Five Below, Inc (FIVE) Q4 2026 Earnings Call Transcript

Good day, and welcome to the Five Below 4th Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1, on your touch-tone phone. Please note this event is being recorded. I would now like to turn the conference over to Christiana Pels, VP, Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and thanks for joining us today for Five Below's Fourth Quarter 2025 Financial Results Conference Call. On today's call are Winnie Park, Chief Executive Officer, and Dan Sullivan, 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 today are as of the date of this call, and we do not undertake any obligation to update our forward-looking statements. In this presentation, we will refer to our SG&A expenses. For us, SG&A means selling general and administrative expenses, including payroll and other compensation, marketing and advertising expense, depreciation and amortization expense, and other selling and administrative expense. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP are included in today's press release. 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 buybelow.com. I will now turn the call over to Winnie.

Thank you, Christiana. Hello, and thank you all for joining us this afternoon. We're excited to share our outstanding fourth quarter results that capped off a transformational year for Five Below, one that reaffirmed that Five Below is the destination for the kid and the kid in all of us. We are a unique brand, and our incredible financial results in 2025 tell only part of the story, because what made this year truly exceptional is how we achieved the results. We made a fundamental shift in how we operate, how we engage with our customers, and how we strategize and deliver growth of the business and the brand. And our maniacal focus on our target customer has pushed us to be more agile in delivering newness at great value and, as importantly, communicating with our customers in the social media channels they live in. In 2025, we invested in curated product stories, bought with authority. Better in-stock positions supported by a store labor model focused on replenishing product and serving customers during peak periods led to a better experience for our customers and drove sales. For the year, we delivered sales growth of 23% to over $4.7 billion, a comp of 12.8%, operating margin expansion of 70 bps to nearly 10%, and adjusted EPS growth of 32%. We grew our store count by 8.5%, opening 150 net new stores with strong results, capped by eight record-breaking grand openings in the Pacific Northwest in the fourth quarter. This performance was achieved during a challenging macro environment that required tremendous urgency and agility from our incredible crew, who are the real secret to our success in 2025. these results incorporate a better than expected end of the year with our strongest holiday performance since becoming a public company we delivered fourth quarter sales growth of 24% including a 15.4% comparable sales increase importantly this growth was both broad and balanced as we further strength in our position as a portfolio-driven product business. We saw strength across all our merchandising worlds, and we grew in all 170 districts, all vintages of stores, and across all income cohorts. We drove both traffic and ticket growth, resulting from improved marketing amazing new product packed with compelling value better in-store execution and positive customer response for a simplified pricing strategy i'm so proud of our crew for their focus and dedication in producing these results i'm equally grateful for their hard work and commitment as we united and embraced change it was a year of transformation as we successfully delivered six curtain-up moments with a new go-to-market process focused on storytelling and product newness, tackled tariffs, overhauled our marketing to focus on social media, expanded our omnichannel capabilities with third-party delivery service, and bolstered the executive team with new leaders in marketing, finance, and merchandising, all of which has laid the foundation for continued growth and most importantly over the past year we defined and executed our new strategy which is under underpinned by three pillars a maniacal focus on the target customer delivering a connected customer journey from social to in-store and collaborating cross-functionally to enhance execution throughout the year our strategy reinforces our position as the true destination for the kid and the kid in all of us first we further to find our target customers sharpening our focus on gen alpha gen Z and millennial moms and ensuring our product marketing and store experience resonate with their needs and more importantly what is trending and what they are following second we met our customers where they are namely in social where we can dynamically engage with creator content and amplify viral moments like the current squishy dumpling crate speaking to our customers social channels and following up through targeted content and direct communications by capturing customer records will drive even more resonance and repeat visits as we develop our CRM capabilities and third changing how we work we aligned merchandising marketing supply chain i.t and store teams around six curtain up moments operating with urgency and discipline to ensure a seamless flow of content and newness to our stores this structural change through a disciplined cross-functional go-to-market process has activated our flywheel at delivering timely newness compelling storytelling and great in-store experiences like events and curtain up floor sets the result is an improved customer experience generating more visits from new and existing customers on merchandise we have systematically delivered relevant newness throughout our worlds with curated assortments at great value we continue to focus on differentiating our offer through amazing price value for the quality we provide, from the hottest license lines to viral trends in beauty, fashion, candy, and collectibles. We've also launched exclusive license products for our old favorites like Stitch, as well as newer franchises like Wicked. This holiday, we aspire to be the greatest little toy store in America, and to this end, We offered everything from Legos to crafting kits and remote control cars, all at amazing value. In addition to compelling gifts, from toys to beauty sets and yummy holiday PJs to gingerbread house kits, we offer customers a one-stop shop for holiday decor, gift wrap, and party essentials. Value remains a critical linchpin for our offering, and we demonstrated that we can effectively provide exceptional value at $5 and below, as well as at $7, $10, $15, and beyond. Customers recognize a compelling value across the assortment and at all price points, and their receptivity to our expanded offering above $5 reinforces our belief in the tremendous relative value that our products provide. Moving to more rounded price points also helped simplify and improve the shopping experience for our customers and the crew. In terms of marketing, we redirected spend towards social and creator content so that we could be faster and more agile in communicating newness and amplifying viral moments that customers were generating on their own. We have just begun building a customer database, which will sharpen our ability to direct personalized social and direct marketing content to better engage with our customers and develop a relationship with them. While we're still in very early innings with this strategy, we are very pleased with how it drove traffic and sales growth both online and in stores throughout the year. on to the store experience we bought into newness and trend with conviction delivering improved in stock levels we also invested in labor at peak periods to ensure that our shelves were restocked and customers needs were met we met we made our store easier to shop for customers by beginning to move five beyond products in line with the categories where they logically belong As we simplified operations and improved communication and collaboration, our crew was even more engaged, leading to better execution and attentiveness to our customer, the boss. Providing a terrific experience for our customers while also driving greater productivity in our stores remains a priority. We also became more planful in our approach to new stores. We dialed back the pace of unit expansion to sharpen focus on the quality of locations and ensure that grand openings were brilliantly executed. With our customer-centric strategy well underway, strong comp performance, and accelerating new store productivity, we're confident in the long runway of growth ahead. The results of 2025 offer clear proof points that our transformation is gaining traction, and we have more runway. As we enter 2026, we believe the business is well-positioned for consistent, durable top and bottom-line growth. Continuing to execute on our customer-centric strategy provides us great opportunity to further strengthen the Five Below brand and deepen the competitive mode that our unique retail concept provides. With our growing scale, we are focused on expanding our brand and customer reach across our communities, bringing joy to kids, adults, and parents as we help them to play, live, give, and celebrate.

