Sunday, April 26, 2015

PhillyDeals: Five Below hires Goldman Sachs for $150M IPO

Center City-based dollar-store chain says it made $16m on $297m sales last year

PhillyDeals: Five Below hires Goldman Sachs for $150M IPO

David Schlessinger (left) and Tom Vellios, cofounders of Five Below.
David Schlessinger (left) and Tom Vellios, cofounders of Five Below. Inquirer file photo

Five Below, the Center City-based chain of 192 kid-oriented dollar stores in 16 East Coast and Midwestern states, says it has hired Goldman Sachs and other brokers to sell shares in a $150 million initial public stock offering. Read from Five Below's SEC filing here.

The chain, founded in 2003 by former Zany Brainy toystore operators David Schlessinger and Tom Vellios, say it has nearly doubled its store network since 2009, and more than doubled sales, to $297 milllion in the year ended Jan. 31, up from $125 million in fiscal 2009. Its 2011 profit was $16 million, the chain's third straight year in the black and the highest profit reported for the chain so far.

The growth spurt has been financed by $194 million from investors led by Advent International of Boston in late 2010. Advent's people, including ex-Caremark CVS Corp. boss Thomas M. Ryan,  control four of the six outside seats on Five Below's board. A fifth goes to Howard Ross of LLR, the Ira Lubert-backed Philadelphia investment group, which counts Pennsylvania's state pension funds among its clients. The other outside director is Staples Inc. boss Ronald L. Sargent.

Early Zany Brainy shareholders included local Philly investors like the Cohn brothers (Sage Financial) and Josh Kopelman (ex of Half.com, now co-head of busy First Round Capital of West Conshohocken, New York, and Silicon Valley).

Schlessinger and Vellios stand to get rich from the deal: each control more than 1 million Zany Brainy share options. Even before the IPO they were highly-compensated: Schlessinger was paid $3.6 million in salary and bonus as "executive chairman" last year; Vellios collected $3.7 million as chief executive.

By comparison, Richard Hayne, founder and boss at South Philly-based Urban Outfitters, whose sales were almost 10 times Five Below's and whose profits were more than 10 times greater, collected less than $100,000 last year, and his three lieutenants each collected under $2 million (though chief financial officer Glen T. Senk did lots better, cashing out stock worth $27 million when he quit). 

But Urban Outfitters is public, and Hayne owns 33 million shares, or around 20%, worth around three-quarters of a billion dollars.

It's unclear whether Vellios and Schlessinger will try to make their chain similarly big and themselves mega-rich like Chester County country squire Hayne, or will sell out, like they did before Zany Brainy went bankrupt after a public offering and sale to FAO Schwartz. Schlessinger previously founded the former Encore Books.


About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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