FIVE - Earnings call transcript Q3 2018

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Operator

Good morning, and welcome to the Question-and-Answer Portion of Five Below's Third Quarter 2018 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] I would now like to turn the conference over to Christiane Pelz for opening remarks.

Christiane Pelz

Thank you, Anita. Good morning, everyone, and thanks for joining us today for the Q&A Portion of Five Below's Third Quarter 2018 Financial Results Conference Call. Joel Chief and Financial are and Executive call Bull, Ken Officer today's Anderson, Chief President Officer; On and Treasurer. remind constitute as are Private Securities to this amended. the Safe within need you Reform of comments of certain I the provisions made the call meaning may pursuant Act forward-looking made and Litigation Harbor statements to and that during of XXXX from subject and results statements are to statements. materially uncertainties to could forward-looking and risks both Such unknown actual that cause differ such known Those filings. the Below's risks described release press in and uncertainties are and Five SEC of The do forward-looking statements the to made date any undertake this today update we are and forward-looking statements. as call obligation our of not

the do of and our a copy of not you you website our at you fivebelow.com, may of also transcript have remarks Relations by recorded Investor find Management's where page release, If remarks. visiting those will a press obtain one

the for like up questions. to we'd open Now, call

Operator

Securities. from comes The ahead. from first question Please comes with your today Paul next Mr. go question with Trussell John Deutsche Please is The Heinbockel, Bank. go line open. ahead. Guggenheim Heinbockel

Paul Trussell

Hey. Good in good on morning congrats QX. and results

Joel Anderson

Paul. Thanks,

Paul Trussell

or maybe perhaps bit a Maybe line set if What and fourth Halloween? just from top you expanded on little to-date. seeing performance? give the comments trends, color you of quarter can cadence there's little toy third and with to bit quarter color more back-to-school versus the start, a on any to Black Were the pleased speak more are Friday early you

Christiane Pelz

like one questions, those answered? four of Paul, you which Okay. would

Paul Trussell

the above. of All

Joel Anderson

call you Paul, you. QX it was as great thank a out,

and quarter our largely holiday, smallest. you about many Christmas our in we throughout seasons said those Halloween QX, QX as and QX, season the year, smallest think we've QX when of really times, talk in in the is are that have summer back-to-school, Easter especially I and our

it keeping good quarter. the the really While with a has cadence. the is and that's material we're was on Overall, just results, the with fresh They're impact store what We're Below for a pleased overall looking about. great quarter. Five neither one pleased all

with comp, new so of As store you QX. we're outperformance performance strong, pleased really with can see really X.X the

Next?

Operator

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

Paul Lejuez

guys. Thanks, Hey.

mentioned curious mitigate I'm made we helped are specifically comment that took that under the to about being XXXX? or You if indefinitely about tariff just able that actions that tariff. assumption in Thanks. curious of you the XX% I'm fourth the very place mitigate? was And quarter stayed that you talking

Joel Anderson

vendor as all looking were supportive reduction on prepared very were leaned said to we I in team. buying my in to long-term. Paul, at mitigate that everybody it we tariff, that of and remarks, referring with but we in leaned and in could as and were indefinitely it Sure. They the community worked our so work costs really

Paul Lejuez

So, from production your way really vendors? Joel, it wasn't pricing existing just in your better or was any country? other buys getting that It you shifted from

Joel Anderson

Yes.

medium that In more production an Thanks, of to the out solution, should were that a in in long the option continue but Shifting I of commented a long-term things to certainly solution, That's is even works. we there, on change. is already might fact, the when term especially in production call. throes Paul.

Paul Lejuez

Good you. Thank luck.

Joel Anderson

Thank you.

Operator

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

Joel Anderson

Matt. Good morning,

Matthew Boss

for gross reinvestment three fourth reform the Maybe talking four quarter, about related where to that versus still quarter should contraction margin contraction Ken the tax quarter. majority fourth on gross at for margin more Just any margin through of on expect SG&A? comps, your we help you're the the the margin guidance SG&A

Kenneth Bull

Matt. Thanks, Sure.

that operating our We're margin that I would pre-recorded delever raise of implied in mentioned the guidance take did still fourth seeing place the for driven for majority by in we reinvestment. the tax overall quarter noticed, that remarks comps. you and SG&A the As

gets as of before. We the That bit going on a incremental incentive that operating incentive there some up sales occurs in outperformance have given majority adjusted you little fourth quarter, -- fourth in little compensation The have SG&A. so bit gross some discussed income that the majority margin quarter. is a we've in in actually compensation, in the also of also, is of and which the of our is

