Philly-based Five Below stores poised to join billion dollar club

The Five Below empire built on $5 items is humming along.

The concept is to give tweens and teens their own department store with everything $5 or less - such as toys, candy, clothes, cellphone accessories, and bedroom decor - and see how it flies.

Those same youngsters will propel the Philadelphia-based discount retailer to reach $1 billion in sales by year's end.

Five Below opened two more stores Friday in Northeast Philadelphia to take its network to more than 500.

It launched www.fivebelow.com eight weeks ago to sell products online for the first time in its 14-year history. The company is late to online sales because it has been laser-focused on building up its physical stores.

With all that, the stock hasn't been a barnburner. Five years ago, the price was at $27. Now it's about $35.

Still, "we think it's one of the best growth stories in retail," said Jeremy Hamblin, senior research analyst with Dougherty & Co. in Haddonfield.

John Yozzo, managing director in the corporate finance segment at FTI Consulting, said it is unusual for any retailer to grow by 20 percent a year.

"There's been no operating shortfall to account for the stock [performance]," he said. "The market is generally nervous about retail and one that says it is going to grow this aggressively. Their story is predicated on opening 80 stores a year and replicating what they've done with the same success. Conceptually, it's an appealing story and they've executed."

CEO Joel Anderson just signed a 15-year lease with a 15-year option to renew for space in the Lit Bros. building at Seventh and Market Streets in Center City.

It will become his company's new corporate headquarters with killer views of the city they've called home.

"Look how wide those insets are," said Anderson, as he inspected the exposed-brick walls and high ceilings, where the legendary Lits Building made its mark. Five Below will take up spaces on the second, third, and sixth floors, as well as a new 14,000-square-foot store facing Market Street. "You don't see construction like that anymore."

Anderson said the company's old space at 1818 Market St. was no longer sufficient given how fast it was adding stores and employees.

So the new digs, he said, were for his army of more than 300 associates that's growing on average by 50 per year. Their new office will be ready by early 2018.

Last week, Anderson flitted around the 700,000-square-foot building and had its history and layout down pat. He said it was really 13 buildings cobbled together.

"You've got the vortex of the PATCO line on Market, the Frankford line and Jefferson Station, and a huge parking garage attached," he said. "It's really the only place where you can marry the walkers, car commuters, bus riders, and Regional Rail commuters.

"It will be an awesome location for us and fun to set up shop and call that home for decades to come."

Five Below marked the opening of its 500th store, outside Allentown, on Sept. 9."When you think about how new this concept is, we are only 14 years old, and five years ago, our revenues were $250 million," Anderson said. "We'll finish this year with $1 billion in revenues."

In an August conference call with Wall Street analysts, Anderson was upbeat. "We envision 20 percent top-line [revenue] growth, and 20 percent bottom-line [profits] growth, all the way to 2020. We are going to open 85 stores this year. We are now in 31 states and just entered Minnesota. We will enter California next spring, in the Los Angeles area, which will be a great new market for us."

If you drive to any shopping center in this region, chances are it will have a Five Below. "It's a fun, vibrant place with a lot of sensory overload, where kids and moms can shop without breaking the bank," said Anderson, wearing a blue Five Below jacket and jeans. "And one that allows kids to spend their own money. Our goal is to continue to be successful with our ability to celebrate the rituals and milestones of growing up."

Five Below opened a two-story flagship store at 1529 Chestnut St. last fall, another nod to the hometown, Anderson said. It has since opened 80 more stores. It recently added ones in Levittown and Wayne. The pair that debuted last Friday were on Cottman Avenue and in the Northeast Town Center.

"We're now at $1 billion, and over the next five years we expect that to grow to $2 billion," Anderson said. "We hope to double our number of stores from 500 to 1,000 by 2020.

"We still have not reached our peak yet."

Anderson just returned from a weeklong trip to Asia last month where he toured factories in India, Vietnam, Hong Kong, and China.

"About a third of our products are imported, and we are constantly sourcing new factories, new countries, trying to get as close to the source as possible so that we can keep our prices as low as possible," he said. "If we don't do that, we can't stay below that $5 threshold."

On moving to the Lits building, he said: "It's a special building with a hundred years of history, where it was the center of retail commerce for the city, anchored by the Lit Bros.

"It's so uncanny that fast-forward, you have an up-and-coming retailer like Five Below to call it home and reinvent it back to its retail roots and become another center of commerce for Philly."

sparmley@phillynews.com

215-854-4184@SuzParmley