Five Below Inc (FIVE) 2012 Q4 法說會逐字稿

Good day and welcome to the Five Below fourth-quarter and fiscal year 2012 earnings conference call. Today's conference is being recorded. At this time I'd like to turn the conference over to Farah Soi of [ICR]. You may begin.

Thank you, operator. Good afternoon, everyone, and thanks for joining us today for Five Below's fourth-quarter and fiscal year 2012 financial results conference call.

On today's call are Tom Vellios, Cofounder, President and Chief Executive Officer and Ken Bull, Chief Financial Officer, Secretary 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, Five Below's prospectus filed with the SEC and the most recent Quarterly Report on Form 10-Q.

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.

Finally, we may refer to certain adjusted or non-GAAP financial measures on this call. A reconciliation schedule showing the GAAP versus non-GAAP financial measures is available in our press release issued today. 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 Five Below's Cofounder, President and Chief Executive Officer, Tom Vellios.

Thanks, Farah. And thanks everyone for joining us for our year-end earnings call.

Today I'll begin by discussing the highlights of our fourth-quarter and fiscal year 2012 results and we'll then discuss our plans for 2013. Ken will then review our financial results in more detail after which I'll provide some closing remarks before we open up the call for your questions.

We're very pleased with our fourth-quarter results, particularly given the tough start to the quarter caused by the storm and its aftermath. Our fourth-quarter sales of $174 million came in slightly ahead of our updated guidance provided on January 15 with comps of 4.4% and adjusted EPS of $0.39.

After a difficult start to the quarter, we saw business rebound nicely in December as our merchandise offering and value proposition resonated with our customers, who once again look to us as a destination for their holiday gift giving needs.

The strong performance was broad based across many of our [worlds] and included favorable customer responses to our Media, Candy, Seasonal, Craft, and Sports categories.

This strong sales performance helped drive a 35% increase in fourth-quarter adjusted operating income and a 32% increase in adjusted net income.

For the full fiscal year 2012 we grew our sales by 41%. We increased our store count to 244 of year end from 192 stores at the end of 2011 and we delivered a comparable store sales increase of 7% on a 52-week basis.

With respect to our performance of our new stores, which as you know are the key growth driver for our business, we are very pleased with the performance of the class of 2012 (technical difficulty) which came on the heels of a very strong performance from our class of 2011.

As we've mentioned before, our new store model calls for first year sales of $1.5 million to $1.6 million range and profitability that drives a payback period of less than one year on our store investment.

So far our class of 2012 is on track to exceed this model and it is noteworthy that this performance was delivered by store openings in both new and existing markets.

New markets in 2012 included Atlanta, St. Louis, and outstate Michigan, which followed Chicago and Detroit in 2011.

Five Below now operates in stores in 18 states, seven of which include new markets that we entered over the last three years. The results speak for themselves and we believe illustrate that the Five Below brand enjoys universal appeal and is exportable beyond its Northeast origins.

The brand resonates with new and existing customers alike, and we are as excited as ever about our growth potential.

The strong new store performance combined with a 7% full-year comp drove annual adjusted operating income growth of 50% and adjusted net income growth of 36%.

As part of our growth strategy, we continue to make investments in our infrastructure to ensure that we are strengthening the foundation of our Company to support our planned expansion. In 2012, we spent $23 million in CapEx, the majority of which went towards new store buildouts, investments in existing stores, our second DC as well as investments in systems and IT infrastructure.

We also continue to invest in people as we add talent throughout the organization to support our go-forward growth plans.

Our team is doing an outstanding job as evidenced by our consistent results and we will continue to allocate resources for talent acquisition as well as retention.

To update you on our new DC. The buildout of our Olive Branch facility is complete and we expect to be operational in May of this year. When this facility is fully ramped, and in combination with our existing distribution center in Delaware, we believe it will have the capacity to support approximately 600 stores. This is a big step for the organization and our planning, allocation and replenishment teams are hard at work to ensure a smooth transition.

With a store count of 244 to date, and a potential for 2,000 stores long term, store growth is by far the most important element of the Five Below story. As we look to 2013, our plan is to open 60 net new stores this year and we have already started work on our class of 2014.

