Please ensure Javascript is enabled for purposes of website accessibility

Five Below Earnings: It's Full Speed Ahead for New Store Launches

By Demitri Kalogeropoulos - Jun 9, 2021 at 11:15AM

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

The retailer sees plenty more room to expand in the U.S. market.

Five Below (FIVE -4.27%) is still finding ways to trounce Wall Street's rising expectations. This past week, the retailer reported a huge growth rebound compared to the year-ago period that was affected by temporary store closings. But the spike was better than expected thanks to soaring demand from its youth-focused demographic.

The management team didn't issue a wider outlook for 2021, but its short-term forecasts suggest another blockbuster year ahead for the business as it targets adding nearly 200 new stores to its selling base.

Three people holding shopping bags while sitting on a bench at an outdoor mall.

Image source: Getty Images.

Demand didn't slow

That store base sat at 1,100 locations as of early 2021. Revenue from these existing shops jumped 162%, mainly due to the fact that most of its stores were closed due to pandemic restrictions a year ago.

Yet Five Below still achieved greater sales gains than the 140% increase that management was predicting heading into the report. Gains came from every category but were especially high in the home decorating and furnishing segments. Notably, Five Below didn't suffer from inventory shortages despite global shipping and supply chain challenges. "We saw broad-based strength across our [categories]," CEO Joel Anderson said in a press release.

Five Below's growth was supercharged by 68 new stores added to the store base in the last quarter, representing a new record for the business. Six of these additions were among the chain's most successful store launches to date.

Charging higher prices

The retailer faced profitability challenges thanks to rising labor costs and much higher shipping expenses. A tight supply chain forced management to shell out more to transport inventory, and so gross profit margin only rose by less than 1 percentage point compared to two years ago. That earnings rebound looks much better versus last year's pandemic period, with Q1's $63 million operating income representing a sharp turnaround from 2020's $72 million loss.

Price inflation didn't harm the company, either. Five Below's strong demand trends allowed it to raise prices when needed, and its new Ten Below category, which includes products priced at $10 or less, was among its more popular offerings. "We do have the ability to go above the $5 price point," Anderson told investors in a conference call, "which is really a nice way to overcome the pressures of inflation."

The broader outlook

Management didn't reinstate a full-year outlook, but it did predict that sales would land between $640 million and $660 million in Q2, which would trounce Wall Street's projections. There's no question that Five Below is in expansion mode, either. The consumer discretionary company plans to launch a record 180 new stores this year.

Hitting that ambitious target would leave the chain with 1,200 stores open by the end of 2021. Management has been saying for years that the U.S. market would support more than double that amount, or 2,500 locations over time. Five Below just demonstrated that it remains a favorite shopping destination in its established markets, and that there's plenty of pent-up demand in new geographies.

It recently entered Utah, its 39th state, with seven stores in and around Salt Lake City. Investors can look for more good news on the sales and profit fronts as the chain adds more states to its footprint and deepens its coverage in established markets.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. 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.

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.
FIVE
$135.98 (-4.27%) $-6.06

*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 analyst team.

Stock Advisor Returns
397%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/20/2022.

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.