Q2 2024 Five Below Inc Earnings Call
Speaker Change: Good day, and welcome to the 5th of the Low Second Quarter.
Speaker Change: 224, earnings conference call. All participants will be in listen only mode. Should you need assistance? Please signally conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star than one on your touch-tone phone. To withdraw your question, please press star than two. Please note this event is being recorded.
Kristyanna Pelz: I would now like to turn the conference over to Kristyanna Pelz, Vice President of Investor Relations. Please go ahead.
Kristyanna Pelz: Thank you, Joe, good afternoon everyone and thanks for joining us today for 5 below second quarter 2024 financial results conference call.
Kristyanna Pelz: On today's call, our Tom Baleos Executive Chairman and founder and Ken Bull, Interim President and Chief Executive Officer and Chief Operating Officer and Christy Chipman Chief Financial Officer and Treasurer. After management has made their full mobile remarks, we will open the call to questions.
Speaker Change: Any three lines you that certain comments may join us calling constitute forward-looking statements.
Speaker Change: and are made pursuant to and within the meaning of the safe harbor provisions of the private securities.
Speaker Change: Litigation Reform Act 1995, as amended.
Speaker Change: That's why looking statements are subject to both known and unwriscs and uncertainties that could cause actual results to differ materially for the best statements.
Speaker Change: Those risks in Turkey, they're describing the press release in our NBC filing. The Ford looking statements made today are as a fitted as a call and we do not undertake any obligation to update our Ford looking statements.
Speaker Change: and this presentation we will refer to our S.G.E.A. expenses press.
Speaker Change: as DNA means selling general and administrative expenses, including payroll and other compensation marketing and advertising expense, depreciation and refrigeration expense and other selling and administrative expenses.
Speaker Change: Edition and we will be discussing certain non-gap financial measures. The reconciliation of these items to US Gap are included in today's press release. If you don't have a copy of today's press release, you may have seen one by visiting investor relations page of our website at 5blo.com. I will now turn the call over to Tom.
Tom: Thank you, Christiane and thank you all for joining us today to discuss our fiscal technical problems results and our path forward.
Tom: Over the past six weeks, I have been heavily engaged with the company working closely with Canada team as we thoroughly assessed our business challenges.
Speaker Change: Navigated the CEO transition and launched the search for a permanent CEO.
Speaker Change: When David and I found it five below, our vision was clear.
Speaker Change: To be the go-to destination for pre-trains and teens.
Speaker Change: A cool store of the kids.
Speaker Change: and the Yacht War for Parents.
Speaker Change: Our mission has always been to deliver an exciting assortment of extreme value, trend-right, high-quality product in a fun shopping environment.
Speaker Change: We have always been intensely focused on the customer, and this commitment has made $5.00 a successful standout growth retailer.
Speaker Change: Over the past few years, we lost some of that sharp focus on our core customers.
Speaker Change: 22
Speaker Change: We launch the new store format.
Speaker Change: Opened over 415 news to us.
Speaker Change: Remodeled of a 715 locations.
Speaker Change: and overexpand it'll product this open.
Speaker Change: We did this all while managing a challenging macro environment and a consumer shift.
Speaker Change: which stretched out aint.
Speaker Change: We know the resulting issues are flexible.
Speaker Change: In fact...
Speaker Change: Work is already on the way, and we have committed to an operational and strategic refocus of our business.
Operator: Good day and welcome, Five Below, Second Quarter, 2024, Earnings Conference Call. All participants will be in listen only mode. Should you need assistance, please signify conference specialists by pressing the star key followed by zero.
Speaker Change: Going forward.
Speaker Change: We are re-focusing on our core customers.
Speaker Change: We have prioritizing initiatives that enhance value.
Speaker Change: and improve the shopping experience.
Speaker Change: Streamline Operations
Speaker Change: and ensure that we meet the evolving needs of our customers.
Operator: 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. To withdraw your question, please press star then two. Please note this event is being recorded.
Speaker Change: Specifically, we need to regain our speed and intensity in identifying and bringing anti-trend items into our stores that delight our customers.
Kristiana Pelz: I would now like to turn the conference over to Kristiana Pelz, vice president of investor relations. Please go ahead. Thank you Drew.
Speaker Change: We need to deliver more while and value, which we're five below is the intersection of Trent
Speaker Change: Quality.
Kristiana Pelz: Good afternoon everyone and thanks for joining us today for five below second quarter, 2024 financial results conference call.
Speaker Change: and Price.
Speaker Change: We are fortunate to have an engaged, energized and motivated team to understand the task at hand and the steps necessary to execute.
Kristiana Pelz: On today's call, our Tom Bellio's executive chairman and founder and Ken Bull interim president and chief executive officer and chief operating officer and Kristy Chipman chief financial officer Ed Treasurer. After management has made their formal remarks, we will open the call to questions.
Speaker Change: We are confident in our leadership with Canada Home.
Speaker Change: is operational experience.
Speaker Change: Knowledge of the Business.
Tina: and Tina understanding of our culture.
Kristiana Pelz: I need to remind you that certain comments majoring in calling constitute forward looking statements and are made pursuant to and within the meaning of the safe harbor provisions of the private securities litigation reform act of 1995 as amended. Such forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from that statement. Those risks and uncertainties are describing the press release in our FTC filing. The forward looking statements made today are as if the data is called and we do not undertake any obligation to update our forward looking statements.
Tina: Position us well to execute this reset of our business.
Tina: As we move forward we are fully committed to making the necessary changes.
Tina: to deliver the wild factor our customers.
Tina: Associates, and Sharehold this dessert.
Tina: Together, we will emerge stronger and more vibrant than ever.
Speaker Change: and with that.
Speaker Change: I will hand it over to Kenneth to give you more information on our strategy and initiatives.
Speaker Change: Jen?
Kenneth: Thanks Tom.
Kristiana Pelz: In this presentation, we will refer to our SGNA expenses for us. SGNA means selling general and administrative expenses, including payroll and other compensation marketing and advertising expense depreciation and representation expense and other selling and administrative expenses. Additionally, we will discuss in certain non-gap financial measures. The reconciliation of these items to US gap are included in today's press release.
Kenneth: Second Quarter Results, fell short of what we know this business is capable of delivering.
Kenneth: On today's call I will discuss the learnings of the last six weeks and how we are approaching a refocus of the business.
Kenneth: and Kristy will then provide the details of our financial performance and outlook.
Kenneth: Tom and I in the team have spent the last several weeks thoroughly assessing the business.
Kristiana Pelz: 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 5Beload.com.
Kenneth: Before I share how we are addressing the issues we have identified I want to take a minute to discuss how we got here.
Tom Bellio: I will now turn the call over to Tom. Thank you, Cristiano. And thank you all for joining us today to discuss a fiscal second column results and I'll pass forward.
Kenneth: We experienced many macro pressures over the last several years, it's significantly impacted our business.
Kenneth: Post-pandemic we saw stimulus driven demand, supply chain, disruptions and inflation.
Tom Bellio: Over the past six weeks, I have been heavily engaged with the company, working closely with Canada team as we thoroughly assessed our business challenges, navigated the CEO transition and launched the search for a permanent CEO. When David and I founded 5Beload, our vision was clear to be the go-to destination for pre-teams and teens. A cool store for kids and a yes store for parents. Our mission has always been to deliver an exciting assortment of extreme value, trend right, high quality products in a fun shopping environment. We have always been intensely focused on the customer and this commitment has made 5Beload successful, stand out, grow to it. Taylor.
Kenneth: as well as evolving customer preferences and changes in where and how our team's worked.
Kenneth: To manage the inflationary impact to our margins, we increase prices and expanded the number of price points.
Kenneth: We over expanded our assortments across our world without the strict editing process of past years and without the key item focus that screen value and differentiation.
Kenneth: During this time, we also set our triple double vision to triple our store camp by 2030 and WPS by 2025.
Kenneth: with a benefit of hindsight, the timeline for these goals was to aggressive and put a tremendous amount of pressure on the organization.
Kenneth: In addition, we added corporate overhead, further weight raised retail prices and tightened store labor.
Tom Bellio: Over the past few years, we lost some of that sharp focus on our core customers. Since 2022, we launched a new store format, opened over 450 new stores, remodeled over 750 locations, and overexpended our product assortment. We did this all while managing a challenging macro environment and consumer shifts, which stretched our teams. We know the resulting issues are fixable. In fact, work is already underway, and we have committed to an operational and strategic refocus about business.
Kenneth: Recent shrink mitigation efforts also increase the complexity and workload for our stores.
Kenneth: To address these issues, we have a plan and place that includes key areas of focus and supporting initiatives across product and value as well as store experience.
Kenneth: Starting with product and value.
Kenneth: We are renewing our commitment to being that yes to our for kids and parents.
Kenneth: The pre-teen and teen demographic is our core customer.
Kenneth: and while we will always work to deliver universal appeal, we need to refocus on delivering an assortment that will wow this core customer demographic.
Tom Bellio: Going forward, we are refocusing on our core customers. We are prioritizing initiatives that enhance value, improve the shopping experience, streamline our operations, and ensure that we meet the evolving needs of our customers. Specifically, we need to regain our speed and intensity in identifying and bringing in trend items into our stores that delight our customers. We need to deliver more wow and value, which for five below is the intersection of trend, quality, and price.
Kenneth: We are focused on the following actions to achieve this.
Kenneth: We will significantly reduce the breadth of our assortment and return to pre-pandemic levels.
Kenneth: We will lead with value, amplifying the price points that are most impactful for our core customer.
Kenneth: We will emphasize key items at $5 in below price points.
Kenneth: We will also reduce the number of price points to drive simpler store execution and customer experience and strengthen our competitive pricing.
Kenneth: We will increase the flow of newness across all worlds.
Kenneth: We will reinvent and maximize our seasonal businesses.
Kenneth: We will raise the bar on five beyond focusing on key items amplifying value and trend.
Tom Bellio: We are fortunate to have an engaged, energized, and motivated team who understand the task at hand and the steps necessary to execute. We are confident in our leadership with Canada Helm. His operational experience, knowledge of the business, and team understanding of our culture, positionless well to execute this reset of our business.
Kenneth: and we will leverage our scale and vendor relationships to a far greater degree to accomplish all of this.
Kenneth: As we reduce skews and refocus on key items across all of our merchandise worlds, the broader sales performance will allow us to reinvest in price while maintaining a stable product margin profile.
Tom Bellio: As we move forward, we are fully committed to making the necessary changes to deliver the wow factor of our customers, associates, and shareholders deserve. Together, we will emerge stronger and more vibrant than ever.
Kenneth: To help achieve all of this, we are returning to in-person work at our office in Philadelphia.
Kenneth: We work better when we're together and I know this will drive better performances we return to the culture that has driven our success.
