Five Below, Inc
FIVE BELOW, INC (Form: 10-Q, Received: 08/31/2017 15:48:23)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
 
Form 10-Q
 
(mark one)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 29, 2017 .
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from             to             
Commission file number: 001-35600
 
Five Below, Inc.
(Exact name of Registrant as Specified in its Charter)
 
Pennsylvania
 
75-3000378
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
1818 Market Street, Suite 2000
 
 
Philadelphia, PA
 
19103
(Address of Principal Executive Offices)
 
(Zip Code)
(215) 546-7909
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ý     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
 
 
 
 
Emerging growth company
 
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   ý
The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of August 30, 2017 was 55,199,645 .




INDEX
 
 
 
Page
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
   





3


PART I - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

FIVE BELOW, INC.
Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share data)  
 
July 29, 2017
 
January 28, 2017
 
July 30, 2016
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
74,759

 
$
76,088

 
$
67,109

Short-term investment securities
92,721

 
77,791

 
28,933

Inventories
184,517

 
154,448

 
154,809

Prepaid income taxes
3,698

 
1,552

 
3,177

Prepaid expenses and other current assets
34,876

 
29,910

 
24,907

Total current assets
390,571

 
339,789

 
278,935

Property and equipment, net of accumulated depreciation and amortization of $114,534, $100,200 and $87,080, respectively.
159,717

 
138,376

 
132,500

Deferred income taxes
9,653

 
11,039

 
8,838

Long-term investment securities

 
10,514

 

Other assets
1,638

 
818

 
795


$
561,579

 
$
500,536

 
$
421,068


 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Line of credit
$

 
$

 
$

Accounts payable
76,880

 
51,178

 
59,565

Income taxes payable
3,271

 
23,939

 
670

Accrued salaries and wages
8,550

 
10,794

 
5,313

Other accrued expenses
44,772

 
30,652

 
34,557

Total current liabilities
133,473

 
116,563

 
100,105

Deferred rent and other
61,591

 
52,568

 
51,266

Total liabilities
195,064

 
169,131

 
151,371

Commitments and contingencies (note 4)


 


 


Shareholders’ equity:
 
 
 
 
 
Common stock, $0.01 par value. Authorized 120,000,000 shares; issued and outstanding 55,197,314, 54,904,954 and 54,864,418 shares, respectively.
552

 
549

 
548

Additional paid-in capital
331,515

 
321,603

 
315,131

Retained earnings (accumulated deficit)
34,448

 
9,253

 
(45,982
)
Total shareholders’ equity
366,515

 
331,405

 
269,697

 
$
561,579

 
$
500,536

 
$
421,068

See accompanying notes to consolidated financial statements.


4


FIVE BELOW, INC.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except share and per share data)  
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
July 29, 2017
 
July 30, 2016
 
July 29, 2017
 
July 30, 2016
Net sales
$
283,320

 
$
220,130

 
$
516,201

 
$
412,845

Cost of goods sold
184,814

 
146,780

 
343,909

 
279,228

Gross profit
98,506

 
73,350

 
172,292

 
133,617

Selling, general and administrative expenses
72,205

 
57,636

 
133,209

 
107,151

Operating income
26,301

 
15,714

 
39,083

 
26,466

Interest income, net
259

 
73

 
568

 
147

Income before income taxes
26,560

 
15,787

 
39,651

 
26,613

Income tax expense
9,756

 
5,940

 
14,456

 
10,008

Net income
$
16,804

 
$
9,847

 
$
25,195

 
$
16,605

Basic income per common share
$
0.30

 
$
0.18

 
$
0.46

 
$
0.30

Diluted income per common share
$
0.30

 
$
0.18

 
$
0.45

 
$
0.30

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic shares
55,150,108

 
54,795,750

 
55,101,406

 
54,756,580

Diluted shares
55,519,303

 
55,077,754

 
55,423,034

 
55,039,204

See accompanying notes to consolidated financial statements.


5


FIVE BELOW, INC.
Consolidated Statement of Shareholders’ Equity
(Unaudited)
(in thousands, except share data)
 
 
 
Common stock
 
Additional
paid-in capital
 
Retained earnings
 
Total
shareholders’ equity
 
 
Shares
 
Amount
 
 
Balance, January 28, 2017
 
54,904,954

 
$
549

 
$
321,603

 
$
9,253

 
$
331,405

 
Share-based compensation expense
 

 

 
7,867

 

 
7,867

 
Issuance of unrestricted stock awards
 
2,346

 

 
113

 

 
113

 
Exercise of options to purchase common stock
 
102,348

 
1

 
2,842

 

 
2,843

 
Vesting of restricted stock units and performance-based restricted stock units
 
210,819

 
2

 

 

 
2

 
Common shares withheld for taxes
 
(25,753
)
 

 
(1,045
)
 

 
(1,045
)
 
Issuance of common stock to employees under employee stock purchase plan
 
2,600

 

 
135

 

 
135

 
Net income
 

 

 

 
25,195

 
25,195

 
Balance, July 29, 2017
 
55,197,314

 
$
552

 
$
331,515

 
$
34,448

 
$
366,515

See accompanying notes to consolidated financial statements.

6


FIVE BELOW, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 
Twenty-Six Weeks Ended
July 29, 2017
 
July 30, 2016
Operating activities:
 
 
 
Net income
$
25,195

 
$
16,605

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
15,479

 
12,680

Share-based compensation expense
7,992

 
6,013

Deferred income tax expense (benefit)
1,386

 
(331
)
Other non-cash expenses
66

 
29

Changes in operating assets and liabilities:

 

Inventories
(30,069
)
 
(6,439
)
Prepaid income taxes
(2,146
)
 
(1,836
)
Prepaid expenses and other assets
(5,826
)
 
(9,839
)
Accounts payable
22,323

 
1,994

Income taxes payable
(20,668
)
 
(11,272
)
Accrued salaries and wages
(2,244
)
 
(2,348
)
Deferred rent
9,507

 
6,143

Other accrued expenses
10,107

 
4,992

Net cash provided by operating activities
31,102

 
16,391

Investing activities:
 
 


Purchases of investment securities
(72,804
)
 
(35,631
)
Sales, maturities, and redemptions of investment securities
68,387

 
53,033

Capital expenditures
(29,949
)
 
(22,372
)
Net cash used in investing activities
(34,366
)
 
(4,970
)
Financing activities:
 
 

Net proceeds from issuance of common stock
135

 
93

Proceeds from exercise of options to purchase common stock
2,843

 
2,612

Common shares withheld for taxes
(1,045
)
 
(1,808
)
Excess tax benefit related to exercises of stock options, vesting of restricted stock units, and vesting of performance-based restricted units

 
1,710

Other
2

 

Net cash provided by financing activities
1,935

 
2,607

Net (decrease) increase in cash and cash equivalents
(1,329
)
 
14,028

Cash and cash equivalents at beginning of period
76,088

 
53,081

Cash and cash equivalents at end of period
$
74,759

 
$
67,109

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Non-cash investing activities
 
 
 
Increase in accrued purchases of property and equipment
$
6,897

 
$
3,041

See accompanying notes to consolidated financial statements.

