What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-20 compared with 2024-03-21 · 49 added, 64 removed, 259 unchanged (30% of the section changed)

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We operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to January 31 of the following year.

References to "fiscal year 2025" or "fiscal 2025" refer to the period from February 2, 2025 to January 31, 2026, which consists of a 52-week fiscal year.

References to "fiscal year 2024" or "fiscal 2024" refer to the period from February 4, 2024 to February 1, 2025, which consists of a 52-week fiscal year.

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References to "fiscal year 2020" or "fiscal 2020" refer to the period from February 2, 2020 to January 30, 2021, which consists of a 52-week fiscal year.

References to “fiscal year 2019” or “fiscal 2019” refer to the period from February 3, 2019 to February 1, 2020, which consists of a 52-week fiscal year.

Five Below, Inc.

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As of February 1, 2025, we operated 1,771 stores in 44 states.

We also offer our merchandise on the internet, through our fivebelow.com e-commerce website, offering home delivery and the option to buy online and pick up in store.

We also offer our merchandise on the internet, through our fivebelow.com e-commerce website and mobile app, offering home delivery and the option to buy online and pick up in store.

Additionally, we sell merchandise through on-demand third-party delivery services to enable our customers to shop online and receive convenient delivery.

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We believe that our business model has resulted in strong financial performance when considered in light of the economic environment.

Our comparable sales increased by 2.8% in fiscal 2023, decreased by 2.0% in fiscal 2022, and increased by 30.3% in fiscal 2021.

Our comparable sales decreased by 2.7% in fiscal 2024, increased by 2.8% in fiscal 2023, and decreased by 2.0% in fiscal 2022.

We expanded our store base from 1,340 stores at the end of fiscal 2022 to 1,771 stores at the end of fiscal 2024 and we plan to open approximately 150 new stores in fiscal 2025.

Between fiscal 2022 and fiscal 2024, our net sales increased from $3,076.3 million to $3,876.5 million, representing a compounded annual growth rate of 12.3%.

Over the same period, our operating income increased from $379.9 million to $385.6 million, representing a compounded annual growth rate of 0.7%.

In addition, we expanded our store base from 1,190 stores at the end of fiscal 2021 to 1,544 stores at the end of fiscal 2023 and we plan to open between 225 and 235 new stores in fiscal 2024.

Over the same period, our operating income decreased from $345.0 million to $323.8 million.

We expect to continue our strong growth in the future.

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and achieve sufficient levels of cash flow and financing to support our expansion.

We have a proven and highly profitable store model that has produced consistent financial results and returns, and our new stores have achieved average payback period of less than one year.

We have a proven and profitable store model that has produced consistent financial results and returns, and our new stores have achieved average payback period of approximately one year.

Our new store model assumes a store size of approximately 9,500 square feet that achieves annual sales of approximately $2 million in the first full year of operation.

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For further information, see Part I, Item 1A “Risk Factors-Risk Relating to our Business and Industry.”

Over the past nine years, we have invested a significant amount of capital in infrastructure and systems necessary to support our future growth and we expect to incur additional capital expenditures related to expansion of our infrastructure and systems in future periods.

In fiscal 2015, we invested in a new ERP and began the multi-year implementation of the ERP, which is designed to enhance functionality and provide timely information to the Company's management team related to the operation of the business.

In fiscal 2020, we invested in a new Retail Merchandising System and began the multi-year implementation of the Retail Merchandising System, which is designed to manage, control, and perform seamless execution of day-to-day merchandising activities, including purchasing, distribution, order fulfillment, and financial close.

In fiscal 2015, we opened a shipcenter in Pedricktown, New Jersey.

We occupy approximately 1,000,000 square feet at this shipcenter, having expanded from 800,000 square feet in September 2018.

In fiscal 2016, we signed a 15-year lease for a new corporate headquarters location in Philadelphia, Pennsylvania.

We currently occupy approximately 230,000 square feet of office space with multiple options to expand in the future.

In March 2019, we completed the purchase of an approximately 700,000 square foot shipcenter in Forsyth, Georgia.

