We wanted to flag Five Below (FIVE 117.69, +2.11, +1.83%), which has been bouncing
sharply over the past couple of weeks, going from around $90 in mid-December to
$117 currently. They have gotten some upgrades from sell side analysts since
mid-December, including Goldman and Morgan Stanley. But the stock has been
moving on more than that.
Five Below is sort of like a dollar store but instead of a dollar, all the merchandise is $5 or less, hence the name. It focuses on extreme-value merchandise to the teen and pre-teen market but caters to adults as well. Some items include games, accessories, décor, and books.
Five Below is based in Philadelphia and got its start there. It opened its first store in 2002 and started out by expanding aggressively across the eastern half of the US and has entered other regions as well. It has grown from 102 stores in 2010 to about 200 stores at the time of its IPO in July 2012. It currently operates approximately 750 stores in 33 states. FIVE says new store growth remains its number one priority, as it's only about a third of the way to its 2,500+ store potential.
FIVE reported solid OctQ results in early December with EPS and revenue above market expectations. Same store comps are always critical for retailers as this metric filters out the impact of adding new stores. It's a more closely watched metric as it's a better indicator than total sales of the underlying health of the business. This is especially the case for retailers that are opening a lot of stores, like FIVE. Same store comps in OctQ were quite good at +4.8%.
While this is an important quarter for FIVE as it included the back-to-school season, all eyes are now on FIVE' upcoming Q4 (Jan) results. They typically report around the March 21-22 time-frame so it's going to be a little while. However, the strong move in the stock tells us that investors are expecting good results/comps in JanQ.
From a broader perspective, a few years ago, FIVE was pretty hit-or-miss around earnings, which frustrated investors. However, a series of strong quarters recently has us thinking FIVE has put its problems in the rear-view. On the new store front, FIVE has been stepping on the gas. With a long-term goal of 2,500+ stores, FIVE still has a lot of growth ahead.
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