Truist Securities Downgrades Five Below (FIVE) to Hold
Truist Securities analyst Scot Ciccarelli downgraded Five Below (NASDAQ: FIVE) from Buy to Hold with a price target of $89.00 (from $136.00).
The analyst comments "What happened – Five Below announced that Kenneth Bull (COO and former CFO) is taking over as interim President and CEO, and Tom Vellios (Co-Founder, Non-Executive Chairman, and former CEO) is taking over as interim Executive Chairman. Joel Anderson has “stepped down” from all of his positions and the Board is conducting a search for a permanent replacement. In addition, the company provided QTD results for the 10 wks through July 13 - comps are running down (~5%), similar to our Truist Card data/prior ests. However, the company now expects to post a comp decline of (6%-7%) for the qtr and EPS of $0.53-$0.56 (vs. $0.57-$0.69 prior and our previous $0.60E), suggesting further deterioration is anticipated for the last 2 wks of July. Finally, in a very brief investor call, the company suggested that they have incurred a lot of self-inflicted wounds and needed to refocus their product on “trend right” goods and strong value. Our take – While the company already significantly lowered expectations for 2Q/’24, we are continuing to see incremental weakening (we noted in our Truist Card Data update that most of our universe seems to be running ~in-line/- vs. expectations). Further, as we highlighted in our NDR recap, we think the combination of an increasingly challenging macro environment and lack of “hot” product have been the company’s biggest headwinds. However, with the CEO transition and mgmt comments regarding self-inflicted wounds and the need to refocus on providing trend-right merchandise at compelling values, it suggests that merchandising has been a bigger problem than we had previously recognized (and execution often takes time to improve). Finally, while the company was adamant just 5 weeks ago that its store growth algo was “safe”, execution issues and new mgmt could change that view, potentially derailing or at least pausing the company’s primary growth driver (new stores). Lowering ests and PT to $89 from $136 – We are modestly lowering our 2Q comp estimate to down (6.5%)E from (4.5%) and sales to ~$819mmE from ~$834mm. Given recent/expected trends we have also lowered our ’24/’25 EPS estimates to $4.75/$5.45 from $5.00/$6.00 and our PT to $89 from $136, representing a ~(20%) discount to the market (vs. a ~20% premium coming into today)."
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Shares of Five Below closed at $102.07 yesterday.