Retail turnarounds can look great for one quarter and disappear just as quickly. What you want to see is repeatability: more customers, better merchandise, strong new stores, and management steadily raising expectations.
After five straight quarters of double-digit comparable growth, this comeback is starting to look much more structural than temporary.
Elite Picks (Sponsored)
This report focuses on a narrow group of stocks identified through a detailed screening process.
Analysts apply a combination of metrics to narrow down potential opportunities.
Past selections have shown strong momentum, but no outcomes are guaranteed.
The newest edition is now open for access.
Get the report now.
*This free resource is being sent by Zacks. We identify investment resources you may choose to use in making your own decisions. Use of this resource is subject to the Zacks Terms of Service.
*Past performance is no guarantee of future results. Investing involves risk. This material does not constitute investment, legal, accounting, or tax advice. Zacks Investment Research is not a licensed dealer, broker, or investment adviser.
What Just Happened
Sales jumped 23% and comps reached 14%
Five Below, Inc. (NASDAQ: FIVE) reported fiscal second-quarter sales of $1.26 billion, up 22.9% from a year earlier.
Comparable sales surged 14.1%.
That crushed management's previous expectation for 7% to 9% comparable growth and marked the fifth consecutive quarter of double-digit comps.
Adjusted operating income more than doubled to $113.2 million from $55.1 million. Adjusted net income reached $93.4 million, up from $44.8 million.
Adjusted EPS increased to $1.68 from $0.81.
The underlying business therefore produced more than 100% adjusted earnings growth on 23% higher revenue.
That is a serious amount of operating leverage.
Management raised the full-year outlook again
Five Below now expects fiscal 2026 sales between $5.63 billion and $5.71 billion.
The previous range was $5.40 billion to $5.48 billion.
Comparable sales are now expected to rise 10% to 12%, well above the previous 6% to 8% outlook.
Adjusted EPS guidance increased even more dramatically, from $8.65 to $9.05 previously to $9.83 to $10.31.
That guidance excludes tariff refunds already received, giving you a cleaner picture of the underlying business.
Management expects another 8% to 10% comparable-sales increase during Q3.
This is not a company telling you the best part of the recovery is behind it.
The Traffic Story Is The Real Story
More people are walking through the doors
Strong retail comps can come from higher prices, bigger baskets, or more transactions.
Five Below's current growth is being driven heavily by transactions and traffic.
Management said customer growth remained broad across new and returning shoppers, demographics, geographies, and product categories.
That is encouraging because traffic is generally healthier than relying on price increases.
You want customers choosing to visit the stores more often, not simply paying more for the same merchandise.
Five Below has spent the past year rebuilding its approach around a more customer-focused assortment, stronger merchandising, better store execution, and faster reactions to trends.
The numbers suggest those changes are working.
Trend spotting has become a competitive weapon
Five Below's merchandise is built around categories such as toys, room decor, beauty, tech accessories, candy, collectibles, and seasonal products.
That makes staying culturally relevant critical.
Management describes its strategy as identifying trends early, chasing additional inventory when something starts to work, and then amplifying that trend through merchandising and marketing.
Products tied to collectibles, viral toys, social media trends, and popular licensed brands can drive customers into stores even when they are not planning a traditional shopping trip.
That creates a treasure-hunt element.
You might walk into the store looking for one trending product and leave with several inexpensive impulse purchases.
The model works particularly well when the retailer can react faster than traditional department stores.
Poll: A company you're watching reports earnings next week. The sell-side consensus is too optimistic by a mile — you can see it in the channel checks. But the stock has already run 30% in the last 3 months. What's your play?
- Short it. Expectations too high plus stock already at a premium is the setup.
- Do nothing. Obvious shorts based on sell-side consensus are usually crowded and wrong.
- Build a small short as a hedge against a broader long in the sector
- Wait for the print. If the miss is as bad as I think, I'll short the bounce, not the run-up.
Warning Signs (Sponsored)
The headlines keep getting bigger.
New IPOs, soaring valuations, and speculative bets are dominating the market conversation.
But one longtime Wall Street veteran believes investors may be overlooking growing risks beneath the surface.
