Good day, and welcome to the Five Below Second Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Christiane Pelz, Vice President of Investor Relations. Please go ahead.

Hi. Thank you, Cole. Good afternoon, everyone, and thanks for joining us today for Five Below second quarter 2022 financial results conference call. On today's call are Joel Anderson, President and Chief Executive Officer; and Ken Bull, Chief Financial Officer and Treasurer. After management has made their formal remarks, we will open the call to questions. I need to remind you that certain comments made during this call may constitute forward-looking statements and are made pursuant to and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in the press release and our SEC filings. The forward-looking statements that are made today are as of the date of this call and we do not undertake any obligation to update our forward-looking statements. If you do not have a copy of today's press release, you may obtain one by visiting the Investor Relations page of our website at fivebelow.com. I will now turn the call over to Joel.

Thank you, Christiane, and thanks everyone for joining us for our second quarter 2022 earnings call. Ken and I will discuss three broad topics on today's call: First, review the second quarter results. Second, discuss our updated outlook for the third quarter and the year. And third, discuss the strategic initiatives we are focused on to execute our longer-term vision for growth, the Triple-Double. Despite near-term challenges in 2022, we remain very excited about our business model and future opportunities for Five Below. Now onto the results for the quarter. Total sales in the second quarter grew 3.5% over last year to $669 million and comparable sales decreased 5.8%, driven by reductions in ticket and transactions. While this result was lower than expected, we still delivered diluted earnings per share of $0.74 at the low end of guidance due to disciplined expense management. We believe our sales were impacted by both the macroenvironment as well as factors specific to Five Below. On the macro front, on top of lapping an unprecedented year in 2021 due to payments of significant stimulus dollars in 2022, consumers are experiencing inflation levels not seen in decades. Inflation in the needs-based areas of food, fuel, and housing is cutting into consumers' budgets and we believe changing their spending behaviors. In addition, we are seeing a much more promotional retail environment than in years past due to the excess inventory across the industry. On top of these factors, with COVID restrictions largely lifted, travel and other experience-based sectors increased substantially over last year, which also had an impact on retail traffic and sales in the summer. Specific to Five Below, we had a phenomenal year last year, due both to the healthy consumer backdrop I just mentioned and also due to multiple significant trends that drove customers to our stores. Trends collectively are less of a driver this year. Taken together, with the macroenvironment lapping last year's robust sales and trends was more difficult than we had expected. As we shared with you at our Investor Day in March, we expected 2022 to be a very unique year for us given many of these factors I just outlined. While we do see some specific positive emerging drivers for our Q4 performance, we do not see all the headwinds, we just mentioned dissipating in the near-term. As a result, we have reduced our sales and earnings outlook by nearly 3% and 13%, respectively for the year. Ken will discuss our outlook in detail in a few minutes. Amid this challenging environment, we continued our journey of ramping back up our growth plan, opening 27 new stores across the country in Q2. Ken will share the details of our planned Q3 openings, but I can tell you the number is over 50% more than Q2. This is a great sign that our long-term vision is intact and we are collectively shifting from strategy to all-out execution. As for Q2, three of these new stores ranked in the top 25 summer grand openings of all time, one each in New York, Texas, and California. In addition, we made progress with our key strategic initiatives of product, experience, and supply chain. On product, we continue to source amazing new merchandise to capitalize on our existing and emerging trends and also expanded our Five Beyond assortment. For the popular Squish offering, we created cool new Squishmallows for our customers' collection. We also sourced products for newer trends like Sanrio, which some of you know is the creator of Hello Kitty. The ability to participate in almost any trend is a unique differentiator of Five Below and our Eight Worlds provide the flexibility to react to evolving customer preferences. Our unique approach to the consumables business resonated with customers and we saw outperformance in categories like novelty candy, snacks, travel accessories, pet, and health and beauty. Five Beyond also continued to