Five Below(FIVE)2023-11-30 03:37Financial Data and Key Metrics - Sales for Q3 2023 increased by 14.2% to $736.4 million compared to $645 million in Q3 2022 [3] - SG&A as a percentage of sales decreased by 90 basis points to 28.1% in Q3 2023, driven by timing of marketing spend and leverage on store-related expenses [4] - Full-year 2023 sales guidance increased to $3.54 billion to $3.57 billion, representing a growth of 15.1% to 16% [6] - Diluted earnings per share for Q3 2023 were $0.26, compared to $0.29 in Q3 2022 [38] - Operating margin for Q4 2023 is expected to be between 20.5% and 20.8%, with a 50 basis point leverage due to freight benefits and cost management strategies [39] - Diluted earnings per share for the full year are expected to be in the range of $5.40 to $5.56, implying year-over-year growth of 15.1% to 18.6% [40] Business Line Performance - The Five Beyond format now accounts for approximately 50% of the comparable store base, driving mid-single-digit comp outperformance in the first year post-conversion [85][93] - The company opened a record 74 new stores in Q3 2023, bringing the total store count to 1,481, a 15% increase from Q3 2022 [112] - Comparable sales increased by 2.5% in Q3 2023, driven by a 3.1% increase in comp transactions, partially offset by a 0.6% decrease in comp ticket [111] - The company expects to open over 60 stores in Q4 2023, with 43 already opened in November [114] Market Performance - The company saw strong performance in discretionary categories such as games, toys, and seasonal offerings, particularly Halloween products [88] - The company's online presence remains low, with minimal impact from competitors like Temu [36] - The company's value proposition continues to resonate with customers, particularly during the holiday season, with strong transaction growth from both new and returning customers [7] Strategic Direction and Industry Competition - The company's Triple-Double strategy focuses on store expansion, store potential, product and brand strategy, inventory optimization, and crew innovation [89] - The company is leveraging its Five Beyond format to attract new customers and retain existing ones, with plans to continue converting stores in 2024 [94] - The company is investing in social media platforms like TikTok, Facebook, Instagram, and YouTube to increase brand awareness and customer engagement [96] - The company is focused on improving inventory productivity through advanced processes, technology, and analytics, positioning it well for the holiday season [97][98] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to leverage at the 3% level and expects to provide more details on future growth during the March call [9] - The company is pleased with the start of Q4 2023, with strong transaction growth and new store performance in line with expectations [7] - Management highlighted the importance of value and trend-right products, particularly during the holiday season, and expects to see continued growth in discretionary categories [135] - The company is focused on mitigating shrink and expects to provide updates on progress at year-end [105] Other Important Information - The company repurchased approximately 500,000 shares in Q3 2023 at an average price of $158.63, totaling approximately $80 million [104] - The company ended Q3 2023 with $163 million in cash, cash equivalents, and investments, with no debt outstanding [104] - The company expects to spend approximately $335 million in gross CapEx for 2023, including new store openings, distribution center expansions, and technology investments [145] Q&A Session Summary Question: Performance of Five Beyond stores in year two - The company noted that early signals from stores entering year two show positive comps, with more stores expected to enter year two in Q4 [119] - The company expects continued growth in Five Beyond penetration, which will benefit top-line sales [94] Question: Impact of deflationary trends on product costs - Management expects deflationary trends in product costs to benefit gross margins, allowing the company to reinvest in product quality [132] Question: Competitive landscape and positioning - The company believes its value proposition and focus on trend-right products differentiate it from competitors, particularly in the mass channel [62] Question: Real estate costs and store growth outlook - The company noted that real estate costs have stabilized, with rents remaining flat and the pipeline for new stores strong for 2024 and 2025 [68][163] Question: Impact of Temu on the business - The company has not seen a significant impact from Temu due to its low online penetration and strong in-store value proposition [36][172] Question: Holiday season expectations - Management expressed confidence in the holiday season, citing strong inventory levels and a focus on value and trend-right products [157] Question: Long-term growth and margin expansion - The company reiterated its Triple-Double strategy, aiming for 14% operating margin over the long term, with 100 basis points of margin expansion annually [41]