Five Below Inc (FIVE) 2015 Q4 法說會逐字稿

Good day and welcome to the Five Below fourth-quarter earnings conference call.

Today's conference is being recorded.

At this time I would like to turn the conference over to Ms. Farah Soi.

Please go ahead, ma'am.

Thank you, Shannon.

Good afternoon everyone, and thanks for joining us today for Five Below's fourth-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 and 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 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 Joel.

Thank you Farah, and thanks everyone for joining us today for our year-end conference call.

I will review the highlights of our fourth-quarter performance and the progress we have made against our key initiatives, as well as our priorities heading into 2016.

Before I do, as I look back on my first full year leading the outstanding team at Five Below, I just want to reiterate how proud I am of their performance and accomplishments.

It has been a great first year on all fronts.

I'd like to start by acknowledging Tom Velios, our Executive Chairman, who's a great partner and has helped lead a successful transition from our co-founders to me as CEO.

We have met or exceeded the goals we set for ourselves heading into the year.

Our performance in 2015 once again illustrates the strength and consistency of this great Company.

2015 marked the 10th consecutive year of positive comps at Five Below.

And our new stores have consistently generated strong productivity with less than one year payback periods.

Just as importantly, we have seen the strong performance across both new and existing markets which reinforces our confidence in the 2000 store potential.

Executing against this 2000 store opportunity with strong and consistent new store results is by far our number one priority, and the team has delivered this past year.

And, if not more importantly, we have consistently delivered very strong bottom-line performance with our average annual EPS growth rate of 27% since going public in 2012.

Now, with regards to the fourth quarter we are very pleased with our results, especially our performance during the all-important nine week holiday period.

For the fourth quarter we delivered sales of $326 million, a year-over-year increase of about 24%, and an EPS increase of 26% to $0.77.

Once again, we saw strong performance out of our new stores.

In Q4 we opened three net new stores.

For the year we opened 71 net new stores in six new states including Florida, Kansas, South Carolina, and Mississippi, Alabama and Kentucky to end the year with 437 stores, an increase of 19% from 2014.

In Q4 comp increase of 3.6% marks our 39th consecutive quarter of positive comps and demonstrates our strong performance during the key holiday selling weeks, in which we achieved a 4.1% comp increase.

From a merchandise standpoint we saw strength in our license business driven by Shopkins and Star Wars.

In addition, the adult coloring book trend gained steady momentum.

Our candy business remained strong.

And we performed well in games and toys.

We're also particularly pleased with our Q4 results, given the difficult end to the quarter, which almost half our stores impacted by Winter Storm Jonas and approximately 40% of our chain closed for at least one day, and we had some stores that were closed for three days.

Our strong performance was accompanied by slight gross margin improvement and SG&A leverage that drove a 26% increase in EPS for the quarter, which was a great end to 2015.

For the year sales were $832 million, up 22% over last year, driven by a 19% increase in the number of stores and a 3.4% increase in same-store sales.

Operating income increased over 19%, despite the cost we absorbed to open our new one million square foot East Coast distribution center.

And we delivered EPS of $1.05, an increase of 18% from 2014.

We believe our success in 2015 is attributed to disciplined execution of our key strategic priorities around new store growth, marketing, merchandising, systems, infrastructure and talent.

Now let me review some of our 2015 accomplishments against these priorities and discuss [what] we are focused on delivering further progress in 2016.

Starting with new stores.

As always, new store growth remains our top priority.

And you can see from 2015 sales results, it was another outstanding year for new store performance as the concept continues to resonate with customers.

For 2016 we are on track to open 85 stores, including our first entry into South Florida and South Texas, as well as the four new states of Louisiana, Wisconsin, Minnesota and Oklahoma.

I am also pleased to announce we will expand out West in 2017 with our first stores in California.

We have seen great success in many new markets as we have expanded beyond the East Coast.

Our planned entry into the State of California represents an opportunistic acceleration in our original time line, and is another example of our confidence in our 2000 store opportunity, as well as the broad appeal we enjoy across wide range in income demographics.

Our new stores generate consistently strong results across new and existing markets alike.

And with each passing year, we're building upon our track record of success with new stores.

Number two.

Let me now discuss merchandising, which remains a top priority.

A key driver of our in-store success is our merchandising prowess.

Our talented and disciplined teams across merchandising, product development and planning and allocation helped ensure that our customers were met with a compelling array of great product at amazing values when they shop Five Below throughout the year.