be a growth driver for us, as we introduced our first ever summer WOW Wall. With brand new Five Beyond products for pets and other items from our Eight Worlds like an outdoor tent and our giant tumbling tower game. In addition, during the second half of July, we kicked off our back-to-school campaign with amazing backpacks, cool tees, and fun items for dorms and bedrooms, all at great value, which our teams focused on social media and in-store marketing campaigns. Finally, I'd like to add that we are seeing more closeout opportunities and one-time special buys in the marketplace, which we are choosing selectively to drive even more value for our customers. Turning to our second strategic initiative, experience. We are diligently working to update our fleet into the latest prototype unveiled at our Investor Day in March. We are excited about the opportunities, the new Five Beyond store within a store concept provides, with the reimagined Tech and Room worlds and double the SKUs dedicated to Five Beyond product. We are on track to deliver over 250 stores and the new Five Beyond prototype this year. This is another example of how our long-term vision is firmly intact and we are back to playing offense. We believe this offering will be both the traffic and comp driver for the holidays and into 2023. Another important aspect of the overall customer experience is the digital component, which encompasses marketing, customer data, analytics, as well as e-commerce. Through increased and more effective digital marketing, we are focused on gaining new customers and growing brand awareness. Our continued investment in digital platforms like TikTok is gaining traction as evidenced by our Bluetooth speaker video with over 9 million views. Separately, we are also developing better knowledge of our customers by gathering data through tokenization to better understand and market to them. For e-commerce, we enhanced our offering by rolling out BOPUS to over 100 stores in July and we'll complete our chain-wide rollout by the end of this September. BOPUS allows our customers to shop Five Below when, where, and how they like, furthering our goal of becoming an omnichannel retailer. This is yet another example of the ongoing implementation of our long-term vision to connect with our customers and deliver an even better experience for them. With respect to our third priority, supply chain. We continue to be proactive and look for ways to control our destiny. We are pleased with our inventory position as we deliberately accelerated receipts to ensure good in-stock positions for the key holiday season and to avoid the out-of-stocks we experienced earlier this year and last holiday season. As a healthy retailer with a strong balance sheet, we were able to quickly execute strategic decisions like this to better serve our customers. As it relates to our distribution infrastructure, we are very excited to have officially opened our Indiana shipping center this summer to further gain efficiencies and speed to our stores and ultimately our customers. As a reminder, this DC completes our Five Node network and provides us capability to service approximately 90% of our stores within one day. We are now taking a pause from opening DCs for a couple of years. Currently, we are finishing up our back-to-school season and over the next several weeks, we'll be converting the NOW section of our stores. While preparing for the all-important Q4 holiday, we are excited about some of the cool new products we have found that offer extreme value to our customers and can't wait to share them with you. In summary, as I said earlier, this year has proven more challenging than expected. We remain focused on playing offense and delivering our Triple-Double growth strategy, that is triple the number of stores by 2030 and approximately double the sales and earnings per share by 2025. We are committed to continued high growth throughout the organization with our teams focused on preparing our people, systems, and infrastructure. Next year's new store openings represent a significant milestone of over 200 for the first time. We feel confident in our ability to open them with the same consistent results we have achieved in the past. In this environment, in addition to the product opportunities I already mentioned, we are starting to see some signs of potential dislocations in real estate and are ready to capitalize on these opportunities. Our growth and scale continue to benefit us and our customers as we continuously reinvest in products and keeping inventory fresh. We are a go-to retailer for our customers providing the combination of extreme value in a fun shopping experience. We believe, as this inflationary environment continues and we near the all-important holiday season, value will become even more relevant as customers rely on us for amazing, affordable gifts and stocking stuffers to celebrate the season. With that, I will turn it over to Ken to review our financials in more detail.