Once again, in 2013 our expansion plans include both new and existing markets and while the majority of our openings will occur within existing markets, as we continue to develop intensification strategy, we are very excited to be entering Texas this year. The first store to plan for the Dallas and Austin metropolitan areas, and the Texas market will provide a large buildout potential, strong customer demographics and a favorable economic climate.

You've heard us speak about the clustering approach that we take when we enter a new market. This enables us to drive brand awareness and realize operating and marketing efficiencies. For fiscal 2013, we will cluster our openings in Dallas and Austin markets which will result in a heavier concentration of openings in the back half of the year.

We will also continue to drive performance at our existing stores by focusing on delivering the freshness and the value that our customers have come to expect from us.

We entered the first quarter of fiscal 2013 well-positioned from an inventory perspective. Our spring sets are complete and we feel great about our product offering as we head into the spring and summer months. And as always, we continue to reinvest in the business in order to provide high-quality, trend-right merchandise for our target teen and preteen customers all priced at $1-$5 and delivered in a fun and unique shopping environment.

As we have discussed before, our long-term plans call for an annual unit growth of 20% and annual net income growth of 25% to 30%. And we will continue to invest in infrastructure to support the planned growth while maintaining our cost control disciplines.

With that, I will now turn the call over to Ken to go over our financial results and outlook in more detail.

Thanks, Tom, and good afternoon, everyone. I will begin my remarks with a review of our fourth-quarter and fiscal year results and then discuss our look for fiscal 2013.

Our sales and the fourth quarter of 2012 which was a 14-week quarter were $173.6 million, up 38% from the $125.8 million we reported in the fourth quarter of 2011 which was a 13-week quarter. On a comparable 13-week basis, sales for the fourth quarter of fiscal 2012 increased 34%.

We ended the year with 244 stores, an increase of 52 stores or 27% versus the 192 stores at the end of 2011. As Tom mentioned, we continue to be very pleased with the performance of our new stores with the class of 2012 on track to exceed our new store model expectations.

Comparable store sales for the fourth quarter increased by 4.4% on a 13-week basis as compared to 12.1% increase in the fourth quarter of last year. This comp increase was driven primarily by an increase in the number of transactions.

Gross profit increased 37% in the fourth quarter to $71.1 million from the $51.9 million reported in the fourth quarter of fiscal 2011. And gross margin decreased by 26 basis points to 41%, driven by higher distribution expense which included expenses related to our new distribution center in Olive Branch, Mississippi.

As a percentage of sales, SG&A for the fourth quarter of fiscal 2012 decreased to 21.9% from 25.2% reported in the fourth quarter of fiscal 2011, due primarily to a decrease in founders transaction expense of $4.8 million offset in part by $1 million of costs incurred in connection with our recently completed secondary offering.

Excluding these items, SG&A was $35.6 million in the fourth quarter of 2012 or 20.5% of sales, as compared to $25.5 million or 20.3% of sales for the fourth quarter of last year.

The increase in adjusted SG&A as a percentage of sales of 20 basis points was due primarily to public company costs not incurred in the fourth quarter of 2011.

GAAP operating income was $33 million for the fourth quarter of 2012. On an adjusted basis, operating income was $35.6 million, an increase of 35% from adjusted operating income in the fourth quarter of 2011. As a percentage of sales, adjusted operating margin was 20.5% compared to 21% for the same period last year.

This year-over-year decrease in adjusted operating margin was driven primarily by public company costs not incurred in 2011 and expenses related to our new distribution center.

Our effective tax rate for the fourth quarter of 2012 was 41.2% compared to 38.3% in the fourth quarter of 2011. Our fourth-quarter 2012 effective tax rate was negatively impacted by permanent book to tax differences relating to the fees paid for our secondary offering.

Before I discuss net income, I want to point out that for both the quarter and full-year periods, I will be referring to adjusted net income that excludes the impact of the founders transaction and costs associated with our secondary offering. When I refer to EPS, it is EPS based on adjusted net income, using an adjusted diluted weighted average shares calculation for the period.

The adjusted diluted weighted average shares outstanding assumes among other things the IPO transaction and the conversion of our preferred stock took place at the beginning of each respective period, thus eliminating the lack of comparability due to the transactions taking place towards the end of the second quarter of 2012.

A reconciliation of GAAP net income and net income per share to these adjusted numbers on an adjusted weighted share basis can be found in the financial tables included in our earnings press release issued today.

