Five Below, Inc.

Good day, and welcome to the Five Below Fourth 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 touch-tone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Christiana Pels, Vice President, Investment Relations and Treasury. Please go ahead.

Thank you, Rotho. Good afternoon, everyone, and thanks for joining us today for Five Below's fourth 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. 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, and we do not undertake any obligation to update our forward-looking statements. In this presentation, we will refer to our SG&A expenses. For us, SG&A means selling general and administrative expenses, including payroll and other compensation, marketing, and advertising expenses. depreciation and amortization expense, and other selling and administrative expenses. 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 Joel.

Thank you, Christiana, and thanks, everyone, for joining us for our fourth quarter 2023 earnings call. As discussed in early January at the ICR conference, we were pleased with our holiday sales, led by an amazing assortment of wild products sourced by our passionate merchants. For the full fourth quarter, despite the impact of unfavorable January weather, sales ended at the midpoint of our guidance, and comparable sales were slightly above the high end of guidance. Consistent with the rest of the year, results for both the holiday period and the quarter overall were achieved through comp transaction growth, led by the Five Beyond format stores, which continued to outperform the non-Five Beyond format stores. These results illustrate the effectiveness of our conversion strategy, the relevancy of the extreme value TrendRight products, and the fun treasure hunt shopping experience we offer to our customers. Total fourth quarter sales were 1.34 billion, or growth of over 19%, and comparable sales increased 3.1% driven by outperformance in the candy, style, sports, and seasonal worlds. Despite these strong sales results, earnings per share of $3.65 was at the low end of our internal expectations and can be fully attributed to higher than planned shrink. Our prior expectations assumed that our mitigation efforts would result in a reduction of the shrink rate we observed earlier in the year versus the consistent rate we noted in our January physical inventories. Christy will discuss the impact of the higher shrink on our financial results in more detail shortly. Underpinning these results is the progress our team continues to make against our key strategic pillars, which drive our long-term growth. Let me review each one. First, store expansion. As a leading high-growth retailer with a stated goal of achieving 3,500 plus, five below locations nationwide by 2030, new store openings remain vital to our growth plan. In 2023, we opened a record 205 new stores, including 64 in the fourth quarter, with a total ending count of 1,544 stores across 43 states. Following the pandemic-driven disruption and delays to our store opening plans, we are firmly back on track as evidenced by the stepped-up store growth in 2023 versus 150 new store openings in 2022. We achieved this growth by playing offense and refocusing resources while also demonstrating flexibility to pursue leases outside of our traditional approach. We created efficiencies and opportunities across our deal-making, legal, new stores, and hiring teams to achieve the growing number of store openings. For example, our streamlined real estate review process reduced the time needed to execute leases. We also practically secured 23 leases from bankrupt retailers and tested alternative venues for stores such as grocery anchored centers. With this flexibility, we were able to capitalize on various opportunities in very desirable existing centers. We are pleased with the outcomes thus far for the class of 2023. Second, store potential. This pillar is all about increasing average unit volume for AUVs, including growing our Five Beyond format stores and product offerings. We've been focused on converting existing stores to this new format, which highlights the store within a store by Beyond section. We successfully converted over 450 in fiscal 23, or more than one a day, with nearly 400 completed in the first half alone. Combined with the 250 converted stores in 2022, we now have approximately 700 stores or over 50% of our comp base in the Five Beyond format. Our strong sales and transactions in these converted stores demonstrate the appeal of Five Beyond. Feedback from customers on our ability to provide extreme value in new and existing product categories has been very positive. Our third pillar is product and brand strategy. We are a merchandise driven company and our buyers scour the globe to bring our customers the value, trends, wow, and newness that keep them coming back to five below. In 2023, strong performers included licenses such as Hello Kitty, Disney, and Harry Potter, as well as trends like hydration and collectibles and the continuation of Squishmallows. In addition, our version of need-based categories like candy, food, beverage, and beauty continue to outperform. The flexibility of our model with our eight worlds is unique and enables our teams to quickly introduce trend-right, relevant products to our customers. As we've seen in the past, our growing scale opens up even more incredible opportunities to source amazing products across categories our customers will love. This year, We reached a key milestone of opening our first global sourcing office in India, shipping and selling products sourced from there for the first time in the fourth quarter. We are excited to work more closely with factories across the region, which increases collaboration, quality, and innovation, and will help get products to the U.S. faster. Brand awareness is the product of our growing scale and improved target marketing. As we continue to open locations in new and existing DMAs and convert more stores to buy beyond, we are bringing our brand to millions more people each year. Our aided brand awareness is holding steady in the mid-60s in the majority of our markets, with the exception of the newer markets out west, which are lower. We believe this continues to be an opportunity for us to increase brand awareness in each of our markets, The customer data and analytics team is working closely with our marketing team to ensure we are reaching the right customers through digital marketing to both retain existing customers and attract new audiences. We have improved our ability to meet our customers where they are, whether it be Facebook, Instagram, or Snapchat, among other social media platforms. We are still in the early stages of this journey, and see great future potential to both increase brand awareness as well as customer loyalty. The fourth pillar is focused on inventory optimization. Inventory is a key asset we leverage to drive sales and maximize profits while scaling the business as a high-growth retailer. We have already made many improvements to our systems and infrastructure over the last several years, implementing new retail merchandising inventory ordering, and distribution management platforms, while also increasing ship center capacity and capabilities. We still have a huge opportunity to make further strides, particularly in the movement and levels of inventory. We are now integrating our new capabilities to improve inventory forecasting, ordering, replenishment, and flow, which will improve turns, in-stocks, and end-to-end visibility. These improvements are key to supporting our future high growth. Crew innovation is the fifth pillar. In 2023, we once again conducted the annual associate engagement survey, inviting all five below crew members to participate, including full-time and part-time crews across our stores, ship centers, and wild towns. Our engagement and overall scores continued to grow. Our engagement scores landed us in the top quartile of Gallup's overall company database, which includes thousands of companies across multiple industries. We are very proud with the level of engagement of our crew, and we will continue to focus on hiring outstanding crew members. In the fourth quarter alone, we hired a new hiring milestone of 20,000 plus seasonal associates now let me turn to 2024 we still expect to open between 225 and 235 new stores and convert approximately 200 stores to end the year with about 70% of our comp stores in the five beyond format we are excited to see the traffic and customers this format is generating We will leverage our growing scale and sourcing capabilities to deliver even more WOW product to our customers. Our data analytics and marketing teams will continue to refine their marketing and targeting strategies to improve upon an already strong start to utilizing customer data to help inform decision making. We expect inventory to benefit from AI-powered tools and our crew to embrace simpler processes and systems utilizing technology. In summary, we are pleased with the progress we made on our strategic initiatives throughout 2023. While 2024 has started off more slowly than we expected, which we believe is due to the slower start of tax refunds, we are encouraged by the early sales of our Easter seasonal category. We are excited for 2024 and to deliver against our key operational priorities as we advance toward our triple-double goals. With that, I'll turn it over to Christy to review the financials in more detail.