Wolfe Research maintains an “outperform” rating on Five Below, with analyst Spencer Hanus raising the price target to $291, implying a 26% upside. The firm credits the surging popularity of “squish” toys, particularly collectible dumplings, for driving significant foot traffic and accelerating sales at the off-price retailer. This viral trend on TikTok is expected to lead to a strong Q1 beat and continued momentum, with Five Below effectively capitalizing on consumer demand for trending items.
Wolfe Research has identified a surprisingly squishy source of growth for retailer Five Below: collectible toy dumplings. Analyst Spencer Hanus reaffirmed his "outperform" rating for the off-price chain in a recent client note, setting an ambitious new price target of $291. This target suggests a substantial 26% upside from Five Below's closing share price on Monday, a stock that has already seen an impressive 21% surge this year.
Hanus highlighted the burgeoning popularity of "squish" toys, with the dumplings leading the charge, as a crucial yet often overlooked catalyst for Five Below's recent momentum. This trend extends to other viral items like NeeDoh and Taba, whose explosive virality on TikTok has significantly driven foot traffic to Five Below stores in recent months. The demand is so high that Five Below recently issued a notice about restocking mystery dumplings and imposed a strict limit of three items per customer per day.
The analyst explains that this "squish" phenomenon is not only accelerating Five Below's momentum but also creating product scarcity, leading to increased repeat visits and new purchasing occasions. Consequently, Hanus anticipates a robust performance for the first quarter, projecting same-store sales growth in the high teens to low 20s, comfortably above the consensus estimate of +16%. He also expects strong "flow through" and views second-quarter estimates as currently too conservative.
"Sustainability is increasingly on our mind, but we are still confident in FIVE's strategy and ability to capitalize on trends," Hanus noted. He believes that despite management's typically conservative guidance, there's ample room for them to exceed expectations and raise forecasts throughout the year. The accelerated sales growth, driven by both new and existing customers seeking out viral items and returning for emerging trends, further bolsters this outlook.
Hanus dismisses concerns about "comping the comp," suggesting that the "squish" trend is still in its nascent stages with significant upside potential, or that Five Below is well-positioned to leverage the next viral craze. The broad-based momentum is crucial, as strong consumer demand continues to support higher average unit retail prices across the store. Wolfe Research consistently ranks Five Below highly in its monthly in-store assessments, commending the retailer for its fresh merchandise, store cleanliness, and vibrant customer engagement.
