What Happened?
Shares of discount retailer Five Below (NASDAQ:FIVE) jumped 15.3% in the pre-market session after the company reported strong third-quarter results that blew past analysts' revenue and EPS expectations. Besides modest contributions from improved pricing, the company's top line is also gaining from expansion to new locations, which indicates that the demand outlook is strong. Looking ahead, management increased its full-year EPS guidance, showing that the top-line growth is likely flowing to the bottom line. Overall, we think this was a strong quarter. Separately, the company announced the appointment of Winnie Park as Chief Executive Officer (CEO), effective December 16, 2024.
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What The Market Is Telling Us
Five Below’s shares are somewhat volatile and have had 13 moves greater than 5% over the last year. But moves this big are rare even for Five Below and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 5 months ago when the stock dropped 23.1% on the news that the company cut Q2'2024 sales and EPS guidance and announced that CEO and President Joel Anderson had stepped down.
According to the company's press release, Kenneth Bull will serve as interim CEO. Thomas Vellios, Co-Founder, Non-Executive Chairman, and former CEO, is assuming the role of interim Executive Chairman. He will also assist the leadership team in searching for a permanent CEO.
Separately, the company provided updated financial projections. The company expects Q2'24 sales to be $820 million - $826 million (vs. previous guidance of $830 million to $850 million). EPS is expected to come in at 0.53 - 0.56 (vs. previous guidance of 0.57 - 0.69).
Following the report, multiple Wall Street analysts downgraded the stock's rating. For example, Truist analyst Scot Ciccarelli lowered the stock's rating from Buy to Hold, stating, "Expectation for incremental softening in late July, the CEO change, mgmt comments on self-inflicted wounds and the potential scaling back of unit growth when new mgmt comes in, has completely eroded our confidence."
Five Below is down 46.1% since the beginning of the year, and at $116.15 per share, it is trading 46.1% below its 52-week high of $215.51 from January 2024. Investors who bought $1,000 worth of Five Below’s shares 5 years ago would now be looking at an investment worth $939.19.
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