Q1 2024 Five Below Inc Earnings Call

Operator: Good day, and welcome to the Five Below First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. And to withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Kristiana Pelz, Vice President, Investor Relations, and Treasury. Please go ahead, ma'am.

Good day and welcome to the five below first quarter of 2024 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on you touched on phone.

And to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to MS. Christiane Pelz, Vice President Investor Relations and Treasury. Please go ahead ma'am.

Christiane Pelz: Thank you good afternoon, everyone and thanks for joining us today for five <unk> first quarter 2024 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.

Christiane Pelz: Thank you. Good afternoon, everyone. And thanks for joining us today for Five Below's first quarter 2024 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.

Christiane Pelz: Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed. Those risks and uncertainties are described in the press release and in 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. 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 Expense, Depreciation and Amortization Expense, and Other Selling and Administrative Expenses.

Speaker Change: Two 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.

Christiane Pelz: 85 as amended.

Christiane Pelz: 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.

Christiane Pelz: Those risks and uncertainties are described in the press release and our SEC filings the forward.

Christiane Pelz: 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.

Christiane Pelz: In this presentation, we will refer to our SG&A expenses SG&A.

Christiane Pelz: SG&A, selling general and administrative expenses, including payroll and other compensation marketing and advertising expense depreciation and amortization.

Christiane Pelz: And expense and other selling and administrative expenses.

Christiane Pelz: Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP is included in today's press release. 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.

Christiane Pelz: Additionally, we will be discussing certain non-GAAP financial measures a reconciliation of these items to U S. GAAP are included in today's press release, 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 that.

Speaker Change: I will now turn the call over to Joel.

Joel D. Anderson: Thank you, Christiana, and thanks, everyone, for joining us for our first quarter of 2024. In the first quarter, we delivered total sales growth of 12%, a comparable sales decline of 2.3%, and adjusted earnings per share of 60%. These results fell short of our expectations, as we experienced a meaningful slowdown in sales during the back half of the quarter. Despite the sales shortfall We delivered adjusted earnings at the low end of our outlook. As we analyzed our first quarter sales performance, the following factors were apparent. First, our negative comp results were driven by a decline in comp transactions.

Joel D. Anderson: Thank you Christina.

To everyone for joining us for our first quarter 2024.

Joel D. Anderson: The first quarter, we delivered total sales growth of 12% and comparable sales declined two 3% and adjusted earnings per share of 60 cents.

Joel D. Anderson: These results fell short of our expectations as we experienced a meaningful slowdown in sales during the back half of the quarter.

Joel D. Anderson: Despite the sales shortfall, we delivered adjusted earnings at the low end of our outlook range.

Joel D. Anderson: As we analyzed our first quarter sales performance following factors, where a parent.

Joel D. Anderson: Our negative comp results were driven by a decline in comp transactions second.

Joel D. Anderson: Second, consumers were more discerning with their dollars, increasingly buying from me. We saw this in the types of products they purchased, choosing more items in our version of consumable categories, such as candy, food, and beverage, beauty, and HBA. Additionally, each of these areas contributed positively to the quarterly comp.

Joel D. Anderson: Consumers were more discerning with their dollars increasingly buying to me we.

Joel D. Anderson: We saw this in the types of products they purchase choosing more items and our version of consumable categories.

Joel D. Anderson: Such as candy food and beverage beauty and H B E.

Joel D. Anderson: Each of these areas contributed positively to the quarterly comp.

Joel D. Anderson: Additionally, declining sales in older merchandise trends led by Swiss Mulhouse presented greater comp headwinds than planned.

Joel D. Anderson: Declining sales and older merchandise trends, led by squish models, present a greater comp headwind than planned. Finally, we achieve positive comps in our higher income cohorts, suggesting some trade down of these customers seeking value at our store. However, we saw underperformance in the lower income demographic that more than offset these. The quarter solidified that consumers are feeling the impact of multiple years of inflation across many key categories such as food, fuel, and rent and are therefore far more deliberate with their discretionary dollars.

Joel D. Anderson: Finally, we achieved positive comps in our higher income cohorts, suggesting some trade down of these customers seeking value data at our stores. However, we saw underperformance in the lower income demographic that more than offset these results.

Joel D. Anderson: The corner solidified the consumers are feeling the impact of multiple years of inflation across many key categories such as food.

Joel D. Anderson: Fuel and rent and are therefore, a far more deliberate with their discretionary dollars.

Joel D. Anderson: While we are tracking this behavior, I noticed some pressures over the last several quarters. The degree to which it was affecting consumers at the beginning of the first quarter was masked by the noise created from tax refund timing and an earlier East. I would also call out that the slowdown we experienced was across all geographies, further suggesting there was a broader macro impact. Five Below has always stood for wow products at extreme value, and we will lean into this mission even more heavily as we contend with the pressures faced by our core customers.

Joel D. Anderson: While we are tracking this behavior and noted some pressures over the last several quarters the degree to which it was affecting consumers at the beginning of the first quarter was masked by the noise created from tax refund timing and an earlier Easter.

Joel D. Anderson: I would also call out that the <unk>.

Joel D. Anderson: Low down we experienced was across all geographies further, suggesting it was a broader macro impacts.

Joel D. Anderson: Five below has always stood for wild products at extreme value and we will lean into this mission even more heavily as we contend with the pressures faced by our core customer.

Joel D. Anderson: The vast majority, or about 85% of our units sold, are priced at or below $5. And while we believe you're currently delivering value for our customers, we will continue to look for ways to bring even more distorted value to them. Our number one focus is on driving sales, as well as driving cost optimization to maximize margins. First, I will give you some examples of exactly what we are doing.

Joel D. Anderson: Fast majority or about 85% of our units sold are priced at or below $5 and while we believe we are currently delivering value for our customers. We will continue to look for ways to bring even more distorted value to them.

Joel D. Anderson: Our number one focus is on driving sales as well as driving cost optimization to maximize margins I will give you. Some examples of exactly what we're doing.

Joel D. Anderson: First.

Joel D. Anderson: Chasing trends has always been a strength. We will continue to quickly identify and capitalize on trends, bringing them into stores quickly, and communicate the value we provide to customers across our social media channels. Second, we recently kicked off a pricing test in about 100 stores to measure the impact of price reductions on driving sales. Third, we launched a marketing test in late May that will run for the next three months in one of our regions.

Joel D. Anderson: Chasing trends has always been a strength of ours and we will continue to quickly identify and capitalize on trends, bringing them in store quickly.

Joel D. Anderson: Communicate the value, we provide to customers across our social media channels.

Joel D. Anderson: Second.

Joel D. Anderson: We recently kicked off a pricing tests in about 100 stores to measure the impact of price reductions on driving sales third.

Joel D. Anderson: We launched a marketing test in late May that will run over the next three months and one of our regions.

Joel D. Anderson: Yes.

Joel D. Anderson: We've been working on optimizing our cost structure across the entire organization, including both operating expenses and capital spending. To drive these results, Ken Bull has assumed leadership of the teams within the Store Expansion and Store Potential pillars, while maintaining oversight of the Inventory Optimization pillar. We have a line of sight into significant savings over the next 18 to 24 months, with some savings benefiting 2024. Finally, I want to comment on our shrink mitigation.

Joel D. Anderson: We have been working on optimizing our cost structure across the entire organization, including both operating expenses and capital spending.

To drive these results Kimball has assumed leadership of the teams within the store expansion and store potential doors, while maintaining oversight the inventory optimization pillar, we have line of sight into significant savings over the next 18 to 24 months.

Joel D. Anderson: With some savings benefiting 2024.

Joel D. Anderson: Finally, I want to comment on our shrink mitigation efforts.

Joel D. Anderson: We are cautiously optimistic about the progress we made in Q1. Recently, we completed approximately 200 physical inventories, and Believe we now have a firmer handle on how to mitigate these early reads demonstrated several examples of our operating efforts working, and it put us on a path to reducing our shrink level. I want to thank the many teams dedicated to our Shrink Task Force, especially our asset protection and operations team. Kristy will give you a more detailed update in a moment.

Joel D. Anderson: We are cautiously optimistic about the progress we made in Q1.

Joel D. Anderson: Recently, we can prove completed approximately 200 physical inventories and believe we now have a firmer handle on how to mitigate shrink. These early reads demonstrated several examples of our operating efforts working.

Joel D. Anderson: And have put us on a path to reducing our shrink levels.

Joel D. Anderson: I want to thank the many teams dedicated to our shrink task force, especially our asset protection and operations team.

Speaker Change: Christie, we will give you a more detailed update on the market now.

Joel D. Anderson: Now, let me update you on the strategic pillars that serve as a foundation for a triple-double growth strategy. While we are implementing changes to address recent sales trends and offset shrink. We remain committed, and continue to see a long runway of growth for Five Below. Our first pillar is store expansion, with over 1,600 stores currently and a roadmap to 3,500 Five Below locations nationwide by the end of 2030. The opportunity to open in new markets and densify in existing markets remains significant.

Joel D. Anderson: Now.

Speaker Change: Let me update you on the strategic pillars that serve as the foundation for a triple double growth strategy.

Speaker Change: While we were implementing changes to address recent sales trends and offset shrinks.

Speaker Change: We remain committed to our strategic pillars, you continue to see a long runway of growth for Baidu App.

Speaker Change: Our first pillar is store expansion with.

Speaker Change: With over 600 stores currently in our roadmap to 3500 by below locations nationwide by the end of 2030.

Speaker Change: The opportunity to open in new markets and densify in existing markets remains significant.

Joel D. Anderson: In the first quarter alone, we opened 61 new stores, and we continue to see customers excited to have Five Below nearby. New store productivity delivered at our target level in the mid 80s. And this quarter, one of our new locations in Goldilsboro, North Carolina, was among our top all-time Spring Grand Openings.

Speaker Change: In the first quarter alone, we opened 61 new stores.

Speaker Change: And we continued to see customers excited to have Bob below nearby.

Speaker Change: New store productivity delivered at our target level in the mid eighties.

Speaker Change: And this quarter, one of our new locations and Gogo Goldsboro, North Carolina was among our top all time spring Grand openings.

Joel D. Anderson: Our differentiated concept and strong balance sheet continue to provide us with many opportunities to drive our growth, despite a tight real estate market. We are confident in our path to achieve approximately 230 new store openings this year, and I've already built a strong pipeline for 2025. Our second pillar, Distort Potential.

Speaker Change: Our differentiated concept.

<unk> strong balance sheet.

Speaker Change: Can you provide us with many opportunities to drive our growth despite a tight real estate market.

Speaker Change: We are confident in our path to achieve approximately 230, new store openings this year.

Speaker Change: It's already built a strong pipeline for 2025.

Speaker Change: Our second pillar the store potential.

