Dive Brief:
- Five Below’s first quarter net sales rose 13.5% to $726.2 million from $639.6 million a year ago. Comp sales also rose 2.7% year over year, according to a company press release. Net income for the tween and teen-focused retailer increased to $37.5 million versus $32.7 million a year ago.
- Q1 gross profits rose 13.6% to $234.8 million versus $206.8 million a year ago. The first quarter was “a challenging time for consumers with persistent inflation, lower tax refunds, and fewer government-sponsored benefits compared to the stimulus-fueled periods of the pandemic,” CEO Joel Anderson said during a Thursday earnings call.
- Despite ongoing economic pressures facing consumers, the company said it still expects to exceed its original goal of opening 200 stores this year. Five Below opened 27 stores in 19 states in Q1.
Dive Insight:
Among other initiatives, Five Below is leveraging another retailer’s failure as a growth opportunity. The company acquired 16 leases from Tuesday Morning, which filed for Chapter 11 in February. Last month, Tuesday Morning confirmed it will go out of business.
Five Below also took over two leases from bankrupt Party City, according to a company spokesperson.
Many of those former Tuesday Morning spaces are slightly larger than Five Below’s typical footprint of 10,000 square feet. The added space may allow the company to grow its Five Beyond concept into larger brick-and-mortar spaces, Anderson said in response to an analyst’s question. Stores with the Five Beyond format offer items above the company’s signature $5 price point.
Anderson said Five Below converted about 250 stores to the new prototype in the first quarter and it’s on track to convert 400 stores to the Five Beyond format before the end of the year. Anderson also said the conversions drive traffic and higher baskets, and the company sees “a large opportunity to grow Five Beyond from the current single-digit penetration of sales today.” At Q1’s end, Five Below had 1,367 stores in 43 states.
“We are focused on growing our average unit volume through the addition of Five Beyond in the back of the store, as well as new products and services such as ear piercing and fun snarky helium balloons,” Anderson said during the call.
Wells Fargo analysts, led by Edward Kelly, noted that Five Below’s traffic grew in Q1 and that momentum has continued into the first weeks of the second quarter in spite of concerns that the retailer is more reliant on discretionary spending than others.
“[Five Below’s] Q1 was a relative standout in what has been a very tough earnings season. The company saw some impact from a slowing consumer, but investor fears proved to be overdone and its '23 outlook remains intact,” Wells Fargo’s analysts said in a post-call note.
Anderson confirmed consumers are still engaging with Five Below’s full product lineup. Seven out of its eight product segments, which Five Below calls “worlds,” performed strongly in Q1. “Really, the only world that's running negative comps is tech, and I think that's pretty much across the marketplace,” Anderson said.
And mirroring what other retailers are reporting, Five Below’s version of consumables – candy, snacks, beverages, and health and beauty – led the quarter.
Five Below’s updated full-year financial forecast expects net sales ranging from $3.5 billion to $3.57 billion thanks to store openings and a 1% to 3% rise in comp sales. Net income for the year is expected to range from $297 million to $319 million.
“In our view, Five Below is executing well in a tough retail environment,” analysts at Telsey Advisory Group, led by Joe Feldman, said in a note. “We believe the company has a long runway of growth ahead as it progresses on its Triple-Double strategy, which aims to triple the store base to 3,500+ by 2030 (high-teens in 2023-2025), as well as double its sales and [earnings per share] relative to 2021 by the end of 2025.”
