On Tuesday, Mizuho Securities updated its assessment of retailer Five Below (NASDAQ:FIVE), increasing the price target on the company's shares to $90 from $85, while maintaining a Neutral rating.
The adjustment follows a recent expert call with a former high-ranking executive of the discount store chain, which provided insights into the company's current operational challenges and its potential path to recovery.
"In our view, FIVE remains very "fixable" and is setting up for a 2H25E top-line inflection," said Mizuho analysts.
The involvement of Tom Vellios, co-founder and former CEO of Five Below, has been highlighted as a significant factor in the early stages of operational improvements, particularly in the area of merchandising.
However, Mizuho Securities also noted that any operational fixes at Five Below would take time, with several obstacles to navigate in the near future. These include the uncertainty surrounding new tariffs and the extent of investment needed in labor. While the company is on Mizuho's watch list, there is caution that fiscal year 2025 might experience another downturn. This comes after a restructuring at the corporate headquarters and issues with certain product categories being perceived as outdated, including consumables, pet supplies, and apparel.
In other recent news, Five Below reported a decrease in net income, despite a 9.4% increase in total sales, which amounted to $830 million. Comparable store sales declined by 5.7%, and the company's Chief Merchandising Officer, Michael F. Romanko, is set to retire effective November 17, 2024. Craig-Hallum raised its stock price target on Five Below to $125 from the previous $102, maintaining a Buy rating, while JPMorgan downgraded the stock rating from Neutral to Underweight due to performance concerns.
Five Below plans to open between 150 to 180 new stores in 2025 as part of its strategic shift to improve operational efficiency and re-engage with its core customers.
InvestingPro Insights
Recent InvestingPro data adds depth to Mizuho Securities' analysis of Five Below (FIVE). The company's market cap stands at $5.05 billion, with a P/E ratio of 18.07, suggesting a relatively moderate valuation compared to its earnings. This aligns with Mizuho's cautious Neutral rating.
InvestingPro Tips highlight that Five Below has been profitable over the last twelve months, with analysts predicting continued profitability this year. This supports Mizuho's expectation of revenue increase in the latter half of 2025. However, the stock has taken a significant hit over the last six months, with InvestingPro data showing a 42.74% price decline in this period. This downturn reflects the operational challenges and uncertainties mentioned in Mizuho's report.
Interestingly, Five Below has shown a strong return of 15.95% over the last month, possibly indicating early investor confidence in the company's turnaround efforts, including the involvement of co-founder Tom Vellios in improving merchandising.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights that could provide further context to Five Below's financial situation and future prospects.
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