On Thursday, Telsey Advisory Group adjusted its outlook on Five Below (NASDAQ:FIVE) shares, a discount retailer listed on NASDAQ:FIVE, by reducing the price target from $220.00 to $155.00, yet maintaining an Outperform rating.
This adjustment follows Five Below's report of weaker-than-expected earnings for the first quarter of 2024 and a downward revision of its full-year guidance.
The company experienced a significant drop in comparable store sales (comps) post-Easter, entering into negative mid-single-digit (MSD) territory. This downturn was observed across all regions and was particularly acute among lower-income customers.
The decline was exacerbated by the fading of previously popular trends such as Squishmallow, which had boosted past performance.
However, some resilience was seen in the consumable categories and from higher-income shoppers, who contributed to market share gains.
In response to the challenging quarter, Five Below has projected that these trends will persist into the second quarter of 2024 and throughout the remainder of the year.
Consequently, the retailer anticipates comps of negative MSD for the second quarter and a decrease between 3.0% and 5.0% for the entire year of 2024. To mitigate these headwinds, Five Below is implementing strategies aimed at enhancing customer engagement.
These initiatives include expanding its inventory of trend-right consumables and Five Beyond items, piloting new lower pricing in approximately 100 stores in preparation for a more extensive rollout, and introducing assisted self-checkout systems to reduce shrinkage.
Additionally, the company is trialing a new marketing campaign in a specific region and is working on refining its cost structure, which is expected to yield savings in 2024 and beyond.
In other recent news, Five Below reported first-quarter earnings and revenue that fell short of Wall Street expectations. The company posted adjusted earnings per share (EPS) of $0.60, missing the analyst consensus of $0.63, and revenue of $811.9 million, below the expected $835.01 million.
Despite a significant increase in net sales compared to the previous fiscal year, Five Below saw a decrease in comparable sales and operating income.
In response to these developments, several firms have adjusted their outlook on Five Below. Truist Securities reduced its price target for Five Below shares to $176 while maintaining a Buy rating, suggesting that the company might be overestimating shrinkage pressures.
JPMorgan downgraded the stock from Overweight to Neutral and lowered the price target to $170.00, citing a shift in the company's growth dynamics. UBS also lowered its price target to $245, yet maintained a Buy rating, following the retailer's fourth-quarter earnings report.
Craig-Hallum analyst, on the other hand, adjusted the stock price target to $187 and kept a Hold rating due to significant inventory shrinkage and slower tax refunds.
Despite the challenges, Five Below remains committed to expansion, planning to open approximately 230 new stores by the end of the year.
These are the recent developments surrounding Five Below, providing investors with a snapshot of the company's current situation.
InvestingPro Insights
In light of the recent performance and strategic adjustments at Five Below, real-time data and InvestingPro Tips offer additional context for investors considering the company's prospects. Five Below's market capitalization currently stands at $7.33 billion, with a P/E ratio of 24.43, reflecting a valuation that is high relative to near-term earnings growth. Despite the challenges faced, the company's liquid assets surpass its short-term obligations, providing some financial flexibility in a turbulent retail environment.
InvestingPro Tips suggest caution due to several analysts revising their earnings estimates downwards for the upcoming period and the stock trading at a high Price / Book multiple of 4.62. Nevertheless, it's worth noting that Five Below is expected to remain profitable this year and has been profitable over the last twelve months, with a revenue growth of 15.7% in the last twelve months as of Q4 2024. Moreover, the stock price has experienced a significant decline over the past three months, currently trading near its 52-week low, which may present a potential entry point for long-term investors.
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