We began operating the shipcenter in April 2019 and will expand to approximately 1,000,000 square feet in the first half of 2024.

The total construction cost of the expansion is expected to be approximately $21 million.

We have invested a significant amount of capital in infrastructure and systems necessary to support our future growth and we expect to incur additional capital expenditures to expand, upgrade, and develop our infrastructure and systems in future periods.

In fiscal 2024, we invested in a new ERP, Oracle Fusion, which is designed to enhance functionality and provide timely information to our management team related to the operation of the business.

In fiscal 2021, we invested in a new enterprise wide human capital management system which is designed to manage our workforce by providing a comprehensive suite of tools for human resources, talent management, payroll, time tracking, benefits administration and workforce planning.

In fiscal 2020, we launched our e-commerce website and invested in a new Retail Merchandising System, which is designed to manage, control, and perform seamless execution of day-to-day merchandising activities, including purchasing, distribution, order fulfillment, and financial close.

In fiscal 2015, we opened a shipcenter in Pedricktown, New Jersey and currently occupy approximately 1,000,000 square feet, having expanded from 800,000 square feet in September 2018.

In fiscal 2016, we signed a 15-year lease for a new corporate headquarters location in Philadelphia, Pennsylvania, and currently occupy approximately 230,000 square feet of office space.

In March 2019, we completed the purchase of an approximately 700,000 square foot shipcenter in Forsyth, Georgia for approximately $42 million, and currently occupy approximately 1,100,000 square feet after expanding in the first half of 2024.

In August 2019, we acquired land in Conroe, Texas, to build an approximately 860,000 square foot shipcenter for approximately $56 million.

We began operating the shipcenter in July 2020.

In July 2020, we acquired land in Buckeye, Arizona, to build an approximately 860,000 square foot shipcenter for approximately $65 million.

We began operating the shipcenter in August 2021 and will expand to approximately 1,200,000 square feet in the second half of 2024.

The total construction costs of the expansion is expected to be approximately $26 million.

In July 2020, we acquired land in Buckeye, Arizona, to build an approximately 860,000 square foot shipcenter for approximately $65 million, and currently occupy approximately 1,200,000 square feet after expanding in the second half of 2024.

In March 2021, we acquired land in Indianapolis, Indiana, to build an approximately 1,030,000 square foot shipcenter for approximately $60 million.

We began operating the shipcenter in June 2022.

As a result of the significant expansion of our network of distribution facilities over the last several years, including the opening in the first half of fiscal 2022 of our Indianapolis, Indiana shipcenter, we ceased operations at our shipcenters in Olive Branch, Mississippi and Cincinnati, Ohio in the first half of fiscal 2022 as well as the e-commerce operations in our Pedricktown, New Jersey shipcenter in the first half of fiscal 2023.

We continuously assess ways to maximize the productivity and efficiency of our existing facilities, infrastructure and systems.

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▪ the last day of the fiscal month in which the store re-opens (for all other stores);

• The period beginning on the first anniversary of the date the store received its last merchandise delivery from one of our shipcenters through the first anniversary of the date the store re-opened.

• The period beginning on the first anniversary of the date the store received its last merchandise delivery from one of our shipcenters through the period ending on the first anniversary of the date the store re-opened.

Comparable sales exclude the 53rd week of sales for 53-week fiscal years.

Therefore, Fiscal 2023 comparable sales were calculated using a 52-week comparable period through the week ending January 27, 2024.

In the 52-week fiscal year subsequent to a 53-week fiscal year, we exclude the sales in the non-comparable week from the same-store sales calculation on a restated calendar basis using the National Retail Federation's restated calendar comparing similar weeks

In the 52-week fiscal year subsequent to a 53-week fiscal year, we exclude the sales in the non-comparable week from the same-store sales calculation.

Due to the 53rd week in fiscal 2023, comparable sales for the year ended February 1, 2025 are reported on a restated calendar basis.

Reference to the "restated calendar” is based on using the National Retail Federation's restated calendar comparing similar weeks, which are the fifty-two weeks from February 4, 2024 to February 1, 2025 as compared to the fifty-two weeks from February 5, 2023 to February 3, 2024.

