Five Below (FIVE, Financial) saw a significant 12% increase today following its impressive Q3 earnings report. The discount retailer, known for items priced at $5 and below, showed strong revenue and same-store sales growth. This comes after a series of disappointing earnings, leading to a new turnaround strategy introduced last quarter. Additionally, Five Below appointed Winnie Park, former CEO of Forever 21, as its new CEO, addressing the leadership gap left by Joel Anderson's departure over the summer.
Key highlights from the Q3 report include:
- Comparable sales increased by 0.6%, outperforming the expected mid-single-digit decline. While the comparable ticket rose 1.2% year-over-year, transactions slightly decreased by 0.6%. Notably, sales improved across various categories, including tech, seasonal, style, and candy, which together accounted for over half of Q3 sales.
- The positive results were driven by Five Below's efforts to refresh its product offerings and the return of teams to the office, enhancing collaboration and innovation. Management plans to continue refining SKU rationalization, with significant impacts expected by 2Q26.
- Adjusted EPS soared by 61.5% year-over-year to $0.42, surpassing the prior guidance of $0.10-$0.22. Adjusted gross margins increased by approximately 290 basis points to 33.2%, aided by reduced shrinkage and improved timing and freight efficiencies.
- Five Below reported a strong start to the holiday season, with Black Friday weekend sales meeting expectations. However, the company anticipates Q4 projections to align with consensus, with adjusted EPS forecasted at $3.23-$3.41 and comps expected to decline by 3-5%, primarily due to a shorter holiday shopping period this year.
Five Below's Q3 performance highlights the early success of its turnaround strategy. With the new CEO likely to maintain this trajectory, the company is poised for continued progress. Despite potential challenges, such as tariffs, Five Below is prepared with strategies learned from past experiences and plans to leverage its Five Beyond product line and India Global Sourcing Office to mitigate impacts.
