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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
Form 10-Q
(mark one)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2020.
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)
Pennsylvania75-3000378
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
701 Market Street
Suite 300 
Philadelphia
Pennsylvania 19106
(Address of Principal Executive Offices)(Zip Code)

(215) 546-7909
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stockFIVENASDAQ Global Select Market

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      No  

Indicate by check mark whether the registrant has submitted electronically 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 such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer   Accelerated filer 
Non-accelerated filer   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  
The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of December 2, 2020 was 55,871,672.



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) 
October 31, 2020February 1, 2020November 2, 2019
Assets
Current assets:
Cash and cash equivalents$117,045 $202,490 $77,496 
Short-term investment securities96,749 59,229 54,072 
Inventories430,200 324,028 419,340 
Prepaid income taxes and tax receivable18,090 4,063 16,396 
Prepaid expenses and other current assets50,194 75,903 58,666 
Total current assets712,278 665,713 625,970 
Property and equipment, net of accumulated depreciation and amortization of $260,888, $215,071, and $200,306, respectively.
522,214 439,086 400,129 
Operating lease assets928,739 842,988 794,350 
Deferred income taxes  2,283 
Other assets12,265 10,874 11,019 
$2,175,496 $1,958,661 $1,833,751 
Liabilities and Shareholders’ Equity
Current liabilities:
Line of credit$ $ $ 
Accounts payable237,647 130,242 188,061 
Income taxes payable1,031 9,505 831 
Accrued salaries and wages22,164 19,873 11,773 
Other accrued expenses99,489 81,255 91,304 
Operating lease liabilities136,513 110,470 105,834 
Total current liabilities496,844 351,345 397,803 
Other long-term liabilities1,918 1,199 1,250 
Long-term operating lease liabilities 922,784 837,623 789,307 
Deferred income taxes4,408 8,716  
Total liabilities1,425,954 1,198,883 1,188,360 
Commitments and contingencies (note 6)
Shareholders’ equity:
Common stock, $0.01 par value. Authorized 120,000,000 shares; issued and outstanding 55,866,590, 55,712,067, and 55,671,943 shares, respectively.
559 557 556 
Additional paid-in capital312,668 322,330 318,318 
Retained earnings 436,315 436,891 326,517 
Total shareholders’ equity749,542 759,778 645,391 
$2,175,496 $1,958,661 $1,833,751 
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 EndedThirty-Nine Weeks Ended
October 31, 2020November 2, 2019October 31, 2020November 2, 2019
Net sales$476,614 $377,438 $1,103,623 $1,159,600 
Cost of goods sold325,514 258,756 792,223 774,762 
Gross profit151,100 118,682 311,400 384,838 
Selling, general and administrative expenses126,851 105,997 326,205 311,655 
Operating income (loss)24,249 12,685 (14,805)73,183 
Interest (expense) income and other (expense) income, net(660)753 (1,017)3,952 
Income (loss) before income taxes23,589 13,438 (15,822)77,135 
Income tax expense (benefit)3,164 3,249 (15,246)12,453 
Net income (loss)$20,425 $10,189 $(576)$64,682 
Basic income (loss) per common share$0.37 $0.18 $(0.01)$1.16 
Diluted income (loss) per common share$0.36 $0.18 $(0.01)$1.15 
Weighted average shares outstanding:
Basic shares55,851,780 55,672,796 56,004,072 55,855,526 
Diluted shares56,099,328 56,019,736 56,004,072 56,208,718 
See accompanying notes to consolidated financial statements.
5


FIVE BELOW, INC.
Consolidated Statements of Shareholders’ Equity
(Unaudited)
(in thousands, except share data)
Common stockAdditional
paid-in capital
Retained earningsTotal
shareholders’ equity
SharesAmount
Balance, February 1, 202055,712,067 $557 $322,330 $436,891 $759,778 
Share-based compensation benefit — (3,536)— (3,536)
Exercise of options to purchase common stock2,136 — 65 — 65 
Vesting of restricted stock units and performance-based restricted stock units204,769 2 — — 2 
Common shares withheld for taxes(46,532)— (3,299)— (3,299)
Repurchase and retirement of common stock(137,023)(1)(12,662)— (12,663)
Net loss— — — (50,582)(50,582)
Balance, May 2, 202055,735,417 $558 $302,898 $386,309 $689,765 
Share-based compensation expense — 2,416 — 2,416 
Issuance of unrestricted stock awards584 — 64 — 64 
Exercise of options to purchase common stock83,814 1 2,196 — 2,197 
Vesting of restricted stock units and performance-based restricted stock units18,030 — — —  
Common shares withheld for taxes(2,885)— (297)— (297)
Issuance of common stock to employees under employee stock purchase plan2,136 — 229 — 229 
Net income— — — 29,581 29,581 
Balance, August 1, 202055,837,096 $559 $307,506 $415,890 $723,955 
Share-based compensation expense — 4,538 — 4,538 
Issuance of unrestricted stock awards477 — 64 — 64 
Exercise of options to purchase common stock25,864  753 — 753 
Vesting of restricted stock units and performance-based restricted stock units4,657 — — —  
Common shares withheld for taxes(1,504)— (193)— (193)
Net income— — — 20,425 20,425 
Balance, October 31, 202055,866,590 $559 $312,668 $436,315 $749,542 



