0001177609-21-000025.txt : 20210902 0001177609-21-000025.hdr.sgml : 20210902 20210902160339 ACCESSION NUMBER: 0001177609-21-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 56 CONFORMED PERIOD OF REPORT: 20210731 FILED AS OF DATE: 20210902 DATE AS OF CHANGE: 20210902 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIVE BELOW, INC CENTRAL INDEX KEY: 0001177609 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 753000378 STATE OF INCORPORATION: PA FISCAL YEAR END: 0129 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35600 FILM NUMBER: 211233240 BUSINESS ADDRESS: STREET 1: 701 MARKET STREET STREET 2: SUITE 300 CITY: PHILADELPHIA STATE: PA ZIP: 19106 BUSINESS PHONE: 215 546 7909 MAIL ADDRESS: STREET 1: 701 MARKET STREET STREET 2: SUITE 300 CITY: PHILADELPHIA STATE: PA ZIP: 19106 FORMER COMPANY: FORMER CONFORMED NAME: FIVE BELOW INC DATE OF NAME CHANGE: 20030305 FORMER COMPANY: FORMER CONFORMED NAME: CHEAP HOLDINGS INC DATE OF NAME CHANGE: 20020717 10-Q 1 five-20210731.htm 10-Q five-20210731
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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 July 31, 2021.
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 September 1, 2021 was 56,021,792.






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 31, 2021January 30, 2021August 1, 2020
Assets
Current assets:
Cash and cash equivalents$126,195 $268,783 $160,338 
Short-term investment securities286,929 140,928 41,670 
Inventories347,302 281,267 294,057 
Prepaid income taxes and tax receivable9,410 6,350 15,496 
Prepaid expenses and other current assets69,504 58,085 58,965 
Total current assets839,340 755,413 570,526 
Property and equipment, net of accumulated depreciation and amortization of $317,499, $278,019, and $244,453, respectively.
677,183 565,351 505,299 
Operating lease assets1,086,386 975,862 911,631 
Long-term investment securities1,104   
Other assets18,921 18,144 12,791 
$2,622,934 $2,314,770 $2,000,247 
Liabilities and Shareholders’ Equity
Current liabilities:
Line of credit$ $ $ 
Accounts payable167,704 138,622 121,372 
Income taxes payable931 2,025 775 
Accrued salaries and wages41,654 43,445 18,992 
Other accrued expenses141,520 108,504 90,117 
Operating lease liabilities150,041 143,074 134,937 
Total current liabilities501,850 435,670 366,193 
Other long-term liabilities1,291 1,048 1,540 
Long-term operating lease liabilities 1,081,555 967,255 908,554 
Deferred income taxes35,778 28,911 5 
Total liabilities1,620,474 1,432,884 1,276,292 
Commitments and contingencies (note 6)
Shareholders’ equity:
Common stock, $0.01 par value. Authorized 120,000,000 shares; issued and outstanding 56,022,278, 55,935,237, and 55,837,096 shares, respectively.
560 559 559 
Additional paid-in capital327,211 321,075 307,506 
Retained earnings 674,689 560,252 415,890 
Total shareholders’ equity1,002,460 881,886 723,955 
$2,622,934 $2,314,770 $2,000,247 
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 EndedTwenty-Six Weeks Ended
July 31, 2021August 1, 2020July 31, 2021August 1, 2020
Net sales$646,554 $426,110 $1,244,377 $627,009 
Cost of goods sold416,235 286,271 813,189 466,709 
Gross profit230,319 139,839 431,188 160,300 
Selling, general and administrative expenses144,151 106,697 281,333 199,354 
Operating income (loss)86,168 33,142 149,855 (39,054)
Interest (expense) income and other (expense) income, net(1,071)(500)(2,048)(357)
Income (loss) before income taxes85,097 32,642 147,807 (39,411)
Income tax expense (benefit)20,256 3,061 33,370 (18,410)
Net income (loss)$64,841 $29,581 $114,437 $(21,001)
Basic income (loss) per common share$1.16 $0.53 $2.04 $(0.38)
Diluted income (loss) per common share$1.15 $0.53 $2.03 $(0.38)
Weighted average shares outstanding:
Basic shares56,007,970 55,786,823 55,989,399 55,844,418 
Diluted shares56,299,491 55,966,840 56,287,095 55,844,418 
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, January 30, 202155,935,237 $559 $321,075 $560,252 $881,886 
Share-based compensation expense— — 5,695 — 5,695 
Issuance of unrestricted stock awards400 — 81 — 81 
Exercise of options to purchase common stock200 — 6 — 6 
Vesting of restricted stock units and performance-based restricted stock units92,914 1 — — 1 
Common shares withheld for taxes(34,682)— (6,623)— (6,623)
Net income— — — 49,596 49,596 
Balance, May 1, 202155,994,069 $560 $320,234 $609,848 $930,642 
Share-based compensation expense— — 6,457 — 6,457 
Issuance of unrestricted stock awards413 — 80 — 80 
Exercise of options to purchase common stock10,246 — 352 — 352 
Vesting of restricted stock units and performance-based restricted stock units17,339 — — — — 
Common shares withheld for taxes(1,879)— (355)— (355)
Issuance of common stock to employees under employee stock purchase plan2,090 — 443 — 443 
Net income— — — 64,841 64,841 
Balance, July 31, 202156,022,278 $560 $327,211 $674,689 $1,002,460 



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 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 
See accompanying notes to consolidated financial statements.
