Q1 2021 Five Below Inc Earnings Call

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Office lounge. Good day, and welcome to the 5 Below. First quarter 2021 earnings conference. Call all participants will be in listen-only mode. Should you need assistance? Please signal conference specialist by pressing the star key, followed by Thursday. After today's presentation there will be an opportunity to ask questions to ask a question. You may press the store than 1, please note. That this event is being recorded. And I'd like to turn the conference over to Christian the sales office president investor relations. Please go ahead

Cole. Good afternoon, everyone and thank you for joining us today for 5 Below the first quarter of fiscal 2021 Financial results conference. Call on today's call are Joel Anderson president and chief executive officer and convulse. Chief Financial Officer and Treasurer after management has made their formal remarks. We will open the call to questions. I need to remind you that certain comments made during this call, May constitute forward-looking statements and are made pursuant to it. Within the meaning of the Safe Harbor, provisions of the private Securities. Litigation Reform, Act of nineteen ninety 5 as amended. Such forward-looking statements are subject to both known and unknown risks, and uncertainties that could cause actual results to differ. Materially from such statements. Those risks and uncertainties are produced described in the, press release and Bible has 50 filing. The forward-looking statements made today are as of the date of this call. And we do not undertake any obligation to update our forward-looking statements. If you do not have a copy of today's press release.

You may obtain 1 by visiting, the investor relations page of our website at 5 Below. I will now turn the call over to Joel's

Thank you for Siana and thanks everyone for joining us for our first quarter earnings call. I will review the highlights of our first quarter performance before handing it over to can to discourage financials and Outlook in more detail. Then we will open the call up for questions. We've been fully reopen for 3 consecutive quarters and on March 20th, we lapped are additional temporary closings from the first quarter of 2020. I remain amazed at the resiliency and flexibility of our customers vendors and crew. We thank them all for continuing support 5 Below in this Dynamic operating environment. Now turning to the first quarter, we are extremely pleased to deliver q1 results. That exceeded the guidance we provided on our last earnings call in March.

We achieved first quarter sales of $598 million and earnings per share of $0.88 vs 2019, which is more comparable than 20..28 sales grew..64% and earnings-per-share group 91% sales growth continue to be driven by double-digit ticket growth. All transactions remain slightly off due to reduce store hours. We saw strength across the business from both existing and new stores including all time records for new store performance that I will discuss shortly the strong performance. Also, play out across Channels with our average sales per store hitting record levels for the first quarter and our nation, the fast-growing digital business posting double-digit growth over last year's, first quarter on eCommerce group 4 times,

New stores have always been the fuel for the 5 Below growth engine and in q1, reopened 68, new stores. The most we have ever opened in a quarter wage..6 of these stores across 5 states made the top twenty-five list of our all-time spring grand openings. In fact, 1 of our stores in Lubbock Texas, sell all the time. Grand opening record, considering the reduced or operating hours and decreased grand opening marketing. These results were even more remarkable

we successfully entered our

United State, Utah was 7 new stores in the Salt Lake City area where the customer response was very strong. We also open the store in the New Market of Tucson Arizona which is 1 of the stores that finished in the top 25. Spring grand openings we are on track to open between 170 and 180 new stores. This year off and physical 20-21, with approximately 1,200 stores leaving us a long. Runway ahead to reach the 2500 plus total store potential. We Believe exists in the United States before I speak to the specifics. About the first quarter, I want to acknowledge that once again both internal and external factors contributed to our strong performance, internal teams executed well, across the organization, delivering, wow for our customers. With amazing product upstanding values, injecting a little fun into their lives when they are dead.

Really needed it. Most externally. We also continued to benefit from the government stimulus has the third round of stimulus began to hit bank accounts in mid-march.

You maintained an unrelenting, focus on our strategic initiatives, across product experience, and supply chain in the first quarter on product. From a merchandising perspective, we continue to work closely with our vendor Partners around the world to capture and Chase trends for our customers to offer them. The products, they've just got to have we sought Ron Bass string across our worlds. During the first quarter, especially in the sports textile candy, and Loom, world world's spoke with strong and the games and toys category tech benefited from gaming products, including the Booga items. We want to last year style, was supported by apparel and accessories. Can he recovered nicely after losing most of the Easter season last year when our stores were closed? And finally room continued to benefit from the trend of people were dead.

Home schooling from home weather in the 1 to $5 product category or the newer extreme value, 5 Beyond section. The merchandising team is focused on Distributing value across categories, using their expertise, and experience combined with our growth and benefits of scale. For example, the room world has evolved incredibly over the last several years and now features regularly size tables and other Furniture outfit. And entire room on a budget, a pet category within the office has grown significantly. As we expanded the assortment, especially this past year in response to the pet adoption trend.

