Shares of Five Below (NASDAQ: FIVE) were heading lower after the discount retailer posted disappointing results in its fourth-quarter earnings report, missing estimates on the bottom line. As a result, the stock was down 14.3% as of 11:38 a.m. ET.
Five Below can't keep up with expectations
The company, which sells toys, games, clothes, and other products for $5 or less typically in mall and shopping center settings, delivered decent results in the quarter, but they couldn't keep up with expectations. Revenue in the quarter jumped 19.1% to $1.34 billion, essentially matching estimates of $1.35 billion.
That increase was driven primarily by new-store openings and an extra week in the quarter. Adjusting for the extra week, revenue rose 14.9%, while comparable sales were up a modest 3.1%.
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Five Below delivered solid gains on the bottom line, as well. Operating income rose 19% to $268.4 million and earnings per share improved from $3.07 to $3.65, though that was short of the consensus of $3.78.
The company opened a record 205 stores in the year as it continues to capitalize on large whitespace opportunities in discount retail. Like other retailers, Five Below has struggled with theft. CEO Joel Anderson said, "The benefit of strong sales performance to our profitability was offset by higher than anticipated shrink headwinds, resulting in earnings at the low end of our guidance range."
What's next for Five Below
Looking ahead, Five Below's guidance was solid. It called for full-year revenue of $3.97 billion-$4.07 billion on 225-235 new-store openings and a flat-to-3% increase in comparable sales. On the bottom line, it forecast earnings per share of $5.71-$6.22.
That forecast was ahead of the consensus of $3.57 billion in revenue and earnings per share of $5.55. However, first-quarter guidance was worse than expected, indicating that the retailer's growth will be toward the back half of the year.
Overall, the results shouldn't change anyone's thesis on the retailer. However, the stock trades at a premium given its rapid growth, and high-priced stocks often fall when quarterly reports don't live up to expectations.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Five Below. The Motley Fool has a disclosure policy.
