Q4 2024 Five Below Inc Earnings Call
Speaker Change: Good day, and welcome to the Five Below fourth quarter, 2024, earnings conference call. All participants will be in a listen only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero. Thank you very much.
Speaker Change: After today's presentation there will be an opportunity to ask questions.
Speaker Change: To ask a question, you may press Star than one on your touchtone phone And to withdraw your question, please press Star then two Please note this event is being recorded I would now like to turn the conference over to Ms. Kristy on Appell's Vice President of Investor Relations and Treasury Please go ahead, ma'am I would like to ask a question, you may press Star then two Please go ahead, ma'am
Speaker Change: Thank you, Chuck. Good afternoon, everyone, and thanks for joining us today for Five Below's fourth quarter 2024 financial results conference call.
Winnie Park: On today's call are Winnie Park, CEO, and Ken Bull, Chief Operating Officer, as well as Kristy Chipman, Chief Financial Officer and Treasurer.
Speaker Change: After management has made their formal remarks, we will open the call to questions.
Speaker Change: I need to remind you that certain comments made during this call may constitute forward-looking statements.
Speaker Change: and are made pursuant to and within the meaning of the safe harbor provisions of the Private Security Litigation Reform Act.
Speaker Change: of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in the press release and our SEC filings.
Speaker Change: The forward-looking statements today are as of the date of this call, and we do not undertake any obligation to update our forward-looking statements.
In this presentation, we will refer to our SG&A expenses.
Speaker Change: For us, SG&A means Selling General and Administrative Expenses, including Payroll and other Compensation, Marketing and Advertising Expense, Depreciation and Amortization Expense, and other Selling and Administrative Expenses.
Speaker Change: Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP are included in today's press release.
Winnie Park: 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 buybelow.com. I will now turn the call over to Winnie.
Winnie Park: Thank you. Good afternoon. It's been a busy three months since I joined Phi Below as CEO and I want to thank our amazing teams at Wildtown, the SHIP centers, and stores for sharing their insights and passion for the brand.
Winnie Park: The reset of the business that Tom and Ken led eight months ago is well underway and generating positive results.
Winnie Park: We will double down on this strategy as the business has so much potential for growth and many attractive opportunities to improve sales performance.
with my experience as a merchant, marketer, and operator.
Speaker Change: combined with an ongoing focus on operational excellence and financial discipline led by Ken and Kristy.
Speaker Change: I'm incredibly excited to continue to evolve our unique brand, our differentiated business model, and our commitment to customer value.
Speaker Change: My journey with FiBelow began a decade ago as a customer when I discovered FiBelow with my daughter who was nine.
Speaker Change: We walked out of the store with bags of amazing items, phone cases, nail polish, plush, and craft kits, all for $20.
Speaker Change: Phi Below met my daughter as a kid and has grown up with her into young adulthood.
Speaker Change: Today I have a great appreciation of how we work behind the scenes to deliver that WOW customer experience.
Speaker Change: And I have even more conviction that BiBelow has a very relevant, unique, and valuable place in today's retail landscape.
Speaker Change: Now, more than ever, we have a real opportunity to sharpen our focus when it comes to our value proposition, offering fresh, trend-right products at great price value in stores that are accessible, bright, and fun.
Speaker Change: There's also more we can do to connect with our customers both in-store and digitally through social media engagement and omni-channel capabilities.
Speaker Change: Our approach represents an evolution of an enduring retail experience that will meet customers where they are today in a digitally connected world.
Speaker Change: Before I dive into how we plan to accomplish this, Kenneth is going to share a few highlights from our Q4 and full year performance.
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Kenneth: Thank you, Winnie. I know I speak for the entire Five Below team when I say we are thrilled to have you on board.
Winnie Park: Your significant experience at the intersection of merchandising, marketing, and omnichannel, and deep understanding of value retail is already having an impact.
Now on to our results.
Winnie Park: For the full year, sales reached nearly $3.9 billion with a comparable sales decrease of 2.7% and adjusted EPS of $5.04.
Winnie Park: We opened a record 228 new stores across 39 states in 2024, including the entry into our 44th state of Wyoming.
We ended the year with 1,771 stores across the U.S.
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2024 was a tale of two halves.
Winnie Park: The first half did not meet our expectations, and we reset the business mid-year to focus on improving product, value, and store experience.
Winnie Park: The teams worked very hard to influence these areas and impact the second half of the year.
Winnie Park: Our customers, associates, and vendors benefited from these efforts, and I would like to thank all of our teams for their dedication and commitment to Five Below.
Winnie Park: For the fourth quarter in particular, we entered the holiday season with the goal of showcasing more key item value product.
Winnie Park: and where we leaned into newness with a focus on trend and amazing value, we won.
Winnie Park: We also improved operational execution in the second half of the year with better staffing, optimized labor and workflow, higher customer engagement, timely product flow, and higher in-stock rates.
Winnie Park: These strategies and our execution paid off as they helped drive sales and adjusted EPS that exceeded the high end of our guidance.
Winnie Park: Our vision is to be the destination for kids from elementary through high school and beyond as well as from mom and dad.
Winnie Park: By focusing on the kit first we have a unique opportunity to build a relationship with our customer from a young age and be their go to resource as they grow and become parents themselves.
Winnie Park: We help our customers play.
Winnie Park: Yes and celebrate.
Winnie Park: Our youngest customers come to us, but their parents to play with iconic five dollar basketball crafting games and toys.
As those kids entered the pre teen and teen years, they've become more independent and start expressing themselves and we help them live with beauty apparel room and tech products.
Winnie Park: As those teams grow into adulthood, and become parents themselves their shopping needs change to focus more on others or to guess.
Winnie Park: We are a great destination for easy pick up birthday gifts.