As we evolve, I am confident that we will retain our strong customer-focused and entrepreneurial culture and remain unrelenting in our commitment to provide unmatched value to our customers. with that I'll turn it over to Dan thanks Winnie good afternoon everyone I'll begin my remarks with a review of our fourth quarter and fiscal 2025 results and then discuss our outlook for the first quarter and full year of fiscal 2026 my comments will refer to the results on an adjusted or non-GAAP basis as Winnie mentioned we were very pleased to end the year on a strong note with sales and profit exceeding our expectations in January we saw stronger than expected traffic growth which converted well and broad basket growth that was fueled by AUR expansion for the fourth quarter net sales increased 24% to 1.7 billion dollars supported by a strong comparable sales increase of just over 15% which was driven by growth in comparable ticket of 8% and comparable transactions of 7% importantly operating profit grew ahead of comp sales growth further evidencing the strength and efficiency of our business model. We are operating in a highly dynamic environment, and the end-to-end execution of our crew was noteworthy. In the fourth quarter, we opened 14 net new stores across eight states, compared to 22 net new stores in the fourth quarter last year. In 2025, we grew our store count by 8.5 percent and ended the year with 1921 stores in 46 states including the two new states of oregon and washington adjusted gross profit increased 24 to 697 million dollars or 40.3 percent in rate of sale a decrease of approximately 20 basis points compared to the fourth quarter last year this was primarily driven by transitory tariff costs of 160 basis points which were mostly mitigated by fixed cost leverage on the strong comp sales and improve shrink results. For shrink, the results of the physical inventory counts we conducted in January were actualized and trued up for all stores, for a total benefit of 50 basis points year over year. Adjusted SG&A expenses totaled $385 million in Q4, or 22.3% in rate of sale, which was consistent to last year's fourth quarter rate. The benefit of fixed-cost leverage fully offset increased incentive costs and the incremental investment in labor hours that we made in the stores during the peak holiday period. Adjusted operating income grew 23% in the fourth quarter to $313 million, and adjusted operating margin decreased approximately 10 basis points to 18.1%. Net interest income was about $6 million for the fourth quarter, or approximately $2 million higher than last year, due primarily to a higher average cash balance throughout the quarter. Adjusted net income grew 25% to $240 million, and adjusted earnings per share increased 24% to $4.31 per share. For the full year, net sales increased 23% to $4.8 billion, driven by a strong comparable sales increase of nearly 13% that was largely equally driven by both transactions and ticket growth. Adjusted gross profit for the year increased 25% to $1.7 billion, or 36.1% in rate of sale, an increase of approximately 50 basis points compared to last year. Adjusted gross margin accretion was primarily driven by fixed cost leverage and improved shrink results, costs, partially offset by the net impact of unmitigated transitory tariff costs. Adjusted SG&A totaled $1.2 billion in Fiscal 25, or 26 percent in rate of sale, which represented a 20 basis point decrease compared to last fiscal year. This was driven by fixed cost leverage on the strong comp sales, largely offset by higher incentive costs and investments in store labor during the holiday. Adjusted operating income grew 33% for the year to $472 million, and adjusted operating margin increased 70 basis points to approximately 10%. Net interest income was about $23 million for fiscal 2025, or approximately $8 million above last year, due mostly to a higher average cash balance throughout the year. adjusted net income for fiscal 2025 grew 33 percent to 370 million dollars and adjusted earnings per share increased 32 percent to six dollars and 67 cents per share we ended the year in a strong cash position with approximately 932 million dollars in cash cash equivalents and investments inventory was approximately 847 million dollars at the end of the year an increase of 28 percent with a commensurate 18 percent increase in units versus last year the increase in inventory reflects both the higher store count and the impact of tariffs on average unit costs average per store units were up about nine percent at year end reflecting the pull forward of inventory and our commitment to driving higher in stock positions in store in support of our growth objectives capital expenditures excluding the impact of tenant allowances were approximately $175 million or 3.7% of net sales, which includes 150 net new store openings and investments in technology and infrastructure. We continue to allocate capital in support of growth with a clear view towards delivering the best return on that investment and with each dollar we deploy competing for the highest return. We generate a strong pre-cash flow and plan to continue to focus on reducing our working capital in fiscal 2026 as we cycle the impact of tariffs overall 2025 proved to be a year of transformation for our business and the successful execution of our strategy delivered outsized top and bottom line growth in a challenging and dynamic macro environment we operated with both urgency and discipline and with maniacal focus on the needs of our customers now onto our outlook for fiscal 2026 we're operating in a highly dynamic and increasingly complex macro environment with significant geopolitical uncertainties and difficult to predict implications for the consumer we believe this backdrop provides the rationale for a measured prudent outlook this year also has a few nuances primarily related to the cadence of sales and the impact of tariffs with respect to tariff rates specifically for 2026 we have assumed that the global tariff rates that were in place as we entered this fiscal year will remain in place all year our outlook therefore does not contemplate the impact of the recently enacted section 122 tariffs which are only in place for 150 days now with respect to our outlook for the year. Sales are expected to be in the range of $5.2 billion to $5.3 billion, an increase of 10% at the midpoint, and comparable sales growth is expected to be between 3 and 5%, or approximately 17% on a two-year stack basis at the midpoint. Adjusted operating margin at the midpoint is expected to increase 100 basis points to 10.9%, driven by gross margin expansion net of increased marketing investments adjusted diluted earnings per share is expected to be eight dollars at the midpoint or growth of 20 percent versus 2025 on 55.7 million shares outstanding as a reminder our outlook does not include the impact of share repurchases we expect net interest income of approximately 26 million dollars and a full year effective tax rate of approximately 26 percent capital expenditures are expected to be between 230 and 250 million dollars excluding the impact of tenant allowances which reflects approximately 150 net new store openings and increased investments in technology and infrastructure on to the guidance for the first quarter of 2026 we expect total sales in the range of 1.18 billion to 1.2 billion dollars or growth of 23% at the midpoint versus last year's first quarter, with comparable sales growth of between 14% and 16%. The first quarter is expected to be our highest comping quarter of the year, in part due to the unanniversaried benefits of the rounded price simplification strategy that we implemented last year. We expect to open approximately 45 net new stores across 24 states in the quarter. The gross margin in the first quarter is benefiting primarily from fixed cost leverage on the strong comps, higher merchandise margins related to the net benefit of pricing, and lower shrink. Adjusted operating margin at the midpoint is expected to be 9.7% versus 6.1% in the first quarter last year, with the majority of the 360 basis point increase driven by gross margin expansion and, to a lesser degree, leverage over SG&A expenses. Adjusted diluted earnings per share at the midpoint is expected to be $1.63 per share or growth of 90% versus last year. In summary, we're very pleased with the underlying performance of the business and the continued execution of our customer-centric strategy underpins our confidence in this outlook for 2026. We remain focused on executing at a high level and continuing to deliver on our top and bottom line growth for the business. With that, I'll hand the call back over to the operator to start the Q&A session.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please limit yourself to one question. If you have further questions, you may reenter the question queue. The first question will come from Matthew Boff with J.P. Morgan. Please go ahead.

