On Thursday, a Craig-Hallum analyst adjusted the stock price target for Five Below (NASDAQ:FIVE), a specialty discount retailer, to $187 from a previous $195, while keeping a Hold rating on the stock. The revision follows the company's fourth-quarter earnings per share (EPS) falling short of analysts' heightened expectations due to significant inventory shrinkage, which negatively impacted margins.
The company's provided guidance for the first quarter and full fiscal year 2024 also did not meet expectations, partly attributed to slower tax refunds and anticipated continued effects from shrinkage throughout most of the fiscal year.
According to the analyst, the guidance miss could be one of the most substantial in over a decade since the company went public. The earnings call highlighted efforts to mitigate shrinkage, including increased staffing and moving away from self-checkout systems, which are expected to raise selling, general, and administrative expenses (SG&A).
The analyst expressed confidence in the management team's ability to find a balance that would restore operating margins above 11%. Still, there is a concern that earnings projections for fiscal year 2025 might be overly optimistic. There are also risks associated with the shorter holiday shopping season that could potentially constrain guidance upside.
Investor sentiment is anticipated to reflect heightened risk perception, which may lead to a contraction in the stock's multiple until there is clearer evidence that margin pressures have reached a floor. The Hold rating is maintained, and the stock price target is adjusted accordingly to reflect these challenges and uncertainties.
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