Joel D. Anderson: We've been focused on growing our fleet of Five Beyond format stores and product offers. In addition, we continue our relentless focus on simplifying the operating model for our stores by reducing tasks and improving communications while mitigating shrink. One of the biggest changes we made to mitigate shrink was moving to associate-led checkouts, and the customer feedback from the new process has been overwhelmingly positive. As for our conversion strategy, we ended the first quarter with over 60% of our comp base in the Five Beyond format, of which more than half were in their second year as a Five Beyond store.

Speaker Change: We've been focused on growing our fleet of five beyond format stores and product offering. In addition, we continue our relentless focus on simplifying the operating model for our stores by reducing tasks and improving communications, while mitigating shrink.

Speaker Change: One of the biggest changes we made to mitigate shrink was moving to associate led checkouts in the <unk>.

Speaker Change: Customer feedback new process has been overwhelmingly positive.

Speaker Change: On our conversion strategy, we ended the first quarter with over 60% of our comp base in the buy beyond format.

Speaker Change: Of which more than half.

Speaker Change: We are in their second year as a buy beyond store.

Joel D. Anderson: Comps for converted stores in the Five Beyond format outperform non-converted stores by mid-single digits in both sales and transactions, with stronger transactions still the primary driver of the outperformance. We completed 84 conversions in the first quarter of the approximately 180 conversions planned for this year.

Speaker Change: Comps for converted stores in the buy beyond format outperformed non converted stores by mid single digits in both sales and transactions with stronger transaction still the primary driver of the outperformance.

Speaker Change: We completed 84 conversions in the first quarter of the approximately 180 conversions planned for this year.

Joel D. Anderson: And we now expect nearly 80% of our shore bays to be in the Five Beyond format by the end of the year. This will significantly improve our 2025 buying leverage and simplify our marketing efforts going forward. Our third pillar.

Speaker Change: And we now expect nearly 80% of our store base to be in the buy beyond format by the end of the year.

Speaker Change: This will significantly improve our 'twenty twenty-five buying leverage and simplify our marketing efforts going forward.

Speaker Change: Our third pillar.

Joel D. Anderson: Product and Brand Strategy. Our merchants remain passionate and are committed to bringing the best TrendRite amazing value products to our customers. Wild newness is part of our DNA.

This product and brand strategy.

Speaker Change: Our merchants remain passionate and are committed to bringing the best trend right amazing value products to our customer.

Speaker Change: Our newness a part of our DNA.

Joel D. Anderson: And I am really pleased with the latest trends they have identified, as well as the lineup we have for back to school, Halloween, and this coming holiday. Ask for brand awareness. Our marketing and customer analytics teams are working closely together to ensure our message of value, fun, and trend is emphasized and reaches the right customers to spur repeat visits, as well as attract new audiences to Five Below. We have invested in this area for several years, and we have far more customer intelligence than we previously did, allowing us to quickly push relevant content and optimize targeting.

Speaker Change: And I am really pleased with the latest trends they have identified as well as the lineup.

Speaker Change: For back to school Halloween and this coming holiday.

Speaker Change: As for brand awareness, our marketing and customer analytics teams are working closely together to ensure our message of value fund and trend has emphasized and reaches the right customers to spur repeat visits as well as attract new audiences to Baidu app.

Speaker Change: We have invested in this area for several years.

Speaker Change: And have far more customer intelligence than we previously did.

Speaker Change: Allowing us to quickly push relevant content and optimized targeting.

Joel D. Anderson: We also have more specific store detail than we did before, which has helped us dissect our first quarter results. In fact, based on this data, as I previously stated, we created and are rolling out a marketing test in a major region, which we expect will help drive sales and increase customer awareness of Five Below. The fourth pillar is focused on inventory optimization. This pillar continues to be a key component to creating both sales and operating efficiencies for Five Below. And given our emphasis on reducing shrink, this pillar is particularly important.

Speaker Change: We also have more specific store detail than we did before which has helped us dissect our first quarter results. In fact based on this data as I. Previously stated we created and are rolling out a marketing test in a major region.

Speaker Change: We expect will help drive sales and increase customer awareness of five below.

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

Speaker Change: This pillar continues to be a key component to creating both sales and operating efficiencies for five below and.

Speaker Change: And given our emphasis on reducing shrink.

Joel D. Anderson: Our focus is on implementing capabilities to enable scale, driving optimal inventory levels and Sellthroughs, while balancing operating costs and enabling simplification. The progress we have made in this area is exemplified by our inline inventory levels despite lower than planned comp sales. With our five-node ship center infrastructure and upgraded ship systems for retail merchandising, inventory ordering, and distribution management in place, we're delivering more accurate forecasting, ordering, and replenishment, which will lead to improved turns, in-stocks, and end-to-end visibility. Overall... We have better control over our inventory, utilizing newer AI power tools. We expect this to continue to improve, and we will benefit from more real Our fifth pillar is the crew.

Speaker Change: Pillar is particularly important our focus is on implementing capabilities to enable scale driving optimal inventory levels and.

Speaker Change: Sell throughs, while balancing operating cost and enabling simplification.

Speaker Change: Progress we have made in this area as exemplified by our in line inventory levels, despite lower than planned comp sales.

Speaker Change: We have five node chip center infrastructure and upgrade ship systems for retail merchandising inventory ordering and distribution management in place, we are delivering more accurate forecasting ordering and replenishment.

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

Overall.

Speaker Change: We have better control over our inventory.

Speaker Change: Utilizing newer AI powered tools, we expect this to continue to improve and we will benefit from more real time information as a result.

Speaker Change: Our fifth pillar is crew.

Joel D. Anderson: Much of our focus this quarter has been on shrink mitigation. We are so pleased with how our crew has embraced the changes we have made to self-checkout and other store processes. I want to thank everyone involved for their part in helping improve the shrink rate of the stores. We counted this quarter and expect this to have a broader impact on the full chain going forward. I want to conclude my remarks with a few comments on our plans for the rest of the year. 2-1 fell short for the reasons I outlined at the beginning of the call.

Speaker Change: Much of our focus this quarter has been on our shrink mitigation efforts.

Speaker Change: We are so pleased with how our crew has embraced the changes we have made to self checkout and other store processes.

Speaker Change: I want to thank everyone involved for their part in helping improve the shrink rate of the stores. We counted this quarter and expect this to have a broader impact on the cold chain going forward.

Speaker Change: I want to conclude my remarks with a few comments on our plans for the rest of the year.

Speaker Change: Q1 fell short for the reasons I outlined at the beginning of the call and.

Joel D. Anderson: And we have adjusted our guidance for the year to reflect the current run rate of sales. While there is a larger macro consumer backdrop dynamic, we always play offense at Five Below and will not sit back idly, waiting for consumer economics to improve on their own. We are focused on the overall opportunities we have while leaning into the value that our customers expect us to deliver. We have undertaken a deep dive into our product, pricing, and marketing strategies to understand where we can be more effective as we maintain our focus on shrink mitigation and cost optimization opportunities. We look forward to providing updates next quarter. With that, I'll turn it over to Kristy to review the financials in more detail. Kristy?

Speaker Change: And we have adjusted our guidance.

Speaker Change: For the year to reflect the current run rate of sales.

Speaker Change: While there is a larger macro consumer backdrop dynamic.

Speaker Change: We always play by play.

Speaker Change: Play offence at five below.

Speaker Change: And we will not sit back idly waiting for the consumer economics to improve on their own.

Speaker Change: We are focused on the overall opportunities we have to drive the business, while leaning into value that our customers expect us to deliver.

Speaker Change: We've undertaken a deep dive into our product pricing and marketing strategies to understand where we can be more effective as we maintain our focus on shrink mitigation and cost optimization opportunities.

Speaker Change: We look forward to providing updates next quarter.

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

Kristy Chipman: Thanks, Joel, and good afternoon, everyone. I will begin my remarks with a review of our first quarter results and then provide guidance for the second quarter and the full year. Our sales for the first quarter of 2024 increased 11.8% to $811.9 million from $726.2 million reported in the first quarter of 2023. However, comparable sales decreased by 2.3%, with a comp transaction decrease of 2.8%, partially offset by a comp ticket increase of 0.5%. The increase in comp tickets was driven by an increase in the average unit retail price, which was largely offset by lower units per transaction.

Christine: Thanks, Joe and good afternoon, everyone I will begin my remarks with a review of our first quarter results and then provide guidance for the second quarter and the full year.

Christine: Our sales for the first quarter of 2024 hour increased 11, 8% to $811 9 million from $726 2 million reported in the first quarter of 2023.

Christine: Comparable sales decreased by two 3% with a comp transaction decrease of two 8%, partially offset by a comp ticket increase.

Christine: Europe by 5%.

Christine: The increase in comp ticket was driven by an increase in the average unit retail price, which was largely offset by lower units per transaction.

Christine: We opened 61, new stores across 23 states in the first quarter compared to 27, new stores opened in the first quarter last year.

Kristy Chipman: We opened 61 new stores across 23 states in the first quarter, compared to 27 new stores opened in the first quarter last year, and continue to see new productivity in line with our target in the mid-80s. We ended the quarter with 1,605 stores, an increase of 238 stores or approximately 17% versus 1,367 stores at the end of the first quarter of 2023. Gross profit for the first quarter of 2024 was up 12.2% to $263.5 million versus $234.8 million in the first quarter of 2023.

Christine: Continue to see new productivity in line with our target in the mid eighties.

Christine: We ended the quarter with 1605 stores, an increase of 238 stores or approximately 17% versus 1367 stores at the end of the first quarter of 2023.

Christine: Gross profit for the first quarter of 'twenty 'twenty four it was up 12, 2% to $263 $5 million versus $234 $8 million in the first quarter of 2023.

Kristy Chipman: Gross margin increased by approximately 20 basis points to 32.5%, driven primarily by lower than expected inbound freight costs, partially offset by higher shrink accruals that we mentioned last quarter and deleverage of fixed costs on the negative count. As a percentage of SG&A for the first quarter of 2024 increased approximately 150 basis points to 28.0% versus last year's first quarter, driven primarily by fixed costly leverage, as well as a non-recurring legal expense, higher pre-opening expenses due to more openings versus last year, and a planned marketing shift into the first quarter. The non-recurring legal expense added approximately 20 basis points to SG&A as a percentage of sales.

Christine: Gross margin increased by approximately 20 basis points to 32, 5% driven primarily by lower than expected inbound freight costs, partially offset by higher shrink accrual that we mentioned last quarter and deleverage of fixed costs on the negative comp.

Christine: As a percentage of SG&A for the first quarter of 2024 increased approximately 150 basis points to 28.0%.

Christine: Last year's first quarter.

Christine: Driven primarily by fixed cost deleverage as well as a nonrecurring legal expense higher preopening expenses due to more openings versus last year and a planned marketing shift into the first quarter.