7





FIVE BELOW, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 Twenty-Six Weeks Ended
July 31, 2021August 1, 2020
Operating activities:
Net income (loss)$114,437 $(21,001)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization39,480 33,200 
Share-based compensation expense (benefit)12,353 (1,033)
Deferred income tax expense (benefit)6,867 (8,711)
Other non-cash expenses 354 1,278 
Changes in operating assets and liabilities:
Inventories(66,035)29,971 
Prepaid income taxes and tax receivable(3,060)(11,433)
Prepaid expenses and other assets(9,050)21,631 
Accounts payable29,616 (13,965)
Income taxes payable(1,094)(8,730)
Accrued salaries and wages(1,791)(881)
Operating leases10,743 26,755 
Other accrued expenses15,987 14,381 
Net cash provided by operating activities148,807 61,462 
Investing activities:
Purchases of investment securities and other investments(251,447)(48,344)
Sales, maturities, and redemptions of investment securities100,842 60,903 
Capital expenditures(134,614)(100,652)
Net cash used in investing activities(285,219)(88,093)
Financing activities:
Borrowing on note payable under Revolving Credit Facility 50,000 
Repayment of note payable under Revolving Credit Facility (50,000)
Cash paid for Revolving Credit Facility financing costs (1,755)
Net proceeds from issuance of common stock443 229 
Repurchase and retirement of common stock
 (12,663)
Proceeds from exercise of options to purchase common stock and vesting of restricted and performance-based restricted stock units
359 2,264 
Common shares withheld for taxes(6,978)(3,596)
Net cash used in financing activities(6,176)(15,521)
Net decrease in cash and cash equivalents(142,588)(42,152)
Cash and cash equivalents at beginning of period268,783 202,490 
Cash and cash equivalents at end of period$126,195 $160,338 
Supplemental disclosures of cash flow information:
Non-cash investing activities
Increase (decrease) in accrued purchases of property and equipment$16,698 $(106)
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 July 31, 2021, operated in 39 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, Colorado and Utah. As of July 31, 2021 and August 1, 2020, the Company operated 1,121 stores and 982 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 COVID-19 pandemic, the Company's business operations and results of operations, including its net sales, earnings and cash flows, were materially impacted in fiscal 2020 as a result of the temporary closures of its stores in the first half of 2020, and decreased customer traffic in stores, as the result of limitations on the number of persons permitted in stores at one time by certain local and state regulations.
The Company's ability to operate improved beginning in the second half of fiscal 2020 and extending into fiscal 2021. However, the ultimate health and economic impact of the COVID-19 pandemic remains uncertain, especially in light of the recent surge due to the Delta variant. If the pandemic were to continue to worsen, the Company's business operations, including net sales, earnings and cash flows, may be materially impacted. Further, the Company may determine to reinstate any of the mitigation measures implemented in fiscal 2020 that have since been modified or terminated, or take any additional steps that we consider necessary or as required by local, state or federal authorities.
(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 2021" or "fiscal 2021" refer to the period from January 31, 2021 to January 29, 2022, which is a 52-week fiscal year. References to "fiscal year 2020" or "fiscal 2020" refer to the period from February 2, 2020 to January 30, 2021, which is a 52-week fiscal year. The fiscal quarters ended July 31, 2021 and August 1, 2020 refer to the thirteen weeks ended as of those dates. The year-to-date periods ended July 31, 2021 and August 1, 2020 refer to the twenty-six weeks ended as of those dates.
(d)Basis of Presentation
The consolidated balance sheets as of July 31, 2021 and August 1, 2020, the consolidated statements of operations for the thirteen and twenty-six weeks ended July 31, 2021 and August 1, 2020, the consolidated statements of shareholders’ equity for the thirteen and twenty-six weeks ended July 31, 2021 and August 1, 2020 and the consolidated statements of cash flows for the twenty-six weeks ended July 31, 2021 and August 1, 2020 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 31, 2021 and August 1, 2020. The balance sheet as of January 30, 2021, presented herein, has been derived from the audited balance sheet included in the Company's Annual Report on Form 10-K for fiscal 2020 as filed with the Securities and Exchange Commission on March 18, 2021 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 consolidated financial statements for the fiscal year ended January 30, 2021 and footnotes thereto included in the Annual Report. The consolidated results of operations for the thirteen and twenty-six weeks ended July 31, 2021 and August 1, 2020 are not necessarily indicative of the consolidated operating results for the year ending January 29, 2022 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.
9


(e)Recently Issued Accounting Pronouncements
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 impact of the adoption of ASU 2020-04 is not expected to be significant to the Company's 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, net realizable value 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, 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 investments in corporate bonds are Level 1 while the 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 July 31, 2021, January 30, 2021, and August 1, 2020, the Company had cash equivalents of $73.9 million, $250.7 million and $144.1 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.
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As of July 31, 2021, January 30, 2021, and August 1, 2020, 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 July 31, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Market Value
Short-term:
Corporate bonds$234,909 $ $49 $234,860 
Municipal bonds52,020  6 52,014 
Total$286,929 $ $55 $286,874 
Long-term:
Municipal bonds$1,104 $1 $ $1,105 
Total$1,104 $1 $ $1,105 
As of January 30, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Market Value
Short-term:
Corporate bonds$95,530 $ $53 $95,477 
Municipal bonds45,398  7 45,391 
Total$140,928 $ $60 $140,868 
As of August 1, 2020
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Market Value
Short-term:
Corporate bonds$41,670 $65 $ $41,735 
Total$41,670 $65 $ $41,735 
Short-term investment securities as of July 31, 2021, January 30, 2021, and August 1, 2020 all mature in one year or less. Long-term investment securities as of July 31, 2021 all mature after one year but in less than two years.
(h)Prepaid Expenses and Other Current Assets
Prepaid expenses as of July 31, 2021, January 30, 2021, and August 1, 2020 were $23.4 million, $19.0 million, and $18.8 million, respectively. Other current assets as of July 31, 2021, January 30, 2021, and August 1, 2020 were $46.1 million, $39.1 million, and $40.2 million, respectively.
