Five Below Gains In Q1 Despite Tariffs

Tariff increases loom over Five Below, but the company raised its guidance for the fiscal year as it reported first quarter results.

For the first quarter of fiscal 2019 ended May 4, Five Below posted net income of $25.7 million, or 46 cents per diluted share, versus $21.8 million, or 39 cents per diluted share, in the period a year prior.

A benefit from share-based accounting was 11 cents in the first quarter of fiscal 2019 compared to four cents in the fiscal 2018 period. With the accounting-related benefit excluded, Five Below matched a MarketBeat-published analyst consensus estimate of 35 cents.

Net sales advanced 23.1% to $364.8 million as comparable sales increased by 3.1% in the period year over year. Operating income slipped 1% to $24.5 million versus the year-earlier quarter.

Joel Anderson, Five Below president and CEO, said, “We kicked off the year with a solid first quarter. Both sales and earnings were at the high end of our guidance ranges, and new stores continued to exceed expectations and drive our growth. Of the 39 new stores we opened, 12 were in the top 25 spring grand openings of all time, which is impressive given how strong the last few years of store classes have been. We also continued to see broad-based strength across our merchandise worlds. We are innovating across the organization and remain focused on elevating our customer experience, delivering even better products, and further enhancing our supply chain. We are excited to have opened our Southeast distribution center at the end of the first quarter and expect to open a Southwest distribution center next year. We are on track to achieve our 2020 goals while still investing in people, systems and infrastructure to support our future 2,500-plus U.S. store potential.”

After taking into account tariffs imposed by the U.S. on certain goods from China, Five Below still increased its earnings per diluted share guidance for fiscal 2019 from the $3 to $3.07 range to the $3.11 to $3.18 range.

In a conference call, Anderson said the company expects to mitigate tariff effects. It is testing various options to do so, he said, including vendor negotiations, price increases on merchandise that has been tagged from $1 to $4, process efficiencies and moving production to other countries. The company also is experimenting with merchandise dubbed 10 Below that can cost up to $10.