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Five Below (FIVE)

Participants
Christiane Pelz Vice President of Investor Relations
Joel Anderson President & Chief Executive Officer
Ken Bull Chief Financial Officer & Treasurer
John Heinbockel Guggenheim Securities
Edward Kelly Wells Fargo
Paul Lejuez Citi
Karen Short Barclays
Damon Polistina Deutsche Bank
Michael Lasser UBS
Matthew Boss JPMorgan
Judah Frommer Credit Suisse
Michael Montani Evercore ISI
Chuck Grom Gordon Haskett
David Buckley Bank of America
Brad Thomas KeyBanc
Anthony Chukumba Loop Capital Markets
Jeremy Hamblin Dougherty & Company
Beth Reed RBC Capital Markets
Joseph Feldman LCD
Call transcript
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Operator

Good afternoon, and welcome to the Five Below Incorporated First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Christiane Pelz, Vice President, Investor Relations. ahead. go Please

Christiane Pelz

and Good today Gary. results and for and Anderson, thanks call. Bull, and Thank Financial Chief Five afternoon, Below’s us Officer President Joel are for today’s financial Executive first joining Officer; On Ken you, Treasurer. call everyone, Chief quarter conference XXXX

to pursuant this remarks, are of differ and our After and to of The are from certain that Act Those and known risks subject remind formal open and in SEC Such call Five constitute amended. today statements. call statements update we to described are materially during forward-looking both may has forward-looking as statements. made the meaning XXXX, of obligation the any unknown uncertainties and management that results Safe to their such uncertainties to the press and statements the to are made you provisions forward-looking filings. Below’s we comments undertake date will risks release the statements as Harbor Reform forward-looking made Private of do questions. and need within not call made I could Litigation actual Securities this the cause of

copy a our may Investor Relations have website not today’s by page at do visiting you press release, you of of one If obtain the fivebelow.com.

I will now Joel. call over turn the to

Joel Anderson

for for for to highlights open first and our Ken questions. call us joining outlook. financials quarter I thanks over Thank quarter, the then, of the our you, before will our we'll call. everyone review and handing the Christiane, discuss And to earnings it

bottom million of new to were this XX% excluding pleased especially by grew the transactions a the end with was rate quarter of high is or stores XX% X.X% increased $X.XX balanced ticket. continued Earnings range per outperformance QX line to guidance of our tax and our our range. favorability, share which solid $X.XX performance. expectations. at across within was fairly that comp and of Sales driven and We $XXX another

important be Below example of great the open This quarter's we to biggest how is locations the year. a Five of XXX and growth to this stores to new continue plan our result XXX model. They driver remain for

markets new believe XX are During we range than and spring new opened to for with an markets payback smaller our of rural QX Ruston, Iowa made or spring West in states. to diverse one-third the XX including these opened XX grand our our list states you Rapids Nebraska, opening bringing both think East grand stores This three from Nearly all Cedar of in is openings. existing level our QX, spot new the the of top new to total Arizona the new XX and when located Coast, quite all-time Iowa, new top stores earnings of Kansas; Coast of City, Louisiana XX the last located our as delivered new year the we from Garden to performance store stores we locations several more of investment, period urban Brooklyn, use breadth areas and the again store in like on in Five stores capital. the one With dense illustrating appeal. an markets years. less during New industry-leading, average continue Below's are best York, yet such accomplishment

past into and particular our gaming like Create and products across squishy and excellent in high fresh, our newer of provide quarter. the an this strength customers unicorn eight regards our Candy, worlds. job all some a delivering WOW of and Tech, quality, as We trends, stores. performance. assortment drivers key merchandising, color do teams Trends slime continue on saw and trend-right edited, such to drove I'll Now With more to

lineup movie year some see relationships license Avengers we Endgame, and the partners toy early our deepening to are exciting QX. later began starting released which was this in and for results with with We from

marketing. to On

We are on increasing awareness. brand focused

which to basis. mix and marketing annual shift digital for on of to continues TV, accounts now over half spend Our our an

very were contributing TV to in conducted growing pleased small QX, test results. For awareness small and Also e-commerce we the the first with our our we is channel. time, a and brand

results. In we impact may and recall you the pleased social began media with in quarter, we're the addition, testing influencers of fourth those

We media. favorite their to on have social since promote worked with their Below two products new Five influencers

this expect help brand grow added We our awareness. presence to

ahead. other chain XXXX. lies we future strategic We substantial marketing, that infrastructure. key namely our initiatives, our growth In systems, to supports are executing addition a want ensure supply to remains and a people, key merchandising for Enhancing foundation and on our priority

year our distribution puts years. quarter. first facility few for was the support at DC, outside appreciation personal the a highlight that just Tech, end center Atlanta I opened now us for and QX many the next DC first the Opening and one a since new my to teams the a to open our path XXXX, extend of on

infrastructure to is track this first disciplined base throughout owned Southeast. with Southwest are to center, to is reminder, as a doing and This welcome to distribution center family. new them The supporting DC additional we plans we greater our through provide distribution which Five The is As step our XXXX crew great opening. thrilled with us are on a DCs together Below facility, will store demonstrates the grow footprint and with for control expected flexibility the rapidly investments. our commitment we and a next job, our open an our growing spring

and our a provides as impulse remodel for Let assisted to as previously section, innovation to a associates, our and speedier it on progress the have which our personal discussed option a customers one our engage turn more expanded on remains priorities. level. made reimagined me now our both we associates checkout experience, We program, the well front-end which have top and of customers and elevating with enables experience proactively

for front-end. the stores the To XXXX planned remodeled approximately and the remodels include the have XX of expect date, reimagined we majority of to half

of to new this year planned We openings store XXX the also the about front-end. reimagined feature expect

