Brandon Ferro
Long/short equity, hedge fund analyst, special situations, macro

Deterioration In Gross Margins, Inventory Productivity And Technicals Suggest Beginning Of The End For Five Below

Since 2012, Five Below (NASDAQ:FIVE) has posted an alarming, sustained and worst-in-class deterioration in gross margins and inventory productivity. Peculiarly, this has occurred alongside what many would call a best in class string of uninterrupted (albeit rapidly decelerating) quarterly comp growth and new store productivity (NSP) of 100%+. How to reconcile? Simple - FIVE has been forced it into a strategy of "buying" traffic and sales. Why would the company pursue this strategy? Also simple - to offset the concept's inherent weaknesses and instead, convince the investment community of its long-term merit and growth potential, thereby generating the nose-bleed valuation (average of 40X EV/EBITDA since IPO) that has allowed insiders to liquidate the vast majority of their holdings...

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