Five Below Makes Surprise Turnaround in Challenging Retail Environment

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Analysts are optimistic about the company’s future, based on the arrival of a new CEO, further store openings, and a K-shaped recovery.

Five Below surprised Wall Street with better-than-expected sales in a challenging retail environment, thanks to better execution and new store openings.

Analysts are optimistic about the company’s future, based on the arrival of a new CEO, further store openings, and a K-shaped recovery.

The Philadelphia, Pennsylvania-based discount retailer reported on Dec. 4 a net sales increase of 14.6 percent in the third quarter of fiscal 2024 compared to a year earlier. Comparable sales—meaning that most of the sales increase came from new store openings—rose by 0.6 percent. As of the end of the third quarter, the company operated 1,749 stores, up 18.1 percent from the third quarter of fiscal 2023.

The third-quarter sales were a positive surprise for equity analysts and a turnaround from the second quarter, when the company gave a negative surprise for Wall Street. The company reported a net sales increase of 9.4 percent for the second quarter, while comparable sales headed in the other direction—down 5.7 percent.

Five Below’s turnaround came at a time when the retail sector is becoming a tale of two worlds. On the one hand, companies like Costo, Walmart, and TJX are the big winners in an increasingly competitive landscape. On the other hand, Target and Macy’s are the losers in this new market environment.

The third-quarter results drove the company’s shares up during Thursday’s regular trading session. However, the stock has been down 47 percent for the year and 8 percent over the last five years.

Ken Bull, interim CEO and COO of Five Below, cheered the company’s turnaround.

“We are pleased to report third-quarter results that exceeded our outlook,” he said. “We delivered stronger performance across a broader group of our merchandise worlds compared to the second quarter and improved our operational execution.”

Bull attributed the sales turnaround to the strategic initiatives the company undertook in recent quarters to add newness and deliver value in key categories, such as the opening of 82 new stores and better execution.

“Our merchant and operational teams across the organization are focused on our key priorities of product, value, and store experience, and I want to thank them for their efforts in delivering these results,” he said.

Quo Vadis Capital president John Zolidis, a long-time analyst for the retailing sector, was pleased with the company’s third-quarter results.

“FIVE’s surprise positive comp in third quarter fiscal year 2024 reinforces our view that the company’s first half fiscal year 2024 problems were merchandising related rather than competitive [against Walmart, Amazon, Temu, among others] or macro-driven,” he said in a research note sent to The Epoch Times.

“The company hired a new CEO and provided an outlook that feels easy to beat for fourth quarter fiscal year 2024. Meanwhile, comparisons for next year are easy.”

Jordan McCreery, senior vice president at Ingrained Media, said Five Below’s third-quarter financial report demonstrates “the company’s operational strength and careful stewardship of its growth story.”

“The latest transition to Kenneth Bull as CEO suggests a deliberate and stable succession plan, benefiting from his deep financial acumen and long tenure at the company,” he told The Epoch Times via email.

McCreery said he believes in the Five Below product strategy of mixing value-driven assortments with fresh, trend-focused merchandise. He said that Bull’s strategy has proven resilient across economic cycles and appeals strongly to a younger demographic.

“As the chain continues to expand its footprint, the strong holiday season outlook indicates management’s confidence in both near-term execution and long-term scalability,” he said.

Jason DeLorenzo, a financial expert and founder of financial advisory firm Volland, sees Five Below benefiting from a K-shaped economic recovery. A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes.

“Five is a discount retailer in the same group as Dollar Tree and, to a lesser extent, Walmart,” he said in an email to The Epoch Times.

“While price levels have increased along with interest rates, we have seen a K-shaped recovery where the indebted have suffered while the savers and lenders have benefitted. A store like Five benefits from the lower end of that K-shaped recovery with the indebted needing to sacrifice quality to obtain lower prices.”