Episode Details

Five Below (FIVE) Q2 FY2026 — It has gone nowhere since the print, having already run 90% off its October low. Five Below reported diluted EPS of $3.99 - and $2.33 of that was a one-time IEEPA tariff refund booked inside cost of goods sold, which is why COGS FELL 5.2% while net sales rose 22.9%. Strip it out and adjusted EPS was $1.68, still up 107% and still 20% ahead of the Street, on comparable sales up 14.1%. The harder question is whether the margin expansion is a second, quieter tariff benefit - and it is not. Q1 carried no refund at all and still expanded gross margin 386bp. Per point of comp, Q2 earned LESS margin than Q1, not more. The gain is fixed-cost absorption. Which is exactly the problem, because the company's own guidance has the comp decelerating from +14.1% to the low single digits by Q4. THE CALL: HOLD (3/5, MODERATE) — base-case value ~$215.0 vs ~$241.42 today. KEY METRICS: - Net sales $1,261.5M, +22.9% YoY; comparable sales +14.1%, a fifth straight double-digit quarter - GAAP diluted EPS $3.99 vs adjusted $1.68 - the gap is a $163.6M IEEPA tariff refund ($2.33/share) - That refund was 58.3% of reported net income, and it was booked inside cost of goods sold - Adjusted gross margin 35.60% vs 33.43%; adjusted operating margin 8.97% vs 5.37% - Q1 FY2026 carried NO refund and still expanded gross margin 386bp on a +22.7% comp - Margin earned per point of comp: 17.0bp in Q1, 15.4bp in Q2 - lower, so no hidden tariff benefit - FY26 outlook raised: GAAP EPS midpoint +$3.52, but adjusted only +$1.22 - just 35% is operating - Q3 comps guided +8% to +10%; FY +10% to +12% against +18.3% delivered in H1 - $1,187.9M cash and investments, zero debt, new $600M buyback (4.5% of market cap) - 24.0x FY26 adjusted EPS guidance of $10.07 - the 19.6x GAAP multiple is inflated by the refund What to watch: the Q3 release in December - does the comp beat the +8% to +10% guide, and does gross margin still convert 15-17 basis points per point of comp Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.