Five Below Inc. Reports Strong Q1 Earnings

Five Below Inc ((FIVE)) has held its Q1 earnings call. Read on for the main highlights of the call.

Five Below Inc. recently held its earnings call, revealing a strong first-quarter performance marked by growth in sales, new store openings, and effective customer engagement. Despite these positive results, the company faces challenges such as tariff impacts on operating margins and increased store labor costs. Nonetheless, Five Below remains optimistic about its continued growth and improvement in sourcing strategies.

Strong First Quarter Performance

Five Below reported sales of $971 million, with a notable comparable sales increase of 7.1%. The company also saw a 6.2% rise in transactions, leading to an adjusted earnings per share (EPS) of $0.86. This robust performance underscores the company’s effective strategies in driving sales and customer engagement.

Store Growth

The company opened 55 new stores across 20 states, ending the quarter with a total of 1,826 stores. This represents an increase of 221 stores, or 13.8%, compared to the previous year. The expansion highlights Five Below’s commitment to broadening its market presence and reaching more customers.

Improved Inventory and Gross Margin

Five Below’s adjusted gross profit increased by 24.6% to $328.4 million, with a gross margin rise of approximately 140 basis points to 33.8%. This improvement reflects the company’s successful efforts in managing inventory and enhancing profitability.

Customer Engagement and Marketing Success

The company invested in creator content for social media, yielding encouraging results. This strategy has been pivotal in increasing brand awareness and demonstrating value to customers, further solidifying Five Below’s market position.

Tariff Mitigation Efforts

In response to tariff challenges, Five Below has reduced its goods sourced from China by about ten percentage points for the latter half of the year. The company is diversifying its sourcing and making pricing adjustments to mitigate the impact of tariffs.

Tariff Impact on Operating Margins

Despite mitigation efforts, operating margins are expected to decline by nearly 200 basis points due to tariff-related costs. This will impact both gross margin and selling, general, and administrative (SG&A) expenses.

Challenges with Store Labor Costs

Investments in store labor have led to a decline in operating margin for the second quarter. Costs are anticipated to rise further due to higher incentive compensation, posing a challenge for the company’s financial performance.

CFO Transition

Christie Chipman announced her departure from the role of CFO for personal reasons, with Ken Bull stepping in as interim CFO. This transition is significant as it comes at a time when the company is navigating various financial challenges.

Forward-Looking Guidance

Looking ahead, Five Below expects sales for the full year to be between $4.33 billion and $4.42 billion, with comparable sales growth of 3% to 5%. The adjusted EPS is projected to range from $4.25 to $4.72. The company plans to continue focusing on product, value, and store experience, with approximately 150 net new stores slated to open in fiscal 2025.

In summary, Five Below’s earnings call painted a picture of a company experiencing strong growth and expansion, despite facing challenges from tariffs and labor costs. The company’s forward-looking guidance suggests optimism for continued success, driven by strategic initiatives and a focus on enhancing customer experience.