(i)Other Accrued Expenses
Other accrued expenses include accrued capital expenditures of $46.4 million, $29.2 million, and $23.7 million as of July 31, 2021, January 30, 2021, and August 1, 2020, respectively.
(j)Deferred Compensation
The Company approved and adopted the Five Below, Inc. Nonqualified Deferred Compensation Plan (the "Plan") and a related, irrevocable grantor trust (the "Trust") during the thirteen weeks ended July 31, 2021. The Plan provides eligible key employees with the opportunity to elect to defer up to 80% of their eligible compensation. The Company may make discretionary contributions, at the discretion of the Board. Payments under the Plan will be made from the general assets of the Company or from the assets of the Trust, funded by the Company. The related liability will be recorded as deferred compensation and included in other long-term liabilities in the consolidated balance sheets.
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(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 customer 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. As permitted by applicable accounting guidance, the Company has elected to exclude all sales taxes from net sales in the accompanying consolidated statements of operations.
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
July 31, 2021August 1, 2020
AmountPercentage of Net SalesAmountPercentage of Net Sales
Leisure$328,517 50.8 %$206,362 48.4 %
Fashion and home191,241 29.6 %156,665 36.8 %
Party and snack126,796 19.6 %63,083 14.8 %
Total$646,554 100.0 %$426,110 100.0 %
Twenty-Six Weeks EndedTwenty-Six Weeks Ended
July 31, 2021August 1, 2020
AmountPercentage of Net SalesAmountPercentage of Net Sales
Leisure$625,290 50.2 %$302,712 48.3 %
Fashion and home370,933 29.8 %223,843 35.7 %
Party and snack248,154 20.0 %100,454 16.0 %
Total$1,244,377 100.0 %$627,009 100.0 %
(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.
In response to the COVID-19 pandemic, certain of the Company's landlords agreed to temporary rent concessions. These rent concessions generally related to deferrals and abatements of certain rent payments due between April 2020 through October 2020 into future periods.
In accordance with the Financial Accounting Standards Board's 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 July 31, 2021, the Company committed to 30 new store leases with average terms of approximately 10 years that have future minimum lease payments of approximately $68.6 million.
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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 July 31, 2021 and August 1, 2020, the weighted average remaining lease term for the Company's operating leases was 7.9 years and 8.0 years, respectively, and the weighted average discount rate was 6.2% and 6.6%, respectively.
The following table is a summary of the Company's components for net lease costs (in thousands):
Thirteen Weeks EndedTwenty-Six Weeks Ended
Lease CostJuly 31, 2021August 1, 2020July 31, 2021August 1, 2020
Operating lease cost$49,265 $42,273 $96,794 $82,621 
Variable lease cost14,020 10,619 27,650 21,962 
Net lease cost*$63,285 $52,892 $124,444 $104,583 

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


The following table summarizes the maturity of lease liabilities under operating leases as of July 31, 2021 (in thousands):
Maturity of Lease LiabilitiesOperating Leases
2021$109,500 
2022210,299 
2023203,841 
2024193,741 
2025178,842 
After 2025620,838 
Total lease payments1,517,061 
Less: imputed interest285,465 
Present value of lease liabilities$1,231,596 

The following table summarizes the supplemental cash flow disclosures related to leases (in thousands):
Twenty-Six Weeks Ended
July 31, 2021August 1, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Cash payments arising from operating lease liabilities (1)
$96,384 $57,311 
Supplemental non-cash information:
Operating lease liabilities arising from obtaining right-of-use assets$171,581 $118,189 

(1) Included within operating activities in the Company's Consolidated Statements of Cash Flows.
(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 the Company's total shareholder return relative to a pre-defined peer group, are included in the weighted average shares.
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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 EndedTwenty-Six Weeks Ended
 July 31, 2021August 1, 2020July 31, 2021August 1, 2020
Numerator:
Net income (loss)$64,841 $29,581 $114,437 $(21,001)
Denominator:
Weighted average common shares outstanding - basic56,007,970 55,786,823 55,989,399 55,844,418 
Dilutive impact of options, restricted stock units and employee stock purchase plan291,521 180,017 297,696  
Weighted average common shares outstanding - diluted56,299,491 55,966,840 56,287,095 55,844,418 
Per common share:
Basic income (loss) per common share$1.16 $0.53 $2.04 $(0.38)
Diluted income (loss) per common share$1.15 $0.53 $2.03 $(0.38)
The effects of the assumed vesting of restricted stock units for 22,845 shares of common stock for the thirteen weeks ended July 31, 2021 were excluded from the calculation of diluted net income per share, as their impact would have been anti-dilutive.
The effects of the assumed vesting of restricted stock units for 11,835 shares of common stock for the twenty-six weeks ended July 31, 2021 were excluded from the calculation of diluted net income per share, as their impact would have been anti-dilutive.
The effects of the assumed vesting of restricted stock units for 7,837 shares of common stock for the thirteen weeks ended August 1, 2020 were excluded from the calculation of diluted net income per share, as their impact would have been anti-dilutive.
For the twenty-six weeks ended August 1, 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 aforementioned excluded shares do not reflect the impact of any incremental repurchases under the treasury stock method.
(5)Line of Credit
On January 27, 2021, the Company entered into a First Amendment to Credit Agreement (the "First Amendment") which amended the Fifth Amended and Restated Credit Agreement (as amended by the First Amendment, the “Credit Agreement”) dated April 24, 2020 among the Company, 1616 Holdings, Inc., a wholly-owned subsidiary of the Company ("1616 Holdings" and together with the Company, the "Loan Parties"), Wells Fargo Bank, National Association as administrative agent (the “Agent”), and other lenders party thereto (the "Lenders").
