Thank you, Gary. Good afternoon, everyone and thanks for joining us today for Five Below's fourth quarter 2022 financial results conference call. On today's call, are Joel Anderson, President and Chief Executive Officer; and Ken Bull, Chief Operating Officer and 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 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 on our fourth quarter 2022 earnings call. As we stated at the ICR conference in January, we were pleased with our holiday performance, which was at the high end of our guidance despite the impact of snowstorms leading up to Christmas. The season played out as we had expected with an improved inventory position and more targeted digital marketing, helping fuel sales as our Save the Holidays campaign resonated with customers looking for value. Results for both the holiday period and the quarter overall were driven by transactions, our proxy for traffic, which demonstrates the effectiveness of the value and wow we delivered, especially important in this inflationary environment. We finished the quarter with a strong January resulting in total fourth quarter sales of $1.1 billion for growth of 13%, a comparable sales increase of 1.9% and earnings per share of $30.7. Needs-based items continue to be popular as demonstrated by outperformance in our candy, seasonal, and create worlds. Our customer is clearly looking for value and convenience, and the flexibility of our model allows us to quickly respond and bring them the products they want. We started 2022 knowing it was going to be a challenging year, given the extraordinarily strong stimulus influence results of fiscal 2021, but we did not expect inflation to be as high as it was and across so many key areas. Five Below is a resilient retailer, and we quickly pivoted and adjusted to the new operating environment. I could not be prouder of how the organization rallied to deliver sales over $3 billion and an 11.2% operating profit margin for the year despite these headwinds, and I want to thank them for their commitment to executing with excellence. Now let me summarize the major accomplishments of fiscal year 2022. One, starting with product. We are a merchandise-driven company and we are passionate about sourcing an incredible trend-right assortment for our customers at outstanding value. We stay on top of hot trends and swiftly move to capitalize on them while creating fun for our customers with events like Sunday Squish Day for exclusive squish models. In 2022, we were up against strong trends from 2021 and successfully lapped those by finding amazing value products in Hello Kitty, Funko, and Marvel Collectibles, as well as other licensed products such as Kendall and Kylie Crossover bags. The flexibility of our model and our eight worlds is unique and enables swift recognition and introduction of trend-right and relevant products to our customers, and we have honed our expertise and discipline to effectively manage the constant cycling of these trends. Number two, new stores. They remain a key growth engine with the opportunity for 3,500 plus Five Below locations nationwide. In 2022, we opened 150 new stores, including 48 in the fourth quarter with a total ending store count of 1,340. We are seeing continued strong new performance demonstrating how effective our model is with an industry-leading less than one year payback. Number three, the Five Beyond prototype. Since the reveal of our new store prototype at the March Investor Day, featuring the store within a store of Five Beyond section, we successfully converted nearly 250 stores in 2022 or almost 20% of our store fleet into this format. Number four, digital and data. We created a data science team and began using tokenization tools to gather sales data to communicate with our customers more effectively, as well as to better target new customers. We have improved our ability to meet our customers where they are, whether it be TikTok, Instagram, or Snapchat among other social media platforms. We are still in the early stages of this journey and see great future potential to increase loyalty. Number five, brand awareness. Our overall brand awareness continues to grow as we densify across markets, increasing by eight percentage points in 2022 to 67%. We believe part of this strong growth is due to our new and burgeoning data analytics capabilities, giving us more customer insights and fueling more effective digital marketing, and we expect our brand awareness will continue to increase over the coming years. Number six, crew. In 2022, we opened our annual associate engagement survey to all Five Below crew members, including full-time and part-time across our stores, ship centers, and WowTown. Our engagement scores landed us in the top quartile of Gallup's overall company database, which includes thousands of companies across multiple industries. We are very proud of the level of engagement of our crew and we will continue to focus on hiring outstanding crew members and building engaged teams. While achieving these milestones, we also built out our capabilities and distribution both for e-commerce and stores. We completed our Five Below distribution center network with the opening of our Indianapolis location leading to greater efficiencies and opportunities for improved operations for the chain. Additionally, we rolled out BOPUS across our chain in September and are pleased with the initial customer response and see a big opportunity to continue to grow. These are examples of how we are evolving into a true omnichannel experience, meeting the customers where and how they want to shop. Now let me turn to 2023 and where we are with our triple double vision. We moved swiftly from strategy to execution. We reconfigured our team. We adjusted and hired new leadership. All of this was done to support five new strategic pillars, which are one, store expansion; two, store potential; three, product and brand strategy; four, inventory optimization; and five, crew innovation. We are looking at each of these five through the lens of customer relevancy and using technology to drive results while focusing on unleashing the power of data and analytics. Allow me to give you a brief overview of each one. Given