Kenneth: I am particularly excited about what this means for collaboration and innovation within our merchandising organization as we renew our focus on delivering wow and value for our customers.
Ken Bull: And with that, I will hand it over to Ken to give you more information on our strategy and initiatives. Ken? Thanks, Tom.
Ken Bull: Second quarter results fell short of what we know this business is capable of delivering. On today's call, I will discuss the learnings of the last six weeks and how we are approaching a refocus of the business. And Christie will then provide the details of our financial performance and outlook. Tom and I in the team have spent the last several weeks thoroughly assessing the business.
Kenneth: Our strategies to improve the product will only be successful if we deliver our customers a store experience that reflects our brand, fun and energizing.
Kenneth: To accomplish this, we are evaluating our store operating model with the goal of reducing complexity and optimizing our store labor.
Kenneth: The outcome of this work will be simplifying store tasks and adding labor hours where necessary.
Ken Bull: Before I share how we are addressing the issues we have identified, I want to take a minute to discuss how we got here. We experienced many macro pressures over the last several years, it significantly impacted our business. Post-pandemic, we saw stimulus-driven demand, supply chain disruptions and inflation, as well as evolving customer preferences and changes in where and how our teams worked. To manage the inflationary impact to our margins, we increased prices and expanded the number of price points.
Kenneth: As we do all this work, we are also continuing to optimize our cost structure and sharpening our approach to investments as we implement each of these initiatives across product and value as well as store experience.
Kenneth: Over time, these cost savings will serve as a partial offset to the labor investment I just mentioned.
Kenneth: Finally, we will continue to be a leading growth retailer with best-in-class new store economics.
Kenneth: As we reset the business, we are moderating our store growth for 2025 and currently expect to open 150 to 180 stores.
Ken Bull: We overexpanded our assortments across our world without the strict editing process of past years and without the key item focus that screen value and differentiation. During this time, we also set our triple double vision to triple our store count by 2030 and double EPS by 2025.
Kenneth: This moderation allows us to focus on execution in the key areas that I have outlined. It also allows us to be more selective in our real estate locations.
Kenneth: Optimize our capital outlay and deliver better overall store execution.
Kenneth: In summary, we have done a lot of work in the last several weeks, digging deep to understand our issues and implementing actions to address them, including our focus on the all-important upcoming holiday season.
Ken Bull: With the benefit of hindsight, the timeline for these goals was too aggressive and put a tremendous amount of pressure on the organization. In addition, we added corporate overhead, further weight raised retail prices, and tighten store labor. Recent shrink mitigation efforts also increase the complexity and workload for our stores.
Kenneth: We believe our issues are fixable, we are moving with urgency and we will see improvement in the business as newness and value are added to our product assortment.
Kenneth: I would like to thank the teams across the organization for their hard work and dedication in helping us execute against our goals.
Ken Bull: To address these issues, we have a plan in place that includes key areas of focus and supporting initiatives across product and value as well as store experience. Starting with product and value, we are renewing our commitment to being that yes store for kids and parents. The preteen and teen demographic is our core customer, and while we will always work to deliver universal appeal, we need to refocus on delivering an assortment that will wow this core customer demographic.
Kenneth: And we thought I'll hand it over to Kristy, Kristy.
Kristy: Thanks Ken and good afternoon everyone. I will begin my remarks with a review of our second quarter results and then discuss our outlook.
Kristy: Sales in the second quarter increased 9.4% to 830 million dollars with comparable sales down 5.7%. Driven by a decrease in comp transactions of 5.4% and comp ticket of 0.3%.
Ken Bull: We are focused on the following actions to achieve this. We will significantly reduce the breadth of our assortment and return to pre-pandemic levels. We will lead with value amplifying the price points that are most impactful for our core customer. We will emphasize key items at $5 in below price points. We will also reduce the number of price points to drive simpler store execution and customer experience and strengthen our competitive pricing. We will increase the flow of newness across all worlds.
Kristy: Traffic to the stores with positive, with conversion the driver of the negative cup.
Kristy: The Comptticket to Klein was driven by lower units per transaction, nearly offset by an increase in the average unit retail price.
Kristy: Many of the categories that underpinned our copper formance in the first quarter can continue as customers remain to discerning with their discretionary spending.
Kristy: Our version of consumables in our candy and style worlds delivered positive results, but was more than offset by underperformance in other worlds, including the now world summer set and the sports world, including games and toys, as the results of the slowing Squish Melotrans.
Ken Bull: We will reinvent and maximize our seasonal businesses. We will raise the bar on five beyond focusing on key items amplifying value and trend. And we will leverage our scale and vendor relationships to a far greater degree to accomplish all of this. As we reduce skews and refocus on key items across all of our merchandise worlds, the broader sales performance will allow us to reinvest in price while maintaining a stable product margin profile.
Speaker Change: We opened 62 new stores across 22 states in the second quarter, compared to 40 new stores opened in the second quarter last year.
Speaker Change: We ended the quarter with 1,667 stores, an increase of 260 stores, or approximately 18%.
Speaker Change: Gross profit for the second quarter of 2024 was up 2.7% to 271.8 million dollars.
Ken Bull: To help achieve all of this, we are returning to in-person work at our office in Philadelphia. We work better when we're together, and I know this will drive better performance as we return to the culture that has driven our success. I am particularly excited about what this means for collaboration and innovation within our merchandising organization, as we renew our focus on delivering well and value for our customers.
Speaker Change: Gross margin decreased by approximately 220 basis points to 32.7% driven primarily by the leverage of fixed costs on the negative comp and a higher year over year shrink accrual partially offset by lower in-bound freight.
Speaker Change: As a percentage of sales, SGNA for the quarter of 2024 increased approximately 60 basis points to 27.7% versus last year's second quarter.
Ken Bull: Our strategies to improve the product will only be successful if we deliver our customers a store experience that reflects our brand, fun and energizing. To accomplish this, we are evaluating our store operating model with the goal of reducing complexity and optimizing our store labor. The outcome of this work will be simplifying store tax and adding labor hours where necessary. As we do all this work, we are also continuing to optimize our cost structure and sharpening our approach to investments as we implement each of these initiatives across product and value, as well as store experience. Over time, these cost savings will serve as a partial offset to the labor investment I just mentioned.
Speaker Change: This was driven primarily by fixed-cost-y leverage on the negative comp and the impact of new retention awards.
Speaker Change: Partially offset by lower incentive compensation expenses and a non-recurring stock compensation benefit.
Speaker Change: As a result, operating income for the quarter was $41.5 million versus $58.6 million in the second quarter of 2023, and operating margins decreased approximately 270 basis points to 5.0%.
Speaker Change: Adjusted operating margin, excluding non-recurring items, was $37 million, and adjusted operating margin with 4.5%.
Ken Bull: Finally, we will continue to be a leading growth retailer with best in class new store economics. As we reset the business, we are moderating our store growth for 2025 and currently expect to open 150 to 180 stores. This moderation allows us to focus on execution in the key area that I have outlined. It also allows us to be more selective in our real estate locations, optimize our capital outlay and deliver better overall store execution.
Speaker Change: net income for the second quarter of 2024 was $33.0 million versus net income of $46.8 million last year.
Speaker Change: adjusted net income for the second quarter with $29.7 million.
Speaker Change: earnings per diluted share was 60 cents and adjusted earnings per diluted share for the second quarter was 54 cents. Compared to last year's diluted earnings per diluted share of 84 cents.
Ken Bull: In summary, we have done a lot of work in the last several weeks, digging deep to understand our issues and implementing actions to address them, including our focus on the all important upcoming holiday season. We believe our issues are fixable. We are moving with urgency and we will see improvement in the business as newness and value are added to our product assortment.
Speaker Change: We ended the second quarter with $328 million in cash, cash equivalence and investments and no debt.
Speaker Change: Inventory at the end of the second quarter was $640 million as compared to $544 million at the end of the second quarter last year.
Ken Bull: I would like to thank the teams across the organization for their hard work and dedication in helping us execute against our goals.
Speaker Change: Average inventory on a per store basis decreased approximately 1% vs the second quarter last year.
Kristy Chipman: And with that, I'll hand it over to Kristy. Kristy. Thanks Ken, and good afternoon everyone.
Speaker Change: Turning to guidance.
Speaker Change: For the full year, we are comparing against fiscal year 2023 on a 52 week basis as the extra week in fiscal 2023 added approximately $48 million in sales and approximately 15 cents in EPS.
Kristy Chipman: I will begin my remarks with the review of our second quarter results and then discuss our outlook. Sales on the second quarter increased 9.4% to $830 million with comparable sales down 5.7%. Driven by a decrease in comp transactions of 5.4% and comp ticket of 0.3%. Traffic to the stores was positive with conversion the driver of the negative comp. The comp ticket decline was driven by lower units per transaction nearly offset by an increase in the average unit retail price.
Speaker Change: I will also refer to comparisons to fiscal year 2024 on an adjusted basis that excludes the impact of non-recurring or non-cash items, including asset disposal, retention awards, and costs associated with our cost optimization initiatives.
Speaker Change: Our press release outlines our sales, new store in earnings guidance for Q3 and the full year 2024. So I will focus my commentary on additional details or drivers for that guidance.
Kristy Chipman: Many of the categories that underpinned our comp performance in the first quarter continued as customers remained discerning with their discretionary spending. Our version of consumables in our candy and style worlds delivered positive results but was more than offset by underperformance and other worlds including the now world summer set and the sports world including games and toys as a result of the slowing squish mellow trend. We opened 62 new stores across 22 states in the second quarter compared to 40 new stores opened in the second quarter last year.
Speaker Change: On an adjusted basis, the midpoint of our third quarter guidance assumes a gross margin improvement of approximately 190 basis points.
Speaker Change: Primarily due to lapping the prior year's shrink reserve true up, as well as efficiencies in our distribution centers, and some timing benefits on product margin, partially offset by fixed, costy leverage on the negative comp.
Speaker Change: SG&A at the midpoint is expected to be 290 basis points worse than the prior year, driven by fixed costy leverage on the negative comp modest, store labor investments and a small timing shift in marketing.
Kristy Chipman: We ended the quarter with 1,667 stores and increase of 260 stores or approximately 18%. Gross profit for the second quarter of 2024 was up 2.7% to $271.8 million. Gross margin decreased by approximately 220 basis points to 32.7%. Driven primarily by the leverage of fixed costs on the negative comp and a higher year over year shrink accrual partially offset by lower inbound freight. As a percentage of sales, SGNA for the quarter of 2024 increased approximately 60 basis points to 27.7% versus last year's second quarter.
Speaker Change: That interest income is expected to be approximately $2 million for the third quarter, and taxes are expected to be approximately 25%.
Speaker Change: Now on to the full year.
