Five Below gains after bucking discretionary trend

Five Below (NASDAQ:) shares gained Friday after topping first-quarter earnings expectations.

The discount retailer Q1 EPS of $0.67, $0.04 better than the analyst estimate of $0.63, while revenue for the quarter came in at $726.2 million versus the consensus estimate of $728.67M.

Looking forward, Five Below sees its Q2 EPS between $0.80 and $0.85, versus the consensus of $0.88, with revenue for the quarter from $755M to $765M, versus the consensus of $768M.

FY2024 EPS is seen between $5.31 and $5.71, versus the consensus of $5.60, with revenue from $3.5 billion to 3.57B, versus the consensus of $3.57B.

Reacting to the report, Morgan Stanley analysts said the firm bucked the discretionary spend and held up better than its peers. They noted that this highlights FIVE’s differentiated store concept, merchandising, and value proposition. As a result, the analysts, who have an Overweight rating and $210 price target on FIVE, said the stock “screens attractively.”

KeyBanc Capital Markets analysts maintained an Overweight rating and $225 price target on FIVE, telling investors in a note that the company’s merchandising and remodel initiatives are driving growth.

“FIVE reported healthy 1Q results but mixed relative to Street expectations, with EPS above but sales below,” wrote the analysts. “We remain cautious on the consumer in the NT but continue to favor FIVE for its growth prospects and its value proposition for the consumer.”

Credit Suisse analysts kept a Neutral rating and $185 price target on FIVE.

“Despite broad-based pressure on consumer discretionary spending, with several well-telegraphed headwinds negatively impacting 1Q performance across the retail peer group (weather, reduced SNAP benefits, sticky multi-year food-at-home inflation, lower tax refunds), FIVE posted a solid 1Q with comps/transaction growth accelerating from 4Q,” said the analysts.

“Q comps of +2.7% were slightly below Consensus (FS +3.1%), and FIVE slightly lowered the top end of its FY23 comp/EPS guide, but we believe the positive stock reaction is warranted on fundamentals (but to be clear was also driven by short interest at ~7 days and 7.1% of float) given FIVE’s ability to execute in a very volatile environment.”