Q1 2020 Five Below Inc Earnings Call
Good day and welcome.
Below first quarter 2020 earnings conference call all participants will be in listen only mode should you need assistance. Please see goal conference specialist by Christmas Starkey, followed by zero.
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I would now let's turn the conference over to Kristin how.
VP of Investor Relations. Please go ahead.
Thank you Chad good afternoon, everyone and thanks for joining us today for five below first quarter 2020 financial results conference call on today's call, our Joel Anderson, President and Chief Executive Officer, and Campbell, Chief Financial Officer, and fresh or after management has made their formal remarks, we will open the.
Call to question I need to 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 1955 1995 as amended such forward looking statements are subject.
Both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements.
Those risks and uncertainties are described in the press release and our SBC filings.
The forward looking statements made today are at the date of this call. It 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 went by visiting the Investor Relations page of our web site at five below dotcom, well now turn the call over to Joel.
Thank you Cristiana and thanks, everyone for joining us for first quarter earnings call.
Before I get started.
Sure how deeply saddened I am by the advances the past weeks.
We as a company simply do not tolerate racism and we want to proactively the apart of the solution.
We are taking time to listen and learn how we can do just that.
Since the day, Tom and David founded by below in 2002.
We have been a store of the community.
Today in honor of George Lloyd and all other victims of racial discrimination, we closed our stores in Houston.
As we didn't Minneapolis last Thursday.
And then fed Bill last Saturday.
During this unprecedented period, which began with cobot 19.
We adapted swiftly and we have done so with the safety and well being of our customers.
And crew top of mind.
And what has taken place since our last earnings call or five key themes that define our actions.
Number one.
Health and safety without a question the health and safety of our customer and crew.
Has been and remains our number one priority.
With this and mine, we close chain wide on March Twentyth.
And we reopened and as we reopened we have implemented strict hell and sanitation protocols consistent with CDC another guidance at our stores ship centers and offices.
Number two financial strength.
We entered this period with a strong.
Free balance sheet.
And a business itself funds its growth while generating cash.
In a closed store environment, we moved quickly to address costs and capital outlays as well as increasing our line of credit all in order to further bolster our liquidity.
We had to make some difficult but necessary decisions to do this.
And as we reopened we retain the financial discipline.
As always been characteristic that how we operate.
Number three flexibility and adaptability.
I've been nothing short of amazed by the resilience and flexibility demonstrated by our teams across the entire organization as the navigated the challenges presented by the pandemic.
Our business model well, it's eight worlds and historical ability to rapidly flex in response to trends is inherently agile, but it is our people will enable and im body that agility.
And I could not be more proud to lead this amazing team.
Number four.
Unwavering commitment to value.
Delivering while product at incredible value to the customer is core to our DNA.
We know how important this promise of value is to our customers, especially today and we are more committed than ever to delivering value day in and day out.
Number five.
Position for growth.
Even as we move swiftly to navigate the current environment, we simultaneously made progress on our key strategies focused on experience product and supply chain to support the significant growth that lies ahead for five below.
Well, we had to play defense for a period of time in Q1, we quickly got back to playing offense and position ourselves for growing again.
Speaking of growth.
As we sit here today.
Your reopening our eighth wave of stores.
Let me share what we did to enable a smooth reopening process.
Prior to our initial wave a reopenings the began on April 21st we spent several weeks preparing our stores.
Including retaining our store managers to help with this process.
During the closure period, we also developed an alternative service with curbside pickup which was available at stores were allowed by local and state mandates. We also enhanced our ecommerce channel reallocating resources to meet the high demand during this time.
Above all however, we listen to our crew and our customers as we operated with these limited curbside capabilities and ramped up our ecommerce operations.
As of today, we reopened approximately 90% of our stores.
George Hill and as operation team.
Have seamlessly executed this reopening process with amazing speed.
And we're pleased with what we're seeing in terms of sales performance.
Comparable sales for our reopen stores, including our ecommerce business.
Our tracking up approximately 8%.
For the second quarter to date.
Scott comp contribution split about evenly between the two channels.
Well, we're very encouraged by the strong early performance as stores of reopen.
Our enthusiasts our enthusiasm is tempered by the acknowledgment that significant stimulus dollars began to hit bank accounts and mid April.
And there is likely some level of pent up demand that is also being reflected in our current performance.
In addition, we've experienced some store disruption related to the protests that impacted sales during the last two weeks.
Given this.
The still substantial uncertainty around the impact of this pandemic in the coming months, we repair preparing for a range of possible scenarios and a contingency plans in place for each.
As we look to the remainder of the year and into 2021.
Now turning back to the first quarter.
Dollars Oliver stores close for most of the second half for the quarter.
Which included the all important Easter selling season.
Total sales were down 45% over last year.
And we had a loss per share of 91 cents.
As we had mentioned previously we were very pleased that the business was tracking.
To a 2.9 comp increase prior to the pandemic announcement on March 11.
During the closure period, our E Commerce business was very strong with record daily sales, which we fulfill out of Pedricktown and the newly acquired Cincinnati operations of Holler Dot com.
While we were very pleased to see our ecommerce sales grow over four times versus last year's first quarter.
This level growth has moderated as stores every open.
We still expect E com penetration to remain in the low single digit range in relation to our overall sales for 2020.
In addition helped mitigate the impact of the clothes stores.