Thanks, and congrats on a great quarter and the continued momentum. So, Winnie, could you help by breaking down the drivers behind the magnitude of comps that you're seeing near term, mid-teens comps the last two quarters, and if you could speak to the acceleration that you've seen in the first quarter, or maybe even larger picture, if you could just walk through the structural changes to the organization and maybe some of the new customer acquisition metrics that support this as durable or drivers off of a higher revenue base from here?

Thanks so much, Matt. It has been a tremendous quarter, and we're excited to see that momentum continue. And really, I would say that there is one word that characterizes our success, and that is our crew. and I say that because what we've done is we have basically taken a year of pretty significant change and driven amazing results off that change and that transformation. The change started with a real focus on the customer and getting back to our roots and focusing on a kid and specifically gen alpha gen z and millennial parents who you know love to reward their kids with the trip to five below the second piece is really focusing in on how our customers basically become aware of us and how they get to us and how we announce newness to them and creating what we're calling a connected customer journey and we're meeting our customers where they live which is in social media so we redirected our marketing to focus on social media we've also just begun the journey of actually capturing their records so that we can continue a dialogue with them and invite them back which we think is going to be a major lever for growth in the future just driven off of a repeat visits and again engagement on new content the last piece is the team pulled together and executed brilliantly and I call this the flywheel effect and it really was about cross-functional collaboration across the organization we honed in on the six curtain up moments or new floor sets but instead of just passing the baton between the merchants and marketers and stores we basically start the season together really hindsighting together what just happened and then as we move forward through the season being connected throughout and that culminates in a call with our 1900 stores to really tell them what is number one the newness that we're bringing forth two what is the marketing message what are we going to be activating in stores and beyond and then staying really connected in terms of how we drive the product into the stores and ensuring that they've got honestly good in-stock positions so it is a bit of retail 101 but executed really really well and I think that moving forward you know this is early innings I joined a year ago so we've just started executing against the strategy and the team is executed very well but we've got more growth ahead of us that I think is incredibly durable and one of the things that makes it so relevant is the fact that we've got a unique retail concept. So, you know, we're operating as a differentiated specialty store for kids, but with the discipline of an extreme value retailer. So, all very good. Thank you so much, Matt.

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

Congratulations. I would like to ask you about just the comp momentum, and there's a lot of excitement about, you know, what you've been seeing so far in Q1, and I was hoping that you can maybe talk about you know what you think uh is driving that particularly from a trend standpoint and then as you take a step back and think about the q1 confidence versus the full year confidence can you just sort of help us bridge the way you're thinking about full year given the robust start out of the gate thanks so much ed i'm gonna kick us off and talk to you about like the business we're seeing now and then also have dan lean in and talk about how we're going to bridge quarter to quarter.

