Five Below, Inc. — Form 10-Q Summary
Reporting period: Third quarter (13 weeks) ended October 28, 2023; year-to-date (39 weeks) compared with periods ended October 29, 2022. The filing is unaudited. Five Below operates a value-focused retail business serving primarily tween and teen customers, with 1,481 stores in 43 states and e-commerce sales.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | 39 weeks 2023 | 39 weeks 2022 |
|---|---|---|---|---|
| Net sales | $736.4 million | $645.0 million | $2,221.6 million | $1,953.6 million |
| Gross profit / margin | $222.8 million / 30.3% | $207.8 million / 32.2% | $722.2 million / 32.5% | $643.1 million / 32.9% |
| Operating income / margin | $16.1 million / 2.2% | $20.9 million / 3.2% | $117.1 million / 5.3% | $119.3 million / 6.1% |
| Net income | $14.6 million | $16.1 million | $98.9 million | $90.2 million |
| Diluted EPS | $0.26 | $0.29 | $1.78 | $1.62 |
Q3 sales rose 14.2%; comparable sales increased 2.5%, reflecting 3.1% more transactions partly offset by a 0.6% decline in average transaction value. Year-to-date sales rose 13.7%; comparable sales increased 2.6%, with transactions up 3.8% and average transaction value down 1.2%. Store openings drove much of the non-comparable sales growth.
Q3 gross margin fell about 190 basis points, primarily from higher merchandise costs, including inventory shrink. SG&A increased 10.6% in dollars but declined as a share of sales to 28.1% from 29.0%. Year to date, gross margin decreased about 40 basis points and SG&A rose to 27.2% of sales from 26.8%. Q3 net income declined 9.6%; year-to-date net income increased 9.6%.
Cash flow, liquidity and obligations
- For the 39 weeks, operating cash flow was $91.9 million, versus cash used of $45.0 million in the prior-year period. Investing activities used $165.1 million, including $231.9 million of capital expenditures; financing activities used $96.2 million, including $80.5 million for share repurchases.
- Cash and cash equivalents were $162.9 million at October 28, 2023, down from $332.3 million at January 28, 2023. Inventory was $763.3 million, up from $527.7 million at fiscal year-end.
- No borrowings were outstanding on the $225 million revolving credit facility; approximately $225 million was available. The company reported compliance with facility covenants. There is no reported funded debt balance, but operating lease liabilities totaled $1.69 billion, including $1.46 billion long term.
- Management expected fiscal 2023 capital expenditures of approximately $335 million, excluding tenant allowances, including about $155 million for over 200 new stores. It said cash, operating cash flow and credit availability should fund planned capital spending, authorized repurchases and working capital needs for at least the next 12 months.
Outlook, commentary and risks
- Management expects to fund planned investment and working capital from cash on hand, operating cash flow and, as needed, the revolving facility. Retail seasonality drives higher inventory needs in the third and fourth quarters; sales are usually highest in the holiday quarter.
- During Q3, the company repurchased 504,369 shares for approximately $80 million, at an average $158.63 per share. On November 27, 2023, after quarter-end, the board retired the existing program and authorized a new program of up to $100 million through November 27, 2026. Repurchases are discretionary and may be changed or discontinued.
- Risk factors highlighted include inflation and merchandise costs, shrink, supply-chain and freight disruption, tariffs, consumer discretionary spending, competition, store-growth execution, inventory management, lease obligations, cyber and technology risks, and weather or other disruptions. Management stated inflation’s historical impact had been immaterial but could affect future results.
- The company reported ordinary-course litigation, including commercial, intellectual property, customer and employment matters, and said it did not expect their ultimate resolution to materially adversely affect financial condition or results. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether comparable-sales momentum and transaction growth continue, and whether average transaction value stabilizes.
- Whether gross-margin pressure from merchandise costs and shrink persists or improves, and how inventory levels convert to sales and cash.
- Progress against the 2023 plan to open over 200 stores and spend approximately $335 million on capital expenditures.
- Cash generation and seasonal liquidity needs, including actual usage of the revolving facility during the holiday quarter.
- Execution and remaining capacity under the newly authorized $100 million share-repurchase program, alongside substantial lease commitments.