Q4 2019 Earnings Call
Thank you operator. Good afternoon everyone and thank you for joining us today for five below's fourth quarter and fiscal year 2019 Financial results conference call on today's kids are Joel Anderson president and chief executive officer and Kendall Chief Financial Officer and Treasurer after management has made their formal remarks. We will open the call to questions May remind you that certain comments made during this call May constitute forward-looking statements and are made pursuant to and within the meaning of the Safe Harbor provisions of the private Securities litigation Reform Act of 1995 as amended such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements with those risks and uncertainties are described in the press release of byblos SEC filings. The forward-looking statements made today are as of the date of this call, and we do not undertake any obligation to update our forward-looking.
Statements if you do not have a copy of today's press release you may obtain one by visiting the investor relations page of our website at Five Below, I will now turn the call over to Joel.
Thank you, Christiana and thanks everyone for joining us for our fourth quarter and year-end earnings call. I will review the highlights of the quarter and fiscal year as well as thoughts twenty-twenty. We're handing it over to Ken to discuss our financials in more detail and then we will open the call for questions before I speak to our results. I want to offer our thoughts and covered nineteen. This outbreak has impacted the world and reminds us how truly we are a global Community. Our thoughts and prayers are with everyone impact. Our priority is a health and well-being for our Associates and customers and earlier today. We announce the closing of all stores effective tomorrow evening at 7 p.m. Is very difficult to determine the extent and duration of this rapidly evolving situation. So we will not be providing specific first quarter or full year guidance wage.
this point we continue to be
We focus on managing the business with great discipline and maintaining our financial strength.
Turning to the fourth quarter our Q4 results were in line with the revised expectations announced in conjunction with our holiday sales release our results were driven by strong performance from new stores, which remain our most significant growth opportunity. We opened a hundred fifty new stores in 2019 of which six opened in the fourth quarter. We ended the year with Nike stores, which represents a little over a third of the 2500 plus potential we see in the United States.
As previously stated at the January. I see our conference the periods between Thanksgiving and Christmas were relatively on plan while the period from Thanksgiving leading up to Christmas was impacted by the shortened holiday selling season our key selling periods were positive on a shifted cop basis, but we're not enough to make up for the Lost holiday selling days from a merchandising perspective. We saw strength in our create candy and seasonal or what we call now World and Other trends like journaling slime gaming continued to be strong as expected the large trend for the fourth quarter was frozen to our lineup of Frozen 2 products was amazing and included many items exclusive to Five Below on the marketing front. We continue to shift towards digital and we increased our TV reach to approximately 6.
Percent of our stores overall 2019 was a transformative year for Five Below considering the impact of tariffs had on our business and our decision to break the $5 threshold for the first time. The terrorists were a fluid situation throughout 2019 and required a multi-pronged response with significant changes many fronts including vendor negotiations pricing and corporate efficiencies as well as making sourcing changes for 2020 and Beyond I want to acknowledge the support. We got from our vendors and thanked them once again for their collaboration the pricing changes above $5 required extensive testing and Analysis before birth.
And I'm pleased that the results were in line with our expectations. I want to thank the many teams throughout the organization for all the work they did to make sure these changes were were executed regarding new sources of production are merchants and sourcing teams diligently researched New Opportunities and successfully made and continue to make changes on that front. We enter 2020 expecting to fully mitigate all known tariffs turning to 2028 are focused on successfully managing Five Below through these unusual times associated with 19 to say this is a once-in-a-lifetime event would be an understatement.
I remind you.
That we are an extremely healthy company with no debt and strong cash reserves in addition. Our extreme value offering will be even more important to our customers when we reopen as they seek ways to spend even more wisely.
Well, not our usual practice. I'd like to share an update on our quarter-to-date performance. So you better understand the underlying base of the business office cops through Wednesday, March 11th, the day the World Health Organization declared kovid 19 a pandemic. We're up 2.9% off through yesterday. They were up 0.4% I'd also like to give a shout out to our associates. They have been amazing and if rapidly adjusting to a new working environment
As we navigate through this. We also remain focused on three strategic areas experience product and supply chain through Innovation. We will continue to elevate the experience for our customers and Associates and as a merchant driven organization, we will continue to deliver even better while Trend right products. Our supply chain is a key to ensuring products or in the stores and on the shelves in a timely and cost-efficient basis and we are building out our infrastructure to make these enhancements possible.
