Sandwiched between aggressive, deep discount rivals like Dollar Tree, Dollar General and Ollie’s on one side, and increasingly cash-strapped consumers on the other, Philly-based Five Below says it is forging ahead with its “Triple-Double” growth plan that will triple its store count to 3,500 while doubling sales and earnings over the next four years.
While the company’s just-reported first-quarter earnings results were “softer than expected” and saw its comp store sale slide by 4%, the discount retailer said it is well-positioned to capitalize on several macroeconomic factors that are currently roiling the entire industry.
“While the pressures facing some of our customers due to the reduction in stimulus and the current inflationary environment, weigh on our near-term results, history has taught us that consumers will seek out value even more when times are tough,” Five Below CEO Joel Anderson assured investors on the company’s conference call held after the market closed Wednesday (June 8), adding that his company was uniquely positioned to “deliver fun at outstanding value.”
Not unlike the rest of the retail patch, the challenge Five Below faces right now in delivering the value that customers want is that their own shipping, labor, and inventory costs are also rising. Where most retailers would simply deploy a combination of price increases and cost cuts, in the case of an “extreme value” player that markets itself as a place where goods are “priced so low, you can always say ‘Yes,’” passing along price increases is even more difficult.
The Closeouts Are Coming
Even so, the former Walmart.com CEO who has helmed Five Below for the past seven years told investors that the retailer’s in-stock inventory was the best it has been since he joined the company.
“This sets us up nicely for the second half and allows us to take advantage of closeouts and one-time special buys that have already begun to emerge,’ Anderson said, adding that Five Below was “poised to take advantage of dislocations in the marketplace, including merchandise and real estate.”
Just as rival Ollie’s Bargain Warehouse told investors earlier this week that it was keeping “dry powder” on hand to scoop-up an expected surge in closeouts and liquidations as retailers such as Target move to aggressively reduce unsold inventory, Five Below’s buyers will be poised to pounce.
“We will aggressively pursue the opportunities we are seeing, which we expect to grow, given the current environment,” Anderson said in anticipation of the expected uptick.
The $5 Collar
As these macro trends unfold over the course of the summer, Five Below also told investors that it opened 35 new stores in 23 states during Q1, including its 1,200th location in Manhattan’s bustling Union Square.
At the same time, and in the face of unprecedented pricing pressure, the retailer said it is advancing its Five Beyond store-in-store concept to over 200 locations this year, a move that not only allows it to go above the $5 price point but will also see it doubling the SKUs sold at that level.
“We are planning on converting over 750 of our current stores into this latest format over the next four years,” Anderson said. “Our mission is to bring Five Beyond everywhere,” he added, noting that the store within a store concept will also allow it to reimagine and showcase key categories such as tech and home furnishing, which it calls Room.
In addition, the retailer said it was also working to deepen its digital connection and consumer insight via better data gathering, while moving ahead with plans to allow customers to experience the brand where and when they want, including the roll out of its first buy online, pickup in-store (BOPIS) offering this summer.
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