Five Below, Inc.

Good day and welcome to the Five Below first quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. 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 Christiane Help, VP of Investor Relations. Please go ahead.

Thank you, Chad. Good afternoon, everyone, and thanks for joining us today for Five Below's first quarter 2020 financial results conference call. On today's call are Joel Anderson, President and Chief Executive Officer, and Ken Bull, Chief Financial Officer and Treasurer. After management has made their formal remarks, we will open the call to questions. Thank you for joining us. Those risks and uncertainties are described in the press release and our SEC filings. The forward-looking statements made today are as of the date of this call, and we do not undertake any obligation to update our forward-looking statements. If you do not have a copy of today's press release, you may obtain one by visiting the investor relations page of our website at 5below.com. I will now turn the call over to Joel.

Thank you, Christiane, and thanks everyone for joining us for our first quarter earnings call. Before I get started, I want to share how deeply saddened I am by the events of the past weeks. We as a company simply do not tolerate racism, and we want to proactively be a part of the solution. We are taking time to listen and learn how we can do just that. Since the day Tom and David founded Five Below in 2002, We have been a store of the community. Today, in honor of George Floyd and all other victims of racial discrimination, we closed our stores in Houston, as we did in Minneapolis last Thursday and in Fayetteville last Saturday. During this unprecedented period, which began with COVID-19, we adapted swiftly and we have done so with the safety and well-being of our customers, and crew top of mind. As I look back at Q1 and what has taken place since our last earnings call, there are five key themes that define our actions. Number one, health and safety. Without a question, the health and safety of our customers and crew has been and remains our number one priority. With this in mind, we close chain wide on March 20th and as we reopen, we have implemented strict health and sanitation protocols consistent with CDC and other guidance at our stores, chip centers and offices. Number two, financial strength. We entered this period with a strong debt-free balance sheet and a business that self-funds its growth while generating cash. In a closed store environment, We moved quickly to address costs and capital outlays, as well as increasing our line of credit, all in order to further bolster our liquidity. We had to make some difficult but necessary decisions to do this, and as we reopen, we retain the financial discipline that has always been characteristic of how we operate. Number three, flexibility and adaptability. I've been nothing short of amazed by the resilience and flexibility demonstrated by our teams across the entire organization as they navigated the challenges presented by the pandemic. Our business model with its eight worlds and historical ability to rapidly flex in response to trends is inherently agile, but it is our people who enable and embody that agility, and I could not be more proud to lead this amazing team. Number four, unwavering commitment to value. Delivering wow product at incredible value to the customer is core to our DNA. We know how important this promise of value is to our customers, especially today, and we are more committed than ever to delivering value day in and day out. Number five, position for growth. Even as we moved swiftly to navigate the current environment, we simultaneously made progress on our key strategies focused on experience, product, and supply chain to support the significant growth that lies ahead for Five Below. While we had to play defense for a period of time in Q1, we quickly got back to playing offense and positioned ourselves for growing again. Speaking of growth, as we sit here today, We are reopening our eighth wave of stores. Let me share what we did to enable a smooth reopening process. Prior to our initial wave of reopenings that began on April 21st, we spent several weeks preparing our stores, including retaining our store managers to help with this process. During the closure period, we also developed an alternative service with curbside pickup, which was available at stores where allowed by local and state mandates. We also enhanced our e-commerce channel, reallocating resources to meet the high demand during this time. Above all, however, we listened to our crew and our customers as they operated with these limited curbside capabilities and ramped up our e-commerce operations. As of today, we have reopened approximately 90% of our stores. George Hill, and his operation team have seamlessly executed this reopening process with amazing speed, and we are pleased with what we are seeing in terms of sales performance. Comparable sales for our reopened stores, including our e-commerce business, are tracking up approximately 8% for the second quarter to date, with comp contributions split about evenly between the two channels. While we are very encouraged by this strong early performance as stores have reopened, our enthusiasm is tempered by the acknowledgement that significant stimulus dollars began to hit bank accounts in mid-April, and there is likely some level of pent-up demand that is also being reflected in our current performance. In addition, we have experienced some store disruption related to the protests that impacted sales during the last two weeks. Given the still substantial uncertainty around the impact of this pandemic in the coming months, we are preparing for a range of possible scenarios and of contingency plans in place for each as we look to the remainder of the year and into 2021. Now, turning back to the first quarter, With all of our stores closed for most of the second half of the quarter, which included the all-important Easter selling season, total sales were down 45% over last year, and we had a loss per share of 91 cents. As we had mentioned previously, we were very pleased that the business was tracking to a 2.9 comp increase prior to the pandemic announcement on March 11th. During the closure period, our e-commerce business was very strong, with record daily