So we're really excited. I think what we saw in consecutive quarters last year continues this year. We really do have right now in Q1 broad-based growth and it's across our entire assortment. We're excited that our worlds are all comping and we have been very intentional to take more of an assortment approach as opposed to relying on a single item. So what you do is you take that growth across all of our worlds um that's being kind of driven you know by great traffic great transactions also aur but then you layer on top of that um some compelling trends that are happening right now and in the past when those trends happened we weren't communicating directly with a customer vis-a-vis the channels that they live in like social today we can engage directly you know we see something pop on social like the squishy trend and what's really nice is that we can amplify that through honestly what we say and do but also watch it carefully and we've got a whole community of stores

that's also engaging as well as brands so it's been really nice to see that and we're enjoying that in this quarter in particular I'm gonna let Dan step in and just help us bridge a bit yeah thanks for the question you're right we're off to a good start here in the quarter that we're in and I think you all see the same data that we see there's there's great momentum coming out of the holiday which which we're super excited about in the midpoint of our q1 guide on comps puts us right smack in line with with run rate trend which which we think is is appropriate as we go to sort of the balance of year and to give you a little bit of the thinking on how we constructed the guide. I think the most important thing that I would highlight is what we're up against as we think about Q2, Q3, and Q4. We're going to start comping some really, really tough growth quarters. And I think just pure math, when you think about a Q2 last year at plus 12 percent all the way up to plus 14 in Q3 and plus 16 in Q4, that's real, right? That's math and that matters. And so that obviously factors in. I think the second thing I would highlight is just the state of the consumer and the macro environment in which we're operating and we just we just don't think it gets easier from here whether it's the prices at the pump or this sticky inflation that seems to be hanging around or a job market that is that is somewhat sluggish we think the environment here is going to continue to be to be challenging and so we sort of factored that in as we as we thought about the plans that we have the execution and the newness and the strategy that Winnie referred to and then ultimately what we're up against in terms of back half of the year and trend. The last thing I'll say is is when you look at Q2, 3, and 4 of our business on a two-year stack, which is I think really important because it takes the noise out of a moment in time, over those quarters you're seeing mid double-digit growth consistently Q2, Q3, Q4. That tells us we're still in a real strong growth position and I think we've put the the the guide together in a pretty constructive way. Thanks, Ed.

The next question will come from Simeon Gutman with Morgan Stanley. Please go ahead.

Good afternoon. This is Pedro Gil on for Simeon. Great quarter, a fantastic momentum. Congratulations. My first question is for Winnie.

In your prior roles, have you experienced a period of such strong growth as you're seeing right now, and what are the learnings that you take from from from those positions from those roles that you can apply to comp to comp here into 2026 and then i have a follow-up thanks so much for the question um so i actually have seen strong growth in my past life especially when i was engaged in international and in international luxury what's nice though about five below is that we really think we've got, I guess, a toolkit for durable growth as we move forward, and we think the strategy is compelling. I mean, you really start with the fact that we have a unique retail concept that's focused on kids, and I think that that's compelling here and other places. The second piece of this is our execution is really, really strong, and I think you You can have a brilliant strategy, but if you can't execute, and with our teams and our crew, the execution is about collaboration and being really one team, one dream, being very close in terms of the trends that we're seeing and reacting quickly. And I would say the last piece of this is we're just really excited to be able to engage directly with the customer. The customer is responding well, I think in part because we're talking to them, and it's It's not a one-way dialogue, traditional advertising, where you just put it out there. We're engaging with them constantly. And through our new marketing efforts through social media, we can be incredibly agile. If something's popping, we can immediately react. And the other piece of it is we've got a rich source of information because we can see what's trending out there and, again, react. So I would say that all of those things give us a lot of confidence. and I do think this growth is special, but it's also durable. Thanks so much for your question.

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

Good evening. Thank you so much for taking my question. It's really on investments that you can make in order to sustain this momentum moving forward, and it comes in two parts. First, Dan, you mentioned that you're expecting 100 basis points of gross margin expansion this year. How would you break that down from factors that are unique to this year versus letting more of the goodness flow to the bottom line rather than reinvesting it? Does that create some tension over the long term if Five Below is not reinvesting all of the skill and other benefits it gets from being a bigger organization? And then as part of that, if you could just talk about how we should be modeling the contribution margin, if indeed you are able to sustain this comp momentum above and beyond your guidance, Would you choose to reinvest some of this outperformance back to be able to sustain this comp beyond 2026? Thank you so much.

Hey, Michael, thank you very much for the thoughtful question. So, look, if you look at 2026 as a whole, we've got actually 130 basis points of gross margin accretion year-over-year and about 100 basis points of operating profit accretion. That's the model that we've built, and that's on the three-to-five comp that we put together. The way we get there, to answer your first question on sort of what's driving that margin, you know, taking away sort of the leverage point and the shrink point, I think you've got three fundamental drivers. You've got price, which we won't anniversary until late in 2Q. You've got the cycling of the transitory tariff headwinds of a year ago. and you've got a structurally lower tariff rate versus a year ago, mostly related to the reduction in the fentanyl tariff in China. Those are the predominant drivers of the gross margin accretion, and they'll play differently between half one and half two. I think to your second question on the investment stance of this business, look, we feel really good that we are remaining committed to a growth stance for the business. That growth stance shows up, in my opinion, in a few different ways. We are incrementally investing in marketing this year, and you've heard Winnie talk a lot about the vision for how we want to engage, how we want to build awareness for this beautiful brand and talk to our customers in a different way. That's about 20 to 25 basis points of incremental year-over-year investment. We are continuing to invest in labor. We have seen the benefit of what happens when we put the right, you know, profile on the shop floor at our busiest times. And so we're committed to getting that model continued to be optimized. And then thirdly, we're going to continue to lean in on capital and support the growth of this business, both in new stores, but also in capacity within our distribution network to make sure that we're ready not only for 2026 but beyond. So I think we've got the right balance here of fueling and funding this growth, but also being thoughtful about what flows to the bottom line. Look, to your second question, what happens if we outperform this? That's a long way away for us. We would love to entertain that. We're certainly thinking about that every day, but we'll have more to say about that should that situation arise.