Winnie Park: We also help our customers celebrate milestones like graduations, and micro and macro holiday from Valentine's day, New year's Eve and everything in between.
Winnie Park: Five below is where trend intersects with amazing value to create wow.
Winnie Park: We will consistently deliver newness to keep the assortment fresh and drive the treasure Hunt experience our customers want.
Winnie Park: We will redouble our efforts to curate the best of the best products.
Winnie Park: Were bigger and better key item focus.
Winnie Park: We will have six distinct curtain up floor sets that drive more customer visits during the course of the year.
Winnie Park: In addition to delivering amazing trend right product our value proposition must be crystal clear, we're passionate about providing trend right products at our core price points of $5 and below.
Winnie Park: As well as extreme value on key items above $5.
Winnie Park: This commitment not only sets us apart in retail, but also resonates more than ever with customers looking for budget friendly options in these uncertain times.
Winnie Park: Which brings me to the topic of tariffs.
Winnie Park: Our guidance reflects as best as we can currently estimate the recently announced tariffs and our mitigation strategies, we're leveraging our scale and strong relationships with our suppliers as well as taking a strategic approach to price adjustments.
Winnie Park: We also have a business model that allows us to flow new product at great value throughout the year.
Winnie Park: For example in Q4, we chased exclusive beauty product.
Winnie Park: The customer has voted for it and we continue to build that assortment and understand how high is high.
Winnie Park: This example, highlights our ability to identify trends and chase to maximize them with speed, which is a true competitive advantage.
Winnie Park: Also the diversity of our product offering uniquely positions us to capitalize on trends in a flexible way that is agnostic to category.
Winnie Park: I'm a merchant at heart and product is my passion and I can tell you we have so much opportunity at five below, especially as we curate our assortment through a customer lens.
Winnie Park: We will be distorting and disrupting value throughout the store.
Winnie Park: We will be simplifying our pricing with a focus on one to $5 coal price points.
Winnie Park: In addition, we will be raising the bar on adding value to our highly edited assortment of product above $5.
Winnie Park: Ultimately this will serve to simplify the shopping experience for our customers and streamline our operations.
Winnie Park: Our priority is to keep prices low and our offering accessible to ensure we maintain the trust and loyalty of our customers and attract new customers to the brand.
Winnie Park: We also have a huge opportunity to increase brand awareness and ensure that our customers know who we are the amazing products, we offer and the value we provide.
Winnie Park: Customers are increasingly starting their shopping journey online, they're discovering what is hot and new on social media and we need to meet our customers where they are.
Winnie Park: It's why I'm, so excited to announce hiring our new Chief marketing Officer, Jacob Hawkins, who will help us harvest many opportunities we have to deepen our relationship with existing customers and create new ones.
Winnie Park: The focus on our customer and delivering amazing trend right curated product at extreme value will increase the productivity of our existing stores.
Winnie Park: We also have a long runway of unit growth ahead of us, including very attractive opportunities to grow our fleet by densify in existing markets and expanding into new ones like the Pacific Northwest.
Winnie Park: So in summary, we have a brand and a value proposition that is differentiated and very compelling in this current environment.
Winnie Park: We have significant opportunities to grow new customers, new stores and drive additional visits with our existing customers.
Winnie Park: To do this we are sharpening our focus on our core customer and being the ultimate yes, sure for kids and parents.
Winnie Park: We are tightening our assortment keeping it fresh and relevant we are returning to our core focus at whole one to $5 price points and raising the bar for above $5 product to screen value.
Winnie Park: And we will build awareness of this through our marketing.
Winnie Park: As we do this we will hold a strong financial and operating discipline that has always been core to our business.
Speaker Change: With the initiatives, we're committed to we will further distinguish ourselves with the Wow nunez value in store experience that are unique to five below with that I will turn it over to Christie.
Christie: Thanks, Wendy and good afternoon, everyone I will begin my remarks, with a review of our fourth quarter and fiscal 2024 results and then discuss guidance for the first quarter and full year of fiscal 2025, My comments will refer to results compared to last year on a 13 week basis for the quarter and a 52 week basis for the year.
Christie: And on an adjusted GAAP basis, excluding the impact of nonrecurring or non cash items as outlined in our earnings press release.
Christie: Please refer to our earnings press release for GAAP results, and all reconciliations, including the impact of the extra week in fiscal year 2023.
Christie: Total sales in the fourth quarter of 2024 increased seven 8% to $1 three 9 billion from $1. Two 9 billion in the fourth quarter last year.
Christie: Comparable sales decreased 3.0% driven.
Christie: Driven by decreases in comp transactions of one 9% and a comp average ticket of 1.0%.
Christie: The negative comparable sales reflect the impact of five fewer holiday shopping days between Thanksgiving and Christmas.
Christie: Total sales exceeded our guidance driven by the performance of our non comp and new stores, while comp stores were at the high end of our guidance.
Christie: In the fourth quarter, we opened 22 net new stores compared to 63 net new stores in the fourth quarter of last year. We ended the quarter with 1771 stores, an increase of 227 net new stores or 14, 7% over last year.
Adjusted gross profit for the fourth quarter was $563 $2 million, an increase of six 2% over the fourth quarter of 2023.
Christie: Adjusted gross margin decreased by approximately 60 basis points to 45% driven primarily by fixed cost deleverage on the negative comp and timing of certain product costs there.
Christie: This was offset in part by lower shrink due to lapping of last year's reserve true up and a slightly improved shrink rate from stores that counted in January of this year.
Christie: Share more about our inventory results in a few moments.
Christie: As a percentage of sales adjusted SG&A for the fourth quarter of 2024 increased approximately 110 basis points to 22, 3% versus last year's fourth quarter.
Christie: This was driven primarily by deleverage of fixed costs on the negative comp higher store wages and an investment in store hours, partially offset by lower incentive compensation.
