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Five Below Plunges 10% on a Trump Landslide: Are Tariffs on the Way?

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Donald Trump is back at the White House, joining Grover Cleveland as the only other President in U.S. history to return to office after a gap of four years. With him comes his policy promises to curb foreign imports by raising tariffs on foreign goods. Five Below, Inc. (FIVE - Free Report) , a popular discount store chain, saw a 9.9% plunge in its stock price on news of Trump’s win.

To understand this, we have to dial back a bit. In August 2023, the former President, or more accurately the current President-elect, said in an interview on Fox Business that “When companies come in and they dump their products in the United States, they should pay, automatically, let’s say a 10 percent tax. I do like the 10 percent for everybody.”

Now there's a reason the markets soared on Trump winning the election. Market participants widely expect a cohort of tax cuts from the incoming government. These cuts, on the other hand, would be offset by the tariffs proposed by Trump. In recent days, Donald Trump has proposed to keep this tariff between 10% and 20% on all imports, with significantly higher levies, like 60-100%, on imports from China.

Earlier this week, a study from the National Retail Federation (“NRF”) showed that U.S. shoppers could lose up to $78 billion in annual spending power if Trump's new tariffs proposal on imports were to be implemented. The study found that apparel, toys, furniture, appliances, footwear and travel goods are items for which China is a major supplier and could be most affected.

While Five Below has been struggling with higher selling, general and administrative costs for some time now, Trump’s comprehensive win made a real dent in the company’s stocks. The company is known to sell products targeted toward teens and preteens, most of which are priced below $5.

But even before yesterday, management had expected the likelihood of a scenario of higher tariffs due to political change and had mentioned in its annual report that "Increased tariffs as well as any newly imposed tariffs on items imported from China or elsewhere would likely result in lower gross margins on impacted products." This means that the company was assuring consumers it would take a margin hit rather than raising prices. Market participants do not seem to have taken kindly to the suggestion.

Five Below is a Zacks Rank #3 (Hold) company and is part of the Zacks Retail – Miscellaneous industry. Target Corporation (TGT - Free Report) and Dollar General Corporation (DG - Free Report) are two other discount stores. Both companies are currently ranked #2 (Buy). While Target’s stocks fell 2.5% on the news of a Trump win, Dollar General’s shares declined 5.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to track retail discount stores. While the holiday season is knocking at the doors, Trump has managed to stir up the retail sector with his tariff plans. Whether he actually implements these plans, now that he has become President again, remains to be seen.


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