A class action lawsuit was filed against Five Below, Inc. (FIVE) by Levi & Korsinsky on August 1, 2024. The plaintiffs (shareholders) alleged that they bought FIVE stock at artificially inflated prices between March 20, 2024 and July 16, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Five Below stock during that period can click here to learn about joining the lawsuit.
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Five Below operates a chain of specialty discount stores across the U.S. Most of its merchandise is offered at or below $5, with a select few sold at or below $25.
Five Below’s Misleading Claims
According to the lawsuit, FIVE Below and its CEO (Individual Defendant) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about certain financial metrics and expectations from SEC filings and related material.
For reference, when the company published its Q1 FY24 results on June 5, its sales came in much below the previously issued guidance. Additionally, FIVE lowered its full-year sales outlook, saying that it expects about a 3% to 5% decrease in comparable sales owing to macro headwinds. The company set its Q2 FY24 guidance in the range of $830 million to $850 million, backed by the planned opening of about 60 new stores. However, it lowered the Q2 outlook later.
During the Q1 FY24 earnings call, the CEO stated that the company is focused on improving sales and maximizing margins with cost control. The CEO highlighted that the company was conducting a pricing test in about 100 stores to check the impact of price cuts on boosting sales.
To summarize, the defendant made misleading statements about the company’s sales expectations, even though it was facing ample macro headwinds.
Plaintiffs’ Arguments
The plaintiffs maintain that Five Below and the Defendant deceived investors by lying and withholding important information about the company’s business practices and finances during the Class Period. Importantly, the Defendants are accused of misleading investors by overstating the company’s sales expectations.
The information became clear on July 16, when the company announced the abrupt departure of its CEO and slashed the outlook for the second quarter based on the company’s quarter-to-date performance. For Q2, Five Below said that it expects comparable sales to decline between 6% and 7%, leading to net sales between $820 million and $826 million. Following the news, FIVE shares fell over 25% on July 17.
To conclude, Five Below misled investors about the company’s sales prospects. Year to date, FIVE stock has declined over 64%, causing massive damage to shareholder returns.