Christie: Net interest income was $4 million for the quarter.
Christie: As a result, adjusted operating income was $253 $3 million and adjusted operating margin declined 170 basis points to 18, 2%.
Christie: Adjusted net income for the fourth quarter was $192 $4 million versus net income of $193 $8 million last year.
Christie: This resulted in adjusted earnings per diluted share for the fourth quarter of $3.48 compared to last year's earnings per diluted share of $3 50.
Christie: Now onto the full year total sales for fiscal 2024 increased 10, 4% to approximately $3 $88 billion from $3 five $1 billion last year.
Christie: Comparable sales decreased two 7% driven entirely by a decrease in comp transactions as comp average ticket was flat year over year.
Christie: Adjusted gross margin decreased approximately 10 basis points to 35, 6% versus last year as fixed cost deleverage on the negative comp was partially offset by lower freight costs in the first half of the year and the lapping of the shrink accrual from last year.
Christie: As a percentage of sales adjusted SG&A for fiscal 2024 increased 140 basis points to 26, 4% versus last year.
Christie: This was driven primarily by fixed cost deleverage on the negative comp and investments in store hours and wages that were partially offset by lower incentive compensation.
Christie: As a result, adjusted operating margin was nine 2% or 150 basis points lower than last year.
Christie: Net interest income was $14 $8 million for the year and the effective tax rate was 25, 1%.
Christie: Adjusted net income for fiscal 2024 was $277 $8 million with adjusted diluted earnings per share of $5 four compared to last year's diluted earnings per share of $5 26.
Christie: We ended the year in a strong position with approximately $529 million in cash cash equivalents and short term investment securities and no debt.
Christie: Hmm.
Christie: Inventory at the end of the year was $659 $5 million as compared to $584 $6 million at the end of fiscal.
Christie: 2023 <unk>.
Christie: Average inventory on a per store basis decreased approximately 2% versus last year, primarily due to the $25 million write off of inventory that we discussed on our third quarter call.
Christie: Well, our overall inventory position on health has improved we are still chasing inventory in some categories.
Christie: The depth of inventory in certain categories is not where we'd like it to be and we expect that to be corrected in the second quarter of this year.
Christie: As it relates to shrink we conducted the physical inventory counts on over half of our stores in January and we saw shrink rates improve and almost every cohort of stores.
Christie: We believe these results were in part due to the labor investment that we made in the stores that allowed for greater front end engagement with a focus on high shrink areas.
Christie: While we are cautiously optimistic with these results we want to see a continued and sustained improvement before we consider adjusting our go forward shrink accrual rate or embedding improvement in our guidance.
Christie: With respect to Capex, we spent approximately $324 million and growth Capex in fiscal 2024, excluding tenant allowances. This reflects 228, new store openings 180 conversions expansions of our distribution centers in Georgia, and Arizona and investment.
Christie: In systems and infrastructure.
Christie: Before I share specific guidance I wanted to discuss how we're responding to the tariffs that were recently imposed.
Christie: We've navigated tariffs before however, the breadth and magnitude of the recently announced tariffs are significant given that approximately 60% of our total cost of goods are imported from China, either directly or through our domestic vendors.
Christie: This situation is dynamic we are dealing with the tariffs that are in place today and our mitigation initiatives are well underway.
Christie: These initiatives include vendor collaboration selective price adjustments, primarily within our $1 to $5 price points.
Christie: Diversification of sourcing and increasing our focus on product newness we.
Christie: We have been thoughtful about our approach considering the impact of these initiatives on the brand our customers vendor partners and shareholders.
Christie: As you will see from our guidance, we expect a margin headwind from tariffs net of our mitigation efforts.
Christie: Tariffs notwithstanding we intend to reinforce our very compelling relative value position as we deliver on our customer promise of sourcing trend right product at amazing value and a fun store experience now.
Christie: Now onto our guidance, which to reiterate includes the net impact of known tariffs.
Christie: For the full year 2025 sales are expected to be in the range of $4 to $1 billion to $4 three $3 billion, an increase of 10, 1% at the midpoint.
Christie: Comparable sales are expected to be between flat and positive 3%.
Christie: Adjusted operating margin at the midpoint is expected to be approximately seven 3% or a decline of about 180 basis points year over year with a little more than half of this deleverage due to the impact of tariffs net of our estimated mitigation.
Christie: This year, we are absorbing the impact from tariffs as well as the normalization of incentive compensation.
Christie: Fixed cost deleverage at the midpoint of our guidance and the investments in store labor.
Christie: These are partially offset by the annualized <unk> of cost management initiatives that we implemented in 2024.
Christie: Adjusted diluted earnings per share is expected to be in the range of $4 10, and $4 72.
Christie: We expect net interest income of approximately $15 million and our full year effective tax rate of approximately 25%.
Christie: Capital expenditures are expected to be between $210 million and $230 million, excluding the impact of tenant allowances, which reflects approximately 150, new store openings and investments in systems and infrastructure.
Christie: Onto the guidance for the first quarter of 2025 for the first quarter 2025, we expect total sales in the range of $905 million to $925 million or growth of 12, 7% at the midpoint versus last year's first quarter, we expect to open approximately four.
Christie: 50, new stores in the first quarter and comparable sales are expected to be between flat and positive 2%.
Christie: Adjusted operating margin at the midpoint is expected to be 4.0% versus four 7% in the first quarter of last year with the decrease more than entirely driven by SG&A deleverage, resulting from investments in store labor and depreciation.
This SG&A deleverage is being partially offset by a gross margin increase of 40 basis points due to lower reserves on aged inventory.
Christie: Adjusted Diluting diluted earnings per share is expected to be in the range of 50 to 61.
Christie: Versus 60 last year.
