Five Below (FIVE)

Discount retailer Five Below (NASDAQ:FIVE) reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 23.7% year on year to $1.03 billion. On top of that, next quarter’s revenue guidance ($960 million at the midpoint) was surprisingly good and 3.8% above what analysts were expecting. Its non-GAAP profit of $0.81 per share was 29.4% above analysts’ consensus estimates.

Company Overview

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 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.

Retail competitors include TJX (NYSE:TJX), Urban Outfitters (NASDAQ:URBN), and Ollie’s Bargain Outlet (NASDAQ:OLLI).

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years.

With $4.23 billion in revenue over the past 12 months, Five Below is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers. On the bright side, it can grow faster because it has more white space to build new stores.

As you can see below, Five Below’s sales grew at an impressive 16.4% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts) as it opened new stores and increased sales at existing, established locations.

This quarter, Five Below reported robust year-on-year revenue growth of 23.7%, and its $1.03 billion of revenue topped Wall Street estimates by 3.5%. Company management is currently guiding for a 13.8% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 8.7% over the next 12 months, a deceleration versus the last six years. Despite the slowdown, this projection is admirable and implies the market is forecasting success for its products.

Number of Stores

Five Below sported 1,858 locations in the latest quarter. Over the last two years, it has opened new stores at a rapid clip by averaging 15.5% annual growth, among the fastest in the consumer retail sector. This gives it a chance to scale into a mid-sized business over time.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.

Five Below’s demand within its existing locations has been relatively stable over the last two years but was below most retailers. On average, the company’s same-store sales have grown by 1.8% per year. This performance suggests it should consider improving its foot traffic and efficiency before expanding its store base.

In the latest quarter, Five Below’s same-store sales rose 12.4% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

Five Below’s unit economics are higher than the typical retailer, giving it the flexibility to invest in areas such as marketing and talent to reach more consumers. As you can see below, it averaged a decent 35.1% gross margin over the last two years. That means for every $100 in revenue, $64.85 went towards paying for inventory, transportation, and distribution.

Five Below’s gross profit margin came in at 33.3% this quarter, in line with the same quarter last year and exceeding analysts’ estimates by 2.1%. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Operating margin is an important measure of profitability for retailers as it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.

Five Below has done a decent job managing its cost base over the last two years. The company has produced an average operating margin of 9%, higher than the broader consumer retail sector.

Analyzing the trend in its profitability, Five Below’s operating margin decreased by 1.5 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q2, Five Below generated an operating margin profit margin of 5.1%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Five Below’s full-year EPS grew at a solid 25.8% compounded annual growth rate over the last five years, better than the broader consumer retail sector.

In Q2, Five Below reported adjusted EPS of $0.81, up from $0.54 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Five Below’s full-year EPS of $5.57 to shrink by 16.8%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Five Below has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 4.6% over the last two years, better than the broader consumer retail sector.

Five Below’s free cash flow clocked in at $48.28 million in Q2, equivalent to a 4.7% margin. Its cash flow turned positive after being negative in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Five Below historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 10.8%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Five Below reported $670.2 million of cash and $2.02 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $584.5 million of EBITDA over the last 12 months, we view Five Below’s 2.3× net-debt-to-EBITDA ratio as safe. We also see its $17.99 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by Five Below’s optimistic EPS guidance for next quarter, which blew past analysts’ expectations. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 4.4% to $151 immediately following the results.

Updated: November 11, 2025 at 9:44 PM EST

Before deciding whether to buy Five Below or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

When it comes to Five Below’s business quality, there are some positives, but it ultimately falls short. To kick things off, its revenue growth was impressive over the last six years. And while Five Below’s relatively low ROIC suggests management has struggled to find compelling investment opportunities, its new store openings have increased its brand equity.

Five Below’s P/E ratio based on the next 12 months is 29.8x. Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $161.95 on the company (compared to the current share price of $150.07).