Five Below, Inc.

Good day, and welcome to the Five Below First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists 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. 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. Christiana Pelz, Vice President, Investor Relations, and Treasury. Please go ahead, ma'am.

Thank you. Good afternoon, everyone, and thanks for joining us today for Five Below's first quarter 2024 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 expense, depreciation and amortization expense, and other selling and administrative expenses. 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. 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 first quarter 2024 earnings call. In the first quarter, we delivered total sales growth of 12%, a comparable sales decline of 2.3%, and adjusted earnings per share of 60 cents. These results fell short of our expectations as we experienced a meaningful slowdown in sales during the back half of the quarter. Despite the sales shortfall, we delivered adjusted earnings at the low end of our outlook range. As we analyzed our first quarter sales performance, the following factors were apparent. First, our negative comp results were driven by a decline in comp transactions. Second, consumers were more discerning with their dollars, increasingly buying to need. We saw this in the types of products they purchased, choosing more items in our version of consumable categories, such as candy, food and beverage, beauty, and HBA. Each of these areas contributed positively to the quarterly comp. Additionally, declining sales in older merchandise trends led by squish models presented greater comp headwinds than planned. Finally, we achieved positive comps in our higher income cohorts, suggesting some trade down of these customers seeking value at our stores. However, we saw underperformance in the lower income demographic that more than offset these results. The quarter solidified that consumers are feeling the impact of multiple years of inflation across many key categories such as food, fuel, and rent, and are therefore far more deliberate with their discretionary dollars. While we are tracking this behavior and noted some pressures over the last several quarters, the degree to which it was affecting consumers at the beginning of the first quarter was masked by the noise created from tax refund timing and an earlier Easter. I would also call out that the slowdown we experienced was across all geographies, further suggesting there was a broader macro impact. Five Below has always stood for wild products at extreme value, and we will lean into this mission even more heavily as we contend with the pressures faced by our core customer. The vast majority, or about 85%, of our units sold priced at or below $5. And while we believe you're currently delivering value for our customers, we will continue to look for ways to bring even more distorted value to them. Our number one focus is on driving sales as well as driving cost optimization to maximize margins. I will give you some examples of exactly what we are doing. First, chasing trends has always been a strength of ours. We will continue to quickly identify and capitalize on trends, bringing them in-store quickly and communicate the value we provide to customers across our social media channels. Second, we recently kicked off a pricing test in about 100 stores to measure the impact of price reductions on driving sales. Third, we launched a marketing test in late May that will run over the next three months in one of our regions. Fourth, we've been working on optimizing our cost structure across the entire organization, including both operating expenses and capital spending. To drive these results, Ken Bowles assumed leadership of the teams within the store expansion and store potential pillars while maintaining oversight of the inventory optimization pillar. We have line of sight into significant savings over the next 18 to 24 months, with some savings benefiting 2024. Finally, I want to comment on our shrink mitigation efforts. We are cautiously optimistic about the progress we made in Q1. Recently, we completed approximately 200 physical inventories and believe we now have a firmer handle on how to mitigate shrink. These early reads demonstrated several examples of our operating efforts working and have put us on a path to reducing our shrink levels. I want to thank the many teams dedicated to our shrink task force, especially our asset protection and operations team. Christy will give you a more detailed update in a moment. Now, let me update you on the strategic pillars that serve as a foundation for a triple-double growth strategy. While we are implementing changes to address recent sales trends and offset shrink, we remain committed to our strategic pillars and continue to see a long runway of growth for Five Below Our first pillar is store expansion. With over 1,600 stores currently and a roadmap to 3,500 buy below locations nationwide by the end of 2030, the opportunity to open in new markets and densify in existing markets remains significant. In the first quarter alone, we opened 61 new stores and we continue to see customers excited to have buy below nearby. New store productivity delivered at our target level in the mid 80s. And this quarter, one of our new locations in Goldelsboro, North Carolina was among our top all-time spring grand openings. Our differentiated concept and strong balance sheet continue to provide us with many opportunities to drive our growth despite a tight real estate market. We are confident in our path to achieve approximately 230 new store openings this year. And I've already built a strong pipeline for 2025. Our second pillar is store potential. We've been focused on growing our fleet of five beyond format stores and product offering. In addition, we continue our relentless focus on simplifying the operating model for our stores by reducing tasks and improving communications while mitigating shrink. One of the biggest changes we made to mitigate shrink was moving to associate-led checkouts, and the customer feedback from the new process has been overwhelmingly positive. On our conversion strategy, we ended the first quarter with over 60% of our comp base in the Five Beyond format, of which more than half were in their second year as a Five Beyond store. Comps For converted stores in the Five Beyond format, outperform non-converted stores by mid single digits in both sales and transactions, with stronger transactions still the primary driver of the outperformance. We completed 84 conversions in the first quarter of the approximately 180 conversions planned for this year. And we now expect nearly 80% of our store base to be in the Five Beyond format by the end of the year. This will significantly improve our 2025 buying leverage and simplify our marketing efforts going forward. Our third pillar is product and brand strategy. Our merchants remain passionate and are committed to bringing the best, trend right, amazing value products to our customer. While newness are part of our DNA, and I am really pleased with the latest trends They have identified as well as the lineup we have for back to school, Halloween, and this coming holiday. As for brand awareness, our marketing and customer analytics teams are working closely together to ensure our message of value, fun, and trend is emphasized and reaches the right customers to spur repeat visits, as well as attract new audiences to buy below. We have invested in this area for several years and have far more customer intelligence than we previously did, allowing us to quickly push relevant content and optimize targeting. We also have more specific store detail than we did before, which has helped us dissect our first quarter results. In fact, based on this data, as I previously stated, we created and are rolling out a marketing test in a major region which we expect will help drive sales and increase customer awareness of Five Below. The fourth pillar is focused on inventory optimization. This pillar continues to be a key component to creating both sales and operating efficiencies for Five Below. And given our emphasis on reducing shrink, this pillar is particularly important. Our focus is on implementing capabilities to enable scale driving optimal inventory levels and sell-throughs, while balancing operating costs and enabling simplification. The progress we have made in this area is exemplified by our in-line inventory levels despite lower than planned comp sales. With our five-node ship center infrastructure and upgraded ship systems for retail merchandising, inventory ordering, and distribution management in place, we're delivering more accurate forecasting, ordering, and replenishment, which will lead to improved turns in stocks and end-to-end visibility. Overall, we have better control over our inventory. Utilizing newer AI-powered tools, we expect this to continue to improve, and we will benefit from more real-time information as a result. Our fifth pillar is crew. Much of our focus this quarter has been on our shrink mitigation efforts. We are so pleased with how our crew has embraced the changes we have made to self-checkout and other store processes. I want to thank everyone involved for their part in helping improve the shrink rate of the stores we counted this quarter and expect this to have a broader impact on the full chain going forward. I want to conclude my remarks with a few comments on our plans for the rest of the year. 2.1 fell short for the reasons I outlined at the beginning of the call. And we have adjusted our guidance for the year to reflect the current run rate of sales. While there is a larger macro consumer backdrop dynamic, we always play offense at five below and will not sit back idly waiting for the consumer economics to improve on their own. We are focused on the overall opportunities we have to drive the business. while leaning into value that our customers expect us to deliver. We have undertaken a deep dive into our product, pricing, and marketing strategies to understand where we can be more effective as we maintain our focus on shrink mitigation and cost optimization opportunities. We look forward to providing updates next quarter. With that, I'll turn it over to Christy to review the financials in more detail. Christy?