So going quarter. on in fourth those really the the two factors are

Matthew Boss

Congrats on a guys. great quarter,

Joel Anderson

Thanks, Matt. Really it. appreciate

Operator

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

Anthony Bonadio

is and Hey, good Bonadio on quarter Anthony on the guys. for Ed. our for actually This thanks question. Congrats taking

to elevated now lot on your Can expectation far successfully quickly have an of and guys you're the that and you've here you to Just peers can what right continue year. side just so freight highlight to done talk quickly A what pressure seeing mitigate? freight. to continued on next

Joel Anderson

great and is But love growing. growing I suppliers would example is think our negotiations next We sometime on contract Most past, we’re basis years rates. it's now, tell really you scale through over really like as business turn our the spot business volatility working and early on of mitigated we Five really participate with works their our opportunity in our do the a love that. year, freight to our where contracts; an mid annual to I the contracts grow largely not was speculate Below, so in in this to our advantage the

be So to feeling I think some We're pretty good. a scale. largely our able upward to of while growing we'll there pressure, large that, is due mitigate percentage

Anthony Bonadio

guys. Got it. Thanks,

Operator

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

Joel Anderson

have back. John, good to you

John Heinbockel

leaving the that the there experience, one. to goes really on price are is then quality relative is with speak and test running the real pace of doing questions improve when Michael much maybe in as room experience your do think little a store? you on that market, availability, work more bit the Number that doing, sort where product is to Below Ten and that take store George Two to the to -- ability number about product that quick. secondly, here you up, keeping product, one, the we is work peers And how think of some on the

Joel Anderson

making merchants to a I similar long how Michael's now you've field upside analogy the journey running have the under improve really have for continues and George store place, team pleased is a love I the experience really with to fun leadership, speaks think but and at to the the and I'm It still and and the our is and to the it's the great It's putting years be and we just want it we come to George the that Michael and go is At approach improve merchant the seen product. fun. the continuing of of Honestly, journey store term it's progress experience. the several same yes operating just to store on. think like George been itself lots the get made. processes customers about see end taking and better in day, it's with we to want a in with be better. of day, teams the the continue and end store, consistency,

think good. way. well see But we're in feels XXXX. I even better it It on the you'll getting

John Heinbockel

thank Okay, you.

Joel Anderson

Hey, it, thanks. John. Appreciate

Operator

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

Chuck Grom

former, to similar is Thus morning. use able opportunity the good identify vehicle do Hey, yet? saw think new this toy acquisition you or been if to a have benefit a an last far you on purchases, toys you it's customer customer year? And guys, repeat there's the as to the if Spinner

Joel Anderson

quarter Chuck. quarter largely business. It business, toy fourth early a years is fourth is a Thanks, the dozen having spent in it and still the in

transaction come. to lot certainly by a proxy traffic, -- look our But that it there's So use QX for in at if our here nice was led a a as proxy and as guide transaction a you QX. quarter

continue. are merchant expect team great of certainly trending that momentum done the up see can has amazing the nicely job Toys toys. line sourcing to You we an a and

going marketing our merchants lot campaign around up of track a for the fourth in marketing just toys. quarter. Spinners and It's wait in There's But largely certainly a set we and So through think perform customers quarter. I toys a till get to we for magnitude we'll team doesn't have with we're matter great expect the did commercial, this around and us. to the leaned focused with we’re that no end leaned should. The toys new it reason of of like all with

Chuck Grom

Okay, good luck.

Joel Anderson

Chuck. Thanks, Okay.

Operator

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

Beth Reed

Beth is This actually morning. on Reed for good Hi, Scot.

you. you attract have And wondering little extend you new a give talk if bit effect? How just and you products accelerate what the other Just tariffs next this do a assortment into the on that could think then to concept? below if in And customer? types lastly, would stores a can more sense of you type Thank go perhaps of and the do rapidly they year? if this are to $XX about potential XX% us could do

Joel Anderson

is I thanks, now how Beth. to working on we sense wasn't Ten and throughout we've analogy done gave with reinvest in guess pace in our XXXX, the like to initiatives, you great but Below of tariff-driven Yes, started time. going for continued does in a we're the continue I you we would It some that What it with something is program. continue right take company, say nature, to everybody I its just is it diligence. we've innovate to and other give XXXX. remodel quite been We this

before we're be in ready nearly roll was journey So it the out. a to two-year

the Ten goes, Below Ten we're that some of got happy incredible we year to early do areas haven't pleased well, and able to all through home, gaming, think roll a we've the are with the not with and signs, we're something looking price I to bring out there like a XXXX really as accelerate we're far points. and as to $X yet connective in and even holiday continue $XX always As the been wow to and been for innovate room, -- But Below. XXXX of value products we've customer in

