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With five fewer shopping days next holiday shopping season and it’s Triple-Double growth strategy pushed out another year, Craig-Hallum downgraded Five Below (NASDAQ:FIVE) to Hold from Buy and dropped its price target to $195, 4.5% above Friday’s closing price.
Five Below (FIVE) — an “extreme-value retailer of general merchandise” which sells items for between $1 and $5 to teen and tweens launched its Triple-Double growth strategy in 2022 with the goal of tripling the number of stores to 3,500+ by FY30 and doubling sales to $5.6B by FY25.
As of the end of FY23, the company now expects to have 1,544 stores with 225 to 235 new stores set to open in FY24, accelerating to 250-270 new stores by FY25. This is still below the consensus estimate for 300 new stores and falls behind company expectations.
Doubling sales by FY25 also seems an overly optimistic goal. The company’s Q4 holiday results were certainly bullish with sales up 15.6% from a year ago to $1.16B. This encouraged Five Below (FIVE) to raise its sales guidance by $15M to an updated range of $1.335B-$1.350B. But by FY25, Craig-Hallum analyst Jeremy Hamblin projects revenue to reach $4.7B falling 20% shy of the company’s expectations.
Furthermore, with the revised revenue guidance, the outlook for FY24 earnings was still left unchanged at $3.64 to $3.80, giving some indication to the margin pressure the company is facing from worsening supply chains, inventory shrink, and inflation.
So while Craig-Hallum’s Hamblin continues to view Five Below (FIVE) as a “premier growth story within the retail sector,” FY24 sets up to be a below trend growth year given the projected target of new unit openings and shorter holiday season, two factors Hamblin thinks will negatively impact same store sales and for which Hamblin thinks the street is “underestimating.”
Five Below (FIVE) shares were trading 1.6% lower on Tuesday.