One Retailer to Own: Our Experts Weigh In

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Big Growth Potential in Five Below

Taulli88 One Retailer to Own: Our Experts Weigh InBy Tom Taulli
IPO Playbook

Teen retailer Five Below (NASDAQ:FIVE) came public in mid-July at $17 and quickly shot up to $40. But since then, the shares have come down to about $29. True, the valuation is still a bit frothy, with a forward price-to-earnings ratio of 42. But the company’s growth potential remains strong.

As the name implies, Five Below sells its apparel at $5 or lower. The company uses a sophisticated sourcing infrastructure as well as opportunistic purchases of excess inventories, focusing on maximizing sell-throughs. Each store location has sections that are divided into “worlds” like Style, Party, Candy and Seasonal.

The formula has worked out quite well — a new store location has a payback period of less than one year.

So it should be no surprise that Five Below has been on a tear. From fiscal 2009 to 2011, net sales grew at an average rate of 54.1% and operating income grew by 95.3%. Comparable-store sales growth has also been strong, coming to 10.4% in the latest quarter.

Five Below has 199 locations, most of them on the East Coast — there is much more room for expansion. Indeed, the company plans to expand its store base to more than 2,000 locations over the next two decades.


Article printed from InvestorPlace Media, http://investorplace.com/2012/11/the-one-retailer-to-own-our-experts-weigh-in/.

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