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Five Below (FIVE)

Participants
Christiane Pelz VP, IR
Joel Anderson President and CEO
Ken Bull CFO and Treasurer
Jeremy Hamblin Craig-Hallum
Simeon Gutman Morgan Stanley
Matthew Boss JP Morgan
Judah Frommer Credit Suisse
Chuck Grom Gordon Haskett
Michael Lasser UBS
Paul Trussell Deutsche Bank
Michael Montani Evercore ISI
Scot Ciccarelli RBC Capital Markets
Paul Lejuez Citi Research
John Heinbockel Guggenheim Securities
Karen Short Barclays
Edward Kelly Wells Fargo
David Buckley Bank of America Merrill Lynch
Joseph Feldman Telsey Group
Call transcript
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Operator

Good afternoon, and welcome to the Five Below Third 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 of 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 third joining Officer; On Ken you, Treasurer. call everyone, Chief quarter conference XXXX

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

new to of million our by and strong our both comp of penny. driven increases have range $X.XX outlook, by in saw of and QX. growth earnings We increasing Sales came delivered share our to outperformance in continued a and are We a stores basket guidance X.X%, beat transactions. per above $XXX XX% pleased

quarter our performance New results. highlight a was of again third store

is which and XX we've new in most we stores opened QX, X stores, ever the planned more During opened quarter. than single a

totaled we the XXX new count in our new these and all-time fall opened Our year. and planned stores grand XX new X of stores QX the across made end of markets for states, since opened at We stores store QX our top X diverse more to list. XXX complete opening have XX

stores Fresno, New markets use yet new as again range of payback our from Below’s Oklahoma, best breadth our than average year new on With well California, less of the Nebraska the Tulsa, an industry as period Lincoln, remain to capital. appeal. leading Five one investment, store illustrating

we led During once performance across the candy third quarter, our again and tech, style, room. worlds experienced broad-based by eight

set strong variety including a results to anticipated beginning Frozen We at of as journaling November school the contributed movie to our well related to back addition movie trends. and preparation displays release trends X our October of season, much in as the XXnd. gaming In a for on

styling exclusive Our are merchandising the accessories an of is tees, and and with broad assortment sourcing incredible deals, quite this The job as teams plush. products range items with displays truly excellent and as jewelry well kids impressive. did

since are in debuted the We different company a last XXXX. movie

We scale generating have size, benefits. tripled our substantial

we media. Michael Our products social relationship including brand with exclusive Disney by marketing direct have has targeted access merchandise a developed through to Romanko group led awareness and with increased

and trend. capitalize has on this this teams exciting to enabled of All our for prepare

from $X.XX October went tech on to world pricing, XXth, for tech our $X on most pricing products. Moving to

chain. out lightly. did previously not was a breaking the before take decision three the markets metro price several we to As we $X months major idea it tested We in point for the mentioned, rolling

to period, call, be during made based And on as customers. we on second we we the listened changes their possible. feedback, our quarter discussed the additional As testing as to transparent

dollars, not with cents, by at slightly up expectations. have our gone in and results majority And the of vast been elasticity $X line the remain skews have below. prices While

to source value our remains extreme compromising to Our and products goal deliver on continue quality. to customers without

teams strong expanding further our strengthen Our growing sourcing this. ability scale, relationships do to vendor and

are strategic initiatives, execute key to solid namely as and a against we foundation support to systems In addition, ensure marketing, continue we growth. to our future have continuing infrastructure people, we

program, are on which of front-end Several are the focused elevating top test, RFE, the the Ten or on the We investment and Gamers. Below innovation, Street store a initiatives Nerd called as a for well gaming company associate through experience, also innovation in our focused us. the experience customer our namely is priority remodel as recent reimagined

XX next to of of a about on and teams the mid to we digit our with still feedback in difference continues stores the The first We XXXX. regard experience lift remodel. post to remodel year. remodels are single their few this the generated number from program, remodels full with shopping XXX very year remodels as the years the remodel comp positive in compared have a our store higher over complete First for customers track and to be our total year of approximately to next expect

and experience experience front-end better which holiday of engagement, shopping upcoming all into translate now including impulse in is XXX about the stores new during combined, of section The new stores peak customer and include improved shorter remodels. the most RFE should reimagined the the expanded weeks. benefits associate an lines and Second,

provides. value to third The developing they and and merchandise providing of points about value Ten provide create our an offering customers customers. $X XX price our see The opportunity responding stores. extreme Ten above this to even points test our more is value test are expand extreme now $XX. very area positively is to at are in innovation price as The Below up concept The higher we to in-store Below, the