While the positive. and has customers it's been feedback on, very early still from our very teams the store

customers are to pleased is Wow offer our Ten Below. we initiative, or innovation Another Just

are both additional is up customers Tech extreme stores assortment This test $XX. plan the XX to points be of like Room. to have QX. They're continues merchandise providing in We We about end areas in-store testing feedback this our by and our price at enjoying to names. from The in positive. values value

important example, with progress make headphones the For continue a this culture WOW for to more values. digital should $XX camera and by how offering in I is gaming teams to you pleased seem and to we amazing our examples our It be each these innovation couldn't many area. true obvious are

with few amazing words a boogie excited customers from Now and let this hammocks our value. are to about and boards QX, to fun to incredible chairs inflatables have products outdoor all help an we go at summer

world tops one-stop experience for even and features shopping coordinated this bottoms Our sandals and style summer.

is In summer movie release and this the addition, particularly calendar attractive fall.

Our merchants stores our with have for been be products. and will up this WOW gearing ready

are outdoor to of kicks off TV our announce launch the the Five kids. digital featuring, for and excited also summer all this Below Camp fun We and week campaign which

quarter, our planning store associates innovation deliver an base Five in merchandise, store to the expect from This to With our our percentage reach second Below. are TV of reached XX% the line the and our in through past year our XX% year's marketing, and over we fourth we with our approximately this increase customers ready are over summer last quarter. we experience

Finally, and I'd like tariffs announced to discuss to XX% from XX% increase the in May.

to be we about tariffs impactful retailer our business will as they higher value-driven a to higher prices. concerned are and lead As

to subject current our of $XXX from total including about the and With billion imported products China indirectly for are tariffs, both products. XXXX imported receipts of directly impacted XX%

and margin tariff. we both rate impact the were fully dollar previously we the XX% of to As discussed mitigate able the

negotiations, to the jump price expect do number $X We our so options and production overtime to other on $X including to items, XX% moving increases process are and on of to countries. mitigate efficiencies working to a vendor

this partners been truly thank vendor to continued them. like partners. to us would and Our I in process They have have amazing support

prices we as to items. our the price not well pursue as a lightly. will increasing do beyond We all of prices of $X a is point $X combination decision these take on continue Increasing

we'll lot behind and a pace put with and of thought diligence. have this decision We proceed

fun testing $X, to $X.XX at to differentiated group of chain. select stores on increases we entire higher are pricing experience. $X.XX, products a our that quality, before the rolling be in firmly out fresh, priced products extreme items or on shopping will committed value in Where a providing We high remain trend-right there's some to customers

is year off solid the summary, to start. In a

runway our We executing ability against And of are that to focused our support to for and Five ahead remain Below. the key priorities our bottom top about lies deliver long on firmly outlook. confident on we growth line our

delight eight will our with to and flexible customers. our continue of surprise very successfully and is model categories Our and worlds we breadth

that, With over Ken? to Ken. turn it I'll

Ken Bull

my the and year. a with Thanks, Joel, second and review outlook and results good quarter afternoon everyone. will begin remarks first the of discuss full for then our quarter I

we record first a our we accounting the And new architectural on leases at standard fees, us requires by increased expense sheet. net flows. certain and now standard a not lease This beginning does The operating As a requires cash result the total as capitalized. of also but previously accounting our adopted legal quarter. statements, million reminder, adoption, standard of were QX. our standard This the beginning new to at impacts new liabilities of us balance which financial $XXX the new to assets and impact

$XXX.X XXXX We quarter reported first new in from quarter of the XXXX. first to sales XX.X% were quarter XX compared up or of first increase the XX XXX opened first in ended the stores quarter of XXXX. Our of with during of million, in the the stores, the stores at XXXX. million opened versus end stores quarter the XXX XXX of We an $XXX.X XX% quarter