7

FIVE BELOW, INC.
Notes to Consolidated Financial Statements
(Unaudited)


(1)
Summary of Significant Accounting Policies
(a)
Nature of Business
Five Below, Inc. (collectively with its wholly owned subsidiary as the "Company") is a specialty value retailer offering merchandise targeted at the teen and pre-teen demographic. The Company offers an edited assortment of products, priced at $5 and below. In August 2016, the Company commenced selling merchandise on the internet, through the Company's fivebelow.com e-commerce website.
The Company’s edited assortment of products includes select brands and licensed merchandise. The Company believes its merchandise is readily available, and that there are a number of potential vendors that could be utilized, if necessary, under approximately the same terms the Company is currently receiving; thus, it is not dependent on a single vendor or a group of vendors.
The Company is incorporated in the Commonwealth of Pennsylvania and, as of July 29, 2017 , operated in 32 states that include Pennsylvania, New Jersey, Delaware, Maryland, Virginia, Massachusetts, New Hampshire, West Virginia, North Carolina, New York, Connecticut, Rhode Island, Ohio, Illinois, Indiana, Michigan, Missouri, Georgia, Texas, Tennessee, Maine, Alabama, Kentucky, Kansas, Florida, South Carolina, Mississippi, Louisiana, Wisconsin, Oklahoma, Minnesota and California. As of July 29, 2017 and July 30, 2016 , the Company operated 584  stores and 491 stores, respectively, each operating under the name “Five Below.”
(b)
Fiscal Year
The Company operates on a 52/53-week fiscal year ending on the Saturday closest to January 31. References to "fiscal year 2017" or "fiscal 2017" refer to the period from January 29, 2017 to February 3, 2018 and consists of a 53-week fiscal year. References to "fiscal year 2016" or "fiscal 2016" refer to the period from January 31, 2016 to January 28, 2017 and consists of a 52-week fiscal year. The fiscal quarters ended July 29, 2017 and July 30, 2016 refer to the thirteen weeks ended as of those dates. The year-to-date periods ended July 29, 2017 and July 30, 2016 refer to the twenty-six weeks ended as of those dates.
(c) Basis of Presentation
The consolidated balance sheets as of July 29, 2017 and July 30, 2016 , the consolidated statements of operations for the thirteen and twenty-six weeks ended July 29, 2017 and July 30, 2016 , the consolidated statement of shareholders’ equity for the twenty-six weeks ended July 29, 2017 and the consolidated statements of cash flows for the twenty-six weeks ended July 29, 2017 and July 30, 2016 have been prepared by the Company in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim reporting and are unaudited. In the opinion of management, the aforementioned financial statements include all known adjustments (which consist primarily of normal, recurring accruals, estimates and assumptions that impact the financial statements) necessary to present fairly the financial position at the balance sheet dates and the results of operations and cash flows for the periods ended July 29, 2017 and July 30, 2016 . The balance sheet as of January 28, 2017 , presented herein, has been derived from the audited balance sheet included in the Company's Annual Report on Form 10-K for fiscal 2016 as filed with the Securities and Exchange Commission on March 23, 2017 and referred to herein as the “Annual Report,” but does not include all annual disclosures required by U.S. GAAP. These consolidated financial statements should be read in conjunction with the financial statements for the fiscal year ended January 28, 2017 and footnotes thereto included in the Annual Report. The consolidated results of operations for the thirteen and twenty-six weeks ended July 29, 2017 and July 30, 2016 are not necessarily indicative of the consolidated operating results for the year ending February 3, 2018 or any other period. The Company's business is seasonal and as a result, the Company's net sales fluctuate from quarter to quarter. Net sales are usually highest in the fourth fiscal quarter due to the year-end holiday season.

8


(d) Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 clarifies the principles for recognizing revenue from contracts with customers. The update outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers: Deferral of the Effective Date." ASU 2015-14 deferred the effective date of ASU 2014-09 to fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted for annual reporting periods beginning after December 15, 2016, including interim periods within those annual periods. In the first six months of fiscal 2016, the FASB issued guidance clarifying the interpretation of certain principles of ASU 2014-09. The Company may use either a full retrospective approach or a modified retrospective approach to adopt ASU 2014-09. The Company is currently evaluating the impact of the updated guidance on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 requires that lease arrangements longer than 12 months result in an entity recognizing an asset and a liability. The updated guidance is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. The standard requires use of the modified retrospective transition approach. While the Company is currently evaluating this standard, given the significant amount of leases the Company is party to, the Company expects this standard will have a significant impact on the Company's consolidated financial statements from the recognition of right of use assets and related liabilities. The Company plans to adopt this standard in the first quarter of fiscal 2019, coinciding with the standard’s effective date.
In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 affects all entities that issue share-based payment awards to their employees. This accounting standards update makes several modifications to the accounting for employee share-based payment transactions, including the requirement that the excess income tax benefits or deficiencies that arise when the tax consequences of share-based compensation differ from amounts previously recognized in the consolidated statement of operations be recognized as income tax benefit or expense in the consolidated statement of operations rather than as additional paid-in capital in the consolidated balance sheets. The guidance also clarifies the classification of components of share-based awards on the consolidated statement of cash flows such that excess income tax benefits should not be presented separately from other income taxes in the consolidated statement of cash flows and, thus, should be classified as an operating activity rather than a financing activity as they are under the current guidance. ASU 2016-09 is effective for financial statements issued for annual reporting periods beginning after December 15, 2016 and interim periods within those years. The Company adopted this standard prospectively in the first quarter of fiscal 2017. This standard will result in a decrease or increase to the Company's effective tax rate, net income, and earnings per share based upon the requirement to recognize the excess income tax benefits or deficiencies in the consolidated statements of operations and change the Company's earnings per share calculation to exclude excess tax benefits previously assumed under the treasury stock method. No changes were required related to the classification of employee taxes paid for withheld shares in the Company's consolidated statements of cash flows since the Company has historically classified these within financing cash flows.
(e) Use of Estimates
The preparation of the consolidated financial statements requires management of the Company to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, valuation allowances for inventories, income taxes and share-based compensation expense.
(f) Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation at the measurement date:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Inputs, other than Level 1, that are either directly or indirectly observable.
Level 3: Unobservable inputs developed using the Company’s estimates and assumptions which reflect those that market participants would use.
The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement.

9


The Company’s financial instruments consist primarily of cash equivalents, short-term investment securities, accounts payable, and borrowings, if any, under a line of credit. The Company believes that: (1) the carrying value of cash equivalents and accounts payable are representative of their respective fair value due to the short-term nature of these instruments; and (2) the carrying value of the borrowings, if any, under the line of credit approximates fair value because the line of credit’s interest rates vary with market interest rates. Under the fair value hierarchy, the fair market values of the short-term investments in corporate bonds are level 1 while the short-term investments in certificates of deposits and municipals bonds are level 2. The fair market values of level 2 instruments are determined by management with the assistance of a third party pricing service. Since quoted prices in active markets for identical assets are not available, these prices are determined by the third party pricing service using observable market information such as quotes from less active markets and quoted prices of similar securities.
As of July 29, 2017 , January 28, 2017 , and July 30, 2016 , the Company had cash equivalents of $35.8 million , $36.3 million and $42.4 million , respectively. The Company’s cash equivalents consist of credit and debit card receivables, money market funds, certificates of deposit, and short-term municipal bonds. Fair value for cash equivalents was determined based on Level 1 inputs.
As of July 29, 2017 , January 28, 2017 , and July 30, 2016 , the Company's short-term investment securities are classified as held-to-maturity since the Company has the intent and ability to hold the investments to maturity. Such securities are carried at amortized cost plus accrued interest and consist of the following (in thousands):
 
