Five Below (FIVE) Q4 2014 earnings summary

Executive summary

• FY2013 net sales rose to $535.4M from $418.8M; net income reached $32.1M versus $20.0M, with 60 net new stores and 4.0% comparable-sales growth.

• Growth strategy centers on store expansion, positive comparable sales, brand awareness and operating leverage; the U.S. store base stood at 304 across 19 states.

Financial highlights

• FY2013 net sales were $535.4M, up 27.8%; comparable-store sales increased 4.0%, driven by 4.8% more transactions, partly offset by a 0.8% lower average transaction value.

• Gross profit rose to $188.0M from $149.8M; gross margin was 35.1%, down ~70 bps, mainly reflecting higher distribution costs after opening a second distribution center.

• SG&A increased to $134.3M from $112.2M, while SG&A as a share of sales fell to 25.1% from 26.8%; operating income rose to $53.7M from $37.7M.

• Net income was $32.1M versus $20.0M; basic and diluted EPS were both $0.59, compared with a common-share loss of $1.28 in FY2012 after the special dividend allocation.

• Reported FY2013 SG&A included $6.1M of stock-based compensation tied to option cancellations and restricted-share awards, plus $1.0M of secondary-offering costs; FY2012 included $10.5M and $1.0M, respectively.

Outlook and guidance

• FY2014 plan: open ~62 stores; 48 leases had been executed by February 1, 2014, and capital expenditures were projected at ~$35M, including ~$17M for new-store construction and openings.

• Long-term U.S. store potential was estimated at more than 2,000 locations; management expected continued positive comparable-sales growth and margin improvement from scale and supply-chain efficiencies.

• New-store model targets $1.5M–$1.6M sales in the first full year, ~$0.3M average initial cash investment and payback in less than one year.

• Cash, operating cash flow and revolving-credit availability were expected to cover planned capex, working capital and debt service; FY2014 capex was expected to be funded from operating cash flow.