learnings for a Ten In chain-wide will Shop that use we Gift that addition, this moment. valuable I develop discuss to test generated Below has holiday the in

experience. excited to gaming an know over will Street opportunities Nerd Localhost trend. Street example the driver This how a I've growing continuously in plan to as Gamers Nerd has snacks. test of Fourth and Gamers. gaming play begin standalone a their for Five to we look relevant of and CEO, real term is an believe capabilities our next we store our We also are but sale getting capture gamers And XX format our store United Fazio, Gamers year. Nerd under enhance and this investment newest Street the assortment about million offers in age enjoyed also the John traffic gamers and There products innovation be to for XX I’m our The is headphones such a e-sports. the will we of potential to Nerd to many ourselves available in include be as only of States. position to space store longer handful equipment Street pro in level for a stores, on leader in Below not to

in these who this have We plan, weeks those peak will well, share we all with important well-positioned our know know the to more and our after new exciting open next are that to of holiday stores QX, We ahead. marketing believe into lie assortment pilot the partnership volume weeks. heading business we you On year. the largest

the area quarter, added stores displays as This offering toys in X so game fourth we and Below in I first which all to the for brand Shop for holiday several key focused or giving time Ten wall the dozen to value The new X-foot addition gift at Black items & week. our to and an vendors, beginning products quality in perfect Frozen unbeatable largely discussed $XX are ad of incredible new a the and Gift branded the WOW range. at from we call we our In with our ever. Friday items last now showcased $X of the earlier are new it, of

we sell to not we high-value line-up offer are exclusive $X items very While have games would Five toys a $X at below, great and previously Below. able we these have also and which to $X to of to including been excited items, new

of destination ways holiday for and stocking reinforces WOW as We're to and even amazing offering Below believe gifts and unbeatable our the constantly customer Five go-to this thinking new values. further stuffers

marketing the XX% XX markets. On reach we've of our front, over TV our to new extended adding stores,

our our Part our we're influencers. strategy our campaigns of to digital includes social digital broadened and new And holiday markets. Things. running announce Noah from influencer also We across thrilled more testing Stranger presence Schnapp

great our assortment, in the we about plan store our experience product feel So, the provide to will marketing and fourth summarize, customers we quarter.

sales all important In third pleased preparing executing QX. closing, with including many changes EPS performance are our and exceeding while outlook our on and the we for our pricing fronts quarter very

exclusive products phenomenal WOW traffic have are job benefited QX While and the continue we we to which Toys“R”Us, holiday assuring done merchants and sales season without our exciting even new, have customers. first a our last year, our to for anniversaring

expect as the and and high organization mitigate hard want day as partners I commitment of entire strategies. to to dollar mitigation and right in impact amazing at quality, our have trend vendor their to to values tariff able products well for critical continue Through so. efforts, offsets their our to out their do to and deliver contributions to we tariffs, day been we fresh, thank providing work

thank approach our to pricing. as I to customers continued also our their evolved we for want support

products value commitment and loyalty We customers know at are to and change them never unwavering Five and their Below our deeply a fun high-quality will our differentiated of trend experience. what fresh that want extreme right to appreciative is shopping providing

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

Ken Bull

good Thanks, Joel, everyone. and afternoon,

results remarks I the our fourth our review outlook full will quarter quarter begin and of and the third year. for discuss with my then

we legal requires year, on we which sheet reminder, this and and to beginning balance a to capitalized. fees certain expense us at operating accounting lease the record As the also requires which adopted architectural our previously new standard us of leases now

Our stores, the sales new reported up XX million, in XXXX. stores at compared the XX% during opened from of in ended completed of million stores in the quarter QX, XXX $XXX.X stores of of the over of third half the opened We third XXXX. last XX quarter quarter XXXX of weeks quarter versus of XX.X% with XXX five $XXX.X to quarter were stores with increase the in end the We third XXX third quarter new or the an XXXX.

