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Five Below’s Fiscal Q2 EPS: Analysts Project Double-Digit Growth

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Adjusted EPS expected to rise 26.7%

Five Below (FIVE) is scheduled to announce its fiscal second-quarter of 2018 results on September 6. Its adjusted EPS estimate for the quarter is $0.38, which compares to $0.30 in the same quarter of fiscal 2017. Higher sales along with a lower tax rate could drive its bottom-line performance.

Analysts expect Five Below to report a gross margin of 34.5%, reflecting a contraction of ~30 basis points. SG&A (selling, general, and administrative) expenses are expected to increase 20.2% to $86.8 million. Its operating margin is expected to be 8.3%, representing a contraction of ~100 basis points.

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For the second quarter, Five Below’s management expects a 100-basis-point deleverage in its operating margin due to tax-related reforms. Its net income is expected to be $20 million–$21.2 million, representing year-over-year growth of 19%–26%. Its EPS is estimated to be $0.36–$0.38, reflecting a year-over-year growth of 20%–27%.

Past performance

For the first quarter of 2018, Five Below’s adjusted EPS was $0.35, which was better than the consensus estimate of $0.32. Its gross margin expanded 110 basis points to 32.8% due to higher sales. SG&A expenses rose 18.9% to $72.5 million, but the expense rate improved 170 basis points to 24.5%. Its operating margin increased 280 basis points to 8.3% in the fiscal first quarter.

How have other department store retailers fared?

For the second quarter of 2018, Dollar General (DG) reported adjusted EPS of $1.52, which was much lower than $1.49 projected by analysts. It rose 38.2% year-over-year. A lower tax rate primarily drove its bottom-line growth.

On the other hand, Dollar Tree’s (DLTR) adjusted EPS of $1.15 was in line with analysts’ estimate. It grew 16.2% year-over-year. Higher sales and a lower tax rate due to recent tax reforms aided its bottom-line growth.

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