In addition, let me give you an a further update on ten below and the overall impact it will have on our store experience going forward. We finished 2019 with 25 ten below test stores and learned a lot from the holiday ten below gift shop that was displayed throughout the chain. We've decided to move forward with an enhanced store prototype that expands are offering in the tech and room worlds to include new products in the six to $10 range this new prototype Bowser's to provide all the benefits.
Of our previous fresh format without having to increase our total square footage or reallocate space from other worlds.
The rest of the store will remain priced at $5 and below.
We expect nearly all of our new stores and remodels to open in this format.
In addition on the it front. We are working on several strategic initiatives to support our growth including modernizing our supply chain technology with new distribution and transportation management systems digitizing vendor transactions implementing our core merchandising platform and rolling out a cloud-based data and analytics platform for demand forecasting long drive inventory optimization. Additionally, you're migrating to the hauler e-com platform, which will accelerate our digital capabilities hollar.com is Julie Nate a brand with better technology capabilities and lower customer fulfillment costs than we have having these robust systems as well as our configuration and took place will service well and support our future growth
In summary, we are pleased with our 2019.
And performance these are unprecedented times and we are navigating them with our customers and team members at the center of our decision-making at the same time. We continue to work on a number of strategic initiatives across experience product and supply chain as we further innovate and support our future growth with that took it over to Ken to provide more color on the financials can thanks Joel and good afternoon everyone.
As Joel said we are operating in an environment that is rapidly changing and we are adapting quickly with regard to our Financial Health. We have the benefit of a strong balance sheet and we are managing the business and our assets with discipline.
Now I will review our fourth quarter and fiscal 2019 results and then discuss fiscal 2020.
Our sales in the fourth quarter of 2019 were 687.1 million dollars up 14% from the fourth quarter of 2018 edge of the quarter with nine hundred stores a year-over-year increase of 150 new stores or 20%
Comparable sales decreased 2.2% for the fourth quarter of 2019 versus a 4.4% increase in the fourth quarter of 2018.
The comp decrease for the fourth quarter was driven by a 3.6% decrease in comp transactions partially offset by a 1.4% increase in comp average ticket office gross profit increased 18.5% to 289.1 million dollars from 244 million dollars reported in the fourth quarter of 2018. Gross margins finished at 42.1% increasing 160 basis points from 40.5% last year.
The Improvement in gross margin was due to Improvement in merchandise margins lower incentive compensation and distribution efficiencies partially offset by deleveraging store occupancy costs on the negative comp.
Sg&a, as a percentage of sales for the fourth quarter of 2019 decreased to 21.1% from 21.2% in the fourth quarter of 2018. Chef incentive compensation was offset by The Leverage of fixed costs.
Our operating income increased 23.7% to 144.1 million dollars operating margin increased approximately 165 points the 21% of sales.
Our effective tax rate for the fourth quarter of 2019 was 23.6% compared to 24.4% in the fourth quarter of 2018. The decrease in the effective tax rate was driven by discrete items, which included a benefit from share-based accounting.
netting
Come for the fourth quarter increased 23.7% to 110.4 million dollars for a dollar ninety cents per diluted share from 89.3 million dollars or a dollar fifty nine cents per diluted share last year diluted earnings per share included a one penny benefit from share-based Accounting in both years.
For fiscal 2019 total net sales were 1847000000 dollars an increase of 18.4%
Comparable sales increased six tenths of a percent versus a comparable sales increase of 3.9% in 2018.
This comparable sales increase was driven by a 1.1% increase in comp average ticket partially offset by a 0.5% decrease in comp transactions.
Gross profit for the full year increased 19.3% to $674 million dollars gross margin increased by approximately 30 basis points to 36.5% off driven primarily by increased merchandise margins in the fourth quarter partially offset by D leverage of occupancy expenses on the lower than expected,
Sg&a, as a percentage of sales for the year increased fifty basis points to 24.7% from 24.2% in 2018 due primarily to deleverage fixed costs depreciation on the news Southeast distribution center and the new lease accounting rules all of which were offset in part by lower incentive compensation.
