Q4 2023 Five Below Inc Earnings Call

Operator: Good day, and welcome to the Five Below First Quarter 2023 Earnings Conference call. All participants will be in listen-only mode.

Good day and welcome to the five below first quarter 2023 earnings conference call.

All participants will be in listen only mode.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, press star then one on your touch-tone phone. To withdraw your question, please press star then two.

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Operator: Please note, today's event is being recorded. I would now like to turn the conference over to Kristiana Pelz, Vice President, Investment Relations, and Treasury. Please go ahead.

Please note today's event is being recorded.

I would now like to turn the conference over to Christiane Pelz, Vice President of Investor Relations and Treasury. Please go ahead.

Christiane Pelz: Thank you, Rocco. Good afternoon, everyone. And thanks for joining us today for Five Below's fourth quarter 2023 Financial Results Conference call. On today's call are Joel Anderson, President and Chief Executive Officer, and Kristy Chipman, 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 and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in the press release and in the SEC filing.

Christiane Pelz: Thank you Rocco and good afternoon, everyone and thanks for joining us today for five <unk> fourth 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 too.

Speaker Change: Questions in.

Speaker Change: And each reminds 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.

Speaker Change: 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.

Speaker Change: Those risks and uncertainties are described in the press release and our SEC filings. The forward looking statements made today are as of the date of this call and we do not undertake any obligation to update our forward looking statements.

Joel D. Anderson: 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. In this presentation, we will refer to our SG&A expenses. For us, SG&A means selling general and administrative expenses, including payroll and other compensation, marketing and advertising expenses, appreciation and amortization expense, and other selling and administrative expenses. 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 FiveBelow.com. I will now turn the call over to Joel.

Speaker Change: In this presentation, we will refer to our SG&A expenses.

SG&A means selling general and administrative expenses, including payroll and other compensation marketing and advertising expense depreciation and amortization and <unk> expense and other selling and administrative expenses.

Speaker Change: 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.

Joel D. Anderson: Thank you, Christiana, and thanks, everyone, for joining us for our fourth quarter. As discussed in early January at the ICR, we were pleased with our holiday sale, led by an amazing assortment of wow products sourced by our passion for the full fourth quarter. Despite the impact of unfavorable January weather, sales ended at the midpoint of our guidance, and comparable sales were slightly above the high end. Consistent with the rest of the year, results for both the holiday period and the quarter overall were achieved through comp transaction growth, led by the Five Beyond format, which continues to outperform the non-Five Beyond format. These results illustrate the effectiveness of our conversion strategy, the relevancy of the extreme value TrendRite product, and the fun treasure hunt shopping experience we offer to our customers. Total fourth-quarter sales were $1.34 billion, or growth of over 19%, and comparable sales increased 3.1% driven by outperformance in the candy, style, sports, and seasonal categories. Despite the strong sales results, Earnings per share of $3.65, which was at the low end of our internal expectations, can be fully attributed.

Thank you Christina and thanks, everyone for joining us for our fourth quarter 2023 earnings call as discussed in early January at the ICR Conference. We were pleased with our holiday sales led by an amazing assortment of wild products sourced by our passionate merchants.

Joel D. Anderson: The full fourth quarter.

Joel D. Anderson: The impact of unfavorable January weather sales ended at the mid point of our guidance and comparable sales were slightly above the high end of guidance.

Joel D. Anderson: Consistent with the rest of the year results for both the holiday period and the quarter overall were achieved through comp transaction growth led by the by beyond format stores, which continued to outperform the non fi beyond format stores.

Joel D. Anderson: These results illustrate the effectiveness of our conversion strategy.

Joel D. Anderson: The relevancy of the extreme value trend right products.

Joel D. Anderson: And the fun treasure Hunt shopping experience, we offer to our customers.

Joel D. Anderson: Total fourth quarter sales were 1.34 billion or growth of over 19% and comparable sales increased three 1% driven by outperformance in the candy style sports and seasonal worlds. Despite these strong sales results earnings per share.

Joel D. Anderson: Of $3 65.

Joel D. Anderson: That's the low end of our internal expectations and can be fully attributed to higher than planned shrink.

Joel D. Anderson: Our prior expectations assumed that our mitigation efforts would result in a reduction of the shrink rate we observed earlier in the year versus the consistent rate we noted in our January physical. Kristy will discuss the impact of the higher shrink on our financial results in more detail shortly. Underpinning these results is the progress our team continues to make against our key strategic pillars, driving our long-term growth. Let me review each one.

Joel D. Anderson: Our prior expectations assumed that our mitigation efforts would result in a reduction of the shrink rate we observed earlier in the year.

Joel D. Anderson: First is a consistent rate we noted in our January physical inventories.

Joel D. Anderson: Christie will discuss the impact of the higher shrink on our financial results in more detail shortly.

Underpinning. These results is the progress our team continue to make against our key strategic pillars, which drive our long term growth.

Speaker Change: Let me review each one.

Joel D. Anderson: First, store expansion. As a leading high-growth retailer with a stated goal of achieving 3,500-plus Five Below locations nationwide by 2030, new store openings remain vital to our growth. In 2023, we opened a record 205 new stores, including 64 in the fourth quarter, with a total ending count of 1,544 stores across 43 states.

Speaker Change: First store expansion.

Speaker Change: As a leading high growth retailer with a stated goal of achieving 3500, plus five below locations nationwide by 2030.

Speaker Change: New store openings remain vital to our growth plan.

Speaker Change: In 2023, we opened a record 205, new stores, including 64 in the fourth quarter.

Speaker Change: The total ending count 1500, 44 stores across 43 states.

Joel D. Anderson: Following the pandemic-driven disruption and delays to our store opening plan, we are firmly back on track as evidenced by the stepped-up store growth in 2023. This is 150 new store openings in 2020. We achieved this growth by playing offense and refocusing resources while also demonstrating flexibility to pursue leases outside of our traditional approach. We created efficiencies and opportunities across our deal-making, legal, new stores, and hiring teams to achieve the growing number of store openings. For example, our streamlined real estate review process reduced the time needed to close.

Speaker Change: Following the pandemic driven disruption and delays to our store opening plans were.

Speaker Change: We are firmly back on track as evidenced by the stepped up store growth in 2023 versus 150, new store openings in 2022.

Speaker Change: We achieved this growth by playing offense and refocusing resources, while also demonstrating flexibility to pursue leases outside of our traditional approach.

Speaker Change: We create efficiencies and opportunities across our dealmaking legal new stores and hiring teams to achieve the growing number of store openings. For example, our streamline real estate review process reduce the time needed to execute leases.

Joel D. Anderson: We also proactively secured 23 leases from bankrupt retailers and tested alternative venues for stores, such as grocery-anchored centers. With this flexibility, we were able to capitalize on various opportunities in very desirable existing centers. We are pleased with the outcomes thus far for the class of 2020. Second, store potential. This pillar is all about increasing average unit volume, or AUV, including growing our five beyond format stores and product. We've been focused on converting existing stores to this new format, which highlights The Store Within a Store by Beyonce. We successfully converted over 450 in fiscal 23, or more than one a day, with nearly 400 completed in the first half alone.

Speaker Change: We also proactively secured twenty-three leases from bankrupt retailers and test it alternative venues for stores such as grocery anchored centers.

With this flexibility we were able to capitalize on various opportunities and very desirable existing centers. We are pleased with the outcome. Thus far for the class of 2023.

Speaker Change: Second store potential.

Speaker Change: This pillar is all about increasing average unit volume.

Speaker Change: <unk>.

Speaker Change: Including growing our buy be odd format stores and product offering.

Speaker Change: We've been focused on converting existing stores to this new format.

Speaker Change: Highlights the store within a store buy beyond section.

Speaker Change: We successfully converted over 450 in fiscal 'twenty, three or more than one a day.

Speaker Change: With nearly 400 completed in the first half alone.

Joel D. Anderson: Combined with the 250 converted stores in 2022, we now have approximately 700 stores, or over 50% of our comp base, in the Five Beyond format. Our strong sales and transactions in these converted stores demonstrate the appeal of Five Beyond, feedback from customers on our ability to provide extreme value in new and existing product categories, and Barry Potter. Our third pillar is product and brand strategy. We are a merchandise-driven company, and our buyers scour the globe to bring our customers the value, trends, wow, and newness that keep them coming back to Five Below. 2023.

Speaker Change: Combined with the 250 converted stores in 2022.

Speaker Change: We now have approximately 700 stores or over 50% of our comp base in the Fi beyond format.

Our strong sales and transactions in these converted stores demonstrate the appeal of five be odd.

Speaker Change: Feedback from customers on our ability to provide extreme value in new and existing product categories has been very positive.

Speaker Change: Our third pillar is product and brand strategy.

Speaker Change: We are a merchandise driven company and our buyers scour the globe to bring our customers the value trends Wow, and newness that keep them coming back to five below and.

Speaker Change: In 2023.

Joel D. Anderson: Strong performers included licenses such as Hello Kitty, Disney, and Harry Potter, as well as trends like hydration and collectibles and the continuation of Squishmash. In addition, our version of need-based categories like candy, food, beverage, and beauty continue to outperform. The flexibility of our model with our eight worlds is unique and enables our teams to quickly interview, As we've seen in the past, our growing scale opens up even more incredible opportunities. We source amazing products across categories our customers will love. This year, we reached a key milestone by opening our first global sourcing office in India.

Speaker Change: Strong performers included licenses, such as Hello, Kitty Disney and Harry Potter as well as trends like hydration and collectibles and the continuation of Squish mouse.

Speaker Change: In addition, our.

Speaker Change: Our version of need based categories like Candy food beverage and beauty continues to outperform.

Speaker Change: The flexibility of our model with our eight worlds as unique and enables our teams to quickly introduce trend right relevant products to our customers.

As we've seen in the past our growing scale opens up even more incredible opportunities too.

Speaker Change: The source amazing products across categories, our customers will love.

Speaker Change: This year we.

Speaker Change: We reached a key milestone of opening our first global sourcing office in India.

Joel D. Anderson: Shipping and selling products sourced from there for the first time in the fourth quarter. We are excited to work more closely with factories across the region, which increases collaboration, quality, and innovation, and will help get products to the US. Brand awareness is the product of our growing scale and improved target marketing, as we continue to open locations in new and existing DMAs and convert more stores to Five Beyond. We are bringing our brand to millions more people each day. Our aided brand awareness is holding steady in the mid-60s, and the majority of our, with the exception of the newer markets out west. [inaudible] We believe this continues to be an opportunity for us to increase brand awareness in each of our markets. The customer data and analytics team is working closely with our marketing team to ensure we are reaching the right customers through digital marketing to both retain existing customers and attract new audiences.

