Five Below, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 weeks ended May 1, 2021 (fiscal Q1 2021), not Q1 2020 as stated in the request metadata. The comparable period ended May 2, 2020. Figures below are in U.S. dollars; financial statement amounts are shown in millions unless noted.
Business context and results
Five Below is a value retailer focused on tween and teen customers, with most merchandise priced at $5 or less. It operated 1,087 stores in 39 states at quarter-end, versus 920 stores a year earlier, and also sells online.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $597.8 | $200.9 |
| Gross profit / gross margin | $200.9 / 33.6% | $20.5 / 10.2% |
| SG&A / share of sales | $137.2 / 22.9% | $92.7 / 46.1% |
| Operating income (loss) | $63.7 | $(72.2) |
| Net income (loss) | $49.6 | $(50.6) |
| Diluted earnings (loss) per share | $0.88 | $(0.91) |
| Operating cash flow | $66.7 | $(65.3) |
| Capital expenditures | $76.4 | $40.0 |
Financial position and liquidity
- At May 1, 2021, cash and cash equivalents were $84.2 million and investment securities totaled $308.0 million ($299.3 million short-term and $8.7 million long-term). Cash plus investments was approximately $392.1 million.
- Inventory was $326.7 million, versus $367.5 million a year earlier. Total assets were $2.44 billion and shareholders’ equity was $930.6 million.
- The company had no borrowings under its $225 million asset-based revolving credit facility and reported approximately $224 million available. It was in compliance with applicable covenants.
- Operating lease liabilities totaled $1.16 billion, including $147.2 million current and $1.01 billion long-term. The filing reports no other material off-balance-sheet arrangements.
- Cash and cash equivalents decreased by $184.6 million during the quarter, primarily reflecting investment purchases and capital spending; investing cash outflow was $244.7 million.
Changes versus the comparable period
- Sales rose 197.6%, and comparable sales increased 162.0%. Management attributed the exceptional comparison largely to the prior-year quarter, when all stores were temporarily closed beginning March 20, 2020 and began reopening at the end of April.
- Gross margin improved to 33.6% from 10.2%, primarily because store occupancy costs were a smaller share of sales; stores had remained closed while rent continued in the prior-year period.
- SG&A increased 48.1% in dollars but declined substantially as a share of sales, reflecting the much higher sales base and prior-year cost reductions and compensation-accrual reversals.
- Operating cash flow swung to positive $66.7 million from negative $65.3 million. Investing outflow increased, principally due to investment-security purchases and higher capital expenditures.
Outlook, risks and unusual items
- Management planned to open 170–180 new stores in fiscal 2021 and forecast approximately $315 million of fiscal-year cash capital expenditures, excluding tenant allowances. About $95 million was expected to support new-store construction and openings.
- Management stated that cash, investments, operating cash flow and available credit were expected to fund planned capital expenditures, authorized repurchases and working capital needs for the next 12 months and foreseeable future. This is management’s expectation, not a guarantee.
- The company committed to 59 new store leases during the quarter, with approximately $120.4 million in future minimum lease payments. It expected to occupy a new Buckeye, Arizona distribution center in the second half of 2021 and an Indianapolis, Indiana center in 2022.
- COVID-19 effects remained uncertain; a worsening pandemic could again materially affect operations, sales, earnings and cash flows. Other disclosed risks include supply-chain disruption, merchandise costs and tariffs, inflation, inventory management, store traffic, expansion and distribution-center execution, competition, cybersecurity and lease obligations.
- Ordinary-course legal proceedings include commercial, intellectual-property, customer and employment matters, including class actions. Management did not believe their ultimate resolution would materially adversely affect financial condition or results, but outcomes remain uncertain.
- The quarter’s effective tax rate was 20.9%, compared with 29.8% in the prior-year quarter; management cited discrete items, including effects of the CARES Act and share-based payment tax accounting.
Important facts for investors to verify
- Assess sales and earnings against the extraordinary COVID-related prior-year comparison; the 162.0% comparable-sales increase is not a normal run-rate indicator.
- Track whether store-opening plans, $315 million capital-spending expectations and distribution-center projects proceed on schedule and within budget.
- Monitor inventory, freight and merchandise costs, gross margin, and cash generation as operating conditions normalize.
- Review liquidity against seasonal working-capital needs, the borrowing-base terms and covenants of the revolving facility, and substantial lease commitments.
- Consider pandemic, supply-chain, inflation, legal and other disclosed risks; the filing provides no assurance that outcomes or guidance will be achieved.