Christie: In summary, we feel good about the trends traction that is building from our we felt last year and we're excited about the opportunities we have to drive sales and realize our true potential.
Christie: And with that I will turn it over to Chuck to start the Q&A session.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two please.
Speaker Change: Please limit yourself to one question and if you have further questions you may reenter the question queue and at this time, we'll pause momentarily to assemble our roster.
Speaker Change: Yeah.
Speaker Change: And the first question will come from Kate Mcshane with Goldman Sachs. Please go ahead.
Speaker Change: Hi, good afternoon. Thanks for taking a question we wonder if we could start with your opinion on the overall health of the consumer what are you seeing from your core customer in terms of buying habits, especially between more consumable type products in discretionary and what have you built into the guide.
Speaker Change: To account for any changes in what the consumer is facing whether it's inflation from tariffs or any kind of pullback of snap benefits, which could impact of lower income consumer. Thank you.
Speaker Change: Thank you for your question Kate we're actually pleased with the results we've seen so far in terms of the sales performance and the trends and we are actually not seeing a meaningful difference in terms of the way that the customers is spending right.
Speaker Change: Right now versus in the past.
Speaker Change: Thanks Kate.
Speaker Change: From an overall and what how we thought about guidance it really contemplates a range of scenarios that that really considers the challenging macro backdrop, all the initiatives that we have in place both to mitigate tariffs and otherwise.
Speaker Change: So it's really hard to pinpoint each component of that because we did run a significant number and range of scenarios in order to calculate our guidance.
Scot Ciccarelli: The next question will come from Scot Ciccarelli with <unk> Securities. Please go ahead.
Scot Ciccarelli: Hi, guys Scot ciccarelli so.
Scot Ciccarelli: It sounds like Youre expecting a 90 basis point impact from tariffs if I understood that correctly.
Scot Ciccarelli: What have you included in the projection, meaning like is there only a margin impact are you, assuming some sort of sales impact that or any more color around that would be helpful. Thank you.
Scot Ciccarelli: Thanks, Scott I'll I'll start and then if ken or or when he wanted to join in we are assuming about 100 basis point impact.
Scot Ciccarelli: From tariffs for the full year, a little more than half of the 190 basis point.
Scot Ciccarelli: Deleverage from this year that I mentioned and it really.
Scot Ciccarelli: It really is across all of those different areas that you talked we mentioned selective price adjustments, we mentioned vendor negotiations and mitigation that are probably the two largest but theres also diversity diversification efforts underway on product sourcing that will we will have a small part in the vendor.
Scot Ciccarelli: Sorry in the overall mitigation as well.
Winnie Park: Scott I actually think that five below is is.
Speaker Change: With some of the sudden changes in a great position to address the issue of terrorists and mitigate them part of it is as Kristie mentioned our business model.
Speaker Change: We are all about chasing product and trends and newness and the flow of newness and so as we look at placing the back half of the year more opportunity for new product. The second piece is we've got a very broad range of vendors and a diverse group of vendors and I've been in the discussions.
Speaker Change: With them on this particular topic many of them have been with us for a while and are quite eager to partner with us because of the growth we've demonstrated with them and the growth. We will continue to demonstrate I will say the third thing is that we've been very very careful and surgical about where we are looking at.
Speaker Change: Price adjustments, both up and down and again, what we wanted to do is simplify the price position. So that the customer begins to see more of those whole price points, it becomes much easier to shop and much easier for our stores to operate.
Speaker Change: I would say the last piece of this again is just enticing customers to see us for who we are and the great value. We offer and the addition of marketing I think is going to be a really really great additives impact in terms of how we approach this issue.
Scott: And then Scott I'll just add on the.
Speaker Change: The price adjustments.
Speaker Change: Relative to elasticity, we did and we have experience in that from the past. So we use that experience the kind of gauge.
Speaker Change: And make estimates around demand degradation and there was a.
Speaker Change: A range of scenarios there depending on the type of item in the pricing thats been incorporated into the guidance I will add one more thing.
Speaker Change: In addition to the pricing adjustments in our bride vendor base, we opened our global sourcing office out of India.
Speaker Change: About a year ago, and we think that there is a lot of opportunity to diversify where we source product ourselves and that work has been well underway.
Speaker Change: Thanks Scott.
Speaker Change: The next question will come from Michael Lasser with UBS. Please go ahead.
Michael Lasser: Good evening. Thank you so much for taking my question.
Michael Lasser: While margin that you are <unk>.
Michael Lasser: <unk> this year due in part to the tariffs.
Michael Lasser: Over time, especially in light of what is the need to emphasize value and what sounds like rolling back some prices below the $5 price point where T.
Michael Lasser: T shirts are currently at 555.
Michael Lasser: Certain electronic accessories, or a $5 95.
Michael Lasser: And also if these tariffs do go through and we just simply assume you will get this margin or this.
Michael Lasser: Or is this margin pressure will not happen. Thank you very much.
Michael Lasser: So thank you for the question, Michael and I, just want to clarify what we're doing in terms of price adjustment. We took a look at the items that are $5 and below and have looked at where we make adjustments adjustments down and up.
Michael Lasser: And so and ingest reassuring ourselves that we pack a lot of value into those items. They are still the majority of what we offer and then when we look at price points and items that are $5 and above.
Michael Lasser: Again, it's about packing a lot of value and relevance into that product. So the adjustments are really.
Michael Lasser: Very focused on the $5 and below.
Speaker Change: Yeah on the leverage point point, what I would say is you know obviously, we have it is dynamic things are changing.
Speaker Change: As we get into next year, if the if the tariffs remain the same and we get through the first quarter sure at that 3% comp, which is still our leverage point, we should start to improve and see leverage in the areas really that we're looking for you know I mentioned I mentioned positive shrink right. So we're seeing improvement in our shrink.