Speaker Change: On an adjusted basis, the midpoint of our full-year guidance assumes gross margin-delivers 40 basis points as benefits from inbound breaks and lapping last year's shrink reserve true up is more than offset by higher fixed cost-deliverage due to the negative comp.
Speaker Change: SGA at the midpoint is expected to be 170 basis points higher than the prior year.
Speaker Change: As an incentive, comp benefits and cost optimization savings are more than offset by six costly leverage on the negative comp and modest investments in store labor.
Kristy Chipman: This was driven primarily by fixed costy leverage on the negative comp and the impact of new retention awards partially offset by lower incentive compensation expenses and a non-recurring stock compensation benefit. As a result, operating income for the quarter was $41.5 million versus $58.6 million in the second quarter of 2023, an operating margin decreased approximately 270 basis points to 5.0%. Adjusted operating margin, excluding non-recurring items was $37 million and adjusted operating margin was 4.5%.
Speaker Change: As a result, adjusted operating margin excluding approximately $25 million in non-recurring or non-cash items is expected to be approximately 8.6% or de-leverage of 210 basis points on a 52-week basis.
Speaker Change: That interesting come, it's forecasted to be approximately $12 million for the year and we expect a full year effective tax rate for 2024 of approximately 25%.
Speaker Change: With respect to growth capex, we now plan to spend between $335 million and $345 million, excluding the impact of 10 of the allowances.
Kristy Chipman: Net income for the second quarter of 2024 was $33.0 million versus net income of $46.8 million last year. Adjusted net income for the second quarter was $29.7 million. Earnings per diluted share for the second quarter was $54, compared to last year's diluted, earnings per diluted share of $84. We ended the second quarter with $328 million in cash, cash equivalence and investments and no debt. Inventory at the end of the second quarter was $640 million as compared to $544 million at the end of the second quarter last year. Average inventory on a per-store basis decreased approximately 1% versus the second quarter last year.
Speaker Change: This reflects the opening of approximately 230 new stores converting about 180 store locations to the 5BN format, the completion of expansions in our distribution centers in Georgia and Arizona and investments in systems and infrastructure.
Speaker Change: For the fourth quarter on a 13-week year-over-year basis, which excludes the extra week in 2023, that's full-year guide implies the following.
Speaker Change: Total sales increase between 1 to 5% with an implied comp decline in the mid-singles digit range. In line with the second quarter results and the third quarter guidance.
Speaker Change: This range, the sales range reflects five fewer shopping days between Thanksgiving and Christmas.
Speaker Change: It also implies a year-over-year adjusted operating margin decline at the midpoint of approximately 200 basis points due to fixed cost-deliverage on the negative count.
Kristy Chipman: Turning to guidance. For the full year, we are comparing against fiscal year 2023 on a 52-week basis as the extra week in fiscal 2023 added approximately $48 million in sales and approximately 15 cents in EPS. I will also refer to comparisons to fiscal year 2024 on an adjusted basis that excludes the impact of non-recurring or non-cash items, including asset disposals, retention and cost associated with our cost optimization initiatives. Our press release outlines our sales new store and earnings guidance for Q3 in the full year 2024, so I will focus my commentary on additional details or drivers for that guidance.
Speaker Change: Partially off-depth by laughing a shrink true up in the fourth quarter last year and lower incentive compensation.
Speaker Change: To wrap up, we know it needs to be done to return the business to its roots and realize it's potential. That work is well underway. However, it will take time to be reflective in our financial results.
Speaker Change: We have a significant growth opportunity ahead, coupled with a meaningful opportunity to improve our comp trajectory and the entire five below team is focused on executing against this.
Speaker Change: For all other details related to our results and guidance, please refer to our earnings press release. And with that, I'd like to turn the call back over to the operator for the question and answer session.
Kristy Chipman: On an adjusted basis, the midpoint of our third quarter guidance assumes a growth margin improvement of approximately 190 basis points, primarily due to laughing the prior year's shrink reserve true up as well as efficiencies in our distribution centers and some timing benefits on product margin, partially offset by fixed cost due leverage on the negative comp. SGNA at the midpoint is expected to be 290 basis points worse than the prior year driven by fixed cost due leverage on the negative comp, modest store labor investments and a small timing shift in marketing. That interest income is expected to be approximately $2 million for the third quarter, and taxes are expected to be approximately 25%.
Speaker Change: Operator.
Speaker Change: We will now begin the question and answer session. Do ask a question you may press star than one on your touch-tone phone. If you're using a speaker phone, please pick up your hand set before pressing the keys.
Speaker Change: To withdraw your question, please press star then too. Please limit yourself to one question. If you have further questions, you may re-enter the question queue. At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question?
Speaker Change: comes from Edward Kelly from Wells Fargo.
Speaker Change: Yeah, please high head.
Edward Kelly: Hi everyone, good morning, everybody afternoon, sorry. I wanted to ask you, you know, taking a step back.
Kristy Chipman: Now onto the full year. On an adjusted basis, the midpoint of our full year guidance assumes gross margin D-levels 40 basis points as benefits from inbound rates and lapping last year's shrink reserve true up is more than offset by higher fixed cost due to the negative comp. S-GNA at the midpoint is expected to be 170 basis points higher than the prior year as incentive comp benefits and cost optimization savings are more than offset by fixed cost due leverage on the negative comp and modest investments in store labor.
Speaker Change: It sounds like you believe a lot of the problems here are self-inflicted.
Speaker Change: Obviously, there's been some macro pressure, but there's been a lot of worry about competition as well and how that has shifted. Can you just maybe talk a bit more about what you think is fixable, why aren't there more structural challenges here? And then as you think about the EBIT margin, 8.6% this year, almost 12% in 2019, it seems like investment and value looks like there's some investment in labor.
Speaker Change: What's the right margin of the business when the dust settles?
Kristy Chipman: As a result, adjusted operating margin excluding approximately $25 million in non-recurring or non-cash items is expected to be approximately 8.6% or D leverage of 210 basis points on a 52 week basis. That interest income is forecasted to be approximately $12 million for the year, and we expected full year effective tax rate for 2024 of approximately 25%. With respect to gross catbacks, we now plan to spend between $335 million and $345 million excluding the impact of tenant allowances.
Speaker Change: Okay, thanks for that question. There's a lot there.
Speaker Change: Just to go back to the beginning of your comment around you mentioned about structural challenges. We do not believe this is a structural issue at all as I mentioned and as Tom mentioned also, you know, this is fixable and when we...
Tom: went back and over the past several weeks have kind of looked at the business. There were the macro pressures that I spoke about that actually drove.
Tom: Strategies, that at the time delivered results, but they had longer term consequences.
Tom: and really what we got away from.
Kristy Chipman: This reflects the opening of approximately 230 new stores converting about 180 store locations to the 5 beyond format, the completion of expansions in our distribution centers in Georgia and Arizona and investments and systems and infrastructure. For the fourth quarter on a 13-week year-over-year basis, which excludes the extra week in 2023, this full year guide implies the following. Total sales increase between 1-5% with an implied comp decline in the mid single-digit range in line with the second quarter results and the third quarter guidance.
Speaker Change: was, you know, the core part of our business around three teams and teams and really, you know, the mission for us.
Speaker Change: and delivering an edited assortment, trend product, high quality at extreme value in a fun and exciting environment. I mean, that's really what it was. We just kind of lost our way a little bit based on the things that we were focused on.
Speaker Change: you know post-pandemic.
Speaker Change: Regarding competition.
Speaker Change: There's always been competition out there, you know, whether you go back to the days when people were speaking about Amazon and that was, you know, that was going to have a huge impact on us and you fast forward to where we are today, you know, a $4 billion company with 1,700 stores.
Kristy Chipman: This range, the sales range, reflects five fewer shopping days between Thanksgiving and Christmas. It also implies a year-over-year adjusted operating margin decline at the midpoint of approximately 200 basis points due to fixed costy leverage on the negative comp. Partially offset by laughing a shrink true up in the fourth quarter last year and lower incentive compensation.
Speaker Change: So when we know and we're at our best and we're performing at the level and delivering to our customers.
Speaker Change: will do really well. Competition or not. And I think what you've seen is the competition is kind of inched up to us over the last few years and we got to get out there and push the lead like we always used to have back in the day.
Kristy Chipman: To wrap up, we know it needs to be done to return the business to its roots and realize its potential. That work is well underway. However, it will take time to be reflected in our financial results. We have a significant growth opportunity ahead coupled with a meaningful opportunity to improve our comp trajectory and the entire five below team is focused on executing against this.
Speaker Change: The next question comes from...
Speaker Change: The next question comes from Kate McChain with Goldman Sachs, please go ahead.
Kate McChain: Hi, good afternoon. Thanks for taking our question.
Kate McChain: We wondered how much change or influence you could see for the product around holiday based on some of these new strategic actions. I wouldn't imagine that there would be much wiggle room for change there, but curious if you would have any kind of impact.
Kristy Chipman: For all other details related to our results and guidance, please refer to our earnings press release.
Speaker Change: and how soon, if not holiday, how soon can we see these changes at the store?
Operator: And with that, I'd like to turn the call back over to the operator for the question and answer session. Operator? We will now begin the question and answer session. Do you ask a question you may press star than one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star than two. Please limit yourself to one question. If you have further questions, you may re-answer the question Q.
Speaker Change: Yeah, thanks, thanks Kate. As you would guess, given the lead times, the overwhelming majority of holiday process has already been purchased.
Speaker Change: Although, you know, we do have an opportunity to go and chase some items. Again, and you heard, I spoke about in Tom also.
Speaker Change: We have to return to our kind of basis here of being a, you know, item driven business at the end of the day, so we will chase that some of those in the marketplace to try to help us.
Speaker Change: in terms of an improvement in the business.
Speaker Change: I think when we get to the point where we see that newness and value in our assortment I think that's when you're going to start to see the improvement.
Operator: At this time, we will pause momentarily to assemble our roster.
Edward Kelly: The first question comes from Edward Kelly, from Wells Fargo. Hi, everyone. Good morning.
Speaker Change: in our business and obviously with the lead times and we were looking at the spring summer now. But I would say we'd start to see that improvement as we see the improvements in our environment.
Ken Bull: I wanted to ask you, taking a step back, it sounds like you believe a lot of the problems here are self-inflicted. Obviously there's been some macro pressure, but there's been a lot of worry about competition as well, and how that has shifted. Could you just maybe talk a bit more about what you think is fixable, why aren't there more structural issues? There are a lot of challenges here, and then as you think about the EBIT margin, 8.6% this year, almost 12% in 2019, it seems like investment in value, it looks like there's some investment in labor.
Speaker Change: and John Paul, Christiane Pelz, Christiane
John Buckle: Thanks Kate. The next question comes from John. I'm Buckle with Guggenheim. Please go ahead.
