Five Below: Earnings Preview

Five Below: Earnings Preview

Discount retailer Five Below will report third-quarter results after market close on Dec. 5.The company's shares have more than doubled since last summer's market debut and the recent second-quarter report showed that the companies growth story was still intact. Which begs the question: will the company have another strong quarter to report or will the retailer disappoint investors?

Five Below offers fashion accessories and lifestyle items aimed mostly at female teenagers. The inventory bears some similarity to what's sold in Apollo Global Management's accessories brand Claire's, but Five Below's pricing below $5 also puts the company in competition with Dollar Tree Stores and Family Dollar Stores . The latter two stores have seen a slowing of non-consumable segments due to shaky consumer confidence. This of course leads Foolish investors to wonder if Five Below will suffer a similar constriction?

Here's what to look for in the third-quarter earnings release.

Quarter estimates-and results-to beat
Analysts estimate third-quarter revenue of $112 million with earnings per share of $0.04. Five Below has beaten estimates for both metrics over the past five quarters. The company predicts revenue of between $107 million and $109 million -- assuming a comps increase in the mid-single digits -- with EPS between $0.03 and $0.04.

The third-quarter results will stack up against the prior year's period. Last year's third quarter featured revenue of $86.6 million -- up nearly 40% year-over-year. Earnings per share were $0.03 and profits were up nearly double to nearly $1 million. Comps were up nearly 9%.

Compare the new third-quarter results to the most recent quarter, too -- particularly when it was so good that Five Below upped its full-year forecast. The second quarter report featured revenue of $117 million -- 35% growth year-over-year. Earnings per share were $0.11 and profits more than doubled on the year to $4.1 million. Comps were up nearly 7%.

Competitor performance
Private equity firm Apollo Global Management announced plans this past spring to bring Claire's public to help pay off some of the accessory store's debts. Claire's has a long, established history and a fairly priced inventory of jewelry, accessories, and decor items that appeal to young shoppers. The brand became mired in debt after Apollo's acquisition and an IPO could inject new life into Claire's.

So for now, Five Below's main publicly traded competition comes from discount stores such as Dollar General and Family Dollar.

Dollar General reports earnings on the same day as Five Below and analysts predict revenue of $4.4 billion and EPS of $0.70.Family Dollar reported its fiscal fourth quarter in October and showed revenue of $2.5 billion and EPS at $0.86. Earnings per share beat estimates but revenue was a slight miss.

Family Dollar and Dollar General have seen shrinkage in non-consumable segments. But the stores don't carry a strong product crossover with Five Below, which carries few consumables, and shouldn't serve as an indicator of declining sales for Five.

Foolish final thoughts
Five Below has become an IPO success story with repeated earnings beats. The trend is likely to continue for the third quarter and further establish the company as a growth story to watch. As always Foolish investors should do their own research before making any investment decisions.

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