Q4 2020 Five Below Inc Earnings Call
Good day and welcome to the five below fourth quarter and full year fiscal 2020 financial results call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.
On to withdraw your question. Please press Star then two please note that this event is being recorded I would now like to turn the conference over to Christiane Pelz VP of Investor Relations. Please go ahead.
Thank you Paul Good afternoon, everyone and thank you for joining US today provides the lowest fourth quarter of fiscal year 2020 Finance results conference call on today's call are Joel Anderson, President and Chief Executive Officer at Kendall, Chief Financial Officer, and Treasurer. After management has made their formal remarks, we will open the call to quest.
At.
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 1995 net debt such.
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. Those risks and uncertainties are described in the press release and five below is the SEC filings of 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.
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 dotcom.
I'll now turn the call over to Joel.
Thank you Christina and thanks to everyone for joining us for our fourth quarter and year end earnings call.
I will review the highlights of our fourth quarter and fiscal year performance as well as share some thoughts on 2021 before handing it over to Ken to discuss our financials in more detail.
And we will open the call up for questions of course.
Of course speak to our results I want to acknowledge what an unprecedented year of 2020 was.
At this time last year, we had little idea of how much COVID-19 would impact our business and our lives. So many of our customers crew and fellow citizens were and remain deeply impacted by the pandemic.
Our thoughts and prayers remain with them, especially those who lost loved ones.
I want to recognize and thank our customers our crew our vendor partners and others.
Who came together during the pandemic.
Enabling us to adjust to the realities of operating in this environment.
I truly am impressed with how our associates pivoted.
And embraced the change.
Honestly solving problems for issues, we had never faced before.
Working back from the customer and creating new ways of offering of trend right products and store experience our customers expect from five below.
Although it was an extremely difficult period, five below became stronger as a company because of it.
That will be new muscle that will service well and what day.
Is sure to remain at very dynamic operating environment.
We will continue to operate with the health and safety of our customers improve is our top priority, while maintaining the financial discipline, we have historically demonstrated.
Now turning to the fourth quarter of Q4 results exceeded the guidance, we announced in conjunction with our holiday sales release.
Sales were strong leading up to that announcement and accelerated in January.
On the second round of stimulus.
We delivered fourth quarter sales of $858 5 million or growth of nearly 25% and earnings per share grew nearly 12% at $2 20.
Comparable sales for a remarkable 13 830.
13, 8% representing.
Representing the best Q4 comp you have average Inc.
Our E Commerce business continues to grow at a pace significantly faster than our stores.
However, due to the small base the overwhelming majority of our comp still comes from our stores.
With respect to new stores, which remain our top growth opportunities the open.
And two stores in the fourth quarter.
For a total of 120 net new stores opened across 32 states in 2020.
Notably our Bronx, New York store performed at the top 25, all of the Grand openings.
Even with a more restrictive environment and reduced market.
We ended the year with 1020 stores a nearly five fold increase when we went public in July of 2012.
And leaving a long runway for growth to reach the 2500, plus total store potential we continue to see in the United States.
Before I speak to specifics about the fourth quarter I wanted to mention of key holiday selling period and acknowledged at both internal and external factors contributed to our strong performance.
Our team did an outstanding job, ensuring a safe smooth and successful holiday.
We have benefited from external factors such as of favorable calendar and the ongoing shift in consumer spending from areas like travel and entertainment.
Regarding the internal factors from a merchandising perspective.
Trend right amazing value products in their stores resonated with our customers.
We saw broad based strength throughout the store.
Especially in our room style of sports and Tech worlds the.
The trends related to Covid, we experienced throughout the year continued.
<unk> benefited from the work and play at home trend.
One of his style captured the direct COVID-19 impact of customers buying masks and hand sanitizers among other items.
I am beyond also contributed to sales both to the permanent offering.
New stores and Remodels as well as of seasonal five beyond wall.
That was in all of our stores for holiday for the second year.
On the marketing front, we continued the shift to digital and fully eliminated our pay per circulars.
Creasing, our TV reach to approximately <unk> 25 per cent of stores.
As previously mentioned, we stopped our holiday campaign early this year.
<unk> big crowds of stores.
On our desire to provide a safe shopping environment for everyone.
On the digital front.
We are focused on increasing our brand awareness and conversion to more targeted marketing.
Looking on the acquisition and retention of our customers through various search and social platforms.
In addition.
Pilot of tests with instant card, allowing us to offer our customers more flexible options to shop our stores.
With respect to infrastructure.
Our distribution center in Conroe, Texas became fully operational.
A big factor in helping to serve our stores in Texas and further west more quickly and efficiently.
Out of doubt at.
Conroe facility helped us achieve the smoothness holiday you have ever experienced.
On the E Commerce front.
Edition of our Ohio fulfillment center was vital to serving increased customer demand online.
In summary, we are very pleased with our fourth quarter.
Especially with the overall execution and operations during the holiday on.
On merchandize into supply chain of stores in hiring.
Now turning to the year sales overall for 2021, nearly 2 billion with earnings per share of $2 20.
We accomplished so much during 2020.
Well quickly pivoting to adapt to the new environment and new ways of working.
None of this would have been possible without our incredible team.
And so personally proud of.
Their agility grit and resilience enabled us to close.
And safely reopen our entire fleet of existing stores and record pace.
As well as complete our new store opening plans and achieve our 1000 store milestone.
