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Why Five Below Stock Sank Today

By Jon Quast – Sep 2, 2021 at 2:43PM

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While sales were up big, they weren't up enough for the market.

What happened

Shares of discount retailer Five Below (FIVE -1.77%) sank on Thursday after the company announced quarterly financial results that missed analysts' expectations. Moreover, Wall Street wasn't a fan of management's forward guidance, adding to shareholders' pain. As of 1:15 p.m. EDT, the stock was down almost 12%.

So what

Yesterday afternoon, Five Below provided financial results for the second quarter of 2021. In Q2, the company's net sales were up 55% year over year to $647 million. The growth rate looks superb, especially considering the company's sales were up 2% last year, so this wasn't an easy year-over-year comparison. However, analysts expected revenue of $648 million on average, so the market is disappointed with Five Below's results.

A person appears surprised by something they're reading on paper.

Image source: Getty Images.

To make up for missing revenue expectations, Five Below beat expectations when it comes to profits. The company had earnings per share (EPS) of $1.15 compared to the average expectation of $1.11 per share. So at least shareholders can find solace in seeing its EPS more than doubling from last year.

Now what

Perhaps investors were most disappointed with Five Below's guidance and some trends they're seeing. Management expects third-quarter sales of $550 million to $565 million, a dip of 13% to 15% sequentially but an increase of 15% to 18% year over year. Keep in mind that there's some seasonality with Five Below's revenue, and Q3 revenue typically dips from Q2 revenue, so this is normal.

What is worth monitoring is Five Below's supply chain. Management noted that it's still having supply chain issues, and profitability is expected to dip because the cost of shipping is going up. Remember that the holiday quarter is crucial for this company. So buy-and-hold shareholders will certainly hope that these concerns can be addressed quickly so they don't lose out during the company's most important quarter.

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.

Stocks Mentioned

Five Below Stock Quote
Five Below
$184.16 (-1.77%) $-3.32

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

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