Five Below's Future Bright Despite Shrink Headwinds, Analysts Say

Analysts have lowered the price target of specialty discount store chain Five Below Inc FIVE after the company reported its fourth-quarter FY23 earnings.

Mizuho Securities: Analyst David Bellinger reiterated a Buy rating on the shares of Five Below and lowered the price target from $225 to $215.

Despite a stronger comp sales gain of +3.1% in the period, weaker margins led to earnings per share of $3.65 or at the lower end of guidance for $3.64 – $3.80.

FIVE continues to grapple with elevated levels of product theft and has not seen a material improvement since implementing new initiatives in August/September, noted the analyst.

The midpoint of FY24E guidance for $5.71-$6.22 sits about (8%) below a consensus of $6.46 and the analyst sees operating margins tracking flat to slightly up at 10.9% for the year, with improvements in the second and third quarters.

Any near-term dislocation in shares screens as an opportune entry point, as per the analyst.

J.P. Morgan: Analyst Matthew R. Boss reiterated an Overweight rating and lowered the price target from $222 to $215.

According to the analyst, management sees the quarterly cadence of second quarter-fourth quarter same-store-sales as unchanged while 1Q24 SSS are expected to be flat to +2%.

Also, management clarified further normalization/support of tax refunds through the balance of the quarter could translate to same-store-sales at the high end of the flat to 2% SSS guidance, said the analyst.

The analyst sees high visibility to +20% annual net income growth based on mid-teens unit growth with new store returns the sole governor, low-single-digit comps on positive store traffic & Five Beyond rollout, and margin expansion driven by scale with today's +2% fixed cost hurdle.

Telsey Advisory Group: Analyst Joseph Feldman reiterated an Outperform rating on the shares and lowered the price target from $230 to $220.

Five Below's 4Q23 earnings and guidance for 1Q24 and FY24 missed expectations, primarily due to higher-than-anticipated pressure from shrink, said the analyst.

The company is taking active steps to mitigate shrink, including shifting to traditional associate checkout and/or assisted self-checkout, noted the analyst.

The analyst expects these mitigation efforts to work as the year progresses and believes the shrink pressure will prove somewhat transitory.

Five Below also has a long runway of growth ahead as it progresses on its Triple-Double strategy, which aims to triple the store base to 3,500+ by 2030, concluded the analyst.

Price Action: FIVE shares are trading lower by 15% at $177.57 on the last check Thursday.