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Why Five Below Stock Went Up 16% in May

By Jon Quast – Jun 2, 2020 at 11:31AM

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As stores began reopening, investors began returning to this beaten-down stock.

What happened

Shares of Five Below (FIVE 1.15%) went up 16.1% in May, according to data provided by S&P Global Market Intelligence. After a strong sell-off earlier in the year, it seems investors warmed to the stock, as the company reopened many stores during the month.

Even with gains throughout April and May, Five Below stock is still down around 19% in 2020.

FIVE Chart

FIVE data by YCharts

So what

Five Below closed all its stores on March 19. Closures were initially intended to last just two weeks. However, the target date for reopening was later pushed back to May 1. Workers were furloughed as a result, and top executives took a pay cut. And the stock sold off with all this negative news.

Many consumer discretionary retailers like Five Below were forced to close locations because of the novel coronavirus. But the closure of brick-and-mortar stores is a particularly acute problem for this company due to its lackluster e-commerce operations. In January it acquired e-commerce platform to boost its digital capabilities. But e-commerce for Five Below is so small that the company doesn't even break out the numbers.

Five Below is now reopening stores. Since April 21, the company has reopened over 700 of its 900 stores. Also noteworthy is that the company has opened 40 new locations so far in 2020. Previously it hoped to open 180 this year, but it's still on pace for 100 to 120 new stores despite the coronavirus. That's enough positive news for the stock to go up as it has.

A hand draws an arrow plotting higher.

Image source: Getty Images.

Now what

Considering some stores are still closed and e-commerce isn't a strength, Five Below's business is likely still down, although improving. In light of the financial challenges, the company replaced its $50 million credit facility with one worth $225 million. It's also cutting spending where it can, including by pushing back the opening of a new distribution center until next year.

There's been plenty of news for Five Below investors to digest in May, but the biggest event lies ahead. The company is scheduled to report earnings for the first quarter of 2020 on June 9.

Jon Quast owns shares of Five Below. The Motley Fool recommends Five Below and recommends the following options: long January 2022 $115 calls on Five Below and short January 2022 $120 calls on Five Below. The Motley Fool has a disclosure policy.

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