Q3 2023 Five Below Inc Earnings Call
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Speaker 1: Good day and welcome to the 5 below third quarter 2023 earnings conference call. All participants will be in
Good day and welcome to the five below third quarter 2023 earnings Conference call all participants will be in listen only mode.
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Speaker 1: I would now like to turn the conference over to Christiana Pels, Vice President of Investor Relations. Go ahead.
I would now let's turn the conference over to Christiane Pelz, Vice President of Investor Relations. Please go ahead.
Speaker 2: Thanks, Gary. Good afternoon, everyone, and thanks for joining us today for Five Below's third quarter of 2023 Financial Results Conference call. On today's call are Joel Anderson, President and Chief Executive Officer, and Christy Chipman, Chief Financial Officer and Treasurer. After management has made their formal remarks, we will open the call to questions. Please limit yourselves to one question to enable us to accommodate everyone in the queue.
Thanks, Gary Good afternoon, everyone and thanks for joining us today for five below third quarter 2023 financial results Conference call on today's call are Joel Anderson, President and Chief Executive Officer, and Christi, Chapman, Chief Financial Officer, and Treasurer. After management has made their formal remarks, we will open the call to questions.
Please limit yourselves to one question to enable us to accommodate everyone in the queue.
Speaker 2: I need to remind you that certain comments made during this call may constitute forward-looking statements and are made pursuant to and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended.
I need to remind you that certain comments made during this call may constitute forward looking statements and are made pursuant to and within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act 1995 as amended such forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to.
Speaker 2: 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.
To differ materially from such statements those risks and uncertainties are described in the press release and our SEC filings.
Speaker 2: Those risks and uncertainties are described in the press release and our SEC filing.
Speaker 2: The forward-looking statements made today are as of the date of this call. We do not undertake any obligation to update our forward-looking statements. If you do not have a copy of today's press release, you may obtain one by visiting the investor relations page of our website at 5below.com. I will now turn the call over to Joel.
The forward looking statements made today are as of the date of this call.
We do not undertake any obligation to update our forward looking statements. If you do not have a copy of today's press release, you may obtain one by visiting the Investor Relations page of our website at five below Dot Com I will now turn the call over to Joel.
Speaker 3: Thank you, Christiana, and thanks everyone for joining us for our third quarter 2023 earnings call.
Thank you Christiane and thanks, everyone for joining us for our third quarter 2023 earnings call.
Speaker 3: We are very pleased with Five Below's financial performance and operational execution in the third quarter. We exceeded our guidance on sales, comps, and earnings, and our comparable sales results were remarkably consistent with the first two quarters of the year.
We are very pleased with <unk> financial performance and operational execution in the third quarter.
We exceeded our guidance on sales comps and earnings.
In our comparable sales results were remarkably consistent with the first two quarters of the year.
Speaker 3: We opened a record 74 new stores while continuing to successfully convert stores.
We opened a record 74, new stores, while continuing to successfully convert stores to the new five beyond format, which also drove new customers to our stores.
Speaker 3: the new 5 Beyond format, which also drove new customers to our store.
Speaker 3: The 5Bion format now accounts for approximately 50% of the comparable store base. In addition, we made progress on optimizing inventory and finalized preparations for the holiday. Now onto the specific...
The five beyond format now accounts for approximately 50% of the comparable store base. In addition, we made progress on optimizing inventory and finalize preparations for the holiday.
Now onto the specific results for the third quarter we.
Speaker 3: We delivered sales growth of over 14% to $736 million and a 2.5% comp sales increase, which continued to be driven by transaction.
We delivered sales growth of <unk>.
Over 14% to $736 million and a 2.5% comp sales increase which continued to be driven by transactions.
Speaker 3: Comp transaction, which are our proxy for traffic, increased approximately 3%.
Transaction, which are a proxy for traffic increased approximately 3%.
Speaker 3: This increase represented our fourth consecutive quarter of positive comp transactions.
This increase represented our fourth consecutive quarter of positive comp transactions. We believe this demonstrates the relevancy of our extreme value.
Speaker 3: We believe this demonstrates the relevancy of our extreme value and fun shopping experience.
Shopping experience.
Speaker 3: diluted earnings per share for the third quarter came in at 26 cents, a penny above the high end of our guidance.
Diluted earnings per share for the third quarter came in at 26 cents, a penny above the high end.
End of our guidance.
Speaker 3: Many of the trends we've seen for several quarters continued throughout the third quarter, and we assured our assortment reflected them.
Many of the trends we've seen.
Several quarters continued throughout the third quarter.
We assured our assortment reflected that.
As we've shared with you in prior quarters, we continued to see our customers focused on needs based product.
Speaker 3: We continue to see our customers focused on needs-based product, which for us is primarily seen in our consumables offering in the candy world and beauty department.
Which for US is primarily seen in our consumables offering and the candy World and beauty Department in.
Speaker 3: In addition, our unwavering focus on value is strongly resonating with our customer, as reflected in discretionary category strength in games and toys and our seasonal offering with Halloween.
In addition, our.
Unwavering focus on value is strongly resonating with our customer as reflected in discretionary category strength and games and toys.
Seasonal offering with Halloween.
Speaker 3: Hello Kitty, Squish, anime, and collectibles were also very popular, and the licensed business returned to a more normalized sales level.
Hello, Kitty Squish anime and collectibles were also very popular.
The license business returned to a more normalized sales level.
Speaker 3: In what most would consider a still challenging backdrop, we performed well and made progress against the five key strategic pillars that support Five Below's long-term triple-double vision. I'll provide a quick up.
And what most would consider a still challenging backdrop.
We performed well and made progress against the five key strategic pillars that support by Billows long term triple double vision.
I'll provide a quick update on each.
Yes.
The first pillar the store expansion the driver of our long term growth.
Speaker 3: The first pillar is store expansion, the driver of our long-term growth.
Speaker 3: In the third quarter, we opened a record 74 new stores across 31 states.
In the third quarter.
We opened a record 74, new stores across 31 states.
Speaker 3: One of these openings in Onalaska, Wisconsin, made our top 25 fall grand openings list.
One of these openings and on Alaska, Wisconsin.
Made our top 25 ball Grand openings list B.
Speaker 3: We remain on track, achieve the goal of opening over 200 stores, and expect to complete new store openings next week.
We remain on track to achieve the goal of opening over 200 stores and expect to complete new store openings next week.
Speaker 3: Our real estate teams have built a strong pipeline of new stores for 2020-4 and have also started working on 2025 stores.