We are a merchandise-driven Company, and I am excited with the momentum we have going into 2016.

Our Head Merchant, Michael Romanko, has now been here a year, with much of his first year spent building out the team, onboarding and training team members, and ensuring clarity in alignment with respect to our priorities.

Today our go-forward structure is in place at the DMM and buyer levels, positioning us well to continue to provide our customers with the great trend-right product they have consistently found at incredible values at Five Below.

The teams are constantly chasing trends and bringing amazing products to the Five Below customer.

Strategically the merchandise teams are focused in three areas for 2016.

First, delivering even more wow and value to our customers across the entire spectrum of $1 to $5 price points.

Second, taking learnings from our 2015 successes and implementing them in our 2016 openings as we further evolve and improve the Five Below store experience.

And third, emphasizing our appeal as a summer go-to destination.

If you have been in one of our stores lately, you can see that we are already well underway in building upon our merchandise success in 2016.

Number three.

Moving onto marketing, another key priority for us.

In 2015 we continue to test and learn as we involved our marketing mix.

As part of this effort we conducted another TV test in Q4.

This test covered more stores, including some larger markets, and we were again pleased with the results we saw, which were similar to those from our previous test.

In addition to this expanded TV test, we were also more aggressive and more effective with our digital marketing, including email and mobile social that together with great product and compelling merchandising drove our strong Q4 results.

Given the strong results from the multiple TV tests we performed this past year, we plan to expand TV in Q4 2016.

With a more effective mix of marketing and a better reach, we believe we have made good progress with regards to addressing the opportunity we have to improve our brand awareness and drive Five Below to be a top-of-mind shopping destination for customers throughout the year.

In 2015 we saw meaningful increases in brand awareness across many markets.

We believe this means our overall marketing campaigns are reaching our customers where they are and in windows when the marketing message has the potential to be most impactful, whether that be online, on TV, or in the newspaper.

Additionally, based on the success of our digital test we will also be shifting more of our mix towards digital advertising mediums in 2016.

Let me also quickly touch on our thoughts on e-commerce.

As I said on our fourth-quarter and year-end call last year at this time, e-commerce is part of our overall digital strategy.

And we had a two-year time line in place.

So you can expect an update on our e-commerce plans over the next 12 months.

Number four.

Let me now touch on our systems, infrastructure and talent priorities.

We did a lot of heavy lifting in 2015.

I am pleased with our accomplishments on so many major priorities at once.

This past year we opened our Pedricktown, New Jersey distribution center, which represents a big step forward in securing the total distribution capacity we need to support 750 stores.

We also completed the migration to new planning and financial systems and completed our overseas container consolidation program.

In 2016 our focus will be on gaining leverage from these 2015 investments.

To consistently deliver on our goal of 20% top-line growth, we have to ensure our foundation is strong and we must continue to reinforce it as we grow and scale.

This means the right systems and infrastructure along with the right teams, but it also means the right processes.

Implementing scale initiatives to get leverage out of our distribution and systems infrastructure and making our people as efficient as they can be are keys to delivering repeatable and sustainable results.

2016, there will be a lot of focus on process as we benefit from the investments made to date and position ourselves for consistent execution as we continue to scale the business.

This focus and disciplined execution against our key priorities of new store growth, merchandising and marketing, as well as talent and infrastructure helped enable our strong 2015 performance, and we believe we will build upon this track record of success in 2016.

So in summary.

There are many accomplishments the Five Below team should be proud of, but key among them to me is the consistency of performance this Company has delivered.

Internally we refer to this on the 1-10-100 phenomenon, which means our new stores consistently deliver a payback of under one year, we have achieved 10 consecutive years of positive comp growth, and 100% of our stores are profitable.

As impressive as this past has been, I want to reinforce how excited I am about the future of this Company.

We are focused on our 20/20 through 2020 plans.

Said another way, we are outlining for you our five-year growth vision, where we believe we will deliver 20% average annual sales growth with greater than 20% average annual net income growth.

I have great confidence in our teams and the talent that we continue to attract to Five Below, and I look forward to updating you on our progress throughout the year.

With that, I will turn it over to Ken.

Ken?

Thanks Joel, and good afternoon everyone.

I will begin my remarks with a review of our fourth-quarter and FY15 results, and then discuss our outlook for the first quarter and full year 2016.

Our sales in the fourth quarter of 2015 were $326.4 million, up 23.7%, from $263.8 million reported in the fourth quarter of 2014.

