Five Below's Q3 2026: Contradictions Emerge on Comp Sales, Inventory, Store Growth, Tariff Pricing, and Easter Timing Impact

Date of Call: December 3, 2025

Financials Results

• Revenue: Just over $1.0B, up 23% YOY
• EPS: $0.68 adjusted diluted EPS, up 62% YOY
• Gross Margin: 33.9% (adjusted gross profit $352M), up ~70 bps YOY
• Operating Margin: 4.3% adjusted operating margin (adjusted operating income $45M), up ~110 bps YOY

Guidance:

• Q4 sales expected $1.58B–$1.61B (≈14.7% growth at midpoint).
• Q4 comparable sales expected +6% to +8%; Q4 operating margin midpoint ~15.8% (includes higher incentives and tariff costs).
• Q4 net interest income ≈ $5M; adjusted net income ≈ $192M; adjusted diluted EPS ≈ $3.45 (55.6M diluted shares) at midpoints.
• FY sales now $4.62B–$4.65B; FY comps +9.4% to +10.1%; FY adjusted diluted EPS ≈ $5.80 at midpoint.
• FY CapEx ≈ $200M (ex-TAs); plan for ~150 net new stores.

Business Commentary:

* Strong Financial Performance: - Five Below reported net sales of over $1 billion in Q3, marking the second consecutive quarter of over $1 billion in sales, with a 23% increase. - Comparable sales grew over 14%, driven by both increases in transactions and ticket. - Growth was attributed to a sharpened focus on customer-centric strategies, effective marketing, and successful product assortment.

• Store Growth and Expansion:
• The company welcomed 49 net new stores, expanding its store count by 9% year-over-year, totaling over 1,900 stores.
• The entry into new markets, such as the Pacific Northwest, was supported by strong customer reception and successful grand openings.
• Expansion strategies focused on effective marketing and in-store activations to drive early sales.

• Marketing and Customer Engagement:
• Marketing efforts shifted to focus on social media and digital channels, resulting in traffic growth both online and in stores.
• The company increased investment in social media, utilizing creator-produced content and user-generated content to engage customers.

• This shift in marketing strategy positively impacted customer acquisition and retention, contributing to sales growth.

• Product Assortment and Pricing Strategy:

• The merchandising strategy focused on delivering newness across departments and price points, with a focus on value above $5.
• The company successfully integrated higher-priced items into the product lineup, maintaining relative value and increasing the average transaction value.
• This strategic approach resonated with customers, contributing to higher AUR gains and ticket growth.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly stated results "exceeded our expectations," reported net sales +23% and adjusted EPS +62% YoY, noted broad-based comp strength and traffic acceleration exiting Q3, and said they are "increasing our outlook" for Q4 and the full year.

Q&A:

• Question from Charles Grom (Gordon Haskett Research Advisors): Can you remind us how your best stores performed and what opportunities exist to drive sales higher?
  Response: Broad-based store productivity recovery driven by assortment across categories, stronger social-driven traffic and expanding value architecture above $5 (e.g., $7–$15) plus in-line merchandising—these are the primary levers to drive further sales.

• Question from Matthew Boss (JPMorgan Chase & Co): How did comps progress monthly in Q3 and how does Q4 start compare to guidance?
  Response: Monthly comp growth in Q3 was fairly consistent and traffic strengthened exiting the quarter; November/Black Friday start to Q4 is in line with the guide and management is not chasing results.

• Question from Edward Kelly (Wells Fargo Securities): Which bigger trends helped results and can you 'comp the comp' next year?
  Response: Customer-centric merchandising, increased social marketing and permission to sell more items above $5 are durable drivers; management is confident in growing on top of growth but will provide 2026 detail in March.

• Question from Michael Lasser (UBS Investment Bank): Could guidance start next year with negative or flat comps and how should we model 2026 given tariffs and laps?
  Response: Too early to guide for 2026; company has a growth orientation, notes price increases won’t be lapped until H2 (a near-term tailwind) and tariffs remain a headwind to navigate; more detail planned at March guidance.

• Question from Unknown Analyst (on behalf of Simeon Gutman, Morgan Stanley): Was Q3 strength in transactions driven by new versus returning customers?
  Response: Transactions and ticket gains were roughly equal and traffic growth came from both new and returning customers contributing about equally.

