Five Below, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter 2024, the thirteen weeks ended May 4, 2024, compared with the thirteen weeks ended April 29, 2023. The request metadata says “2023 Q1,” but the filing covers 2024 Q1.
Business context and results
Five Below is a value retailer focused on tween and teen customers, with most merchandise priced at $5 or less. It operated 1,605 stores in 43 states at quarter-end, versus 1,367 a year earlier, and also sells through its website and third-party delivery services.
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $811.9 million | $726.2 million | +11.8% |
| Comparable sales | -2.3% | +2.7% | Declined |
| Gross profit / margin | $263.5 million / 32.5% | $234.8 million / 32.3% | Margin +20 bps |
| Operating income / margin | $36.2 million / 4.5% | $42.4 million / 5.8% | Declined |
| Net income | $31.5 million | $37.5 million | -16.0% |
| Diluted EPS | $0.57 | $0.67 | Declined |
| Operating cash flow | $26.4 million | $85.3 million | Declined |
| Capital expenditures | $87.9 million | $45.1 million | Increased |
Liquidity, debt, and balance sheet
- Cash and cash equivalents were $96.3 million and short-term investments were $273.3 million at May 4, 2024; together, $369.6 million, compared with cash of $179.7 million and short- and long-term investments totaling $288.1 million at February 3, 2024.
- Inventory was $630.0 million, up from $584.6 million at fiscal year-end and $534.4 million a year earlier.
- No borrowings were outstanding under the $225 million revolving credit facility; approximately $225 million was available. The facility expires in September 2027.
- Operating lease liabilities totaled $1.84 billion, including $292.0 million current and $1.55 billion long-term. These are lease obligations, not reported borrowings.
- Cash declined by $83.4 million during the quarter. Investing used $73.1 million and financing used $36.8 million, including $30.2 million for share repurchases.
Material changes and management commentary
- Sales growth came from non-comparable sales, up $102.4 million, while comparable sales fell $16.7 million. Comparable sales declined as transactions fell approximately 2.8%, partly offset by a 0.5% increase in average transaction value.
- Gross margin improved modestly, primarily from lower merchandise cost as a percentage of sales, partly offset by higher store occupancy costs. Management also cited higher inventory shrinkage within merchandise costs.
- SG&A, including depreciation and amortization, rose 18.2% to $227.4 million and increased to 28.0% of sales from 26.5%. Store-related growth costs and a non-recurring employment-litigation settlement contributed to the increase.
- Net income was pressured by higher operating expenses and a higher effective tax rate: 23.5% versus 18.6%, primarily due to discrete tax items, including the impact of share-based payment accounting.
- The company repurchased 182,327 shares for approximately $30.0 million at an average $164.56 per share. Approximately $70.0 million remained under the current $100 million authorization at quarter-end.
Outlook, risks, and contingencies
- Management planned fiscal 2024 capital expenditures of approximately $345 million to $355 million, excluding tenant allowances, including approximately $170 million to construct and open about 230 new stores. Planned funding sources include operating cash flow, cash and investments, and the revolving facility as needed.
- Management said available cash, investments, operating cash generation, and credit availability should be adequate for planned capital expenditures, authorized repurchases, and working capital over the next 12 months and beyond. This is forward-looking and not a guarantee.
- The company signed 66 new store leases during the quarter, with average terms of approximately 10 years and future minimum payments of approximately $139.2 million.
- Key disclosed risks include inflation and tariffs, supply-chain and freight disruption, store traffic and discretionary spending, competition, inventory management and shrink, lease obligations, cybersecurity and technology, weather, and successful execution of store growth.
- The company is subject to ordinary-course legal claims, including employment and class-action matters. Management does not expect their ultimate resolution to materially adversely affect financial condition or results, but outcomes remain uncertain. No material off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether comparable-sales weakness, particularly lower transaction counts, persists as store expansion drives reported revenue growth.
- Whether inventory shrinkage, store occupancy, and elevated SG&A continue to pressure operating margins.
- Progress against the approximately 230-store and $345 million to $355 million capital-spending plans, and the resulting cash and liquidity needs.
- The scale and timing of share repurchases relative to investment needs and cash generation.
- Any developments in the employment-litigation settlement, other legal matters, and the disclosed lease commitments.