Key Takeaways
- More of Five Below’s merchandise appeals to customers, and the retailer has strong foot traffic and transaction volume trends, UBS said.
- These shifts prompted UBS analysts to raise their price target for the Five Below shares to $160.
- UBS’ target is well above the $128 average price target among analysts polled by Visible Alpha.
Five Below’s performance is no longer fueled by fads like Squishmellow or fidget spinners. Its broadening appeal has made UBS one of the retailer’s biggest Wall Street backers.
UBS increased its target price for Five Below (FIVE) shares by $50, to $160, after the company handed in better-than-expected first-quarter results Wednesday afternoon. The analysts’ new price target is 25% above the roughly $128 average price target among analysts polled by Visible Alpha and the highest tracked by the service.
UBS’ target implies roughly 32% appreciation from Wednesday’s close. Analysts wrote that several factors are fueling Five Below’s strong performance, including better foot traffic, growing transaction volume and customers finding more of its merchandise engaging.
“This includes collectibles … Candy, Beauty, and select apparel items,” the note said. “Importantly, the company’s strength has not been due to one particular trend like it has in the past when products like fidget spinners, rainbow looms, Squishmellows, or other monumental products were outsized contributors.”
Five Below is adopting a “conservative” stance by incorporating a slowdown into its full-year forecast due to price increases, UBS said. Executives said on the conference call that Five Below plans to adjust prices on 15% of products and keep 80% of items in stores priced at $5 or less.
The retailer estimates full-year comparable sales will come in 3% to 5% above last year. UBS thinks higher prices won’t deter as many customers as expected, and that Five Below may grow more competitive, pricing-wise, in the era of tariffs.
UBS said the 6.2% year-over-year bump in transactions last quarter stands out. “The only other retailers that generated this type of transaction increase recently have been Costco (COST) and Sprouts” the note said, referencing the grocery chain, Sprouts Farmers Market (SFM).
Five Below shares finished Thursday up more than 5% and have increased more than 20% so far this year.
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