 
As of July 29, 2017
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Market Value
Short-term:
 
 
 
 
 
 
 
 
Corporate bonds
 
$
74,177

 
$

 
$
48

 
$
74,129

Municipal bonds
 
18,544

 
10

 

 
18,554

Total
 
$
92,721

 
$
10

 
$
48

 
$
92,683

 
 
As of January 28, 2017
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Market Value
Short-term:
 
 
 
 
 
 
 
 
Corporate bonds
 
$
45,558

 
$

 
$
98

 
$
45,460

Municipal bonds
 
32,233

 

 
14

 
32,219

Total
 
$
77,791

 
$

 
$
112

 
$
77,679

 
 
 
 
 
 
 
 
 
Long-term:
 
 
 
 
 
 
 
 
Corporate bonds
 
$
6,265

 
$

 
$
11

 
$
6,254

Municipal bonds
 
4,249

 
8

 

 
4,257

Total
 
$
10,514

 
$
8

 
$
11

 
$
10,511

 
 
As of July 30, 2016
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Market Value
Short-term:
 
 
 
 
 
 
 
 
Corporate bonds
 
$
6,390

 
$

 
$
7

 
$
6,383

Municipal bonds
 
22,543

 
4

 

 
22,547

Total
 
$
28,933

 
$
4

 
$
7

 
$
28,930

Short-term investment securities as of July 29, 2017 , January 28, 2017 , and July 30, 2016 all mature in one year or less. Long-term investment securities as of January 28, 2017 all mature after one year but in less than three years.

10


(2)
Income Per Common Share
Basic income per common share amounts are calculated using the weighted-average number of common shares outstanding for the period. Diluted income per common share amounts are calculated using the weighted-average number of common shares outstanding for the period and include the dilutive impact of exercise of stock options as well as assumed lapse of restrictions on restricted stock awards and shares currently available for purchase under the Company's Employee Stock Purchase Plan, using the treasury stock method. Performance-based restricted stock units are considered contingently issuable shares for diluted income per common share purposes and the dilutive impact, if any, is not included in the weighted-average shares until the performance conditions are met.
The following table reconciles net income and the weighted average common shares outstanding used in the computations of basic and diluted income per common share (in thousands, except for share and per share data):
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
July 29, 2017
 
July 30, 2016
 
July 29, 2017
 
July 30, 2016
Numerator:
 
 
 
 
 
 
 
Net income
$
16,804

 
$
9,847

 
$
25,195

 
$
16,605

Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
55,150,108

 
54,795,750

 
55,101,406

 
54,756,580

Dilutive impact of options, restricted stock units and employee stock purchase plan
369,195

 
282,004

 
321,628

 
282,624

Weighted average common shares outstanding - diluted
55,519,303

 
55,077,754

 
55,423,034

 
55,039,204

Per common share:
 
 
 
 
 
 
 
Basic income per common share
$
0.30

 
$
0.18

 
$
0.46

 
$
0.30

Diluted income per common share
$
0.30

 
$
0.18

 
$
0.45

 
$
0.30


The effects of the assumed exercise of stock options for  53,480 and 133,248 shares of common stock for the thirteen weeks ended and twenty-six weeks ended July 29, 2017 , respectively, were excluded from the calculation of diluted net income per share as their impact would have been anti-dilutive.
The effects of the assumed exercise of restricted stock units for 387 and 26,646 shares of common stock for the thirteen weeks ended and twenty-six weeks ended July 29, 2017 , respectively, were excluded from the calculation of diluted net income per share as their impact would have been anti-dilutive.
The effects of the assumed exercise of stock options for  67,179  and 263,283 shares of common stock for the thirteen weeks ended and twenty-six weeks ended July 30, 2016 , respectively, were excluded from the calculation of diluted net income per share as their impact would have been anti-dilutive.
The effects of the assumed exercise of restricted stock units for 4,127 and 2,064 shares of common stock for the thirteen weeks ended and twenty-six weeks ended July 30, 2016 , respectively, were excluded from the calculation of diluted net income per share as their impact would have been anti-dilutive.
The aforementioned excluded shares do not reflect the impact of any incremental repurchases under the treasury stock method.

11


(3)
Line of Credit
On May 10, 2017, the Company entered into a Fourth Amended and Restated Loan and Security Agreement (the “Amended Loan and Security Agreement”), among the Company, Five Below Merchandising, Inc. and Wells Fargo Bank, National Association. The Amended Loan and Security Agreement amends and restates the Third Amended and Restated Loan and Security Agreement, dated June 12, 2013, among the Company, Five Below Merchandising, Inc. and Wells Fargo Bank, National Association, which governed the Revolving Credit Facility.
The Amended Loan and Security Agreement includes a revolving line of credit in the amount of up to $20.0 million (the “Amended Revolving Credit Facility”). Pursuant to the Amended Loan and Security Agreement, advances under the Amended Revolving Credit Facility are no longer tied to a borrowing base; however, the Company is required to maintain eligible inventory at all times in an amount equal to at least $100.0 million . The Amended Revolving Credit Facility expires on the earliest to occur of (i) May 10, 2022 or (ii) an event of default. The Amended Revolving Credit Facility may be increased to up to $50.0 million , subject to certain conditions. The Amended Revolving Credit Facility also includes a $20.0 million sub limit for the issuance of letters of credit.
The Amended Loan and Security Agreement reduces the interest rate payable on borrowings to be, at the Company’s option, a per annum rate equal to (a) a prime rate or (b) a LIBOR-based rate plus a margin of 1.00% . Letter of credit fees are equal to the interest rate payable on LIBOR-based loans. The interest rate and letter of credit fees under the Amended Loan and Security Agreement are subject to an increase of 2.00% per annum upon an event of default.
The Amended Loan and Security Agreement removes restrictions on the Company’s ability to pay or make dividends and distributions or repurchase its stock, but the Amended Loan and Security Agreement continues to include other customary negative and affirmative covenants including, among other things, limitations on the Company’s ability to (i) incur additional debt; (ii) create liens; (iii) make certain investments, loans and advances; (iv) sell assets; (v) engage in mergers or consolidations; or (vi) change its business.
The Amended Loan and Security Agreement also removes the provisions that required the Company to make prepayments on outstanding Amended Revolving Credit Facility balances upon the receipt of certain proceeds, including those from the sale of certain assets. Amounts under the Amended Revolving Credit Facility may become due upon certain events of default including, among other things, the Company’s failure to comply with the Amended Revolving Credit Facility’s covenants, bankruptcy, default on certain other indebtedness or a change in control.
Under the Amended Loan and Security Agreement, all obligations under the Amended Revolving Credit Facility continue to be guaranteed by Five Below Merchandising, Inc., a wholly-owned subsidiary of the Company, and are secured by substantially all of the assets of the Company and Five Below Merchandising, Inc.
As of July 29, 2017 , the Company had no borrowings under the Amended Revolving Credit Facility and had approximately $20 million available on the line of credit.
All obligations under the Amended Revolving Credit Facility are secured by substantially all of the Company's assets and are guaranteed by the Company's subsidiary. As of July 29, 2017 and July 30, 2016 , the Company was in compliance with the covenants applicable to it under the Amended Revolving Credit Facility.
(4)
Commitments and Contingencies
Commitments
Leases
The Company leases property and equipment under non-cancelable operating leases. Certain retail store lease agreements provide for contingent rental payments if the store’s net sales exceed stated levels (percentage rents) and/or contain escalation clauses, which provide for increases in base rental for increases in future operating costs. Many of the Company’s leases provide for one or more renewal options for periods of five years . The Company’s operating lease agreements, including assumed extensions, which are generally those that take the lease to a ten -year term, expire through fiscal 2033.
During the thirteen weeks ended July 29, 2017 , the Company committed to 25 new store leases with terms of 10 to 15 years that have future minimum lease payments of approximately $46.1 million .
In September 2016, the Company signed a fifteen -year lease for a new corporate headquarters location in Philadelphia, Pennsylvania to accommodate the Company’s current and anticipated future growth. The Company expects to initially occupy approximately 115,000 square feet of office space in early 2018 and expects to expand into approximately 20,000 square feet of additional office space by no later than 2023. The lease agreement has future minimum lease payments of approximately $50 million and expires in early 2033 with three successive options to renew for an additional term up to approximately fifteen years.

