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Behind Five Below’s Strong Top Line Trends in 2018

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Dec. 31 2018, Updated 2:10 p.m. ET

Growth trajectory

In the trailing 11 quarters, Five Below (FIVE) has beaten top line estimates nine times and missed estimates twice.

Five Below has topped analysts’ projections in all three quarters of 2018 so far. On a YoY (year-over-year) basis, its sales rose 27.2%, 22.7%, and 21.6%, respectively, in the first, second, and third quarters. Strong comps growth and new store openings also aided the company’s top line. These comps were driven by increased transactions and bigger average tickets. Comps were up 3.2%, 2.7%, and 4.8%, respectively, in the quarters.

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New store openings should continue to boost the company’s top line. On its third-quarter earnings conference call, its management added that its 2018 stores were on track to produce average unit volumes of over $2 million—the highest of any year. It’s now focusing on its distribution centers to maintain a proper supply of inventory to its expanding store base. Five Below aims to build distribution centers in the southeast and southwest regions by 2019 and 2020, respectively.

Outlook

For the fourth quarter, Five Below’s management has forecast sales of $593 million–$600 million. On the company’s third-quarter conference call, CEO Joel Anderson stated that its holiday season merchandise had received a good response from customers. Analysts expect the holiday quarter’s sales to rise 18.5% to $598.3 million.

Five Below expects five net new store openings and comps growth of 3%–4% in the fourth quarter. In the fourth quarter of 2017, the company’s comps rose 5.9%.

For 2018, its sales are expected to be $1.55 billion–$1.56 billion. Earlier, its management had guided for sales of $1.53 billion–$1.54 billion. Its comps are expected to increase 3.3%–3.7%. Analysts expect Five Below’s 2018 sales to rise 21.7% to $1.56 billion.

Peer comparison

In comparison, Dollar General (DG) missed analysts’ top line estimate in the first quarter of 2018 but beat estimates in the second and third quarters. YoY, the company reported sales growth in all three quarters. New stores and strong comps growth contributed to its top line growth.

Dollar Tree (DLTR) missed analysts’ estimates in all three quarters of 2018 due to weakness in its Family Dollar stores. On a YoY basis, its sales rose in all three quarters due to strong comps.

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