Thanks, Joel, and good afternoon, everyone. I will begin my remarks with a review of our second quarter results and then provide guidance for the third quarter and the full year. As Joel noted, the second quarter was more difficult than we expected. Our sales for the second quarter of 2022 increased 3.5% to $668.9 million from $646.6 million reported in the second quarter of 2021. Comparable sales decreased by 5.8%, which was driven by a decrease in comp ticket of 4.3% and a comp transaction decrease of 1.7%. On a three-year geometric comp stack basis, second quarter sales increased 15%. Our average ticket remained strong, increasing over 20% in the second quarter compared to the corresponding pre-pandemic period of 2019. We opened 27 new stores across 18 states in the second quarter compared to 34 new stores opened in the second quarter last year. We ended the quarter with 1,252 stores, an increase of 131 stores or approximately 12% versus 1,121 stores at the end of the second quarter of 2021. Operating margin was 8.4%, which declined approximately 500 basis points versus the second quarter of 2021 and was relatively in line with our outlook, where we expect to deleverage in both gross margin and SG&A largely driven by the negative comp. This deleverage was offset in part by cost management. In comparison to a pre-pandemic period, this operating margin result was relatively flat to the second quarter of 2019. Gross profit for the second quarter of 2022 was $228.5 million versus $230.3 million in the second quarter of 2021. As expected, gross margin decreased by approximately 150 basis points to 34.2%, primarily driven by occupancy deleverage on the negative comp as well as higher freight expense versus last year. As a percentage of sales, SG&A for the second quarter of 2022 increased 350 basis points to 25.8%, primarily driven by higher store expenses, a planned increase in marketing spend, and fixed cost deleverage on the negative comp. Our effective tax rate for the second quarter of 2022 was 26.3% compared to 23.8% in the second quarter of 2021. Net income for the second quarter of 2022 was $41.3 million versus net income of $64.8 million last year. Earnings per diluted share for the second quarter was $0.74 compared to last year's earnings per diluted share of $1.15. We ended the second quarter with $272 million in cash, cash equivalents, and investments and no debt, including nothing outstanding on our $225 million line of credit. Inventory at the end of the second quarter was $569 million as compared to $347 million at the end of the second quarter last year. Average inventory on a per store basis increased approximately 47% versus the second quarter last year, while average total units on a per store basis increased approximately 28% year-over-year. The increase was driven by the planned acceleration of merchandise deliveries and higher inbound freight costs versus last year. Our logistics teams continued to do an excellent job managing the supply chain disruptions and our buyers remained flexible and disciplined in their purchasing to adjust to customer demands and preferences, chase trends, and capitalize on closeout opportunities. Overall, we are experiencing significant improvements in the supply chain environment versus the back half of last year. We are pleased with the progress we have made in accelerating our fall merchandise receipts and believe we are well positioned for our holiday selling season. We expect significantly improved in-stocks this year and for our average per-store inventory levels and year-over-year comparisons to moderate significantly as we move through the back half of the year. Now onto guidance. As we stated at our Investor Day earlier this year in March, we expected 2022 to be a unique year for several reasons: First, the lapping of significant government stimulus. Second, the negative residual impacts of the pandemic primarily on our supply chain and store openings. Third, the ongoing pressures of inflation, especially fuel and food costs. And fourth, the cycling of a very strong year of multiple merchandise trends. The impact of these factors on our business was greater than we had planned. As a result, we have updated our 2022 outlook. For the second half of the year, we are reducing sales by approximately $70 million at the midpoint of our guidance, which assumes an approximate negative 4% comp. On a three-year geometric comp stack basis, this sales estimate for the back half of the year is slightly lower than the results achieved in the first half. Specifically for the third quarter, our guidance includes the following; opening approximately 45 new stores, sales of $600 million to $619 million, comps of between negative 7% to negative 9%, a 25% effective tax rate which excludes the impact of share-based accounting, net income between $4 million and $11 million with diluted EPS of $0.08 to $0.19. At the midpoint of this guidance, we expect operating margin to decline approximately 540 basis points over last year, due to deleverage of fixed expenses on the negative comp, higher store expenses, and increased marketing expense, all offset in part by tighter cost control. About one-third of the deleverage is expected to be in gross margin and two-thirds in SG&A. As we look out further to the fourth quarter, our current outlook implies comps of negative low-single digits. The fourth quarter itself is unique because it is driven primarily by holiday gifting and stocking stuffer purchases and with the current macro environment expected to continue, we believe that more than ever customers will be looking for places to save money for holiday shopping. We are in a great position to be the go-to shopping destination. Specifically for the fourth quarter, we expect an improved inventory position and merchandise in-stocks versus the fourth quarter last year and expanded Five Beyond assortment in more stores and increased in more effective marketing. We also assume operating margin expansion in the fourth quarter versus last year as the fixed cost driven deleveraging gross margin and SG&A from the implied negative comp is more than offset by tighter cost management and expense reductions. Our first half performance combined with this moderation in the second half outlook reduces our full-year guidance for sales at the midpoint by approximately $85 million or nearly 3%. For the full year of fiscal 2022, we now expect sales of $2.97 billion to $3.02 billion and comps in the range of negative 3% to negative 5%. This assumes we would end fiscal year 2022 with average unit volumes of approximately $2.4 million versus 2019's $2.2 million. We expect operating margin for the full year of 11% at the midpoint of guidance, which represents a decrease of approximately 120 basis points from our prior guidance. The decline versus last year of approximately 230 basis points is driven primarily by deleverage on fixed costs and higher SG&A expenses from a more normalized marketing spend offset in part by cost management. We expect EPS in the range of $4.26 to $4.56, which represents a reduction from our prior guidance of approximately 13%. For fiscal 2022, we plan to spend approximately $235 million in gross CapEx, excluding tenant allowances primarily for opening approximately 160 new stores, executing over 250 conversions to the new Five Beyond prototype, opening a new distribution center in Indiana, and investing in systems and infrastructure. For other details related to our results, please refer to our earnings press release. In closing, as we navigate the near-term headwinds that are pressuring our performance, we continue to focus on our longer-term strategy and financial goals. We remain fully committed to delivering an amazing experience and exceptional value for our customers while maintaining the financial and cost discipline that has always been core to how we operate this business. That concludes our remarks. And with that, I'll turn it over to the operator to begin Q&A.