John Buckle: Hey guys, most part, you talked about speed and the news always had a trend department.
John Buckle: Do you need to do anything with how you're structuring, merchandising, you know, make any organizational changes, just maybe internally.
Speaker Change: To get that speed and get that newness number one and two and you kind of did your work with the consumer. Has the perception of the brand changed from what it was two or three years ago. And then lastly, how do you make these changes?
Speaker Change: Yeah, how do you get the customer recognized, right, that you've made the changes and you've gone kind of gone back to what you were?
Ken Bull: What's the right margin of the business when the dust settles? Thanks, Ed, for that question. There's a lot there. Just to go back to the beginning of your comment around, you mentioned about structural challenges. We do not believe this is a structural issue at all. As I mentioned, and as Tom mentioned also, this is fixable, and when we went back and over the past several weeks have kind of looked at the business, there were the macro pressures that I spoke about that actually drove strategies that at the time delivered results but they had longer term consequences.
Speaker Change: Yeah, thanks John. The first part of the question around speed is interesting.
Speaker Change: I think we talked about it over the last few quarters we have gone through what internally here, and merchandising, organization, transformation.
Speaker Change: Again, kind of getting back to our roots in terms of how those teams, the buying teams, the planning teams, allocation teams are operating. So we're in the middle of putting that into place, and so I think that's going to help a lot.
Speaker Change: to get back to speed, which we really have historically used it as an advantage and we have to pull that forward again. From a customer perception standpoint, part of the analysis we did was not only looking at internal data and some metrics, but also customer surveys and intercepts.
Ken Bull: And really what we got away from was the core part of our business around free teams and teams, and really the mission for us in delivering an edited assortment, trend product, high quality, and extreme value in a fun and exciting environment. That's really what it was. We just kind of lost our way a little bit based on the things that we were focused on, post-pandemic. Regarding competition, there's always been competition out there.
Speaker Change: and I think one of the things that was clear was the customer's looking for more value for us at the end of the day.
Speaker Change: That's the way we look at value. It's not just price.
Speaker Change: 3, really a combination of trend and quality and price.
Speaker Change: So that's where we know we have to do better and we're going to be working on. And then to pull customers back in, I think that's going to be marketing for us. We've done some marketing tests, we know we have the ability.
Ken Bull: Whether you go back to the days when people were speaking about Amazon, and that was going to have a huge impact on us, and you fast forward to where we are today, a $4 billion company with 1700 stores. So when we know when we're at our best and we're performing at the level and delivering to our customers, we'll do really well. Competition or not. And I think what you've seen is the competition is kind of in stock to us over the last few years, and we've got to get out there and push the lead, like we always used to have back in the day.
Speaker Change: with testing to improve traffic, but you heard Kristy talk about our challenges with conversion. So we'll focus on the marketing piece of it after we, you know, have the ability to improve the product and drive conversion.
Speaker Change: Next question, the next question comes from Matthew Boss with JP Morgan. Please go ahead.
Katharine McShane: The next question comes from Kate McShane with Goldman Sachs. Please go ahead. Hi, good afternoon. Thanks for taking our question. We wondered how much change or influence you could see for the product around holiday based on some of these new strategic actions. I wouldn't imagine there would be much wiggle room for change there. But curious if you would have any kind of impact.
Matthew Boss: Great, thanks. Two questions, Ken. First maybe, could you just elaborate on customer behaviors and comp trends that you saw to exit the corridor? Maybe what you've seen in August across world, and then on store growth.
Ken Bull: And how soon, if not holiday, how soon can we see these changes at the store? Yeah, thanks. Thanks, Kate. As you would guess, given lead times, the overwhelming majority of holiday products has already been purchased. Although, you know, we do have an opportunity to go and chase some items. Again, and you heard I spoke about in Tom also. We have to return to our kind of basis here being a, you know, item driven business at the end of the day.
Speaker Change: Could you speak to the reduction for 2025 growth and what you'll be looking for to potentially re-accelerate unit growth over time?
Storger: Storger, thanks, Matt.
Speaker Change: Around customer behaviors, it was actually very similar.
Speaker Change: to what we saw in Q1 where our lowering come demographic was underperforming.
Speaker Change: and our higher income demographic was outperforming. Which tells us two things along with the other information. One, we were getting some trade down there from the higher income demographic.
Speaker Change: and the lower income was probably more around value, which I just mentioned, that we have to do better on. So those dynamics have continued as we've exited to to and gone into August.
Ken Bull: So we will chase that some of those in the marketplace to try to help us. In terms of an improvement in the business, I think when we get to the point where we see that newness and value in our assortment, I think that's when you're going to start to see the improvement in our business and obviously with the lead times. And we were looking at spring summer now. But I would say we start to see that improvement as we see it as we see the improvements in our assortment. Thanks, Kate.
Speaker Change: We have seen improvements in traffic.
Speaker Change: and I think that's, you've probably heard that from other retailers. I mean, it's out there, whether it's back to school and that that's kicked in. But we still have continued to see that same dynamic between lowering common hiring come.
Speaker Change: Professor, that dispersion between performance. In terms of...
John Heinbockel: The next question comes from John Heinbuckle with Guggenheim. Please go ahead. Hey guys, multi part. You talked about speed. I mean, we've always had a trend department.
Speaker Change: Storebroath. I mentioned that we are going to moderate in 2025, right? 152, 180 stores.
Ken Bull: You need to do anything with how you're structuring, merchandising, you know, and make any organizational changes just maybe internally to get that speed and get that newness. Number one, number two, when you kind of did your work with the consumer, has the perception of the brand changed from what it was, you know, two or three years ago. And then lastly, how do you, as you make these changes? Yeah, how do you get the customer? Recognize right that you've made the changes and you've kind of gone back to what you were.
Speaker Change: We're doing that primarily so we can focus on acquisition of these initiatives.
Speaker Change: and we'll give you more detail as we move through the year and talk about it when we get to the fourth quarter. But for the most part, we'll probably have growth rates that are similar in the near term to the growth rate that we're at, like, for 20.5. But more to come on that as we get to the end of the year.
Speaker Change: The next question comes from Simeon Gottman with Morgan Stanley. Please go ahead.
Simeon Gottman: Hi everyone, good afternoon, he can, I wanted to ask about the unit growth for 25.
Simeon Gottman: Question is, how do you land at whatever a hick at the 9% number and how much did you evaluate just cutting deeper?
Ken Bull: Yeah, thanks, John. On your first part of the question around speed, it's interesting. I think we talked about it over the last few quarters. We have gone through internally here, merchandising, organization, transformation. Again, kind of getting back to our roots in terms of how those teams, the buying teams, the planning teams, allocation teams are operating. So we're in the middle of putting that into place. And so I think that's going to help a lot to get back to speed, which we really have historically used as an advantage and we have to, you know, pull that forward again.
Speaker Change: for now, free hours of business, get the operations in order and then come back to the store growth once everything is in order and as part of that question, so the reflect that you're seeing a stabilization, at least at the current run rate, such that you don't have to do anything even more harsh right now to the UNIGRO. Thank you.
Speaker Change: Right?
Simian: Thanks, Simian. We did a deep dive on all the deals of Simian. There's a pretty long lead time for real estate.
Speaker Change: So we've got a lot of deals that are in the pipeline and we looked at those closely because one of the other things we want to get back to
Ken Bull: From a customer perception standpoint, part of the analysis we did was not only looking at internal data in some metrics, but also customer surveys and intercepts. And I think one of the things that was clear was the customer's looking for more value for us at the end of the day. And that's the way we look at value. It's not just price. It's really a combination of trend and quality and price. So that's where we know we have to do better and we're going to be working on.
Speaker Change: Are the returns that we've seen historically from us and look to improve those and reinforce those. So we did a deep dive on all the deals that we have and we had the ability to be selective around the real estate locations.
Speaker Change: But I'll mention to you again, the real reason was we wanted to make sure we weren't taxing the organization with a number because as I said before, we really need focus across the company. So the real driver in terms of the number of stores was that we can have the organization focus again.
Ken Bull: And then to pull customers back in, I think that's going to be marketing for us. We've done some marketing tests. We know we have the ability with testing to improve traffic, but you heard Christy talk about our challenges with convergence. So we'll focus on the marketing piece of it after we have the ability to improve the product and drive conversion.
Speaker Change: and go after the initiatives that we've put out there.
Speaker Change: Thanks for being.
Speaker Change: The next question comes from Michael Lesser with you the S. Please go ahead.
Michael Lesser: Good evening, thank you so much for taking my questions.
Michael Lesser: Can you quantify the collective impact from the investments that you're making in both labor?
Matthew Boss: The next question comes from Matthew Boss with JP Morgan. Please go ahead. Great thanks. So two questions. Can first maybe could you just elaborate on customer behaviors and comp trends that you saw today? The X at the quarter, maybe what you've seen in August across world, and then on store growth, could you speak to the reduction for 2025 growth and what you'll be looking for to potentially reaccelerate unit growth over time?
Michael Lesser: as well as value, not only this year, but what you expect that to be next year. And then on top of that, presumably there are some expenses.
Speaker Change: you mentioned retention bonus but less insensitive comp that are impacting the PNL this year that are going to come back or at least change next year. This will help formulate the building blocks.
Speaker Change: That we can model your business more effectively as we make assumptions up and down the piano. Thank you very much.
Matthew Boss: Store growth, thanks Matt. Around customer behaviors it was actually very similar to what we saw in Q1 where our lower income demographic was underperforming and our higher income demographic was outperforming, which tells us two things along with the other information. One, we were getting some trade down there from the higher income demographic and the lower income was probably more around value, which I just mentioned that we have to do better on.
Michael Lesser: Thanks Michael!
Speaker Change: I'll start with that and I'll kind of add to that in terms of some of the details. I think from a labor perspective, at least in the near term, we're going to make what I would call modest improvements in our labor out in the stores in the near term.
Speaker Change: As we move into next year, we'll build on that from a value perspective and pricing, as I mentioned.
Matthew Boss: So those dynamics have continued as we've exited to to and gone into August. We have seen improvements in traffic. And I think that's you've probably heard that from other retailers. I mean, it's out there whether it's back to school and that's kicked in. But we still have continued to see that same dynamic between lower income and higher income customers that that dispersion between performance. In terms of store growth, I mentioned that we are going to moderate in 2025 right 150 to 180 stores.
Speaker Change: in my prepared remarks.
Speaker Change: What we would expect to see is improvement across the all of our worlds in merchandise.
Speaker Change: which not only will help drive an overall top-line improvement, but it should also help to fund whether it's pricing investments or other things that we're going to do throughout the company that we can reinvest.
Speaker Change: Again, I would expect our overall merch margins to be relatively consistent year over year.
