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Five Below's 3Q results drive price target increase by JPMorgan, maintains Underweight

EditorAhmed Abdulazez Abdulkadir
Published 05/12/2024, 11:26
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On Thursday, JPMorgan (NYSE:JPM) revised its price target for Five Below (NASDAQ:FIVE), a specialty discount retailer, increasing it to $110.00 from the previous $83.00. Despite the higher price target, the firm maintained its Underweight rating on the stock. According to InvestingPro data, five analysts have recently revised their earnings estimates upward, with analyst targets ranging from $75 to $125. The adjustment followed Five Below's third-quarter earnings report, which exceeded expectations.

The company reported a third-quarter earnings per share (EPS) of $0.42, which was significantly higher than both the management's guidance of $0.10 to $0.22 and the consensus estimate of $0.17. The positive results were attributed to better-than-anticipated performance across all financial metrics.

Notably, same-store sales (SSS) rose by 0.6%, surpassing the analyst's own projection of a 2.5% decline. The company, currently valued at $5.77 billion, has demonstrated strong momentum with a 12.86% return over the past week. InvestingPro subscribers can access detailed analysis of Five Below's performance metrics and 7 additional exclusive ProTips.

Additionally, Five Below saw an adjusted EBIT (earnings before interest and taxes) margin expansion of 110 basis points year over year, reaching 3.3%, compared to the Street's expectation of 1.3%.

This margin improvement consisted of a sizeable gross margin expansion of 295 basis points, which was well above the management's guidance of a 190 basis point increase. However, there was also a 185 basis point increase in SG&A (selling, general, and administrative expenses) deleverage, which was less than the management's forecasted 290 basis point guidance.

It's important to note that after accounting for a non-recurring inventory write-off adjustment of $21.2 million to the cost of goods sold (COGS), the gross margin stood at 30.7%. This figure is 145 basis points below the consensus. Consequently, the adjusted gross profit amounted to $259 million, slightly above the Street's estimate of $257 million. However, without this adjustment, the EPS would have been $0.13, falling short of the consensus estimate of $0.17.

For a comprehensive analysis of Five Below's financial health and valuation metrics, including the company's Fair Value estimate, visit InvestingPro, where you'll find detailed research reports and expert insights.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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