Christine: The nonrecurring legal expense added approximately 20 basis points to SG&A as a percentage of sales.

Christine: As a result, adjusted operating income for the quarter was $38 $2 million versus $42 $4 million in the first quarter of 2023 well adjusted operating margin decreased approximately 110 basis points to four 7%.

Kristy Chipman: As a result, adjusted operating income for the quarter was $38.2 million versus $42.4 million in the first quarter of 2023, while adjusted operating margin decreased approximately 110 basis points to 4.7%. Net interest income was $5.0 million as compared to $3.6 million in the first quarter of 2023 as we benefited from higher interest rates. Our effective tax rate for the first quarter of 2024 was 23.5% compared to 18.6% in the first quarter of 2023 due to a lower share-based accounting benefit this year.

Christine: Net interest income was $5.0 million as compared to $3.6 million in the first quarter of 2023, as we benefited from higher interest rates.

Christine: Our effective tax rate for the first quarter of 'twenty 'twenty four it was 23, 5% compared to 18, 6% in the first quarter of 2023 due to a lower share based accounting benefit this year.

Kristy Chipman: Adjusted net income for the first quarter of 2024 was $33.0 million, and adjusted diluted earnings per share was $0.60 versus net income of $37.5 million and EPS of $0.67 in the first quarter of last year. During the first quarter, we repurchased about 182,000 shares at an average price of $164.56 for about $30 million. We ended the first quarter with approximately $370 million in cash, cash equivalents, and investments and no debt, including nothing outstanding on our $225 million line of credit.

Adjusted net income for the first quarter of 'twenty 'twenty four it was 33 points here $1 million and adjusted diluted earnings per share was <unk> 60 <unk>.

Net income of $37 $5 million and EPS of <unk> 67 cents in the first quarter last year.

Christine: During the first quarter, we repurchased about 182000 shares at an average price of 164.

Speaker Change: I'm, sorry, $164.56 for about $30 million.

Speaker Change: We ended the first quarter with approximately $370 million in cash cash equivalents and investments and no debt, including nothing outstanding on our $225 million line of credit.

Speaker Change: Inventory at the end of the first quarter. It was approximately $630 million as compared to $534 million at the end of the first quarter last year.

Kristy Chipman: Inventory at the end of the first quarter was approximately $630 million, as compared to $534 million at the end of the first quarter last year. Average inventory on a per-store basis increased by 0.4% compared to the first quarter last year. While sales did not meet our expectations for the first quarter, we are pleased with the team's ability to quickly react to the dynamic environment, as expense discipline, as well as operations and inventory management, allowed us to deliver adjusted earnings per share slightly above the low end of our guidance range.

Speaker Change: Average inventory on a per store basis increased by 0.4% compared to the first quarter last year.

Speaker Change: While sales did not meet our expectations for the first quarter. We are pleased with the team's ability to quickly react to the dynamic environment as expense discipline as well as operations and inventory management allowed us to deliver adjusted earnings per share slightly above the low end of our guidance range.

Speaker Change: Before I move onto guidance I'd like to say a few words about the changes we have made in the stores to combat shrink and the early results we've seen thus far.

Kristy Chipman: Before I move on to guidance, I'd like to say a few words about the changes we have made in the stores to combat shrink and the early results we have seen thus far. As a reminder, on the fourth quarter call, we shared that we were moving to associate-led checkout, with a goal of 75% of all transactions to be associate-led, with 100% associate-led transactions in our highest-strength stores, which we have now successfully implemented.

Speaker Change: As a reminder, in the fourth quarter call. We shared that we were moving to associate led checkout with a goal of 75% of all transactions to be associate led with 100% Associate led transactions in our highest strength starts which we have now successfully implemented.

Kristy Chipman: We also conducted additional tests in about 70 stores, which included changes like receipt checking at the door, adding guards, and incremental upfront labor. We counted physical inventories in about 250 stores in May, including those with these additional tests, and saw positive results in the shrink rate overall. The subset of the stores with that I'm sorry, the subset of stores that had an associate-led checkout along with another mitigation measure experienced greater improvement in the rate of shrink. We're happy to see our efforts working.

Speaker Change: We also conducted additional tests in about 70 stores, which included changes like receipt checking out the door, adding guards and incremental upfront labor.

Speaker Change: We counted physical inventories and about 250 stores in may including those with these additional tests and saw positive results in the shrink rate overall.

Speaker Change: The subset of stores with.

Speaker Change: That I'm sorry, the subset of stores that had an associate led checkout along with another mitigation measure experienced greater improvement in the rate of shrink we're happy to see our efforts working.

Kristy Chipman: We will be evaluating the returns on these various initiatives and will then quickly roll them out to the stores we believe will benefit from these additional measures. As a reminder, we will count about half of our chain in August in the normal course of business. May inventories provided us with an early read, and we are cautiously optimistic our efforts will show continued improvement in the August results when completed. We are not including any changes to our shrink assumptions in our guidance and will update you on the August inventory results during our second quarter call. Now I would like to turn to our guidance.

Speaker Change: We will be evaluating the returns on these various initiatives and will then quickly rolled them out to the stores. We believe will benefit from these additional measures.

Speaker Change: As a reminder, we will count about half of our chain in August in the normal course of business.

Speaker Change: Hey inventories provided us an early read and we are cautiously optimistic our efforts will show continued improvement in the August results when completed.

Speaker Change: We are not including any changes to our shrink assumptions in our guidance and we'll update you on the August inventory results during our second quarter call.

Speaker Change: Now I would like to turn to our guidance.

Kristy Chipman: Please note, our estimates do not include any potential impact from future share repurchases or share-based accounting. For the full year, we are comparing against fiscal 2023 on a 52-week basis, as the extra week in fiscal 2023 added approximately $48 million in sales and approximately $0.15 in earnings per share. I will refer to comparisons to fiscal year 2023 on a 52-week adjusted basis, which excludes the one-time legal settlement mentioned earlier. For the second quarter of 2024, net sales are expected to be in the range of $830 million to $850 million, an increase of 9.4% to 12% compared to the second quarter of last year.

Please note our estimates do not include any potential impact from future share repurchases are share based accounting.

Speaker Change: For the full year, we are comparing against fiscal 2023, and 52 week basis as the extra week in fiscal 2023 added approximately $48 million in sales and approximately 15 cents in earnings per share.

Speaker Change: I will refer to comparisons to fiscal year 2023 on a 52 week adjusted basis, which excludes the one time legal settlement mentioned earlier.

Speaker Change: For the second quarter of 2024 net sales are expected to be in the range of 830 million to $853 million, an increase of nine 4% to 12% compared to the second quarter last year.

Kristy Chipman: We plan to open approximately 60 new stores in the second quarter this year, as compared to 40 stores opened in the second quarter last year, and are assuming a second quarter comparable sales decrease in the mid-single-digit range. The midpoint of our second quarter comp guidance assumes the current trends we are experiencing will continue into the second quarter. We expect operating margin of 5.2% at the midpoint in the second quarter of 2024, or a de-leverage of approximately 250 basis points as higher shrink and higher fixed cost de-leverage on the negative comp are only partially offset by lower freight expenses and lower incentive compensation compared to last year. Net interest income is expected to be approximately $3 million for the second quarter, and taxes are expected to be 25.8%, which does not include any potential impact from share

Speaker Change: We plan to open approximately 60, new stores in the second quarter of this year as compared to 40 stores opened in the second quarter last year and are assuming a second quarter comparable sales decrease in the mid single single digit range.

Speaker Change: The midpoint of our second quarter comp guidance assumes the current trends we are experiencing will continue into the second quarter.

Speaker Change: We expect operating margin of five 2% at the midpoint in the second quarter of 2024, our deleverage of approximately 250 basis points as higher shrink and higher fixed cost deleverage on the negative comp is only partially offset by lower freight expenses and lower incentive compensation.

Speaker Change: Station compared to last year.

Speaker Change: Net interest income is expected to be approximately $3 million for the second quarter and taxes are expected to be 25, 8%, which does not include any potential impact from share based accounting.

Speaker Change: Net income for the second quarter is expected to be between $32 million and $38 million versus $46 $8 million in the second quarter last year.

Kristy Chipman: Net income for the second quarter is expected to be between $32 million and $38 million versus $46.8 million in the second quarter of last year. Diluted earnings per share for the second quarter are expected to be $0.57 to $0.69 versus $0.84 in the second quarter of 2023. Now on to the full year.

Speaker Change: Diluted earnings per share for the second quarter are expected to be 57 cents.

Speaker Change: 69 cents versus 84 cents in the second quarter of 2023.

Speaker Change: Now onto the full year for fiscal 'twenty 'twenty four sales are now expected to be in the range of $3 seven $9 billion to $3 $87 billion, an increase of seven 9% to 10, 2% on a 52 week basis.

Speaker Change: The comparable sales decrease is expected to be in the range of negative five to negative 3%.

Kristy Chipman: For fiscal 2024, sales are now expected to be in the range of $3.79 billion to $3.87 billion, an increase of 7.9% to 10.2% on a 52-week basis. The comparable sales decrease is expected to be in the range of negative five to negative three percent. We plan to open approximately 230 stores to end the year with 1,774 stores, or unit growth of approximately 15%. Our new store cadence has now fully normalized, returning to about 50% openings in the first half of the year.

Speaker Change: We plan to open approximately 230 stores to end the year with 1774 stores or unit growth of approximately 15%.

Speaker Change: Our new store cadence is now fully normalized returning to about 50% opening in the first half of the year.

Speaker Change: For the full year adjusted operating margin is expected to be nine 8% at the midpoint of guidance, our deleverage of 90 basis points on a 52 week basis.

Kristy Chipman: For the full year, Adjusted Operating Margin is expected to be 9.8% at the midpoint of guidance, or a deleverage of 90 basis points on a 52-week basis. This decline is primarily due to deleverage of fixed costs on the lower sales outlook, offset in part by benefits associated with lower inbound freight, lower incentive comp, and certain cost optimization strategies.

Speaker Change: This decline is primarily primarily due to deleverage of fixed costs on a lower sales outlook offset in part by benefits associated with lower inbound freight lower incentive comp and certain cost optimization strategies.

Kristy Chipman: Given the lower sales and related cash flow estimates, we are now lowering our net interest income forecast to approximately $13 million for the year, and we expect a full-year effective tax rate of 25.8% for 2024. Adjusted net income for fiscal 2024 is expected to be in the range of $277 million to $299 million, representing a decline of 1.7% at the midpoint over 2023. Adjusted diluted earnings per share are expected to be in the range of $5 to $5.40, implying an approximate 1% decline versus the prior year at the mid-price.

Speaker Change: Given the lower sales and related cash flow estimates, we are now lowering our net interest income forecast to approximately $13 million for the year and we expect our full year effective tax rate for 2024 of 25, 8%.