that new stores continue to be the key growth engine at Five Below, store expansion is unsurprisingly the first pillar. As we said at our Investor Day last year, we are expanding our reach to put Five Below anywhere. We have refocused resources to accelerate our store growth and reach a milestone of 200 new stores this year. For example, we overhauled our real estate review process to make it more efficient and we also expanded our view, the types of centers in which we can locate a Five Below store. In addition to our traditional focus on suburban power centers, we are now accelerating urban as well as semi-rural stores and are testing alternative venues. We are excited to get back to growing our new store base again. Moving on to our second pillar, store potential. With average unit volume, or AUV, of 2.4 million and a stated goal of getting closer to 3 million, we know we have a fantastic opportunity to increase AUVs throughout the chain. We are driving comparable store growth through the continued conversion of our fleet to the Five Beyond prototype, as well as introducing new product categories and services throughout the store. Our goal is for Five Beyond everywhere, and we have already announced plans to convert 400 more stores to the new format in 2023. Customers who buy a Five Beyond item defined as $6 and above continue to spend over twice as much as those who buy only Five Below items, illustrating how powerful a driver these store conversions and Five Beyond products are to maximizing the productivity of our stores. Some examples of other store changes in the prototype are new offerings of ear piercing and helium balloons, which we tested throughout 2022 and are now rolling out to over 500 stores. Customers love the convenience and value our ear piercing services, our snarky helium balloon assortment, and the one-stop shopping we offer for parties and gifts. Our third pillar is product and brand strategy. Product is at the core of who Five Below is. Our merchants are relentless about scouring the globe to pursue value trends, wow, and newness that will never change. As we've seen in the past, our growing scale opens up even more incredible opportunities to source amazing products across categories our customers will love. As we continue to open locations and expand Five Beyond conversions to 400 stores in 2023, we are bringing our brand to more and more people. Our aided brand awareness in mature markets like Philadelphia is around 70%, and in newer markets open less than two years our brand awareness has grown to 50%. With top specialty retailers in the eighties, we see an opportunity to increase brand awareness in all of our markets. The Five Below brand will continue to be amplified with increased digital marketing, supported by customer data analytics to retain existing customers and attract new customers. The fourth pillar is focused on inventory optimization. The focus of this pillar is to further enable the scale required for the triple double strategy, while continuing to leverage inventory as an asset to drive sales and maximize profits. We have made many improvements to our systems and infrastructure over the last several years. We've implemented new systems for retail merchandising, inventory ordering, and distribution management, all while increasing ship center capacity and capabilities. But we still have a huge opportunity to make further strides, particularly on the movement and levels of inventory. With our Five Below distribution center network, we know we can better optimize the efficiency of the current systems and processes to better utilize our new configuration. For 2023 our initiatives include a new upgraded merchandise planning system. Our job now is to integrate all these capabilities and leverage the resulting benefits to optimize inventory forecasting, ordering replenishment, and flow with a goal of improving turns and end-to-end visibility. The fifth pillar is crew innovation. Five Below would not be the company we are today without our crew, whether it's in the stores, ship centers, or at WowTown. We want to create amazing experiences from crew to customer, focusing on our store associates as they are key to bringing Five Below alive for our customers so they can let go and have fun. Our store managers especially are critical to the success of the store, instilling the Five Below way and the values into all our associates. With plans to hire thousands of new managers over the next several years, we know we need our store managers fully engaged. As our culture ambassadors, they are key to our future success and we are developing strategies and plans to ensure they have the tools and training they need to drive engagement and model our values. Speaking of our crew, let me spend a couple of minutes sharing my thoughts on our executive team. We have made some significant enhancements in the last 60 days that will positively impact our go-forward momentum, drive success at scale, and grow with discipline. First, we added Amit Jhunjhunwala to our executive ranks as our CIO reporting directly to me. There is nothing we do that technology doesn't impact. Amit is a seasoned technologist joining us from Adidas where he was their CIO, North America. We also announced earlier this week the promotion of Ken Bull, the Chief Operating Officer. This is a great opportunity for us to further leverage Ken's deep knowledge of the entire organization and put him in a role to make a broader impact on delivering our growth goals. With the addition of a new CFO later this year who will report directly to me, Ken's new role positions him to increase his focus on important building blocks for our triple double growth vision across talent systems processes, including direct responsibility for the inventory optimization pillar. In summary, we are pleased with the results in the fourth quarter as well as the progress we made on our strategic initiatives throughout the year. We enter fiscal 2023 from a position of strength and we have evolved our operating structure to enable our teams to execute the long-term growth initiatives that underpin our triple double goals. With that, I'll turn it over to Ken to review the financials in more detail.

