Summary

• Five Below Inc. is a leading high-growth value retailer that offers trend-right, high-quality products adored by tweens, teens, and beyond. Its motto is to make life better when customers are free to "let go & have fun" in an amazing experience filled with unlimited possibilities.
• It offers a dynamic, edited assortment of exciting products, with most priced at $5 and below, including select brands and licensed merchandise across eight worlds: Style, Room, Sports, Tech, Create, Party, Candy, and New & Now.
• The company opened the first Five Below store in the greater Philadelphia area in 2002 and, since then, has been expanding throughout the United States.
• Five's cost-effective strategy is designed to promote brand awareness and drive store and website traffic with the target demographic, as well as other value-oriented customers.
•  In the year ending on January 30, 2023, the company experienced robust growth in sales, achieving a total of $3,076 million. This marked an increase of $228 million or 8% compared to the sales figure of $2,848 million in the previous year ending on January 30, 2022.
• The company's gross profit amounted to $1,095 million, reflecting a positive difference of $65 million or 6% from the gross profit of $1,030 million in the previous year.
• Additionally, the company's operating profit decreased in the year ending on January 30, 2023, totaling $345 million, which was lower by $34 million or 9% compared to the operating profit of $379 million in the previous year.
• The net profit for the latest year was $261.5 million, representing a decrease of $17.3 million or 6% compared to the net profit of $278.8 million in the previous year.
• Moreover, the diluted earnings per share (EPS) for the year ending on January 30, 2023, were reported as $4.69, which showed a decrease of $0.26 or 5% compared to the diluted EPS of $4.95 in the previous year.

Brief Company Overview

Five Below Inc. (NASDAQ: FIVE) is a leading high-growth value retailer that offers trend-right, high-quality products adored by tweens, teens, and beyond. Its motto is to make life better when customers are free to "let go & have fun" in an amazing experience filled with unlimited possibilities. It offers a dynamic, edited assortment of exciting products, with most priced at $5 and below, including select brands and licensed merchandise across eight worlds: Style, Room, Sports, Tech, Create, Party, Candy, and New & Now. Based on their experience and industry knowledge, they believe their customer-centric, experience-first, innovative approach to retail has led to a fiercely loyal customer base and fostered universal appeal across a variety of age groups beyond the target demographic. The company opened the first Five Below store in the greater Philadelphia area in 2002 and, since then, has been expanding throughout the United States.

Five's cost-effective strategy is designed to promote brand awareness and drive store and website traffic with the target demographic, as well as other value-oriented customers. The company’s strategy includes highlighting the brand, exceptional value, and quality proposition predominantly through the use of digital advertising, commercials (on television and through streaming), affiliate marketing, social influencers, content creators, syndicated talk show integrations, and local marketing, with a focus on peak selling seasons. Additionally, they rely on visibility and the presence of store locations, email messaging, and philanthropic community fundraising to promote and further the brand image and drive traffic. Its digital experience, anchored by its mobile e-commerce website, app, and social media presence, is growing rapidly as they utilize TikTok, Instagram, Facebook, YouTube, and Snapchat to engage customers with compelling digital content on a frequent basis. They also offer merchandise on the internet through the fivebelow.com e-commerce website, as well as with an on-demand third-party delivery service to enable their customers to shop online and receive convenient same-day delivery.

As of January 2024, the company had a 52-week share price range of $220.19 to $144.57. The forwarding P/E ratio of the company is 28.41 times, the price-to-sales ratio (ttm) is 3.18 times, the profit margin is 8.08%, the operating margin is 2.19%, the return on assets (ttm) is 6.28%, the return on equity is 21.09%, and the diluted earnings per share (ttm) is $4.84. As of July 29, 2022, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of common stock (based upon the last reported sales price on The NASDAQ Global Select Market) held by non-affiliates of the registrant was approximately 6,914,474,150. The number of shares of the registrant's common stock, $0.01 par value, outstanding as of March 15, 2023 was 55,655,710.