6


FIVE BELOW, INC.
Consolidated Statements of Shareholders’ Equity
(Unaudited)
(in thousands, except share data)
Common stockAdditional
paid-in capital
Retained earningsTotal
shareholders’ equity
SharesAmount
Balance, February 2, 201955,759,048 $557 $352,702 $261,835 $615,094 
Share-based compensation expense — 2,822  2,822 
Issuance of unrestricted stock awards307 — 45 — 45 
Exercise of options to purchase common stock72,365 1 2,246  2,247 
Vesting of restricted stock units and performance-based restricted stock units203,429 2 — — 2 
Common shares withheld for taxes(79,256)(1)(9,872)— (9,873)
Net income— — — 25,662 25,662 
Balance, May 4, 201955,955,893 $559 $347,943 $287,497 $635,999 
Share-based compensation expense — 3,055 — 3,055 
Issuance of unrestricted stock awards411 — 45 — 45 
Exercise of options to purchase common stock24,688 — 685 — 685 
Vesting of restricted stock units and performance-based restricted stock units17,099 — — —  
Common shares withheld for taxes(2,110)— (275)— (275)
Repurchase and retirement of common stock(146,185)(1)(16,598)— (16,599)
Issuance of common stock to employees under employee stock purchase plan1,847 — 195 — 195 
Net income— — — 28,831 28,831 
Balance, August 3, 201955,851,643 $558 $335,050 $316,328 $651,936 
Share-based compensation expense — 3,398 — 3,398 
Issuance of unrestricted stock awards355 — 45 — 45 
Exercise of options to purchase common stock8,921 — 252 — 252 
Vesting of restricted stock units and performance-based restricted stock units3,530 — — —  
Common shares withheld for taxes(1,139)— (143)— (143)
Repurchase and retirement of common stock(191,367)(2)(20,284)— (20,286)
Net income— — — 10,189 10,189 
Balance, November 2, 201955,671,943 $556 $318,318 $326,517 $645,391 
See accompanying notes to consolidated financial statements.
7


FIVE BELOW, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 Thirty-Nine Weeks Ended
October 31, 2020November 2, 2019
Operating activities:
Net (loss) income$(576)$64,682 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization50,919 39,894 
Share-based compensation expense3,582 9,446 
Deferred income tax (benefit) expense(4,308)3,843 
Other non-cash expenses 1,643 75 
Changes in operating assets and liabilities:
Inventories(106,172)(175,704)
Prepaid income taxes and tax receivable(14,027)(15,059)
Prepaid expenses and other assets30,784 326 
Accounts payable110,970 78,372 
Income taxes payable(8,474)(19,795)
Accrued salaries and wages2,291 (12,813)
Operating leases25,453 9,660 
Other accrued expenses29,221 18,928 
Net cash provided by operating activities121,306 1,855 
Investing activities:
Purchases of investment securities and other investments(120,033)(103,055)
Sales, maturities, and redemptions of investment securities77,513 127,093 
Capital expenditures(149,270)(156,350)
Net cash used in investing activities(191,790)(132,312)
Financing activities:
Borrowing on note payable under Amended Revolving Credit Facility50,000  
Repayment of note payable under Amended Revolving Credit Facility(50,000) 
Cash paid for credit facility financing costs(1,755) 
Net proceeds from issuance of common stock229 195 
Repurchase and retirement of common stock
(12,663)(36,885)
Proceeds from exercise of options to purchase common stock and vesting of restricted and performance-based restricted stock units
3,017 3,186 
Common shares withheld for taxes(3,789)(10,291)
Net cash used in financing activities(14,961)(43,795)
Net decrease in cash and cash equivalents(85,445)(174,252)
Cash and cash equivalents at beginning of period202,490 251,748 
Cash and cash equivalents at end of period$117,045 $77,496 
Supplemental disclosures of cash flow information:
Non-cash investing activities
Decrease in accrued purchases of property and equipment$13,870 $17,547 
See accompanying notes to consolidated financial statements.
8

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

(1) Summary of Significant Accounting Policies
(a)Description of Business
Five Below, Inc. (collectively referred to herein with its wholly owned subsidiary as the "Company") is a specialty value retailer offering merchandise targeted at the tween and teen demographic. The Company offers an edited assortment of products, with most priced at $5 and below.
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 October 31, 2020, operated in 38 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, California, Arkansas, Iowa, Nebraska, Arizona, Nevada and Colorado. As of October 31, 2020 and November 2, 2019, the Company operated 1,018 stores and 894 stores, respectively, each operating under the name “Five Below,” and sells merchandise on the internet, through the Company's fivebelow.com e-commerce website.
(b)    Impact of COVID-19
As a result of the coronavirus (or COVID-19) pandemic in the first half of 2020, federal, state and local governments and private entities mandated various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories, and quarantining of people who may have been exposed to the virus, of which many have been eliminated or lessened over time. Such mandates required reduction of operating hours and forced temporary closures of certain retailers and other businesses. The COVID-19 pandemic has recently surged in many parts of the United States, which may lead to the imposition of new federal, state and local restrictions. It is impossible to predict the effect and ultimate impact of the pandemic and measures taken to control the spread, as the situation continues to evolve.
As a result of these restrictions and out of concern for its customers and employees, the Company temporarily closed all of its stores as of March 20, 2020. The Company began reopening its stores at the end of April in compliance with federal, state and local requirements. As a result of the temporary store closures, the Company withheld store rent for the closure period. With respect to virtually all of the Company's lease portfolio, the Company has either resumed rent payments or has agreed to rent deferrals and abatements related to this closure period with landlords. As a result, the Company does not expect that its prior rent withholdings or the associated deferrals and abatements agreed upon with landlords will have a material adverse impact on the Company's business, financial condition and results of future operations.
While the ultimate health and economic impact of the COVID-19 pandemic are highly uncertain, the Company expects that its business operations and results of operations, including net sales, earnings and cash flows, may be materially impacted for the foreseeable future, as a result of:
temporary closures of Company stores;
decreased customer traffic in stores, including, without limitation, as the result of limitations on the number of persons permitted in stores at one time by certain local and state regulations;
uncertainty of the extent to which customers will maintain purchases through our e-commerce website and through curbside pickup (if and where any stores are closed to the public);
changes in consumer confidence and consumer spending habits, including spending for the merchandise that the Company sells, and negative trends in consumer purchasing patterns due to changes in consumers’ disposable income, credit availability and debt levels;
disruption to the Company’s supply chain including the manufacturing, supply, distribution, transportation and delivery of products;
increased safety measures for the Company's employees and customers at the Company's stores, distribution centers and home office; and
a slowdown in the U.S. and global economies, and an uncertain global economic outlook or a potential credit crisis.
9


