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Nov 09, 2023

Five Below to expand higher

Anderson told investors on the company’s earnings call that customers who buy a

Anderson told investors on the company's earnings call that customers who buy a Five Beyond item, priced at $6 or higher, "spend over twice as much as those who buy only Five Below items." That is one reason the company wants to introduce the concept to 400 stores this year. And ultimately, "our goal is for Five Beyond [to be] everywhere," said Anderson.

However, the company said its cadence of store openings will be slower than last year.

Due to landlord and permitting-related issues, "we expect to open approximately one-third of our new stores in the first half of 2023 compared to over 40% in the first half of 2022," said Ken Bull, who was promoted this week to COO. Bull will also serve as chief financial officer while the company selects a new person for the CFO position.

Five Below positions itself uniquely in the discount retail market by focusing on both needs and trendy discretionary items, like Squishmallows, Funko toys, and fidget spinners that appeal to a younger demographic. Some Five Beyond locations also began offering ear piercing last year, along with helium balloons, which advance the company into the party and gift space.

Anderson said consumable items led sales in the last 12 months. That reflects retail industry trends that have seen consumers ease their discretionary spending. Five Below's consumable categories include candy, snacks, health and beauty products and travel items. Ahead of the most recent holiday season, the company also introduced the option to buy online, pick up in store.

Bull said the company's guidance reflects the ongoing economic uncertainty. For the year, net sales are expected to range from $3.49 billion to $3.59 billion. That forecast is based on the plan to open 200 new stores and assumes a 1% to 4% increase in comp sales. Net income for the year is expected to range from $295 million to $323 million. Bull also noted that 2023 has 53 weeks for reporting purposes. This quirk is expected to generate an additional $40 million in sales.

If all the planned openings come to fruition, Five Below will end the year with 1,540 stores. Bull said Five Below ended the year with about $400 million in cash, nearly $528 million in inventory and no debt.

Analysts had a mostly positive response to Five Below's earnings report and guidance.

Jolene Wiggins, chief marketing officer of mobility data firm Gravy Analytics, told Retail Dive in an emailed comment that its Q4 foot traffic data showed that consumers flocked toward bargains and one-stop shopping, "so it's not surprising to see discount retailers like Dollar Tree, Dollar General, and Five Below expanding their product offerings today to include more diverse inventory like home decor and seasonal items."

Wiggins said price wars between smaller discount retailers versus big-box stores like Walmart and Target will likely continue.

"In the intermediate term, we see a balanced mix of tailwinds and headwinds – nevertheless, in our view, [Five Below's] 1Q/FY23 guidance was better than feared in the wake of consumer spending shift toward non-discretionary goods and elevated cost environment in retail," Credit Suisse analysts led by Karen Short said in a note.

Neil Saunders, managing director of GlobalData, said in emailed comments that Five Below's competition is increasing as rivals like Dollar General and Dollar Tree are also expanding their offerings at higher price points. "However, at present Five Below still has an edge with the quality and breadth of its offer and with its format which is generally seen by consumers are more fun and engaging," Saunders said.