Speaker Change: Shipping and selling products sourced from there for the first time in the fourth quarter.

Speaker Change: We're excited to work more closely with factories across the region, which increases collaboration quality and innovation.

Speaker Change: And we will help get products to the U S faster.

Speaker Change: Brand awareness is the product of our growing scale and improved target marketing.

Speaker Change: As we continue to open locations in new and existing D M A's and convert more stores to buy beyond.

Speaker Change: We are bringing our brand to millions more people each year.

Speaker Change: Our aided brand awareness is holding steady in the mid Sixty's and the majority of our markets with the exception of the newer markets out west.

Speaker Change: Which are lower.

Speaker Change: We believe this continues to be an opportunity for us to increase brand awareness in each of our markets.

Speaker Change: The customer data and analytics team is working closely with our marketing team to ensure we are reaching the right customers through digital marketing to both retain existing customers and attract new audiences.

Joel D. Anderson: We have improved our ability to meet our customers where they are, whether it be Facebook, Instagram, or Snapchat, among other social media platforms. We are still in the early stages of this journey, and we see great future potential to both increase brand awareness as well as customer love. The fourth pillar is focused on inventory optimization.

Speaker Change: We have improved our ability to meet our customers, where they are whether it be Facebook Instagram or snapchat, among other social media platforms.

Speaker Change: We're still in the early stages of this journey and see great future potential to both increase brand awareness as well as customer loyalty.

Speaker Change: The fourth pillar is focused on inventory optimization.

Joel D. Anderson: Inventory is a key asset we leverage to drive sales and maximize profit. While scaling the business as a high growth company, you've already made many improvements to our systems and infrastructure over the last several years, implementing new retail merchandising, inventory ordering, and distribution management platform, while also increasing ship center capacity and capability.

Speaker Change: Inventory is a key asset we leverage to drive sales and maximize profits while scaling the business as a high growth retailer.

Speaker Change: I've already made many improvements to our systems and infrastructure over the last several years implementing new retail merchandising inventory ordering and distribution management platforms.

Speaker Change: While also increasing ship center capacity and capabilities.

Joel D. Anderson: We still have a huge opportunity to make further strides, particularly in the movement and levels of inventory. We are now integrating our new capabilities to improve inventory forecasting, ordering, replenishment, and flow, which will improve turns in stock and end-to-end visibility. These improvements are key to supporting our future. I. Crew innovation is the fifth pillar.

Speaker Change: We still have a huge opportunity to make further strides, particularly in the movement and levels of inventory.

Speaker Change: We are now integrating our new capabilities to improve inventory forecasting ordering replenishment and flow.

Speaker Change: Which will improve turns in stocks and end to end visibility.

Speaker Change: These improvements are key to supporting our future high growth.

Speaker Change: Crew innovation as the fifth pillar.

Joel D. Anderson: In 2023, we once again conducted the annual associate engagement survey, inviting all Five Below crew members to participate, including full-time and part-time crews, across our stores, ship centers, and in the wild. Our engagement and overall scores continue to grow. Our engagement scores landed us in the top quartile of Gallup's overall company database, which includes thousands of companies across multiple industries.

Speaker Change: And 2023 we once again have conducted the annual association engagement survey biting off by below crew members to participate including full time.

Speaker Change: And part time crews.

Speaker Change: Cross our stores ship centers and wild town.

Speaker Change: Our engagement and overall scores continued to grow.

Speaker Change: <unk> scores landed us in the top quartile of Galebs overall company database, which includes thousands of companies across multiple industries.

Joel D. Anderson: We are very proud of the level of engagement of our crew, and we will continue to focus on hiring outstanding crew members. In the fourth quarter alone, we hired a new Milestone, the 20,000 plus seasonal worker. Now, let me turn to 2024.

Speaker Change: We are very proud with the level of engagement of our crew.

Speaker Change: We will continue to focus on hiring outstanding crew members.

Speaker Change: In the fourth quarter alone.

Speaker Change: We hired a new.

Speaker Change: Hiring milestone of 20000 plus seasonal associates.

Speaker Change: Now, let me turn to 2024.

Speaker Change: We still expect to open between 225, and 235, new stores and convert approximately 200 stores to end the year with about 70% of our comp stores in the five beyond format.

Joel D. Anderson: We still expect to open between 225 and 235 new stores and convert approximately 200 stores to end the year with about 70% of our comp stores in the Five Beyond Forum. We are excited to see the traffic and customers this format is generating. We will leverage our growing scale and sourcing capabilities to deliver even more wild product to our customers. Our data analytics and marketing teams will continue to refine their marketing and targeting strategies to improve upon an already strong start, utilizing customer data to help inform decisions. We expect inventory to benefit from AI-powered tools and our crew to embrace simpler processes. In summary, we are pleased with the progress we made on our strategic initiatives throughout 2020. Well, 2024 has started off more slowly than we expected, which we believe is due to the slower start of tax. However, we are encouraged by the early sales of our Easter seasonal category.

We are excited to see the traffic and customers. This format is generating we will leverage our growing scale and sourcing capabilities to deliver even more wow product to our customers our data analytics and marketing teams will continue to refine their marketing and targeting strategies to improve upon an already strong start.

Speaker Change: To utilizing customer data to help inform decision making.

Speaker Change: We expect inventory to benefit from AI powered tools and our crew to embrace simpler processes and systems utilizing technology.

Speaker Change: In summary.

We were pleased with the progress we made on our strategic initiatives throughout 2023.

Speaker Change: While 2024 has started off more slowly than we expected, which we believe is due to the slower start of tax refunds. We are encouraged by the early sales of our Easter seasonal category.

Kristy Chipman: We're excited for 2024 and to deliver on our key operational priority as we advance toward our triple-double goal. And with that, I'll turn it over to Kristy to review the financials in more detail. Thanks, Joel, and good afternoon, everyone.

We're excited for 2024 and to deliver against our key operational priorities Edwin as we advance toward our triple double goals.

Speaker Change: With that I'll turn it over to Christine to review the financials in more detail.

Christine: Thanks, Joel and good afternoon, everyone I will begin my remarks, with a review of our fourth quarter and fiscal 2023 results and then discuss guidance for the first quarter and full year.

Kristy Chipman: I will begin my remarks with a review of our fourth quarter and fiscal 2023 results and then discuss guidance for the first quarter and full year of fiscal 2024. As a reminder, the fourth quarter of 2023 and the fiscal year included an extra week versus 2022 and the upcoming fiscal year 2024. Total sales in the fourth quarter of 2023 were up $1.34 billion, up 19.1% versus the fourth quarter of 2022, or up 14.9% on a 13-week basis. The 53rd week added sales of approximately $48 million. We opened a record 63 net new stores during the quarter and ended the year opening 204 net new stores to end the year with 1544 stores.

Christine: Fiscal 'twenty 'twenty four as a reminder, the fourth quarter of 2023 and the fiscal year included an extra week versus 2022 and the upcoming fiscal year 'twenty 'twenty four.

Christine: Total sales in the fourth quarter of 2023 were up 1.34 billion up 19, 1% versus the fourth quarter of 'twenty 'twenty. Two are up 14, 9% on a 13 week basis.

Christine: The 53rd week added sales of approximately $48 million we.

Christine: We opened a record 63 net new stores during the quarter and ended the year opening 204, net new stores to end the year with 1500 and 44 stores.

Kristy Chipman: Comparable sales increased 3.1% for the fourth quarter of 2023 versus a 1.9% comp increase in the fourth quarter of 2022. The comp increase for the fourth quarter was driven by a 3.9% increase in comp transactions, partially offset by a 0.8% decrease in comp average ticket. The ticket trends we have seen in recent quarters continued in the fourth quarter as lower units per transaction were partially offset by higher AUR. Gross profit increased 21.9% to $551.6 million from $452.4 million reported in the fourth quarter of 2022. Gross margin in Q4 was 41.2%, increasing approximately 90 basis points from 40.3% last year.

Christine: Comparable sales increased three 1% for the fourth quarter of 2023.

Christine: At 1.9% comp increase in the fourth quarter of 2022.

Christine: The comp increase for the fourth quarter was driven by a three 9% increase in comp transactions, partially offset by a 0.8% decrease in comp average ticket.

The ticket trends, we have seen in recent quarters continued in the fourth quarter as lower units per transaction were partially offset by higher AUR.

Christine: Gross profit increased 21, 9% to $551 6 million from $452 4 million reported in the fourth quarter of 2022.

Christine: Gross margin in Q4 was 41, 2%, increasing approximately 90 basis points from 43% last year.

Kristy Chipman: The increase in growth margin was primarily driven by lower inbound freight, leverage on fixed costs due to the extra week, offset in part by higher shrinks, which came in above our expectations. SG&A as a percentage of sales for the fourth quarter of 2023 increased approximately 100 basis points year on year to 21.2%, primarily related to lapping last year's cost management strategies as well as higher incentive comp versus the prior year. Operating income increased 18.9% to $268.4 million, inclusive of $11.4 million from the extra week.

Christine: The increase in gross margin was primarily driven by lower inbound freight leverage on fixed costs due to the extra week offset in part by higher shrink which came in above our expectation.

Christine: SG&A as a percentage of sales for the fourth quarter of 2023 increased approximately 100 basis points year on year to 21, 2% primarily related to lapping last year's cost management strategies as well as higher incentive comp versus the prior year.

Christine: Operating income increased 18, 9% to $268 4 million inclusive of $11 4 million from the extra week.

Christine: Operating margin of 21% was consistent with the fourth quarter of 2022.

Kristy Chipman: Operating margin of 20.1% was consistent with the fourth quarter of 2022, and the effective tax rate for the fourth quarter of 2023 was 25.8% compared to 24.8% in the fourth quarter of 2022. Net income for the fourth quarter increased 18% to $202.2 million or $3.65 per diluted share from $171.3 million or $3.07 per diluted share last year. The EPS benefit from the 53rd week was approximately $0.15. For fiscal 2023, total net sales were $3.56 billion, an increase of 15.7% over fiscal 2022. On a 52-week basis, sales increased 14.1% to $3.51 billion. Comparable sales increased 2.8% due to a 3.9% increase in comp transactions, partially offset by an approximate 1% decrease in comp average tickets. Gross profit for the full year increased by approximately 16% to $1.27 billion.

