Five Below reported softer-than-expected quarterly results--partly hurt by a drop in Easter sales due to the earlier timing of the holiday this year--and lowered its outlook for the year. Unlike many of its competitors, it has a high level of profitability and cash generation, as well as a highly differentiated positioning and more affluent consumer. (We show the difference in demographics in the table below using just Los Angeles to remove geographic mix differences; the sales mix will be weighted towards higher incomes relative to shoppers.) As such, Five Below is well placed when overall consumer spending for discretionary general merchandise picks up.
Describing the results, CEO Joel Anderson said, “As we analyzed our first quarter sales performance, the following factors were apparent. First, our negative comp results were driven by a decline in comparable transactions. Second, consumers were more discerning with their dollars, increasingly buying to need. We saw this in the types of products they purchase, choosing more items in our version of consumable categories, such as candy, food and beverage, beauty and HBA...Additionally, declining sales in older merchandise trends led by Squishmallows presented greater comparable sales headwinds than planned. Finally, we achieved positive comps in our higher income cohorts, suggesting some trade down of these customers seeking value at our stores. However, we saw underperformance in the lower-income demographic that more than offset these results. The quarter solidified that consumers are feeling the impact of multiple years of inflation across many key categories such as food, fuel and rent and are, therefore, far more deliberate with their discretionary dollars.”
Using the Favorite Chains feature in Placer, we see that from Q1 2023 to Q1 2025, Five Below visitors visited Walmart, Target, and Sam’s Club less frequently, but visited Costco more frequently. Given the shopper demographic differences between these, we suspect that the Costco increase reflects relative stability in the shopping behavior in its more affluent customer, whereas the declines in the others reflects curtailed visits by their less affluent customers to Five Below.
On initiatives to reverse the sales trend, Anderson shared, “Five Below has always stood for wild products at extreme value, and we will lean into this mission even more heavily as we contend with the pressures faced by our core customer...[W]e will continue to look for ways to bring even more distorted value to them...Chasing trends has always been a strength of ours, and we will continue to quickly identify and capitalize on trends, bringing them in store quickly and communicate the value we provide to customers across our social media channels. Second, we recently kicked off a pricing test in about 100 stores to measure the impact of price reductions on driving sales. Third, we launched a marketing test in late May that will run over the next 3 months in 1 of our regions…But being no doubt about it, the lower-end customer is really being stretched, and we got to deliver value. And we've got to really display that in how we go to market. And when you walk in the store, what you see, but all of that's in flight right now and expect to see some of those changes improve by the back half of the year. ” (Recall that the average price for Walmart’s general merchandise is down mid-single-digits year-over-year.)
For the quarter, sales increased 12% to $812M, the result of 238 net new locations over the past year (+16%) and a -2.3% comp-sales decline. For the year, the business should produce 15% EBITDA margins and $550M of EBITDA and generate $150M in cash.
