Five Below, Inc (FIVE) Q1 2023 Earnings Call Transcript

Thanks, Sarah, and good afternoon, everyone. Thanks for joining us today for Five Below's first quarter 2023 financial results conference call. On today's call are Joel Anderson, President and Chief Executive Officer; and Ken Bull, Chief Operating Officer; 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 for our first quarter 2023 earnings call. We were pleased to achieve first quarter results in line with our guidance, with sales growth of approximately 14% to $726 million and a transaction-driven 2.7% comp sales increase. It continues to be a challenging time for consumers with persistent inflation, lower tax refunds, and fewer government-sponsored benefits compared to the stimulus-fueled periods of the pandemic. However, being an extreme value trend-right retailer, we continue to attract and retain more customers and grow our comparable transactions in both converted and non-converted stores. Our transaction increase of 3.9% was the highest since 2017, excluding the stimulus-fueled period during the pandemic, and is a strong indicator that Five Below is a destination customers rely on even in tougher economic times. We are a resilient retailer with a flexible model, and we continue to play offense, opening new stores and quickly reacting to customer needs to bring them the WOW products that they want at amazing values, while also executing against our strategic pillars to achieve our triple-double growth. On product and trends, we saw continued popularity of a broad variety of trends across our worlds in Squish, Hello Kitty, Anime, Collectibles, and our version of consumables, including candy, snacks, and beverages in our Candy World, as well as beauty items and accessories in our style world. The new Super Mario movie released in April was a hit, and we sold through tees, posters, and other items and quickly procured more. It is nice to see licenses emerging again. For Easter, we had great baskets and candy at extreme value that resonated with our customers. The broad-based results of our worlds demonstrate the relevancy of our products. All through the quarter, we made progress across our five key strategic pillars that underpin our long-term triple-double vision. As a reminder, we are looking at each of these five pillars through the lens of customer relevancy and are unleashing the power of data and analytics to drive results. The first pillar is store expansion. We are expanding our reach to put Five Below anywhere, as we said at our Investor Day. We now expect to reach a milestone of over 200 new stores this year, while building our pipeline for next year and beyond. In the first quarter, we opened 27 new stores across 19 states. Two of these stores were in the top 25 spring grand openings of all time. With our strong balance sheet, seasoned and nimble teams, and focused execution, we acquired several leases from other retailers in bankruptcy, positioning us to exceed our original 200-store openings goal for this year. These negotiations took time and effort from our real estate, construction and design, legal, and finance teams on top of their already busy jobs, and we are very thankful for their commitment to achieving a great result. Moving to our second pillar, store potential. We are focused on growing our average unit volume through the addition of Five Beyond in the back of the store as well as new products and services such as ear-piercing and fun snarky helium balloons. We converted approximately 250 stores into the new prototype in the first quarter alone and are on track to convert over 400 stores to the new Five Beyond prototype this year to achieve our goal of Five Beyond everywhere. These conversions continue to drive traffic and higher baskets, and we see a large opportunity to grow Five Beyond from the current single-digit penetration of sales today. Our third pillar is product and brand strategy. We've discussed how Five Below is a merchandise-driven organization and how our merchants are relentless about scouring the globe to pursue trends while ensuring newness and value. In the first quarter, we were very pleased to officially incorporate and open our first global sourcing office in India. We are very excited to have a presence on the ground to work directly with our factories overseas and together develop and bring to market even more amazing products at disruptive and distorted value for our customers. This was a huge effort by so many people who supported our product development team in establishing this office. Thank you to those who went above and beyond to achieve this milestone. On brand strategy, our digital marketing investments continue to grow and reach more customers to build our brand awareness, drive customer traffic, and position Five Below as a go-to destination for fun. We conducted a successful campaign in Q1 surrounding Easter while continuing to push our evergreen offerings of the brand. In doing this, we have successfully used data and analytics to understand audiences, to segment and optimize our digital marketing investments. Complementing our paid digital marketing efforts, our social presence and customer fans are growing in terms of followers and engagement across social media platforms. In addition to influencers creating content and posting about us, celebrities like Walker Hayes and Bethany Frankel shared videos about their visits to Five Below on TikTok. Their posts had high viewership and engagement. The fourth pillar is inventory optimization. The focus of this pillar is to further enable the scale required to achieve our Triple Double strategy while continuing to leverage inventory as an asset to drive sales and maximize profits. Using technology and data analytics, we are focused on improving inventory forecasting, ordering, replenishment, and flow with a goal of increasing turns and improving end-to-end visibility. We've already implemented a new vendor management platform that increases transparency and enhances real-time communication, and we are beginning to work on both the new planning system and a replenishment forecasting tool. The fifth pillar is crew innovation which focuses on the critical pipeline and talent that we need to achieve our triple-double. We will hire and train hundreds of thousands of crew members in the next several years in order to serve our customers, lead our teams, ship our products, and support our strong growth. As you can see, we have been busy this first quarter. In summary, we are pleased with our financial results and operational accomplishments in the first quarter amid a challenging macro backdrop. With May actualized, we have a good perspective on Q2 in which we expect to see a continuation of transaction increases. As we look to the remainder of the year, we believe many of the headwinds of the pandemic era that impacted us will begin to emerge as tailwinds. We are accelerating our offensive playbook. We are opening over 200 new stores and completing over 400 conversions. We're executing a focused marketing campaign to bring to life the new Five Beyond store format. And we are capitalizing on an improving supply chain, including favorability in freight costs and continuing to build our strong pipeline of new stores for 2024. With that, I will turn it over to Ken to review our financials and our outlook in more detail.

Thanks, Joel, and good afternoon, everyone. I will start by reviewing our first quarter results and then provide guidance for the second quarter and the full year. Our sales for the first quarter of 2023 rose by 13.5% to $726.2 million from $639.6 million in the first quarter of 2022. Over the past four years since 2019, total sales for the first quarter this year increased by about a 19% compounded annual growth rate. Comparable sales grew by 2.7%, with a 3.9% increase in comp transactions, partially offset by a 1.2% decline in the comp ticket. We opened 27 new stores across 19 states in the first quarter, down from 35 new stores opened in the same period last year, and we are very pleased with the productivity of our new locations. We concluded the quarter with 1,367 stores, a net increase of 142 stores or around 12% from 1,225 stores at the end of the first quarter of 2022. Gross profit for the first quarter of 2023 increased by 13.6% to $234.8 million, compared to $206.8 million in the first quarter of 2022. Gross margin remained flat at 32.3% compared to the previous year. SG&A as a percentage of sales for the first quarter rose by about 80 basis points to 26.5% compared to last year, mainly due to a planned increase in marketing expenses and higher store-related costs. Consequently, operating profit was $42.4 million, slightly up from $42.3 million in the first quarter of 2022, while operating margin decreased about 80 basis points to 5.8%, as anticipated. Net interest income was $3.65 million compared to a net expense of $237,000 in the first quarter of 2022, as our investment income gained from rising interest rates. Our effective tax rate for the first quarter of 2023 was 18.6%, down from 22.3% in the first quarter of 2022, primarily due to a higher benefit from share-based accounting this year. Net income for the first quarter of 2023 was $37.5 million compared to $32.7 million last year. Earnings per diluted share for the first quarter was $0.67 as opposed to last year's $0.59. Diluted EPS included a share-based accounting benefit of around $0.06 this year, compared to about $0.03 in the first quarter of 2022. We ended the first quarter with $424 million in cash, cash equivalents, and investments, with no debt, including no outstanding amounts on our $225 million line of credit. Inventory at the end of the first quarter stood at $534 million, compared to $504 million at the end of the same quarter last year. Average inventory per store decreased by about 5% compared to the first quarter last year since we proactively ordered inventory earlier in the year to maintain healthy in-stock levels. We are satisfied with the current level and quality of our inventory as we head into the summer season and expect to be well-prepared for the second quarter. Now, looking ahead to our guidance. For the second quarter of 2023, we anticipate net sales to be between $755 million and $765 million, representing an increase of 12.9% to 14.4%. At the midpoint of this guidance, total sales are expected to reflect around a 16% compounded annual growth rate for the four-year period since 2019. We plan to open about 40 new stores in the second quarter this year, up from 27 stores opened in the second quarter last year, and we expect a second quarter comp sales increase in the range of 2% to 3%. As a reminder, the slower pace of opening a third of our annual new stores in the first half of this year was mainly due to permitting and landlord delays. We anticipate an operating margin of 7.5% to 7.9% in the second quarter of 2023, which reflects a deleverage of about 70 basis points at the midpoint due to a shift in marketing spending and more standardized incentive compensation costs this year, only partially offset by reduced freight expenses. Net interest income is projected to be around $4 million for the second quarter, and taxes are expected to be around 26%, excluding any potential impact from share-based accounting. Diluted earnings per share for the second quarter of fiscal 2023 are expected to be between $0.80 and $0.85 compared to $0.74 in diluted earnings per share in the second quarter of 2022. Regarding the full year, we are refining the range of our EPS guidance while keeping the midpoint consistent with our prior forecast, and we still expect slight operating margin expansion at this midpoint. We continue to project that total sales for the second half of the year will grow in the high teens on a four-year compound annual growth rate basis, similar to the first half, with a comparable sales increase in the second half currently assumed in a low single-digit range. Fiscal 2023 includes a 53rd week, which is expected to contribute approximately $40 million in sales and about $0.08 in EPS. My remarks on full-year guidance will refer to this 53-week year unless stated otherwise. For 2023, we expect sales to range between $3.5 billion and $3.57 billion, an increase of 13.8% to 16.1%. The comparable sales increase is anticipated to be between 1% and 3%. We now aim to open over 200 new stores and finish the year with over 1,540 stores, reflecting around 15% unit growth. For the full year, the slight leverage in operating margin at the midpoint of our guidance is primarily driven by lower freight costs, partially countered by last year's lower incentive compensation and certain one-time cost management strategies we implemented. With our strong cash reserves and healthy free cash flow generation, along with rising interest rates year over year, we still anticipate significant growth in net interest income this year. We expect an effective tax rate for the full year of 2023 of around 25%, currently factoring in a higher effective tax rate of about 26% for the second half, excluding any potential future impact from share-based accounting. Net income is projected to be between $297 million and $319 million, indicating a growth rate of about 13.5% to 22.1% over 2022. Diluted earnings per share are forecasted to be between $5.31 and $5.71, suggesting year-over-year growth of 13.2% to 21.7%. When adjusted for a 52-week comparison, growth for diluted earnings per share is estimated to be between 11.5% and 20%. This guidance does not include any potential future effects from share repurchases. Concerning CapEx, we now plan to spend approximately $335 million in gross CapEx, not accounting for tenant allowances. This investment reflects the opening of over 200 new stores, including recent acquisitions from bankrupt retailers, converting over 400 store locations, beginning expansions to our distribution centers in Georgia and Arizona, and investments in systems and infrastructure. In conclusion, we achieved first-quarter results within our projected range despite a challenging macro environment. As Joel noted, we also made significant operational strides towards key strategic goals. This underscores the execution capabilities and dedication of our teams, for which I am very appreciative. For further details regarding our results and guidance, please refer to our earnings press release. I will now hand the call back to the operator for the question-and-answer session.

Our first question comes from Simeon Gutman with Morgan Stanley.

My question is about the current state of the retail market, as many companies we follow, regardless of their target income demographic, are indicating strain on consumer spending and some weakness. Joel, could you provide insight into your recent quarter, how it progressed, and whether we are past any challenges in terms of customer behavior? Additionally, I would like to understand how your customers are managing their spending and visit frequency, which could help us gauge what to expect moving forward.

Yes, Simeon, and it's a great question. I don't know that I could say that our customers are over it, but I would say that the indication of such a strong transaction-led quarter for us probably indicates that like we've seen multiple times, when times are tough for our customers, they have to rebalance their balance sheet, figure out their spending patterns again, and Five Below becomes part of their new routines. And so clearly, that showed up in transactions. Look, as far as the quarter goes, we were really pleased with Easter and like many called post-Easter was a softening. So I think we're seeing trends get back to more normal pre-pandemic where the customer buys closer to the events. We certainly saw that with Easter. We've seen it with Mother's Day. That trend happened last year with things like Halloween, and there's no reason that, that wouldn't continue to happen. We see the end of the month cycle where at the end of the month, the sales get softer, then they really pick up in the beginning of the month. So all that, we've got many, many years of following that, and we're really kind of getting back to trends that we saw closer to last year. Look, we're trend right, we're extreme value, and we believe that the last place customers cut out are their kids. And so all that should bode well in tough times as well as in really strong times. So the quarter was on the soft end of it, but we've definitely seen an improvement here. And I think that the peak of the headwinds are behind us.

Our next question comes from Scot Ciccarelli with Truist.

Scot Ciccarelli. I guess my question is, we've had declines in average ticket for several quarters now. Just given the growth in Five Beyond, I guess the question is, at what point would you expect average ticket to shift into positive territory given the current environment?

Thanks, Scot. You've seen declines, but they've been pretty small. And I think it's important to remind everybody, post-pandemic, we saw extreme increases in ticket. And so while there's been some declines, they still are much higher than they were pre-pandemic and double-digit increases. So it has ticked down. I think that's a sign that the customer is being very discerning in what they put in their basket. But at the same time, I think where the positivity for Five Beyond really is proving to play out is on trips. So that shows up in transactions. We're just one more reason to come visit Five Below, there's another reason. I don't know, Ken, anything else to add?

No, I think you hit it on the Five Beyond, Scot. Early on, we've talked about this, and we're still seeing it. It's really driving an increase in transactions. I think it's somewhat in the newness of the store when the customer comes in and sees that. That may change because we're still early in this, but at least out of the gate, we're seeing that increase on the transaction side versus ticket.

Next question comes from Matthew Boss with J.P. Morgan.

Congrats on a nice quarter. So Joel, could you expand on the broad-based performance that you're seeing across world and just the drivers behind the material improvement in transaction count? And then, Ken, with store productivity, the best in two years, could you just elaborate on the performance of some of the new builds and speak to the acceleration decisions that you made around new stores and conversion?

Yes. Look, Matt, the performance was really seven out of our eight worlds were extremely strong, all positive. Really the only world that's running negative comps is tech, and I think that's pretty much across the marketplace. But really led by our version of consumables. I mean, candy, snacks, beverages, HPA those were the leaders of the quarter. But the fact that seven out of our eight worlds were positive shows you that the customer really shopped our entire offering.

Yes. And then, Matt, on the store productivity, you're right. We've seen in some recent quarters back to that kind of 90, 90-plus store productivity performance, which we're happy to see. Joel actually called out this quarter a couple of stores, again, hitting records for spring grand opening performance. And if you look at our guidance, if you do the math around that, we do expect that to continue as we move forward to get back to that 90% productivity as we move through the year.

Our next question comes from David Bellinger with ROTH MKM.

On the leases you recently acquired, it looks like you picked up maybe 18 of those from a home furnishings retailer no longer in operation. And those store sizes look to have a little more square footage than your typical box; looks like most of them are in excess of 10,000 square feet. So is there any thought or testing around maybe a slightly larger store format and including not just a wider selection of product but maybe some additional space for Five Beyond?

Yes. Thanks, David. The majority were picked up from Tuesday morning. And whether it's 10,000 or 11,000, it's an immaterial difference to us. We've got plenty of stores out there that have a little extra square footage. What I would tell you about the prototype is we continue to innovate with our prototype. I mean, the original Five Below prototype was only 4,000 to 5,000 square feet. Then we created the 7,500 square foot iteration, which was when I got here, and we've slowly grown it now close to 10,000. And the way we've set up Five Beyond, David, is we can continue to grow Five Beyond. All we have to do is keep pushing that back wall back. And so it's only limited by our merchants coming up with rituals and milestones are growing that they think we can build a classification out of. I think pet is a great example, one that we've built over the last few years. But at this point in time, we are really more focused on these next couple of years of massive conversions to the current prototype that we shared with all of you down in Pembroke in Florida. But it's not to say down the road, there's an opportunity to keep growing the prototype.

Our next question comes from Jeremy Hamblin with Craig-Hallum Capital Group.

This is Jack Cole on for Jeremy. So similar to the first question, we've also heard widely across retail pressure from shrinkage, but you guys saw your GMs flat year-over-year as you expected. So just any comments on any impacts you guys saw from shrink in the quarter? And if so, could you quantify it just in terms of bps?

Yes. Look, shrink is definitely something that's impacted retail. We're no exclusion to it. We truanted that up last year, and it had an impact on our fourth quarter; we are accruing at higher rates this year and doing things on our part to mitigate shrink. We've changed our return policy as an example. I don't know, Ken, anything else on shrink?

No, I think, Jack, as Joel mentioned, we're focusing on preventative measures around shrink. I mean at this point, we're not experiencing anything materially different than what we saw at the end of last year when we did a lot of our physical inventories. And as Joel mentioned, that higher rate that we came out of last year with has been included in the guidance that we provided for the quarter.

It's all baked into this year's guidance at a higher rate.

Our next question comes from Michael Lasser with UBS.

This is Atul on for Michael Lasser. We have a question on Five Beyond. Are you still getting a mid-single-digit lift from the Five Beyond remodels? And is there any risk that the lift moderates from here given the macro backdrop?

The lift has been consistent, and we're seeing it continue in both the stores we converted first and the recently converted ones. We notice that lift almost immediately, and it has persisted. We're known for providing extreme value, and customers appreciate what they see in Five Beyond. We still expect that mid-single-digit lift to continue as our forecast.

The next question comes from John Heinbockel with Guggenheim Securities.

Joel, two quick things. Number one, the acceleration of the Five Beyond conversions, can you accelerate it further, meaning do more than 400 million this year and accelerate it next year? And then secondly, your current thoughts on the tech world reset, how you feel about that and the ability because you called that out, can that now move us back into positive territory in that category?

Yes, John, that's a great question. While we could speed up conversions, the team responsible for them also handles our new store openings. This year, we intentionally prioritized conversions at the beginning and scheduled new store openings for later. We expect the team to complete conversions by the end of Q2 to concentrate on new stores in the second half of the year, which will be a record period for us. The distribution will be about one-third for the first half and two-thirds for the second half. This is the main reason we’re not accelerating conversions further. We believe the 400 conversions will be successfully completed, and we plan to resume them at the start of the new year. Regarding TechWorld, we've noticed some improvements and anticipate a more significant reset this fall. There are many rumors and changes surrounding the Apple release that should positively impact us. We expect to see further improvements in the second half of Q3 and definitely in the crucial fourth quarter.

Our next question comes from Edward Kelly with Wells Fargo.

I wanted to ask you about the comp cadence. The Q2 comparison seemed like it was going to be your easier comparison of the year on a multiyear basis. Based upon how you're guiding, I think it implies a little bit of an acceleration in the back half; so just thoughts around that. And then, as we think about holiday, generally; Joel, in terms of product standpoint, things that you're excited about from a holiday perspective, and I know it's early but sort of like what you're expecting for the season?

Ed, regarding the comparison, I believe the acceleration should be viewed more in the context of the four-year geometric stacks. If you examine the four-year total sales compound annual growth rate, the first half comparison aligns closely with the second half. Our forecast for Q2 is in line with this, and the midpoint is right on target with our Q1 results. As for the latter half of the year, I’m not ready to discuss specific trends or areas of excitement just yet, but we are enthusiastic about some developments we anticipate for the back half.

Our next question comes from Jason Haas with Bank of America.

Can you talk about how May is running today versus the 2% to 3% comp guide that you gave for Q2? And then can you just remind us what the compares look like as you move through Q2? I think May was one of the softer months last year. So, declares get harder through the quarter?

Sure. Thanks, Jason. Normally, we don't provide intra-quarter activity. But I can tell you that when we prepare our guidance for the current quarter, we consider where we are and then we look forward to see if there's anything, any changes in the business or expectations or anomalies that we need to factor in from last year. So relatively in line with what we're guiding to in terms of that 2% to 3%. You mentioned the kind of changes in the business last year as we moved through the quarter; it was relatively consistent, possibly a slight deceleration last year based on some of the things that were going on around the customer and inflation. But that's kind of what we're thinking now in terms of the guidance for Q2.

But pretty much all three months in Q2 last year were relatively in line with each other from a comp perspective.

Our next question comes from Brian Nagel with Oppenheimer.

It was a good quarter. I'm not trying to be overly critical, but I noticed that you've lowered the high end of your annual comparable guidance by one percentage point. Can you explain the reasoning behind that? Is it due to a change in expectations for the second half of the year, or is it more of a technical adjustment?

Yes, Brian. When you look at the full-year comp guidance, our previous guidance was a 1% to 4% comp. And then we moved to a 1% to 3%, so we brought the high end of that comp down. That really just reflects the expected performance. If you look out in the first half of the year. And as I mentioned in my prepared remarks, the second half comps imply a range of low single digits. And somewhat similar to what we had talked about on our first call earlier in the year, that low end for the second half would assume some type of deterioration in the macro consumer environment, and then the high end would assume some slight acceleration on some of those tailwinds that Joel mentioned in his prepared remarks around increased conversions that we're doing, and more effective marketing and things like that.

Our next question comes from Kate McShane with Goldman Sachs.

A lot of our questions have been answered already. But we wonder, to the extent that you can, is there any way to quantify maybe a trade down or just what if he had any more higher-end consumer shopping Five Below in the first quarter?

Yes, Kate. Since all the questions were answered, I thought you might ask how I was doing or something, but I'll address the trade-down question instead. Honestly, we haven't seen anything significant in that area. We're still seeing our lower-end customers spending more with us and a general increase in transactions across the board. Our core customer remains very dependent on us, and it seems they are likely spending more of their discretionary income with us. However, there hasn't been anything significant regarding the trade downside yet.

Our next question comes from Karen Short with Credit Suisse.

This is Dan Silverstein on Karen's team. Just two really quick ones; first, on the strong transaction growth. Are you able to assess how much of the contribution is from new customers versus existing customers shopping more frequently? I know you guys have done a lot of work on leveraging customer data. So any comments on your consumer behavior would be helpful. And then really quickly, can you just qualitatively speak to what you're planning to in terms of margins for Q3 versus Q4? Just to get some help with the timing of lapping freight.

Look, on the transaction side, and then, Ken, you can talk about margins. It's actually Dan both. We're seeing it both in the form of new customers and existing customers coming in more often. So that's really nice to see both an improvement in new customers as well as our existing customers visiting us more often. Ken, do you want to take it?

And Dan, yes, on the operating margin leverage, I'll just kind of start with in my prepared remarks. On the full year, so just we expect slight operating margin leverage. We're guiding the second quarter to about a 70 basis point deleverage. So the back half of the year will be operating margin leverage that we're going to see Q4 is going to be from what we're looking at now, slightly more operating leverage than Q3. And when you get into the numbers there, the third quarter gross margin leverage is probably going to be double that of the operating margin leverage for that quarter. And when you get into Q4, again, with the freight cost benefit and some of these other things going on, we're probably going to see gross margin leverage in excess of 150 basis points in Q4 and SG&A deleverage probably just a little bit less than 150 basis points.

Our next question comes from Paul Lejuez.

This is Kelly filling in for Paul. I would like to start by asking about the licensing business, which seems to be improving. Can you share how substantial that business is for you currently compared to its peak or pre-COVID levels? Additionally, what upcoming developments are you excited about? As a follow-up, is there any difference between Q3 and Q4 guidance, or are we maintaining a similar roughly 2% comparable growth for the fourth quarter?

I think the comment on licensing is that it has really been nonexistent for three years, largely due to the lack of movies since COVID. It's still a very small area. While Super Mario surprised us, it didn't have a significant impact on the business. However, it gives us hope that some of the movies being released this year will lead to licensing opportunities. This is just one example of a trend returning, and as these opportunities arise, we'll take advantage of them. Ken, what are your thoughts on the second half?

Yes. Regarding the second half of the year, if you're looking at the modeling from a comparable sales perspective, we currently anticipate a low single-digit positive growth for both the third and fourth quarters. In terms of operating margins, we expect to see improvement in both quarters, with the fourth quarter showing slightly more leverage than the third.

Our next question comes from Steve McManus with BNP Navis.

So on gross margins, we recognize that Five Below version of consumables is unique, but is there any mix shift impact working through the P&L that's worth noting?

I don't think anything material worth noting. We've seen this shift now for over a year, and it continues to tick up. But it's not a material shift; a point here, a point there. And like we always do, I mean, we chase trends, and so you see one area go up and another area go down. But it's not so significant that it's moving 1,000 basis points or something like that.

Thanks, Steve. Our next question comes from Chuck Grom with Gordon Haskett.

Most of my questions have been answered. So I guess, how you doing? And Joel will be my first one. And the second would be, I guess just bigger picture. You guys have been talking about tokenization for a while. I guess at what point do we take that to a loyalty program? And just maybe some observations on what you've learned so far.

Just trying to lighten the mood a little bit. Thanks, Chuck. Tokenization is now firmly implemented. I believe we are at the stage of starting to explore loyalty. Some of that was likely put on hold due to three years of COVID, followed by supply chain issues and inflation, which kept the teams busy with mix shifts and product changes. The next logical step, Chuck, is to begin looking at establishing a loyalty program now that we have some foundational elements in place. I think we need to consider it for 2025, not 2024, and we will certainly keep you updated as we begin to implement it. The groundwork has been laid, and as we continue to see more normalization in our business and return to a more proactive approach, this is a priority on our agenda.

Our next question comes from Krisztina Katai with Deutsche Bank.

Just a quick follow-up to some of the strength that you're seeing in traffic. Are you doing anything differently, I guess, merchandise either price point wise? I know you picked candy, snacks and HVA performed, particularly the best. But how do you view the opportunity to further capitalize on a potentially weaker consumer environment now that you're doing a lot more data analytical work?

Yes. Thanks, Krisztina. Look, the one thing that's been consistent since the beginning and is something we're really probably even more focused on now is really delivering value and specifically in the $1 to $3 range. You walk in our stores now, there's a 16-foot wall. It's all a buck. And I think that is really resonating with the customers. And so while we talk a lot about the growth opportunity and Five Beyond on these calls, the core behind Five Below is not only the $5 WOW product, but right now, the customer is really resonating with the $1, $2, $3 product. And certainly, candy and snacks, we have a larger majority in that price point, but take a look at the 16-foot wall we got in our stores now that's all priced at $1. And that is value at its extreme, and it's really resonating well with the customer. Thanks, Krisztina.

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

Thank you, everybody, for joining us today. Let me just close by reiterating what I said earlier in my closing prepared remarks. We truly are accelerating our offensive playbook. I'll reiterate, we are going to open 200-plus new stores this year. We will complete over 400 conversions. We will capitalize on an improved supply chain. We already have a strong pipeline of new stores for 2024. And as you've heard today from both Ken and me, our growth prospects at Five Below are strong. I hope you all have a great summer, and make sure you visit our stores for all your summer fun. Thanks very much, and have a great night.

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