In a new free briefing, he explains what concerns him most and the steps he's taking to prepare.
Watch the Free Analysis.
The Pricing Strategy Is Smarter Than The Name Suggests
Most products are still cheap, but $5 is no longer a hard ceiling
More than 80% of the assortment remains priced at $5 or below.
But management has become much more comfortable selling selected products above that level when the value proposition makes sense.
The important change was abandoning the old "Five Beyond" section.
Instead of putting more expensive products in a separate area at the back of the store, Five Below now merchandises them where they naturally belong.
A $20 room accessory sits with room decor. A more expensive toy sits with toys.
That sounds minor, but it makes the store easier to shop and removes some of the psychological friction around buying merchandise above $5.
Management says customers have shown little resistance to higher price points when the perceived value remains strong.
That expands the company's addressable assortment without abandoning the value identity that originally made the concept work.
Elite Trade Club Insider
A Tech Founder Sold $21.4 Million, While A CEO Bought $903,000 Into A 38% Drawdown
You’re looking at one software company riding the AI chip-design boom and one power producer positioned directly in the data-center electricity buildout. Elite Trade Club Insider readers are seeing what the raw insider screen misses: a founder sold $21.4 million, but every share came from expiring options, while another CEO voluntarily put more than $900,000 into a stock sitting almost 40% below its yearly high.
You’re reading the free version. Here’s what we held back.
Every day, insiders and institutions move millions before the market catches on. We surface the data behind those moves before the rest of the market sees it.
A subscription gets you:
The insider buys, options bets, and dark pool moves the free edition can't show you. Unlocked every weekday.
A Sunday Deep Dive that tells you where to look before Monday's bell rings.
The Friday Smart Money Brief: who bought, who sold, where the big options bets landed, and where institutions are hiding volume. Three data layers. One email.
A Monthly Insider Scorecard so you always know whether smart money is buying or selling the market.
Every past Insider edition, unlocked, on elitetrade.club. Go back and see what you missed.
$25/mo or $250/yr. 30-day money back guarantee. Cancel anytime. Founding member pricing: lock in $25/mo before we raise it.
New Stores Are Still Producing Growth
The chain just passed 2,000 locations
Five Below opened 52 net new stores during Q2.
It ended the quarter with 2,022 stores across 46 states, an 8.8% increase from a year earlier.
Through the first half, the company opened 101 net new locations.
Management still expects roughly 150 net openings for the full year.
This matters because Five Below is producing strong same-store growth while simultaneously expanding the store base.
You normally see retailers lean heavily on one or the other.
Here, existing locations are generating double-digit comps while new stores add another layer of revenue.
That combination explains why first-half sales increased 27.5%.
New-store execution is improving too
Management says recent openings are performing well, with several Q2 locations ranking among the company's strongest spring and summer openings ever.
That gives Five Below room to keep expanding without relying exclusively on mature-store growth.
Every successful new store also adds another location where the company can test trends, build brand awareness, and acquire customers.
The challenge is maintaining quality while opening locations quickly.
For now, management appears to be doing that.
Beyond Traditional Stocks (Sponsored)
Everyone is chasing Nvidia, Tesla, and the usual AI names.
Meanwhile, President Trump reportedly moved as much as $25 million into an unusual investment most people have never heard of.
It is not a stock, ETF, or mutual fund.
After spending three months investigating it, Alexander Green believes it could become one of the biggest money opportunities of the next decade.
See the unusual investment Trump reportedly bought.
The Tariff Refund Needs To Be Stripped Out
GAAP earnings massively overstate the normal quarter
Headline diluted EPS reached $3.99.
That looks incredible next to $0.77 last year.
But Five Below recorded approximately $163.6 million of tariff refunds during the quarter.
The after-tax benefit added roughly $2.33 per share.
Strip that out, along with smaller adjustments, and adjusted EPS was $1.68.
That is still more than double last year's $0.81.
This distinction is critical.
You should not value the company as though $4 in quarterly EPS had suddenly become the norm.
But you also should not dismiss the quarter simply because refunds inflated GAAP profit.
The adjusted numbers show that the underlying turnaround was extremely strong on its own.