Recent Developments

• The Company opened 40 new stores and ended the second quarter of 2023 with 1,407 stores in 43 states. This represents an increase in stores of 12.4% from the end of the second quarter of fiscal year 2022.¹
• The Company opened 74 new stores and ended the third quarter of 2023 with 1,481 stores in 43 states. This represents an increase in stores of 14.6% from the end of the third quarter of fiscal year 2022.²

Recent Financing Activities

• The Company repurchased approximately 500,000 shares in the third quarter of fiscal year 2023 at a cost of approximately $80.0 million.³

Financial Performance Highlights

Q2 2023 Highlights

In the third quarter of 2023, the company reported sales of $736 million, reflecting an increase of $91 million or 14% compared to the third quarter of 2022, which had sales of $645 million. The net profit for the third quarter of 2023 was $14.59 million, showing a decrease of $1.56 million or 10% when compared to the net profit of $16.15 million in the third quarter of 2022. Furthermore, the company's diluted earnings per share (EPS) for the third quarter of 2023 decreased to $0.26, indicating a negative change of $0.03 or 10% compared to the diluted EPS of $0.29 in the third quarter of 2022.

Annual Performance Highlights

In the year ending on January 30, 2023, the company experienced robust growth in sales, achieving a total of $3,076 million. This marked an increase of $228 million or 8% compared to the sales figure of $2,848 million in the previous year ending on January 30, 2022. The company's gross profit amounted to $1,095 million, reflecting a positive difference of $65 million or 6% from the gross profit of $1,030 million in the previous year. Additionally, the company's operating profit decreased in the year ending on January 30, 2023, totaling $345 million, which was lower by $34 million or 9% compared to the operating profit of $379 million in the previous year. The net profit for the latest year was $261.5 million, representing a decrease of $17.3 million or 6% compared to the net profit of $278.8 million in the previous year. Moreover, the diluted earnings per share (EPS) for the year ending on January 30, 2023, were reported as $4.69, which showed a decrease of $0.26 or 5% compared to the diluted EPS of $4.95 in the previous year.

In fiscal year 2022, net sales rose to $3,076.3 million from $2,848.4 million in fiscal year 2021, indicating an increase of $227.9 million or 8.0%. This increase was driven by a non-comparable sales increase of $281.7 million, partly offset by a comparable sales decrease of $53.8 million. The company opened 150 new stores in fiscal year 2022, compared to 170 net new stores in fiscal year 2021. The rise in non-comparable sales was primarily attributed to new stores in fiscal 2022 and the number of stores opened in fiscal 2021 but not operational for 15 full months. Comparable sales experienced a 2.0% decrease, stemming from a 1.9% decline in the average dollar value of transactions and a 0.1% decrease in the number of transactions.

Cost of goods sold increased to $1,980.8 million in fiscal year 2022 from $1,817.9 million in fiscal year 2021, reflecting a $162.9 million or 9.0% increase. The surge in cost of goods sold was primarily due to elevated merchandise costs resulting from the higher net sales. Additionally, an increase in store occupancy costs resulting from new store openings contributed to the rise. Gross profit grew to $1,095.5 million in fiscal year 2022 from $1,030.4 million in fiscal year 2021, marking a $65.1 million or 6.3% increase. However, the gross margin decreased to 35.6% in fiscal year 2022 from 36.2% in fiscal year 2021, representing a decrease of approximately 60 basis points. This decline in gross margin was mainly attributed to an increase in store occupancy costs as a percentage of net sales.

Operating Activities: In fiscal year 2022, the company generated a net cash inflow of $314.9 million from its operating activities, marking a decrease of $13.0 million from the previous fiscal year. This decline is primarily attributed to higher income taxes paid during the period. Despite this decrease, the company's ability to generate positive cash flow from its core business operations underscores its financial stability.

Investing Activities: The company's investing activities in fiscal year 2022 reflect a net cash outflow of $3.9 million, a significant decrease compared to the substantial outflow of $465.6 million in fiscal 2021. This reduction is mainly attributed to increased net sales, maturities, and redemptions of investment securities, along with a decrease in capital expenditures. The company's strategic investment decisions and management of its financial instruments have contributed to this positive shift.

