Bernstein initiates coverage on Five Below with Market-Perform rating

Investing.com-- Bernstein initiated coverage on discount retailer Five Below Inc (NASDAQ:FIVE) with a Market-Perform rating and a price target of $160, citing early signs of a turnaround but cautioning that it was too soon to declare success.

The brokerage noted that Five Below struggled with weak comparable sales growth and margin pressure after the COVID-19 pandemic, prompting a management shake-up in 2024. The new leadership focused on simplifying pricing, reducing product variety, improving merchandising, and slowing the pace of store openings to strengthen its core business.

Recent results showed improvement, with comparable sales rising 7% in the first quarter and 12% in the second. However, Bernstein argued that much of the momentum stemmed from temporary factors, including tariff-driven price increases, the closure of rival Party City stores, and reduced competition from online retailer Temu.

Founded in 2002, Five Below grew rapidly by targeting teens and pre-teens with low-priced discretionary products. It operated 1,858 stores as of the second quarter of 2025, but Bernstein estimated a total addressable market of around 5,600 U.S. locations. Still, inflation has weighed on new store economics, leading the company to moderate its expansion to roughly 175 stores annually, compared with higher double-digit growth historically.

Bernstein pointed out that the stock’s valuation had rebounded to its historical average of about 30 times earnings, supported by the brand’s appeal to younger consumers and strong unit growth. But with slower store expansion and lingering uncertainty around merchandising execution, the analysts recommended waiting for clearer signs of sustainable improvement.

Five Below’s shares closed at $146.96 on September 15, implying a potential 9% upside to Bernstein’s target.

Five Below, along with other discount retailers such as Dollar General Corporation (NYSE:DG) and Dollar Tree Inc (NASDAQ:DLTR), have benefited from an increasing number of cost-conscious customers this year, especially as consumers fretted over the inflationary impact of President Donald Trump’s trade tariffs. Tariff-related disruptions in popular online shopping platforms, especially China-based Temu, also drove more customers towards discount stores.