Five Below, Inc. — Form 10-Q Summary
Period clarification: The request identifies 2021 Q1, but the filing covers the thirteen weeks ended April 30, 2022, compared with the thirteen weeks ended May 1, 2021. The financial summary below follows the filing period.
Business context and reporting period
Five Below is a specialty value retailer focused on tween and teen customers, selling primarily merchandise priced at $5 and below. At April 30, 2022, it operated 1,225 stores in 40 states and also sold online. The unaudited interim statements are prepared under U.S. GAAP. The company notes its business is seasonal, with sales usually highest in the fourth fiscal quarter.
Financial performance
| Metric | 13 weeks ended Apr. 30, 2022 | 13 weeks ended May 1, 2021 | Change |
|---|---|---|---|
| Net sales | $639.6 million | $597.8 million | +7.0% |
| Comparable sales | -3.6% | +162.0% | Declined |
| Gross profit | $206.8 million | $200.9 million | +2.9% |
| Gross margin | 32.3% | 33.6% | -130 basis points |
| SG&A expenses | $164.4 million | $137.2 million | +19.9% |
| Operating income | $42.3 million | $63.7 million | Declined |
| Net income | $32.7 million | $49.6 million | -34.0% |
| Diluted EPS | $0.59 | $0.88 | Declined |
| Operating cash flow | $42.1 million | $66.7 million | Declined |
Revenue grew mainly from non-comparable sales, up $62.6 million, reflecting stores opened in fiscal 2021 and 2022; comparable sales fell $20.8 million. Comparable sales declined as average transaction value fell approximately 1.9% and transaction count fell approximately 1.7%. Cost of goods sold rose 9.0%, faster than sales. SG&A increased 280 basis points as a share of sales to 25.7%, including higher store-related costs to support growth and increased corporate costs. The effective tax rate was 22.3%, versus 20.9%.
Liquidity, balance sheet, and cash flow
- At April 30, 2022, cash and cash equivalents were $120.5 million and short-term investment securities were $189.1 million. Current assets were $905.6 million and current liabilities were $594.4 million.
- Inventory was $504.2 million, up from $326.7 million at May 1, 2021. The company identifies inventory purchasing and seasonal working-capital needs as important cash requirements.
- The company had no borrowings under its $225 million asset-based revolving credit facility and reported approximately $191 million available. The facility expires April 24, 2023; the company reported compliance with its covenants.
- Operating lease liabilities totaled $1.384 billion, including $174.4 million current and $1.210 billion long-term. The filing reports no direct revolving-credit borrowings; lease obligations are significant.
- Operating cash flow was $42.1 million. Investing activities provided $57.4 million, primarily reflecting investment-security maturities and redemptions, partly offset by $58.1 million in capital expenditures. Financing activities used $44.0 million, including $40.0 million for share repurchases. Cash increased $55.5 million to $120.5 million.
Material changes, outlook, and risks
- Net income and operating cash flow declined year over year despite higher sales; gross margin contracted and SG&A grew faster than revenue.
- Management planned approximately 160 new stores in fiscal 2022 and approximately 375 to 400 over the next two fiscal years. It expected fiscal 2022 capital expenditures of approximately $225 million, excluding tenant allowances, including about $85 million for new-store construction and openings.
- Management stated available cash, investments, operating cash flow, and credit-facility availability should fund planned capital expenditures and working capital for the next 12 months and the foreseeable future. This is an expectation, not a guarantee.
- The company had entered into 43 new store leases with average terms of about 10 years and approximately $97.6 million in future minimum lease payments. It expected to occupy a new Indianapolis distribution center in the first half of 2022; total land and building cost was expected to be about $61 million, of which approximately $54 million had been paid by quarter-end.
- The March 2021 share-repurchase authorization was completed: the company repurchased 247,132 shares for approximately $40.0 million during the quarter. The filing also reports approximately $15.2 million of other purchase commitments related to new-store construction materials.
- Key disclosed risks include inflation and commodity costs, freight and supply-chain disruption, tariffs, inventory management, store-growth execution, customer traffic and discretionary spending, distribution capacity, competition, leases, and COVID-19-related uncertainty. Management said it believed pending legal matters would not materially adversely affect financial condition or results, while noting outcomes cannot be predicted with certainty.
- Management reported disclosure controls were effective at a reasonable-assurance level and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the reporting-period distinction: this filing is Q1 fiscal 2022, not Q1 2021; assess comparable-sales performance against the unusually high prior-year comparison.
- Track whether comparable sales recover and whether transaction value and traffic improve, while monitoring margins and expense growth.
- Review inventory levels, operating cash generation, planned capital expenditures, and execution of store and distribution-center expansion.
- Assess the company’s ability to renew or replace the revolving facility before its April 2023 maturity and maintain adequate liquidity as lease obligations and growth commitments increase.
- Monitor inflation, freight, supply-chain, tariff, and other risks identified in the filing; the filing provides no numerical full-year earnings or sales guidance.