FIVE BELOW, INC

Five Below, Inc. is a specialty value retailer operating in the highly competitive retail industry, offering trend-right, high-quality products with most priced at $5 and below, including select brands and licensed merchandise across eight category worlds: Candy, Style, Party, Room, Create, Tech, Sports, and New & Now. The company operates on a fiscal calendar widely used by the retail industry, with a 52- or 53-week period ending on the Saturday closest to January 31. As of January 31, 2026, Five Below operated 1,921 ¹ locations across 46 ² states, having expanded from 1,544 ³ stores at the end of fiscal 2023, representing a compounded annual growth rate of 11.5% ⁴. The company believes it has the opportunity to grow its store base to more than 3,500 ⁵ locations over time. Five Below also offers merchandise through its fivebelow.com e-commerce website and mobile app, including home delivery and buy online pick up in store, as well as through on-demand third-party delivery services.

Five Below competes with a broad range of retailers including discount, mass merchandise, grocery, drug, convenience, variety and other specialty stores with both physical locations and online stores, as well as online retailers without traditional brick and mortar locations. The principal basis upon which the company competes is by offering a dynamic, edited assortment of trend-right products, with most priced at $5 and below, inclusive of select brands and licensed merchandise. The company believes its competitive strengths include a unique focus on its target customer demographic, a broad assortment of trend-right, high-quality merchandise with universal appeal, an exceptional value proposition for customers, a differentiated shopping experience, powerful and consistent store economics, and a highly experienced senior management team led by Winnie Park, President and Chief Executive Officer. The company works with approximately 1,000 ⁶ vendors, with no single vendor representing more than 5% ⁷ of its purchases in fiscal 2025, and sourced approximately 60% ⁸ of its purchases from domestic vendors in fiscal 2025.

Five Below generates revenue through the sale of merchandise at its retail stores and through its e-commerce website and mobile app, including shipping and handling revenue. Revenue from store operations, including third-party delivery services, is recognized at the point of sale when control of the product is transferred to the customer. Internet sales are recognized when the customer receives the product as control transfers upon delivery. Gift card sales are initially recorded as liabilities and recognized as sales upon redemption for merchandise or as breakage revenue in proportion to the pattern of redemption. The company's business is seasonal, with the highest level of net sales and net income generated in the fourth fiscal quarter due to the year-end holiday season, with approximately 40% ⁹ of total annual sales over the last two fiscal years occurring during the fourth fiscal quarter. The company's primary customer segments include kids and the kid in all of us, with a target demographic that the company believes to be economically influential and resilient.

Five Below organizes its merchandise into eight category worlds: Candy, which consists of classic and novelty candy bars, movie-size box candy, seasonal-related candy, gum, snack food, and chilled drinks; Style, which consists primarily of apparel, accessories, and beauty products including trend-right socks, jewelry, hair accessories, cozy loungewear, snarky t-shirts, personal care essentials, skincare, fragrance, and branded cosmetics; Party, which consists of party goods, decorations, gag gifts, greeting cards, and every day and special occasion merchandise; Room, which consists of items to complete and personalize living space including trendy lamps, posters, frames, fleece blankets, plush items, pillows, candles, incense, lighting, novelty décor, accent furniture, and storage options; Create, which consists of craft activity kits, arts and crafts supplies including markers, paint, canvas, compounds, slime, beads, stickers, trend-right craft activities, and school supplies; Tech, which consists of cell phone cables and chargers, power banks, phone cases and accessories, screen protectors, auto phone accessories, computer and tablet accessories, earbuds, headphones, and speakers; Sports, which consists of sport balls, sports accessories, fitness products including hand weights and yoga mats, toys including brand name board games, puzzles, action figures, construction sets, remote control, collectibles, novelty toys, plush, and outdoor toys for the pool and beach; and New & Now, which consists of seasonally relevant items for key occasions such as Holiday, Easter, Halloween, Summer, and Back to School. The percentage of net sales represented by each product group for fiscal 2025 was: Leisure 44.5% ¹⁰, Fashion and home 30.9% ¹¹, and Snack and seasonal 24.6% ¹². Leisure includes items such as sporting goods, games, toys, tech, books, electronic accessories, arts and crafts, and party. Fashion and home includes items such as personal accessories, attitude t-shirts, beauty offerings, home goods and storage options. Snack and seasonal includes items such as seasonal goods, greeting cards, candy and other snacks, and beverages.

