Dive Brief:
- Five Below CEO Joel Anderson has resigned, effective immediately, and has also left the board of directors “to pursue other interests,” the teen-focused retailer announced on Tuesday. Anderson had served as CEO for nearly a decade.
- Chief Operating Officer Kenneth Bull was named interim CEO. Bull has been with the company for nearly 20 years and was the chief financial officer for 11 years before serving as COO. Additionally, Thomas Vellios, co-founder and former CEO, was named interim executive chairman. Vellios will support Bull as Five Below searches for a permanent CEO.
- Five Below lowered its Q2 guidance and now expects sales to range from $820 million to $826 million, down from $830 million to $850 million, with comps expected to fall in a range of 6% to 7%. For the 10-week period ended July 13, total sales rose 9.5% from a year ago and comparable sales fell 5%, the company said in preliminary Q2 results.
Dive Insight:
Anderson’s unexpected exit follows a period of softness at the teen-focused retailer.
Five Below ended 2023 with net sales up 8% but comp sales down 2% year over year. Operating income and net income also declined for the year. Earlier this year, first-quarter net sales rose 11.8% from a year ago. However, comp sales for the same period fell 2.3%. Net income also declined in Q1, falling 16% to $31.5 million.
In the company’s Tuesday announcement, Vellios said he has “tremendous confidence” in Bull and the senior leadership team’s ability to advance Five Below’s growth strategy. The company said earlier this year that it wants to more than double its store footprint from about 1,600 to 3,500 locations by the end of 2030.
But with a new management team in place, those growth plans could be curtailed, William Blair analyst Phillip Blee said in a Wednesday note. “During the upcoming second-quarter print, we expect management will reduce its new store outlook for 2025, currently between 250 and 270 new locations, or 15% unit growth, to something closer to 200 new locations, or 11% unit growth, and scale back its plans to reach 3,500 stores by the end of 2030,” Blee said.
Telsey Advisory Group analysts, led by Joe Feldman, called the company’s recent performance “disappointing and choppy” in a Wednesday note. But they also said Bull is a good choice as interim leader, given his long tenure and deep understanding of Five Below’s business.
“The weak 2Q24 performance reflects ongoing softness among lower-income consumers, lapping key trends from last year, such as Squishmallow, and the need to improve the value proposition. Elevated costs, including labor and shrink, also pressured results,” Feldman said.
Shrink led Five Below to scale back its self-checkout offering. In June, the company said 75% of in-store transactions at all of its stores are now handled by employees at registers; employees handle 100% of checkouts at the retailer’s highest shrink stores.
Telsey’s analysts said the weaker topline results reflect an uncertain consumer environment, increased competition and a lack of product newness or hot trends. Along the way, Five Below also introduced higher priced items and raised prices on core products as part of its Five Beyond initiative, but those efforts might have gone too far, Feldman said.
“The company seems to have identified self-inflicted issues — such as eroding the value proposition by taking prices too high without enough product differentiation and newness — that will be addressed and should help boost performance,” Feldman said.