Thank you. And we will now begin the question-and-answer session. And our first question today will come from Edward Kelly with Wells Fargo. Please go ahead.

Good morning, everyone. I have a question regarding the guidance for Q4. The holiday season is typically challenging to forecast, and this year seems to be no exception. While we're focusing on three-year geometric trends, it's worth noting that Q4 has four additional selling days compared to 2019. If we compare guidance to 2018, which may be more realistic, it suggests some deceleration. I'm interested in your thoughts on how you arrived at that guidance. You mentioned potential positive emerging drivers, but I'm unsure how much of that is incorporated into your outlook. Ultimately, I'm trying to understand how much you've reduced risk in your Q4 guidance, as it appears to be quite significant.

Yeah, Ed. Let me just a couple of thoughts and I'll turn it over to Ken to talk about it financially. But it clearly, as we think about Q4 and especially coming off this last quarter. The last thing we wanted to do was speculate at all on any emerging trends. I think Ken laid out pretty nicely for you several bullets on what's different in Q4 this year over last year, things like better inventory position, marketing, you mentioned more days, so those are all nice tailwinds that are in there. I think you've got some of the headwinds, the unknowns of macro things that we certainly talked about at length. And so you put it all together and I think what you see in Q4 is certainly calling out potential tailwinds emerging but not baking all those into the guidance. And Ken maybe if you could talk about it from a geometric stack, I think it all starts to make sense.

Yeah, Ed to Joel's point, obviously we focus on the things that we can control, right, and we talked about improved inventory, expanded Five Beyond assortment, better and more increased marketing. When you look at the macro piece, I think what we did, we looked at the first half of the year now to see what's going on. And as I mentioned, when you look at the full back half, it's a geometric stack that's slightly less than we saw in the first half, and then we break it out in the Q3 and Q4. We are seeing some things having the benefit of going through August and seeing some improvement there and that's why we're guiding to the comps that we're guiding to for Q3. But to Joel's point from a macro perspective, obviously there is still some uncertainty down there. So we feel it was appropriate to put forward the negative low-single digit comps which when you push that into a geometric stack comp that you had mentioned there, it kind of puts us in line with where we landed for Q2 and we felt that was appropriate in terms of the guidance, especially at this point in the year for specifically around Q4.

Thanks Ed.

Hi, guys. This is Kelly on for Paul. Thanks for taking our question. I was just curious if you could elaborate on your comments around getting a bit more opportunistic for some closeout buys and what are you seeing out there in the market, which categories stand to benefit, and it's just showing up monthly in 4Q and then just on that same line, just curious if the margin profile looked different than your planned business?

Yeah. Thanks, Kelly. Look, I called out the opportunistic buys closeout, less because of the materiality and more because it is something we haven't really seen in the last couple of years. So the fact that they are starting to emerge and our buyers are getting more inbound calls, it's just I think a positive to some opportunities we're going to have to really showcase value even more than we had originally planned. It's still though, our business is very different than where we started 20 years ago as most our buys are planned and it'll be still in the low-single digits of the overall buy. And then, I don't know, Ken any commentary on margin.

Yeah, Kelly. I don't know, if that was around, you were talking about merch margin or overall margins. But from a merch margin perspective, we feel that we're going to have and expect to have healthy merch margin going into Q4. And then we did call out, I know it's unusual especially on the negative low-single digit comps to be seeing the, what I'm calling out is, operating margin expansion for the fourth quarter but that's solely due to the work that we've done internally here to adjust our cost structure and really go after tighter cost controls and expense reductions. And the majority of those are taking place in the fourth quarter, we started there a little bit later in the year, so we're really going to see the benefit in the back half, especially the fourth quarter and the magnitude of those are going to more than offset any type of deleverage is going to happen on fixed costs due to the negative low-single digit comp.