We made several difficult decisions to cut costs and limit cash outlays as we focused on maintaining our financial health flexibility and liquidity.
Ken will discuss in more detail in a moment.
We want to extend our appreciation to all those impacted by these actions for leaning in during this extraordinarily difficult time.
Regarding capital expenditures.
Several projects were delayed given the environment.
Including the openings of our Texas and Midwest distribution centers.
And our new store opening plans.
We now expect our Texas DC to open late in the second quarter.
And to begin the building up our Midwest DC and 2021.
The expectation for it to open in 2022.
The West DC remains on track to open in the second half of 2021.
As it relates to our store plans as we have communicated we now expect to open 100 220 stores in 2020.
Representing 11% to 13% growth over 2019.
This compares to our previous plan for approximately 180 store openings.
New stores remain our most significant growth opportunity and we continue to see a 2500 plus store potential in the United States.
We hope to return to more normalized growth trajectory and new store opening program in 2021.
Hi below has always stood for incredible value.
With the Wow factor in a bright clean and fund treasure Hunt store experience.
Tweens teens and beyond.
Our founders originally referred to us as the yes store.
Because of the affordability of our merchandise assortment, which allows parents to say, yes to their children.
This commitment to value.
He is stronger than ever today.
And then tougher economic times, we believe this will resonate even more with new and existing customers alike.
With respect to merchandise.
We have quickly pivoted, our focus to enhance our offering of essential goods consumables.
In everyday items, such as health care and personal care.
That we know our customers looking for today.
We've allocated more space to items, such as hand, Sanitizers and wives as was mass and added new home essentials, including kitchen, and Bath product to our assortment.
Also source some great new tech items.
To help customers work from home.
We're pleased to be there for our customers and add some aspect the fun to their lives by continuing to provide.
Cool toys, funtv snacks and fitness items.
As many continue to exercise at home.
For summer, we have new inflatables for the pool and are adding home related to core items and games to create more fun at home opportunities for our customers.
Overall, we continue to source amazing value products and are taking advantage of opportunity buys in the market across several major product brands.
On marketing for Q1 since the stores were closed you cancel the airing of our plan TV commercial.
As well as the distribution of our Easter Flyer.
For Q2, we're substantially shifting our program to focus on digital advertising.
Rather than TV or print circulars.
The benefit of digital advertising is it allows us far more flexibility and localization to target at the store level using ZIP code data and it can be turned on and off very quickly.
Our social media accounts have been trending with the hashtag home with five below.
Offering customers ideas for activities during the shelter at home period and beyond.
This week, we will officially launch our kick start the fund campaign focused on fun value.
Assortment and safety of our stores.
In addition, with the surge in ecommerce, we're working on digital marketing strategies to retain both new and existing customers to drive traffic and sales across all channels.
These are on Precedented times, and we're navigating them with our customers and team members at the center of our decision making.
Strategically we remain focused on three areas experience product and supply chain.
Within experience, the health and safety of our team members and customers.
Remain our top priority.
We're also focused on keeping the shopping experience fresh and exciting for our customers, which is why we create a zone and most of our new stores and Remodels called five beyond.
Hi Tech and room worlds will be located in the back of the store.
Feature a limited selection of new amazing value items priced above $6, along with the current items and those worlds.
On product as I discussed, we're working hard to provide our customers with essential needs, while still adding an element of fund for the family.
During this time.
With the inherent flexibility of the five below model, but it's eight world that span over 15 departments, we have the unique ability and organizational agility to make quick assortment changes in order to stay relevant and consistently deliver wow and incredible value to our customer.
Yes.
In addition, and supply chain front.
We're working on several strategic initiatives to support our future growth.
I already mentioned our distribution center openings. Another important initiative is the integration of our ecommerce site with Holler Dot Coms, which is expected to be completed later this summer.
Once the integration is complete the holler dotcom, you RL as well as the App will automatically become five below dotcom.
In summary, we are focused on successfully managing the business throughout this turbulent time, while simultaneously executing on our strategic initiatives.
Which will drive our long term success.
We entered the pandemic in an extremely healthy position with a resilient business model.
Robust sales growth no debt and substantial cash reserves.
And we believe we are emerging from these times and a strong.
If not stronger competitive position.
Once again focused on growth and playing offense I want to thank all of our teams for their commitment during this time.
We're excited to be welcoming our customers back into our stores once again and look forward to surprising and delighting them delivering some much needed respite and smiles with our amazing assortment.
An incredible values in a safe fun and exciting store environment.
With that I will turn it over to Ken to provide more details on the financials Ken.
Thanks, Joel and good afternoon, everyone.
I will begin my remarks with a review of our first quarter results and then discuss the second quarter.
As a reminder, all of our stores were closed beginning on March 20-F, and through the key Easter selling period.
With only a small number of stores reopening late in the first quarter on April 20 Onest.
While E Com sales were strong in Q1 with sales over four times higher versus last year's first quarter.
It's still represents a low single digit percentage of our total sales.
In addition, we cut costs as quickly as we could in order to conserve cash.
One of the early actions, we took was to furlough the majority of our store and distribution Center associates.
Our while town team and field leadership also took temporary pay cuts to help offset the impact of lost sales.
Additionally, we managed our working capital by canceling merchandise orders and delaying vendor payments.
We also reduced our plan for gross capital expenditures for 2020.
