Five Below Q3 Earnings Preview: Look for updates on outlook, pricing strategy

After delivering mixed results for the July-quarter, discount store operator Five Below (NASDAQ: FIVE) is all set to publish third-quarter earnings Wednesday after the regular trading hours. With sales coming under pressure from seasonal factors, the company might continue to focus on store additions to retain the momentum.

Meanwhile, uncertainties in the international market, mainly due to the US-China tariff dispute, remains a concern for the sector.

The market will be keeping a tab on the management’s projection for the remainder of the year, to get a sense of what is in store. At the post-earnings conference call, the company, which started the holiday season on a mixed note, might update the market about its growth strategy. The executives are believed to be considering price hikes, after taking the stakeholders into confidence, to tackle the squeeze on margins.

Outlook

For the third quarter, analysts expect net sales to increase annually to $373.52 million and earnings to drop 29% to $0.17 per share. The estimate falls on the upper end of the guidance range provided by the management while reporting the July-quarter results.

Related: Cost optimization helps Dollar General in Q2

Despite a slowdown in comparable-store sales, Five Below’s revenues grew by a fifth to $417 million in the third quarter, when the company added several new units to its store network. While the top-line fell short of expectations, earnings rose in double digits to $0.51 per share and topped the Street view. 

Q2 Results

The steady expansion of the store network bodes well for the company, which continues its aggressive expansion initiatives both in the local market and overseas. However, the effect on the top-line might not be as encouraging as it should be, due to the softness in store traffic.

Tough Market

Dollar Tree (DLTR), another leading fixed-price department store chain, last week said its third-quarter profit dropped 9% to $1.08 per share, despite a 4% rise in sales to $5.8 billion, as higher costs dragged margins. Earnings missed the forecast, while the top-line beat.

Also see: Five Below Q2 Earnings Conference Call Transcript

Investors should find Five Below’s stock attractive, after the recent pullback. The affordable price justifies the experts’ consensus buy rating on it, with a price target that represents a 15% upside in the next 12 months. Since the beginning of 2019, the shares have gained about 20%.

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