On Thursday, Telsey Advisory Group adjusted its shares price target for Five Below (NASDAQ:FIVE), a popular discount retailer, from $230.00 to $220.00, while reiterating an Outperform rating.
The revision follows the company's reported earnings for the fourth quarter of fiscal year 2023 and its guidance for the first quarter and full year of 2024, which fell short of market expectations. The primary factor cited for the earnings miss was an unexpected increase in shrinkage, particularly in stores located in high crime areas or those with full self-checkout systems.
Five Below has experienced a similar issue to that of other retailers in Telsey's coverage, such as Dollar General (NYSE:DG) and Target (NYSE:TGT), with both companies also facing heightened shrink levels. In response to this challenge, Five Below is implementing strategies to reduce shrink, including transitioning to traditional associate checkout or assisted self-checkout, receipt checking akin to Costco (NASDAQ:COST)'s practice, and increasing the presence of associates and security guards in stores.
Despite a sluggish February attributed to delayed tax refunds, the company reported an uptick in March sales, bolstered by early Easter promotions and the normalization of tax refunds. However, the reduction of selling days in the critical holiday shopping period from Thanksgiving to Christmas is anticipated to impact the outlook for 2024.
Five Below continues to progress on its key initiatives for the year, planning to open 225-235 new stores, which represents approximately 15% growth. Additionally, around 200 stores will be converted to the new Five Beyond prototype, and the retailer will expand the variety of Five Beyond products. Enhancements to supply chain capabilities are also on the agenda.
The company remains on track with its ambitious Triple-Double strategy, aiming to triple its store count to over 3,500 by 2030 and double its sales and earnings per share by the end of 2026, relative to 2021. The adjusted price target of $220.00 is based on a price-to-earnings (P/E) multiple of approximately 36 times the new 2024 earnings per share estimate of $6.09.
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