Five Below, Inc.

Good day and welcome to the Five Below Third Quarter 2023 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 touchtone phone. To withdraw your question, please press star two. Please note, this event is being recorded. I would now like to turn the conference over to Christiana Pels, Vice President of Investor Relations. Please go ahead.

Thanks, Gary. Good afternoon, everyone, and thanks for joining us today for Five Below's third quarter 2023 financial results conference call. On today's call are Joel Anderson, President and Chief Executive Officer, and Christy Chipman, Chief Financial Officer and Treasurer. After management has made their formal remarks, we will open the call to questions. Please limit yourselves to one question to enable us to accommodate everyone in the queue. 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 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. The forward-looking statements made today are as of the date of this call. 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 third quarter 2023 earnings call. We're very pleased with Five Below's financial performance and operational execution in the third quarter. We exceeded our guidance on sales, comps, and earnings, and our comparable sales results were remarkably consistent with the first two quarters of the year. We opened a record 74 new stores, while continuing to successfully convert stores to the new Five Beyond format, which also drove new customers to our stores. The Five Beyond format now accounts for approximately 50% of the comparable store base. In addition, we made progress on optimizing inventory and finalized preparations for the holiday. Now on to the specific results for the third quarter. We delivered sales growth of over 14% to $736 million and a 2.5% comp sales increase, which continued to be driven by transactions. Comp transactions, which are our proxy for traffic, increased approximately 3%. This increase represented our fourth consecutive quarter of positive comp transactions. We believe this demonstrates the relevancy of our extreme value and fun shopping experience. Diluted earnings per share for the third quarter came in at 26 cents, a penny above the high end of our guidance. Many of the trends we've seen for several quarters continued throughout the third quarter, and we assured our assortment reflected them. As we have shared with you in prior quarters, we continue to see our customers focused on needs-based product, which for us is primarily seen in our consumables offering in the candy world and beauty department. In addition, our unwavering focus on value is strongly resonating with our customer as reflected in discretionary category strength in games and toys and our seasonal offering with Halloween. Hello Kitty, Squish, Anime, and Collectibles were also very popular and the licensed business returned to a more normalized sales level. In what most would consider a still challenging backdrop, we performed well and made progress against the five key strategic pillars that support Five Below's long-term triple-double vision. I'll provide a quick update on each. The first pillar is store expansion. the driver of our long-term growth. In the third quarter, we opened a record 74 new stores across 31 states. One of these openings in Onalaska, Wisconsin, made our top 25 fall grand openings list. We remain on track to achieve the goal of opening over 200 stores and expect to complete new store openings next week. Our real estate teams have built a strong pipeline of new stores for 2024 and have also started working on 2025 stores. As we have been able to secure leases earlier in the year, we are making meaningful progress towards returning to historical store opening cadence where we complete the majority of our store openings by Thanksgiving. This will also result in progress towards a 50-50 store opening cadence for the first half versus second half of the year. Moving to the second pillar, store potential, we announced the new Buy Beyond prototype in March of 2022 and have been very pleased with the customer response and the performance of the stores converted into this format. These stores are driving traffic, they're attracting new customers, and they're retaining more current customers. They're driving a mid single digit comp outperformance in the first year post conversion and the small subset of stores that have entered their second year post conversion are delivering a positive comp. As I said earlier, at the end of the third quarter, approximately 50% of the store comp base was in this format. and we will continue to convert stores next year. Beyond the conversions, we also see a large opportunity to evolve the Buy Beyond product assortment, and over time, grow the penetration of these products, which will benefit top line sales. The third pillar is product and brand strategy. As you know, delivering WOW product is who we are and what we do, and is key to our success. Our merchants hunt down new, disruptive product at extreme value. With the flexibility of our eight worlds, they have ample opportunity to adjust as trends change. For example, in Q3, our merchants grew the Halloween assortment, sourcing new decor and costumes, including incredible huge inflatables for the front yard and light-up face masks. Our customers loved the new products, and we brought this assortment to life through our social media channels. Five Below's presence on social media is growing with a focus on TikTok, Facebook, Instagram, and YouTube. We believe we have established Five Below as the go-to brand for value and fun, though a big opportunity remains to increase brand awareness. The investments we have made thus far in integrating data and analytics with digital marketing are delivering. We are pleased with the positive trends we've seen in both customer acquisition and retention. The fourth pillar, inventory optimization, is another area where we have made meaningful progress in order to drive sales and maximize profits. As I mentioned before, this is the pillar Ken is leading as COO. Our teams are focused on improving inventory productivity by leveraging more sophisticated processes technology, and analytics. We are developing methods that will improve our ability to predict demand, further optimize inventory levels, and track the movement of product through the supply chain. As a result of the team's efforts under this pillar, we are well positioned with inventory levels going into the all-important holiday season. The fifth pillar, crew innovation, focuses on the store crew and the pipeline of talent that is critical to achieving our aggressive growth. At this time of year, our primary focus is on hiring and training seasonal associates in time for the holidays. Over 20,000 seasonal associates will be working in our stores and ship centers. Integrating each of these seasonal workers takes a lot of effort. And I want to thank the stores, the ship centers, and the recruiting teams. We're going the extra mile to ensure their smooth onboarding and a great shopping experience for our customers in the peak selling weeks. In summary, we are very pleased with our third quarter financial results and operational accomplishments. As I've mentioned in the past, we turned from a store of wants in quarters one through three into a store of needs in the fourth quarter. Our customers need to buy gifts whether they're for their kids or their nieces, nephews or grandchildren, or even office coworkers. And we are the perfect place to find that awesome gift at an incredible value. Our merchants have sourced an amazing line of fresh and trend-right products at outstanding values. We believe our customers will love our holiday assortment, ranging from warm and fuzzy plush lounge pants and blankets to holiday teas, Marvel action figures, and more. While the biggest holiday weeks are still ahead of us, we are really pleased with the start of our fourth quarter. With that, I'll turn it over to Christy to review the financials and our outlook in more detail.