Five Below Inc ((FIVE)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Five Below Inc. recently held its earnings call, presenting a generally positive outlook driven by record sales, strong comparable sales growth, and effective cost management. Despite these positive notes, the company acknowledged ongoing challenges related to tariffs and SG&A pressures. However, Five Below is leveraging its brand strength and customer-centric strategies to sustain growth.
Record Sales Achieved
Five Below achieved a significant milestone by reaching its first $1 billion sales quarter outside of Q4. This achievement underscores the company’s strong customer recognition and brand positioning as a destination for value-oriented shopping.
Significant Sales and EPS Growth
The company reported a nearly 24% increase in total sales, reaching $1.027 billion, with comparable sales rising by 12.4%. Additionally, adjusted EPS saw a substantial increase of 50% to $0.81, attributed to strong fixed cost leverage and disciplined expense management.
Successful Store Expansion
Five Below successfully expanded its store base by opening 32 net new stores across 21 states, marking an 11.5% increase compared to the second quarter of the previous year.
Improved Gross Margin
The company reported a 26% increase in adjusted gross profit over the previous year, with an adjusted gross margin increase of approximately 70 basis points to 33.4%, driven by fixed cost leverage.
Positive Customer and Transaction Trends
Five Below experienced an 8.7% increase in comparable transactions, reflecting strong customer engagement and the success of new pricing and marketing strategies.
Tariff Challenges Impacting Margins
Tariffs continue to pose challenges, affecting gross margins with an expected 160 basis points of unmitigated tariff-related costs projected for the third quarter.
Reduced New Store Openings
The pace of new store openings has slowed, with 32 new stores opened compared to 62 in the second quarter of the previous year, indicating a more cautious expansion approach.
SG&A Pressures
Despite leveraging fixed costs, SG&A expenses are anticipated to rise due to higher incentive compensation and investments in store labor, which may impact operating margins in the upcoming quarters.
Forward-Looking Guidance
Looking ahead, Five Below provided guidance for the upcoming quarters, expecting sales between $950 million and $970 million in Q3, with a comparable sales increase of 5-7%. The company plans to open approximately 50 more stores in Q3. For the full year, sales are projected between $4.44 billion and $4.52 billion, with an operating margin of approximately 7.9%. The company remains strategically focused on product assortment, pricing simplification, and marketing initiatives, anticipating strong performance heading into the holiday season.
In summary, Five Below’s earnings call highlighted a positive outlook with record sales and significant growth in sales and EPS. However, challenges such as tariff impacts and SG&A pressures remain. The company is strategically positioned to sustain growth through brand strength and customer-centric strategies, with promising guidance for the upcoming quarters.