The Credit Agreement provides for a secured asset-based revolving line of credit in the amount of up to $225.0 million (the "Revolving Credit Facility"). Advances under the 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. Pursuant to the Credit Agreement, inventory appraisals and certain other diligence items are deferred, with reduced advance rates during the period that such appraisals have not been delivered. The Revolving Credit Facility expires on the earliest to occur of (i) April 24, 2023 or (ii) an event of default.
The 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 "Accordion"). Pursuant to the First Amendment, the Company obtained commitments from the Lenders that would allow the Company at its election (subject only to satisfaction of certain customary conditions such as the absence of any Event of Default), to increase the amount of the Revolving Credit Facility by an aggregate principal amount up to $50.0 million within the Accordion (the "Committed Increase"). The entire amount of the Revolving Credit Facility is available for the issuance of letters of credit and allows for swingline loans.
The 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 0.25% to 0.75% or (b) a LIBOR rate plus a margin ranging from 1.25% to 1.75%. Letter of credit fees range from 1.25% to 1.75%. The interest rate and letter of credit fees under the Credit Agreement are subject to an increase of 2.00% per annum upon an event of default.
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The 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) 12.5% of the lesser of (x) aggregate commitments under the Revolving Credit Facility and (y) the borrowing base (the "loan cap") during the period that inventory appraisals have not been delivered as described above and (ii) at all other times 10% of the loan cap.
If there exists an event of default or availability under the 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 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 Credit Agreement).
The 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 Credit Agreement. Amounts under the Revolving Credit Facility's may become due upon events of default (subject to any applicable grace or cure periods).
All obligations under the Revolving Credit Facility are guaranteed by 1616 Holdings and are secured by substantially all of the assets of the Company and 1616 Holdings.
As of July 31, 2021, the Company had no borrowings under the Revolving Credit Facility and had approximately $225.0 million available under the Revolving Credit Facility.
As of July 31, 2021 and August 1, 2020, the Company was in compliance with the covenants applicable to it under the Credit Agreement.
(6)Commitments and Contingencies
Commitments
Other Contractual Commitments
As of July 31, 2021, the Company has other purchase commitments of approximately $11.2 million consisting of purchase agreements for materials that will be used in the construction of new stores.
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 $58 million has been paid through July 31, 2021. The Company began operating the distribution center in August 2021.
During the thirteen weeks ended May 1, 2021, the Company acquired land in Indianapolis, Indiana, to build an approximately 1,030,000 square foot distribution center to support the Company's anticipated growth. The total cost of the land and building is expected to be approximately $61 million, of which approximately $11 million has been paid through July 31, 2021. The Company expects to occupy the distribution center in 2022.
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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 July 31, 2021, approximately 2.6 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 twenty-six weeks ended July 31, 2021 was as follows:
Options
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
(in years)
Balance as of January 30, 202153,029 $33.22 3.2
Forfeited(346)4.28 
Exercised(10,446)34.32 
Balance as of July 31, 202142,237 33.18 2.9
Exercisable as of July 31, 202142,237 $33.18 2.9

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 granted during the twenty-six weeks ended July 31, 2021.
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 vesting periods of approximately three years from the date of grant (if the applicable performance objectives are achieved). The fair value of these PSUs are determined using a Monte Carlo valuation model.
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RSU and PSU activity during the twenty-six weeks ended July 31, 2021 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 January 30, 2021304,398 $99.94 259,776 $151.73 
Granted67,151 183.38 89,460 196.36 
Vested(110,253)95.50   
Forfeited(6,535)117.40   
Non-vested balance as of July 31, 2021254,761 $123.41 349,236 $163.16 
In connection with the vesting of RSUs and PSUs during the twenty-six weeks ended July 31, 2021, the Company withheld 36,561 shares with an aggregate value of $7.0 million in satisfaction of minimum tax withholding obligations due upon vesting.
In connection with the vesting of RSUs and PSUs during the twenty-six weeks ended August 1, 2020, the Company withheld 49,417 shares with an aggregate value of $3.6 million in satisfaction of minimum tax withholding obligations due upon vesting.
As of July 31, 2021, there was $44.4 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 2.5 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. On March 9, 2021, the Company's Board of Directors approved a new share repurchase program for up to $100 million of the Company's common stock through March 21, 2024. In fiscal 2020, the Company purchased 137,023 shares under the share repurchase program at an aggregate cost of approximately $12.7 million, or average price of $92.42 per share. During the thirteen and twenty-six weeks ended July 31, 2021, 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 NOL arose, (iii) accelerating Alternative Minimum Tax ("AMT") 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.
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The following table summarizes the Company’s income tax expense (benefit) and effective tax rates for the thirteen and twenty-six weeks ended July 31, 2021 and August 1, 2020 (dollars in thousands):
Thirteen Weeks EndedTwenty-Six Weeks Ended
July 31, 2021August 1, 2020July 31, 2021August 1, 2020
Income (loss) before income taxes$85,097 $32,642 $147,807 $(39,411)
Income tax expense (benefit)$20,256 $3,061 $33,370 $(18,410)
Effective tax rate23.8 %9.4 %22.6 %46.7 %
The effective tax rates for the thirteen and twenty-six weeks ended July 31, 2021 and August 1, 2020 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 July 31, 2021 was higher than the thirteen weeks ended August 1, 2020 primarily due to discrete items, which includes the impact of the CARES Act in the thirteen weeks ended August 1, 2020 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 Company's consolidated statements of operations. The effective tax rate for the twenty-six weeks ended July 31, 2021 was lower than the twenty-six weeks ended August 1, 2020 primarily due to discrete items, which includes the impact of the CARES Act in the twenty-six weeks ended August 1, 2020 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 July 31, 2021, January 30, 2021, or August 1, 2020 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 31, 2021 or August 1, 2020.
