Monday, May 25, 2015

Five Below spends to grow

Will it end up like Zany Brainy?

Five Below spends to grow

Five Below, the Philadelphia-based store chain that pitches $1-to-$5 items to middle schoolers for their allowance money, has remained in high growth gear since its July initial public stock offering.

The chain has signed a lease for a 600,000 sq.ft. warehouse near Memphis, Tenn., which is to the south and west of Five Below's growing store network but close to the giant FedEx air freight shipping center. The chain is also expanding closer to home, for example with an agreement to lease the long-vacant former Zany Brainy space on US 202 in Talleyville, Del., just a mile north of the chain's Fairfax store, one of its first locations.

Zany Brainy was the previous retail chain operated by Five Below founders Thomas Vellios and David Schlessinger and which failed under subsequent owners.

Five Below shares are now trading at around $37 a share, for a market value of $2 billion, more than double its July IPO price of $17. Pretty aggressive pricing, at 5 times sales, for a company whose total sales (it estimates) will top $400 million for the first time this fiscal year, with most of the growth from 52 new stores, plus 6% growth at more than 200 existing stores in 18 states.

 If Five Below can keep the price up long enough (the lock-ups for insiders were initially scheduled to expire starting in mid-October) it'll earn a fortune for backers Advent International, which owns just under half the stock; Ira Lubert-backed LLR Partners, which owns about 7.%; and the founders, who together own about 9%. Whether Five Below will ultimately last longer than Zany Brainy, is another question. But Advent and LLR have already made many millions from Five Below's rapid appreciation.

About this blog

PhillyDeals posts drafts, transcripts and updates of Joseph N. DiStefano's columns and stories about Philly-area business, which he's been writing since 1989.

DiStefano studied economics, history and a little engineering at Penn and taught writing at St. Joseph's. He has written thousands of columns and articles for the Inquirer, Bloomberg and other media, wrote the book Comcasted, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com, distefano251@gmail.com, 215.854.5194 or 302.652.2004.

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

Joseph N. DiStefano