Speaker Change: being able to get a kind of a broader performance from our worlds and then using that too.
Austin: Austin, any price investments.
Matthew Boss: We're doing that primarily so we can focus on execution of these initiatives. And we'll give you more detail as we move through the year and talk about it when we get to the fourth quarter. But for the most part, we'll probably have growth rates that are similar in the near term to the growth rate that we're outlawing for 2025.
Christie: but the Christie, if you have. Yeah, I'll just add on to that and my comments for this year are on that adjusted basis.
Austin: All of this has been reflected in our guide and can you hit it with...
Speaker Change: Ficing actions for this year would be margin neutral if we move forward with any and again included in the guide from an SGA perspective that modest solar labor investment also included in our guide has a nominal effect on a full year basis.
Ken Bull: But more to come on that as we get to the end of the year.
Simeon Gutman: The next question comes from Simeon Gutman with Morgan Stanley. Please go ahead. Hi, everyone. Good afternoon. Hey, Ken. I wanted to ask about the unit growth for 25. Question is how do you land at whatever a hick at the 9% number? And how much did you evaluate just cutting deeper for now free hours of the business? Get the operations in order. And then come back to the store growth once everything is in order.
Speaker Change: When you go into 2025 again on an adjusted basis
Speaker Change: Margin Neutral, as you mentioned.
Speaker Change: Delayver Investments, we are expecting
Speaker Change: to be higher, but that we are expecting to partially offset those with cost optimization savings that we are working through and you've heard me talk about before, but we've widened that lens a bit.
Speaker Change: And so, you know, we're not really prepared to talk too much about 2025 right now. Obviously, this isn't the time where we would typically be guiding, but I will tell you that in a scenario where we have, you know, a 3% comp.
Simeon Gutman: And as part of that question, does it reflect that you're seeing a stabilization at least at the current run rate such that you don't have to do anything? Even more harsh right now to the unit growth. Thank you. Thanks, Simeon.
Speaker Change: That is when we'll begin to start to leverage the business again into the future.
Ken Bull: We did a deep dive on all the deals that you know, Simeon, there's a pretty long lead time for real estate. So we've got a lot of deals that are in the pipeline. And we looked at those closely because one of the other things we want to get back to are the returns that we've seen historically from us and looked to improve those and reinforce those. So we did a deep dive on all the deals that we have and we had the ability to be selective around the real estate locations.
Speaker Change: I think the other piece you asked about was, you know, if I take the $25 million of adjustment adjustments that we have, about half of those will be repeated next year.
Speaker Change: Yeah.
Speaker Change: The next question, the next question comes from Scott Chigarelli with truest, please go ahead.
Scott Chigarelli: Good afternoon, everyone. So, can everything not talk about in terms of...
Ken Bull: But I'll mention to you again, the real reason was we wanted to make sure we weren't taxing the organization with a number because as I said before, we really need focus across the company. So the real driver in terms of the number of stores was that we can have the organization focus again and go after the initiative that we've put out. Thanks, Simeon.
Scott Chigarelli: Everything you talked about in terms of challenges of business, that the business is facing. Really should have been true for several quarters. So I guess the question is, why do you think the business seemed to slow so quickly, kind of, you know, positive, low-single digits to make of mid-single digits?
Speaker Change: and I get somewhat related to that. It sounds like you're going to focus more on lower price points if I understood your comments properly. So, should we expect Noble ASP compression as you start under that process? Thanks.
Michael Montani: The next question comes from Michael Lusser with UDS. Please go ahead. Good evening. Thank you so much for taking my question. Can you quantify the collective impact from the investments that you're making in both labor, as well as value, not only this year, but what you expect that to be next year. And then on top of that, presumably, there are some expenses, you mentioned retention bonus, but less incentive comp, that are impacting the P&L this year, that are going to come back or at least change next year. This will help formulate the building blocks that we can model your business more effectively as we make assumptions up and down the P&L. Thank you very much. Thanks, Michael.
Speaker Change: Thanks, thanks, guys.
Speaker Change: Your question around kind of a timing of this. It really was a culmination of things over period of years that I discussed. Again, reactions to kind of post-pandemic.
Speaker Change: Macro pressures that we had. One of the things that may be, and I'm just speculating here, is that, you know, the, you know, the, you know,
Speaker Change: The challenges and pressures on lowering comb customers because we're seeing that with the data that we're looking at that they're underperforming versus hiring comb customers.
Speaker Change: and then we also saw an underperformance in our seasonal product in summer.
Speaker Change: That gets back to what I discussed around our focus on product and value and trend and delivering wow and that just wasn't there for us this year and that's probably why you started to see it late in the first quarter and then into the second quarter.
Ken Bull: I'll start with that and Kristy will kind of add to that in terms of some of the details. I think from a labor perspective, at least in the near term, we're going to make what I would call modest improvements in our labor out in the stores and in the near term. As we move into next year, we'll build on that from a value perspective in pricing as I mentioned in my prepared remarks.
Speaker Change: The lower price points, as Kristy mentioned, there will be working through this and we'll give you more information as we move forward.
Speaker Change: the...
Kristy: We're going to be introducing and refocusing on his lower price points, $1, $3, $5.
Kristy: We'll selectively.
Ken Bull: What we would expect to see is improvement across the all of our world in merchandise, which not only will help drive an overall top line improvement, but it should also help to fund whether it's pricing investments or other things that we're going to do throughout the company that we can reinvest. Again, I would expect our overall merch margins to be relatively consistent year over year, being able to get a broader performance from our worlds and then using that to offset any price investments.
Kristy: A just price is where we feel we need to, but I don't think that's going to be that large at this time. It's going to be the reintroduction of those key price points for our customer. And again, it gets back to value. And for us, again, value is not just around price.
Kristy: It's a round trend product and it's a round quality end price, so we'll continue to focus on that.
Kristy: Thanks God.
Kristy: The next question comes from Seth Sigmund with Parkleys.
Speaker Change: He's going ahead.
Kristy Chipman: I'll just add on to that and my comments for this year are around that adjusted basis. All of this has been reflected in our guide and can you hit it with pricing actions for this year would be margin neutral if we move forward with any and again included in the guide. From an S-GNA perspective, that modest store labor investment also included in our guide has a nominal effect on a full year basis.
Seth Sigmund: Great, hey everybody. I wanted to focus more specifically on the five beyond strategy. Maybe just speak about the performance in those locations. And I'm just curious, do you think that strategy has played any role in the challenges? Do you think it's added to perhaps?
Speaker Change: Pipe Perception Issues, or Quality of In-Shopping Complexity for certain customers in the store that wide range of price points. And then, ultimately, what type of changes should we see in that assortment. Thank you.
Kristy Chipman: When you go into 2025, again on an adjusted basis, margin neutral as you mentioned, the labor investments we are expecting to be higher but that we are expecting to partially offset those with cost optimization savings that we are working through and you've heard me talk about before but we've widened that lens a bit.
Speaker Change: Yeah, thanks. I'll start in time you could add in on that too. We still believe in the five beyond product at the end of the day, when we also realize.
Speaker Change: that we're in a position where we need to re-stratage eyes.
Speaker Change: around five below. So that's where we're going to be working on and in time if you have any other comments? I think I think it's correct. We believe in the five beyond opportunity.
Kristy Chipman: We're not really prepared to talk too much about 2025 right now. Obviously this isn't the time where we would typically be guiding but I will tell you that in a scenario where we have a 3% comp, that is when we'll begin to start to leverage the business again into the future. I think the other piece you asked about was if I take the $25 million of adjustments that we have about half of those will be repeated next year.
Speaker Change: But I think as we really look at our strategy around that, I think it has, we have to apply the same lengths, the same focus, the same discipline.
Speaker Change: are we trying to do the rest of the business?
Speaker Change: and that's around very focused, narrow-sortment, tea items, extreme value, trend, but equally important focus, focus specifically at a core customer. And that's something we're actively looking at and we'll have more to say about the overall five beyond.
Scott Ciccarelli: Next question. The next question comes from Scott Ciccarelli with Truist. Please go ahead. Good afternoon, everyone. So, can everything you've not talked about in terms of everything you talked about in terms of challenges of business that the business is facing really should have been true for several quarters. So I guess the question is why do you think the business seemed to slow so quickly kind of positive low single digits to negative single digits?
Speaker Change: I was so we moved forward. Yeah, and I would just add, the performance itself has been pretty similar to what we've shared previously and in the first quarter, as it relates to the lift from Supercharger versus Nine, as well as the sales penetration being in the mid-singled digit range.
Speaker Change: You're a product.
Speaker Change: to
Speaker Change: Thank you.
Paul Ledgeway: The next question comes from Paul, Ledgeway with City, please go ahead.
Scott Ciccarelli: And I guess somewhat related to that, it sounds like you're going to focus more on lower price points if I understood your comments properly. So should we expect noble ASP compression as you start to undergo that process? Thanks, thanks, Scott. Your question around kind of a timing of this. It really was a culmination of things over period of years that I discussed. Again, reactions to kind of post pandemic macro pressures that we have had.
Paul Ledgeway: Hey, thanks guys, Terry's how you would characterize the environment in terms of those.
Speaker Change: Friends, you know, are there, you know, trying to out there that you feel like...
Speaker Change: You're not capitalizing on, as you say, it's more of an environment where they're isn't.
Speaker Change: a very strong friend and I guess I could relate that to...
Speaker Change: So, if you're a conversion issue that you've hoped to, do you think it is more of a lower income consumer-strap consumer issue, or is it maybe more tied to just not being a very strong turned up there right now to our same traffic and conversion to stores.
Scott Ciccarelli: One of the things that may be, and I'm just speculating here, is that the challenges and pressures on lower income customers, because we're seeing that with the data that we're looking at, that they're underperforming versus higher income customers. And then we also saw an underperformance in our seasonal product in summer. That gets back to what I discussed around our focus on product and value. And trend and delivering while. And that just wasn't there for us this year.
Speaker Change: Thanks for all I'll take the beginning of that time, you can weigh in on that too.
Speaker Change: One of the reasons we have eight worlds is that it gives the buyers the flexibility to go after whatever trends may be out there. We realize that they may shift from one world to another as time goes on, but there's always something going on.
Scott Ciccarelli: And that's probably why you started to see it late in the first quarter and then into the second quarter. The lower price points, as Christy mentioned, there's, you know, we'll be working through this and we'll give you more information as we move forward forward. But the, we're going to be introducing and refocusing on those lower price points. $1, $3, $5. We'll selectively adjust prices where we feel we need to. But I don't think that's going to be that large at this time.
Speaker Change: with those trends.
Speaker Change: and those trends drive newness, which is so important for our customer.
Speaker Change: and we do think we have the ability to continue to deliver a newness which then obviously drives a traffic in our customers' economy. I would add to that we almost need to separate the two. 5-0 was built and needs to be focused on newness inside the store.