12


Other contractual commitments
As of July 29, 2017 , the Company has other purchase commitments of approximately $1.1 million consisting of purchase agreements for materials that will be used in the construction of new stores.
Contingencies
Legal Matters
From time to time, the Company is involved in certain legal actions arising in the ordinary course of business. In management’s opinion, the outcome of such actions will not have a material adverse effect on the Company’s financial condition or results of operations.
(5)
Share-Based Compensation
Equity Incentive Plan
Pursuant to the Company's 2002 Equity Incentive Plan (the “Plan”), the Company’s board of directors may grant stock options, restricted shares, and restricted stock units to officers, directors, key employees and professional service providers. The Plan, as amended, allows for the issuance of up to a total of 7,600,000 shares under the Plan. As of July 29, 2017 , 3,399,673 stock options, restricted shares, or restricted stock units were available for grant.
Common Stock Options
All stock options have a term not greater than ten years. Stock options vest and become exercisable in whole or in part, in accordance with vesting conditions set by the compensation committee of the Company’s board of directors. Options granted to date generally vest over four years from the date of grant.
Stock option activity under the Plan was as follows:
 
Options
Outstanding
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
(in years)
Balance at January 28, 2017
866,637

 
$
29.60

 
6.7
Forfeited
(15,222
)
 
36.72

 

Exercised
(102,348
)
 
27.78

 

Balance at July 29, 2017
749,067

 
29.70

 
6.2
Exercisable at July 29, 2017
597,812

 
$
28.47

 
5.9

The fair value of each option award granted to employees, including outside directors, is estimated on the date of grant using the Black-Scholes option-pricing model. There were no stock options issued during the twenty-six weeks ended July 29, 2017 .

Restricted Stock Units and Performance-Based Restricted Stock Units
All restricted stock units ("RSU") and performance-based restricted stock units ("PSU") vest in accordance with vesting conditions set by the compensation committee of the Company’s board of directors. RSU's granted to date have vesting periods ranging from less than one year to five years from the date of grant. PSU's granted to date have vesting periods ranging from one year to five years from the date of grant, including grants that have a cumulative three year performance period, subject to satisfaction of the applicable performance goals established for the respective grant. The Company periodically assesses the probability of achievement of the performance criteria and adjusts the amount of compensation expense accordingly. Compensation is recognized over the vesting period and adjusted for the probability of achievement of the performance criteria.

13


RSU and PSU activity during the twenty-six weeks ended July 29, 2017 was as follows:
 
Restricted Stock Units
 
Performance-Based Restricted Stock Units
 
Number
 
Weighted-Average Grant Date Fair Value
 
Number
 
Weighted-Average Grant Date Fair Value
Non-vested balance as of January 28, 2017
275,176

 
$
36.27

 
504,556

 
$
36.91

Granted
136,177

 
38.88

 
147,552

 
39.65

Vested
(69,816
)
 
34.17

 
(141,003
)
 
38.15

Forfeited
(23,087
)
 
42.70

 
(9,541
)
 
33.40

Non-vested balance as of July 29, 2017
318,450

 
$
37.38

 
501,564

 
$
37.43

In connection with the vesting of RSU's and PSU's during the twenty-six weeks ended July 29, 2017 , the Company withheld 25,753 shares with an aggregate value of $1.0 million in satisfaction of minimum tax withholding obligations due upon vesting.
As of July 29, 2017 , there was $20.4 million of total unrecognized compensation costs related to non-vested share-based compensation arrangements (including stock options, restricted stock units and performance-based restricted stock units) granted under the Plan. That cost is expected to be recognized over a weighted average vesting period of 2.4  years.
(6)
Income Taxes
The following table summarizes the Company’s income tax expense and effective tax rates for the thirteen and twenty-six weeks ended July 29, 2017 and July 30, 2016 (dollars in thousands):
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
July 29, 2017
 
July 30, 2016
 
July 29, 2017
 
July 30, 2016
Income before income taxes
$
26,560

 
$
15,787

 
$
39,651

 
$
26,613

Income tax expense
$
9,756

 
$
5,940

 
$
14,456

 
$
10,008

Effective tax rate
36.7
%
 
37.6
%
 
36.5
%
 
37.6
%

The effective tax rates for the thirteen and twenty-six weeks ended July 29, 2017 and July 30, 2016 were based on the Company’s forecasted annualized effective tax rates and were adjusted for discrete items that occurred within the periods presented. The effective tax rate for the thirteen and twenty-six weeks ended July 29, 2017 was lower than the thirteen and twenty-six weeks ended July 30, 2016 primarily due to discrete items, which include the impact of the adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," with respect to the requirement to recognize excess income tax benefits or deficiencies as income tax benefit or expense in the consolidated statements of operations rather than as additional paid-in capital in the consolidated balance sheets.
The Company had no material accrual for uncertain tax positions or interest or penalties related to income taxes on the Company’s balance sheets as of July 29, 2017 , January 28, 2017 , or July 30, 2016 and has not recognized any material uncertain tax positions or interest and/or penalties related to income taxes in the consolidated statements of operations for the thirteen and twenty-six weeks ended July 29, 2017 or July 30, 2016 .
The Company files a federal income tax return as well as state tax returns. The Company’s U.S. federal income tax returns for the fiscal years ended February 1, 2014 and thereafter remain subject to examination by the U.S. Internal Revenue Service. State returns are filed in various state jurisdictions, as appropriate, with varying statutes of limitation and remain subject to examination for varying periods up to three to four years depending on the state.

14


ITEM 2. 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 in our Annual Report on Form 10-K for our fiscal year ended January 28, 2017 and referred to herein as the "Annual Report," and the consolidated financial statements and related notes as of and for the thirteen and twenty-six weeks ended July 29, 2017 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 2017" or "fiscal 2017" refer to the period from January 29, 2017 to February 3, 2018 and consists of a 53-week fiscal year. References to "fiscal year 2016" or "fiscal 2016" refer to the period from January 31, 2016 to January 28, 2017 and consists of a 52-week fiscal year. The fiscal quarters ended July 29, 2017 and July 30, 2016 refer to the thirteen weeks ended as of those dates. The year-to-date periods ended July 29, 2017 and July 30, 2016 refer to the twenty-six 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.

