What percentage of her papers come back with an "N"? Does she get positive feedback with an occasional "oops" paper thrown in, or is the great majority of her work coming back indicating that she's not producing the quality of work the teacher is looking for?
If my child was getting an occasional "needs improvement," I'd be happy that the teacher is willing to give honest feedback and let me and the child know what needs work! I would emphasize to the child that the teacher cares and wants to help her learn. I would remind her that not everyone does everything perfectly the first time. Learning takes practice. Giving feedback so that you can learn from mistakes is a powerful way to help a student learn and grow.
On the other hand, if my child was getting LOTS of "needs improvement" feedback, I'd be concerned that there's something wrong. I don't think it's good for a 5 y/o to get lots and lots of negative feedback. I also suspect that it's not normal for a child to get many negative grades, as opposed to satisfactory or outstanding (or whatever terms your school uses.) In that case I would call the teacher to discuss why my child is struggling and to begin to work together to help her along.
FWIW, my kids' school used a 3-letter system for K grades: P = proficient in that skill, I = skill is in progress, N = not yet demonstrating that skill. Both of my kids got a combination of "in progress" and "proficient" at the start of the year, with an occasional "not yet." Later in the year, they began to bring home mostly "Ps."