Five Below's Earnings Indicate Pressure on Core Customer and Reduced Discretionary Spending
The discount retailer Five Below has reported a less-than-anticipated drop in second-quarter comparable sales, highlighting mixed consumer trends. Despite a reduction in its full-year comparable sales forecast, the company still managed to surpass analysts' expectations.
Here's a quick look at the second-quarter results:
Net sales reached $830.1 million, a 9.4% increase year over year, beating the estimated $822 million.
Comparable sales were down by 5.7%, less than the estimated 6.4% drop.
EPS was 60c, down from 84c year over year, but higher than the estimated 54c.
The total number of locations reached 1,667, a 3.9% increase quarter over quarter, surpassing the estimated 1,660.
The number of store openings was 62, a 55% increase year over year, exceeding the estimated 60.
Third-quarter forecasts include:
Net sales are expected to be between $780 million and $800 million, with the estimate at $790.2 million.
Comparable sales are expected to decrease by a mid-single-digit percentage.
Adjusted EPS is expected to be between 10c and 22c, with the estimate at 15c.
A net loss of $2 million to $13 million is anticipated.
Full-year forecasts include:
Net sales are expected to be between $3.73 billion and $3.80 billion, down from the previous forecast of $3.79 billion to $3.87 billion, with the estimate at $3.78 billion.
Comparable sales are expected to be between -5.5% and -4%, down from the previous forecast of -5% to -3%, with the estimate at -5.9%.
Adjusted EPS is expected to be between $4.35 and $4.71, down from the previous forecast of $5.00 to $5.40, with the estimate at $4.75.
Net income is expected to be between $220 million and $244 million.
Gross capital expenditures are expected to be between $335 million and $345 million.
Goldman's Kate McShane commented on Five Below's mixed earnings. She noted that the decline in comparable ticket during the second quarter, coupled with lower units per transaction, suggests that Five Below's core customer is under pressure and continues to reduce discretionary spending. This indicates that Five Below's product range is not currently offering an attractive value to their customers.
McShane added that while it was encouraging to see improved traffic trends quarter to date, conversion likely remains under pressure as guidance implies that comparable trends for the second half of 2024 will be similar to the second quarter's -5.7%.
She further noted that Five Below continues to see diverging trends between income cohorts, with softer trends from lower-income households but stronger trends from higher-income households. This suggests that some element of trade down is taking place. Despite the encouraging implied trade-down trends, McShane believes that pressure on Five Below's lower-income customers will continue to impact conversion in the near term.
Bottom Line
Five Below's recent earnings report indicates a pressure on its core customer base and a reduction in discretionary spending. While there are some positive signs, such as improved traffic trends and stronger trends from higher-income households, the overall picture suggests challenges ahead. What are your thoughts on these developments? Do you think Five Below can overcome these challenges and continue to grow? Feel free to share this article with your friends and discuss it. Sign up for the Daily Briefing, which is delivered every day at 6pm.
Five Below's Earnings Indicate Pressure on Core Customer and Reduced Discretionary Spending
The discount retailer Five Below has reported a less-than-anticipated drop in second-quarter comparable sales, highlighting mixed consumer trends. Despite a reduction in its full-year comparable sales forecast, the company still managed to surpass analysts' expectations.
Here's a quick look at the second-quarter results:
Net sales reached $830.1 million, a 9.4% increase year over year, beating the estimated $822 million.
Comparable sales were down by 5.7%, less than the estimated 6.4% drop.
EPS was 60c, down from 84c year over year, but higher than the estimated 54c.
The total number of locations reached 1,667, a 3.9% increase quarter over quarter, surpassing the estimated 1,660.
The number of store openings was 62, a 55% increase year over year, exceeding the estimated 60.
Third-quarter forecasts include:
Net sales are expected to be between $780 million and $800 million, with the estimate at $790.2 million.
Comparable sales are expected to decrease by a mid-single-digit percentage.
Adjusted EPS is expected to be between 10c and 22c, with the estimate at 15c.
A net loss of $2 million to $13 million is anticipated.
Full-year forecasts include:
Net sales are expected to be between $3.73 billion and $3.80 billion, down from the previous forecast of $3.79 billion to $3.87 billion, with the estimate at $3.78 billion.
Comparable sales are expected to be between -5.5% and -4%, down from the previous forecast of -5% to -3%, with the estimate at -5.9%.
Adjusted EPS is expected to be between $4.35 and $4.71, down from the previous forecast of $5.00 to $5.40, with the estimate at $4.75.
Net income is expected to be between $220 million and $244 million.
Gross capital expenditures are expected to be between $335 million and $345 million.
Goldman's Kate McShane commented on Five Below's mixed earnings. She noted that the decline in comparable ticket during the second quarter, coupled with lower units per transaction, suggests that Five Below's core customer is under pressure and continues to reduce discretionary spending. This indicates that Five Below's product range is not currently offering an attractive value to their customers.
McShane added that while it was encouraging to see improved traffic trends quarter to date, conversion likely remains under pressure as guidance implies that comparable trends for the second half of 2024 will be similar to the second quarter's -5.7%.
She further noted that Five Below continues to see diverging trends between income cohorts, with softer trends from lower-income households but stronger trends from higher-income households. This suggests that some element of trade down is taking place. Despite the encouraging implied trade-down trends, McShane believes that pressure on Five Below's lower-income customers will continue to impact conversion in the near term.
Bottom Line
Five Below's recent earnings report indicates a pressure on its core customer base and a reduction in discretionary spending. While there are some positive signs, such as improved traffic trends and stronger trends from higher-income households, the overall picture suggests challenges ahead. What are your thoughts on these developments? Do you think Five Below can overcome these challenges and continue to grow? Feel free to share this article with your friends and discuss it. Sign up for the Daily Briefing, which is delivered every day at 6pm.
