Five Below Inc (NASDAQ: FIVE) stock caught in bearish momentum despite decent results

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Five Below Inc (NASDAQ: FIVE) stock fell 16.55% on March 18th, 2020 and continued its bearish momentum falling over 2.5% on March 19th, 2020 (Source: Google finance) even though the company posted better than expected results for the fourth quarter of FY 19. The company has opened 150 new stores in 2019, of which six opened in the fourth quarter. The company has ended the year with 900 stores, which represents a little over a third of the 2,500 plus potential we see in the United States. From a merchandise perspective, the company saw strength in the Create, Candy and Seasonal or what the company call Now world and other trends like journaling while gaming continued to be strong. As expected, the large trend for the fourth quarter was Frozen 2. On the IT front, the company is working on several strategic initiatives to support the growth including modernizing our supply chain technology with new distribution and transportation management systems, digitizing vendor transactions, implementing our core merchandising platform and rolling out a cloud-based data and analytics platform for demand forecasting to drive inventory optimization. Further, the company is migrating to the Hollar e-comm platform, which will accelerate the digital capabilities. Overall, the company has reported 23.7% rise in the net income for the fourth quarter to $110.4 million. The company has ended the year with approximately $262 million in cash, cash equivalents and short-term investment securities and no debt with $50 million available under our revolver.

FIVE in the fourth quarter of FY 19 has reported the adjusted earnings per share of $1.97, beating the analysts’ estimates for the adjusted earnings per share of $1.94, according to analysts polled by Refinitiv. The company had reported the adjusted revenue growth of 14 percent to $687 million in the fourth quarter of FY 19, which is inline with the analysts’ estimates for revenue of $687 million. Comparable sales declined 2.2% for the fourth quarter of 2019 compared to a 4.4% comp increase in the fourth quarter of 2018. The comp decline for the fourth quarter was due to a 3.6% decrease in comp transactions, which is partially offset by a 1.4% increase in comp average ticket. Gross profit grew 18.5% to $289.1 million from $244 million reported in the fourth quarter of 2018.

Gross margin finished at 42.1%, increasing 160 basis points from 40.5% last year. The improvement in gross margin was due to improvement in merchandise margins, lower incentive compensation and distribution efficiencies, partially offset by deleverage in store occupancy costs on the negative comp.

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