Five Below Facing Slow Traffic Heading Into Holidays, Deutsche Bank Alerts

• Shares of Five Below Inc FIVE have been volatile in 2015 and are down 31 percent year-to-date.
• Deutsche Bank’s Paul Trussell downgraded the rating on the company from Buy to Hold, while reducing the price target from $42 to $30.
• A slowdown in traffic is expected to restrict the company’s near-term performance, Trussell stated.

Analyst Paul Trussell mentioned that Five Below is poised to record EPS growth of 22-24 percent over the long term, if it continues to register double-digit store growth over the next several years. Trussell, however, expects a broader traffic slowdown to restrict the company’s near-term performance.

Although improved and new merchandising and marketing initiatives by Five Below’s new management could enable the company to surprise to the upside, consistent strong traffic trends are needed to give some hope, the analyst stated.

Soft traffic trends, tough comparisons for frozen merchandise and the growing popularity of e-commerce make Five Below’s “brick and mortar model” vulnerable, the Deutsche Bank report mentioned.

The comp expectations for Q3 and Q4 have been reduced from 3.2 percent to 1.5 percent and from 3.0 percent to 2.0 percent, respectively, to reflect decelerating traffic trends and a wider retail slowdown.

The EPS estimates for FY15 and FY16 have been reduced from $1.05 to $1.03 and from $1.30 to $1.27, respectively.