Five Below, the popular discount retailer, is currently navigating a series of internal and external challenges that could render Wall Street’s earnings estimates overly optimistic. According to a recent analysis by Oppenheimer, the company is set to release its fiscal second-quarter results later this month, amidst a backdrop of declining consumer spending among low- to middle-income shoppers. Oppenheimer has revised its forecast for Five Below, now projecting per-share earnings of $4.65 for the current fiscal year, a decrease from its previous estimate of $4.97.
This adjustment comes as the brokerage anticipates comparable sales declines of approximately 6% to 8%. In comparison, the consensus estimate on Capital IQ for normalized and GAAP EPS sits at $4.77 each, indicating a potential gap between expected performance and reality. In a notable shift, the analysts at Oppenheimer underscored their cautious outlook on Five Below’s performance-rated stock, advising investors to adopt a ‘stay on the sidelines’ approach.
This warning stems from a broader trend of revenue weakness that could persist, especially given the increasingly challenging economic conditions affecting consumer spending habits. The year 2024 has not been favorable for Five Below’s stock price, which has decreased by 65%. This drastic underperformance starkly contrasts with the 16% gain observed in the S&P 500, a situation exacerbated by an abrupt deceleration in fundamental market trends.
Additionally, a significant leadership upheaval, particularly the recent resignation of CEO Joel Anderson, has raised concerns over the company's strategic direction. Anderson transitioned to lead Petco Health & Wellness, leaving Chief Operating Officer Kenneth Bull as the interim chief executive. Oppenheimer analysts, led by Brian Nagel, have expressed valid concerns that the absence of stable executive leadership could hamper Five Below’s strategic repositioning efforts in such uncertain times. Earlier in July, Five Below had indicated optimism regarding its second-quarter EPS, forecasting a range between $0.53 and $0.56.
It also projected revenue between $820 million and $826 million, alongside anticipated comparable sales decreases of around 6% to 7%. However, Oppenheimer estimates suggest that comparable sales may have exited the second quarter tracking down from high-single digits to low-double digits. Looking ahead, the brokerage expects Five Below to report a second-quarter EPS of $0.53 on revenue of approximately $820.7 million.
The company is scheduled to announce its quarterly results on August 28. Oppenheimer has also noted that any eventual improvement in top-line trends could serve as an 'incremental earnings growth tailwind,' fostering a more favorable outlook for investors in the latter part of the fiscal year..