Christine: And the effective tax rate for the fourth quarter of 2023 with 25, 8% compared to 24, 8% in the fourth quarter of 'twenty to 'twenty two.

Christine: Net income for the fourth quarter increased 18% to $202 $2 million or $3.65 per diluted share from 175.

Christine: Excuse me $171 $3 million or $3.07 per diluted share last year.

Christine: The EPS benefit from the 53rd week was approximately 15 cents.

Christine: For fiscal 2023 total net sales were $3.56 billion, an increase of 15.7% over fiscal 2022.

Christine: On a 52 week basis sales increased 14.1% to $3.51 billion.

Christine: Comparable sales increased two 8% due to a three 9% increase in comp transactions, partially offset by an approximate 1% decrease in comp average ticket.

Christine: Gross profit for the full year increased approximately 16% to one point to $7 billion.

Kristy Chipman: Gross margin increased by approximately 20 basis points to 35.8%, driven primarily by lower inbound freight, partially offset by higher shrink. SG&A as a percentage of sales for the year increased 60 basis points to 25% from 24.4% in 2022, primarily due to lapping last year's cost management strategies and higher incentive compensation this year. Operating income of $385.6 million increased 11.7% in fiscal 2023 compared to last year.

Christine: Gross margin increased by approximately 20 basis points to 35, 8% driven.

Christine: Driven primarily by lower inbound freight partially offset by higher shrink.

Christine: SG&A as a percentage of sales for the year increased 60 basis points to 25% from 24, 4% in 2022.

Christine: Primarily due to lapping last year's cost management strategies and higher incentive compensation this year.

Christine: Operating income of $385 6 million increased 11, 7% in fiscal 2023 compared to last year.

Christine: Operating margin of 10, 8% decreased approximately 40 basis points from last year's operating margin of 11, 2% as lower inbound freight was more than offset by higher shrink and SG&A.

Kristy Chipman: Operating margin of 10.8% decreased approximately 40 basis points from last year's operating margin of 11.2% as lower inbound freight was more than offset by higher shrink and SG&A. As we discussed last quarter, our guidance assumed a shrink headwind of 50 to 70 basis points in fiscal year 2023. And we expected our margin to de-lever by approximately 10 basis points at the midpoint versus the prior year due to higher shrink, partially offset by both direct shrink mitigation and other expense reductions. However, actual shrink levels for the full year came in at approximately 100 basis points higher than the prior year, before accounting for approximately 30 basis points of true up. Net income was $301.1 million versus $261.5 million in 2022, an increase of 15.1%.

Christine: As we discussed last quarter, our guidance assumed a shrink headwind of 50 to 70 basis points in fiscal year 2023 and we expected our margin to delever by approximately 10 basis points at the midpoint versus the prior year due to higher shrink partially offset by both direct shrink.

Christine: Geisha and other expense reductions.

Christine: Actual shrink levels for the full year came in at approximately 100 paid 100 basis points higher than the prior year before accounting for approximately 30 basis points of true up.

Net income was $301 $1 million versus 261 $5 million in 2022 an increase of 15, 1% and our effective tax rate for the year was 24, 9% compared to 24, 7% and 2022.

Kristy Chipman: And our effective tax rate for the year was 24.9% compared to 24.7% in 2022. Diluted earnings per share was $5.41 for fiscal 2023, an increase of 15.4% versus $4.69 for fiscal 2022. Diluted earnings per share included a seven cent benefit from share-based accounting in 2023 and a four cent benefit in 2022. We ended the year with approximately $468 million in cash, cash equivalents, short and long-term investment securities, and no debt.

Christine: Diluted earnings per share was $5 41 for fiscal 2023, an increase of 15.4% versus $4 69 for fiscal 2022.

Christine: Diluted earnings per share included a 7% benefit from share based accounting in 2023, and a four cent benefit in 2020 two.

Christine: We ended the year with approximately $468 million in cash cash equivalents short and long term investment securities and no debt. This was an increase of approximately 69 million versus 2022.

Kristy Chipman: This was an increase of approximately 69 million versus 2022. Our inventory balance at the end of the year was approximately $584.6 million, an increase of approximately 11%, although average inventory per store decreased approximately 4%. With respect to CapEx, we spent $335 million in gross CapEx in fiscal 2023, excluding tenant allowances.

Christine: Our inventory balance at the end of the year was approximately $584 $6 million, an increase of approximately 11% while average inventory per store decreased approximately 4%.

Christine: With respect to Capex, we spent $335 million and growth capex in fiscal 'twenty to 'twenty three.

Christine: Excluding tenant allowances. This reflected opening 205, new stores completing over 450 conversions to the new five beyond format and investments in systems and infrastructure, including the beginning of the expansion of two distribution centers.

Kristy Chipman: This reflected opening 205 new stores, completing over 450 conversions to the new Five Beyond format, and investments in systems and infrastructure, including the beginning of the expansion of two distribution centers. We also made share repurchases of about $80 million, or approximately 500,000 shares, in 2023. Now I'd like to turn to our guidance for the full year and first quarter of fiscal 2024. For fiscal 2024, sales are expected to be in the range of $3.97 billion to $4.07 billion, an increase of 13.1% to 15.9% on a 52-week basis. The comparable sales increase is expected to be flat to 3%.

Christine: We also made share repurchases of about $80 million or approximately 500000 shares in 'twenty two 'twenty three.

Christine: Now I'd like to turn to our guidance for the full year and first quarter of fiscal 'twenty 'twenty four.

Christine: For 'twenty 'twenty four sales are expected to be in the range of 3.97 billion to 4.07 billion, an increase of 13.1% to 15, 9% on a 52 week basis.

Christine: The comparable sales increase is expected to be flat to 3%.

Christine: As Joe previously mentioned, we plan to open between 225, and 235, new stores, reflecting unit growth of approximately 15%.

Kristy Chipman: As Joel previously mentioned, we plan to open between 225 and 235 new stores, reflecting unit growth of approximately 15%. For the full year, the midpoint of our guidance assumes a flat operating margin on a 52-week basis. While gross margin is expected to expand in part due to lapping the one-time shrink true-ups from 2023, that expansion is expected to be offset by GNA due to higher depreciation and payroll expenses. Again, we have not assumed any benefit from an improvement in shrink levels in 2024 in this guidance. We are forecasting a slight increase in interest income this year due to higher average invested balances versus 2023, offset partially by the expectation that interest rates will decrease in the back half of the year. We expect a full year effective tax rate for 2024 of approximately 25.5%, which does not include any potential impact from share-based accounting.

Christine: For the full year at the midpoint of our guidance assumes a flat operating margin on a 52 week basis.

Christine: Well gross margin is expected to expand in part due to lapping the one time shrink true ups from 'twenty to 'twenty three that expansion is expected to be offset by G&A due to higher depreciation and payroll expenses.

Christine: Again, we have not assumed any benefit from an improvement in shrink levels in 'twenty 'twenty four and that's guidance.

Christine: We are forecasting a slight increase in interest income this year due to a higher average invested balances versus 2023.

Offset partially by the expectation that interest rates will decrease in the back half of the year.

Christine: We expect a full year effective tax rate.

Christine: For 2024 of approximately 25, 5%, which does not include any potential impact from share based accounting.

Kristy Chipman: Net income is expected to be in the range of $318 million to $346 million, representing a growth rate of approximately 8.6% to 18.2% on a 52-week basis versus 2023. Diluted earnings per share are expected to be in the range of $5.71 to $6.22, implying year-on-year growth of 8.6 to 18.3% on a 52-week basis. This guidance does not include any potential impact from share repurchase

Christine: Net income is expected to be in the range of 318 million to 346 million representing a growth rate of approximately 8.6 to 18, 2% on a 52 week basis versus 2023.

Christine: Diluted earnings per share are expected to be in the range of $5 71 to $6 22 times, implying year on year growth of eight six to 18, 3% on a 52 week basis.

Christine: This guidance does not include any potential impact from share repurchases.

Kristy Chipman: We expect approximately $365 million in gross CapEx, excluding the impact of tenant allowances. This reflects the opening of between 225 and 235 new stores, approximately 200 conversions, as well as the completion of the Georgia and Arizona Distribution Center expansions and the start of the expansion at our Indiana Distribution Center, as well as investments in systems and infrastructure. For the first quarter of 2024, net sales are expected to be in the range of $826 million to $846 million, an increase of 13.7 to 16.5%. We plan to open approximately 55 to 60 new stores in the first quarter this year, as compared to 27 stores opened in the first quarter last year, and we are assuming a first quarter comparable sales increase in the range of flat to 2%. Diluted earnings per share for the first quarter of fiscal 2024 is expected to be in the range of $0.58 to $0.69 versus $0.67 in diluted earnings per share in the first quarter of 2023.

Christine: We expect approximately $365 million in gross capex, excluding the impact of tenant allowances.

Christine: This reflects the opening of between 225 and 235, new stores approximately 200 convert conversions as well as the completion of the Georgia, and Arizona distribution Center expansions and the start of the expansion at our Indiana distribution center as well as investments in systems and infrastructure.

Christine: For the first quarter.

2024, net sales are expected to be in the range of 826 million to $846 million, an increase of 13.7 to 16, 5%.

Christine: We plan to open approximately 55 to 60, new stores in the first quarter. This year as compared to 27 stores opened in the first quarter of last year.

Christine: And we are assuming a first quarter comparable sales increase in the range of flat to 2%.

Christine: Diluted earnings per share for the first quarter of fiscal 2024 is expected to be in the range of 58 to 69 cents versus 67 and diluted earnings per share in the first quarter of 2023.

Kristy Chipman: The first quarter of 2023 had a six cent benefit to EPS from share-based accounting, and the potential impact from share-based accounting for 2024 is not included in our guidance. The midpoint of this EPS guidance assumes operating margin de-leverage of approximately 80 basis points entirely driven by higher SG&A due to higher planned marketing. Payroll Expenses and De-Leverage on Fixed Costs.

The first quarter of 2023 had a 6% benefit to EPS from share based accounting and the potential impact from share based accounting for 2024 is not included in our guidance.

Christine: The midpoint of this EPS guidance assumes operating margin deleverage of approximately 80 basis points entirely driven by higher SG&A due to higher planned marketing.

Christine: Payroll expenses and deleverage on fixed cost.