There may be variations in the way in which some of our competitors and other retailers calculate comparable or “same store” sales.

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We expect that our SG&A expenses will increase in future periods due to our continuing store growth.

In addition, any increase in future share-based grants or modifications will impact our share-based compensation expense included in SG&A expenses.

Variability in performance-based compensation expense related to our business performance may cause SG&A expenses to be higher or lower than comparable periods.

In addition, any increase in future share-based awards, modifications, or forfeitures will impact our share-based compensation expense included in SG&A expenses.

Operating Income

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We use operating income as an indicator of the productivity of our business and our ability to manage SG&A expenses.

Operating income percentage measures operating income as a percentage of our net sales.

Operating margin measures operating income as a percentage of our net sales.

Results of Consolidated Operations

The following tables summarize key components of our results of consolidated operations for the periods indicated, both in dollars and as a percentage of our net sales.

Refer to Item 7 "Results of Consolidated Operations" in our Annual Report on Form 10-K for the year ended January 28, 2023 for a comparison of fiscal years 2022 and 2021.

Refer to Item 7 "Results of Consolidated Operations" in our Annual Report on Form 10-K for the year ended February 3, 2024 for a comparison of fiscal years 2023 and 2022.

(in millions, except percentages and total stores data)

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Total stores at end of period 1,771 1,544

Comparable sales increase (decrease) 2.8 % (2.0) %

Comparable sales (decrease) increase (2.7) % 2.8 %

Average net sales per store (2)

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Net sales increased to $3,876.5 million in fiscal year 2024 from $3,559.4 million in fiscal year 2023, an increase of $317.1 million, or 8.9%.

The increase was the result of a non-comparable sales increase of $400.7 million and a comparable sales increase of $82.4 million.

In fiscal year 2023, we opened 204 net new stores compared to 150 new stores in fiscal year 2022.

The increase in non-comparable sales was primarily driven by new stores that opened in fiscal 2023, and the number of stores that opened in fiscal 2022 but have not been open for 15 full months and includes approximately $48.1 million of sales contributed by the 53rd week in fiscal 2023.

Comparable sales increased 2.8%.

This increase resulted from an increase of approximately 3.9% in the number of transactions, partially offset by a decrease of approximately 1.0% in the average dollar value of transactions.

The increase was the result of a non-comparable sales increase of $407.6 million, partially offset by a comparable sales decrease of $90.5 million.

The increase in non-comparable sales was primarily driven by new stores that opened in fiscal 2024, and the number of stores that opened in fiscal 2023 but have not been open for 15 full months.

Comparable sales decreased 2.7%.

This decrease resulted from a decrease of approximately 2.7% in the number of transactions.

Cost of Goods Sold and Gross Profit

Cost of goods sold increased to $2,523.9 million in fiscal year 2024 from $2,285.5 million in fiscal year 2023, an increase of $238.4 million, or 10.4%.

The increase in cost of goods sold was primarily the result of increases in the merchandise costs of goods resulting from increases in net sales and inventory shrinkage, and store occupancy costs primarily resulting from new store openings.

The increase in cost of goods sold was primarily the result of an increase in the merchandise costs of goods resulting from an increase in net sales and included the impact of a non-recurring inventory write-off.

Also contributing to the increase in costs of goods sold was an increase in store occupancy costs primarily resulting from new store openings.

Gross profit increased to $1,352.7 million in fiscal year 2024 from $1,273.8 million in fiscal year 2023, an increase of $78.9 million, or 6.2%.

Gross margin increased to 35.8% in fiscal year 2023 from 35.6% in fiscal year 2022, an increase of approximately 20 basis points.

The increase in gross margin was primarily the result of a decrease as a percentage of net sales in distribution costs.

Also contributing to the increase in gross margin was a decrease in merchandise cost of goods sold, which includes the impact of higher inventory shrinkage.

Gross margin decreased to 34.9% in fiscal year 2024 from 35.8% in fiscal year 2023, a decrease of approximately 90 basis points.

