Discount retailers like Five Below (NASDAQ:FIVE) have been having a field day the last few months. Meeting Americans' need for retail therapy in a fashion that works with concern over the larger economy certainly doesn't hurt as a battle plan, and the latest word out of Five Below demonstrates that point beautifully.
A Bargain Bonanza Earnings Report
Five Below posted a terrific earnings report, delivering an earnings per share figure of $2.20 per share. That's great by itself, and even better when the expectations were just $2.11 per share. The numbers only get better from there; revenue hit $858.5 million for the quarter, up 25% against previous figures of $687.1 million. FactSet consensus estimates called for the company to hit 839.3 million in revenue. Just to top it off, the company's comparable-store sales figures were up 13.8%, and that was against an already hopeful outlook from analysts that looked for comparable-store sales to rise 10.9%.
That's a great set of numbers, beating consensus estimates on every front, but what does Five Below have planned to follow up this win? Another win, based on reports from the company. Five Below expects earnings between $0.56 and $0.68, well ahead of an adjusted $0.40 from FactSet. Revenue is also slated to be a win in advance, as reports from the company look for revenue between $540 million and $560 million against an expected $423 million in revenue. These figures will be substantially helped by Five Below's plans to open 60 new locations just in the first quarter.
Analysts Remain Stuck on Buy
Five Below has had some pretty consistent customer figures, even through the uncertainty of the last few months. Another place with surprising consistency is the analyst pool, which—based on our latest research—has maintained a very stable “buy” rating on Five Below for the last six months.
Six months ago, the company had four “hold” ratings and 16 “buy” ratings to its credit. Three months ago, that slipped slightly toward bearish as the company added one “hold” to bring the total to five “hold” and 16 “buy.” It then stayed at that exact ratio for the next three months, into today.
However, the price target has been a lot more active. Six months ago, it came in at $130.79, before jumping to $160.82 three months ago. A month ago, another jump arrive as the target hit $177.09, and today, it's leapt upward again to $190.09. This is also the first time the price target has represented downside risk, as Five Below shares currently trade at $191.09 as of this writing.
What's particularly compelling about the latest price target is that so much of it changed today. While there was no movement in February, and not that much in January, today alone eight separate analysts from Barclays to Royal Bank of Canada all weighed in, and all hiked their price targets. Each of the eight analysts now has a price target over $200 per share, with Deutsche Bank currently holding the high at $252.
The Greatest Value of Discount Retailers
Discount retailers are often wonderful investments, because they do the best when the economy weakens. Not that they don't do well when the economy is booming, especially if they stock some unusual products, but discount retailers like Five Below, Dollar General (NYSE:DG) and the like tend to do well when people are watching their budgets a little more closely than average.
What's more, Five Below's plans to ramp up openings are downright dazzling; if you thought it was a big step to open 60 new locations, wait until you see what the company has planned from there. Reports note the company is poised to open between 170 and 180 new stores in 2021, which compares amazingly to last year's 120. Admittedly, opening new stores in 2020 was a surprise in its own right—who opens stores in the middle of a pandemic when physical retail is pretty much forbidden from operating?—but building on those figures is even more impressive. It's also poised to step up its distribution network to match; two states—New Mexico and Utah—are set to get Five Below stores for the first time, and a new distribution facility will hit Arizona, likely in support of that move.
It's always great to see a company break into new markets. It makes it clear the company understands the fragility of the market at any given time and isn't just expecting the conditions that made previous successes to continue. Five Below's results have been excellent so far, but it's that forward-thinking quality that makes it worth considering as a buy.
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