• Question from Katharine McShane (Goldman Sachs): How integrated is licensing into the assortment and is it attracting different customers or exclusives?
  Response: Licensing is increasingly integrated via collaborative full-assortment programs (example: Wicked) that span categories and create distinctive product stories; no quantified split provided.

• Question from John Heinbockel (Guggenheim Securities): What are product priorities and are new vendors now selling to you?
  Response: Priority is leaning into broader lifestyle trends rather than single-item bets, increasing newness (e.g., lounge, party) and attracting higher-profile vendors (e.g., LEGO) enabled by scale and integrated marketing.

• Question from Zhihan Ma (Bernstein): Is the Q4 guide conservative and will sustained trends change new-store cadence?
  Response: Management does not categorize the guide as conservative—it's a balanced range given holiday uncertainty; store growth emphasis is quality over quantity with a current plan of ~150 net new stores.

• Question from Scot Ciccarelli (Truist): What marketing changes were made, and was November in the 6%–8% Q4 range?
  Response: Marketing spend was reallocated to curated social/creator content and targeted tests (including a toy catalog) aligned with merchandising; yes, November performance aligned with the 6%–8% guide.

• Question from Spencer Hanus (Wolfe Research): What drove traffic acceleration and any elasticity effects from price increases?
  Response: Traffic acceleration was driven by shifting to creator and user-generated social content with better ROAS; no material unit degradation from price actions—unit performance remained above prior modeling.

• Question from Paul Lejuez (Citigroup): Can you quantify >$5 product performance, which departments didn't comp, and Q4 traffic vs ticket?
  Response: >$5 items delivered double-digit growth and raised AUR; fewer than a handful of departments intentionally comped down (reallocated dollars to stronger areas) due to trend or tariff sourcing gaps; Q4 expected to be ticket-led with some transaction growth.

• Question from Michael Montani (Evercore ISI): Please unpack Q3 shrink and SG&A leverage and the drivers of Q4 margin contraction.
  Response: Q3 realized ~70 bps tailwind from shrink improvement (2/3 of fleet counted), SG&A benefited from fixed cost leverage though incentives rose; Q4 margin decline driven mainly by higher incentives and tariff headwinds (slightly less than earlier modeled).

• Question from Jeremy Hamblin (Craig-Hallum): Has gross margin outlook improved given tariff policy changes and Q3 performance?
  Response: The recent tariff policy change won’t impact 2025 results; Q3 margin benefit reflected shrink and mitigation actions, and tariff headwind now looks smaller than previously profiled though still present.

• Question from Anthony Chukumba (Loop Capital): How much of ticket growth was price actions versus mix shift to higher-priced items?
  Response: Ticket growth came from both rounded strategic pricing and mix shift—> higher AURs driven by sustained $5 assortments plus strong double-digit growth in items above $5 placed in-line.

• Question from Joseph Feldman (Telsey Advisory Group): Early thoughts from new Chief Merchant on merchandise mix opportunities?
  Response: Early days for the new chief merchant; focus will be refining depth of buys, maintaining broad-based assortments and disciplined flow of newness while leveraging vendor relationships and trend expertise.

• Question from David Bellinger (Mizuho): As you add branded items and higher price points, how do you compete with Walmart/Target?
  Response: Competitive edge maintained via exclusives, tight vendor collaboration, and differentiated in-store presentation/visual merchandising that emphasize relative value and create 'wow' statements.

• Question from Seth Sigman (Barclays): How do seasonal events versus everyday business contribute to growth and reconcile traffic acceleration vs Q4 guide?
  Response: Everyday business drives growth through continuous curtain-up moments and newness; traffic accelerated into the end of Q3 (highest month-over-month), and Q4 (one month in) is performing in line with the guide.

• Question from Brian Nagel (Oppenheimer): Are known tariffs fully reflected and has the competitive environment shifted to help Five Below?
  Response: Tariffs are reflected in results and the Q4 outlook (headwind somewhat mitigated but some costs remain trapped in inventory); competitive differentiation has increased via a clearer kid-focused positioning and amplified marketing.

