Business context and reporting period
Five Below is a specialty value retailer serving tween and teen customers, with most merchandise priced at $5 and below. It operated 1,121 stores in 39 states and sold online through fivebelow.com.
Period clarification: Although the request metadata says “2020 Q2,” the filing is a Form 10-Q for the 13 and 26 weeks ended July 31, 2021 (fiscal 2021 Q2), compared with periods ended August 1, 2020. The interim financial statements are unaudited.
Financial performance and position
| Metric | 13 weeks ended July 31, 2021 | 26 weeks ended July 31, 2021 |
|---|---|---|
| Net sales | $646.6 million; up 51.7% | $1,244.4 million; up 98.5% |
| Comparable sales | Up 39.2% | Up 79.9% |
| Gross profit / margin | $230.3 million / 35.6% | $431.2 million / 34.7% |
| Operating income | $86.2 million; 13.3% margin | $149.9 million; 12.0% margin |
| Net income | $64.8 million; diluted EPS $1.15 | $114.4 million; diluted EPS $2.03 |
| Operating cash flow | $148.8 million for the 26 weeks |
For the 26 weeks, net cash used in investing was $285.2 million, including $134.6 million of capital expenditures and net purchases of investment securities. Net cash used in financing was $6.2 million. Cash and cash equivalents were $126.2 million at July 31, 2021; short-term investments were $286.9 million, with another $1.1 million of long-term investments.
The company had no borrowings on its $225 million revolving credit facility and reported approximately $225 million available. Total liabilities were $1.62 billion, including $1.23 billion in operating lease liabilities; these lease obligations are not presented as conventional funded debt. Working capital was approximately $337.5 million.
Material changes versus the prior comparable period
Q2 net income rose from $29.6 million to $64.8 million; first-half results shifted from a $21.0 million net loss to $114.4 million net income. First-half gross margin increased from 25.6% to 34.7%, while SG&A declined from 31.8% to 22.6% of sales.
Management attributed much of the sales and margin improvement to comparison with 2020, when stores were temporarily closed amid COVID-19 and occupancy costs continued. Comparable-sales growth therefore reflects a substantially disrupted prior-year base, alongside new-store growth. The company had 139 more stores than a year earlier.
Outlook, risks, and unusual items
- Management planned 170–175 new stores in fiscal 2021 and approximately $315 million in cash capital expenditures, excluding tenant allowances. The company expected to fund investment with operating cash flow, cash and investments, and, if needed, the credit facility.
- Management said cash, investments, operating cash flow, and available credit should be adequate for planned spending and working capital over the next 12 months and foreseeable future, while noting future financing may be needed if those sources are insufficient.
- COVID-19 impacts remained uncertain, particularly with the Delta variant; worsening conditions could affect sales, earnings, and cash flows. Risks also included global supply-chain disruption, freight costs and shipping constraints, inflation, merchandise sourcing, store traffic, inventory management, and execution of growth and distribution capacity.
- The company entered 89 new retail leases or lease modifications from January 31 through July 31, with approximately $189 million of future minimum lease payments. It committed to two distribution centers: Buckeye, Arizona, expected to cost about $65 million (about $58 million paid; operations began August 2021), and Indianapolis, Indiana, expected to cost about $61 million (about $11 million paid; expected occupancy in 2022).
- A new share repurchase authorization permits up to $100 million through March 21, 2024; no shares were repurchased in the reported quarter or first half. The company reported ordinary-course legal matters and said it did not expect their resolution to materially harm financial condition or results.
- First-half effective tax rate was 22.6%, compared with 46.7% in the prior-year period; management cited CARES Act and share-based-compensation-related discrete tax items in the comparisons.
Most important facts for investors to verify
- Confirm the filing period: this is fiscal 2021 Q2, not 2020 Q2.
- Assess how much of the exceptional sales and comparable-sales growth reflects recovery from 2020 store closures versus durable demand and new-store contributions.
- Monitor gross margin, freight and supply-chain costs, inventory levels, and the effect of product mix as comparisons normalize.
- Track delivery and costs for the planned store openings and distribution centers, alongside the $315 million capital-spending plan and lease commitments.
- Verify liquidity and credit-facility availability as seasonal inventory needs rise; consider substantial lease liabilities when assessing obligations.
- Review COVID-19/Delta developments, tax-rate variability, and any changes in legal contingencies or repurchase activity.