Operating income of 217.3 million dollars increased 16.1% in 2019 operating margin of 11.8% decrease approximately 20 basis points from last year's operating margin of 12% are effective tax rate for the year was 21% compared to 22% in 2018 wage increase in the effective tax rate for the year was due primarily to the benefit of share-based accounting earnings per share was $3.12 for fiscal 2019 and increased 17.3% versus earnings per share of $2.66 for fiscal 2018 diluted earnings per share included a $0.14 benefit wage are based Accounting in 2019 and a $0.09 benefit in 2018.
Excluding the impact of share-based accounting on the tax rate in both periods EPS for fiscal 2019 grew approximately 16% to $2.98 versus last year EPS included an approximate one penny negative combined impact from both the nerd Street Gamers and hollar.com Investments.
We ended the year with approximately $262 million dollars in cash cash equivalents and short term investment Securities and no debt with 50 million jobs available under our revolver.
For fiscal 2019 we made share repurchases of approximately $37 or $338,000 shares which contributed approximately one penny to say. Yes.
Inventory at the end of the year was 324 million dollars as compared to two hundred forty three point six million dollars at the end of fiscal 2018 and the inventory on a per-store basis increased approximately 11% year-over-year due to the lower than expected sales and the timing of receipts as we pulled forward Towers related merchandise.
Thank you for we had a high cell through on our seasonal now World merchandise and we are pleased with the level and quality of our inventory going into 2020.
With respect to capex. We spent two hundred twelve million dollars in Gross capex in fiscal 2019, excluding 10 of the allowances.
This reflected the cost of opening the new South-East distribution center and payments on the new Texas distribution center opening 150 new stores completing 50 remodels money and investments in systems and infrastructure.
Now I would like to turn to 20 20.
As Joe mentioned given the uncertain nature of the future events and financial impacts of nineteen. We are unable to provide first quarter and full-year sales and earnings guidance for 2020.
However, I will discuss what our outlook for fiscal 2020 was prior to The Cove in nineteen situation.
Until last week. We were prepared to provide an outlook for fiscal 2020 that was in line with our longer-term 20/20 until 2020 Vision with top and bottom line growth of 50% We assume the current Tyrus would remain in place throughout twenty-twenty the impact of which we expected to fully mitigate as we did in 2019.
Excluding the future Financial related impact to Cove in nineteen our sales and income Outlook was as follows 20% sales growth based on approximately 180 new store openings and comparable sales in the low single-digit range included in our comp estimate was accountable ization impact from new stores of approximately 100 basis points.
Our full-year effective tax rate was expected to be approximately 24.5% excluding the impact of share-based accounting as you know, our practices to update the tax rate Outlook quarterly with actual results when we report earnings.
Diluted earnings per share was estimated in the range of $3.33 to $3.47 which included $0.08 related to hollar.com integration costs in the first half of the year and the accounting impact from the nerd Street Gamers investment.
Excluding the impact of share-based accounting and 2019 as well as the impact of the hollar.com integration and the nerd Street Gamers investment EPS growth for $20,000 was approximately 20%
And finally, we expected gross Capital expenditures of approximately 270 million dollars, excluding the impact of ten of the allowances this reflected approximately 180 new stores and 45 remodels opening a new Distribution Center in Texas making initial payments on distribution centers in the Midwest and West and invest in systems and infrastructure.
Again, this discussion was designed to give you some additional information about 20 20, but it is not our guidance for all other details related to our results. Please refer to our earnings press release. And with that I would like to turn the call back over to Joel to provide some closing comments before we open it up for questions Joel. Thanks Ken. A 2019 was a very productive year for I below is our team successfully mitigated tariffs advancing our strategic objectives around experience product and Soul by Chain across the world. People are living through a very challenging. Right. Now you're at Five Below. We are drawing inspiration and strength from our favorite customer kids were embracing their unmatched resiliency and ability to grow from challenge.
And we're certain that together. We will come out of this a stronger Community. I want to thank all of our Associates for their hard work and dedication to making Five Below what it is Thursday and for their commitment to our customers, even as we make decisions to adapt to the rapidly changing environment our long-term focus and goals are scheduled to continue to innovate be relevant deliver wild products that incredible value and provide an amazing differentiated experience to our customers. We believe we are well-positioned and capitalized to continue our growth in the future. Would that I'd like to turn the call back over to the operator questions operator Thursday. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone.