Emergency dies in team, continues to remain Nimble and flexible and sourcing amazing friend right products by working with our vendor Partners, listening to our customers and spotting Trends and South India among other channels, the ability for 5 Below to participate in almost any Trend to our 8 worlds and the flexibility within those worlds, they key distinguishing feature of our model, our second initiative is focused on the experience of our customers and crew experience includes both in-store and digital. And we constantly look for ways to enhance the experience through innovation in store, we have now, successfully pivoted to our new prototype with fiber, of merchandising, included in the tech and moon worlds, and the back of the store. In addition to the 68 new stores, we remodeled about a dozen stores and q1 into this place.

Tide. And now expects.

To finish twenty. Twenty 1 was about 30% of our stores in the 5 Beyond format, additionally associate, assisted self-checkout or a 6 as we call it is in most of these stores. And we are adding over 250 stores to be in over sixty percent of the Chain by the end of this year. With a CO allows, our crew to move from behind the register to the floor to assist our customers with their shopping and checkout process, which makes for a better and faster. Customer experience, 5 Beyond an ACO are just 2 examples of how fast we are transforming the 5 Below concept to make it an even better experience.

Virginia title which includes marketing as well as e-commerce we focused on increasing our brand awareness through more targeted, marketing utilizing paid search and social life forms such as Instagram to digital channels. We are able to highlight our amazing value, hot new products and Inspire and Delight. Our customers are approaching a degraded with our store experience, visually appealing, bright and engaging. We believe We Are attracting both new customers to 5 Below who convert to regular customer as well as developing a deeper connection with current customers.

Similar for e-commerce. We are growing the number of new customers. Also increasing the percentage of repeat customers. In addition, We are continuing our tests with instacart, which is currently operational and a third of our chain.

With respect to our third, strategic initiative supply chain, we made significant progress and preparing our next to distribution. Centres to open. We start at 5 and shipping to our Arizona DC or ship center, as we refer to our DCS, a few weeks ago and also broke ground on our Indianapolis Ship Center in mid-april here. Has ownership Center is expected to open later this summer and will include eCommerce fulfillment, which will improve our service to customers in the western states. These centers feature new warehouse management system which combined with our demand forecasting platform will help optimize our inventory levels and allocations within our supply chain consistent with other retailers. We're contending with the ongoing Global challenges and Rising costs resulting from the pandemic. Our teams are doing a great job navigating these types of

buy conditions, whether it be by negotiating, or annual contract early or finding new carriers to help ship our product,

In summary, we are very pleased with the results and the progress we made in the first quarter. You're excited to continue to play offense execute with discipline and making progress in furthering, our strategic initiatives, across product, experience and supply-chain. We continue to be nimble and pivot quickly to capture Trends calling our customers with extreme value products. We believe our product line up for summer, fund offers an awesome selection of Outdoor Products, including new beach toys towels, as well as sandals and summer apparel. We are sure to have something for everyone. Looking ahead for your excited, for a more traditional 5, Below off to school assignment as well as our seasonal wall with new, 5 Beyond product. We have sourced. Truly amazing. Wow, product for our customers to enjoy and celebrate,

Turn to normal our customers have told us, they recognize the extreme value.

We offer to 5 Beyond and we will continue to listen and work back from them. To find those guy to have friend, right products at extreme value, and all packaged. And that's fun and amazing shopping experience with that would like to turn it over to Ken for the financial discussion. Again, thanks Joel and good afternoon. Everyone that I will begin my remarks with a review of our first quarter results and then provide guidance for the second quarter and commentary on the back half of the year.

Because our stores were temporarily closed during the first quarter last year. Making a year over a year, comparison, less meaningful. I will also provide a review of our results versus the first quarter of 2019. We were very pleased with our record first-quarter results. Our sales for the first quarter of 2021 increased to 5 Hundred ninety-seven point, 8 million dollars from 200.9 million dollars reported in the first quarter last year.

total sales this year grew, 64% compared to the first quarter of 2019 on an average store account growth rate of 37%

For the comparable, subsets of stores that were open in both the first quarter of 2019 and the first quarter of 2021 sales increased 23% driven by record first-quarter tickets on the heels of a strong demand environment hated by stimulus as well as the success we are seeing with our own merchandising initiatives.

Transactions continue to be down given we operated the stores with fewer hours vs are standard pre-coated, operating hours, these ticket, and transaction Trends are similar of what we have seen since reopening the chain last year.

We opened a record 67, net new stores across 28 states in the first quarter compared to twenty net. New stores opened in the first quarter last year.

We ended the quarter with 1087 stores. An increase of 167 stores or approximately 18% vs920 stores at the end of the first quarter of 2020. As Joel mentioned, we entered our 39th state with 7 new store, openings in the Salt Lake City area of Utah. We were very pleased with the performance of our new stores. Especially given the more restrictive shopping environment and extremely limited grand opening marketing.

Gross profit for the first quarter of 2021 was 200.9 million. Dollars versus twenty point 5 million dollars in the first quarter of 2028 versus the first quarter of 2019 gross profit increased by 67% while gross margin increased, approximately 70 basis points, driven primarily by occupancy. Leverage on the strong sales results, which more than offset higher in Bound freight costs, resulting from the tight supply chain conditions, Joel mentioned, wage sg&a. Expenses were a hundred thirty 7 point 2 million dollars for the first quarter of 2021 versus ninety..2 point 7 million dollars in the first quarter of 2020.