Thanks, Joel, and good afternoon everyone. Before I provide my review of the fourth quarter and year, I wanted to let you all know how excited I am for my new role. As COO, it will give me the opportunity to drive continued success of Five Below as we execute the triple double vision. We've achieved incredible growth and success in the 17 plus years I've been with the company and looking forward, there is a large runway for expansion and an opportunity to increase productivity and to drive the brand to new heights. My new role allows us to sharpen leadership focus and narrow span of control as we execute the initiatives that underpin the triple double vision. Specifically, I'm now responsible for the inventory optimization pillar and have oversight of merchandise planning and allocation data and analytics strategy, communications, and legal teams. I will continue with CFO until we appoint my successor, who I am confident will benefit from the talent and strong discipline of our current financial organization. Now on to the financial discussion. I will review the fourth quarter and fiscal 2022 results and then discuss full year and first quarter fiscal 2023 guidance. Our sales in the fourth quarter of 2022 were $1.12 billion, up 13% from the fourth quarter of 2021 and above the high end of our guidance range. We ended the quarter with 1,340 stores, a year-over-year increase of 150 stores or 12.6%. We also converted nearly 250 stores to the new Five Beyond format since our Investor Day at the end of March, and we continue to be pleased with the performance of our new and converted stores. Comparable sales increased 1.9% for the fourth quarter of 2022, also above the high end of our guidance range and against a 3.4% comp increase in the fourth quarter of 2021. The comp increase for the fourth quarter was driven by a 2.8% increase in comp transactions, partially offset by a 0.9% decrease in comp average ticket. We were pleased to see comp transactions turn positive in the fourth quarter. As Joel mentioned, our strong holiday execution and performance were the key drivers of our comp performance, coupled with accelerated momentum and favorable weather in January. Gross profit increased 14% to $452.4 million from $396.9 million reported in the fourth quarter of 2021. Gross margin finished at 40.3%, increasing approximately 50 basis points from 39.8% last year. The increase in gross margin was driven primarily by cost management strategies in distribution and freight expenses, partially offset by higher than expected shrink. On an annual basis shrink for 2022 was approximately 30 basis points higher than what we experienced in 2021. SG&A as a percentage of sales for the fourth quarter of 2022 decreased approximately 80 basis points to 20.2% from 21% in the fourth quarter of 2021 due to lower incentive compensation and cost management strategies, which were partially offset by deleverage of fixed costs and higher marketing expenses. Operating income increased 20.4% to $225.8 million. Operating margin increased approximately 130 basis points to 20.1% of sales from 18.8% of sales in the fourth quarter of 2021. The effective tax rate for the fourth quarter of 2022 was 24.8% compared to 25.1% in the fourth quarter of 2021. Net income for the fourth quarter increased 22.2% to $171.3 million from $140.2 million. And EPS grew 23.3% to $30.7 per diluted share versus $2.49 per diluted share last year. For fiscal 2022, total net sales were $3.08 billion, an increase of 8%. Comparable sales decreased 2% versus the 30.3% comparable sales increase of 2021. This comparable sales decrease was driven by a 1.9% decrease in comp average ticket and relatively flat comp transactions. Gross profit for the full year increased 36% to approximately $1.1 billion. Gross margin decreased by approximately 60 basis points to 35.6%, driven primarily by deleverage of occupancy expenses on the negative comp. SG&A as a percentage of sales for the year increased 160 basis points to 24.4% from 22.8% in 2021 due primarily to higher marketing expenses and deleverage of fixed costs on the negative comp. Operating income of $345 million decreased 9.2% in 2022 compared to last year. Operating margin of 11.2% decreased approximately 210 basis points from last year's operating margin of 13.3%, driven by the gross margin and SG&A deleverage just discussed. Our effective tax rate for the year was 24.7% compared to 24% in 2021. The increase in the effective tax rate for the year was due primarily to a lower tax benefit from share-based accounting. Diluted earnings per share was $4.69 for fiscal 2022, a decrease of 5.3% versus diluted earnings per share of $4.95 for fiscal 2021. Diluted EPS included a $0.04 benefit from share-based accounting in 2022 and a $0.06 benefit in 2021. We ended the year with approximately $400 million in cash, cash equivalents, and short-term investment securities and no debt. We made share repurchases of approximately $40 million or 247,000 shares for the year. Inventory at the end of the year was $527.7 million as compared to $455.1 million at the end of 2021. Ending inventory on a per store basis increased approximately 3% year-over-year, which as expected was a significant moderation. We strategically pulled forward inventory