The next question will come from Scott Ciccarelli with Truist Securities. Please go ahead.

Good afternoon, everyone. Thanks for the time. Dan, I think you mentioned you're seeing the same data that we're seeing on the outside, but I think what we're seeing on the outside would suggest you're providing a relatively conservative guide, at least at this point, for the first quarter. Is that based on just conservatism? Is it because we still have Easter ahead, et cetera? If you just could provide more clarity around kind of the thinking on that. Thanks.

Absolutely, Scott, thanks for the question. Look, we're seeing the same data you're seeing. We're thrilled with what's happening out there. I think we've got to put context here, though, as well. We're seven, eight weeks into the quarter. These are relatively low-volume weeks, and I think that's important to note. It doesn't take away from the performance. But I think this quarter is going to be delivered based on what's in front of us, not what's behind us. Easter is a big deal. Those are two really important selling weeks for us. It's an early Easter this year, which is not ideal, but survivable, and we've got to get that right, and we know we will. I think the second thing I'll go back to, Winnie and I both talked about it, is, look, the state of the consumer is not as strong as when we exited the year. And I think we have to be thoughtful about that as well. There's a threshold here in terms of wallet, and the consumer is under a lot of pressure. And so I don't think we're trying to be conservative.

It's not our intent. i think we're trying to be thoughtful halfway through the quarter knowing we've got a lot left to do particularly around easter uh to land the quarter so hopefully that answers your question thanks scott the next question will come from paula jews with city please go ahead hey thanks guys um can you talk about your aur and ticket assumptions for the first quarter versus transactions, and then I'm curious as we think about 2Q to 4Q, are you looking at those quarters as being consistent on a one-year basis as you move throughout the year, or are you looking at them as being consistent on a two-year basis, or are you building in a stronger second quarter, coming down a little bit, decelerating as we move throughout? Anything you could share on that second quarter to fourth quarter cadence, and the AUR, ticket, and transaction assumptions?

Great.

Thanks for the question, Paul. Yeah, look, let's start at the macro level. We've got comp growth built into every quarter in the year, so I want to reinforce that point. I think we made it in the opening remarks, but I think that's important to note. Obviously, yes, you're right. The sequential growth will slow as the cycling effect is more pronounced, and 25 got stronger as the year went on, which means the cycling challenge is harder in 26 as the year goes on. In terms of how we thought about, you know, sort of ticket and AUR, I would sort of maybe ladder up and just think about it in terms of half one and half two. We've modeled very consistent trends that we saw coming out of the year, particularly in Q1, around ticket growth and AUR-driven ticket growth. It's what we saw in the fourth quarter. It's what we expect to see in Q1. That will obviously moderate as we move into Q2 and the anniversary, the price increase, and then over the back half of the year, yeah, you're going to see a little bit more balanced, a little bit more moderated growth between both ticket and transaction. We do expect growth in both, but it'll be more modest given what we're cycling against. Thanks, Paul.

The next question will come from Robbie Olms with Bank of America.

Please go ahead. oh hey thanks for taking my question i was just um curious on the first quarter um you know in the strength you have there and it might be hard to see behind it but is there any um you know was there any storm impact coming in the first quarter you know does early easter mean anything for you guys and you know maybe maybe to call out historically how is tax refunds helped or not helped Fidelow's business, and are they helping right now?

Yeah, so all that certainly went into how we thought about the first quarter. There is certainly tax proceeds in the market. They came a bit earlier than what we've seen previously. We think that's a bit behind what we're seeing in the early results in the quarter. That's been favorable. Like, I think in general, an early Easter is less advantageous than a late Easter. It sets up that post-Easter timeline where it's still unfortunately a bit cold and you don't get the full spring summer sets going. But that's the minimus. That's probably on the rounding. I think at the end of the day, Easter is still a pronounced piece of the quarter for us early or later. It's a big piece of how we think about the quarter. And so, yeah, you've got a bit of tax funding that's worked its way through earlier than maybe we would have expected. You've got Easter out there.

I think all of that has factored into how we constructed the first quarter Comp Guide.

The next question will come from Chuck Grom with Gordon Haskett please go ahead hey thanks very much can you guys unpack the the traffic between between new and existing customers and then separately on store growth what it would take to accelerate unit expansion from here in 26 and I'm sorry in 27 and 28 I guess what are you guys looking for given how strong NSP has been over the past year thanks hey Jack and so we've seen growth in both new and existing at equivalent levels and actually at really really great levels that we haven't seen in the past.

As I mentioned before, I think that the marketing strategies that we've deployed are, you know, they're very effective. They're working. And as we gather customer records, I think that we'll be able to see, you know, further growth, especially with that existing customer base and hopefully growth in that customer lifetime value, especially as, you know, kids enter and they grow up, see us at college and maybe one day become parents and come back to us. So, really, really good potential out there. In terms of store growth, I think overall, you know, we've taken a position of being incredibly disciplined. I think that's the difference in the past year. And that discipline means evaluating the best locations, and more importantly, opening with maximum impact. So, ensuring that we've got the right level of inventory, ensuring that we've got a crew who are well-trained, And really, I think bringing back grand opening marketing and shouting to the community that we're there has worked. And so we really want to focus on the number of stores. I think there's a lot of white space out there for us, but it's more important that we get the right ones and the right level of execution against them. Thanks so much, Chuck.

