Five Below Inc (FIVE) 2015 Q3 法說會逐字稿

Good day, and welcome to this Five Below third-quarter earnings conference call.

Today's conference is being recorded.

At this time, I'd like to turn the conference over to Ms. Farah Soi, with ICR. Please go ahead.

Thank you, operator.

Good afternoon everyone, and thanks for joining us today for Five Below's third-quarter 2015 financial results conference call. On today's call are Joel Anderson, President and Chief Executive Officer, and Ken Bull, Chief Financial Officer. 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 Five Below's SEC filings. The forward-looking statements made today are 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 Joel.

Thank you, Farah, and thanks everyone for joining us for our third-quarter earnings call. I will review the highlights of the quarter, before handing it over to Ken to discuss our financials and our outlook, and then we will open up the call for questions.

We are very pleased with our Q3 financial performance. Sales increased 23% to nearly $170 million, and we delivered in EPS increase of approximately 33% to $0.08, both ahead of our guidance. We saw strong new store results, as well as above-plan comp performance, driven by our compelling and trend-right merchandise assortment. We opened 17 net new stores, and entered the state of Mississippi, our 27th state.

In Q3 to end quarter with 434 stores, representing store growth of 19% from Q3 last year. Year-to-date we have opened 68 net new stores in six new states, and our new store performance remains very strong, illustrating our broad appeal, as our concept resonates with customers across a wide range of markets, with varying population densities, age, and income demographics.

A great recent example of the type of success we see in smaller more suburban markets is one of our October openings in Mississippi, which was among the strongest initial performances this year. Our Q3 comp increase was 4.8%, making this our 38th consecutive quarter of positive comps, and was above the upper end of our expectations.

Customers clearly responded to the fresh, exciting, and trend-right assortment in our stores throughout the quarter. We saw strong performance in our tech and candy worlds, as well as our games and toy categories, including licenses like Shopkins and Minions. And while back-to-school and Halloween are not large businesses for us in Q3, they both provide newness for our customer, and we saw solid sell-throughs overall. I am pleased with the progress we have made so far this year, and we are now fully focused on delivering the fourth quarter.

Before I turn it over to Ken, I would like to take a moment to touch on a few of our key strategic initiatives from this year: First and foremost, store growth. As I've said, before we have a strong -- we have a store growth opportunity that is the most compelling that I have ever seen, and I've been in retail a long time. Our stores continue to open very strong, and we enjoyed payback periods on our new store investment of under one year. We see this strength and consistency in new store performance across new and existing markets, large and small markets, high income and low income markets.

All of this reinforces our conviction in the 2,000-plus US store opportunity we have always believed existed for the Five Below concept. We're on track to deliver the 85 new stores planned for 2016, and our strong and consistent new store results give us confidence to pursue the significant remaining white space of the US market, which remains untapped for Five Below.

It is important to remember that while our merchandise offering targets the preteen and teen demographics, our stores enjoy universal appeal, as evidenced by the multiple customer studies we have done over the years. With only 434 stores today, and not having fully penetrated any of our markets, including the greater Philadelphia market, which we have operated in since our inception in 2002, we believe the runway for store growth is long, and the associated earnings potential is large.

Second, merchandising: as evidenced by our third-quarter sales results, we believe our merchandising initiatives are beginning to take hold, with customers responding positively to the newness they have seen an our stores this year. The strong top line performance we saw this quarter was fueled by the merchandising trends and newness our merchants are infusing across our assortment.

Third, marketing: as part of our overarching digital strategy and cohesive marketing plans for Q4, we recently kicked off another TV test. You will recall, we ran our first TV test last holiday season, ran another one in Q2 of this year, and given those results, we are running an expanded test in Q4 this year, which will cover about 25% of our store base. This test will accompany our print messages, our growing email campaigns, and social and mobile efforts during our most important season of the year. We look forward to share our learnings with you on our next call, as well as discussing our broader digital strategy.

Finally, infrastructure. Our Pedricktown DC is up and running, and ready for the peak holiday weeks. Our large infrastructure initiatives for this year are behind us, and we're looking forward to putting these assets to work, as we head into 2016.