With the majority of stores now reopened we believe we are in a solid position on all fronts.
From associate engagement to inventory liquidity and future real estate opportunities.
Our sales in the first quarter of 2020 were $201.9 million down 44.9%.
From $364.8 million reported in the first quarter of 2019.
We opened 20 net new stores during the quarter compared to 39, new stores opened in the first quarter of 2019.
We ended the quarter with 920 stores, an increase of 131 stores or 16.6%.
Versus 789 stores at the end of the first quarter of 2019.
With a reduction in comp store operating days of approximately 47%.
Due to the temporary store closures in Q1, and the loss of the key Easter selling days.
Comparable sales decreased by 51.8%.
The positive contribution of E commerce, only a small offset.
Through March 11, the day covert 19 was declared a pandemic.
Our comps were up 2.9% for the quarter to date period.
Turning to gross profit approximately 25% of our cost of goods sold our fixed.
Occupancy being the largest fixed component followed by certain distribution center operating costs and the expenses related to our buying teams.
Given the store closures and the impact it had on our sales results as well as the associated the leverage of our fixed costs.
Gross profit decreased approximately $100 million from the first quarter of 2000 $19 million to $20.5 million.
And gross margin finished at 10.2% compared to 32.9% in the first quarter last year.
SGN a expense of $92.7 million for the first quarter of 2020.
Decreased by 3% over last year's first quarter versus our original plans for SGN a growth of approximately 20%.
As a percent of sales SGN, a increased to 46.1% from 26.2% last year.
Although we moved quickly to reduce costs in a closed store environment. The significant decline in sales drove the deleverage of the fixed portion of SGN a expenses.
The actions, we took to reduce expenses, which began later in the quarter included Furloughing hourly store associates, reducing marketing spend temporarily reducing executive leadership compensation and delaying annual salary increases and overall hiring.
In addition to these actions we reversed certain previously recorded expenses related to stock based incentive compensation.
As a result.
We reported an operating loss of $72.2 million versus operating income of $24.5 million in the first quarter of 2019.
Due to the operating loss a tax benefit of $21.5 million was recorded in the first quarter.
Our effective tax rate for the first quarter of 2020 was 29.8% on a pre tax loss of $72.1 million compared to a tax rate of 1.9% on pre tax income of $26.2 million in the first quarter of 2019.
The effective tax rate. This year also include income tax accounting impact of the cares Act.
Which allows for the expected net loss for tax purposes for 2020 to be applied the taxable income generated since 2015.
We currently expect our effective tax rate for fiscal 2020 to be approximately 25%.
Net loss for the first quarter of 2020 was $50.6 million versus net income of $25.7 million last year.
Loss per diluted share for the first quarter was 91 cents compared to last years earnings per diluted share of 46 cents driven primarily by the factors I just described.
Last year's first quarter, how to share based accounting benefit of approximately 11 cents.
Compared to approximately two cents this year.
We ended the first quarter with $139 million in cash cash equivalents and investments and no debt, including nothing outstanding on our $225 million line of credit.
We repurchased approximately 137000 of our shares at a cost of $12.7 million during the first quarter.
To date under our $100 million repurchase authorization that was approved in March 2018, we have repurchased approximately 496000 of our shares at a total cost of $51.5 million.
Inventory at the end of the first quarter was $368 million as compared to $268 million at the end of the first quarter last year.
Average inventory on a per store basis increased 17.4% versus the first quarter last year due to the temporary closure of our stores.
And the receipt of certain merchandise orders, primarily direct imports that left overseas ports prior to our store closures.
We managed inventory carefully one stores closed, including cancelling and delaying orders.
Due to the timing of the store closures, we markdown excess seasonal Easter merchandise specifically candy.
In addition, we have tightened our purchase plans and allow for capacity and liquidity in our open to buy plans for compelling product opportunities.
We believe we're on a very good position with our inventory levels and expect our year over year growth at the end of Q2 to be in a more normalized range.
Now looking ahead, we're not providing guidance due to the continued uncertainty, but we have forecasted in our prepared for a variety of Sarah scenarios and we are confident in our ability to successfully navigate each one.
As Joe mentioned, we're very pleased with the customer responses our stores reopened.
Comparable sales for reopened stores and E. Commerce are tracking up approximately 8% for the second quarter to date with E commerce contributing about half of the comp increase.
We do not expect ecommerce to continue to perform at this level as stores reopened.
In the stores, we are seeing higher average tickets, partially offset by lower transactions as we believe customers are currently consolidating trips.
While there may be temporary tailwinds influencing these results, including the government stimulus program and potential pent up demand. We are encouraged by this early performance in the reopening phase and we'll continue to carefully monitor results.
On to real estate in stores.
We're continuing our growth program and we're planning to open 100 to 120 net new stores in 2020 expecting to end the year with a thousand 2020 stores or unit growth of 11% to 13%.
While the majority of these new stores are being opened in existing markets, we will be entering new markets like Sacramento and the new states of Colorado and Nevada later this quarter.
Bringing the number of states that we operate operate in to 38.
Our current plans for 2021, our to return to a unit growth rate in the high teens as we are seeing some great opportunities.
With respect to gross Capex, which excludes tenant allowances, we now plan to spend in total for 2020, approximately $200 million as compared to our pre cobot 19 estimate of $270 million.
This reflects the planned investments in the new Texas and West distribution centers.