The next question will come from Zihan Ma with Bernstein. Please go ahead.

Thank you. Winnie, I wanted to follow up on your comment about pricing and various price points above $5, the $7, $10, $15. Now, it's not the first time that Five Below is going beyond the $5 price point. What do you think has changed in terms of you seeing the customers giving you the permission to realize more pricing power this time around beyond the $5 point?

Thanks so much, Dion. on. So a couple things have changed fundamentally. One thing remains the same. We remain very committed to delivering as much value and as much assortment at $5 and below. It represents about 80% of our business in terms of units sold. We're very excited about that number. We're proud of it. We want to be a resource for customers where the price of entry is a buck. And so building in great value is always going to be central to what we do. we took a very different approach to pricing above five dollars a couple things one we evaluated every single product and really looked at if you're going to bring in a price point above five dollars does it deserve to be at seven ten or fifteen and so an example over holiday was really compelling gift sets and bundled products that were at ten dollars that makes a big difference And, again, focus on relative value and also making sure that we are honestly priced better than competition. So that all goes in the mix. The other aspect of how we think we've gotten permission from the customer is we've basically merchandised the store the way they shop. In the past, all of these goods would be in the back of the store in the 5 Beyond area, And we work very hard to actually try and disband that and actually put these really compelling wow value items in the zones where the customer is shopping. So I'll give you the example of a great speaker and a speaker table. You don't need that to be in the back of store. If you put it in the text section with the other speakers, the customer sees the value in it. And so I think really leaning into how the customer shops, ensuring that they're getting great relative value and remaining very, very focused on what the competition's pricing at versus what we price at has been tremendous. The last thing I'll say about Five Below that's really great is we're about newness. And so as we introduce new products at higher price points, they're not comped to old products that were in the price, in the line. So, we can really step out and do something unique. And the customer has responded well and is giving us permission to do more at different price points. Thanks for your question.

The next question will come from Brian Nagel with Oppenheimer. Please go ahead. I have no idea.

Good afternoon. Great quarter. So, the question I want to ask, you know, in focusing on sales, and look, we have laid out the guidance.

You talked about, you know, continued strength through the year, but really in the first quarter but as we think about 2026 you know how should we are there factors that are beyond what you're already doing new factors that will should amount to you know key sales drivers for for the year that we maybe did not see in 2025 so uh brian thanks so much for your question um you know honestly i would say that in 2025 um we planted a lot of seeds for growth and we see a lot of green shoots and so our intention during the course of the year is actually to amplify what we've already planted and started to reap. And I will give you the example of our ability to actually react to trends as one of those ideas. So, in the past, there could be trends that were really hot, especially for kids. And we were passive. We were able to provide the product, but we weren't able to engage with a customer and amplify those trends. Today, we've got a different toolkit. So we really can actually build community and engage with the customer about what's hot and also react much faster than in the past at addressing that trend. We also are going to take permission to look at those trends and introduce new trends along with that. So I think that that is something we're beginning to exercise and will exercise throughout the year. We also, you know, honestly, last year we had the tariffs hit us. And so we weren't able to actually buy or attain all the products that we wanted to fill out some of our worlds. And this year, that is not an object. We've worked very hard to diversify our store space, to negotiate. We do have the benefit of being able to price at great value above $5. All of this is going to lead to greater range and greater growth in certain categories that we weren't able to really service last year.

I hope that answers your question. thanks brian the next question will come from jeremy hamblin with craig hallam capital group please go ahead thanks and i'll add my congratulations on the success um first it's a clarifying question on the embedded tariffs uh in guidance so i think what you said was that you're You're modeling actually, like, for example, for China, what the ending 2025 tariff rate would be, like 20% for China and not the 10% for the current global tariff rates. So just a clarification on that. And then my other question is, if you think about the long-term model here, and you guys for a very long time, for a decade, did roughly an 11% to 12% EBIT margin every year, and you've been building back towards that through a combination of, you know, improved operations and clearly higher AUVs, Where do you think you would need to comp at, or what do you think the average unit volumes would need to get to to get back to that 11% to 12% EBIT margin?

Thanks, Jeremy. Let me take the tariff question first, and then we'll talk about the business model. And maybe I'll just take a step back and confirm for the group how have we thought about tariffs in total in this outlook. First of all, I think you were in the right place to start. we have essentially assumed that the tariff rates that were in place as we started the fiscal year on February 1st remain in place. So in rough terms, that means that the IEPA tariffs that were eventually struck down later in February, we have assumed those are still in place for the year. We think that's the best proxy in a very, very uncertain world, given the comments that we've seen from the administration to get back to that level. So that's what's embedded in our outlook. Equally, we have not contemplated the impact in our guidance of this 150-day, 10% global tariff rate, the infamous Section 122 tariffs. We have not factored that into our guidance. We don't believe that that impact is material to the guidance. So that's how we thought about tariffs. On the business model question that you're asking, look, I think we're not running this business to achieve a certain number, 12%, 13% off profit. What we're doing is designing a model that provides durable growth, and I think this year is a great example of that. The ability to comp on top of 2025 speaks to the durable growth. We're going to be super smart and drive margin accretion, and that margin accretion is going to balance reinvestment and bottom line operating profit growth. How that model plays out in over time, what does that balance look like between reinvest versus grow the bottom line? I think that's what we will ultimately decide as we engage over the years. But I think it all starts with a trusted, durable growth profile that, based on the strategy and to Winnie's comments, the way we're executing the strategy, we feel really, really good about our ability to do that. And then I think over time, we will get the mechanism right and the balance right of reinvest to continue to fuel that growth versus grow the EBIT margin line. And that's what we will do over time.