We accomplished all of this while making strides against our key strategic priorities.
Namely product.
<unk> and supply chain while.
While continuing to innovate.
We highlight some of the accomplishments.
Number one.
We deepened our commitment to gaming.
Our first exclusive products of collaboration with Buda and opened three local host test stores adjacent to our stores.
Number two we innovated our in store experience with the launch of our new prototype with five beyond on the back of the store at all.
Also accelerated the implementation of our crew member of assisted self checkout.
To know about half of our chain.
Which was very helpful. During the holiday season and made the checkout process.
Fishing per our customers'.
Number three regarding the digital experience, we integrated the hollered at Com assets, including the launch of the five below at which improved our ecommerce offering.
We also added new online services for our customers.
By partnering with <unk> to offer same day delivery and over 350 locations on piloting of test of curbside pickup and select stores.
And number four on supply chain and systems. In addition to opening our new Texas DC, we broke ground on our west coast DC in Arizona.
Which will open in the summer of 2021.
We completed the implementation of the new Oracle core retail merchandize system.
It provides us with a platform to support our future growth.
We also upgraded our new warehouse management system and better talent to support our historic Grill in the northeast.
Now, let me turn to 2021.
We are really excited for this year and the return to a more normalized store growth program.
Lance to open 170 to 180 stores across 33 states in fiscal 2020. One in fact as of today, we have already opened 34, new stores, including two more opening this week.
This year, we will be entering the states of Utah, and new Mexico, bringing.
Bringing the states we operate in to 40.
By the end of the year, Texas, Florida, California, and New York.
Well have now surpassed our home state of Pennsylvania in terms of the number of five below stores and we expect to continue to densify and grow in these states.
We are also excited to continue to play offense execute with discipline and make progress in furthering our strategic initiatives.
Allow me to elaborate.
First as it relates to product at all starts with the Wow factor is our customer promise innovation.
Innovation and agility of our core to five below adjusted the customer needs of new trends, that's what five below does very well as we demonstrated during COVID-19 let.
Let me give you a little more color on what we are doing with five beyond.
And product collaborations.
The emergence of five beyond on from our 10 below tests is a great example of how we pivoted to play offense. The customer has responded positively to our new five beyond assortment.
Which is filled with fresh amazing value items, and new categories to our customers.
In 2020.
Five beyond permanent section was in approximately 140 stores and we plan to more than double that number in 2021.
Making them available and approximately 30% of our chain of.
At year end.
We also plan to add the five beyond wall at all stores and select new seasons like we did in January with the wellness.
In addition, we are working on exclusive online items as part of the overall five beyond offering.
As to product collaborations we plan to expand the below the gaming offering as well as do more exclusive collaborations in 2021.
In fact, we kicked off of the year with a new partnership focused on the creative aspects of teens and Tweens lives with Andre of Pippen's, Who's an illustrator and author.
Pippen's collections of products.
It helps kids to imagine create and shine.
Colorful and inspiring teams have been very popular.
We plan to create more opportunities like these and other areas across our stores.
Second as it relates to experience our goal is to elevate the experience for both of our customers and our crew.
So how do we do that with.
We do that through innovation, both in store and digitally.
In store, we are featuring the new prototypes of five beyond in the back of in store.
In both new stores and Remodels.
While our local have host test was temporarily interrupted by Covid at all.
We started this initiative.
We continue to add more local gross locations in 2021.
Continue to be pleased with our partnership with Nerd Street gamers and see them of emerging as a leader.
In esports.
Expect us to continue to expand our capabilities in gaming.
We also added assisted self checkout to over 250 more stores, including the majority of new stores on Remodels, bringing the total stores with assisted self checkout to about 60% of our chain.
This allows us to move our crude from behind the register to the floor to assist our customers with their shopping journey, which makes for a better customer experience overall.
On the digital front.
We're focused on increasing our brand awareness.
More targeted marketing is.
As I previously stated.
We are focused on the acquisition and retention of our customers and various search and social platforms and will continue to build upon our successful trial with instant card into 2021.
As for our crew experience technology plays a key role in in 2021, we are planning to upgrade our human capital management system.
Finally on supply chain, we are making progress in developing our core distribution network and optimizing inventory management I'll focus on other ways to make our processes more efficient.
We will open our west DC in Buckeye, Arizona this year.
In addition, we expect to break ground on our Midwest distribution Center in Indiana.
Which we plan to open in 2022.
This will complete the initial build out of our core distribution Center network.
On new configuration should allow us to service on.
All of our stores within two days.
We are also optimizing our inventory of new warehouse management system.
On implementing a new cloud based data and analytics platform for demand forecasting.
Another ongoing project regarding inventory is focused on making packaging more efficient to optimize pallets and transportation.
All of these initiatives will be especially important this year as we like others intend with the ongoing global supply chain challenges, resulting from the pandemic.
In summary, as a company.
We're committed to remaining nimble and adapting to this dynamic operating environment.
Including through the vaccination period and subsequent return to normality, we're all crazy.
Five below is a long history of successfully navigating difficult times, whether economic or other.
And we believe that value never goes out of style.
We remain laser focused on the customer and delivering our promise of <unk>.
Safe shopping environment.
Back from our customers define on scatter have at trend right products at extreme value and that will never change.
Eastern discharge on the corner on April 4th.
We're really excited about our offering and to be of destination for Easter basket, stuffers, including gifts candy and all else at Greens Joy at our customers and helps them celebrate the holidays.
