Five Below, Inc. (FIVE) unveiled its second-quarter financial results yesterday, sparking a range of reactions from analysts covering the company. Goldman Sachs analyst Kate McShane remains optimistic about Five Below’s prospects, maintaining a Buy rating but reducing the price target from $124 to $106. Meanwhile, Truist Securities analyst Scot Ciccarelli reiterated a Hold rating, lowering the price forecast to $87 from $89. JP Morgan analyst Matthew Boss kept the Neutral rating, but raised the price target to $89 from $86.
Goldman Sachs believes Five Below’s strategy to enhance value through a more targeted merchandising approach is promising, even though it will take time to yield noticeable results. While acknowledging that customer traffic remains positive, McShane highlights that conversion rates are under pressure. The guidance suggests that comparable store sales trends for the second half of the year will mirror the -5.7% decline observed in the second quarter. To mitigate this, the company plans to invest in labor and pricing, which they expect to balance with cost savings in other areas. The analyst has adjusted store growth forecasts for FY25 and FY26, now projecting 9.3% and 9.5% respectively, down from previous estimates of 12.4% and 13.5%.
Truist Securities, however, takes a more cautious approach. While the analysts note that sales were slightly better than anticipated (comparable store sales dropped 5.7% compared to the projected 6.5% decline), they point out that the company is still experiencing a mid-single-digit decline and anticipates this trend to continue into the second half of the year. Five Below is also planning to reduce its SKU count by up to 20% and refocus on $1, $3, and $5 price points, signifying a partial shift away from their 5 Beyond strategy. Given the lead times involved, the analyst doesn’t foresee significant changes in merchandising until around the second quarter of 2025.
JP Morgan expects Five Below to achieve mid-teens unit growth and low-single-digit comparable store sales increases (around +2-4%), with margins remaining roughly flat. The company faces a 3% fixed-cost hurdle, which should lead to low-to-mid-teens EPS growth over the coming years, following a ~100 basis points improvement in operating margin through FY26. The analyst points out that over the past eight quarters (2022 and 2023), the firm’s total basket has decreased year-over-year as consumers tighten their budgets. Additionally, they believe the contribution from the Five Beyond initiative will lessen in FY25 and further in FY26 as the overall comparable base expands annually.
As of Thursday’s close, FIVE shares were trading up 0.18% at $79.08.
