Five Below, Inc. — Form 10-K Summary
Reporting period: Fiscal 2022, the 52 weeks ended January 28, 2023. Although the request identifies “2021 Q4,” the supplied filing is the annual report for fiscal 2022; it also provides fourth-quarter results. Amounts below are in U.S. dollars.
Business context
Five Below operates a value-retail chain focused on trend-oriented merchandise, primarily priced at $5 and below, targeting tweens, teens and other value-conscious shoppers. At year-end it operated 1,340 stores in 42 states and sold online. The business is seasonal, with its strongest sales and earnings generally in the holiday quarter.
Key financial results
| Metric | Fiscal 2022 | Fiscal 2021 | Change |
|---|---|---|---|
| Net sales | $3,076.3 million | $2,848.4 million | +8.0% |
| Gross profit / gross margin | $1,095.5 million / 35.6% | $1,030.4 million / 36.2% | Profit +6.3%; margin -0.6 percentage points |
| SG&A / share of sales | $750.4 million / 24.4% | $650.6 million / 22.8% | Expense +15.3%; share +1.6 points |
| Operating income / margin | $345.0 million / 11.2% | $379.9 million / 13.3% | Income -9.2%; margin -2.1 points |
| Net income | $261.5 million | $278.8 million | -6.2% |
| Diluted EPS | $4.69 | $4.95 | -5.3% |
| Cash from operating activities | $314.9 million | $327.9 million | -4.0% |
| Capital expenditures | $252.0 million | $288.2 million | -12.6% |
Comparable sales declined 2.0%, reflecting a 1.9% decrease in average transaction value and a 0.1% decrease in transactions. New and non-comparable stores added $281.7 million in sales, more than offsetting the $53.8 million comparable-sales decline. The company opened 150 stores, ending the year with 1,340.
Fiscal 2022 fourth-quarter sales were $1,122.8 million versus $996.3 million in the prior-year quarter; net income was $171.3 million versus $140.2 million.
Liquidity, debt and other balance-sheet items
- Cash and cash equivalents were $332.3 million, and short-term investments were $66.8 million at year-end, compared with $65.0 million and $277.1 million, respectively, one year earlier.
- No borrowings were outstanding under the revolving credit facility. Approximately $192 million was available under the facility, which has a stated maximum commitment of $225 million, subject to its borrowing base and other terms.
- Operating lease liabilities totaled approximately $1,496.8 million, including $199.8 million current and $1,297.0 million long-term. The filing reports $1,790.5 million of future minimum operating-lease payments.
- Inventory was $527.7 million, up from $455.1 million. Total liabilities were $1,963.0 million and shareholders’ equity was $1,361.9 million.
- The company repurchased approximately $40 million of shares during fiscal 2022. A new $100 million authorization approved in June 2022 had not been used by year-end.
Material changes, outlook and risks
- Sales grew on store expansion, but comparable sales turned negative after a 30.3% increase in fiscal 2021. Gross margin fell as occupancy costs rose as a percentage of sales; SG&A also grew faster than sales, including higher store-related costs and advertising expense.
- Fiscal 2021 included a roughly $9.7 million impairment and reserve related to an equity-method investment and related receivable. Fiscal 2022 reported $2.5 million of net interest and other income, versus $13.2 million of net expense in fiscal 2021.
- Management planned approximately $325 million of fiscal 2023 capital expenditures, including about $145 million for 200 planned new stores. The company’s longer-term stated store opportunity is more than 3,500 U.S. locations. Fiscal 2023 is a 53-week year.
- Management said cash, investments, operating cash flow and facility availability were expected to fund planned spending and working capital needs for the next 12 months and foreseeable future. This is forward-looking and depends on business performance and financing availability.
- Management cited higher inflation, freight, commodity and labor costs, supply-chain disruption and discretionary-spending uncertainty as risks. Price increases may help offset costs but could reduce unit sales or weaken the value proposition. Other key risks include store-growth execution, inventory management and shrink, holiday-season performance, distribution capacity, competition, cyber and technology incidents, and dependence on leased locations.
- The filing describes ordinary-course legal proceedings and says management did not expect their resolution to materially adversely affect financial condition or results. KPMG issued unqualified opinions on the financial statements and internal controls. Inventory valuation, specifically slow-moving and obsolete inventory, was identified as a critical audit matter.
Important facts for investors to verify
- Whether comparable sales and transaction trends improve, and how sales growth divides between existing stores and new locations.
- Whether gross margin stabilizes as occupancy, freight, merchandise and labor costs evolve, and whether SG&A growth moderates.
- Actual fiscal 2023 store openings, capital spending and returns relative to management’s plans.
- Inventory quality, markdowns and shrink, given higher year-end inventory and the critical audit matter on net realizable value.
- Liquidity availability under the asset-based revolver, lease commitments, and cash generation through seasonal working-capital peaks.