On Tuesday, Citi adjusted its outlook on Five Below (NASDAQ:FIVE), a popular discount retailer, by reducing the stock's price target from $92.00 to $85.00. The firm has decided to keep a Neutral rating on the shares.
The adjustment comes as Citi anticipates Five Below to report second-quarter earnings per share that align with expectations, following a revision of guidance issued in mid-July. This revision coincided with the announcement of CEO Joel Anderson's departure.
Management had indicated a drop in customer traffic in July and acknowledged challenges with their pricing strategy, which seemed to particularly affect their lower-income consumer base.
With these factors in mind, it is expected that the company will revise its fiscal year 2024 guidance downward and discuss strategies to enhance their value proposition, potentially through price investments.
Citi also foresees the possibility of management reevaluating the company's long-term store expansion plans due to the current business downturn. For investors, the projection of earnings for fiscal year 2025 is a significant point of interest.
Citi's estimate for Five Below's earnings per share in fiscal year 2025 is notably lower than consensus, sitting at $4.42 compared to the average forecast of $5.27.
In other recent news, Five Below has experienced a series of significant changes in its financial outlook and leadership. The company reported a 12% increase in total sales, reaching $811.9 million, despite an anticipated decrease in comparable store sales of 6%-7% for the quarter. Five Below also revised its earnings per share (EPS) forecast downward, from the previously anticipated range of $0.57 to $0.69, to between $0.53 and $0.56.
CEO Joel Anderson stepped down, with COO Ken Bull assuming the role of Interim President and CEO. This leadership transition prompted several analyst firms to adjust their outlook on Five Below.
Deutsche Bank (ETR:DBKGn) downgraded the stock from Buy to Hold and slashed the price target to $79. KeyBanc, Craig-Hallum, and Loop Capital made similar adjustments to their price targets while retaining their ratings.
William Blair downgraded Five Below's stock from Outperform to Market Perform, while Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC), and Guggenheim revised their price targets for Five Below. These recent developments highlight the ongoing changes within Five Below.
InvestingPro Insights
As Five Below (NASDAQ:FIVE) navigates a challenging retail landscape, real-time data from InvestingPro provides a snapshot of the company's financial health and market sentiment. The retailer's market capitalization stands at $4.25 billion, suggesting a substantial presence in the discount retail sector. Despite a recent significant return over the last week, with a 15.2% price total return, the stock is trading at a high P/E ratio of 14.5 relative to near-term earnings growth, indicating that investors may be expecting higher future earnings relative to the current stock price.
From a liquidity perspective, Five Below's liquid assets exceed its short-term obligations, which may provide some stability in a volatile market. However, the company's price has seen a notable decline over the past year, with a 59.78% drop in the one-year price total return, reflecting the broader concerns highlighted by Citi regarding customer traffic and pricing strategy challenges.
InvestingPro Tips further reveal that analysts predict the company will be profitable this year, which aligns with Citi's outlook, despite their lower earnings per share estimate for fiscal year 2025. Additionally, the company does not pay a dividend to shareholders, which could influence the investment strategies of income-focused investors. For those seeking a deeper analysis, InvestingPro offers additional insights with over 18 analysts having revised their earnings downwards for the upcoming period, which can be further explored at InvestingPro's dedicated page for Five Below.
For investors evaluating Five Below's prospects ahead of its second-quarter earnings report, these metrics and insights could prove valuable in assessing the company's position and potential strategies for growth and recovery.
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