Truist Securities analyst Scot Ciccarelli has weighed in on Five Below, Inc. (FIVE) ahead of the release of its second-quarter earnings on August 28. While Ciccarelli anticipates results to align with reduced estimates, he highlights lingering concerns about top-line performance due to a weak second-quarter close and a sluggish start to the third quarter.
The analyst projects a decline in gross margins to 33.6% and an increase in SG&A expenses by approximately 190 basis points, resulting in an EBIT margin of 4.5%. This represents a year-over-year decrease of about 320 basis points. Ciccarelli attributes the margin pressure to negative leverage, rising labor costs, and inventory shrinkage, partially mitigated by lower freight costs and normalized incentive compensation. Consequently, he anticipates earnings per share (EPS) to come in at $0.54, down from $0.84 in the same quarter of 2023.
Ciccarelli expressed concerns stemming from the recent CEO change, the company’s acknowledgement of self-inflicted challenges, and the possibility of new management scaling back unit growth. While acknowledging Five Below’s strong history of product innovation and favorable unit economics, Truist Securities maintains a Hold rating on the stock until gaining a clearer understanding of the current situation.
At the time of this report, FIVE shares were trading up 2.09% at $84.18.