The next question will come from Christina Katai with Deutsche Bank. please go ahead hi good afternoon and congrats on a great quarter so Winnie I wanted to ask on the six pertinent moments that delivered newness and the great in-store experience that you that you talked about just how many curtain up moments are planned for 2026 if you could talk about the expected percentage of newness within the assortment that you aim to achieve through these and then just lastly you know some of the key categories that you anticipate driving the most excitement in the coming year thank you Christina so we will also feature six curtain up moments this year like we did in 2025 and they really are the seasonal moments that our

customers focused on be it you know New Year's followed by Valentine's through to spring Easter etc so it really is their moments and what's really nice is that between those moments we can always layer in newness. And we actually have newness in each of our worlds that occurs between those moments. And we have the ability to now talk to the customer about when those moments deliver. The key to our business success this past year has been getting the right product at the right price. And I think that, again, it begins and ends with the focus on the customer. And, you know, when we talk about key categories that we think are important, we set off last year with a mission to really be the destination for the kid and the kid in all of us. And with that, really doubling down on games, toys, in crafting those thought processes that, you know, we really stand out, both in terms of our position, but also in terms of our unique concept. We've got, you know, 9,000 square feet on average. It's a fun place to shop, and it's a fun place to host kids. And then beyond that, really looking at teens and tweens. And so we continue to fuel our businesses like Beauty, as well as our lounge business, and accessories. And then this year, I think we are really excited about doing more in terms of room and dorm.

And so lots of great newness throughout our categories and our worlds, but again, with that focus on the kids and what they care about. thank you so much Christina the next question will come from Anthony Chukumba with loop capital please go ahead thank you so much for taking my question I guess I have a quick one for Winnie I mean you know you this has just been such an amazing first year are you sure your first name is Winnie and not winning.

Anthony, that's very kind. It's winning like the poo, which is also a great product in the line right now. Thank you, Anthony.

The next question will come from David Bellinger with Mizuho. Please go ahead.

Hey, thanks. I don't really know how to follow that one, but my My question is on social media. I mean, Winnie, you mentioned some of the influencer TikTok, Instagram, marketing. Are you looking at those sales as truly incremental at this point? And just can you help us think through any of the economics around that? Do you pay for posts? Do the influencers participate in any upside? Just help us understand the economics and the incrementality at this point.

So, David, what we've done is basically redirect what used to be spent on traditional TV commercials into social media, and it's a whole range. It's both engagement in terms of creator content with creators and influencers, but it's also just ensuring that if you're watching, if you're on social and you're Gen Alpha, and, you know, you're watching a great video about Stitch and you're interested in Stitch product, we're serving up the right content to you. and so you know it's a multi-pronged strategy it's not as simple as just you know going out and paying for influencers I think that what's been really really great especially this year as we look at the first quarter is that you know it's less about influencer content and it's much more about our ability to amplify what is user generated that's out there people are talking about these products we're able to lean in and say we've got those products we've got you even our stores are engaged and talking about like this product just landed so i think it just gives us access to a remarkable channel that again is agile incredibly effective in terms of return on ad spends and um and honestly the last piece of this is compelling it's something that the customers want to engage in and so all of those people all those pieces give us courage to do more, but we always have a test, learn, and ramp approach on anything we've done. I'm really excited by what we've seen thus far. Thanks, David.

The next question will come from John Heinbuckle with Guggenheim. Please go ahead.

Hey, Wendy. Quick question. I know in the past you guys would run events in stores on the weekends.

Your thought on that, the labor required for that, and then, you know, could you do birthday parties and you know other related parties or that's too complicated labor-wise yeah John great question so first of all on events we continue to host events and we just had an amazing Pokemon event we can really please and I think part of it is those events are incredibly sticky and create community and and it's something that certainly our brands and vendors want to help activate so it's it's a one plus one equals three equation and and the sales that we generate in general really do fund more than fund any labor that we we put towards the event I do think it's an interesting compelling question with regards to birthday parties and other activations we haven't contemplated that really fully however what we are trying to lean into is try to be a one-stop destination for your birthday needs. And so we're excited about our balloon business. You know, we don't aspire to be all of balloons, but the best of balloons, and really think about our target customer. And then offering really great party celebration items that complement what we've always done, which is party favors and gifts. So those are some thoughts, but certainly as we focus in on kids, we look at, you know, all avenues of potential growth and what that could do for us. Thanks for your question, John.

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

Thanks for taking the question. I was going to ask, could you just summarize for the year where it's falling out for you, and then I believe in roughly a third, a third, a third offset from pricing, cost out, and then vendor leverage? So I'm just wondering if you could provide an update on how that has played.

Yep, thanks, Mike. Like, so we ended up largely where we thought we would a quarter ago, about 90 basis points, full year headwind in 2025. In terms of, you know, sort of what we, how we addressed those impacts, I go back to what I think is like a really important point with this business, which is we offset tariffs penny for penny at the item unit level. And that's obviously super important to the economics, and you see the benefit of that in 2026 because some of the gross margin headwinds that we are getting right now is as tariffs have eased, we've got unit economics in a great place and we've got margin accretion. So I think it's noteworthy that the team was able to offset all of the tariff headwinds at the item level. How they did it, I think you've got the three buckets right in terms of the pricing benefit, the ability to negotiate, and the ability to re-engineer and redesign product. I think all of that factored in. I don't know that I would size it a third, a third, a third. I think pricing was probably a bit more, but I'll leave it at that for now because I think you've got all three of the right levers.

The next question will come from Brad Thomas with KeyBank Capital Markets. Please go ahead.

