Five Below reported that third quarter net sales rose 28.9% to $257.2 million from $199.5 million in the year-ago quarter as same-store sales rose 8.5%. Operating income in the quarter rose 71.6% to $14.8 million from $8.6 million in the third quarter last year, and net income rose 81.4% to $9.9 million, up from $5.4 million in the year-ago period, according to a company press release.
The retailer is aggressively expanding its footprint: In the quarter the company opened 41 new stores to end the calendar year with 625 stores in 32 states, an increase of 20.9% from the end of the third quarter last year, the company also said. The company doesn't break out digital sales except to say that it's a "very small" part of its business.
For the fourth quarter of fiscal 2017, the company expects net sales to fall between $491 million and $503 million, and assumes a 4% to 6% increase in same-store sales. Net income in the quarter is expected range between $60.8 million to $64.6 million. For the full year, the company expects net sales to range between $1.264 billion to $1.276 billion based on opening 103 net new stores and assuming a 5.7% to 6.5% increase in same-store sales. Net income for the year is expected to range $95.9 million to $99.7 million, the company said.
Five Below is a super-charged retailer, capturing sales thanks to low prices, super-on trend merchandise and a treasure hunt atmosphere, all with very little e-commerce to speak of. That means customers are coming in for the fidget spinners but leaving with much more, executives have said. Even more salient is Five Below’s depth of analysis about trends, according to CEO Joel Anderson.
"We've always been a trend right retailer," he told analysts last week, according to a transcript from Seeking Alpha. "That's what Five Below was built on."
Trends, specifically three current trends, are helping to drive momentum, like fidget spinners and Silly Bandz, that Anderson called a "craze." The other two are licensed trends, like Disney’s Frozen or Star Wars, which last three or four years, and merchandise that remain popular, like blankets, but have trends within, like color or pattern. All forms of trends worked in the company’s favor in the third and second quarters, he said.
Anderson, touting close relationships with vendors and a concerted effort on the part of merchandising teams to improve the company’s offering, expressed confidence that, despite a certain lack of data because the retailer at the moment has no loyalty program or credit card, the trends’ ability to bring in customers who buy more and return for more will continue.
"We do a lot of surveys with our customer. And the surveys tell us that the spinner craze brought in a lot of new customers in the Five Below, and those customers have returned and shopped at Five Below," he said. "The reason we think they returned is they come back, they have a great in-store experience, the like the product, it’s trend right. We assume that they will continue to come with us and that halo effect will continue for many quarters to come."
But the company may begin bumping against its own stellar performance and the costs of opening a new distribution center, warns Gordon Haskett analyst Chuck Grom. "Despite mounting evidence that Five Below’s brand momentum and augmenting buying power are translating into both strong traffic and amazing [stock performance]… we don’t want to get greedy," he said in an email to Retail Dive.
The retailer's merchandising chops will deliver a strong fourth quarter, Anderson maintained. "I would tell you from second quarter to the third quarter and now leading into the fourth quarter, we continue to get better with the merchandise offering, our marketing efforts, and what our store operators are doing to make the experience better than ever," he told analysts. "And when you factor all that in, as you can tell by our results and our forecast for Q4, we think we’re going to have a great Q4."