Categories Analysis, Consumer

FIVE Stock: Five Below is likely to continue the good show this year

Q4 sales benefited from the high demand for need-based items and customers’ positive response to discounts offered by the company

For Five Below Inc. (NASDAQ: FIVE), the holiday season was more rewarding than expected as the high inflation and stressed personal finances made customers seek value. Earlier, the discount store chain’s sales had bounced back quickly from the multi-year lows seen in the early weeks of the pandemic. As a result, the bottom line rebounded after slipping into the negative territory briefly, underscoring the resilience of the company’s unique business model.

Five Below’s once-struggling stock is currently trading close to the all-time highs of 2021, at a time when stock markets have been battered by the widespread selloff. In the past twelve months, the stock gained about 24%, while shares of rival retailers Dollar Tree, Inc. (NYSE: DLTR) and Dollar General Corporation (NASDAQ: DG) declined during that period. All along, it also outperformed the broad market.

A Good Bet?

The good news is that FIVE has the potential to set new records in the coming months and keep growing for the rest of the year. Though the valuation looks high, the company’s ability to navigate adversities and effectively adapt to changes in the retail environment makes the stock a good bet. Also, there has been a steady increase in the company’s store count, lately.


Five Below ended 2022 on a high note, defying apprehension that it would be a challenging year due to elevated inflation and the absence of the government stimulus that boosted sales in 2021. The innovative merchandising strategy with focus on products that attract young shoppers helped increase store footfall during the holiday season, while the retail sector experienced a slump in customer traffic.

Five Below Q4 2022 earnings infographic

What Future Holds?

The question is whether customers would remain loyal to Five Below, in the highly volatile retail landscape that is constantly under pressure from rising interest rates and softening consumer sentiment. Inflation-adjusted estimates show that the US retail sector would contract modestly in 2023. Reversal of the post-lockdown demand boom and tightening family budgets would add to the slowdown. Considering the significant contributions of ‘consumer spending’ to the GDP, the performance of the retail sector this year would play a key role in deciding the future of the economy, which is on the brink of a recession.

“We are a merchandise-driven company, and we are passionate about sourcing an incredible trend-right assortment for our customers at outstanding value. We stay on top of hot trends and swiftly move to capitalize on them while creating fun for our customers with events like Sunday Squish Day or exclusive squish mallows. In 2022, we were up against strong trends from 2021 and successfully lapped those by finding amazing value products in Hello Kitty, Funko, and Marvel Collectibles, as well as other licensed products such as Kendall and Kylie cross-over bags,” said Five Blows’ CEO Joel Anderson in a recent statement.

Financials

In the final quarter of the last fiscal year, earnings exceeded estimates for the second time in a row, while revenues were broadly in line with the Street view. Interestingly, the fourth-quarter numbers also came in above the management’s projection. Comparable sales rose 1.9%, after declining in each of the trailing three quarters. That, along with new store openings, pushed up net sales to $1.12 billion, up 13%.

As a result, net earnings climbed 23% year-over-year to a record high of $3.07 per share. Going by the current trend, the high demand for need-based items and customers’ positive response to the conveniences and discounts offered by the company would continue to drive sales growth in the near future.

This week, Five Below’s stock traded slightly above $200, which is higher than its long-term average. It gained about 2% in early trading on Thursday.

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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