Kristy Chipman: While shrink will be a headwind in Q1, it will be offset by lower freight and distribution costs. As is our practice, we are not providing quarterly guidance beyond Q1. However, I do want to note that we expect margin improvement in our margin profile as we move into Q2 and Q3. This is because we cycle a marketing shift in Q2 and shrink true ups in Q3, creating easier comparisons in quarters two and three before we face the comparison of the extra week last year and the shorter holiday season. With that, I'd like to turn the call back to Joel.

Christine: While shrink will be a headwind in Q1, it will be offset by lower freight and distribution costs.

Christine: As is our practice, we are not providing quarterly guidance beyond Q1, However, I do want to note that we expect margin improvement in our margin profile as we move into Q2 and Q3. This is because we cycle a marketing shift in Q2 and shrink true ups in Q3, creating.

Christine: Z or comparisons in quarters, two and three before we face the comparison of the extra week last year and the shorter holiday season.

Christine: With that I'd like to turn the call back to Joel.

Joel D. Anderson: Before turning to questions I want to reiterate what a great year. It was from a sales perspective, and my gratitude to the OSM five below crew, who helped drive this performance along with the achievement of key strategic initiatives that we just talked about that are critical to the success of our continue.

Joel D. Anderson: Before turning to questions, I want to reiterate what a great year it was from a sales perspective and my gratitude to the awesome Five Below crew who helped drive this performance along with the achievement of key strategic initiatives that we just talked about that are critical to the success of our continued long-term growth. As we know, shrink is an industry-wide and a societal problem that has intensified over the last year. I want to be specific about what we are doing at Five Below regarding the 2023 shrink results. We tested many shrink mitigation initiatives late in Q3 into Q4, including product-related tests, front-end initiatives, and guard programs.

Joel D. Anderson: <unk> long term growth.

Joel D. Anderson: While we know shrink is industry wide and our societal problem that accelerated over the last year I.

Joel D. Anderson: I want to be specific about what we are doing at five below regarding the 2023 shrink results that we observed.

Joel D. Anderson: We tested many shrink mitigation initiatives late in Q3 into Q4, including product related test front end initiatives and guard programs the.

Joel D. Anderson: The most significant change we made across most of the chain was to limit the number of self-checkout registers that were open, while positioning an associate up front to further assist customers. In response to the continued elevated shrink we saw during our January, we immediately implemented additional mitigation efforts based on our test learnings from 2023. We have now evolved to associate-assisted checkout in all of our stores.

Joel D. Anderson: The most significant change we made across most of the chain was to limit the number of self checkout registers that were open while positioning and associate upfront.

Joel D. Anderson: To further assist customers.

Joel D. Anderson: In response to the continued elevated shrink we saw during our January physicals, we immediately implemented additional mitigation efforts.

Joel D. Anderson: Based on our test learnings from 'twenty to 'twenty three specifically, we have now evolved to associate with.

Joel D. Anderson: Assistant check out and all of our stores. In addition in our high shrink stores.

Joel D. Anderson: In addition, in our high shrink stores, the primary option for checkout is more of the traditional, over-the-counter associate. We expect to have 75% of our transactions chain-wide assisted by an associate with a goal of 100%, in our highest shrink, highest risk store, to be fully transacted by an associate. Additionally, in those stores, we're implementing further mitigation efforts, including receipt checking, additional store payroll, and guards. We intend to measure progress as soon as Q2, when we open a limited number of stores. While we are confident these measures will help us over time, as Kristy mentioned, we have not included any financial impact for shrink reduction in our 2024 guidance. Lastly, at Five Below, we always play hockey and intend to aggressively pursue returning to pre-pandemic levels of strength or offsetting the impact over the next few years. With that, we will take your questions. Thank you. We will now begin the questioning and answer session. Would you like to ask a question in their first language or on your touch-tone phone? If you are using a speakerphone, we ask that you please pick up your handset before proceeding. To withdraw your question, please press star then 2.

The primary option for checkout is more of the traditional over the counter associate checkout.

Joel D. Anderson: We expect to have 75% of our transactions chain wide.

Joel D. Anderson: <unk> by an associate with a goal of 100%.

Joel D. Anderson: In our highest shrink highest risk stores to be fully transacted by an associate.

Joel D. Anderson: Additionally, in those stores, we're implementing further mitigation efforts, including receipt checking additional store payroll and guards.

Joel D. Anderson: We intend to measure progress as soon as Q2, when we perform a limited number of store counts. While we are confident these measures will help us over time as Kristie mentioned, we have not included any financial impact for shrink reduction in our 2020 for guidance.

Joel D. Anderson: Lastly.

At five below we always play offense.

And intend to aggressively pursue returning to pre pandemic levels of shrink.

Joel D. Anderson: We're offsetting the impact over the next few years with that we will take your questions.

Speaker Change: Thank you.

Speaker Change: A question and answer session.

Speaker Change: So ask your question.

Speaker Change: Oh I'm sorry.

Speaker Change: Mhm English might have probably all seen please pickup your handset before pressing.

Speaker Change: Geez.

Speaker Change: Your question. Please press Star then two.

Operator: We do ask that you please limit yourself to one question. If you have further questions, you may re-enter the question queue. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Matthew Boss at J.P. Morgan. Please go ahead.

Speaker Change: We do ask you please limit yourself to one question definitely no further questions.

Speaker Change: Thank you.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: Today's first question comes from Matthew Boss with Jpmorgan. Please go ahead.

Matthew Robert Boss: Great, thanks. So Joel, could you elaborate on the progression of comps that you've seen post-holiday, maybe particularly early spring trends or the underlying comp trend as tax refunds have normalized in the past couple weeks? And then Kristy, I think it would be helpful if you could just walk through the cadence, or maybe the bridge between flat to 2% comps in the first quarter relative to your flat to 3% comp guide for the year. Yeah, thanks, Matt.

Matthew Robert Boss: Great. Thanks.

Matthew Robert Boss: So Joel could you elaborate on the progression of comps that you've seen post holiday, maybe particularly early spring trends or the underlying comp trend as tax refunds are normalized in the past couple of weeks and then Christie I think it'll be helpful. If you could just walk through the cadence or maybe the bridge between flat to 2%.

Matthew Robert Boss: Comps in the first quarter relative to your flat to 3% comp guide for the year.

Joel D. Anderson: Yeah. Thanks, Matt.

Joel D. Anderson: You know, like, many have seen February was soft, and we've seen it improve here in March. What's hard to tease out about the March improvement? Is it due to tax refunds starting to normalize, although they are still about 10% behind, or is it due to the early Easter versus last year? And therefore, that's what we won't know fully until we get through the balance of last year's Easter shopping. But we have definitely seen a nice improvement from what we saw in February. And then the first quarter came.

Joel D. Anderson: You know like.

Joel D. Anderson: Many have seen February was soft and.

Christie: And we've seen it improve here in March what's hard to tease out for the March improvement is it due to.

Christie: The tax refunds starting to normalize although they are still about 10% behind whereas it due to the early Easter versus last year.

And therefore, that's what we're where we wont know fully until we get through.

Christie: The balance of last year's Easter cycling, but we have definitely seen a nice improvement from what we saw in February and then the first quarter cadence. Yeah. So you know flat flat to 2% for the quarter versus the flat to 3% for the full year is is what I believe you were asking so.

Kristy Chipman: Yeah, so you're flat, flat to 2% for the quarter versus flat to 3% for the full year, is what I believe you're asking. So, basically, we are focused on the midpoint for the full year being, you know, between that flat to 3%, with the slower start to the first quarter being really the only change that we have really focused on, with Q2 and Q3 still being similar to the trends we indicated and the closer to 3% count for those two quarters. And then as you get into the holiday season with the five fewer shopping days, you know, that will slow down from 3% down to about 1%. Thanks, Matt.

Christie: Basically we are focused on the midpoint for the full year being you know between that flat to 3% with the slower start to the first quarter being really the only change that we have have really focused on with Q2 and three still being similar to the trends, we indicated and the closer to 3%.

Christie: <unk> for those two quarters and then as you get into the holiday with the five fewer shopping days, you know that will slow down from the 3% down to about 1%.

Thanks, Matt.

Matthew Robert Boss: Thank you. And our next question today comes from Seth Sigman with Barclays. Please go ahead.

Christie: Thank you and our next question today comes from Seth Sigman with Barclays. Please go ahead, hey, everyone. Thanks for taking the question I wanted to follow up on shrink and just.

Seth Ian Sigman: Hey everyone, thanks for taking the question. I wanted to follow up on shrink and just make sure we have the message right. So it sounds like it didn't get better as much as you were expecting.

Seth Ian Sigman: Make sure we have the message right. So it sounds like it didn't get better as you were expecting is the message that it's not getting worse do you have a good feel for that and whether it's kind of stabilized at this level and then if you just elaborate on what is actually reflected in the guidance for shrink is it still a year over year headwind or just neutral not assuming an improvement.

Seth Ian Sigman: Is the message that it's not getting worse? Do you have a good feel for that and whether, you know, it's kind of stabilized at this level? And then if you could just elaborate on what is actually reflected in the guidance for shrink, is it still a year over year headwind or is just a neutral, not assuming an improvement? Just help us understand that. Thanks so much.

Speaker Change: Help us understand that thanks, so much.

Joel D. Anderson: Yeah, thanks, Seth. It's a really good question. And let me try and answer that as simply as possible. You're right; our prior guidance assumed shrink mitigation efforts would reduce our overall shrink expense. However, what we did see is that we were successful in stopping the absolute rate from growing, and what we saw in January was roughly the same rate we saw back in August and September. So that seems to point towards the, you know, we're roughly at the high water mark as far as our guidance goes. It reflects the same exit rates as what we saw here in January, so it does not reflect there being any improvement in shrink, but it also doesn't require us to get any better in order to fulfill our guidance. Thank you, and our next question today comes from Mike Lasser with UBS. Good evening.

Speaker Change: Yeah. Thanks, Seth it's a really good question and.

Speaker Change: Let me, let me try and ample with answer that as simply as possible you're right. Our prior guidance assume shrink medication efforts would reduce our our overall shrink expense.

Speaker Change: However, what we did see is that we.

We were successful in stopping the absolute rate from growing and what we saw in January was roughly the same rate. We saw back last August September so that.

That.

Speaker Change: It seems to point towards the roughly or at the high watermark as far as our guidance goes.

Speaker Change: It reflects the same exit rates as what we saw here in January so it does not reflect or being any improvement in shrink, but it also doesn't require us to get any better in order to.

Speaker Change: Fulfill our guidance overall.

Speaker Change: Thanks Seth.

