Five Below's Q2 2025 Earnings Outlook: A Buy Ahead of the Report?

The retail sector is no stranger to volatility, but Five Below (NASDAQ:FIVE) has carved out a unique niche as a discount retailer with a focus on youth-oriented, high-turnover inventory. As the company prepares to report its Q2 2025 earnings on August 27, 2025, investors are scrutinizing whether the stock's recent rally is justified—or if it's time to temper expectations.

Revised Estimates and Analyst Optimism

Five Below's Q2 2025 guidance of $975–$995 million in revenue (19.5% YoY growth) and $0.50–$0.62 in EPS aligns with a bullish narrative. Analysts have revised their estimates upward 17 times in the past 30 days, with UBS and Mizuho leading the charge. UBS raised its price target to $160 (a 30% upside from current levels), citing “robust comparable sales” and margin expansion potential. Mizuho and Citi also increased targets to $132 and $142, respectively, reflecting confidence in the company's ability to outperform.

The stock's average analyst price target of $140.47 suggests a 13% upside from its current price, but this optimism must be weighed against Five Below's history of missing full-year guidance. For example, in Q1 2025, the company beat EPS estimates by $0.03 and revenue by $20 million, yet its full-year EPS guidance fell short of expectations. This inconsistency raises questions about the sustainability of its growth.

Peer Performance and Sector Trends

Five Below's performance must be viewed through the lens of its peers. Ross Stores (ROST) and TJX Companies (TJX) have both reported strong Q2 results, with Ross beating EPS estimates by $0.02 and TJX surpassing revenue forecasts by 1.7%. These companies benefit from their off-price models and strategic sourcing, which allow them to navigate inflationary pressures.

Five Below, however, faces unique challenges. While its 19.5% revenue growth outpaces Ross's 5% and TJX's 6.9%, the company's operating margin has been under pressure due to tariffs and supply chain costs. Its Q1 gross margin improved by 140 basis points, a positive sign, but tariffs could erode this progress in the back half of 2025.

Strategic Growth: Stores and Capex

Five Below's aggressive expansion strategy is a double-edged sword. The company plans to open 150 new stores in 2025, supported by $210–$230 million in capital expenditures. This expansion is critical for sustaining revenue growth but could strain margins if new stores underperform. The company's focus on inventory management and merchandising innovation—such as leveraging social media trends—has driven customer traffic, but execution risks remain.

Risks and Rewards

The key question for investors is whether Five Below can translate its Q1 momentum into consistent performance. The company's Q2 guidance is optimistic, but its full-year EPS range of $4.25–$4.72 implies a 10–15% decline from its Q1 $0.86 EPS. This suggests management is hedging against macroeconomic headwinds.

Investment Thesis

Five Below's stock is a compelling buy for those who believe in its ability to execute its expansion and margin-improvement strategies. The recent analyst upgrades and strong Q1 performance justify a cautious bullish stance, but investors should monitor the Q2 report for signs of tariff-related margin pressure or inventory challenges.

Buy Case:
- Strong revenue growth and 17 upward analyst revisions.
- Aggressive store expansion and improved merchandising.
- UBS's $160 price target reflects significant upside.

Sell Case:
- History of missing full-year guidance.
- Tariffs and macroeconomic risks could weigh on margins.
- Peers like Ross and TJX have more consistent earnings trajectories.

Conclusion

Five Below's Q2 2025 earnings report will be a pivotal moment. If the company can exceed revenue and EPS estimates while maintaining its margin improvements, the stock could see a breakout. However, investors should approach with caution, given the risks of overvaluation and execution challenges. For those with a medium-term horizon and a tolerance for volatility, FIVE offers a high-reward opportunity—but only if the earnings report confirms the company's resilience.