To seek to mitigate the effects of the pandemic and to create financial flexibility, the Company has taken the following actions:
a majority of its store and distribution center employees were furloughed in March and the Company covered the cost of health benefits for such furloughed employees through the end of May;
the Company implemented a voluntary temporary base salary reduction of 50% for Joel Anderson, its Chief Executive Officer, and a 25% base salary reduction for the remainder of the executive leadership team that reports into Mr. Anderson. This compensation was reinstated in the second quarter of 2020 after substantially all of the Company’s stores were reopened;
its Board of Directors elected to forgo its quarterly cash retainers for the first quarter of 2020;
the Company implemented a temporary pay reduction for all salaried corporate employees and certain field and supply chain leadership (that has been reinstated now that substantially all of the Company's stores have reopened) and delayed annual salary increases for corporate employees;
as permitted by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, the Company has applied for and received payroll tax credits with the IRS, and elected to defer the payment of the employer's portion of FICA taxes;
the Company implemented significant temporary non-payroll expense reductions, including advertising, occupancy and other store operating expenses, distribution and corporate office operating expenses, as well as professional and consulting fees;
the Company temporarily ceased paying rent on all closed store locations; as discussed above, we have since resumed rent payments and/or agreed to lease modifications with virtually all of our landlords;
the Company cancelled certain vendor orders and delayed receipts on others in order to manage inventory levels, and extended payment terms for product and non-product vendors, although we have since returned to more normalized payment terms;
the Company significantly reduced its 2020 capital expenditure budget, including reducing the number of new stores to be opened in 2020 and delaying the purchase and construction of a new Midwest distribution center;
the Company amended its credit facility and increased its line of credit from $50 million to $225 million; and
the Company evolved its product mix to meet the needs of its customers by adding to its assortment of essential products, including consumables (such as cleaning and personal hygiene products), food and drink, fitness products, pet accessories, and products needed to support work-from-home and school-from-home.
Depending on future developments with respect to the COVID-19 pandemic, including any new federal, state and local governmental restrictions that may be imposed, the Company may determine to reinstate any of the foregoing mitigation measures or take any additional steps that we consider necessary.
(c)    Fiscal Year
The Company operates on a 52/53-week fiscal year ending on the Saturday closest to January 31. References to "fiscal year 2020" or "fiscal 2020" refer to the period from February 2, 2020 to January 30, 2021, which is a 52-week fiscal year. References to "fiscal year 2019" or "fiscal 2019" refer to the period from February 3, 2019 to February 1, 2020, which is a 52-week fiscal year. The fiscal quarters ended October 31, 2020 and November 2, 2019 refer to the thirteen weeks ended as of those dates. The year-to-date periods ended October 31, 2020 and November 2, 2019 refer to the thirty-nine weeks ended as of those dates.
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(d)    Basis of Presentation
The consolidated balance sheets as of October 31, 2020 and November 2, 2019, the consolidated statements of operations for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019, the consolidated statements of shareholders’ equity for the thirty-nine weeks ended October 31, 2020 and November 2, 2019 and the consolidated statements of cash flows for the thirty-nine weeks ended October 31, 2020 and November 2, 2019 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 October 31, 2020 and November 2, 2019. The balance sheet as of February 1, 2020, presented herein, has been derived from the audited balance sheet included in the Company's Annual Report on Form 10-K for fiscal 2019 as filed with the Securities and Exchange Commission on March 19, 2020 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 February 1, 2020 and footnotes thereto included in the Annual Report. The consolidated results of operations for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 are not necessarily indicative of the consolidated operating results for the year ending January 30, 2021 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.
(e)    Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 requires lessees to record assets and liabilities on the balance sheet for all leases with terms longer than 12 months. The updated guidance is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. On February 3, 2019, the Company adopted this pronouncement on a modified retrospective basis and applied the new standard to all leases. As a result, comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which includes, among other things, the ability to carry forward the existing lease classification. The Company also elected the practical expedient related to land easements, allowing the Company to carry forward its accounting treatment for land easements on existing agreements. At adoption, the new standard had a material impact on the Company's balance sheets resulting in an increase in net assets and liabilities of approximately $618 million, as the Company has a significant number of leases for its stores. Although the standard impacts the treatment of certain initial direct leases costs that were previously capitalizable, it did not materially impact the Company's consolidated statements of operations and had no impact on the Company's cash flows.
See Note 3 ‘‘Leases’’ for additional information.
In August 2018, the FASB issued ASU 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract." ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the noncancelable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise of the renewal option is controlled by the cloud service provider. The effective date of this pronouncement is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and early adoption is permitted. The standard can be adopted either using the prospective or retrospective transition approach. During the thirteen weeks ended November 3, 2018, the Company adopted the pronouncement using the prospective transition method and it did not have a significant impact to the Company's financial statements.
In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses," which addresses certain fair value disclosure requirements, the measurement basis under the measurement alternative and which equity securities have to be remeasured at historical exchange rates. In May 2019, the FASB issued ASU 2019-05, "Financial Instruments - Credit Losses (Topic 326), Targeted Transition Relief," which gives entities the ability to irrevocably elect the fair value option in Subtopic 825-10 for certain existing financial assets upon transition to ASU 2016-13. The effective date of the standards will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and early adoption is permitted for annual periods beginning after December 15, 2018. The new standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align the Company's credit loss methodology with the new standard. The Company adopted the standard on February 2, 2020. The adoption did not impact the Company's financial statements.
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In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"). The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating the impact the adoption of ASU 2020-04 will have on its consolidated financial statements.
(f)    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, share-based compensation expense and the incremental borrowing rate utilized in operating lease liabilities.
(g)    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.
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 municipal 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 October 31, 2020, February 1, 2020, and November 2, 2019, the Company had cash equivalents of $104.7 million, $200.1 million and $64.3 million, respectively. The Company’s cash equivalents consist of credit and debit card receivables, money market funds, and corporate bonds with original maturities of 90 days or less. Fair value for cash equivalents was determined based on level 1 inputs.