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 January 30, 2021 and referred to herein as the "Annual Report," and the consolidated financial statements and related notes as of and for the thirteen and twenty-six weeks ended July 31, 2021 included in Part I, Item I of this Quarterly Report on Form 10-Q. The statements in this discussion regarding expectations of our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described below in “Special Note Regarding Forward-Looking Statements” and in Part II, Item 1A "Risk Factors." Our actual results may differ materially from those contained in or implied by any forward-looking statements.
We operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to January 31 of the following year. References to "fiscal year 2021" or "fiscal 2021" refer to the period from January 31, 2021 to January 29, 2022, which is a 52-week fiscal year. References to "fiscal year 2020" or "fiscal 2020" refer to the period from February 2, 2020 to January 30, 2021, which is a 52-week fiscal year. The fiscal quarters ended July 31, 2021 and August 1, 2020 refer to the thirteen weeks ended as of those dates. The year-to-date periods ended July 31, 2021 and August 1, 2020 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.
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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 current and potential tariffs imposed and proposed by the United States on foreign imports, including, without limitation, the tariffs themselves, any counter-measures thereto and any indirect effects on consumer discretionary spending, which could increase the cost to us of certain products, lower our margins, increase our import related expenses, and reduce consumer spending for discretionary items, each of which could have a material adverse effect on our business, financial condition and results of future operations;
the impact of price increases, such as, a reduction in our unit sales, damage to our reputation with our customers, and our becoming less competitive in the marketplace;
dependence on the volume of traffic to our stores and website;
inability to successfully build, operate or expand our distribution centers or network capacity;
disruptions to the global supply chain, increased cost of freight, constraints on shipping capacity to transport inventory or the timely receipt of inventory;
extreme weather conditions in the areas in which our stores are located could negatively affect our business and results of operations;
the risks of cyberattacks or other cyber incidents, such as the failure to secure customers' confidential or credit card information, or other private data relating to our employees or our company, including the costs associated with protection against or remediation of such incidents;
increased operating costs or exposure to fraud or theft due to customer payment-related risks;
inability to increase sales and improve the efficiencies, costs and effectiveness of our operations;
dependence on our executive officers, senior management and other key personnel or inability to hire additional qualified personnel;
inability to successfully manage our inventory balances and inventory shrinkage;
inability to meet our lease obligations;
the costs and risks of constructing and owning real property;
changes in our competitive environment, including increased competition from other retailers and the presence of online retailers;
the seasonality of our business;
inability to successfully implement our expansion into online retail;
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disruptions to our information technology systems in the ordinary course or as a result of system upgrades;
natural disasters, adverse weather conditions, pandemic outbreaks (in addition to COVID-19), global political events, war, terrorism or civil unrest;
the impact of changes in tax legislation;
the impact to our financial performance related to insurance programs;
inability to protect our brand name, trademarks and other intellectual property rights;
the impact of product and food safety claims and effects of legislation; and
restrictions imposed by our indebtedness on our current and future operations.
Readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on these forward-looking statements. All of the forward-looking statements we have included in this Quarterly Report on Form 10-Q are based on information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as otherwise required by law.
Overview
Five Below, Inc. (collectively referred to herein with its wholly owned subsidiary as "we," "us," or "our") is a rapidly growing specialty value retailer offering a broad range of trend-right, high-quality merchandise targeted at the tween and teen customer. We offer a dynamic, edited assortment of exciting products, with most priced at $5 and below, including select brands and licensed merchandise across our category worlds. As of July 31, 2021, we operated 1,121 stores in 39 states. In addition, in fall 2019, we rolled out new pricing to our full chain, increasing prices on certain products over $5. Most of our products remain at $5 and below.
We also offer our merchandise on the internet, through our fivebelow.com e-commerce website. All e-commerce sales, which includes shipping and handling revenue, are included in net sales. All e-commerce sales are included in comparable sales. Our e-commerce expenses will have components classified as both cost of goods sold and selling, general and administrative expenses.
Effect of the COVID-19 Pandemic on our Business and Operations
As a result of the COVID-19 pandemic, our business operations and results of operations, including our net sales, earnings and cash flows, were materially impacted in fiscal 2020 as a result of the temporary closures of our stores in the first half of 2020, and decreased customer traffic in stores, as the result of limitations on the number of persons permitted in stores at one time by certain local and state regulations.
The Company's ability to operate improved beginning in the second half of fiscal 2020 and extending into fiscal 2021. However, the ultimate health and economic impact of the COVID-19 pandemic remains uncertain, especially in light of the recent surge due to the Delta variant. If the pandemic were to continue to worsen, our business operations, including net sales, earnings and cash flows, may be materially impacted. Further, the Company may determine to reinstate any of the mitigation measures implemented in fiscal 2020 that have since been modified or terminated, or take any additional steps that we consider necessary or as required by local, state or federal authorities.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of performance and financial measures. These key measures include net sales, comparable sales, cost of goods sold and gross profit, selling, general and administrative expenses and operating income.
Net Sales
Net sales constitute gross sales net of merchandise returns for damaged or defective goods. Net sales consist of sales from comparable stores, non-comparable stores, and e-commerce, which includes shipping and handling revenue. Revenue from the sale of gift cards is deferred and not included in net sales until the gift cards are redeemed to purchase merchandise or as breakage revenue in proportion to the pattern of redemption of the gift cards by the customer.
Our business is seasonal and as a result, our net sales fluctuate from quarter to quarter. Net sales are usually highest in the fourth fiscal quarter due to the year-end holiday season.
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Comparable Sales
Comparable sales include net sales from stores that have been open for at least 15 full months from their opening date, and e-commerce sales. Comparable stores include the following:
Stores that have been remodeled while remaining open;
Stores that have been relocated within the same trade area, to a location that is not significantly different in size, in which the new store opens at about the same time as the old store closes; and
Stores that have expanded, but are not significantly different in size, within their current locations.