Compared to the first.

Quarter of 2019 sg&a expenses increased 44% but decreased approximately 320 basis points as a percent to sales driven by law, our store expenses on the reduced, operating hours, reduced marketing expense and fixed cost Leverage.

As a result, we reported operating, sixty 3 point 7 million dollars for the first quarter of 2021 versus an operating loss of 72.2 million dollars in the first quarter of 2020.

Versus the first quarter 2019, operating income this year. More increased, more than 2 and half times.

Net income for the first quarter of 2021 was 49.6 million dollars versus the. Net loss of Fifty Point 6 million dollars last year and net income of 25.7 dollars. In 2019, earnings per diluted share for the first quarter was $0.88 compared to last year's loss per diluted share of $0.91 with a 91% increase versus earnings per diluted share of $0.46. In 2019, we had a share-based accounting benefit of approximately $0.04 in the first quarter of this year compared to approximately $0.02 in the first quarter of 2020 and eleven cents in the first quarter of 2019.

We ended the first quarter with $390 million dollars in cash, cash, equivalents and Investments, and no debt including nothing outstanding on our $225 million dollar line of credit inventory. At the end of the first quarter was $327 as compared to $368 at the end of the first quarter last year.

Average inventory on a per-store basis. Decreased approximately 25% versus the first quarter last year. As last year's first-quarter inventory was inflated by the temporary store. Close

Versus the first quarter of 2019, average inventory per store decreased approximately 12%.

Our current inventory levels are in a good position to support the second quarter. And as we look to the second half of the year, we are working to accelerate receipts and add carrier capacity as we navigated type of supply chain environment.

Now looking ahead, we are providing formal guidance for the second quarter of 2021 but not the full year. Due to the continued uncertainty related to both the ongoing impact COVID-19 and potential future shifts and consumer spending. However I will offer directional commentary on how we are viewing the full year.

For both the quarter and the full year, I will compared to fiscal 2019 due to the disruption in store closures caused by COVID-19 last year.

We are very pleased with the start to the second quarter. We expect second quarter sales to be in a range of $640 billion to $660 billion dollars.

The midpoint of this range represents an increase of 56% versus sales for the second quarter of 2019 on an average store count growth rate of 36% given we plan to open approximately Thirty stores in the second quarter,

We expect significant operating margin, leverage versus a second quarter of 2019 driven primarily by sg&a. Expenses, including a shift in marketing wage been into the second half of the year.

Our effective tax rate. For the second quarter is planned that approximately 25% which excludes the impact of share-based accounting, or any share repurchases practices to update the tax rate Apple quarterly with actual results when we report earnings, net income for the second quarter of 2021 is expected to be in the range of 56.9 million, to sixty 3 point..7 million dollars with diluted EPS, expected to be in the range of a dollar and $0.01 to a dollar thirteen months.

This represents a growth rate at the midpoint of more than double the net income and EPS reported for the second quarter of 2019.

We are on track to deliver a much stronger first, half of fiscal 2021 than we had envisioned when we spoke with you back in March. As I mentioned earlier, due to the continued on page, seventy related to both the ongoing impact of COVID-19 and potential future shifts and consumer spending. We are not able to provide full year guidance at this time.

Back in March, I discussed this scenario for the year. We're a high teens compound annual sales growth rate from 2019 to 2000.20, 1000 would result in operating margins in line with 2019 given our first quarter results. And guidance for the second quarter, a higher two-year sales cater and download 20s range would result in operating leverage of approximately 30 basis points versus 2019 driven by SGA Leverage.

With regards to not operating results are minority interest in nerd Street, Gamers is still expected to resolve in a net other expense of approximately $0.06 a month. In addition we are currently planning an effective tax rate for the back half of 2021 of approximately 25%.

For the year we expect to open 170 to 180 new stores with approximately a hundred new stores opening in the first half of the year and we expect to complete approximately 30 remodels.

Managed to spend approximately $315 in Gross, Capital expenditures, excluding the impact of tenet allowances. This reflects opening, a new ship center in Arizona and beginning construction on a new ship center outside Indianapolis opening new stores and executing remodels and investing in systems and infrastructure.

In conclusion, we have a great first quarter and are off to a strong start for the second quarter.

Agility, flexibility and Innovation along with extremely disciplined cost and Capital Management and the ongoing growth and scale. And the business are all inherent to our money and how we have always operated. And these qualities will continue to serve as well as we navigate a dynamic operating environment.

Now, I'll turn it over to Joel for a brief summary before we begin Q&A, Joel. Thanks. Kim in summary. We are very pleased that the momentum from a strong finish to 20, 20 continues and I'm proud of our teams are executing across the company. With the inherent flexibility of our 8 worlds. Unique merchandising H and focus on Innovation, across product experience, and supply-chain, we believe we remain in a position of strength to continue growing 5 Below and driving sustainable, long-term value for all stakeholders. Would that would like to turn the call over to the operator for questions, operator.

