Five Below, Inc. — Form 10-K Summary
Reporting period: Fiscal 2023, the 53 weeks ended February 3, 2024. Although the request identifies 2022 Q4, this filing is an annual report; it also reports fiscal 2023 fourth-quarter results and compares annual results with fiscal 2022, a 52-week year.
Business context
Five Below is a U.S. value retailer focused on trend-oriented merchandise, primarily priced at $5 or below, across stores and e-commerce. It operated 1,544 stores in 43 states at year-end, after opening 204 net new stores during fiscal 2023.
Financial and operating performance
| Metric | Fiscal 2023 | Fiscal 2022 | Change or context |
|---|---|---|---|
| Net sales | $3,559.4 million | $3,076.3 million | Up 15.7%; includes about $48.1 million from the extra 53rd week |
| Comparable sales | Up 2.8% | Down 2.0% | Transactions up about 3.9%; average transaction value down about 1.0% |
| Gross margin | 35.8% | 35.6% | Up about 20 basis points |
| Operating income / margin | $385.6 million / 10.8% | $345.0 million / 11.2% | Income up 11.7%; margin down about 40 basis points |
| Net income / diluted EPS | $301.1 million / $5.41 | $261.5 million / $4.69 | Net income up 15.1% |
| Operating cash flow | $499.6 million | $314.9 million | Increase attributed primarily to working capital, store performance, and lower income taxes paid |
| Capital expenditures | $335.1 million | $252.0 million | Higher investment in stores and corporate infrastructure |
| Cash and investments at year-end | $460.1 million | $399.2 million | Cash of $179.7 million plus short- and long-term investment securities |
Fiscal 2023 fourth-quarter sales were $1,337.7 million, operating income $268.4 million, and net income $202.2 million. The fourth quarter is typically the company’s strongest period because of holiday demand.
Cost of goods sold was 64.2% of sales, while SG&A and depreciation and amortization together were 25.0% of sales. Gross-margin improvement reflected lower distribution costs as a share of sales; management also cited lower merchandise costs, with inventory shrink remaining a factor. SG&A and depreciation and amortization rose to 25.0% of sales from 24.4%, reflecting store-related and corporate expense growth.
Liquidity, debt, and commitments
The company had no direct borrowings under its revolving credit facility at February 3, 2024 and reported approximately $216 million available. The facility provides up to $225 million, is secured by substantially all assets of the company and its subsidiary guarantor, and expires in September 2027. The company reported compliance with its covenants. Total liabilities include substantial operating lease obligations: $1.74 billion in present-value lease liabilities, with $2.10 billion of disclosed future minimum lease payments.
Management expects to fund planned spending with operating cash flow, cash and investments, and, if needed, the revolver. Fiscal 2024 cash capital expenditures are planned at approximately $365 million, including about $170 million for 225–235 new stores. The company reported $100 million authorized under a share-repurchase program, but the program may be changed or discontinued; no repurchases under the new program had occurred by year-end.
Outlook, risks, and unusual items
- Management sees potential to grow the U.S. store base from 1,544 to more than 3,500 over time and expects positive comparable-sales growth. It targets store-level payback of less than one year, based on its store model.
- Fiscal 2024 plans include 225–235 new stores and expansion of distribution facilities in Georgia and Arizona. Actual openings depend on site availability, staffing, market conditions, and execution.
- Sales rose 15.7%, but the comparison is affected by the extra fiscal 2023 week and new-store growth. The filing attributes $400.7 million of the sales increase to non-comparable sales and $82.4 million to comparable sales.
- Inventory was $584.6 million, up from $527.7 million. Management disclosed that shrink had recently reached higher-than-historic levels; inventory valuation and sell-through were also identified as significant estimates and an audit focus.
- Key risks include inflation and merchandise costs, tariffs and overseas sourcing, supply-chain and shipping disruption, competition and consumer traffic, execution of rapid store growth, inventory shrink and markdowns, seasonal dependence, leases, cyber incidents, and weather or geopolitical disruption.
- The company disclosed ordinary-course legal matters and stated that management did not expect their resolution to materially adversely affect financial condition or results. No material cybersecurity impact was reported as of the filing date. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
- The company does not expect to pay cash dividends in the foreseeable future. It reported no material long-lived-asset impairment in fiscal 2023.
Important facts for investors to verify
- How much of sales and earnings growth is attributable to the extra week and new stores, versus underlying comparable-store trends.
- Whether elevated inventory shrink persists, and its effect on gross margin, markdowns, and cash generation.
- Whether gross-margin gains can be sustained while operating expenses, store growth, and distribution investment rise.
- Execution and returns on the planned 225–235 fiscal 2024 openings and approximately $365 million of capital expenditures.
- Liquidity and financing capacity after planned investment, share repurchases, and continuing lease commitments.
- Seasonal concentration: approximately 40% of annual sales over the last two fiscal years occurred in the fourth quarter, increasing exposure to holiday demand and weather.