Five Below, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 and 26 weeks ended July 29, 2023, compared with the periods ended July 30, 2022. The request metadata says “2022 Q2,” but the filing itself is for fiscal 2023 Q2. Financial statements are unaudited.
Business context
Five Below is a specialty value retailer focused on tween and teen customers, offering merchandise mostly priced at $5 and below. At quarter-end, it operated 1,407 stores in 43 states, versus 1,252 a year earlier, and also sold online.
Key financial results
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Net sales | $759.0M | $668.9M | $1,485.2M | $1,308.5M |
| Gross profit / margin | $264.6M / 34.9% | $228.5M / 34.2% | $499.4M / 33.6% | $435.3M / 33.3% |
| SG&A / % of sales | $206.0M / 27.1% | $172.5M / 25.8% | $398.4M / 26.8% | $336.9M / 25.8% |
| Operating income / margin | $58.6M / 7.7% | $56.0M / 8.4% | $101.0M / 6.8% | $98.3M / 7.5% |
| Net income | $46.8M | $41.3M | $84.3M | $74.1M |
| Diluted EPS | $0.84 | $0.74 | $1.51 | $1.33 |
- Q2 sales rose 13.5%; comparable sales increased 2.7%. Comparable-sales growth reflected transactions up about 4.5%, partly offset by average transaction value down about 1.8%. First-half comparable sales also rose 2.7%.
- Q2 gross margin expanded about 70 basis points, mainly from lower merchandise cost and distribution costs as a share of sales. SG&A rose faster than sales, increasing 130 basis points as a share of sales; operating margin consequently declined about 70 basis points.
- Q2 net income increased 13.3%; first-half net income increased 13.8%. First-half gross margin improved 30 basis points, while SG&A as a share of sales rose 100 basis points.
Cash, liquidity and obligations
- First-half operating cash flow was $169.3M, versus $46.2M a year earlier. Investing used $151.4M, including $116.4M in capital expenditures; financing used $15.7M. Cash increased $2.2M during the period.
- At July 29, 2023, cash and cash equivalents were $334.5M and short-term investments were $101.8M. The company had no revolving-credit borrowings and reported approximately $210M available under its $225M asset-based facility, which expires in September 2027. It reported covenant compliance.
- Total operating lease liabilities were $1.606B, including $211.2M current and $1.395B long-term. These are lease obligations, not reported borrowings. The company entered 152 new retail leases and lease modifications in the first half, with approximately $271M in future minimum payments.
Outlook, commentary and risks
- Management planned approximately $335M of fiscal 2023 cash capital expenditures, excluding tenant allowances, including about $155M to construct and open over 200 stores. Funding was expected from operating cash flow, cash and investments, and, if needed, the credit facility.
- Management said available cash, operating cash flow and credit-facility availability should fund planned capital expenditures, authorized repurchases and working capital for the next 12 months and foreseeable future. The filing does not provide a specific sales or earnings forecast.
- Management cited seasonal working-capital needs, which typically rise in the third and fourth quarters ahead of holiday selling. The business is seasonal, with sales usually highest in the fourth quarter.
- Risks discussed include inflation and tariffs, supply-chain and freight disruptions, inventory management and shrink, store traffic and competition, execution of store and online growth, lease obligations, weather, cyber and IT incidents, and consumer discretionary spending. The filing reported no material change to previously disclosed risk factors.
- Ordinary-course legal claims 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.
Important facts for investors to verify
- Whether comparable-sales growth and transaction gains persist, particularly given the decline in average transaction value.
- Whether gross-margin improvement can continue while SG&A grows faster than sales and operating margin remains under pressure.
- Execution and funding of the planned 200-plus store openings and $335M capital-spending program.
- Actual borrowing-base availability under the revolving facility, and the company’s ability to meet substantial lease commitments and seasonal inventory needs.
- How inflation, tariffs, freight costs, shrink and discretionary-spending trends affect costs, demand and margins; no specific earnings guidance is provided in this filing.