Our real estate teams have built a strong pipeline of new stores for 'twenty 'twenty four.
We've also started working on 2025 stores.
Speaker 3: as we have been able to secure leases earlier in the year.
As we have been able to secure leases early.
Earlier in the year.
Speaker 3: We are making meaningful progress towards returning to historical store opening cadence.
We are making meaningful progress towards returning to historical store opening cadence.
Speaker 3: where we complete the majority of our store openings by Thanksgiving. This will also result in a
Where we complete the majority of our store openings by Thanksgiving.
This will also result in progress.
Speaker 3: towards a 50-50 store opening cadence for the first half versus second half of the year. Moving to the second pillar.
Towards a 50 50 store opening cadence for the first half.
Versus second half of the year.
Moving to the second pillar store potential.
Speaker 3: We announced the new 5 Beyond prototype in March of 2022.
We announced new buy beyond prototype in March of 2022.
Speaker 3: and have been very pleased with the customer response and the performance of the stores converted into this format. These stores are driving traffic. They are attracting new customers.
And have been very pleased with the customer response and the performance of the stores converted into this format.
These stores are driving traffic.
They are attracting new customers.
And they're retaining more current customers, they're driving a mid single digit comp outperformance in the first year post conversion.
Speaker 3: They are driving a mid-single digit comp outperformance in the first year post-conversion.
Speaker 3: and the small subset of stores that have entered their second year post-conversion are delivering a positive count.
And the small subset of stores that have entered their second year post conversion.
Our delivering a positive comp.
As I said earlier.
At the end of the third quarter.
Speaker 3: approximately 50% of the store comp base was in this format, and we will continue to convert stores next year.
Approximately 50% of the store comp base was in this format.
We will continue to convert stores next year.
Beyond the conversions.
Speaker 3: We also see a large opportunity to evolve the Five Beyond product disorder.
We also see a large opportunity to evolve by beyond product assortment and over time grow the penetration of these products.
Speaker 3: and over time grow the penetration of these products which will benefit the industry.
Which will benefit top line sales.
Speaker 3: The third pillar is product and brand scratch.
The third pillar is product and brand strategy.
Speaker 3: As you know, delivering WILD product is who we are and what we do and is key to our success.
As you know delivering while product is who we are and what we do and is key to our success.
Speaker 3: Our merchants hunt down new disruptive product at extreme value.
Our merchants hunt down new disruptive product at extreme value.
Speaker 3: flexibility of our eight worlds, they have ample opportunity to adjust as trends change.
The flexibility of our eight worlds they have ample opportunity to adjust as trends change.
For example.
Speaker 3: In Q3, our merchants grew the Halalina sermon, sourcing new to poor and cost.
In Q3, our merchants grew the Halloween assortment sourcing new decor, and costumes, including incredible huge inflatables for the front yard and light up base mass.
Speaker 3: including incredible huge inflatables for the front yard and light up face masks.
Speaker 3: Our customers love the new products. We brought this assortment to life through our social media channels. Five Below's presence on social media is growing. The focus on TikTok.
Our customers love the new products.
We brought this assortment to life.
Through our social media channels.
Blows presence on social media is growing.
The focus on Tictoc, Facebook Instagram and Youtube.
Speaker 3: We believe we have established By Below as the go-to brand for value and fun.
We believe we have established by below is the go to brand for value and fun.
Speaker 3: So a big opportunity remains to increase brand awareness.
Big opportunity remains to increase brand awareness.
Speaker 3: The investments we have made thus far in integrating data and analytics with digital marketing are delivering.
The investments we have made thus far in integrating data and analytics with digital marketing are delivering.
Speaker 3: We are pleased with the positive trends we've seen in both customer acquisition and retention.
We are pleased with the positive trends, we've seen in both customer acquisition and.
And retention.
Speaker 3: The fourth pillar, inventory optimization, is another area where we have made meaningful progress in order to drive sales and maximize profit.
The fourth pillar.
Inventory optimization is in.
Another area, where we have made meaningful progress in order to drive sales and maximize profits.
Speaker 3: As I mentioned before, this is a pillar Ken is leading as COO. Our teams are focused on improving inventory productivity by leveraging more sophisticated processes, technology, and analytics.
As I mentioned before this is a pillar Ken is leading a CLO.
Our teams are focused on improving inventory productivity.
Leveraging more sophisticated processes technology and analytics.
Speaker 3: We are developing methods that will improve our ability to predict the man further our optimized inventory levels and track the movement of product through the supply chain. As a result,
We are developing methods that will improve our ability to predict demand.
Are there aren't optimize inventory levels and track the movement of product through the supply chain as a result.
Speaker 3: of the team's efforts under this pillar. We are well positioned with inventory levels going into the all-important holiday season.
Well the team's efforts under this pillar.
We are well positioned with inventory levels going into the all important holiday season.
Speaker 3: The fifth pillar, crew innovation.
Uh huh.
The fifth pillar <unk>.
Through innovation.
Speaker 3: focuses on the store crew and the pipeline of talent that is critical to achieving our aggressive growth.
Focus is on the store crew and the pipeline of talent that is critical to achieving our aggressive growth.
Speaker 3: But this time a Europe primary focus is on hiring and training seasonal associates in time for the holidays.
At this time of year, our primary focus is on hiring and training seasonal associates in time for the holidays.
Speaker 3: Over 20,000 seasonal associates will be working in our stores and ship centers integrating each of these seasonal workers takes a lot of effort.
Over 20000 seasonal associates will be working in our stores and ship centers.
Integrating each of these seasonal workers takes a lot of effort.
Speaker 3: And I want to thank the stores, the ship centers, and the recruiting teams for going the extra mile to ensure their smooth onboarding and a great shopping experience for our customers in the peak selling weeks.
And I want to thank the stores ship centers and recruiting teams going the extra mile to ensure.
Smooth onboarding and a great shopping experience for our customers and the peak selling weeks.
In summary.
Speaker 3: We are very pleased with our third quarter financial results and operational accomplishments.
We are very pleased with our third quarter financial results and operational accomplishments as I've mentioned in the past we turned from a store once in quarters, one through three into a store needs in the fourth quarter.
Speaker 3: As I've mentioned in the past, we turn from a store of wants
Speaker 3: quarters one through three into a store of needs in the fourth quarter.
Speaker 3: Our customers need to buy gifts, whether they're for their kids or their nieces, nephews or grandchildren, or even office co-workers, and we are the perfect place to find that awesome gift at...
Our customers need to buy gifts, whether there for their kids or their nieces nephews your grandchildren.
