Market Overview

Five Below Raises Full-Year Guidance, Gaps Higher

Specialty retailer Five Below (Nasdaq: FIVE) announced third quarter earnings after the close on Thursday. Sales were up 39.9% to $86.6 million, as sales at stores open at least one year were up by 8.8 percent. Adjusted net income was $1.6 million compared to $0.6 million a year ago

Thomas Vellios, Co-Founder, President and CEO, stated: "We are pleased to have delivered strong third quarter results. Our top-line performance combined with our disciplined operating model drove adjusted net income to a level more than double that of the year ago period."

Five Below is a specialty retailer that offers a wide variety of trendy merchandise aimed at teenagers and pre-teens all priced at five dollars or less. The company has been experiencing rapid growth over the past few years and, as of the end of the third quarter, operated 243 stores in 18 states, a 29 percent increase from the third quarter of 2011.

Five Below began trading in July and has traded in a range of $25 to $40.

Management issued new guidance for the fourth quarter that was slightly ahead of previous guidance, but below analyst expectations. Net sales for the fourth quarter are expected to be $167 million to $170 million, and net earnings are expected to be $18 million to $19 million.

For the full year, net sales are expected to be $412 million to $415 million. GAAP net income is expected to be $19 million to $20 million, while the fully diluted loss per share is expected to be -$1.28 to -$1.31 due to a $65.4 million below the line charge for dividends paid to preferred and unvested restricted shareholders prior to the IPO.

The company indicated that Hurricane Sandy had an impact on its sales and earnings during the first few weeks of the fourth quarter. Vellios commented, "Our thoughts go out to the millions of people affected by the devastation brought about by Hurricane Sandy. While our sales and operations at the beginning of the fourth quarter were impacted by this event and its aftermath, our most important shopping days of the year lie ahead. With our trend-right merchandise at extremely compelling price points, and the wide array of exciting and affordable gift choices offered, we are excited about the holiday season and are well-positioned as a shopping destination of choice for our customers."

The market liked Five Below's earnings. The shares traded sharply higher in after-hours trading on Thursday and gapped up at the open on Friday. As of mid-morning, the shares are trading above 34, a gain of 8.4% compared to Thursday's closing price.

Friday's gap up has put the share price back above its 50-day simple moving average (33.47) for the first time since October 22. The 50-day simple moving average should provide good support for the share, but today's gap may have to be filled before the next leg of the rally can get under way.

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