Five Below sales soar 19%; limiting self-checkout as shrink hits profitability

Five Below is getting more aggressive when it comes to reducing shrink.

The tween and teen discounter reported strong fourth-quarter sales, but said that the benefit of sales to its profitability was offset by higher than anticipated “shrink headwinds,” resulting in earnings at the low end of its guidance.

Based on learnings from its 2023 shrink mitigation efforts, Five Below is deploying additional initiatives, including further limiting self-checkout and adding more staff and security.

“The most significant change we made across most of the chain [in 2023] was to limit the number of self-checkout registers that were open while positioning an associate upfront to further assist customers,” president and CEO Joel Anderson said on the company’s earnings call. “We have now evolved to associate assistant checkout in all of our stores.”

Anderson explained that with associate checkout at the register, the employee scans the items and the customer finishes the transaction, either with cash or a credit card.

In addition, in Five Below’s “high-shrink stores,” the primary option for checkout is more of the traditional over-the-counter employee checkouts, Anderson told analysts. 

Going forward, the retailer expects to have 75% of its transactions chainwide to be conducted with the help of an employee, with a goal of 100% employee-assisted checkout in its highest-shrink, highest-risk stores. The company is also implementing additional  mitigation efforts in its high-risk stores, including receipt checking, increasing store payroll and guards, Anderson said. 

Five Below opened a record 205 new stores in fiscal 2023, including 64 in the fourth quarter, giving it a total of 1,544 stores across 43 states. It expects  to open between 225 and 235 new stores and convert approximately 200 locations to its “Five Beyond” format this year.

The company’s net income rose to $202.2 million, with earnings per share of $3.65 per share, in the quarter ended Feb.3,  from $171.3 million, or $3.07 per share in the year-ago period.

Net sales surged 19.1% to $1.34 billion amid strong holiday demand. Excluding the impact of the 53rd week in fiscal 2023, net sales increased 14.9%. Comparable sales rose 3.1% on a thirteen week basis, driven by the candy, style, sports  and seasonal areas. 

For the full year, Five Below’s net sales increased by 15.7% to $3.56 billion. 

"Holiday 2023 marked a strong end to the year for sales performance as our amazing assortment of Wow product drove yet another quarter of comp transaction growth, led by the Five Beyond format stores,” Anderson stated in the earnings release. “We will leverage our growing scale and sourcing capabilities to deliver even more Wow to our customers while we utilize technology and data analytics throughout the organization to refine our marketing strategies, generate inventory efficiencies, and simplify processes for our crew.”

Five Below said it expects  full-year net sales of $3.97 billion to $4.07 billion, based on the opening of between 225 and 235 new stores and same-store sales that were expected to be anywhere from flat to up 3% when compared with the prior year. Analysts had forecasts sales of $4.11 billion,

The company forecast full-year earnings per share of $5.71 to $6.22, compared to Street estimates of earnings per share of $6.46

The sales forecast was below analyst expectations for $4.11 billion, and the midpoint of the company’s same-store sales outlook was below estimates for a 2% gain. FactSet forecast earnings per share of $6.46.