As a result of the factors I just described, adjusted net income for the fourth quarter of 2012 was $21.4 million or $0.39 per share based on 54.4 million adjusted diluted weighted average common shares outstanding as compared to $61.1 million or $0.31 per share based on 51.6 million adjusted diluted weighted average common shares outstanding in the fourth quarter of last year. This represents a 32% increase in adjusted net income over the fourth quarter of 2011.

For fiscal 2012, which was a 53-week year as compared to a 52-week year in 2011, total net sales increased by 41% to $418.8 million or 39% on a comparable 52-week basis. We opened 52 new stores and comparable store sales increased 7.1% on a 52-week basis as compared to a 7.9% comp store sales increase in fiscal 2011.

GAAP operating income was $37.7 million. Excluding the impact of the founders transaction and costs associated with our secondary offering, adjusted operating income increased by 49.7% to $49.5 million and adjusted operating margin increased 70 basis points to 11.8% from 11.1% in 2011.

Adjusted net income increased by 36% to $27.4 million or $0.51 per share based on 54.2 million adjusted diluted weighted average common shares outstanding versus $20.1 million in adjusted net income or $0.39 per share based on 51.6 million adjusted diluted weighted average common shares outstanding in fiscal 2011.

We ended the year with $56.1 million in cash and cash equivalents on our balance sheet, $34.5 million in outstanding term on borrowings and full availability under our $20 million revolver facility. Inventory at year end was $60.8 million as compared with $38.8 million at the end of 2011. As Tom noted we feel good about our year end inventory position.

Ending total inventory on a per store basis increased approximately 23% year over year. This growth was attributed to the timing of shipments of imported spring merchandise due to the earlier Easter holiday, increased opportunistic buys which we hold at our December and will flow to our stores throughout fiscal 2013, and the earlier post-holiday resets that Tom mentioned.

Now I would like to turn to our outlook. For the first quarter ending May 4, 2013, net sales are expected to be between $92 million and $94 million, assuming a 4% comparable store sales increase and the opening of approximately 8 net new stores.

GAAP earnings-per-share is expected to be $0.00 to $0.01 and adjusted earnings per share is expected to be $0.02 to $0.03.

In the first quarter of fiscal 2013 we will incur costs that were not incurred in the first quarter of 2012 that will cause our planned operating margin to deleverage by approximately 220 basis points. These incremental costs are related for new distribution center, public company expenses and a planned shift in the marketing calendar when compared to first-quarter 2012.

I want to note that there are a handful of openings planned very early in Q2 that could move into the very end of Q1 in which case you could see up to an additional 7 stores reflected in our ending store count for Q1, which would not be expected to materially impact our revenue or earnings for the first quarter.

For the full fiscal year 2013, sales are expected to be in the range of $515 million-$521 million with a comparable store sales increase of 4%. We expect to open 60 net new stores in 2013 with more than half of these coming in the second half of the year including our entry into Texas which is planned for the back half of 2013 in order to achieve our objective of clustered openings as Tom discussed earlier.

As a result we expect to end fiscal 2013 with a store count of 304 as compared to our 2012 ending store count of 244.

Our sales outlook for 2013 compares to net sales of $418.8 million for fiscal 2012, representing a growth rate range of 23% to 24%.

GAAP net income is expected to be in the range of $30.3 million to $31.8 million with GAAP diluted earnings per share of $0.56 to $0.59. Adjusted net income is expected to be in the range of $34 million to $35.5 million or a 24% to 29% increase over fiscal 2012 with adjusted earnings per share expected to be $0.62 to $0.65.

For all other details related to our first-quarter and full year 2013 guidance, please refer to our earnings press release.

In fiscal 2013, as we establish and ramp up our new facility in Olive Branch, Mississippi, distribution and freight in expenses are expected to delever approximately 50 basis points for the full year with more significant deleverage expected in the first half of the year versus the second half. For the first two quarters of fiscal 2013, we will also have the impact of [public] company costs in SG&A of approximately $500,000 per quarter which we did not have in the first two quarters of fiscal 2012.

With respect to CapEx we plan to spend approximately $26 million in capital expenditures in fiscal 2013. The majority of this will be for the buildout of our new stores and we will also invest in existing stores in our second DCA and in IT infrastructure upgrades and new systems.