With that I'd like to turn it over to Ken on the financing discussion.
Thanks, Joel and good afternoon, everyone.
I will begin my remarks, with a review of our fourth quarter and fiscal 2020 of results and then discuss fiscal 2021.
Our sales in the fourth quarter of 2020 were $858 $5 million.
Up 24, 9% from.
From the fourth quarter of 2019.
We ended the quarter with 1020 stores a year over year increase of 120, net new stores or 13, 3%.
In addition, we remodeled 45 stores during the fiscal year.
Comparable sales increased a record 13, 8% for the fourth quarter of 2020.
Versus of two 2% comparable sales decrease in the fourth quarter of 2019.
The fourth quarter of 2019 was impacted by six fewer holiday shopping day.
The comp increase for the fourth quarter was driven by a 15, 9% increase in comp average ticket, partially offset by a one 8% decrease in comp transactions.
Our holiday comparable sales through the first nine weeks of the quarter increased 10, 1%.
Sales accelerated in January driven by the second round of government stimulus.
Gross profit increased 17, 9% of $349 million.
From $289 $1 million reported in the fourth quarter of 2019.
Gross margin finished at 39, 7%.
Decreasing approximately 240 basis points from the record 42, 1% last year.
As expected the decrease in gross margin was primarily driven by sales mix impacted by customer preferences from pandemic related items.
Which was partially offset by leverage in store occupancy costs on the higher sales.
SG&A expenses as a percentage of sales for the fourth quarter of 2020 decreased approximately 120 basis points to 20% from.
From 21, 1% in the fourth quarter of 2019, largely due to the intentional pullback in marketing as Joel discussed.
In addition, we leveraged fixed costs, while higher incentive compensation compared to last year was a partial offset.
Operating income increased 17, 7% to $169 6 million.
Operating margin decreased approximately 120 basis points to 19, 8% of sales.
21% in the fourth quarter of 2019.
The effective tax rate for the fourth quarter of 2020 was 26, 6%.
Compared to 23, 6% in the fourth quarter of 2019.
The increase in the effective tax rate was driven by the outperformance in the fourth quarter, which resulted in year end adjustments to our previously estimated tax rate.
Net income for the fourth quarter increased 12, 3% to $123 $9 million.
Or $2 20 per diluted share from $110 4 million or $1 97 per diluted share last year.
For fiscal 2020 total net sales were $1 $96 billion increase of six 2%.
Comparable sales decreased five 5% versus a comparable sales increase of six tenths of a percent in 2019.
This comparable sales decrease was driven by a reduction in transactions due primarily to the pandemic related store closures in the first and second quarters.
Gross profit for the full year decreased three 2% to $652 3 million.
Gross margin decreased by approximately 330 basis points of 33, 2% driven.
Driven primarily by lower merchandise margins and deleverage of occupancy expenses due to the pandemic driven store closures during the first half of the year.
SG&A expenses as a percentage of sales for the year increased approximately 60 basis points.
At 25, 4% from 24, 7% in 2019, due primarily to deleverage of fixed costs in corporate expenses due to the store closures of.
Set in part by a reduction of marketing expenses.
Operating income for 2020 of $154 $8 million decreased 28, 8% over the prior year.
Operating margin of seven 9% decreased approximately 390 basis points from last year's operating margin of 11, 8%.
The net total of interest and other expense for 2020 reported below operating income was a charge of $1 $7 million.
Versus a net total of interest income and other expense in the amount of $4 $3 million in 2019.
Lower invested cash balances and interest rates combined with temporary drawdowns and higher costs on our line of credit.
Resulted in a net interest expense in 2020 versus net interest income in 2019.
In addition in 2020, we recognized a full year of of pro rata loss related to our Noncontrolling interest in Nerd Street gamers.
Our effective tax rate for the year was 19, 4% compared to 21% in 2019.
The lower than planned tax rate in both years was primarily due to the benefit of share based accounting.
Diluted earnings per share was $2 20 for fiscal 2020, a decrease of 29, 5%.
Versus diluted earnings per share of $3 12.
For fiscal 2019.
Diluted earnings per share included an <unk> <unk> benefit from share based accounting in 2020.
And of 14th benefit in 2019.
We ended the year with approximately $410 million on cash cash equivalents and short term investment securities.
And no debt.
We made share repurchases of approximately $13 million or 137000 shares during the year.
Inventory at the end of the year, it was $281 $3 million as compared to $324 million at the end of fiscal 2019.
Ending inventory on a per store basis decreased approximately 23% year over year.
Against elevated inventory balances at the end of fiscal 2019.
Which were the result of lower fourth quarter sales and accelerated tariff related receipts.
In addition, ending inventory for fiscal 2020 was impacted by higher than expected fourth quarter of sell throughs of this year as.
As well as delayed inventory receipts, resulting from global supply chain disruptions.
Due to elevated product demand and congestion at ports.
With respect to Capex, we spent approximately $200 million on gross capex in fiscal 2020, excluding tenant allowances.
This reflected the cost of opening the new Texas distribution center and payments on the new Arizona distribution Center.
Opening of 122, new stores, completing 45, remodels and investments in systems and infrastructure.
Now I would like to turn to 2021.
We are providing first quarter guidance, but due to the continued uncertainty related to both of the ongoing impact of COVID-19.
And potential future shifts in consumer spending.
