Five Below on Thursday reported that second quarter net sales rose 22.7% year over year to $347.7 million as comparable sales rose 2.7%.
Net income in the quarter rose 49.1% to $25.1 million from $16.8 million a year ago, as operating income rose 15.7% to $30.4 million from $26.3 million last year, according to a company press release.
The discount retailer opened 34 new stores, adding Arkansas to its nationwide reach, and ended the quarter with 692 stores in 33 states. That represents an 18.5% increase of its footprint from the end of the same quarter last year, the company said. In the first half of 2018, Five Below opened a total of 67 new stores, just over half of the planned 125 store openings for the year, CEO Joel Anderson told analysts, according to a conference call transcript from Seeking Alpha. About 50 more stores will be added this quarter, he said.
Five Below always benefits from runaway trends like last year’s fidget spinner craze, but Anderson says the company is smart and capable enough not to depend on that.
“While we will not have a craze or license trend in every quarter, we will almost always have relevancy trends such as slime, squishy, spa and mermaid, which continued in the second quarter this year,” he told analysts on Thursday. “Our growing scale and improving merchandising capabilities enable us to quickly identify trends and the diversity of our eight worlds allows us to capitalize on many different trends, large and small that our teams effectively manage. Flexibility is indeed a key strength of our model.”
But stores are also successful because the company is using them for special events and offers that can’t be had online, like a spa event for Mother’s Day. The company has also rolled out a new store format that Anderson said is attracting customers. In addition to adding stores to its footprint, the company has remodeled about a dozen of its older stores, he said.
The retailer is also one among many profiting from the demise of Toys R Us and has taken note of new toy sale trends in its stores to tweak marketing and merchandising this fall, according to Anderson. Thanks to its growing number of stores, toy vendors also increasingly see Five Below as a sales opportunity, he said.
“We think of the toy opportunity just like we think of any other trend,” he said. “And so, certainly while this trend emerged largely due to the displacement of Toys R Us, there are customers out there looking for new toy resources. And so we largely think of this as permanent.”
The company has added more dorm products this year as part of its back-to-school push, Anderson also told analysts.