throughout the year in order to be in a good in-stock position, especially for the all-important holiday season, and we were very pleased with the results. The combination of improving global supply chains and our inventory disciplines contributed to this outcome. With respect to CapEx, we spent approximately $252 million in gross CapEx in fiscal 2022, excluding tenant allowances. This reflected opening 150 new stores and completing nearly 250 conversions to the new Five Beyond format, opening the new Indiana distribution center and investments in systems and infrastructure. Our CapEx spend was higher than we had initially forecasted due primarily to accelerated purchasing of store fixtures and equipment for both conversions and new store openings in 2023. Now, I'd like to turn to our guidance. For the year, we are providing a range of potential results that reflects the uncertainty of the macroeconomic and consumer environment. On the high end, we assume a continuation of the current backdrop. While on the low end, we assume some degradation from intensifying consumer pressures. Fiscal 2023 includes a 53rd week, which is expected to add approximately $40 million in sales and approximately $0.08 in EPS. My remarks will refer to the 53-week year unless otherwise noted. For 2023, sales are expected to be in the range of $3.49 billion to $3.59 billion, an increase of 13.3% to 16.8%. The comparable sales increase is expected to be in the range of 1% to 4%. We plan to open 200 new stores and expect to end the year with 1,540 stores or unit growth of approximately 15%. The majority of new stores will be in existing markets. We are entering one new state, Vermont, and expect to finish 2023 operating in 43 states. We expect to open approximately one-third of our new stores in the first half of 2023 compared to over 40% in the first half of 2022. This lower store opening cadence in 2023 is primarily due to landlord related and permitting delays. For the full year, the midpoint of our guidance assumes slight leverage in operating margin, though the quarterly cadence will vary. In 2023, we expect significant leverage from freight expenses that will be largely offset by lapping lower than average incentive compensation and certain one-time cost management strategies we put in place last year. With our strong cash balance and healthy free cash flow generation combined with higher year-over-year interest rates, we are assuming a significant increase in interest income this year. We expect a full year effective tax rate for 2023 of approximately 25%, which does not include any potential impact from share-based accounting. Net income is expected to be in the range of $295 million to $323 million, representing a growth rate of approximately 12.8% to 23.6% over 2022. Diluted earnings per share are expected to be in the range of $5.25 to $5.76, implying year-over-year growth of 11.9% to 22.8%. On a 52-week comparative basis, growth for diluted earnings per share is implied to be 10.2% to 21.1%. This guidance does not include any potential future impact from share repurchases. With respect to CapEx, we plan to spend in total approximately $325 million in 2023 in gross CapEx, excluding the impact of tenant allowances. This reflects the opening of 200 new stores, 400 conversions, expansions to our distribution centers in Georgia and Arizona, and investments in systems and infrastructure. For the first quarter of 2023, net sales are expected to be in the range of $723 million to $735 million, an increase of 13.1% to 14.9%. We plan to open approximately 25 new stores in the first quarter this year as compared to 35 stores opened in the first quarter last year, and are assuming a first quarter comp sales increase in the range of 2.5% to 4% versus a 3.6% comp decrease last year. We expect the operating margin of 5.7% to 6.2% in the first quarter of 2023 or deleverage of approximately 70 basis points at the midpoint, driven primarily by a more normalized level of marketing in the first quarter this year. Diluted earnings per share for the first quarter of fiscal 2023 are expected to be from $0.59 to $0.65 versus $0.59 in diluted earnings per share in the first quarter of 2022. The first quarter of 2022 had a $0.03 benefit to EPS from share-based accounting. We are expecting differences in year-over-year leverage and operating margin results across the remaining three quarters. While it remains our practice to provide guidance for the current quarter and full year, I will provide some directional comments on how we are currently thinking about quarters two through four. For the second quarter, we currently expect modest operating margin deleverage as higher incentive compensation is only partially offset by lower freight expenses. For the back half of the year, we currently expect operating margin leverage driven by lower freight costs offset in part by higher incentive compensation and lapping certain one-time cost management strategies. We expect higher year-over-year leverage in the third quarter versus the fourth quarter. For all other details related to our results and guidance, please refer to our earnings press release. And with that, I would like to turn the call back over to the operator for the question-and-answer session.