Speaker Change: And the element of trend right does not necessarily relate to what is a trend out there, but what is it that our customer is looking for?
Speaker Change: through a narrow assortment, a focus assortment.
Speaker Change: Speed!
Scott Ciccarelli: It's going to be the reintroduction of those key price points for our customer. And again, it gets back to value. And for us, again, value is not just around price. It's around trend product and it's around quality and price. So we'll continue to focus on that. Thanks God.
Speaker Change: I think and the ability to move quickly and shift.
Speaker Change: and create the ability to bring units constantly into our stores.
Speaker Change: is a trend in itself. So it's how we reinvigorate a world, how we inject newness, and how we focus on the items that will drive the biggest offset if we believe for business. And then as a trend comes into fruition, then obviously that's an edited benefit.
Seth Sigman: The next question comes from Seth Sigmund with Barclays. Please go ahead. Great. Hey, everybody. I wanted to focus more specifically on the five beyond strategy. Maybe just speak about the performance in those locations. And I'm just curious. Do you think that strategy has played any role in the challenges? You think it's added to perhaps price perception issues or call it even shopping complexity for certain customers in the store, just that wide range of price points. And then ultimately, what type of changes should we see in that assortment?
Paul Ledgeway: Thanks, Paul.
Ken Bull: Thank you. Yeah, thanks. I'll start in time. You could add in on that too. We still believe in the five beyond product at the end of the day when we also realize that we're in a position where we need to re-strategize around five below. So that's what we're going to be working on. And in time, if you have any other comments on that. I think again, it's correct. We believe in the five beyond opportunity.
Speaker Change: The next question comes from Chuck Graham with Gordon Hasket. Please go ahead.
Chuck Graham: Hey, thanks so I get afternoon. I don't want to just circle back to this question and just pull me up those softly.
Chuck Graham: Can you talk about your level of commitment to the five beyond strategy and if there's
Speaker Change: and turn off thoughts about moving away from it and having five below get back to its quirots of being priced to five and below.
Speaker Change: across the store. And if you were to do that, how do we think about the sort of one-time applications on sales and margins? Thanks.
Ken Bull: But I think as we re-look at our strategy around that, I think it has, we have to apply the same lens, the same focus, the same discipline as we're trying to do the rest of the business. And that's around very focused, narrow-sort and T-items, extreme value, trend, but equally important focus specifically on a core customer. And that's something we're actively looking at and we'll have more to say about overall five beyond as we move forward.
Speaker Change: You know, I'll start an antenna conjumping. We think value is cheap.
Speaker Change: and Fibola is all about extreme value. We think price points in the one to $5 price point are very important, especially for core customers, especially for mom and dad and kids coming into our stores and create that impulse environment and that arrival. We feel just equally that...
Speaker Change: Value and Opportunity.
Speaker Change: at 5 Beyond Exist for 5 Below.
Speaker Change: So we believe in that, what we want to do and we're focusing on is to make sure that our strategy.
Speaker Change #100: I'll play the same principles in the Fibianne as we try to do in the rest of the store of how we select product, how we edit the product and how we present it.
Kristy Chipman: Yeah, and I would just add, the performance itself has been pretty similar to what we've shared previously and in the first quarter, as it relates to the list from Super Chargers versus None, as well as the sales penetration being in the mid-single-digit range, product. Thank you.
Tom: and then Tom, I'll just, I'll add to that. I mean, that's related to the product. And then obviously Chuck, you know, we've got the five beyond prototype. I think that's another thing we're going to re-look at in terms of what's appropriate for the presentation, you know, for our customer going forward with that five beyond product.
Chuck Graham: Thanks, Chuck.
Speaker Change #101: The next question comes from Anthony, to come up with loop capital markets. Please go ahead.
Paul Lejuez: The next question comes from Paul Legway with City. Please go ahead. Hey, thanks guys.
Anthony: Thank you so much for taking my question so you mentioned complexity in the store in that being an issue and you did make a reference to someone of week reference to the assistant self check out. So I guess my question is are you reassessing assisted self check out as part of this structure in effort. Thank you.
Ken Bull: I'm curious how you would characterize the environment in terms of friends. You know, are there, you know, trends out there that you feel like you're not capitalizing on? What would you say? It's more of an environment where there isn't a very strong friend. And I guess maybe relate that to some of your conversion issues that you spoke to. Do you think it is more of a lower income consumer, a strapped consumer issue or is it maybe more tied to just not being a very strong trend out there right now, driving traffic and conversion to source? Yeah, thanks Paul.
Speaker Change #103: Yeah, thanks Anthony.
Speaker Change #104: Related to the complexity in the stores I mentioned, I think there's a lot of things that we did to the stores over the years here.
Speaker Change #104: that we required them to do. We introduced services. I mentioned strength, right, and what strength did.
Ken Bull: I'll take the beginning of that in time. You can weigh in on that too. One of the reasons we have eight worlds is that it gives the buyers the flexibility to go after whatever trends may be out there. And we realize that they may shift from one world to another as time goes on, but there's always something going on with those trends. And those trends drive newness, which is so important for our customer. And we do think we have the ability to continue to deliver newness, which then obviously drives the traffic and our customers.
Speaker Change #104: We went to associate scanning at our checkout.
Speaker Change #104: We're looking at that now, but where we're going to take that is probably back to where we were, where it's more of an associate monitored process at the front of the store, around ACO, which will actually probably work out better for us all around.
Speaker Change #104: But we're going to look at a lot of things that the stores are doing. We're also looking at systems and other efficiencies to put in the stores.
Speaker Change #104: To the extent we can save them time, it gives them the ability to repurpose that time and then focus on the critical work that needs to be done. So really that's one piece of a lot of things that we're going to be doing to simplify the work that goes on in the stores. And then also, along with that, it's kind of a...
Ken Bull: I would add to that, we almost need to separate the two five below was built and needs to be focused on units inside the store. And the element of trend right does not necessarily relate to what is a trend out there, but what is it that our customer is looking for? Through a narrow assortment, a focused assortment, speed, I think, and the ability to move quickly and shift and create this ability to bring units constantly into a store is a trend in itself.
Speaker Change #104: It's too excited where we're going to be hopefully reducing workload for them, but also as Kristy mentioned reinvesting in labor.
Kristy: Thanks for your tuning.
Kristy: The next question comes from Joe Feldman with Taltcy Advisory Group.
Speaker Change #105: Please go ahead.
Ken Bull: So it's how we reinvigorate a world, how we inject newness and how we focus on the items that will drive the biggest object we believe for a business. And then as a trend comes into fruition, then obviously that's that's an added benefit. Thanks, Paul.
Joe Feldman: Yeah, hey, I want to guys, oh, good afternoon, sorry. You know, you talked about, um...
Joe Feldman: You know, trying to improve your focus on the customer and capturing the man from the customer. And it makes me think about, we've asked, we've collectively asked you guys about a loyalty program for years. And I'm wondering...
Speaker Change #107: How effective that could have been in helping to better understand your customer, better understand what they want, when they want, the prices they want. Any further thoughts on accelerating a loyalty program?
Chuck Grom: The next question comes from Chuck Grom with Gordon Haskett. Please go ahead. Hey, thanks for that. Good afternoon. I don't want to disircle back to this question.
Tom Bellio: And just enough those opically, can you guys talk or maybe Tom specifically, can you talk about your level of commitment to the five beyond strategy? And if there's been any internal thoughts about moving away from it and having five below get back to its courts of being priced five and below across the store. And if you were to do that, how do we think about the sort of one time applications on sales and margins?
Speaker Change #107: Yeah, thanks Joe, you're right, we talked about that for a while, I think that got caught up with a lot of those.
Joe Feldman: Macro pressures and the other things that we dealt with post-pandemic.
Joe Feldman: Fast forward to today. We are working on developing a program.
Speaker Change #108: Looks like we should probably have a test done, a very early test done by the end of the year.
Tom Bellio: Thanks. You know, I'll start them and can't jump it. We think value is key, and Five Below is all about extreme value. We think price points in the $1 to $5 price point are very important, especially for core customers, especially for mom and dad and kids coming into our stores and create that impulse environment and that arrival. We feel just equally that value and opportunity at five beyond beyond exists for five below.
Speaker Change #108: We'll see where that goes in the next year, but to your point we have kind of refocused on that because we did, we really didn't work on that over the last few years and we do view that as a potential driver for us too.
Joe Feldman: Thanks, Joe.
Joe Feldman: The next question comes from Brian Nagle with Oppenheimer. Please go ahead.
Brian Nagle: Thank you for taking my questions. So I want to focus on a store growth and maybe a two-port question. But we first have to understand better if you talk about the moderation growth here.
Tom Bellio: So we believe in that. What we want to do and we're focusing on is to make sure that our strategy applies the same principles in the five beyond as we try to do in the rest of the store of how we select product, how we edit the product and how we present it. And then Tom, I'll just I'll add to that. I mean, that's related to the product. And then obviously Chuck, you know, we've got the five beyond prototype. I think that's another thing we're going to relook at in terms of what's appropriate for the presentation, you know, for our customer going forward with that five beyond product. Thanks Chuck.
Brian Nagle: 25
Speaker Change #110: We can look at that as, you know, from your standpoint, now recognizing what's going on, is that of one-time pause?
Speaker Change #110: or should this be, you know, how we're thinking about store growth to cancel going forward. And then the second part of the question is, you know, as you look at the new store growth target here in the nearer term, which you had previously, is there any thinking behind the stores that you're not opening, there's a broad base, or you're changing strategy in some way.
Anthony Chukumba: The next question comes from Anthony Chakumbat with loop capital markets. Please go ahead. Thank you so much for taking my question. So you mentioned complexity in the store and that being an issue and you did make a reference. Someone of week reference to the assistant self checkout. So I guess my question is, are you reassessing assistant self checkout, you know, as part of this, you know, this restructuring effort. Thank you. Yeah, thanks Anthony.
Brian Nagle: Thanks, Brian.
Speaker Change #111: You're right, as we mentioned, we are going to moderate for 2025.
Speaker Change #111: will provide more detail as we move forward with, again, the key for doing that is to be able to focus on these initiatives and to the extent that we see success coming out of our focus around product and value and store experience.
Anthony Chukumba: Related to the complexity in the stores, I mentioned, I mean, there's a lot of things that we did to the stores over the years here that we required them to do. We introduced services. I mentioned shrink, right? And what shrink did that we we went to associate scanning at our checkout. We're looking at that now, but where we're going to take that is probably back to where we were.
Speaker Change #111: will be able to provide more details on that. If I had to talk about it,
Speaker Change #111: Now, most likely it would be similar, a similar growth rate that we're seeing, but the focus for us is to go back and build a great company. That's what we really need to do. And when we see that, I think that we'll be able to answer more specific questions around it.