As of October 31, 2020, February 1, 2020, and November 2, 2019, the Company's 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 October 31, 2020
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Market Value
Short-term:
Corporate bonds$78,516 $ $43 $78,473 
Municipal bonds18,233  7 18,226 
Total$96,749 $ $50 $96,699 
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As of February 1, 2020
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Market Value
Short-term:
Corporate bonds$58,625 $ $4 $58,621 
Municipal bonds604   604 
Total$59,229 $ $4 $59,225 
As of November 2, 2019
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Market Value
Short-term:
Corporate bonds$53,996 $48 $ $54,044 
Municipal bonds76   76 
Total$54,072 $48 $ $54,120 
Short-term investment securities as of October 31, 2020, February 1, 2020, and November 2, 2019 all mature in one year or less.
(h)    Prepaid Expenses and Other Current Assets
Prepaid expenses as of October 31, 2020, February 1, 2020, and November 2, 2019 were $17.7 million, $17.2 million, and $18.8 million, respectively. Other current assets as of October 31, 2020, February 1, 2020, and November 2, 2019 were $32.5 million, $58.7 million, and $39.9 million, respectively.
(i)    Other Accrued Expenses
Other accrued expenses include accrued capital expenditures of $18.6 million, $28.9 million, and $30.6 million as of October 31, 2020, February 1, 2020, and November 2, 2019, respectively.
(2)Revenue from Contracts with Customers
Revenue Transactions
Revenue from store operations is recognized at the point of sale when control of the product is transferred to the customer at such time. Internet sales, through the Company's fivebelow.com e-commerce website, are recognized when the consumer receives the product as control transfers upon delivery. Returns subsequent to the period end are immaterial; accordingly, no significant reserve has been recorded. Gift card sales to customers are initially recorded as liabilities and recognized as sales upon redemption for merchandise or as breakage revenue in proportion to the pattern of redemption of the gift cards by the customer in net sales.
The transaction price for the Company’s sales is based on the item’s stated price. To the extent that the Company charges customers for shipping and handling on e-commerce sales, the Company records such amounts in net sales. Shipping and handling costs, which include fulfillment and shipping costs related to the Company's e-commerce operations, are included in costs of goods sold. The Company has chosen the pronouncement's policy election, which allows it to exclude all sales taxes from net sales in the accompanying consolidated statements of operations.
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Disaggregation of Revenue
The following table provides information about disaggregated revenue by groups of products: leisure, fashion and home, and party and snack (in thousands):
Thirteen Weeks EndedThirteen Weeks Ended
October 31, 2020November 2, 2019
AmountPercentage of Net SalesAmountPercentage of Net Sales
Leisure$221,970 46.6 %$188,627 50.0 %
Fashion and home176,867 37.1 %120,636 32.0 %
Party and snack77,777 16.3 %68,175 18.0 %
Total$476,614 100.0 %$377,438 100.0 %
Thirty-Nine Weeks EndedThirty-Nine Weeks Ended
October 31, 2020November 2, 2019
AmountPercentage of Net SalesAmountPercentage of Net Sales
Leisure$524,719 47.5 %$587,649 50.7 %
Fashion and home400,679 36.3 %352,593 30.4 %
Party and snack178,225 16.2 %219,358 18.9 %
Total$1,103,623 100.0 %$1,159,600 100.0 %
(3) Leases
The Company determines if an arrangement contains a lease at the inception of a contract. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease assets and operating lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments. As the rate implicit in the lease is not readily determinable for the Company's leases, the Company utilizes its incremental borrowing rate to determine the present value of future lease payments. The incremental borrowing rate represents a significant judgment and is determined based on an analysis of the Company's synthetic credit rating, prevailing financial market conditions, corporate bond yields, treasury bond yields, and the effect of collateralization. The operating lease assets also include lease payments made before commencement and exclude lease incentives.
The Company’s real estate leases typically contain options that permit renewals for additional periods of up to five years. For real estate leases, except for renewals that generally take the lease to a ten-year term, the options to renew are not considered reasonably certain at lease commencement because the Company reevaluates each lease on a regular basis to consider the economic and strategic benefits of exercising the renewal options, and regularly opens, relocates or closes stores to align with its operating strategy. Therefore, generally, except for renewals that take the lease to a ten-year term, the renewal option periods are not included within the lease term and the associated payments are not included in the measurement of the operating lease asset and operating lease liability as the exercise of such options is not reasonably certain. The Company’s operating lease agreements, including assumed renewals, which are generally those that take the lease to a ten-year term, expire through fiscal 2034. Similarly, renewal options are not included in the lease term for non-real estate leases because they are not considered reasonably certain of being exercised at lease commencement. Leases with an initial term of 12 months or less are not recorded on the balance sheets and lease expense is recognized on a straight-line basis over the term of the short-term lease.
For certain real estate leases, the Company accounts for lease components and nonlease components as a single lease component. Certain real estate leases require additional payments for reimbursement of real estate taxes, common area maintenance and insurance as well as payments based on sales volume, all of which are expensed as incurred as variable lease costs. Other real estate leases contain one fixed lease payment that includes real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the operating lease assets and operating lease liabilities.
In response to the COVID-19 pandemic, certain of the Company's landlords have agreed to temporary rent concessions. These rent concessions generally relate to abatements and deferrals of certain rent payments for April through October until future periods. Additional negotiations of payment terms are still in process.
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In accordance with the Financial Accounting Standards Board's recent staff guidance regarding rent concessions related to the effects of the COVID-19 pandemic, the Company has elected to account for the concessions agreed to by landlords that do not result in a substantial increase in the obligations of the lessee as if the enforceable rights and obligations for those concessions existed in the original lease agreements and the Company has elected to not remeasure the related lease liabilities and right-of-use assets. For qualifying rent abatement concessions, the Company has recorded negative variable lease expense for the amount of the concession during the period of relief, and for qualifying deferrals of rental payments, the Company has recognized a non-interest bearing payable in lieu of recognizing a decrease in cash for the lease payment that would have been made based on the original terms of the lease agreement, which will be reduced when the deferred payment is made in the future.
During the thirteen weeks ended October 31, 2020, the Company committed to 37 new store leases with average terms of approximately 10 years that have future minimum lease payments of approximately $83.0 million.
All of the Company's leases are classified as operating leases and the associated assets and liabilities are presented as separate captions in the consolidated balance sheets. As of October 31, 2020 and November 2, 2019, the weighted average remaining lease term for the Company's operating leases was 8.0 years and 7.9 years, respectively, and the weighted average discount rate was 6.6% and 7.0%, respectively.
The following table is a summary of the Company's components for net lease costs (in thousands):
Thirteen Weeks EndedThirty-Nine Weeks Ended
Lease CostOctober 31, 2020November 2, 2019October 31, 2020November 2, 2019
Operating lease cost$43,584 $37,549 $126,205 $106,580 
Variable lease cost11,977 10,422 33,939 29,634 
Net lease cost*$55,561 $47,971 $160,144 $136,214 