We will now begin the question-and-answer session to ask a question. You may press the store than 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to ask a question, please press * then 2 at this time, we will pause momentarily to assemble the roster.

And our first question today, will come from Matthew boss with JPMorgan, please. Go ahead. Great, thanks. And congrats on another great guy. Hey, thanks. Matt wage, maybe 2 part question. Joel, on Top Line growth relative to 2019, maybe how would you best ranked? The company specific drivers that you think are contributing to the outperformance and then maybe for Ken as we think about success with 5 Beyond and the new customer acquisition that you're clearly seeing. I guess any way to speak to productivity and brand awareness that you're seeing in new doors today. And I know you guys have talked about moving to offense and what, what could it be in in terms of the ability, maybe to even accelerate and take market share coming out of the pandemic.

Thanks math on Top Line, you know, it's hard to distinguish between, you know, just external and internal, you know, obviously the the stimulus that was an external 1 that I think you can tell though by our our guide and the second quarter that, you know, it wasn't just external factors. And, you know, you see the momentum continuing, uh, off both in April and then now well into the second quarter, you know, clearly adding things like 5 Beyond makes a difference, you know, the 8 worlds gives a lot of flexibility to chase Trends in in many different categories. I think, what, you know, you heard me call out, you know, 5 different worlds, that really drove. Um, and off and I, I think it all adds up to like we've seen in in any times of of Trends or this case, you know, COVID-19. We picked up a lot of new customers and and

new customers, you know, try

Global. They like what they see and then they, you know, become regular customers with us and and that keeps the momentum going. So we feel really good about the, you know, the internal team Stargirl can you? Yeah, and then Madeline on the 5 Beyond, I think, Joel had already mentioned a little bit of it there. I mean, we're really pleased with what we're seeing in the reactions from the customer. Um, another example for us to present extreme value to the customer, and, you know, we continue to roll that out in our stores, we're going to be at probably about 30% of the chain. Yeah. Uh, to have that prototype and at the end of this year, so again, it gives us a chance there to continue to offer that value of the customers and they continue to respond respond really well for that. So that that is something we see as long as a, a great opportunity for us. And again, as you've heard from us before, just another area of innovation for us where we continue to just up the game from an experience standpoint. Yep.

You know, amount what I'm probably most proud of the team is like when we get a new idea. We move fast and you know, I called out my prepared remarks, both a CO and 5 Beyond dead, you know, those were basically non-existent a couple of years ago and now and 60% of the chain and 5 Beyond in thirty percent of the chains. So really changing the experience to make it even better off. And then, man, I think you also asked about new customer acquisition and I think we've talked about that before. We were really happy with what we saw in the fourth quarter, very healthy results, their faith, and um, you know, we saw that again in this first quarter. So, uh, you know, it's good to continue to see those new customers coming on board. Thanks Matt.

Rite Esteban. Yep. Thank you. Thanks man.

And our next question will come from John John heinbockel with Guggenheim Securities. Please go ahead, 2 questions 1. How do you guys think about gauging demand off for the holiday season with a lot of moving parts? And in light of the right the supply chain environment, flowing product in. So that's number 1. And then to 1 of the things that COVID-19 might have created that is, structural you think about operating hours marketing spend is any of that structural, that would improve, right? The profitability of the business on an ongoing basis.

Yeah, John great questions. You know, I think as it relates to demand for Holiday, you know, it's part of the reason we're not giving, you know, formal guidance, I think, you know, as you look ahead, you know, there's a lot of unknowns, but I would say, they're, you know, they're equally weighted as you know, and wins and young ones. And so um, you know, I think with the momentum we we've got right now and, you know, as Ken gave you, you know, the revised outlook on, you know, scenario for the year, you can see where we're, we feel pretty good about the setup going into the, the back half of the year. You have specifically about supply chain. You know, I think everybody's talking about it off and we have 2 advantages 1, we're pretty locked up with contracts throughout the year and, and that really helps on the cost side to mitigate a bunch of that.

On the other.

And um, you know, with our concept being a treasure hunt concept, it allows for a lot of substitution. Um, you know, customers will come in necessarily for a specific item in to solve a specific problem, a birthday, uh, a fun little gift, or something like that. And so that really helps us as we, you know, might face temporary out of stock or something being behind. But I'll tell you this, if I change names done, a great job of, you know, setting ourselves up or bringing product in early for holiday. So, I think we're in a good space. As for, you know, strong coming out of COVID-19, you know, some of the structural changes. Hey, we tighten our belts. And, you know, as we always say, hold the penny hostage and, um, you know, I think we close at 7 is our marketing significantly during COVID-19. We are now 100% off of paper and a hundred percent focused on on digital bath.

