Five Below's Holiday Earnings Show Strong Momentum Heading Into 2018

It can be hard for any retailer to stay ahead of shifting consumer demands, but that challenge is even more pronounced when you're marketing "trend-right" products to younger shoppers.

Yet by anticipating its customers' needs lately, Five Below (NASDAQ: FIVE) has found room to expand its store footprint while still producing healthy sales and profit gains at existing locations. This week the teen-focused retailer revealed that those positive trends held up through the holiday season and are likely to continue into fiscal 2018.

Here's a look at how the headline results stacked up against the prior year period:

What happened this quarter?

Sales met management's upgraded projections for the holiday season while profitability held steady. Meanwhile, an improving cash flow position, brought on by recent tax law changes, convinced management to issue its first stock buyback plan.

Here are some of the key highlights from the quarter:

Comparable-store sales rose 6% to mark just a slight slowdown from the prior quarter's stellar 8.5% increase. That result met the increased guidance that CEO Joel Anderson and his team issued in early January.
Overall sales jumped 30% as Five Below's store base expanded by 20% compared to the prior year.
Gross profit margin held steady at 41% of sales.
Operating margin ticked up to 20.5% of sales from 20.3% a year ago as expenses rose at a slightly slower pace than revenue.
The chain ended the quarter with $36 million of cash and $3.15 billion in debt.

What management had to say

Executives expressed optimism about their execution over the competitive holiday season and through the broader 2017 fiscal year. "We are extremely pleased with our strong fourth quarter results," Anderson said in a press release, "which capped an incredible year for Five Below, delivering outperformance on both the top and bottom line."

He continued, "Our solid financial and operational performance continues to reinforce the universal appeal of Five Below and the strength, consistency, and flexibility of our model."

Looking forward

Citing healthy momentum heading into 2018, management said they see comps rising by between 3% and 4% in the current quarter. They were more conservative with their full-year forecast, though, as comps are predicted to improve by between 1% and 2% in fiscal 2018.

The company plans to open as many as 125 new locations to mark an acceleration over last year's 100-unit expansion pace. That should help revenue rise to approximately $1.5 billion to keep its streak of 20% annual top-line growth intact. Five Below is aiming to boost both its revenue and profit figures at that 20% pace through 2020 as it continues marching toward its targeted base of 2,500 stores, up from 625 locations today. In another sign of their confidence in the long-run growth outlook, management announced plans to spend $100 million repurchasing its shares over the next three years.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends Five Below. The Motley Fool has a disclosure policy.