New stores, and Remodels and investments in systems and infrastructure.
In conclusion, I want to reiterate the gratitude Joelle express to our entire team for rising to the challenges presented by the pandemic.
We maneuvered through what we hope will be the worst of the disruption.
And our far better prepared and positioned from an operational and financial standpoint for whatever challenges the remaining weeks and months may bring.
Agility flexibility and innovation, along with extremely disciplined cost and capital management are inherent to our model and how we have always operated and these qualities will continue to serve us well as we react to and navigate through what we expect will be a shifting operating environment.
And with that I would like to turn the call back over to the operator to open up the lines for questions operator.
Thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you're using a speakerphone please pick up your handset before pressing the key.
To withdraw your question. Please press Star then too.
We ask that you. Please limit yourself to one question. If you have additional questions you may reentered the question Q.
At this time, we will pause momentarily to assemble our roster.
And the first question comes from Matthew Boss of JP Morgan. Please go ahead.
Great. Thanks, and congrats on the strong start guys.
Thanks, Matt Joel.
Joel maybe to just start on the positive high single digit comps since reopening stores, maybe just higher level have you seen a fairly consistent trend since the initial first reopenings and maybe any areas of relative strength to call out across your world and just third you talked about the stronger potential.
That said post crisis competitively, where do you see opportunity as we think about consolidation and the bankruptcies laterally that we're seeing across brick and mortar retail.
They say that that last part there, Matt where do we see just an opportune it.
Opportunities to come out of this does a stronger model and take market share.
Yeah No look.
That.
Actually what I would tell you is I think in my prepared remarks, Matt I said, we were in the middle of our eighth wave of opening and.
What that means is we opened state by state as.
Regulations change than we saw a pretty consistent opening across geographies.
It took about a week.
Which was consistent in almost every wave to kind of ramp up to this new norm we're seeing.
Regardless of what part of the country and so I think that part was was pretty consistent throughout it in terms of you know commentary on on categories in that types of things in not surprising.
Just a lot of demand for essential.
As well as things that tie into being at home.
The Tees businesses grade obviously, the Casualization America working from home makes a big difference.
And like we always do a five below we're kind of fun and snarky with our teeth.
I returned back to while town for the first time yesterday as we reopened in Philly and I had one of our fund Tees on that said I totally Miss human.
Thats the Cana fund, we have at five below and and then finally as far as consolidation goes.
Matt, It's it's really a little little too early on on that piece of it but.
I think clearly there's going to be geography geographical opportunity as you know many retailers go out and I think thats going to give us some opportunities to get into some markets that we haven't been able to get into before.
And then ill I think as we.
Tweaked our assortment like we do with every time, there's a trend.
We become more and more relevant to the customer and this is just another example of being relevant.
And of course, I think I'd, just finished by saying Valu Valu valu.
That certainly resonate back and I'll eight and we came out of all eight with a really strong no nine and I think the customer really appreciates our value.
Thanks math again.
Yes. Thank you.
Your next question will be from Simeon Gutman with Morgan Stanley. Please go ahead.
Thanks, Hey, Joel again my question is on EBIT margin you ended last year around 12% just underneath it.
Knowing what we know realizing it's still fresh and raw.
Your store operating costs I assume a little bit higher your online exposure, maybe a little bit higher when this is all done.
And I don't know if your permanently.
Going to could get back up to double digit or 20% store growth for high team does a nice is normal run rate, but can you talk about how EBIT could get back to the prior level.
Knowing what you know now or any of these these impediments that I mentioned could prevent you assuming you get back to the same store level productivity.
Yes, thanks, Thanks Simeon.
Again, you're you're going out to the future here a little bit in 2021, and as you know we.
Weren't even really able to provide guidance for 20 based on the answer uncertainty ahead of us, but we did mention to your point.
That we do see ourselves continuing to grow the topline from unit growth.
In that high.
Teen percentage and if you kind of look back on the year as when we don't have unusual events significant investments and things like that.
Where we do have comps say in that 3% range.
We do expect to see some slight leverage from an operating margin perspective.
But obviously coming off of 2020.
We would expect to see meaningful de leverage this year given the significant loss of sales in the first half of the year.
And the reduced operating days.
And meaningful improvement on that as we move into 2021.
Thanks, Simeon thanks. Thanks.
The next question will come from David Buckley with Bank of America. Please go ahead.
Hey, guys. Thanks for taking my question.
Given the current economic environment, Theres likely an opportunity to attract more new customers just given the increased focus on value offerings can you talk about what you're doing to attract those consumers and then.
Just any color on recovery by store location that you can share. Thank you.
Yes, Thanks, David.
Well.
Clearly, we already saw that on ecommerce.
And but having said that ecommerce still very small piece of our business.
The biggest change you're seeing from us and it was if you go back to my prepared remarks, as I was talking about our marketing plans for Q2.
Obviously.
Oh really accelerated our shift into digital.
With no print in Q1 or two to the biggest benefit of that is really gives us the flexibility to.
Zero in on Zip codes.
Take advantage of markets, where were seeing customers come more rapidly and.
That's probably the single biggest area that we're going to continue to focus in terms of our shift in marketing.
We're seeing that is a really.
Great way to.
Attract and keep new customers as customers are out there.
Watch in their pocket book more than ever.
No we come across very strong.
When it relates to value and that's that's the biggest reason we pivoted there.
