You should read the following discussion together with "Selected Financial Data" and the consolidated financial statements and related notes included in our Annual Report on Form 10-K for our fiscal year ended January 30, 2021 and referred to herein as the "Annual Report," and the consolidated financial statements and related notes as of and for the thirteen weeks ended and thirty-nine weeks ended October 30, 2021 included in Part I, Item I of this Quarterly Report on Form 10-Q. The statements in this discussion regarding expectations of our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described below in "Special Note Regarding Forward-Looking Statements" and in Part II, Item 1A "Risk Factors." Our actual results may differ materially from those contained in or implied by any forward-looking statements. 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 2021" or "fiscal 2021" refer to the period from January 31, 2021 to January 29, 2022, which is 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 is a 52-week fiscal year. The fiscal quarters ended October 30, 2021 and October 31, 2020 refer to the thirteen weeks ended as of those dates. The year-to-date periods ended October 30, 2021 and October 31, 2020 refer to the thirty-nine weeks ended as of those dates. Historical results are not necessarily indicative of the results to be expected for any future period and results for any interim period may not necessarily be indicative of the results that may be expected for a full year.


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               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements pursuant
to the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements relate to expectations, beliefs,
projections, future plans and strategies, anticipated events or trends and
similar expressions concerning matters that are not historical facts or present
facts or conditions, such as statements regarding our future financial condition
or results of operations, our prospects and strategies for future growth, the
introduction of new merchandise, and the implementation of our marketing and
branding strategies. In many cases, you can identify forward-looking statements
by terms such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential" or the negative of these terms
or other comparable terminology.
The forward-looking statements contained in this Quarterly Report on Form 10-Q
reflect our views as of the date of this report about future events and are
subject to risks, uncertainties, assumptions and changes in circumstances that
may cause events or our actual activities or results to differ significantly
from those expressed in any forward-looking statement. Although we believe that
the expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future events, results, actions, levels of activity,
performance or achievements. A number of important factors could cause actual
results to differ materially from those indicated by the forward-looking
statements, including, but not limited to, those factors described in Part I,
Item 1A "Risk Factors" in our Annual Report, as amended by the risk factors
included in Part II, Item 1A "Risk Factors" in this Quarterly Report on Form
10-Q. These factors include without limitation:
•uncertainties associated with the Coronavirus (or COVID-19) pandemic, including
closures of our stores, adverse impacts on our sales and operations, future
impairment charges, the risk of global recession, and the impact of related
government regulations;
•failure to successfully implement our growth strategy;
•disruptions in our ability to select, obtain, distribute and market merchandise
profitably;
•reliance on merchandise manufactured outside of the United States;
•the direct and indirect impact of current and potential tariffs imposed and
proposed by the United States on foreign imports, including, without limitation,
the tariffs themselves, any counter-measures thereto and any indirect effects on
consumer discretionary spending, which could increase the cost to us of certain
products, lower our margins, increase our import related expenses, and reduce
consumer spending for discretionary items, each of which could have a material
adverse effect on our business, financial condition and results of future
operations;
•the impact of price increases, such as, a reduction in our unit sales, damage
to our reputation with our customers, and our becoming less competitive in the
marketplace;
•dependence on the volume of traffic to our stores and website;
•inability to successfully build, operate or expand our distribution centers or
network capacity;
•disruptions to the global supply chain, increased cost of freight, constraints
on shipping capacity to transport inventory or the timely receipt of inventory;
•extreme weather conditions in the areas in which our stores are located could
negatively affect our business and results of operations;
•the risks of cyberattacks or other cyber incidents, such as the failure to
secure customers' confidential or credit card information, or other private data
relating to our employees or our company, including the costs associated with
protection against or remediation of such incidents;
•increased operating costs or exposure to fraud or theft due to customer
payment-related risks;
•inability to increase sales and improve the efficiencies, costs and
effectiveness of our operations;
•dependence on our executive officers, senior management and other key personnel
or inability to hire additional qualified personnel;
•inability to successfully manage our inventory balances and inventory
shrinkage;
•inability to meet our lease obligations;
•the costs and risks of constructing and owning real property;
•changes in our competitive environment, including increased competition from
other retailers and the presence of online retailers;
•the seasonality of our business;
•inability to successfully implement our expansion into online retail;
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•disruptions to our information technology systems in the ordinary course or as
a result of system upgrades;
•natural disasters, adverse weather conditions, pandemic outbreaks (in addition
to COVID-19), global political events, war, terrorism or civil unrest;
•the impact of changes in tax legislation;
•the impact to our financial performance related to insurance programs;
•inability to protect our brand name, trademarks and other intellectual property
rights;
•the impact of product and food safety claims and effects of legislation; and
•restrictions imposed by our indebtedness on our current and future operations.