X.X% X.X%. by comp increase ticket an and driven transactions X.X% both average of increased sales of Comparable comp in by

due As last the standard approximately of of operating investments, I lease our the margin to XXX accounting of we center. mentioned points on in deleverage quarter new expected unanniversaried basis adoption the earnings reform-related first and tax Southeast opening call, the our distribution

approximately with million points XXXX over reported in QX for XXXX first Gross $XX.X start-up margin margin from results for of driven by first profit costs. quarter in million by to increased DC slightly Operating better-than-expected declined XX.X% favorable gross the XXXX. $XXX quarter basis Southeast the XXX

increase This points the with costs opening XX.X%. leverage, year our was Gross basis offset over costs Southeast driven by XX margin approximately associated new by occupancy last of by primarily to DC. increased

basis SG&A of XXX percentage sales XX.X% for first quarter the of from of XXXX increased quarter a first approximately points to XXXX. XX.X% As the in

of sales standard. were a adoption investments reform-related to last SG&A of tax as primarily well lease higher than as as accounting unanniversaried the expenses due the new percent year, the

versus X% the income operating decreased result, in $XX.X quarter a of to As first million $XX.X XXXX. million

X.X% was to the first XXXX Our effective XX.X% of compared rate the tax XXXX. for first quarter quarter of in

Our practice tax share-based favorably which in was by is accounting our guidance. as impacted rate our included not was

quarter per approximately million cash share-based per Net XXXX first benefit impact XX.X% diluted million share-based versus quarter last $X.XX debt. the to Earnings benefit $X.XX, accounting income quarter was the year's in ended accounting and share. first in increased of of quarter $XX.X last a cash, to the investments for We to first share diluted a with EPS approximately $X.XX XX.X% of $XX.X compared increase equivalents, $X.XX and XXXX. no over a first The million was year. $XXX diluted

X% per-store $XXX.X to quarter of receipts. a in and an year, at last year. Inventory the basis versus primarily first million penetration was quarter increase the the end million of to the quarter first inventory of was Average timing import $XXX.X due approximately compared other the on first last at as higher end the

turn our like Now, guidance. to to I would

impact repurchases. share our from reminder, share-based future accounting a not or guidance As include does any

quarter We guide these update reported our shared but will we accordingly for the will We to guidance of that tariff were XX% the guidance future our for goods on year we items. impact included XXXX. the fully a subset mitigate last as our not our to is potential which results, with practice, from able

we effective selective for year, and higher XX% our combination guidance quarter of the except tariff list the three are increases. impact a new by not Accordingly, through working using our rate. first on changing are of mitigating benefit vendor on for one of price tax the the negotiations share-based under We accounting

to within of However, we efforts. deliver for originally operating working underlying still We dollars to impacts rate half range within P&L expect mitigation the year dynamics contemplated. back through our margin of related rate the and EPS income tariff the the are the

XXX We still For sales plan approximately $X.XXX the unit to to to expected new fiscal new comparable these in of to be approximately in increase to XXXX, with open of or XX%. The will stores be X%. XX.X% to to billion be XXX to increase XXX expect XXX growth is we of billion, range stores sales the end continue majority XX% year to to markets. XX.X%. expect and existing an The of stores $X.XXX

and mitigation impacts operating new SG&A. included are cost these cost guidance the of our included goods expected potential decline lease margin center on full cost relatively Southeast operating our in new year primarily new DCs of of impact standard and on costs of flat year. the Excluding accounting operating the the sold our accounting for slight due be tariff are still full to the our of a opening to in margin, The and owned Southeast the standard. DC assumes the DC lease Depreciation are distribution

which range the tax full XXXX first be approximately Net quarter. from rate year diluted $XXX.X $XXX.X income per benefit in of is representing million, of the over XX.X% XX.X%, reflects range $X.XX. XX.X% in million realized rate approximately a of expect the expected $X.XX share We now a to for accounting a to share-based earnings XXXX, effective to to growth in with of

outlook. share-based grow by benefit expected share previous accounting XX.X% to XX.X%, diluted rate tax the from earnings from QX, per Excluding unchanged to in are our

new excluding respect plan reflects allowances. With to million gross in $XXX in CapEx stores, of Southwest timing completing of also XX to CapEx, in and to our guidance the and expected investments XXX approximately spend infrastructure. The updated Southeast prior approximately XXX the of distribution related DC opening CapEx, the from CapEx remodels we the increase an to tenant XXXX now a for in systems estimate impact costs includes payments center. total new

in XXXX, sales the X, For in to XX the increase plan year a $XXX of X.X% of increase and XX.X% of earnings of approximately second of the open second assuming in an Diluted to new be million versus as last in We diluted to expected per XXXX. quarter increase share $XXX to August the million. expected XXXX. in QX to versus this XX.X%. be comp second sales fiscal are XX for second the ending QX to stores net million, X% QX, second $X.XX are comp quarter X% to per opened year compared to stores to in $XX.X the is the is the share of of quarter to million expected earnings $X.XX be in Net $XX.X quarter XXXX fiscal income XXXX range quarter $X.XX for range

to The share-based second quarter of XXXX had a from $X.XX EPS benefit accounting.

decline by Our impact, margin new accounting second the QX. certain of an quarter partially points, offset DC Southeast assumes shift XX into of approximately by lease expenses outlook a costs basis depreciation new of and other operating driven standard our

We quarter immaterial expect tariffs the to of be impact XX% second the to the results. to increased

For our all to to guidance and refer other details related release. please earnings results press our

up for to like it open comments to closing we the provide Joel? that, And questions. back I would with some turn Joel before to call

