Five Below sales up 15.2%; opening 200 stores; cuts guidance amid shrink increase
Five Below delivered second-quarter results in line with its guidance on the top and bottom line and, similar to many other retailers, warned of shrink increases.
The tween and teen discounter remains committed to opening a record number of stores in 2023. It opened 40 stores across 24 states during the quarter, for a total of 1,407 stores in 43 states. Five Below is on track to open more than 200 new stores and convert 400 existing locations to its new Five Beyond format (includes a selection of items beyond the chain’s $5.00 price threshold) this year.
“We continue to see great opportunities in the marketplace … and our real estate teams have a strong pipeline of new stores for 2024,” president and CEO Joel Anderson said during the company’s earnings call. “We will open over 130 stores in the next four months and our first-half 2024 openings will get much closer to our historical 50-50 opening cadence.”
On the call, Five Beow CFO Kristy Chipman said the company is currently conducting interim physical inventory counts on a subset of its stores and expects results will reflect the negative trends seen across the industry
“Therefore, we believe it is prudent to increase our shrink reserve for the balance of the year,” she said. “ We expect a significant impact in the third quarter due to the anticipated year-to-date true-up and higher rate and higher rate compared to last year. The impact to the fourth quarter is expected to be much lower.”
Ken Bull, Five Below COO, told analysts that the company has noticed that traditional measures for mitigation around asset protection are not as fully effective as they were in past times.
"So, we are focusing our shrink mitigation efforts on more of a comprehensive approach that actually includes loss asset prevention and crew safety,” he said.
Five Below reported net income of $46.8 million, with earnings per share of $0.84, for the quarter ended July 29. compared to $41.3 million, with earnings per share of $0.74, in the year-ago quarter. Analysts has expected earnings per share of $0.83.
Net sales increased 13.5% to $759.0 million from $668.9 million. Comparable sales rose 2.7%, driven by a 4.5% increase in comp transactions. Analysts has expected sales of $760 million.
“As we look to the second half of the year, our merchants have sourced a terrific line-up of fresh, trend-right product at outstanding value for the holiday season,” stated Anderson. “While we are adjusting our earnings guidance to reflect an anticipated increase in shrink reserves, our sales outlook remains unchanged. We will continue to play offense on sourcing amazing product, capitalizing on an improved supply chain, opening a record number of new stores, and executing on the continued success of our Five Beyond store format."
For the third quarter, Five Below expects net sales to be in the range of $715 million to $730 million and assuming an approximate flat to 2% increase in comparable sales.
For the full year, the company lowered its earnings forecast to a range of $5.27 to $5.55, down from its previous estimate of $5.31 to $5.71. It kept its revenue outlook at $3.5 billion to $3.57 billion.
Five Below operates 1,407 stores in 43 states.