For stores that are relocated or expanded, the following periods are excluded when calculating comparable sales:
The period beginning when the closing store receives its last merchandise delivery from one of our distribution centers through:
the last day of the fiscal year in which the store was relocated or expanded (for stores that increased significantly in size); or
the last day of the fiscal month in which the store re-opens (for all other stores); and
The period beginning on the first anniversary of the date the store received its last merchandise delivery from one of our distribution centers through the first anniversary of the date the store re-opened.
Comparable sales exclude the 53rd week of sales for 53-week fiscal years. In the 52-week fiscal year subsequent to a 53-week fiscal year, we exclude the sales in the non-comparable week from the same-store sales calculation. Due to the 53rd week in fiscal 2017, all comparable sales related to any reporting period during the year ended February 2, 2019 are reported on a restated calendar basis using the National Retail Federation's restated calendar comparing similar weeks.
There may be variations in the way in which some of our competitors and other retailers calculate comparable or “same store” sales. As a result, data in this Quarterly Report on Form 10-Q regarding our comparable sales may not be comparable to similar data made available by other retailers. Non-comparable sales are comprised of new store sales, sales for stores not open for a full 15 months, and sales from existing store relocation and expansion projects that were temporarily closed (or not receiving deliveries) and not included in comparable sales.
Measuring the change in fiscal year-over-year comparable sales allows us to evaluate how we are performing. Various factors affect comparable sales, including:
consumer preferences, buying trends and overall economic trends;
our ability to identify and respond effectively to customer preferences and trends;
our ability to provide an assortment of high-quality, trend-right and everyday product offerings that generate new and repeat visits to our stores;
the customer experience we provide in our stores and online;
the level of traffic near our locations in the power, community and lifestyle centers in which we operate;
competition;
changes in our merchandise mix;
pricing;
our ability to source and distribute products efficiently;
the timing of promotional events and holidays;
the timing of introduction of new merchandise and customer acceptance of new merchandise;
our opening of new stores in the vicinity of existing stores;
the number of items purchased per store visit;
weather conditions; and
the impacts associated with the COVID-19 pandemic, including closures of our stores, adverse impacts on our operations, and consumer sentiment regarding discretionary spending.
Opening new stores is an important part of our growth strategy. As we continue to pursue our growth strategy, we expect that a significant percentage of our net sales will continue to come from new stores not included in comparable sales. Accordingly, comparable sales is only one measure we use to assess the success of our growth strategy.
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Cost of Goods Sold and Gross Profit
Gross profit is equal to our net sales less our cost of goods sold. Gross margin is gross profit as a percentage of our net sales. Cost of goods sold reflects the direct costs of purchased merchandise and inbound freight, as well as shipping and handling costs, store occupancy, distribution and buying expenses. Shipping and handling costs include internal fulfillment and shipping costs related to our e-commerce operations. Store occupancy costs include rent, common area maintenance, utilities and property taxes for all store locations. Distribution costs include costs for receiving, processing, warehousing and shipping of merchandise to or from our distribution centers and between store locations. Buying costs include compensation expense and other costs for our internal buying organization, including our merchandising and product development team and our planning and allocation group. These costs are significant and can be expected to continue to increase as our Company grows.
The components of our cost of goods sold may not be comparable to the components of cost of goods sold or similar measures of our competitors and other retailers. As a result, data in this Quarterly Report on Form 10-Q regarding our gross profit and gross margin may not be comparable to similar data made available by our competitors and other retailers.
The variable component of our cost of goods sold is higher in higher volume quarters because the variable component of our cost of goods sold generally increases as net sales increase. We regularly analyze the components of gross profit as well as gross margin. Any inability to obtain acceptable levels of initial markups, a significant increase in our use of markdowns, and a significant increase in inventory shrinkage or inability to generate sufficient sales leverage on the store occupancy, distribution and buying components of cost of goods sold could have an adverse impact on our gross profit and results of operations. In addition, current global supply chain disruptions, the cost of freight and constraints on shipping capacity to transport inventory may have an adverse impact on our gross profit and results of operations, as well as our sales. Changes in the mix of our products may also impact our overall cost of goods sold.
Selling, General and Administrative Expenses
Selling, general and administrative, or SG&A, expenses are composed of payroll and other compensation, marketing and advertising expense, depreciation and amortization expense and other selling and administrative expenses. SG&A expenses as a percentage of net sales are usually higher in lower sales volume quarters and lower in higher sales volume quarters.
The components of our SG&A expenses may not be comparable to those of other retailers. We expect that our SG&A expenses will increase in future periods due to our continuing store growth. In addition, any increase in future share-based grants or modifications will increase our share-based compensation expense included in SG&A expenses.
Operating Income
Operating income equals gross profit less SG&A expenses. Operating income excludes interest expense or income, other expense or income, and income tax expense or benefit. We use operating income as an indicator of the productivity of our business and our ability to manage SG&A expenses. Operating income percentage measures operating income as a percentage of our net sales.
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Results of Consolidated Operations
The following tables summarize key components of our results of consolidated operations for the periods indicated, both in dollars and as a percentage of our net sales.