Thank you and our next question today comes from Michael Lasser with UBS. Please go ahead.

Michael Lasser: Good evening. Thank you so much for taking my question two if we assume higher shrink higher labor expense.

Michael Lasser: Thank you so much for taking my question. Joel, if we assume higher shrink and higher labor expense are simply now a cost of doing business, how does this inform the margin potential for Five Below, especially over the next couple of years, especially if we consider that this shrink experience this year might be more temporary in nature? And the second part of that question is, if your shrink mitigation efforts do bear fruit, should we think about the potential for 30 to 50 basis points of upside to your margins for this year, just given that that would put you back into the range of what you had expected, like 50 to 70 basis points of a drag? Thank you. Yeah, Michael. I think it's a fair question to ask.

Michael Lasser: Simply now a cost of doing business. How does this inform the margin potential for five below especially over the next couple of years, especially if we consider that this shrink experience this year might be.

Michael Lasser: More temporary in nature and if that my second part of that question is if you're shrinking mitigation efforts.

Michael Lasser: Efforts do bear fruit shall we think about.

Michael Lasser: The potential for 30 to 50 basis points of upside to your margins for this year, just given that that would put you back into the range of what you had expected like 50 to 70 basis points of a drag. Thank you.

Speaker Change: Yeah, Michael I think it's a fair question to ask and I think.

Joel D. Anderson: And I think, you know, as far as the long term goes, while we're not giving guidance on the long term today, we're also not changing our outlook for the long term. And as I said in my prepared remarks towards the end, it is still our expectation to either mitigate the shrink headwinds or, you know, take care of that with, you know, other initiatives like margin pricing. Certainly, given what we saw in Q3 and Q4, I don't think it would be prudent on our part to give any of you guidance that requires an improvement in shrink, but I think it's fair to say, Michael, as we begin to see improvement, that'll certainly turn into a tailwind. What's unique about shrink is when it's going the wrong way, you always have that true up, and that's why the fourth quarter felt But when it goes the right way, you get the truth to your benefit, but that wouldn't come until later in the year.

Speaker Change: As far as the long term goes you know, while we're not giving guidance on the long term today. We're also not changing our outlook on the long term and as I said in my prepared remarks towards the end.

It is still our expectation to either mitigate.

Speaker Change: The shrink headwind you know or you know take care of that with you know other initiatives like on margin price we.

Speaker Change: Certainly given what we saw in Q3 and four I don't think it would be.

Speaker Change: Ruden on our part to give you any of you have guidance that requires an improvement in shrink, but I think it's fair to say Michael is as we begin to see improvement.

Speaker Change: Improvement that'll certainly not turn into a tailwind what's unique about shrink is when it's going the wrong way you always have that true up and that's why the fourth quarter felt extra challenging but when it goes the right way you get the true up to your benefit.

Speaker Change: But that wouldn't come until later in the year, we are going to do physical inventories earlier than we ever have beginning in Q2 and.

Joel D. Anderson: We are going to do physical inventories earlier than we ever have, beginning in Q2, and we'll do that in Q3 as well as we traditionally do. Thank you. And our next question today comes from Scot Ciccarelli with Truist. Please go ahead.

Speaker Change: We will do that in Q3 as well as we traditionally do in Q4.

Speaker Change: Thank you and our next question today comes from Scot Ciccarelli with Truest. Please go ahead.

Scot Ciccarelli: Good morning, guys. Unfortunately, another shrink-related question. So, was there an additional true-open field goal in the fourth quarter? I guess I was a little confused on that. And then, a little bit of follow-up on Michael's question, you know, are some of your shrink mitigation efforts adding to SG&A pressures? Like, to the point that you have more associates, you have more, let's call it, security at the front end. Inherently, that's going to cost extra dollars. So, are we really just seeing a movement within the P&L as you wind up trying to tackle the shrink issue? Thanks.

Scot Ciccarelli: Good morning, guys. Unfortunately, another shrink really question. So was there any additional true up in the fourth quarter I guess I was a little confused on that and then a little bit of a follow up on Michael's question are are with some of your shrinking mitigation efforts are they adding to SG&A pressures like to the point that you have more associates you have more let's.

Scot Ciccarelli: Call. It security at the front end you know inherently that's going to cost extra dollars. So are we really just seeing a movement within the P&L as you wind up trying to tackle the shrink issue. Thanks.

Kristy Chipman: Yeah, so I'll take the first part, and then Joel can address the operational issues and the associated costs with that. So from a Q4 perspective, you know, what we had told you, and you should have expected from us in the guide, was about a 60 basis point pressure or headwind that at the midpoint, right, we told you 50 to 70, that came in at about 60 basis points worse than we thought. And a portion of that was a true up because, as you can imagine, we had some estimates in there for stores that counted that we needed to make sure that we were fully accrued for at the end of the year at this new rate that we're seeing right now so that we didn't feel like we were exposed as we entered 2024.

Speaker Change: Yeah. So I'll take the first part and then Jochen addressed the operational issues and the associated costs with that so from a Q4 perspective, you know what we what we had told you in and you should have expected from US in the guide was about a 60 basis point pressure or headwind that at the midpoint right. We told you 52.

Speaker Change: 70 that came in at about 60 basis points worse than we thought and a portion of that was a true up because as you can imagine we had some estimates in there for stores that counted that we needed to make sure that we were fully.

Speaker Change: Accrued for at the end of the year at this new rate that we're seeing right now so that we didn't feel like we were exposed as we entered 2024.

Speaker Change: Yeah, and so on on the you know the.

Kristy Chipman: Yeah, and so on the, you know, the SG&A challenges, Scott, you know, at the end of the day, it doesn't do us much good at the operating margin level if we have to increase labor by 30 points just to reduce shrink by 30. So it's a little bit of a balancing act of, you know, how much labor can you put in to reduce shrink faster than that?

Speaker Change: SG&A Challenge is Scott you know at the end of the day it doesn't do as much good at the operating margin level, if we have.

Speaker Change: I have to take up labor by 30 points just to reduce shrink by 30, so it's a little bit of a balancing act you know how how much labor can you put in to.

Speaker Change: To reduce shrink faster than that Christy certainly called out that we expect some.

Joel D. Anderson: Kristy certainly called out that, you know, we expect some payroll increases. So we have started to put some, some payroll in there. And because shrink is a lagging indicator, not a leading indicator, the benefits from shrink will follow, but maybe not necessarily at the same time.

Speaker Change: Payroll increases so we have started to put some some payroll in there and because shrink as a lagging indicator not a leading indicator you know the benefits for from shrink will follow but maybe not necessarily at the same time, but overall our net goal is to.

Kristy Chipman: But overall, our net goal is to increase SG&A pressures slower than we expect to see rate declines in shrink. Hey, I just want to follow back up because I think you asked about the quarter specifically, and I answered you based on the full year. So, let me backtrack a minute.

Speaker Change: Increased SG&A pressures slower than we expect to see rate declines in shrink Hey, I just wanted to follow back up because I think you asked about the quarter, specifically and I answered you based on full year. So let me let me backtrack a minute. We told you 25 to 40 basis points for the quarter.

Kristy Chipman: We told you 25 to 40 basis points for the quarter; it actually came in about 125 basis points worse than that, which did include the true up that I mentioned. Thank you, and our next question today comes from John Heinbockel with Guggenheim. So I'm gonna beat the shrink horse again, but Joel or Kristy, if you think about, are we up about 150, 160 bips from pre-19, or pre-20, rather, the idea that most of that can be recaptured in a couple of years. And then, are you seeing it shrink any different by price point or world? I'm curious if there's any difference there.

Speaker Change: It actually came in about 125 basis points worse than that which did include the true up that I mentioned.

Speaker Change: Very good thanks Scott.

Speaker Change: Thank you and our next question comes from John Baugh with Guggenheim. Please go ahead.

John Baugh: So I'm going to I'm going to beat the shrink horse again, but.

John Baugh: Joe or Kristi. If you think about are we up about 150, <unk> hundred 60 bps.

John Baugh: From pre 19, we're pretty 20, rather is the idea that most of that can be can be recaptured.

Speaker Change: A couple of year period.

Speaker Change: And then are you seeing it shrink any different by price point or world.

Speaker Change: I'm curious if there's any difference there.

John Edward Heinbockel: Yeah, hey, and look, I think we expected several questions on shrink, and we want to help clarify things with everybody, because there is a lot to unpack here when you consider multiple quarters, the full year, guidance, you know, the impact required of accounting true-ups, accruals, etc, etc, John. So I think it's pretty good. Your first part of that, though, was versus 2020. And that's where the confusion starts. You said 150. Some of that 150 is true ups. And that type of thing.

Speaker Change: Yeah, Hey, look I think we expected several questions on shrink and we want to help clarify with everybody because there is a lot to unpack here when you consider multiple quarters. The full year guidance the impact required of accounting true ups accruals et cetera set to John So I think it's pretty good.

Speaker Change: The first part of that though was versus 2020 and and that's where the confusion starts you said 150.

Speaker Change: Some of that 150 is as true ups in that type of thing but.

Joel D. Anderson: But round numbers versus pre COVID, so let's call it to 19 2019. We're up about 100 basis points. And the second part of your question was that, you know, do we expect to recapture that? And I called that out in my prepared remarks, and we still expect to play offense and aggressively pursue returning to pre-pandemic levels of shrinking or offsetting that impact with other measures, and I called out, specifically, price. And finally, it was about, are we seeing it in different categories? Certain categories have always been higher shrink than other categories.

Speaker Change: Round numbers versus pre Covid, so let's call. It 292019 were up about 100 basis points.

Speaker Change: And the second part of your question was do we expect to recapture that and I called that out in my prepared remarks, and we still.

Speaker Change: Expect to play offense and aggressively pursue returning to pre pandemic levels of shrink.

War offsetting that impact with other measures and I called out specifically price and finally it was about are we seeing it in different categories E D.

Speaker Change: Categories have always been higher shrink than other categories I don't I think relative to their past trends everything's kind of moving in the same relative range.

Joel D. Anderson: I don't think relative to their past trends, everything's kind of moving in the same relative range. What we do know is that in higher crime rate index stores, shrink is higher than in lower crime rate index stores. And we know that our self-checkout stores have higher shrink rates than non-self-checkout stores. So the opportunity really lies immediately in tightening up our policies and how we operate in our high-shrink self-checkout stores, or sorry, our high crime index self-checkout stores. So John, hopefully that gives you some more color. What's going on?

Speaker Change: What we do know is that in higher <unk>.