That was a, uh, a big, a big piece, you know, you are our marketing. This year's probably going to come in around 2%, which is, you know, lower than it's been in the past and I am I think that efficiencies we gained during COVID-19 is is a really good example, hours is another 1, you know, we've been able to tighten the hours up, which, you know, in a rising wage environment. That's nice is really allowed us to, you know, flow some of that through. As you as you see, pretty good operating margins coming out of first quarter and a and a and a guy per second quarter or anything. Just another structural 1 out throw in there too. Is the you know, cuz we all learn how to operate differently. During the last year John, you know, look at the buyers. And what they have to do is look at the response of the merchandising and and they did it really with a tremendous amount of less trap right than than we've ever done. And I'm sure they're anxious to get out there and get back with the vendors, but we still saw that wage.

Be successful, you know, in another environment. They're so yeah, there there are a good number of kind of takeaways and learnings that were applying going forward. Yeah thanks. Thank you. Thanks John month. And our next question will come from Karen short with Barclays. Please go ahead. Thanks very much. When are you? If you could just talk a little bit about life and pressures that people are concerned about. So I know you said, you were in a good position on freight, but wondering, if you could give a little color on where you're at, in terms of freight on contract versus spot. And then how to think about actually twenty-two with respect to Freight headwinds, or maybe even Tailwinds and then also, if you could just give a little color on how you're thinking about inflationary pressures on the wage fund, but also in products in general,

Yeah, he looked on on the the first question about specifically contract versus spot, we're 90% plus contract, um, spot would only come into play as, you know, sales go up and we're exceeding our number of containers. But um, the team did a great job. We want to set up our contract rates back in June, actually in 20. And so that really helps mitigate a you know pretty tough environment for the spot rate right now. You know it's a little early Karen to speculate on Twitter too. I I wouldn't be surprised with spot rates stay up that high. The fact that you know we are such a growth retailer, really helps. And as we negotiate the next year cuz you know, no, no carrier wants to, you know, lose somebody that's you know growing the number of containers as much as we are. So that's really helpful but it's too early to speculate exam.

Flea on the numbers, but I think

Will be fine there. I'm not too worried about it and as far as inflation goes look, I I think it's an advantage for a value retailer like us, you know, 1 we've seen in every other day, you know, um, recession or or you know some sort of tough environment, value becomes even more important. And so, you know, we we will win with value pack. And then, I think the difference this time is we notify Beyond, you know, if you'd asked me that question, 2 years ago, Karen you know, it'd be tough, we we'd be hitting some pricing ceilings but Thursday we have pivoted nicely, you know, was 10 below, which is really a defensive strategy into an offensive strategy of 5 Beyond and the last place we go is Raising prices and I think some resellers years ago and so as we can create more value, we're going to win. But we do have now the ability to, you know, go above the $5 price point which is really a nice way to Thursday.

Overcome the pressures of inflation. Okay. And just on the wage fund. Oh, specific that you're saying. I'm seeing with wages. Well, I mean, obviously, that's the number. What what there's many concerns that investors have but wage rates rising in terms of where you may be out on your wage scale, Thursday. We're, we got a couple of things going for us there, um, you know, first of all, we stay competitive and every market and, you know, average wage is now around 13,000 and we, we also hire a lot of Sixteen and seventeen year olds and, you know, it's their first job, they're willing to work for a little bit less and less fun environment. And, and another nice thing about our stores is, you know, especially with a CO, it doesn't, you know, it's a smaller store. It doesn't take a lot of Associates to run a 5 Below store. So dead.

While we're certainly seeing the wage increases and I think they'll continue to creep with the, you know, nice increases and the top line that's really helped mitigate it, but I am online. You know, we're not having any problems hiring. Um, we, you know, we are raising in in spot markets where we need to, but overall, we've the teams have done a really nice job of hiring a it hasn't raised, you know, R isn't any materiality for us.

Thanks, congrats on a great quarter.

Hey thanks, Karen. Appreciate it.

Our next question will come from Simon Goodman with Morgan Stanley. Please go ahead.

Hey everyone. My question is also a relative to 2019. So the implied guide, 42 is still way above on a volume basis with consistent or somewhat consistent with the coupon rate, and, and compounded on a two-year basis. Way above where the business has grown on on a single year basis, that makes sense. To my question is, how long does I'm trying to make the case for a potentially higher normalized growth rate going forward? And I know you're not going to die to any of that now given the environment, but is there a case to be made? And what would have to happen for that to, you know, to occur and where would that share come? And then my second question, unrelated a little tongue-in-cheek, your first half is getting raised effectively, by Thirty thirty-five per month. Is there any reason why the whole year can't be bettered by by that entire amount? Thanks.

Simon trying to pick up that second part you asking, why couldn't the second half? Be growth rate, we could be as high as the first half. Grocery, is that what you're asking. I was looking at the consensus, which is in the little Ford and, you know, you're effectively revising the first half by 30% and can we think about it, proportion? I know you're not guiding for the full year, but thinking about the same amount as well proportionate.

