Please ensure Javascript is enabled for purposes of website accessibility

How Five Below Plans to Weather the Storm

By John Ballard - Mar 24, 2020 at 11:05AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Low prices and plenty of cash should serve the retailer well in the short term.

Five Below (FIVE 1.83%) announced earnings for the fourth quarter last week that were in line with management's previously revised outlook. The discount chain opened six new stores during the quarter and delivered nearly 24% growth in earnings.

However, the near term will get bumpy due to the COVID-19 outbreak. Five Below has temporarily closed all of its stores through March 31. Understandably, the stock price has dropped sharply over the last month, as investors discount a recession in the short term. 

But during the recent earnings call, management offered a few reasons why they remain confident in the company's ability to weather a slowdown in consumer spending.

Five Below store exterior

Image source: Five Below. 

Built to survive

It's an unprecedented situation for retailers across the country. "We are operating in an environment that is rapidly changing, and we are adapting quickly," CFO Kenneth Bull said. However, Bull also emphasized the company's financial strength to weather the storm.

The company ended the recent quarter on Feb. 1 with $261.7 million in cash and short-term investments and no long-term debt. That's financial fortitude.

Of course, it also helps in this environment to be in business selling products at affordable prices. Many items Five Below sells are no more than $5, as its name implies. Clearly, the company must keep costs extremely low to sell, for example, a gaming headset that cheap.

Selling merchandise at ultra-low prices helped Five Below navigate the last recession in 2008. "I think this will be a place where customers are going to turn to us as they look for value and stretch their dollar until things get back to a more normal type of period," CEO Joel Anderson said during the call. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Five Below, Inc. Stock Quote
Five Below, Inc.
$138.18 (1.83%) $2.48

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.