stocks

Five Below surges more than 20 percent after discounter reports blowout earnings, strong outlook

Key Points
  • The Philadelphia-based company reported profit of 39 cents per share in its fiscal first quarter, topping expectations.
  • Five Below also said it expects same-store sales to grow between 1 and 2 percent and to open approximately 125 new stores in fiscal 2018.
  • The report sent the stock on its biggest one-day gain in five years.
Five Below beats on top and bottom
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Five Below beats on top and bottom

Five Below shares surged 21.9 percent on Thursday after the company reported better-than-expected earnings and a strong outlook. It also cited success with its build-out of 125 new stores, now totaling more than 650 locations.

The Philadelphia-based company reported profit of 39 cents per share in its fiscal first quarter, topping expectations and 129 percent higher than the same period last year. The report sent the stock on its biggest one-day gain in five years.

"Continued outperformance from our new stores and healthy comparable sales were accompanied by strong gross margin performance, ... and tax rate favorability, resulting in EPS that more than doubled versus last year," CEO Joel Anderson said in a statement.

Five Below also said it expects same-store sales to grow between 1 and 2 percent and to open approximately 125 new stores in fiscal 2018.

Matthew Boss, a retail analyst at J.P. Morgan, raised his price target on the stock to $107 from $87, noting the results back up his investment thesis on the company. They closed on Thursday at $99.05.

The analyst said he sees Five Below reaching annual net income growth of more than 20 percent, citing "high-teens unit growth with new store returns the sole governor," and margin expansion, among others.

Five Below's Anderson pointed to the company's merchant team, which has doubled in size since 2014, and cited greater diversification of the core products.