If you're using a speakerphone, please pick up your handset before pressing the keys to withdraw your question, please press * then two. Please limit yourself to one question if you have further questions, you may re-enter the question.
The first question is from Paul with City research, please go ahead.
Hey, thanks guys. Appreciate the the the comments. Wondering if you can maybe talk about how you're going to change your marketing efforts any stepped-up e-com efforts now that you're going to be dealing with some store closures for a while. And also how does that change how you manage your team marketing and and this sort of environment customer Outreach in general, and then hopefully curious about the the number of store openings, you know, you laid out what your plan was going to be off and then kind of said that there was no longer in place. I didn't know if that applied to your store openings and capex as well or if you were going to pull back on on that. Thanks.
Right Paul, thank you. So let me let me just discuss some marketing efforts as it relates to first quarter and that's really the only place we had made any changes at this time. We have pulled back on TV and the circular that will not run for Easter this year. We are leaving a place our digital efforts and are focused on our e-com in that in that case. We are seeing an increase in econ business and are having no problems keeping up with them as for the hundred eighty stores that is still our plan and although at this time. You should you'll certainly you know, it should expect a change in Cadence on those stores and it's too early for us to give you guidance on what that that new Cadence would look like. Thanks Paul.
I just remind everyone to try and keep it to one question. That'd be great. So we can get through everybody here. Thank you. Next the next question is from Edward Kelly with Wells Fargo, please go ahead home. Yeah, I guess so question for you. First just is what would you need to see the open stores again? And then beyond that as we think about the cost structure help us out with what's fixed what's variable and if stores are closed for an entire quarter how much of the cost structure is going to stick with you?
Yeah, and and at what was that question about the close store while just you know, initially, what would you need to see to open stores again? Oh, yeah. I'm not sure. How much days with you.
Yeah, look we're we're shut in stores down this week. And and while it'll be customer-facing tomorrow. Our Associates will remain in the stores Friday not open to the customers as we as long as you can imagine had a lot of Freight in route to stores and so we're taking all that in so it doesn't get trapped in any supply chain disruptions. Should there be any and preparing the song the open and so to that point, you know, we will be able to open at a moment's notice. But it it's honestly too early at speculate what it'll look like. I mean, I think at this point we'll we'll turn to take guidance from you know, local state and and National as far as when it's safe to start to resume our stores back up but you know, we want to stay in compliance with that and and and candle turn to you. Yeah, and and it just around the the the cost structure as you would guess a majority.
of
That's a good sold is is obviously variable related to merchandise cost but there is some fixed cost in there because we record occupancy cost up in cost of goods sold and I'm buying costs there too. And then when you look at sg&a about 40% of our sg&a costs are fixed. So again, just to give you kind of an idea of you know, the cost structure, you know, based in our p&l. Thank you. The next question. Excuse me. The next question is from Matthew boss the JPMorgan, please go ahead.
Great, and thanks for all the color so far on the call guys. Hey, thanks Matt, you know look while there's not really a compare for the near-term closures. Maybe if you took a step back. Can you just speak to how the model has held up during times of past economic stress trying to get a sense as we maybe come out of this on the other side of unemployment is higher or there's changes to your consumer. Just how you see your value proposition position today relative to peers and anything you could do to bolster that coming out on the other side of this.
Yeah, and I might let can give a little more color as he was actually here back in 08 and 09 but you know as as you look back to my prepared remarks month and I'll certainly if you speculate that, you know customers might tighten their belt initially coming out of this, you know, as it was in 08 and 09 in the financial recession. We were very successful coming out of that and you know, I think this will be a place where customers are going to turn to us as they look for value and and stretch their dollar and until things get back to a more normal type of. I don't care if you had anything to add the time of rational wait to mat. I think I think Joel answered it. I was here during that time. Going through 808 and 09 and and obviously there was that initial shock from a traffic perspective. I think all retailers were impacted right out of the gate, but we did suck.
Ourselves come back. It felt quicker than other retailers. And I think the Joel's point. I think it was customers out there who really discovered the value that we were able to offer because we were another choice at the end of the day. So, you know, it it ended up being somewhat positive for us as we came out on the other end of that and came out relatively quickly. Thanks Matt. Yeah, you bet. Thank you. The next question is from Simeon Gutman with Morgan Stanley, please go ahead.