Financing Activities: In fiscal year 2022, the company reported net cash used in financing activities amounting to $43.6 million, representing a decrease of $22.5 million from fiscal 2021. This reduction is primarily driven by a decrease in the repurchase and retirement of common stock. The company's financing activities reflect a balanced approach to managing its capital structure and shareholder value, aligning with its broader financial strategy.

Business Overview

Five Below, Inc. (FIVE) is a discount retailer that offers a wide range of merchandise priced up to $5. . As of January 28, 2023, The company operates in more than 1,340 stores throughout the United States, catering to the value-conscious consumer segment that seeks quality products at affordable prices, its new store model assumes a store size of approximately 9,500 square feet. Stores are primarily located in power, community, and lifestyle shopping centers; approximately 5% of the stores are located in malls. FIVE primarily generates its revenue through the following sources:

Retail Sales: This is the primary source of revenue for Five Below. The company sells a wide range of products across various categories, including toys, games, electronics, beauty products, home decor, and apparel, among others. FIVE sources these products directly from suppliers and manufacturers, enabling it to offer them at enticingly low prices. The company's revenue from retail sales contributed 99.4% of its total revenue in 2020. The company uniquely focuses on the tween and teen customer segment, offering trend-right merchandise at affordable prices. Their concept appeals to this economically influential and resilient demographic, creating a vibrant retail experience. The brand continuously monitors trends, enabling quick responses to market changes. With a broad assortment of high-quality merchandise, including everyday products, they aim to provide excitement and universal appeal. The company maintains a dynamic relationship with vendors, employing a flexible sourcing strategy for high-quality products at exceptional value. Five Below offers a differentiated in store shopping experience, with engaging store atmospheres, easy navigation, and unique displays. The stores become destinations with hands-on interactions and a culture that fosters connectivity and engagement. The company's proven store model ensures strong cash flow, consistent financial results, and a high return on investment. Their experienced senior management team, led by Joel Anderson, drives the operating philosophy of providing high-quality merchandise, exceptional value, and a superior shopping experience. This team, with extensive retail experience, positions the company for long-term growth.

E-commerce Sales: With the rise of online shopping, Five Below has expanded its e- commerce capabilities, enabling customers to buy products online through its website or mobile app. FIVE's online store features a wide range of products, similar to its brick- and-mortar locations, offering customers the convenience of shopping from anywhere at any time. In 2020, e-commerce sales accounted for a mere 0.6% of Five Below's total 1revenue.

Store Expansion: Five Below continues to expand its footprint across the United States, opening an average of 120-150 new stores annually. Each store requires significant capital investment, including the cost of leasing or buying real estate, outfitting the store with furniture and fixtures, and hiring staff. While store expansion does not directly generate revenue, it is critical to FIVE's growth strategy, enabling it to reach new customers and increase its overall revenue. Five Below's expansion strategy revolves around high-visibility locations, aiming for high-traffic retail venues to reinforce brand messaging and drive customer traffic. Their profitable store model adapts well to urban, suburban, and semi-rural markets, including power, community, and lifestyle shopping centers. The company seeks clusters of stores in markets for the benefits derived from market concentration and collaborates with diverse national co-tenants to enhance customer traffic. The real estate team rigorously evaluates potential sites, and all locations are approved by the real estate committee, comprising senior management. Five Below is committed to expanding its store base in the United States, having opened 150 new stores in fiscal 2022 and planning an additional 200 in fiscal 2023. The company maintains a pipeline of approved real estate sites, having executed 103 leases as of January 28, 2023. The actual number, location, and timing of new store openings depend on various factors, including retail trends, competition, economic conditions, and workforce management. The strategic approach involves opening stores within existing markets for enhanced brand awareness and operational efficiencies, along with targeted new store openings in both existing and new markets. They employ a store densification strategy in existing markets and a store clustering strategy when entering new markets to leverage marketing and generate initial brand awareness.

