Discount retailer Five Below Inc. (FIVE, Financial) was talking growth on Wednesday even as its sales remained underwhelming and its share price has fallen by almost 22% over the past year.
While executives pointed to both inflation and pandemic-driven delays in construction and permitting resulting in delays in opening stores, investors were not thrilled with the less-than-optimistic forecast it released earlier in the week. Indeed, the Philadelphia-based company has labored to satisfy investors’ high expectations given the expansion of the dollar store segment and players like Dollar General (DG, Financial), Dollar Tree (DLTR, Financial), Family Dollar and 99 Cents Only. That being said, many on Wall Street have remained bullish on the stock, going so far as to suggest that Wednesday's slump could be viewed as an opportunity to grab a bargain.
Five Below’s stock price inched up 1.4% on Thursday to $162.48. Shortly after midday, shares were trading at around $161.60, a modest gain of 0.87% or $1.40.
Joel Anderson, president and CEO of Five Below, said, “We were very pleased with our fourth quarter results that capped off a record year. We delivered sales growth in line with our expectations against the difficult comparison to last year's stimulus-fueled comparable sales increase of 13.8%, and despite the impact of weather in January. The strength was broad-based, with Sports, Candy, Seasonal and Style worlds outperforming.”
Looking ahead to 2022, Anderson said the company will continue to “play offense” and focus on innovation and experience as it navigates a “dynamic macro environment” related to the lingering impacts of the pandemic. Management plans to grow the new Beyond store prototype, expand categories and pilot new services.
Barron's reported Citigroup analyst Paul Lejuez raised both Five Below’s rating, from neutral to buy, and his price target to $205 from $176. It noted, “The analyst highlights the company’s long-term goals, which include a compound annual sales growth rate of 19% from fiscal 2022 to 2025. That represents an industry-leading level of top-line growth.”
Five Below’s long-term vision, which it refers to as "Triple-Double," involves increasing store potential in the U.S. from 2,500 to 3,500, tripling its current count. Executives also want to double sales and more than double earnings per share through fiscal 2025, by which time the company will have opened 1,000 stores, including 375 to 400 new stores over the next two fiscal years.
For the fourth quarter ended Jan. 29, net sales increased by 16.1% to $996.3 million from $858.5 million in the prior-year quarter. Comparable sales increased by 3.4% versus the fourth quarter of fiscal 2020. Operating income increased by 10.6% to $187.6 million.
Net income increased by 13.1% to $140.2 million from $123.9 million in the fourth quarter of fiscal 2020. Diluted income per common share increased by 13.2% to $2.49. The company repurchased 368,699 shares in the fourth quarter of fiscal 2021 at a cost of approximately $60 million. Also during the quarter, Five Below opened 17 new stores and ended with 1,190 stores in 40 states, an increase in stores of 16.7% from the year-ago quarter.
For the fiscal year, net sales were $2.85 billion, up 45.2% from $1.96 billion in fiscal 2020 and 54.2% from $1.85 billion in fiscal 2019. Comparable sales increased by 30.3% versus fiscal 2020. For the comparable subset of stores that were open in both fiscal 2019 and fiscal 2020, sales increased 20%.
Operating income was $379.9 million, an increase from $154.8 million last year. Operating income increased 74.8% from $217.3 million in fiscal 2019.
Interest expense and other net costs were $13.2 million, compared to $1.7 million in fiscal 2020 and $4.3 million in fiscal 2019. The increase in expense was primarily due to the write-down of an equity investment. The company opened 170 net new stores, which was an increase from 120 net new stores opened in fiscal 2020.