Yeah, I'd look. Certainly a second half. I mean, the difference in the first half you just up against tougher Compares, but, you know, clearly until like, you know, Ken's comments that way we have, you know, great momentum going into second half that we we feel really good about um, you know, and, and your first question is a tough 1 to you're absolutely right. We're not going to guide to walk, you know, higher normalized, growth rate and you know, especially at this point when there's a lot of unknowns in front of us. But, you know, I think what's more important that everybody takes away is, you know, we're back to playing offense and we're back to opening stores, you know, the the 21 programs almost done. You know, you can see how broad-based the momentum is across the merchandising assortment, um, you know, we're, we're clearly starting to pick up marketshare. I mean, we really become the only National kids retail with. It's out there dead

And as long as we can continue to deliver extreme value, we're going to keep growing 5 Beyond and you know, 5 Beyond 1 that really helps us expand our reach back into the main gift destination and it's just another way to deliver extreme value and anything that. Yeah, I think you mentioned a Joel and Simon again. I mean, I'm here and just knowing where we've come from. We feel really good about the, you know, where we finished, uh, last year, the first quarter, and then where we are today, internet sales and, and customers, and brand and market share. Obviously, as I mentioned in my comments, there's just some uncertainty out there from a macro perspective, that kind of prohibits us from providing explicit guidance and then we do have some stuff Compares given the the, the the business that we had in Q3, and Q4 last year, that's really dead.

You know what we're looking at in terms of, not providing guidance, but you can hear it from Joel and myself that really confident in terms of where the business has been. And where, and where it's going? Yeah, really happy with the momentum. We've got going, I think, Simon

And our next question will come from Michael Lasser with UBS. Please, go ahead afternoon, thanks for taking my question. You didn't give guidance office and how to think about the full year of a little twenties growth rate this year, you know, and and and last year which would get you to about 30 days. According to the operating margin expansion. Versus 2019, getting you to a 12.1%, operating margin, why would it be higher than that? You seem great leverage number first, part of the Year, why would the Leverett be even greater than that? In conceptually is 12.1% level that you can grow off next year.

Michael. It's a great question, right? And I think, you know, I think given the uncertainties that we, we just haven't, you know, have answers to yet. It's harder for us to, you know, put a number higher than that on it without giving explicit. Guidance, we're obviously, you know, trying to figure out the child tax care credits that are coming. Um, you know, understanding by Chain, but I think anyway, you slice it, you know, you know, you're can and I, you know, looking at the second half of the Year being a, a down half of the year. I think life is upside there that, you know, we set ourselves up and we just got to go keep continuing the momentum and, you know, the broad-based strength of our merchandise and categories. Sets us up nicely a.m. and we just need a little bit more time to, you know, understand the macro environments. Yeah. And and Michael I think the take away from that scenario that wage

Provided was that, you know, we're we're we see the road to a meaningful Improvement in operating margins over 10,000. Nineteen, I think that's the story there. And I know you asked about, you know, go forwards and obviously we're not in a position to talk about that now but the 1 thing we we can reference back to is what we've said is storical e where we talked about comps and, you know, I think we've always said when we're in that 3% copper range, you know, that gives us the ability to to leverage and I think that still holds true when we're in a non-investment. Um, so I mean, you can you can come down take that, uh, and use that go forward from, you know, from this point, can I clarify what you said, previously indicated we did for the country, called the back half of the Year. Given what you experienced last year? Are you now more confident, that you'll be able to accomplish comp recognizing there as a host of uncertainties out there. But they said

Meeting the business anymore. More confident now.

We're, we're certainly, you know, as we obviously get closer and closer to that half, we we get more confident way, more confident than I was, you know, a quarter ago and more than it was a year ago. And look, we we just got a lot more tools of offense to use than than we had, you know, 2 years ago. And, you know, I think, you know, you were asking about bottom line earlier, I mean, there's, there's some, you know, obviously, you know, Karen asked about inflation or wage inflation supply chain and our jobs mitigate those things. Like, we always have. And, you know, and then what's in, our control is chasing Trends. And Michael seems always done a great, great job in that. And then I wish I had the crystal ball on, you know, potential shift in consumer spending. I don't have that, right? So, I think the prudent thing for us to do is control, we can control and

And that's just about delivering anime.

Amazing experience with with great product. That's incredible value. But when you, when you start looking at it, you know, you and I can sit here on a piece of paper and we could put headwinds and Tailwinds, Em Down, you know, and and and they're going to weigh measure out equally 1 way or the other. So there's a good sense that had ones and there's a good sense of Tailwinds off. They balance each other out and then our jobs to go execute. But yet clearly mad. I mean, Michael, we, you can tell from us we're feeling much more confident about the Thursday. We were make sense. Thank you so much, and good luck.

