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How Did Five Below’s Fiscal Q2 Margin and EPS Perform?

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EPS growth

Five Below (FIVE) reported fiscal second-quarter EPS of $0.45, which was 18.4% better than analysts’ estimate. On a YoY (year-over-year) basis, its EPS were up 50%. Higher sales and reduced income tax expenses led to its strong bottom line numbers.

FIVE’s gross margin of 35.0% expanded 20 basis points from the second quarter of fiscal 2017. The leverage it achieved in occupancy costs positively impacted its gross margin. Its SG&A (selling, general, and administrative) expenses rose 26.5% to $91.3 million. However, its SG&A expense rate increased 80 basis points to 26.3% in the fiscal second quarter due to its reinvestment of its tax reform savings.

Due to higher sales, FIVE’s operating profit was up 15.7% to $30.4 million. However, due to its higher SG&A expense rate, its operating margin contracted 60 basis points to 9.3%.

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Future expectations

For the fiscal third quarter of 2018, Five Below now expects its operating margin to deleverage by 100 basis points due to reinvestments related to its tax reform–related savings. Its net income is predicted to be in the range of $9.7 million–$10.7 million. Its EPS are expected to be $0.17–$0.19. Its consensus estimate stands at $0.19.

For fiscal 2018, Five Below’s net income is expected to be in the range of $141.7 million–$144.9 million compared to the previously guided range of $136.5 million–$139.9 million. Its EPS are expected to be in the range of $2.51–$2.57 compared to the earlier projection of $2.42–$2.48. The consensus estimate for its EPS stands at $2.56.

How have FIVE’s peers performed?

For its second quarter, Dollar Tree’s (DLTR) adjusted EPS of $1.15 matched the consensus estimate and rose 16.2% YoY. Top line improvement and a lower tax rate drove the bottom line performances of all these retailers.

Dollar General (DG) reported adjusted EPS of $1.52, which were better than the consensus estimate by 2%. It rose 38.2% YoY in the second quarter.

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