We will now begin the question-and-answer session. Our first question comes from Simeon Gutman with Morgan Stanley. Please go ahead.

Hi, good afternoon everyone. I wanted to focus on the 1% to 4% comp guidance range. Can you share if it's balanced between price and units? Does it lean more heavily on one side or the other? Can you compare it to what 2022 looked like and if you're seeing any sensitivity to higher price items at the store?

Regarding the second part of your question, Simeon, we're not witnessing any significant sensitivity to higher or lower-priced items; everything has been quite balanced. We're pleased with the rollout of Five Beyond, which continues to gain traction without any backlash. Additionally, we successfully promoted the $1 holiday items, and customers seemed to appreciate the balance between the two. As for our guidance of 1% to 4%, there is no increased sensitivity towards price compared to transactions. If we take the midpoint, it suggests a slight improvement over last year, which is about 50 basis points lower than what we initially projected at ICR. The upper end of our guidance reflects the ongoing trends we're observing. However, given the current environment, it seems wise to maintain a wider range as we navigate uncertainties, such as the recent banking issues.

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

Great, thanks and congrats on a nice quarter.

Thanks.

So, Joel, can you speak to recent performance from your new store cohorts and maybe elaborate on the flexibility across your eight worlds to maneuver the assortment between need-based versus discretionary purchases? And then Ken, on the cost structure and your ability to find continued efficiencies in the model, should we think of three comps as the right level of comp needed to leverage SG&A or could you actually pivot and leverage on a lower level of comp if needed?

I believe the flexibility is not just limited to consumables, and we have shown that consistently over the years. Historically, we have focused on trends such as spinners, squishmallows, or poppers, which appear in various categories, leading customers to recognize that they can find those trends at Five Below. Over the past year, our focus has shifted primarily to consumables, which include candy, snacks, health and beauty aids, and travel items. Our merchants did an excellent job of adapting as that category grew, increasing our product assortment and ensuring we’re well-stocked, regardless of the trends. Regarding the new store cohort, we are seeing very positive signs. For instance, increasing our number of conversions to 400 this year showcases that we maintain confidence in our previous projections of mid-single-digit comp growth for conversions. Ken, would you like to discuss leverage?

On the leverage, yeah. Matt, your question around the comp and the leverage, the comp point for leverage. You're right. Historically, we've talked about 3%. There's been a lot of noise over the last few years, so it's hard to really kind of decipher based on the most recent activity. But Joel mentioned it before, if you just look at 2023 now, again, there's a few things going on this year that are not normalized, right? We're getting back to a more normalized incentive compensation, and we're lapping some of these one-time cost management strategies. But even with that, you'll notice that like a 2.5% comp, which is the midpoint of our range that we guided to, we are getting slight leverage. I think the bigger part of that is as we move forward, our expectations are that we should see greater leverage as we've moved forward into out years, and potentially at a 3% or lower comp as we start to leverage on those investments we've made over the years, like distribution and corporate overhead in areas like that. So, I do think we have the ability to lever at a lower than a 3% comp, or slightly lower than a 3% comp.

Thanks, Matt.

Thanks, Matt.

The next question is from Seth Sigman with Barclays. Please go ahead.

