Five Below Conference Call Highlights

Five Below FIVE reported its fourth quarter earnings on March 25th, 2014.
Shares of the company are up 11.32 percent or $4.30 per share to $42.30. Below are some key takeaways from its conference call:
Tom Vellios, Co-Founder and Chief Executive Officer:
• As we communicated to you in early January with our
post-holiday Q4 guidance update, adverse weather conditions across the
majority of our store footprint during the most important pre-Christmas
shopping weeks of the year was a meaningful headwind for us.
• With that being said,
we are pleased to end the quarter with improving trends that enabled us to
deliver sales and EPS performance ahead of our revised guidance.
• When weather was
not as severe, our traffic was up as customers visited our stores and
responded favorably to our merchandise offering. The end result was Q4 sales
of $212 million, up 22% from last year with a comp of 0.3% and adjusted EPS
of $0.47.
• Given the Q4 comp shortfall versus our original 4% guidance, same-store
inventory ended at a level higher than we would like. But we were aggressive
in addressing non-go-forward inventory. So, while gross margins were impacted
by these actions, we feel good about the overall quality and mix of our
inventory, and we are well-positioned for the spring and summer selling
seasons.
• For fiscal 2013, we delivered top-line growth of 28% and EPS growth of 33%.
• We are very
pleased with the performance of the class of 2013, which came on the heels of
a very strong performance from our class of 2012. We see the strength in new
store performance across both new and existing markets.
• We ended the year with 304 stores, up from 244 stores at the end of 2012. Our
new stores are the key growth driver for our business and generated extremely
strong returns with payback periods of less than one year.
• We are very
pleased with the performance of the class of 2013, which came on the heels of
a very strong performance from our class of 2012. We see the strength in new
store performance across both new and existing markets.
• Hopefully you know by now that we set very high standards for ourselves here
at Five Below. And weather notwithstanding, our team is always focused on
doing better. We are driven to deliver better product for our customers at
better values on a consistent basis.
• Comps in 2013 were 4%, driven by transactions. We saw sour performance across
many worlds and classifications, including the loom and rubber band sales,
particularly in the back half of the year.
• Strong new store performance
combined with a 4% full-year comp drove annual adjusted operating income of
23% and adjusted EPS growth of over 32%.
• For 2014, we plan
to deliver a 20% store growth with 62 new store openings this year. Leases
for 60 of those new stores have already been signed.
• In 2013, we spent $26 million in capital expenditures, the majority of which
went towards niche store build-out, investments in existing stores, our
second DC, as well as investments in systems and IT infrastructure.
For 2014, our CapEx will be $35 million.
• With most of the Easter selling season still ahead of us, we feel great about
our positioning and our store sets. There is an abundance of great product
that we will be bringing to the stores this year, as we look forward to
continuing to deliver excitement to our customers with fresh trend-right
merchandise and great value.

Ken Bull, Chief Financial Officer, Secretary and Treasurer:
• Our sales in the fourth quarter of 2013 were $212 million, up 22.1% from the
$173.6 million we reported in the fourth quarter of 2012. Excluding the
impact of the 53rd week, sales for the fourth quarter of fiscal 2013
increased approximately 26%.

• We ended the year with 304 stores, an increase of 60 net new stores or 24.6%
versus the 244 stores at the end of 2012. As Tom mentioned, we continue to be
very pleased with the performance of our new stores, with the class of 2013
on track to exceed our new store model expectations, including the important
new market of Texas which has delivered strong performance in line with the
rest of the class of 2013.

• Gross profit increased 18.3% in the fourth quarter to $84.2 million from the
$71.1 million reported in the fourth quarter of fiscal 2012. Gross margin
decreased by 127 basis points to 39.7%, driven by lower merchandise margins
and the deleverage of fixed costs like occupancy and distribution associated
with the lower-than-planned comp.

• GAAP operating income was $40.3 million for the fourth quarter of 2013. On an
adjusted basis, operating income was $41.9 million, an increase of 17.7% from
adjusted operating income in the fourth quarter of 2012. As a percentage of
sales, adjusted operating margin was 19.7% compared to 20.5% for the same
period last year.

• Our effective tax rate for the fourth quarter of 2013 was 38% compared to
41.2% in the fourth quarter of 2012.

• As a result of the factors I just described, adjusted net income for the
fourth quarter of 2013 was $25.8 million or $0.47 per share based on 54.6
million adjusted diluted weighted average common shares outstanding.

• For fiscal 2013 which was a 52-week year as compared to a 53-week year in
2012, total net sales increased by 27.8% to $535.4 million.

• We ended the year with $50.2 million in cash and cash equivalents on our
balance sheet, $19.5 million in outstanding borrowings under our term loan,
and full availability under our $20 million revolver facility. Subsequent to
the end of fiscal 2013, we paid off our term loan in full.

• Inventory year-end was $89.4 million as compared to $60.8 million at the end
of 2012. As Tom noted, we feel good about the quality of our year-end
inventory after having taken the necessary action to write down excess and
slow-moving merchandise prior to the end of Q4.

• For the first quarter ending May 3,
2014, net sales are expected to be between $120 million and $122 million,
assuming a 3% to 4% comparable stores sales increase and the opening of
approximately 14 new stores.

• We expect to open 62 new stores in 2014, with approximately 75% of these
openings planned for the first half of the year. As a result, we expect to
end fiscal 2014 with a store count of 366 as compared to our 2013 ending
store count of 304.