In its stores, Five Below meticulously organizes merchandise into distinct category worlds:

Style: This category primarily features accessories, including novelty socks, sunglasses, jewelry, scarves, gloves, hair accessories, athletic tops and bottoms, and "attitude" t-shirts. Additionally, the style offering encompasses products like nail polish, lip gloss, fragrance, and branded cosmetics.

Room: Comprising items to complement and personalize customers' living spaces, the room category includes glitter lamps, posters, frames, fleece blankets, plush items, pillows, candles, incense, lighting, novelty décor, accent furniture, and related items. Storage options for customers' rooms are also available.

Sports: This category encompasses an assortment of sport balls, team sports merchandise, and fitness accessories, such as hand weights, jump ropes, and gym balls. Games, including name-brand board games, puzzles, collectibles, and toys, including remote control items, are also part of the sports offering. In the summer season, this category expands to include pool, beach, and outdoor toys, games, and accessories.

Tech: Offering a selection of accessories for cell phones, tablets, audio, and computers, the tech category includes cases, chargers, headphones, and other related items. Additionally, a range of media products, such as books, video games, and DVDs, is carried.

Create: This category provides an assortment of craft activity kits, along with arts and crafts supplies like crayons, markers, and stickers. Trend-right items for school, including backpacks, fashion notebooks and journals, novelty pens and pencils, locker accessories, as well as everyday name-brand items, are also part of the create category.

Party: This category at Five Below offers an array of party goods, decorations, gag gifts, and greeting cards, catering to both everyday and special occasions. Customers can find a diverse selection of items suitable for various events and celebrations within this category.

Candy: This category is tailored to appeal to tweens and teens, featuring branded items. This includes a variety of classic and novelty candy bars, movie-size box candy, seasonal-related candy, as well as gum and snack food. In addition to confectionery, chilled drinks are also available through coolers in this category.

New & Now: The "New & Now" category comprises seasonally-specific items designed for celebrating and decorating events such as Christmas, Easter, Halloween, and St. Patrick's Day. These products, reflecting the latest trends and themes, are strategically placed at the front of the store to capture customer attention and interest.

In exploring Five Below's product categories, it is evident that their offerings are thoughtfully curated to cater to diverse consumer interests and trends.

Leisure: The leisure category, representing 47.6% of net sales in 2022, is a diverse assortment that caters to a wide array of interests. Including sporting goods, games, toys, tech products, books, electronic accessories, arts and crafts, and party supplies, this category engages customers with items that contribute to their recreational and entertainment experiences. The consistent percentage of net sales over the past three fiscal years indicates a stable demand for leisure-related products.

Fashion and Home: Comprising 29.2% of net sales in 2022, the fashion and home category encapsulates personal accessories, "attitude" t-shirts, beauty offerings, home goods, and storage options. This section reflects the company's commitment to providing trendy and stylish items that resonate with the target demographic, especially tweens and teens. The slight decrease in percentage from 2020 to 2022 suggests a strategic shift in product focus while maintaining a significant share of sales.

Snack and Seasonal: With a 23.2% representation of net sales in 2022, the snack and seasonal category demonstrates the company's ability to tap into the dynamic nature of consumer preferences. This section encompasses seasonal goods, greeting cards, candy, snacks, and beverages, aligning products with specific occasions and festivities. The notable increase in the percentage of net sales from 2020 to 2022 indicates a growing demand for seasonal and snack-related items, reflecting a strategic alignment with consumer trends.

Other Business Information

The company owns several trademarks registered with the U.S. Patent and Trademark Office, including Five BelowR, Five BeyondR, and Five Below Hot Stuff. Cool Prices®. Additionally, they possess domain names such as www.fivebelow.com and hold unregistered copyrights in their website content. The company actively pursues trademark registrations whenever feasible and takes action against any infringement of these marks.

The company's business operates on a seasonal basis, witnessing the highest levels of net sales and net income in the fourth fiscal quarter, primarily driven by the year-end holiday season. Therefore, the operating results for any given fiscal quarter may not necessarily reflect the overall results for the entire fiscal year. To adequately prepare for the holiday season, the company is required to order and maintain a higher inventory of merchandise compared to other periods of the year. Anticipating increased net sales during the year-end holiday season, inventory levels, along with a rise in accounts payable and accrued expenses, are expected to peak, particularly in the third and fourth fiscal quarters. Owing to this inherent seasonality and variations in consumer spending habits, the company encounters fluctuations in net sales, net income, and working capital requirements throughout the year.

