Five Below(FIVE 3.37%) reported fiscal second quarter 2025 results on Aug. 27, 2025, posting record sales of $1.03 billion (up 23.7% year over year), a 12.4% increase in comparable sales, and a 50% jump in adjusted EPS to $0.81. Management raised full-year sales and operating margin guidance, but flagged ongoing margin pressure from tariffs and higher SG&A costs in the coming quarters. The following insights highlight key drivers, risks, and strategic shifts from the earnings call.
Five Below achieves milestone sales growth
The company opened 32 net new stores in the quarter, bringing its total to 1,858 locations, and saw 8.7% year-over-year growth in comparable transactions. This marks the first time Five Below surpassed $1 billion in sales outside the peak fiscal fourth quarter holiday period, driven by both increased traffic and higher average unit retail (AUR).
"I'd like to take a moment to acknowledge a major milestone for Five Below, achieving our first $1 billion sales quarter outside of a Q4. This is a testament to the hard work and dedication of our teams across the company delivered our value proposition of great product, extreme value, and a fun shopping experience to our boss, the customer. Our results demonstrate that our customers are recognizing Five Below as the destination for the kids and the kid in all of us. A few strategies that bolstered our Q2 results were one, curating relevant Wow newness in our assortment; two, simplifying our pricing to whole price points highlighting value; three, improving in stocks and flow of product throughout our network of stores; and four, initiating marketing campaigns fueled by creator content. These actions drove total sales growth of nearly 24% to over $1 billion and a comparable sales increase of 12.4%. Very notable was our comparable transactions increase of 8.7%. With strong fixed cost leverage, and disciplined expense management, adjusted EPS increased 50% to $0.81. We also grew our store base in the quarter with 32 net new stores across 21 states. Four of these stores were among the top 25 all-time spring and summer grand openings, including our Reading, California, and Columbia, Tennessee locations, which just shows the diversity of our appeal. One of our Q2 new stores in Fort Smith, Arkansas made the top all-time openings list."
-- Winnie Park, Chief Executive Officer
This milestone demonstrates the effectiveness of Five Below's merchandising, pricing, and marketing strategies in driving both top-line growth and profitability, while also highlighting the scalability of its store model across diverse markets.
Pricing strategy and product mix drive resilience
Five Below shifted to whole-numbered price points ($1, $2, $3, $4, $5), eliminated fractional pricing, and selectively expanded higher price assortments above $5, all while maintaining a strong value perception. The new pricing architecture was designed to streamline store execution and support margin recovery.
"Specifically in the second quarter, we executed our planned strategic pricing changes to whole price points in order to simplify the shopping experience for our customers and execution for our store crew. The majority of items outside of our candy world are now priced at $1, $2, $3, $4, and $5. We've also been selective in assorting products above $5 that represent great value for money. To date, we've been very encouraged by the customer response to the implementation of our pricing strategy."
-- Winnie Park, Chief Executive Officer
The successful adoption of higher, simplified price points without materially impacting unit velocity gives Five Below flexibility to offset future cost pressures and optimize margins, while sustaining strong transaction growth.
Tariffs and SG&A costs pressure margins
While fixed cost leverage supported margin expansion in the second quarter, management highlighted an unmitigated tariff impact of 160 basis points to fiscal third quarter operating margin, partially offset by improved price elasticity and ongoing country-of-origin diversification. SG&A deleverage is expected in the fiscal third quarter due to higher incentive compensation and temporary investments in physical inventory counts.
"Within gross margin, we expect approximately 160 basis points of unmitigated tariff-related costs which will be partially offset by fixed cost leverage. SG&A is expected to be approximately 100 basis points higher than the third quarter of last year, due primarily to higher incentive compensation and investments in store labor, including to support additional physical inventory counts. The improvement versus our prior implied guidance is primarily due to leverage on the higher sales. Net interest income is expected to be approximately $4 million in Q3 FY2025 and our effective tax rate is expected to be approximately 26% in Q3 FY2025. Adjusted net income in Q3 FY2025 is expected to be between $6.7 million and $13.2 million versus $23.3 million in Q3 FY2024. Adjusted diluted earnings per share is expected to be between $0.12 and $0.24 for Q3 FY2025, compared to $0.42 in 2024. For the full year of fiscal 2025, we are increasing our sales guidance to reflect the better than expected performance in the second quarter and our second half outlook. Full year sales are now expected to be in the range of $4.44 billion-$4.52 billion with a comparable sales increase of 5%-7%. The midpoint of our full year operating margin guidance has increased from our prior outlook by approximately 60 basis points to approximately 7.9% driven by fixed cost leverage on the higher sales. On a year-over-year basis, operating margin is expected to be down approximately 130 basis points driven primarily by tariff and incentive compensation headwinds partially offset by fixed cost leverage."
-- Ken Bull, Chief Operating Officer & Interim Chief Financial Officer
Persistent tariff-related headwinds and rising SG&A costs are expected to constrain operating leverage, making further sourcing agility and pricing discipline critical for sustaining long-term profitability expansion.
Looking Ahead
Management guided fiscal third quarter sales of $950 million-$970 million, representing 13.8% year-over-year growth at the midpoint, with comparable sales up 5%-7% for the year and adjusted diluted EPS of $0.12-$0.24 in the fiscal third quarter. Full-year fiscal 2025 sales guidance was raised to $4.44 billion-$4.52 billion, comparable sales up 5%-7%, and operating margin expected at 7.9%. The company plans 150 net new store openings in fiscal 2025 and expects elevated inventory levels through the fiscal third quarter to support holiday execution, with no incremental quantitative fiscal fourth quarter outlook changes beyond reiterating prior guide ranges due to holiday volatility and macro uncertainty.