Beth Reed

you. it. Got Thank

Joel Anderson

Beth. Thanks,

Operator

question Vincent Please with next Sinisi Morgan comes Stanley. ahead. from go The

Vincent Sinisi

morning, guys. Good Very Thanks nice Great. the much here. again question. for Hey. very quarter taking

being you -- to you're brought given what just for that digital and might great. sort as well and more be marketing in Spinners with maybe repeat of you terms in would wanted New what whatnot. enhanced maybe of by color give that obviously that you've That efforts these been seeing beyond we've York new codes of be Can if a of zip the customers in can and give seeing enhanced to the also little some any maybe store efforts? bit Just update ask seeing you're types past the

Joel Anderson

Vinnie. Thanks, Yes.

successful how this don't I As on the brand we twice credit at biggest are. of card we a loyalty think you is a program marketing once yet so do proxy time, have external awareness know for have or research us and terms that or understanding campaigns these that we in to some our rely own year for

prepared that As our the our bring us digital more strategy. shift of ecommerce a due continues of and digital we've keep finger-point customer to of to approach make about time we'll But the reach remarks, and mind aware also times, to at shared over XX% go progress. collectively this consumer largely strategy we've QX year net-net, side hard Vinnie, the pleased year social-mobile. I've awareness pleased. are to exact brand great number that is progress up along which time. a digital important influencers in really more together the really And added in are program a stores overall, to top continue increased all and I Five to for we've and with to of and holistic All to together we've the digital TV Below, first of all guess made. our last making our We're been look down It's without that really a commented In XX% strategies. my really more loyalty with us. our versus it's explore

Vincent Sinisi

Joel. Okay,

newer mind, don't that TV last could within enhanced for I QX, existing year? if mix you the in your just terms same relative versus is If of as markets

Joel Anderson

It's there. new a go exactly, surprised we it relative back is I'd what to I It's to went combination XX% markets last from the XX%. I look be -- XX% and different. have but see have Vinnie, was it any if a go a markets. to and year mix was, existing to back of lift to but

Vincent Sinisi

Not Awesome. Thanks a very guys. lot. a Thanks problem. much,

Joel Anderson

Vinnie. Thanks,

Kenneth Bull

Thanks, Vinnie.

Operator

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

Michael Lasser

Good morning.

Joel Anderson

morning, Michael. Good

Michael Lasser

much. will Joel, you Thanks question. it impact XX% your have a mean XX% increasing my Or when impact taken mitigated Thanks have if from can it does for upside lot the effect you away tariffs say had? potential has the on potential from taking that And you might you gotten frame scale tariff, introduced? the are no so you margins? also, that that have

Joel Anderson

saying part the does Ask Are it that you first of have... Michael, it. again, question

Michael Lasser

of used you you've mean the by impact? that of you not A you go also you it's going tariff? what more we term, companies happen lot Can to what what but taken be mean Does no mitigated? mean XX% give There's away by us define to a a And of mitigated? if that Can would did clear. have sense upside?

Joel Anderson

Yes. is margin. The goal always that on

to maintain to be same rate the I this tell we tariff mitigate expect think is very able -- you, margin when thing I'll We fluid. and

speculate I It XXX% XX%. really all XX%. over. lived our at It remains it's landed meaning mitigated, We on mitigating has have on we've We think way to times days. changed were I margin our intact six early last and the the XX certainly rate think that XX%. towards well

remarks, our However, a them come. to focus have I as and to in I case we'll just to our strategies increase. models has if compensate several bringing business been expect the working no and on our price. on we're to too prepared it's cost But But material shared adjust first tariff order doesn't for to impact early. they do not so we down on be including my take able But overall, with up need change it think that on the we in you

Michael Lasser

that? as through, Just breaking that XX% to harder did the technique to a saying, clarify would a what Joel. $X deal potential right? at with If Is take barrier across you're mitigating go board the look you

Joel Anderson

Anything is I and piece, it broader to and as to all or term, options. to price on longer, breaking Michael, at table, have right. look And and mean certainly I the merchant just the said expands to our moving this. XX% shout give if to up earlier, it That's They then we But the chain that and goes including have us mitigate includes it supply longer I community. supplier in a items team, has through in a job. working eliminating would price or the just a the done big I team on. countries can't think fabulous leaned really out you supported

with this and great are fully lot example Xst January has eight in works it. a I and worlds the have the We a place adjust of here team we with and is where we've mitigated flexibility the think going and flexibility to model this

Michael Lasser

holiday. the so with Great. much Thank luck you and good rest of the

Joel Anderson

Michael. Thanks, Yes.

