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Zacks Rank #5 (Strong Sell) stock Five Below ((FIVE - Free Report) ) is a discount retail store operator that caters to teenagers and young children by offering a diverse selection of items priced mostly between $1 and $5 (although some products that may be higher). FIVE sells products such as toys, games, electronic accessories, home decorations, beauty supplies, snacks, and seasonal goods.
Weakening Consumer is Bearish for Five Below
Credit card debt is increasing to unprecedented levels while disposable personal income peaked thus far for 2024 in March.
Image Source: U.S. Bue
Meanwhile, though the inflation rate has subsided, inflation remains stubbornly high. With tighter pocketbooks, consumers are likely to focus their spending on essential items and avoid discretionary purchases such as those offered by Five Below. Recent financial performance of the company reflects these challenges. Comparable sales for the ten weeks ended July 13 fell 5%, and forward guidance provided by the company for this metric is even worse.
Uncertainty at Management Positions
Earlier this year, Five Below CEO unexpectedly stepped down. Because the company has been preforming poorly, the uncertainty at the most critical position only adds more to the bearish spin on the stock. FIVE has missed Zacks Consensus EPS Estimates for three of the past four quarters.
Image Source: Zacks Investment Research
Industry Weakness in the Discount Retail Industry
Discount retailers are contending with high costs, theft, and a competitive backdrop – and it’s not only isolated to FIVE. Dollar General ((DG - Free Report) ) plunged more than 30% after reporting earnings last week. Meanwhile, giants established giants like Walmart ((WMT - Free Report) ) seem to be stealing market share, while the increasing presence of e-commerce giant Amazon ((AMZN - Free Report) ) continues to weigh on traditional brick-and-mortar retailers like Five Below.
Inflation Crushes Five Below
Economic pressures from a prolonged inflationary period suggest that consumers will continue to tighten their budgets, which could further negatively impact Five Below’s sales in the coming quarters. While FIVE has been a victim of changes in consumer behavior, it is currently losing the battle to established players like Walmart. This phenomenon is evident in the stock prices, with FIVE down 64% and WMT up 48% year-to-date.
Image Source: Zacks Investment Research
Bottom Line
A weakening consumer, changing consumer behavior, and intense competition are reasons to avoid Five Below and other discount retailers.
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Bear of the Day: Five Below (FIVE)
Five Below Company Overview
Zacks Rank #5 (Strong Sell) stock Five Below ((FIVE - Free Report) ) is a discount retail store operator that caters to teenagers and young children by offering a diverse selection of items priced mostly between $1 and $5 (although some products that may be higher). FIVE sells products such as toys, games, electronic accessories, home decorations, beauty supplies, snacks, and seasonal goods.
Weakening Consumer is Bearish for Five Below
Credit card debt is increasing to unprecedented levels while disposable personal income peaked thus far for 2024 in March.
Image Source: U.S. Bue
Meanwhile, though the inflation rate has subsided, inflation remains stubbornly high. With tighter pocketbooks, consumers are likely to focus their spending on essential items and avoid discretionary purchases such as those offered by Five Below. Recent financial performance of the company reflects these challenges. Comparable sales for the ten weeks ended July 13 fell 5%, and forward guidance provided by the company for this metric is even worse.
Uncertainty at Management Positions
Earlier this year, Five Below CEO unexpectedly stepped down. Because the company has been preforming poorly, the uncertainty at the most critical position only adds more to the bearish spin on the stock. FIVE has missed Zacks Consensus EPS Estimates for three of the past four quarters.
Image Source: Zacks Investment Research
Industry Weakness in the Discount Retail Industry
Discount retailers are contending with high costs, theft, and a competitive backdrop – and it’s not only isolated to FIVE. Dollar General ((DG - Free Report) ) plunged more than 30% after reporting earnings last week. Meanwhile, giants established giants like Walmart ((WMT - Free Report) ) seem to be stealing market share, while the increasing presence of e-commerce giant Amazon ((AMZN - Free Report) ) continues to weigh on traditional brick-and-mortar retailers like Five Below.
Inflation Crushes Five Below
Economic pressures from a prolonged inflationary period suggest that consumers will continue to tighten their budgets, which could further negatively impact Five Below’s sales in the coming quarters. While FIVE has been a victim of changes in consumer behavior, it is currently losing the battle to established players like Walmart. This phenomenon is evident in the stock prices, with FIVE down 64% and WMT up 48% year-to-date.
Image Source: Zacks Investment Research
Bottom Line
A weakening consumer, changing consumer behavior, and intense competition are reasons to avoid Five Below and other discount retailers.