Or even office coworkers and we are the perfect place to find that awesome gift at an incredible value.
Speaker 3: Our merchants have sourced an amazing line of fresh and Trend-Right products at outstanding value.
Our merchants have sourced and our amazing line of fresh and trend right products.
At outstanding values.
Speaker 3: We believe our customers will love our holiday assortment ranging from warm and fuzzy plush lounge pants and blankets, holiday tees, Marvel action figures and more.
We believe our customers love, our holiday assortment, ranging from warm and fuzzy plush lounge ban some blankets all day Ts Marvel action figures and more.
Speaker 2: While the biggest holiday weeks are still ahead of us, we are really pleased with the start to our fourth quarter. With that, I'll turn it over to Kristi to review the financials and our outlook in more detail. Thanks, Joel, and good afternoon, everyone. I will begin my remarks with a review of our third quarter results and then provide guidance for the fourth quarter and the full year.
Well the biggest holiday weeks are still ahead of US we are really pleased with the start to our fourth quarter.
With that I'll turn it over to Christie to review the financials and our outlook in more detail. Thanks, Joe and good afternoon, everyone. I will begin my remarks with a review of our third quarter results and then provide guidance for the fourth quarter and full year.
Speaker 2: As Joel said, we are pleased to report results that exceeded our guidance.
As Joe said, we are pleased to report results that exceeded our guidance.
Speaker 2: Our sales for the third quarter of 2023 increased 14.2% to $736.4 million from $645 million reported in the third quarter of 2022.
Our sales for the third quarter of 2023 increased 14, 2% to $736 $4 million.
$645 million reported in the third quarter of 2022.
Speaker 2: Comparable sales increased by 2.5% with a comp transaction increase of 3.1%, partially offset by a comp ticket decrease of 0.6%.
Comparable sales increased by two 5% with a comp transaction increase of three 1%, partially offset by a comp ticket decrease of 0.6%.
Speaker 2: This decrease in comp ticket was driven by lower units per transaction, partially offset by an increase in the average unit retail price, similar to what we have seen for several quarters now.
This decrease in comp ticket was driven by lower units per transaction, partially offset by an increase in the average unit retail price similar to what we have seen for several quarters now.
Speaker 2: We opened 74 new stores across 31 states in the third quarter, compared to 40 new stores opened in the third quarter last year.
We opened 74, new stores across 31 states in the third quarter compared to 40, new stores opened in the third quarter last year.
Speaker 2: We continue to be pleased with the productivity of our new location.
We continue to be pleased with the productivity of our new location.
Speaker 2: We ended the quarter with 1,481 stores, an increase of 189 stores, or growth of approximately 15%, versus 1,292 stores at the end of the third quarter of 2022.
We ended the quarter with 1481 stores, an increase of 189 stores or growth of approximately 15% versus 1292 stores at the end of the third quarter of 2022.
Speaker 2: Gross profit for the third quarter of 2023 was up 7.2% to $222.8 million versus $207.8 million in the third quarter of 2022.
Gross profit for the third quarter of 2023 was up seven 2% to $222 $8 million versus $207 $8 million in the third quarter of 2022.
Speaker 2: Gross margin decreased by approximately 190 basis points to 30.3% as anticipated. This decline was primarily driven by recording actual shrink results for the stores that completed their physical inventories in August , as well as recording the true up of shrink reserves for the full chain, which we shared during our last quarter's earnings.
Gross margin decreased by approximately 190 basis points to 33% as anticipated.
This decline was primarily driven by recording actual shrink results for the stores that completed their physical inventories in August as well as recording the true up of shrink reserves for the full chain, which we shared during our last quarters earnings call.
Speaker 2: As a percentage of sales, SG&A for the third quarter of 2023 decreased approximately 90 basis points to 28.1% versus last year's third quarter, driven primarily by the timing of marketing spend and leverage on certain store related expenses.
As a percentage of sales SG&A for the third quarter of 2023 decreased approximately 90 basis points to 28, 1% versus last year's third quarter, driven primarily by the timing of marketing spend and leverage on certain store related expenses.
Speaker 2: Operating income finished at $16.1 million versus $20.9 million in the third quarter of 2022, resulting in a decrease in operating margin of approximately 100 basis points to 2.2%.
Operating income finished at $16 1 million versus $20 9 million in the third quarter of 2022.
Resulting in a decrease in operating margin of approximately 100 basis points to two 2%.
Speaker 2: Net interest income was $3.4 million as compared to $0.5 million in the third quarter of 2022 as we benefited from higher interest rates and a larger average cash balance versus last year.
Net interest income was $3 4 million as compared to.
Zero point $5 million in the third quarter of 2022, as we benefited from higher interest rates and a larger average cash balance versus last year.
Speaker 2: our effective tax rate for the third quarter of 2023 with 25.4 percent compared to 24.6 percent in the third quarter of 2022.
Our effective tax rate for the third quarter of 2023 with 25, 4%.
Compared to 24, 6%.
The third quarter of 2022.
Speaker 2: Net income for the third quarter of 2022 with $14.6 million versus net income of $16.1 million last year.
Net income for the third quarter of 2022 was $14 $6 million versus net income of $16 $1 million last year.
Speaker 2: Earnings per diluted share for the third quarter was 26 cents compared to last year's earnings per diluted share of 29 cents.
Earnings per diluted share for the third quarter was 26 cents compared to last year's earnings per diluted.
Share of 29.
Speaker 2: During the quarter, we repurchased approximately 500,000 shares at an average price of $158.63 for a total of approximately $80 million.
During the quarter, we repurchased approximately 500000 shares at an average price of $158 63.
For a total of approximately $80 million.
Speaker 2: We ended the third quarter with $163 million in cash, cash equivalence, and investments, and no debt, including nothing outstanding on our $225 million line of credit.
We ended the third quarter with $163 million in cash cash equivalents and investments and no debt, including nothing outstanding on our $225 million line of credit.
Speaker 2: Inventory at the end of the third quarter was $763 million, as compared to $702 million at the end of the third quarter last year.
Inventory at the end of the third quarter was $763 million as compared to $702 million at the end of the third quarter of last year.
Speaker 2: On an average per store basis, inventory decreased 5.1% year on year, as last year we strategically ordered inventory earlier to ensure strong in-stack positions.
On an average per store basis inventory decreased five 1% year on year as last year, we strategically ordered inventory earlier to ensure a strong in stock position.
Speaker 2: We are pleased with the level and quality of our inventory going into this holiday season. Now onto guidance for the...