Good afternoon. My question is the decision to close and you gave out those numbers which was helpful, which I think means business was down somewhere closer to 20% But can you tell us that getting progressively worse each day or was it leveling off and Ken gave some some helpful numbers on on the cost fixed costs in sg&a English. Margin. I don't know if you've done this math. But how long can you record? No Revenue without needing any liquidity. Do you know but the number of days I guess you're going to get us to the conclusion of doing that math quicker than we thought it ourselves.
I think on your initial map there you're in the right ballpark it it's it. It might be a little high on in terms of what what it was down. But it was it was pretty consistent through that period of time and I I think it was important for us while we can't give you guidance to be as we always try to do be extremely transparent and you know how the quarter was shaking up, you know, and as many thoughts expressed concern about our negative, during the holiday and whether it was true to the you know shorter days, I think this return the low single-digits on the upper end of it to that matter is what we really wanted to share with you and you know, I I to me that's too early to do that scenario planning. Obviously, that's where we'll focus night now can give you a choice of color commentary on our on our balance sheet. It's very strong and and we'll we'll start to look at that. But at this point in time, it's it's too early to kind of layout every snare wage.
Can you have anything to add short? I agree with what Joel mentions to me in terms of the go for but you know, I will remind everyone I mean, we are an extreme value retailer thousand and one of our core values has always been around operating discipline and cost efficiency and it's really who we are and as we even found is Joel mentioned in this call. We were faced with a similar situation with mitigating tariffs in terms of the challenge that was put in front of us and we were successful in doing that but I'll take the appropriate actions across the business as the situation evolves obviously to to maintain our financial health and and our in our future growth. Yeah. I I honestly think that's you know some yeah thanks to me and some of that that we went through with tariffs last year probably made us a better stronger company, you know, is that that number approached a hundred million, you know, we we yep.
To get pretty creative to you know, manage and mitigate all those tariffs and that discipline will serve as well as we go through this as well.
Next question. Next question is from Chuck with Gordon, please go ahead. Hey guys. Hope you hanging in there, you know, if you think about the quarter progression on comp and if we assume, you know business office to be closed for the next two or three weeks, you know, it's probably a realistic you're going to comp down, you know Sit Close to fifty percent in the first quarter, and it sounds like to to your question earlier that the fact that cost structure 40% is going to be fixed. So it seems like earnings are probably going to be, you know, probably close to Flat maybe up a nickel in the first quarter can just just roughly speaking are we sort of left field with that type of math? Thanks.
Thanks Chuck. Listen, appreciate the question but as I mentioned before my prepared remarks, I mean we gave you a little bit of the indication of what we were thinking before or the situation here with the code 19. It's really it's really difficult for us to take a look forward like that. And we we really want to kind of avoid making any of them in terms of what the potential will be especially in terms of specific Financial results. So on that question, I think we're we're just going to say that, you know, we'll leave it where you've talked about for the full year. And as I mentioned before we're going to continue to react appropriately to the you know, the situations that are that are put in front of us.
Okay, and I would just add them.
As I shared with you having said that when we do open reopen the supply chain is fully stocked and there's really not a lot of hurt. You gotta go through to Thursday re-engage our stores and Associates and get the doors back open.
Okay. Thanks Chuck. Thank you. The next question is from Karen short with Barclays, please. Go ahead.
Hi, thanks for taking my question. I guess what I want to focus on one clarification is with respect to the store closures. Are you going to make a blanket decision to open all stores at once when life that's left or will it be maybe a state-by-state or region-by-region basis? But then the bigger question I had was in terms of inventory how how much inventory can you really pack away? I guess from a DC perspective and and what part is seasonal and you know kind of has more of a shelf life if to the extent that you're dealing with an excess inventory situation.
Yeah, no problem. You know if you if you go back and kind of you know study the last few calls, we've had strategically the single biggest initiative. We've been focused on for the last several years has been Distribution Center expansion and you know, we're in a fortunate spot that we've got plenty of DC capacity off. In fact our our Texas has just gotten it certification. And and and we we are now while we're not open for business and shipping out. We've got all the Box in place and are starting to receive inventory so that you know, it's a brand new with a lot of capacity. So we're not at all worried about that side of things at all. And and then as far as how we're going to reopen stores, it's it's a little speculative on our part, but you know, I I would guess it would it would be more Regional or local rather than birth.