Thanks, Kelly.

Great. Thanks. So Joel, you called 2022 as unique, which obviously has proved pretty spot on. I guess larger picture does anything you've seen this year altered the components of that multiyear Triple-Double plan? And then Ken, to your point, the 3Q comp guide, it does stand 400 basis points better than the second quarter on that geometric stack, so could you elaborate on improvement that you've seen in August that supports the guide?

Yeah. Thanks, Matt. We certainly called out, we knew that 2022 is going to be unique, we talked about it at the March Investor Call. And clearly, as we have now played through six months since then, it's proven out to be even more unique than we originally thought. As far as the long-term goes, you put a unique aside we are still very confident in our long-term store growth opportunity. And with that the profit profile, I called out in today's remarks specifically some examples of that. The growth in our new stores starting to accelerate the incredible progress we've made in last six months on moving from strategy to execution around conversions to the new Beyond prototype being over 250 for this year. I think BOPUS was another example that we're not sitting back anymore playing defense, we're moving ahead with IT systems rollouts and BOPUS was one example of that. So really excited to continue to innovate. And clearly, this guide was meant to be a real focus on '22, all our efforts were around '22, but behind the scenes, the teams are working and really accomplished a lot to maintain our Triple-Double, and at this point in time, we don't see any reason to be backing off of our long-term strategy.

And then Matt I think the second part of that question was around the confidence in the guide for Q3 and a little discussion around August. Correct, yes. So, and you're right, it's accelerating about 400 basis points over Q2. But just to go back to Q2, we did see a deceleration coming off of our guidance and then in June and July. And then now that we have August in the rearview mirror, we have seen an increase in the geos that are comparable to what we saw back in the beginning of Q2. And August performance is in line with our comp guide. And the other piece out there is when you look at last year, we are up against the larger impact of trend items that happened early in Q3, so that was in August. So when you put all that together, we feel good about the guidance that we're putting forward for Q3.

Thanks, Matt.

Good evening. Thanks a lot for taking my question.

Yeah. You bet, Michael. Sorry, go ahead.

Looking past the next couple of quarters into 2023, will the business be at a point where you can start to comp again, especially in light of having four Five Beyond stores, a cleaner macroenvironment? Who knows? And then two, even if the business is flat next year, given some of the cost reduction initiatives along with all the large increase in new stores, is it possible that Five Below could experience margin expansion, like I said, even on a flat comp, just considering that this year is on pace to have an 11% operating margin versus an 11.8% operating margin in 2019 and there is a billion dollars of increased sales this year versus two years ago?

Hey, Michael. I think what you're asking is a really good question. I don't think this is the call to go speculate on giving you guidance for 2023. But if you read into some of my commentary, especially around the conversions, will start to be both traffic and comp contributors, and the commentary we just had around Q4 and you can already start to see from a comps perspective let's just put geos aside for a second here, starting to see the comps start to accelerate again for us. And I don't think any of us are looking at '23 and beyond as not being back to positive comps, let's forget even flat, but everything is pointing towards a cleaner environment, there's yield saying that sales clears all, but it's also true that sales exposes things and I think, in some ways, it's helped to make us a leaner organization. Ken commented on a lot of costs we've taken out of the business and those will benefit us as we go into '23, start to open over 200 stores, it really will leverage your fixed cost significantly. So I think what you're implying is all directionally correct, I just am not prepared here to sit and give you a concrete forecast for '23, but you're thinking about it the right way.

Yeah. Just, Michael to add to that, over the years you've heard us reduce our leverage point in comp, you're really asking the question, can we lever on a flat comp. And to Joel's point, I mean, let's get through this year and we'll look at it but we will continue and carry through those cost efficiencies that we've looked at and found this year into next year and obviously we had the new store growth that we're talking about. And then the opportunities for comp and some of the various areas including the Five Beyond conversions. But more to come on that as we get through this year and then we get into the beginning of next year and provide some guidance.

Good afternoon, Joel and Ken. Kind of two follow-ups, the first on the fourth quarter, would you say whether the ticket benefit that you're seeing in the second quarter, I think you cited the 20% versus ‘19. Does that stay the same through the fourth or maybe just share the ticket traffic assumption through the fourth quarter and it feels like it would moderate given that last year's fourth quarter was helped by ticket or merchandising initiatives which assumes traffic gets better which it seems consistent with some of Joel's commentary. So that's the first question, just any more detail on traffic ticket for the fourth? And then to the last question, I think you answered it that expenses that you save this year that becomes more muscle to the company, it's not that there is a recapture or a step back up, so that these incremental that you're doing in the back half of the year, they could set the precedent and be sustained into next year?

