Is Five Below Trying to Punch Too High?

Discount retailer Five Below NASDAQ: FIVE stock has been suffering from macroeconomic headwinds. The stores sells consumables and products from $1 to $5. The bright and colorful stores seems to focus on a younger demographic from toddlers to teens as its packed with toys, novelty and cutesy items, make-up, and cheap entertainment products. The Company has been trying to expand its Five Beyond concept which is a store-within-a-store with products selling for more than $5 but a lot less than found elsewhere like Target NYSE: TGT, Walmart NYSE: WMT, Kohl’s NYSE: KSS, or Bed Bath Beyond NASDAQ: BBBY. The Company is on track to deliver more than 250 Five Beyond prototype store-within-a-stores this year. The ‘premium’ priced products should provide higher margins, but the Company could risk losing its identity by punching for higher price points to a demographic that’s used to paying low. Inflationary pressures and higher logistics costs have been squeezing margins. To avoid supply chain disruptions this holiday season, the Company has taken a big risk and stocked up on inventory levels which have ballooned to 64%. Investors wonder if Five Below is overreaching in its attempt to expand its customer base and margins with the Five Beyond concept. Are they just punching too high?

Is Five Beyond a Bait and Switch?

The Five Beyond concept is to sell items over $5, which could turn off its loyal customers who may feel bait and switched. It could draw in a higher income value-seeking demographic in these inflationary times looking for items beyond the cutesy kids products. In their ads, Five Beyond has been comparing their items to the “similar seen elsewhere” prices to underscore the value they provide. For example, a $10 coffee maker with a tumbler compared to $18.99 at other retail locations or $8 Bluetooth wireless earbuds, which seem almost too good to be true. Either it’s a brilliant concept or a dud that will turn off the discount shopper who can’t afford spending more and the bigger spenders who question the quality of the products at such cheap prices.

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.  

The Darkness Before the Dawn?

Five Below Q2 2022 earnings were disappointing. On Aug. 21, 2022, Five Below released its fiscal second-quarter 2022 results for the quarter ending July 2022. The Company reported an earnings-per-share (EPS) profit of $0.74 excluding non-recurring items versus consensus analyst estimates for a profit of $0.78, a (-$0.04) beat. Revenues rose 3.5% year-over-year (YoY) to $668.93 million, missing consensus analyst estimates for $681.3 million. The Company reported same store sales decline of (-5.8%) versus (-5% ) to (-2%) consensus analyst estimates. Five Below opened 27 new stores for a total of 1,252 stores locations in 40 states. Five Below CEO Joel Anderson commented, “We delivered earnings per share within our guidance range despite lower than expected sales, which we believe were largely driven by the impact of accelerated inflation on our customers’ purchasing behavior during the quarter. We have revised our guidance for the year to reflect our year-to-date performance and updated second half outlook.”

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.

To Infinity and Beyond Five Below

CEO Anderson remains adamant about the expansion of the Five Beyond concept as well as opening new stores, “We remain focused on our long-term opportunities and Triple-Double goals, including opening 1,000 new stores over the next several years and converting the majority of our chain to the Five Beyond concept. New stores remain our growth driver and we are excited to open approximately 160 new stores this year while preparing to open a record 200-plus stores next year. We will continue to provide our customers an amazing shopping experience with fresh, new WOW products at extreme value, which we believe becomes even more important during the holidays.” In a nutshell, the future of the brand lies in growing top and bottom lines and expanding its customer base with Five Beyond store-within-a-stores and opening up new Five Beyond locations.