Five Below's typical store features in excess of 4,000 ¹³ products across its category worlds. The company's new store model assumes a store size of approximately 9,500 ¹⁴ square feet that achieves sales of approximately $2 million ¹⁵ in the first full year of operation and an average new store cash investment of approximately $0.4 million ¹⁶, including store build-out (net of tenant allowances), inventory (net of payables) and cash pre-opening expenses. The new store model targets an average payback period of approximately one year ¹⁷ on the initial investment. The company distributes approximately 85% ¹⁸ of its merchandise for retail stores from its shipcenters: an approximately 1,200,000 ¹⁹ square foot shipcenter in Buckeye, Arizona, an approximately 1,100,000 ²⁰ square foot shipcenter in Forsyth, Georgia, an approximately 1,030,000 ²¹ square foot shipcenter in Indianapolis, Indiana, an approximately 1,000,000 ²² square foot shipcenter in Pedricktown, New Jersey, and an approximately 860,000 ²³ square foot shipcenter in Conroe, Texas, with the remaining merchandise shipped directly from the vendor to stores. For direct-to-customer e-commerce, merchandise is distributed from the Indianapolis, Indiana shipcenter. The company ceased e-commerce shipcenter operations in its Pedricktown, New Jersey shipcenter in the first half of fiscal 2023 and in its Buckeye, Arizona shipcenter in the back half of fiscal 2025.

In fiscal 2025, Five Below opened 157 ²⁴ new stores and closed 7 ²⁵ stores, resulting in a net increase of 150 ²⁶ stores, ending the period with 1,921 ²⁷ stores. The company plans to open approximately 150 ²⁸ net new stores in fiscal 2026. As of January 31, 2026, the company had executed lease agreements for the opening of 73 ²⁹ new stores in fiscal 2026. In December 2024, Winnie Park joined Five Below as President and Chief Executive Officer. On November 27, 2023, the Board of Directors approved a new share repurchase program for up to $100 million ³⁰ of common shares through November 27, 2026. In fiscal 2024, the company repurchased 266,997 ³¹ shares under this program at an aggregate cost of approximately $40.0 million ³², or an average price of $149.79 ³³ per share. There were no repurchases in fiscal 2025. Since approval of the share repurchase program in March 2018, the company has purchased approximately 1.9 million ³⁴ shares for an aggregate cost of approximately $270 million ³⁵. The company also invested in a new enterprise resource planning system, Oracle Fusion, in fiscal 2024 for use in fiscal 2025.

Five Below's net sales increased to $4,764.1 million ³⁶ in fiscal 2025 from $3,876.5 million ³⁷ in fiscal 2024, an increase of 22.9% ³⁸. Comparable sales increased by 12.8% ³⁹ in fiscal 2025, compared to a decrease of 2.7% ⁴⁰ in fiscal 2024. Net income increased to $358.6 million ⁴¹ in fiscal 2025 from $253.6 million ⁴² in fiscal 2024, an increase of approximately 41.4% ⁴³. Gross margin increased to 36.0% ⁴⁴ in fiscal 2025 from 34.9% ⁴⁵ in fiscal 2024. Operating income was $457.4 million ⁴⁶ in fiscal 2025 compared to $323.8 million ⁴⁷ in fiscal 2024. Net cash provided by operating activities was $586.4 million ⁴⁸ in fiscal 2025, an increase of $155.8 million ⁴⁹ compared to fiscal 2024.

Five Below plans to open approximately 150 ⁵⁰ net new stores in fiscal 2026. The company believes there is a significant opportunity to expand its store base in the United States from 1,921 ⁵¹ locations as of January 31, 2026 to more than 3,500 ⁵² locations over time. The company's strategy of store densification means most near-term growth will occur within existing markets, as well as new markets, allowing the company to benefit from enhanced brand awareness and achieve operational efficiencies. As of January 31, 2026, the company had executed lease agreements for the opening of 73 ⁵³ new stores in fiscal 2026. The actual number, location, and timing of new store openings in 2026 will depend on factors such as retail trends, competition, the general economic environment, and the company's ability to hire and retain new store managers and crew.

Five Below expects to generate positive comparable sales growth by continuing to hone and refine its dynamic merchandising offering and differentiated in-store shopping experience. The company intends to increase brand awareness through cost-effective marketing efforts and enthusiastic customer engagement, predominantly using digital advertising, influencer partnerships, seasonal campaigns, and local marketing to support existing and new market entries. The company leverages its growing e-mail database, mobile website, mobile app, and social media presence to drive brand engagement and increase store visits. The company believes its digital experience is an extension of its brand and retail stores, serving as a marketing and customer engagement tool, and allows the company to continue to build brand awareness, grow online sales, and expand its customer base.

Five Below believes it has further opportunities to drive margin improvement over time, with a primary driver being leveraging its cost structure as it continues to increase its store base and drive average net sales per store. The company intends to capitalize on opportunities across its supply chain as it grows its business and achieves further economies of scale. Gross margin increased to 36.0% ⁵⁴ in fiscal 2025 from 34.9% ⁵⁵ in fiscal 2024, an increase of approximately 110 ⁵⁶ basis points, primarily due to a decrease as a percentage of net sales in store occupancy costs, partially offset by an increase as a percentage of net sales in merchandise costs of goods sold, which includes the impact of lower inventory shrinkage.