Interim. Next question, will come from Chuck Grom with Gordon. Please go ahead. Hey guys, the quarter. I'm curious if you've updated any of your brand awareness metrics that you've done the past and and I guess where we are and some of your most mature markets versus something, you're more recent ones. And I guess the reason why I'm asking is that, you know, your salesperson door is, is moving up nicely. You're obviously getting more accustomed to the door but I'm sure it's kind of where some of the more mature, mature markets are resting on that sales. The storefront person, some of the newer markets

Yeah. Look I think the the awareness metric I study the most shocked that probably most excited about is you know, you I know you're asking about for mature but it's really the ones that are less mature and you know our 0.2 2 years stores. You know, you don't have to go back to many years ago when that, when a student in the, you know, it's called the high teams and the most recent survey we've done is, it's, it's close to 40% now. And and Utah is a great example, I mean, we went into Utah this first quarter and those stories of open record, rather nicely record openings. Right Lubbock Texas. You know the biggest opening we've ever had and and you know there's no reason that we would have done that without a higher awareness. And by the way, we've done it without any marketing in our new stores, this year, you know, which was due to age

David. So, um, we've been really studying the the, um, less mature stores more than the more mature stores. Because that's the part of the needle, we needed to move faster and, and you're seeing it in, you know, new store productivities which are hard that you can't measure right now, but um, it that's helped nicely and and, you know, really improving the productivity in the model, if I could just follow up with, is there, is there a way to contextualize what, your best stores or copying across the country? Is it is it 3 or 4 million per store?

You know, we certainly have stores in that range Chuck and you know some of that is, you know, contextual to, you know, where they're located off and it's it's not always, you know, because they're in Philadelphia. It's you know, they're in an urban environment with more density and I think I think the 2 factors in the higher-volume stores are um the density of the the store and then the length of time we've been in a market. Um but at the same time some of those markets you know we told you guys you know we run about a hundred basis points cannibalization now. And so you know, we haven't been afraid to, you know, impact those stores either. But yeah, it's not about the right range.

Got it. Thanks very much, congrats.

Thanks, Josh name is Chuck.

And our next question, woke up from Scott ciccarelli with RBC Capital markets, please go ahead. Hey guys, got chicarelli. So I have a bigger picture question. You guys mentioned thought that the merchandise assortments, you know, for room, you mentioned full-size tables, you know, an expanded pet offering. I know they're only 2 examples. I guess I'm wondering if that starts to move, you away from a little bit away from traditional focus on teens and pre-teens, because you're finding higher value items outside of that historical theme.

Yeah, look, I think it's a fair question to ask, but the answer is no, I mean, I I think, you know, there's a reason we call it, you know, room and not home. We really try to still focus on, you know, a teen's room. Kids room, certainly, you know, I mean, John, hi models asking earlier about structural changes. I mean, I'm just being a no more. They, they want more in their room and and that's, I mean, pet is a family thing, you know. And, and, you know, the pet adoption Trend last year was huge. And so, you know, I think both of those, you know, still stay true to it. Could you find examples where like, how does that died into a, a team? Probably, yes. But um, I don't think it's our intent to move away from that. What is our attempt though is to still deliver extreme value? Um, you know, the customer?

Every survey we've done at 5 Beyond has been very positive and it's because we're continuing to deliver that that extreme value. And so like we. Families teen parent but we're not trying to move away from that Scott but great question. Thank you, Scott.

Interim. Next question will come from polish way with City. Please go ahead.

Hi guys. This is Kelly on for Paul, thanks for taking our question was just hoping we could dig into the gross margin a little bit more in the first quarter. How did product margins do relative to F? 19 month, was mixed still negative impact for you and then on the same notes, just could you quantify how much the freight negatively impacted gross margins in the second quarter again relative to nineteen and how we should think about that in 2 Q in the back up here. Thanks.

Sure, thanks. Thanks, Kelly. If your first question, the first part was around q1 and the gross margins there. And as you saw, we we came in about 70 basis points, favorable, if you look at it versus 2019, um, again the key driver there was occupancy, leverage, um, and that was actually a little bit more than double of the actual gross margin leverage and then that was offset by freight costs for the most part that we saw and gross margin and then as you kind of shift in the queue to be similar type of dynamics that although the overwhelming majority of the leverage that we're expecting. Operating margin, leverage were expecting in Q2 wage be driven by sg&a. Uh, there are going to be similar Dynamics in the gross margin for Q2 where we expect to see occupancy. Leverage on the sales outperformance off.

Again, all set.

For the most part by, uh, higher incremental freight costs? Yeah, I think, you know, like, some people are calling out hundreds of basis points for us, instead of tens. And that's, you know, the advantage of a growing as fast as we are. The other side of it is, you know, we make an investment for a number of years on, on our distribution Network and we're starting to get leverage there. And so that's a, a good guy, that goes wrong direction and that's why, you know, when they netted all together you're still seeing Leverage come out of gross margin and despite this you know Rising uh environment around 6. And then you know the answer to somebody else is question earlier. Um you know we contractually locked up a large percentage of our our freight so you know it's that that's why it's tens of thousands, not hundreds for us and you know we don't expect it to deteriorate any further than that.

Scot.

And our next question, will come from David Bellinger with wolf research. Please, go ahead Corner. Appreciate you going into detail about the different worlds and the phone number of those who called on 421. But on the categories that underperformed over the past year or so such as Cartier candy, are you seeing those come back to call you normalize levels where they do, they still have room to go off and also doesn't stay on the space, allocated to categories like a a parallel or even something like pool or those flexing and getting more attention in store than just a few months ago. Thank you.