Joel Anderson

Thanks, Ken.

strong deliver in another great We are to XXXX. position year in a

Number our will provide it And awareness. two, organization three, through We in remain our centers by new crew marketing We Number be optimizing they the WOW amaze the key our value more operating WOW our on of to experience throughout stores, largest growth. is merchandise and at our to our one, continue here areas. love. which shopping or Town. trend-right ship focused to gain are our new customers lens, that customers. strategic innovating opening sourcing Number stores, our brand we the whether driver

to our our to and our upgrading Number four, connect positioned And five, customers. technology number best for future with hiring growth. network associates distribution finally expanding be the our

to the areas experience customer the coming customers our keep back. All factor WOW and drive these of

high to that top-line XX% are achieve the retailer, XX% growth through value leading our As growth and uniquely capitalize Below ahead on positioned the opportunities Five we growth lie bottom line plus for of XXXX. with strategy

finance successfully to preparing summer their our teams for be I'd the in support that work chain thank all the as would Five new merchandise, working thank to in through departments the and and southeast, for continued fun. of Below like I closing, in In like the opening supply well our worked tariffs. their DC teams for on as especially dedication a destination to

like call Operator? for questions. I'd turn over that, to With operator the back to the

Operator

now question-and-answer Securities. Instructions] John Guggenheim will with Heinbockel begin first Our Please question the We ahead. [Operator from session. comes go

John Heinbockel

So Joel, a things right. of couple on the tariff,

from possible, So upgrade you one, it know Number the upgrade maybe and quality go it $X think taking test time, then selectively at do to you to way and a item is how that even it to out same that a roll of two, from before to need working $X. take So right? long that feasible? is the comparable $X Is you possible quality on instead broadly? you the to higher Michael's quality prices better time, I the is and $X.XX, all

Joel Anderson

start first Great Look, Yeah, foremost, John. question. going thanks we're with customer and back. and work the to

really so with to and reason a we test the want it read to through we're starting summer. that And tends

that Our other This will the the not expectation fourth decision is a be learn drag but test months, from got into our when pace will the it what right, this our but we'll on No summer, this it we'll and make and different out diligence. quarter. make marketing customer all is with is several sometime then throughout initiative. sure period roll we've we materials feedback, do any than

note tell about sense as changes. prepared to important my from can talking we're it's you not changes, think, I dollar that remarks,

going we're our deliver to value extreme for believe still we so And customers.

us now, focusing minimize on right to of increase In everything's balancing play customer about I and always say we've we are to been impact. terms before I tariff now your foremost mitigating simultaneously that the a John, continue the it's of to on in merchant for John, think as our But and years, quality, and know right the you, focus the act. I I you and think question encouraged the improve team half going first quality. increasing mean, many second But Michael and following quality. to you've would is attention

John Heinbockel

you. Thank Okay.

Joel Anderson

Hey, thanks John.

Ken Bull

John. Thanks,

Operator

go comes Fargo. Please question with next The Edward ahead. from Wells Kelly

Edward Kelly

hi Yeah, guys, good afternoon.

Joel also obviously -- a much to $X So, this about talk on items efforts working mitigate? to increase be? $X type How about would thinking how bit be this what talking point. you been you tariff And you've number more penetration price Logistically, communicate guess Are you and Can you the the implemented? of mitigation. talking or about of the illustrate that would SKUs that sense? hard how I be would customer? SKUs would I'm to to on just of

Joel Anderson

Great question. There's all that at question there tariffs. a lot around

this prepared to since working the about thinking We increases, gave that you, change this remarks, all I as the our take percent can less from May the as ever on to XX%, we're than represent a tell so what at announcement have the XX% examples from XX%. And been the you is range of the time. change that's

also would on $X, will will our priced products vast the commit the our in of we but under – focus and to that dip items I customers. still and to most have that majority value all you communicate the of be most tariffs

$X, sourcing be But but And to value all this are -- so the will Ed it piece mitigate other delivering a in of those to moving at like of to ways at the work differently, of items. simultaneously will term which on about but will those point. to $X but be countries are customers, play it it's then be $X, and continuing longer a our piece day end current the $X also

Edward Kelly

happens what And X? exposure list your to XX% to with the right. All

Joel Anderson

been This tariff has Great question. fluid. situation so

tariffs look point at one we've away. was in mean and potential in Mexico. In the thought just XX hours, announced India fact, last At we time, China I had going

this two, it’s on line, to I bottom two, we one, in of the Ed, those, exceptions lots But so on and two, point this tranches we focused groups speculate to mitigated one, there's law, But focused focus as one, early point, then been assume placed think three, we what's on And we're just mitigating they have at be three. too are like at four. three. we'll going fully into it's like were

Edward Kelly

Okay. Thanks guys.

Joel Anderson

Thanks Ed.