We are unable to provide formal full year sales and earnings guidance for 2021.
However, I will offer directional commentary on how we are viewing the year.
This first quarter will be very different than last year. When we closed our stores due to the pandemic on March 20th of Friday, following our fourth quarter earnings call.
These store closures resulted in the loss of sales for last year's Easter and spring seasons.
With Easter on April $4. This year, we are currently in the key selling weeks for the quarter.
Last year of the pandemic was declared on Wednesday March 11.
And we reported at two 9% comparable sales increase for that quarter to date period.
For the same period this year comparable sales increased 12, 3%.
Based on our current trajectory and the expected benefit to sales from the third round of government stimulus.
We expect first quarter sales to be at a range of $540 million to $560 million.
We expect to open approximately 60 stores in the first quarter as Joel mentioned, we are already over halfway there.
Diluted EPS is expected to be in the range of six 6% of 68.
Our effective tax rate for the fourth quarter is planned at approximately 25% and.
And it excludes the impact of share based accounting or any share repurchases.
As you know our practice is to update the tax rate outlook quarterly with actual results when we report earnings.
For the full fiscal year of 2021, although we are not providing formal sales and EPS guidance.
We would like to provide a framework for how we are thinking about the year.
We expect it to be a more normalized year from a gross and operating margin perspective.
Accordingly, we view fiscal 2019, as a better comparison year for fiscal 2021.
And the pandemic impacted fiscal 2020.
And of scenario, where sales growth reflects a two year compound growth rate in the high teens, we would expect fiscal 2021 operating margin to be relatively flat to fiscal 2019.
We expect of second half of fiscal 2021 to be a difficult comparison.
As we lapped at very strong second half in 2020, when sales grew 25% and comparable sales were at a record high of 13, 5%.
With regards to non operating results our minority interest in Nerd Street gamers is also expected to have a larger year on year negative impact.
Resulting in a net other expense of approximately <unk> <unk>.
And we are currently planning an effective tax rate for fiscal 2021 of 25%.
Per stores, we expect to open 170 to 180, new stores and complete approximately 30% to 35 Remodels in fiscal 2021 with.
With approximately 90% to 100, new stores opening in the first half of the year.
We are planning to spend approximately $315 million in gross capital expenditures, excluding the impact of tenant allowances.
This reflects the opening of new distribution center in Arizona, and beginning construction on our new distribution center in the Midwest.
Along with opening new stores, and executing remodels and investing in systems and infrastructure.
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 Yes, Thanks, Ken and in summary, we are very pleased with our performance overall in 2020.
We played offense and acted quickly to position ourselves for success.
We made difficult decisions, while always keeping our customers and our crew at the store at the forefront.
The experience of 2020 has again demonstrated the strength of our proven model.
The inherent flexibility of our eight worlds and our unique merchandising approach.
Pleased with how well, we connected with our customers and communities, including.
Providing because those of need through our twice per tax alexs lemonade, St. Jude Chop hospital and other donation programs.
All of this at May.
It has made us an even stronger company and we enter 2021 with great momentum.
We are well positioned for growth.
And less than halfway to our 2500 plus store target.
We're really excited for 2021 to build on our progress delivering on our customer promise and.
And relentlessly raise the bar as we continue to grow our amazing companies this year end.
Beyond <unk>.
And with that I'd like to turn the call back over to the operator for questions, but must remind you that we had a lot to share with you today and we really need to stick to one question per analyst.
Operator.
Thank you everyone I will begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
With you on your question. Please press Star then two please limit yourself to one question. If you have further questions you may reenter the question queue at.
At this time, we will pause momentarily to assemble the roster.
And our first question today will come from Simon Gutman with Morgan Stanley. Please go ahead.
Everyone at Simeon Gutman.
My question is on incremental margins and I guess EBIT margins broadly.
In Q1, I was going to ask around incremental margin, it's hard to do the year over year comparison, but it looks like the implied EBIT margin.
And in the eight to eight five per cent range, which is considerably better than the 7% from Q1 I think of 2019.
Can you tell US you know because we can't really see what the incremental is is there anything in the 88 and a half implied that's being conservative if theres anything thats holding you back in the first quarter in terms of flow through and then bigger picture.
Is there anything that you see changing of the comp leverage point of the business broadly. This is really beyond 'twenty, one or maybe even on the back half of 'twenty one.
Because I think you've told of 3% in the past so curious how that algorithm may change going forward.
Yeah. Thanks, Thanks Simeon.
I'll answer the second part of your question first around.
Our leverage points as we move forward as you mentioned it is going to be an unusual year.
Anniversary in 2020.
But our impression in our.
What we see here from a leverage point going forward, we had said before at about a 3% comp.
Ex any meaningful investment for a year, we should start to see leverage on the business. So that I think that still continues to be.
Hum.
What we see and that holds true realm.
Relative to the first quarter again as you mentioned, it's very difficult to make a comparison.
Really hard to making comparison up against Q1, 'twenty given the store closures, but I think you mentioned Q1 2019.
And what we're seeing at least right now versus Q1 19, you would have for the most part probably gross margins are relatively flat and we'd see some meaningful lift.
And leverage over.
Q1, 2019 on SG&A and that would really be the driver you would called out.
Perhaps the net of leverage, but 2019 and embarked at overwhelming majority of that again.
Chile.
Thanks, Shannon Thank you Simeon.