And then David I think the second second part of your question around the recovery by store location.
You had yes, yes, yes.
Yes, David are you talking about as it relates to the protests are just.
Stores opened I just.
Mortgages reopening urban suburban semi world just any Oh, I should say just like I was saying to Matt yes to Matt.
You know we've been opening by waves.
Those waves tend to be by state.
Our states are full of boat urban as well suburban rural stores and really not seeing any material difference.
By type of store as well as we're not seeing a material difference by by geography about the only consistent thing we're seeing.
Takes about a week to ramp them up.
As customers discover that that we reopened but really.
Not much different now the big.
The remaining 10% that we have an open not surprising is largely here in.
The Tristate areas, New York, New Jersey, but we've got line of sight now pretty much on the entire country reopening here in the within the next two weeks and we don't expect those stores open much different.
We're just here in great great feedback from customers. There just excited to have us open.
It's unprecedented every parents got their kids at home.
They're looking for.
US to help them kind of provide solutions and have a fun store environments. So we're seeing great results, regardless the type.
Thanks, David.
Thanks, Joel correct.
Your next question comes from John Heinbockel with Guggenheim. Please go ahead.
Hey, guys like a couple of things learnings from curbside so far.
Our ability to accelerate omni channel, whether it be curbside or.
Or direct to home.
By holiday and then operational changes revenue going into holiday December.
Right and maybe social distancing still being in place what what changed you think you need to do and digital plays into that.
Yeah look I think the.
Real learnings from from curve side is it just showed us how fast we can really move when when pressed.
Obviously, we didnt have really any BOPUS capabilities going into this so our curbside offering was was pretty scrappy and.
But ill hand, it to the team.
They really put it together quickly and at resonated with the customer now keep in mind, John We made the acquisition of the holler assets back before this pandemic even happened. So we knew we added ill get into the the ecommerce and omnichannel space with a little bit more.
Effort than we had been putting in now that we have our store infrastructure stabilized and so you know combined with what we learned during the pandemic plus picking up the resources of hauler, It's really just going to allow us to accelerate.
We've got two distribution centers now instead of one.
We're looking at the capabilities of accelerating BOPUS quicker than we originally plan and.
The customers. It is spending time on our website and they're learning about our new product, which only benefit the stores.
Seeing the essential as we now carry so the two all tied together and we're going as quick as we can John.
Okay. Thank you.
Thank you.
Once again as a reminder, we please ask that you limit yourself just to one question and if you have additional questions you may reenter the question Q.
The next question comes from Chuck Grom with Gordon Haskett. Please go ahead.
Yes. Thanks, good afternoon, congrats guys on the starts to Q.
My questions with regards to the product and the ability to go overseas to secure that product. So I guess I'm curious.
How much Michaels been able to go overseas identify trends and secure open items.
Now that bodes for the for the back up here and 2021.
Yes, Thanks Chuck.
Just as I was kind of talking about digital capabilities would love John Heinbockel, There's a second ago. Chuck I think the the same applies to kind of ways of working for our whole corporate staff and I'll hear while town in.
Ill, while Michael hasn't been able to go over their physically during this time period.
The technology afforded to us vis-a-vis the zooms in the teams networks as really worked well and our are buying teams have kept very connected to.
Asia, and India and some of the other countries, we're in and I would tell you that.
We moved in reacted very very quick on that then.
It really hasn't been a problem I think and now you're going to add theres clearly going to be some close out opportunities out there.
And like we have in the past will be nimble and take advantage of those as well, but we're feeling really good. If you go back to my prepared remarks as well I spent some time talking about shifting from we obviously had a play defense for a good thing a six week period, there to really shut things down.
And react to the stores being close, but Michael and all the merchants the buyers done a great job.
Pivoting, a 180 degrees and get back to playing offense and we're just doing involve virtually and.
Products starting to flow back into the stores.
And.
We started the engine backup again feels great to see the sales.
Thanks Chuck.
The next question comes from Karen short with Barclays. Please go ahead.
Hi, Thanks.
Okay.
Bigger picture just on in terms of the stores three opening stores I know there are eight waves.
Are you still an exit rate of about 8%.
The quarter today, I, just want to clarify that.
My bigger picture question is.
I've talked about Closeouts and opportunistic buys wondering how to think about that but in terms of.
Next person sales going into kind of fall back to school and nor how your pivoting on not to make that mark focus.
Yes, Thanks Karen.
Yeah, I mean look on one hand.
Well, we always try to be really transparent with all of you and this is a very unusual quarter.
Year to date, you can't put a lotta.
Phase and focus just on comp sales and.
Well, it's part of the reason, we're not giving it a.
And outlook and it's it's not because we don't want to Theres, just so many possible scenarios.
But the short answer is yes.
As I said all of those waves are kind of seeing a consistent trend there, but you got to remember Karen I mean, some of those waves are only a week or two old so.
If it's really.
Where you're asking me to speculate on something Majesco, it's unprecedented right I don't have a history here.
No.
Plus side, you certainly got the pent up and you got the stimulus.
On the negative side, there's been theres been a lot of distractions. The last two weeks with the protests. So it kind of goes both ways and Theres just so much noise in that number Karen to but as I shared with a couple of the other questions that consistency as their geographically the consistency there is by by type of store.
Sure.
And then.
I think in terms of.
Trying to comment on a percentage of sales the closeouts or that'll be.