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:
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;
dependence on a volume of traffic to our stores;
inability to attract and retain qualified employees;
inability to successfully expand our distribution network capacity;
disruptions to our distribution network 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;
failure to secure customers’ confidential or credit card information, or other private data relating to our employees or our company;

15


increased operating costs or exposure to fraud or theft due to customer payment-related risk;
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;
our lease obligations;
changes in our competitive environment, including increased competition from other retailers and the presence of online retailers;
increasing costs due to inflation, increased operating costs, wage rate increases or energy prices;
the seasonality of our business;
inability to successfully implement our expansion to online retail;
disruptions to our information technology systems in the ordinary course or as a result of system upgrades;
failure to maintain adequate internal controls;
complications with the design or implementation of the new enterprise resource system;
natural disasters, adverse weather conditions, pandemic outbreaks, global political events, war and terrorism;
current economic conditions and other economic factors;
the impact of governmental laws and regulations;
the costs and consequences of legal proceedings;
inability to protect our brand name, trademarks and other intellectual property rights;
the impact of product and food safety claims and effects of legislation;
inability to obtain additional financing, if needed;
restrictions imposed by our indebtedness on our current and future operations; and
regulations related to conflict minerals.
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 is a rapidly growing specialty value retailer offering a broad range of trend-right, high-quality merchandise targeted at the teen and pre-teen customer. We offer a dynamic, edited assortment of exciting products, all priced at $5 and below, including select brands and licensed merchandise across our category worlds. As of July 29, 2017 , we operated 584 stores in 32 states.
In August 2016, we commenced selling merchandise on the internet, through our fivebelow.com e-commerce website. We launched our e-commerce operation as an additional channel to service our customers. All e-commerce sales, which includes shipping and handling revenue, are included in net sales and beginning with the third fiscal quarter of 2016, 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.


16


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.
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.
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.
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.

17


Measuring the change in fiscal year-over-year comparable sales allows us to evaluate how our store base is 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; and
weather conditions.
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.
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 third-party 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. 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, 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.

18


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.
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
July 29, 2017
 
July 30, 2016
 
July 29, 2017
 
July 30, 2016
(in millions, except percentages and total stores)
Consolidated Statements of Operations Data (1) :
 
 
 
 
 
 
 
Net sales
$
283.3

 
$
220.1

 
$
516.2

 
$
412.8

Cost of goods sold
184.8

 
146.8

 
343.9

 
279.2

Gross profit
98.5

 
73.4

 
172.3

 
133.6

Selling, general and administrative expenses
72.2

 
57.6

 
133.2

 
107.2

Operating income
26.3

 
15.7

 
39.1

 
26.5

Interest income, net
0.3

 
0.1

 
0.6

 
0.1

Income before income taxes
26.6

 
15.8

 
39.7

 
26.6

Income tax expense
9.8

 
5.9

 
14.5

 
10.0

Net income
$
16.8

 
$
9.8

 
$
25.2

 
$
16.6

Percentage of Net Sales (1) :
 
 
 
 
 
 
 
Net sales
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Cost of goods sold
65.2

 
66.7

 
66.6

 
67.6

Gross profit
34.8

 
33.3

 
33.4

 
32.4

Selling, general and administrative expenses
25.5

 
26.2

 
25.8

 
26.0

Operating income
9.3

 
7.1

 
7.6

 
6.4

Interest income, net
0.1

 

 
0.1

 

Income before income taxes
9.4

 
7.2

 
7.7

 
6.4

Income tax expense
3.4

 
2.7

 
2.8

 
2.4

Net income
5.9
%
 
4.5
%
 
4.9
%
 
4.0
%
Operational Data:
 
 
 
 
 
 
 
Total stores at end of period
584

 
491

 
584

 
491

Comparable sales growth
9.3
%
 
3.1
%
 
6.1
%
 
3.9
%
Average net sales per store (2)
$
0.5

 
$
0.4

 
$
0.9

 
$
0.8


(1)  
Components may not add to total due to rounding.
(2)  
Only includes stores open during the full thirteen and twenty-six weeks ended .

Thirteen Weeks Ended July 29, 2017 Compared to the Thirteen Weeks Ended July 30, 2016
Net Sales
Net sales increased to $283.3 million in the thirteen weeks ended July 29, 2017 from $220.1 million in the thirteen weeks ended July 30, 2016 , an increase of $63.2 million , or 28.7% . The increase was the result of a non-comparable sales increase of $44.6 million and a comparable sales increase of $18.6 million . The increase in non-comparable sales was primarily driven by new stores that opened in fiscal 2017 and the number of stores that opened in fiscal 2016 but have not been open for 15 full months. We plan to open approximately 100 new stores in fiscal 2017 .
Comparable sales increased 9.3% for the thirteen weeks ended July 29, 2017 compared to the thirteen weeks ended July 30, 2016 . This increase resulted from an increase of approximately 9.1% in the number of transactions in our stores and an increase of approximately 0.2% in the average dollar value of transactions.

19


Cost of Goods Sold and Gross Profit
Cost of goods sold increased to $184.8 million in the thirteen weeks ended July 29, 2017 from $146.8 million in the thirteen weeks ended July 30, 2016 , an increase of $38.0 million , or 25.9% . The increase in cost of goods sold was primarily the result of an increase in the merchandise cost of goods resulting from the increase in net sales. Also contributing to the increase in cost of goods sold were an increase in store occupancy costs resulting from new store openings.
Gross profit increased to $98.5 million in the thirteen weeks ended July 29, 2017 from $73.4 million in the thirteen weeks ended July 30, 2016 , an increase of $25.1 million , or 34.3% . Gross margin increased to 34.8% for the thirteen weeks ended July 29, 2017 from 33.3% in the thirteen weeks ended July 30, 2016 , an increase of approximately 150 basis points. The increase in gross margin was primarily the result of a decrease as a percentage of net sales in merchandise cost of goods sold and store occupancy costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $72.2 million in the thirteen weeks ended July 29, 2017 from $57.6 million in the thirteen weeks ended July 30, 2016 , an increase of $14.6 million , or 25.3% . As a percentage of net sales, selling, general and administrative expenses decreased approximately 70 basis points to 25.5% in the thirteen weeks ended July 29, 2017 compared to 26.2% in the thirteen weeks ended July 30, 2016 . The increase in selling, general and administrative expenses was primarily the result of increases of $9.9 million in store-related expenses to support new store growth and $4.7 million of corporate-related expenses.
Income Tax Expense
Income tax expense increased to $9.8 million in the thirteen weeks ended July 29, 2017 from $5.9 million in the thirteen weeks ended July 30, 2016 , an increase of $3.9 million , or 64.2% . The increase in income tax expense was primarily the result of a $10.8 million increase in pre-tax income. Our effective tax rate for the thirteen weeks ended July 29, 2017 was 36.7% compared to 37.6% in the thirteen weeks ended July 30, 2016 . Our effective tax rate for the thirteen weeks ended July 29, 2017 was lower than the comparable period primarily due to discrete items, which include the impact of the adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," with respect to the requirement to recognize excess income tax benefits or deficiencies as income tax benefit or expense in the consolidated statements of operations rather than as additional paid-in capital in the consolidated balance sheets.
Net Income
As a result of the foregoing, net income increased to $16.8 million in the thirteen weeks ended July 29, 2017 from $9.8 million in the thirteen weeks ended July 30, 2016 , an increase of $7.0 million or 70.7% .