The decrease in gross margin was primarily the result of an increase as a percentage of net sales in store occupancy costs, partially offset by a decrease as a percentage of net sales in distribution costs.

Selling, General and Administrative Expenses (including Depreciation and Amortization)

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As a percentage of net sales, selling, general and administrative expenses (including depreciation and amortization) increased approximately 150 basis points to 26.5% in fiscal year 2024 compared to 25.0% in fiscal year 2023.

The increase in selling, general and administrative expenses (including depreciation and amortization) was the result of an increase of $107.1 million in store-related expenses to support new store growth and $30.7 million of corporate-related expenses.

The increase in selling, general and administrative expenses (including depreciation and amortization) was the result of an increase of $126.1 million in store-related expenses primarily to support new store growth.

Also contributing to the increase in selling, general and administrative expenses (including depreciation and amortization) was an increase of $14.4 million in corporate-related expenses, which included the impact of retention awards, partially offset by lower compensation expenses and the impact of a non-recurring stock compensation benefit.

Income Tax Expense

Income tax expense increased to $100.0 million in fiscal year 2023 from $86.0 million in fiscal year 2022, an increase of $14.0 million, or 16.3%.

The increase in income tax expense was primarily due to a $53.6 million increase in pre-tax net income, partially offset by discrete items, which includes the impact of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting" with respect to the requirements to recognize excess income tax benefits or deficiencies as income tax benefit or expense in the consolidated statements of operations rather than as additional paid-in capital in the consolidated balance sheets.

Income tax expense decreased to $85.1 million in fiscal year 2024 from $100.0 million in fiscal year 2023, a decrease of $14.9 million, or 14.9%.

The decrease in income tax expense was primarily due to a $62.4 million decrease in pre-tax net income and non-deductible expenses, partially offset by discrete items, which includes the impact of share-based accounting.

Our effective tax rate for fiscal year 2024 was 25.1% compared to 24.9% in fiscal year 2023.

The increase in our effective tax rate was primarily driven by changes in the mix of pretax income across state jurisdictions and non-deductible expenses, partially offset by discrete items, which includes the impact of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting.

As a result of the foregoing, net income increased to $301.1 million in fiscal year 2023 from $261.5 million in fiscal year 2022, an increase of approximately $39.6 million, or 15.1%.

The increase in our effective tax rate was primarily driven by discrete items, which includes the impact of share-based accounting, partially offset by non-deductible expenses.

As a result of the foregoing, net income decreased to $253.6 million in fiscal year 2024 from $301.1 million in fiscal year 2023, a decrease of approximately $47.5 million, or 15.8%.

Our business is seasonal in nature with the highest level of net sales and net income generated in the fourth fiscal quarter due to the year-end holiday season and, therefore, operating results for any fiscal quarter are not necessarily indicative of results for the full fiscal year.

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Cash capital expenditures typically vary depending on the timing of new store openings and infrastructure-related investments.

We plan to make cash capital expenditures of approximately $365 million in fiscal 2024, which exclude the impact of tenant allowances, and which we expect to fund from cash generated from operations, cash on-hand, investments and, as needed, borrowings under our Revolving Credit Facility.

We expect to incur approximately $170 million of our cash capital expenditure budget in fiscal 2024 to construct and open between 225 and 235 new stores, with the remainder projected to be spent on our store relocations and remodels, distribution facilities, which includes the expansion of two facilities, and our corporate infrastructure.

We plan to make cash capital expenditures of approximately $210 million to $230 million in fiscal 2025, which exclude the impact of tenant allowances, and which we expect to fund from cash generated from operations, cash on-hand, investments and, as needed, borrowings under our Revolving Credit Facility.

We expect to incur approximately $120 million of our cash capital expenditure budget in fiscal 2025 to construct and open approximately 150 new stores, with the remainder projected to be spent on our store relocations and remodels, corporate infrastructure and shipcenter facilities.

Our primary working capital requirements are for the purchase of store inventory and payment of payroll, rent, other store operating costs and distribution costs.

