Five Below (NASDAQ:FIVE) Posts Better-Than-Expected Sales In Q2, Stock Soars
Discount retailer Five Below (NASDAQ:FIVE) beat analysts’ expectations in Q2 CY2024, with revenue up 9.4% year on year to $830.1 million. The company expects next quarter’s revenue to be around $790 million, in line with analysts’ estimates. It made a non-GAAP profit of $0.54 per share, down from its profit of $0.84 per share in the same quarter last year.
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Five Below (FIVE) Q2 CY2024 Highlights:
- Revenue: $830.1 million vs analyst estimates of $822.1 million (small beat)
- EPS (non-GAAP): $0.54 vs analyst expectations of $0.54 (in line)
- The company dropped its revenue guidance for the full year to $3.77 billion at the midpoint from $3.83 billion, a 1.7% decrease
- EPS (non-GAAP) guidance for the full year is $4.53 at the midpoint, missing analyst estimates by 3.9%
- Gross Margin (GAAP): 32.7%, down from 34.9% in the same quarter last year
- EBITDA Margin: 9.4%, down from 11.8% in the same quarter last year
- Free Cash Flow was -$32.35 million, down from $12.65 million in the same quarter last year
- Locations: 1,667 at quarter end, up from 1,407 in the same quarter last year
- Same-Store Sales fell 5.7% year on year (2.7% in the same quarter last year) (beat vs. expectations of down 6.7% year on year)
- Market Capitalization: $4.54 billion
Ken Bull, Interim CEO, President and COO of Five Below, said, “Our second quarter results fell short of what we know this business is capable of delivering. Our response to the macro pressures of the last few years and the evolving consumer environment has required even greater execution, compelling and differentiated assortments and focus on the customer."
Often facilitating a treasure hunt shopping experience, Five Below (NASDAQ:FIVE) is an American discount retailer that sells a variety of products from mobile phone cases to candy to sports equipment for largely $5 or less.
Discount Retailer
Discount retailers understand that many shoppers love a good deal, and they focus on providing excellent value to shoppers by selling general merchandise at major discounts. They can do this because of unique purchasing, procurement, and pricing strategies that involve scouring the market for trendy goods or buying excess inventory from manufacturers and other retailers. They then turn around and sell these snacks, paper towels, toys, clothes, and myriad other products at highly enticing prices. Despite the unique draw and lure of discounts, these discount retailers must also contend with the secular headwinds of online shopping and challenged retail foot traffic in places like suburban strip malls.
Sales Growth
Five Below is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the other hand, it has an edge over smaller competitors with fewer resources and can still flex high growth rates because it’s growing off a smaller base than its larger counterparts.
As you can see below, the company’s annualized revenue growth rate of 17% over the last five years was impressive as it added more brick-and-mortar locations and increased sales at existing, established stores.
This quarter, Five Below grew its revenue by 9.4% year on year, and its $830.1 million in revenue was in line with Wall Street’s estimates. The company is guiding for revenue to rise 7.3% year on year to $790 million next quarter, slowing from the 14.2% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 7.3% over the next 12 months, a deceleration from this quarter.
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Same-Store Sales
Same-store sales growth is a key performance indicator used to measure organic growth and demand for retailers.
Five Below’s demand within its existing stores has barely increased over the last eight quarters. On average, the company’s same-store sales growth has been flat. This performance suggests that Five Below should consider improving its foot traffic and efficiency before expanding its physical footprint.
In the latest quarter, Five Below’s same-store sales fell 5.7% year on year. This decline was a reversal from the 2.7% year-on-year increase it posted 12 months ago. We’ll be keeping a close eye on the company to see if this turns into a longer-term trend.
Key Takeaways from Five Below’s Q2 Results
It was great to see Five Below’s strong earnings forecast for next quarter, which exceeded analysts’ expectations. We were also glad its revenue outperformed Wall Street’s estimates on better-than-expected same-store sales. On the other hand, its gross margin missed analysts’ expectations and its full-year earnings guidance missed Wall Street’s estimates. Overall, this was a mixed quarter. The stock traded up 7.8% to $85 immediately after reporting, possibly because FIVE's quarter was better than feared. Specifically, fears around consumer discretionary spending were sparked when companies such as LOW (home improvement ) and ANF (apparel) called out macro weakness.
So should you invest in Five Below right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
