What Happened?

Shares of discount retailer Five Below (NASDAQ:FIVE) fell 5.4% in the morning session after the company reported underwhelming preliminary sales results for Q4 2024. Although strong holiday sales pushed updated estimates to the upper half of the prior guidance range, investors likely anticipated stronger performance. Additionally, the guidance implied a 3% to 5% decrease in comparable sales, which is worrisome. Also, earnings are expected to remain in line with the previous forecast. However, Five Below wasn't the only one to report weak results, as Macy's and Abercrombie & Fitch also didn't see the success that the market expected.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Five Below? Access our full analysis report here, it’s free.

What The Market Is Telling Us

Five Below’s shares are quite volatile and have had 15 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 6 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 now 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 1% since the beginning of the year, and at $98.10 per share, it is trading 53.1% below its 52-week high of $209.34 from March 2024. Investors who bought $1,000 worth of Five Below’s shares 5 years ago would now be looking at an investment worth $912.90.

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