(Bloomberg) -- Wall Street’s enthusiasm for Five Below Inc. plummeted along with its shares Wednesday, with the departure of its long-time chief executive officer and worries about tariffs driving analysts to the sidelines.
The discount retailer on Tuesday announced Chief Executive Officer Joel Anderson’s departure and cut earnings per share guidance for the second quarter, leading brokers including Barclays Plc and Citigroup Inc., to drop their buy recommendations on the stock for hold-equivalent ratings. The consensus rating — a proxy for the ratio of buy, hold and sell ratings — fell to 3.8 out of five on Wednesday, its lowest since September 2018. The shares slumped the most since March 2020.
Though Five Below had already reported some product missteps, it’s also vulnerable to changes in the resilience of lower-income American consumers. That’s come into focus in recent months, with retailers noting shoppers shifting their spending toward essentials. The consumer outlook is also clouded by the US political environment, with Presidential candidate Donald Trump pledging to institute new tariffs on imported goods should he return to the White House.
The investor call following Five Below’s announcement “pointed to self-inflicted wounds, execution issues and the need to get back to providing ‘trend-right’ merchandise with strong value,” Truist Securities analyst R. Scot Ciccarelli wrote in a note cutting his rating to hold from buy. “The combination of an increasingly challenging macro environment and lack of ‘hot’ product have been the company’s biggest headwinds.”
Philadelphia-based Five Below said Tuesday sales for the fiscal second quarter would fall 6% to 7% from the comparable period last year. Analysts had been expecting a 4.7% drop, according to the median estimate in a Bloomberg survey. The company also said Kenneth Bull, chief operating officer and an almost 20-year veteran of the company, would step in as interim CEO.
Last month, the company reported first-quarter sales that missed expectations in part because it had stocked more Squishmallows than shoppers had wanted to buy. At the time, the CEO said demand for the toys had fallen off as consumers shifted more of their spending to categories such as food and beverages.
Shares plunged 25% to $76.50 on Wednesday. The stock now has 10 buy-equivalent recommendations, 14 holds and zero sells among analysts tracked by Bloomberg. Discount retail peer Dollar General Corp. and Toronto-listed Dollarama Inc. also fell.
Morgan Stanley’s Simeon Gutman, who cut his rating on the stock to equal-weight from overweight, flagged uncertainty over tariffs as an overhang for the second-half of the current financial year.
Five Below is “now at a crossroads,” said Mizuho Securities analyst David Bellinger, who cut his recommendation on the stock to neutral from outperform and slashed his price target to a Street-low $85 from $150. The analyst noted that the company is “feeling the effects” of cyclical pressures stemming from lower-income consumers pulling back their spending, while the “likely implementation of new tariffs” adds to the case for a change in view.
While interim CEO Bull “is likely the right candidate” to attempt to stabilize the business, “we see the path forward as far less transparent than even a few months ago,” Bellinger added.
William Blair analysts Phillip Blee and Sabrina Baxamusa said the news of Anderson’s departure was a surprise given his long tenure. They downgraded their recommendation on the stock to market perform, noting risks to margins from a likely “era of restructuring.”
“This leaves the company in limbo, particularly since its product assortment is largely set through the remainder of the year,” they wrote. “Additional volatility during a presidential election season could further weigh on demand for the company’s impulse-related, discretionary merchandise.”
Five Below is estimated to report second-quarter results on Aug. 30.
(Updates share-price moves.)
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