It's really opportunistic driven we we we've moved away from being a close out company a long time ago. When we got to such a size that were at that you have to plan for the business and Michael seems got great plan for the back half of the year.
When layering in the five beyond product I mean, as I said in my comments were starting play offense again and the Closeouts that were just they're going to be opportunistic they got to fit in they got to scream value and.
Got to resonate with our customer and so that's where we'll we'll really use those in it it's.
Plus or minus in terms of what the percent as it's more about how do they fit in and drive value.
Thanks, Karen.
Next question will come from Judo Frommer with credit Suisse. Please go ahead.
Hi, guys. Thanks for taking my question first is on to follow up on some of the margin recovery opportunity here is there anything you're doing different in terms of store operations, obviously youve furloughed.
Lot of your workers you kept the store managers in place, but any thoughts around bringing back less labor to the store as traffic is depressed right now I may be working around that going forward.
Yes.
Great question, I know I think but.
We had to make a lot of decisions through this.
I think one of the best decisions, we made was.
Not to furlough our store managers.
They are the heart and soul of each community, we run in and they've been.
There throughout the entire thing and it's being the best part about keeping them as we've been able to get these stores back open.
Quicker.
If you will notice we are running on reduced hours and still running positive comp and that what that is allowing us to do is to run with with less hours.
So there is a labor benefit there.
But we will continue to pivot as as the traffic comes.
Once this engines backup and going like it is now.
The the models pretty flexible and was shortened hours that certainly afford us some some real.
Opportunity to run on unless hours, but.
For the most part.
The less labor is working out just spine and.
And what we're seeing is less transactions, but a higher.
Higher ticket.
It's turned out really good.
Okay that makes sense and then just just following up on other real estate plan for next year.
Just the thought process behind kind of going back to high teens square footage growth off of a lower 2020 base a knock kind of.
Making up for the Twentys 20 stores that didn't open in 2021, and maybe pushing you know above 20% growth for that year.
Yeah look there's going to be some great opportunities due to out there for for real estate and.
Yeah.
It's really too early for us to speculate on the 2021 number I think what Ken was referring to is is more of a multi year run rate and.
Just as I think 2020 was a real anonymously the biggest variable left in 2021 is.
Honestly, the landlords or they're not back up and running yet so.
As they paused on construction as they don't understand what the turnover is going to be of other retailers.
It's a little harder to speculate on 21, but I would say, there's probably more upside than there is downside to the 2021 number but what we're trying to share as we always does give you guys a much more longer range.
Outlook on on store openings as it still remains our biggest driver of growth.
Okay. Thanks, good luck.
Yes. Thank you thanks.
Our next question comes from Paul would use with Citi Research. Please go ahead.
Hey, Thanks, guys. Joel you said it takes about a week for stores to ramp backup I'm curious maybe you could talk about kind of we've won wave two stores and once since those are the ones that have been open the longer what have you seen kind of since since then and have you reached a point in those stores were trying to.
Rick is actually up were transactions or actually a positive.
As you as you just kind of moved along and curious if you've had any issues and any of those delays or stores terms with the number of people that can be led and just has tried to adhere to any social dispensing capacity requirements. Thanks.
Yes.
Thanks, Paul.
Yes, I know this is.
Hard to swallow, but ER I believe but honestly the difference between a wave one and two in the waves five and six.
From a traffics perspective really aren't that different.
And so.
And obviously, what what we're seeing from the customer is a consolidation of trips.
They're coming in less frequently, but they're they're buying more when they're in there.
What we don't know and we just need more time is how many new customers were going to pick up.
We have seen that on our ecommerce channel, where we're able to know exactly who the customers, but we're really seeing incredible consistency.
From pest from wave to wave is as we continue to open that up.
Paul There was a second part of that.
Second part with strategic had any constraints in terms of letting people and Oh, yes, no no no no no it look.
The teams have done a great job and I think the benefit of less people. The bigger baskets is kind of helped on that but we have not ran into any constraints at all.
And started doing great job, if you've been in one of our stores. They are all mark.
And but we've been able to here to kind of all the guidelines out there and doing well.
Thanks, Paul Thanks.
Luck.
Your next question will come from Sean Me will grow with Goldman Sachs. Please go ahead.
Hi, Thanks for taking my question I Wonder could you talk to you about your supply chain.
The disruption that deep obviously seen this year and then in more recent.
Yes, I, even mentioning any well many changes to global supply chain any plans to diverse hi, Thank you.
Yes. Thanks.
Hey look we.
In terms of supply chain goes it clearly last years.
The tariff.
Multi phases of that really put a lot of pressure on the supply chain forced us to get into many different countries and so if anything we sit here today in a much more flexible position than we've been.
In years past and so but overall.
We're not really forecasting any major disruption to our supply chain even through the height of this.
Pandemic the supply chain is really continued to work and so we feel we're in a good spot. Thank you.
Your next question comes from Michael Lasser would you be yes. Please go ahead.
Good afternoon. Thanks for taking my question, Joe you mentioned that half of your 8% call quality coming from your E. Commerce channel that would imply that the channels growing 200% to 300% given the low single digit penetration why do you think the channel has not slowed.
Quarter to date, even as you bring opened stores is due in part to having assortment of Matt.
Sanitizer in other thinking referred to Central Idaho would you say that that's as big as a trend you might have witnessed in the past like fidget bidders are still be bands or Lou.