* Excludes short-term lease cost, which is immaterial.


The following table summarizes the maturity of lease liabilities under operating leases as of October 31, 2020 (in thousands):
Maturity of Lease LiabilitiesOperating Leases
2020$60,035 
2021184,549 
2022179,370 
2023172,390 
2024161,411 
After 2024595,524 
Total lease payments1,353,279 
Less: imputed interest293,982 
Present value of lease liabilities$1,059,297 

The following table summarizes the supplemental cash flow disclosures related to leases (in thousands):
Thirty-Nine Weeks Ended
October 31, 2020November 2, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Cash payments arising from operating lease liabilities (1)
$91,013 $96,496 
Supplemental non-cash information:
Operating lease liabilities arising from obtaining right-of-use assets$159,707 $205,690 

(1) Included within operating activities in the Company's Consolidated Statements of Cash Flows.
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(4) Income (Loss) Per Common Share
Basic income (loss) per common share amounts are calculated using the weighted average number of common shares outstanding for the period. Diluted income (loss) per common share amounts are calculated using the weighted average number of common shares outstanding for the period and include the dilutive impact of exercised stock options as well as assumed vesting of 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 dilutive impact, if any, for performance-based restricted stock units, which are subject to market conditions based on our total shareholder return relative to a pre-defined peer group, are included in the weighted average shares.
The following table reconciles net income (loss) and the weighted average common shares outstanding used in the computations of basic and diluted income (loss) per common share (in thousands, except for share and per share data):
Thirteen Weeks EndedThirty-Nine Weeks Ended
 October 31, 2020November 2, 2019October 31, 2020November 2, 2019
Numerator:
Net income (loss)$20,425 $10,189 $(576)$64,682 
Denominator:
Weighted average common shares outstanding - basic55,851,780 55,672,796 56,004,072 55,855,526 
Dilutive impact of options, restricted stock units and employee stock purchase plan247,548 346,940  353,192 
Weighted average common shares outstanding - diluted56,099,328 56,019,736 56,004,072 56,208,718 
Per common share:
Basic income (loss) per common share$0.37 $0.18 $(0.01)$1.16 
Diluted income (loss) per common share$0.36 $0.18 $(0.01)$1.15 
The effects of the assumed vesting of restricted stock units for 4,361 shares of common stock for the thirteen weeks ended October 31, 2020 were excluded from the calculation of diluted net income per share, as their impact would have been anti-dilutive.
For the thirty-nine weeks ended October 31, 2020, all common stock equivalents related to outstanding stock options and unvested restricted units were excluded from the calculation of diluted net loss per share, as their impact would have been anti-dilutive due to the Company's net loss for the period.
The effects of the assumed vesting of restricted stock units for 2,303 and 768 shares of common stock for the thirteen and thirty-nine weeks ended November 2, 2019, 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.
(5)Line of Credit
On March 20, 2020, the Company exercised its right under the Fourth Amended and Restated Loan and Security Agreement, executed on May 10, 2017 (the "Prior Credit Agreement') to increase the aggregate commitments under the Revolving Credit Facility from $20 million to $50 million.
On April 24, 2020, the Company entered into a Fifth Amended and Restated Credit Agreement (the “Fifth Restated Credit Agreement”), among the Company, 1616 Holdings, Inc., a wholly-owned subsidiary of the Company ("1616 Holdings"), and Wells Fargo Bank, National Association as administrative agent (the “Agent”), and other lenders. The Fifth Restated Credit Agreement amends and restates the Prior Credit Agreement which governed the Revolving Credit Facility.
The Fifth Restated Credit Agreement includes a secured asset-based revolving line of credit in the amount of up to $225.0 million (the “Amended Revolving Credit Facility”). Pursuant to the Fifth Restated Credit Agreement, advances under the Amended Revolving Credit Facility are tied to a borrowing base consisting of eligible credit card receivables and inventory, as reduced by certain reserves in effect from time to time. The Amended Revolving Credit Facility expires on the earliest to occur of (i) April 24, 2023 or (ii) an event of default. The Amended Revolving Credit Facility may be increased by up to $150.0 million, subject to certain conditions, including obtaining commitments from one or more lenders. The entire amount of the Amended Revolving Credit Facility is available for the issuance of letters of credit and allows for swingline loans.
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The Fifth Restated Credit Agreement provides that the interest rate payable on borrowings shall be, at the Company’s option, a per annum rate equal to (a) a base rate plus an applicable margin ranging from 1.00% to 1.25% or (b) a LIBOR rate plus a margin ranging from 2.00% to 2.25%. Letter of credit fees will range from 2.00% to 2.25%. The interest rate and letter of credit fees under the Fifth Restated Credit Agreement are subject to an increase of 2.00% per annum upon an event of default.