Comparable and increase X%. of X.X% sales transaction an a X.X% increase of comp comp by ticket increased with in

quarter. of in mentioned third we earnings I expected margin approximately operating points last deleverage the our XXX As on basis call,

operating the quarter XXX margin approximately declined third over actual for of XXXX. third basis points quarter by Our the

$XXX.X to million reported of Gross basis net tariff and XX.X%, of margin quarter merchandise Gross costs primarily profit increased quarter $XXX.X shift the points costs the from third QX from the to XXX XXXX. QX. decreased approximately XX.X% unmitigated third for other due to in million to

distribution primarily for expenses sales to depreciation points to percent basis SG&A XX increase sales, Southeast of mitigation offset new SG&A lease related by the were our third percentage due new a of our corporate expense last were Labor the savings. changes higher XX.X%. the than standard and implemented as approximately impact. costs part a of we signage to accounting of tariff center and XXXX pricing costs As of strategy year, quarter as

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

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

XX.X% per favorably tax year of factors versus year's was diluted by accounting. described. last share-based by decreased I just primarily diluted last driven to $X.XX. million to margins $XX.X million quarter benefit the rate compared was third had $XX.X accounting year's last share-based $X.XX the approximately a $X.XX third impacted Last Earnings per share for quarter Our share, Net year. income

$XXX with quarter third $XX.X our investments debt. cash, approximately no of equivalents and XXX,XXX the of million at ended repurchased in the quarter. cost third shares and million We cash We during

shares XXXX, Inventory quarter million XXX,XXX of third versus approximately at end date on the basis a year. repurchased a year, was fourth we of to To as million. at cost in $XX.X $XXX primarily to end merchandise $XXX store total Average million the X.X% of third third the compared due last increased last quarter quarter timing at receipts. the of inventory per the the quarter have

the inventory exiting with heading level quarter pleased and our third holiday and of selling the season. are into the quality We

to turn to guidance. Now, I like our would

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

update guidance these practice actual will we with for not our end of will our impact Based are is We from guidance reported on results, the year-to-date low guide quarterly our to performance, but the range fiscal items. our future raising XXXX. we potential

detailed tariffs our and release guidance announced the efforts. our all also benefits as Our includes press of includes in mitigation

expect $X.XXX we to sales the increase range XXXX, billion, to in of XX.X%. The For approximately increase fiscal to billion an XX.X% of be comparable be to is $X.XXX X.X%. sales expected

the end existing new XXX store completed expect with unit year growth majority and planned in of XXXX new XX%. We were openings these opened our markets. have for stores of XXX now to or stores The

Our cost slight the of margin accounting owned to new decline of due new opening operating primarily full-year lease still impact and our SG&A. distribution a both guidance which assumes center Southeast the standard,

full-year accounting through approximately the rate XX%, for reflects the share-based benefit XXXX expect which from tax quarter. the We effective of year-to-date third

be XX.X% with to per Net a million XXXX range to XX.X%. to income $XXX.X earnings to expected Diluted $X.XX. share approximately million, $XXX.X in to of the the earnings are is representing $X.XX of diluted of growth XX.X% share rate over to in XX.X% expected range grow by per

the cost Texas CapEx, the opening systems impact investment tenant to $XXX approximately spend new and the respect Southeast plan With in of investments on center This CapEx stores, we new the in infrastructure. million excluding and center, reflects remodels, the total XXX and to gross distribution XX XXXX in new payments in distribution of allowances. in

fourth the million range XXXX, an of $XXX net be million, in to X, February $XXX sales XX% increase quarter of expected to For are ending to the XX.X%.

of benefit $XXX.X XXXX the $X.XX a We is quarter for accounting. in versus fourth comp $X.XX for from $X.XX assuming quarter earnings the $XXX.X in XXXX in fourth be the share-based the expected range per EPS XXXX be fiscal versus to QX range X.X% diluted increase fiscal is million Diluted in XXXX. expected of of Net of The share share quarter of fourth X% to quarter $X.XX to in to XXXX. the fourth had comp increase QX to the per earnings income are of X% a of sales million. to

benefits on our our the last of by outlook distribution will year, These product points, offset operating the including benefit tariff and new in of quarter fourth leverage margin XXX new corporate efforts toy mitigation an Southeast the new and driven the slight expenses. center, assumes center over standard. Our margin part of increase improved be reduced basis accounting depreciation from versus distribution by lease merchandise

our open For to and Joel? to all to comments it provide And to related some our earnings results turn other would back call before press refer the I questions. up over that release. Joel we closing details please to like guidance, with for

Joel Anderson

Thanks, Ken.

to successfully of a lot this pleased changes the holiday execute year and with We've are are made this progress the very and we season. in position

well wowing business committed as our drive and our achieving that will the our impossible success. confident proud and leadership flexibility team efforts. customers. grateful strength for of are And are We that of I’m to continued team worlds model agility I’m and eight the as so our the their we is that the