• Question from Phillip Blee (William Blair): How will you further optimize inventory and should we model improved turns?
  Response: Inventory flow improvements came from cross-functional alignment and timing receipts (AI being applied); management expects further upstream improvements with merchandising/planning to sustain better in-stocks and potentially improve turns.

Contradiction Point 1

Comp Sales Growth Drivers

It involves differing explanations of the key drivers behind comp sales growth, which directly impacts company performance and investor expectations.

How are your sales per store on track to hit $2.4 million this year? What are the key drivers for this sales growth? - Charles Grom (Gordon Haskett Research Advisors)

2026Q3: Winnie Park highlights that average store productivity is returning to historic highs. Growth is driven by focusing on the customer and trend awareness. Social media marketing and content have contributed to traffic growth. Expansion into higher price points with relative value has also been successful, leading to increased productivity. - Winifred Park(CEO)

Which third-quarter same-store sales categories drove growth at Five Below, and how did comps trend during the quarter? - Matthew Boss (JPMorgan Chase & Co., Research Division)

2024Q3: We are delivering strong comp results and are encouraged by our ability to drive comps through transactions, which increased 3.4% while units per transaction decreased 1%. We delivered these results by focusing on value and excitement in the store. - Joel Anderson(CEO)

Contradiction Point 2

Inventory Optimization and Shrink Improvement

It involves differing perspectives on inventory optimization and shrink improvement, which are crucial for operational efficiency and financial performance.

How can you optimize inventory to sustain momentum? - Phillip Blee (William Blair & Company L.L.C., Research Division)

2026Q3: Winnie Park notes improvements in inventory flow with AI integration. Further optimization is possible with better upstream alignment between merchandising and planning. - Winifred Park(CEO)

What drove the 20-basis-point increase in year-over-year gross margin guidance? Which P&L areas benefited? Are supplier terms improving? - Jason Haas (Bank of America)

2024Q3: We have right-sized our inbound inventory levels and are reducing lead times. We have more product in our owned distribution centers today than we did in Q2, ahead of Q4 and we are bringing in a higher percentage of full containers in the quarter. - Joel Anderson(CEO)

Contradiction Point 3

Store Growth and Expansion Strategy

It involves changes in the company's store growth and expansion strategies, which directly impact the company's footprint and revenue potential.

How do Q4 trends compare to guidance, and what's the pace of new store openings? - Zhihan Ma (Sanford C. Bernstein & Co., LLC., Research Division)

2026Q3: Store growth is focused on quality, not quantity, with 150 net new stores planned. - Daniel Sullivan(CFO)

Will Blackwell's Q4 revenue be additive, and what is the expected gross margin exit rate? - Stacy Rasgon (Bernstein Research)

2025Q2: In fiscal 2026, we expect to open another 125 to 150 new stores and close approximately 10 to 15 stores, resulting in an increase to over 1,700 stores. - Kenneth R. Bull(CFO)

Contradiction Point 4

Tariff Impact and Pricing Strategy

It involves changes in the company's approach to tariff management and its impact on pricing strategies, which directly affect revenue and customer pricing.

Could you start the year with a negative comp? How would you model it? - Michael Lasser (UBS Investment Bank)

2026Q3: Dan Sullivan notes that the company has a growth orientation, with recent price actions providing a tailwind. - Daniel Sullivan(CFO)

How complex is pricing with tariffs, and are mitigation efforts included in the guidance? - Simeon Gutman (Morgan Stanley)

2025Q1: we assume pricing adjustments are offset by unit degradation, contributing to margin erosion. - Kenneth R. Bull(COO)

Contradiction Point 5

Easter Timing Impact on Comps

It relates to the effect of Easter timing on comparable sales, which is important for understanding the seasonal nature of the company's business and the accuracy of financial forecasts.

Can you clarify the marketing changes and monthly comp guidance for Q4? - Scot Ciccarelli (Truist Securities, Inc., Research Division)

2026Q3: We are incurring increased promotional activity in Q4, primarily due to early holiday execution. - Daniel Sullivan(CFO)

Have there been any noticeable differences in month-over-month comps, and what is the impact of Easter timing? - Anthony Chukumba (Loop Capital Markets LLC, Research Division)

2025Q1: February had sales softer than expected due to weather and we believe there is some Easter timing impact as well. - Winifred Y. Park(CEO)