At our next question will come from Chuck Grom with Gordon Haskett. Please go ahead of Hey.
Hey, guys of sympatric say end of my questions on new customer acquisition, particularly in light of the better on traffic performance on the fourth quarter relative to the past couple of quarters. So when you. When you look at 2020 and those of chopped you for the first time for PPE or supplies curious if theres a way to isolate that cohort at maybe compare them.
The gains that you saw over the past five years with let's say of Rainbow Rainbow looms on the spinner craze.
Happy St St <unk> Youtube channel.
Moving on here.
Right.
Hi.
I'm looking at Ken and I think it's a really.
It's great question at <unk>.
Of any year's is probably the one year end really isolate it.
Unlike when there's other trends going on it's pretty easy to isolate its really the only thing going on.
Got.
In addition to customer mix changes and at.
Costs associated with <unk>.
PPE end.
And then just reopening times end, some chatter of shopping patterns and our.
Our closing times being on I think there's just so much noise in it in and I think that's why rather than specific guidance on the year, we focus so much on making sure that the message got back to you that we really feel like we're back to.
Normal operating margins in 2019, certainly on a much more normalized year, but it's really hard at specifically isolate what youre asking for Chuck and I hope that helps you handle on clarity.
Yes.
Thanks, Chad.
At our next question will come from Matthew Boss with JP Morgan. Please go ahead.
Thanks, and congrats on another great quarter guys.
So Joel as we think about the best back half comps I think for the company and basically a decade, what do you attribute of company specific to the recent inflection in performance and then as we exit the pandemic I guess, how would you rank opportunities as we think about accelerating market share on the <unk>.
Other side more of it goes back I think at last couple of quarters, you've talked about taking a more offensive approach what maybe just elaborate on on different opportunities you see to do that.
Yeah, Thanks, Matt and I mean clearly no.
We were very forthright about acknowledging both internal and external factors.
I think as you look at the.
The nine week period of <unk>.
<unk> comp.
Is that acceleration, where the quarter ended at 13, eight we attribute the overwhelming majority of that.
External forces at the second stimulus, but if you work backwards to the holiday.
And then as well as what we're seeing at first quarter I think what you're starting to see Matt is a lot of offense coming coming together to work.
Five beyond played a.
A very large piece of that.
<unk> the merchants really pivoted nicely and if you think of the pandemic as a trend.
Kind of a weird way to categorize it but.
Our job when when something emerges as to move the merchandising mix end.
I called out specific examples in in both style and room.
Customers buying patterns change and I think if we had stayed the same we wouldn't have seen as you know.
Quite the lift we saw in the back half of the year. So look at these eight worlds.
Use of serve us well, Matt and it allows us to pivot into wherever we're ahead of trend maybe end.
This was.
<unk> size in especially room as people stay at home and there was a lot more wound product matson, we'd probably ever seen before so clear.
Clearly the run up at the end was external but the overwhelming majority of that first.
Nine week holiday.
US being nimble in reacting to trends, we saw on and merchant team continues to do a great job.
The.
Planners got back out on the market and we we bought after canceling one hundreds of millions of goods in.
I'll tell you the team at really operated on all cylinders to kind of on salvage what started out as probably the toughest start to year, we've ever seen in and we finished 'twenty with momentum and we enter 'twenty, one now with great momentum of wall.
Thanks, Matt.
And our next question will come from John John kind of embargo with Guggenheim. Please go ahead.
Hi, guys, how do you think about sales.
Investments right in product and marketing.
Specifically through the year.
Our idea of the easy compares you got stimulus.
At the same firepower and point of things more towards the second half by design.
And those type of investments how do you how do you sort of gauge the elasticity of either one product or marketing. If you are if you pointed them to the back half of the year.
Well John Great question, I think specifically on the marketing one.
What you're really seeing as you know we believe we're kind of back to a more normalized marketing spend which you on historically has been 2% to 3% and you know while we pulled back in the back half of last year.
We've pulled back in the front half of this year, but we will shift that back into the back half of next year.
And I think it's.
Somewhat become.
Net.
Can really use as needed, but I think our base marketing remains two to three and we stay focused on that piece of it on the product side.
I'm not sure I'm following John what you're asking about that that shift there.
Well just at a more is there more of a focus on new product introduction.
And particularly five beyond in the back half.
Right.
At a rate.
More buzz right, Yeah and dropped off when you may need in the first half.
Yeah, No look I mean.
Michael and his team and.
Theres always product innovation at <unk>.
It tends to probably show itself more on the back half of the year crazes excluded because we come out of holiday.
Really see new things emerge new buying habits and then.
The merchant spend the front of half of the year chain.
Chasing those and really pivoting for the back half of the year now if of craze emerges like no spinner was one that we weren't even talking about on March 17 and at.
That one is more about us just operating with speed, but in general product innovations.
<unk> is a great example of one.
We read a lot we observed at.
Many new trends around gaming and the buyers are back out on the marketplace.
Mine on new product assortment and.
Just the cycle of at it's largely going to show up on the back half again.
I think that continues to kind of be the flywheel, we see with new product innovations in general.
Thanks, John.
And our next question will come from Michael Lasser with UBS. Please go ahead.
Good evening, Thanks, a lot, particularly my question.
Can you break down the hill.
Gross you saw in <unk> between <unk>, and AUR and what drove those pieces.