Hey, everybody. Thanks for taking the question, and Ken, congrats to you. Hey, I just wanted to follow up on the composition of comps. With transactions driving the comps now, it's obviously quite different than we're seeing with a lot of other retailers. Also, interesting, given some of the inherent ticket drivers in your business, can you just give us a little bit more context on what is driving transactions, and then perhaps what are some of the offsets to that? Thank you.

Yeah. I think the two biggest ones for us is, I mentioned in my prepared remarks everything we've done around data and analytics. We have a much better robust tokenization that we haven't had in past years. So, we really utilized that for marketing, and that proved well to drive transactions. And then secondly, the new cohort that Matt was talking about, as we continue on these conversions, we're immediately seeing a lift in sales, and it's primarily through transactions. So, those are two areas that are really driving transactions and it clearly came through in Q4 for us. Thanks, Seth.

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

So, Joel, I have two related questions. First, what would you identify as Michael's top two or three product priorities for 2023? Also, considering the tech sector has been facing challenges over the past 12 to 15 months, what is your outlook on that? Specifically, what actions can you take to improve the situation, or do you think that category might naturally improve over time?

Michael has a few key priorities. First, he is focusing on our consumables, aiming to expand the space dedicated to them and improve their availability. The second priority revolves around Five Beyond, where we have gained insights on which items sell well, which do not, and what quantities we should stock. Lastly, he is concentrating on products priced between $1 and $3. During this period of high inflation, maintaining a low price point and providing value is crucial. In the tech sector, we are already noticing some improvement, possibly due to a rebound from previous weaknesses. As you mentioned, it has been a challenging area. However, in our upcoming refresh, we will introduce new products that align more with trends and novelty, which should resonate with customers. We're also bringing in products we haven't carried before. I think the upcoming reset will surprise you, and as always, we adapt when something isn't performing well.

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

Hey, thanks. Congrats, Ken. Just a couple of quick ones for me. A year ago you guys guided fiscal 2022 to an EPS range of I think $5.20 to $5.70. You subsequently had a lower couple times and eventually did the $4.69 that you're reporting today. So, I guess, I'm curious that history played any role in how you guys guided 2023? And then more near term, Ken, can you remind us why you're expecting 75 basis points of margin compression here in the first quarter on a pretty healthy comp?

Yeah. You want to take the first one?

I think it's important to note that we’re entering 2023 with a greater sense of control over our direction, returning to what Five Below is truly about. For the past four years, we've been averaging around 150 new store openings each year, so increasing that to 200 is a significant step. This change indicates that we can manage that aspect effectively. However, we're also aware of the ongoing macroeconomic uncertainties and chose to expand the lower end of our guidance to remain cautious. Our main message is that we’ve moved past the negative comparable store sales, and we're focusing on growth—both by opening new stores and improving existing ones. This will come from conversions and the efforts of our merchants, along with enhancements to our marketing strategies. Then, over to you, Ken.

Yes, and then Chuck, on deleverage and the operating margin for the first quarter, it's about 70 basis points. It's primarily driven by increased marketing. If you recall, we really had dialed that back really throughout 2021 and even into the beginning of 2022. We really didn't see those increases until the back half of last year. So, we're up against that, but that's the key driver of that deleverage in Q1.

All right. Thanks.

The next question is from Scot Ciccarelli with Truist. Please go ahead.

Hey, guys. Scott Ciccarelli. I guess I have a follow-up question on ticket versus transactions. Can you help square for us the rollout of Five Beyond where you're obviously selling higher ticket items versus the decline in average ticket you experienced in fourth quarter? Is that some sort of signal that maybe Five Beyond is not generating the traction, I guess I would've expected at this point?

No. I'm not sure I would expect that at all. We continue to see ticket increase, what about $0.10 a year or so?

Yeah. On an overall basis. Yeah. Yeah.

Sure, please continue.

Yeah. Five Beyond contributes only a small part to that increase. Other factors include customer preference and some strategic price increases. Overall, when we examine ticket data, we notice increases in average unit retail, but any decrease in ticket size is primarily due to units per transaction, which aligns with trends reported by other retailers. This reflects the pressure consumers are experiencing due to rising prices and a challenging economic environment. Consequently, overall ticket sizes are either stabilizing or decreasing. While average unit retail is increasing, we are seeing a decline in units per transaction. This trend has been consistent over the past few quarters, and we've discussed it in relation to our customers.

