Shares of Five Below (NASDAQ: FIVE) are down this week after the specialty discount store chain trimmed its full-year earnings per share (EPS) guidance.
How Did FIVE Perform in Q1?
The company reported a first-quarter EPS of 59c, compared to 88c in the year-ago period and in line with the consensus estimates. Net sales came in at $630.6 million in the quarter, up 7% from the year-ago quarter and missing the consensus estimates.
Five Below’s CEO Joel Anderson said that the company’s “disciplined cost management” allowed it to outperform its earnings outlook even though Q1 sales came weaker than what analysts anticipated. In terms of inventory, the company remains well-positioned with stronger in-stocks and “accelerated receipts” for back-to-school and summer holidays.
The company ended the quarter with $320 million in cash, cash equivalents and investments, as well as nothing outstanding on its $225 million line of credit. Five Below said it bought back 247,000 shares in the first quarter for roughly $40 million.
The company reported $504 million in inventory at the end of the period, compared to $327 million in the year-ago quarter. Five Below reported a first-quarter operating income of $42.3 million, down from $63.7 million in the same period last year. The effective tax rate stood at 22.3% at the end of the quarter, compared to 20.9% reported in Q1 2021.
Looking ahead, FIVE expects EPS in the range of 74c to 86c in the second quarter, below the analyst consensus of $1.20 per share. The company expects Q2 net revenues to fall between $675 million and $695 million, also below the consensus projection of $730.5 million.
Furthermore, Five Below also expects to add over 30 new locations in the second quarter.
On a full-year basis, Five Below expects EPS in the range of $4.85 to $5.24, down from the previous forecast of $5.19 to $5.70, while analysts were looking for $5.47 per share. The Philadelphia-based company expects full-year net sales to range between $3.04 billion and $3.12 billion, down from the previous outlook of $3.16 billion to $3.26 billion.
Five Below anticipates gross capital expenditures for the full fiscal 2022 to be roughly $225 million.
Analysts Remain Bullish
Even after trimming the guidance, Jason Haas, an analyst at BofA, remains bullish on Five Below’s outlook.
“Although we remain bullish on FIVE’s long-term growth potential, we increasingly think that the company may need to cut FY22 guidance again,” Haas wrote in a client note.
The analyst trimmed FIVE’s price target from $250 per share to $200 per share, though he remains optimistic about the company’s prospect “as we believe in FIVE’s long-term growth potential after a ‘reset year’ in FY22.”
City analyst Paul Lejuez also trimmed the stock’s price target from $205 to $187 per share but also voiced his optimism about the company’s outlook.
“We believe these are near-term bumps but there is nothing that changes the growth runway (one of the best in retail) that is the key reason we like this stock. Though FIVE has yet to see the benefit of consumers trading down, we believe they will as more consumers seek value,” Lejuez wrote in a note to clients.
A total of 11 firms have already trimmed their price targets following FIVE’s earnings report. Evercore ISI analysts slashed their price target from $155 to $145, while JPMorgan Securities cut the price target down to $153 from $207.
Summary
Five Below shares are trading lower this week after the retailer delivered mixed Q1 results and an outlook that trailed analyst expectations. Still, Wall Street analysts remain positive on FIVE given the retailer’s growth potential.
