Five Below Stock is a Recession Play

Discount retailer Five Below NASDAQ: FIVE stock has fallen (-41%) on the year. The popular specialty value retailer sells everything from clothing, home products, candy, toys and games to household products, cosmetics, and accessories for $5 or less. The Company caters to consumers seeking a reprieve from record-high inflation. Five Below is undergoing its Triple Double strategy program. The retailer expects half its stores will be remodeled under the new Five Beyond format by the end of fiscal 2022. The macro-environment is expected to remain challenging with supply chain disruption, logistics costs and inflationary pressures as it lowered forward guidance for the year.

The Company plans to convert over 750 stores to the new format which includes a store-within-a-store concept with Five Beyond showcasing Room Worlds and reimagined tech and doubling the SKUs. While the lapping of stimulus benefits caused many retailers to experience revenue declines, Five Below still managed to grow revenues by 7%. The Company has beefed up its inventory significantly at the beginning of the year to set up a strong second half allowing it to take advantage of closeouts that have already emerged. The Company announced a $100 million stock buyback program. Prudent investors looking for exposure into a retailer that can be a recession hedge can look for opportunistic pullbacks in shares of Five Below.

Fiscal Q1 2022 Earnings Release

On June 8, 2022, Five Below released its fiscal first-quarter 2022 results for the quarter ending April 2022. The Company reported an earnings-per-share (EPS) profit of $0.59 excluding non-recurring items versus consensus analyst estimates for a profit of $0.58, a $0.01 beat. Revenues rose 7% year-over-year (YoY) to $639.6 million, missing consensus analyst estimates for $652.73 million. The Company reported same-store sales decline of (-3.6%) versus 0% to 2% consensus analyst estimates. Five Below CEO Joel Anderson commented, “While first-quarter sales were softer than expected, disciplined cost management enabled us to deliver against our earnings outlook. We are well-positioned from an inventory standpoint with improved in-stocks and accelerated receipts for Summer and Back to School. We are pleased with the progress our teams are making across our strategic priorities, which are key to delivering on our vision for future growth, the Triple-Double. With the planned openings and conversions in fiscal 2022, we are on track to end the year with nearly half of our stores in the new Five Beyond format.”

Downside Guidance

Five Below issued downside guidance for fiscal Q2 2022 EPS of $0.74 to $0.86 versus $1.19 consensus analyst estimates. Revenues are expects to come in between $675 million to $695 million versus $729.58 million analyst estimates. Same store sales expected to fell (-5%) to (-2%). The Company expects fiscal full-year 2022 EPS of $4.85 to $5.24 versus $5.48 consensus analyst estimates. Full-year 2022 revenues are expected to come in between $3.04 billion to $3.12 billion versus $3.21 billion consensus analyst estimates.

Conference Call Takeaways

CEO Anderson highlighted the ongoing headwinds record inflation, Ukraine War, China lockdowns and the lapping of stimulus. Customer response has been very positive in response to its new prototype store. The conversion and remodeling is expected to be completed for over 200 stores by the end of fiscal 2022. All new store openings will be in the new format. The new format includes a Five Beyond stop within a store showcasing reimagined tech and Room Worlds. The Company is developing a deeper digital experience for customers. Digital marketing is growing brand awareness as well as gathering data on its customers to better market to them. Controlling its supply chain is a major priority as its teams  remain nimble to flow the majority of products into ports, distribution centers and stores. The Company has been proactive in securing additional container capacity and bolsters its inventory significantly since the start of the year. The Company has improved its distribution infrastructure and opened its Indiana shipping center to gain efficiencies. This enables Five Below to service nearly 90% of its stores within a single day.

FIVE Opportunistic Pullback Price Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for FIVE stock. The weekly rifle chart downtrend has attempted to bottom off the $110.81 Fibonacci (fib) level. The weekly 5-period moving average (MA) is testing at $122.07 with a falling 15-period MA at $141.87 and weekly 200-period MA at $143.40. The weekly lower Bollinger Bands (BBs) sit at $94.29.   The weekly market structure low (MSL) buy triggers on a breakout above $137.59. The weekly stochastic fell back under the 20-band. The daily rifle chart is attempting a breakout as the daily 5-period MA at $120.69 crosses over through the 15-period MA at $119.78. The daily 50-period MA sits at $131.76. The daily stochastic is rising through the 50-band. The daily upper BBs sit at $134.30 and lower BBs sit at $108.08. Prudent investors can watch for opportunistic pullback levels at the $114.60 fib, $110.81 fib, $106.50 fib, $103.67 fib, $95.03 fib, and the $91.67 fib level. Upside trajectories range from the $141.83 fib towards the $164.55 fib level. Keep an eye on peer stock Dollar General NYSE: DG as a lead sympathy play.