Five Below, Inc. (FIVE Quick QuoteFIVE - Free Report) reported second-quarter fiscal 2024 results, wherein the top line beat the Zacks Consensus Estimate, and the bottom line met the same. However, net sales increased while earnings declined year over year, impacted by macroeconomic pressures and an evolving consumer environment. This led the company to lower its fiscal 2024 outlook.

In response, Five Below is addressing these challenges by refocusing on a curated assortment that emphasizes value and novelty to engage its core pre-teen and teen customers. The company is committed to enhancing the store experience to better reflect its fun and vibrant brand identity. 

Although long-term growth prospects remain strong, Five Below plans to moderate store expansion to 150 to 180 stores in 2025, allowing greater focus on key initiatives and improving store-level execution. The brand's core appeal, strength of its business model and ability to reinforce destination appeal and achieve improved results seem encouraging.

More on Five Below’s Q2 Results & Insight Into Margins

Five Below posted earnings per share of 54 cents in the second quarter. The figure decreased 35.7% from 84 cents in the year-ago quarter.

Net sales of $830.1 million increased 9.4% year over year. Also, this metric surpassed the Zacks Consensus Estimate of $822 million. Comparable sales decreased 5.7% year over year. 

The gross profit grew 2.7% year over year to $271.8 million. Also, the gross margin decreased approximately 220 basis points (bps) year over year to 32.7%. 

We note that selling, general and administrative (SG&A) expenses rose 7.8% to $188.8 million. SG&A, as a percentage of net sales, decreased approximately 40 bps to 22.7%. 

Adjusted operating income was $37 million compared with $42.4 million in the second quarter of fiscal 2023. The adjusted operating margin decreased approximately 530 bps and to 6.6%.

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FIVE’s Financial Snapshot: Cash and Equity Overview

Five Below ended the fiscal second quarter with cash and cash equivalents of $209 million and short-term investment securities of $118.7 million. Total shareholders’ equity was $1.61 billion as of Aug. 3. The company repurchased approximately 85,000 shares in the second quarter for about $10 million.

Five Below Provides Q2 Store Update

The company opened 62 new stores and ended the quarter with a total of 1,667 stores across 43 states. This represents an 18.5% increase in the number of stores from the end of the second quarter of fiscal 2023. It plans to open approximately 85 new stores in the third quarter compared with 74 stores in the year-ago quarter. 

The company plans to open approximately 230 stores by the end of fiscal 2024, thereby taking the total count to 1,774 stores, which represents unit growth of approximately 14.9%.

What Lies Ahead of FIVE?

Net sales for the fiscal third quarter are expected to range between $780 million and $800 million. This projection indicates a mid-single-digit decline in comparable sales, reflecting some challenges in the broader retail environment or specific operational factors.

For profitability, the company anticipates net loss to be between $2 million and $13 million. However, on an adjusted basis, which likely excludes certain one-time costs or non-operational items, net income is expected to be between $5 million and $12 million, with adjusted earnings per share in the range of 10-20 cents.

The updated outlook for fiscal 2024 indicates net sales to be between $3.73 billion and $3.80 billion, slightly lower than the previous forecasted range of $3.79-$3.87 billion. This adjustment reflects a more conservative estimate, with comparable sales anticipated to decrease in the range of 4-5.5% compared with the earlier expectation of a 3-5% decline. 

Net income is now expected to be in the range of $220-$244 million compared with the previous estimate of $277-$299 million. Similarly, adjusted net income is expected to be in the range of $241-$261 million.  Adjusted earnings per share are now expected to be between $4.35 and $4.71, down from the prior expectation of $5.00-$5.40. Gross capital expenditures are expected to be approximately $335-$345 million.

Shares of this Zacks Rank #5 (Strong Sell) company have lost 41.4% in the past three months compared with the industry’s 8.7% decline.

Key Picks

Some better-ranked stocks are Boot Barn Holdings, Inc. (BOOT Quick QuoteBOOT - Free Report) , Deckers Outdoor Corporation (DECK Quick QuoteDECK - Free Report) and Steven Madden, Ltd. (SHOO Quick QuoteSHOO - Free Report) .

Boot Barn operates as a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn’s fiscal 2025 earnings and sales indicates growth of 8.9% and 10.7%, respectively, from the fiscal 2023 reported figures. BOOT has a trailing four-quarter average earnings surprise of 7.1%.

Deckers is a leading designer, producer and brand manager of innovative, niche footwear and accessories. It has a Zacks Rank #2 (Buy) at present. DECK delivered a 25.9% earnings surprise in the last reported quarter.

The consensus estimate for Deckers’ fiscal 2025 earnings and sales indicates growth of 8.4% and 11.5%, respectively, from the fiscal 2024 reported levels. DECK has a trailing four-quarter average earnings surprise of 47.2%.

Steven Madden designs, sources, markets and sells fashion-forward name-brand and private-label footwear. It currently has a Zacks Rank of 2. 

The Zacks Consensus Estimate for Steven Madden’s 2024 earnings and sales indicates growth of 6.9% and 12.6%, respectively, from the year-ago actuals. SHOO has a trailing four-quarter average earnings surprise of 9.5%.