Readers are urged to consider these factors carefully in evaluating the
forward-looking statements and are cautioned not to place undue reliance on
these forward-looking statements. All of the forward-looking statements we have
included in this Quarterly Report on Form 10-Q are based on information
available to us on the date of this report. We undertake no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise, except as otherwise required by
law.
                                    Overview
Five Below, Inc. (collectively referred to herein with its wholly owned
subsidiary 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. 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. As of October 30, 2021, we
operated 1,173 stores in 40 states. In addition, in fall 2019, we rolled out new
pricing to our full chain, increasing prices on certain products over $5. Most
of our products remain at $5 and below.
We also offer our merchandise on the internet, through our fivebelow.com
e-commerce website. All e-commerce sales, which includes shipping and handling
revenue, are included in net sales. All e-commerce sales are included in
comparable sales. Our e-commerce expenses will have components classified as
both cost of goods sold and selling, general and administrative expenses.
Effect of the COVID-19 Pandemic on our Business and Operations
As a result of the COVID-19 pandemic, our business operations and results of
operations, including our net sales, earnings and cash flows, were materially
impacted in fiscal 2020 as a result of the temporary closures of our stores in
the first half of 2020, and decreased customer traffic in stores, as the result
of limitations on the number of persons permitted in stores at one time by
certain local and state regulations.
The Company's ability to operate improved beginning in the second half of fiscal
2020 and extending into fiscal 2021. However, the ultimate health, economic and
regulatory impact of the COVID-19 pandemic remains uncertain, especially in
light of the latest surge due to the Delta variant. If the pandemic were to
worsen once again, the Company's business operations, including net sales,
earnings and cash flows, may be materially impacted. Further, the Company may
determine to reinstate any of the mitigation measures implemented in fiscal 2020
that have since been modified or terminated, or take any additional steps that
we consider necessary or as required by local, state or federal authorities.
                 How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of
performance and financial measures. These key measures include net sales,
comparable sales, cost of goods sold and gross profit, selling, general and
administrative expenses and operating income.
Net Sales
Net sales constitute gross sales net of merchandise returns for damaged or
defective goods. Net sales consist of sales from comparable stores,
non-comparable stores, and e-commerce, which includes shipping and handling
revenue. Revenue from the sale of gift cards is deferred and not included in net
sales until the gift cards are redeemed to purchase merchandise or as breakage
revenue in proportion to the pattern of redemption of the gift cards by the
customer.
Our business is seasonal and as a result, our net sales fluctuate from quarter
to quarter. Net sales are usually highest in the fourth fiscal quarter due to
the year-end holiday season.
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Comparable Sales
Comparable sales include net sales from stores that have been open for at least
15 full months from their opening date, and e-commerce sales. Comparable stores
include the following:
•Stores that have been remodeled while remaining open;
•Stores that have been relocated within the same trade area, to a location that
is not significantly different in size, in which the new store opens at about
the same time as the old store closes; and
•Stores that have expanded, but are not significantly different in size, within
their current locations.
For stores that are relocated or expanded, the following periods are excluded
when calculating comparable sales:
•The period beginning when the closing store receives its last merchandise
delivery from one of our distribution centers through:
?the last day of the fiscal year in which the store was relocated or expanded
(for stores that increased significantly in size); or
?the last day of the fiscal month in which the store re-opens (for all other
stores); and
•The period beginning on the first anniversary of the date the store received
its last merchandise delivery from one of our distribution centers through the
first anniversary of the date the store re-opened.
