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Item 7. Management’s Discussion and Analysis

2026-03-19 compared with 2025-03-20 · 49 added, 51 removed, 257 unchanged (28% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with “Selected Financial Data,” and the consolidated financial statements and related notes included elsewhere in this Annual Report.

You should read the following discussion together with the consolidated financial statements and related notes included elsewhere in this Annual Report.

The statements in this discussion regarding expectations of our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements.

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References to "fiscal year 2026" or "fiscal 2026" refer to the period from February 1, 2026 to January 30, 2027, which consists of a 52-week fiscal 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.

References to "fiscal year 2023" or "fiscal 2023" refer to the period from January 29, 2023 to February 3, 2024, which consists of a 53-week fiscal year.

References to "fiscal year 2022" or "fiscal 2022" refer to the period from January 30, 2022 to January 28, 2023, which consists of a 52-week fiscal year.

References to "fiscal year 2021" or "fiscal 2021" refer to the period from January 31, 2021 to January 29, 2022, which consists of a 52-week fiscal year.

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.

Five Below, Inc.

(collectively referred to herein with its wholly owned subsidiaries as "we," "us," or "our") is a rapidly growing specialty value retailer offering a broad range of trend-right, high-quality merchandise targeted at the tween and teen customer.

(collectively referred to herein with its wholly owned subsidiaries as "we," "us," or "our") is a rapidly growing specialty value retailer offering a broad range of trend-right, high-quality products loved by the kid and the kid in all of us.

We offer a dynamic, edited assortment of exciting products, with most priced at $5 and below, including select brands and licensed merchandise across our category worlds.

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Most of our products remain at $5 and below.

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

As of January 31, 2026, we operated 1,921 stores in 46 states.

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.

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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 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 decreased from $345.0 million to $323.8 million.

Our comparable sales increased by 12.8% in fiscal 2025, decreased by 2.7% in fiscal 2024, and increased by 2.8% in fiscal 2023.

We expanded our store base from 1,544 stores at the end of fiscal 2023 to 1,921 stores at the end of fiscal 2025 and we plan to open approximately 150 net new stores in fiscal 2026.

Between fiscal 2023 and fiscal 2025, our net sales increased from $3.6 billion to $4.8 billion, representing a compounded annual growth rate of 15.7%.

Over the same period, our operating income increased from $385.6 million to $457.4 million, representing a compounded annual growth rate of 8.9%.

We expect to continue our strong growth in the future.

By offering trend-right merchandise at differentiated price points, our stores have been successful in varying geographic regions, population densities and real estate settings.

As of February 1, 2025, we operated stores in 44 states throughout the United States.

As of January 31, 2026, we operated stores in 46 states throughout the United States.

We are primarily located in power, community and lifestyle shopping centers across a variety of urban, suburban and semi-rural markets with trade areas including at least 100,000 people in the specified market.

We continue to believe we have the opportunity to expand our store base in the United States from 1,771 locations as of February 1, 2025 to more than 3,500 locations over time.

We continue to believe we have the opportunity to expand our store base in the United States from 1,921 locations as of January 31, 2026 to more than 3,500 locations over time.

Our ability to open profitable new stores depends on many factors, including our ability to identify suitable markets and sites;

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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 2025, we continued to invest in our enterprise-wide human capital management system, which supports the management of our workforce and provides an integrated suite of tools for human resources, talent management, payroll, time tracking, benefits administration, and workforce planning.

Our fiscal 2025 investments were primarily focused on enhancing payroll functionality and timekeeping capabilities as part of our ongoing efforts to modernize and streamline payroll and workforce management processes.

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.

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.

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

In fiscal 2016, we signed a 15-year lease for a new corporate headquarters location in Philadelphia, Pennsylvania, which currently expires in early 2033 and occupies approximately 230,000 square feet of office space.

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.

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

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The completion date and ultimate cost of future projects could differ significantly from initial expectations due to construction-related or other reasons.

We believe our business strategy will continue to offer significant opportunity, but it also presents risks and challenges.

We believe our business strategy will continue to offer significant opportunities, but it also presents risks and challenges.

These risks and challenges include, but are not limited to, that we may not be able to effectively identify and respond to changing trends and customer preferences, that we may not be able to find desirable locations for new stores and that we may not be able to effectively manage our future growth.

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• weather conditions.

• the impacts associated with the COVID-19 pandemic, including closures of our stores, adverse impacts on our operations, and consumer sentiment regarding discretionary spending.

Opening new stores is an important part of our growth strategy.

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Total stores at end of period 1,921 1,771

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

Comparable sales increase (decrease) 12.8 % (2.7) %

Average net sales per store (2)

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Fiscal Year 2025 Compared to Fiscal Year 2024

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 $407.6 million, partially offset by a comparable sales decrease of $90.5 million.

Net sales increased to $4.8 billion in fiscal year 2025 from $3.9 billion in fiscal year 2024, an increase of $0.9 billion, or 22.9%.

The increase was the result of a comparable sales increase of $473.0 million and a non-comparable sales increase of $414.6 million.

The increase in non-comparable sales was primarily driven by new stores that opened in fiscal 2025, and the number of stores that opened in fiscal 2024 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.

Comparable sales increased 12.8%.