Speaker Change #111: wrote, but that's what we see right now from a very near term from a growth perspective.
Speaker Change #112: You're coming around, I think it was around other store locations. We've always been a model that had flexibility around...
Ken Bull: Where it's more of an associate monitored process at the front of the store around ACO, which will actually probably work out better for us all around. But we're going to look at a lot of things that the stores are doing. We're also looking at systems and other efficiencies to put in the stores. To the extent we can save them time, it gives them the ability to repurpose that time and then focus on the critical work that needs to be done.
Speaker Change #112: Being able to be successful in various locations and I think that's going to continue for us.
Speaker Change #112: at the end of the day. I mean, we're successful in urban locations in semi-rural, you know, your typical shopping centers and rural areas. I think that opportunity is still out there for us.
Speaker Change #112: And as I mentioned, we remain a growth company, so we all feel very confident that that opportunity in white space and area for growth is still there for us.
Ken Bull: So really that's one piece of a lot of things that we're going to be doing to simplify the work that goes on in the stores. And then also along with that, it's kind of a it's too cited where we're going to be hopefully reducing workload for them, but also as Christy mentioned reinvesting in labor. Thanks Anthony.
Brian Nagle: was that, thanks Brian.
Brian Nagle: The next question comes from Michael Montanney with Evercore ISI. Please go ahead.
Brian Nagle: Fernse.
Michael Montanney: Hey there, good evening. Thanks for taking the questions. I just wanted to thank through two lines of questioning. The first was on the skewfront. I don't know, can if you can share, kind of.
Joe Feldman: The next question comes from Joe Feldman with Tilt Sea Advisory Group. Please go ahead. Yeah, hey, you know, you talked about trying to improve your focus on the customer and capturing demand from the customer and it makes me think about we've asked we collectively have asked you guys about a loyalty program for years. And I'm wondering. How effective that could have been in helping to better understand your customer, better understand what they want, when they want, the prices they want.
Michael Montanney: What the average cue count was, pre-pandemic, you know, how high it had gotten, and now where you see it shaking out moving forward, as you mentioned, kind of intense fine focus.
Michael Montanney: and then I guess the second part of the question was...
Michael Montanney: trying to better understand the store labor model.
Speaker Change #114: The two specific things that ask like one is average hourly wages, we were thinking 13 to 14 an hour.
Speaker Change #115: I don't know if you'd care to comment on that, where they need to go, or if you're happy with that
Speaker Change #116: and then the other one is store hours. We're talking about kind of low single digit increases in store hours to kind of get the experience right, or is it a more material investment than that.
Joe Feldman: Any further thoughts on accelerating a loyalty program? Yeah. Thanks, thanks Joe. You're right. We talked about that for a while. I think that got caught up with a lot of those macro pressures and the other things that we dealt with post pandemic. Fast forward to today. We are working on developing a program. It looks like we should probably have a possibly a test done, a very early test done by the end of the year.
Michael: Okay, thanks Michael.
Speaker Change #118: On the skew front, I'm not going to give you the details around skew counts and things like that. But the fight to say, we had a double digit percentage increase in skews.
Speaker Change #118: vs. Pre-Pandemic, and that's...
Speaker Change #119: That's us becoming oversfued and oversorted.
Joe Feldman: We'll see where that goes into next year, but to your point, we have kind of refocused on that because we did, we really didn't work on that over the last few years and we do view that as a potential driver for us too. Thanks, Joe.
Tom: As I discussed over the last several years and we're going to get that back. As Tom mentioned, we're an item-driven business at the end of the day, so we're going to renew that focus and also renew a focus in terms of reducing those skews.
Tom: in terms of store labor.
Tom: and hourly wages. We always want to remain competitive in the marketplace and we've always been that way. So we've had to adjust our labor rate accordingly within the various markets around the country. We're going to continue to do that because we have to remain competitive. And with regards to store hours.
Brian Nagel: The next question comes from Brian Nagel with Oppenheimer. Please go ahead. Thank you, David. Thanks for taking my question. I want to focus just on a store growth and maybe a two-part question, but we first have to understand better. You should talk about the moderation growth here, I guess, 25. Should we be looking at that, from your standpoint, now recognizing what's going on?
Ken Bull: Is that a one-time pause or should this be how we're thinking about store growth potentially going forward? And then the second part of the question is, as you look at the new store growth target here in the near term, but what you had previously, is there any thinking behind the stories that you're not opening as a broad based or you're changing strategy in some way? Thanks, Brian. You're right. As we mentioned, we are going to moderate for 2025.
Tom: We will reinvest the hours that are necessary to be able to deliver the story experience that we need.
Tom: We're going to be looking at the workloads, we're going to be looking at standards in terms of how long it takes to perform process and things like that but at the end of the day, it has to be about the customer coming in and our stores include delivering a great experience for them.
Tom: So that'll drive the hours that we've put back into the world.
Michael: Thanks Michael.
Michael: The next question comes from David Belinger with Mizuhu. Please go ahead.
Speaker Change #120: Thanks for the question of this two-parter.
Ken Bull: We'll provide more detail as we move forward. Again, the key for doing that is to be able to focus on these initiatives. And to the extent that we see success coming out of our focus around product and value and store experience, we'll be able to provide more details on that. If I had to talk about it now, most likely, it would be similar, a similar growth rate that we're seeing, but the focus for us is to go back and build a great company. That's what we really need to do.
Speaker Change #121: So, Ken, you laid out a number of initiatives that's on set of your performance remarks.
David Belinger: What's the biggest near-term opportunity within that, and then all connected gears up. There's specific category, maybe toys, beauty, et cetera, that we should be watching for as part of this, and in order to get back to that core younger customer, and that eventually lead to...
Speaker Change #123: Call it more standing across the complete store.
David Belinger: Thanks David.
Ken Bull: And when we see that, I think that we'll be able to answer more specific questions around growth. But that's what we see right now from a, in the very near term, from a growth perspective. You're coming around, I think it was around other store locations. We've always been a model that had flexibility around, you know, being able to be successful in various locations. And I think that's going to continue for us at the end of the day.
David Belinger: David, we've always been a merchandise room in business at the end of the day, so when I mention product and value, I think that leaves.
Speaker Change #124: I've crossed everything and I mentioned story experience is going to be critical to this so we're going to make sure we focus on that. In terms of the areas of the business where we can...
Speaker Change #125: Get back to that editor-sortman and...
Speaker Change #125: and Tramden Quality.
Speaker Change #125: The beauty of five below is I mentioned before we've got eight worlds and we have the ability to do that across all worlds and that's what we're going to do. This isn't targeted against our targeted for one area versus another. That's the beauty of our model that we have the ability to have this impact across all these worlds.
Ken Bull: I mean, we're successful in urban locations in semi-rural, you know, your typical shopping centers and rural areas. I think that opportunity is still out there for us. And as I mentioned, we remain a growth company. So we all feel very confident that that opportunity in white space and area for growth is still there for us.
Speaker Change #125: and then when we're humming, it has a cumulative effect on the business. So we are definitely going to go after it in all departments and areas and categories of the business.
Michael Montani: The next question comes from Michael Montani with Evercore ISI. Please go ahead. And then I guess the second part of the question was trying to better understand the store labor model and the two specific things I'd ask. One is average hourly wages, we were thinking 13 to 14 an hour. I don't know if you'd care to comment on that where they need to go or if you're happy with that. And then the other one is store hours. Are we talking about kind of low single digit increases in store hours to kind of get the experience right or is it a more material investment than that?
David Belinger: Fact David.
David Belinger: The next question comes from Brad Thomas with the bank capital market. Please go ahead.
Brad Thomas: I think two follow-ups on some earlier topics.
Brad Thomas: The first would be around the shrimp can, the self-checkout, initiatives and efforts underway here. I don't know if you quantify it, but do you have a sense if there's any quantification of how much that.
Brad Thomas: is impacting sales right now, just to address that directly. And then secondly, just as you work on changing merchandising.
Speaker Change #127: Tom, if I go back and look at, you know, when you start the business in 2002, we adjust for inflation, you know, $5 would be closer to $9. Do we think we can do this still under $5 or should you be turning yourselves into 10 below just to throw it out there? Thanks.
Ken Bull: Okay, thanks Michael. On the skew front, I'm not going to give you the details around skew counts and things like that. But the fight said to say we had a, I would call it a double digit percentage increase in skews versus pre-pandemic. And that's us becoming over skewed and oversorted as I discussed over the last several years. And we're going to get that back. As Tom mentioned, we're an item driven business at the end of the day.
Tom: Thanks Brad, I'll take the first part of the time if you want to take the second. Around...
Tom: So I'll check out Brad, you mentioned, you know, that's what I have an impact on.
Speaker Change #128: Processing, and part of the work that we've done, we've surveyed customers and done intercepts, and actually we ranked pretty high, and among other retailers in terms of speed and efficiency through self-check-out.
Speaker Change #129: So we do think that's appropriate for the stores at the end of the day.
Speaker Change #129: and our customers seem to appreciate it. So obviously we're going to continue that.
Ken Bull: So we're going to renew that focus and also renew a focus in terms of reducing those skews. In terms of store labor and hourly wages, we always want to remain competitive in the marketplace and we've always been that way. So we've had to adjust our labor rate accordingly within the various markets around the country. We're going to continue to do that because we have to remain competitive. And with regards to store hours, we will reinvest the hours that are necessary to be able to deliver the store experience that we need.
Speaker Change #129: We're just going to go about in a different way than what we've been doing recently to try to mitigate shrink, because we think we can mitigate and control shrink.
Speaker Change #129: by having that associated monitored area in self-check out as opposed to the scanning side of it that we were doing for a while, so we're going to institute that over the next 30 to 60 days.
Speaker Change #130: and then on the product. I think we've got to the product, you read of a great point. Maybe best way to answer it. As we look back to that G, I think we have a few less stories than we did today. It's just a starting point.
Ken Bull: We're going to be looking at the workloads, we're going to be looking at standards in terms of how long it takes to perform process and things like that. But at the end of the day, it has to be about the customer coming in and our stores and crew delivering a great experience for them. So that will drive the hours that we put back into the model.
Speaker Change #131: and I will tell you what I've been very impressed by. As of spent time and we set with the lack of the whole merchandising team, inside the organization, to be honest with you, I think we need to focus.
David Bellinger: Thanks, Michael.
Speaker Change #131: on the areas that can outline.
David Bellinger: The next question comes from David Belinger with Mizzouho. Please go ahead. Thanks for the question.
Speaker Change #131: created this plan, narrow focus on what's important inside the company, move away from the distractions from the outside distractions.