So, in summary, Q3 was a very good quarter, and our teams delivered on all fronts. Our stores continue to perform extremely well, and comps came in ahead of plan. This sales performance, accompanied by our characteristically steady gross margins and disciplined expense management, drove a 33% increase in earnings per share.

We are now a month into the all-important fourth quarter, and have been preparing all year for this holiday season. We believe our assortment looks great, our marketing message is compelling, and our operating teams are ready for the peak shopping weeks of the year.

Now, to discuss our financial performance and outlook in more detail, I will hand it over to Ken. Ken?

Thanks Joel, and good afternoon, everyone.

I will begin my remarks with a review of our third-quarter results, and then discuss our outlook for the fourth quarter and full year. Our sales in the third quarter of 2015 were $169.7 million, up 23% from the $138 million reported in the third quarter of 2014. We ended the quarter with 434 stores, an increase of 69 net new stores, or 18.9%, versus the 365 stores at the end of the third quarter of 2014.

Comparable store sales increased by 4.8% for the third quarter of FY15, as compared to 1.5% comp increase in the third quarter of 2014. This comp increase was driven primarily by an increase in comp transactions. Gross profit increased 26.8% to $52.8 million, from the $41.6 million reported in the third quarter of FY14. Gross margin increased by approximately 90 basis points to 31.1%, in line with our expectations, and driven primarily by lower freight costs versus last year, as we anniversary the impact of the West Coast port issues.

As a percentage of sales, SG&A for the third quarter of FY15 increased to 27% from 26.2% in the third quarter of FY14, due primarily to increased compensation costs and higher depreciation expense associated with our new Pedricktown distribution center. Our operating income increased 27.7% to $7 million, or 4.1% of sales, from $5.5 million, or 4% of sales last year. Our effective tax rate for the third quarter of 2015 was 38.2%, compared to 39.5% in the third quarter of 2014.

Net income increased 31% to $4.3 million, or $0.08 per diluted share from $3.3 million, or $0.06 per diluted share last year. We ended the third quarter of FY15 with $18.1 million in cash and cash equivalents, availability of $20 million under our revolving credit facility, and no debt. Inventory at the end of the third quarter was $213.6 million, as compared to $167.2 million at the end of the third quarter of last year.

Average per-store inventory at the end of the third quarter of FY15 increased approximately 7%, as compared to the end of the third quarter last year. This increase was driven entirely by higher in-transit inventory due to higher import penetration versus last year. And as a reminder we take ownership of these direct imported goods earlier as we record in-transit inventory on our balance sheet when goods leave the overseas ports.

Now, I would like to turn to our guidance. For the fourth quarter ending January 30, 2016, net sales are expected to be between $318 million and $323 million, assuming a 2% to 3% comparable store sales increase, and the opening of approximately two net new stores. We expect operating margins in Q4 to increase by approximately 50 basis points, driven primarily by leverage on certain fixed cost components in both cost of goods sold and SG&A. Earnings per share are expected to be $0.74 to $0.76.

For the full year 2015, we are raising the low end of our expected net sales range, and narrowing our earnings outlook. Sales are expected to be in the range of $823 million to $828 million, with a comparable store sales increase of approximately 3%, and EPS is expected to be in the range of $1.03 to $1.05. This full-year sales guidance compares to net sales of $680.2 million for FY14, representing a growth rate of 21% to 22%. For the full year 2015, we plan to open 70 net new stores, and expect to end the year with a store count of 436, as compared to our 2014 ending store count of 366.

For the full year, our EPS guidance assumes operating margins will be down slightly versus 2014, given the new distribution center and leadership investments that we have made since mid-2014. Both of these investments will be partially offset by leverage in other areas of gross margin and SG&A. We now estimate the total impact of the new DC to be approximately 40 basis points to operating margins, of which approximately half will impact SG&A in the form of depreciation, and the remaining impact will be in gross margin. This equates to an approximate $0.04 EPS drag for FY15.

