus Estimate of 16 cents. Also, the figure increased 61.5% from 26 cents reported in the year-ago quarter.
Net sales of $843.7 million increased 14.6% year over year. Also, this metric surpassed the Zacks Consensus Estimate of $801 million. Comparable sales (comps) increased 0.6% year over year, driven by a 1.2% increase in comp ticket, partially offset by a 0.6% decline in transaction volume.
Adjusted gross profit grew 25.7% year over year to $280.1 million. We note that the adjusted gross margin increased approximately 290 basis points (bps) year over year to 33.2%. This increase was primarily due to lapping the roughly 180 bps shrink true-up from the year-ago quarter, along with the timing of certain product margin benefits, including freight improvements and efficiencies in distribution.
We note that selling, general and administrative (SG&A) expenses rose 24.4% to $215.4 million. Also, SG&A expenses, as a percentage of net sales, increased approximately 200 bps to 25.5%. This was mainly driven by higher store payroll expenses, including increased investments in labor hours and wages, along with fixed cost deleverage. These impacts were partially offset by cost management initiatives that provided some leverage. We estimated SG&A expenses to rise 28.7% year over year for the quarter under review.
Adjusted operating income was $27.6 million compared with $16.1 million in the third quarter of fiscal 2023. The adjusted operating margin increased approximately 110 bps to 3.3%. This was primarily due to lower-than-anticipated fixed cost deleverage, driven by the sales fee.
FIVE’s Financial Snapshot: Cash and Equity Overview
Five Below ended the fiscal third quarter with cash and cash equivalents of $169.7 million and short-term investment securities of $46.9 million. Total shareholders’ equity was $1.62 billion as of Nov. 2. The company repurchased approximately 267,000 shares in the past nine months for about $40 million.
Five Below Provides Q3 Store Update
The company opened 82 new stores and ended the quarter with a total of 1,749 stores across 44 states. This represents an 18.1% increase in the number of stores from the end of the third quarter of fiscal 2023.
The company plans to open approximately 227 stores by the end of fiscal 2024, thereby taking the total count to 1,771 stores.
Image Source: Zacks Investment Research
What Lies Forward in Q4 for FIVE?
For the fourth quarter of fiscal 2024, the company expects net sales to be in the range of $1.35-$1.38 billion, indicating growth of 5-7%, driven by the opening of approximately 22 net new stores and an anticipated 3% to 5% decrease in comps.
Adjusted gross margin at the midpoint is projected to decline approximately 90 basis points. While a 100-basis point benefit is expected from lapping last year’s shrink true-up, this is expected to be more than offset by fixed cost deleverage from the negative comps and the timing of certain product costs, including freight.
Adjusted SG&A as a percentage of sales is forecasted to increase approximately 120 basis points at the midpoint, driven by fixed cost deleverage and investments in store hours and wages, partially offset by lower incentive compensation. These factors are expected to result in an adjusted operating margin decline of approximately 210 basis points at the midpoint compared to the prior year’s fourth quarter.
Net income for the fourth quarter is expected to fall between $174 million and $184 million, while adjusted net income is projected to be in the band of $179-$189 million. Earnings per share are expected between $3.15 and $3.33, and adjusted earnings per share are expected to range from $3.23 to $3.41.
Five Below’s Fiscal 2024 Outlook
For fiscal 2024, the company expects net sales to grow between 9% and 10% and be in the range of $3.84-$3.87 billion, reflecting the opening of approximately 227 net new stores and an estimated 3% decrease in comps.
Adjusted gross margin at the midpoint is expected to decrease about 20 basis points due to fixed cost deleverage on the negative comps, partially offset by lower inbound freight costs during the first half of the year, lapping last year’s shrink reserve true-up, and efficiencies in distribution centers.
Adjusted SG&A as a percentage of sales is expected to increase approximately 150 basis points at the midpoint, reflecting fixed cost deleverage and continued investments in store hours and wages, partially offset by lower incentive compensation. The adjusted operating margin is expected to be approximately 9%, representing a decline of 170 basis points compared to the previous year.
Net income for the full year is projected to be between $240 million and $250 million, with adjusted net income expected to fall between $265 million and $275 million. Earnings per share for the year are anticipated to range from $4.34 to $4.52 and adjusted earnings per share are expected to be in the band of $4.78-$4.96. Gross capital expenditures for fiscal 2024 are expected to be approximately $340 million in fiscal 2024.
Shares of this Zacks Rank #3 (Hold) company have gained 38% in the past three months compared with the industry’s 7.8% growth.
Key Picks
Some better-ranked stocks are The Gap, Inc. (GAP - Free Report) , Abercrombie & Fitch Co. (ANF - Free Report) and Steven Madden, Ltd. (SHOO - Free Report) .
Gap is a premier international specialty retailer offering a diverse range of clothing, accessories and personal care products. It presently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Gap’s fiscal 2025 earnings and sales indicates growth of 40% and 0.8%, respectively, from fiscal 2024 reported figures. GAP has a trailing four-quarter average earnings surprise of 101.2%.
Abercrombie is a specialty retailer of premium, high-quality casual apparel. It sports a Zacks Rank of 1 at present.
The Zacks Consensus Estimate for Abercrombie’s fiscal 2025 earnings and sales indicates growth of 67.5% and 14.9%, respectively, from the fiscal 2024 reported levels. ANF has a trailing four-quarter average earnings surprise of 14.8%.
Steven Madden designs, sources, markets and sells fashion-forward name-brand and private-label footwear. It currently has a Zacks Rank of 2.
The Zacks Consensus Estimate for Steven Madden’s 2024 earnings and sales indicates growth of 8.6% and 13.6%, respectively, from the year-ago actuals. SHOO has a trailing four-quarter average earnings surprise of 9.8%.