FIVE Five Below, Inc
Sector financial performance:
This company, who is primarily a value retailer selling teen& pre-teen merchandise covering leisure, fashion and home, party and snack, has been grouped into value department stores sector in merchandise-clothing, household& furnishing, personal care industry.
Sales of companies in this sector seem to be immunized by the slowing down stores traffic all across the whole retail industry. The comparable stores sales have been increasing for typical companies in this sector in the past several years. And probably due to strong demand from their existing stores, companies have continued to open new stores and it seems those new opened stores performance well. In fact, the seemingly inconsistency between this sector and other retail sectors can be explained by our analysis of what caused slowed down traffic in department stores and mall-based stores.
The healthy growth in sales improved companies’ gross margin (current 36%). Therefore, while SG&A as percentage of sales went down due to quick new stores expansion, the typical operating margin among those companies keeps as high as 12% currently.
According to our analysis, the current companies’ enterprise price/EBI ratio is 65 without any debt burden.
It seems that the demand for this company’s products has been strong as indicated by the 2-7% growth in its comparable store sales.
The first half of fiscal 2018 compared with the same period of 2017
Net sales increased about 25% (23% for 2Q) primarily due to increase from new opened stores and increase of about 3% (2.7% for 2Q) in comparable stores sales driven by transaction size offset by decrease in transactions.
The fiscal 2017 compared with 2016
Net sales increased about 28% primarily due to increase from new opened stores and increase of about 6.5% in comparable stores sales (mainly from increase in transaction counts).
The first 39 weeks of fiscal 2017 compared with the same period of 2016
Net sales increased about 26% primarily due to increase from new opened stores and increase of about 7% in comparable stores sales (mainly from increase in transaction counts).
Fiscal 2016 compared with 2015
Net sales increased about 20% primarily due to increase from new opened stores and increase of about 2% in comparable stores sales (mainly from increase in transaction size; transaction counts decreased).
Fiscal 2015 compared with 2014
Net sales increased about 22% primarily due to increase from new opened stores and increase of about 3.4% in comparable stores sales (mainly from both increase in transaction size and transaction counts).
Its gross margin (including distribution, buying, and occupancy costs) has increased by about 70 basis points since 2014 to about 35.7% of fiscal 2017(trailing 12 months). While gross margin got improved, the SG&A as percentage of sales increased as a result of expansion of new stores and this makes its operating margin unchanged in 2017 (11.4% based on 12 months trailing data). The gross margin (36%) and operating margin (12%) were improved in 2018 due to rising price and leverage of occupancy costs and SG&A costs as a result of significantly increased sales.
This stock currently has a companies’ enterprise price/EBI ratio of 65 ($130). We think that its stock is being relatively overvalued considering that while its comparable store sales jumped there is still need for more proofs to justify its as high as 65 ratio since comparable sale has been driven by rising price, which may not be sustainable for long run.