Five Below, Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers the unaudited 13 weeks ended May 3, 2014, compared with the 13 weeks ended May 4, 2013. Although the request labels the period “2013 Q1,” the filing is for fiscal 2014 first quarter. Five Below is a value retailer serving teen and pre-teen customers with merchandise priced at $5 and below. It operated 323 stores in 20 states at quarter-end, versus 258 stores a year earlier.
Financial performance
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Net sales | $126.0 million | $95.6 million |
| Gross profit / margin | $38.9 million / 30.9% | $30.2 million / 31.6% |
| Operating income / margin | $5.3 million / 4.2% | $3.2 million / 3.3% |
| Net income | $3.1 million | $1.6 million |
| Diluted EPS | $0.06 | $0.03 |
| Net cash used in operating activities | $4.1 million | $11.8 million |
| Capital expenditures | $10.2 million | $8.1 million |
- Sales rose 31.8%, including $24.7 million from non-comparable stores and $5.7 million from comparable stores. Comparable-store sales increased 6.2%, driven by approximately 5.5% more transactions and 0.7% higher average transaction value.
- Cost of goods sold increased 33.2%; gross margin declined about 70 basis points, principally due to higher buying expense from investment in merchandising talent.
- SG&A increased 24.6% to $33.7 million, but declined as a share of sales to 26.7% from 28.3%, reflecting sales leverage. Operating margin improved about 90 basis points.
- Interest expense fell to $0.1 million from $0.5 million. A $0.2 million debt-extinguishment loss related to repayment of the term loan reduced pretax income.
- Cash and cash equivalents were $17.8 million at May 3, 2014, versus $50.2 million at February 1, 2014 and $36.7 million at May 4, 2013. The quarterly cash decline was $32.4 million, including the $19.5 million term-loan repayment and $10.2 million of capital expenditures.
- Quarter-end current assets were $143.7 million and current liabilities $59.8 million. The company had no term-loan or revolver borrowings and reported approximately $20.0 million available under its revolving credit facility.
Changes, outlook, and risks
- In February 2014, the company repaid the remaining $19.5 million term-loan balance; it reported compliance with applicable credit-facility covenants. The revolving facility permits up to $20.0 million of borrowings, subject to a borrowing base, and matures May 16, 2017.
- Management planned approximately 62 store openings in fiscal 2014 and about $35 million in capital expenditures, including approximately $17 million for new-store construction and openings. It expected cash, operating cash flow, and revolver availability to fund planned needs for the next 12 months and beyond, while noting that additional financing might be needed if those sources prove insufficient.
- The quarter included commitments for 23 new 10-year store leases with approximately $37.5 million in future minimum lease payments. Three additional leases, with approximately $8.0 million in future payments, were committed between May 4 and June 5, 2014.
- Management cited seasonality, with sales typically highest in the fourth quarter, and working-capital needs that rise ahead of the holiday season. Risks include execution of store growth, inventory and distribution management, competition, weather, lease obligations, and access to financing. Management said ordinary-course legal matters were not expected to have a material adverse effect, but outcomes cannot be predicted with certainty.
- Management concluded disclosure controls were effective at a reasonable assurance level and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the reporting-period designation: the filing is for the 13 weeks ended May 3, 2014, not 2013.
- Track comparable-store sales and new-store productivity alongside the planned store expansion; most sales growth came from non-comparable stores.
- Monitor gross margin, particularly buying costs, occupancy and distribution costs, as the store base grows.
- Assess cash consumption, inventory investment, capital spending, lease commitments, and seasonal reliance on the revolver.
- Review future filings for delivery against the approximately 62-store and $35 million capital-expenditure plans, and for any changes in financing availability or risks.