With that, I would like to turn the call back over to Tom to provide some closing comments before we open it up to questions.

Thanks, Ken. Q4 capped another outstanding year for Five Below and I could not be more proud of the job the entire team has done to deliver the results that we reported to you today.

Now there's plenty of news around headwinds that consumers are facing so far in 2013. Headwinds that we are not completely immune; however, we have performed well in challenging times as evidenced by our consistent positive comps since 2006 that were achieved in varying economic conditions.

We believe we are well positioned to continue to execute on our commitment to deliver consistent freshness and value to our core customers with trend-right product at great values all from a differentiated and fun shopping experience. And we plan to accomplish this while maintaining a disciplined approach to managing expenses and allocating capital.

Thank you for your ongoing support of our Company and with that I will turn the call over to the operator to start the Q&A session.

(Operator Instructions). Dan Binder, Jefferies.

Hi, good afternoon. Congratulations on a good quarter. With regard to the consumer [priorities] that you mentioned, I was just curious if -- we are well into the quarter now -- if you can give us some color on how you're tracking relative to the 4% plan?

Well, I think -- thanks. I'll take that. You know we are definitely are quite a bit into the plan. I think as I mentioned certainly particularly as we look at that as of January to early February no question about it, as other retailers saw, it was a bit of a challenging year retail climate and sales climate. The guidance we put forth today while Easter is still a few days away, we feel, is indicative of those headwinds that we saw early on in the quarter and we believe to be our best estimate for the Q1 results.

And just as a follow-up, a lot of retailers have also noted that things have bounced back somewhat, normalized if you will. As you moved to February and into March I was curious if you have seen that same sort of trend?

I think we feel good today with where we are and the forecast that we put forth. We still have a lot of business to do even this week as we head into Easter but we feel good with our estimates and I think that is all that I think we would say at this point.

Okay, great, thank you.

John Heinbockel, Guggenheim Securities.

So, guys, a couple of things. Tom, if you think about the class of 2013 store openings how would you compare that to 2012 in terms of type of location, the configuration, population density, you know, do you think 2013 could perform better than 2012?

John, I need to pause for a second, if you don't mind and I will tell you. I would answer it this way. First of all I think as a company we would not feel apologetic if we build a ton of stores that all wound up doing 1.5 to 1.6 per unit. We love that model, we think that model drives outstanding results, four wall contribution that's fabulous, payback in less than a year and we could build an amazing chain with traffic results for the Company and for shareholders at that level.

We've consistently done quite well recently. Obviously we went into 2012 we had the same question around the class of 2012 when the year started coming off a very strong year being 2011. We feel good about the markets both existing and we feel certainly about Texas as I'm sure you may know. That's a big market, a ton of potential for us, and start down to sit and to really try to figure out what the rest of 2013 versus 2012 all I will tell you is that class of stores and the [relationship] about done we feel good about that class in total and we really look forward to 2013 being hopefully another terrific year for us, both from new and existing stores.

Sort of as a follow-up to that on real estate, how many stores do you think in the current fleet you would like to relocate that might've been not prototypical? And where is that as a priority versus new locations, brand-new locations?

Great question. As you may recall, John, and I don't know if we've discussed it in the past but let me just maybe reiterate it. The early iteration of stores that we refer to as classic stores and that is a class, roughly, of about close to 40 stores -- Ken?

Yes.

Roughly about 40 stores, all of which, by the way, make money so none of the stores lose money. We would like to move those stores as we are able to, to a full size. To do that we either expand where they are if we're able to as the opportunity of space comes about or we move the store. And we have and will continue to do a handful each year. I would say it would be in the low single digit, maybe we will do some in the 5 plus this year depending on obviously what happens to the availability of real estate.

But our focus to move those so-called classic stores into prototypical size is something that we're on and we continue to do as the opportunity comes about. That's probably the only part of our business that I think we would like to rightsize. The rest of the stores we feel good about.

Okay, thank you.

Paul Trussell, Deutsche Bank.

Hey, good afternoon. Just wanted to follow up on gross margins. Certainly we had the impact of the ramp at the distribution center. If you can just go over the puts and takes of some of the other factor supply chain merchandise margins that impacted 4Q and how should we think about those various items into 2013? Thank you.