Operator

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

Jeremy Hamblin

on to it where learning as looking relate Good you next little to I here two could Thanks. morning might I'd XXXX buying centers more this change really that like new my in I and you're if a and distribution as out, in more moving wanted you the on add capital through if a distribution the a roll congratulations of the you're the on see, up to opening clarity the - impressive developing in response. well XXXX-XXXX? And the give wanted ask opening as had investing that DC are your the to a centers you've centers any forward. question way timing you're opening and XXXX. lot going now one, to

Joel Anderson

a Jeremy, are to important talk all long time infrastructure to three question. our It's one be good and term question of strategy. the my is going DCs legs actually really important I because really key about

jump can in you maybe Ken, timing. about talk me Let on capital.

now XXXX. DC right you then capital? of bring right is XXXX. in just handling the open that in XXXX. Atlanta We're on same it. starting budget, the we got spring material want Ken, it's on open of cadence We're roof now We'd Southwest comment DC spring plan the on Our on and well to Then a in for way, the to

Kenneth Bull

as in always of is The distribution remain one capital the spring Jeremy, purchase. opening flexible referred to a Sure. we Joel up to that know, allocation there. had. try you XXXX, we've the to first be going Southeast center That's that that in

we'll again, forward centers, move of best we basis future an other us see But a with those these for open the terms on options forward As we'll from in we keep DCs. what financing option deals the we is make at as how move those on distribution to look individual standpoint.

Okay?

Jeremy Hamblin

up a follow just And on Yes. quick that.

out DC on XXXX the you're Can items? call the of But In any this the you XX, sense can you might opening. point, to than terms -- expecting impact know opening. of be timing a margin us basis lower impact Ken, I line at the point the of any prior when we give XX for see

Kenneth Bull

new off that see provide deleverage on to we hold that center quarter on until I'll some coming the fourth on but expect with board. distribution guidance obviously we full-year would call, the

what Our expectations we've than less seen historically. are

to opened opened points and Mississippi. we see in would XXXX XX but our of less recap then We there, up to bit nonetheless. basis going little of points in up deleverage was than in about XXXX, Pedricktown XXXX, it's our XX It of about we scale give a deleverage. remember, that into basis you if Just you deleverage expect XX given to DC

though, All XX-XX pre-recorded good remarks, of about XXXX. algorithm until heard we in Joel feel you still as the the these, from

So that it's all contemplated within algorithm. growth

Joel Anderson

Jeremy. Thanks,

Jeremy Hamblin

Great. Thanks, guys.

Kenneth Bull

Thanks, Jeremy.

Operator

next go Kras with question Please from Barclays. comes The Sean ahead.

Sean Kras

thinking something item points terms just redeem or the about might store, of program? in loyalty taking a or your quarter I appreciate to an loyalty that Great perhaps a question. look think an is Joel, would you on program system program. which picture, that? and discount, needed upgrade When for testing in prepared you you what remarks just be actually the accumulate where start mentioned how guys. now the you the give in complete, Hey, us and And POS new I then you like Can also are update for might my you program? bigger a you

Joel Anderson

we two-year We think monumental about I supposed in get that team effort a be there. at to the a out, done. was year. year, one Great the It roll Sean. accomplished it was it accelerated beginning of talked step to Thanks,

January as holiday. step Sean, But we far a before as will team heads As that on out But soon fun, on it loyalty will was do, now everything down focused as we we it. that. pretty start here to like be is exciting, we of it required specifically Honestly, the kids. quickly get we could expect goes, be consider turn right the specifics to opening to

in to we we're test details expect see get have XXXX in time by the at on March. it. we'll sort our of you'd think more quarter I to some But where on fourth call

days us give XX all of on is that the XX to Just But to out. kind spell path. it

Sean Kras

That's great. Thanks.

Joel Anderson

Thanks.

You bet, Sean.

Operator

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

Joel Anderson

Good Anthony. ahead, Go morning.