Thanks, Simeon. So the first part of your question around traffic and ticket again, we're out ahead of a little bit trying to predict where that's going to come in Q4. But I think looking back really helps us predict going forward and that's one of the things as you've heard, we've maintained that improvement in our ticket when you go back to pre-pandemic levels back to 2019. We've consistently been 20% and above and we also saw that again in Q2. And given some of the things that are inside that, I would expect us to continue along that path as we move through this year and potentially in the fourth quarter. There could be some opportunities, you're right in transactions, it has been down consistently since we've reopened post-pandemic, let's not forget, we are down in terms of hours when you look at us versus 2019 and we'll continue to look at what the optimal store operating hours are as we move forward. And then your comp, your question about the expenses, those are the things that we've come across here or those reductions and efficiencies will definitely carry that into the future. I don't view those in total as being one-off for this year, those are things will carry on into the future.

Thanks, Simeon.

Hey. Thanks. Good afternoon, guys. When we look at new store productivity over the past five quarters, it's averaged around 76%, 77% give or take. Now that's much lower than the pre-COVID run rate that you guys had formerly run close to almost close to 100% many quarters. When you look at the fleet openings, I'm curious if you're seeing any greater uptick in cannibalization. Are new markets still successful, it sounds like it is. I'm just trying to understand why the NSP has been compressing?

Yeah. Hi Chuck. You're right, it is averaging. When you look at it on an adjusted basis, it's averaging around 80% as we look back over the last handful of quarters. There is a couple of things going on there, especially post-pandemic where we pulled back on grand opening marketing and inventory levels and things like that where the supply chain got really tight we favored existing stores versus new stores. So that probably drove that reduction in productivity versus what we saw in pre-pandemic periods. I think you mentioned cannibalization, that's been relatively consistent from our calculations, we did increase over the last couple of years and we called that out, we expected that closer to about 100 basis points, that's embedded in our guide. And in terms of just overall performance, we continue to be really pleased with the new stores, Joel called out again, every quarter we run across stores that have records for openings and we had three stores and it was great to see those stores come out throughout the country, right, one in California, Texas, and New York. So overall really pleased with where new store performance is. Thanks, Chuck.

Hey, guys, Scot Ciccarelli. Can you provide any more color on the magnitude of the inventory increase and specifically can you provide some color, but kind of where do you think the year will end and does that become a good go-forward figure wherever you end this calendar year?

Yeah. Thanks, Scot. As we've mentioned on prior calls, we're actually really pleased with where we've been with our inventory levels post-pandemic. I think that was an opportunity for us to even get tighter and leaner and operate really better from an inventory perspective and we've been able to continue that. You are seeing a high number at the end of the second quarter, but that is because we've advanced deliveries because we wanted to make sure we got out ahead of any supply chain disruption so our point was that we'd rather have it in our distribution center than somewhere else, so we really push that. And I did call out, cost versus units, which shows you that a chunk of that increase is due to the increase in freight costs because that's embedded in that number. The other piece, as you move forward, what my expectations are that those numbers are going to moderate as we go into the end of Q3 and even down into Q4. I think you'll see significant moderation even getting closer to like flatter year-over-year numbers as we get down to the end of the year. And then my gut is that we'll be able to continue to perform that way as we move forward.

I think the important thing on that Ken is that, and I called out in my prepared remarks, this was intentional on our part and it was strategic. I think when we sat back, let's call it, April, May a year ago and you're planning out when your goods are going to come in for fourth quarter, I don't think anybody that far back expected the severe and unprecedented backlog that went on for months and months and months. And so as we started thinking about this year and making sure we don't have a repeat of that, sitting with the balance sheet with no debt, we were able to make the decision to accelerate and then you add in the freight and fuel that Ken just talked about it, you see most of it it's a large increase in in-transit so most of our holiday stuff was on the water by the time Q2 end. But thanks Scot great question.