We expect the full-year effective tax rate to be approximately 37.8%, and GAAP net income is expected to be in the range of $56.4 million to $57.5 million, or an approximate 17% to 20% increase over 2014. Net income is expected to increase by approximately 16% to 18% over FY14 adjusted net income. We are planning CapEx at approximately $55 million for the year, reflecting the opening of 70 net new stores, investing in distribution centers including approximately $20 million for the Pedricktown DC that we opened this year, and also systems upgrades and corporate infrastructure. For more details related to our results and guidance, please refer to our earnings press release.

And with that, I would like to turn the call back over to Joel to provide some closing comments, before we open it up for questions. Joel?

Thanks, Ken.

In conclusion as you can tell, we are very pleased with our third-quarter performance, and focused on executing this holiday season. We have made progress against all of our strategic priorities this year, and that is reflected in the readiness of the organization for our most important season of the year. We're coming off November, when we anniversaried last year's peak Frozen weeks, but this critical holiday weeks lie ahead, and we believe we are well-positioned to deliver on our holiday plans.

We are relentless about merchandising, delivering the trend-right product with ample wow and newness at outstanding values. I believe that when you shop our stores this season, you will agree that the assortment looks great. We are leaning in on the marketing front, to make sure people know that can find this great merchandise at unbeatable prices at Five Below. Before I end, I want to thank all of our associates for the awesome job they do day in and day out. They truly are the heart and soul of Five Below. They have driven our success to date, and will enable our success going forward.

And finally I'm sure you all saw the announcement that David Schlessinger is stepping down from his position as a Director on the Board of Five Below. On behalf of the entire Five Below team, I would like to express our deep gratitude to David for his invaluable contributions since co-founding the company with Tom 13 years ago. He was instrumental in both creating and realizing the vision for Five Below, and we will be forever grateful for his leadership. He has been an invaluable resource to so many, including me personally, and I feel privileged to have benefited from his counsel.

David is leaving us in a strong position to build upon our success and execute on the substantial growth opportunity that exists for this very unique concept. We wish him the very best with all of his future endeavors.

And with that, I'd like to turn the call back over to the operator for questions. Operator?

(Operator Instructions)

John Heinbockel, Guggenheim

So Joel, a couple of things. Can you maybe talk about your thoughts on Share a Voice this holiday, and making sure that you are competitive with a lot of your bigger competitors. And particularly interested, this Epic Deal program that you've had here for the last few weeks, the role that plays and the idea you want to hit people every couple of days with something new to stay top of mind. Your thoughts on that?

Yes, thanks, John. I think that you framed it up really nice. Share a Voice is probably the way we think about it as well, and I think what you are going to see from Five Below is, we've really balanced our Share a Voice to come at our customer from many different aspects, and you specifically mentioned Epic Deal, but I would add circulars, which we plan to anniversary, basically the same cadence as last year.

We've added in TV, which will represent about 25% of our stores, as well as a stronger presence with social and mobile this year. So the share of voice side really characterizes touching on all aspects, both the digital and traditional, and the Epic is just a great way to bring to life this great merchandise that our merchants have been finding and sourcing for Five Below this holiday season.

And then just as a follow to that, what are your thoughts on doing anything differently in terms of operational throughput over the next couple of weeks, whether it's number of registers open, or I don't know if you can do mobile registers, or do you think that's an opportunity?

The operating teams are very focused on throughput for this year. We had some operating sessions at our holiday meeting this fall about throughput, and that includes line busters and people bagging in the back. We won't be adding mobile registers this year. It's really tight in there, but the team believes that our throughput capabilities are much stronger than they were a year ago.

Okay, thank you.

Dan Binder, Jefferies.

I wanted to touch on the Epic Deals as well, as I watched them maybe hit a little bit earlier in November, and even as recently, I think it was yesterday and today, I noticed that some of them had effectively was a type of 20% off deal. I'm just curious as you think about your promotions and how you structure them, trying to get somebody out of the house to get $1 off an item, while it's interesting because it's 20% in some cases, it would seem like deals should be structured in a way that drives ticket. And I'm just curious as you think about your promotions over the next few weeks, if you can just give us a little bit more color on what we should, and whether or not there any store advanced that are planned to help drive traffic. I know this period post Thanksgiving has been a little bit of an issue, and maybe if you could give us a little more color about your plans to drive traffic beyond adding social media and TV et cetera?