We are pleased with the level and quality of our inventory going into this holiday season.
Now onto guidance for the fourth quarter and full year.
Speaker 2: My remarks on full year guidance will refer to the 53 week year unless otherwise noted. Our guidance does not include any potential future impact from share based accounting or shareFactoring purchases.
My remarks Central your guidance will refer to the 53 week year, unless otherwise noted our guidance does not include any potential future impact from share based accounting or share repurchases.
Speaker 2: As Joel mentioned, we are pleased with our November results and start to the fourth quarter.
As John mentioned, we are pleased with our November results and start to the fourth quarter.
Speaker 2: For the fourth quarter of 2023, net sales are expected to be in the range of $1.32 billion to $1.35 billion, an increase of 17.6% to 20.2%.
For the fourth quarter of 2023 net sales are expected to be in the range of $1.32 billion to $135 billion, an increase of 17, 6% to 22%.
Speaker 2: Comp sales for the quarter are anticipated to increase between 2% and 3%. And we are on track to open over 60 stores before the end of the quarter, as 43 have already opened in November .
Comp sales for the quarter are anticipated to increase between 2% and 3% and we are on track to open over 60 stores before the end the quarter at 43 have already opened in November.
Speaker 2: We expect an operating margin of 20.5% to 20.8% in the fourth quarter of 2023.
We expect an operating margin of 25% to 28% in the fourth quarter of 2023.
Speaker 2: The approximate 50 basis points of leverage at the midpoint is due to the anticipated freight benefit, partially offset by the shrink headwind, as well as lapping benefits from lower incentive comp and certain cost management strategies we put in place last year.
The approximate 50 basis points of leverage at the mid point is due to the anticipated freight benefit partially offset by the shrink headwind as well as lapping benefits from lower incentive comp and certain cost management strategies, we put in place last year.
Speaker 2: As it relates to shrink, we are working on many initiatives throughout the organization to help mitigate the anticipated increase we have forecasted, and we will update you on the progress of these efforts at year end.
As it relates to shrink we are working on many initiatives throughout the organization to help mitigate the anticipated increase we have forecasted and we will update you on the progress of these efforts at year end.
Speaker 2: The estimated effective tax rate is expected to be approximately 26%.
The estimated effective tax rate is expected to be approximately 26%.
Speaker 2: Net income is expected to be in the range of $201 million to $211 million, representing a growth rate of approximately 17.3% to 23.2% over 2022.
Net income is expected in the range of $201 million to $211 million, representing a growth rate of approximately 17, 3% to 23, 2% over 2022.
Speaker 2: Diluted earnings per share for the fourth quarter of fiscal 2023 is expected to be $3.64 to $3.80 versus $3.07 in diluted earnings per share in the fourth quarter of fiscal 2022.
Diluted earnings per share for the fourth quarter of fiscal 2023 is expected to be $3.64 to $3 81st.
First is $3, 7% and diluted earnings per share in the fourth quarter of fiscal 2022.
Speaker 2: with the share repurchases in the third quarter contributing approximately 3 cents.
But the share repurchases in the third quarter contributing approximately three.
Speaker 2: For the full year of fiscal 2023, we are increasing the low end of our expected sales by $40 million to $3.54 billion and are reiterating the high end of expected sales at $3.57 billion, representing a sales increase in the range of 15.1% to 16%.
For the full year of fiscal 2023, we are increasing the low end of our expected sales by $40 million to 3.5.
Five $4 billion and are reiterating the high end of expected sales at 357 billion, representing a sales increase in the range of 15, 1% to 16%.
Speaker 2: Comp sales are expected to increase approximately 2.5%, which implies a 17.8% compound annual growth rate, or CAGR, on total sales for the four-year period since 2019.
Comp sales are expected to increase approximately two 5%, which implies a 17, 8% compound annual growth rate or CAGR on total sales for the four year period since 2019.
Speaker 2: We are still expecting operating margin of 11.1% at the midpoint compared with 11.2% in 2022.
We are still expecting operating margin of 11, 1% at the midpoint compared with 11, 2% in 2022.
Speaker 2: The effective tax rate for the year is expected to be approximately 25.5%.
The effective tax rate for the year is expected to be approximately 25, 5%.
Speaker 2: Net income is expected to be in the range of $300 million to $310 million, representing a growth rate of approximately 14.7% to 18.5% over 2022.
Net income is expected to be in the range of $300 million to $310 million, representing a growth rate of approximately 14, 7% to 18, 5% over 2022.
Diluted earnings per share are expected to be in the range of $5 40 to $5 56.
Implying year over year growth of 15, 1% to 18, 6%.
Speaker 2: On a 52-week comparative basis, growth for diluted earnings per share is implied to be 13.4% to 16.8%.
On a 52 week comparative basis growth for diluted earnings per share is implied to be 13, 4% to 16, 8%.
Speaker 2: Our fully diluted share count estimate for the year is 55.6 million shares, reflecting a lower share count as a result of the shares we repurchased in September .
Our fully diluted share count estimate for the year is $55 6 million shares, reflecting a lower share count as a result result of the shares we repurchased in September.
Speaker 2: The benefit related to the share repurchases completed in the third quarter is approximately 3 cents for the full year.
The benefit related to the share repurchases completed in the third quarter is approximately three <unk> for the full year.
Speaker 2: With respect to capex, we still plan to spend in total approximately $335 million in gross capex, excluding the impact of tenant allowances.
With respect to Capex, we still plan to spend in total approximately $335 million in gross capex, excluding the impact of tenant allowances.
Speaker 2: This reflects the opening of over 200 new stores, converting over 400 store locations to the 5 Beyond format, commencing expansions to our distribution centers in Georgia and Arizona, and investing in technology.
This reflects the opening of over 200, new stores converting over 400 store locations to the five beyond format commencing expansions to our distribution centers in Georgia, and Arizona and investing in technology.
Speaker 2: In summary, we delivered a better than expected third quarter, and while we have over two-thirds of the holiday shopping season ahead of us, we are pleased with the beginning of the fourth quarter. In this uncertain macro environment, we continue to see strong transaction growth from both new and returning customers, and new store performance is in line with our expectations.
In summary, we delivered a better than expected third quarter and while we have over two thirds of the holiday shopping season ahead of US. We are pleased with the beginning of the fourth quarter.
In this uncertain macro environment, we continue to see strong transaction growth from both new and returning customers and new store performance is in line with our expectations.
Speaker 2: demonstrating continued relevancy of the brand and our triple double savage.