Given those dynamics and the likelihood that retail traffic at will likely improve over the course of the year should we think about five below now having a structurally higher com and net.
Three 3% at average.
From the from 2015 to 2019.
Yes, Thanks, Michael.
Just on the on your ticket I guess ticket component question I think I mentioned the.
The increase we saw on Q4 was just over 15% when you when you dive a little bit deeper into that it really is.
Really from both <unk> and <unk>.
And the average unit retail increases.
And then the second part of your question I didn't quite understand around that.
Historically, yes.
Yes.
The second piece is the.
Should we think about five below having a structurally higher level of same store sales growth moving forward because it clearly you can figure it out how to drive.
And as traffic returns youll be able to retain this growth in ticket and that will lead to a structurally higher level of same store sales growth moving forward and five below is achieved in the past.
Yes, I think.
I think the.
From a longer term perspective, and Thats a difficult question to answer at this point I think.
Just going out into this year I think the one thing just to to recall I think Joel and I both mentioned at in that.
In our comments.
Just a significant challenge we're going to have in the back half of the year.
Up against the record performance that we had last year.
But again as we look further out we would expect of more kind of normalized part of the business where that comes from it could be a combination of both right transactions and ticket I mean, that's just something we'll.
We'll have to see but it's hard to really peg anything much longer.
And further at yes, I think Michael what Youre getting at is of Great question and I think you just got to give us a little time and some more normal times to kind of see what that net long range impact on things like five beyond our where we can.
Now changed at growth trajectory, but we.
We've got to get through this ambiguous period.
Our consumer shifts back to services.
So some of that might display of bigger play until we get beyond at but.
You're alluding.
Alluding to is exactly how we're thinking about the business end.
I think that I call at play offense.
Many of those initiatives are really starting to come together, both in product and marketing debt.
E Commerce of lot of those at <unk>.
Potentially drive that but we got a need to give us a little bit more time to kind of.
Watch what happens here and forecast that out.
Got it makes sense. Thank you very much.
Okay. Thanks, Michael I appreciate it thank you.
And our next question will come from Scot Ciccarelli with RBC capital markets. Please go ahead.
Hi, guys good afternoon.
You mentioned on the call Joel that the Densification of stores in certain states and now you're going to be in 40 States is there any way to quantify the benefit you guys get from that Densification strategy, whether it's sales because of brand awareness or maybe at the margin line. Because you can pay your leverage expenses like marketing and distribution just any color on.
That would be helpful. Just given you know the expansion.
No process that you guys are going through.
Yes, it's really both Scott and I mean at.
Sorry about the ambiguity on some of it is just because of all the noise last year, but look I think the one thing we are seeing is.
Our brand awareness is something we've always been.
And watching and it's been rather low.
But.
What we've really seen year over year, as our brand awareness and kind of markets anywhere at opened from two to seven years.
<unk> is moving up.
Three to 100 of 500 basis points faster than it used to.
So while I cant specifically due to all of the noise last year and tell you it's because of Densification.
We internally believe that end.
We've shared with you cannibalization closer to 100 bps of year end.
And we're not afraid of that end, because I think the pay offs around awareness and picking up market share far outweigh slight cannibalization from individual stores, but.
Directionally, it's really impacting both and we're seeing at show up in brand awareness.
Thanks, Scott Alright, thanks, guys.
And our next question will come from Polish way with Citi. Please go ahead.
Hey, Thanks, guys curious if you could talk about anything noteworthy on the inflation front.
So if you are seeing some inflation, which parts of the assortment and just what's the plan of attack.
Yeah.
Right now Paul.
You know on.
Our overall inflation, we're feeling is relatively flat I mean, there's.
Pressure on net on the supply chain side.
We're also seeing opportunities on the real estate side and I think as you know at.
At all mixes out.
Through our scale on everything <unk> been able to hold it relatively in check and hence.
Kind of Gary guided to relatively flat operating margin on Ken's line of lessons.
Yeah, Paul I think I think Joel hit it.
There are obviously your cost increases throughout the business right and whether it's supply chain product or otherwise, but we.
We always come back to the scale benefit that we have to be able to to offset and mitigate those in and even the way we operate which is maybe a little bit different than some other retailers and then Joel mentioned, our freight and we all know about what's going on out there on freight and supply chain disruptions.
And credit out of the team getting out ahead of that from a negotiating standpoint in locking up.
Our contracts earlier.
<unk> and a rate end capacity perspective, so although we are seeing increases is probably not as much as other businesses out there so really a combination of being nimble.
With our vendors and negotiating of navigating all of that combined with scale really help us to either.
Offset or mitigate increases that are out there.
Thanks, Paul Thanks, Good luck.
And our next question will come from Karen short with Barclays. Please go ahead.
Hi, Thanks, very much I just wanted to go to the comps in the quarter.
Versus your comments on comps in the quarter to date of a pre.
At closing for the pandemic, so I kind of get to January comp in like the mid to high 20 range and then I think.
Can you comment at the comps pre closing we're in at 12, 3% at.
Range. So I guess, what I'm wondering is that kind of the right way to look at the spread.
Already the impacts of differently from the stimulus.
And I ask that in the context at March stimulus will obviously be much more impactful dollar wise in January and then the follow up I. Just had on that is is there any way to quantify the impact of five beyond on comps.
Thanks.
Yes, Thanks Karen.
Your math around your estimates around the concept of pretty reasonable I mean, I think you can probably kind of do the math knowing that.