 Thirteen Weeks EndedTwenty-Six Weeks Ended
July 31, 2021August 1, 2020July 31, 2021August 1, 2020
(in millions, except percentages and total stores)
Consolidated Statements of Operations Data (1):
Net sales$646.6 $426.1 $1,244.4 $627.0 
Cost of goods sold416.2 286.3 813.2 466.7 
Gross profit230.3 139.8 431.2 160.3 
Selling, general and administrative expenses144.2 106.7 281.3 199.4 
Operating income (loss)86.2 33.1 149.9 (39.1)
Interest (expense) income and other (expense) income, net(1.1)(0.5)(2.0)(0.4)
Income (loss) before income taxes85.1 32.6 147.8 (39.4)
Income tax expense (benefit)20.3 3.1 33.4 (18.4)
Net income (loss)$64.8 $29.6 $114.4 $(21.0)
Percentage of Net Sales (1):
Net sales100.0 %100.0 %100.0 %100.0 %
Cost of goods sold64.4 67.2 65.3 74.4 
Gross profit35.6 32.8 34.7 25.6 
Selling, general and administrative expenses22.3 25.0 22.6 31.8 
Operating income (loss)13.3 7.8 12.0 (6.2)
Interest (expense) income and other (expense) income, net(0.2)(0.1)(0.2)(0.1)
Income (loss) before income taxes13.2 7.7 11.9 (6.3)
Income tax expense (benefit)3.1 0.7 2.7 (2.9)
Net income (loss)10.0 %6.9 %9.2 %(3.3)%
Operational Data:
Total stores at end of period1,121 982 1,121 982 
Comparable sales increase (decrease)39.2 %(12.2)%79.9 %(31.0)%
Average net sales per store (2)
$0.6 $0.4 $1.2 $0.7 

(1)Components may not add to total due to rounding.
(2)Only includes stores that opened before the beginning of the thirteen weeks ended and twenty-six weeks ended.

Thirteen Weeks Ended July 31, 2021 Compared to the Thirteen Weeks Ended August 1, 2020
Net Sales
Net sales increased to $646.6 million in the thirteen weeks ended July 31, 2021 from $426.1 million in the thirteen weeks ended August 1, 2020, an increase of $220.5 million, or 51.7%. The increase was the result of a comparable sales increase of $155.2 million and a non-comparable sales increase of $65.3 million. The increase in non-comparable sales was primarily driven by new stores that opened in fiscal 2021 and the number of stores that opened in fiscal 2020 but have not been open for 15 full months.
Comparable sales increased 39.2%. The increase was primarily the result of the impact of COVID-19 during the thirteen weeks ended August 1, 2020 as we temporarily closed all of our stores as of March 20, 2020 and reopened substantially all of our stores by the end of June 2020. We plan to open 170 to 175 new stores in fiscal 2021.
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Cost of Goods Sold and Gross Profit
Cost of goods sold increased to $416.2 million in the thirteen weeks ended July 31, 2021 from $286.3 million in the thirteen weeks ended August 1, 2020, an increase of $129.9 million, or 45.4%. The increase in cost of goods sold was primarily the result of an increase in the merchandise cost of goods sold resulting from the increase in net sales primarily due to the impact of COVID-19 in the thirteen weeks ended August 1, 2020.
Gross profit increased to $230.3 million in the thirteen weeks ended July 31, 2021 from $139.8 million in the thirteen weeks ended August 1, 2020, an increase of $90.5 million, or 64.7%. Gross margin increased to 35.6% for the thirteen weeks ended July 31, 2021 from 32.8% for the thirteen weeks ended August 1, 2020. The increase in gross margin was primarily the result of a decrease as a percentage of net sales in store occupancy costs primarily due to the impact of COVID-19 in the thirteen weeks ended August 1, 2020 as we temporarily closed all of our stores while still incurring rent expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $144.2 million in the thirteen weeks ended July 31, 2021 from $106.7 million in the thirteen weeks ended August 1, 2020, an increase of $37.5 million, or 35.1%. As a percentage of net sales, selling, general and administrative expenses decreased to 22.3% in the thirteen weeks ended July 31, 2021 compared to 25.0% in the thirteen weeks ended August 1, 2020. The increase in selling, general and administrative expenses was primarily the result of an increase of $23.0 million in store-related expenses to support new store growth and due to the impact of COVID-19 during the thirteen weeks ended August 1, 2020, which included the temporary closure of all of our stores, furloughing of employees, and other non-payroll expense reductions. This increase was also driven by an increase of $14.5 million in corporate-related expenses, which includes the benefit related to the CARES Act in the thirteen weeks ended August 1, 2020.
Income Tax Expense
Income tax expense increased to $20.3 million in the thirteen weeks ended July 31, 2021 from $3.1 million in the thirteen weeks ended August 1, 2020, an increase of $17.2 million. The increase in income tax expense was primarily due to the $52.5 million increase in pre-tax income and discrete items, which includes the impact of the CARES Act in the thirteen weeks ended August 1, 2020 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 our consolidated statements of operations.
Our effective tax rate for the thirteen weeks ended July 31, 2021 was 23.8% compared to 9.4% in the thirteen weeks ended August 1, 2020. Our effective tax rate for the thirteen weeks ended July 31, 2021 was higher than the comparable prior year period primarily due to discrete items, which includes the impact of the CARES Act in the thirteen weeks ended August 1, 2020 and the impact of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting."
Net Income
As a result of the foregoing, net income increased to $64.8 million in the thirteen weeks ended July 31, 2021 from $29.6 million in the thirteen weeks ended August 1, 2020, an increase of $35.2 million or 119.2%.
Twenty-Six Weeks Ended July 31, 2021 Compared to the Twenty-Six Weeks Ended August 1, 2020
Net Sales
Net sales increased to $1,244.4 million in the twenty-six weeks ended July 31, 2021 from $627.0 million in the twenty-six weeks ended August 1, 2020, an increase of $617.4 million, or 98.5%. The increase was the result of a comparable sales increase of $472.7 million and a non-comparable sales increase of $144.7 million. The increase in non-comparable sales was primarily driven by the number of stores that opened in fiscal 2020 but have not been open for 15 full months and new stores that opened in fiscal 2021.
Comparable sales increased 79.9%. The increase was primarily the result of the impact of COVID-19 during the twenty-six weeks ended August 1, 2020 as we temporarily closed all of our stores as of March 20, 2020, began reopening at the end of April 2020, and had reopened substantially all of our stores by the end of June 2020. We plan to open 170 to 175 new stores in fiscal 2021.