Demonstrating continued relevancy of the brand and our triple double strategy.
Speaker 2: We will remain disciplined in the deployment of capital and in managing expenses, while we continue to use our strong balance sheet to fuel the growth that is in front of us.
We will remain disciplined in the deployment of capital and then managing expenses, while we continue to use our strong balance sheet to fuel the growth that is in front of us.
Speaker 1: For all other details related to our results and guidance, please refer to our earnings press release. And with that, I would like to turn the call back over to the operator for the question and answer session. Operator. We will now begin the.
For all other details related to our results and guidance. Please refer to our earnings press release and with that I would like to turn the call back over to the operator for the question and answer session operator.
We will now begin the question and answer session.
Speaker 1: To ask a question, you may press star then one on your touch tone phone.
To ask a question you May Press Star then one on your Touchtone phone.
Speaker 1: If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press...
If you were using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two please.
Speaker 1: Please limit yourself to one question. If you have further questions, you may re-enter the question.
Please limit yourself to one question. If you have further questions you may reenter the question queue.
Speaker 1: Our first question today comes from Michael Lasseter with UBS. Please go ahead.
Our first question today comes from Michael Lasser with UBS. Please go ahead.
Speaker 4: Good evening. Thank you so much for taking my question. Given what you've seen in the business recently and the other puts and takes, how do you feel about the future of the company?
Good evening. Thank you so much for taking my question given what you're seeing in the business recently and the other puts and takes.
Speaker 4: that you know about heading into next year. If you were to comp in 2024 at a similar level,
Oh about heading into next year, if you were to comp in 2024 at a similar level that you did this year in the low to mid single digit range, what type of breathing margin. The engine could five below produce especially in light of the triple double strategy.
Speaker 4: that you did this year in the low to mid-single digit range, what type of operating margin expansion could Five Below produce, especially in light of the triple-double strategy over the long term, where even if you were to push out the goal to reach a 14% operating margin by a year, it would necessitate that you achieve.
Over the long term, where even if you were to push out the goal to reach a 14% operating margin by your it would you start to see that you achieve 100 basis points of margin expansion each year for the next few years. Thank you so much.
Speaker 4: 100 basis points of margin expansion each year for the next few years.
Speaker 3: Hey Michael, great question, but it's probably really too early to foreshadow that for you. Given everything we shared with you on the last call around shrink.
Hey, Michael.
Great question, but it's it's it's probably really too early to.
Foreshadow that for you you know given.
You know everything we shared with you on the last call around shrink.
Speaker 3: We obviously think our mitigation efforts are working. We've reserved at the higher rate. And, but we now have to do all those physical inventories in January . We do believe those are all, you know, in the base now or will be in the base of 2024 on an annual basis.
Obviously.
I think our mitigation efforts are working we've reserved at a higher rate and but we now have to do all of those physical inventories in in January.
We do believe those are all in the base now or will be in the base of 2024 on an annual basis and I think it's just safe to say that at this point in time you know we continue to believe we can leverage at the at the 3% level.
Speaker 3: And I think it's just safe to say that at this point in time, you know, we continue to believe we can, you know, leverage at the 3% level. And if you give us our call in March, it's a great question. You should challenge us again to answer as we think about the years going forward.
And if you'll give us so you know our call in March.
Great question, we you should Charles this is again the answer is we think about the years going forward.
Thanks, Michael.
Speaker 5: The next question is from Seth Sigmund with Barclays. Please go ahead. Hey, everybody. Thanks for taking the question. Nice quarter. I wanted to focus on the 5 Beyond format. Can you elaborate on the performance that you're seeing as you enter year two? I realize it's early.
The next question is from Seth Sigman with Barclays. Please go ahead, hey, everybody. Thanks for taking my question nice quarter I wanted to focus on the five beyond format can you elaborate on the performance that you're seeing as you enter year two I realize it's early you just you know.
Speaker 5: a select number of stores, but any color on how those are performing, and just any other learnings or modifications that you might be making as you work.
Select number of stores, but any color on how those are performing.
And just any other learnings or modifications that you'd be it might be making as you work through the rest of the chain. Thank you.
Yeah. Thanks a.
Speaker 3: Yeah, thanks, Seth. Look, as I said in my prepared remarks, it is a small sample size. But all signals of that first wave of groups that popped into the year 2 and 2.3 is that they are comping positive.
Look as I said in my prepared remarks, it is a small sample size and.
But all signals are.
That first wave of groups that are that popped into the year or two in Q3 is that they're comping positive and so you know, we obviously need to get through Q4 here, we'll have about another big chunk of stores entering year, two plus we'll have a second quarter of those then.
Speaker 3: And so, you know, we obviously need to get to Q4 here. We'll have another big chunk of stores entering year two. Plus we'll, you know, have a second quarter of those that are in year two. But as it stands right now, we are not seeing anything that would indicate that they would give back any of the games they got.
All of them are in year, two but as it stands right now we are not seeing anything that would indicate that it would give back any of the games. They got in year one of the conversion.
Speaker 3: year one of the conversion, and seem to be popping more in line with what the chain's comping. So more to more to come on that. But we did want to give you some early reads on it.
And seem to be.
More in line with what the change Comping, so more to come on that but.
We didn't want to give you some early reads on it and we'll certainly as we.
Speaker 3: And we'll certainly, as we set up 2024, have a really good base of stores that are in that year or two mark, but feel really good about it.
Set up 2024 have a really good base of stores that are in that year.
Year to Mark, but feel really good about it.
Thanks.
Speaker 1: The next question is from Edward Kelly with Wells Fargo. Please go ahead. Yeah, hi.
The next question is from Edward Kelly with Wells Fargo. Please go ahead.
Yes, hi, good morning, guys.
Just a follow up Joel on five beyond.
Speaker 4: As we think about the go-forward, half the sorbets or half the comp-based anyway, and five beyond, so help us understand the benefit that continues to roll in in 24. You mentioned increased penetration.
As we think about that.
Going forward have the store base or half the comp based anyway and five beyond so.
Help us I guess I understand.
The benefit that continues to roll in in 'twenty four and then you mentioned increased penetration.
Speaker 4: Also helping comp going forward. I don't know if any of that's in year two of the five beyond that you mentioned or is that incremental?
Also helping comp going forward I don't know if any of that in year two of the five beyond that you mentioned or is that incremental.
Speaker 5: And then just thoughts around what that could mean over time in terms of 5 Beyond continuing to help drive comp at the...
And then just thoughts around what that could mean over time.
In terms of <unk> beyond continuing to help drive comp.
