On Thursday, Craig-Hallum upgraded shares of Five Below (NASDAQ:FIVE) from Hold to Buy, while reducing the price target to $102 from $108. The decision followed the company's release of full second-quarter results and second-half 2024 guidance, which were received more positively than expected.
The upgrade was motivated by a number of factors, including sustained customer engagement as evidenced by positive store traffic and improving same-store sales (SSS) in the past month. All stores remaining profitable was highlighted as a testament to the strength of the business model. The analyst also cited the ease of SSS comparisons in the fiscal year 2025 as a potential catalyst for accelerating comparable sales.
Additionally, the analyst noted improvements in shrink-related issues and a planned slowdown in store growth, which could lead to same-store sales trends turning around and potential savings in selling, general, and administrative expenses (SG&A). The firm expressed confidence in the company's ability to address previous challenges by simplifying operations and returning to its foundational focus on value and product novelty, while also reducing the number of stock-keeping units (SKUs) offered.
The revised price target of $102 implies approximately 30% upside from the closing price on August 28, 2024. The analyst concluded with a strong outlook on the stock's potential, suggesting that Five Below is more likely to see its share price double to over $150 than to drop to $60, indicating an asymmetric risk/reward profile.
In other recent news, Five Below's second-quarter earnings per share fell 36% to $0.54, matching expectations, and revenue came in at $830.1 million, slightly above analyst estimates of $821.91 million. However, comparable store sales decreased by 5.7%, a decline less severe than the anticipated 6.6% drop. Truist Securities has cut its price target for Five Below to $87, maintaining a hold rating due to concerns about the retailer's upcoming months and issues with its merchandising strategy.
Meanwhile, Telsey Advisory Group lowered its price target to $102 from $120, citing operational challenges but maintaining an Outperform rating. Guggenheim maintained a Buy rating with a price target of $125, highlighting the company's strategic plans, merchandising team, and potential for a rebound.
In response to these developments, Five Below has begun an in-depth analysis to address internal issues related to merchandising, pricing, and operations. The company aims to make substantial progress by spring or summer of 2025 while refocusing on delivering a value-leading assortment to its core pre-teen and teen customer base.
InvestingPro Insights
Following the upgrade from Craig-Hallum, current metrics from InvestingPro show that Five Below (NASDAQ:FIVE) has a market capitalization of $4.35 billion and a P/E ratio of 15.52, which is considered high relative to its near-term earnings growth. Despite the recent price decline, with the stock falling significantly over the past year, analysts remain optimistic about the company's profitability, predicting profitability for this year. Additionally, the company's liquid assets are reported to exceed short-term obligations, suggesting a strong liquidity position.
InvestingPro data highlights that Five Below has experienced a 15.24% revenue growth over the last twelve months as of Q1 2025, which aligns with the analyst's positive outlook on the company's ability to drive sales. However, the stock has taken a substantial hit over the last six months, with a price total return of -60.66%. Despite this, the company's gross profit margin stands at a healthy 35.74%, indicating efficiency in managing its cost of goods sold.
For investors seeking to delve deeper into the company's performance and potential, there are additional InvestingPro Tips available at InvestingPro's dedicated page for Five Below. These tips may provide further insights into the company's valuation, financial health, and market sentiment.
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