Operator

comes question from ahead. go from next Lejuez The Citi. Paul Please

Paul Lejuez

are us considered considered Hey, considered until you you $X? tariff goods rather price thanks that maybe guys. -- percentage I'm a you lines? curious something Thanks. it's doing, the I'm just what option curious point? you above were if how $X going test those repricing at having you've you're big And remind can if if Also face receipt a curious or curious test surcharge of where percent also like your the store in of ran necessarily you on if is along not customers' that than the the checkout. SKUs

Joel Anderson

test we about. or wages. other Paul XX% and about and have in something our want largely around But largely done, thought should customer route have of transparent California priced -- we It's it's of we Yes. think no sleight chosen specifically like anything to point at we've and chain. range. that. in and that it roughly then X% it specifically be to to items something upfront in hand because it roughly we is expect the time, or in not $X as But of you XX% impact And to considered this in And more is the the $X restaurants that are the at. surcharge, something terms looked have

Paul Lejuez

you. Got

I'm used you're follow-up, one to how Just business trended. curious

I think guidance. the you low end comp of towards in came the more

you So around provide wondering quarter? cadence your if color the the used Any of to could short a throughout expectations. business bit the fell Thanks.

Joel Anderson

of would It's strong mean, pretty I last think I grew year. not expectations XX% Actually, retailers many word. short a be

fact, million added XX year-over-year. we In

pleased we're look, within range. with coming the So in

of time grand everybody. I our XX I think openings. stores with XX had top in our all shared We

how is continues you store new just doing show well. performance so to it the So

in tax February in a a of shifts that refund March. there's So into moved lot QX. There's delay

really you in You've record end at and the look we to takes. end we and top in we puts and weather in feel the all Easter top And total aspects got to of earnings, And from sales March and shift sales it. the right give so and the came guidance, when continue great deliver quarter we near about April, earnings. you give

Paul Lejuez

Thank you. luck. Good Great.

Joel Anderson

Thank much you Paul. very

Operator

question next with comes the Barclays. go from ahead. Karen Please me, Excuse Short

Karen Short

Hi. a Thanks. guiding pretty a what great but that you're is look a comp, just tier want at meaningful for second. it sequentially. to imply deceleration I to I XQ understand obviously does

little a there. color maybe So,

does And be sound going margin operating then going better. like gross bit it be general is to or in to a little are margins

So about aside from there, to this anything expenses of there there? is shifting else think

Joel Anderson

this take Thanks way, leave question, Yes. so we one because I'll QX over mean, can it Karen, but beginning the those one just me you I the is those. get it unique remind -- this, first to stacks. and we fail Karen. let one years times to to look really you of got it's to two Ken. the can't everyone through it at And by largely at answer fault keep our is

last You've was year's years at the got against deceleration years to up look the stacks, you at spinner. that look QX two only three if of part

QX. So a you strong a if honestly, the to QX you then three-year if it's acceleration, stack Ken stack, in look stack in pretty three-year on… the at And three-year compare

Ken Bull

had SG&A margin better than year. operating out what can an really having XX of looking called at the basis QX. what the shifting two you some still there, hear the out that the key of And helped Yeah, some deleverage in But drivers for improve into which about beginning the around QX, But out margin operating of depreciation Karen deleverage of Southeast calling distribution standard. I'm new Still the cadence as points. deleverage. expenses new I lease center is the XX it's QX, in we QX basis the and points accounting

Karen Short

Yes. Thanks.

Joel Anderson

Karen. Thanks

Operator

Deutsche Paul The ahead. from Please Trussell with question comes Bank. next go

Joel Anderson

Paul. Hi,

Damon Polistina

going? Damon at how is that Polistina the Hi. – then QX? to it the affected looking just can And just summer with the and Can Paul. look I you're blockbuster start business we licensing summer of forward business How's at how through kind toy movies? looking This for on the

Joel Anderson

toy Yeah. in We with QX. pleased were business the

lot in picked of customers we talked I QX. a about think we up

I think is need that quarter remind heavy to toy back-end I a just everybody very business. fourth

then, we driver not the the the going and licenses, this the time. showed And for on year, I a business year. call all about trends us talk in front So it's for certainly to be we half talking of the reiterate about specifically last

releases. One of Thanks a continue movie to It obviously, how we QX is positive It kicked-off very Endgame. trends then starts Spider-Man. year the this three schedule And specifically feel little with about for Toy up year, with back in really Avengers it's here But to year. a terms with X. all with licenses. strong license bit And Story of strong feel the and see still really still going up in license be heat kind we the on energy the that the mainly the half shaping year Frozen that's the of in license of Damon. to and ultimately is QX

Operator

from comes ahead. UBS. Please go Lasser Michael question The with next

Michael Lasser

on lot a for Thanks taking It – question. evening. Good my is

Joel Anderson

Hey, Michael.

Michael Lasser

because next inflation benefits is over should starting an bake – at we'll run very quarters, Hey, now Joel. you're multiyear come stacks outlook comp to A, that you're going from to The to forward? price X% rate be least should we is this there this testing at for of few of more the the going the happened issue impact X% Or so the of as much expect see stores? of to And are X% C, your B, through you the tougher in actually the would the that have as tariff increases of inventory? you will year? an XX% is you it XXXX a you of because when Thank you, – how next year timing flow then because event to much.

