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How Has Five Below Stock Reacted to Its Fiscal Q2 Results?

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Stock jumps 13.3%

Five Below (FIVE) stock price witnessed a 13.3% rise on September 7 largely driven by its announcement of its better-than-expected fiscal second-quarter results a day earlier.

Five Below’s fiscal second-quarter sales and EPS of $347.7 million and $0.45, respectively, rose 22.7% and 50.0%, respectively, year-over-year. The company also raised its sales and EPS guidance for fiscal 2018. Five Below also added that the increase in tariffs is unlikely to affect its performance in fiscal 2018.

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Five Below’s top line is being boosted primarily by its new stores. In the fiscal second quarter, the company opened 34 new stores, taking the total count to 67 for the first half of fiscal 2018. The company is targeting 125 store openings for fiscal 2018. By fiscal 2020, Five Below plans to have a 2,500-strong store base. The company is also remodeling stores to provide a better shopping experience.

To maintain a steady supply of inventory to its stores, the company has been focusing on its distribution centers. Five Below is planning to open distribution centers in the southeast and southwest regions in 2019 and 2020, respectively.

For fiscal 2018, Five Below expects to see capex of $130 million primarily directed toward the opening of stores and its planned distribution center.

Five Below is also making significant investments in broadening its product assortment as well as enhancing its brand visibility. In the fiscal second quarter, the company launched a TV campaign for ~40% of its market. It’s also testing social media and mobile ad campaigns to attract customers.

Year-to-date movement

As of September 7, Five Below is up 97.4% year-to-date. Dollar General (DG) is up 19.1%, but both Dollar Tree (DLTR) and Big Lots (BIG) are down 23.4%.

Changes to PE valuation

On September 7, Five Below was trading at a 12-month forward PE ratio of 45.6x.

Five Below is trading at a higher valuation multiple than its peers. Big Lots, Dollar Tree, and Dollar General are trading at 12-month forward PE ratios of 9.3x, 14.0x, and 171x, respectively.

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