We through and Five XXXX. shopping focused and XXXX committed customer and work done believe long-term stronger remain that of We our XXXX, to with extreme we throughout an strategy retailer even value have customers our become to on We [ph] experience all with experience. innovate providing continue delivering Below an brand. our amazing has and remain the associate

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

Operator

Instructions] first Craig-Hallum. Jeremy with is begin question ahead. Please go question-and-answer Hamblin We [Operator from will now session. The the

Jeremy Hamblin

you. Thank

to So, come second. price just for increases I a the to wanted back

You’ve several steps, taken as mentioned. you

to the some on it’s it’s the and Ten have of you of Below $X.XX items, on Gift you $X $X Shop to items, mentioned. as Some the then $X

various those of thinking maybe give which have you least terms helpful? the about, any additional you've taken sales color most ones that In pricing has helpful terms which in margins, the on and can of been been changes

Joel Anderson

past. sell how perspective in impact products about Thanks, inform it out. tech that three we three. a been of I chain. to And the helped we've in accretive shop The XX mentioned in probably the my gift would gift prepared that's think, learned breaks from listed, to Ten the the we remarks sell even that of Jeremy. shop change able initiative, kind of the say never the I us that’s opportunity tests to has more a that out entire margin that rolled Jeremy. different Thanks, lot what I to the you But, in as isn't Below $X of $X.XX biggest the

Operator

Stanley. Gutman go ahead. Morgan Simeon question Please with next is The from

Simeon Gutman

afternoon, then, whether Frozen mentioned uptake you everyone. know Thanks. you some on already or merchandise? I the think the looks initial guidance great. us the about you. for you on -- whether within your you you’re you Thank Good the Can running fourth way not. the I And from give if comment product can range? sense that know that quarter, don’t

Joel Anderson

October see don't as it the far product Street movie had the as most goes, Frozen said date as you uptake in movies, we the -- hit. in reality, until a breaks. in far As said, But the huge when like we

I as how the our seen broke And it is of so. of far the as Frozen so, in front ago it’s And rest to then, way are was date to guidance, I just year. there XX everybody, of late forecasting as a range, for we to We right this guidance us. just pretty us. bulk much reminder opposed years. movie other on And think and to factors it, the or little we've largely we're what the over as quarter a best -- about in days plan a the for the that think, And gave Thanksgiving think sales in mean,

a would to clearly, lower to everybody. we Simeon. gave you guidance higher, the that be plan quarter into be in still and our expect Thanks, plan the So, was and November December going and is

Operator

Boss The Please with JP go next from Matthew question Morgan. ahead. is

Matthew Boss

any plan, on you I elasticity your said guess, with speak circle pricing breadth expectations line to And comp to strength you and primarily that to across the that of confidence can driven back, you on is just of like maybe it remains Frozen than business is so, the by in with change volume continue you in have? that worlds? the business more Joel, to say tap, see in underlying rather fair real that XQ forecast change

Joel Anderson

think, world interrelated flexibility of And Yes. really a different eight think strength of us. those -- worlds. I that it you to customers of candy. the of trend business what every eight as model emerges, our see, pick referred back to goes And is there. I tend all worlds again, they breadth strength Look, I pulls the think, the provides the as And like the are kind It's up they into they that stores. to

Matt quarter? asking about -- the So, you I were the in sales think,

Matthew Boss

Yes.

So, basically, two in on Frozen was elasticity the three Is that bit is versus a But the higher is little in XQ pricing remains it your comp before. forecast or confidence? of ahead, any change of plan, just to business it line. is volume there

Joel Anderson

No all. change at

going QXs break at stacks, X% range look bandwidth best that looking annual. the Matt. time. average you one same of if confidence pretty full-year give In what fact, the of to when two tight you somewhere it is I an up, in at I’d start thanks, to had you that in the at you this that's the X% from the we think into low the took fact time fact, to we've QXs two beginning the end And the the we've those pricing if think, in we start got it we in signal be three-year we at long But, And implemented. didn't three-year when guided in just says you at change I And and and strategy QX. between it's say stacks, continuing looking general, -- a is

Operator

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

Judah Frommer

than was color $X or goes us? holiday Maybe test break potentially season, $XX could test down any Clearly elasticity. traffic longer give price any And us to in in it well? there? it holiday for first by furthermore, QX. toys you tech further can Is on just back there there that the the Anyway lasts if for circling is positive stays stores and chance you

