Five Below, Inc. — Form 10-K Summary
Period clarification: Although the request identifies “2020 Q4,” this filing is the annual report for fiscal 2021, the 52 weeks ended January 29, 2022. The filing also presents fourth-quarter results; fiscal 2020 ended January 30, 2021.
Business context and reporting period
Five Below operates a value-focused specialty retail chain aimed primarily at tweens and teens, selling trend-driven merchandise, with most items priced at $5 or less. At fiscal year-end, it operated 1,190 stores in 40 states and also sold through its e-commerce website. Fiscal 2021 included 52 weeks.
Financial performance and liquidity
| Metric | Fiscal 2021 | Fiscal 2020 |
|---|---|---|
| Net sales | $2,848.4 million | $1,962.1 million |
| Comparable sales growth | 30.3% | (5.5%) |
| Gross profit / gross margin | $1,030.4 million / 36.2% | $652.3 million / 33.2% |
| Operating income / margin | $379.9 million / 13.3% | $154.8 million / 7.9% |
| Net income | $278.8 million | $123.4 million |
| Diluted earnings per share | $4.95 | $2.20 |
| Cash from operating activities | $327.9 million | $366.0 million |
| Capital expenditures | $288.2 million | $200.2 million |
Fiscal 2021 sales rose 45.2%; management attributed comparable-sales growth principally to the prior-year effects of COVID-19 store closures and restrictions. Gross margin improved about 300 basis points, principally because store occupancy costs were lower as a percentage of sales than in fiscal 2020, when stores were temporarily closed but rent expense continued. SG&A was 22.8% of sales, down from 25.4%.
Fourth-quarter fiscal 2021 net sales were $996.3 million versus $858.5 million in fourth-quarter fiscal 2020; net income was $140.2 million versus $123.9 million. The business is seasonal, with approximately 40% of annual sales historically occurring in the fourth quarter.
Cash and cash equivalents were $65.0 million at year-end, with short- and long-term investment securities totaling approximately $314.9 million. The company had no direct revolving-credit borrowings and reported approximately $153 million available under its facility. Total liabilities were $1,760.2 million, including $1,299.0 million of operating lease liabilities; these lease obligations are distinct from funded borrowings. Operating cash flow declined by $38.1 million, primarily due to working-capital changes and higher income taxes paid. Investing cash use increased to $465.6 million, while financing cash use was $66.1 million, including $60.0 million of share repurchases.
Material changes versus the prior comparable period
- Net sales increased $886.3 million, or 45.2%, and comparable sales rose 30.3%, following a 5.5% comparable-sales decline in fiscal 2020.
- Net income increased 126.0%, while operating income more than doubled. The comparison reflects pandemic-related store closures, reduced traffic, and expense reductions in fiscal 2020.
- The company added 170 net stores, ending the year with 1,190 locations, versus 120 net additions in fiscal 2020.
- Cash declined to $65.0 million from $268.8 million, while inventory increased to $455.1 million from $281.3 million. The filing cites working-capital needs and investment spending among the drivers of cash movement.
Outlook, risks, and unusual items
Management planned approximately 160 new store openings and about $220 million of cash capital expenditures in fiscal 2022, funded from operating cash flow, cash and investments, and, if needed, the revolving facility. It targeted 375 to 400 new stores over fiscal 2022 and the following fiscal year and reiterated a long-term opportunity to exceed 3,500 U.S. stores. The company expected to open its Indianapolis distribution center in the first half of fiscal 2022 and cease operations at its Olive Branch and Cincinnati distribution centers; expected closure costs were described as immaterial.
Key risks include renewed COVID-19 disruption, supply-chain and freight constraints, inflation and product-cost increases, tariffs, the ability to maintain the value proposition while adjusting prices, inventory management and shrink, staffing, competition, distribution capacity, and the seasonal dependence on holiday sales. Management said commodity-price and general-inflation changes had not materially affected the business to date, but warned future increases could pressure margins and sales.
Fiscal 2021 included an approximately $9.7 million impairment and reserve related to an equity-method investment and related debt receivable, recorded in interest and other expense. The effective tax rate rose to 24.0% from 19.4%, with the comparison affected by discrete items, including the CARES Act in fiscal 2020 and share-based tax accounting. The auditor issued an unqualified opinion on the financial statements and internal controls. Management did not expect ordinary-course legal matters to have a material adverse effect.
Important facts for investors to verify
- Confirm the intended reporting period: this is fiscal 2021, not a fiscal 2020 fourth-quarter filing; use the separately disclosed quarterly figures for Q4 comparisons.
- Assess how much of fiscal 2021’s exceptional comparable-sales growth reflects recovery from fiscal 2020 closures versus sustained underlying demand.
- Monitor inventory growth, freight and other supply-chain costs, gross-margin trends, and cash conversion as expansion continues.
- Track execution and returns on the planned store openings, distribution network changes, and approximately $220 million fiscal 2022 capital budget.
- Review lease commitments and revolving-facility availability: disclosed minimum operating-lease commitments were $1,566.1 million, and the credit facility matures April 24, 2023.