The Fifth Restated Credit Agreement contains customary covenants that limit, absent lender approval, the ability of Company and certain of its affiliates to, among other things, pay cash dividends, incur debt, create liens and encumbrances, redeem or repurchase stock, enter into certain acquisition transactions or transactions with affiliates, merge, dissolve, repay certain indebtedness, change the nature of Company’s business, enter sale or leaseback transactions, make investments or dispose of assets. In some cases, these restrictions are subject to certain negotiated exceptions or permit Company to undertake otherwise restricted activities if it satisfies certain required conditions. In addition, the Company will be required to maintain availability of not less than (i) 15% of the lesser of (x) aggregate commitments under the Amended Revolving Credit Facility and (y) the borrowing base (the "loan cap") prior to a stepdown date (as described below) and (ii) 10% of the loan cap after the stepdown date. The stepdown date is the first date occurring after both (i) the date that 75% of the number of stores as of the closing date of the Amended Revolving Credit Facility have reopened ("store opening date") and (ii) the date occurring at least six months after the store reopening date on which the fixed charge coverage ratio is at least 1.00 to 1.00.
If there exists an event of default or availability under the Amended Revolving Credit Facility is less than 15% of the loan cap, amounts in any of the loan parties’ or subsidiary guarantors' designated deposit accounts will be transferred daily into a blocked account held by the Agent and applied to reduce outstanding amounts under the Amended Revolving Credit Facility (the “Cash Dominion Event”), so long as (i) such event of default has not been waived and/or (ii) until availability has exceeded 15% of the loan cap for sixty (60) consecutive calendar days (provided that such ability to discontinue the Cash Dominion Event shall be limited to two times during the term of the Agreement).
The Fifth Restated Credit Agreement also contains a provision stating that the Company cannot borrow in excess of $50 million under the Amended Revolving Credit Facility at any time the amount of the consolidated cash and cash equivalents of the loan parties (excluding certain long-term investments and certain other items) exceeds $50 million.
The Fifth Restated Credit Agreement contains customary events of default including, among other things, failure to pay obligations when due, initiation of bankruptcy or insolvency proceedings, defaults on certain other indebtedness, change of control, incurrence of certain material judgments that are not stayed, satisfied, bonded or discharged within 30 days, certain ERISA events, invalidity of the credit documents, and violation of affirmative and negative covenants or breach of representations and warranties set forth in the Fifth Restated Credit Agreement. Amounts under the Amended Revolving Credit Facility's may become due upon events of default (subject to any applicable grace or cure periods). Under the Fifth Restated Credit Agreement, all obligations under the Amended Revolving Credit Facility continue to be guaranteed by 1616 Holdings, Inc. and are secured by substantially all of the assets of the Company and 1616 Holdings, Inc.
During the thirteen weeks ended May 2, 2020, the Company borrowed and repaid approximately $50 million from its Amended Revolving Credit Facility. As of October 31, 2020, the Company had no borrowings under the Amended Revolving Credit Facility and had approximately $225.0 million available on the Amended Revolving Credit Agreement.
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 October 31, 2020 and November 2, 2019, the Company was in compliance with the covenants applicable to it under the Amended Revolving Credit Facility.
(6)Commitments and Contingencies
Commitments
Other Contractual Commitments
As of October 31, 2020, the Company has other purchase commitments of approximately $4.2 million consisting of purchase agreements for materials that will be used in the construction of new stores.
During the thirteen weeks ended November 2, 2019, the Company acquired land in Conroe, Texas, to build an approximately 860,000 square foot distribution center to support the Company's anticipated growth. The total amount paid for the land and building was approximately $56 million. The Company began operating the distribution center in July 2020.
During the thirteen weeks ended August 1, 2020, the Company acquired land in Buckeye, Arizona, to build an approximately 860,000 square foot distribution center to support the Company's anticipated growth. The total cost of the land and building is expected to be approximately $65 million, of which approximately $13 million has been paid through October 31, 2020. The Company expects to occupy the distribution center in Buckeye, Arizona in the second half of 2021.
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Contingencies
Legal Matters
The Company is subject to various proceedings, lawsuits, disputes, and claims arising in the ordinary course of the Company's business. Many of these actions raise complex factual and legal issues and are subject to uncertainties. Actions filed against the Company 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. The Company cannot predict with assurance the outcome of actions brought against the Company. 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, the Company records 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 the Company's financial condition or results of operations.
(7)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 7.6 million shares under the Plan. As of October 31, 2020, approximately 2.5 million 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 Company’s Board of Directors. Options granted to date generally vest over four years from the date of grant.
Stock option activity during the thirty-nine weeks ended October 31, 2020 was as follows:
Options
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
(in years)
Balance as of February 1, 2020231,525 $30.92 4.1
Forfeited(1,650)31.49 
Exercised(111,814)26.96 
Balance as of October 31, 2020118,061 34.66 4.6
Exercisable as of October 31, 2020118,061 $34.66 4.6