At the business.
Speaker 3: Yeah, look, Ed, it's a great question. I think it's
Yeah look I think it's great question I think it's it's too early for us to kind of like foreshadow 'twenty 'twenty four for you.
Speaker 3: It's too early for us to kind of like foreshadow 2024 for you. Obviously, we sit here and the easy math to do on.
You know obviously, we sit here in the easy math to do on 2020 on Q3 as you know our five beyond stores Comped mid single digits and our non <unk> beyond stores.
Speaker 3: 2020 on Q3 is, you know, our five beyond stores comp mid single digits and our non five beyond stores, you know comp relatively flat, and that blended out to a, you know, two and a half comp, you know, as, as the penetration of comp stores.
<unk> relatively flat and that blended out to a two and a half comp you know as as the penetration of comp stores, sorry has been as the penetration of conversion stores increases that should be a positive tailwind to comps into next year and then the fact that we're not seeing.
Speaker 3: Sorry, as the penetration of conversion stores increases, that should be a positive tailwind to comps into next year. And then the fact that we're not seeing a, you know, as we come into year two, a negative comp, that should be a positive two. But what you're asking me for is to quantify 2024.
A.
As we come into year two of negative comp that should be a positive too, but what you're asking me for us to quantify 'twenty 'twenty four.
And it's just too early to put all that together for you, but I don't think we see any headwinds on it as we look out to 2024 and 2025.
Thanks, Ed.
Speaker 1: The next question is from Matthew Boss with JP Morgan. Please go ahead. Great, thanks.
The next question is from Matthew Boss with JP Morgan. Please go ahead.
Great Thanks, and congrats on another nice quarter.
Speaker 6: So Joel, on third quarter same store sales, maybe relative to your guide three months ago, where did you see upside by category? And could you speak to the progression of comps as the third quarter progressed, maybe elaborate on early holiday trends, and then maybe just one for Kristy or Ken. Could you elaborate on new store performance from some of the latest cohorts of stores?
So Joel on third quarter same store sales, maybe relative to your guide three months ago, where did you see upside by category and could you speak to the progression of comps is the third quarter progressed, maybe elaborate on early holiday trends and then maybe just one for Christie or Ken could.
Could you elaborate on the new store performance from some of the latest cohorts of stores.
Speaker 3: Yeah, thanks, Matt. And look, you know, as I as I said in in my prepared remarks, the
Yeah, Thanks, Matt and.
Look you know as I as I said in my prepared remarks the.
Some of the areas, we saw the biggest strengths was games and toys.
And seasonal and specifically calling out Halloween, that's an area, we've really started to grow and Michael and his team have done.
Great job on that and you know clearly with us exceeding guidance would would tell you that as the quarter progressed.
Business certainly got stronger.
Speaker 2: Now, Christine, did you have? Yeah, on the new store performance, Matt, Q3 was in line with Q1 and Q2, which were in the mid-80s to low 90s. And Q4 at the midpoint, you'll find is pretty consistent with that as well, coming in close to the mid-80% range for new store productivity. Also, the partner Real admire is really, really consistent with Blackstock.
Kristina did you have.
And that new store performance, Matt you know Q3 was in line with Q1, and two which were in the mid Eighty's low 90, and Q4 at the midpoint, you'll find is consistent it's pretty consistent with that as well coming in closer to the mid 80% range for new store productivity.
Activity.
Thanks, Matt appreciate it.
Speaker 1: The next question is from John Heinbuckle with Guggenheim Securities. Please go ahead.
The next question is from John Hind Barker with Guggenheim Securities. Please go ahead.
So Joe.
What do you think.
When you pull out five beyond Brian you sort of referenced the flat comp what do you think.
The stores can combat.
Below the $5 price point, I know Michael's always challenge the merchants right define good dollar items and two dollar items.
Where is that opportunity is that a low single digit comp.
Is it really new product innovation.
Yeah.
Talked about in the convergence first John No I'm, just saying overall right.
Stores beyond the $5 price point right.
Probably come up low single digits or no.
Yeah, no absolutely we end and we continue to see that and you know.
You know I I called out toys that was largely a five below business in Q3, our candy business has been really strong that's almost 100% of buy below business and.
I think the thing we've been most pleased with on the conversion stores.
We're not getting all of that comp from <unk> beyond we're getting it from the box and we're getting them from the bogs in the form of more transactions and so look out I'll take footsteps all day long and I think you know we have the opportunity for our.
Penetration in five beyond to continue to grow but it it's still a kind of a mid single digit number for four or five beyond stores. So theres a lot of upside to that and in the meantime, the five below.
Businesses are really driving the business in and Michael and the merchants I think this Q4 as any of you get out in the stores.
The value message is probably as strong as we've ever been in there that seasonal wall all five below.
Which is a change for US we took five beyond off the seasonal wall this year.
We've got a whole $1 statement in there for holiday, So we've really screen value and that's all driving it at five below.
Thanks, Sean.
The next question is from Simeon Gutman with Morgan Stanley. Please go ahead, hey, good.
Afternoon, everyone.
Joe just a quick follow up to John's question are the units per trip and the five beyond those stores that are doing mid single are those trending up towards old traffic and then.
The regular the real question is another stab at 24 and I'm going to paraphrase. The way you answered. The question earlier, you mentioned shrink if you do comp algo, there's two to three or maybe a little bit better.
What are the puts and takes and you laid out shrink to something that could be a you know a good or a bad guy to the P&L are there any other ones investments.
Distribution center or anything on SG&A that we should think about.
Yeah look well Simeon real quick kind of use per trip.
That is still negative.
You know we are just seeing you know more transactions you know our proxy for traffic.
And you know, we we would expect that to continue.
The better part into next year and that is just a sign that the customers being very discerning on what they are buying but we you know expect.
With the increased trips that's going to more than make up for it because our our total basket is still very healthy compared to where it was pre COVID-19.
And then the puts and takes for next year excuse me and I'm going to punt on that one a little bit and that we were not ready here that we are all focused on Q4 and everything.
Not ready to give guidance on 2024.
But.
In general I don't see a lot of headwinds next year unless you know.
Something changes macro wise.
We think we've pretty.
Pretty much got.
Shrinking in the mix for it and and with the continuation of Covid I mean have conversions on COVID-19.
You know, we should that should all help well in terms of provider.
Providing more leverage I expect 2024 to be.
More normal year.
We welcome that.
The next question is from Paul Lajoie with Citi. Please go ahead.
Hey.
Thanks.