All at once just given the way the things have transpired and and how we've watched stores shut down their states reacts. So, but I'm completely speculate in there Karen and and I think we'll watch all this on folds and and take some guidance from State and National officials. Thank you.
The next question is from Michael Lasser with UBS, please go ahead.
Good evening. Thank Co-operative to my question your models that you went under water there Michael. Go ahead. Can you hear me? Can you hear me? Okay, we got you know, yep. Thank you. So you're feel your your model is very traffic dependent. And even if once you open your stores, it's likely that we're going to see social distancing and overall engagement with practical location by the consumer be much the consumers likely to be much more hesitant and resistant to go go out and and and freely traffic and physical locations dead in in I think your comments were downloaded mid-teens in that in that week before and the last week or so. Do you think that's a good indication of how social distancing might impact your your traffic overall even in a kind of steady-state environment and how do you manage through that even putting aside the economic ramifications of what month?
situation my car
Lot of that Michael I'd have to speculate on but I will tell you, you know part of the reason we've stayed open the fact that you know, we've only been down, you know, in in our teens it just shows you how much the customer needed us and especially as they were kind of preparing to hunker down and and be with their kids that were suddenly off school, but during that ten day period you know, we instituted a has it a lottery to as a a new way of working and we opened every other register, you know, we brought in a lot of hand sanitizers, etc. Etc. And you know that that kind of procedures will continue afterwards. I'm sure but we're store Ops teams is way more prepared to kind of handle that and and we'll be prepared as the customers get one. Come back.
Okay, what number can I clarify some cannibalization? I think that's much higher than what you've experienced historically. So what's driving that?
Sure, you know honestly Michael we we actually have never really shared that number specifically and you know part of the reason, you know is dead ramping up stores. You know, we we also want you all to understand again. It's in the vein of transparency. You know how that multiple is built them know that that that cannibalization is planned for and you know as built into you know, as we're kind of building our our storage out and so while we might go into town to fewer new markets our focus on densification is a good thing and you know, we really started to see ourselves picking up some market share in some in some great areas and found or is you know tend to bounce back after we cycled the year, but just want to do to have against some transparency of what's built into the to the whole common multiple.
Thanks, Michael. Be safe. Thank you. Yeah, thank you you to the next question is from Scott. Ciccarelli, please go ahead home. So I know you said earlier that your current plan is to maintain your hundred eighty store store openings for the year, but with negative called mid-to-upper team, that can be pretty spooky. So I guess the question is how much flexibility do you guys have on your prior capex plan?
Sure. Well we have we actually have quite a bit of flexibility there. But I I would tell you is a I think I might have said of all certainly come back after things get back to normal and and and give you specific guidance if we stay at one-eighty for sure our Cadence will change but but we feel really good about those stores and and communities that we need to go into you know built into that capex plan was also distributions that we purchase. So certainly we have some flexibility there whether we would go forward with purchases or not, but you know that that makes up for for quite a bit of the page over all capex from that perspective. I don't Ken any others on capex know I think you mentioned it again. There's there's probably going to be some flexibility for us down the road, but I think at this time
The game it's still a little bit too early to tell but just to get back to the comment that these.
Yeah.
Are all things that we're going to look at as we as we move forward here and and as the events evolve. Yeah, we'll get everything Scott.
Go ahead. I guess my I guess my question was just about like don't get the volume back and you know, like social distancing does remain at a thing for quite a while. You're not you're potentially not going to need as much of the distribution. So I'm just wondering if there's an ability of maybe put off some of those expenses and kind of defer that to the Future. Thanks. Absolutely. I mean, that's that's what I was talking about on on the DC and not have to make those decisions in the next 30 days here. So the timing works out nice and also, I mean, look we're you know, we're growth companies that doesn't change and money. You know, I think our customers are going to need us even more when you come through this with our our value base model right and and main goal just to add to that to that. So Scott just to just to add to that. I think I mentioned before again related to go forward our financial position liquidity, whatever it may be we're going to look at all the potential actions of
Across the business and see what makes sense for us as we move forward.