Speaker Change: Right now if we if we see that again when we count in August there should be some benefit that we can see that will create leverage both in the back half of this year and into 2026, Ken and the work that he's doing from an operations perspective and efficiency perspective should start to see then in 2026.
Speaker Change: As well, so certainly tariffs make it a complex right now and we have the first quarter of next year to lap if the tariffs stay in place, but there is definitely an opportunity for us to see leverage as we as we move forward into 2026.
Speaker Change: Thank you Michael.
Speaker Change: Your next question will come from John <unk> with Guggenheim. Please go ahead.
John: Two questions. So when do you where do you where are we on the process.
Speaker Change: Developing or bringing in new product.
Brian: Brian I know you guys had talked about.
Speaker Change: Spring and summer right.
Speaker Change: There should be a period that you guys own and you have in the past so where are we on that and then secondly, what's your thought on marketing spend.
Speaker Change: You are spending less than you did in 2019, but you don't want to spend you don't want to really ramp that up until you got the product right. So what's the staging on that thanks.
Speaker Change: Thanks, So much John in terms of new product, where we're excited about the assortments, we're bringing in for summer.
Speaker Change: In many ways there are a few things in the assortment that we really focused in on one is to make sure that the value was was there and that we really do have a great offering compelling product at $5 and below.
Speaker Change: We're very focused on outdoor.
Speaker Change: Outdoor play and honestly. The fact that you know schools out and mom and kids are looking for activities and so I think the assortment looks very strong as I mentioned before we also have the opportunity to continually chase into ideas.
Speaker Change: And so what we're seeing right now is we've seen really great response for instance, with some of the beauty exclusives. We brought in we're ramping those but we're also looking at what's next to new.
Speaker Change: We feel very good about that.
Still very good about back to school and I think that where we have focused is being acknowledging the customer, making you know trying to concentrate their trips and making sure that we're a destination for the things you need in your checklist for school as well as things that kids want that really express.
Speaker Change: Himself B then you know great backpack terms that go along with the great $5 backpacks that we've got so that is the thought process, we've embedded and feel very good about all of those things that are coming and again, we've got even more opportunity to buy in and chase into great ideas.
Speaker Change: For the back half of this year.
Speaker Change: As far as marketing spend is concerned we really want to optimize the spend that we've got budgeted.
Speaker Change: It's been a while since we've had a chief marketing officer and I think we're we're excited to see how long, we're spending and making sure that we're not only efficient in that spend but directing it to the right channels. We've gotten great response with some of the stuff we've done with creators in social media, we think that there's more opportunity there.
Speaker Change: And really looking at again the end to end journey for the customer that starts on their phones and waves through all the way to the school all the way to the store excuse me.
Speaker Change: We're excited for all of that.
Speaker Change: Thank you John.
Speaker Change: The next question will come from Chuck Grom with Gordon Haskett. Please go ahead.
Chuck Grom: Hey, good afternoon.
Chuck Grom: Just what's your initial evaluation of five beyond historically the team instead, it's the least productive part of the store and it hasn't really been brought up too much today. So just curious how do we think about beyond books, there's a section of the store.
Chuck Grom: While wall and then just one quick question.
Chuck Grom: Shrink can you just remind us how much higher the accrual rate is today relative to 2019. Thanks.
Chuck Grom: Thanks, Chuck I'll take question, one and leave shrink to Christie.
Speaker Change: Just talking about by beyond my perspective on just looking at the total box for five below is the that the concept was really born out of this idea of flexibility that you have these broad.
Speaker Change: Like World that you shop in and so I think that there's opportunity for us to continue to flex in and out of ideas and categories and end product and so that really is what we're focused on we also I think did a very nice job in the back half of last year looking at the beach.
Speaker Change: <unk> section as an opportunity to feature big Wow items, like Big Halloween Ghouls and holiday decor, and so we'll continue to evaluate kind of what is next to new in terms of how the format evolve, but what we are really focused on.
Speaker Change: As a team from a merchandising perspective is one ensure that we've got great value and great relevance packed in at five and below when we take the steps above $5 again, it's got to be great value product.
Speaker Change: And the customer has to see it as not only relevant but trend right and again something that they won't find with others.
Speaker Change: And Christy on shrink and shrink from 2019 until today, it's about 100 basis points change in the accrual rate and I know, Canada is extremely focused on I'm working us back to we won't be happy until we get back to that level.
Speaker Change: The next question.
Speaker Change: The next question will come from Jeremy Hamblin with Craig Hallum Capital Group. Please go ahead.
Speaker Change: Thanks, and congrats on the sales momentum.
Jeremy Hamblin: Wanted to come back to tariffs and maybe a little more granular in terms of what your expectation on gross margins are for the year.
Jeremy Hamblin: Typically you're looking at 36%.
Jeremy Hamblin: It seems based on the Q1 guide that most of this impact is going to come maybe in Q3 or Q4, but I wanted to get a sense for what the timing of when you're expecting.
Jeremy Hamblin: It kind of a 100 basis point.
Jeremy Hamblin: Tariff impact.
Jeremy Hamblin: And then just what we should be thinking about for the year from a gross margin perspective.
Jeremy Hamblin: Sure Yeah, we're not guiding for the rest of the quarter as you know we typically don't do at this point in time, but I'll try to give you a little bit of a sense of where we're at the full year impact of tariffs on gross margin is about 100 basis points as we've estimated it today.
Jeremy Hamblin: We will start to see some impact from tariffs beginning in Q2, but to your point the impact in.
Jeremy Hamblin: In the back half of the year is about double the full year impacts of about 200 basis points of tariff impact in the back half of the year compared to some in this.