Speaker Change: Hum crime rate index stores, the shrink is higher than lower crime index stores, and we know that our self checkout stores are higher than non self check out stores. So the opportunity really rest immediately in <unk>.

Speaker Change: Tightening up our policies and how we operate in are high shrink self checkout stores or sorry, our high crime index self checkout stores. So John hopefully that gives you some more color on that.

Speaker Change: What's going on with shrink.

Katharine Amanda McShane: Thank you. And our next question today comes from Kate McShane with Goldman Sachs. Hi, thanks for taking our question. I'm going to switch the topic a little bit and just go to just inventory, just with regard to how comfortable you are with your current inventory levels and in stocks and any product categories where you're still trying to figure things out for 2024 when it comes to inventory. That's a great question.

Speaker Change: Thank you and our next question comes from Kate Mcshane with Goldman Sachs. Please go ahead.

Speaker Change: Okay.

Katharine Amanda McShane: Hi, Thanks for taking our question I'm going to switch the topic, a little bit and just go to just inventory just with regards to how comfortable you are with your current inventory levels and in stocks and any product categories, where you're still trying to figure things out for 2024, when it comes to inventory.

Speaker Change: Yeah, It's great question and I think in general what I would say to all of you is that.

Joel D. Anderson: And I think, in general, what I would say to all of you is that, you know, shrinking aside, we really had a great year in 2023. Our Q4 success at the department level is probably the most departments we've ever had come positive since I've been here. So it really was a broad-based win for the merchandising groups, and as it relates specifically to inventory Kate, this is something that since Kent took on the new role as COO, an area that he has been very focused on, and while we've Continued to make improvements there, Ken would say we still have I felt really very positive about our inventory levels. They continue to get better quarter over quarter, and there's no glaring areas that we're overly concerned about. It just keeps getting better. Thanks Kate, thank you, and our next question today comes from Chuck Grom with Gordon Haskett. Hey everyone.

Speaker Change: You know shrink aside we really had a great year in 2023, our Q4.

Speaker Change: <unk>.

Success at the Department level is probably the most departments we've ever had comp positive since I've been here. So it really was a broad based.

Speaker Change: A win for the for the merchandising groups and as it relates to specifically the inventory Kate you know this is something that.

Speaker Change: Since I'm, Kent took on the new role as COO and area that he has been very focused on and while we've continued to make improvements there Ken would say, we still got a long ways to go but I would tell you relative to where we were two years ago with the supply chain I felt really very part.

Speaker Change: Does it have about our inventory levels. They they continue to get better quarter over quarter and Theres no glaring areas that where we're overly concerned about it just keeps getting better thanks Kate.

Kent: Thank you and our next question today comes from Chuck Grom with Gordon Haskett. Please go ahead.

Oh, Hey, everyone draw your your new store productivity dropped below 80% for the second consecutive quarter here. So I was hoping you could talk about the timing of new stores in the quarter may have been impacted the NSP you know how how are they performing where do you think that the more limited self checkout.

Charles P. Grom: Joel, your new store productivity dropped below. Thank you all for joining us for the second consecutive quarter here. So, I was hoping you could talk about the timing of new stores in the quarter, how it may have been impacted by the NSP, you know, how they are performing, or do you think that the more limited self-checkout could be impacting things? Just wanted to... We could talk about new store productivity. Yeah, no, it's a good question.

Kent: Could be impacting things just wanted to see if we could talk about new store productivity for a few months.

Speaker Change: Yeah, no. It's a good question.

Joel D. Anderson: And, and, Kristy, correct me if I'm wrong, but I think adjusted for Q4, it moves up to the mid 80s. Is that right? And, and I, overall, Chuck, there's really no concerns on our part for, for, for new store product. Sorry, that's for the year; it moves up to the mid 80s on the full year. I think Q4 was the most number of stores we've ever opened in Q4. And that played some, somewhat, into how the calculation is on NSP.

Speaker Change: Christy correct me, if I'm wrong, but I think it adjusted for Q4, it moves up to the mid eighties is that right.

Speaker Change: And and overall, Chuck that Theres really no concerns on our part for.

Speaker Change: For.

Speaker Change: New store productivity I'm, sorry, that's for the year it moves up to mid.

Christy: Mid eighties on the full year I think Q4 was this is the most amount of stores we've ever opened in in Q4 and that played some somewhat into how the calculation is on NSP, but overall, having a new store.

Joel D. Anderson: But overall, having a new store project productivity in the mid 80s for the year. And then if you look at our guide for this year, you know, at the midpoint, it's also, you know, right in the mid 80s. So both the exit rate of 23 and the guide for 24, you know, we're sitting in the mid 80s. I think in 2019, we'll be in the upper 80s. And then, you know, in earlier years; we're in the 90s.

Christy: Productivity in the mid eighties for for the year and then if you look at our guide for this year.

Christy: At the midpoint. It's also you know right in the mid Eighty's. So both the exit rate of 23 in the guide for 'twenty for you know.

Christy: We're sitting in the mid eights I think 2019 were upper eighties.

Christy: And then you know earlier years, where in the Ninety's, but that was more driven too we had massive marketing campaigns. When we opened new stores. So this we've been consistently now settling down into the mid eighties and feel pretty good about that number Chuck yeah, and I think I would just add that in the fourth quarter over the past several years, we have seen somewhat of a decline.

Joel D. Anderson: But that was more driven by, you know, we had massive marketing campaigns when we opened new stores. So this, we've been consistently now settling down into the mid 80s and feel pretty good about that number, Chuck. Yeah, and I think I would just add that in the fourth quarter, over the past several years, we have seen somewhat of a decline in NSP, but it rebounds in the, you know, first quarter of the following year. So there is something to the seasonality there. Well, in any new stores we open in the fourth quarter, we don't give them holiday products as an example, because the timing when they open is so low.

Christy: In N S P, but it rebounds in the first quarter of the following year. So there is something to this seasonality are theyre well in any new stores. We opened in fourth quarter, we don't give them holiday product as an example, so because of the timing when they open it's so late.

Edward Joseph Kelly: And I'll remind everybody, you know, our long-term goal is to get back to not having a large wave of fourth quarter openings. And this year was the latest we opened all the way up into like, second or third week. A lot of change, but overall, Chuck, no big concerns. Thank you. And our next question today comes from Edward Kelly at Wells Fargo. Please go ahead. Hi, good morning, everyone.

Christy: And I'll remind everybody you know our long term goal is to get back to not having a large wave of fourth quarter openings.

Christy: And this year was the latest we open all the way up into like a second or third week of December So a lot of change, but no overall Chuck no no big concerns on Nsp's.

Christy: Thank you and our next question today comes from Edward Kelly with Wells Fargo. Please go ahead.

Edward Joseph Kelly: Hi, everyone.

Edward Joseph Kelly: Joel, I just want to, I'm sorry, but I apologize. But I want to ask one more follow-up question on shrinking. Could you just talk about what you think drove the negative surprise on shrink? And I'm curious about this, because I'm wondering if the reopening of self-checkout during the holiday season had anything to do with it. And then the changes that you're making to self-checkout for 24, are they going to apply to the holiday as well? Yeah, it's a look. Ed, we, we own this one in terms of probably being a little too optimistic about how easy it would be to turn shrink around. And at the same time, you know, it happened right going into the fourth quarter.

Edward Joseph Kelly: Joe I, just want to I'm, sorry, but I apologize, but I wanted to ask one more follow up on shrink.

Edward Joseph Kelly: Could you just talk about.

Edward Joseph Kelly: What do you think drove the negative surprise on shrink and I'm curious about this because I'm wondering if the reopening of self checkout or in holiday had anything to do with it and then the changes that you're making the self checkout for 'twenty four or they go to a part of holiday as well.

Obviously that helps you with throughput right. So could there be some potential sales impact. Thank you.

Speaker Change: Hey look.

Speaker Change: And we we own this one in terms of probably being a little too optimistic on how easy it would be to turn shrink around.

Speaker Change: And at the same time, you know it happened right going into the fourth quarter and you know, it's really hard to.

Joel D. Anderson: And, you know, it's really hard to mobilize a whole different workforce plan during Q4. And you're absolutely right that one of the benefits of self-checkout has been that we no longer have lines in our stores during Q4. And, you know, you've been with us a long time, and you remember those days.

Mobilize a whole different workforce plan during during Q4, and you're absolutely right that one of the benefits of self checkout has been.

Speaker Change: That we no longer have lines in our stores in Q4, and you know you've been with US a long time and you remember those days.

Speaker Change: As we turn towards 'twenty 'twenty.

Joel D. Anderson: As we turn towards 24 here, we certainly have immediately gone to an associate checkout at the register. And what I mean by that specifically is that our customers should experience an associate scanning the items and then a customer finishing the transaction, whether they're paying cash or by credit card. That is what we believe is a nice balance between ensuring that everything is being scanned, we're providing a heightened level of customer experience, and then the associate can move on to the next item or next customer while the transaction piece is done. So it kind of allows for a two-to-one, and we plan to continue that into the holiday season, and it'll probably be focused realistically at the holiday in our high shrink markets and our high self So we don't necessarily need to peanut butter it at every holiday if we can effectively make some significant changes here during the first 10 months. Thanks, Chad.

Speaker Change: 24 here.

Speaker Change: We certainly have immediately gone to an associate checkout. It at the at the register and what I mean by that specifically is it.

Speaker Change: Our customers should experience an associated scanning the items and then a customer finishing the transaction, whether they're paying cash or with a credit card that is what we believe is a nice balance between we're ensuring everything is being scanned, we're providing a heightened level of customer experience.

Speaker Change: And then the associate can move on to the next day and next customer while the transaction pieces done. So it's kind of allows for a two to one.

Speaker Change: And we plan to continue that into the holiday.

Speaker Change: And it'll probably be focused at holiday realistically and our high shrink markets and our and our high self checkout shrink stores. So we don't need to necessarily peanut butter and holiday. If we can effectively make some significant changes here during the first two.

Speaker Change: 10 months of the year.

Speaker Change: Thanks, Ed.

Michael David Montani: Thank you. And our next question today comes from Michael Montani with Evercore ISI. Please go ahead.

Speaker Change: And our next question today comes from Michael Huang Tommy with Evercore ISI. Please go ahead.

Michael David Montani: Hey there, just wanted to take a slightly different angle here and discuss wages and freight. Just wondering if you could give a sense of how much wage inflation you faced in 23 and what the 24 outlook is. And then on freight, you know, do you see additional kind of tens of bits of tailwind for this year, you know, which is why gross margins would be up. Any color on that?

