Five Below’s Stock Price Gets Punished After Sales Miss
With inflation rearing its head in the economy, discount retailers should be poised to benefit. Value retailer Five Below sells most of its items for below $5, as the name suggests, though due to inflation some prices are higher. While the retailer is poised to benefit from the uncertain economic environment, investors chose to see the glass half empty.
Five Below’s stock suffered a 13% decline on Thursday after the company reported weaker than expected Q2 sales. Five Below’s net sales came in at $646.6 million, falling shy of the $648 million Wall Street was expecting.
While Five Below missed expectations, its net sales were up more than 51% vs. year-ago levels at the height of the pandemic. Net income was up nearly 125% year-over-year (YoY) to $64.8 million. And according to CEO Joel Anderson, sales are looking up for the current quarter. He stated,
“The third quarter is off to a strong start from a sales perspective.”
Bullish Price Target
Investors punished the stock anyway. According to one analyst firm, now might be the time to stock up on Five Below shares. Wall Street firm Jefferies believes the stock was overly punished and that investors should seize the opportunity and buy more shares.
The Jefferies analysts wrote that the sales only “slightly” missed consensus estimates and besides, the pandemic has made it tricky to use prediction models anyway. Instead, the analysts say to focus on the positive, rising comparable-store sales, more retail locations and a solid Q3 forecast. Five Below opened more than 30 new stores in the quarter, up 14.2% YoY.
After Thursday’s selling, Five Below shares are hovering at $187. Jefferies analysts are bullish on the stock and have a $300 price target attached.
Five Below’s Q2 was solid based on year-ago results, except for the fact that it missed sales estimates. The company’s partnership with Instacart for same-day delivery should be a boon for margins similar to how the ship-from-store model has benefited other retailers such as Dick’s Sporting Goods. Five Below recently expanded that service to more stores.
For investors who are interested in the long-term outlook, Five Below is a growing company that appears to have the economic winds at its back for the foreseeable future.