Dan, thanks, I wouldn't discount your last comment there. We are pretty bullish on TV, and let's face it, our customer lives on social media, so that's a great place to be.

To your specific question about Epic Deals, I think what you highlighted is exactly what we're testing and trying. So you've got a combination of percent-off deals, you've got a combination of highlighting wow items that we had earlier in the time, and you are going to continue to see us do all kind of aspects of epic deals, so that the customer really knows what we have.

And I wouldn't discount being $1 off or something like that. Customers love hot price points. They -- you combine that with great product and we really see this as a way to talk to our current customer base.

Okay and then my follow up was with regard to expense leverage, not so much next quarter, but as you look beyond, and we're getting closer to the end of the year, I imagine the budgets for next year are coming together a bit more. I'm curious, I think in your last update you talked about the ability to leverage at lower levels than you have historically. I don't know if you can add any more color to that on this call, but that would be helpful.

Yes, thanks Dan. And you mentioned that we're right in the middle of our budgeting process at this stage, and we'll obviously share more comprehensive detail on our fourth-quarter call. But at this stage of the game, we don't expect any major surprises from what we spoke about before.

Okay, thank you.

Michael Lasser, UBS.

As you think about the fourth quarter, can you frame the upside downside case for us? What's going to drive your comp to be either at the high-end of the range or maybe above it? And what's going to drive it to be below it? Is it going to be external factors or internal factors? What is within your influence?

Certainly in our guidance, we've contemplated everything from cycling the peaks of Frozen, as well as the impact of expanded TV. What's not in our guidance is a massive weather storm that hits the week before Christmas. I think that would take you down the other way, but I don't think any retailer forecasts that, as well. We're coming off a solid quarter.

I'm outlining for you in my prepared remarks what we're doing in marketing, what we've done in merchandising, the impact Michael has had with the merchants, and I think we're well prepared for it. As you look to the cadence of the year, we've slowly raised our overall top line number, and we're still guiding to approximately 3% for the year, and we feel like that's great, and set up for two fourth quarters in a row where the comp in the fourth quarter is relatively the same as the first three quarters.

Okay, and that's helpful. And then on the new store productivity, in the third quarter you mentioned Jackson was really strong. So did you see that type of near 100% new store productivity, as we calculated across your base, or was it more volatile than it's been in the past?

No, as you do the calculation, depending on either way you do it, you can see we're right there at close to 100% productivity. And I called out our Mississippi store, because I think it highlights for you that this concept is working outside our home base. In fact, I'd tell you, 8 of our 10 top-performing stores last week were outside the New York-New Jersey-Pennsylvania Metro. So it wasn't choppy. I think it's, we're seeing it across all regions in all demographics, in the performance of new stores. It needs to work in small markets to get to 2,000, and that's the example of a market that is a small market, and it's resonating -- Five Below's resonating great with the customer.

That's helpful. Let me sneak one last one in, because I know it's been a popular topic as of late, but wage pressure. Are you seeing any at this time, and do you feel like you might see it next year, and is it manageable? Thank you so much. I'll turn it over.

Ken, I'll let you comment on that. You asked about wage pressure, I think. Yes, Michael that's obviously something we analyze, and we look at the wage competitiveness by market on an ongoing basis, and we'll make adjustments as needed to ensure we can attract and retain the best talent for our brand. I think you asked a little bit about a go-forward, too. Again, as I mentioned before, we're right in the middle of our budgeting process, and we'll be able to sure that on our fourth-quarter call. But we haven't seen any material impact up to this point.

Have a good holiday. Thank you so much.

Meredith Adler, Barclays.

Congratulations on a good quarter. I would like to just talk a little bit more about this past weekend, not this past weekend but the holiday weekend. Maybe it was this past weekend. Anyway, maybe you could just talk about kind of what you were seeing, and in the past last year, there was an issue with traffic being lower at retailers in the same locations where you are. What did you see this year?

Let me go back Meredith and say thanks for recognizing we just had a great quarter, and we feel that way too. I try not to get into the specifics of week on week and all that, but I would just tell you, no big surprises. I think what you are reading out there is true for all retail, and the shifts and that. And the Black Friday week is becoming less meaningful overall, and for us, it's been all about the holiday readiness, and our business is skewed towards December. Everything is in line with what our forecasts are, and we're expecting a great December.