Yeah, it is honestly, you know, I called out the top-performing world's but, you know, if I was to take you through all 8, there's only 1 world wage, but is still underperforming. And you know, when I tell you what it is, you're not going to be too surprised. It's party, you know? And, you know, you can imagine you know where COVID-19 lack of parties and all that and, you know, so I think that's 1 rule that, you know, certainly has a lot of upside as, as America's reopening here. Um, you know, Candy was, uh, I mean, it was up against nothing last year with with Easter, being closed. So that was, you know, obviously really coming around nicely but you know, other party, we're really pleased and, you know, my system does a good job. You know, if you go on our stores today, our party sections, been contracted pretty pretty tight and that's to get room for some of these other Departments of really taken off. And when that starts to come back home,

Flex it back up. Um, but like I said is this is pretty broad-based um, you know, growth for for all our worlds. Yeah, yeah. And and David to that your question about, you know, flexing the store. I think that's 1 of the advantages of the model, the world and a 9 thousand square foot store. And we can Flex it based on the customer's preference is in response and it actually, you know, it gives us an advantage from an assortment standpoint to put that product in front of the customer. And really show it out there whether it's a trend or whether it's just certain divorce and we want to highlight. Thanks Dave.

Internet.

Christian will come from Jeremy. Hamblin with craig-hallum capital group, please, go ahead, thanks. Alot, my congratulations want to come back to the performance versus 2019 levels. So, you know, the 23% growth versus 2019, what's the composition of that ticket versus transaction and then kind of long as we move here into Q2, I think the implied guidance suggests that, you know, basically you're copying similar levels versus 2019, you know, kind of that 20% plus versus 2019 despite the fact we don't have, you know, any stimulus juice here in Q2, you know, how long do you think the relative performance? Maybe not only sustain, but probably You could argue is maybe even better than a q1.

Yeah, I look, I'll take the second half of that and then can you want to comment? Jeremy, I tell you. I get a lot of credit to the merchants and home. You know we we've got several Trends out there right now you can tell in just in the last question. I was going back and forth David and I'm a great job, a really bring it in. We we've been flexing the store that that treasure hunt makes for, you know, a great environment for customers to pick up a variety of things. And, um, you know, it's a good economy out there right now. So we're all those combined is, is, I mean, I'm glad you picked up on a Jeremy but it's why you're not seeing the deceleration, um, coming into the second. A lot of momentum and then you want us to pick up the the first part. Yeah. Jeremy. You called at the, the the growth rate that we spoke to, which was that, you know, comparable set of stores that were open in both dead.

The first quarter of 2019 and and, and this past first quarter, you know, the 23% growth rate. If you dig into that, you know, we saw transactions Down single digits and then Thursday, the obviously the opposite of that was the tickets right to get you to a 23%. So a very health healthy ticket response from the customer and similar to what we saw them all back in the in the second half of last year when we came out through the and opened up the stores, um, you know, post-pandemic.

It's tickets really been driving? Yeah, thanks Jeremy.

Our next question will come from Anthony chukumba with Luke Capital, please go ahead. Congrats again on a really strong quarter and start to the year off, I guess my question, you know, I, I remember, you know, the days of talking about, you know, different fads, whether it was fidget Spinners or, you know, Rainbow Loom, or there are the Rainbow Loom. And I remember the guys name anymore, it doesn't really matter. I, I guess my question is, you know, which makes your your performance all the more remarkable because, you know, we haven't had a fat at least that I can remember and quite some time. I guess..2 questions related 1. Is there any anything that you guys are seeing right now from either kind of a fad or Trend perspective? That's worth calling out. And then second, you know, somewhat related, I know you had some strength with mass, you know, recently, you know given the pandemic and I guess, you know are you seeing that kind of reverse you know, given that we're we seem to be getting to the other side of it. Thank God.

yeah, I looked at all the PPE stuff is certainly

First, and, and slowing down. Um, you know, quite a bit, we're in a good position, inventory wise, not knowing no inventory, liabilities. Um, you know, in terms of specific Trends, I think it's pretty broad-based right now. Uh, you know, I, I, you know, called out Pat earlier as 1 example, squish miles is another that's been out there for a while. I thought that I would call out. But you know, I think the bigger 1 is just, you know, the, you know, Gaming's another 1 I I called out and you know you put them all together and it really leads to be having a lot of a lot of footsteps. And um we're we're chasing them all and uh the merchants are you know following up and pivoting is do things come up.

Yeah, I'm sorry guys. We just realized that it's almost 5:30 so we're going to go right into our conclusion and then we'll pick up a little bit here. Hey thank you. And appreciate everybody joining us today on the call. As you can tell a lot of great questions and hopefully can and I answered all those and we look forward to seeing our stores and thumb will speak to you again the end of the summer. And thanks all have a great evening.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

Club.