Joel Anderson

tariffs everything. Yeah. Thank and questions you. Look all around

outlook comp got right. you've think the I

can that. and We to a really we're curve. us, elasticity as said about up are about question, pleased against And tougher up comp think were than answering to say what's why early back. This from understand don't too new want raise this speculate, units like in if to three the is all pricing the with price think talking against and you we a you we customer for that's prices. we that the we And history reason get too the work number have to last speculate is tailwind, through against then was positive. tougher so We'll a And to really everything, it's still Karen's more his business sold comps, or year, model on still we're going reduction territory And certainly you Michael do comparisons did say comparisons. I a acceleration two early happen spinners approaches is And really in the three-year the learn also I a have speculate test. as probably we to Like you What the trying on year. specifics I I than to due exactly And through we for that. to to comments even commit it's – do stack. I give call increases. that's tailwind, see awesome I going a Ken on I what's gave next when rather as the and can you we believe you to on a there, outlying there's guidance we'll little in

certainly it as a being XXXX full in XXXX. has impact far event, then year And as a

be before fully fourth you we have our quarter some of of into not on facts XX% tell we're get in the place But to and grounded that the would to in large have I is arrived Although, will we'll there holiday yet season. and lot a so goods a mitigate impact. majority path

Michael Lasser

and luck. Thanks good very much

Joel Anderson

you. it. Appreciate thank Hey,

Operator

Please Boss question from ahead. next JPMorgan. Matthew comes go with The

Matthew Boss

guys. Thanks. Congrats on quarter a nice

Joel Anderson

you. Thank

Matthew Boss

what most new peak speak seeing updated any remains could productivity can metrics you recent the particularly you're from remodel guess I performance just So cohorts that model store to-date you from from refresh and to levels, your learnings at share? openings

Joel Anderson

one I'll start Remodels really second the too thanks. it's with work and back. early. Yes,

quarters. we basis re-imagined you it's with XXX as that year continue literally But I We ones the I a before, shared not into full with new front-end, out believe, rolled about we it were weeks over year. mean far even as the this as points

So, speculate to as too you that want that. new productivity on far early as And take then store Ken? to

Ken Bull

Sure.

good Joel of number are landed top stores called you stores we're pleased As Matt, in the that even heard our the list. all-time how really XX out new doing.

and there new XXX% that at called states we're be out some productivity markets. the the in existing the in of really quarter landed new we seeing just or we for it above in So whether strength first markets

in over couple the seen one that of recent terms year of the think the I classes. years last So productivities of you've

the So whether performance, other be that the the all we're productivity refreshed the that new of model, where elevating it's in business I coming into we’re terms all seeing. think doing things store in

Matthew Boss

luck. of Best Great.

Joel Anderson

thank Hey Appreciate it. you.

Operator

with Please go The Judah next Suisse. question comes Credit from Frommer ahead.

Judah Frommer

clarification. the for question. thanks more Hi, of a point taking It's

I it mentioned, price increase three sounds think tests. You've like

prices You to have items. increase $X $X on

each items. And those? will in is have prices just stores think there the then Can some increased and You of said How you they'll many $X I And timeline be each before stop of on Ten will Below. you stop? square when QX.

Joel Anderson

Yes.

try me wasn't clarify clear my I Let and if in remarks.

before or on today tariffs working with a with WOW, as Let reminder value. had that to we that to about customer. proposition to a and extreme first It's do long as were continue me Ten tariffs. that We delivering different Below the see start still Just initiative nothing

by will put aside. stores though let's end XX be that Below of in just quarter the the and Specifically second Ten

As all we prepared on earlier delivering you two to remarks of provided far those $X, tariff It's of the the the today. and mitigating our think $X same. as about impact the and as I on and one $X still guidance

those So worked simultaneously. both are being on

to something end chain, there it the out it chain I As test of we'll very it before said, before rolled is going would end end. will And but first like expectation the the your when is that, statement the to summer. be

not the prices although to and we raise $X $X. to So to recognize have it's value products are going that still customer, it I is to about of about some having end, extreme this some it to of on delivering some amount will will it $X select when think a of

Judah Frommer

$XX clear, it And between like just Okay. to sounds to off to is $XX now, table $X right that be is $X right? the

Joel Anderson

Yes.

Below table initiative. remarks, the we're prepared point to thinking are The different it's off at is the concept. whole a our can product you $X and $X.XX. the see And completely that But set about from this is different is in Just that $X, $XX with strictly numbers time. Ten of WOW As $X.XX

Judah Frommer

Thanks. Okay.