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 granted during the thirty-nine weeks ended October 31, 2020.
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. RSUs granted to date have vesting periods ranging from less than one year to five years from the date of grant and the fair value of RSUs is the market price of the underlying common stock on the date of grant. PSUs granted to date have vesting periods ranging from less than one year to five years from the date of grant.
PSUs that have a performance condition are 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. The fair value of these PSUs is the market price of the underlying common stock on the date of grant. Compensation is recognized over the vesting period and adjusted for the probability of achievement of the performance criteria.
PSUs that have a market condition based on our total shareholder return relative to a pre-defined peer group are subject to multi-year performance objectives with a vesting date in 2023 (if the applicable performance objectives are achieved). The fair value of these PSUs is determined using a Monte Carlo valuation model.
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RSU and PSU activity during the thirty-nine weeks ended October 31, 2020 was as follows:
Restricted Stock UnitsPerformance-Based Restricted Stock Units
NumberWeighted-Average Grant Date Fair ValueNumberWeighted-Average Grant Date Fair Value
Non-vested balance as of February 1, 2020250,352 $79.37 357,166 $66.96 
Granted175,346 106.79 370,613 134.73 
Vested(99,836)65.79 (127,622)39.89 
Forfeited(22,376)87.39 (22,152)74.08 
Non-vested balance as of October 31, 2020303,486 $99.09 578,005 $116.12 
In connection with the vesting of RSUs and PSUs during the thirty-nine weeks ended October 31, 2020, the Company withheld 50,921 shares with an aggregate value of $3.8 million in satisfaction of minimum tax withholding obligations due upon vesting.
In connection with the vesting of RSUs and PSUs during the thirty-nine weeks ended November 2, 2019, the Company withheld 82,505 shares with an aggregate value of $10.3 million in satisfaction of minimum tax withholding obligations due upon vesting.
As of October 31, 2020, there was $41.3 million of total unrecognized compensation costs related to non-vested share-based compensation arrangements (including stock options, RSUs and PSUs) granted under the Plan. The cost is expected to be recognized over a weighted average vesting period of 2.9 years.
Share Repurchase Program
On March 20, 2018, the Company's Board of Directors approved a share repurchase program authorizing the repurchase of up to $100 million of the Company's common stock through March 31, 2021, on the open market, in privately negotiated transactions, or otherwise. In fiscal 2019, the Company purchased 337,552 shares under this program at an aggregate cost of approximately $36.9 million, or an average price of $109.27 per share. During the thirteen weeks ended May 2, 2020, the Company purchased 137,023 shares under this program at an aggregate cost of approximately $12.7 million, or average price of $92.42 per share. During the thirteen weeks ended October 31, 2020, the Company did not execute any share repurchases. Since approval of the share repurchase program in March 2018, the Company has purchased approximately 500,000 shares for an aggregate cost of approximately $50 million. There can be no assurances that any additional repurchases will be completed, or as to the timing or amount of any repurchases. The share repurchase program may be modified or discontinued at any time.
(8)Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted and signed into law. The CARES Act includes a number of income tax changes, including, but not limited to, (i) permitting taxpayers a five-year carryback period for net operating losses ("NOLs") arising in tax years beginning after December 31, 2017 and before January 1, 2021. (ii) temporarily suspending the 80% of taxable income limitation on the use of NOLs for tax years beginning before January 1, 2021, thereby permitting corporate taxpayers to use NOLs to fully offset taxable income in these years regardless of the year in which the net operating loss arose, (iii) accelerating AMT tax credit carryover refunds, (iv) temporarily increasing the allowable business interest deduction from 30% to 50% of adjusted taxable income, and (v) providing a technical correction for depreciation as relates to the definition of qualified improvement property. As a result of the CARES Act, the Company recorded an income tax receivable for the thirteen and thirty-nine weeks ended October 31, 2020.
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The following table summarizes the Company’s income tax expense (benefit) and effective tax rates for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 (dollars in thousands):
Thirteen Weeks EndedThirty-Nine Weeks Ended
October 31, 2020November 2, 2019October 31, 2020November 2, 2019
Income (loss) before income taxes$23,589 $13,438 $(15,822)$77,135 
Income tax expense (benefit)$3,164 $3,249 $(15,246)$12,453 
Effective tax rate13.4 %24.2 %96.4 %16.1 %
The effective tax rates for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 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 weeks ended October 31, 2020 was lower than the thirteen weeks ended November 2, 2019 primarily due to discrete items, which includes the impact of the CARES Act and the impact 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. The effective tax rate for the thirty-nine weeks ended October 31, 2020 was higher than the thirty-nine weeks ended November 2, 2019 primarily due to discrete items, which includes the impact of the CARES Act and the impact of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting."
The Company had no material accrual for uncertain tax positions or interest and/or penalties related to income taxes on the Company’s balance sheets as of October 31, 2020, February 1, 2020, or November 2, 2019 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 thirty-nine weeks ended October 31, 2020 or November 2, 2019.
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 3, 2018 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 years to four years depending on the state.
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 February 1, 2020 and referred to herein as the "Annual Report," and the consolidated financial statements and related notes as of and for the thirteen and thirty-nine weeks ended October 31, 2020 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 2020" or "fiscal 2020" refer to the period from February 2, 2020 to January 30, 2021, which is a 52-week fiscal year. References to "fiscal year 2019" or "fiscal 2019" refer to the period from February 3, 2019 to February 1, 2020, which is a 52-week fiscal year. The fiscal quarters ended October 31, 2020 and November 2, 2019 refer to the thirteen weeks ended as of those dates. The year-to-date periods ended October 31, 2020 and November 2, 2019 refer to the thirty-nine weeks ended as of those dates. Historical results are not necessarily indicative of the results to be expected for any future period and results for any interim period may not necessarily be indicative of the results that may be expected for a full year.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts or present facts or conditions, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the introduction of new merchandise, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or the negative of these terms or other comparable terminology.