Joel Anderson

we But, line quarter price kind Yes. was all markets. Judah, think there. to it's of changes. was the did there what the traffic elasticity, in to three just kind the saw when test I driven the thanks. with of right Look, much we the It's break rollout the how really melds elasticity, hard it because of together the down chain

will no XXXX. XXXX. going as there'll you'll goes, -- Below, really as you And and But And are so, do what continue But, weeks biggest early anytime And we're those of to we it. point for more extreme we've out see for deliver the something going another this I that. test us us and more surprises expect anything is do really try I it. in after But XX sure. so we with to on still us to start new, we're test in Five more to test some specifically sort too customer our front to in do to us do think away XXXX holiday. go in can as to on as resonate right think long value, far when tests now with got time, there us, of we Judah. how speculate But, holiday, X given should of like especially Thanks, see be that much to we’ll at designed in

Operator

is The with Haskett. go Chuck ahead. next from question Gordon Please Grom

Chuck Grom

Hey, guys.

been have have real all in comp at guys laying out you the self-help disposal. drivers thoughtful your that You

opportunities remodels, when I upticked you rank which want Below, Thanks. in look Just would be to like how guys guess, ahead terms out best I loyalty, some XXXX, going of to you there the point anything the look RFE, that curious, force to? of Ten guess, you else e-commerce, they're to

Joel Anderson

Yes. Thanks, Chuck.

driver. the to, And Probably on innovation, missed you in are just we've talked it merchandise-driven pointed I you product. still the our go you think, as put think I one one it several mean, the calls. times you I think we I to back ones of single company. there's of was one that's got don't any and -- about a category

tests But, remodels out, -- of as on But, head comps. beyond. into new going continue especially to and drive a more does learn. the see think is you're to team Ten the continues and and test trend. RFE, do it us Michael's and together job you so what's to more And ideas. staying we the we And just the you called XXXX to Below headwinds great what great all them continue and deliver And put I all all are positive ones

Operator

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

Michael Lasser

X% -- the for sorry, with the with X% second the So, a X% the you it a comp to X.X%. a comp and third year quarter, quarter to third guided is quarter, for

So, X.X%. with that you longer And to year you're comp was a a X% line thought. now, but in what no guiding full

implicitly, guidance is So lower quarter for fourth the the than what you’d previously expected.

you what's give sense anticipated us than can ago? what So, a days for XX different you now

Joel Anderson

Yes.

think XX% think your But, got And the -- a I question. Michael, is put our from to bigger bigger to what's over picture. the I'll continues new come picture answer I in you growth of of stores. perspective, that it

what our guided of the guiding total to end sales QX overall at to that changed what And and we is end hasn't we're of so, at the QX.

guide as from the of then X, actually now And think on time we do hasn't year, knew that end was, if were we probably took last X be up to and we only when the once closing that summer didn't -- then now I approximately the second there'd changed. back approximately we recall have implicitly lower Does of the headwinds is time. Toys“R”Us X.X%, and we X% a So, twice we cycling you that beat. in in visibility

success the I you that outperformance. attributed last out know, called was we we in in toys are had think beat the to QX year

comp we That's big we million are, think how quarter the $X into the we and or impact toys as million. see here the million But about and And that's moved day, of the there $X we've is QX $XXX talking where gotten know end we're so, probably at a can a slight comp. quarter. to down I

So, change. it's Ken, didn't anything and add? the you total number a really overall could small I don’t,

Ken Bull

our only it the The heard a piece, new is remarks a you've continues perform. little and reflect move didn't basis. we to of moved Michael, how bit of does on Yes. Joel's comp end prepared full-year sales our full-year strength The point, it top stores to also in But, our and again, that the other guidance.

into guidance So, here as the fourth the we we quarter. that to of forward through kind move factored also,

Joel Anderson

a impact stores because open. New the impact Toys“R”Us on don't ago, year from have they any weren't

Michael Lasser

on based you is it slower to Toys“R”Us start bit the fourth say to a expected? fair it's that So, just the quarter little impact, than

Joel Anderson

No. it’s slower. been It's not,

I at were And why we just quarter a have think, year line a a look closings trend it's we in Toys“R”Us guidance only only didn't time. we past of month Back a kind from we to at the didn't give August, -- ago. out. a

So, anything XX over more have more of we than than days it's else. And did little now visibility a we ago. that just

Michael Lasser

Thank have helpful. very And That's holiday. you. good a

Joel Anderson

Hey, thank you, Michael.

