Five Below (FIVE) Down and Out on Weak Guidance

NEW YORK (TheStreet) -- Five Below (FIVE) dropped like a stone in extended trading after it cut its fourth-quarter guidance due to poor holiday sales performance. After diving 3.2% over the session, shares plummeted 14.5% to $37.25 after the bell.

The discount chain said while sales over the nine-week period ended Jan. 4 climbed 25.4% to $185.3 million, comparable store sales dropped 0.5%.

Based on the quarter-to-date results, the Philadelphia-based retailer cut its fourth-quarter revenue guidance to between $208 million and $210 million, far less than previous guidance in the range of $211 million to $223 million.

Earnings guidance was slashed to between 44 cents and 46 cents a share from a previous 49 cents to 51 cents a share. Analysts surveyed by Thomson Reuters had hoped for net income of 51 cents a share on $217.6 million in revenue.

The company expects comparable store sales for the quarter to be down between 0.5% and 1.5%.

"We did not meet our sales expectations for the holiday season as adverse weather negatively impacted traffic to our stores, which are heavily concentrated in the Northeast and Midwest regions. This was exacerbated by the shortened holiday season during which we simply did not make up the weather-driven sales shortfall," said CEO Thomas Vellios in a statement.

TheStreet Ratings team rates FIVE BELOW INC as a Hold with a ratings score of C-. The team has this to say about their recommendation:

"We rate FIVE BELOW INC (FIVE) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its notable return on equity, robust revenue growth and impressive record of earnings per share growth. However, as a counter to these strengths, we also find weaknesses including premium valuation, poor profit margins and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • When compared to other companies in the Specialty Retail industry and the overall market, FIVE BELOW INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • The revenue growth came in higher than the industry average of 8.2%. Since the same quarter one year prior, revenues rose by 27.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • FIVE's debt-to-equity ratio is very low at 0.22 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.08 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • The gross profit margin for FIVE BELOW INC is currently lower than what is desirable, coming in at 30.91%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.51% trails that of the industry average.
  • Net operating cash flow has significantly decreased to -$11.61 million or 254.44% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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