Twenty-Six Weeks Ended July 29, 2017 Compared to the Twenty-Six Weeks Ended July 30, 2016
Net Sales
Net sales increased to $516.2 million in the twenty-six weeks ended July 29, 2017 from $412.8 million in the twenty-six weeks ended July 30, 2016 , an increase of $103.4 million , or 25.0% . The increase was the result of a non-comparable sales increase of $80.0 million and a comparable sales increase of $23.4 million . The increase in non-comparable sales was primarily driven by the number of stores that opened in fiscal 2016 but have not been open for 15 full months and new stores that opened in fiscal 2017 . We plan to open approximately 100 new stores in fiscal 2017 .
Comparable sales increased 6.1% for the twenty-six weeks ended July 29, 2017 compared to the twenty-six weeks ended July 30, 2016 . This increase resulted from an increase of approximately 6.4% in the number of transactions in our stores partially offset by a decrease of approximately 0.3% in the average dollar value of transactions.
Cost of Goods Sold and Gross Profit
Cost of goods sold increased to $343.9 million in the twenty-six weeks ended July 29, 2017 from $279.2 million in the twenty-six weeks ended July 30, 2016 , an increase of $64.7 million , or 23.2% . The increase in cost of goods sold was primarily the result of an increase in the merchandise cost of goods resulting from the increase in net sales. Also contributing to the increase in cost of goods sold were an increase in store occupancy costs resulting from new store openings.

20


Gross profit increased to $172.3 million in the twenty-six weeks ended July 29, 2017 from $133.6 million in the twenty-six weeks ended July 30, 2016 , an increase of $38.7 million , or 28.9% . Gross margin increased to 33.4% for the twenty-six weeks ended July 29, 2017 from 32.4% in the twenty-six weeks ended July 30, 2016 , an increase of approximately 100 basis points. The increase in gross margin was primarily the result of a decrease as a percentage of net sales in merchandise cost of goods sold.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $133.2 million in the twenty-six weeks ended July 29, 2017 from $107.2 million in the twenty-six weeks ended July 30, 2016 , an increase of $26.0 million , or 24.3% . As a percentage of net sales, selling, general and administrative expenses decreased approximately 20 basis points to 25.8% in the twenty-six weeks ended July 29, 2017 compared to 26.0% in the twenty-six weeks ended July 30, 2016 . The increase in selling, general and administrative expenses was primarily the result of increases of $16.8 million in store-related expenses to support new store growth and $9.2 million of corporate-related expenses.
Income Tax Expense
Income tax expense increased to $14.5 million in the twenty-six weeks ended July 29, 2017 from $10.0 million in the twenty-six weeks ended July 30, 2016 , an increase of $4.5 million , or 44.4% . The increase in income tax expense was primarily the result of a $13.0 million increase in pre-tax income. Our effective tax rate for the twenty-six weeks ended July 29, 2017 was 36.5% compared to 37.6% in the twenty-six weeks ended July 30, 2016 . Our effective tax rate for the twenty-six weeks ended July 29, 2017 was lower than the comparable period primarily due to discrete items, which include the impact of the adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," with respect to the requirement to recognize excess income tax benefits or deficiencies as income tax benefit or expense in the consolidated statements of operations rather than as additional paid-in capital in the consolidated balance sheets.
Net Income
As a result of the foregoing, net income increased to $25.2 million in the twenty-six weeks ended July 29, 2017 from $16.6 million in the twenty-six weeks ended July 30, 2016 , an increase of $8.6 million or 51.7% .
Liquidity and Capital Resources
Overview
Our primary source of liquidity is cash flows from operations. Our primary cash needs are for capital expenditures and working capital.
Capital expenditures typically vary depending on the timing of new store openings and infrastructure-related investments. We plan to make capital expenditures of approximately $78 million in fiscal 2017 , which exclude the impact of tenant allowances, and which we expect to fund from cash generated from operations. We expect to incur approximately $35 million of our capital expenditure budget in fiscal 2017 to construct and open approximately 100 new stores, with the remainder projected to be spent on our new corporate headquarters, store relocations and remodels, distribution centers, and corporate infrastructure.
Our primary working capital requirements are for the purchase of store inventory and payment of payroll, rent, other store operating costs and distribution costs. Our working capital requirements fluctuate during the year, rising in the third and fourth fiscal quarters as we take title to increasing quantities of inventory in anticipation of our peak, year-end holiday shopping season in the fourth fiscal quarter. Fluctuations in working capital are also driven by the timing of new store openings.
Historically, we have funded our capital expenditures and working capital requirements during the fiscal year with cash on hand, net cash provided by operating activities and borrowings under our Amended Revolving Credit Facility. When we have used our Amended Revolving Credit Facility, the amount of indebtedness outstanding under it has tended to be the highest in the beginning of the fourth quarter of each fiscal year. Over the past three fiscal years, 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. We did not have any direct borrowings under our Amended Revolving Credit Facility during the twenty-six weeks ended July 29, 2017 . As of July 29, 2017 , we had approximately $20.0 million available on the line of credit.
Based on our growth plans, we believe that our cash position, which includes our cash equivalents and short-term investments, net cash provided by operating activities and availability under our Amended Revolving Credit Facility will be adequate to finance our planned capital expenditures and working capital requirements over the next 12 months and for the foreseeable future thereafter. If cash flows from operations and borrowings under our Amended Revolving Credit Facility are

21


not sufficient or available to meet our requirements, then we will be required to obtain additional equity or debt financing in the future. There can be no assurance that equity or debt financing will be available to us when we need it or, if available, that the terms will be satisfactory to us and not dilutive to our then-current shareholders.
Cash Flows
A summary of our cash flows from operating, investing and financing activities is presented in the following table (in millions):
 
Twenty-Six Weeks Ended
July 29, 2017
 
July 30, 2016
Net cash provided by operating activities
$
31.1

 
$
16.4

Net cash used in investing activities
(34.4
)
 
(5.0
)
Net cash provided by financing activities
1.9

 
2.6

Net (decrease) increase during period in cash and cash equivalents (1)
$
(1.3
)
 
$
14.0

(1) Components may not add to total due to rounding.

Cash Provided by Operating Activities
Net cash provided by operating activities for the twenty-six weeks ended July 29, 2017 was $31.1 million , an increase of $14.7 million compared to the twenty-six weeks ended July 30, 2016 . The increase was primarily due to an increase in operating cash flows from store performance partially offset by an increase in income taxes paid.
Cash Used in Investing Activities
Net cash used in investing activities for the twenty-six weeks ended July 29, 2017 was $34.4 million , an increase of $29.4 million compared to the twenty-six weeks ended July 30, 2016 . The increase was primarily due to increases in net purchases of investment securities and capital expenditures. The increase in capital expenditures was primarily for our new store construction, our corporate infrastructure, and our distribution facilities.
Cash Provided by Financing Activities
Net cash provided by financing activities for the twenty-six weeks ended July 29, 2017 was $1.9 million , a decrease of $0.7 million compared to the twenty-six weeks ended July 30, 2016 . The decrease was primarily the result of a decrease in excess tax benefits related to exercises of stock options and the vesting of restricted stock units and performance-based restricted stock units driven by the impact of the adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," with respect to excess income tax benefits and deficiencies being classified as an operating activity rather than a financing activity.
Line of Credit
On May 10, 2017, we entered into a Fourth Amended and Restated Loan and Security Agreement (the “Amended Loan and Security Agreement”), among Five Below Inc., Five Below Merchandising, Inc. and Wells Fargo Bank, National Association. The Amended Loan and Security Agreement amends and restates the Third Amended and Restated Loan and Security Agreement, dated June 12, 2013, among Five Below Inc., Five Below Merchandising, Inc. and Wells Fargo Bank, National Association, which governed the Revolving Credit Facility.
The Amended Loan and Security Agreement includes a revolving line of credit in the amount of up to $20.0 million (the “Amended Revolving Credit Facility”). Pursuant to the Amended Loan and Security Agreement, advances under the Amended Revolving Credit Facility are no longer tied to a borrowing base; however, we are required to maintain eligible inventory at all times in an amount equal to at least $100.0 million. The Amended Revolving Credit Facility expires on the earliest to occur of (i) May 10, 2022 or (ii) an event of default. The Amended Revolving Credit Facility may be increased to up to $50.0 million, subject to certain conditions. The Amended Revolving Credit Facility also includes a $20.0 million sub limit for the issuance of letters of credit.
The Amended Loan and Security Agreement reduces the interest rate payable on borrowings to be, at our option, a per annum rate equal to (a) a prime rate or (b) a LIBOR-based rate plus a margin of 1.00%. Letter of credit fees are equal to the interest rate payable on LIBOR-based loans. The interest rate and letter of credit fees under the Amended Loan and Security Agreement are subject to an increase of 2.00% per annum upon an event of default.
The Amended Loan and Security Agreement removes restrictions related to our ability to pay or make dividends and distributions or repurchase our stock, but the Amended Loan and Security Agreement continues to include other customary

