Five Below, Inc.

during this call may constitute forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such statements, including those described in the press release and our SEC filings. In this presentation, we will refer to our SG&A expenses, which for us includes depreciation and amortization. Additionally, we will be discussing certain non-GAAP financial measures. Please review today's press release, which is posted on our investor relations website, for a reconciliation of these items to the most directly comparable U.S. GAAP measure and a cautionary statement regarding forward-looking statements. I will now turn the call over to Winnie.

Thank you, Christiana, and hello, all. I want to start by saying how grateful I am to our amazing FIBELO crew. They have executed our strategy at an exceptional level. by staying laser focused on what matters most, the customer, our box. Our first quarter results are a testament to their great work, which reflects our operating flywheel in action and demonstrates the traction we've made in transforming our business and strengthening our position as the destination for the kid and the kid in all of us. For the first quarter, We're reporting results that exceeded our expectations with sales growth of nearly 33% to $1.3 billion, driven by 23% comp growth and strong new store performance, including 49 net new stores that opened during the quarter. Adjusted EPS of $2.22 per share, grew over two and a half times compared to the first quarter of last year. With this positive momentum and despite an expected more challenging macro environment as the year plays out, we're raising our full year outlook, which Dan will discuss shortly. Our outside sales growth in the quarter was driven by three key factors. First, we continue to see the customer reacting favorably to our strategy and the changes we made to our operating model. We often talk about the three legs of the stool that support our unique value proposition. The first leg is curated product storytelling focused on newness and amazing value across our assortment. Second, meeting the customer where they are with relevant marketing and social and digital media. Third, easier and funner shopping experiences in our stores, which offer better in-stock positions and streamlined pricing. Importantly, we operate as a real team, galvanizing all of our corporate, ship centers, and stores in six curtain-up moments that celebrate the seasons and milestones in our customers' lives. The second driver of our sales growth was engaging in social trends to amplify their virality. While we have benefited from trends in the past, we are now able to actively engage with our customers through social media, direct marketing, and finally with Insta-activations. Our marketing toolkit is expanding, and with the adoption of Social First approach, we are so much more reactive and relevant in messaging and engaging with our Gen Alpha, Gen Z, and Millennial Mom communities. And third, we benefited from customers spending their higher tax refunds. We leveraged our position as a value retailer to make fun and newness accessible to all. We continue to push ourselves to deliver aspirational product stories at very accessible price points. Importantly, our growth was broad-based with 15 of 18 departments comping positively. Games and toys were particularly strong driven by collectibles and the overall swish trend. We again grew in all districts, all vintages of stores, and across all income cohorts. The comp growth was disproportionately driven by transactions up 19% with ticket up 4%, reflecting strong traffic, customer engagement, and continued success in our value proposition across price points. This reinforces what we've consistently said. Our strategy is not reliant on a single product or trend, but rather driven by a full assortment of products at great relative value and supported by strong execution. Identifying and capitalizing on trends is a core and growing capability at Five Below, and ones that are newer, more impactful marketing strategy and campaigns enable us to amplify as we did with the authentic RMS squishy dumplings. Leveraging our enhanced social activation capabilities and working with more agility cross-functionally, we fueled a cultural zeitgeist that has reinforced the strength of our brand with our core customers while also introducing the brand to new customers. This end-to-end approach from detecting a burgeoning trend to amplifying it in social to creating an amazing in-store experience. That's our special sauce. And we're just getting started with how much more we can do here. Our teams remain laser focused on consistently executing against our core pillars, the three Cs. One, staying maniacally focused on our target customers. Two, delivering a connected customer journey from social to in-store. And three, collaborating cross-functionally to enhance execution. This focus allows us to deliver amazing new products packed with compelling value, engage with our customers on social media and digital, and execute consistently at a high level. On merchandise specifically, we differentiated our offering through trend-right newness at amazing price value. The popularity of candy, beauty, and toys helped fulfill Valentine gift needs and fill Easter baskets. Our robust games and toys growth in the quarter further evidence our role as the greatest little toy store in America. Our focus on curating licensed products led to an exclusive collaboration with an old favorite, Winnie the Pooh. Value remains a critical component to our offering, and we believe our customers recognize the compelling value we provide whether it be at $5 and below our foundation and the vast majority of our products or $6 and above. We're very disciplined about ensuring it's not just another product on the shelf, but something that delivers wow value and really speaks to our customer's need for newness and fun. With our new cross-functional go-to-market process in place, the teams focus on bringing the products to life by delivering curtain-up moments for Valentine's and Easter. We also hosted Insta-activations to help our customers celebrate special moments, such as the 30th anniversary of Pokemon on National Pokemon Day in our entire network of stores. In terms of marketing, as I mentioned earlier, we engaged our customers in social with creator content, highlighting trends, newness, and viral moments. We also deployed amazing AI content in connected TV commercials focused on seasonal moments. During the quarter, we made great progress building an email database, which will sharpen our ability to direct social and digital marketing content to better engage with our customers and develop a more personalized relationship with them. Across our fleet, we host fun treasure hunt shopping experiences for the whole family. Our labor model is designed to ensure in-stock positions while we simplify pricing structure and improved visual presentations have made our stores easier to shop. We've largely completed integrating Buy Beyond product in line in their appropriate worlds, and we are now testing layouts and designs within the store to further strengthen the shopping experience while improving sales. So to wrap up, I'm really excited about our first quarter results. They demonstrate the strength of what we've built and the progress we're making and staying maniacally focused on our customer. We're just getting started with what we can do across merchandising, marketing, and the store experience. More to come, but we are confident that the strategies we put in place will enable us to deliver sustainable growth on the top and bottom line and drive long-term value creation. With that, I'll turn it over to Dan.

