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I walked into a Five Below $FIVE looking for some masks the other day. I’m not much of a shopper, but for some reason I was really impressed.
I took a quick look at the 10-K and financials and have a few preliminary thoughts on the company.
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I took a quick look at the 10-K and financials and have a few preliminary thoughts on the company.
[THREAD]
Five Below operates a model similar to dollar stores, but has higher quality goods that are generally sold for $5 or less.
It operates about 900 stores in the US and believes it has the potential to grow to as many as 2,500 stores.
It operates about 900 stores in the US and believes it has the potential to grow to as many as 2,500 stores.
Prior to COVID it had been growing at a 3 year revenue CAGR of 23%, mostly attributable to new store openings.
This is the crux of its strategy, open new stores that have a payback period of less than a year.
It generates OCF margin of about 10% but spends it all on CAPEX.
This is the crux of its strategy, open new stores that have a payback period of less than a year.
It generates OCF margin of about 10% but spends it all on CAPEX.
If it can eventually grow FCF margins to 8% in 10 years, according to a quick model I did, it should require a 10 year revenue CAGR of 16% to beat the market.
I think this is definitely do-able, particularly if they begin expanding internationally.
I think this is definitely do-able, particularly if they begin expanding internationally.
$FIVE is a fairly simple business. Spend lots of money to open a store.
Immediately start generating OCF.
Use the OCF to open new stores.
Repeat. Repeat. Repeat.
Immediately start generating OCF.
Use the OCF to open new stores.
Repeat. Repeat. Repeat.
COVID has significantly impacted recent sales, but $FIVE has the balance sheet to withstand it.
It is still planning on opening 100-120 new stores this year, and is seeing about 8% comp growth in its reopened stores.
It is still planning on opening 100-120 new stores this year, and is seeing about 8% comp growth in its reopened stores.
I didn’t find the masks I was looking for, but I may have found a new investment.
I need to do some more thinking about it, but I love the basic economics and the customer value prop.
As a reluctant shopper, I found myself wandering around the store marveling at the deals.
I need to do some more thinking about it, but I love the basic economics and the customer value prop.
As a reluctant shopper, I found myself wandering around the store marveling at the deals.
