Five Below Comes out of Hibernation
Five Below-a chain of stores that sell most of the goods for $5 and below, like many others, was affected by the pandemic, but in the second half of 2020, the situation began to improve. Sales growth in the fourth quarter of 2020 was the highest in many years: the indicator increased by 13.8%. This was largely made possible by the opening of 30 new points of sale last year, as well as the active search for new markets. To expand its range, the company introduced another category of products – $10 and below. Now, the main task of management is to keep prices at the current level against the background of expected inflation.
The coronavirus has slowed the expansion of Five Below, but in 2021, executives plan to "get back in the game" : only at the end of the first quarter of 2021, 60 new “points " will appear, which will increase the total number of stores in 40 states to 1,080. The operating margin decreased by one point, but taking into account the development of the trading network, which is taking place at a difficult time, this fact should not have a negative impact on investor sentiment. Scaling the business will have a positive impact on margins in the future.
At the moment, the Forward P/E is 42x, which is still below the values of 2019, but almost three times higher than the March levels. Potential investors should be prepared for the fact that further tangible growth of the FIVE quotes will take time.