Speaker Change: Adjusted net income for fiscal 2024 is expected to be in the range of $277 million to $299 million, representing a decline of one 7% at the midpoint over 2023.

Speaker Change: Adjusted diluted earnings per share are expected to be in the range of $5 to $5 40.

Speaker Change: Implying an approximate 1% decline versus the prior year at the midpoint.

Kristy Chipman: The diluted share count is expected to be $55.34 million, excluding any impact from future share repurchase. With respect to gross CapEx, we now plan to spend between $345 million and $355 million, excluding the impact of tenant allowances. This reflects the opening of approximately 230 new stores, converting about 180 store locations to the Five Beyond format, the completion of expansions in our distribution centers in Georgia and Arizona, and investments in systems and infrastructure. In summary, first quarter sales reflected a more difficult macro backdrop than expected.

The diluted share count is expected to be $55, three 4 million, excluding any impact from future share repurchases.

Speaker Change: With respect to gross Capex, we now plan to spend between $345 million and $355 million, excluding the impact of tenant allowances.

Speaker Change: This reflects the opening of approximately 230, new stores converting about 180 store locations to the five beyond format.

Speaker Change: The completion of expansion in our distribution centers in Georgia, and Arizona and investments in systems and infrastructure.

Speaker Change: In summary, the first quarter sales were reflected a more difficult macro backdrop than expected we have adjusted our outlook for the rest of the year, assuming the current environment continues and we are proactively tightening expenses and managing inventory receipts and allocations.

Kristy Chipman: We have adjusted our outlook for the rest of the year, assuming the current environment continues, and we are proactively tightening expenses and managing inventory receipts and allocations to help mitigate the bottom-line impact of the lower sales. Should we see discretionary spending patterns of our core customers increase, we will respond quickly. We believe this guidance reflects a prudent and realistic way to plan the rest of fiscal 2024.

Speaker Change: <unk> mitigate the bottom line impact of the lower sales.

Speaker Change: Should we see discretionary spending patterns of our core customers increase we will respond quickly.

We believe this guidance reflects a prudent and realistic way to play in the rest of fiscal 2024.

Speaker Change: For all other details related to our results and guidance. Please refer to our earnings press release.

Kristy Chipman: For all other details related to our results and guidance, please refer to our earnings press release. Before I turn the call over to the operator, we know you have a lot of questions about our results. We would ask that you limit yourself to one question so we can get through everyone in our allotted time. With that, I'll turn it over to the operator for the question and answer session. We will now begin the...

Speaker Change: Before I turn the call over to the operator, we know you have a lot of questions about our results. We would ask that you limit yourself to one question. So we can get through everyone in our allotted time.

Speaker Change: That I will turn it over to the operator for the question and answer session. Thank you. We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Again, please limit yourself to one question. If you have further questions, you may re-enter the question queue.

Speaker Change: If you're using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: And again, please limit yourself to one question and if you have further questions. You may reenter. The question queue. At this time, we'll pause momentarily to assemble our roster.

Operator: And at this time, we'll pause momentarily to assemble our roster, and our first question will come from Simeon Gutman with Morgan Stanley. Please go ahead. Good afternoon.

And our first question will come from Simeon Gutman with Morgan Stanley. Please go ahead.

Simeon Ari Gutman: Good afternoon.

Simeon Ari Gutman: So Mike I wanted to ask about the customer you said, they're becoming more discerning when I wanted to ask like chicken bursty egg if it's possible because of some of the price point increases and through five beyond if that's causing it or not and then the second part of it is you know this business hasn't really comped negative.

Simeon Ari Gutman: Outside of that 2022 period.

Simeon Ari Gutman: So how do you kind of forecast the dimensions on the downside now as you go forward, meaning how do you know you've captured.

Simeon Ari Gutman: The current run rate appropriately or if it can actually get worse from here. Thank you.

Simeon Ari Gutman: Yes.

Joel D. Anderson: Yeah, Simeon, great question. As for the Five Beyond part of it, we've had Five Beyond, as you know, for a couple years now, and we continue to do studies every quarter about the customer's reaction to Five Beyond. And we haven't seen any change in those studies from when we started in 22 to this final quarter here at the beginning of 24. And the comments have been overwhelmingly positive, and the quantifiable data has been overwhelmingly positive.

Speaker Change: Great question.

Speaker Change: As for the five beyond part of it.

Speaker Change: We've had five beyond as you know for you know a couple of years now and we continue to do studies every quarter about the customers' reaction to buy beyond.

Speaker Change: And we haven't seen any change in those studies from when we started in 'twenty two to this final quarter here in 'twenty, the beginning of 'twenty four.

Speaker Change: And the comments have been overwhelmingly positive and the quantifiable data has been overwhelming.

Speaker Change: Confident.

Speaker Change: Positive. So I don't think there that's really the answer to the customer in fact.

Joel D. Anderson: So I don't think that's really the answer for the customer. In fact, Five Beyond has performed best in our lower household income stores. So I think that is another example that they really see the value the further they have to try and stretch their dollar. And then, in terms of framing up, have we seen the worst?

<unk> be honest performed the best in our lower household income stores. So I think that is another example that they really see the value.

Speaker Change: The further they have to try and stretch their dollar and then in terms of framing up.

Speaker Change: Seen the worst.

Speaker Change: We saw a big decline in the second half of the quarter.

Joel D. Anderson: We saw a big decline in the second half of the quarter. And I think somebody even asked us on the last call if we were within the range of our guidance, and we were squarely in the middle of it. So you know, Easter was disappointing, and then it continued into spring as well as into May here. So, on the one hand, the decline we've seen has been very steady for a couple months now.

Speaker Change: And I think somebody even asked this on last call. If we were within the range of our guidance and we were squarely in the middle of it so.

Speaker Change: Easter was disappointing and then it continued into spring as well as then into May here. So on one hand.

Speaker Change: The decline we've seen has been very steady.

Speaker Change: For a couple of months now and and it also as we get out of spring summer and <unk>.

Joel D. Anderson: And it also, as we get out of spring and summer and start to get into a more neat state with our customers, in other words, back to school is a reason they have to come into our stores, and certainly holidays, our entire store becomes a neat store. I think it'll begin to moderate, but it's been pretty consistent since the Easter period. Thanks, Simeon.

Speaker Change: Start to get into more.

Speaker Change: Need state with our customer in other words back to school is a reason they have to come in our stores and certainly holiday our entire store becomes a need store.

Speaker Change: I think it will begin to moderate but it's been pretty consistent since the.

Speaker Change: The Easter period, Thanks Simeon.

Speaker Change: Thank you for your question will come from Seth Sigman with Barclays. Please go ahead.

Operator: The next question will come from Seth Sigman with Barclays. Please go ahead.

Joel D. Anderson: Hey everyone, thanks for taking the question. I wanted to follow up on the sales performance. The decline in comps and the pressure you're seeing, I don't think it's unique to Five Below. You know, we've obviously seen declines in discretionary demand at many of your peers, but if the change is up until this quarter, Five Below had outperformed a lot of those peers, and it does seem like that gap has narrowed a lot this quarter.

Speaker Change: Hey, everyone. Thanks for taking the question I wanted to follow up on the sales performance the decline in comps in the pressure you're seeing I don't think it's unique to five below.

Speaker Change: You've obviously seen declines in discretionary demand at many of your peers, but is the change is up until this quarter <unk> had outperformed a lot of those peers and it does seem like that gap has narrowed.

Joel D. Anderson: Any more perspective on that and why it seems like there's been a sharper slowdown here? And I know part of that is there's a lot happening within the box. Do you feel like there could be anything self-inflicted here? Thank you.

Speaker Change: A lot this quarter, just any more perspective on that and why it seems like theres been a sharper slowdown here and I know part of that is there's a lot happening within the box do you feel like there could be anything self inflicted here. Thank you.

Speaker Change: Yeah look Seth.

Joel D. Anderson: Yeah, look, Seth, in terms of self-inflicted, you know, we're never perfect on that. What I would tell you is, you know, it's proven harder for us to lap some of the big trends from last year, namely squishy mollows. You know, and this relates to Simeon's question, and how do we know we've seen the top?

Seth Ian Sigman: In terms of self inflicted you know we're never perfect on that.

Seth Ian Sigman: I would tell you I think the one change that's happened as you know it is proven harder for us to lap some of the big trends from last year, namely Squish models.

Seth Ian Sigman: You know and this relates to <unk> question on how do we know we have seen the top.

Seth Ian Sigman: Squish MAU penetration begins to moderate here in the back half of the year. So.

Joel D. Anderson: Squish mollow penetration begins to moderate here in the back half of the year. So the front half of the first half of the year was much bigger than the back half of the year last year. And so I think that moderation will start to help as well. But I think that's probably the biggest difference between last year's outperformance and this year being, you know, more in line with those that have discretionary categories.

Seth Ian Sigman: The front half first half of the year was much bigger than the back half of the year last year, and so I think that moderation will start to help as well, but I think that's probably been the biggest difference from last year's outperformance to this year being more in line.

Seth Ian Sigman: With those that have discretionary categories.

Speaker Change: Thanks Seth.

Speaker Change: The next question will come from Paul <unk> with Citi. Please go ahead.

Operator: The next question will come from Paul Luez with Citi. Please go ahead.

Operator: Thanks, Seth. The next question will come from Paul Luez with Citi, please go ahead. Hi guys, this is Kelly on for Paul. Thanks for taking our question.

Kelly: Hi, guys. This is Kelly on for Paul Thanks for taking our question.

Kelly: Looking a little bit more color on your on your pacing that you're that you're testing currently where exactly are you taking that price points by category and.

Kelly: If you do you see that.

Speaker Change: The reaction.

Speaker Change: Reaction you are expecting from the pricing tests, well, we expect that to be rolled out.

Speaker Change: And how would you kind of account for that in guidance.

Joel D. Anderson: Yeah, yeah, you bet, Kelly. You know, I've always said to all of you when I've talked at the last place that we like to raise prices. You know, gain margin is through raising prices. And we've been consistent, you know, throughout the inflation years of going to price increases last. Having said that, we did have to make several price changes in the last couple of years. The focus right now is mainly on the front end of the store so that we can continue to deliver, you know, low prices in the front, their initial reaction, and their initial price point.

Speaker Change: Yeah.

Yeah, you bet Kelly.

Speaker Change: You know I've always said to all of you when I've talked at the last place we like to raise price.

Speaker Change: Gain margin is through raising prices and we've been consistent throughout the inflation years.

Speaker Change: Going to price increases less how having said that we did have to make several price changes throughout the last couple of years.

The focus is right now is mainly on the front end of the store. So that we can continue to deliver.

Speaker Change: Low prices in the front there are initial reaction initial price point. So you know obviously seasonal is a big focus on that area.