Thank you. Thank you. Thank Scott. Thank Scott. The next question is from Brian Nagle with Oppenheimer, please go ahead. Good afternoon. Thanks for taking my question. Thank God question. I have we talked even the holidays about just the online effort and maybe you're pushing that further. So she look at what's happening. Now with the virus and Shine. The stores that is is pushing online further becoming more of a topic, you know, and so I guess a couple of parts. I mean what to what extent could your existing online operation help to offset the store closures many returned, but then as you look beyond that is or you now more focused on building out a larger online offering
Yeah and look Brian. Don't forget that you know, we made the investment in holler long before this came along. So, you know our our belief in life, you know, enhancing our digital capabilities for the long term and being able to accelerate that were necessary and was the right thing to do strategically. So I was done independent of Covent nineteen and the ramifications associated with that as far as looking at it in the short-term, you know, as we've said on every call, you know, our e-commerce business is still a very very small piece of the business. So this is not a short-term fix for Five Below, but it it has seen a significant uptick on the business and you know, it's just ties right into why why we made the Investments we did last year and long-term. I think that strategy is even off.
Better than it than it seemed.
When we made the decision back in 2019, but don't look at for it as as the suddenly the business model for Five Below changed here in the next 3 months. Thanks Brian. Well, thank you. The next question is from John heinbockel with Guggenheim, please go ahead. It's obviously pretty fluid but
Acting the stuff that Michael is not not long term, but when you think about you know plans sort of Beyond Easter receipts, you know changes he's making given the choice the fluidity of this.
Yeah, I mean look it'll obviously have an impact on on Easter but but putting that aside, you know, Michael's teams. Probably you've never been better staff prepared. You know, we we we brought into GM's last year very senior capable people and you know really should be pup that organization and continue to invest in in our merchandising organization. And so you know what we've got in the pipeline, especially when you think of the name he's Michael now has at his disposal because of you know, ten below and then you couple that with the scale benefits of how much of a bigger company we are now than we were a couple of years ago. You know, I see nothing but upside for what what the merchants have in store is as we move forward and get birth.
To a more normal situation once once we move past this but there there's great opportunities in front of them.
Okay. Thank you. Thanks. John. Appreciate it. The next question is from Paul Trussell with Deutsche Bank, please go ahead.
Good afternoon. You just spoke to some of this but Joe you outlined in the release, you know, your strategic priorities for this year worth of experience product and supply chain. So maybe you know kind of putting the virus to the side to some extent, you know, talk to us a bit about what goals you wanted to achieve and what actions you're taking to push forward on those strategic priorities.
Yeah a great question Paul and thanks for looking past it. Right and I think as as we get back to a more normal calls will certainly go into it and more depth. But but let me just give you a little color quickly cuz it is important, you know, the supply chain front, you know, the password heading down, you know, bye-bye holiday of 21 is that we will be able to distribute to all of our stores in less than 2 days and you know that is not been the case for us. You'd have to go back to you know, the old days when we were just a regional player in the Northeast so that that's a significant change and you know, it's been a multi-year strategy and that all all comes together nicely off by by next year. We're close to getting the this spring will open up the Texas facility which will really help us out west significant wage.
and then on the experience and product without
Getting into it in detail. Let me just lump those together for a second here because I think the single biggest change we're making is in the new prototype, and with that new prototype really touches the experience coupled with a real enhancement and product some of the stuff. I was just talking to John heinbockel about as as we were able to now take all the learnings from ten below from the gift shop. We did and bring that into one new prototype without having to expand the size of the footprint. So you talked about leverage and really getting any feeds these coupled with then unleashing the merchants, especially in Tech and room to explore extreme value price 6 to 10. So just a little color commentary off on those three as it comes together and and certainly as we get back to, you know quarters to come we'll continue to spend more time on that, but hopefully that gives you a little color. Thank God.
The next question is from Judah frommer with Credit Suisse, please go ahead.
Hi, thanks for taking the question. I just wanted to follow up on on the variable cost within sg&a can is there any way you can help us kind of size what could actually be pulled out kind of depending on the time line how much of his store or labor and if you did cut some of that variable variable cost would you have to rehire and is there expense tied to that as stores reopen and volumes come back online?