Jeremy Hamblin: None in the first quarter virtually none in the first quarter and some in the second quarter. So as you think about it you know Q1 has the least amount of year over year deleverage.
Jeremy Hamblin: Q2 gets a little bit worse, and then the majority of the tariff impact happening in the back half of the year.
Jeremy Hamblin: Great. Thanks for the color.
Jeremy Hamblin: Thanks, Jeremy.
Speaker Change: The next question will come from Matthew Boss with Jpmorgan. Please go ahead.
Matthew Boss: Great. Thanks, so winning on value versus product could you speak to where we stand today, maybe across the across the different worlds, where have you been able to make the most impact versus where do you see the most opportunity as the year progresses, and then maybe it's one for Ken but what do you see as the.
Matthew Boss: The right pace of store growth annually multiyear and what metrics are you evaluating.
Matthew Boss: Terrific.
Matthew Boss: Thank you so much Matthew.
Matthew Boss: So I am three months into the job and.
Matthew Boss: It's been rapid fire learning and impacting them and working really really closely actually with the merchandising team's overall I'm really impressed with the talent, we've got and and I think that actually are pretty consistent.
Matthew Boss: Consistent and screaming value across the various world.
Matthew Boss: And right now I think the opportunity that we have ahead of US is again to double back on what we stand for which is $5 and below and making sure. We've got the relevant range of product.
Matthew Boss: And that its new fresh and compelling.
Matthew Boss: I also mentioned the fact that we'd like to get to fewer bigger and better ideas that are bought with conviction and and we certainly have the flexibility to not only test and learn but then quickly.
Matthew Boss: Kind of chase and maximize ideas.
Matthew Boss: I will say that the other lens that we're applying to product is when you step up above $5 is we are being both art and science about how we talk about value one of the key things that we look at is.
Matthew Boss: How does how does competition really look at them at those price points, what is our offer versus them and and where do we really want to step out and be extremely competitive.
Matthew Boss: I think that we're very excited about for instance, the newness that we've introduced in beauty that I think from a quality perspective is is really amazing and and is that price point that you really can't find out in the marketplace. We also are quite excited about what we are.
Matthew Boss: We're seeing currently in terms of Tac and the value we offer there.
Matthew Boss: I'm amazed that we can offer Bluetooth speakers.
Matthew Boss: You know for seven box by box. It's it's it's actually it's been a learning journey for me to understand how much we offer and how great. The quality is so we want we want to continue with that commitment to the quality.
Matthew Boss: And then the last thing I want to say and I just want to reemphasize. This is kind of getting back to basics in terms of focusing on the kid and being the destination for kids.
Matthew Boss: Elementary school when they are in that zone at play and making sure that the offer across toys games and crafting is just spot on.
Matthew Boss: Being able then to take that kid into pre teen and teen life with the offer in our other worlds like beauty and tack in the core.
Matthew Boss: And then you know this.
Matthew Boss: This notion that we also wanted to add including we always have an element of give but the celebrate peace and bringing celebration of life.
Matthew Boss: Life and being very intentional about announcing both newness the call to action around that newness called action around value, but finally, the call to action around micro and macro holidays I think those are all big big opportunities.
Matthew Boss: So I think we've got a lot in our Arsenal and the last piece that I think is really compelling is our ability to place watch a trend place it and and we still have again the back half of the year to go so.
Matthew Boss: We're excited for what's ahead of us and again very pleased with the trend we're seeing in the business currently.
Matthew Boss: And then Matt as you can hear US excited is when he is about the product opportunities I think we've got an ongoing real estate opportunity here.
Matthew Boss: We still believe that.
Matthew Boss: There is an opportunity here for 3500 stores and as Kristie mentioned, we ended the year at 2771, So we feel good about that.
Matthew Boss: We're going to take advantage of any of those dislocations that happened as we move forward and we know we've.
Matthew Boss: We've had a few party city was one of them, where we have an opportunity to pick up some stores there that fit into a.
Matthew Boss: Our financial and economic model for Us and also around it fits into our penetration our market penetration strategies and targets.
Matthew Boss: We're going to continue to densify in existing markets.
Matthew Boss: And we also have some white space out there, we mentioned that the Pacific northwest.
Matthew Boss: That's one of the advantages some of the party city locations that we picked up so that will be able to expand there.
Matthew Boss: From a.
Matthew Boss: Looking at the deals and the disciplines around that if you recall back in the summer of last year. That's when we re instill those disciplines I think some of the keys are getting back to those returns that we were used to saying.
Matthew Boss: Four wall EBITDA levels and things like that so that's what we're looking at internally, we will make sure we keep those in place, but again, we think there's a really good opportunity as we move forward in terms of the percentage increase in unit growth I wouldn't see that getting going less than what we're doing this year, it's a little too early to predict.
Matthew Boss: The future years here, but we see we see some good opportunities we move forward.
Matt: Thanks, Matt.
Speaker Change: The next question will come from Simeon Gutman with Morgan Stanley. Please go ahead.
Speaker Change: Good afternoon, I wanted to ask on the 25 comp guide can you give us a sense of traffic ticket and then Ken you were talking about a little bit of the puts and takes with tariffs. You said unit degradation did you say actually is tariff a positive net positive to sales or the comp or not and then my.
Speaker Change: Second question.
Speaker Change: It was mentioned that you left some sales on the table I think in regards to the fourth quarter.
Speaker Change: And I realize merchandising as the backbone of the company. My question actually for you. When he is the labor model operational model is there an opportunity to toggle labor and drive higher throughput. Thanks.
Speaker Change: Do you want to start and then I can let me start okay.
Speaker Change: From a I think you asked from a 2025 comp cadence perspective.
Speaker Change: Obviously.