Joel Anderson

you. Thank

Operator

comes The from with ahead. Evercore go Montani next question Please ISI. Michael

Michael Montani

question. taking for the Hey, guys. Thanks

ask incremental credit there website, strength app multichannel to the initiative on you well? in wanted mobile the the you if all the mentioned card well an as Just front. and thinking provide opportunities rollout as line as any you around details update could the potential do down latest on how Certainly, about but thinking even

Joel Anderson

Sure.

was little on last our rolling system. all a just reiterate, out about XXXX new I alluded call, it think we POS but bit to

in fluid of XXXX. anything it program whether a phase XXXX the to we're credit that to but as and the I happen we're something all multichannel think point together in card part Five And out in I contemplate certainly the see overall or is And will it is now we've as in for and beyond. strategy safe an to finally, at phase it sometime We'll we the in that XXXX loyalty tied well. do our like customer then some expect it's later. time in more loyalty be website. not very or think Applebee like or say it, the already relates I rolled Below offering that program to in think But an of

Michael Montani

Or to to way quantify the of impact it from still this Is small comp website too stage? that? there the do at is any

Joel Anderson

too Yes, it's still small.

Michael Montani

you. Okay. Thank

Joel Anderson

it. Appreciate

Operator

The Please next Gordon question go comes from Chuck ahead. Grom Haskett. of

Chuck Grom

Good quarter. afternoon. Good

about the XX I points think in margins gross basis -- to Just better expectation. quarter by your relative first were

the above versus price process of mitigate to outside just thinking clarification out ability tariffs? of vendors, price of point potential the if So And margin work outside of How success just Thanks. gross point increases on you then is that to the should to expectation XX%. to the about the flush wonder much profile products moving a with we the of your few that continue obviously $X and being the over quarters and how China? can next able efficiencies be

Joel Anderson

gross Ken, you want take margin? to the

Ken Bull

take Chuck. first two. the Yes. I'll Thanks,

XXX you of We terms distribution preopening margin, our deleverage. lower our the little points. costs about with about points we the really in costs in expectation what new QX operating saw, center. came associated to lower expectations if came related was So in XX And to drove was XXX basis basis -- benefit basis that which favorable Southeast points

center I new SG&A. year. of Southeast kind that the kind we'll basis there's the go accounting back still Still areas always the we As if to if we the like any discussed as lease point within to and you around cadence, impact move a within QX. around out my the XX standard, And those year go you deleverage half give in movement of year comments heard P&L, of half into the new have distribution in through for and the we the the have future quarters, early back about guided

dynamics and point we that's the and to this the we we understand get that and realize impact to as given at you and that's what move bit like test within P&L, a the will margin look should mitigation really But going the be we wait be back rate to want within able to understand what get we going in to we're through the time of little efforts why P&L once forward. after tariff the

to much before change what it not really change a related from point, the tariff said this of aside mitigation. related we from as to could impact So,

called or for point and our to first operating margin QX some those -- the less we our noticed was into The you the other moving QX. than what on of expenses call of QX outlook deleverage bring is as see quarter out up year full we had

Joel Anderson

end a the on efforts the you the one last thing at bucket. of Chuck as all the day think is prices tell we'll as do. ever of And we moving mitigation I team And leadership would

been of take majority So, our that the prices. through bottom-line I means than is wish other the you from raising have away mitigation efforts

you it think degree. way, in -- some move All going price prepared continue we'll that we on so right have by as our can question. remarks, to are but we what And about Thanks. next shared tell to to to the

Operator

Buckley go The question David comes of of next Bank Please America. from ahead.

David Buckley

Can Hi, learning on freight in question. my second half concepts what in expenses your thanks testing taking you from more for the Ten Below outlook And locations? you're of then year? discuss the

Joel Anderson

year? last Below it Yes. Ten six Look was we locations -- opened

Ken Bull

Last year.

Joel Anderson

the when a you And results. we with small we the make don't really with like business, were you had of such a something drastic mean from want that change ever sample pleased roll size. initial to a holiday. I that core But something like great

some on with couple of stuff sample focused and us that's geographies So, a gives formats, other look the a that. -- it us different going to XX into bigger gets gives size; we're main

get you And And sure I make of get positive. direction year. it this to have we're opened. signs that all positives we very probably then on stores to this get more any some have put want we'll or tell negatives. can We don't ready be initial wave anxious all together after false we'll But to next and holiday to we been

Ken Bull

relative big They're embedded see at see us outlook headwinds to David We haven't point, about we freight this talk then And point. freight in costs. obviously heard this related our any -- don't freight don't a costs at you costs. lot to

is benefits have I of one we our scale. the think

with pretty vendors to for continue we out that freight our we us that to and well. leverage grow, As use works

is in haven't anything point embedded in we from nature the a at large our year. So, seen again, this freight and outlook

David Buckley

you. All right. Thank

Operator

Brad comes question Thomas KeyBanc. Please from next ahead. The go with

Brad Thomas

my patterns all the in for guys going a shopping visit, question. Yeah. are done was a study traffic I you any customer believe how Thanks and while it. learnings driving study traffic from center. much Curious, update taking are you've secondary as if you planned a to that and on versus

Joel Anderson

chain anything When traffic yet it's the half last why we other Brad, the half Thanks we love our the the in updated tell traffic. did of vibrant centers. I co-tenants we we you about it to That's do, drive and we drive and about time Yeah. see rollout XX-XX. that. can on different. don't have and to expect vibrant don't the We study continue centers Brad.

