Five Below: A Dynamic Concept With Substantial Opportunity For Growth

Five Below Inc FIVE, a specialty retailer of merchandise for teens and pre-teens, is reporting its third-quarter numbers Thursday.

Karen Short of Barclays expects third-quarter EPS of $0.10, comps to grow 1.5 percent and EBITDA of $15.5 million, all in line with the Street's view.

Headwinds And Tailwinds

The analyst believes Five Below's results should benefit from new e-commerce platform, implied upside in new store productivity (NSP), good returns from TV ads and two additional days between Thanksgiving and Christmas in 2016 versus 2015.

On the other hand, the headwinds should come from difficult comp/NSP comparison this quarter versus last year, higher costs from e-commerce launch and pressure to mall traffic from shift of sales towards online.

Post-Print Scenarios

The analyst also listed three scenarios for shares following the third-quarter results:

1. "Up (low percent): 3Q stacked comps meaningfully accelerate (3Q comp greater than ~2.0 percent), strong NSP, and 4Q guidance has the stacked comp momentum continuing, while $0.91 in EPS (Consensus & Barclays) is at the midpoint to low end of the range.”
2. "Flat (reasonable percent) 3Q stacked comps are stable (3Q comps ~1.5 percent), solid NSP, and 4Q guidance midpoint has the stacked comp in line with the recent trend (~6.1 percent; Consensus is for 6.3 percent in the 2H), while $0.91 in EPS is at the midpoint of the range.”
3. "Down (low percent) 3Q stacked comps soften, NSP is weak, and 4Q guidance has the stacked comp softer than the recent trend, while $0.91 in EPS is at the high end of the range.”

Rating, Price Target And Justification

Short has an Equal-Weight rating on the shares, with a price target of $42.

“FIVE has a dynamic concept with substantial growth opportunities and strong unit economics, but the stock's valuation is appropriate,” Short wrote in a note.

At last check, shares of Five Below had fallen 4.52 percent on the day to trade at $40.42.