Yes, Paul, for the fourth quarter, really, the key driver there and I think we spoke about it was the impact in gross margins of the new distribution center down in Mississippi. That was really the key driver of the activity there. The other pieces in gross margin were relatively stable and flat. And I think as Tom had mentioned in his script as we look out to the future, particularly with merchandise margin, I think we spoke about this before, we would see that basically being flat in a longer-term perspective as we continue to reinvest in new product as we generate some leverage on scale.

So go forward, we do expect the merch margins to remain relatively consistent and then at that 4% comp guidance that we have provided, overall gross margins should remain relatively flat. The one thing I'll mention though, again, I think I spoke about it in the script in 2013 we will see 50 basis points of deleveraging that will be coming off of both our distribution expense in freight end related to the second distribution center that would impact gross margin.

Understood. And then similarly on the expense side, you've said in the past also that on the 4% comp there wouldn't be much leverage from SG&A. But is there anything to the extent you're able to produce a comp above that level, are there any items we should be aware of that will prevent leverage from that standpoint like we saw in the first three quarters of the year?

Are you referring to Q4 or to 2013?

No, just as we look to 2013.

Right, well, (multiple speakers).

We should be able to see leverage in SG&A. Above for (multiple speakers) 4.

Yes, I think we mentioned we have the impact of the public company costs which in 2012 we had for two quarters, primarily the third and fourth quarter, and now we'll have them in Q1 and Q2 that are not anniversarying. So we have that impact on a full-year basis which will have a slight drag on SG&A.

Meredith Adler, Barclays.

Hey, thanks for taking my question. Can we go back to the cost of the distribution center? I am afraid I don't remember whether 50 basis points of deleveraging was what you had originally expected. I thought that the 220 in the first quarter sounded like a big number but that may have been how you always expected it. Or is there any difference?

No, on an overall basis that's where really we were expecting it, 50 basis points of delever for the full year and I think we have mentioned that that's going to be a little bit higher in the first half and maybe first three quarters of the year as basis points versus the fourth quarter as we bring that distribution center online. So we are seeing that heavier impact in Q1 higher than the average of the 50 basis points for the full year.

Okay so it would be a lot lower in the fourth quarter?

Correct.

And then I guessed I would like to talk a little bit about sales and sales guidance. You have a history of beating your 4% guidance and I think the exception was this last quarter because of the storm. But I'm wondering I wasn't quite exactly sure what you were saying about sort of the headwinds you'd been facing because of the consumer so far (technical difficulty).

Are we saying that it's going to look more like the fourth quarter actual? Or is there still a chance that --? And I know you don't have all of Easter yet and obviously Easter is important but how should we think about that?

I think the way you should think about it is, I wouldn't try and say how is this versus fourth quarter. One month in we are in the middle of the second month, Easter is ahead of us, still as we get into this week, I think as I mentioned earlier, it's fair to say that is some of the challenges that other retailers saw in the late part, latter part of January and February we were not immune to. So I think when you look at our performance to date what we've done with the performance to date and we believe will be the balance of the quarter and we came up with what we believe to be a best estimate of where we see the quarter coming in at 4%.

But the early part of the month and late January, I think, was definitely impacted for us as well.

Final question just about real estate. Are you seeing any changes in terms of the availability or cost of real estate? Obviously some of your markets are new but is there a difference in -- Texas doesn't have any zoning so it's probably not that expensive but is there anything either by region or just over time that has changed?

Yes, you know, I think, as my partner David mentioned maybe a couple of quarters ago, back in 2009 when there was just so much real estate, maybe we saw there was a point in time back then when maybe real estate was a little -- pricing real estate was maybe a bit more advantageous to us.

We've seen a very consistent rate as well as availability as we look at the last couple of years and into 2013.

We actually feel really good about availability. Not only are we becoming sort of a favorite tenant of sorts towards developers but there is still a lot of downsizing going on and there's plenty of space as we look at our 2013 class and even further ahead in 2014, we really don't see any issues on availability or anything that we have seen in rate that would cause an alarm.

As I mentioned earlier, we are already working on the class of 2014.

Great, thank you.

You're welcome.

Michael Lasser, UBS.

