8-K: Five Below Reports Mixed Q3 Results, Appoints New CEO, and Updates Full-Year Guidance

Five Below's third quarter saw a 14.6% increase in net sales, but a decrease in comparable sales, and the company has appointed a new CEO effective December 16, 2024.

Summary

• Five Below announced its third quarter results for fiscal year 2024, showing a 14.6% increase in net sales to $843.7 million compared to $736.4 million in the same quarter last year.
• Comparable sales increased by a modest 0.6% in the third quarter.
• The company opened 82 new stores in the quarter, bringing the total to 1,749 stores across 44 states, an 18.1% increase in stores year-over-year.
• Operating loss was $0.6 million, a decrease from an operating income of $16.1 million in the third quarter of fiscal 2023, however adjusted operating income was $27.6 million.
• Net income was $1.7 million, down from $14.6 million in the same quarter last year, with adjusted net income at $23.3 million.
• Diluted earnings per share (EPS) were $0.03, compared to $0.26 last year, while adjusted diluted EPS was $0.42.
• Year-to-date net sales increased by 11.9% to $2.49 billion, but comparable sales decreased by 2.6%.
• The company opened 205 new stores year-to-date, compared to 141 in the same period last year.
• Operating income for the year-to-date was $77.1 million, down from $117.1 million last year, with adjusted operating income at $102.8 million.
• Year-to-date net income was $66.2 million, down from $98.9 million last year, with adjusted net income at $85.5 million.
• Diluted EPS for the year-to-date was $1.20, down from $1.78 last year, with adjusted diluted EPS at $1.55.
• The company repurchased approximately 267,000 shares year-to-date at a cost of approximately $40.0 million.
• Five Below has appointed Winnie Park as the new CEO, effective December 16, 2024.
• The company expects fourth quarter net sales to be between $1.35 billion and $1.38 billion, with a 3% to 5% decrease in comparable sales.
• Full year net sales are expected to be between $3.84 billion and $3.87 billion, with a 3% decrease in comparable sales.
• Full year capital expenditures are expected to be approximately $340 million.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While net sales increased, comparable sales growth was weak, and net income decreased significantly. The appointment of a new CEO is a positive development, but the overall financial results and guidance suggest some challenges.

Positives

• Net sales increased by 14.6% in the third quarter, reaching $843.7 million.
• The company opened a record 82 new stores in the third quarter, expanding its footprint significantly.
• Adjusted diluted EPS for the third quarter was $0.42, exceeding the company's outlook.
• The company's merchant and operational teams are focused on key priorities of product, value, and store experience.
• The company saw positive results from initiatives to add newness and deliver value in key categories.
• New store performance surpassed expectations.
• The company repurchased approximately 267,000 shares year-to-date at a cost of approximately $40.0 million.

Negatives

• Comparable sales increased by only 0.6% in the third quarter.
• Operating loss was $0.6 million, a decrease from an operating income of $16.1 million in the third quarter of fiscal 2023.
• Net income decreased to $1.7 million from $14.6 million in the same quarter last year.
• Diluted EPS decreased to $0.03 from $0.26 in the third quarter of fiscal 2023.
• Year-to-date comparable sales decreased by 2.6%.
• Year-to-date operating income decreased to $77.1 million from $117.1 million last year.
• Year-to-date net income decreased to $66.2 million from $98.9 million last year.
• Year-to-date diluted EPS decreased to $1.20 from $1.78 last year.
• The company expects a 3% to 5% decrease in comparable sales for the fourth quarter.

