Five Below (FIVE 1.22%) is something of a specialty retailer whose name no longer makes a whole lot of sense. In the beginning everything it sold cost less than $5, but that has since changed. That speaks to the big issue investors need to consider when looking at the stock and wondering whether it could help them retire as a millionaire. The answer is, it could, but — and the “but” here is really important.
There are things to like about Five Below
Shares of Five Below have plunged over the past year or so, with the stock down around 45%. Compared to its 52-week high, it is off by more than 50%. It would be very easy to argue that this retailer’s shares have been put on the sale rack. Investors who like to invest with a contrarian approach will probably find that appealing.
FIVE data by YCharts
That said, year-over-year sales were higher by nearly 15% in the third quarter. Through the first nine months of 2024, sales jumped nearly 12%. Both are fairly large increases, which is impressive to see. Notably, the company has been aggressively opening new locations. In the third quarter alone it brought 82 new stores online, with 205 opened in the first three quarters of the year.
Five Below is also working to attract customers to its stores by updating its product offerings and adding “newness” to its collection. If these efforts gain traction with customers Five Below could easily see its financial results respond in a very positive manner, noting that the new stores it has opened are already leading to a sales advance. There’s just one problem here and that is the fact that consumers can be very fickle.
Five Below’s customers aren’t exactly impressed
Opening new stores is a tried and true way to grow a retail business. But there’s a risk in an aggressive store opening approach because, sometimes, management pays so much attention to store opening efforts that they lose sight of the performance of the existing stores. Which is why Wall Street pays particular attention to same-store sales, which measures the performance of existing locations. A lot of new locations and weak same-store sales is a potential problem.
Five Below’s same-store sales in the third quarter were 0.6%. While that’s a positive number, it’s not exactly a great result. More troubling, same-store sales through the first nine months of 2024 fell 2.6%. That’s not good and suggests that Five Below is having trouble attracting customers to its stores. While you could argue that the positive result in the third quarter is progress, which is true, it is not huge progress.
FIVE data by YCharts
Which brings up the real crux of the issue. Five Below was a hot concept a few years ago, particularly among younger shoppers. The concept has since cooled, with at least some of the blame for that likely related to the push above the $5 price point indicated in its name. If Five Below can get customers excited about the store concept again the stock could very well rise dramatically. However, consumers are very fickle and competition in the retail space is intense. There’s just as real a possibility that Five Below will never again be the hot store it once was.
Retail is littered with failed concepts
As the chart above highlights, Five Below’s stock has been fairly volatile over time. It hasn’t been uncommon for it to experience 20% or larger drawdowns, though the current sell-off is among the worst in its history. If the brand concept can be revitalized it could help investors build a million-dollar portfolio, but it probably won’t be a smooth ride. And then there’s the possibility that consumers have moved on to other retail concepts.
Five Below is a fairly risky investment option given the dichotomy between aggressive new store openings and the mixed results of the existing store base. You have to believe very strongly that Five Below can regain its past glory to jump aboard here. If it doesn’t manage that feat, you might end up owning the next Sears or Kmart.
