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Five Below Stock Might Fall More after Its Q1 Results

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Jun. 8 2020, Updated 11:09 a.m. ET

Like many other retailers, Five Below (NASDAQ:FIVE) suffered immensely amid the COVID-19 pandemic. The discount retailer temporarily closed its stores on March 19 in an effort to curb the spread of the coronavirus. Five Below started reopening its stores in a phased manner during the third week of April.

As of May 29, the company has reopened over 75% of its stores. Five Below has over 900 stores in 36 states. The value retailer, which focuses on tweens and teens, will likely announce its results for the first quarter of fiscal 2020 after the financial markets close on June 9.

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Will Q1 results drag down Five Below stock?

So far, Five Below stock has declined 13.9% in 2020. The stock has performed worse than the broader market. As of June 5, the S&P 500 and the Dow Jones were down 1.1% and 5.0%. In March, the company disappointed investors with its fiscal 2019 fourth-quarter sales. The company blamed fewer shopping days between Thanksgiving and Christmas for its weaker-than-expected holiday sales. Notably, Five Below’s fourth-quarter sales rose 14% YoY (year-over-year), while its comparable sales fell by 2.2%.

Meanwhile, analysts expect Five Below’s sales for the first quarter of fiscal 2020 to decline 36.1% YoY to $233 million. A significant sales decline is likely due to temporarily closing stores for most of the first quarter. Five Below doesn’t have a strong e-commerce channel, which could have offset the loss from store sales to some extent. The company initiated curbside pickup at certain stores amid the pandemic. However, that offering might not have a significant impact on the first-quarter results.

Analysts expect the company to post a loss per share of $0.32 in the first quarter of fiscal 2020 compared to an adjusted EPS of $0.46 in the first quarter of fiscal 2019.

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Challenging road ahead

Five Below sells most of its merchandise in the range of $1–$5. The company also started testing items priced from $5–$10. Over the long term, Five Below sees an opportunity to expand its store base to over 2,500 locations in the US. At the end of May, the company disclosed that it has opened 40 new stores in 2020. The company expects to open 100–120 new stores this year to boost its top line.

However, investors might cut down on their discretionary spending amid these challenging economic times. Also, uncertainty associated with the COVID-19 pandemic makes matters worse for Five Below and several other retailers. Discount retailers, like Dollar General (NYSE:DG), benefited amid the pandemic because they sell essentials. Dollar General’s first-quarter sales grew by 27.6%. The company benefited from a spike in demand for consumables and home products as customers stayed at home amid lockdowns.

Meanwhile, Five Below wants to enhance its e-commerce business to address consumers’ preference for online shopping. The company acquired Hollar.com to boost its e-commerce sales. Before Five Below’s first-quarter results, it has a ”buy” recommendation from 15 analysts and a “hold” recommendation from five analysts.

The company’s update about reopened stores and the outlook will likely impact its stock price. As of June 5, analysts expected an additional downside of 6% to $103.53.

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