We ended the quarter with 437 stores, an increase of 71 net new stores, or 19.4%, versus the 366 stores at the end of the fourth quarter of 2014.

As Joel said, we continue to be very pleased with the performance of our new stores.

With the class of 2015 on track to deliver $1.9 million in year-one sales performance, generating a less than one year payback on our new store investment.

Comparable-store sales increased 3.6% for the fourth quarter of 2015 as compared to a 3.2% comp increase in the fourth quarter of 2014.

This comp increase was driven by an increase in both comp transactions and comp average ticket.

Gross profit increased 24.3% to $132.2 million, $106.3 million reported in the fourth quarter of 2014.

Gross margin increased by approximately 20 basis points to 40.5%, in line with our expectations and driven by leveraging certain fixed components of cost of sales, including occupancy and buy-in costs.

As a percentage of sales, SG&A for the fourth quarter of 2015 decreased to 19.9% from 20.2% in the fourth quarter of 2014 as we leveraged expenses on the 3.6% comp.

Our operating income increased 27.3% to $67.4 million, or 20.6% of sales, from $52.9 million, or 20.1% of sales last year.

Our effective tax rate for the fourth quarter of 2015 was 37.7% compared to 37% in the fourth quarter of 2014.

The increase in the effective tax rate for the fourth quarter 2015 was due to certain discrete items.

Net income increased 26.1% to $42 million, or $0.70 per diluted share, from $33.3 million, or $0.61 per diluted share last year.

For the full year FY15 total net sales increased by 22.3% to $832 million.

Comparable-store sales increased 3.4% compared to a 3.4% comp store sales increase in FY14.

Operating income of $92.9 million increased 20.7%, or 19.4% on an adjusted basis.

In line with our expectations, operating margin of 11.2% decreased approximately 20 basis points from last year's adjusted operating margin of 11.4%.

This performance is inclusive of the total drag of our new distribution center of approximately 30 basis points in 2015.

Net income increased 20.1%, or 18.8% on an adjusted basis, to $57.7 million.

Earnings per share was $1.05 per share for FY15, an increase of 18% versus adjusted earnings per share of $0.89 in FY14.

We ended the year with approximately $100 million in cash, cash equivalents and short-term investment securities, availability of $20 million under our revolving credit facility and no debt.

Inventory at the end of the year was $148.4 million as compared to $115.7 million at the end of 2014.

Ending inventory on a per-store basis was up 7% year over year, driven primarily by hiring transit inventory due to higher import penetration versus last year and earlier receipts of certain spring product based on the earlier Easter holiday.

As a reminder, we take ownership of these direct imported goods earlier as we record in-transit inventory on our balance sheet as soon as the goods leave the overseas ports.

Now I would like to turn to our guidance.

For the full year 2016 sales are expected to be in the range of $995 million to $1.005 Billion with a comparable store sales increase of approximately 3%.

This compares to net sales of $832 million for FY15, representing a growth rate of 20% to 21%.

In 2016 we plan to open 85 new stores and expect to end the year with a store count of 522 as compared to our 2015 ending store count of 437.

We expect to open approximately 60% of our new stores in the first half of 2016 as compared to approximately 70% opened in the first half of 2015.

This expected difference in timing of new store openings for 2016 versus 2015 results in an expected increase in store operating weeks in 2016 of approximately 18% on a store count increase of 19.5%.

For the full year we expect operating margins to be up slightly versus 2015 driven by freight favorability year over year that will benefit gross margins.

Our plans for 2016 assume we realized some benefits from our 2015 investments, but also take into consideration our plans for e-commerce as well as initial costs for our 2017 entry into California.

We expect a full-year effective tax rate of approximately 37.5%.

And net income is expected to be in the range of $69.9 million to $72.2 million, representing a growth rate of approximately 21% to 25% over 2015, with diluted earnings per share in the range of $1.27 to $1.31.

With respect to CapEx we plan to spend in total approximately $44 million in 2016, reflecting the opening of 85 new stores, investing in distribution centers and corporate infrastructure including systems.

For the first quarter ending April 30, 2016 net sales are expected to be between $186 million to $189 million.

We plan to open approximately 20 new stores in Q1 this year as compared to 19 stores opened in the first quarter last year.

And are assuming a Q1 comp sales increase of approximately 4%.

Diluted earnings per share for the first quarter of FY16 are expected to be $0.09 to $0.10.