Curious what you think are the biggest areas of opportunity for this holiday as some commitment. It didn't go. According to plan maybe wasn't executed perfectly last year, just where you have opportunities to improve this year and then just second as you look out for the first half I'm curious what are you seeing in terms of product costs.
<unk> costs as a tailwind is it a headwind there as you look into the first half just as we think about the gross margin line for next year. Thanks.
Yeah, I mean, you asked what didn't go well.
You know I'd like to reflect on what did go well and I'll tell you our inventory in stocks.
Our.
Nifty candidly better than what they've been in the last two years. So I think we're really set up nicely for months.
Hum.
From an inventory perspective.
You know in terms of inputs for next year.
You know if we do see significant inputs, Paul I hope, we get back to reinvesting that gross margin benefits back into product that is something we pause for the last couple of years.
Due to all the headwinds of supply chain challenges in an inflation in that type of thing, but I think what we're seeing is the inputs.
Being <unk> not headwinds both in freight both in raw materials labor overseas.
But but don't expect us to take.
Take a material.
Increase in gross margin.
We will start to reinvest some of that again, which hasn't happened in a couple of years.
Thanks, Paul.
The next question is from Jeremy Hamblin with Craig Hallum Capital Group. Please go ahead.
Thanks, and I'll add my congratulations I wanted to.
Ask about the Fi beyond.
Section and with the success that you're seeing in that you use.
Use it really isn't an opportunity to expand.
The Wow factor in your stores.
Largely stayed at $25 and below price point.
But you guys have a history of kind of testing and learning and wanted to just understand.
Is there a price point, where you feel like it just doesn't make sense given the history of the store and the value offering is this something where we could start seeing you know $50 product.
That's in that five beyond section.
Yeah.
Thanks, Jeremy for the Shout out Oh, but I would tell you.
We are not even contemplating anything above 25 at this point in time.
And in fact, if anything Oh.
Should I was with Michael just a couple of hours ago and he's already got so many new ideas for next year based on what he's seeing success in this year and I think I've said on a couple of calls.
It took us three to five years to perfect five below is all pre public.
It's taking Mike on the merchants a few years to perfect five beyond and we're learning classifications that excel, we're learning times a year those classifications work and so we havent earned the right or have the need to go above 25. There are so many great items they've got.
And that 6% to $25 range and that's that's where the focus is but I do have a.
Expectations are that penetration will continue to increase as the customers really responding positively to this new format of five below in the front.
Beyond in the back and keeping that separation and now we've got to keep growing both just like John Heimbach, who was asking about five below and youre asking about by beyond I think both of those are upsides.
For many years to come.
Thanks, Jeremy.
The next question is from Christina Cotai with Deutsche Bank. Please go ahead.
Hi, good afternoon, Joe.
I wanted to ask is can you talk about the product pipeline, both for holiday and going into 'twenty four I know, you're not providing guidance for next year, but no a lot of general merchandise categories are now deflationary consumables could potentially move in that direction. So I was wondering if that is opening up any new avenues for us something that merchandising perspective.
Well, it's not where I thought you were going with that Christina.
I thought you're talking about is it going to be a negative to us being deflationary I I. It's more of the question I was answering a couple of calls ago, a couple of questions ago about the inputs into it and those are deflationary.
That'll benefit us and at the same time that will also allow us to reinvest some of those <unk>.
Most margin wins back into the product like we've done for years.
I think the other big opportunities there is were seeing significant capacity overseas.
In terms of containers and that also is a is a nice input into the gross margin line. So.
All in all everything is is pointing a little bit too at least steady if not deflationary.
And some of that will flow through and others of it will take to improve the product quality.
Thanks Kristina.
The next question is from Michael <unk> with Evercore ISI. Please go ahead.
Hey, guys. Thanks for taking the question I just wanted to ask about the store growth outlook into next year and beyond do we feel that we're in a point to do kind of high teens growth or is there. Some constraints we need to consider there and then secondly, there is some fascinating initiatives right in terms of helium piercings potential for loyalty just kind of love to get your latest thinking.
And learnings from those things.
Yeah.
Look you know as I said.
Said in my prepared remarks.
The store growth pipeline is really in a great spot hasnt been in that spot in four years.
There's two angles, we're focused on.
One is getting the pipeline full and the other is getting back to closer to a 50 50 opening cadence first half to second half and in both of those the teams have made great progress on them and we'll be in great shape for next year in 'twenty five.
But in terms of you know exact counts and that type you know you probably have a titch high on the the count I think we've kind of indicated more mid teens over the last couple of calls and then we will give you exact numbers at <unk>.
They're ICR or are you're beginning call and then everything else you pointed to is just there's just more upside helium balloons ear piercing those services loyalty again, those just are all incremental.
We continue to look at this thing long term and beyond.
Okay.
Thanks, Michael.
The next question is from Brad Thomas with Keybanc capital markets. Please go ahead.
Hey, good afternoon.
Joel as we look at your results relative to what we're hearing across the retail landscape, what really stands out as nearly every retailers, calling out discretionary category as being down.
Some cases down very significantly and so I think your results really stand out here.
I was wondering if you could just talk a little bit more about what you may be seeing from kind of a cyclical perspective.
Are you seeing.
Pete customers pulling back on the average ticket size.
How much are you seeing maybe in terms of.
Trading down and new customers coming in and trying to stretch a buck.
What are you seeing maybe that puts more into context why you all are doing so well right now thanks.
Thanks, Brad you know I think that speaks to why don't you know a couple of questions ago, you know about.
Units per transaction.
Certainly that's a sign that the customers being very discerning and that's why you got to win with transactions or traffic, which has been very positive.
I think why we're winning with discretionary you know and I said in my prepared remarks Q1 through three is our stores largely a store once in Q4, you know in Q4 starts in October our stores, our store needs and.
Yeah.
The last place history has shown my long tenure in the in the kids space.
Parents cut out on their kids, and so nieces and nephews and grandparents and parents are.
<unk> certainly worried about stretching their dollar further and were seeing the trade down but.
As we look at you know what we're seeing here in Q4.
We're a destination for value and that's resonating really nice with the customer.
The next question is from Chuck Grom with Gordon Haskett. Please go ahead.
Hey, Thanks, a lot.
Okay. So above it sounds a little under the weather I'm curious if you could maybe shine a little light into your conversation with Michael.
Held a couple of hours ago. If you will in terms of what are you seeing from suppliers and are they are starting to innovate more after a couple of years. So just trying to plow through and unit volumes. Just just curious what you're seeing on that front and anything from a trend that has you excited.
