Five Below, Inc. (NASDAQ:FIVE) Q3 2022 Earnings Call Transcript November 30, 2022
Five Below, Inc. beats earnings expectations. Reported EPS is $0.29, expectations were $0.14.
Operator: Good day, and welcome to the Five Below Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Christiane Pelz, VP of Investor Relations and Treasury. Please go ahead. — Please go ahead, Christiane.
Christiane Pelz: Thank you, Cole. Good afternoon, everyone and thanks for joining us today for Five Below’s third quarter 2022 financial results conference call. On today’s call, are Joel Anderson, President and Chief Executive Officer and Ken Bull, Chief Financial Officer and Treasurer. After management has made their formal remarks, we will open the call to questions. I need to remind you that certain comments made during this call may constitute forward-looking statements and are made pursuant to and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements.
Those risks and uncertainties are described in the press release and our SEC filings, The forward-looking statements 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.
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Joel Anderson: Thank you, Christiane, and thanks everyone for joining us for our third quarter 2022 earnings call. We delivered a third quarter that substantially beat our guidance against a difficult macroenvironment, especially given the comparison to last year’s extremely strong sales. We are playing offense, staying nimble and controlling what we can, all the while keeping our customer promise of delivering value at the center of our decision making. We are also executing on our long-term growth initiative that underpin our triple double plan, of which store growth is key and we are pleased that the conversions to our new Five Beyond store format are being met with a very positive customer response. All of this helped drive total sales growth of 6% to $645 million, a comparable sales decrease of 2.7% and earnings per share of $0.29, which were all ahead of our guidance for the third quarter.
The sales beat was driven by both ticket and transactions results, improving throughout the quarter. We opened 40 new stores across the country in the third quarter, finishing the quarter with 102 stores opened year-to-date. Three of these new stores ranked in the top 25 fall grand openings of all time and two of them were in our new states of North Dakota and South Dakota. We were also very excited to open our third Manhattan location in Times Square. In addition, we have already converted approximately 250 stores this year to the new Five Beyond prototype. We are very pleased with the pace and execution of this rollout as well as the customer response, which is driving higher sales and traffic to these stores. This past year, we continue to focus on our strategic initiatives of product experience and supply chain, which were key to our performance and were important enablers of our past long term targets.
Next year, we will outline our strategic pillars that will enable our Triple-Double goals. On product, the trends we mentioned last quarter continued, with our version of consumables or needs-based products resonating with customers. The candy world once again outperformed, featuring novelty candy like Slime Liquors, Snacks from great brands like Hershey and Rochelle, as well as our salty business featuring the One Chip Challenge and Talkies. In games and toys, our Swiss model products remain popular. We connected with our customers with Squish Sunday events and recently launched our exclusive Five Below Only collection of squish models. Newer trends like Anime, Funko and Hello Kitty grew and we sourced more licensed product, including items such as Disney’s, Lilo & Stitch and Marvel Action figures, all at extreme value.
In addition, Halloween was more normalized as tricker treating and other Halloween rituals recovered from the pandemic impacted 2020 and 2021 years. We were pleased with our performance and our seasonal offerings were well received. Five Beyond, as I mentioned earlier, continues to be a growth driver for us, with more stores offering the full assortment in the back of the store. We have added about 200 items to the converted Five Beyond stores. Finally, I’d like to add that we took advantage of close-out opportunities and one-time special buys in the marketplace and now have additional extreme values across products of many categories. Our goal, especially this holiday inflation induced season, is to drive even more value for our customers and we will continue to selectively pursue opportunistic buys that will drive traffic and attract new customers to Five Below.
As it relates to our strategic initiative of experience, we are focused on connecting with our customers and delivering an even better shopping experience for them. We already spoke about the successful rollout of the latest prototype featuring the Five Beyond store within a store in the back of the store, which includes the re-imagined tech and room worlds. We continued to see customers who purchased Five Beyond products, spend about twice as much as those who did not, which bodes well for continued increases in store productivity. With approximately 20% of our chain in the new Five Beyond format that we unveiled earlier this year, we are on track and marching toward our goal for over 80% of the chain to be in this format by 2025. With respect to marketing for the third quarter, we invested heavily in digital, specifically in paid search and social media.
We increased our marketing spend year-over-year, focusing more on the second half of the quarter, leading into the key holiday selling season. We tested various strategies and believe our efforts were effective in driving sales. Our marketing and digital design teams did a great job communicating our value message to customers, whether digitally or in store. In addition, with increasing knowledge about our customers, gained through tokenization, we are leveraging data to target both new and existing customers more effectively. For e-commerce, we enhanced our offering by rolling out buy online, pick up in store, chain wide in September. The initial results are promising and we look forward to our customers discovering the convenience that bopis orders during this busy holiday season.
With respect to supply chain, we are proactively managing our operations and navigating dynamic conditions. We continue to look for ways to control our destiny. As an example, we strategically accelerated inventory receipts to ensure a great in-stock position for the holiday season. We remain nimble in this ever changing environment and I am extremely pleased with the positive results the team has delivered. Regarding our distribution infrastructure, we completed our five no network with the summer opening of the Indianapolis ship center. We now have the capability to reach approximately 90% of our stores within two days and the network is expected to provide efficiencies and keep our stores well stocked. Peter Town, New Jersey, our first large ship center has been fully built out with the ability now to service approximately 500 stores.
The other for ship centers will be expanded over the coming years to support our continued growth. Now, on to the all-important holiday season. We are pleased with the start of Q4, including Black Friday weekend. Our stores are stocked and ready with an amazing assortment of value products that promises to delight our customers, from branded games and toys to pet beds and from holiday decor and license keys to bluetooth speakers, we have something for everyone to complete their shopping lists. In addition to our Five Below stocking stuffers and gifts, we are also excited for Five Beyond to provide new and extreme value products in different categories, which further reinforces our position as a must-stop holiday gifting destination. For example, this holiday season, we are featuring a folding light-up scooter with LED wheels for only $20.
We are also really excited to have sourced Kylie and Kendall crossover bags for only $5, exclusive to Five Below. And to highlight these amazing values, earlier this month, we kicked off our save the holidays marketing campaign, utilizing social media, paid search, TV and key partners like Kelly Clarkson, to attract new and existing audiences. In our stores, we’ve hired thousands of associates to keep our shelves filled and help customers with their holiday shopping needs. We also plan to further elevate our customers’ journey with approximately 70% of our stores offering assisted checkout, which improves throughput and the customer experience during the busy holiday shopping season. We can’t wait to see everyone in our stores and online at fivebelow.com.
So in summary, we made great progress on several initiatives in the third quarter and are in a great position for the fourth quarter. We believe with the steps taken, including accelerating inventory receipts, expanding our value assortment, increasing marketing, adding BOPIS and growing the number of self-checkouts in stores, we…
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