Five Below +15%: Quick Color; gets a major high-five from investors after OctQ not nearly as bad as feared (185.01 +24.15)
Five Below (FIVE) is getting a major high-five from investors after reporting a surprisingly strong Q3 (Oct) report with impressive guidance for the all-important Q4 (Jan) holiday season. We were bracing for a rough quarter after FIVE had guided sharply below consensus for Q3 when it reported Q2 results in late August. However, it had a better-than-expected Q3 and is off to a good start in Q4.
EPS fell 33% yr/yr to $0.29, but that was well above prior guidance of $0.08-0.19. Revenue grew 6.2% yr/yr to $645 mln, which also nicely above prior guidance of $600-619 mln. Last quarter, FIVE made it sound like Q3 was going to be horrible. However, increased marketing spend, especially on the digital side, helped quite a bit. FIVE focused its spend more on the second half of the quarter, which should help the holiday selling season as well.
Also, FIVE had some product winners, especially in novelty candy, including slime lickers. Games and toys were also strong with its squishmallow products remaining popular. FIVE also benefitted from a strong Halloween, which bounced back after COVID restrictions in recent years. All of this translated into same store comps of -2.7% in OctQ, well ahead of prior guidance of -9% to -7% and a nice bounce back after missing on comps in JulQ.
Looking ahead to the holidays, FIVE guided to solid Q4 comps of -1% to +1%. The holidays got off to a good start with a strong Black Friday weekend. Also, FIVE is much better stocked with merchandise this year after dealing with out-of-stocks on some items last holiday season. FIVE also has improved the quality of its holiday offering from toys to pet beds to holiday decor to Bluetooth speakers. The goal is to have something for everyone at a value price, which is good with inflation remaining high.
Overall, we think investors are breathing a sigh of relief. FIVE had prepped investors for a pretty awful Q3, but it was not nearly as bad as feared and FIVE looks well positioned for the holidays.
