Thursday, Five Below (NASDAQ:FIVE) shares experienced a reduction in its price target from $187.00 to $124.00 by Craig-Hallum, while the firm retained a Hold rating on the stock.
The adjustment follows what has been described as the company's most disappointing quarterly earnings report since it went public nearly 12 years ago. Five Below's first-quarter performance revealed a significant shortfall in sales and earnings per share (EPS).
The company also revised its full-year same-store sales (SSS) forecast downward by 550 basis points and decreased the midpoint of its EPS guidance by almost 15%.
The stock's value had already been on a downward trajectory over the past two months due to signs of weakening sales post-Easter. While a downward revision was anticipated by investors, the extent of the underperformance came as a surprise.
Contributing to the weaker comparable store sales were diminishing old trends, a lack of emerging new trends, and macroeconomic pressures that impacted discretionary spending.
The guidance reduction was characterized as aggressive, and although there is potential for upside, it is expected that the stock will undergo significant multiple compression until there is evidence that SSS have stabilized and issues related to inventory shrinkage are largely addressed.
Despite these challenges, Five Below is recognized for its substantial growth potential in terms of new store units and continues to yield exceptional returns on investment (ROI) for these expansions.
The report from Craig-Hallum suggests that while the retail chain's story and business model are not considered broken, the anticipated time needed for product assortment improvements and shrink mitigation means that recovery may not be immediate.
The firm's reiterated Hold rating and revised price target reflect a cautious outlook on the stock's near-term performance.
In other recent news, discount retailer Five Below has seen significant adjustments in share price targets by various firms following disappointing earnings results.
The company reported adjusted earnings per share (EPS) of $0.60, missing the analyst consensus of $0.63, and revenue of $811.9 million, falling short of the expected $835.01 million.
Truist Securities, Mizuho Securities, Evercore ISI, and Guggenheim have all revised their price targets for Five Below, while maintaining their ratings.
The company's recent financial performance indicated a sharp downturn in sales, leading to a significant cut in its full-year earnings outlook. Despite these setbacks, analysts believe that the current situation presents a buying opportunity for investors.
Five Below's new store expansion plan is expected to sustain mid-teen unit growth over the next few years, positioning it favorably within the brick-and-mortar retail sector.
These are recent developments surrounding Five Below, providing investors with a snapshot of the company's current situation. The company's revised forecast does not account for potential sales improvements from upcoming product launches or progress in efforts to reduce losses from theft and other forms of shrinkage.
The new price targets reflect modest adjustments from previous targets, influenced by declining sales trends and a consistent decrease in total basket size over the past eight quarters.
InvestingPro Insights
As Five Below (NASDAQ:FIVE) navigates through its current challenges, investors are closely monitoring its financial health and market position. According to InvestingPro data, Five Below has a market capitalization of $7.33 billion and is trading at a P/E ratio of 24.98, which is considered high relative to near-term earnings growth. This is further reflected by the PEG ratio of 1.59, indicating that the stock may be overvalued given the expected earnings growth rate.
The company's revenue growth remains robust with a 15.7% increase over the last twelve months as of Q4 2024, and a quarterly revenue growth of 19.15%. Despite the recent price drop, with the stock trading near its 52-week low and experiencing a significant 36.21% decline over the last three months, InvestingPro Tips suggest that Five Below's liquid assets exceed short-term obligations, which may provide some financial flexibility in the near term.
Additionally, analysts predict that the company will be profitable this year, supported by a profitable track record over the last twelve months. For investors considering this stock, it's worth noting that Five Below operates with a moderate level of debt and does not pay a dividend to shareholders. For a deeper dive into Five Below's stock performance and for access to 12 additional InvestingPro Tips, investors can visit Investing.com. Don't forget to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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