Five Below announced on Wednesday that it will start testing different prices nationwide at some stores.
The company, known for its low-cost products, is experimenting with this change to see how it impacts shopping habits.
Five Below CEO Discusses Price Strategy
Joel D Anderson, CEO and president of Five Below, acknowledged during an earnings call that shoppers are becoming more cautious with spending due to rising living costs and inflation, as The U.S. Sun reported.
He stated, "The customer is looking for value," and emphasized that the company is responding by testing new pricing strategies to provide more choices.
Depending on the results of these tests, the discount retailer plans to make significant changes by the end of the year.
According to a recent press release, Anderson reassured investors that raising prices would be considered a "last resort" for boosting sales, which he described as "disappointing" in the first quarter of 2024.
He also mentioned that despite some challenges, Five Below is on track with its plans and anticipates strong sales around Halloween, when the company typically sees a boost in business.
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Five Below Stock Dips on Weak Earnings
Street Insider said Five Below's stock took a significant hit in Thursday's premarket trading following a disappointing first-quarter report and a downward revision in its fiscal 2024 earnings forecast.
The discount retailer reported first-quarter earnings of $0.60 per share, falling short of the analyst consensus of $0.63. Revenue for the quarter was also lower than expected at $811.9 million, compared to the forecasted $835.01 million.
The company experienced a 2.3% decline in comparable sales, a setback compared to the 1.42% increase analysts had anticipated. This drop contributed to a more than 16% plunge in the stock price during premarket trading.
Looking ahead to the second quarter of 2024, Five Below has set its earnings expectations between $0.57 and $0.69 per share, significantly below the analyst consensus of $0.99. The revenue forecast for the quarter is set between $830 million and $850 million, well under the expected $883 million.
For the full year of 2024, Five Below has adjusted its earnings forecast to range from $5.00 to $5.40 per share, down from the previous estimate of $5.71 to $6.22 and below the consensus estimate of $6.00.
The company now expects total revenue for the year to be between $3.79 billion and $3.87 billion, a decrease from the earlier projection of $3.97 billion to $4.07 billion, with analysts previously targeting $4.03 billion.
The company plans to invest about $345 million to $355 million in capital expenditures during fiscal 2024.
Goldman Sachs analysts commented on the situation, noting that the lower-income consumer seems to be under more pressure than initially expected based on Five Below's recent performance.
Nonetheless, they maintain a positive outlook on the company's long-term growth potential, citing possible benefits from recent strategies to reduce losses, targeted marketing efforts, and seasonal buying trends that could boost performance in the year's second half.
Despite the current market challenges, analysts still find Five Below's valuation attractive after the recent price drop.
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