Operator

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

Paul Trussell

should about and parts and Good as into Ken, versus expense margins, the on be front? gross quarter in Maybe on there's puts quarter-to-quarter. bit and obviously and moving a a evening. On mind lot in results back year margins circle the you. of just your dig expectations. we in takes this keeping what thinking more And your about the details both Thank we XQ think third

Ken Bull

Sure. Thanks, Paul.

basis our points I quarter, If deleverage. estimated for we In third you go to XXX guidance about XXX had finished the at we points. basis noted, of QX, as

breakdown performed The So, much pretty expected. our better than we SG&A between a margin gross little with was guidance. in what bit and line we

it the had to we going not ability to gone the margin, because And increases tariff pricing remember, did. really, two the you that impact was have into those there that deleverage we the yet. gross drivers guided didn't XX% about costs of mitigate, If of effect and in to incur was key

on we We call. that some costs merchandise also QX shifted had QX our spoke other out that about of into QX

year, there the part the new go the most saying If center we've SG&A, you distribution of are for Southeast into the new key depreciation been the around this drivers two and and also in some lease labor related were offset costs corporate pricing costs the reduced costs by to They signage though quarter. and had expenses. accounting standard, our third other we increase,

overwhelming So, in the the gross was the deleverage again, majority, about line. happening quarters margin three QX at of

in XXX again, a we forward points as in you operating move And I level toy basis to margin. gross to placed expect that QX, SG&A. there, drivers come quickly mentioned, in if of small, majority than maybe at greater a slight would the the And that of the margin will opportunity leverage improvement, see key last we given and buys margin leverage the The year.

to margin in expect accounting Atlanta DC for part see in impact. then, up depreciation new the to cost again, some lease So, the in we quarter. efficiency, sold see SG&A, merch the included And of do which deleverage fourth improve. all We is the for the and goods most it's distribution expect center

are kind and takes in QX. of those the So, and QX puts

Operator

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

Michael Montani

Hey, my guys. taking Thanks question. for

on So, likely mixed side. say the there elasticity as consumers we to to two likely XX% would just And thought more first ask, XX% raised we thirds product survey wanted under that then the thinking the we impacted, or to above $X, was up from seem work saw when and be our at that another been just Five. almost that would about of shop were I have probably off, X.

XB two the may we tariffs, not assortment. of that can I'm you if December it those either wondering comment pieces. And which then, on kind XX% hold So, of are into take XXth. hearing ties

to you've does case, and the fact potentially in also that the desire in any way, that's to guidance upside it that price does if So, your change taken? hold increases already provide

Joel Anderson

Thanks, Michael. Yes.

speculating large XX%. XX% see guess as of going aren't. I sell to going XX% I'm I never got and And here. on stuff I mean, then, about to on it tariffs what material to XXXX start you think, the That's to we’d specifically honestly, the and we're what then, what continued majority think breakdown And forward. in XXXX right that that of we'll really And I the not the and everybody of is you at XXXX discussion. and in not important about remind bringing in is just XB asked already move XB. it's a more are

Michael. kind we're do where And this to I going held speculate guide XB of to doesn't so, have point that's way. in But be to Thanks, that's factored much really on -- our is with really where not we're what's And think or off at at. not. either ready

Operator

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

Scot Ciccarelli

of Ciccarelli. has Hey, guys. range been in efficacy I general in expectations. that Scot your the know

did that? about this. or did of any where protect if just you'd be run negative. to demand there In because you with of higher the would examples And I you guys price more to curious back on then, I it words, did guess, because you You have expected you elasticity increase, need the react to was commented SKUs how But, other the prove than or disruption? margin pull is

Joel Anderson

And that where been those of in Scot I three markets didn't see rolled it was to to But for in we rolled we testing like discovered elasticity rolling several most out than perform product. the Yes. anything Honestly, the saw cases we differently think, different back the that We the branded largely chain. the periods out certain we when where we didn't it expected, of pricing. during we've prior those the testing months to chain. we results,

it where But, price summer. back there way a that all through this is lot worked much out pretty earlier stuff what in visibility marketplace. was branded there the in is largely the to of we So,

Operator

Paul Please is with Research. question ahead. from go Citi next The Lejuez

Paul Lejuez

Thanks, Hey. guys.

just out Just the of to curious, pricing business thoughts about rolled roll about entire to your also And number the can I then, it planning XQ sales XXth it the year. you out. was did you once in to the happened trajectory guess, all October I overall chain? in open next think are curious, talk what stores you

versus the part of curious first couple saw what beyond? of just last you So, and of the the weeks kind quarter

Joel Anderson

Yes. XXXX. of on long-term bottom about in did I remarks my signs no through XX% our of top-line we for prepared say anyways thinking is not and is following aren't line see that there call But, this XXXX. XX% -- we strategy Look, guiding on what through

So includes that next year.

