Release Date: June 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Five Below Inc (FIVE, Financial) delivered total sales growth of 12% for the first quarter of 2024.
- The company opened 61 new stores in the first quarter, showing strong expansion efforts.
- Gross profit increased by 12.2% to $263.5 million, driven by lower inbound freight costs.
- Positive comps were achieved in higher income cohorts, indicating some trade-down customers seeking value.
- The company has a robust pipeline for new store openings, with plans to open approximately 230 new stores this year.
Negative Points
- Comparable sales declined by 2.3%, driven by a decrease in comp transactions.
- The company experienced a meaningful slowdown in sales during the back half of the quarter.
- Higher shrink accruals and fixed cost deleverage negatively impacted gross margin.
- Adjusted operating income decreased to $38.2 million from $42.4 million in the first quarter of 2023.
- The lower income demographic underperformed, more than offsetting gains from higher income cohorts.
Q & A Highlights
Q: The customer is becoming more discerning. Is this due to price point increases through Five Beyond, and how do you forecast the downside?
A: (Joel Anderson, CEO) We haven't seen any change in customer reaction to Five Beyond, which has been positive. The decline in sales was steady for a couple of months, particularly after Easter, and we expect it to moderate as we move into back-to-school and holiday seasons.
Q: Why has Five Below's performance declined more sharply compared to peers? Is there anything self-inflicted?
A: (Joel Anderson, CEO) The biggest difference is the difficulty in lapping big trends from last year, like Squishmallows. This moderation should help in the back half of the year.
Q: Can you provide more color on your current pricing test and its potential impact?
A: (Joel Anderson, CEO) The focus is on the front end of the store to deliver low prices. If the test shows positive results, we may roll it out further. We are playing offense to drive sales faster.
Q: How do you plan to stabilize comps given the macro backdrop and income cohort bifurcation?
A: (Joel Anderson, CEO) We are focusing on merchandising, pricing tests, and marketing tests. We expect to see improvements by the back half of the year, especially as we move into back-to-school and holiday seasons.
Q: Why are off-price retailers performing well while Five Below is not?
A: (Joel Anderson, CEO) Off-price retailers have a large percentage of their business in apparel, which is more needs-based. We are dissecting every piece of our business to see where we can improve.
Q: What midcourse corrections are being made in merchandising and labor to address the current challenges?
A: (Joel Anderson, CEO) We are focusing on delivering new hot trends at lower price points and differentiating our back-to-school offerings. We are also optimizing labor to improve shrink rates.
Q: Could the slowdown be due to increased competition from dollar stores or Asian direct sellers?
A: (Joel Anderson, CEO) Our research and sales performance analysis do not indicate increased competition as a factor. The decline was broad-based and not linked to specific competitors.
Q: Are you confident that shrink mitigation efforts have not impacted sales?
A: (Joel Anderson, CEO) The sales trajectory changed after we implemented associate-led checkouts, but the decline was more pronounced after Easter. We will have a clearer picture after our August inventories.
Q: How do you feel about the quality of your inventory, and are you taking additional markdowns?
A: (Joel Anderson, CEO) Our inventory is in great shape, and we are managing it well. We are not concerned about spoilage or long inventory.
Q: What are the key areas of cost structure optimization for the next 18 to 24 months?
A: (Kristy Chipman, CFO) We are focusing on operating expenses and capital spending, including distribution expenses and indirect procurement. Our growth should work to our advantage in negotiating better terms.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