Yeah. And as I said on the previous question, we wouldn't be accelerating our conversions into the Five Beyond prototype if we were seeing any concerns whatsoever. Thanks, Scott.

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

Good evening. Thank you for taking my question. I have a two-part inquiry regarding the guidance. First, considering that you completed 200 models last year and 400 this year, along with a mid-single-digit comparable sales lift from those remodels, you will have effectively impacted roughly one third to one half of the chain, presumably contributing about 150 to 200 basis points to comparable sales in 2023. Is it fair to assume that outside of that, your guidance suggests you could see comp sales declining closer to two? My follow-up is regarding the potential for a negative comp. If the macroeconomic conditions are more challenging than anticipated, what is the lowest comp you can experience while still meeting the low end of your EPS guidance for this year? Thank you very much.

I appreciate your question, Michael. I wouldn't categorize it negatively. I would suggest we might have been anticipating a low single-digit comp guide, which is typically our norm. Considering the uncertainties, we may have adjusted our expectations to a range of zero to three. Your estimate of about a hundred to 150 basis points might be a bit on the higher side. That figure would reflect an absolute peak among the mid-single digits we previously mentioned, which wasn't factored into our guidance. Therefore, if we consider a hundred basis points guide for conversions along with our traditional low single-digit guidance, that's why we're projecting closer to four instead of one to three or zero to three.

Yeah. And then, Michael, your question around relating EPS with the lowest comp, I mean, the guidance that we provided, that's where we feel right at a one comp, that's where we'd land at the low end of the EPS. The one thing I'll add to what Joel mentioned, at the low end, we're assuming some type of kind of intensifying difficult environment for the consumer. If that were to happen, there would probably be a negative impact on both stores and the results of conversions and existing stores. So, it could be a scenario where you do get less, but just not as much as you expect based on the environment. But you never know where that's going to land at the end of the day, but that's kind of what we were thinking about when we provided that guidance.

Thanks, Michael.

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

Yeah. Hi, guys. Good afternoon. My question is on store growth. Joel, you mentioned that getting back to sort of like the run rate that, that you would sort of hope to. But if I take a step back, and look at store growth this year, probably about 15%, I guess. Can you just talk about the process changes that you're making? And then as we look forward, can you ramp the number of stores that you're opening such that you're looking at least this level of square footage growth or more? Only because I think at the Investor Day, in the end, right, you plan probably for, I think, for better growth there. Thank you.

No, it's a great question, Ed. The growth is about 15%. There are two key points. First, we are planning to return to a more balanced distribution between the first and second half of the year. I believe 2023 will be the final year where we focus on getting the engine running again. Last year, we experienced a similar trend with more activity in the latter part of the year. With our current progress back to 200, we are on track to reach the projections we discussed at the Investor Day, aiming for between 500 and 600 in 2024 and 2025. When combining the two years, we foresee continuous upward movement. Delays from landlords are decreasing, and supply chain challenges are improving. Moreover, we haven't experienced any disruptions in the retail sector for three years; several bankruptcies have been announced, positively impacting our ability to move forward. This situation was a significant barrier for us in the past, so I feel optimistic about returning to our desired run rate.

And I think Ed, you had a question around the process, the real estate.

We have streamlined the process in several ways to execute more leases in a shorter timeframe and increase our monthly output. We're expanding the types of centers we are developing. As I mentioned earlier, we have been primarily focused on suburban power centers, but we are now including more urban and rural locations. We also plan to develop more grocery-anchored centers. Last year, we opened some of our first outlet stores and will continue to explore new venues.

The next question is from Kate McShane with Goldman Sachs. Please go ahead.

Hi. Thanks for taking our question. We wondered if you could maybe quantify some of the share gains you saw during the quarter. And if you think some of the closeouts you were able to take advantage of helped you during the quarter as well.

Yeah. I mean, closeouts were good, but they weren't overly material to our overall performance. I think some of the stuff we did around trends was much more important. I called out squish models as an example. The Kylie and Kendall bags were phenomenal, did great. We are, though, optimistic, or opportunistic on closeouts, but honestly, Kate, they weren't a big piece of penetration for the quarter from that perspective. I think our share gains more came from the conversions and marketing. Those really were where we saw the two biggest drivers for the quarter. Thanks, Kate.

