Five Below Delivers Solid Q1 Results Amid Shopper Resilience, but CFO Exit and Margin Pressures Temper Stock Reaction

Jay's InsightThursday, Jun 5, 2025 9:17 am ET
2min read

Five Below reported a strong start to fiscal 2025, with revenue and earnings topping expectations, reflecting resilient consumer demand for value-priced discretionary goods and a successful execution of its customer-focused strategy. The discount retailer, known for its trend-right products priced typically under $5 or $10, benefited from transaction-driven comp sales gains and strong performance from new stores. However, a surprise CFO departure and pressure on profit margins—compounded by lingering tariff impacts—dampened investor enthusiasm, sending shares down around 5% post-earnings. While not a macro bellwether, Five Below’s results provide insight into the mindset of budget-conscious consumers navigating inflation and rising import costs.

For Q1, Five Below posted adjusted earnings per share of $0.86, beating the Street’s estimate of $0.82. Revenue came in at $970.5 million, slightly ahead of the $966.5 million consensus and up 19.5% from the prior year. Comparable sales rose a robust 7.1%, driven by a 6.2% increase in transactions and a 0.9% uptick in average ticket size. The company opened 55 new stores, bringing its total count to 1,826, a 13.8% increase from last year.

Adjusted operating income climbed to $59.6 million, up from $38.1 million a year ago, with operating margin expanding by 140 basis points to 6.1%. Gross margin improved by a similar amount, rising to 33.8%, primarily due to healthier inventory positions and improved sell-through, which reduced the need for markdowns. Adjusted net income rose to $47.5 million from $33.0 million a year earlier, driven by higher sales volume, fixed-cost leverage, and favorable inventory dynamics.

Ask Aime: How can I capitalize on Five Below's strong Q1 performance?

However, these positives were clouded by news that CFO Kristy Chipman will step down for personal reasons. COO Ken Bull, a former CFO with over a decade of experience in that role, will serve as interim CFO. While the transition is expected to be smooth, management turnover is rarely welcomed in the midst of heightened macro and operational complexity, particularly with tariffs once again pressuring cost structures.

Ask Aime: Five Below's Q1 earnings beat expectations, but CFO departure and tariff pressure impact investor sentiment.

The company raised its full-year sales guidance to a range of $4.33 billion to $4.42 billion (vs. prior consensus of $4.366 billion) and maintained its full-year adjusted EPS outlook of $4.25 to $4.72, slightly below the $4.76 estimate at the midpoint. Management emphasized that the better-than-expected Q1 performance and strong Q2 outlook—$975 million to $995 million in sales and EPS of $0.50 to $0.62—are offset by ongoing cost headwinds related to tariffs, which are expected to weigh more heavily in the back half of the year.

CEO Winnie Park highlighted that consumers remain focused on value and are responding well to Five Below’s merchandising and experiential strategy. She cited strength across all product categories and noted particular momentum in the lead-up to Easter. Despite inflationary pressures, Five Below’s transaction growth suggests that its core customers are staying engaged—and even increasing visit frequency—by seeking out low-cost novelty and seasonal goods.

Inventory discipline continues to be a bright spot. Average inventory per store declined by 2% YoY despite a higher total inventory dollar figure, positioning the company well for the second half of the year when it will accelerate receipts. New stores are also ramping effectively, with productivity at 87%—above internal targets.

Still, margin compression remains a key watch point. For Q2, operating margin is expected to dip to 3.9%, down from 4.5% last year, as Five Below absorbs incentive compensation costs and higher store labor investments. The company continues to see tariff-related pressures as largely offset by fixed cost leverage, but acknowledges limited margin expansion near-term. Notably, full-year operating margin guidance remains at 7.3%, down roughly 200 basis points from FY24.

Five Below enters the summer in a relatively strong position, with growing store count, solid comp momentum, and a loyal customer base focused on affordable indulgence. But the macro environment remains fluid, with tariffs, freight volatility, and consumer fatigue all potential headwinds. Execution around merchandising, store rollout, and supply chain efficiency will be critical in determining whether the company can maintain its growth trajectory while defending profitability.

Investors will be closely watching management’s ability to manage through these crosscurrents—especially with a CFO transition in play. Despite the mixed post-earnings reaction, Five Below’s Q1 results suggest that even in a cautious consumer climate, value-driven retailers can still win—if they execute with precision.