By Michael Elkins
Roth upgraded Five Below, Inc. (NASDAQ:FIVE) to a Buy rating (from Neutral) and raised their price target on the stock to $240.00 (from $180.00) as the industry sees a shift to value-oriented merchandise. The shift has taken place quicker than Roth had anticipated. Comps have improved sequentially but have not yet turned meaningfully positive. The analysts see profitability improvements coming and expect shares to outperform over the balance of the year.
Following a slow 1H22, the company’s 3Q results and sales trends showed Roth that the discount retailer’s sales trends are off the bottom and the shift to value-oriented product is taking shape. FIVE is now seeing revenue volumes come back and new unit expansion ramping up, all in tandem with excess costs being trimmed.
The analysts wrote in a note, “From our vantage point, virtually all parts of the store are performing well, and not only the newly implemented higher price points. The programmatic rollout of the Five Beyond concept (including 400+ store conversions this year, i.e. "supercharging" the base) should result in a steady comp lift over the next several quarters, if not years. We still see meaningful opportunity to in-fill price points between $10 and $25 and note this pricing subset as a very small % of the overall product base today.”
Shares of FIVE are up 1.71% in early trading on Monday.