Five Below Q2 Earnings Preview: Analyst Flags Margin Decline And Softer Q3 Start As Concerns

Truist Securities analyst Scot Ciccarelli expressed his view on Five Below, Inc. FIVE ahead of the release of its second-quarter results on August 28.

The analyst expects Five Below’s second-quarter results to be in line with their lowered estimates, but top-line risks remain due to a weak second-quarter exit and a softer start to third-quarter.

Ciccarelli projects gross margins to decline to 33.6% and SG&A to deleverage by ~190bps, leading to an EBIT margin of 4.5%, down ~320bps year-over-year.

The analyst adds that pressured margin is owing to negative leverage, higher labor costs, and shrink, partially offset by lower freight and normalized incentive comp. Consequently, the analyst anticipates EPS of $0.54, down from $0.84 in the 2023 quarter.

The analyst cited the sudden CEO change, the company’s comments on self-inflicted issues, and the potential for new management to scale back unit growth as concerns.

The analyst adds that while they acknowledge the company’s strong track record in product innovation and unit economics, they are maintaining a Hold rating until gaining more clarity on the situation.

Price Action: FIVE shares are up 2.09% at $84.18 at the last check Monday.

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