22


negative and affirmative covenants including, among other things, limitations on our ability to (i) incur additional debt; (ii) create liens; (iii) make certain investments, loans and advances; (iv) sell assets; (v) engage in mergers or consolidations; or (vi) change our business.
The Amended Loan and Security Agreement also removes the provisions that required us to make prepayments on outstanding Amended Revolving Credit Facility balances upon the receipt of certain proceeds, including those from the sale of certain assets. Amounts under the Amended Revolving Credit Facility may become due upon certain events of default including, among other things, our failure to comply with the Amended Revolving Credit Facility’s covenants, bankruptcy, default on certain other indebtedness or a change in control.
Under the Amended Loan and Security Agreement, all obligations under the Amended Revolving Credit Facility continue to be guaranteed by our subsidiary and are secured by substantially all of our and our subsidiary's assets.
As of July 29, 2017 , we had approximately $20.0 million available on the line of credit.
All obligations under the Amended Revolving Credit Facility are secured by substantially all of our assets and are guaranteed by our subsidiary. As of July 29, 2017 and July 30, 2016 , we were in compliance with the covenants applicable to us under the Amended Revolving Credit Facility.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. Actual results may vary from estimates in amounts that may be material to the financial statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our consolidated financial statements. Our critical accounting policies and estimates are discussed in the Annual Report. We believe that there have been no significant changes to our critical accounting policies during the twenty-six weeks ended July 29, 2017 .
Contractual Obligations
Except as set forth below, there have been no material changes to our contractual obligations as disclosed in the Annual Report, other than those which occur in the ordinary course of business.
From January 29, 2017 to July 29, 2017 , we have entered into 63 new fully executed retail leases with terms of 10 to 15 years and other lease modifications that have future minimum lease payments of approximately $115.3 million .
In September 2016, we signed a fifteen-year lease for a new corporate headquarters location in Philadelphia, Pennsylvania to accommodate our current and anticipated future growth. We expect to initially occupy approximately 115,000 square feet of office space in early 2018 and expect to expand into approximately 20,000 square feet of additional office space by no later than 2023. The lease agreement has future minimum lease payments of approximately $50 million and expires in early 2033 with three successive options to renew for additional term up to approximately fifteen years.
Off-Balance Sheet Arrangements
For the quarterly period ended July 29, 2017 , except for operating leases entered into in the normal course of business, we were not party to any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, net sales, expenses, results of operations, liquidity, capital expenditures or capital resources.

23


Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 clarifies the principles for recognizing revenue from contracts with customers. The update outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contract with Customers: Deferral of the Effective Date." ASU 2015-14 deferred the effective date of ASU 2014-09 to fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted for annual reporting periods beginning after December 15, 2016, including interim periods within those annual periods. In the first six months of fiscal 2016, the FASB issued guidance clarifying the interpretation of certain principles of ASU 2014-09. We may use either a full retrospective approach or a modified retrospective approach to adopt ASU 2014-09. We are currently evaluating the impact of the updated guidance on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 requires that lease arrangements longer than 12 months result in an entity recognizing an asset and a liability. The updated guidance is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. The standard requires use of the modified retrospective transition approach. While we are currently evaluating this standard, given the significant amount of leases that we are party to, we expect this standard will have a significant impact on our consolidated financial statements from the recognition of right to use assets and related liabilities. We plan to adopt this standard in the first quarter of fiscal 2019, coinciding with the standard’s effective date.
In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 affects all entities that issue share-based payment awards to their employees. This accounting standards update makes several modifications to the accounting for employee share-based payment transactions, including the requirement that the excess income tax benefits or deficiencies that arise when the tax consequences of share-based compensation differ from amounts previously recognized in the consolidated statement of operations be recognized as income tax benefit or expense in the consolidated statement of operations rather than as additional paid-in capital in the consolidated balance sheet. The guidance also clarifies the classification of components of share-based awards on the consolidated statement of cash flows such that excess income tax benefits should not be presented separately from other income taxes in the consolidated statement of cash flows and, thus, should be classified as an operating activity rather than a financing activity as they are under the current guidance. ASU 2016-09 is effective for financial statements issued for annual reporting periods beginning after December 15, 2016 and interim periods within those years. We adopted this standard prospectively in the first quarter of fiscal 2017. This standard will result in a decrease or increase to our effective tax rate, net income, and earnings per share based upon the requirement to recognize the excess income tax benefits or deficiencies in the consolidated statements of operations and change our earnings per share calculation to exclude excess tax benefits previously assumed under the treasury stock method. No changes were required related to the classification of employee taxes paid for withheld shares in our consolidated statements of cash flows since we have historically classified these within financing cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our principal market risk relates to interest rate sensitivity, which is the risk that future changes in interest rates will reduce our net income or net assets. We have short-term investment securities that are interest-bearing securities and if there are changes in interest rates, those changes would affect the interest income we earn on these investments and, therefore, impact our cash flows and results of operations. However, due to the short term nature of our investment portfolio, we do not believe an immediate 100 basis point increase or decrease in interest rates would have a material effect on the fair market value of our portfolio, and accordingly we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.
We also have an Amended Revolving Credit Facility which includes a revolving line of credit, which bears interest at a variable rate. Because our Amended Revolving Credit Facility bears interest at a variable rate, we will be exposed to market risks relating to changes in interest rates.
As of July 29, 2017 , we had approximately $20 million available on the line of credit. The Amended Revolving Credit Facility reduces the interest rate payable on borrowings to be, at the our option, a per annum rate equal to (a) a prime rate or (b) a LIBOR-based rate plus a margin of 1.00% . Letter of credit fees are equal to the interest rate payable on LIBOR-based loans. The interest rate and letter of credit fees under the Amended Revolving Credit Facility are subject to an increase of 2.00% per annum upon an event of default. We do not use derivative financial instruments for speculative or trading purposes, but this does not preclude our adoption of specific hedging strategies in the future.