Good afternoon, thanks a lot for taking my question. You called out categories that performed well during the quarter. Was there a wide distribution in the performance by category?

You know, I mean, in our categories -- you know, I try to put something out there. I think when you look at the categories in total the one thing that we've always been consistent with, we always have categories that perform well and some that don't. And it's that shift from category to category and what's in the eight worlds that really, we believe, has given us the diversity and it's given us the flexibility that drive and has continued to drive the results we've seen in those sales.

What we tried is to highlight maybe some of the categories that had maybe a bit higher, was sort of outside the normal band of performance, performance that gives you a bit of a color where some of our customers opted to shop as we went into the all-important Q4 which, as you know, is such a big quarter for us. So really it was just a way for us to give you a bit more color on some of the sort of better, high-performing categories.

So the performance was pretty consistent across some standouts, is that fair to say?

I think it's fair to say that there was nothing in Q4 that was unusually different than the balance of the year. Yes.

Got it. And are you seeing any kind of trend develop? Any prospects of unique and differentiated hot merchandise for 2013? You've seen those in the business before and is there anything like that on the horizon?

You know, part of our customer who loves to shop in our stores often -- there's always the so-called mini trends that we make reference to. Time will tell maybe a little bit earlier. I think you heard us mention before that duct tape last year was something that worked well and by the way continues to do well for us.

There may be licenses that wind up doing quite well for us. You know, it could be one direction which is a music group. Nothing today that we would see as material but nothing that we see in the business that would give us any concern, again, other than whether it's -- I would leave it at that at this point.

Tom, you are showing your colors as a one direction [man] (technical difficulty). One last one for Ken. On the occupancy side was there anything unique within the quarter, as I said you didn't leverage occupancy expenses on a 4.4% comp.

Yes, nothing, Michael. Nothing unique there in Q4 on the occupancy side. As I said, I mean we didn't really see a lot of movement in the other categories within cost of goods sold, aside from the impact of the new distribution center.

Okay, thank you very much and best of luck with the year.

John Zolidis, Buckingham Research.

Hi, good afternoon. Can you hear me?

Yes.

Hi, great. Congratulations on a good start to your existence as a public company. Just a follow up question on that occupancy cost question. We're looking at about an 8% increase in sales per square foot including, I believe, the extra week in Q4. So it would seem a bit strange that you don't get occupancy leverage on that kind of a sales increase. I was wondering if you could talk about that a little bit more.

And then related to that for the Texas market, is that a higher or a lower occupancy cost market? And then I have one follow-up, thanks.

Yes, let me do the -- I'll do the -- you can do -- I'll do the Texas first. Again we haven't seen anything different in Texas versus what we've experienced and seen through other new markets in new regions. I think Tom mentioned that too.

With regard to the occupancy for the full year, yes, we did see some occupancy leverage there on the 7% comp. My comment was more towards the fourth-quarter number there. So in the full year, yes, we did see leverage.

And then John, I don't know if was it to Ken's comment or was it to mine earlier on the realistic question because my comment in response was more to that we are not seeing any big increases on real estate.

Okay. I mean, it would sound like there was some increase in the fourth quarter to offset the strong sales growth.

My second question is on seasonality. With the cold weather especially around Easter, do you view your business as being negatively impacted by the current weather trends or is it pretty much immune to those things?

I don't think you could see -- so, in the retail business and would not be affected one way or another when you wake out up and there's snow outside. We're not immune to it. When we have weather and we get impacted, our stores feel it at times when some of that come back but adverse weather does affect us. Did that answer your question? (multiple speakers)

Matt Nemer, Wells Fargo Securities.

Good afternoon, everyone. My first question is sort of a follow-up to the last one, which is have you seen the mix of your business change with this colder weather? And are you able to put inventory back to vendors if it turns out that we don't need quite as much sort of spring-oriented merchandise. And then does the early Easter impact you at all, the calendar shift year-over-year?

I think with regard to spring merchandise and the weather, definitely too early for us to be making a decision or thinking about a decision to put merchandise back to the vendors. We do have quite a bit obviously of our inventory that is still to come so we have some flexibility to adjust if we feel it necessary as we move forward into next month and beyond.