And said to the increase stores, and that by the that's we into we the test was it rolled range as earlier that, happen through. think when and we then, the more expected we in demand. pretty so, decline I saw in the for slight see I same the us. back in out But, easy with stores we price to saw chain. new you And line should offset think, for kind elasticity, in put And on general, a see than thing it unit it's I of as

Paul Lejuez

took after the you So does sales prices accelerated mean that up?

Joel Anderson

Did what accelerate?

Paul Lejuez

that did say -- you took up, say sales you that once you Did does unit... accelerated that the prices mean

Joel Anderson

was about we price talking slight the think, asked demand. was a decline saw me I on increase. unit product on the question No. was the I I -- And the by any in to. And you'd about offset impact you then, what took prices see that given product,

guide X.X%. in that we QX can and comp beating positive. as And into see high net was in our overall you sales end at So, it was our factored of both guide. total then the at came But,

Operator

The next Guggenheim John Heinbockel go Please question is Securities. ahead. with from

John Heinbockel

lists? to to importance then, of on So, couple mitigation items wary more attack the differently the taking right of us of maybe relative items of year? you some you then, last of that relative remind you other on are this months? speak And past modest would XB can the backlash some in the because pricing how the about Joel, XB Particularly, other

Ken Bull

first that the that tariffs. take with I'll associated John, piece Yes. of around costs

each so of third in effect, the at at to those impact XB. terms list look If it's rates XA XB an look about got split rules tariff obviously -- pretty X cost look annualized and at the business, look on the look and XB, across and if XA look are different list. then for then much you rates list the you currently for to if three, when because But, to and and there's you probably difference various related to you given X that our it at in the you've you in a at timing X, basis, at X,

Joel Anderson

we're taking then, some ones, we on the one, got of on XB, We've on And lead a prepare mitigating other terms had others. longer pretty the XB lot in that they quick. same implemented the Yes. actually as approach John for did of time to whereas

behind there And shifts was a lot of QX. We in so, this were why year. that's

to lot some we price in taken already XB of to here negotiations, the But, a a vendor been mitigation. on well. up catching is product in start early. actually brought will have we’ve in the QX, mitigating And we've already cover full-year of XXXX increases the -- in -- as working then, We’re a reality through XB, lot of

will believe what fully mitigate still we've XB the from we we So, based negotiations on path as already well, like. and on are vendor seen that a

So, we're in a good shape.

Operator

The next question is Barclays. from go with Karen ahead. Please Short

Karen Short

had a question. one Hi. clarification I then and real

XX% But, terms or as to still line. there comment that maybe thought of the XX% were little still was committed I specifically I Just bottom you XXXX, it you made -- -- relates you to that think, clear in was are top-line, a in XXXX gray the tariffs.

on specific clarify question is maybe So, just comp waterfall. that. the Then

-- open you stores openings? many you've about up that of just to be chain obviously store had -- very strongest average the do they waterfall the very, should comp other, color had. about kind think we some Are well, of the as like much think openings strong How the You've on same how or the those there? some

Joel Anderson

growth. fully Look, the top gray of the line We're of bottom seeing I XXXX, I and in any implied area if XX% to. Yes. intend didn't line XX%

about look quarter But, three-year These gray have speculate XXXX so low the comp sure what -- And have unique stack then, and in comp Karen, curve years, when little of on why class large a payback model and amazing went such in looking throughout been a this continues and But, of waterfall, close five consistency And chain, I'm our a and traditional the lowest low comping the the quick pretty to class we've that open what's and teens maturation of we seven And -- not the with this too so months. be that's don't to teens, a mid with only teens, at last the be you none public. said, to that even. negative in of comp traditional more So, I early single X. incredible yet of is a think for what that it's is for three-year had portion side high area stores next average X% actually but digit has retailers highest XXXX, course in isn’t then so the start year. And forth. years, the model. it's low one have is an a an on on the no on year of annual different fact would we in basis, comp comp I this yet. average the we since stacks, and the

class to it. a as maturity wouldn't starts pretty we'll I of on them So, I think clarity to certainly ‘XX it's certainly But we have a curve comp expect and them ‘XX, get we’ll consistent with comp into previous the stronger classes. ‘XX, -- stronger, And path. than have more opening