Ken Bull: It's two-parter. So can you laid out the number of initiatives that the onset of your performance remarks? What's the biggest near-term opportunity within that? And they're also connected here. There are specific categories, maybe toys, beauty, et cetera, that we should be watching for as part of this edit as a sort. In order to get back to that core younger customer and that eventually leads to call it more spending across the complete store.
Speaker Change #131: and I will tell you, I've seen enough opportunity, and this team is ready to move, and the ready to engage, and then confidence in their ability.
Speaker Change #131: to deliver on product, price points and value. I've seen him so energy, so I must tell you. I don't have any concern that this team will be able to deliver in just with that some time.
Speaker Change #131: and we need to support him with some of the initiatives that can highlight it and will be in a good place I believe.
Ken Bull: Thanks, David. David, listen, we've always been a merchandise firm business at the end of the day. So when I mention product and value, I think that leads across everything. And again, I mentioned store experience is going to be critical too, so we're going to make sure we focus on that. In terms of the areas of the business where we can get back to that edited sortment and trend and quality, the beauty of five below, as I mentioned before, we've got eight worlds and we have the ability to do that across all worlds and that's what we're going to do.
Speaker Change #131: Thanks for that.
Speaker Change #131: The next question comes from Jeremy Hamblon with Craig Halum Capital Group. Please go ahead.
Jeremy Hamblon: Thanks for taking the question, so first just wanted to ask if you've always had all of your stores.
Speaker Change #133: You know, a profitable on a full wall base is not to make sure that that still stood. And then just in terms of thinking about stored development going forward.
Speaker Change #134: What do you think is your kind of new unit productivity, expectations, and as you...
Ken Bull: This isn't targeted against or targeted for one area versus another. That's the beauty of our model that we have the ability to have this impact across all these worlds. And then when we're humming, it has a cumulative effect on the business. So we are definitely going to go after it in all departments and areas and categories of the business. Thanks, David.
Speaker Change #135: Looking to next year, you know, cannibalization is something that's come up a little bit.
Speaker Change #136: You know, how do you expect your overlap to be in 2025 in kind of, let's say, new markets versus in-till?
Speaker Change #137: Thanks, Jeremy. In terms of the profitability stores, we're still in that position where.
Bradley Thomas: The next question comes from Brad Thomas with the bank capital markets. Please go ahead. I think two follow-ups on some earlier topics. The first should be around the shook and the self-check out. I don't know if you quantify it, but do you have a sense if there's any quantification how much that is impacting sales right now just to address that directly. And then secondly, just as you work on changing merchandising, tell them if I go back and look at when we started the business in 2002, we adjust for inflation, five dollars would be closer to nine dollars.
Speaker Change #138: Our stores across the board deliver a profit.
Speaker Change #138: and a four-wall base that we're very pleased with that. And as we mentioned before, our new store economics are still leading. Even though they've fallen off a little bit in the recent past, they're still, they're still tops out there in retail.
Speaker Change #138: in terms of the unit productivity.
Speaker Change #138: For years, we were in that like 95-100% productivity. And...
Speaker Change #138: If you recall back in the day, I would always say, I don't know how long this is going to last But now we're probably in that 80 to 85 percent range, which we think is reasonable and appropriate Keeping in mind to your point that we do have levels of cannibalization given the densification we're doing in markets
Bradley Thomas: Do we think we can do this still under five dollars or should you be turning yourself into 10 below just to throw it out there? Thanks. Thanks, Brad. I'll take the first part of time if you want to take a second. Around self-check out, Brad, you mentioned that have an impact on processing. Part of the work that we've done, we've surveyed customers and done intercepts, and actually we rank pretty high and among other retailers in terms of speed and efficiency through self-check out.
Speaker Change #138: I would expect to consider to see those similar levels that we've experienced recently as we go forward. But it's one of the things we can do and it's having more data.
Speaker Change #138: and more locations in the base to be able to look at performance. We've got a pretty good measurement in determining and estimating what kind of motivational base. We'll take that in the consideration, but...
Speaker Change #138: I would say in the near term we'll be looking at that and I think Kristy has mentioned it in the last couple of quarters around that 80 to 85%.
Bradley Thomas: So we do think that's appropriate for the stores at the end of the day, and our customers seem to appreciate it. So obviously we're going to continue that. We're just going to go about it a different way than what we've been doing recently to try to mitigate shrink, because we think we can mitigate and control shrink by having that assisted associate monitored area in self-check out as opposed to the scanning side of it that we were doing for a while.
Kristy: Productivity, I think that's reasonable in the near term.
Jeremy Hamblon: Thanks, Jeremy.
Jeremy Hamblon: The next question comes from Melanie Nunez with Bank of America. Please go ahead.
Melanie Nunez: Hi, thanks for taking my question here. So, I know in the past you've talked about the spring and summer time frame as being a bit more of a role given the lack of events.
Speaker Change #140: I was just wondering if you could talk about back-to-school performances, typically been a driver, obviously I know these sort of changes aren't coming through yet, but just any thoughts as we're in the midst of this, and then how you're feeling entering the holidays. Thanks.
Bradley Thomas: So we're going to institute that over the next, say, 30 to 60 days, and then on the product. I think we forgot to the product. We have a great point. Maybe best way to answer it. As we look back to that, I think we have a few less stores than we do today, just to the starting point, which have put us in a different position, but I will tell you what I've been very impressed by. As of spend time, and we're set with the whole merchandising team inside the organization.
Meli: Yep, thanks, Meli.
Speaker Change #141: The seasons are important to us, you know, the malfunction of the store.
Speaker Change #141: is where we present our seasonal product in Tom mentioned it too. We're all about newness and it gives the chance for us to present that newness in the store.
Speaker Change #143: You mentioned spring and summer in a low, actually spring and summer should be a big season for us. Given the length of the season, kids are out of school and what we can go after there.
Ken Bull: To be honest with you, I think we need to focus on the areas that can outline, create a discipline, narrow focus on what's important inside the company, move away from the destruction, probably I'm sorry, destruction. And I will tell you, I've seen enough opportunity, and this team is ready to move, and they're ready to engage in their confidence and their ability to deliver on product price points and value. I've seen them so energetically, so I must tell you, I don't have any concern that this team will be able to deliver. You just will take some time. And we need to support them with some of the initiatives that can highlight it, and will be in a good place, I believe. Thanks, Brad.
Speaker Change #143: Um...
Speaker Change #144: with regards to back to school again I would say going forward.
Speaker Change #144: in terms of the product assortment and some of the things I outline that we're going to go after. That'll affect the go-forward. Again, I think I mentioned we've pretty much bought up holiday.
Jeremy Hamblin: The next question comes from Jeremy Hamblin with Craig Hallam Capital Group. Please go ahead. Thanks for taking the question.
Speaker Change #144: We're going to go chase some items to drive the business but we're not going to see an improvement until we have a chance to adjust that assortment.
Speaker Change #144: As we've talked about, there's a lot of work to be done. I know it's only been a...
Speaker Change #144: Several weeks in terms of all the analysis that we've done, but we've put together a plan that we're going to work on, but again, a lot of work needs to be done. And as I mentioned, the team has extremely energized and motivated and going after it.
Jeremy Hamblin: So first, just wanted to ask if you've always had all of your stores profitable on a four-wall basis, run to make sure that that still stood. And then just in terms of thinking about store development going forward, what do you think is your kind of new unit productivity expectations? And as you look into next year, cannibalization is something that's come up a little bit. How do you expect your overlap to be in 2025 in kind of, let's say, new markets versus in...
Meli: Thanks, Meli.
Meli: Scott.
Meli: what
Meli: This concludes our conference call and the Q&A session at this time I'd like to turn the call back over to Ken Bull for the closing remarks.
Ken Bull: Thanks, Operator, and thank you all for joining us on the call today and we look forward to updating you on our progress in a few months.
Speaker Change #146: Thanks everyone.
Jeremy Hamblin: Thanks Jeremy. In terms of the profitability stores, we're still in that position where our stores across the board deliver profit on a four wall basis, so we're very pleased with that. And as we mentioned before, our new store economics are still leading, even though they've fallen off a little bit in the recent past, there's still tops up there in retail. In terms of unit productivity, for years, we were in that like 95 to 100% productivity.
Jeremy Hamblin: And if you recall back in the day, I would say that I would always say, I don't know how long this is going to last, but now we're probably in that 80 to 85% range, which we think is reasonable and appropriate, keeping in mind to your point that we do have levels of cannibalization given the densification we're doing in markets. I would expect to consider to see those similar levels that we've experienced recently as we go forward, but it's one of the things we can do, and it's having more data and more locations in the base to be able to look at performance.
Christiane Pelz: and John Paul, Christiane Pelz, Christiane Pelz, Christiane Pelz, Christiane Pelz,
Jeremy Hamblin: We've got pretty good measurements in determining and estimating what cannibalization will be, so we'll take that into consideration. But I would say in the near term, we'll be looking at that. And I think Christie has mentioned it in the last couple of quarters around that 80 to 85% productivity. I think that's reasonable in the near term. Thanks, Jeremy.
Ken Bull: The next question comes from Melanie Nunez with Bank of America. Please go ahead. Hi, thanks for taking my question here. So I know in the past, you've talked about the spring and summertime frame as being a bit more of a lull, given the lack of events. I was just wondering if you could talk about back to school performance. It's typically been a driver. Obviously, I know these assortment changes aren't coming through yet, but just any thoughts as we're in the midst of this and then higher feeling entering the holidays.
Ken Bull: Thanks. Yeah, thanks, Melanie. The seasons are important to us. The now section of the store is where we present our seasonal product. And Tom mentioned it too. We're all about Nunez, and it gives a chance for us to present that Nunez in the store.
Ken Bull: You mentioned spring and summer and a lull, actually spring and summer should be a big season for us, given the length of the season, kids are out of school and what we can go after there. With regards to back to school, again, I would say going forward in terms of the product assortment and some of the things I outlined that we're going to go after, that'll affect the go forward. Again, I think I mentioned we've pretty much bought up holiday, and we're going to go chase some items to drive the business, but we're not going to see an improvement until we have a chance to adjust that assortment, and we put the wow back in the assortment and the value.
Ken Bull: But again, we feel confident in our ability to go after that and kind of refocus on the poor customer and the product. But as we've talked about, there's a lot of work to be done. I know it's only been several weeks in terms of all the analysis that we've done, but we've put together a plan that we're going to work on. But again, a lot of work needs to be done. And as I mentioned, the team has extremely energized and motivated and going after. Thanks, Mellie.
Operator: This concludes our conference call and the Q&A session at this time.
Ken Bull: I'd like to turn the call back over to Ken Bull for an closing remarks. Thanks, operator. And thank you all for joining us on the call today, and we look forward to updating you on our progress in a few months.
Operator: Thanks, everyone. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.