And then how are you buying for the holiday do you expect to buy up year over year.
For the holiday for the holidays. It now I think you have to put those orders and no in the next few Dan.
Hey.
Just on the the the penetration these.
It it has started this.
The slow.
What you have to remember which is.
Michael the you have the E com for the full quarter, but the comp we're giving you is for the the stores that have reopened so some of those stores are only in there. So as every week goes by more stores get added into the comp mix and so E. Com, then becomes a lesser and lesser piece of the of the total.
But at the height. It was over 400% increase and we are starting to see that moderate a little bit, but we need more time to kind of under understand that what it will ultimately moderate too and as far as holiday goes.
I really I don't want to speculate too soon on that.
As Ken said, we've got several scenarios we're looking at.
Michael still has a good 60 days here to finish up buying and we're really we need to longer read here before we finalize but.
They turned around pretty quick and I think we're going to be ready for all scenarios coming out of more to come.
It will just don't.
So let me just clarify I got about the as such yeah.
Yes, no. We've we've added a lot of essentially I think it's making a big impact is what the customer wants it's no different than when we have a silly man trend or spinner trends were micrel team pivots quick and we added into the assortment and.
If you look on our website, you'll see a big piece of it.
Thank you thanks, Michael.
The next question is from Edward Kelly with Wells Fargo. Please go ahead.
Hi, guys good afternoon.
Joe I wanted to ask you about the marketing side, maybe can you talk a little bit more about the shift in strategy here as it relates to TV.
What's the outlook for the back half of the year, especially into holiday has that changed and that as we look out and to 21 on things like national TV advertising.
Is this something that's that's still in the cards potentially sort of like post election period.
Yes look.
That is as I explained the marketing, we really have pivoted to digital it's working really well for us our kick started to fund campaign will start this Friday.
I think especially with this being an election year.
Going to to the National TV. This is in probably the year to do it.
Rates are going to be up a lot theres going be a lot of bidding for it.
And and honestly right now what we are liking is digital in the response, we're seeing.
Yes.
Good case in point, we're applying to started today.
With with the Memorial service being today that didn't feel like the right time to start and we were able to adjust it really quickly to Friday and so it just it gives us a lot more flexibility and we'll build a kind of move into markets that either need extra marketing or we're seeing good trend but.
But right now the focus on fan.
Customers are really resonating with that and haven't something to do is kind of the the word we're hearing out there and Stan relevant is really important.
Thanks, Ed.
Next question will come from Paul Trussell with Deutsche Bank. Please go ahead.
Yes, good afternoon.
Wanted to ask about.
Customer response, both in the pre cobot period as well as in recent weeks.
To your tech items above $5 as well as the five beyond items.
Maybe give us an update on what you're seeing in regards to that as a percent of the mix and how you're trying to buying for down going forward and then second would just be any update on non nerd Street gamers.
Okay.
Honestly, Paul you're you're probably not going to like my answer because I just don't have a lot of data to give you given how much we've been closed if that had been a normal quarter, we we'd have to new nerd Street locations open.
Right now, we obviously had a pause those and now we're looking at more of the end of second quarter to get those open. So theres one theres no answer and the same with five beyond the majority of those stores, we were putting them in and why we know more got those in there Paul and and and all we had a close the stores down so I don't.
Have a pre and post to kind of understand the penetration so bear with us a little bit on that one, but we really need another quarter to kind of come back at it and understand the difference in penetrations more to come.
Thanks, Paul.
The next question is from Brian Nagel with Oppenheimer. Please go ahead.
Hi, good afternoon, Thanks for taking my question.
So I guess a follow up really too so it's going the other question but.
You had mentioned in your prepared comments.
Understanding that it's been a short about time, it's a dynamic environment that.
And you had the stimulus benefits, maybe pent up demand so things may not prove scannable, but I guess, what the question not have as you look at how consumers are initially shopping your stores and in particular the products or by you heard your business long ago. Your consumers was there anything there to suggest that.
There's an element of unsustainability or somebody audit in those trends.
Yes, Thanks, Brian look there's there's nothing there to suggest that odd.
But at the same time, we'd never enough in our history seen a such a significant shift to less transactions much much bigger basket, I mean unprecedented shift and and so on one hand I could say yet. This is the new normal it's going to stay that way and on the other Hanna.
Could easily safety, it's going to go back to hill smaller basket size more more transactions, we just honestly, Brian need more time, but.
What I can tell you is the customers coming in there they're talking about the value they're excited to see us open and theyre they're buying.
Across the box. So those are all good and great signs in.
What we just need is more time to kind of tell you whether.
How these trends are going to be over a long period of time, but everything we've seen so far has been great.
Thank you still very helpful. Thanks.
Your next question will come from Jeremy Hamblin with Craig Hallum. Please go ahead.
Thanks for taking the questions guys wanted just a follow up here on the.
The customer information in terms of how how model is change you've had more digital engagement clearly.
But wanted to just get some clarification on customer data collection, whether its.
Mobile rubbers email addresses et cetera.
You bet able to gain during this time could you give a better sense of what the year over year growth of that is.
How much how many inactive customers you've had but any additional clarity and whether or not the environment that we're in right now.
His inhibiting your ability to collect some of that information.
Thanks.
Yes, Thanks, Jeremy look I'm, not I don't want to get into the specifics of the number just a because the numbers so small.
