Investing.com -- Bank of America said Five Below Inc (NASDAQ:FIVE) faces tariff-related margin risks and weak pricing power as it reiterated its "Underperform" rating on discount retailer.
“We do not see a clear path to sustainable positive comps and see margin risk from further deleverage and tariffs,” analyst said.
An additional 10% tariff on Chinese imports took effect on Feb. 4, with Five Below sourcing 50-60% of its products from China, among the highest in BofA's coverage.
The bank said the retailer's ability to offset costs through pricing, supplier support, and sourcing shifts is limited, warning of potential margin pressure.
“We think FIVE has limited pricing power to mitigate tariffs as the value proposition is not resonating with consumers, and FIVE is already in the process of reprioritizing lower price point items”
While the suspension of the de minimis exemption—previously benefiting rivals Temu and Shein—could ease competitive pressures, BofA sees challenges in Five Below's efforts to reaccelerate sales.
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