On Wednesday, Guggenheim maintained a Buy rating on Five Below (NASDAQ:FIVE) but lowered the price target to $125 from the previous $165 for the shares. The adjustment follows a challenging 2024 for the retailer, with a noticeable decline in comparable store sales (comps) in July and the unexpected departure of its long-standing CEO Joel Anderson. These factors contributed to a further ~10% drop in the company's shares after-hours.
The year-to-date performance of Five Below's stock has seen a decline of over 50%, in stark contrast to the S&P 500's approximate 19% increase during the same period. This places the company's shares at their lowest since the initial outbreak of COVID.
The transition from a 3% increase in fourth-quarter comps to a high single-digit decline is both surprising and concerning, with various macroeconomic and company-specific issues at play. The management has acknowledged challenges related to product offerings, value perception, and customer experience.
In light of these developments, Guggenheim has significantly reduced its sales and EBIT forecasts for Five Below for the years 2024-2027. This revision takes into account a scaled-back expansion plan and an increase in marketing expenditures.
Despite the reduction in the price target and the current challenges faced by Five Below, Guggenheim upholds a positive outlook on the company's business model. The firm believes that once comp growth and EBIT margin expansion are back on track, investor interest will likely revive.
In other recent news, Five Below has experienced significant changes in its financial outlook and leadership. The company has reported a 12% increase in total sales, reaching $811.9 million, despite a 2.3% dip in comparable store sales.
However, Five Below now anticipates a comparable sales decrease of 6%-7% for the quarter, along with earnings per share (EPS) between $0.53 and $0.56. This is a downward revision from the previously forecasted EPS range of $0.57 to $0.69.
CEO Joel Anderson has stepped down, with COO Ken Bull stepping in as Interim President and CEO. This leadership change followed the downgrade of Five Below from Outperform to In Line by Evercore ISI, and a significant price target reduction to $113 from $160. Other firms such as BofA Securities, Telsey Advisory Group, Citi, Truist Securities, Morgan Stanley, and Loop Capital have also revised their stance on Five Below.
The revised outlook by Evercore ISI includes a cut in the calendar year 2025 earnings per share (EPS) estimate to $5.15, reflecting the potential for a slowdown in store expansion and the need for further margin investments. These are recent developments for Five Below.
InvestingPro Insights
As Five Below (NASDAQ:FIVE) navigates a tumultuous period, real-time data and analytics from InvestingPro offer additional context for investors. The company's market cap stands at $5.62 billion, and it currently trades at a P/E ratio of 18.97, suggesting a premium valuation relative to near-term earnings growth. Despite recent challenges, Five Below's liquid assets surpass short-term obligations, indicating a degree of financial stability in the face of current pressures.
InvestingPro Tips highlight that while analysts have recently revised earnings expectations downwards and the stock is trading near its 52-week low, the company is still expected to be profitable this year, having been profitable over the last twelve months. Additionally, the price has seen a significant drop over the last three months, which may present a buying opportunity for long-term investors. For those seeking more in-depth analysis, there are additional tips available on InvestingPro, which can be accessed with a special offer using the coupon code PRONEWS24 for up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
The data also reflects a robust revenue growth of 15.24% over the last twelve months as of Q1 2025, with a gross profit margin of 35.74%, suggesting that the company maintains a strong capacity to generate earnings relative to sales. While the stock's performance has been disappointing recently, with a six-month price total return of -46.07%, the InvestingPro Fair Value estimate of $131.31 indicates potential undervaluation, which may interest value-oriented investors.
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