Risks

• The company faces risks related to the global supply chain, its expansion plans, and its ability to attract and retain executive talent.
• There are risks associated with disruptions in information technology systems, cyberattacks, and the use of artificial intelligence.
• The company is exposed to risks related to merchandise selection, reliance on foreign manufacturing, and the availability of suitable store locations.
• Changes in consumer preferences, economic conditions, and increased operating costs pose risks to the company.
• The company faces risks related to inflation, commodity prices, and potential systematic failures in the banking system.
• Extreme weather, pandemics, global political events, and terrorism could impact the company's operations.
• The company faces risks related to leasing, owning, or building distribution centers, and managing inventory.
• Increased competition from other retailers, including online retailers, poses a risk.
• The company's business is subject to seasonality.
• The company faces risks related to protecting its brand name and intellectual property.
• Domestic and foreign trade restrictions, including tariffs, could increase costs.
• The company's indebtedness imposes restrictions on its operations.
• Changes in tax legislation and accounting standards could impact the company.
• The company has five fewer shopping days between Thanksgiving and Christmas this year, which is reflected in their outlook.

Future Outlook

The company expects fourth quarter net sales to be between $1.35 billion and $1.38 billion, with a 3% to 5% decrease in comparable sales. Full year net sales are expected to be between $3.84 billion and $3.87 billion, with a 3% decrease in comparable sales. Full year capital expenditures are expected to be approximately $340 million.

Management Comments

• Ken Bull, Interim CEO and COO, stated that the company is pleased to report third quarter results that exceeded their outlook.
• Mr. Bull noted that they delivered stronger performance across a broader group of merchandise worlds compared to the second quarter and improved operational execution.
• Mr. Bull mentioned that they were encouraged to see the positive results from the initiatives they undertook to add newness and deliver value in key categories.
• Mr. Bull also stated that they opened a record 82 new stores during this period with new store performance also surpassing their expectations.
• Mr. Bull said that the company's merchant and operational teams are focused on key priorities of product, value, and store experience.
• Mr. Bull stated that the company will build on this progress and are focused on delivering for their customers in the all-important fourth quarter.
• Mr. Bull noted that their solid Black Friday weekend results were an encouraging start to the holiday season, though the highest volume selling days lie ahead.
• Mr. Bull also mentioned that this year they have five fewer shopping days between Thanksgiving and Christmas, which is reflected in their outlook.

Industry Context

The retail industry is currently facing challenges such as supply chain disruptions, changing consumer preferences, and increased competition, particularly from online retailers. Five Below's results reflect these challenges, with a decrease in comparable sales despite overall net sales growth. The appointment of a new CEO suggests a strategic shift to address these issues and drive future growth.

Comparison to Industry Standards

• Five Below's comparable sales increase of 0.6% in Q3 is below the industry average for discount retailers, which have seen a mixed performance this year.
• Competitors like Dollar General and Dollar Tree have reported varying comparable sales results, with some experiencing stronger growth in certain quarters.
• Five Below's aggressive store expansion strategy, with 82 new stores opened in Q3, is more ambitious than some of its peers, reflecting a focus on physical growth.
• The company's adjusted EPS of $0.42 in Q3 is in line with some of its competitors, but the decrease in net income compared to last year is a concern.
• The full-year guidance for a 3% decrease in comparable sales indicates a cautious outlook compared to some other retailers who are projecting flat or positive growth.
• The appointment of a new CEO is a significant move, similar to other retailers who have recently made leadership changes to navigate the current market conditions.

Management Changes

Stakeholder Impact

• Shareholders may be concerned about the decrease in comparable sales and net income.
• Employees may be impacted by the change in leadership and any potential strategic shifts.
• Customers may benefit from the company's focus on product, value, and store experience.
• Suppliers may be affected by the company's performance and any changes in purchasing patterns.
• Creditors may be concerned about the company's financial performance and future outlook.

Next Steps

• The company will focus on delivering for customers in the fourth quarter.
• The company will continue to focus on product, value, and store experience.
• The new CEO, Winnie Park, will assume her role on December 16, 2024.
• The company will open approximately 22 net new stores in the fourth quarter.

Key Dates

Keywords

retail, discount, stores, sales, earnings, CEO, financial results, comparable sales, net sales, EPS, guidance