If you think the markdowns at your local Five Below (NASDAQ: FIVE) are steep, you should check out the stock price. Shares of the cheap-chic discounter have lost more than half of their value this year, one of just 11 investments with market caps north of $4 billion to suffer that portfolio-crushing fate.
It's been a rough year full of financial misses, analyst downgrades, and a shake-up at the top for the brick-and-mortar chain that sells most of its offerings for $5 or less. This isn't Five Below at its best, but with the shares down 61% in 2024 -- off by nearly two-thirds since peaking three summers ago -- is this a buying opportunity? With the chain looking to post its fiscal second-quarter results later this week, the stock will be on the move.
Look out below
Five Below seemed destined to revisit its all-time highs coming out of the 2023 holiday shopping season. It wasn't until March of this year that investors found out that things weren't going so well for the big-box chain popular with teens and tweens looking to get more bang for their buck. The retailer fell short of Wall Street targets on both ends of the income statement for the fiscal fourth quarter. Guidance wasn't very inspiring.
Things got worse three months later, with another miss on the top and bottom line. Same-store sales also declined 2% for the fiscal first quarter, short of the flat to 2% growth it was eyeing back in March. It also hosed down its full-year outlook.
There was more to come. Just six weeks later, the reeling retailer announced that longtime president and CEO Joel Anderson was leaving the company. It also announced that comps were down 5% through the first 10 weeks of the fiscal quarter that ended last month, bracing investors for a 6% to 7% decline for the fiscal second quarter.
That's a lot of pain over the past five months, and the volatility will continue. Five Below will make its financial results official after the market closes on Wednesday. It has a lot to prove.
The long road back
The chances of a blowout performance are slim. Five Below has hosed down its near-term guidance three times since late March. Momentum suggests another downward revision is coming.
However, the silver lining to the departure of its helmsman and the mid-quarter guidance downshift is that the bad news should be largely baked into the current stock chart. Any positive news on the board's search for a new CEO or the moonshot of a chance that it was overly conservative with its dreary forecast last month could send the stock bouncing like one of its large inflatable balls.
Five Below's former CEO had an ambitious goal of growing the concept's store count from 1,500 to 3,500 in the next six years. This is the kind of climate in which Five Below can announce that it's scaling back its expansion plans and the market applauds. The company has been able to grow its footprint quickly and profitably without tarnishing its cash-rich balance sheet outside of the its growing number of lease obligations.
This isn't a broken company. Comps will be negative this year, but that has happened in two previous years over the past decade. Five Below has recovered in the past. In this fickle world of retail stocks , Five Below is historically cheap, trading for less than 16 times trailing earnings and a top-line multiple of just 1.3. It may take time for the storm clouds to clear, but the upside appears greater than the downside right now.
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