For all other 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 closing, 2015 was a great year on all fronts for Five Below, marked by progress against our strategic initiatives, which helped enable us to deliver on our financial and operational goals.

We could not have achieved this success without the talent and dedication of our outstanding team, the people who I want to thank for their hard work and commitment to our Company and all that we stand for.

We look forward to another strong year in 2016.

We remain focused on our strategic priorities and believe we will build upon our successes across new stores, merchandising, marketing and infrastructure.

Most importantly, we have given you a look at our five-year vision 20/20 until 2020.

I will now turn the call over to the operator to start the Q&A session.

Operator?

(Operator Instructions)

John Heinbockel, Guggenheim Securities.

Hello, John.

How are you?

So two things.

What's the plan for initially supplying the California stores?

And when would you think -- when and where would you think you would put a West Coast DC?

Thanks, John.

Certainly the initial plan we're still working through, but it is safe to say that don't expect us in the initial wave to be opening up our own distribution center.

A more likely scenario would be that we would utilize a 3PL out in California, which is a common way of doing a startup out on the West Coast.

And we'd expect Southern California to be the location of our first wave of stores.

Okay.

And then secondly, maybe for Ken.

When do you think the benefits from Chinese currency start to flow into product cost?

Is that really more 2017?

Would the assumption be correct that you will invest that in quality of product and not flow that to the bottom line?

Yes.

Thanks, John.

I think you really answered it by the second part of your question.

As we see it now, we'll continue to invest any of those benefits that we get from a cost perspective back into product to make sure we continue to deliver the newness and the wow.

And to you is that more 2017 than 2016, you think?

We are always doing that.

Don't forget, we get benefits related to scale also as we continue to grow.

We've always done that and we will continue to do that.

John, we are seeing those benefits now as purchases are being made for this year.

It's really opening the opportunity to other product, and as Ken said, improving the quality.

Okay.

Thank you.

Thanks, John.

Dan Binder, Jefferies.

Hi.

Thank you.

I had two questions.

First on the cadence of the quarter, and it sounds like probably a decent start to Q1.

You noted January had some storm issues.

I know we had some weather last year.

Just trying to reconcile that.

Was it worse this year on a year-over-year basis?

And then surprisingly strong comp here, it sounds like for Q1 in the plan.

Just curious if you are tracking to that currently?

For sure, Winter Storm Jonas was significantly larger than last year.

I'll remind everybody the storms in last year were largely concentrated further North up in the Boston area where this was pretty widespread, impacting over half our chain.

But we had a very strong, as you know, nine-week holiday selling period and continued into January going into that storm.

And it was a significant storm in that period.

Q1, we are excited about the start of the year.

As you know, this is a big week leading into Easter.

But we feel real confident on where we sit for the quarter.

My second question was around the investment spending you had planned for this year on eCommerce and California.

Just wondering round numbers if you can give us a sense what that drag looks like on EPS?

And obviously a little bit of a teaser here with eCom, was wondering if anything has changed in how you think about that business and how you want to be in that business from a profitability standpoint?

I'll just comment on eCommerce and I'll let Ken take you on the numbers side of things.

Dan, nothing has really changed.

We just want to be transparent and tell you we're still on the two-year roadmap.

As I've said a number of times, eCommerce is part of our overall digital strategy.

And we also believe eCommerce is the icing on the cake for Five Below.

We don't believe we're going any different direction and that the stores remain our number one priority.

We like what we are seeing as we expand further and further beyond the East Coast.

And at the same time, we're going to add eCommerce into the mix, the offering we have.

But nothing has changed strategically from that perspective.

And we will certainly share more as we continue to get down the path on it.

But our number one priority stays the stores and continuing to expand that.

Ken, you want to just allude on the numbers?

Dan, on the costs.

Any costs around eCommerce and California were obviously contemplated in the guidance that I provided.

But we didn't break those out.

We don't feel that costs are significant.

They are really towards the back half of the year.

We're talking more in 10s of basis points in terms of a full year.

Great.

Thank you.

Thanks, Dan.

Michael Lasser, UBS.

Good evening, Michael.

Thanks a lot for taking my question.

On the full-year comp outlook, you are guiding to 4% in the first quarter.

In the second quarter you're going to anniversary the lack of a flyer leading up to the Fourth of July.

And then in the fourth quarter you will anniversary the Jonas Storm disruption that you saw this year.

So why would the business not perform better than a 3% comp for the full year?