Where we were in total sales for the nine weeks and on what we provided at <unk>.
Total sales for the quarter end than the the 10 comp for the nine weeks versus 13 plenty of for the quarter. So yes.
Yes, I think I think you're on a pretty reasonable.
<unk> there and at.
Again, the impact of of stimulus payments there are always tough to measure engage whether it be the magnitude or the extent, how long day last and as we mentioned in the guidance that we gave.
For Q1 this year.
It did include our estimate of a benefit from the third round of stimulus in the quarter, but I would say your estimates are relatively reasonable.
Okay.
Thanks, Karen Thanks, Karen.
And our next question will come from Edward Kelly with Wells Fargo. Please go ahead.
Hey, guys nice quarter.
Just a follow up on stimulus here kind of just curious within the Q1 guidance. What you are assuming for that stimulus benefit then.
As a follow up to that how positive do you believe the increase on the child tax credit will be for you later in this year given that it's coming at it looks like it's coming on monthly payments. This summer.
I would imagine that I don't know of the majority of your customers living in households with kids.
Just kind of curious as to how you're thinking about that as well.
Yes, Thanks Ed.
As I mentioned in carrying at ask the last question two around.
Our guidance does include an estimate for the benefit on the third round of stimulus.
I really don't want to get into specific amounts in terms of what's embedded in that number at the end of the day of how we guide in terms of the total number for the quarter on how we're seeing at.
I can tell you that it's less than well less than what the consensus was prior to this call in other words, what we reported and what the consensus from the analysts force. So it was well well less than that.
With regards to the childcare credit Yeah, I mean, those are the types of things.
Pact of solid and is.
In his remarks had mentioned Theres always internal and external factors and Thats, an external factor that.
If there is any change in policy.
And mandates out there of benefits from taxes.
We have seen historically that could benefit our business still an increase because normally that's an increase overall traffic or spending.
And we benefit in that similar to what we've seen in the second round of stimulus and currently in the third round of stimulus so yes at.
If the rules change that way it could end up impacting our traffic flooring.
During the summertime now keep in mind, though other things could be happening too I mean, it's really hard to predict.
Around the COVID-19, and the vaccines and then where overall.
Consumer spending goes as as entertainment and travel may start to see.
Spending on that May start to increase I mean at its clearly its a tailwind for us.
But it's also one that we don't have a lot of data points on so.
Why are we felt important to be more directional on on the year and I do but hopefully everyone's taken ways.
We've provided you our new stores, which make up.
Historically at 80% of our growth.
Cadence on that.
Thinking about the bottom line and growth rates and so at.
Starts to triangulate in it at a pretty predictable number.
And now we have to at the pluses and takes of some of these external events, but most of them seem to be tailwind, but we.
<unk> also got to watch a shift in consumer behavior at the other way June.
And we're controlling what we can control and it feels great to be back to growth cycle again, and we're in a pretty good positioned on into.
The end of the first quarter here.
Thanks, Dan.
Yeah, you bet.
And our next question will come from John D. <unk> with Goldman Sachs. Please go ahead.
Hi, congratulations on successfully navigating an extremely difficult here.
If you could throw some more color on <unk>.
Inventory levels, you exited the quarter down 13%.
Would you say.
That hindered you know.
You're at ability to capture some sales in the fourth quarter end you have to leave something on the table and then what gives you confidence in managing back, especially given all of the challenges going on globally. As you think about first half of the yard and likelihood of each of the second half of swap.
<unk>.
Yeah. Thanks, Thanks, John.
Yes, as I mentioned in the prepared remarks.
We were down about 23% year over year basis on the average store.
And again, a couple of things were going on there one you got to look at last year, when we were up.
Probably half of that.
Related to the sales and then also we moved inventory in earlier.
Tariff related inventory to avoid some tariffs there and then you kind of flips of this year, when we oversold right and had some of tremendous sell throughs there in the fourth quarter.
And then some delayed receipts I think Joel mentioned to where we are seeing some delays.
Related to that global supply chain disruption, but I got to tell you end the team is managing very well.
We don't see a material impact of that related to Q1.
Based on the guidance and the sales that we provided.
I guess more to come on that as we move through the year, but right now we feel like we're in pretty good pretty good position.
With that and again navigate navigating that pretty well with our vendors and then also with the throughout the supply chain.
Thank you.
Hey, Jonathan Thanks Sandy.
And our next question will come from Lorraine Hutchinson with Bank of America. Please go ahead.
Thanks, Good afternoon I wanted to.
On follow up on some of the comments you made on five P. M.
Adding more frequencies at all mall can you just talk a little bit about the strategy on it.
But there's a chance that we will see those on a permanent fixtures throughout the fleet at some point of view.
Yeah, Great question, and let me just refresh everybody on where we're at with five beyond right. Because there is there is actually two components at this point in time, there's there's the five beyond prototype.
And then there is what we affectionately call the Wow wall.
As in the rest of the chain and so on our go forward prototype for the class of 'twenty one will.
Most of our all new stores and Remodels will now incorporate buy beyond in the back of the store.
And then the Wow wall will be used at seasonal times throughout the rest of the chain I think it's less about it being.
In the rest of the chain all year round and it's more about us continuing to converge.
And shift more and more stores to the <unk> on prototypes were obviously pretty pleased with it we like where it's going but I also am very respectful.
