UBS Outlines Why There's 'Wind' at Five Below's Back

Ahead of its earnings report on Wednesday, June 3, UBS research said that the long-term outlook for Five Below Inc FIVE "remains very bright." Analyst Michael Lasser said that Five Below "navigated the challenging retail environment" during the first quarter. In part, UBS based the note on the fact that Google searches for Five Below gained 13 percent year-over-year.

UBS noted that it is forecasting a 1.5 percent increase in sales and a $0.07 EPS for the quarter, a result that it notes is in-line with other Wall Street forecasts. On the downside, UBS said that Five Below likely faced some margin contraction in the first quarter, with gross margins flat YoY. However, that forecast is "sufficiently conservative," allowing the company room to deliver a "slight beat," the note added.

The research note also pointed to three additional reasons that the company "has the wind at its back." First, UBS said that the first quarter is the toughest comp number of the year to meet, meaning that the company will be able to drive incrementally better numbers throughout the remainder of 2015. UBS also said it expects Five Below to increase advertising in Q2 with TV spots, which it thinks "will help drive further growth of its awareness. As we see it, growing consumer understanding of its concept is the single biggest driver of its comp." Finally, UBS said that the new distribution center in New Jersey will help Five Below with "inventory flow" into the future.

In total, UBS reiterated its $41 price target on the stock - a level that reflects more than 23 percent upside from Friday's closing price. The stock price has shed 18.5 percent this year, though shares have rebounded from the 52-week low in March. At that time, the stock was trading below $29 per share.