Yeah, thanks for the question Judah. But again as we mentioned before we're at the beginning stages of this and this is something that we're going to look at them and dig dig into but at this stage of the game no specifics to provide on a on a go-forward basis aside from saying again that you know will take the the appropriate actions across the business and as I called out, you know, there are you know certain volume of fixed costs and obviously some variable costs that I will look at as we as we move forward and you know, I hope you can understand understand why we're not there are our first priority is I said in the call is been taken care of our Associates. And so we've had several conference calls in the last 24 hours with the crew out in the field reassuring them that they work for a strong company and will be there for them and so yep.
That's now behind us. They understand how they're going to close down the stores and then we'll start to turn to answering some of your questions. But but we enter this with a really strong balance sheet and a lot of liquidity and access to additional Capital should we need it thanks to the next question is from Jeremy Hamblin with craig-hallum, please go ahead.
Yeah, thanks. And and thank you guys for the transparency and and all the colors sharing. I wanted to ask a supply chain question, you know just flashing back to maybe where things were. Let's say 10 10 days ago. Can you give us a sense for your obviously dependent on a lot of imported goods from a I know this is a time of year. We're typically you're getting to trade shows a lot of which take place in Asia, you know where you're making plans for Franklin holiday. In in in for the fall season has the and if you felt like the supply chain from Asia has has started guy come back up has it had any impact in terms of the assortment that you have and and can offer to your customers. You know, it it seems like you've had maybe an uptick in things.
like candy and snacks and maybe a
A little bit of a Down tick and things like Tech accessories any color that you could share on those items.
Yeah, great question Jeremy and I will tell you in for everybody honestly probably are in import supply chain is probably never been stronger since this began four or five months ago. And you know, we we can I can tell you that we we we did see a big decrease in in containers and we were they were significantly behind but in in even just in the last two to three weeks the the number of our Factory almost every one of them is back working products flowing bookings are starting to happen and and we're actually starting to see a catch up in a lot of stuff that was behind. So I feel really strong about the import supply chain side of it and then you know beyond that, you know, I think it just starts to get a little too speculative, but we're in a great shape in that perspective.
Thanks, Jeremy.
The next question is from Michael montani with evercore, please go ahead.
Hi guys, just following up on the sourcing front. Just wanted to see you know, you had mentioned obviously some efforts that you all had made. I think on the diversification front, you know, I was thinking in the past maybe 60% of the goods were imported from China. Can you provide us some sense of what that's kind of run rating to now given the efforts that you've put in.
Thanks, Michael, you know the the majority of our Goods, you know, still are from China, you know, as I said on in my prepared the team's been doing a great job starting to move countries. We're starting to see the ramp-up of of some lines. We moved out of China last year and ended up. In fact those first orders were were just shipped a few weeks ago, but we will have to go back and kind of reassess that now and and kind of understand what the mix is when it took it all does settle it will still be the majority of China, but we are significantly less dependent than we than we were before and you would expect us to continue to to see Thursday. So it's a little fluid right now, but I would just tell you it's still in the majority.
Thanks, Michael. The next question is from Anthony chukumba with loop capital markets, please go ahead.
Good evening. And thanks for all the color. I said one quick question. You mentioned the Dallas Distribution Center supposed to open this spring and I was wondering, you know, will this current situation? Is there any risk in delaying the opening of that? I've got those facilities. Thank you. Thanks. Anthony. Look, I don't want to in this situation. I don't want to say a thousand percent. But we we have received our certificate of occupancy, you know, we are starting to receive goods and I'm you know, there there's you know, we're we're moving ahead as usual. I mean, obviously if there's you know shutdowns in the city that prevent us from continuing to take off or something like that there could be a delay but the the buildings basically done and we're just putting the finishing touches on it. Just one clarification. I think you said Dallas. It's in Houston. It's outside of Houston in Conroe.
But no delays expected.
Thank you. Thanks Anthony. This concludes our question-and-answer session. I would like to turn the conference back over to Joe Anderson for any closing remarks.
Thank you operator, and and thanks everybody for joining us today. Obviously, not our normal call. We look forward to speaking to you again after the first quarter call and I will commit to keeping you informed as as situations develop, but thanks for getting on the call with us. Have a great evening. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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