The next question is from David Bellinger with Roth MKM. Please go ahead.

Hey, thanks for the question, and Ken, congrats. Can you guys talk about potentially the longer-term opportunity you have within the collectibles category? We came across some in-store events around Pokemon trading cards over some weekend. So, should we expect more of that and could these events or further expansion in collectibles open Five Below up to some type of new set of customers, maybe an older set of customers with more spending power? Thank you.

It's a great question, and I appreciate that you've noticed. It shows you're visiting our stores, which I love. Before the pandemic, we hosted many events in our stores, but those stopped for three years. Ultimately, it's all about creating experiences, and collectibles provide a fantastic experience in our stores. Kids enjoyed trading them and gathering together, and that excitement is returning. Ear piercing is another popular offering that has surprisingly attracted more boys than we expected. Our stores create a safe space for both boys and girls, so we've seen many boys participating in ear piercing. Each of these activities celebrates the rituals and milestones of growing up and fosters experiences, and collectibles have been a successful part of that. I believe you'll see more of these initiatives in the future.

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

Thank you very much and congratulations on a great quarter. I have two questions to combine. Could you provide some insights on the factors affecting gross margin as we move through the year? Additionally, regarding CapEx as a percentage of sales, with your guidance for 2023, is this the appropriate run rate to consider going forward?

Thanks, Karen. Regarding the gross margin, on a year-over-year basis, the first quarter doesn’t show any significant change; it appears relatively stable. We expect it to grow as the year progresses, primarily due to lower freight costs compared to last year. Remember, we experienced high freight costs previously, but the team has effectively renegotiated contracts. You should see an increase in gross margin by quarter as the year continues. As for CapEx as a percentage of sales, we are seeing growth year over year from 2023 to 2022, largely due to the additional new stores, with 50 more openings in 2023 and about 150 more conversions contributing to this growth. I anticipate this trend will remain similar in the coming years. While there may be some expansion in 2023, particularly in Georgia and Arizona, I expect this to be consistent with what we are observing in 2023 or potentially slightly lower as a percentage of sales in 2024.

Yeah. I'd expect it to tick down.

Drop, yeah.

Yeah. All right. Hey, thanks Karen.

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

Hey, thanks for taking the question. Just wanted to ask on marketing spend. If you could give some additional color on where you see that coming in for the full year in terms of bps of headwind? And then also, incentive comp. Where was that in CY 2022? So, we know kind of what you have to cycle. And then lastly, if you could share any ocean freight bps of tailwind based on current spot.

We expect marketing to increase by about 10 to 15 basis points on a full-year basis, though there may be some variations in different quarters. Regarding incentive compensation, last year was lower due to unique circumstances, but this year is more typical. This results in around ten basis points of SG&A pressure on a full-year basis.

All right. Thank you.

The next question is from Krisztina Katai with Deutsche Bank. Please go ahead.

Hi, good afternoon. Thanks for taking the question and my congratulations as well to you, Ken. So, you talked about increased focus on data and analytics, and you are ramping back up marketing again. So, can you just talk about leveraging the data to even adjust your marketing tactically if you have to? And just overall, how are you measuring the effectiveness, whether it is bringing you a new consumer or driving greater transactions with existing consumers?

Sure, that's a great question. Last year was significant for us as it was the first time we implemented tokenization, allowing us to track customer-level data. This year, we will begin to analyze year-over-year statistics. Regarding our marketing efforts, we are focusing on attracting new customers while also encouraging existing customers to remain loyal and increase their purchase frequency. The strategies we employ will vary depending on whether we are dealing with new, existing, or converted stores. We now have the necessary data, and this will be the first year we can compare year-over-year results. As we progress through this year and into the next, we will continue to enhance our understanding. I hope that provides some helpful insight. Thank you, Krisztina.

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

Thank you, operator. And thank you everybody for joining us this afternoon. Like I said at the beginning, we are really pleased with our results and are excited to get back to growing and get back to being a high-growth retailer, playing offense like we always do, being nimble to trends and what's changing. And we’ll stay focused on value and I look forward to seeing you all and speaking again after Memorial Day on our Q1 call. Thank you and have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.