The Easter shift of, I think we'll see how business behaves after Easter but it's not a big impact in our business on a pre-post. Easter is a good business for us, it's a good part and a meaningful part of our Q1 business but the shift itself, we have not seen an impact -- materially impact the business, post-Easter or pre- in the past.

Okay and then, secondly, if we look at the pressure on gross margin from the DC, does -- do you expect that Q1 and Q2 will have a similar amount of pressure or does it sort of step down through the year? How should we think about that?

Yes, for the really, Matt, for the first three quarters, that drag is going to be about the same relatively in a pretty tight range and then drop significantly in Q4 to get you to that 50 basis points for the full year.

Okay. That's very helpful and then, lastly, you mentioned a -- some planned marketing shifts in Q1 and I'm just wondering if you could elaborate on that a little bit.

Yes, I think you asked the question about the early Easter and if you remember back in the first-quarter 2012, we did -- we had less spend back in that quarter, again the first-quarter 2012. So we are back on a cadence in the first quarter of 2013, it is pretty standard for us. And also if you consider that earlier Easter so you'll see a drag on Q1 due to that additional marketing spend year-over-year.

And really what that means is one decision we make years ago and we've seen is we used our fliers as an example as a touch point for our customers for them to be able to see sort of a newer season coming up. When Easter falls this early, we feel it's important for us to really create a touchpoint somewhere between middle of March and later in the year when we would naturally do the next sort of event. So we do what Easter falls this early, we would typically add an event into April just sort of highlight and showcase some of our spring, summer offerings as a preview to the customer. And really that's sort of where this shift in advertising on year-on-year is.

Got it, okay that's very helpful. Good luck this year.

By the way I should mention marketing spend for the year that's for the shift will be consistent. So this is not incremental to the year, just a shift.

Christian Buss, Credit Suisse.

Yes, hi, could you talk a bit about the distribution center ramp? Were you pleased with progress you're making there? And then if you could also and a related question talk a bit about your planning for headcount in addition to the new regions you are going into? How are you planning for that, how comfortable are you with your ability to attract talent there?

I'll touch on the DC first and then I'll speak to talent. You know I think the facility we feel really good about, it's a big task, though. I mean we have a lot of work ahead, I feel that we have the team in place to get it done. And I think we'll go through it and by the time we are done with the year, I think the facility will really be humming.

Building the facility was the easy part. Implementing a warehouse managing management system which, at times, may be challenging for us, that is already done because we already had it in place in our existing facility for years so it made it a lot easier to transition. And hiring for that facility has actually been quite easy. We were able to transfer management talent from our existing facility to operate that new facility. They already recruited all the key positions so now it's a matter of really just filling up the DC with inventory. So we feel really good about the distribution center.

With regard to talent for the field which, obviously, is what we spent a lot of time on and given the growth and given the number of stores that we put out, it's all about the talent in the field. We have actually named a new regional position, an individual that's been promoted within the organization.

So both our regional managers at this point, internal promotes, and he will be moving out to that market to oversee the Texas and surrounding markets.

So, I think we have a good plan in place and where we are today, we feel really good about our ability to execute this year.

That's helpful. And then can I also ask about comps by vintage of store. You have talked in the past fairly openly about the strong performance across vintage. Did that persist in the fourth quarter?

Actually, yes, in Q4 we did see that again. The one variability we saw and we spoke about it, I think on the last call, between that was the -- is related to the storm. So those areas that were impacted by the storm we saw some variability versus the ones that were not.

Okay, great. Thank you very much and best of luck.

Eric Cohen, BB&T Capital Markets.

Great, thanks a lot. How much did Hurricane Sandy impact the comps and earnings?

Eric, yes, we had discussed that, I think, on the earlier -- on our Q3 call. We didn't get into any details about that but suffice it to say obviously was a drag early on in November that we had experienced.

But we really haven't quantified it.

Okay, can you just talk about the store performance on sort of a more regional basis?

For the fourth quarter?

Yes, exactly.

Yes, I think related to the fourth quarter, again, on a full-year basis regionally and by vintage, our performance was in a pretty consistent range. We did see again some variability in Q4 for those regions that were in the storm-impacted areas but that really was just in the Q4 period.

Okay, great. That's all I had, so thanks a lot and good luck.

Thanks.

Thanks, Eric.

And at this time, there are no further questions. This will conclude today's conference. Thank you all for your participation.