Five Below, Inc. — Form 10-Q Summary
Reporting period: The supplied filing is for the thirteen and twenty-six weeks ended July 30, 2016, not 2015 Q2 as stated in the request metadata. Comparisons are with the periods ended August 1, 2015. Figures below are in U.S. dollars; financial amounts are rounded to millions unless noted.
Business context and results
Five Below operates a value-retail chain selling merchandise targeted at teens and pre-teens, generally priced at $5 or less. It operated 491 stores in 30 states at quarter-end, versus 417 stores a year earlier. The company launched fivebelow.com in August 2016, after the reporting period.
| Metric | Q2 2016 | Q2 2015 | First half 2016 | First half 2015 |
|---|---|---|---|---|
| Net sales | $220.1 | $182.2 | $412.8 | $335.9 |
| Gross profit / margin | $73.4 / 33.3% | $59.8 / 32.8% | $133.6 / 32.4% | $107.0 / 31.8% |
| Operating income / margin | $15.7 / 7.1% | $11.6 / 6.3% | $26.5 / 6.4% | $18.6 / 5.5% |
| Net income | $9.8 | $7.1 | $16.6 | $11.3 |
| Diluted EPS | $0.18 | $0.13 | $0.30 | $0.21 |
Financial position and cash flow
- For the first half, operating cash flow was $16.4 million, down from $26.3 million. Capital expenditures were $22.4 million; investing activities used $5.0 million, including net investment-security cash inflows. Financing activities provided $2.6 million.
- Cash and cash equivalents were $67.1 million at July 30, 2016, with $28.9 million of short-term investment securities. Current assets were $278.9 million and current liabilities were $100.1 million.
- No borrowings were outstanding under the $20 million revolving credit facility, and approximately $20 million was available. The facility matures May 16, 2017, subject to earlier termination under specified conditions. The company reported covenant compliance.
- Total liabilities were $151.4 million. The filing reports no funded debt outstanding under the revolver; it also describes substantial operating-lease commitments.
Changes, outlook, and risks
- Q2 sales grew 20.8%; first-half sales grew 22.9%. Comparable-store sales increased 3.1% in Q2 and 3.9% in the first half. Growth was primarily driven by new and recently opened stores; Q2 comparable growth reflected higher average transaction value, partly offset by fewer transactions.
- Gross margin improved 50 basis points in both comparison periods. SG&A declined as a percentage of sales by approximately 30 basis points in Q2 and 40 basis points year to date, supporting operating-margin expansion.
- Management planned approximately 85 new stores and about $40 million in fiscal 2016 capital expenditures, including approximately $25 million for new stores. It expected cash from operations and available revolver capacity to fund planned needs over the next 12 months and beyond.
- From January 30 to July 30, 2016, the company entered 51 new retail leases and other lease modifications with approximately $99.3 million of future minimum payments. Separately, it reported 25 new store leases entered during Q2, with approximately $44.9 million of future minimum payments.
- The e-commerce launch introduces execution, cost, competition, fraud, and customer-channel-shift risks; online sales could also require technology and distribution investment. Other disclosed risks include store expansion and lease obligations, inventory and shrinkage, distribution capacity, weather and seasonality, competition, data security, and staffing.
- The business is seasonal, with sales usually highest in the fourth fiscal quarter. Management cautioned that interim results may not predict full-year results. No specific earnings or comparable-sales forecast was provided in the supplied filing text.
- Ordinary-course legal proceedings were disclosed; management did not expect their resolution to materially adversely affect financial condition or results, while noting outcomes cannot be predicted with certainty.
Important facts for investors to verify
- Confirm the period: the filing covers Q2 and the first half of fiscal 2016, despite the request metadata’s 2015 Q2 label.
- Track comparable-store sales, transaction counts and average transaction value, alongside growth from new stores.
- Assess whether e-commerce can grow profitably without materially diverting store sales or raising fulfillment, technology, and fraud costs.
- Monitor operating cash flow and capital spending, the planned store-opening pace, and the financial impact of new long-term leases.
- Verify the revolver’s availability, covenant compliance, and refinancing or renewal status ahead of its May 2017 maturity.