The forward-looking statements contained in this Quarterly Report on Form 10-Q reflect our views as of the date of this report about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, those factors described in Part I, Item 1A “Risk Factors” in our Annual Report, as amended by the risk factors included in Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q. These factors include without limitation:
uncertainties associated with the Coronavirus (or COVID-19) pandemic, including closures of our stores, adverse impacts on our sales and operations, future impairment charges and the risk of global recession;
failure to successfully implement our growth strategy;
disruptions in our ability to select, obtain, distribute and market merchandise profitably;
reliance on merchandise manufactured outside of the United States;
the direct and indirect impact of recent and potential tariffs imposed and proposed by the United States on foreign imports, including, without limitation, the tariffs themselves, any counter-measures thereto and any indirect effects on consumer discretionary spending, which could increase the cost to us of certain products, lower our margins, increase our import related expenses, and reduce consumer spending for discretionary items, each of which could have a material adverse effect on our business, financial condition and results of future operations;
the impact of price increases, such as, a reduction in our unit sales, damage to our reputation with our customers, and our becoming less competitive in the marketplace;
dependence on the volume of traffic to our stores and website;
inability to attract and retain qualified employees;
inability to successfully build, operate or expand our distribution centers or 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;
the risks of cyberattacks or other cyber incidents, such as the failure to secure customers' confidential or credit card information, or other private data relating to our employees or our company, including the costs associated with protection against or remediation of such incidents;
increased operating costs or exposure to fraud or theft due to customer payment-related risks;
inability to increase sales and improve the efficiencies, costs and effectiveness of our operations;
dependence on our executive officers, senior management and other key personnel or inability to hire additional qualified personnel;
inability to successfully manage our inventory balances and inventory shrinkage;
inability to meet our lease obligations;
the costs and risks of constructing and owning real property;
changes in our competitive environment, including increased competition from other retailers and the presence of online retailers;
increasing costs due to inflation, increased operating costs, wage rate increases or energy prices;
the seasonality of our business;
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inability to successfully implement our expansion into online retail;
disruptions to our information technology systems in the ordinary course or as a result of system upgrades;
the impact of damage or interruptions to our technology systems;
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 (in addition to COVID-19), global political events, war, terrorism or civil unrest;
the impact of changes in tax legislation;
current economic conditions and other economic factors;
the impact of governmental laws and regulations;
the impact of changes in accounting standards;
the impact to our financial performance related to insurance programs;
the costs and consequences of legal proceedings;
inability to protect our brand name, trademarks and other intellectual property rights;
the costs and liabilities associated with infringement of third-party 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, Inc. (collectively referred to herein with its wholly owned subsidiary as "we," "us," or "our") is a rapidly growing specialty value retailer offering a broad range of trend-right, high-quality merchandise targeted at the tween and teen customer. We offer a dynamic, edited assortment of exciting products, with most priced at $5 and below, including select brands and licensed merchandise across our category worlds. As of October 31, 2020, we operated 1,018 stores in 38 states. In addition, in fall 2019, we rolled out new pricing to our full chain, increasing prices on certain products over $5. Most of our products remain at $5 and below.
We also offer our merchandise on the internet, through our fivebelow.com e-commerce website. All e-commerce sales, which includes shipping and handling revenue, are included in net sales. Beginning with the third fiscal quarter of 2016, when we launched our e-commerce channel, all e-commerce sales are included in comparable sales. Our e-commerce expenses will have components classified as both cost of goods sold and selling, general and administrative expenses.
Effect of the COVID-19 Pandemic on our Business and Operations
As a result of the coronavirus (or COVID-19) pandemic in the first half of 2020, federal, state and local governments and private entities have mandated various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories, and quarantining of people who may have been exposed to the virus, of which many have been eliminated or lessened over time. Such mandates required reduction of operating hours and forced temporary closures of non-essential retailers and other businesses. The COVID-19 pandemic has recently surged in many parts of the United States, which may lead to the imposition of new federal, state and local restrictions. It is impossible to predict the effect and ultimate impact of the pandemic as the situation continues to evolve.
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As a result of these restrictions and out of concern for our customers and employees, we temporarily closed all of our stores as of March 20, 2020. We began reopening our stores at the end of April in compliance with federal, state and local requirements. As a result of the temporary store closures, we withheld store rent for the closure period. With respect to virtually all of our lease portfolio, we have either resumed rent payments or agreed to rent deferrals and abatements related to this closure period with landlords. As a result, we do not expect that our prior rent withholdings or the associated deferrals and abatements agreed upon with landlords will have a material adverse impact on our business, financial condition and results of future operations.
While the ultimate health and economic impact of the COVID-19 pandemic are highly uncertain, we expect that our business operations and results of operations, including our net sales, earnings and cash flows, may be materially impacted for the foreseeable future, as a result of:
temporary closures of our stores;
decreased customer traffic in stores, including, without limitation, as the result of limitations on the number of persons permitted in stores at one time by certain local and state regulations;
uncertainty of the extent to which customers will maintain purchases through our e-commerce website and through curbside pickup (if and where any stores are closed to the public);
changes in consumer confidence and consumer spending habits, including spending for the merchandise that we sell, and negative trends in consumer purchasing patterns due to changes in consumers’ disposable income, credit availability and debt levels;
disruption to our supply chain including the manufacturing, supply, distribution, transportation and delivery of our products;
increased safety measures for our employees and customers at our stores, distribution centers and home office; and