Dan, you look at two-year stacks, especially over the last three or four quarters, you will see us consistently in that 6%-ish, 6.2% year stack.

And what we have set up for you falls right in line with that.

I think as we get closer to the fourth quarter, start to identify the trends for the year, what emerges, we are conversely up against Shopkins and some of the other things I outlined for you.

But I think 3% is consistent with where we said this business has been tracking.

And we will continue to update that as we get further information on the trends of the year.

We feel very confident in what we have given you as an outline, for sure.

Okay.

And then on the new store productivity in the fourth quarter.

As we calculated it, it looked like it was above 100%.

So was that a pure number or was there any timing benefits that you saw?

No.

That's a good calculation.

That was a relatively clean number that you're calling out there for Q4.

And my last question is on California.

What's the rush?

Are you seeing something on the competitive landscape change that is prompting you to forego your contiguous-based strategy and jump out to California?

Yes, on California, this is a disciplined plan on our part.

There was some opportunistic opportunity with the closing of Anna's Linens out there.

And presented an opportunity for us that made sense.

Our expertise is in the growth of stores.

And so going out West was always part of our plan, and this opportunity presented the right time for us to begin to make the jump in 2017.

It's consistent with what we did a few years ago when we made the leap to Texas and then backfilled from there.

And we're using that same logic as we move West.

We certainly don't think of it as a rush.

We think of it as opportunistic and took advantage of it.

Thank you so much, and good luck for the year.

Thanks, Michael.

Paul Trussell, Deutsche Bank.

Hey, good afternoon.

Hi, Paul.

You mentioned how, obviously as we look back over the year, you had strong results from the multiple TV test.

Maybe if you could just speak a little bit more quantitatively as well as qualitative in terms of summer rising up for us what exactly were the benefits gained?

What should we be looking forward to as you ramp up the overall TV roll-out in Q4 of 2016?

And then lastly, you mention also the shift towards the digital marketing and advertising.

How should we think about overall advertising spend?

Thanks.

I think in terms of overall advertising spend you should think of it on a percent basis that it's going to be relatively consistent with years past, plus or minus 10 basis points or so.

But no real step change in the percent that we are dedicating to marketing.

Obviously the dollars will go up as we continue to grow our top-line sales.

But we're probably most exciting with the performance of TV.

And we think what it does, is it allows us in our mature markets to grow top of mind.

We saw that in the TV test in fourth quarter.

Roughly we had TV in about 25% of the chain in fourth quarter.

And as we continue to densify and find opportunities where we have enough stores in our market, we will continue to grow that percentage of stores that we will add TV to.

But TV has been a nice addition to circulars, to our social mobile strategy, to our e-commerce strategy.

And I think when you, Paul, put them all together we collectively have a pretty strong arsenal of different means in which we can communicate with our customers online, in circulars, on TV.

And we've been consistent now with the three TV tests we've done.

We're seeing lift in awareness.

We're seeing change in top of mind.

And its resulting in comp store sales growth.

So we are excited with the progress we have made.

And just one quick follow-up.

As we think about you entering new states, which obviously you've continued to do year after year, can you just clarify how you go to market in those new states from a circular versus broader advertising strategy using social media?

Or will TV ads be in any of those new markets?

Thanks.

We typically won't use TV in the new markets.

On one hand TV can be an expensive medium when you have very few stores in a market.

But it's a very effective medium once you cross that threshold.

In fact, I think one of our most exciting performances in the TV test was in one of our mature markets, call it Philadelphia, where we have a strong awareness and we have a lot of stores.

And we took advantage of that with the TV being an effective way to really change top of mind.

But largely going into new stores it will be more circular-based and our social mobile strategy rather than TV.

Thanks.

Good luck.

Thank you, Paul.

Vincent Sinisi, Morgan Stanley.

Good afternoon, guys.

Thanks very much for taking the question.

Just building on the last comment.

Can you give us just a little bit better sense for first what do you think is more or less the right kind of mature threshold where TV is worth doing and is effective?

And then also from an awareness perspective, any updated numbers around that and when you may be doing more of a comprehensive awareness check-in?

On the first part of your question, it's really hard to answer that question because it truly varies by market.

There are markets out there that are very expensive and there are markets that are relatively cheap.

I would tell you also with this being an election year, that really plays into the mix and the cost of TV advertising.

And then in terms of awareness, what was the question on awareness?

If you guys have any kind of current stats around awareness statistics?

And then if you are planning on doing more of a full-blown customer study to see in your different markets how that has improved versus, let's say, a year ago?