Joel D. Anderson: So, you know, obviously, seasonality is a big focus on that area. And yes, Kelly, if we do see, you know, you know, positive increases that offset the price declines, we will look to start to roll that out. But at this point in time, you know, it's a test. And like I said in my prepared remarks, we're going to play offense; we're not going to sit back. We know where the issues are, and we're going to really focus on some of those categories to see if we can change the trajectory and drive sales faster. Thanks, Kelly. The next question will come from Matthew Boss, with J.P. Morgan.

Speaker Change: And yes, Kelly if if we do see you know.

Speaker Change: Positive increases that offset the price declines we will look to start to roll that out but at this point in time.

Speaker Change: It's a test and like I said in my prepared remarks, you know, we're gonna play offense, we're not going to sit back.

Speaker Change: We know where the issues are and we're going to really focus on some of those categories to see if we can.

Speaker Change: Changed the trajectory and drive sales faster.

Speaker Change: Thanks Kelly.

Kelly: Thank you.

Operator: The next question will come from Matthew Boss with J.P. Morgan. Please go ahead. Great, thanks. So, Joel, just...

Speaker Change: Question will come from Matthew boss with J P. Morgan. Please go ahead.

Speaker Change: Great. Thanks, So Joel just given the macro backdrop that you laid out in the bifurcation that you are seeing across your income cohorts.

Speaker Change: How best to think about initiatives across world.

What's the timing that you see in order to stabilize comps.

Speaker Change: Yeah.

Joel D. Anderson: Yeah, look, I think the prudent thing to do, Matt, was, you know, provide the guidance that we did for all of you that, really, in order to beat those numbers, we really don't have to see any change. So between what Michael's doing in merchandising and then the new product coming in, our pricing tests that I just talked about, as well as marketing tests. Some of those are going to stick, no different than everything we did to, you know, turn around, shrink.

Joel D. Anderson: Look I think the prudent thing to do Matt was you know provide the guidance that we did for all of you that you know.

Joel D. Anderson: Really in order to beat those numbers, we really don't have to see any change so but.

Joel D. Anderson: Between what Michael is doing in and merchandising and then the new product coming in.

Joel D. Anderson: Our pricing tests that I, just talked about as well as marketing tests.

Some of those are going to stick no different than everything we did the turnaround shrink and so I would expect you know by the back half of the year. We started to see some that we believe in that we can roll out and and then clearly as we get.

Joel D. Anderson: And so I would expect, you know, by the back half of the year, we start to see some that we believe in, that we can roll out. And then clearly, as we get past the election and into the fourth quarter, the pressure should start to subside from what we're seeing today. But, you know, make no doubts about it, Matt, the lower end customer is really being stretched, and we have got to deliver value.

Joel D. Anderson: Past the election and in the fourth quarter.

Joel D. Anderson: The pressures should start to subside from what we're seeing today, but make no doubt about it Matt.

Joel D. Anderson: The lower end customer is really being stretched and we.

We got to deliver value and we got a really display that in how we go to market and you know when you walk in the store what you see but Oh, that's in flight right now and expect to see some of those changes improve by the back half of the year.

Joel D. Anderson: And we've got to really display that in, you know, how we go to market. And, you know, when you walk in the store, what you see, but all that's in flight right now. And, you know, expect to see some of those changes improved by the back half of the year.

Speaker Change: Thanks, Matt.

Operator: The next question will come from Scott Ciccarella with Truist. Please go ahead.

Speaker Change: The next question will come from Scot Ciccarelli with Truest. Please go ahead.

Joel D. Anderson: Hey guys, Scott Ciccarelli and Joel, I know you've had some questions on self-inflicted wounds versus consumer behavior, but obviously, you guys have had a huge shift in behavior just over the last, you know, couple months. And, you know, there are other companies you tend to co-locate with, like the off-price retailers are actually performing well. Like, you know, is there any reason to better understand why that would be occurring? Is it just, you know, maybe your product's gotten a little bit stale? Could it be some of the shrink mitigation efforts? I know some of it would be speculation on your part, but we love that kind of color. Thanks. Yeah, that's a good question, and I...

Scot Ciccarelli: Hey, guys Scot Ciccarelli.

Scot Ciccarelli: Joe I know you've had some questions on self inflicted wounds versus consumer behavior, but obviously you guys have had a huge shift in behavior just over the last couple of months I guess and you know there's other companies you tend to co locate with like the operate off price retailers are actually performing well like you know if there are any.

Any reason to better understand why that would be occurring is it just you know maybe at your product set in a little bit stale could it be some of the shrink mitigation efforts I know some of it would be speculation on your part, but we love the color. Thanks.

Speaker Change: Yeah, that's a good question and I think.

Joel D. Anderson: Yeah, that's a good question. And I think, you know, even the off price, a large percentage of their businesses are apparel, and, you know, apparel is still more than needs-based and, and at incredible value. And I think that's, you know, contributors. We've seen positive trends in our apparel business as well. It's just not a big piece of our business. And then, you know, in terms of self-inflicted wounds, I think the entire team is dissecting every piece of their business to see, you know, which pieces of it they can approve. And then, you know, I think if you compare it to the dollar stores, both Dollar General and Dollar Tree called out that, like us, they're seeing negative comps in discretionary categories.

Speaker Change: You know even in the off price you know a large percentage of their businesses apparel and apparel is still more in that needs based and and at incredible value and I think thats a contributor there as we've seen positive trends in our apparel business as well, it's just not a big piece.

Speaker Change: <unk> of our business.

Speaker Change: And then in terms of self inflicted.

Speaker Change:

Speaker Change: I think the entire team has been.

Speaker Change: Dissecting every piece of their business to see which pieces of it.

Speaker Change: You know they can approve and then I think if you compare it to the dollar stores you know both dollar general and dollar tree called out.

Speaker Change: Like us they are seeing negative comps in discretionary categories.

Operator: Hopefully, that gives you some help there, Scott. Thank you. The next question will come from John Heinbockel with Guggenheim. Please go ahead. Hey, Joel.

Scott: Hopefully that gives you some help there Scott thank you.

Scott: Thanks.

Scott: Okay.

Speaker Change: The next question will come from John Hind Buckle with Guggenheim. Please go ahead.

Operator: The next question will come from John Heinbockel with Guggenheim. Please go ahead.

Speaker Change: Hey, Joe.

Joel D. Anderson: Two things: what type of mid-course corrections?

Speaker Change: Two things what are what type of mid course corrections.

Michael: This is Michael think is appropriate here.

Speaker Change: In terms of I know you kind of set for holiday, but bringing in new product.

Speaker Change: It might be more value oriented.

Speaker Change: Indoor maybe dialing back.

Speaker Change: Inventory you had planned.

Speaker Change: And then you know obviously, you've got a reset.

Speaker Change: Labor for lower comps.

How do you do that without impacting the experience for those who are coming in.

Speaker Change: Yeah.

Joel D. Anderson: Yeah, look, it's a good question, John. And, you know, we have made some investments in labor, and it has had a positive impact on shrink. And I think we're going to get down that path because it seems to be offsetting shrink more. And then, in terms of Michael, I think the real change you're seeing is that, historically, we brought in new hot trends at 555 or 595. And, you know, we're really focused on trying to deliver those at five. And it's just another example of trying to really dial up that shrink.

Speaker Change:

Speaker Change: It's a good question John and you know we have made some investments in labor in it. It has had a positive impact on shrink and and I think we're going to go down that path because it seems to be offsetting shrink more.

Speaker Change: And then in terms of Michael I think the real.

Speaker Change: Change Youre seeing is you know.

Speaker Change: Historically, we brought in new hot trends that $5 55, or $5 95, and we're really focused on trying to deliver those at five and it.

Just another example of trying to really dial up that shrink.

Joel D. Anderson: I've had a sneak peak into back-to-school, and it feels like we've really differentiated there this year, and it's really good value. And as we move past this, you know, spring-summer time frame, which like a couple other retailers have called out, there's just been a little bit of a malaise there. And that honestly has been something we've seen since COVID, and we've talked about that for a couple of years now. And I think we now have to just assume that it's gonna happen in the spring or summer timeframe. And so what Michael's really looking at is how to reinvent that space next year. But as we get past that, we should begin to see some improvement in sales.

Speaker Change: I've had a precursor look into back to school and it feels like we've really differentiated there this year and it's a really good value.

Speaker Change: And as we move past this spring summer time frame.

Speaker Change: Which like a couple of other retailers have called out Theres, just been a little bit of a malaise there.

Speaker Change: That obviously has been something we've seen since COVID-19 when we've talked about that a couple of years now and I think we now have to just assume that's going to happen.

Speaker Change: The spring summer timeframe, and so where we're Michael is really looking at is how to reinvent that space next year, but.

Speaker Change: But as we get past that.

John: Should begin to start to see some improvement in sales. Thanks John.

Operator: The next question will come from Michael Lasser with UBS; please go ahead.

Speaker Change: The next question will come from Michael Lasser with UBS. Please go ahead.

Joel D. Anderson: Good evening. Thank you so much for taking my question. Joel, why isn't the slowdown that you've been experiencing caused by simply increased competition, whether it's some new dollar store competitors or inexpensive Asian direct sellers or marketplaces that are gaining increased traction in the United States? And if you see a prolonged period of negative comps, how does this change your thinking about the long-term margin potential for the Thank you. Yeah. Yeah.

Michael Lasser: Good evening. Thank you so much for taking my question Joel why isn't the slowdown that you've been experiencing caused by interest simply increased competition, whether it's from new dollar store competitor.

Michael Lasser: Or inexpensive Asian direct sellers or marketplaces that are gaining increased traction in the United States and if you see a prolonged period of negative comps.

Michael Lasser: Does this change your.

Speaker Change: We're thinking about the long term margin potential for the business. Thank you.

Joel D. Anderson: Yeah, yeah, no, look, it's a great question, Michael, and it's a question we ask ourselves in multiple ways. One of the ways we ask it is when we do our quarterly research. You know, and one of the questions we ask is, you know, where do you go when you want fun, you know, trend right, high-value items?

Joel D. Anderson: Yeah, No look it's a great question, Michael and it's a question we've asked ourselves and we ask ourselves is in a multiple ways one of the ways. We ask it is when we do our quarterly research.

Joel D. Anderson: And one of the questions. We ask is where do you go when you want button.

Joel D. Anderson: Right high value items.

Joel D. Anderson: And, you know, we were top of mind on that. And so that has not changed quarter over quarter. And we have not seen some of the retailers you just mentioned move up the list on that. Secondly, I would tell you, we have sliced our sales performance in line with where our competition is. And we're not, and I mentioned this in my prepared remarks, this decline was broad-based. It was across all geographies. And so we didn't really see any. But there's a trend that would, you know, lead it to say when we're near these retailers, or those retailers are closer to us, our performance was worse.

Joel D. Anderson: And you.

