Five Below (FIVE) reported blowout earnings per share on Wednesday after the close, but I have to say the results and guidance aren't very impressive.
At first glance, the $0.46 EPS trounces the $0.34 estimate. One might expect revenues to have crushed as well, but the $364.8 million only snuck past the $363.95 million expectations. Revenue did grow 23.1% year over year, but the 3.1% comp sales number landed at the low end of guidance.
My issue with the EPS number is it was driven by a lower tax rate, 1.9% this quarter vs 15.4% a year ago. Additionally, revenue benefited from 39 new store openings with 12 being extremely strong. The question will be how long can Five Below continue to open new stores at a pace of 20% annual growth per year?
They are small enough that this shouldn't be an issue in the near future, but it creates execution risk.
One quarter where store growth slows or the acceptance of the new stores is not the same blockbuster we saw in the first quarter and the stock will get hit hard.
Management provided second-quarter guidance basically in line with current expectations and "higher" full-year EPS numbers. I put that in quotes for a reason. FIVE's guidance for EPS lands in the $3.11 to $3.18 range versus the current $3.06 estimate. That equates to a $0.05 to $0.12 increase, but note the company beat by $0.12 in the first quarter. Also, full-year revenue is actually expected to come in just below estimates of $1.89 billion at $1.865 billion to $1.885 billion.
In terms of the technical setup, FIVE bulls are walking a thin rope. The "M" pattern is bearish, but like any other pattern, it only matters if triggered. This is the inverse of a "W" pattern.
The one somewhat weakening factor for the bears is the higher high on the right side of the pattern. It provides a bit of hope. If you were to boil this down to a daily, you'd find a bearish head-and-shoulders pattern formation.
I do like the low-end retail segment, but FIVE carries a bit too much technical risk right here, right now. Downside targets point to the $100-$105 range. That's where I would be a buyer of the stock.
The option premiums aren't terrible, so selling a July 19, 2019, $105 put for $1.50 or even the July $105 - $95 put spread $1.00 merits consideration.