Five Below: A retailer for austere times


The equity market has been expanding since early 2009 but may be on its last leg in my opinion.

Given the weaker economic outlook and cyclicality of the economy, corporate earnings may start to decline in 2017 in my view.

If so, I believe that consumer cyclicals may underperform going forward as consumers delay non-essential purchases in a weaker economy.

However some specialized retailers tend to fare well in declining economies.

 

Budget Retailers

Such examples include TJX Cos. (TJX) and Ross Store (ROST). In my opinion, another is Five Below (FIVE).

As its name suggests, at a Five Below outlet all items are priced under $5.

 

retailing-stocks

 

The chain has a strong following among teen and pre-teen customers and is primarily located in the eastern part of the country in 27 states, including a recently opened store in Miami.    

 

retailing-stocks

Source: Five Below

 

Solid Growth

A typical store sells approximately $1.2 million annually on average and comparable store sales growth is around 3% to 4% in 2016, according to the company.

The retailer’s net revenue has grown from $297 million in 2011 to $680 million as of 2014. Profit growth has been solid as well.

 

retailing-stocks

Source: Five Below

 

 

Unlike other dollar budget stores, Five Below stores are trendy in my opinion and 60% of their customers come from families with annual income of $50,000 or more.

 

Strategy

Five Below has distribution centers in New Jersey and Mississippi, and the company is expanding westwards and may establish its first store in California in 2017.

Five Below has said in presentations that they hope to deliver 20% annual revenue growth and 20%-plus earnings growth in the foreseeable future.

The company is still unknown nationally, but word is spreading among teens and preteens, who tend to be the trendsetters.

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Photo Credit: Mike Mozart via Flickr Creative Commons

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Lakeland Wealth Management
Lakeland Wealth Management
Lakeland Wealth Management LLC is fee-based registered investment advisory firm based in Lakeland, TN offering money management and financial planning services to families, institutions and high net worth individuals. Lakeland Wealth Management adopts fundamental value analysis and tailors the portfolios to fit individual needs, risks and time horizons.

Sreeni Meka is the managing member and investment advisor at Lakeland Wealth Management LLC. Sreeni has twenty years of investment experience in the equities and derivatives markets. Sreeni has worked as a management consultant for big four firms and served at a number of Fortune 500 companies in North America. Sreeni holds a Masters degree in Mechanical Engineering from The University of Texas at El Paso and an MBA degree in Finance from University of Memphis.