Michael Huang: Oh, Hey, there just wanted to take a slightly different angle here and discuss our wages and freight just wondering if you could give a sense of how much wage inflation you faced in 'twenty three and what the 24 outlook is and then on freight.

Speaker Change: Do you see additional kind of tens of bps of tailwind for this year.

Speaker Change: Is why gross margins would be up any color on those two would be great.

Joel D. Anderson: Yeah, the large benefit of freight this year will be in Q1 and then begin to moderate as we move through the year because we'll lap the lower rates from last year. So that's how we see freight. Remind everybody, we don't play in the spot market.

Speaker Change: Yeah, the large benefit of freight this year will be in Q1, and then begin to moderate as we move through the year, because we will lap the lower rates from last year.

Speaker Change: So that's how we see freight remind everybody we don't play in the spot market or rates are already locked up to spring of next year and so we have a pretty good.

Joel D. Anderson: Our rates are already locked up to the spring of next year, and so we have a pretty good rate. And that's the sense of where freight is going to be for the year, and there should be no surprises there. On payroll wages, you know, there wasn't much in there for last year. And in fact, I'll tell you, George and the store operators have done a great job over time of mitigating wage inflation with productivity gains in the stores. And those two have continued to balance out for the last four or five years.

Speaker Change: Sense of where we're afraid is going to be for the year and there should be no surprises there.

Speaker Change: And the second part was on.

Speaker Change: Payroll wages you know there was there wasn't much in there for last year and in fact, I would tell you George in the store operators have done a great job.

Speaker Change: Over time of mitigating wage inflation with productivity.

Speaker Change: Productivity gains in the stores and those two have continued to balance out for the last four.

Speaker Change: Five years.

Joel D. Anderson: We are making some additional wage investments this year, and that's to really focus on improving. Thanks, Michael. Thank you. And our next question today comes from David Bellinger with Mizuho. Please go ahead.

Speaker Change: We are making some additional wage investment this year.

Speaker Change: And that's to really focus on improving shrink.

Thanks, Michael.

Speaker Change: Thank you and our next question today comes from David Bellinger with Mizuho. Please go ahead.

David Leonard Bellinger: Hey guys, thanks for taking the question. I want to ask you about the implied Q4 comp, Kristy. I think you talked about being up plus 1%, even though that's your toughest comparison for the year. Just help us get through that change in demand. Is there anything that you see changing after you get through this tax refund-impacted Q1? Is there some inflection baked into the guide? Or maybe just frame it, you know, how are you thinking about this specific impact from that five fewer selling day period between Thanksgiving and Christmas? Is there any way to specifically focus on that?

Hey, guys. Thanks for taking the question I wanted to ask on the implied Q4 comp Christy I think you talked about being up plus 1%, even though that's on your toughest comparison for the year. So just help us get get through that change in demand is there anything that you see changing after you get through this tax refund impacted Q1 is there.

Christy: I'm inflection baked into the guide or maybe just frame up how you're thinking about the specific impact from that five less selling day period between Thanksgiving and Christmas is there any way to specifically focus on that.

Joel D. Anderson: Hey, David, let me let me take that. Kristy, if I missed anything, jump in. Look, nothing has really changed from what we said. I'm talking about the top line here, what we've said to you at ICR, in that, you know, our long-term algorithm is two to four comps. And we expected 2024 to be on the low end of that, largely driven by the five fewer days at holiday. And David, if you recall 2019, we misguided there, and we really didn't effectively account for the five fewer days, which is the sister year from when that happened.

Speaker Change: So David let me, let me take that Chris.

Speaker Change: Chris if I Miss anything jump in.

David Leonard Bellinger: Look nothing has really changed from what we said I'm talking about the top line here, what we've said to you.

Speaker Change: At ICR.

Speaker Change: Net.

Speaker Change: Long term algorithm is two to four comp and we expect 2024 to be on the low end of that.

Speaker Change: Largely driven by.

Speaker Change: The five less days at holiday and David If you recall 2019.

Speaker Change: We misguided there and we really didn't effectively account for the five less days, which is the sister year from when that happened. So you know if you look at where we got where Christy guided the zero to three.

Joel D. Anderson: So, you know, if you look at where we got, where Kristy guided us, the zero to three, you know, that's focused on the midpoint, it's about one and a half, just slightly below what we said, you know, the 2%. And that's almost entirely driven by, you know, what we've seen here in Q1 with tax refunds, and we have not seen any change in how we're thinking about the outlook for the rest of the year. We'll move forward from here, right? Oh, I think you've got it.

Speaker Change: Hum.

Speaker Change: <unk> focused on the mid point about one and a half just slightly below what we said you know the 2% and that's almost entirely driven by what we've seen here in Q1 with tax refunds in and.

Speaker Change: Have not seen any change in how we're thinking about the outlook for the rest of the year.

Speaker Change: Hum.

Speaker Change: We'll move forward from there.

Speaker Change: Got it.

Speaker Change: Thank you next question today comes from Jeremy Hamblin with Craig Hallum Capital Group. Please go ahead.

Jeremy Scott Hamblin: Thank you. And our next question today comes from Jeremy Hamblin with Craig Highland Capital. Thanks for taking the question. I wanted to come back to the holiday period, you know, for a second.

Jeremy Scott Hamblin: Thanks for taking the question I wanted to come back to the holiday period, you know for a second and just ask in terms of you know I thought the throughput question was with a an appropriate one you do have that compressed.

Jeremy Scott Hamblin: And, you know, just to ask in terms of, you know, I thought the throughput question was an appropriate one because you do have that compressed time, you know, five days less between Thanksgiving and Christmas this year. So I wanted to get a sense for, you know, what you thought the potential impact might be to comps on that. And then secondly, if you're not able to see meaningful progress on shrimp mitigation efforts, what you think the particular impact might be from an SG&A perspective for staff during that. Yeah, look, Jeremy, we're not at the point of giving specific guidance on individual quarters at this point in time. But, you know, we have said in the past that, you know, the impact of each day, incremental day, or each day going backwards is somewhere between 20 and 50 basis points.

Jeremy Scott Hamblin: <unk> you know five days less between Thanksgiving and Christmas. This year. So I wanted to get a sense for you know a.

Speaker Change: What you thought the potential impact might be to comps on that and then secondly, you know what the if you're not able to see meaningful progress.

Speaker Change: On your own shrimp shrimp mitigation efforts, what you think the particular impact might be from an SG&A perspective for staffing.

Speaker Change: During that time.

Speaker Change: Yeah.

Speaker Change: <unk>.

Speaker Change: We're not at the point of giving specific guidance on an individual quarters at this point in time, but we have said in the past that you know.

Speaker Change: Each day incremental day or each day going backwards at somewhere between 20, and 50 basis points impact so.

Jeremy Scott Hamblin: So, you know, if you just take the midpoint of that, you're talking about 150 basis points of impact. And so I think, you know, a Q4 that is, you know, in the, you know, zero to two, zero to one range is probably the right way to think about it. But let us get closer to the holiday.

Speaker Change: If you just take the midpoint of that you know you're you're talking about 150 basis point impact and so I think you know Q4, that's you know in the you know.

Speaker Change: Zero to two zero to one range is probably the right way to think about it.

Speaker Change: But let us get closer to the holiday too early to think about SG&A changes.

Joel D. Anderson: Too early to think about SG&A changes. We have moved very fast since January in terms of really tightening up our self-checkout, in fact, converting it from self-checkout to associate checkout. And, and I would expect any SG&A gain, any SG&A increase to be offset by shrinkage. Do you see anything different? Nope.

Speaker Change: We.

Speaker Change: Moved very fast since January.

Speaker Change: Terms are really tightening up our self checkout in fact, converting it from self checkout to assist associate checkout and and I would expect any SG&A games, Oh, any SGA SG&A increases to be offset by shrink impact per see anything different.

Anthony Chinonye Chukumba: Thanks, Jeremy. And our next question today comes from Anthony Chukumba with Loop Capital. Please go ahead.

Speaker Change: Thanks, Jeremy.

And our next question today comes from Erik Nordstrom Crumbaugh with loop capital. Please go ahead.

Anthony Chinonye Chukumba: Thanks for taking my question. My question was actually on Five Beyond in terms of how it performed during the fourth quarter relative to your expectations and, you know, what was the comp lift from Five Beyond in the fourth quarter? Thank you.

Speaker Change: Thanks for taking my question my.

Speaker Change: My question was actually on five beyond in terms of how did it perform during the fourth quarter relative to your expectations and.

Speaker Change: You know what was the comp lift from five beyond in the fourth quarter. Thank you.

Joel D. Anderson: Yeah, look, it's a, and when you say Five Beyond, we specifically, all my comments here are on the Five Beyond format stores, because I think that's the better way to look at it. And what we saw consistent with the other three quarters is we're seeing a mid single-digit lift in stores that we convert. And, and that continues throughout their first year; the fourth quarter was no different than that.

Speaker Change: Yeah look it's a and.

Speaker Change: And when you say by beyond we reef, we specifically all my comments here are the five beyond format stores, because I think that's the.

Speaker Change: Better way to look at it and what we saw consistent with the other three quarters is we're seeing a mid single digit lift in in stores that we convert and and that continues throughout their first year. The fourth quarter was no different than that those.

Paul Lawrence Lejuez: Those stores that were converted were roughly in that mid single-digit range. And, and then in year two, you know, we expect them to comp right in line with the chain comp. And that also continued in Q4 as well. Thanks, Sam. Thank you. And our next question today comes from Paul Lejuez with Citi. Please go ahead.

Speaker Change: Those stores that were converted roughly in that mid single digit range.

Speaker Change: And then in year, two we expect them to the comp right in line with the chain comp and that also continued.

And in Q.

Speaker Change: Poor as well thanks Anthony.

Speaker Change: Thank you and our next question comes from Thomas Wei with Citi. Please go ahead.

Paul Lawrence Lejuez: Hey, thanks, guys. Could you just be a little bit more specific on the shrink drag, you know, by quarter? I think you'll still see a drag based on your comments about the exit rate from January. And then what you're expecting, when you expect that to turn to a tailwind, obviously, you go up against the accrual in 4Q. So just if you could give a little bit more detail by quarter. And then, second, could you talk about the average ticket in the five beyond stores versus the non-five beyond stores? And what do you assume for comps in F24 in both five beyond versus non-five beyond?