Thanks, Winnie. Good afternoon, everyone. I'd like to start by also thanking our crew for their incredible focus on serving our customers. In the face of growing macro challenges and an increasingly cautious consumer, our results exceeded our expectations in the quarter and further reinforced the strength of our unique retail concept. For the first quarter, net sales increased nearly 33% to $1.3 billion, supported by a strong comparable sales increase of approximately 23%. On a two-year stack basis, comp sales grew approximately 30%. Q1 represented our fifth consecutive quarter of positive comp sales growth and fourth straight of double-digit growth, with widespread increases in new and retained customers as well as across all income cohorts. Growth across games and toys was noteworthy, underpinned by strong support in squishy trends and collectibles. We opened 49 net new stores across 25 states, compared to 55 new stores in the first quarter last year. We grew our store count by 8% year-over-year and ended the quarter with 1,970 stores. As Winnie mentioned, we were very pleased with the performance across our fleet, as growth rates were similar across all classes of stores. Adjusted gross profit increased 46% to $479 million, or 37.2% in rate of sale. an increase of approximately 340 basis points compared to Q1 last year. This was primarily driven by fixed cost leverage on the strong comp sales with efficiencies in distribution and a lower shrink accrual also contributing. Adjusted SG&A expenses totaled $324 million or 25.2% in rate of sale, a decrease of approximately 250 basis points compared to Q1 last year. This was primarily driven by fixed cost leverage on the strong comp sales, partially offset by increased incentive costs and higher store labor related to the April physical inventory counts. The profit flow through on our sales growth was strong. Adjusted operating income grew 160% to $155 million, and adjusted operating margin increased approximately 600 basis points to 12%. Net interest income was $8 million or $2 million above last year, primarily due to a higher average cash balance throughout the quarter. Adjusted net income for the quarter grew 160% to $123 million, and adjusted earnings per share increased 158% to $2.22. We ended the first quarter in a strong cash position with approximately $1.1 billion in cash, cash equivalents, and investments. Inventory was $813 million at the end of the first quarter, an increase of approximately 16% with a commensurate 10% increase in units. Average inventory per store was up 7% at the end of Q1. The increase in inventory reflects both opportunistic buying during this favorable tariff environment and taking the appropriate steps to ensure seamless flow of product amidst a more challenging global supply chain environment. Overall, we believe we're in very good inventory position heading into the summer and holiday periods. Now I want to turn to our expectations for the remainder of the year. We're very pleased with our Q1 performance and remain highly convicted in our ability to continue to generate durable, sustainable growth. At the same time, we've remained cautious with respect to the macro environment, consumer sentiment, and buying behaviors. As such, we have left our half-two comparable sales assumptions unchanged from our previous guidance. On tariffs, we have now flowed through the estimated benefits from the 10% global tariff rate that is in place through July 24th, and we continue to assume that the tariffs will then revert to the rates that were in place at the beginning of the fiscal year. I'd like to also point out that our guidance does not assume any impact from IEPA tariff refunds. With this as context, I'll now turn to our outlook. For the second quarter, we are raising our previous implied outlook. We now expect total sales in the range of $1.18 to $1.2 billion, or growth of 16% at the midpoint versus last year's second quarter, with comparable sales growth between 7% and 9%. We expect to open approximately 50 new stores in the second quarter compared to 32 last year. Adjusted operating margin at the midpoint is expected to be 7% versus 5.4% in the second quarter last year, with the 160 basis point increase driven by gross margin expansion partially offset by higher SG&A. Adjusted gross margin in the second quarter reflects higher merchandise margins, fixed cost leverage, and a lower shrink accrual, partially offset by the effect of higher supply chain and fuel costs on outbound transportation. Adjusted SG&A is expected to delever slightly, as the benefits of leverage are more than offset by increased marketing investment and increased store labor due to the timing of physical inventory counts. Net interest income is expected to be approximately $8 million for the second quarter, and the effective tax rate is expected to be approximately 25%. Adjusted net income is expected to be $68 million at the midpoint, or an increase of 52% versus Q2 last year. Adjusted diluted earnings per share at the midpoint is expected to be $1.23 compared to $0.81 last year. For the full year, our guidance for sales reflects the outperformance we delivered in the first quarter and the improved sales outlook for the second quarter. We expect operating margin expansion to be driven by gross margins, with SG&A rate of sale now expected to be flat to 2025. Full-year sales are expected to be in the range of $5.4 to $5.48 billion, an increase of 14% at the midpoint versus last year, and comparable sales growth is expected to be between 6% and 8%, or nearly 20% growth at the midpoint on a two-year stack basis. Adjusted operating margin is expected to increase 170 basis points to 11.6% at the midpoint, driven by gross margin expansion, versus our prior guidance, the operating profit flow-through from the increase in sales is partially being offset by higher incentive costs. We've largely mitigated higher operating costs across the supply chain, including fuel-related headwinds, primarily through the lower tariff rates and increased efficiencies in our distribution centers. We expect net interest income of approximately $31 million and a full-year effective tax rate of approximately 25%. Adjusted diluted earnings per share is expected to be $8.85 at the midpoint on 55.7 million shares outstanding or growth of 33% versus 2025. Capital expenditures are still expected to be between $230 and $250 million, excluding the impact of tenant allowances, which reflects approximately 150 net new store openings and increased investments in technology and infrastructure. In summary, we're very pleased with the performance of the business. We remain focused on executing at a high level and continuing to deliver on our top and bottom line growth strategies. With that, I'll hand the call back over to the operator to start the Q&A session.