Who our customer is what our brand stands for and I want to watch really carefully.
With not violating that agreement we are at the customer, namely five of the world and so I think the feedback we've gotten from them is they love five beyond the love of the value of Wow factor keep delivering that.
But also keep it separate.
Segregated and so we think we've found a nice happy way to do that with seasonal <unk>.
Now while presentations and yet moving ahead very quickly I mean, 30% of our chain will now have the five year on prototypes of at the end of the year.
And so that's a nice balance with it we watch it could it change over time, maybe but I think we're on a pretty good path right now moving towards this new prototype end.
And then dropping in some while from time to time in the fleet on Canada, Indiana, Michigan.
You hit it.
Thank you Rang day bet.
And our next question will come from Anthony <unk> with loop capital. Please go ahead.
Let me at my congratulations as well on a strong finish to the year.
So my question you talked about the fact that you're fully eliminated purpose. Your paper circulars on you pulled back your marketing at 25% of your stores I mean, obviously this is sort of.
Sort of on extraordinary year, but I guess what are your thoughts as you think about marketing going forward I mean, im assuming youre, probably not we're going to we're looking at your paper circles anymore, but but I guess at how do you think about how about your television about TV ads going forward given the fact, you just at your best comp in company history.
When you did pull of your TV advertising back thank you.
Yeah, Hey, thanks.
On the support there Anthony.
Look.
Yes.
We were already on the journey to you now.
Reduce our dependence on paper.
Clearly the pandemic allowed us to accelerate that we're not going backwards, we're pretty pleased where we're at.
But I think what we also learned is.
Whereas we were heading down a pretty strong passive.
National TD.
On the consumer behavior shifted a lot end.
We had much more success with some of our more targeted digital and so I think as we sit here today pending consumer shift again that'll be the path will go down.
We've seen the opportunity to not have to spend as much marketing but.
I think there's still the opportunity for use of performance marketing.
At reaching into some of our.
Social paid platforms.
As for right now I mean, we're in a more normalized 2% to 3% and I think now pending another change I think I would kind of hold at towards dinner and at some reasonable number that gives us the right leverage.
But we're certainly always looking for ways to be more efficient.
Thank the stuff we've taken out is setting us up nicely.
Thanks Anthony.
At our next question will come from Jeremy Hamblin with Craig Hallum Capital Group. Please go ahead.
Thanks, guys I'll add my congratulations I wanted to talk on the street and just with the vaccine rollout really accelerating here at maybe coming a little sooner or maybe quite a bit sooner than.
We're anticipating several months ago.
Do you have a sense on how that may evolve here in the back half of the year.
In terms of maybe being a little bit more front and center for testing and.
Any of that initiative, obviously, you provided at the six that drag.
For the year, but any additional color you can share on how you're looking at that rollout.
As it stands for 2021 or is that something you're kind of putting down the road to 'twenty two.
Well Ken was here at <unk> 1918, I wasn't at so.
Chad.
Kitting Jeremy.
As you can tell by our common share in the prepared remarks at.
We really tried to focus on what we can control and tell you how we're thinking about the business end.
And quite honestly, how we think we're back to our gross algorithm.
What you just gave wanting Great example, we could probably sit here and go.
Go to two or three other.
External factors and argue about whether they are tailwind or headwinds and I think theyre going to play out we're going to see some ups and downs.
Net net I think overall, they're probably more pluses and minuses out there but.
I think what the message I want to leave with you on the rest of the analysts is.
Five below is getting back to what we can control and get back to more normal.
Business, and we're going to keep playing offense and innovate in this.
Awesome concept and they can at better than ever so.
I hope that gives you enough clarity, but that's kind of how we're thinking about.
Thanks, guys. Good luck.
And our next question will come from Paul Trussell with Deutsche Bank. Please go ahead.
Good afternoon.
Just on stores just a question on any metrics that you can provide as we think about you know your new store prototype regarding productivity or returns.
All of two two.
The rest of the base and also with you kind of breaking ground.
On the dish drove center that will open next year, just curious what will be kind of capacity in terms of what you can support.
Through the DC system.
But in 2022.
Yes, Thanks Paul.
I think.
<unk> taken the back half of that on the DC side in theory when the next one is up.
It certainly gives us the capacity to support all of 2500 stores.
Now that doesn't mean, you'll never hear US open another distribution center because at some point in time.
You asked kind of look at efficiencies and.
You want us smaller regional and say the Pacific northwest or something but.
Our our overwhelming heavy lift a multiyear investment phase.
To which we honestly kind of behind in where now head end. So I think we feel pretty good of that as we go.
Arizona open this year and in the Midwest next year.
Store metrics are top of I mean, obviously stores getting more productive.
We continue to see lifts in the Remodels, we're doing so I would expect those productivity gains to continue to grow at.
At Astro a little patience from you guys before we kind of give you specifics.
We've been trying to parse it out in the Remodels, we've done end and there's just so much noise from closed stores opened stores.
States have at different levels of.
Shutdowns.
Stimulus money dropping in but obviously, we feel really good about at as Youre seeing us moving forward with this this prototypes and remodels.
Thanks, Paul and I think we are.
Do you think we're wrapping up here end.
Yeah.
We will end with Paul there.
Really appreciate you getting on the call with us.
Yeah. Thanks, everyone for joining we look forward to speaking with you again on our first quarter call, which will be in early June have a good evening and appreciate the support of five below thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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