Five Below, Inc. — Form 10-Q Summary
Period: The filing covers the 13 weeks and 39 weeks ended October 30, 2021, with comparisons to October 31, 2020. The request metadata says “2020 Q3,” but the filing itself is for fiscal 2021 Q3.
Business context
Five Below is a specialty value retailer focused on tween and teen customers, with most merchandise priced at $5 or below. At quarter-end, it operated 1,173 stores in 40 states, compared with 1,018 stores a year earlier, and also sold online. Results are seasonal, with sales usually highest in the holiday quarter.
Financial results
| Metric | 13 weeks ended Oct. 30, 2021 | 13 weeks ended Oct. 31, 2020 | 39 weeks ended Oct. 30, 2021 | 39 weeks ended Oct. 31, 2020 |
|---|---|---|---|---|
| Net sales | $607.6 million | $476.6 million | $1,852.0 million | $1,103.6 million |
| Gross profit / margin | $202.4 million / 33.3% | $151.1 million / 31.7% | $633.6 million / 34.2% | $311.4 million / 28.2% |
| Operating income (loss) | $42.4 million | $24.2 million | $192.3 million | $(14.8) million |
| Net income (loss) | $24.2 million | $20.4 million | $138.6 million | $(0.6) million |
| Diluted EPS | $0.43 | $0.36 | $2.46 | $(0.01) |
- Quarterly sales rose 27.5%; comparable sales increased 14.8%, driven mainly by a 14.3% increase in transactions. Average transaction value rose 0.5%.
- Year-to-date sales rose 67.8% and comparable sales rose 52.0%. Management cautioned that the prior-year period was heavily affected by temporary store closures and other COVID-19 impacts.
- Quarterly gross margin improved 160 basis points, primarily from lower store occupancy and distribution costs as a percentage of sales. SG&A was 26.3% of sales versus 26.6% a year earlier.
- Year-to-date gross margin rose 600 basis points and SG&A fell to 23.8% of sales from 29.6%; the prior-year comparison included store closures and cost reductions.
Cash flow, liquidity and obligations
- For the 39 weeks, operating cash flow was $124.7 million, investing cash outflow was $300.3 million, and financing cash outflow was $6.3 million. Cash and cash equivalents decreased $182.0 million to $86.8 million.
- At October 30, 2021, short-term investments were $224.6 million, giving cash and short-term investments of approximately $311.3 million. Inventories were $521.1 million.
- The company had no borrowings on its $225 million revolving credit facility and reported approximately $225 million available; it was in covenant compliance. The facility expires April 24, 2023, subject to its terms.
- Operating lease liabilities totaled $1.30 billion, including $162.8 million current and $1.14 billion long-term. These are lease obligations, not reported borrowings under the credit facility.
- Capital expenditures were $213.2 million year-to-date. Management planned approximately $310 million of fiscal 2021 capital expenditures, excluding tenant allowances, and 170 net new stores.
Outlook, commentary and notable items
- Management said cash, operating cash generation, investments and credit availability should fund planned capital expenditures, authorized repurchases and working capital needs over the next 12 months and foreseeable future. It noted additional financing might be needed if cash flows and facility borrowings prove insufficient.
- The company committed to 119 new retail leases and lease modifications from January 31 through October 30, with approximately $278.6 million of future minimum lease payments. During the quarter it committed to 30 new store leases with approximately $89.6 million of future minimum payments.
- The Buckeye, Arizona distribution center began operating in August 2021. A planned Indianapolis distribution center is expected to cost approximately $61 million; about $26 million had been paid, with occupancy expected in 2022.
- Quarterly interest and other expense included an approximately $9.7 million impairment of an equity-method investment and a reserve against related debt owed to the company.
- COVID-19 effects remained uncertain, including potential impacts from the Delta variant. Management also highlighted global supply-chain disruption, freight and shipping constraints, inventory availability, inflation, tariffs, traffic, competition, and store and distribution-network execution risks.
- The company reported no material change in previously disclosed risk factors, no material off-balance-sheet arrangements, and no material expected adverse effect from ordinary-course legal matters. Disclosure controls were assessed as effective at a reasonable assurance level.
Important facts for investors to verify
- Confirm the period: this is fiscal 2021 Q3, not 2020 Q3; assess year-over-year comparisons in light of prior-year COVID-related closures.
- Track inventory growth, freight and supply-chain costs, and whether gross-margin improvement is sustainable.
- Monitor execution and funding of the 170-store plan, approximately $310 million capital budget, and distribution-center projects.
- Review the investment impairment and the collectability of the related amount owed to the company.
- Assess lease commitments, seasonal working-capital needs, and continued availability under the revolving credit facility.