Five Below (NASDAQ:FIVE) shares added more than 6% as the discount retailer reported better-than-expected results for the fourth quarter and upbeat quarterly guidance.
For the quarter ending February 1, 2025, Five Below posted sales of $1.39 billion, up 4% from the year-ago quarter and ahead of estimates of $1.38 billion.
Earnings per share (EPS) of $3.48 topped estimates of $3.38.
For the first fiscal quarter of 2025, Five Below projected sales between $905 million and $925 million, above the Street consensus of $897.8 million.
EPS was guided in the range of $0.44 to $0.55, compared to estimates of $0.48.
Risky exposure
Analysts at Bank of America repeated their ‘Underperform’ rating and lowered their price target on Five Below to $75 from $88 following the release of its earnings.
Five Below shares traded up 6.1% at about $80 in the early afternoon on Thursday.
The analysts see positive comparable sales and stable store growth being offset by gross margin pressure from tariffs, which will result in a decline in earnings in fiscal 2025 and flat earnings in fiscal 2026.
They noted that sourcing exposure to China remains a key risk for Five Below.
“Five sources 60% of the cost of goods sold (COGS) from China either directly or through domestic vendors,” they wrote.
“Management provided guidance for 100 basis points of gross margins pressure in fiscal 2025 from tariffs, but since this will mostly hit earnings in the second half of the year, we expect fiscal 2026 to face an incremental 100 basis points of pressure.”
Bank of America’s analysts highlighted that Five Below plans to drive continued comparable sales gains with new products by distorting value through the stores and with new marketing campaigns.
“The company hired Jacob Hawkins as CMO to focus on initiatives surrounding the value proposition to the core customer to appeal to children and parents alike,” they wrote.
“Guidance calls for 180 basis points of operating margin pressure (to 7.3%) from fixed cost deleverage, investments and tariffs.”