Discount retailer Five Below (NASDAQ: FIVE) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 19.5% year on year to $970.5 million. On top of that, next quarter’s revenue guidance ($985 million at the midpoint) was surprisingly good and 3.7% above what analysts were expecting. Its non-GAAP profit of $0.86 per share was 3.3% above analysts’ consensus estimates.
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Five Below (FIVE) Q1 CY2025 Highlights:
- Revenue: $970.5 million vs analyst estimates of $958.5 million (19.5% year-on-year growth, 1.3% beat)
- Adjusted EPS: $0.86 vs analyst estimates of $0.83 (3.3% beat)
- Adjusted EBITDA: $107.3 million vs analyst estimates of $100.5 million (11.1% margin, 6.7% beat)
- The company lifted its revenue guidance for the full year to $4.38 billion at the midpoint from $4.27 billion, a 2.5% increase
- Management raised its full-year Adjusted EPS guidance to $4.48 at the midpoint, a 1.7% increase
- Operating Margin: 5.2%, in line with the same quarter last year
- Free Cash Flow was $96.45 million, up from -$61.43 million in the same quarter last year
- Locations: 1,826 at quarter end, up from 1,605 in the same quarter last year
- Same-Store Sales rose 7.1% year on year (-2.3% in the same quarter last year)
- Market Capitalization: $6.73 billion
Winnie Park, CEO of Five Below said, "Our first quarter results demonstrate the effectiveness of our strategy, grounded in trend-right product, extreme value and a fun store experience. We were pleased to see broad-based strength across the majority of our merchandising worlds, resulting in a transaction-driven 7.1% increase in comparable sales, as well as strong performance from our new stores. Our teams executed our customer-centric strategy at a very high level, and these results reflect the progress we are making across merchandising, marketing and end-to-end operations."
Company Overview
Often facilitating a treasure hunt shopping experience, Five Below (NASDAQ: FIVE) is an American discount retailer that sells a variety of products from mobile phone cases to candy to sports equipment for largely $5 or less.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.
With $4.04 billion in revenue over the past 12 months, Five Below is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers. On the bright side, it can grow faster because it has more white space to build new stores.
As you can see below, Five Below grew its sales at an impressive 16.3% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts) as it opened new stores and expanded its reach.
This quarter, Five Below reported year-on-year revenue growth of 19.5%, and its $970.5 million of revenue exceeded Wall Street’s estimates by 1.3%. Company management is currently guiding for a 18.7% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 9.9% over the next 12 months, a deceleration versus the last six years. Still, this projection is healthy and indicates the market sees success for its products.
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Store Performance
Number of Stores
The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.
Five Below sported 1,826 locations in the latest quarter. Over the last two years, it has opened new stores at a rapid clip by averaging 15.6% annual growth, among the fastest in the consumer retail sector. This gives it a chance to scale into a mid-sized business over time.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
Same-Store Sales
The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.
Five Below’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat. Five Below should consider improving its foot traffic and efficiency before expanding its store base.
In the latest quarter, Five Below’s same-store sales rose 7.1% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.
Key Takeaways from Five Below’s Q1 Results
We enjoyed seeing Five Below beat analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also glad it raised its full-year revenue and EPS guidance, though the EPS outlook still fell short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The market seemed to be hoping for more, and the stock traded down 2.5% to $118.01 immediately after reporting.
Big picture, is Five Below a buy here and now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
