Wall Street Weighs In On Five Below's Q1 Earnings

Five Below Inc FIVE shares rose 22 percent Thursday after the retailer's first-quarter earnings and sales beat. 

Discount retail remains one of the brightest spots in brick-and-mortar retail.

On a scale of one to five, Five Below's Q1 print would rate "pretty close to a five," said RBC Capital Markets analyst Scot Ciccarelli. 

Five Below reported Q1 comp growth of 3.2 percent.

The company announced an agreement this week to build a 700,000-square-foot distribution facility in Atlanta, which “has the ability flex up to about 1 million square feet," said CEO Joel Anderson. 

“This is the first facility built entirely to our specifications, and owning the building will provide us with control and flexibility as we grow our footprint throughout the Southeast," the CEO said during the retailer's conference call. "This DC, together with our plan for additional new DCs, demonstrates our commitment to supporting our rapidly growing store base through disciplined infrastructure investments." 

The Analysts

• JPMorgan’s Matthew Boss maintains an Overweight on Five Below with a $107 price target.
• RBC's Ciccarelli maintains an Overweight rating and raised the price target from $77 to $104.
• Credit Suisse analyst Judah Frommer reiterated an Outperform and raised the price target from $88 to $96.
• Buckingham Research Group's Kelly Crago reiterated a Buy and raised the price target from $77 to $115.

'One Of The Strongest New Store Models In The Industry'

A key focus area for Five Below investors was the company's guidance for flat comps in the second quarter, said Credit Suisse's Frommer. The guidance was important because it means lapping last year's fidget spinner trend, which created a difficult comparison, the analyst said. 

Five Below is "one of the most unique treasure hunt offerings we have seen in small box retail and just about the strongest new store model in the industry,” Frommer said. 

Buckingham's Crago said the company is ramping its summer TV marketing from 25 to 40 percent of its markets, which the analyst said should drive higher brand awareness and more foot traffic in stores. 

RBC's Ciccarelli said he remains bullish on Five Below due to its nearly 20-percent annual unit growth, strong unit economics and vast store expansion opportunity. The company is on track to open 125 stores in 2018.

“The setup of tough comp comparisons and incremental investments could result in some stock volatility, but we think the market should generally understand these issues, and long-term investors can use pullbacks to add to positions,” Ciccarelli said.

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