On Wednesday, BofA Securities adjusted its outlook on Five Below (NASDAQ:FIVE) sales, reducing the price target from the previous $125.00 to $104.00 while keeping a Neutral rating on the stock.
Five Below reported sales growth of 9.5% but a 5% decline in comparable store sales for the quarter to date, which spans 10 weeks up to July 13. The company has revised its second-quarter sales and earnings per share (EPS) forecasts downward, now expecting sales between $820 million and $826 million—down from the prior range of $830 million to $850 million.
Comparable store sales are anticipated to drop by 6-7%, a steeper decline than the previously mentioned mid-single-digit (MSD) decrease. EPS projections have also been lowered to the range of $0.53 to $0.56, compared to the earlier forecast of $0.57 to $0.69 and the consensus estimate of $0.63.
The retailer attributes the subdued forecast to challenges faced by low-income consumers and execution issues related to its product offerings. In response to these developments, BofA Securities has revised its second-quarter sales and EPS estimates for Five Below.
The firm now expects sales to be around $821 million, a 2% cut from previous estimates, and EPS to be approximately $0.54, reflecting a 13% reduction. This is based on the expectation of a 7% decrease in comparable store sales, which is worse than the earlier prediction of a 5% decline.
The new price objective of $104 is based on 18 times the fiscal year 2025 EPS estimates, which is a reduction from the previous valuation of 21 times. The adjustment reflects not only the lowered earnings expectations but also a more challenging sales outlook for Five Below.
This change in guidance and the subsequent adjustment in the share price target reflect the current pressures on the retail sector, particularly affecting companies that serve cost-conscious consumers.
In other recent news, Five Below has experienced significant changes in both leadership and financial outlook. CEO Joel Anderson has stepped down, with COO Ken Bull stepping in as Interim President and CEO. This shift in leadership coincided with a revised outlook from Telsey Advisory Group, which adjusted its price target on Five Below's shares to $120 from $155.
Several other firms, including Citi, Truist Securities, Morgan Stanley (NYSE:MS), and Loop Capital, have also revised their stance on Five Below. These revisions include downgrades in stock ratings and reductions in price targets.
Recently, Five Below reported a 12% increase in total sales, reaching $811.9 million, despite a slight 2.3% dip in comparable store sales. However, the company now expects a comparable sales decrease of 6%-7% for the quarter, along with earnings per share (EPS) between $0.53 and $0.56.
At the company's Annual Meeting of Shareholders, nine directors were elected to the board and KPMG LLP was ratified as the company's independent auditor. Looking ahead, Five Below anticipates Q2 net sales between $830 million and $850 million, with full-year sales forecast between $3.79 billion and $3.87 billion. The company maintains a strong liquidity position with $370 million in cash and no debt. These are recent developments for Five Below.
InvestingPro Insights
As Five Below (NASDAQ:FIVE) navigates through a challenging retail landscape, current metrics and analyst insights offer a clearer picture of its performance and potential. With a market capitalization of $5.62 billion, the company trades at a P/E ratio of 18.97, suggesting a high valuation relative to near-term earnings growth. Despite recent downward revisions in earnings by analysts, InvestingPro Tips indicate that Five Below's liquid assets are well-positioned to cover short-term obligations, potentially providing some financial stability in a volatile market. Additionally, the company's moderate level of debt and its ability to remain profitable over the last twelve months are positive signs for investors considering the stock's future prospects.
InvestingPro Data shows a 15.24% revenue growth over the last twelve months as of Q1 2023, which may be a silver lining for the company amid its revised forecasts. However, investors should note that the stock is trading near its 52-week low, and its price has experienced a significant drop over the last three months. For those looking for a more comprehensive analysis, InvestingPro offers additional tips, including predictions by analysts that Five Below will be profitable this year. To explore these insights further, visit https://www.investing.com/pro/FIVE and use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. With 9 additional InvestingPro Tips available, investors can delve deeper into the company's financial health and market position.
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