The management at Five Below (NASDAQ: FIVE) changed the inventory that was being sold on its shelves to appeal more to its teenage customers who are following current trends.
The strategy paid off for the retailer as revenue during the second quarter rose by double digits to reach $1.26 billion from $1.03 billion, a gain of 22.9% while comparable sales increased by 14.1%.
Five Below reported net income of $221.4 million compared to $42.8 million in the second quarter a year ago.
The stock is up by 63% over the past 12 months.
The demand from its customers for both squishy and slime toys was extremely high as its marketing efforts resonated with customers, said CEO Winnie Park. Growth also occurred through its various geographies, product categories and customers, she added.
“What we did last year was first put that maniacal focus on the customer, who is our customer, and got really intimate with what it means to be Gen Alpha, Gen Z and a millennial parent and what their needs are,” she said during an investor call. “We remerchandised and we really kind of took a step back and up and thought about not just merchandising items and chasing great one-off ideas but how do we do our job telling really great stories and curated product stories that are grounded in what’s happening out there, especially in social media.”
Five Below is a discount retailer that sells a variety of items ranging from home decor objects to toys and games, plus school supplies and arts and crafts that are typically $5 each. Some of its higher-priced items such as its sports equipment sells for as much as $30.
Social media marketing captures trends
Management also invested heavily in its social media channels to appeal to its younger customers that are as young as Gen Alpha and include the older Millennial generation.
Using social media to appeal to its customers was more effective than commercial channels since Five Below could take advantage of current popular trends, she added.
“Our ability to identify, pursue, and scale trends is a meaningful competitive advantage,” Park said. “It brings new customers into the brand.”
In March during its earnings call, she said that management’s strategies to prioritize its Gen Z and Gen Alpha customers along with Millennial mothers with a more targeted social media playbook and offering delivery services were working. Five Below said all income groups were also making purchases.
The retailer opened 52 net new stores, an increase in stores of 8.8% compared to a year ago and now has a total of 2,022 stores in 46 states.
“Five Below continues to defy broader concerns about a shaky consumer backdrop, especially against increasingly tough comparisons,” wrote William Blair analysts in a research note. “We believe the momentum is sustainable as traffic gains continue to be the key driver behind outsized comp growth and the company is still in early days of its efforts to revamp its merchandising, marketing, and omnichannel initiatives, which should drive solid growth in retention and new customers.”
Management increased its guidance for 2026 sales to reach $5.63 billion to $5.71 billion compared to its previous estimate of $5.4 billion to $5.48 billion. The new outlook is the second time management increased its guidance in 2026.
Revenue for the third quarter is anticipated to continue growing. For the third quarter, the company estimates revenue to grow between $1.21 billion to $1.23 billion and while Wall Street analysts forecast revenue to reach $1.15 billion and earnings of 85 cents a share.
Despite concerns about the outlook of the economy, consumers at Five Below continue to find the discount store an attractive store to shop as management follows the latest trends to sell popular items.
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