It's why TV is ramping up for us, what we are doing in social mobile is ramping, many commented on the Epic Deals. We're all getting prepared for the next few weeks. John asked about customer throughput. Everything is focused on that.

Great and then a follow-up on the work you're doing, or what you've seen in terms of the customer mix. My own personal observation is that you really moved well beyond the teen-preteen kid audience. I'd just like to know if you could talk about that a little bit more, if you really are seeing that trend?

I said in my prepared remarks, what is so unique about this concept, and what I've really enjoyed since stepping into the chair as its universal appeal. But having said that, I think where David and the marketing starts is always with the teen and preteen. And then you build from there. And so, when we go-to-market social mobile, that's with the teen and preteen in mind. Having said that, we still know mom has the purse strings and circulars work for that segment of the customer. So we are universally appealing, but we start with the teen and preteen in mind as we go-to-market.

Great. Thank you very much.

Matt Never, Wells Fargo Securities.

Congratulations, everybody. My first question was, I'm wondering if your Q3 product successes give us a read on the fourth quarter? Did you see better growth in personal consumption items like candy and nail polish, or was it more on the giftable, side when you think about say, the remote-control helicopters?

Matt, I'm not sure that anything that happens in the third quarter, regardless of what would have been is a precursor for the fourth quarter. But you always love going into the fourth quarter with momentum. I think what we saw, Matt as I outlined it for you, was broad appeal across several worlds, and that's really probably what drove it, more than anything. It wasn't consumables versus style, or something like that. There was pretty universally broad appeal there.

Okay, great. And secondly, there's been a lot of discussion about the weak retail traffic that's happening around your stores, and how that might be a detriment to you. And I'm wondering if you're able to isolate store performance based on the type of co-tenants that are around you. I think in the past, you've been agnostic to that, but as you open more stores and you are in more markets, is it better to have more grocery stores, is it better to be near hard lines or soft lines? Just love to get your color on that?

I think for us, we overall see a consistent performance. Any traffic is good traffic for us. We concentrate more on the health of the center we go into, rather than the grocery versus big box versus something else. It's more a look at the overall health of the center that has a bigger outlook and impact.

Okay, great. Best of luck this holiday.

Jeremy Hamblin, Dougherty & Company.

I'd like to add my congratulations too, on terrific results, and thanks for taking my question. Wanted to see if I could get a little more granular on thinking about current trends and guidance. As we look back to last year, you had softness towards the end of November, and certainly the beginning of December.

And I think, as I recall, Ken, things picked up right around the holiday, the last couple of weeks of December. If I look at your guidance, does that imply that you have seen trends thus far quarter to date that are maybe tracking a little bit above your guidance, and that you're assuming as you come against or lap more difficult compares, that it softens a little bit? Or is that offset by the increase in TV as we look forward?

Well Jeremy, as you know, when we look at our guidance, we look at our quarter to date results, and then we balance that with any impact of go-forward initiatives, our readiness on an overall basis. And really it's, all of that, of what you said, is baked into our guidance numbers.

I think Joel alluded to it in his remarks. We went through in the month of November, we anniversaried a tough Frozen comparison there. That's behind us, right? And go forward for us is the larger part of the holiday season. So we take that all into consideration, as we put the guidance together.

And then I just want to add a follow-up on the TV and the advertising. Generally speaking, you have rolled this out in a nice progression. It seems as though you are very pleased with the results, and that's why you are expanding the test.

Is there a limitation to how quickly you can go -- you're going to be in 25% of your markets? Could you be at 50% or 60% of markets at this time next year, or is there a limitation based on the density of stores in your various geographies, that inherently makes you have to go slow in doing this?

We are pleased with it, and that is why we continue to roll it out. The limitation does eventually turn into density, but that density is something we look at market by market, not in total, where is our US density. It's a very targeted approach. One of the markets, we're in-market now, as I said on the call before, we wanted to test larger markets, and we're in Philadelphia this holiday season. It's a very large market, with relative density.