The Balance Sheet Gives Management Options
Five Below finished the quarter with approximately $561 million of cash and another $627 million of short-term investments.
That puts total cash and short-term securities close to $1.2 billion.
Operating cash flow through the first half reached $443 million, nearly double the $226 million generated during the comparable period last year.
The company has plenty of capital to keep opening stores while maintaining financial flexibility.
And management just added another way to use it.
A $600 Million Buyback Is Now On The Table
The board approved a new $600 million share-repurchase authorization at the end of August.
Five Below already repurchased approximately $60 million of stock during Q2.
For a mid-cap retailer, another $600 million authorization is substantial.
The company is still prioritizing expansion, with expected capital spending of $250 million to $260 million this year.
But the balance sheet allows it to invest in stores and repurchase stock simultaneously.
If management buys shares intelligently, a lower share count can become another driver of per-share earnings growth.
What Could Trip It Up
Retail trends can reverse quickly
Five Below is benefiting from strong merchandise execution right now.
But today's viral toy eventually becomes tomorrow's forgotten shelf space.
Management needs to keep spotting new trends rather than relying on past winners.
The comparisons are getting harder
Five consecutive quarters of double-digit comparable growth are impressive.
They also create increasingly difficult year-over-year hurdles.
Maintaining double-digit comps indefinitely is unrealistic.
Inventory is growing
Inventory reached approximately $941 million, up from about $800 million a year earlier.
Some increase is natural with more stores and higher sales, but merchandise needs to keep turning.
A slowdown could leave the company with excess seasonal or trend-driven products requiring markdowns.
The valuation has already recovered
You are no longer buying the distressed turnaround story that existed when sentiment was much worse.
Strong execution is increasingly reflected in expectations, which means future misses could produce bigger reactions.
My Take
Buy on pullbacks. Five Below has moved beyond simply fixing last year's problems. Comparable sales are up double digits for five straight quarters, customer traffic is strong, new stores are performing, adjusted earnings are growing much faster than revenue, and management just raised its annual outlook substantially.
The key risk is assuming the current growth rate lasts forever. Trend-driven retail can cool quickly, and the stock now demands continued execution. I would use normal weakness to build your position rather than chase the immediate earnings reaction.
Action Recap
🛍️ Looking to buy? Buy on pullbacks. The turnaround has real operating momentum, but expectations are rising with it.
📈 Already own it? Keep holding while traffic stays strong, comps remain positive, and new-store returns hold up.
⚠️ Main risk to respect: Do not mistake the tariff refund for recurring profit. The adjusted earnings trend is the number that matters.
You Read This Far. Here's Where the Real Work Lives.
We run three live portfolios on Autopilot, and everything about them is public: every position, every allocation, every trade, visible the moment it happens.
We keep our own money in each one, because analysis you won't fund yourself is just content.
THE UNBREAKABLE STACK
Our growth book: durable software and cybersecurity names built to compound quietly for years.
THE HORMUZ PREMIUM
Our energy thesis: built for how that sector actually pays, over quarters, not headlines.
THE SQUEEZE
The defensive sleeve: staples and steady compounders, boring on purpose, built for the nights you'd rather sleep than watch futures.
And here's the part that makes it effortless: Autopilot does the trading for you. Connect the brokerage you already use (Robinhood, Schwab, Fidelity, and more) and every move we make gets mirrored in your own account automatically.
Your money never leaves your brokerage. It stays in your account, under your control, and you can override any trade or disconnect anytime. Autopilot even rebalances automatically when allocations drift, and you get a notification every time something happens.
No watching tickers. No timing entries. No fat-finger mistakes at market open. You pick the portfolio, we do the work, your account follows along.
Pick the one that fits your risk level, or run all three:
Live portfolios, real positions, our own capital at stake. Your funds stay in your own brokerage account. Past performance doesn't guarantee future results.
That’s all for today. Thank you for reading. If you have any feedback, please reply to this email.
Best Regards,
— Adam Garcia
Elite Trade Club
Click here to get our daily newsletter straight to your cell for free.
P.S. Just like this newsletter, it's 100% free*, and you can stop at any time by replying STOP.