Good afternoon. thanks for taking the question uh what a great year um question on the step up in capex dan just um what's that going towards any interesting technology or supply chain opportunities and how are you thinking about perhaps getting back into some of the store refreshed or remodel programs that have been in the in the past thanks yeah thanks for the question uh and you're right is It is a bit of a step up year over year in CapEx.

We plan to be somewhere just over 4% on net sales in capital, which is slightly higher than where we ended in 2025. I think the capital is largely going to continue to be focused on the network and the stores and building out the next round of 150-ish new stores. That's obviously the priority. The second piece, and you're right, we are making investments in the distribution network. We've got to build for more capacity to support this growth, And so that process begins in 2026, and we've allocated capital for that. And then we are putting a bit more capital behind technology. We're seeing real opportunity here structurally to enhance technology. We talked earlier about our digital business and the website. We've talked about how do we make the merch teams more efficient and optimize end-to-end management of this business. So there's a technology investment. And so you've got the new stores, you've got investments in the network and in capacity, and you've got a bit more going towards technology to support the growth.

The next question will come from – sorry, go ahead.

Oh, I was just thinking, Brad.

The next question will come from Philip Lee with William Blair. Please go ahead.

Thanks for speaking in. Congrats on a great quarter. So you've spoken a lot about the contribution of the crew and incremental investments in labor over the past few quarters, how that's led to better conversion and in-stock levels. Do you think stores are appropriately staffed now, or do you think that there's room for further increases in either hours or headcount, particularly as you ramp up omni-channel efforts? And then if so, how do you think about the opportunity to make additional gains in conversion? What kind of contribution could that have, or has most of the low-hanging fruit been taken already here now?

Thanks. Thanks for your question, Philip. Great question. It was interesting because I think last year we made an initial investment in terms of labor to ensure that we could do kind of the basics, which is to get product, move products from the back to the front and to drive the conversion. And as the quarters progressed and we started to hit peak periods like holiday, we took a really thoughtful approach to match up peak traffic peak days with recovery in our stores and ensuring that not only did the customer see the product on the shelf but they got a better level of service and so we will continue with that model and um and as it relates to kind of future endeavors like omni channel we are very much in a test learn and ramp mode um you know we have initiated buy online pick up in store we've seen actually big big growth with third-party delivery and so we're going to continue to look at those avenues because we've got to meet the customer where they are and i think particularly for the younger customers uh specifically gen z convenience is critical and we think there's it's actually an opportunity to acquire new customers who may not have considered us or walk away just because it's not convenient and so I you know we'll take a test learn and ramp approach in terms of how we look at that but we think that turning on omni channel is just going to actually lead to greater acquisition and greater conversion moving forward thanks for your question the next question will come from spencer hannes with wolf research please go ahead great thank you for the question um just curious what you're seeing in terms of growth from like new and then existing customers and then any change in how the recent results are just impacting your view on where this business can come like durably out in the future like have your expectations moved up about sort of where comps land sort of in 27 and 28. so spencer um in terms of new and existing customers we actually had um what I would call a banner year in terms of both acquisition as well as repeat visits. And I would attribute that to more effective marketing and really, again, meeting customers where they are. I talked about the fact that we've just started collecting records for customers, and we think that our ability to, again, get additional repeat and to drive, you know, our current customer base in terms of their value is much higher as we move through the year and that's one of our major initiatives for the year um we will also continue to focus on new customers and driving our brand awareness um so all really really good stuff um and i'm going to pass it on to uh to dan to talk about comp in the future yeah look we're we're super polish on the growth profile of this business right you have to be you look at the the comp growth that we have delivered

Rudy, look at the new store growth. We haven't talked about it on this call, but what we've seen in eight new stores and new markets in the Pacific Northwest. So we've got a business that we think has an optimal opportunity to comp strongly with a lot of white space. And that is a very, very unique concept within retail. And so that's how we feel about it. I think going back to Winnie's earlier comments, we've got a compelling strategy. We're executing at an incredibly high level with a talented crew. and there are so many things left to do here. We have not scratched the surface on what's possible. And so, you put all that together, I'm going to stop short of putting a number to it, but certainly we are bullish with the growth aspects that this business offers us, particularly with this strategy. Thanks for the question.

The next question will come from, and the final question will come from Joe Feldman with Telsey Advisory Group. Please go ahead.

Hey, guys. Thanks for making some time for me. I pressed late, I guess. But I did want to ask you guys, because I know you've talked about with maybe thinking about a new format for the store, now that you've brought out the five beyond items back into the aisles and have a more fluid merchandise flow, I was just wondering if you guys have been playing around with a newer format and what you're thinking there. Thank you.

Thank you so much, Joe. I think we're always looking at ways to make the shopping experience that much more inspiring and frankly just easier and certainly with the abolition I would say the five beyond area we have opportunity to take the back of store and make it even that much more productive and so we are looking at how to create better flow within the store without that five beyond area in the back and testing how we honestly convert stores in the network but then also looking at new format work that allows us to really truly bring to life this idea of these worlds that customers can shop in and move from and and we are serving some distinct customer groups you know the youngest customers with gen alpha gen z more teens tweens and young adults and and millennial moms and they have very different needs and so we're thinking through how do we optimize the experience for each of those cohorts so more to come on that but thanks for your question this will conclude our question and answer session I would like to turn the conference back over to Winnie Park for any closing remarks first and foremost thank you all so much for your support and we hope to see everyone in our stores for all your spring break and Easter essentials we appreciate you

please convert with us and thank you for your attention on the call the conference has now concluded thank you for attending today's presentation you may now disconnect