Five Below, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 weeks ended May 2, 2015, compared with the 13 weeks ended May 3, 2014. Although the request metadata labels the period “2014 Q1,” the filing itself is for fiscal Q1 2015. The unaudited statements are prepared under U.S. GAAP.
Business context and performance
Five Below is a value retailer serving teen and pre-teen customers, with merchandise priced at $5 and below. At quarter-end it operated 385 stores in 23 states, versus 323 stores a year earlier.
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Net sales | $153.7 million | $126.0 million |
| Comparable-store sales growth | 1.7% | 6.2% |
| Gross profit / gross margin | $47.2 million / 30.7% | $38.9 million / 30.9% |
| SG&A / percent of sales | $40.1 million / 26.1% | $33.7 million / 26.7% |
| Operating income / margin | $7.0 million / 4.6% | $5.3 million / 4.2% |
| Net income | $4.3 million | $3.1 million |
| Diluted earnings per share | $0.08 | $0.06 |
| Net cash used in operating activities | $0.8 million | $4.1 million |
| Capital expenditures | $10.7 million | $10.2 million |
Financial position and liquidity
- Cash and cash equivalents were $52.4 million at May 2, 2015, down from $63.2 million at January 31, 2015; cash was $17.8 million a year earlier.
- Inventory was $119.8 million; current assets were $204.6 million and current liabilities were $77.5 million.
- The company had no borrowings under its revolving credit facility and reported approximately $20.0 million available. The facility has a $20.0 million maximum, subject to a borrowing base, and expires May 16, 2017. The company reported covenant compliance.
- Total liabilities were $121.3 million. The balance sheet showed no line-of-credit borrowings; the filing does not report other outstanding debt at quarter-end.
- Cash declined by $10.8 million during the quarter, reflecting operating cash use and $10.7 million of capital expenditures, partly offset by financing cash inflows.
Changes versus the prior comparable period
- Sales grew 22.0%, with $25.6 million of the increase from non-comparable stores and $2.1 million from comparable stores. Comparable-store growth slowed to 1.7% from 6.2%.
- Management attributed comparable-store growth to a roughly 2.6% increase in average transaction value, partly offset by a roughly 0.9% decline in transaction count.
- Gross margin declined 20 basis points, to 30.7%, primarily due to higher merchandise costs. SG&A leverage improved by about 60 basis points, helping operating margin rise to 4.6% from 4.2%.
- Net income increased about 38.9%. The prior-year quarter included a $0.2 million debt-extinguishment loss and $0.1 million net interest expense; these were minimal or absent in the current quarter.
- Operating cash use improved from $4.1 million to $0.8 million. The prior-year financing outflow included repayment of a $19.5 million term loan.
Outlook, risks, and unusual items
- Management planned to open approximately 70 stores in fiscal 2015 and expected approximately $56 million in fiscal-year capital expenditures, including about $22 million for new stores. It expected to fund spending from cash generated by operations.
- Management believed cash, operating cash flow, and revolving-facility availability would be adequate for planned needs over the next 12 months and thereafter, while noting that additional financing might be needed if those sources prove insufficient.
- A new New Jersey distribution center was expected to be fully operational during fiscal 2015. The company took possession in June 2015; the lease provides for approximately 700,000 square feet initially, with expansion to approximately one million square feet. Delays or cost overruns could impair growth or operations.
- The company entered 24 new store leases during the quarter, with approximately $46.5 million in future minimum lease payments. The distribution-center lease has approximately $44.6 million in future minimum lease payments.
- Key disclosed risks include execution of store growth and distribution expansion, inventory management and shrink, lease obligations, competition including online retailers, seasonality, weather, systems and data-security disruptions, and operating-cost increases. The filing reported no material changes to previously disclosed risk factors.
- A securities class action and a related shareholder derivative action were voluntarily dismissed without prejudice in May and June 2015, respectively. Management did not expect legal matters to have a material adverse effect, but noted that outcomes of other ordinary-course claims cannot be predicted with certainty.
Important facts for investors to verify
- Whether store openings and distribution-center expansion progress on schedule and within expected costs.
- Whether comparable-store sales and transaction counts stabilize after the year-over-year slowdown.
- Whether gross-margin pressure from merchandise costs continues and whether SG&A leverage offsets it.
- How inventory, operating cash flow, and cash needs evolve as the business expands and seasonal working-capital requirements rise.
- The status and potential consequences of legal matters, lease commitments, and revolving-credit availability.