We won't be in New York next year, as an example, because our density is very low there. But ramping it up will not be hard to do. So we continue to like the results we see, because we're able to do it market by market, with a very targeted approach.

Great. Thanks for taking my questions and best of luck in the holiday.

Christian Buss, Credit Suisse.

I was wondering if you could talk a little bit on the merchandising side of the equation, how many more initiatives do you have to rollout? Is the merchandising strategy where you want it to be right now? If you could provide details, that would be helpful.

As I said either last call or the call before, Michael just joined us earlier this year, and it takes a good year at Five Below to fully get your feet under it, and I think even as Michael goes through his first holiday season here, he is already seeing ideas and opportunities for next year, and I think any great merchant like Michael is going to always believe they can do better, and we will always continue to chase new trends, like the emergence of adult coloring here recently. I don't know that we're ever done, but I can safely tell you that there has been a positive impact on nearly every world this 2015.

That's very helpful, and can I read between the lines there, that you are seeing a pick up in conversion? If you can provide some color on the traffic versus conversion dynamic, and that transaction increase, that would be helpful.

I think traffic conversion is, Ken, roughly half-and-half, I believe, is where the third quarter came in?

The comp, Christian, was driven by transactions, but we did have an average ticket increase, too, for Q3.

That's helpful. Thank you very much, and best of luck in the holiday season.

Paul Trussell, Deutsche Bank.

Congratulations on a stellar performance in 3Q.

Thanks, Paul.

The third-quarter gross margins were up a bunch, and I believe, Ken, you noted the cycling of some of the West Coast port issues. If you could quantify that for us, and as we move to the fourth quarter, help us understand the drivers of margins in this upcoming period?

Sure. For Q3, you mentioned it Paul, when you look at gross margin, the key driver was a reduction in freight cost, as we anniversary that West Coast port issue from last year. That was, again, the majority of that, we had some other slight leverage in some of the fixed cost components, in cost of goods sold.

And then as you move forward into Q4, we're really looking and seeing various leverage in the fixed components, in both cost of goods sold, and down in SG&A. And we're still seeing some slight depreciation in leadership investments that we spoke about before, but that's very small. The key driver for operating margin improvement was really the leverage that we expect in Q4 on those fixed components of both cost of goods sold and SG&A.

Got it. Thank you, and then I apologize if I missed it, but could you just walk through a bit of the cadence in the third quarter itself? Just the September period into October and Halloween commentary specifically? Thank you.

I think with a comp like 4.8%, all three of our months were positive. It was a pretty steady performance across the quarter, as we went through the entire quarter. And we feel really positive of what that sets us up going into the fourth quarter.

Thank you.

Charles Grom, Stern Agee.

Great quarter, like Paul said. Just on the fourth quarter guidance, all year long, you have been saying you were going to do a 3% comp, and now you're guiding to 2% to 3%. So connect the dots with why you expect it to be lower, and then, if all months were consistent in the third quarter, it sounds like November did see a step down. Can you just shed some light on that for us?

I think what we said all year long Chuck is that, for the year we expected approximately 3%, and if you do the math on 2% to 3% for the fourth quarter, that lands at about approximately 3%. So we tried to give a range there that was consistent with what we believe for the full year, and nothing has changed for us. That's where we believe we're going to be for the year.

Obviously, the initiatives we put in place, we feel great about, and they are in front of us the next few weeks, and we'll build, obviously report back from you, what plays out. But I think November, as you alluded to, it was our toughest Frozen comparison, and that's now behind us. All the initiatives I have talked about on every call have been setting us up to have a great December.

Okay, that's helpful. Can you just remind us last year what Frozen was, as a percentage of sales? And as Star Wars, how is that trending for you, and what's the expectation for December?

Chuck we haven't really talked about that, and specifically what I would tell you is that the fourth quarter was our highest Frozen month -- Frozen quarter, and November was our highest month. And then as far as Star Wars goes, like most movie releases, we expect that to grow as we get closer to the movie launch, and continue thereafter, which is similar to the pattern we saw with Frozen last year after the movie release.

Okay, and then last question, just across regions, any difference in taxes for you? It doesn't seem like it, but anything geographically to call out?

No, all regions were very solid. In fact the band of the highs and lows is pretty narrow, and Texas was fine.