sales, which we fulfilled out of Petter Town and the newly acquired Cincinnati operations of Holler.com. While we were very pleased to see our e-commerce sales grow over four times versus last year's first quarter, this level of growth has moderated as stores have reopened. We still expect e-com penetration to remain in the low single-digit range in relation to our overall sales for 2020. In addition, to help mitigate the impact of the closed stores, we made several difficult decisions to cut costs and limit cash outlays as we focused on maintaining our financial health, flexibility, and liquidity, as Ken will discuss in more detail in a moment. We want to extend our appreciation to all those impacted by these actions for leaning in during this extraordinarily difficult time. Regarding capital expenditures, several projects were delayed given the environment, including the openings of our Texas and Midwest distribution centers and our new store opening plans. We now expect our Texas DC to open late in the second quarter and to begin the building of our Midwest DC in 2021 with the expectation for it to open in 2022. The West DC remains on track to open in the second half of 2021. As it relates to our store plans, as we have communicated, we now expect to open 100 New stores remain our most significant growth opportunity, and we continue to see a 2,500-plus store potential in the United States. We hope to return to a more normalized growth trajectory and new store opening program In 2021, High Below has always stood for incredible value with a wow factor in a bright, clean, and fun treasure hunt store experience for tweens, teens, and beyond. Our founders originally referred to us as the Yes Store because of the affordability of our merchandise assortment, which allows parents to say yes to their children. This commitment to value is stronger than ever today. and in tougher economic times, we believe this will resonate even more with new and existing customers alike. With respect to merchandise, we have quickly pivoted our focus to enhance our offering of essential goods, consumables and everyday items such as health care and personal care that we know our customers are looking for today. We've allocated more space to items such as hand sanitizers and wipes, as well as masks, and added new home essentials including kitchen and bath product to our assortment. We also sourced some great new tech items to help customers work from home. We are pleased to be there for our customers and add some aspect of fun to their lives by continuing to provide cool toys, fun tea, snacks and fitness items as many continue to exercise at home. For summer, we have new inflatables for the pool and are adding home-related decor items and games to create more fun-at-home opportunities for our customers. Overall, we continue to source amazing value products and are taking advantage of opportunity buys in the market across several major product brands. On marketing for Q1, since the stores were closed, we canceled the airing of our planned TV commercial as well as the distribution of our Easter flyer. For Q2, we are substantially shifting our program to focus on digital advertising rather than TV or print circulars. The benefit of digital advertising is it allows us far more flexibility and localization to target at the store level using zip code data, and it can be turned on and off very quickly. Our social media accounts have been trending with the hashtag home with five below. offering customers ideas for activities during the shelter-at-home period and beyond. This week, we will officially launch our Kickstart the Fun campaign focused on fun, value, assortment, and safety of our stores. In addition, with the surge in e-commerce, we are working on digital marketing strategies to retain both new and existing customers to drive traffic and sales across all channels. These are unprecedented times and we are navigating them with our customers and team members at the center of our decision making. Strategically, we remain focused on three areas, experience, product, and supply chain. Within experience, the health and safety of our team members and customers remain our top priority. We are also focused on keeping the shopping experience fresh and exciting for our customers, which is why we create a zone in most of our new stores and remodels called Five Beyond. The tech and room worlds will be located in the back of the store and will feature a limited selection of new, amazing value items priced above $6, along with the current items in those worlds. On product, As I discussed, we are working hard to provide our customers with essential needs while still adding an element of fun for the family during this time. With the inherent flexibility of the Five Below model, with its eight worlds that span over 15 departments, we have the unique ability and organizational agility to make quick assortment changes in order to stay relevant and consistently deliver wow and incredible value In addition, on the supply chain front, we are working on several strategic initiatives to support our future growth. I already mentioned our distribution center openings. Another important initiative is the integration of our e-commerce site with hauler.com, which is expected to be completed later this summer. Once the integration is complete, the hauler.com URL, as well as the app, will automatically become 5below.com. In summary, we're focused on successfully managing the business throughout this turbulent time while simultaneously executing on our strategic initiatives, which will drive our long-term success. We entered the pandemic in an extremely healthy position with a resilient business model, robust sales growth, no debt, and substantial cash reserves. and we believe we are emerging from these times in a strong, if not stronger, competitive position. Once again, focused on growth and playing offense. I want to thank all of our teams for their commitment during this time. We are excited to be welcoming our customers back into our stores once again and look forward to surprising and delighting them, delivering some much needed respite and smiles with our amazing assortment and incredible values in a safe and exciting store environment. With that, I will turn it over to Ken to provide more details on the financials. Ken?