Five Below: Lowered Q4 Guidance so the Stock gets Hammered!

Five Below: Lowered Q4 Guidance so the Stock gets Hammered!

Sales & Analysis
In after-hours trading on Thursday, Five Below (ticker FIVE) announced that net sales for the nine weeks ended January 3, 2015 increased by only 24.5% to $230.7 million from $185.3 million in the comparable nine-week period of fiscal 2013.  In addition, sales guidance for the full year is now expected to growth 27% to $680 million. This year over year (YOY) sales growth is similar 2013 versus 2012, but retail companies make the majority if their earnings during the holiday season, so I never like seeing a slowdown in growth during the holiday.  Such a slowdown leads me to believe that the trend will continue into 2015. 

Looking at same-store-sales (SSS), the company lowered guidance to an increase of 3.2%, compared to previous guidance of 4%.  Furthermore, executives said, “the increase in SSS was driven by average ticket,” so I would interpret the increase in SSS as a combination of price increases and the number of items purchased.  If I assume that inflationary inputs are usually 2 to 3 percent annually, it is safe to say that current stores are NOT seeing an increase in traffic.  This is troubling because in retail, the only way you can increase your SSS is by raising prices, selling more goods per customer, or by increasing the number of customers.  In the case of Five Below, it looks like the number of customers buying merchandise in the store is flat. 

Potential Implications
Does this trend in flat SSS by Five Below speak to the buying power of the customer, a lack of compelling merchandise, or store saturation?  At this time I am not sure, but we will learn more when the company reports Q4 and full-year earnings in March.  We will continue to follow this company during 2015.
Although Five Below is a teen-dollar-store retailer, there is a good chance that all dollar stores may need to lower guidance for Q4. Additional publicly traded dollar stores are Dollar General (DG) down 2% to 68.12, Dollar Tree (DLTR) down 2.32% to 69.45, and Family Dollar Stores (FDO) down .66% to 77.99.  We will follow and analyze these companies to see if we can identify an opportunity to take a short position in these stocks.   

Company Description

Five Below, Inc. (Five Below), incorporated on January 30, 2002, is a retailer offering a range of merchandise for teen and pre-teen customer. The Company offers products, all priced at five dollars and below, including select brands and licensed merchandise across a number of its categories Style, Room, Sports, Tech (also known as Media), Crafts, Party, Candy and Now (also known as Seasonal). As of February 1, 2014, it operated a total of 304 locations across 19 states.

Comments

  1. UnknownJanuary 11, 2015 at 5:24 PM

    23% increase in revenue seems like a solid gain for the 4th quarter. What would be an ideal sales increase (percentage) during the holidays for a company like FIVE?

    ReplyDelete
  2. FaibvreJanuary 11, 2015 at 8:54 PM

    @Clarence, EXCELLENT POINT, but retail is really a game of trends. The trend for this company's growth is declining, and that is what is putting pressure on the stock. The company added 20% more locations this year, so most of the revenue growth is from newer stores, since SSS are less than 4%. We will expound on the issue of growing the store count while SSS are flat, once the company reports in March.

    ReplyDelete
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