Five Below (NASDAQ:FIVE) Reports Sales Below Analyst Estimates In Q1 Earnings, Stock Drops 14.8%

Anthony Lee /
2024/06/05 4:07 pm EDT

Discount retailer Five Below (NASDAQ:FIVE) missed analysts' expectations in Q1 CY2024, with revenue up 11.8% year on year to $811.9 million. Next quarter's revenue guidance of $840 million also underwhelmed, coming in 5% below analysts' estimates. It made a GAAP profit of $0.57 per share, down from its profit of $0.67 per share in the same quarter last year.

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Five Below (FIVE) Q1 CY2024 Highlights:

  • Revenue: $811.9 million vs analyst estimates of $834.4 million (2.7% miss)
  • Revenue Guidance for Q2 CY2024 is $840 million at the midpoint, below analyst estimates of $884.5 million
  • The company dropped its revenue guidance for the full year from $4.02 billion to $3.83 billion at the midpoint, a 4.7% decrease
  • Gross Margin (GAAP): 32.5%, in line with the same quarter last year
  • Free Cash Flow was -$61.43 million, down from $40.2 million in the same quarter last year
  • Locations: 1,605 at quarter end, up from 1,367 in the same quarter last year
  • Same-Store Sales fell 2.3% year on year (large miss vs. vs analyst estimates of 1% growth)
  • (2.7% in the same quarter last year)
  • Market Capitalization: $7.61 billion

Joel Anderson, President and CEO of Five Below, said, "While our first quarter sales were disappointing, disciplined cost management enabled us to deliver adjusted EPS within our earnings outlook. Needs-based items such as those in our Candy, Food and Beauty departments outperformed expectations and drove positive sales results. We also saw positive comparable sales from our higher income customers; however, the macro environment disproportionately impacted our core lower income customers, resulting in overall comparable sales declines.

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 17.5% over the last five years was impressive as it added more brick-and-mortar locations and increased sales at existing, established stores.

Five Below Total Revenue

This quarter, Five Below's revenue grew 11.8% year on year to $811.9 million, falling short of Wall Street's estimates. The company is guiding for revenue to rise 10.7% year on year to $840 million next quarter, slowing from the 13.5% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 13.5% over the next 12 months, an acceleration 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.

Five Below Year On Year Same Store Sales Growth

In the latest quarter, Five Below's same-store sales fell 2.3% 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 Q1 Results

We struggled to find many strong positives in these results. Especially bad was that its full-year revenue and earnings guidance both missed analysts' expectations and was lowered from the previous outlook. Overall, the results could have been better. The company is down 14.8% on the results and currently trades at $113 per share.

Five Below may have had a tough quarter, but does that actually create an opportunity to invest 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.