Operator

ahead. Chukumba question Loop with Please from Markets. Anthony go comes next Capital The

Anthony Chukumba

test. Good question. afternoon. question recall If about XX% my about you the had of cover Thanks I it a going said TV I for to your was stores. taking correctly,

was want the that just to I So, case. confirm

doing for expanding thoughts stores? are like it based it next number went then sounds well. year, again Thank it the your of the on What you. And maybe results,

Joel Anderson

Thanks, Yeah. Anthony.

pleased. It Easter doing right numbers, we it time TV. was XX%. was You're And -- really the on first the are

get from customers certainly don't well our no results says and it, it very feedback back go final we always and haven't But the positive we market were but that and won't Thanks, afterwards do yet. final decision -- While there's have we that the made Anthony. sign how into did. initial we

Anthony Chukumba

it. Got Thanks.

Operator

Hamblin Jeremy ahead. & Dougherty next Please comes with The go from Company. question

Jeremy Hamblin

allocation. spend. costs capital I Hi. on into a impact might wanted Thanks sense we're I This CapEx for CapEx for the that how is it pulling and taking think get Southwest XXXX XXXX's some the on like Ken, center. distribution to kind forward of question. sounds

from just Is And continuing market on kind flow to aggressive where outside any option buying of stock related of bit wobbled or than Thanks. to spends little you're more again this, just the offsetting big any around the where DCs. then cash there wobbled rather the level more you exercise? stock have massive a CapEx might share dilution the be

Ken Bull

Jeremy. Thanks, Sure.

center estimated and what right deal around a increased Southwest the new around You're in know the just right. at XXXX what now We that we earlier $XX really there point moving we've dynamics so from XXXX dollars time, CapEx about for XXXX. our million. into And is this represents by distribution

we'll before, make With mentioned sense new right, -- opportunity our to you're what around and model economic and there ROI distribution look given But to we cash. we payback the future center our we, the for regards to have as the these DCs stores separately increase see us each the and of do. capital the at obviously, and allocation, around

at all and look best new obviously, infrastructure. our for is, investing us. investing in option and in systems to going options We’re stores, people The the

ended cash I quarter. we million, this $XXX of at the think million in about end with $XXX I mentioned

new in that down was to out earlier going standpoint. for we're something share the road. capital using kind year allocation of at those see stage cash us along stores it's invest generation. in for at with had announced That's a DCs. to you we of look game of purchase in also years. we program from the new continue terms option the is So are that this But to one where of And three the pieces another And the

Jeremy Hamblin

you. All right. Thank

Ken Bull

Jeremy. Thanks,

Operator

from ahead. with comes Markets. go Capital question Scot Ciccarelli next RBC The Please

Beth Reed

deleverage but is just good to clarification. on the modeling Hi, know, you're given to going XQ Reed quick evening. expect initially This XQ shifting? should for the that from last are operating you. kind Thank I that more And quarter? to called a we are margin then basis than had XX expenses I XQ guide shift Beth XQ, Scot. to actually into not of you be points expenses XX out exactly to those what

Ken Bull

Yes and stage game at this Beth, for you're impact where we and mitigation tariff we're again may out figure the that this the at consideration have least of goes. What is once accurate. the that seeing before the

Not able I move information I’m year, the just some it's through But out as basis lot future. given about details, we just And the now, of get more expenses specific is of give have of before to what of and around beginning at year mentioned we've expenses than clarity really and this before. called the of the I a higher of what deleverage around the seen XX points. timing the expect I would we operating to margin timing but into better various any that

Beth Reed

you. thank Okay,

Joel Anderson

Thank you.

Ken Bull

Thanks, Beth.

Operator

The next Joseph go from question comes Feldman LCD. Please with ahead.

Joseph Feldman

Thanks. gone that if itself, prices how share make do up? just Bluetooth value Do range in that's for a wanted maybe the anticipate more $X up potential that may to guys kind around the a $X for guys to Hi, price headphones the that speak to items little I thoughts I do could value you you to going afternoon. you sure continue ask the to take about, some just we’re good see? of or a why some bit have you understand bit? that the but Thanks of taking could little to those there? increases And question. are marketing that understands going are there? customer to needing you some communicate how have little If still

Joel Anderson

value customers. Look on model business our our based delivering extreme whole to is

value and around of et we product so change lots quality surveys, changes market We type of in product, product, doing price. that the both in of cetera, carry with of constantly the of are the qualitatively price the topics, and the that's quantitatively none the

be getting from methodology in a pretty the from proven We will market have of a feedback we customers; our that. lot

path, fact And we'll look continue we’re is test of example and a this with a approach that that doing how so great diligence. down pace will just and the we

Thanks, Joseph.

on have continue We’re going to here. to

great you for Operator, thank have everyone stores. I just joining encourage our I Make to you time out today. visit to and sure us a of I think we're want all summer.

come and You’re Below, going a fun. Have day. to and the go have some see great Thank love camp Five commercial let’s you.

Operator

now Thank conference for The presentation. today’s concluded. has you attending

You may now disconnect.