On Monday, JPMorgan (NYSE:JPM) reaffirmed its Overweight rating on Savers Value Village Inc (NYSE:SVV) with a steady price target of $23.00. The firm's analysis suggests that the company, part of the "Off-Price Big 3," is poised for a return to multi-year compounding growth, particularly in the second half of 2023 and into the first half of 2024.
This growth trajectory is expected due to a shift towards direct-to-consumer sales over wholesale and an anticipated improvement in inventory management.
The firm anticipates that Savers Value Village will experience a rise in same-store sales (SSS) and earnings per share (EPS) for the fourth quarter, surpassing consensus expectations. This outlook is based on several factors, including better value offerings at Ross Stores (NASDAQ:ROST), an increase in branded inventory at Burlington Stores (NYSE:BURL) from recent fieldwork, and a surge in home demand at TJX Companies (NYSE:TJX) across HomeGoods and HomeSense.
The initial conservative guidance provided by these companies is seen as an opportunity for future earnings beats and upward revisions.
However, Savers Value Village has been removed from the Analyst Focus List following a significant stock price increase of 50% after its third-quarter earnings report, outperforming the S&P 500's 15% gain during the same period.
The decision comes as JPMorgan's research indicates that the initial fiscal year 2024 outlook for the company may fall below consensus expectations. This is attributed to a forecasted 3% increase in same-store sales that is heavily weighted towards the second half of the year, considering a slow start in the first quarter due to lower year-over-year tax refunds and unfavorable weather conditions.
Additionally, the firm projects a slight decline in adjusted EBITDA margins for Savers Value Village, estimating a 10-20 basis point decrease year-over-year compared to the Street's expectation of a 30 basis point increase. This adjustment reflects a more cautious stance on the company's near-term financial performance.
In summary, while JPMorgan remains positive on Savers Value Village's long-term growth potential, it has tempered expectations for the company's immediate fiscal outlook. The firm's analysis points to potential challenges in the early part of 2024, which may impact the company's performance relative to market expectations.
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