It should be a good time to be a discount retailer like Five Below (NASDAQ:FIVE). After all, people still need items, and being able to get those items at a discount is valuable to many of those people. But the penny-pinching consumer is getting a bit overzealous about that pinching, as far as retailers are concerned, and news of Five Below’s struggles is hitting shareholders. Though surprisingly, not that hard – Five Below stock is up fractionally in Friday afternoon’s trading.
Five Below has been surging since 2012, increasing its store count from under 250 in the United States to over 1,600. As recently as 2023, sales were growing and cleared $3.5 billion that year, better than double the numbers seen in 2018. But with shares in open decline and recently hitting a 52-week low, it’s clear that something is wrong.
Several factors—inventory issues from shoplifting or other sources, still-mounting inflation, and competitors coming in from overseas—are dragging down Five Below and putting serious pressure on its share price.
“Increasingly Buying to Need”
Five Below, via CEO Joel Anderson, makes it clear that it knows the pressure that customers are facing these days. Anderson noted that “consumers were more discerning with their dollars, increasingly buying to need.” This means that customers are mostly buying necessities. Further, Anderson noted that consumables proved a major draw, including candy, other foods, and health and beauty products.
This makes particular sense, as Five Below recently got burned by Squishmallows, a kind of plush toy that proved popular, though nowhere near as popular as Five Below hoped. In fact, Five Below overbought on Squishmallows so hard that it ultimately proved a drag on this quarter’s sales. It also underscored the fact that people are, indeed, “buying to need.”
Is Five Below a Good Stock to Buy Now?
Turning to Wall Street, analysts have a Strong Buy consensus rating on FIVE stock based on 15 Buys and four Holds assigned in the past three months, as indicated by the graphic below. After a 41.59% loss in its share price over the past year, the average FIVE price target of $164.33 per share implies 44.05% upside potential.