24


Impact of Inflation
Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our historical results of operations and financial condition have been immaterial. We cannot assure you, however, that our results of operations and financial condition will not be materially impacted by inflation in the future.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q pursuant to Rule 13a-15(b) of the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q are effective at a reasonable assurance level in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent or detect all errors and all fraud. While our disclosure controls and procedures are designed to provide reasonable assurance of their effectiveness, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting during the thirteen weeks ended July 29, 2017 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.


25


PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
We are subject to various proceedings, lawsuits, disputes, and claims arising in the ordinary course of our business. Many of these actions raise complex factual and legal issues and are subject to uncertainties. Actions filed against us from time to time include commercial, intellectual property, customer, and employment actions, including class action lawsuits. The plaintiffs in some actions seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages, and some are covered in part by insurance. We cannot predict with assurance the outcome of actions brought against us. Accordingly, adverse developments, settlements, or resolutions may occur and negatively impact income in the quarter of such development, settlement or resolution. If a potential loss arising from these lawsuits, claims and pending actions is probable and reasonably estimable, we record the estimated liability based on circumstances and assumptions existing at the time. Although the outcome of these and other claims cannot be predicted with certainty, management does not believe that the ultimate resolution of these matters will have a material adverse effect on our financial condition or results of operations.


26


ITEM 1A. RISK FACTORS
Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors” in our Annual Report. There have been no material changes in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.

27


ITEM 6. EXHIBITS
(a) Exhibits
 
No.
 
Description
 
 
 
10.1
 
Compensation Policy for Non-Employee Directors.
 
 
 
10.2
 
Fourth Amended and Restated Loan and Security Agreement, dated May 10, 2017, among the Company, Five Below Merchandising, Inc. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 11, 2017).
 
 
 
31.1
 
Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
 
Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2
 
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101†
 
The following financial information from this Quarterly Report on Form 10-Q for the fiscal quarter ended July 29, 2017, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Unaudited Consolidated Balance Sheets as of July 29, 2017, January 28, 2017 and July 30, 2016; (ii) the Unaudited Consolidated Statements of Operations for the Thirteen Weeks Ended and Twenty-Six Weeks Ended July 29, 2017 and July 30, 2016; (iii) the Unaudited Consolidated Statement of Shareholders’ Equity for the Twenty-Six Weeks Ended July 29, 2017; (iv) the Unaudited Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended July 29, 2017 and July 30, 2016 and (v) the Notes to Unaudited Consolidated Financial Statements, tagged in detail.
Pursuant to applicable securities laws and regulations, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Exchange Act of 1934, as amended, and otherwise is not subject to liability under those sections.


28


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
FIVE BELOW, INC.
 
 
 
Date: August 31, 2017
 
/s/ Joel D. Anderson
 
 
Joel D. Anderson
 
 
President and Chief Executive Officer (Principal Executive Officer)
 
 
 
Date: August 31, 2017
 
/s/ Kenneth R. Bull
 
 
Kenneth R. Bull
 
 
Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)



29


EXHIBIT INDEX
 
No.
  
Description
 
 
 
10.1
 
Compensation Policy for Non-Employee Directors.
 
 
 
31.1
  
Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
  
Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1
  
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2
  
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101†
  
The following financial information from this Quarterly Report on Form 10-Q for the fiscal quarter ended July 29, 2017, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Unaudited Consolidated Balance Sheets as of July 29, 2017, January 28, 2017 and July 30, 2016; (ii) the Unaudited Consolidated Statements of Operations for the Thirteen Weeks Ended and Twenty-Six Weeks Ended July 29, 2017 and July 30, 2016; (iii) the Unaudited Consolidated Statement of Shareholders’ Equity for the Twenty-Six Weeks Ended July 29, 2017; (iv) the Unaudited Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended July 29, 2017 and July 30, 2016 and (v) the Notes to Unaudited Consolidated Financial Statements, tagged in detail.
Pursuant to applicable securities laws and regulations, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Exchange Act of 1934, as amended, and otherwise is not subject to liability under those sections.


30


 
 
Exhibit 10.1
FIVE BELOW, INC.
COMPENSATION POLICY FOR NON-EMPLOYEE DIRECTORS
(Effective June 20, 2017)

1.
ANNUAL CASH AND STOCK COMPENSATION
Eligible Directors: Each member of the Company's Board of Directors (the " Board ") who is not an employee of the Company (a " Non-Employee Director "); provided however, that any former employee of the Company who served on the Board at the time of the termination of such person's employment with the Company will not be an "Eligible Director" and will not be eligible to receive compensation under this policy until the first anniversary of the expiration of the term on the Board of such individual during which the employment occurred.

Annual Cash Retainer. Each eligible director shall receive $70,000 annually paid in arrears for each fiscal quarter.

Additional Annual Retainers for Chairs of Committees who are Eligible Directors: $25,000 annually for the Audit Committee and the Compensation Committee and $15,000 annually for the Nominating and Corporate Governance Committee, in each case paid quarterly in arrears together with the annual retainer for all eligible directors.

Stock in lieu of Retainers: Prior to the end of the fiscal quarter with respect to which such cash retainer relates, an eligible director may elect, in lieu of the cash retainer, to receive fully vested shares of the Company's common stock ("Shares") having a Fair Market Value (as such term is defined under the Five Below, Inc. Amended and Restated Equity Incentive Plan (the "Plan")) equal to the amount of the foregone retainer for such period. Any such elected Shares will be delivered on or about the last day of the fiscal quarter with respect to which the foregone cash retainer relates. Any fractional Shares will be paid in cash.

Annual Equity Award. At each annual meeting of shareholders, each eligible director will receive a restricted stock unit award having a Fair Market Value equal to $100,000 issued under the Plan and subject to an award agreement (an "Award Agreement"). Subject to such director's continued service with the Company, each award shall vest in full at the next annual meeting of shareholders. Such vesting may be accelerated upon certain events as provided in an Award Agreement.

2.    EXPENSE REIMBURSEMENT - Each Non-Employee Director will be reimbursed for reasonable out-of-pocket travel expenses incurred in connection with attendance at Board and committee meetings and other Board related activities in accordance with the Company's plans or policies as in effect from time to time 1 .

3.    AMENDMENT AND TERMINATION - This Policy may be amended or terminated by the Board at any time.









    
                                                                      
1 To the extent that any such reimbursements constitute compensation, (i) such amount shall be reimbursed no later than December 31 of the year following the year in which the expense was incurred, (ii) such amount shall not affect the amount of compensatory expense reimbursements in any subsequent year, and (iii) the right to such reimbursement shall not be subject to liquidation or exchange for any other benefit.





 
CERTIFICATION
Exhibit 31.1
I, Joel D. Anderson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Five Below, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
By:
 
/s/ Joel D. Anderson
 
 
Name:
Joel D. Anderson
 
 
Title:
 
President and Chief Executive Officer
Dated: August 31, 2017





 
CERTIFICATION
Exhibit 31.2
I, Kenneth R. Bull, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Five Below, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
By:
 
/s/ Kenneth R. Bull
 
 
Name:
Kenneth R. Bull
 
 
Title:
 
Chief Financial Officer and Treasurer
Dated: August 31, 2017




Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Five Below, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended July 29, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joel D. Anderson, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Joel D. Anderson
 
Joel D. Anderson
 
President and Chief Executive Officer
Date: August 31, 2017




Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Five Below, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended July 29, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kenneth R. Bull, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Kenneth R. Bull
 
Kenneth R. Bull
 
Chief Financial Officer and Treasurer
Date: August 31, 2017