Five Below Earnings Not Up to Par for Investors

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Five Below Inc. (NASDAQ: FIVE) reported its fiscal second-quarter earnings after the markets closed on Wednesday. The company had $0.13 in earnings per share (EPS) on $182.2 million in revenue, compared to Thomson Reuters consensus estimates of $0.13 in EPS on $184.69 million in revenue. The same period from the previous year had $0.15 in EPS on $152.48 million in revenue.

Operating income fell 12.8% year over year to $11.6 million. This drop was driven by the expected deleverage associated with the new distribution center, leadership investments and a shift in marketing.

The company opened 32 new stores and ended the quarter with 417 stores in 26 states, representing an increase in stores of 18.1% from the end of the second quarter of fiscal 2014.

Five Below issued guidance for the fiscal third quarter. The company expects EPS to be in the range of $0.06 to $0.07 and for revenue to be in the range of $164 million to $167 million. There are consensus estimates of $0.08 in EPS on $167.50 million in revenue for the third quarter.

Joel Anderson, CEO of Five Below, stated:

We delivered earnings at the high end of our guidance range in the second quarter and made significant progress against our strategic initiatives. We are excited to announce the opening of our new east coast distribution center and with new store growth remaining our top priority, we were very pleased with our entry into three new markets, including the highly anticipated Florida market.

Comparable same store sales rose about 3% in this quarter, however analysts were expecting the number to be above 4%. The CEO explained the situation:

We believe our second quarter sales performance was curtailed by two one-time factors that occurred in the middle of the quarter. First, as part of our ongoing test and learn approach around our marketing strategy, we eliminated a summer circular. Second, we experienced temporary store receipt delays as we moved out of our existing east coast distribution center. We believe the combination of the two accounted for total sales coming in at the low end of our guidance range and the comp shortfall for the second quarter.

Ultimately the company sees these one-time factors as behind it and that merchandising, marketing and distribution should be able to deliver in the second half of this fiscal year, notably during the holidays.

On the books the company has cash and cash equivalents totaling $60.9 million compared to $25.6 million in the same period last year.

Shares of Five Below closed Wednesday up 1.4% at $38.00 on its 52-week trading range of $28.51 to $47.89. Following the release of the earnings report, shares were down 10.3% at $34.07 in the after-hours trading session. The stock has a consensus analyst price target of $43.60.

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