Investors had plenty to celebrate in Five Below's (FIVE -0.07%) recent first-quarter earnings report. The retailing environment has rarely been stronger, and the youth-focused chain is meeting key challenges on pricing and inventory management.
That success has executives feeling more bullish about their 2021 growth potential and about the pace at which the retailer can double its store footprint over the next few years. Let's look at the big takeaways that CEO Joel Anderson and his team had in Five Below's latest earnings call with Wall Street analysts.
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1. It's all about new stores
"New stores have always been the fuel for the Five Below growth engine," Anderson said.
The company put up some impressive numbers at its existing store locations. Comparable-store sales soared 162% versus last year, when many locations were temporarily closed. Five Below benefited from surging average spending per visit, even as total customer traffic is still lower compared to two years ago .
But management is just as excited about its ability to open 68 new locations in the first quarter, which was a record launch pace for the business. That expansion brought Five Below into Utah for the first time, with many more new locations left to mine as it crosses the 1,200-store level. The latest crop of launches has been a big success, with several of the recent openings setting records.
In fact, Five Below's Lubbock, Texas, store was its best grand opening to date. "We are extremely pleased to deliver results that exceeded the guidance we provided on our last earnings call," Anderson said.
2. The challenges
"We are contending with the ongoing global challenges and rising costs resulting from the pandemic," Anderson said.
Like most of its retailing peers, Five Below has had to deal with a tight inventory supply chain, slower freight movement, and rising prices on everything from shipping to labor. The company executed well in the first quarter despite these issues, and entered the second quarter with plenty of high-quality inventory.
Price increases didn't dampen demand, either, in part thanks to the retailer's new Ten Below section that makes room for products priced at $10 or less. "We do now have the ability to go above the $5 price point," Anderson said. That flexibility helped lift profit margins despite the rising costs.
3. The expansion path ahead
"We expect to open 170 to 180 new stores [in 2021] with approximately 100 new stores opening in the first half of the year," CFO Ken Bull said.
Five Below's expansion plan has gone into overdrive, with as many as 180 launches expected this year, compared to 120 last year and 150 in 2019, before COVID-19 scrambled the retailing industry. Management hasn't moved its long-term target, which imagines at least 2,500 locations in the U.S -- up more than 100% from today's 1,100.
Investors might be worried that this target seems aggressive, considering that it's likely that today's booming industry growth will slow over the next few quarters. But Five Below's value focus gives it a strong appeal while consumers are shopping for deals. And reports like this latest announcement demonstrate that the company can market more premium products during the boom times, too.
