Five Below, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 and 26 weeks ended August 1, 2020, with comparisons to periods ended August 3, 2019. The request metadata says “2019 Q2,” which does not match the filing period.
Business context and results
Five Below is a value retailer focused on tween and teen customers, operating 982 stores in 38 states and an e-commerce site. Most merchandise is priced at $5 or less. The company temporarily closed all stores on March 20, 2020, began reopening at the end of April, and had reopened substantially all stores to the public by the end of June.
| Metric | 13 weeks ended Aug. 1, 2020 | Year-over-year change | 26 weeks ended Aug. 1, 2020 | Year-over-year change |
|---|---|---|---|---|
| Net sales | $426.1 million | +2.1% | $627.0 million | -19.8% |
| Comparable sales | -12.2% | vs. +1.4% | -31.0% | vs. +2.2% |
| Gross profit | $139.8 million | -4.3% | $160.3 million | -39.8% |
| Gross margin | 32.8% | vs. 35.0% | 25.6% | vs. 34.0% |
| SG&A | $106.7 million | -3.1% | $199.4 million | -3.1% |
| Operating income (loss) | $33.1 million | vs. $36.0 million | $(39.1) million | vs. $60.5 million |
| Net income (loss) | $29.6 million | vs. $28.8 million | $(21.0) million | vs. $54.5 million |
| Diluted EPS | $0.53 | vs. $0.51 | $(0.38) | vs. $0.97 |
Second-quarter sales rose despite a 12.2% comparable-sales decline, supported by store growth: the chain had 982 stores versus 833 a year earlier. Quarterly gross margin fell 2.2 percentage points, principally because store occupancy costs continued during closures and merchandise costs increased. SG&A savings from furloughs and expense reductions partly offset those pressures. First-half results reflect the extended closures and associated sales loss; the tax benefit, including CARES Act-related effects, contributed to the reported first-half net loss being smaller than the pretax loss.
Cash, liquidity, and obligations
- At August 1, cash and cash equivalents were $160.3 million and short-term investments were $41.7 million. Cash plus short-term investments totaled $202.0 million.
- First-half operating cash flow was $61.5 million, compared with $47.0 million a year earlier. Investing cash outflow was $88.1 million, including $100.7 million of capital expenditures; financing cash outflow was $15.5 million. Cash declined $42.2 million during the period.
- The company had no revolver borrowings at quarter-end and reported approximately $148 million available under its $225 million asset-based revolving facility, which expires April 24, 2023. It borrowed and repaid about $50 million during the first quarter.
- Operating lease liabilities totaled approximately $1.043 billion, including $134.9 million current and $908.6 million long-term. These are lease obligations, not reported revolver debt.
- Total current assets were $570.5 million versus current liabilities of $366.2 million. Management said available cash, operating cash flow, and credit-facility capacity should fund planned spending and working capital for the next 12 months and foreseeable future, while noting that additional financing might be needed if those sources prove insufficient.
Outlook, management commentary, and risks
- Management expected COVID-19 to potentially materially affect sales, earnings, and cash flows for the foreseeable future, citing possible renewed closures, lower store traffic, uncertain e-commerce and curbside demand, consumer-spending changes, supply-chain disruption, and added safety costs.
- The company planned approximately $200 million in fiscal 2020 cash capital expenditures and 110–120 net new stores, while noting it had reduced its capital budget and delayed a planned Midwest distribution center. A new Conroe, Texas distribution center began operating in July 2020; the planned Buckeye, Arizona center was expected to cost about $65 million, with occupancy anticipated in the second half of 2021.
- Management reported rent deferrals or abatements with the substantial majority of landlords and did not expect prior rent withholdings and agreed concessions to have a material adverse impact. Further negotiations were still underway. The filing warns that landlords could assert lease defaults if rent is withheld again.
- The company reported no impairment charges in the second quarter but said future impairment charges could arise from the pandemic. It also cited risks around store reopenings, consumer demand, supply chains, lease obligations, credit covenants, and the uncertain duration and scope of the pandemic.
- Other responses included furloughs and temporary pay reductions (substantially reinstated as stores reopened), operating-cost cuts, vendor-order and payment-term changes, CARES Act payroll-tax measures, an expanded credit line, and a shift toward essential and work-from-home/school-from-home products.
- The filing describes customary revolving-credit covenants, including minimum availability requirements and restrictions on certain actions. The company stated it was in compliance with applicable covenants at August 1, 2020. Ordinary-course legal matters were disclosed; management did not expect their resolution to materially harm financial condition or results.
Most important facts for investors to verify
- Confirm the intended reporting period: the filing is for Q2 2020, not Q2 2019 as stated in the request metadata.
- Track comparable sales and gross-margin recovery as stores operate under changing pandemic conditions.
- Assess cash generation, the $148 million reported revolver availability, borrowing-base and covenant conditions, and seasonal working-capital needs.
- Monitor lease concessions, rent obligations, and potential landlord disputes or asset impairments.
- Check whether the 110–120 store target and approximately $200 million capital-spending plan changed after the filing date.
- Evaluate the effect of tax-related discrete items on reported earnings and the sustainability of cost reductions.