Great, good luck. Thank you.

Vincent Sinisi, Morgan Stanley.

Congratulations as well. Wanted to ask around, you mentioned the new store productivity, pretty consistent across geographies, newer versus existing markets. Anything that you are doing differently around grand openings, that you can tell us, in terms of the new Mississippi store versus some your more established markets?

I tell you what, we've got a new store opening package that is very, very consistent, whether we're opening in Philadelphia or in Mississippi. It's a pretty consistent package across all stores, so no difference there.

Okay, and maybe just sticking on the basic topic. You talked quite a bit around just the opportunity to increase brand awareness, particularly earlier in this year. Have there been any updated surveys that you have run, or maybe are planning to do? Obviously, your comps were very nice this quarter, but just wondering if more of the awareness that you can point to, that has gone up since?

We certainly did a brand awareness study coming out of the second quarter test, and that obviously gave us enough confidence to want to not only repeat it in fourth quarter here, but to expand it. And then we will do a full market awareness of all of our markets in early 2016.

Okay, great. Thanks very much.

Tom Filandro, SIG.

I also have to add my congratulations on a really great executed quarter. Congratulations to all.

I'll toast my Starbucks iced tea with you there, Tom.

Just to understand the concept of what the Epic Deals, I'm a little bit new to the story, so just, should we think about the fourth-quarter as more of a view that you might trade off a little bit of AUR or ticket, meaning the third quarter you had better ticket, or are there some mix offsets to that, or do you just trade off a little AUR for better overall transactions? And then I have a real specific question about Thanksgiving, and I know you don't want to talk about details, but I'm curious if you feel like you've got your return on your investment, meaning putting employees in stores, in those centers where some of them were dark.

Just curious on that. Thank you

We are pleased. There was really no big surprises for us on Black Friday week, and we're fine with our strategies. I think those epic deals are targeted special values. They really highlight the wow product I talked about. They are great for traffic, and they are great for excitement about the brand.

I've said many times, any time there is a hot new trend, it's always net-net positive for Five Below, as it exposes new customers to the brand. And last year it was Frozen, and this year Shopkins and adult coloring, they all appeal to a different set of customers, and I think our job as merchants and marketeers is to bring that to life and let customers know they can get it at Five Below, and we do that through Epic Deals. You will see us do it through the TV commercials, and all those are well intended to reach out to our customers, and drive footsteps in our stores.

I wish you the best of luck, and happy holiday.

Kelly Halsor, Buckingham Research.

This is actually Scott Krasik on for Kelly, but thanks for taking my question, and congratulations on a good quarter. Two questions, first obviously a lot of opportunities across the country, as you pointed out, even in some of your existing regions. But maybe, can you talk about how you are prioritizing some of the major new market opportunities over the next 12 to 24 months? And then second, how is your view on the e-commerce opportunity evolving? The process, what you are spending on, time and money you are spending on, towards that? Thank you.

On real estate, Scott, as we get into the fourth-quarter call, we'll certainly give all the details on that, but strategically, you shouldn't expect any surprises there. Every year, you see from us a combination of new markets, coupled with fill-in in our existing markets.

This year we opened in six new states, as an example. But that strategy is working, and you'll see us continue to do that, as we roll into 2016 and 2017. And Scott, what was the second half of the question?

How is your view on e-commerce evolving, where you are spending money, time, capital?

E-commerce was something I outlined at my March call, earlier this year. It was part of our two-year road map, and we're still tracking on that two-year road map. There's nobody who would like to do commerce more than I would, but at the same time, my number-one initiative remains fueling our store growth, and making sure we have got the infrastructure, systems, and people processes to support that. But e-commerce is slotted right in, still within our two-year time line, as we outlined earlier this year.

Good luck, thanks.

Ladies and gentlemen, that does conclude today's question-and-answer session. I'll turn the conference back over to management for any closing remarks.

Thank you operator. Thanks for joining us today. Happy holidays, everybody. We had a great quarter, and we look forward to speaking with you again on our fourth-quarter call. Talk to you in 2016. Good night.

That does conclude today's conference. We do thank you for your participation. You may now disconnect. Have a great rest of your day.