Operator

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

Edward Kelly

talk customer that’s Good of you the would Ten Joel, went way wanted the And what anything you some post Can in about that about to kind afternoon. wrong does guys. it. including Below? the sort not attention. like any talk I from pricing you of And something on to standpoint maybe right Five ask there about would Hi, even to this pricing. people's done But, obviously you way maybe concern about that's portion? the just Instagram have like or response a on about different? caught out the anything initiatives incrementally hindsight, impact of about the decision to Is put with your how think ask brand,

Joel Anderson

say said Ed. bringing journey. question, us we the being and them to committed QX Good on to again are with look, it Yes. with we committed our transparent And are the I here, customer, along on I'll it and

customers confusion shop, with gift what the we the that post it after Below, that kind as getting rollouts, different relates some of WOW some wasn't social we the was with Ten there wall, the asked, you that wrong. rollout test we to think, specifically saw put where it the and chain media I just in is saw

wall we on so, that we us. And been thought customers few for the quite And hear very stuff social we And recognized the it was the clarify We're lot social has product also that's to of value with at new $X going out. and in part raising shy put to actually shop look, kind $X terms the the say we from -- customers But, what never the honestly, roll we actual one. was intention to of with sign had. you're prices of amazing. with another $XX. just was. transparent it. hindsight, after just right media, not customers to being What the it's performance you’ve have quickly the it's have to pleased the positive. that to has it and we guess the it social we're remember, when And are we've out. reading customers, gift seeing dissipated prior to we the tough put a had that the in post. out been of a we But, had media And reaction things did what's But really and post the to on away actually got is bigger positive from just much in scale media We're overwhelming than gift it what stores just important And just reason out customer. our think post I shop, media $XX on social thought

Operator

The Buckley with next Merrill America go of Lynch. ahead. Please David from Bank question is

David Buckley

my Hi, guys. for Thanks taking question.

traffic levels, across seeing urban, see and differences forward? you greatest growth So, opportunity in the moving semi-rural suburban markets, productivity in your where and what are store you do new

Joel Anderson

to higher. call to out in the notice the we Yes. three I seasons, stores rural, spring, fall, well out And called keeps We at out quarter opening the lot Five if bar county -- know, up respective we have, suburban. we’d working calling able side opening in the to concept’s push successful. we're from some I these back have XX. starting, that what here out, of reason, ago go go tell is ones sometimes was this all in of my that just is that top XX. XX, it the been you'll we've top calling I And the I we're the measure out the And a five to county years is last into be always message and of I in Honestly, we're we think called markets don't and couple sometimes we're haven't seats, calling getting fact when store have here sometimes Below if, it means our didn't David, across and And out and urban, that will you years top call in part trying back summer look seats a get the that three. of I smaller we some

the the So, I bigger all in for been me been biggest think surprise message personally, why that's but that works has three. it

Operator

Please question with from go next Telsey Group. Joseph the Feldman ahead. The is

Joseph Feldman

Yes. Thanks, guys.

Just of kind capital more question.

shares. now fourth You quarter I part guys as think even should of was forward? just to have consistently that business been we back wondering more and we buying go buying it the back a going just And little stable how seems, that about that is something Is more into become really XXXX?

Ken Bull

Joe. Yes. Thanks,

in making. spoke But, up that still in terms remarks, repurchases. of opportunistic couple we're purchase opened a years prepared the about. back, it program had majority year. We in that earlier done million of of terms that program Actually, was the purchases mentioned we be year continue a to we $XX I the this in multi-year we of As for the did over

is we're go not And So, forward. on prescribed the being we're plan, flexibility repurchases to key any opportunistic there. going in of type but maintain any buys,

Joel Anderson

buying been dilution. just really We’ve back the

big the been commitment that's I think there.

Ken Bull

Right.

Operator

session. Anderson question-and-answer I to any remarks. to would conference for the like back This over Joel concludes closing our turn

Joel Anderson

And for visit joining Thank front again of These us. today. forward got of encourage early great at a We've ICR are out three stores. big January. weeks everyone us We I you get holiday as course look next always and you. speaking our to with to thanks weeks. in season in you And

evening. support. So, the there yourself. thanks again And great enjoy for out get and Have a

Operator

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

may You disconnect. now