Company History

The Evolution of Five Below Inc.: Founded in October 2002 by David Schlessinger and Tom Vellios, Five Below Inc. has emerged as a trailblazer in the American retail landscape, reshaping the traditional concept of discount stores. With a distinctive focus on offering budget-friendly products to tweens, teens, and beyond, the company's history is marked by innovation, strategic expansion, and a commitment to providing a dynamic shopping experience.

Founding (2002): The inception of Five Below in Wayne, Pennsylvania, marked a departure from conventional retail models. Schlessinger, with his experience founding Zany Brainy, and Vellios, a logistics and supply chain management expert, envisioned a space that went beyond affordability — a place where the younger demographic could access trendy products without breaking the bank.

Early Growth: Five Below's ascent was swift, propelled by a pricing strategy that set it apart. Offering an extensive range of products, from toys to electronics, the store quickly gained popularity. By 2005, the company had opened 15 stores in the Philadelphia area, underscoring the rapid acceptance of its unique retail concept.

Expansion: Five Below's expansion strategy was bold and deliberate. The company, committed to providing a fun and dynamic shopping experience, opened stores across the United States. As of the 2020s, Five Below operates over 1,400 stores in 44 states, employing over 90,000 associates and maintaining two distribution centers. The expansion journey, starting in 2011 with moves into Illinois and Michigan, culminated in a nationwide presence.

Initial Public Offering (2012): Five Below's decision to go public in July 2012 marked a pivotal moment in its history. Trading on the NASDAQ under the symbol "FIVE," the IPO set the stage for further growth and solidified the company's position in the retail market. The IPO share price of $17 reflected investor confidence in the brand.

Continued Growth and Innovation: The years following the IPO witnessed Five Below's commitment to innovation. Joel Anderson's appointment as CEO in 2014 brought a new wave of strategic leadership. Sales figures tell a compelling story — with sales hitting $1,000 million in 2016, $1,300 million in 2017, and $1,560 million in 2018. The company's ability to evolve and introduce new product categories, collaborations, and partnerships ensured a dynamic and ever-relevant product assortment.

Challenges and Opportunities: Navigating the challenges inherent in the retail landscape, Five Below demonstrated resilience and adaptability. Economic fluctuations, changing consumer preferences, and market competition were met with agility. The company strategically adjusted its product assortment and expanded its store footprint to counteract challenges.

Ongoing Success: As of January 2022, Five Below stands as a retail powerhouse with nearly 1,200 stores in 40 states. The company's success is not just measured in numbers but also in its ability to maintain a significant presence in the lives of its target audience — tweens, teens, and beyond.

The history of Five Below is a testament to the founders' vision, adaptability to change, and commitment to delivering value. The company's trajectory from a single store in Pennsylvania to a nationwide phenomenon showcases its ability to resonate with consumers. As the brand continues to redefine retail norms, its impact on the industry remains profound. Five Below's journey is not just a story of success but a blueprint for retailers seeking to innovate, adapt, and thrive in an ever-evolving market.

References

1. ^ https://www.globenewswire.com/en/news-release/2023/08/30/2734775/21529/en/Five-Below-Inc-Announces-Second-Quarter-Fiscal-2023-Financial-Results.html
2. ^ https://investor.fivebelow.com/news/press-release-details/2023/Five-Below-Inc.-Announces-Third-Quarter-Fiscal-2023-Financial-Results/default.aspx#:~:text=The%20Company%20opened%2074%20new,third%20quarter%20of%20fiscal%20202
3. ^ https://uk.marketscreener.com/quote/stock/FIVE-BELOW-INC-11076428/news/Five-Below-Inc-announces-an-Equity-Buyback-for-100-million-worth-of-its-shares-45470454/