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As of February 1, 2025, we did not have any direct borrowings under our Revolving Credit Facility and had approximately $225 million available on the line of credit.

On March 20, 2018, our Board of Directors approved a share repurchase program authorizing the repurchase of up to $100 million of our common stock through March 31, 2021, on the open market, in privately negotiated transactions, or otherwise.

This program expired on March 31, 2021.

On March 9, 2021, our Board of Directors approved a new share repurchase program for up to $100 million of our common stock through March 31, 2024.

In fiscal 2021, we purchased 368,699 shares under this program at an aggregate cost of approximately $60.0 million, or an average price of $162.75 per share.

In fiscal 2022, we purchased 247,132 shares at an aggregate cost of approximately $40.0 million, or an average price of $161.88 per share.

We have exhausted repurchases under this program.

On June 14, 2022, our Board of Directors approved a new share repurchase program for up to $100 million of our common stock through June 30, 2025.

In fiscal 2023, we purchased 504,369 shares at an aggregate cost of approximately $80.0 million, or average price of $158.63 per share.

On November 27, 2023, our Board of Directors retired this share repurchase program.

On November 27, 2023, our Board of Directors approved a new share repurchase program for up to $100 million of our common stock through November 27, 2026.

In fiscal 2024, we purchased 266,997 shares at an aggregate cost of approximately $40.0 million, or average price of $149.79 per share.

Since approval of the share repurchase program in March 2018, we have purchased approximately 1.9 million shares for an aggregate cost of approximately $270 million.

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Net cash used in financing activities (45.7) (95.9)

Net (decrease) increase during period in cash and cash equivalents (1)

Net increase (decrease) during period in cash and cash equivalents (1)

$ 152.0 $ (152.6)

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Cash Provided by Operating Activities

Net cash provided by operating activities for fiscal 2023 was $499.6 million, an increase of $184.7 million compared to fiscal 2022.

The increase was primarily due to changes in working capital, an increase in operating cash flows from store performance and a decrease in income taxes paid.

Net cash provided by operating activities for fiscal 2024 was $430.6 million, a decrease of $69.0 million compared to fiscal 2023.

The decrease was primarily due to changes in working capital, a decrease in operating cash flows from store performance and an increase in income taxes paid.

Cash Used in Investing Activities

Net cash used in investing activities for fiscal 2023 was $556.3 million, an increase of $552.4 million compared to fiscal 2022.

The increase was primarily due an increase in net purchases of investment securities and other investments and an increase in capital expenditures.

The increase in capital expenditures was primarily for our new store construction and our corporate infrastructure.

Net cash used in investing activities for fiscal 2024 was $232.9 million, a decrease of $323.4 million compared to fiscal 2023.

The decrease was primarily due an increase in net sales, maturities, and redemptions of investment securities and a decrease in capital expenditures.

Cash Used in Financing Activities

Net cash used in financing activities for fiscal year 2023 was $95.9 million, an increase of $52.2 million compared to fiscal 2022.

The increase was primarily the result of increases in the repurchase and retirement of common stock and common shares withheld for taxes.

Net cash used in financing activities for fiscal year 2024 was $45.7 million, a decrease of $50.1 million compared to fiscal 2023.

The decrease was primarily the result of decreases in the repurchase and retirement of common stock and common shares withheld for taxes.

Line of Credit

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All obligations under the Revolving Credit Facility are guaranteed by 1616 Holdings and secured by substantially all of the assets of the Company and 1616 Holdings.

As of February 3, 2024 and January 28, 2023, we were in compliance with the covenants applicable to us under the First Amendment and the Revolving Credit Facility.

As of February 3, 2024 and January 28, 2023, we had approximately $216 million and $192 million, respectively, available in the Revolving Credit Facility.

As of February 1, 2025 and February 3, 2024, we were in compliance with the covenants applicable to us under the First Amendment and the Revolving Credit Facility.

As of February 1, 2025 and February 3, 2024, we had approximately $225 million and $216 million, respectively, available in the Revolving Credit Facility.

Critical Accounting Policies and Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis