The US discount retailer Five Below has lowered its sales forecast for the year and warned that its low-income core customers have been affected by years of inflationary pressure.
On Wednesday, the company reported an unexpected decline in comparable sales for the first quarter. Five Below now expects this metric, which measures sales in stores open for at least 15 months as well as e-commerce sales, to decrease by up to 5% for the fiscal year ending in February. The revenue forecast has been lowered to $3.79 billion to $3.87 billion, down from the previous $3.97 billion to $4.07 billion.
The quarter has shown that consumers are feeling the effects of several years of inflation in many key categories such as food, fuel, and rent and are therefore much more conscious of their discretionary spending," said CEO Joel Anderson in a conversation with analysts.
The stock fell by almost 15% to 113.31 US dollars in after-hours trading. By the close of trading on Wednesday, the stock had already fallen by 37.7% this year.
Five Below, which sells the majority of its products for $5 or less, seeks ways to offer more value. The chain recently launched a price test in about 100 stores to measure the impact of discounts on sales, Anderson said.
The company is also optimizing its inventory to improve its forecasts, orders, and restocking while increasingly incorporating trends that resonate with its customers.
The profit warning follows Five Below's announcement in March to take measures such as restricting self-checkout systems and hiring security personnel to combat theft, which affected profits. Anderson said on Wednesday that the retailer was cautiously optimistic about making progress in mitigating the impact of "shrink," an industry term for theft, lost inventory, and damaged goods.
In the first quarter that ended on May 4, Five Below reported a profit of $31.5 million, or 57 cents per share, compared to $37.5 million, or 67 cents per share, in the same period last year. Excluding one-time effects, the profit per share amounted to 60 cents, which fell short of the 63 cents per share expected by analysts, according to FactSet.
The revenue increased by 12% to $811.9 million, but fell short of Wall Street's expectations of $834.3 million, according to FactSet. Comparable sales decreased by 2.3% compared to the previous year.
For the second quarter, Five Below expects earnings per share of 57 to 69 cents and revenue of $830 to $850 million. Wall Street anticipates a higher earnings per share of 99 cents and revenue of $883.9 million.
