Ca$htag$: Five Below (FIVE) ‘Exceptional’ After New CEO

0:00Welcome back to Passmark in here on the Swap Network. I'm Diane King-Hall, alongside Tom White, Narcicago Studios. Time now for our cast, segment. For that, we want to bring it our next guest. And that's Andy Swan co-founder of Lake Folio, taking a look at five below today. All right, Andy, it's good to see you. So we got results recently from both Dollar General and Dollar Tree. And although they did better, there was still some caution about the consumer. I'm curious to know what sentiment it looks like for five below now, especially when you compare them to say Dollar General Dollar Tree. Yeah, I think five below has a better turnaround story. Dollar Tree is pretty impressive, but I think what five below has done since Winnie Park took over has been exceptionally really gotten back to the basics of who their customer is. And it's really paying off. I think they're somewhere around 14% same-store sales growth, which is an incredible number. The big problem for five below is that those incredible numbers are in the past.

1:01And they've set the bar extremely high. The stock is up significantly, nearly a triple from its lows, which weren't that far back. And so investor expectations are very high. We've got web traffic up 15% year over year, which really falls right in line with those same-store comps sales increases. So we think the company's doing fantastic. It's just, is it enough for Wall Street at this point? Because Winnie Park's turnaround has gotten investors into a really comfortable spot with really high expectations. So we think they're outperforming peers. We think they've gotten back to the niche that made them special to begin with. And that is going after Gen Z and Gen Alpha kids with unique merchandise opportunities. So they're doing all of that great tariffs are still an issue. And the biggest issue for this company is that they've set the bar extremely high. And so we'll see what the company says after this earnings report. I think it's going to be much more about the outlook

2:02than the numbers. The number should be very solid. Yeah. This 192% rally that was seen over the last 12 months. The bar is high going into this. And we saw sell-offs in Dollar Tree and Dollar General post earnings. And they were elevated. And the bar was high on those one going into earnings also. But when you look at the landscape of what we've seen in input prices, these are even before we're seeing the spike in oil. Does that kind of cloud the outlook and maybe cause investors to kind of take some profits, even if it's a good number? And like you said, your data is pretty robust on this one going into the report. Yeah, I think it's going to be a fantastic number. I think they have reason for optimism. But it is difficult to give really clear guidance when the world is in a new place. There's war that's infecting oil prices. There's shipping concerns. 60% of their products still comes from China.

3:03So that's a challenge and tariffs are a challenge. You kind of don't know what's next. It's a really volatile environment. So it's tough to give really clear, really positive guidance at this point. So I expect that it will be similar to what we saw from the other companies, Dollar General Dollar Tree. And then I think that they're executing extraordinarily well. It's just difficult for them to provide guidance that gives Wall Street comfort with their high expectations through the remainder of the year. It's just a really tough spot. So five below here, probably really fairly priced. That's OK. So I was thinking about one, the strength that they've had recently. And they've beaten expectations for six quarters in a row now. So the win has been at five below his back. And the shares are so far still outperforming Dollar General Dollar Tree. So it feels like there is a big test in front of it. And I was excited about these results. Because I've been in five below.

4:03You go there for things for your Gen Z or Gen Alpha folks in your family. And I see what their lore is, especially compared to Dollar Tree or Dollar General. But so overall, I guess my question is, do you feel like because the bar is so high for them? And because of where inflation may be headed, it just may be a very difficult period for five below from here, Andy? Yeah, I think that's exactly right. You know, on the positive side, they're opening more stores at a pretty frantic pace. I think they've opened 2,000 locations across 44 states. They have plans to take that to 3,500. So they're about 60% of the way through their plan at this point and doing a very good job. So there's growth simply in adding units to their portfolio. There's growth because they've targeted the niches that matter and the niches that give them some pricing power, that give them some flexibility in their inventory.

5:06But it's just a tough world with really high expectations to give the type of guidance that Wall Street will want. So long-term investors should, I think, be very comfortable here and especially buying on dips that are kind of sell the news type of dips, which we might get tomorrow. I think that's a great opportunity to pick up shares. Because long-term, this company is executing extraordinarily well and they're in a really good spot in the economy. Yeah, Andy, I just want real quick on that last chart. We had up. You've seen that post-holiday dip that we've seen that seasonality that you guys have and a lot of your retail charts here. And that's kind of what I was going to get at with the stock just below all-time highs. I mean, do you guys give this a good score and maybe passively look at it this way just because the stocks run up so much and that chart kind of reflects it? Yeah, the stocks just run up too much. That dip in web visits is completely expected post-holiday.

6:07It's a higher dip than last year's dip. So seasonally, they're looking pretty good. The numbers should be great. The company's executing really well. The stock price just might be a little bit too high right now to be chasing. All right, thank you, Andy. That's Andy Swanko, founder of Lake Folio. We'll look at five below.