Five Below CEO Highlights Struggles of Lower-Income Consumers Amid Inflation

Economic Pressures on Lower-Income Consumers

During an earnings call on Wednesday, Anderson emphasized the challenges faced by lower-income customers. “The lower-end customer is really being stretched,” he said. “We’ve got to deliver value, and we’ve got to really display that in how we go to market, and when you walk in the store, what you see. But all that’s in flight right now, and [we] expect to see some of those changes improve by back half of the year.”

Five Below reported that its revenue for the first quarter of fiscal 2024 fell short of expectations, and the company provided weak revenue guidance for the second quarter and the full year. This news caused shares to plummet nearly 11% on Thursday, reaching a new 52-week low. The retailer has seen a decline of more than 44% in 2024.

Shifting Consumer Behavior

Anderson noted that consumers are becoming more discerning with their spending, increasingly focusing on essential purchases. “Consumers were more discerning with their dollars, increasingly buying to need,” he said. The company observed that shoppers were purchasing more items in the “consumable” categories such as candy, food and beverages, beauty, and health products.

Interestingly, the Five Beyond section of the stores, which offers products priced above $5, performed the best among lower-income household stores. This suggests that when consumers perceive value in higher-priced products, they are willing to stretch their dollars further.

Lagging Consumer Sentiment

Despite some improvements in certain areas of the U.S. economy, consumer sentiment remains low. The University of Michigan Survey of Consumers reported a drop of more than 10% in consumer sentiment in May. Additionally, over half of Americans incorrectly believe that the country is currently in an economic recession.

“The quarter solidified that consumers are feeling the impact of multiple years of inflation across many key categories, such as food, fuel, and rent, and are therefore far more deliberate with their discretionary dollars,” Anderson said.

Future Outlook

As Five Below navigates these challenging economic conditions, the company is focusing on delivering value to its customers. Anderson expressed hope that ongoing changes in their market strategy will begin to show positive results by the second half of the year. However, the economic pressures on lower-income consumers highlight the broader financial challenges many Americans continue to face.