While Retail Struggles, This Overlooked Name Is Quietly Crushing It
After a big earnings beat, raised guidance, and continued store expansion, there’s still room for more upside. Here’s our new price target.
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Let’s face it, retail hasn’t been a great sector in 2026. In a year that has seen the S&P 500 gain over 12%, the State Street Retail SPDR (XRT), a bellwether for the retail sector, is down slightly year-to-date.
There are always bright spots in any sector, but sometimes they are easy to miss. Perhaps it was the long Labor Day holiday weekend that drew attention away from the outstanding performance of one unique, often-overlooked name in this underperforming sector.
Crushing Expectations, Raising Full-Year Estimates
Five Below (FIVE) didn’t just beat earnings expectations, it crushed them. The Philadelphia-based discount retailer earned $1.68 per share in its just-ended fiscal second quarter, destroying estimates of $1.40 by nearly 20%. Five Below’s revenues also came in above expectations, beating estimates by about 3.3%.
Equally impressive were Five Below’s adjustments to its full-year guidance. Comparable sales growth, which was expected to rise in a range from 6% to 8%, has been bumped up to a new range, between 10% and 12%. Net sales projections were raised to $5.63 billion to $5.71 billion from $5.4 billion to $5.48 billion.
Five Below’s Performance Speaks Volumes
Five Below shares have gained 31% year-to-date, far outpacing the major indexes. Over the past 12 months, the shares have gained 68%, a figure most investors wouldn’t normally associate with a brick-and-mortar retailer.
Can Five Below continue to outperform the markets? The stock is less than 3% away from its all-time high, set on August 24 (arrow).
Five Below is forming a bullish cup-and-handle pattern (shaded yellow), which suggests a further rally to the $300 area. This makes $300 our new price target for the stock.
An Amazon-Proof Business Model
Amazon (AMZN) has revolutionized the world of retail, leaving a sea of closed businesses and empty malls in its wake. However, there are still brick-and-mortar retail businesses that manage to thrive. These stores offer an in-person experience that is difficult to duplicate in an online environment.
TJX Companies (TJX) is one such name. Because shoppers never quite know what will be on the shelves in a TJX store, it becomes a treasure-hunt adventure for shopping enthusiasts.
Five Below also falls into this category. The physical stores are colorful and have a fun vibe. You will probably encounter some silly item you didn’t even know existed.
Because a visit to Five Below is fun, it’s an easy store to wander into, even if you’re not looking for a particular item. The fun vibe and constantly-changing inventory, which often piggy backs on social media trends, has created a sense of loyalty among Five Below’s younger customers.
Bucking the Trend
Perhaps that is why, in the ever-shrinking world of brick-and-mortar retail, Five Below opened 52 new stores in its just-ended second quarter. The retailer plans to open 150 stores for the full year. In July, Five Below opened its 2,000th store, with plans to expand to 3,500.
Needless to say, we’re pleased with Five Below. This fast-growing company has used its unique slant on retail to generate a loyal following, and it’s a formula that can continue to succeed. There’s nothing else out there quite like it.
At the time of publication, Ponsi was long FIVE.
