There are several stocks with huge potential that investors might miss, and Five Below Inc. (FIVE, Financial) is one of them. This teen-focused discount retailer has posted excellent quarterly results, including a 23.7% increase in total sales. In fiscal 2015, the company opened 71 net new stores, compared to 62 new stores opened in fiscal 2014, and expects more new store openings in the coming years.
Five Below is a specialty retailer offering a range of merchandise for teens, preteens and their parents. It offers a range of products such as an exciting assortment of cell phone cases and chargers, remote control cars, yoga pants, graphic tees, nail polish, footballs and soccer balls, tons of candy and seasonal must-haves for Easter, Halloween, Christmas and more, all priced at $5 and below. Five Below products are grouped into one of eight in-store worlds: Style, Room, Sports, Tech, Crafts, Party, Candy and Now. Five Below operates with 437 stores in 27 states.
Strong fourth-quarter results
On March 22, the Philadelphia-based company reported its financial results for the fourth quarter and full year ended Jan. 30. The company’s net sales increased 23.7% to $326.4 million, compared to $263.8 million for the comparable prior-year period. Net income (on a GAAP basis) increased 26.1% to $42 million, compared to $33.3 million in the prior-year period.
Five Below’s adjusted operating income and diluted income per common share (on a GAAP basis) increased 27.3% to $67.4 million and 26.2% or 77 cents, compared to $52.9 million and 61 cents in the year-ago quarter.
The company’s gross profit and selling, general and administrative expenses for the reported quarter increased 24.31% to $132.18 million and 21.41% to $64.82 million, compared to $106.33 million and $53.39 million for the comparable prior-year period.
Five Below ended the quarter with cash and cash equivalents of $53.08 million, a sharp decrease of 16%, compared to $63.19 million for the prior year period. Further, total liabilities at the end of the period increased 24.16% to $148.81 million, compared to $119.85 million for the prior-year period.
Fiscal 2015 results
A chart has been provided below to show the company’s different metrics for fiscal 2015, compared with fiscal 2014.
Projections
For first quarter 2016, Five Below expects the following:
- Net sales in the range of $186 million to $189 million based on opening 20 new stores.
- The company assumes an approximate 4% increase in comparable store sales.
- The company expects its net income (on a GAAP basis) to be in the range of $5 million to $5.7 million.
- Diluted income per common share (on a GAAP basis) is expected to be 9 cents to 10 cents on approximately 54.9 million estimated diluted weighted average shares outstanding.
For fiscal 2016, Five Below expects the following:
- Net sales in the range of $995 million to $1.01 billion based on opening 85 new stores.
- The company assumes an approximate 3% increase in comparable store sales.
- The company expects its net income (on a GAAP basis) to be in the range of $69.9 million to $72.2 million.
Diluted income per common share (on a GAAP basis) is expected in between $1.27 to $1.31 on approximately 55.3 million estimated diluted weighted average shares outstanding.
Growth
To strengthen its position, Five Below continues to grow its store base and has a more than 2,000-store base in the U.S. To create more newness for its customers, the company has increased its purchasing scale and sourcing capabilities and expanded its overseas sourcing with 25% penetration in 2014. On March 2, Five Below announced the grand opening of its brand-new store in Miami on March 4 and plans to open more than 100 stores in Florida in the future.
To drive margins, Five Below has leveraged its infrastructure by opening a new distribution center in New Jersey with 1,045,000 square feet, which will support continued growth and expansion on the East Coast. The company has built brand awareness by engaging digital and TV media, which have a large opportunity to attract new customers to the brand. Further, Five Below expects to deliver against its average annual goal of 20% top-line growth, along with greater than 20% bottom-line growth through 2020.
Management
To execute substantial long-term growth plans, Five Below appointed Daniel Kaufman to its board of directors on Dec. 3, 2015. Kaufman has more than two decades of experience with high-growth specialty retailers and has a deep understanding of and expertise in growth retail.
(Source: Company website)
On a concluding note
Overall, Five Below is a rock-solid company with robust revenue growth, notable record of earnings per share growth, ample liquidity, strong free cash flow generation, self-funded growth, no debt level at current position, compelling growth in net income and consistently strong new store performance.
Further, since second quarter 2006, the company has provided 35 consecutive quarters of positive comparable store sales growth. With the recent quarterly release, the company is aiming for a better future and is all set to deliver a healthy menu to its investors. It is expected to create greater shareholder returns.
Disclosure: I do not hold any position in the company.
