Five Below Inc., a teen-centric discount retailer, is taking measures to combat theft after experiencing higher-than-expected losses due to theft, fraud, or employee error, known in the industry as “shrink.” CEO Joel Anderson announced during the earnings call that they plan to limit self-checkout services, with the goal of having 75% of transactions assisted by an employee and eventually reaching 100% in stores at higher risk of theft. Other measures include increased staff and security, checking receipts, and utilizing traditional checkout stations.
Anderson acknowledged that theft has become a societal problem, especially over the past year, but emphasized that addressing it would take time. Despite strong sales, the company’s profitability suffered due to these shrink-related challenges, leading to earnings at the lower end of their guidance range.
Shares of Five Below fell by 12% after hours following the earnings report, which also forecasted full-year profit and sales below Wall Street expectations. The company expects full-year net sales of $3.97 billion to $4.07 billion, driven by the opening of new stores and same-store sales expected to be flat to up 3% compared to the previous year. Earnings per share are forecasted to be $5.71 to $6.22.
The company’s fourth-quarter results missed estimates, with net sales increasing by 19.1% year over year to $1.34 billion, and earnings per share at $3.65 compared to $3.07 in the prior-year quarter. Analysts had anticipated earnings per share of $3.78 on revenue of $1.35 billion.
The retail industry has been grappling with theft issues, including organized retail crime, although measuring the financial impact can be challenging. Some analysts suggest that retailers might be emphasizing theft to divert attention from other challenges like weaker demand for certain products. Despite efforts to combat theft, Five Below’s financial outlook remains below analyst expectations.