Yeah, I'm fighting a little bit of a cold there Chuck and.
No I I think yeah, well I'll never give away any secrets with Michael.
Any of you that have tour stores with him.
No he is.
Never had a lack of ideas and this is some of the most upbeat I've seen the merchants don't forget we.
We just opened our India office this year.
I was out there personally about a month ago with Michael for the kick off to that we had.
We're over 50 factories there.
It's another example that will help us innovate it'll help us move faster and will help us keep costing down.
You know.
It really it starts to spread out our supply chain to to other countries and so that's just one example, where michaels we excited but you know I think like always are a world's allow us to kind of really.
Ebb and flow from from one category to the next as trends change and.
I called out several of those trends in my prepared remarks, and the merchants are excited and are there already.
And I was down in our mock store today and we're looking at back to school for next year. So we're well ahead of 24 on the merchandize cycle and a lot of positive stuff out there that obviously, Chuck I can't get into the specifics but.
We feel really good about.
Thanks Chuck.
The next question is from Kate Mcshane with Goldman Sachs. Please go ahead.
Hi, good afternoon. Thanks for taking our question I just wanted to ask about the competitive landscape. It seems like at least in the Nash channel that they are focused on a particular price point and lower and more signage and marketing around that then I believe I've seen the last couple of years.
I wondered how you were thinking about your positioning in the competitive landscape. Obviously, there is the value of component of five and below but just with regards to what you're seeing from other competitors any insight there. Thank you.
I I. This is great question and it's a it's a really great observation on your part.
I think there are several retailers out there doing a great job of.
And in their own space trying to communicate value and.
And they're doing that through price point, they're doing it through product, they're doing it through features and benefits and.
Certainly I would assume resonate with the customer that some we've done since the day. We started this this business.
And Hugh you marry that value message up and five below with a great experience experience and we're not always perfect. We got some stores that struggle, but overall, we deliver a really great experience for our valued customer and then.
Layer in on that for us, it's about being trend right and I think you'll see some great trends in our stores this year.
So hopefully that gives you. Some example, I think it is.
Certainly resonating with a lot of competitors out there in the retail space and then we got to bring it home in our stores with some fun.
I appreciate it thanks.
The next question is from Jason Haas with Bank of America. Please go ahead.
Hey, good afternoon, and thanks for taking my question so.
So I think previously you were expecting to have a stronger comps in <unk> relative to <unk> and I look at what's implied by the guidance now it looks like we're now going to see you're expecting to see comps that are similar in four Q3, Q, so and cognizant of the fact that you're calling out a strong start to the quarter I think you've cited that there has been a dynamic where people.
Our shopping closer to need so they are buying closer to holidays.
So I'm curious if that's just conservatism or is it possible that we will see even stronger demand as we get closer to the holiday season here.
Yeah, Christy I might need you to help me out and thinking through that but.
My recollection is we.
I think Q4 is certainly isn't.
No lower than we than what we thought it was a quarter ago and I think we.
If you take a.
Our prior guidance to the full year Christy was what one to three and now we've taken it up to two and a half on a year or so.
Are you going to have to help me jogged my memory, there Jason on what you're referring to.
Yeah, I just meant that from from <unk> to <unk> I think the implication was more like we go from like I don't I remember you talked about something like a one comp to it to a two comp or something like that so there's going to be an acceleration. It sounds like you have seen that acceleration. So yeah, why not why not raise full fork he wasn't really my question.
Yeah, I think it would be really irresponsible of us to raise it any higher than we got it right now we've still got.
70, 75% of the.
Quarter in front of us.
And so.
But I'll tell you what this would be a really great.
Great quarter.
Finishing in the two to two to three range.
Thanks, Jason.
The next question is from Anthony <unk> with loop capital. Please go ahead.
Congrats as well on the strong quarter and thanks for taking my question. So we're starting to get some questions about <unk> and whether that's a threat to five below I certainly have my opinion on that.
What is your perspective on that thank you.
Yeah look I think I've answered a question.
Probably.
Every quarter here and.
You know what's amazing when you look at our.
Comp consistency quarter on quarter on quarter.
We've been.
Within tens of basis points of.
Two and a half comp Q1 Q2 Q3.
Thinking about Jason's question, a little bit further the last question you know part of Q4 is don't forget we're up against a much harder compare than we were.
Those other three quarters.
And so that that layers into <unk>.
Q4 on a two year stack, even being better so.
But I you.
You know, we watch <unk> as much as anybody else.
I think they're an online player and the natural.
Place to go is for people to shift their online purchases from retailer as a team who are our online presence as penetration is so low it's probably why we haven't seen a big impact on our business from that perspective, but we'll continue to watch them.
And see where they go but as you can see in the consistency of our results. It really hasn't had an impact for us yet.
Again, if you have a question. Please press Star then one the.
The next question is from Joe Feldman with Telsey Advisory Group. Please go ahead.
Yeah, Hey, good afternoon, guys. Thanks for taking my question.
Wanted to ask one more on real estate and just curious what you guys are seeing in terms of.
Real estate costs in terms of you know.
Lease costs or rent rental rates are and also the cost to build.
Or is that easing at all or because I know it was a bit of pressure on the past year or two and I'm. Just wondering go forward, if youre seeing that easing up at all.
Thanks.
Thanks, Joe.
You know I think you know it continues to increase slightly year over year.
But I I think you know overall, our rents are pretty close to flat you know it certainly hasn't risen at the same rate that we saw inflation rise.
I think the bigger challenge has been.
The just the last couple of years, you know landlords just werent building.
And so I think with the number of bankruptcies that happened this year.
Was really positive and starting to fill up the pipeline.
Of stores and and I think I may continue into next year as well, but we've really taken much more control of our destination are building many more ourselves.
And then relying just on the landlord.
<unk>.
As we get into ICR and the lakes will build to give you specific numbers on next year, but you can tell from my prepared remarks Joe.
The 24 pipeline is pretty full.
Our right of first half to second years grew significantly over this year and we're.
We're feeling like the hardest part of real estate is behind us.
Thanks, Joe.
This concludes our question and answer session I would like to turn the conference back over to Joel Anderson for closing remarks.
Thank you operator, and thank you everybody for joining us for our Q3 call and in our holiday outlook look in summary, our teams are focused on delivering incredible value.
Trend right products, and a really fun shopping experience for the holidays as well as building for the long term future I hope to see you all in our stores.
I wish all of you and your families a terrific holiday, we will look forward to speaking with you again at the ICR Conference in January.
Have a great December bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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