Joel D. Anderson: We were top of mind on that.

Joel D. Anderson: And so that that has not changed quarter over quarter, and we have not seen some of the retailers you just mentioned move up the list on that.

Joel D. Anderson: Secondly, I would tell you we have.

Joel D. Anderson: Fly start our sales performance.

Joel D. Anderson: By where our competition is and we're not.

Joel D. Anderson: And I mentioned this in my prepared remarks. This decline was broad based it was across all geographies and so we didn't really see any.

Joel D. Anderson: So those are just two data points, both from research, and then also us just dissecting our sales here over the last few weeks. And also, if it really was competition, the bifurcation we saw from the first half of the quarter to the second half would have never dropped off instantly because there wasn't an event that was competitive-driven that happened in the middle of the quarter. This change we saw literally happen, you know, the week of Easter, and then the back half of the quarter into May here. So, all three of those lead to saying this is not a competition-driven change. This isn't something structural that we can't overcome.

The trend that would you know.

Joel D. Anderson: Leave it to say when we're near these retailers are those retailers are closer to us that our performance was worse. So those are just two data points. Both on a research and then also I was just dissecting our sales here. The last few weeks and also if it really was competition.

Joel D. Anderson: <unk> the bifurcation, we saw from the first half of the quarter to the second half would've never dropped off instantly because there wasn't day an event that was competitive driven that happened in the middle of the quarter. This change we saw.

Joel D. Anderson: Literally happened the week of Easter and then the back half of the quarter into May here. So both all three of those lead to saying this is not a.

Susan: Competition, driven change Susan something structural that we can't overcome.

Speaker Change: Thanks, Michael.

Operator: The next question will come from Edward Kelly with Wells Fargo. Please go ahead.

The next question will come from Edward Kelly with Wells Fargo. Please go ahead.

Speaker Change: Yeah, Hi, good morning, everyone.

Joel D. Anderson: Yeah, hi, good morning, everyone. Joel, I wanted to ask you a question about shrinking. And the question I have is, are you confident that the adjustments that you're making to self checkout have not impacted sales? And I asked that because I think the timing of moving to assisted checkout and sales to kind of work somewhat similar. I'm just curious if you're confident about that. And then, secondly, when do you think you'll begin to see some benefit coming to the gross margin related to research improvement?

Edward Joseph Kelly: I wanted to ask you a question about about shrinking. The question I have is are you confident that the adjustments that you're making the self checkout.

Edward Joseph Kelly: Have not impacted sales and I asked that because I think the timing of moving to assisted checkout and the South Dakota were somewhat similar.

Edward Joseph Kelly: I'm just curious if you're confident around that and then secondly, when do you think youll begin to see some benefit coming through the gross margin related to the recent second quarter.

Joel D. Anderson: Yeah, Michael, I mean, Ed, sorry, great question, and it is something we looked at a couple of ways ourselves. One, again, this change in sales was, dropped off a cliff that Easter week. So, again, we put those self-checkout mitigations where we switched to associate checkouts more closer to the beginning of February. And then, like I said, the sales trajectory changed even more, like the middle of March, the late half of March. And then, in terms of confidence of when we'll make changes, and Kristy, please jump in, I think it will be more along once we complete our August physical inventories.

Edward Joseph Kelly: Yeah.

Speaker Change: Michael I mean, Ed sorry, great Great question and it is something we looked at.

Speaker Change: A couple of ways ourselves.

<unk>.

Speaker Change: One again this this change in sales was a.

Speaker Change: Dropped off a cliff, but that Easter week, so again, we put those.

Speaker Change: Self checkout mitigation, where we switch to associate checkouts more closer to the beginning of February.

Speaker Change: And then.

Speaker Change: Like I said the sales trajectory changed the more like the middle of March late half of March and then in terms of confidence of when we'll make changes and Christy Please jump in.

Speaker Change: I think it would be more along once we complete our August.

Speaker Change: August physical inventories were doing about so yeah, we're doing about 750 inventories at the beginning of August and so we will have time to reflect those results in our quarter two results and we will provide that feedback obviously at how it impacts the future quarters at that time as well so that'll be that'd be the time.

Joel D. Anderson: We're doing about 750 inventories at the beginning of August, and so we will have time to reflect those results in our quarter two results. And we'll provide that feedback, obviously, as to how it impacts the future quarters at that time as well. So, that'll be, that'd be the time when you begin to see the inflection point.

Operator: Ed, thank you. The next question will come from Chuck Grom with Gordon Haskett. Please go ahead. Hey, this is Eric on behalf of Chuck.

Speaker Change: When you begin to see the inflection point.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: The next question will come from Chuck Grom with Gordon Haskett. Please go ahead.

Operator: The next question will come from Chuck Grom with Gordon Haskett. Please go ahead. Hi, this is Eric.

Eric: Hi, This is Eric on for Chuck. Thanks for taking the question just wanted to ask about your inventory. So how you feel about the quality inventory the growth really accelerated versus last quarter and the spread to sales growth also accelerated.

Eric: Curious if you're taking any additional markdowns to get through some of his inventory are you thinking you can continue to get through that without having a discounted over the course of the year.

Joel D. Anderson: Yeah, good question. The health of our inventory is still in great shape. The teams did an excellent job of managing down once we saw the change. Any of our categories that have a limited lifespan, like candy and food, those are actually the businesses that outperformed. So no liabilities there in terms of spoilage or anything like that. And then any areas where we were long, very easy to hold those items back in the distribution center.

Speaker Change: Yeah. Good question Yeah.

Speaker Change: The health of our inventory is still in great shape.

Speaker Change: The teams did an excellent job of managing down once we saw the change.

Many of our categories that have you know a limited lifespan, you know like candy and food those are actually the businesses that outperformed so no liabilities there in terms of spoilage or anything like that and then any areas where are we where we're long a very easy to hold those items.

Speaker Change: Back in the distribution center.

Joel D. Anderson: And as we add new stores, we can easily absorb that. So not a big concern there at all from our part. Our aged inventory level is pretty consistent with where it was a year ago. Looking forward

Speaker Change: As we add new stores, we can easily absorb that so not a big concern there at all from our part.

Speaker Change: Our aged inventory level is pretty consistent to where it was a year ago looking forward.

Speaker Change: Thanks, Eric.

Speaker Change: The next question will come from David Bellinger with Mizuho. Please go ahead.

Operator: The next question will come from David Bellinger with Mizzouho. Please go ahead.

Joel D. Anderson: Hey, thanks for the question. So Joel, it seemed like certain parts of the store still tracked positive for the full quarter, while we had others drop off pretty meaningfully. Just absent some of the macro commentary from your prepared remarks, have you had any internal discussions around some merchandising, maybe flexing some space down in areas like apparel that are not specifically unique to Five and maybe putting the core focus back on that younger demographic, kids' products, toys, things of that nature? Is there anything we can expect before the end of the year and as we get into the holiday period?

Speaker Change: Hey, Thanks for the question.

David Leonard Bellinger: So Joel it just seemed like certain parts of the store is still positive for the full quarter, where we had others drop off pretty meaningfully.

Speaker Change: Absent some of the macro commentary from your prepared remarks have you had any internal discussions around some merchandising maybe flexing some space down in areas like apparel that are not specifically unique to five.

Speaker Change: And maybe put it into the core focus back on that that younger demographic kids product toys and things of that nature.

Speaker Change: Anything we can expect before.

Speaker Change: At the end of the year as and as we get into the holiday period.

David Leonard Bellinger: Yeah, David I mean, what's been unique about this box since the beginning of time and since I've been here for 10 years, we're always flex in the box and growing it and so as.

Joel D. Anderson: Yeah, look, David, I mean, what's been unique about this box since the beginning of time, and since I've been here for 10 years, we're always flexing the box and growing it. And so as we see those opportunities, you know, we will flex the box. I think a good example of where you're going to see that in the back half is Halloween. That's a business we've seen really nice, positive gains in the last couple years. And we think that's a business we can really grow. And especially in this environment where the customer's looking for value, there's not a strong, you know, value player in that space.

David Leonard Bellinger: As we see those opportunities we will flex the box I think.

David Leonard Bellinger: A good example, where you're going to see that in the back half is Halloween is going to grow for us.

David Leonard Bellinger: That's a business we've seen.

David Leonard Bellinger: Really nice positive gains the last couple of years and we think that's a business, we can really grow and especially in this environment with a customer is looking for value. There is not a strong value player in that space and so that's just one example, where you're going to see us continue to grow, but Michael and the merchants do a great job on that the merch.

Operator: And so that's just one example where you're going to see us continue to grow. But Michael and the merchants do a great job on that. The merchant's bonus isn't based on how their department does; it's based on how the box does. So there's no territorial concerns about, you know, shrinking one department and growing another. But I'll just give you one example. And as we see other opportunities, we'll do the same. Thanks, David. The next question will come from Kate McShane with Goldman Sachs. Please go ahead.

David Leonard Bellinger: Since bonuses based on how their department does and it's based on how the box does so there's there's no territorial concerns about you know shrinking.

Shrinking one department and growing another but just give me. One example, and as we see other opportunities we'll do the same.

Speaker Change: Thanks, David.

Speaker Change: The next question will come from Kate Mcshane with Goldman Sachs. Please go ahead.

Operator: Hi, thanks for taking our question.

Katharine Amanda McShane: Hi, Thanks for taking our question.

Katharine Amanda McShane: We wonder if you could talk to any impact from cannibalization this quarter and how that maybe compares to what we've seen.

Katharine Amanda McShane: In previous quarters, and if that's having any kind of impact with this.

Speaker Change: So down in the back half a quarter.

Speaker Change: Yeah. Thanks Kate.

Joel D. Anderson: Yeah, thanks, Kate. Um, look, our cannibalization rate has gone up, but in the last couple years, it's been more in the 80 to 100 basis points annually. Whereas, you know, pre COVID, it was probably more in the 50 basis points. That's something we manage, and we try and hold it to that number. I haven't specifically looked at the cannibalization rate, you know, first quarter of 24 versus the cannibalization rate of 23.

Speaker Change: Luke.

Speaker Change: Our cannibalization that you know rate has gone up but it's been the last couple of years, its more and more in the 80 to 100 basis points annually.

Speaker Change: Whereas you know pre COVID-19 it was probably more in the 50 basis points, that's something we manage and we try and hold it to that number.

Speaker Change: I haven't specifically looked at cannibalization rate you know first quarter 'twenty four versus cannibalization rate of 23.

Joel D. Anderson: What I would tell you and remind everybody is, you know, we opened the large majority of our stores last year, in the back half of the year. So you aren't going to see as many new stores enter our comp pipeline as you would normally see. But as far as cannibalization goes, I don't expect that to be any contributing factor to it. Again, because the front half of the quarter was one set of comps, and the second half was a very different set. So cannibalization wouldn't have played out like that.

