Five Below, Inc.

Good day and welcome to the Five Below Second Quarter 2022 Earnings Conference Call. All participants will be in a 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 touch-tone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Christiana Bell, Vice President of Investor Relations. Please go ahead. Please go ahead, Christiana.

Oh, hi. Thank you, Cole. Good afternoon, everyone, and thanks for joining us today for Five Below's second quarter 2020 Chief Financial Results Conference call. On today's call are Joel Anderson, President and Chief Executive Officer, and Ken Bolt, Chief Financial Officer and Treasurer. After management has made their formal remarks, we will open the call to questions. I need to remind you that certain comments made during this call may constitute forward-looking statements and are made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown security 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. The forward-looking statements that are 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 fivebelow.com. I will now turn the call over to Joel.

Thank you, Christiana, and thanks everyone for joining us for our second quarter 2022 earnings call. Ken and I will discuss three broad topics on today's call. First, review the second quarter results. Second, discuss our updated outlook for the third quarter and the year. And third, discuss the strategic initiatives we are focused on to execute our longer-term vision for growth, the triple-double. Despite near-term challenges in 2022, we remain very excited about our business model and future opportunities for Five Below. Now on to the results for the quarter. Total sales in the second quarter grew 3.5% over last year to $669 million, and comparable sales decreased 5.8%, driven by reductions in ticket and transactions. While this result was lower than expected, we still delivered diluted earnings per share of 74 cents at the low end of guidance due to disciplined expense management. We believe our sales were impacted by both the macro environment as well as factors specific to Five Below. On the macro front, on top of lapping an unprecedented year in 2021, due to payments of significant stimulus dollars in 2022, consumers are experiencing inflation levels not seen in decades. Inflation in the needs-based areas of food, fuel, and housing is cutting into consumers' budgets, and we believe changing their spending behaviors. In addition, we are seeing a much more promotional retail environment than in years past, due to the excess inventory across the industry. On top of these factors, with COVID restrictions largely lifted, travel and other experience-based sectors increased substantially over last year, which also had an impact on retail traffic and sales in the summer. Specific to Five Below, we had a phenomenal year last year. due both to the healthy consumer backdrop I just mentioned, and also due to multiple significant trends that drove customers to our stores. Trends collectively are less of a driver this year. Taken together with the macro environment, lapping last year's robust sales and trends was more difficult than we had expected. As we shared with you at our Investor Day in March, We expected 2022 to be a very unique year for us, given many of these factors I just outlined. While we do see some specific positive emerging drivers for our Q4 performance, we do not see all the headwinds you just mentioned dissipating in the near term. As a result, we have reduced our sales and earnings outlook by nearly 3%, and 13% respectively for the year. Ken will discuss our outlook in detail in a few minutes. Amid this challenging environment, we continued our journey of ramping back up our growth plan, opening 27 new stores across the country in Q2. Ken will share the details of our planned Q3 openings, but I can tell you the number is over 50% more than Q2. This is a great sign that our long-term vision is intact and we are collectively shifting from strategy to all-out execution. As for Q2, three of these new stores ranked in the top 25 summer grand openings of all time, one each in New York, Texas, and California. In addition, we made progress with our key strategic initiatives of product, experience, and supply chain. On product, we continued to source amazing new merchandise to capitalize on our existing and emerging trends, and also expanded our Five Beyond assortment. For the popular squish offering, we created cool new squish models for our customers' collection. We also source products for newer trends like Sanrio, which some of you know is the creator of Hello Kitty. The ability to participate in almost any trend is a unique differentiator of Five Below, and our eight worlds provide the flexibility to react to evolving customer preferences. Our unique approach to the consumables business resonated with customers, And we saw outperformance in categories like novelty candy, snacks, travel accessories, pet, and health and beauty. 5Beyond also continued to be a growth driver for us as we introduced our first ever summer wow wall with brand new 5Beyond products for pets and other items from our eight worlds like an outdoor tent and our giant tumbling tower game. In addition, during the second half of July, we kicked off our back-to-school campaign with amazing backpacks, cool tees, and fun items for dorms and bedrooms, all at great value, which our teams focused on social media and in-store marketing campaigns. Finally, I'd like to add that we are seeing more closeout opportunities and one-time special buys in the marketplace, which we are choosing selectively to drive even more value for our customers. Turning to our second strategic initiative, experience, we are diligently working to update our fleet into the latest prototype unveiled at our investor day in March. We are excited about the opportunities the new Five Beyond store within a store concept provides with the reimagined tech and room worlds and double the SKUs dedicated to Five Beyond product. We are on track to deliver over 250 stores in the new Vibe Beyond prototype this year. This is another example of how our long-term vision is firmly intact and we are back to playing offense. We believe this offering will be both a traffic and comp driver for the holidays and into 2023. Another important aspect of the overall customer experience is the digital component. which encompasses marketing, customer data and analytics, as well as e-commerce. Through increased and more effective digital marketing, we are focused on gaining new customers and growing brand awareness. Our continued investment in digital platforms like TikTok is gaining traction, as evidenced by our Bluetooth speaker video, with over 9 million views. Separately, We are also developing better knowledge of our customers by gathering data through tokenization to better understand and market to them. For e-comm, we enhanced our offering by rolling out BOPUS to over 100 stores in July, and we'll complete our chain-wide rollout by the end of this September. BOPUS allows our customers to shop buy below when, where, and how they like, furthering our goal of becoming an omnichannel retailer. This is yet another example of the ongoing implementation of our long-term vision to connect with our customers and deliver an even better experience for them. With respect to our third priority, supply chain, we continue to be proactive and look for ways to control our destiny. We are pleased with our inventory position as we deliberately accelerated receipts to ensure good in-stock positions for the key holiday season and to avoid the out-of-stocks we experienced earlier this year and last holiday season. As a healthy retailer with a strong balance sheet, we were able to quickly execute strategic decisions like this to better serve our customers. As it relates to our distribution infrastructure, We are very excited to have officially opened our Indiana Shipping Center this summer to further gain efficiencies and speed to our stores and ultimately our customers. As a reminder, this DC completes our five node network and provides us capability to service approximately 90% of our stores within one day. We are now taking a pause from opening DCs for a couple of years. Currently, we are finishing up our back-to-school season, and over the next several weeks, we'll be converting the Now section of our stores to Halloween while preparing for the all-important Q4 holiday. We are excited about some of the cool new products we have found that offer extreme value to our customers and can't wait to share them with you. In summary, as I said earlier, This year has proven more challenging than expected. We remain focused on playing offense and delivering our triple-double growth strategy. That is triple the number of stores by 2030 and approximately double the sales and earnings per share by 2025. We are committed to continued high growth throughout the organization with our teams focused on preparing our people, systems, and infrastructure Next year's new store openings, excuse me, represent a significant milestone of over 200 for the first time. We feel confident in our ability to open them with the same consistent results we have achieved in the past. In this environment, in addition to the product opportunities I already mentioned, we are starting to see some signs of potential dislocations in real estate and are ready to capitalize on these opportunities. Our growth and scale continues to benefit us and our customers as we continuously reinvest in products and keeping inventory fresh. We are a go-to retailer for our customers, providing the combination of extreme value in a fun shopping experience. We believe as this inflationary environment continues, and we near the all-important holiday season, value will become even more relevant as customers rely on us for amazing, affordable gifts and stocking stuffers to celebrate the season. With that, I'll turn it over to Kent to review our financials in more detail. Kent?