Five Below on Thursday said that first quarter net sales rose 21% to $232.9 million from $192.7 million in the year-ago quarter and net income was $8.4 million compared to $6.8 million last year, according to a company press release.
Same-store sales rose 2.6%, besting the company’s expectations coming off a strong same-store sales increase of 4.9% in the year-ago quarter, adding that new stores are seeing “continued strong results,” executives told analysts Thursday, according to a transcript from Seeking Alpha.
The company opened 31 new stores and ended the quarter with 553 stores in 32 states, an increase of 20.7% from the end of the first quarter of fiscal 2016. Year-to-date, the company has opened 48 stores and is on track for the 100 planned store openings this year, CEO Joel Anderson told analysts.
The now ubiquitous fidget spinners, which kids have been begging their parents for, were on analysts' minds, (and maybe in their hands), but Anderson downplayed the retailer’s dependence on any one trend. Still, the fad has been a winner and unlike Frozen merchandise, which brought mostly young girls through the doors, all genders and ages are seeking out the product, Anderson said. It's an opportunity to attract new customers who then purchase additional merchandise, he added.
“[I]t’s still very early in the process to begin to speculating to how long or short the trend is going to last,” he said. “I think you might be able to tell that from the wider range in our guidance in Q2. But given that we have had success over many different trends over the number of years in different categories, I am confident in the Five Below merchandising team that we will chase as needed and ramp down when the customer demand changes. But overall, we have been really pleased with not only how successful trends been, but more importantly how fast the teams jumped on it and have made it readily available for our customers.”
The retailer has a firm brick-and-mortar focus, and uses e-commerce as a convenience offer and perhaps more importantly, as a marketing tool. “[W]hat really e-commerce does, like TV does, is it helps us with awareness,” Anderson said. “We have positioned our e-commerce as convenience. You don’t see us doing free shipping. We charge for every order, but it does have that halo effect of awareness. Customers are doing research on our site. We are seeing a lot of people using that as a place to start, see what kind of spinners we had. And even if we are out of stock, you could still do the research on it. So, it’s just another tool in our digital strategy to really help us continue to reach the customers.”
All the spinner talk is not silly in the least, considering that it’s emblematic of what GlobalData Retail analyst Carter Harrison sees as Five Below’s prime advantage: “Whereas dollar stores are focused on essentials with an add-on of impulse and treat products, Five Below is focused on treats and impulse buys with an add-on of essentials,” Harrison said in a note emailed to Retail Dive. “To a degree, this insulates it from more functional retailers like Wal-Mart even as they sharpen prices. It also helps in driving regular traffic to stores and online.”
That means that Five Below attracts a younger demographic, who will buy if the price is right despite their thinner wallets, he added.
For the second quarter, the retailer said that it expects between a 5-8% increase in same-store sales. Harrison said that while a challenge, it's an attainable goal. “While reaching the top end of this will be a stretch, we do not believe that the company's optimism is without foundation,” he said. “Continued high demand for spinners should help the quarter's numbers, but outside of this benefit, other initiatives are also paying dividends,” including technology and homewares.
The company’s brick-and-mortar expansion will also fuel growth, especially with a new store format that executives said is paying off. “The refreshed format, which makes product display across several categories more compelling and engaging, will also be beneficial to Five Below across the remainder of this year,” Harrison said. “In our view, this should improve the already robust return on investment from new stores, and gives the company some scope to improve productivity from a select number of existing shops where it can easily make layout adjustments.”
And Harrison is optimistic about Five Below’s nascent e-commerce strategy. “At present [digital] remains a small part of the business, mainly because the online operation is less than a year old and is still being developed,” he said. “However, early results are encouraging and suggest that online could be the icing on the cake for Five Below in the years ahead.”