Five Below Sinks on Lower-Income Shopper Struggles

outside of a Five Below store in Hudson, New York — (Image credit: Angus Mordant/Bloomberg via Getty Images)

Five Below (FIVE) stock is down sharply in Thursday's session after the discount retailer disclosed lower-than-anticipated fiscal first-quarter results and slashed its full-year outlook.

In the 13 weeks ended May 4, Five Below's net sales increased 11.8% year-over-year to $811.9 million, driven by the opening of 61 new stores. However, same-store sales decreased 2.3%. FIVE also said its earnings per share (EPS) fell 10.4% to 60 cents from the year-ago period.

"While our first-quarter sales were disappointing, disciplined cost management enabled us to deliver adjusted EPS within our earnings outlook," Five Below CEO Joel Anderson said in a statement. However, the executive notes that "needs-based items" helped drive a revenue gain.

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"[W]e achieved positive comparisons in our higher-income cohorts, suggesting some trade-down of these customers seeking value at our stores," Anderson said in the company's earnings call. "However, we saw underperformance in the lower-income demographic that more than offset these results."

The executive added that the quarter "solidified that consumers are feeling the impact of multiple years of inflation across many key categories such as food, fuel, and rent and are, therefore, far more deliberate with their discretionary dollars."

The results came up short of analysts' expectations. According to Barron's, Wall Street was anticipating net sales of $834.3 million and earnings of 63 cents per share.

For its fiscal second quarter, Five Below expects net sales in the range of $830 million to $850 million and earnings in the range of 57 cents to 69 cents per share.

According to Yahoo Finance, analysts are forecasting revenue of $882.8 million and earnings of 99 cents for the company's second quarter.

Given the lackluster start to the year and its outlook on the second quarter, Five Below lowered its full-year outlook. Here’s what the company now expects versus its previous expectations:

Swipe to scroll horizontally

Metric	New Outlook	Previous Outlook
Revenue	$3.79 billion to $3.87 billion	$3.97 billion to $4.07 billion
Same-store sales	(3%) to (5%)	Flat to 3%
EPS	$5 to $5.40	$5.71 to $6.22

For the full year, analysts are anticipating revenue of $4 billion and earnings of $6 per share.

"Five Below remains an extreme value, high growth retailer," Anderson said. "We are excited to open approximately 230 new stores by the end of this year and bring Five Below to more neighborhoods, offering trend-right, WOW items at amazing value."

Is Five Below stock a buy, sell or hold?

Most analysts remain upbeat toward the consumer discretionary stock, even though it's down more than 45% for the year to date. According to S&P Global Market Intelligence, analysts' consensus target price for FIVE is $167.39, representing implied upside of more than 40% to current levels. Meanwhile, the consensus recommendation is a Buy.

However, Oppenheimer analyst Brian Nagel has a Neutral (Hold) rating on FIVE. While Nagel is "upbeat" on the company's longer-term strategic positioning, "we are hard-pressed to envision a meaningful rebound in FIVE shares until much clearer signals of sustained sales expansion emerge," he says.

As such, Nagel believes "are best served remaining on the sidelines with FIVE shares, at least for now."

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.