Thanks. I wanted to ask about what you're seeing from a demographic perspective. What kind of color you have on performance across geographies but then also what kind of color you have given the softness that you've seen slowdown since going back to end of March in the Investor Day. Are you able to track or have a better sense of whether or not it's this change in trends overall is that really coming from the bottom 50% of income earners in your customers. How much data do you have around that and how much is it changing how you're thinking about inventory presentation for Q4?

Yeah. Jeremy, good question. Look, we track all our stores assign them a demographic profile. I would tell you, geographically, for the most part, it's a pretty tight range of, in this case, decline in comp across the board. And then from a household income, we did see more of a compression in our low-income demographics than in our higher end, and I don't think that should surprise people. I think, as I called out in my prepared remarks, as you get into the fourth quarter though, as you know, that becomes our needs quarter as opposed to, right now, we're living mostly in the wants business. We did call out how our needs categories outperformed. But our whole box becomes a needs as people think about the holiday and they think about needing to fulfill Christmas gifts and Hanukkah and celebrating the holidays with their families. We become more of a go-to. So I think there is one where we're not looking at changing presentation, we do have the capabilities with our inventory teams that we will refill stores based on sell-through. And so in the cases where stores are selling better, we will certainly replenish to that as we have a good amount held back in the DCs and it's not all shipped out upfront so we can make decisions closer to real-time as the quarter plays out. Hopefully, that gives you some look into the demographics a little bit.

So guys, two quick things. Number one, this is a holiday of fourth quarter that we haven't seen in very long time. How do you think tactically right about tweaking what you do in terms of marketing, store operating hours, things like that right to drive a little bit better brand awareness? And then secondly, because this environment will probably persist into '23, how is Michael thinking about merchandise content for '23 at different price points, right, because I know he does mandate that the buyers might find stuff that a buck and two, but not just Five Beyond, is the thought on '23 changing in terms of content?

Yeah. Look on Q4, I don't want to give away my whole holiday playbook yet, John, but I can tell you, I feel really good about it. The one or two things I would say is, we do think it will be earlier, we do think we've got to be prepared sooner. And so you're going to see some of that, and I think I also called out a number of times, I think value becomes, in the past, I think I've always said value is important. I think the words I would use now is relevant and you're absolutely, you have to go back to '07, '08 since we really saw a recession that we can point back to and of course with inflation, you've got to go back even further. But as we think back to '07, '08 what happened there, the relevancy of value really came into play. So you can bet our messaging, we'll probably talk a little bit away from Wow and more to value as we really focus in and be sharp on our price points to get that value message across. And as far as '23 goes, we believe you, we think it does continue into '23, we always pick up new customers at holiday time. I think that will bode well for us going into '23 and beyond. And from Michael's perspective, it's again going to be sharp on value, really probably a refocus and looked at our $1, $2 price points and also on our version of consumables. So that's a couple of insights into it, John.

Yeah. Good evening. Thanks for taking the questions. Just wanted to ask, first off, if I could, can you just remind us about the tailwind that you see to comps from some of the store remodels, what the cadence is there and then also the CapEx cost to put against that?

Yeah. Look, it's a little too early to quantify those, Michael, as we've really just started ramping those up here in the last 30 days. We did call out at Investor Days and there's no reason to deviate from it, the remodels for us are in the mid-single digit range. And then Ken on CapEx.

Yeah, Michael. Depending on the type of conversion that's out there for a store whether it's a full-on conversion going from a vintage store or it's just, what we would call, plus up from an existing fresh store. It can vary that, if it's a small plus up, you're probably talking $40,000, $50,000, if it's a full-on conversion of an older store, it's going to cost as much as an existing store really, it's the same thing at the end of the day.

Hi. Good afternoon. Wanted to come at the holiday question from the perspective of some of your higher price point items from the Five Beyond perspective and was hoping Joel you could talk a little bit more about how much more assortment you're going to have this year, how many more stores you're going to have that expanded selection and any more quantification you'd be willing to give about how much of a potential comp driver that might be for you in the fourth quarter?

Yeah. Look, I think as far as the comp driver at this point in time, Brad, I think it's embedded in the guide we gave you. And I think as we get more clarity as some of these are starting to come online to the tune of hundreds of them by the time we get into fourth quarter, we'll give some more insight into that, but it's roughly a doubling of SKUs. We've seen a very positive reaction, even in these really tough economic times we have not seen a slowdown in, and I think that points to the question I was answering to John a few minutes ago that value is becoming more relevant and as our customer walks in our stores even though it's over five they recognize the value and that's just as important as the one to five having to deliver value. So that's the early insights and looks into it, but I think the final thing is you got to remember, it's also that Five Beyond as newness especially plus 250 this year, it's newness they've never seen before. So you've got lean value at the ones by and got newness and value in the Five Beyond and we believe that's going to drive traffic and we've outlined the comp thoughts as we focus on Q4 here.