And and remember we don't have a loyalty program. So we can't tied to the stores what I will tell you is that the overwhelming majority of.
Online track transactions that took place over the last 60 days here were new customers to our online channel I cant differentiate Oreo, whether they are new to five below.
Where theyre just new to the online channel, but a significant majority wait closer to 100% than 50.
Our new to the fiber channel and that's great.
We'll take the customer anyway. They can go in and with US being closed it really for system pivot and grow that grow that channel.
But as far as you know doing cohort analysis and all that this is way too early to cannot be.
Kind of talking about those results publicly but we're pleased with the new customers.
Thanks, Jeremy Thanks, guys.
Our next question is from Michael Montani with Evercore ISI. Please go ahead.
Hey, guys. Thanks for taking the question.
First off just from a modeling perspective I wanted to see if you could give some additional color about what percentage of the 20 percentage point drop off in gross margin was more related to kind of markdowns versus just natural de leverage given the store closures and then on the EPS Geneight front I know you guys said ratcheted back expenses.
To be down three for the quarter.
Do we anticipate that has gen $8 would be down once again in Twoq you, even as you open up given efficiency gains.
Sure. Thanks, Michael.
On the on the gross margin portion.
Thank you you asked about the lower of cost to market. The inventory write downs there a small percentage of the de leverage for the quarter really be overwhelming.
Percentages, probably close to 80% of the de lever that took place in gross margin year over year was due to the fixed costs.
Included in cost of goods sold so things like occupancy.
The fixed components into distribution center operating.
Model and buying costs, so really the key driver in that write down was really a small portion.
Of the overall the leverage.
With respect to SG in a similar.
What we saw in the first quarter again at a fixed costs de leverage as we kind of move forward into the rest of the year.
We move into Q2.
Given the estimated loss in operating days.
In Q2, I expect that to be less than what we.
I had had have seen in Q1.
We do expect significant operating margin de leverage again and a portion of that obviously is going to be in the fixed cost components in SGN, a and then if you really roll it forward for the full year. When you look at operating margin again would expect meaningful de leverage on overall basis.
With that significant loss of sales in the first half of the year and then also the reduction in new stores, we reduced our original estimate was 180.
New stores for the year and as you heard we've reduced that down to a range of 102 120.
So that the combination of those two things will drive the fixed cost deleverage for the full year also which I expect to be meaningful and then split between cost of goods sold and SGN a.
Thank you.
The next question will come from Joe Feldman with Telsey Advisory Group. Please go ahead.
Hey, guys. Thanks for taking my question I also wanted to follow up kind of been asked around this a couple of times, but.
With regard to the various wave say wave 123.
Our that the earliest waves comping still comping at a high single digit rate quarter to date or is that like you know the comps at that rate for a week or two and then it starts normalize back down to the 3% or 4% or something I, just trying to get it an under better understanding it's kind of how that's we should think about the flow going for.
Forward.
Well as I've said, the they're all comping relatively the same rate.
And remember that about half of that comp, though is ecommerce comp that's in there and so.
I think Joe it's a little too early for us to speculate on what the rest of the quarters going to looked like due to those.
Now.
Puts and takes in terms of.
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Whether its pent up demand or stimulus checking we judge nicely need more time, but as of right now really all the laser our comp in the same and and we feel really good.
Getting stores back open on it but I don't want to try and.
Speculate on what is going to happen on it because this is just unprecedented we've never experienced something like this where we've been shut down like this this loan.
Thanks, Joe.
Understood. Thank you.
Your next question comes from Scott sick or really with RBC capital markets. Please go ahead.
Hi, it's that read on for Scott I'm, just given the comps are down 50% in one Q just curious how you guys you're thinking about attack you'll need in one Q 21.
Right, what would be like 100% comp to get back to historical storm activity level, just any thoughts you have around about the ability of your stores to handle that kind of volume. Thank you.
Well.
If I understood the question right.
Our stores are already back to historical volume I mean, thats, the when Theyre pod Comping positive thats.
Relative to last year, so as we reopened stores.
They are back to the historical volume, Yeah, and Beth let me set a different way what drove.
The significant negative comp in Q1 was really the reduction in operating days right. It was the store closures.
And the next year, the assumption would be that the chain would be open for the full quarter. So on an average whether its weekly basis or daily basis, Obviously, you get a much a pretty significant increase in overall volume for the for the first quarter next year.
And remember that.
Fine and also includes the new stores that Didnt opened this year so yes.
But stores are back to their historical volume and have no no challenges there.
I believe that's our last call and.
Look.
I'll, just wrap up and say thanks for joining us today in a couple of concluding comments.
Yes, hopefully what you've heard from us is that where a nimble organization. The business model is very flexible and Ken and I couldn't be more pleased with how quickly we're able to adjust to this this new environment. We continue to innovate and our focus is will always be on making the store experience even more amazed.
Being valu Valu Valu, that's what we've been talking about and we're still on a path to.
Build out and support infrastructure that supports 2500 plus stores here in the us.
And I'd be remiss, if I didnt end by just saying you know thank you so much to all our associates and their dedication during this unprecedented time.
Especially our store in distribution associates, who in many of them have worked throughout this pandemic and they've made by below so special to our customers. We look forward to speaking to all of you again after the summer stay well and be safe. Thanks, everybody have a great night.
And thank you Sir conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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