This increase resulted from increases of approximately 7.1% in the number of transactions and approximately 5.3% in the average dollar value of transactions.

Cost of Goods Sold and Gross Profit

Cost of goods sold increased to $3,049.5 million in fiscal year 2025 from $2,523.9 million in fiscal year 2024, an increase of $525.6 million, or 20.8%.

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.

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

Gross profit increased to $1,714.7 million in fiscal year 2025 from $1,352.7 million in fiscal year 2024, an increase of $362.0 million, or 26.8%.

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.

Gross margin increased to 36.0% in fiscal year 2025 from 34.9% in fiscal year 2024, an increase of approximately 110 basis points.

The increase in gross margin was primarily the result of a decrease as a percentage of net sales in store occupancy costs, partially offset by an increase as a percentage of net sales in merchandise costs of goods sold, which includes the impact of lower inventory shrinkage.

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

Selling, general and administrative expenses (including depreciation and amortization) increased to $1,257.3 million in fiscal year 2025 from $1,028.8 million in fiscal year 2024, an increase of $228.5 million, or 22.2%.

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 $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.

As a percentage of net sales, selling, general and administrative expenses (including depreciation and amortization) decreased approximately 10 basis points to 26.4% in fiscal year 2025 compared to 26.5% in fiscal year 2024.

The increase in selling, general and administrative expenses (including depreciation and amortization) was the result of an increase of $154.7 million in store-related expenses primarily to support new and existing stores.

Also contributing to the increase in selling, general and administrative expenses (including depreciation and amortization) was an increase of $73.8 million in corporate-related expenses, which includes higher incentive compensation and lapping the impact of a non-recurring stock compensation benefit.

Income Tax Expense

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.

Income tax expense increased to $121.7 million in fiscal year 2025 from $85.1 million in fiscal year 2024, an increase of $36.7 million, or 43.1%.

The increase in income tax expense was primarily due to a $141.7 million increase 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 2025 was 25.3% compared to 25.1% in fiscal year 2024.

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%.

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

As a result of the foregoing, net income increased to $358.6 million in fiscal year 2025 from $253.6 million in fiscal year 2024, an increase of approximately $105.0 million, or 41.4%.

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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We plan to make cash capital expenditures of approximately $230 million to $250 million in fiscal 2026, 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.

We expect to incur approximately $100 million of our cash capital expenditure budget in fiscal 2026 to construct and open approximately 150 net 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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To the extent that we have drawn on the facility, we have paid down the borrowings before the end of the fiscal year with cash generated during our peak selling season in the fourth quarter.

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.

As of January 31, 2026, we did not have any direct borrowings under our Revolving Credit Facility and had approximately $214 million available on the line of credit, net of $11 million in outstanding letters of credit.

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.

There were no repurchases in fiscal 2025.

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 (8.3) (45.7)

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

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

$ 392.0 $ 152.0

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Cash Provided by Operating Activities

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.

Net cash provided by operating activities for fiscal 2025 wa s $586.4 million, an increase of $155.8 million compared to fiscal 2024.

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

Cash Used in Investing Activities

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.

Net cash used in investing activities for fiscal 2025 w as $186.2 million, a decrease of $46.7 million compared to fiscal 2024.

T he decrease was primarily due to a decrease in capital expenditures, partially offset by an increase in net purc hases of investment securities and other investments.

Cash Used in Financing Activities

Net cash used in financing activities for fiscal year 2025 was $8.3 million, a decrease of $37.4 million compared to fiscal 2024 .

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

The decrease was primarily the result of a decrease in the repurchase and retirement of common stock.

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 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.

As of January 31, 2026 and February 1, 2025, we were in compliance with the covenants applicable to us under the First Amendment and the Revolving Credit Facility.

As of January 31, 2026, we had approximately $214 million available on the Revolving Credit Facility, net of $11 million in outstanding letters of credit.

As of February 1, 2025, we had approximately $225 million available on the Revolving Credit Facility.

Critical Accounting Policies and Estimates

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The impact and any associated risks related to these policies on our business operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” where such policies affect our reported and expected financial results.

Our consolidated financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles, require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.

Our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"), require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.

We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances.

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Cost is determined on a weighted average cost method.

The market value used in the lower of cost or market analysis is subject to the effects of consumer demands, customer preferences and the broader economy.

The inventory cost used in the lower of cost or net realizable value analysis is subject to the effects of consumer demands, customer preferences and the broader economy.

The effects of the previously listed criteria are not controllable by management.

Our management reviews inventory levels in order to identify obsolete and slow-moving merchandise as these factors can indicate a decline in the market value of inventory on hand.

Our management reviews inventory levels in order to identify obsolete and slow-moving merchandise as these factors can indicate a decline in the value of inventory on hand.

Inventory cost is reduced when the selling price less costs of disposal is below cost.

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Contractual Obligations

The following table summarizes, as of February 1, 2025, our minimum rental commitments under operating lease agreements including assumed extensions, minimum payments for long-term debt and other obligations in future periods:

The following table summarizes, as of January 31, 2026, our minimum rental commitments under operating lease agreements including assumed extensions, minimum payments for long-term debt and other obligations in future periods:

(In millions) Payments Due By Period

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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