Thanks, everyone. I want to ask a different question about future growth. Regarding real estate, you mentioned observing some dislocation. Without revealing too much about your sources, could you share where you're noticing this? Does this indicate that you're finding better locations available or that companies are closing stores, thereby creating new opportunities for you?

Well, hey, thanks, Joe. Yeah. I'm not going to give up all my sources, but publicly I think even several hours ago Bed, Bath and Beyond just announced 150 closures. So for the last decade, retailers have ebbed and flowed and we really haven't seen that dislocation in the last two years like we have in the past. So a significant part of our growth strategy is not about greenfield and I think the dislocation retailers will help us only accelerate and that's what we're starting to see, and hence why we've actually started to give you some insight into 2023, which is probably the earliest we've ever done some of that. And you got to remember and I think we outlined at the Investor Day, our densification strategy going into detail about what we've done in Philadelphia and that will continue to get easier as some of these dislocations start to emerge. But the specifics is what our real estate team is working on and I can tell you the pipeline is starting to grow.

Hey. Good afternoon. and thanks for taking my question. So could you elaborate more on your comment that you're seeing some of the trends that were successful last year start to wane, I'm curious if that was a reference to some of the sensory toys or anything else? And then I'm also curious, it seems like the Squishmallows are still pretty popular, I'm not sure if you'd be able to quantify any sense for how meaningful that is to comps right now, just given the concern that trend may wane in the future?

Sure. Well, I believe in my prepared remarks, I did call out Squish and you did hear an absence of me talking about poppers or sensory so you can deduce who is waning and who is not there. But that's the nature of something that Five Below probably accelerates in identifying trends and then getting out of them and it is the nature of trends, they come and they go. Trends are always a part of our business and the fact that poppers and sensory have started to moderate, it's not unusual to us. But Squish, on the other hand, will probably continue to be with us at least through the balance of this year and teams have done a great job with that, we've created the Squish events on Sundays, still continue especially when there is new Squish to see lines in the stores and that's just a great example of Five Below has been known as the place to go when a trend starts to emerge. We're starting to see a couple of others, I don't know if they're going to be big or little, at this point in time, not in a position I want to talk about it publicly, but that's we just got a great merchant team and they're constantly finding new things in there in the market that plays out on the newness and fresh. Thanks. I appreciate it, Jason.

Hey. Thanks for the question. So, you mentioned the areas of the store that performed well in Q2. So where did you see the largest deviation versus your plan on the downside, how are inventories in those categories? And also have the category makeup shifted with trends improving somewhat into August, just any other detail on what's changing early into Q3 up will be helpful?

Yeah. Look, I think in this case, what I would say, it's not who more outperformed, I would say, other than the ones I called out, we pretty much on across the board decline in the back half of Q2, obviously missing our sales guide, but it was that the trends in food and consumables and all those I called out that accelerated and I think that's what gave us confidence. So it wasn't something that we did internally there to really turn off our customer, it was truly the macroenvironment and I don't need to repeat all those I talked about them a number of times that turned around the way the business ended in the shortfall. We are starting to see the moderation, I'm not worried about inventory, anything that we were carrying over into third quarter will just go away in third quarter, we're not expecting any big markdown or anything like that David. Thank you.

Thank you so much for squeezing me in. I have a little bit of a longer-term question. You have a deep pocketed competitor in Dollar General that has this new concept has been rolling out Popshelf. And I guess two questions, but it's really sort of one question, how do you think about how their merchandise assortment compares to your merchandise assortment, the store experience? And then does the fact they're playing to over time open thousands of stores, does it change your view at all in terms of your long-term store potential? Thank you.

Thanks, Anthony. Addressing the second part first, it doesn't alter our outlook. I'm aware of Popshelf and its competition with other retailers. You asked specifically about the merchandise assortment; to me, it resembles more of home goods rather than Five Below, targeting a different age group than we do. We have some stores in the same centers as them, and we haven't noticed any impact. In fact, there might even be slight improvements, although it's a small sample size. Increased foot traffic benefits us, as we prefer vibrant centers. However, their focus is primarily on home goods, while we cater to teens.

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