Five Below, Inc. — Form 10-Q Summary
Period: The filing covers the 13 weeks ended April 30, 2016, compared with the 13 weeks ended May 2, 2015. This is fiscal 2016 Q1, notwithstanding the request metadata’s “2015 Q1.” The unaudited statements are prepared under U.S. GAAP. Five Below operates value retail stores focused on teen and pre-teen customers, with merchandise priced at $5 and below.
Financial results
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Net sales | $192.7 million | $153.7 million | +25.4% |
| Comparable-store sales | +4.9% | +1.7% | Improved |
| Gross profit / margin | $60.3 million / 31.3% | $47.2 million / 30.7% | Margin +60 bps |
| SG&A / sales | $49.5 million / 25.7% | $40.1 million / 26.1% | Expense rate down 40 bps |
| Operating income / margin | $10.8 million / 5.6% | $7.0 million / 4.6% | Improved |
| Net income | $6.8 million | $4.3 million | +58.0% |
| Diluted EPS | $0.12 | $0.08 | — |
Sales grew by $39.0 million: $31.7 million from non-comparable stores and $7.3 million from comparable stores. Comparable-store growth reflected approximately 3.2% higher average transaction value and 1.7% more transactions. The store base grew to 458 from 385 a year earlier.
At April 30, 2016, cash and cash equivalents were $25.8 million and short-term investments were $55.9 million. Current assets were $264.0 million versus current liabilities of $93.0 million. The company had no revolving-credit borrowings and reported approximately $20.0 million available under its facility. Total liabilities were $142.4 million.
Operating cash flow was negative $10.5 million, compared with negative $0.8 million a year earlier; investing cash flow was negative $17.1 million, including net purchases of investment securities and $7.5 million of capital expenditures. Financing cash flow was positive $0.2 million. Cash declined $27.3 million during the quarter, to $25.8 million.
Outlook, commentary and risks
- Management planned approximately 85 new stores in fiscal 2016 and approximately $44 million of capital expenditures, including about $27 million for new-store construction and openings. Management expected cash, operating cash flows and credit availability to fund planned needs over the next 12 months and foreseeable future.
- The quarter included 26 new store leases with approximately $49.3 million in future minimum lease payments. The company also reported approximately $2.6 million in purchase commitments for new-store construction materials.
- Management cited lower merchandise costs and buying expense as a percentage of sales for improved gross margin, and operating leverage as SG&A declined as a percentage of sales. Store-related and corporate costs nevertheless increased in dollars.
- Results are seasonal, with sales usually highest in the fourth fiscal quarter; interim results are not necessarily indicative of full-year results. Key disclosed risks include execution of growth plans, merchandise sourcing and inventory management, distribution capacity and disruptions, competition including online retailers, leases, weather, labor and operating costs, information technology and data security, and economic conditions.
- The company reported ordinary-course legal matters and said their resolution was not expected to have a material adverse effect, while noting outcomes cannot be predicted with certainty. It reported no material changes to previously disclosed risk factors and no material changes in internal control over financial reporting; disclosure controls were considered effective at a reasonable-assurance level.
Most important facts for investors to verify
- Confirm the correct reporting period: the filing is for the quarter ended April 30, 2016, not 2015 Q1.
- Assess whether comparable-store growth and gross-margin gains can persist as the company adds stores and manages inventory, occupancy and distribution costs.
- Track working-capital cash use, cash and short-term investments, and actual capital expenditures against the fiscal 2016 plan.
- Review execution and funding of the planned 85-store expansion, including the commitments associated with long-term leases.
- Check the revolving facility’s May 16, 2017 expiration, borrowing availability and covenant compliance; the facility is secured by substantially all company assets.