What I would tell you and remind everybody is you know we opened a large majority of our stores last year the back half of the year. So you aren't going to see as many new stores enter our pipeline as you would normally see but candidly as far as cannibalization goes I don't expect that to be.

Speaker Change: Any contributing factor to again, because front half of the quarter was one set of comps in second half was a very different set so.

Speaker Change: Cannibalization wouldn't have played out like that.

Speaker Change: Thanks Kate.

Speaker Change: The next question will come from Brad Thomas with Keybanc capital markets. Please go ahead.

Operator: The next question will come from Brad Thomas with KeyBank Capital Markets. Please go ahead.

Hi, Thanks for taking my question.

Operator: Hi, thanks for taking my question. I just wanted to confirm that the outlook, as we kind of back into it, Kristy, looks like your comp guidance is calling for the mid-single digit decline to continue through both 3Q and 4Q. I just wanted to confirm that is based on your guidance and then I was hoping you could talk a little bit about the margin implications, you know, what you're assuming for the back half with those new comp assumptions. Thanks. Yeah.

Bradley Bingham Thomas: Just wanted to confirm if the.

The outlook as we kind of back into it or seen it.

Speaker Change: Looks like your comp guidance is calling for mid single digit decline.

Speaker Change: Decline to continue.

Speaker Change: Through both <unk> and <unk> just wanted to confirm that.

Speaker Change: It's baked in your guidance and then hoping you could talk a little bit about the.

Margin implications, what youre, assuming for the back half with those new.

Speaker Change: Comp assumptions thanks.

Kristy Chipman: Yeah, yeah, so we don't, we're not going to guide for the back half, but on a full year basis, the down three to down five, as you look at the Q3 and Q4, and just the implied there is probably closer to the lower end of mid-single digits, so you can use that. And then your question on margin specifically, was that for the, I'm sorry, the full year?

Speaker Change: Yeah. So we don't we're not going to guide for the for the back half, but on a full year basis, the down three to down five as you look to the Q3 and Q4 and just the implied there is probably closer to the lower end of mid single digits. So you can use that and then your question on margin.

Speaker Change: I, specifically was that for the I'm sorry, the full year.

Speaker Change: Essentially with what the implications are from the comp lines continue on as we go through the year. Thanks, Yeah. So what we shared last quarter with you.

Operator: Essentially, it was about the implications of the conflict lines continuing as we go through the year. Yeah, so like what we shared last.

Kristy Chipman: Yeah, so what we shared last quarter with you was... You know, certainly, we would see on a full year basis some margin benefits, but the D leverage on the comp right now is really what we're looking at. And so when you look at it across the full year, we're expecting, as we said, 9.8%, at the midpoint or 90 basis points below. So, and how that kind of plays out for the full year. This quarter is probably the heaviest burden at 250 basis points, and then it moderates substantially through Q3 and Q4 as our cost optimization initiatives help offset a big part of the fixed cost deleverage.

Speaker Change: Was.

Speaker Change: You know certainly we would we would see on a full year basis.

Op margin.

Speaker Change: But the deleverage on the comp right now is really what we're what we're looking at and so when you look at it across the full year, we're expecting as we said nine 8% at the midpoint or 90 basis points below them. So.

Speaker Change: And how that kind of plays out for the full year. This quarter is probably be the heaviest burden at the 250 basis points and then it moderates substantially through Q3 and Q4 as our cost optimization.

Speaker Change: Initiatives helped offset a big part of the.

Speaker Change: Fixed cost deleverage.

Speaker Change: Alright, thank you.

Operator: All right, thank you. The next question will come from Michael Montani with Evercore ISI. Please go ahead.

Operator: All right, thank you. The next question will come from Michael Montani with Evercore ISI. Please go ahead. Hey, thanks for taking the question. I had one question and then.

The next question will come from Michael Montana with Evercore ISI. Please go ahead.

Hey, Thanks for taking the question had one question and a follow up so just first in terms of the margins I'm Christy just outlined can you give some more color in terms of the gross margin trajectory versus SG&A and then the follow up was on the new store productivity front, just wanted to see any incremental ever.

Speaker Change: Since there you know that gives you conviction to to maintain kind of the robust opening schedule in light of the comp trajectory.

Speaker Change: So I'll take the first part and then I'll send it over to Joe for a little commentary on N. S. T. So from a gross margin perspective, if you recall, what we had shared last quarter. We had said we expected gross margin to be flat in Q1 Q2 in Q4 with a benefit in Q3 related.

Kristy Chipman: So I'll take the first part and then send it over to Joel for a little bit of commentary on NSP. So from a gross margin perspective, if you recall what we shared last quarter, we had said we expected gross margin to be flat in Q1, Q2, and Q4, with a benefit in Q3 related to the reversal of the shrink accrual that we took in the prior year. And so as you look going forward now, again, Q2 being the most difficult gross margin and declining about 130 basis points at the midpoint.

Kristy Chipman: And then you will still, and again, that's all fixed cost deleverage coming because of the negative comp. And as you move forward into Q3, Q4, you're getting closer to what we previously guided, which was about 200 basis points of improvement in Q3 and then flat to Q4. And so that'll generally get you from a gross margin perspective. We will see, you know, continued deleverage on the negative comp in Q2, again, about 120 basis points.

Speaker Change: The reversal of the shrink accrual that we took in the prior year and so as you look going forward now again Q2 being the most difficult gross margin and declining about 130 basis points at the midpoint and then you'll still and again, that's all fixed cost deleverage.

Speaker Change: Coming because of the negative comp and as you move forward into Q3 Q4.

Speaker Change: You're getting closer to what we previously guided which was about 200 basis points of improvement on a Q3, and then flat to Q4 and so that'll generally got you from a gross margin perspective, we will see.

Speaker Change: Continued deleverage on the negative comp in Q2 are again about 120 basis points and then as you move into Q3 and Q4 Q3 has a hobbyist.

Kristy Chipman: And then as you move into Q3 and Q4, Q3 has the heaviest burden on the negative comp with, you know, overall margin being relatively flat, but the offset is coming in SG&A of over 200 basis points. And then when you look at Q4... Again, some de-leverage on the negative comp that we've moved to, about 50 basis points in SG&A, with full-year margin being relatively flat. I'm sorry, that was the fourth quarter, the top margin being relatively flat.

Speaker Change: Carrying the heaviest burden on a negative comp with.

Speaker Change: Overall op margin being relatively flat, but the offset is coming in SG&A in the over 200 basis points.

Speaker Change: And then when you look at Q4.

Again some.

Speaker Change: Some deleverage on the negative comp that we've moved to about 50 basis points of SG&A with full year margin being relatively op margin being relatively flat.

Speaker Change: And then Mike sorry that was fourth quarter op margin being relatively flat Michael in terms of the NSP.

Joel D. Anderson: Michael, in terms of NSP, yeah, in terms of NSP, last year, you know, I think the way you guys calculated it was just above 80, and we adjusted for weeks, it's, you know, mid 80s. That's where Q1 was, and you can see that's where the full year is, based on the guide we just gave you at the midpoint. So, you know, we've seen our NSP, you know, post COVID, start to really land in those mid 80s, and that's what we're projecting, and we're pleased with that.

Michael Lasser: Yeah in terms of NSP, you know last year, you know I think the way you guys calculate it was just above 80, and we adjust for weeks. It's mid Eighty's. That's where Q1 was you can see that's where the full year is based on the guide. We just gave you at the mid point so.

Michael Lasser: We've seen our NSP.

Michael Lasser: Post COVID-19 start to really land in those mid eighties.

Michael Lasser: That's what we're projecting and we're pleased with that and so you know as long as that continues and that there's really no reason to pull back in fact, if anything that's probably the area that we haven't spent a lot of time talking about but our new store pipeline.

Joel D. Anderson: And so, you know, as long as that continues like this, there's really no reason to pull back. In fact, if anything, that's probably the area that we haven't spent a lot of time talking about, but our new store pipeline is not only, you know, back hitting the numbers, but, you know, Kristy shared with you, we're back to that 50% in the front half of the year, which is really where we want to be going forward. This year is complete. Next year, we're largely done with it already and starting to work on 26.

Michael Lasser: Is is not only email.

Speaker Change: <unk> hitting the numbers, but christi shared with you we're back to that 50% in the front half of the year, which is really where we want to be going forward.

Operator: So, we feel really good about the pipeline, a lot of opportunities out there, and I think as we continue to see some more retail bankruptcies, they'll present us with more opportunities to take advantage of. Thanks, Michael. Your next question will come from Joe Feldman with the Telsey Advisory Group. Please go ahead. Great. Thanks for taking my question, guys. I wanted to go back to something you said, Joel, about value and needing to just be able to

Speaker Change: This year is complete next year, where we're largely done with already and starting to work on 26. So we feel really good about the pipeline a lot of opportunities out there.

Speaker Change: And I think as we continue to see some more retail bankruptcies or presents us with more opportunities to take advantage of them.

Speaker Change: Thanks, Michael.

Speaker Change: The next question will come from Joe Feldman with Telsey Advisory Group. Please go ahead.

Operator: Thanks, Michael. The next question will come from Joe Feldman with Telsey Advisory Group. Please go ahead. Great.

Joel D. Anderson: Yeah, it's great, Joe. And, you know, it hasn't changed.

Joseph Isaac Feldman: Great. Thanks for taking my question guys I wanted to go back to something you said Joel about value and needing to just being able to keep delivering value and I'm just curious.

Your.

Speaker Change: I guess the latest survey work with your customers or interactions or focus groups of Harvey you speak with your customers.

Speaker Change: That's suggesting about the perceived value is it has it changed.

Speaker Change: Again, given the push with the funds beyond product in the stores, maybe you could just chat about that for a minute.

Joseph Isaac Feldman: Yes, it's great Joe.

Joel D. Anderson: And, you know, it's more of, we really believe this was a macro-induced change. And, you know, for all the reasons I've shared with everybody, but, you know, too many repairs, you know, play defense. And certainly, we'll do that cut costs and do some things. We're gonna play offense, and we're gonna figure out a way to take market share at a time like this. And we're gonna figure out a way to make our business healthier so that as the consumer backdrop improves, we're already a better and stronger company.

Speaker Change #100: No it hasn't changed and you know its more of we really believe this was a macro induced change.

Speaker Change #100: And you know for all the reasons I've shared with everybody.

Speaker Change #100: You know too many of your peers you don't play defense.

Speaker Change #100: And certainly we'll do that cut cost and do some things we're going to play offense and we're going to figure out a way to take market share in a time like this and we're going to figure out a way to make our business healthier so that as the consumer backdrop improves you know, we're already a better and stronger company as far as value specifically.