Comparable sales exclude the 53rd week of sales for 53-week fiscal years. 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 2017, all comparable sales related to any reporting period during
the year ended February 2, 2019 are reported on a restated calendar basis using
the National Retail Federation's restated calendar comparing similar weeks.
There may be variations in the way in which some of our competitors and other
retailers calculate comparable or "same store" sales. As a result, data in this
Quarterly Report on Form 10-Q regarding our comparable sales may not be
comparable to similar data made available by other retailers. Non-comparable
sales are comprised of new store sales, sales for stores not open for a full 15
months, and sales from existing store relocation and expansion projects that
were temporarily closed (or not receiving deliveries) and not included in
comparable sales.
Measuring the change in fiscal year-over-year comparable sales allows us to
evaluate how we are performing. Various factors affect comparable sales,
including:
•consumer preferences, buying trends and overall economic trends;
•our ability to identify and respond effectively to customer preferences and
trends;
•our ability to provide an assortment of high-quality, trend-right and everyday
product offerings that generate new and repeat visits to our stores;
•the customer experience we provide in our stores and online;
•the level of traffic near our locations in the power, community and lifestyle
centers in which we operate;
•competition;
•changes in our merchandise mix;
•pricing;
•our ability to source and distribute products efficiently;
•the timing of promotional events and holidays;
•the timing of introduction of new merchandise and customer acceptance of new
merchandise;
•our opening of new stores in the vicinity of existing stores;
•the number of items purchased per store visit;
•weather conditions; and
•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. As we continue
to pursue our growth strategy, we expect that a significant percentage of our
net sales will continue to come from new stores not included in comparable
sales. Accordingly, comparable sales is only one measure we use to assess the
success of our growth strategy.
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Cost of Goods Sold and Gross Profit
Gross profit is equal to our net sales less our cost of goods sold. Gross margin
is gross profit as a percentage of our net sales. Cost of goods sold reflects
the direct costs of purchased merchandise and inbound freight, as well as
shipping and handling costs, store occupancy, distribution and buying expenses.
Shipping and handling costs include internal fulfillment and shipping costs
related to our e-commerce operations. Store occupancy costs include rent, common
area maintenance, utilities and property taxes for all store locations.
Distribution costs include costs for receiving, processing, warehousing and
shipping of merchandise to or from our distribution centers and between store
locations. Buying costs include compensation expense and other costs for our
internal buying organization, including our merchandising and product
development team and our planning and allocation group. These costs are
significant and can be expected to continue to increase as our Company grows.
The components of our cost of goods sold may not be comparable to the components
of cost of goods sold or similar measures of our competitors and other
retailers. As a result, data in this Quarterly Report on Form 10-Q regarding our
gross profit and gross margin may not be comparable to similar data made
available by our competitors and other retailers.
The variable component of our cost of goods sold is higher in higher volume
quarters because the variable component of our cost of goods sold generally
increases as net sales increase. We regularly analyze the components of gross
profit as well as gross margin. Any inability to obtain acceptable levels of
initial markups, a significant increase in our use of markdowns, and a
significant increase in inventory shrinkage or inability to generate sufficient
sales leverage on the store occupancy, distribution and buying components of
cost of goods sold could have an adverse impact on our gross profit and results
of operations. In addition, current global supply chain disruptions, the cost of
freight and constraints on shipping capacity to transport inventory may have an
adverse impact on our gross profit and results of operations, as well as our
sales. Changes in the mix of our products may also impact our overall cost of
goods sold.
Selling, General and Administrative Expenses
Selling, general and administrative, or SG&A, expenses are composed of payroll
and other compensation, marketing and advertising expense, depreciation and
amortization expense and other selling and administrative expenses. SG&A
expenses as a percentage of net sales are usually higher in lower sales volume
quarters and lower in higher sales volume quarters.
The components of our SG&A expenses may not be comparable to those of other
retailers. 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 increase our share-based compensation expense
included in SG&A expenses.
Operating Income
Operating income equals gross profit less SG&A expenses. Operating income
excludes interest expense or income, other expense or income, and income tax
expense or benefit. 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.
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                       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.

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