Five Below, Inc. — Form 10-Q Summary
Period: The filing covers the thirteen and thirty-nine weeks ended October 31, 2015, compared with periods ended November 1, 2014. This differs from the request metadata’s “2014 Q3”; the filing’s stated period is used below. Figures are unaudited.
Business context and reporting period
Five Below operates a specialty value-retail chain focused on teen and pre-teen customers, with merchandise priced at $5 and below. At October 31, 2015, it operated 434 stores in 27 states, up from 365 stores a year earlier. The business is seasonal, with sales typically highest in the fourth fiscal quarter.
Financial performance and liquidity
| Metric | 13 weeks ended Oct. 31, 2015 | 13 weeks ended Nov. 1, 2014 | 39 weeks ended Oct. 31, 2015 | 39 weeks ended Nov. 1, 2014 |
|---|---|---|---|---|
| Net sales | $169.7 million | $138.0 million | $505.6 million | $416.5 million |
| Gross profit / margin | $52.8 million / 31.1% | $41.6 million / 30.2% | $159.8 million / 31.6% | $131.5 million / 31.6% |
| Operating income / margin | $7.0 million / 4.1% | $5.5 million / 4.0% | $25.6 million / 5.1% | $24.1 million / 5.8% |
| Net income | $4.3 million | $3.3 million | $15.7 million | $14.7 million |
| Diluted EPS | $0.08 | $0.06 | $0.29 | $0.27 |
- Quarterly sales rose 23.0%; comparable-store sales grew 4.8%. Year-to-date sales rose 21.4%, while comparable-store sales grew 3.2%.
- Quarterly net income increased about 31.0%; year-to-date net income increased 6.6%. Year-to-date operating margin declined to 5.1% from 5.8%, as SG&A grew faster than sales.
- For the thirty-nine weeks, operating cash flow was negative $1.5 million, versus negative $3.6 million a year earlier. Investing cash outflow was $44.7 million, primarily capital expenditures, versus $24.8 million. Cash declined $45.1 million to $18.1 million.
- At October 31, 2015, inventory was $213.6 million, accounts payable $110.1 million, and total current liabilities $151.0 million. The company had no revolver borrowings and approximately $20.0 million available under its $20.0 million revolving facility; it reported compliance with facility covenants.
Changes, outlook, risks, and unusual items
- Quarterly gross margin improved 0.9 percentage points, primarily from lower merchandise costs; year-to-date gross margin was unchanged as lower merchandise costs were offset by higher store occupancy costs. SG&A increased 0.8 percentage points as a share of sales in both comparison periods.
- Management planned approximately 70 net new stores for fiscal 2015 and approximately $55 million in fiscal-year capital expenditures, including about $22 million for new-store construction and openings. It expected cash, operating cash flow, and revolver availability to fund anticipated needs over the next 12 months and foreseeable future. No earnings or sales forecast was provided.
- Expansion adds substantial commitments: 63 new retail leases and modifications entered into from February 1 through October 31 carried approximately $111.3 million in future minimum payments. Separately, 19 leases signed during the quarter carried approximately $32.7 million in future minimum payments. The new Pedricktown distribution-center lease has approximately $44 million in future minimum payments.
- Key disclosed risks include execution of store and distribution-network growth, inventory and supply-chain management, competition including online retailers, weather and seasonality, cybersecurity and IT systems, employee retention, and significant lease obligations. Management reported no material changes to previously disclosed risk factors.
- Management said ordinary-course legal matters were not expected to have a material adverse effect, but outcomes are uncertain and adverse developments could affect results. Disclosure controls were assessed as effective at a reasonable-assurance level, with no material changes in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Confirm the reporting-period discrepancy: the supplied metadata says 2014 Q3, while the filing reports the quarter ended October 31, 2015.
- Track whether new-store growth and the planned 70 openings generate sufficient sales and operating leverage to offset rising SG&A and occupancy costs.
- Monitor holiday-season inventory, working-capital requirements, and cash generation, given negative year-to-date operating cash flow and the seasonal build in inventory.
- Assess the effect of lease and distribution-center commitments on future fixed costs, liquidity, and returns on expansion investment.
- Review the full filing and prior annual report for detailed risk factors, credit-facility covenants, and any subsequent developments; interim results are not necessarily indicative of full-year performance.