Five Below plans to make cash capital expenditures of approximately $230 million to $250 million ⁵⁷ in fiscal 2026, which exclude the impact of tenant allowances, and which the company expects to fund from cash generated from operations, cash on-hand, investments and, as needed, borrowings under its Revolving Credit Facility. The company expects to incur approximately $100 million ⁵⁸ of its cash capital expenditure budget in fiscal 2026 to construct and open approximately 150 net new stores, with the remainder projected to be spent on store relocations and remodels, corporate infrastructure, and shipcenter facilities. The company continuously assesses ways to maximize the productivity and efficiency of its existing distribution facilities and evaluates opportunities for additional shipcenters.

Five Below's capital allocation strategy includes planned cash capital expenditures of approximately $230 million to $250 million ⁵⁹ in fiscal 2026. The company has a share repurchase program approved on November 27, 2023 for up to $100 million ⁶⁰ of common shares through November 27, 2026. In fiscal 2024, the company repurchased 266,997 ⁶¹ shares at an aggregate cost of approximately $40.0 million ⁶², or an average price of $149.79 ⁶³ per share. There were no repurchases in fiscal 2025. Since approval of the share repurchase program in March 2018, the company has purchased approximately 1.9 million ⁶⁴ shares for an aggregate cost of approximately $270 million ⁶⁵. The company does not anticipate paying any cash dividends on its common stock for the foreseeable future.

Five Below faces structural headwinds from inflation and rising commodity prices, which could adversely impact net sales and earnings if the company is unable to adjust retail prices accordingly. The company has experienced levels of inflation generally higher than historical levels in recent years, resulting from supply disruptions, increased shipping and transportation costs, increased commodity costs, increased labor costs in the supply chain, monetary policy actions, and other disruptions. The company is unable to predict how long the current inflationary environment will continue or the impact on consumer behavior and sales and profitability. Additionally, the company is subject to risks from tariffs imposed by the U.S. government, which have increased and could further increase the cost of certain products, lower margins, increase import-related expenses, and reduce consumer spending on discretionary items. A significant majority of the company's merchandise is manufactured outside of the United States, with China as the single largest source of merchandise the company imports and sources from domestic vendors.

Five Below faces execution risks related to its growth strategy, as its ability to open profitable new stores depends on many factors including identifying suitable markets and sites, negotiating leases with acceptable terms, achieving brand awareness in new markets, efficiently sourcing and distributing additional merchandise, expanding distribution capacity, maintaining adequate information systems, hiring and training qualified crew, and achieving sufficient cash flow and financing. Unavailability of attractive store locations, delays in opening, difficulties in staffing, or lack of customer acceptance in new markets may negatively impact growth and profitability. The company also faces risks from disruptions in its ability to select, obtain, distribute, and market merchandise attractive to customers at profitable prices, as well as risks from reliance on merchandise manufactured outside the United States, including legal, regulatory, political, and economic risks.

Five Below faces material risks from inflation and rising commodity prices, which could adversely impact net sales and earnings if the company cannot adjust retail prices, and from tariffs imposed by the U.S. government, which have increased and could further increase the cost of certain products, lower margins, and reduce consumer spending on discretionary items, with a significant majority of merchandise manufactured outside the United States and China as the single largest source. The company's growth strategy depends on opening profitable new stores, and failure to identify suitable sites, negotiate acceptable leases, achieve brand awareness, or manage distribution capacity could harm growth and results. The company relies on merchandise sourced from approximately 1,000 ⁶⁶ vendors, with no single vendor representing more than 5% ⁶⁷ of purchases in fiscal 2025, and any disruption in the ability to select, obtain, distribute, and market attractive merchandise at profitable prices could negatively impact business. The company's business is seasonal, with approximately 40% ⁶⁸ of total annual sales over the last two fiscal years occurring during the fourth fiscal quarter, and adverse events during the holiday season could have a substantial negative impact on operating results. Additionally, the company faces risks from cyberattacks and other cyber incidents, and while no such incident has had a material adverse effect to date, the company may incur significant costs in protecting against or remediating such incidents.

Management's message emphasizes Five Below's strong financial performance, with comparable sales increasing by 12.8% ⁶⁹ in fiscal 2025, net sales growing from $3.6 billion ⁷⁰ to $4.8 billion ⁷¹ between fiscal 2023 and 2025 representing a compounded annual growth rate of 15.7% ⁷², and operating income increasing from $385.6 million ⁷³ to $457.4 million ⁷⁴ over the same period representing a compounded annual growth rate of 8.9% ⁷⁵. Management highlights the company's proven and profitable store model that has produced consistent financial results and returns, with new stores achieving an average payback period of approximately one year ⁷⁶. The company plans to open approximately 150 ⁷⁷ net new stores in fiscal 2026 and believes it has the opportunity to grow its store base to more than 3,500 ⁷⁸ locations over time. Management's strategic priorities include growing the store base through densification in existing markets and expansion into new markets, driving comparable sales through a dynamic merchandising offering and differentiated in-store experience, increasing brand awareness through cost-effective marketing, and enhancing operating margins by leveraging the cost structure and capitalizing on supply chain opportunities as the business grows.