Speaker Change: We gave you our guide for the first quarter of zero to 2% as we get into second quarter. As you know on a two year stack basis, that's our easiest quarter from a comp perspective, and then as we move into the back half of the year again, not guiding but I think coming closer in range to the full.
Speaker Change: Your guide of zero to 3% can be assumed for the back half of the year.
Speaker Change: As far as as far as what we've done from a tariff perspective, we have we have modeled a range of scenarios. We are working through all of the pricing.
Speaker Change: <unk> that we're going to take I think we've shared that we're working through the vendor mitigation. So I can't really comment exactly on the components of the comp right now because there is a lot that we're working through but our guidance assumed a multitude of scenarios that.
Speaker Change: So you just take the guide for what it's worth and what you'll see is as we will as tariffs come in and all of the mitigation is landed that AR will be right within that guidance range and so I mean, I think you asked me directly about the labor model and we certainly saw some of the investments we took in Q4.
Speaker Change: Track with.
Speaker Change: Basically shrink being down.
Speaker Change: As well as really great throughput as customers were greeted we made sure that choice for <unk>.
Speaker Change: Plenish et cetera, and so that's you know again.
Speaker Change: Some art and science that we'll continue to look at in terms of getting the right level and to your point looking at the opportunity in terms of driving topline with the labor model. Thank you.
Simeon Gutman: Simeon just to just to add to that the comment around leaving sales on the table in the fourth quarter was more around the chase a product. If you recall, we had to cancel a lot of product in the middle of the year based on where the demand was and then trying to chase back into that.
Simeon Gutman: The team did an incredible job, but that's where I think we left some opportunities on the table to Wendy's point around labor.
Simeon Gutman: We felt really good about the labor levels that we had that we felt those were optimal.
Simeon Gutman: Not only in helping with shrink shrink, but delivering a great customer experience.
Simeon Gutman: So thanks Simeon.
Speaker Change: The next question will come from Paul Lewis with Citi. Please go ahead.
Speaker Change: Hi, This is Kelly on for Paul Thanks for taking my question I'm, just going to follow up on tariffs here within the gross margin guidance of down 100, how much of the absolute tariff impact are you expecting to offset through mitigation efforts. This year is it 50% of the impact 75% just any color there.
Speaker Change: That would be helpful. And then what percentage price increase do you ultimately expect to take across the assortment. This year and then secondly on SG&A the.
Speaker Change: The deleverage Youre expecting can you talk about the timing of incentive comp this year and any quantification of how much of a headwind that is to margins okay.
Speaker Change: I'll take the first two questions and we can we can answer the third one on the follow on call to <unk>.
Speaker Change: Try to keep us and keep going and give everyone a chance to answer questions from the overall tariff perspective, I would say, it's north of 50% of tariff mitigation and I don't want to comment further on that we have a lot of conversations and as you can imagine.
Speaker Change: Some of that is.
Speaker Change: The conversations with our vendors are private and we want to make sure that that's kept.
Speaker Change: Kept confidential.
Speaker Change:
Speaker Change: Now I have lost there were three questions.
Speaker Change: Okay.
Speaker Change: The percentage price increase across the assortment.
Speaker Change: Again, we're not we're not sharing that level of information at this point in time, our guidance assumes a range of scenarios that we've contemplated and we're still working through the.
Speaker Change: SKU by SKU price changes that will occur as part of this.
It's included in all of the guidance and the comp that I provided.
Speaker Change: So you can use that as for your modeling.
Speaker Change: Thank you. Thank you Kelly. The next the next question will come from Karen short with Melius Research. Please go ahead.
Karen short: Hi, Thanks very much.
Karen short: I had two so the first question is what do you think the run rate should be for your operating margin like the gating. What you have to take a hit for 2020 five specifically and then the second question I had was what is the actual I guess number of SKU.
Karen short: <unk> impact that you're contemplating as it relates to optimizing skus.
Karen short: Yes, all of that when you take the <unk>.
Karen short: Second one from an overall run rate perspective, we need to get through 2025 first what.
Karen short: What I would say is you know for beyond 2025, 3% is still the leverage.
Karen short: Threshold and sale driving sales is still the biggest opportunity to create leverage for the business, which is why I'm excited about all the things that the merchants are doing right now because it's all intended to narrow.
Karen short: The assortment drive top drive topline sales Theres really no major changes in margin being contemplated as we sit right now as I mentioned some of our leverage points are being able to drive our shrink rate down.
Karen short: And decrease that rate is going to be a big piece of it for US and then sales is a huge opportunity.
Karen short: So I think I'll leave it at that for 2025 and the follow on leverage post twenty-five but.
Karen short: And Karen on the number of Skus really we're looking at at like a decile, 10% to 15%. So it is it is a minority of Skus that we're looking at in terms of the adjustments. Thank you Karen.
Speaker Change: The next question will come from Joe Feldman with Telsey Advisory Group. Please go ahead.
Joe Feldman: Yes, hi, thanks for taking my questions.
Joe Feldman: Also I had a follow up on the pricing. So I guess again will the pricing in the sub one to $5. It sounds like we'll be gravitating upward versus downward is that clear.
Joe Feldman: Could you just clarify that and also like as you make these price adjustments will it be on new products as they come in or will you be changing what's on the floor right now thanks.
Speaker Change: Hi, there, Joe and 20 on the pricing adjustments and yes. It is where we're actually taking some of them down but largely apps.
Joe Feldman: At $5 and below.
And the and in terms of the product.
Joe Feldman: We're looking at the.
Joe Feldman: The product that's coming in and again, we've got greater latitude with future product because we will continue to buy for the back half of the year.
Joe Feldman: Thank you Joe.
Joe Feldman: The next question will come from Brad Thomas with Keybanc capital markets. Please go ahead.
Brad Thomas: Hi, good afternoon.