Hey, Thanks, guys I'm just.

Thomas Wei: Be a little bit more specific on the shrink drag by quarter I think you'll you'll still see a drag based on your comments about the exit rate from from January and then.

Thomas Wei: What you're expecting when do you expect that to turn to a tailwind. Obviously you go up against the accrual and <unk>. So just if you could give a little bit more detail by quarter and then second.

Thomas Wei: Could you talk about the average ticket in the five beyond stores versus the non five beyond stores and what have you assumed for comps in F. 'twenty four and both five beyond versus non tracked beyond thanks.

Paul Lawrence Lejuez: Yeah, so let me try it by focusing on gross margin for Q4 as we as for the next this year as we move through the quarters. So I let you know that our operating margin was going to de-lever in Q1 by about 80 BIP. As you go into Q2 and Q3, you should start to see operating margin leverage, as I mentioned. In Q2, you obviously are, you do have some of the lapping of shrink from a headwind perspective, but you also have the ongoing freight benefits that Joel mentioned. And then as you get into Q3, specifically, was, if you recall, the time when we took the large true-up related to shrink, so that will come back as a positive and improve gross margins and operating margin year-on-year. And then when you get into Q4, you know, we'll start to see the deleverage from the lower sales that exists on the overall operating margin. But gross margins in Q4 were relatively flat.

Speaker Change: Yeah. So let me let me try it by focusing on gross margin for Q4 as we as that for the next this year as we move through the quarters. So I. Let you know that we operating margin was going to Delever in Q1 by.

Speaker Change: About 80 bps.

Speaker Change: As you go into Q2 and Q3, you should start to see operating margin leverage as I mentioned in Q2. You know you. Obviously are when you do have some of the lapping of shrink from a headwind perspective, but you also have the ongoing freight benefits that Joe mentioned and then as you get into Q.

Speaker Change: Three specifically was if you recall the time when we took the large true up related to shrink so that will come back as a positive and improved gross margins and operating margin year on year.

Speaker Change: And then when you get into to Q4.

Speaker Change: We will start to see the deleverage from the lower sales that exists on the on the overall op margin.

Speaker Change: But gross margins in Q4 relatively flat gross margins right.

Kristy Chipman: But gross margins, right? And Paul, on Ticket, just recall, we don't see a big difference in Ticket between Five Beyond format stores and non-Five Beyond stores; the increase is coming in transactions. And that's something we've talked about a couple times. You know, honestly, when we first started rolling this out a couple years ago, it even surprised us. But what we're seeing is that Five Beyond is giving the customer another reason to come to Five Below. And so they're relatively spending the same amount in a transaction, but they're coming more often. So we're seeing transactions increase, and tickets are relatively flat overall. A person that puts a Five Beyond item in the store; that transaction is about double a non-Five Beyond transaction.

Speaker Change: And Paul on ticket just recall.

Speaker Change: We don't see a big difference in ticket between.

Speaker Change: Five beyond format stores and non Fi beyond stores, the increase is coming in transactions.

Speaker Change: And that's something we've talked about a couple of times you know honestly when we first start rolling this out a couple of years ago that even surprised us, but what we're seeing is might be honest, giving the customer another reason to come to buy below and so they're they're relatively spending the same amount.

Speaker Change: Uh-huh in a transaction, but they're.

Speaker Change: They're coming more often so we're seeing transactions increase and tickets are relatively flat overall.

Speaker Change: Person that puts up by beyond Aida them into the store that that transactions about double the non buy beyond transaction.

Joel D. Anderson: And that's been pretty consistent for the last two years since we started. Thanks, Paul. Thank you, and our next question today comes from Joe Feldman with Kelsey Advisors. Yeah, hey, thanks for taking my question, guys. I'm also going to change topics here a little bit on the real estate process, you know, and you guys talked about streamlining the review process. I'm wondering if you could share a little more color there. How do you avoid the mistakes if you have a more streamlined process when you're opening more stores than you did in the prior years? 225 to 235 is a lot of stores, so, you know, don't want to see the bad ones, basically. Yeah, Joe, it's a good question. A fair question.

Speaker Change: And that's been pretty consistent for the last two years ever since we started converting stores.

Speaker Change: Thanks, Paul.

Speaker Change: Our next question today comes from Joe Feldman with Telsey Advisory Group. Please go ahead.

Joseph Isaac Feldman: Yeah, Hey.

Joseph Isaac Feldman: Thanks for taking my question guys I'm I'm going to also change topics here a little bit on the real estate process, you know and you guys talked about streamlining the review process I'm wondering if you could share a little more color there like how do you avoid the.

Joseph Isaac Feldman: The mistakes with a more streamlined process when you're opening more stores than you did in the prior years $2 25 to $2 30 times a lot of stores. So you don't want to see the bad ones basically.

Joseph Isaac Feldman: Yeah.

Speaker Change: Yeah, Joe It's a good question and fair question.

Joel D. Anderson: You know, we've been on this streamlining process for quite some time. You know, everything from, you know, we're using Placer AI now to, you know, help us evaluate stores, which allows us to do a quicker, the legal team has streamlined with some AI advantages, how quickly they're able to approve leases, all those add up to add up to weeks. Not days, and so it's less about the approval at the REC committee level, and it's more about the individual components that get it to the REC committee, and then leases signed after the REC committee.

Speaker Change: We've been on the streamlined process for for quite some time.

You know everything from you know were using placer AI now to you know help us evaluate stores, which allows us to do it quicker the legal team has streamlined.

Speaker Change: With some AI advantages how quickly they're able to approve leases all those add into add up to weeks not.

Speaker Change: Not days and so it's it's less about.

Speaker Change: The approval at the Rep Committee level and it's more about the individual components that.

Speaker Change: Get it to the Rec Committee and then leases signed after the wreck Committee and this has been going on for a number of years where the.

Joel D. Anderson: And this has been going on for a number of years with an extreme focus when we had the setback from the Supply Chain Crisis, which, you know, affected real estate as well, and that's when we really worked to kind of perfect all these things. But Joe, we've continued to see consistency in our stores. I think Chuck asked earlier about NSPs, you know, the fact that continues in the mid-80s, you know, again, looking at the full year, kind of sends some leading indicators that we continue to approve the right level of stock. But great question.

Speaker Change: Extreme focus when we had the setback from the supply chain crisis, which impact real estate as well.

Speaker Change: That's when we really work to kind of protect all these but.

Joe we continue.

Speaker Change: Continue to see consistency in our stores.

Speaker Change: Chucker asked earlier about Nsp's you know the fact that continues in.

Speaker Change: In the mid eighties again looking at the full year.

Speaker Change: Kind of sent some leading indicators that we will continue to approve the right rate level of stores, but great question and as.

Joel D. Anderson: And as we continue to move up, we have got to keep that due diligence. Thanks, Joe. And our next question comes from Andrew Chasanoff with Oppenheimer. Please go ahead.

As we continue to move up we got to keep that due diligence.

Speaker Change: Thanks, Joe.

Speaker Change: And our next question comes from Andrew Charles with Oppenheimer. Please go ahead.

Andrew Chasanoff: All right, thank you for taking my question. My question is going to be in terms of current demand trends that you're seeing. So we extrapolate to 53rd week. Q4 was up about 15%, and I think guidance at the midpoint is calling for about the same top line strength. And I know you called out this delay in tax refund season, so I guess if you can maybe just expand on what you're seeing within consumer demands, because obviously you're still calling for pretty strong Q1 despite this tax refund dynamic you're seeing. Yeah, I mean, I think that just shows you that the only change we've seen in consumer behavior overall has been due to the tax refund that really impacted the month of February, and we're starting to see a catch up here in March. But overall, you know, I would attribute that to our customers seeing the value in our stores, and they continue to come to us to solve needs that they have. And we've also seen the last place when a consumer feels squeezed is cutting out on their kids.

Andrew Charles: Alright, Thank you for taking my question.

Andrew Charles: My question is just going to be in terms of current demand trends that you're seeing so we extrapolate. The 50 <unk> week Q4 was up about 15% and I think guidance at the midpoint is calling for about the same topline shrink I know you called out this delayed tax refund season. So I guess, if you could maybe just expand on what you're seeing.

Andrew Charles: And then the consumer demands because obviously, you're still calling for a pretty strong Q1. Despite this tax refund dynamic you are seeing.

Speaker Change: Yeah, I mean, I think that just shows you that we really.

Speaker Change: The only change we've seen in consumer behavior overall, it's been the due to the tax refund.

Speaker Change: That really impacted the month of February and we're starting to see a catch up here in March but overall.

Speaker Change: All you know I would attribute that to you know our customer sees the value in our stores.

Speaker Change: They continue to to come to us to solve needs that they have and and we've also seen the last place when a consumer feels squeezed as cutting out on their kids and so it's great to see the families. In there. These next two.

Joel D. Anderson: And so it's great to see the families in there, these next two weeks really kicking off with this Friday will be a big surge in business for Easter. And that tradition, we're, you know, given the early read on our Easter product seems to be very positive. And so I think the only thing we've seen different from our end is, Thanks Andrew. Hey, thanks everybody for getting on for our Q4 call. Obviously, a lot of questions about shrink, and we're happy to continue that dialogue with you. But shrink aside, as I said earlier, a really strong quarter for us.

Speaker Change: Two weeks really kicking off with this Friday will be a big surge in business for Easter and that that tradition.

Speaker Change: Given the early read on our Easter product seems to be very positive and so I think the only thing we've seen different from our end has been the impact that tax refunds had thanks Andrew.

Andrew Charles: Thank you and this concludes our question and answer session I'd like to turn the conference back over to Joel Anderson for closing remarks.

Joel D. Anderson: Hey, thanks, everybody for getting on for our Q4 call obviously, a lot of questions about shrink and we're.

Joel D. Anderson: We're happy to continue that dialogue with you, but shrink aside as I said earlier, a really strong quarter for us. We're really pleased with the progress we've made on our long term goals in 2023 that should continue to drive success in 'twenty four and beyond thanks and have a great day.

Joel D. Anderson: We're really pleased with the progress we've made on our long-term goals for 2023, which should continue to drive success in 24 and beyond. Thanks, and have a great day! Thank you. The conference is now concluded. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Speaker Change: Thank you. The conference has now concluded we thank you all for attending today's presentation you may now.

Speaker Change: Disconnect your lines will have a wonderful day.

Speaker Change: Yeah.

Speaker Change: [music].

Operator: The Ultimate Parody Site! .. The Ultimate Parody Site!