Joel D. Anderson: As far as value, specifically, Joe, one of the things we look at, and we look at it every quarter, is our NPS scores. And our NPS scores have actually gone up this year over last year. And that that is a really positive sign that, you know, customers are starting to really rely on us. We happen to be in probably the period of our year where we're the most discretionary, the least number of reasons you have to go to Five Below.

Speaker Change #100: Now one of the things we look at it and we look at it every quarter as our NPS scores and our NPS scores have actually gone up this year over last year and that that is a really.

Speaker Change #100: Positive sign that.

Speaker Change #100: Customers are starting to you know really rely on us we happened to be in probably the period of our year, where we're the most discretionary.

Speaker Change #100: At least a number of reasons you have to go to a buy below.

Speaker Change #100: But that doesn't mean, we don't look at self inflicted wounds, we don't look at ways that our marketing can be stronger we don't we need to look at ways, our pricing can be sharper and Michael and the merchants are definitely looking at new trends chasing trends, finding new ways to drive footsteps. So.

Joel D. Anderson: But that doesn't mean we don't, you know, look at self-inflicted wounds, we don't look at ways that our marketing can be stronger, we don't, we need to look at ways our pricing can be sharper. And Michael and the merchants are definitely looking at new trends, chasing trends, finding new ways to drive footsteps. So I didn't mean to, you know, allude to any of you that I'm concerned about it.

Speaker Change #100: I didn't mean to you know allude to any of you that I'm concerned about it and in fact I think the biggest difference between.

Joel D. Anderson: In fact, I think the biggest difference between a quarter ago and now is that we have a lot more answers that we didn't have before. And, and we know how to bend the curve on shrink now. We know what the right level of labor to put in a store is. And, you know, that that is a big change from where it was. We have a lengthy trend now line of, you know, knowing where the bottom is on sales. And now we built back from that, but we're not going to sit and wait until it comes to us; we have to go after it.

Speaker Change #100: Quarter ago, and now because we have a lot more answers that we didn't have before and and we know how to bend the curve on shrink now we know what the right level of labor to put in the store is and.

Joseph Isaac Feldman: You know that that is a big change from where it was we have a lengthy trend now line of knowing where the bottom is on sales and how we build back from that but we're not going to sit and wait until it comes to US. We gotta go after it so hopefully Joe that'll give you a little background. There yeah that helps thank you good luck.

Operator: So hopefully, Joe, that'll give you a little Thank you. Yeah, that helps. Thank you. Good luck this quarter.

Speaker Change #101: Yeah. Thanks, Joe The next question will come from C. J.

Operator: You bet. The question will come from CJ, Diplo- Diplomino, Craig Hallam, Capital Group. Please go ahead. Hey everyone, CJ is out for Jeremy Hamblin.

Joseph Isaac Feldman: Yes.

Joseph Isaac Feldman: Nino.

Speaker Change #102: With Craig Hallum Capital Group. Please go ahead.

Speaker Change #102: Hey, everyone C J on for Jeremy Hamblin, Thanks for taking my question.

Operator: Thanks for taking my question. I wanted to touch on shrinking again. It seems like you've made some good progress in the 70 stores where you really stepped up shrink mitigation efforts. I'm curious about the timing on rolling that out to additional stores, if you're thinking about doing that. And you know when you might start implementing, you know, more labor and higher security measures in the rest of the store base? Thanks. Yeah, hey, CJ, let me just clarify for you and the whole, whole team on the call.

C J: I wanted to touch on shrink again, it seems like you've made some good progress on the 70 stores, where you really stepped up shrink mitigation efforts.

C J: Curious on kind of like the timing on rolling that out to additional stores, if youre thinking about doing that.

C J: When you might start implementing.

C J: More labor and higher security measures and the rest of the store base.

Joel D. Anderson: We have implemented shrink mitigation in the entire chain, namely around the shift from self-checkout to associate checkout. So that has happened across the chain. In addition to that, which is the 70 stores you were referring to, we put in extra shrink mitigation like guards and receipt checking and more video cameras and that type of thing. So that's above and beyond. And those 70 stores saw even bigger declines than the stores that just had the associate checkout. So now we're looking at those 70 and seeing how the ROI works. Many of you always ask, you know, does labor cost you more than the shrink?

Speaker Change #105: Yeah, Hey, C. J, let me just clarify for you than the whole.

Speaker Change #104: Our whole team on the call.

Speaker Change #106: We have implemented shrink or mitigation in the entire chain, namely around the shift from self checkout to associate checkout. So that has happened chain wide. In addition to that.

Speaker Change #107: Which is the 70 stores you were referring we've put in extra shrink mitigation like guards.

Speaker Change #107: And receipt checking in and more video cameras and that type of thing so that's above and beyond and know those 70 stores, so even bigger declines than than the.

Speaker Change #107: The stores it just had the associate checkout. So now we're looking at those 70 and seeing how the ROI works. Many you always ask you know does it labor cost you more than the than the shrink in the chain wide, we've got that balance right, but in the extra 70, where you've got outside guard services and things like that.

Joel D. Anderson: In the chain-wide, we've got that balance right. But in the extra 70 where you've got outside guard services and things like that, that's a real focus on our highest shrink store. So the team has just done an amazing job. You gotta remember, this only came into our purview less than 12 months ago; it was the end of last August. So I really applaud asset protection, store operations, and everybody here working on the task force for being able to bend on the curve so quickly. So hopefully that helps you understand the difference between the 70 and what we've actually done for the entire.

Speaker Change #107: That's a real focus on our highest shrink stores.

Speaker Change #107: So the team has just done an amazing job you got to remember this is only showed up in our per view less than 12 months ago. It was last end of last August so I really applaud asset protection.

Speaker Change #107: Store operations and everybody here working on the task force to bend the curve. So quickly. So hopefully that helps you understand the difference between the 70 and what we've actually done to the entire chain.

Operator: Thanks, CJ. The next question will come from Brian Nagel with Oppenheimer. Please go ahead. Hey, this is William Dossett on for Brian. Thanks for taking our question.

Speaker Change #108: Thanks C J.

Operator: The next question will come from Brian Nagel with Oppenheimer. Please go ahead.

Speaker Change #109: The next question will come from Brian Nagel with Oppenheimer. Please go ahead.

Speaker Change #109: Hey, this is William Dossett on for Brian Thanks for taking our question.

William Dossett: So a quick question here is just on the efforts to optimize your cost structure, you've identified savings over the next 18 to 24 months and we just wanted to know do you key areas of the cost structure in which you would realize these savings.

William Dossett: Yes.

Kristy Chipman: Certainly. So, you know, they're really across the board in both operating expenses and capital spending. So looking at everything from consumption, to specs, to distribution expenses on the last mile. So we are really, we have really kind of peeled away every cost that we have with nearly every supplier. And we're going hard after in-year savings, as well as more significant savings that will be realized next year in our indirect procurement area specifically.

Speaker Change #111: Certainly so.

Speaker Change #112: There are really across the board embellish, the operating expenses as well as capital spending so looking at everything from consumption two specs.

Speaker Change #112: To.

Speaker Change #112: <unk> expenses on the last mile. So we are really we are really kind of peeled away every cost that we have with nearly every supplier and we're going hard after or in year savings as well as a more significant savings that will be realized next year.

Speaker Change #112: In our.

Speaker Change #112: Indirect procurement area specifically.

Joel D. Anderson: Look, I think, just adding on to that, Kristy, you know, is the one thing where our growth has to work to our advantage. And, you know, as we look at everything that we haven't reviewed a contract on in a couple years, it should have different terms attached to it. We're, you know, we went into COVID as a $2 billion company. Five years later, here, we're about a $4 billion company. So with that comes, you know, basis point change, and then that begins to add up significantly over the next two years.

Operator: Okay, I think...

Speaker Change #113: Okay, I think just adding onto that Christy.

Christy: The one thing this is where are our growth has to work to our advantage and as we look at everything that we haven't reviewed a contract on in a couple of years. It should have different terms. So we're you know we went into Covid a $2 billion company.

Christy: Five years later here, we are about a $4 billion company. So with that comes a basis point change and then that begins to add up significantly over the next two years.

Speaker Change #115: Thanks William.

Speaker Change #115: Thanks.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Mr. Joel Anderson for closing remarks. Please go ahead.

Speaker Change #116: This concludes our question and answer session I would like to turn the conference back over to Mr. Joel Anderson for closing remarks. Please go ahead.

Joel D. Anderson: Thank you, operator. And thanks, everybody.

Thank you operator, and thanks, everybody look.

Speaker Change #117: I would just end with by saying and repeating some of the things I said our core customer.

Speaker Change #117: They are clearly prioritizing needs over once and that had a big impact on our performance in Q1.

Joel D. Anderson: Look, you know, I just end by saying and repeating some of the things I said. Our core customer, they are clearly prioritizing needs over wants, and that had a big impact on our performance in Q1. The guidance that Kristy shared with you, that reflects the entire year in this more cautious, core customized way. And as I said, we're playing offense.

Speaker Change #118: The guidance that the Christi shared with you that reflects the entire year in this more cautious core customer.

Speaker Change #118: And as I said, we're playing offense, we're leaning further into value we're going to ensure this value messages emphasize and all of our marketing. We're also focused on ensuring our assortment adequately reflects categories that are being prioritized by our customers. So we're really going to focus on growing those as we do this our focus on executing our store.

Joel D. Anderson: We're leaning further into value. We're gonna ensure that this value message is emphasized in all of our marketing. We're also focused on ensuring our assortment adequately reflects categories that are being prioritized by our customers, so we're really gonna focus on growing those. As we do this, our focus on executing our store growth plans with excellence is unwavering, as is our commitment to managing the cost side of the business with typical Five Below rigor.

Speaker Change #118: Growth plans with excellence is unwavering as is our commitment to managing the cost side of the business with a typical five below rigor.

Joel D. Anderson: We've asked a lot of our teams as we navigate this current environment and implement processes and procedures to improve efficiency and manage shrink. And I just wanna thank the entire crew for their hard work and commitment. Thanks, everybody, for joining us today, and we look forward to speaking again on our 2-2 call in September. Thank you.

Speaker Change #118: We've asked a lot of our teams as we navigate this current environment and implement processes and procedures to improve efficiency and manage shrink.

Speaker Change #118: And I just want to thank the entire crew for their hard work and commitment. Thanks.

Speaker Change #118: Thanks, everybody for joining us today, and we look forward to speaking again on our Q2 call in September.

Speaker Change #118: You.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change #119: The conference has now concluded.

Speaker Change #120: Thank you for attending today's presentation you may now disconnect.

Operator: ["Pomp and Circumstance"] ["Pomp and Circumstance"] ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ???

Speaker Change #120: Okay.

Speaker Change #120: Yeah.

Speaker Change #120: [noise].

Speaker Change #120: Yeah.

Speaker Change #120: [music].

Speaker Change #120: Yes.