Brad Thomas: I wanted to ask about the Remodels I was wondering if you could just comment about.
Brad Thomas: They have been performing and then I don't think you commented on our plans for any Remodels this year.
Brad Thomas: Are you pausing that or any comments on the remodels going forward. Thanks.
Brad Thomas: Yes, thanks, Thanks, Brad.
Brad Thomas: You probably recall back in the summer of last year, we did pause those and we're still in that.
Brad Thomas: Mode right now, we'll probably have just a few selective ones that we'll do this year.
And we were still seeing relatively on a consistent basis that lift that we were talking about.
Brad Thomas: From a from a comp perspective.
Brad Thomas: Hundreds of basis points of comp that we saw and we continued to see that as we went through 2024, but right now we do have those conversions paused and the focus for US is the 150 stores new stores that we're opening this year.
Brad Thomas: Thanks, Brad.
Speaker Change: The next question will come from Kristina <unk> with Deutsche Bank. Please go ahead.
Speaker Change: Hi, good afternoon, and thanks for taking the question I wanted to follow up on the marketing discussion in particular.
Speaker Change: If you could talk about what qualities you were looking for in a new chief marketing officer, and when you communicate the message and I believe the word you used crystal clear value to the core customer. So the Kid where do you think you are on the education process right now versus what is their current.
Speaker Change: Customer price perception. Thank you.
Speaker Change: Great. Thanks, so much and Christina will start with the qualifications we were looking for.
I think that its very interesting having been a marketer in my past life. They come in many different shapes and sizes and I think what was really critical for five below is someone who number one really really understand the brand and the value proposition behind extreme.
Speaker Change: Value and the opportunity that's there.
Speaker Change: I think secondly has experience in retail and in Omnichannel.
Speaker Change: It allows us to really optimize the customer journey from the time they become aware maybe in social media all the way through to the store through to the signage in the store.
Speaker Change: How we communicate value et cetera.
Speaker Change: And again help us optimize some of the things we've already put in place like Omnichannel and so those were the things that we were really looking for is is an athlete who goes across multiple different disciplines, but really ultimately can help us not only get very efficient.
Speaker Change: But also meet the customer where they are today, which is connecting the digital experience along with the in store experience.
Speaker Change: In terms of the education of the customer and the level of awareness of the value of five below I think we've got tremendous opportunity.
Speaker Change: I think that customers now because we haven't had a chief marketing officer in a very long time oftentimes the awareness of buy below comes when you cross the threshold of the store and it would be great to get more customers to be aware ahead of that and to drive the traffic to the stores I also think theres, an easy lift in terms of just making.
Speaker Change: Existing customers aware via for instance, the app around new drops.
Speaker Change: And heralding when we have newness.
Speaker Change: And highlighting the product that we've got the content, we have with craters that that's out there right now in social media is really driving interest in product and so we're super excited to kind of amplify that piece.
Christina: Thank you Christina.
Speaker Change: The next question will come from David Bellinger with Mizuho. Please go ahead.
David Bellinger: Hey, Wendy Thanks for all the details we will keep it to one question with one part also on tariffs, but you talked selectively about raising prices upwards. Just now I know you mentioned downward two but it seems like mostly upwards in passing these increases through on the other side of the equation you're going after more value.
David Bellinger: <unk> oriented product and driving that message how do you square those two pieces there is somewhat contradictory.
David Bellinger: Can you help us understand how you're thinking through balancing those two items throughout 2025.
David Bellinger: Right.
David Bellinger: So I think David Thanks for the question I think that it's really important.
David Bellinger: For us to look at the relative to price value of anything we bring into the store and I will tell you that.
David Bellinger: I've been really impressed with some of the product that I've seen.
David Bellinger: For instance, we've got you know right now amazing resonance with our lounge product in the cozy product.
David Bellinger: And the relative price value of what you see in that product is amazing and you really can't compare it and it is about $5 five.
David Bellinger: 555, and so again, we've got to make sure that whatever we offer five and above Pax.
David Bellinger: Packs in the value at the five and below.
David Bellinger: There are a couple of things that that really we're looking at which is again looking at what what's out there competitively, making sure that key items screen value and then finally, we are able to flow newness. So we're able to find new product new trends and new ideas and also co develop and co.
David Bellinger: With our vendor community and so they're they're going to be a lot of discussions as we approach. This in partnership with our vendor community and also as we start to leverage more of our global sourcing expertise again outside of China based on the India office. So I think theres a lot of opportunity ahead of us.
David Bellinger: The dynamism of how we buy and what we offer is I think the secret weapon in terms of how we're going to deal with more recent news on tariffs.
David Bellinger: So much David and with that thank you all.
David Bellinger: For joining us this evening.
David Bellinger: And I want to close by reiterating our customer promise.
David Bellinger: Delivering amazing value, we went up hold our core price points of five and below.
David Bellinger: It's a cornerstone of who we are our focus on affordability and value is not just the strategy is a promise for our customers that five below is a place where they can find join excitement without financial strain.
David Bellinger: The critical focus areas. We have identified last year are improving and we will continue to execute on the areas of optimizing our assortment, while investing labor to improve the store experience I also want to thank our teams for their commitment to executing on our priorities together I really think we have a great opportunity to deliver the true magic of five.
David Bellinger: Below for our customers and I hope to see all in our stores in the coming days as you shop, our Fabulous spring and Easter assortment and hope everyone has a great evening. Thank you so much.
David Bellinger: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
David Bellinger: Okay.
David Bellinger: [music].
David Bellinger: Yeah.
David Bellinger: [music].
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David Bellinger: Hum.
David Bellinger: Yeah.
David Bellinger: [music].
David Bellinger: Yeah.
David Bellinger: [music].
David Bellinger: Yes.
David Bellinger: [music].
David Bellinger: Okay.