Cost of Goods Sold and Gross Profit
Cost of goods sold increased to $813.2 million in the twenty-six weeks ended July 31, 2021 from $466.7 million in the twenty-six weeks ended August 1, 2020, an increase of $346.5 million, or 74.2%. The increase in cost of goods sold was primarily the result of an increase in the merchandise cost of goods sold resulting from the increase in net sales primarily due to the impact of COVID-19 in the twenty-six weeks ended August 1, 2020.
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Gross profit increased to $431.2 million in the twenty-six weeks ended July 31, 2021 from $160.3 million in the twenty-six weeks ended August 1, 2020, an increase of $270.9 million, or 169.0%. Gross margin increased to 34.7% for the twenty-six weeks ended July 31, 2021 from 25.6% for the twenty-six weeks ended August 1, 2020. The increase in gross margin was primarily the result of a decrease as a percentage of net sales in store occupancy costs primarily due to the impact of COVID-19 in the twenty-six weeks ended August 1, 2020 as we temporarily closed all of our stores while still incurring rent expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $281.3 million in the twenty-six weeks ended July 31, 2021 from $199.4 million in the twenty-six weeks ended August 1, 2020, an increase of $81.9 million, or 41.1%. As a percentage of net sales, selling, general and administrative expenses decreased to 22.6% in the twenty-six weeks ended July 31, 2021 compared to 31.8% in the twenty-six weeks ended August 1, 2020. The increase in selling, general and administrative expenses was primarily the result of an increase of $55.8 million in store-related expenses to support new store growth and due to the impact of COVID-19 during the twenty-six weeks ended August 1, 2020, which included the temporary closure of all of our stores, furloughing of employees, and other non-payroll expense reductions. This increase was also driven by an increase of $26.1 million of corporate-related expenses, which includes both the benefit related to the CARES Act and the reversal of certain compensation related accruals in the twenty-six weeks ended August 1, 2020.
Income Tax Expense (Benefit)
Income tax expense increased to $33.4 million in the twenty-six weeks ended July 31, 2021 from an income tax benefit of $18.4 million in the twenty-six weeks ended August 1, 2020, an increase of $51.8 million. The increase in income tax expense from an income tax benefit was primarily due to the $187.2 million increase in pre-tax income and discrete items, which includes the impact of the CARES Act in the twenty-six weeks ended August 1, 2020, partially offset by the impact of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting."
Our effective tax rate for the twenty-six weeks ended July 31, 2021 was 22.6% compared to 46.7% in the twenty-six weeks ended August 1, 2020. Our effective tax rate for the twenty-six weeks ended July 31, 2021 was lower than the comparable prior year period primarily due to discrete items, which includes the impact of the CARES Act in the twenty-six weeks ended August 1, 2020 and the impact of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting."
Net Income (Loss)
As a result of the foregoing, we had net income of $114.4 million in the twenty-six weeks ended July 31, 2021 compared to a net loss of $21.0 million in the twenty-six weeks ended August 1, 2020, a change of $135.4 million or 644.9%.
Liquidity and Capital Resources
Overview
Cash capital expenditures typically vary depending on the timing of new store openings and infrastructure-related investments. We plan to make cash capital expenditures of approximately $315 million in fiscal 2021, which exclude the impact of tenant allowances, and which we expect to fund from cash generated from operations, cash on hand, investments and, as needed, borrowings under our Revolving Credit Facility. We expect to incur approximately $95 million of our cash capital expenditure budget in fiscal 2021 to construct and open 170 to 175 new stores, with the remainder projected to be spent on our distribution centers (existing and new), store relocations and remodels and our 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 Revolving Credit Facility, as needed, and we expect that funding to continue. When we have used our 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. 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. Although it is not possible to reliably estimate the duration or severity of the COVID-19 pandemic and the resulting financial impact on our results of operations, financial position and liquidity, we have the ability to draw down on our Revolving Credit Facility if and as needed. As of July 31, 2021, we had no borrowings under the Revolving Credit Facility and had approximately $225.0 million available on the line of credit.
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On March 20, 2018, our 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. On March 9, 2021, our Board of Directors approved a new share repurchase program for up to $100 million of the Company's common stock through March 21, 2024. In fiscal 2020, we 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 and twenty-six weeks ended July 31, 2021, we did not execute any share repurchases. Since approval of the share repurchase program in March 2018, we have 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.
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 Revolving Credit Facility will be adequate to finance our planned capital expenditures, authorized share repurchases and working capital requirements over the next 12 months and for the foreseeable future thereafter. If cash flows from operations and borrowings under our Revolving Credit Facility are 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.
As a result of the COVID-19 pandemic, our business operations and results of operations, including our net sales, earnings and cash flows, were materially impacted in fiscal 2020 as a result of the temporary closures of our stores in the first half of 2020, and decreased customer traffic in stores, as the result of limitations on the number of persons permitted in stores at one time by certain local and state regulations.
The Company's ability to operate improved beginning in the second half of fiscal 2020 and extending into fiscal 2021. However, the ultimate health and economic impact of the COVID-19 pandemic remains uncertain, especially in the light of the recent surge due to the Delta variant. If the pandemic were to continue to worsen, our business operations, including net sales, earnings and cash flows, may be materially impacted. Further, the Company may determine to reinstate any of the mitigation measures implemented in fiscal 2020 that have since been modified or terminated, or take any additional steps that we consider necessary or as required by local, state or federal authorities.
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 31, 2021August 1, 2020
Net cash provided by operating activities$148.8 $61.5 
Net cash used in investing activities(285.2)(88.1)
Net cash used in financing activities(6.2)(15.5)
Net decrease during period in cash and cash equivalents (1)
$(142.6)$(42.2)
(1) Components may not add to total due to rounding.

Cash Provided by Operating Activities
Net cash provided by operating activities