Anthony Chukumba

registers self-checkout the just time. in and other very that stores high just I at credit through morning. my went of congrats New like three next comp -- and just to only things took third store guess another to a stores, for look Good question looking I York you more I quarter. the Yes. move one the comping and as in labor-saving was people recently -- and the Thanks taking on again this the to for and way, of the on the It looked wondering, there traffic queue? testing were -- time the are store that great, by a was that the the debit right of in particularly are way things or I noticed they ton the day store one you at rap. is of there volume cash opportunity, the card

Joel Anderson

own and what presented give about in. it. York, allowance, component tell and choice the the It have most the their customer to the stores me the they experience have like out. stores our a It's when that Certainly that stores It using saw been is labor I'll over the in watch cash of really They response. in most they're you, do them New we money, choice manned they're for surprised been their putting self-service very actually bring customers' check that to has successful. kids had part, fun parts in it it. seven But most in Anthony. those in you their a choose our now, We to Yes. improves there's

your phone use et cetera, et cetera. pay, can to You

So it's the engaging really an it's and customers feature with fun.

has that than more driver think I the been main anything.

that. You probably continue to more do should see expect of to us

Anthony Chukumba

much. Got it. you so Thank

Joel Anderson

You bet, Anthony.

Operator

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

Judah Frommer

just Hi, guys. for taking little One more Thanks question. a the high-level.

the existing chain? probably co-tenants healthily toys have for year. the I with we can you by new of see this out are being But thinking know, With of kind don't to markets the Is change where and term than anything a that maybe there year hard comps Spinners parse any distributing in that built comp last certain it's long potential is traffic of locations about historically? that more with basket, and comp versus types -- changing thought store around

Joel Anderson

just see like comp consistency. people I XX story is a our we’re three probably years we XXXX think said a comp consecutive know and it's Sans are new story stores store I so is the in to you, change, and of important business being what's to about piece that highest one towards as lot of and to of the the really our the new the comps awesome ever. class tracking but comp quarter more positive model four

strong new has awareness the is the testament never we brands that's as those get, a comps-driven is produce business. been But continues This the stores detriment So to stores to and building. a new comp. up to stronger, continue just how towards open

is the growth annualized. three the for That at consistent four story place, comping talking be It's next. -- one of there's XX% We trend about business. hot new bit X% negative case there's in a don't look continue to to four XX% pretty new but as year-over-year, little You a skews five I'm skews will the swing the and quarter it look years. stores. it at to lower, a consistency. higher. from just our positive next Don’t business growth the comes not, When When real it the

predictable more guys it figure out for make should the also it model. think you I to

Judah Frommer

Congratulations.

Joel Anderson

Judah. Thanks, bet. you Yes,

Operator

Group. Please go comes Telsey Advisory question next ahead. Feldman with from The Joe

Joe Feldman

very I to stores. up the follow congrats this new about Thanks. wanted X XXXX be at the the the strong, Good box. the that why the did helpful. you or million better-understand any quarter. color there Or averaging anything much openings, do would just on class sounds on opened so a year? around marketing question Was and different I to that of stores This think about good you guys, that maybe actually want stronger morning, stores?

Joel Anderson

You bet.

far as it's marketing the as same As it's goes, been.

think there's refreshed of couple I entirely This the a it. is of concept. in factors class built

immediate we XXXX. with So an refresh tick in the up XXXX saw concept. That into has continued

layer asked so payback, of with storage experience, office, they it a got new annual in getting there. another call You those focused openings home factors a because ultimately big our and Town, performance. leads make fun. your I time and class And stores. difference better? are store we of in what improve Spinner, that on growth people XXXX thanks, much those But and it deliverance it, it that we question and John continuing XXXX we is great to because where and are over appreciate new Wow is Stores such to at certainly you layout store quick about awareness Joe. experience growing, successful Heinbockel team can our the spend -- in XXXX at stores we of put George's while a talk is is it's has lot in our the When all look the we store so XXXX. great, of make and is and here the bright together just the comp halo getting awareness is on higher better. about on right was than Product is new

Joe Feldman

you. Thank Okay.

Operator

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

Joel Anderson

Thanks, We've you three Below. our for in Truly, Have look your holiday in due of great soon. to Five Appreciate a the and Bush holiday four a Appreciate President all you today stuffers talking important new see joining happy meeting out hope all forward yesterday's to us a place Great of wishes your day. you families or and weeks honoring for the to for your us got for destination I shopping stores. to your front you to support season. ongoing everybody. and stockings today Have and of -- get cadence needs. your our holiday. to great warm call

Operator

now Thank presentation. you attending has concluded. for conference This today's

You may now disconnect.

Five Below (FIVE) 6 Dec 182018 Q3 Earnings call transcript