Five Below shares sink on forecasts, as retailer leans into higher-priced goods

By Bill Peters

Company says it's seen no 'sensitivity' to higher-or lower-priced items. plans to convert 400 stores to its new Five Beyond format, which sells items priced above $5

Shares of Five Below Inc. fell in after-hours trading Wednesday, after the teen-centric discount retailer offered up a full-year outlook that disappointed Wall Street, as apprehension in the economy complicates forecasting.

Still, the retail chain -- which sells toys, home decor, stuffed figurines and some tech items, generally priced below $5 -- said it plans to keep opening more stores this year. And it said it plans to outfit more of its stores overall with a section that sells things priced above $5, called Five Beyond.

Five Below (FIVE) said it expected full-year sales of $3.49 billion to $3.59 billion, with the midpoint below FactSet expectations for $3.58 billion. Executives said they expected the company to earn between $5.25 and $5.76 a share; the midpoint of that forecast was also below FactSet estimates for $5.65 a share.

Five Below forecast full-year same-store sales growth of 1% to 4%, compared with Wall Street's estimates for a 2.8% gain.

"We're providing a range of potential results that reflects the uncertainty of the macroeconomic and consumer environment," Chief Financial Officer Kenneth Bull said on the company's earnings call.

For the first quarter, Five Below said it expected sales of $723 million to $735 million and a same-store sales increase of 2.5% to 4%. The same-store sales forecast was above expectations for 2.4%, but the midpoint of the sales forecast was below FactSet's forecast for $731 million. Five Below's per-share profit forecast, of between 59 cents to 65 cents, was below estimates for 69 cents.

Shares fell 4.1% after hours.

Five Below, whose fortunes can hang on the rise and fall in popularity of toys like fidget spinners and Squishmallow plush toys, reported earnings as other retailers have cut prices on toys, after enthusiasm for them at the height of the pandemic wore off. Hasbro Inc. (HAS)has laid off employees. Investors have similarly soured on Mattel Inc. (MAT).

Five Below Chief Executive Joel Anderson, in a statement Wednesday, said that the chain's inventories, up 16% year over year, were still "healthy." And he said the company planned to open 200 new stores during the company's fiscal year, and convert 400 stores to the new Five Beyond format. He also said that the chain would roll out new categories in the year ahead.

During the call Wednesday, management said that there hadn't been any "sensitivity" or pushback on the higher-priced items, or the lower-priced ones. They also said they were expanding things like ear piercing and helium balloons to more stores.

For the fourth quarter, Five Below reported net income of $171.3 million, or $3.07 a share, compared with $140.2 million, or $2.49 a share, in the fourth quarter of the company's fiscal 2021. Revenue rose 12.7% to $1.12 billion, compared with $996.3 million in the prior-year quarter. Same-store sales rose 1.9%.

Analysts polled by FactSet expected earnings of $3.06 a share, on revenue of $1.11 billion and same-store sales growth of 0.9%.

-Bill Peters

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03-16-23 0822ET

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