Five Below, Inc. — Form 10-Q summary
Period: Quarter and six months ended July 30, 2022, compared with the periods ended July 31, 2021. The request metadata says “2021 Q2,” but the filing itself is for fiscal 2022 Q2. Unaudited results. Five Below operated 1,252 stores in 40 states, versus 1,121 stores a year earlier.
Key financial metrics
| Metric | Quarter ended July 30, 2022 | Prior-year quarter | Six months ended July 30, 2022 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $668.9 million | $646.6 million | $1,308.5 million | $1,244.4 million |
| Gross profit / margin | $228.5 million / 34.2% | $230.3 million / 35.6% | $435.3 million / 33.3% | $431.2 million / 34.7% |
| Operating income / margin | $56.0 million / 8.4% | $86.2 million / 13.3% | $98.3 million / 7.5% | $149.9 million / 12.0% |
| Net income | $41.3 million | $64.8 million | $74.1 million | $114.4 million |
| Diluted earnings per share | $0.74 | $1.15 | $1.33 | $2.03 |
In the quarter, comparable sales fell 5.8%; for the six months, they fell 4.8%. Quarter sales growth of 3.5% was driven by $58.1 million in higher non-comparable sales, partly offset by a $35.8 million comparable-sales decline. Management attributed the comparable-sales decline to lower average transaction value and fewer transactions.
Quarter gross margin contracted 140 basis points. SG&A rose 19.7% to $172.5 million, reaching 25.8% of sales versus 22.3% a year earlier; management cited higher store-related costs from expansion and higher corporate expenses. For the six months, SG&A rose 19.8% to $336.9 million. Six-month operating cash flow was $46.2 million, compared with $148.8 million a year earlier; management attributed the decrease primarily to working-capital changes and lower operating cash flows from store performance.
Balance sheet, cash flow and liquidity
- At July 30, 2022, cash and cash equivalents were $155.1 million and short-term investments were $117.3 million. Inventories were $569.2 million, up from $455.1 million at January 29, 2022.
- Six-month investing cash flow was positive $87.8 million, including $219.4 million of investment-security sales, maturities and redemptions, and $109.7 million of capital expenditures. Financing cash flow was negative $43.9 million, including $40.0 million of share repurchases.
- No borrowings were outstanding under the $225 million asset-based revolving credit facility; approximately $202 million was available. The facility expires April 24, 2023, and the company reported compliance with its covenants.
- Total liabilities were $1.924 billion, including $1.432 billion of operating lease liabilities. The filing reports no line-of-credit borrowings; lease obligations are a substantial fixed commitment.
Outlook, material developments and risks
- Management planned approximately $235 million of fiscal 2022 capital expenditures, excluding tenant allowances, including about $85 million for approximately 160 new stores in fiscal 2022. It described a plan to open 375–400 stores over the next two fiscal years. Management believed cash, operating cash flow and credit availability would cover planned investment, authorized repurchases and working capital for the next 12 months and foreseeable future.
- The company approved a new $100 million share-repurchase program in June 2022, extending through June 30, 2025. It had exhausted the prior program after repurchasing $40 million during the first half; no repurchases had yet been made under the new program as of July 30.
- During the quarter, the company committed to 45 new store leases with average terms of about 10 years and future minimum payments of approximately $79.8 million. It began operating its Indianapolis distribution center in June 2022.
- Management highlighted inflation, merchandise and freight costs, global supply-chain and shipping constraints, inventory management, store growth execution, consumer discretionary spending, competition, leases, and technology and cybersecurity as risks. The business is seasonal, with sales usually highest in the fourth quarter.
- Ordinary-course legal proceedings include commercial, intellectual-property, customer and employment matters, including class actions. Management did not believe their ultimate resolution would materially adversely affect financial condition or results, but outcomes are uncertain. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether comparable-sales trends and transaction values improve, and whether new-store growth can offset weakness in existing stores.
- Whether gross-margin pressure and higher SG&A persist, particularly as occupancy, merchandise and freight costs evolve.
- Inventory levels, operating cash flow conversion and the funding required for planned capital expenditures and store expansion.
- Credit-facility renewal or replacement ahead of its April 2023 expiration, and continued covenant compliance and liquidity availability.
- Execution and costs of the store-opening and distribution-center plans, and potential exposure from leases and legal matters.