We'll be in market in the month of April looking at where we are at with awareness.

And what I would tell you is in 2015, kind of from the beginning of the year to leading into the holiday, we moved our overall awareness about 9 points.

Previously in the 18 months before that, we moved it about 6 points.

So in the half the time, 9 months versus 18, we moved it 9 points instead of 6 points.

So about 50% faster in half the time.

So you can really see, I think, our overall digital marketing strategy has really given us a lot more weapons to use to really talk to our customers, communicate with them.

And it's resulting in significant movement in awareness for us.

We will continue to measure that year over year as we get into 2016 year and beyond.

But that's the most recent study we have, is the end of 2015 there.

That's helpful color.

Thanks, Joel.

You bet.

Thanks, Vinny.

Scot Ciccarelli, RBC Capital Markets.

Hey guys, Scot Ciccarelli.

Two questions in terms of the longer-term outlook.

First, with an average of, let's call it 20% sales growth, is there embedded in expectation there for some moderation in unit growth after 2016?

No, there's not.

I've said to all of you since I sat in the seat here that Five Below is a long-term growth story.

And I think last year on this call we gave you an outlook kind of 18 months out.

And I think what was intended by this is really to help paint a vision for you more of a five-year horizon and give you some guidance on how we are thinking about both the top line and the bottom line.

And what's more implied in there is you see the vision outlining some moderate leverage as we continue to go through over the next five years.

We should be thinking about close to 20% footage growth and whatever, comps will do whatever they are going to do?

I think what you should really be thinking about it is, as we get into the specific years we will give you guidance on the exact number of stores we're going to do.

But I wouldn't focus on an absolute number on that.

What it really says to you is about 85% of our growth comes from new stores.

And that's something that's really nearly 100% in our control.

I think this growth vision for you shows you a model that we really can control 85% of the growth there.

And then as you say, comps will be what they are.

It's a good range for you.

Okay, that's helpful.

And then just to follow-up.

For 2015 you guys obviously accelerated investments on a number of fronts, from senior leadership, the new DC.

Sounds like you do expect to leverage these investments in 2016.

But is there a point in time over the next few years where you can envision another investment bulge, like when the new DC goes up, et cetera where it's going to be a noticeable hit to the P&L?

Thanks.

Thanks, Scot.

I think what you called out as appropriate is that we will always be investing in the business.

But it will be different when we open the next DC versus where we were as 2015 as the size of the Company and it will be easier for us to absorb those investments.

Back in 2015 it was a significant investment for the size of the Company on both people, systems and infrastructure all hitting at the same time.

And I think we have laid out a pretty good plan that while there will be times that it will be a little bit bigger than other years, on a CAGR basis we feel very, very strong about the plan we have laid out for you.

Got you.

All right.

Thanks a lot, guys.

Thanks.

Kelly Halsor, Buckingham Research.

Hi.

Thank you for taking my question.

Congrats on the great quarter.

So thanks for the visibility into store growth.

It's great to see your plans on entering California.

Could you highlight for us how your stores have performed across your current markets?

Have you seen many disparities in performance in urban versus rural, high income versus low income?

How does that differ when you enter new markets versus backfilling?

If you could put some context around this for us by highlighting how your stores are performing in your most mature markets, perhaps?

Something you could give us to help us frame the opportunity on the West Coast and the longer-term opportunity going forward.

Thanks.

Thanks, Kelly.

Let me take that, and Ken if you have any other color to add, please jump in.

I think the two ways we really look at our overall store base, without getting into specifics, is we look at class of service and we also look at geographic.

From both perspectives we see a pretty tight consistency of comps across classes and consistency of performance across geographies.

And as we continue to move further and further out from the East Coast and see that continue, whether that was in Florida last year or going out continuing into Texas, it gives us confidence that as we enter more and more new states and markets that we should see the same type of performance.

I think I called out on the last call we opened a store in Mississippi, and it was consistently in our top 20 stores.

So we're seeing high-performing stores emerge in second-tier markets as well as in our home markets here back in Philadelphia.

Ken, anything to add?

Just to reiterate what Joel mentioned, again we continue to see that consistent range in performance, whether we're looking at comps or whether we're looking at the average volumes out there.

One call-out which would be expected is we go into urban areas and we have higher densities, it would not be unusual for us to see higher productivities coming out of stores like that.

But on an overall basis, again still within a consistent range of performance.

Great.

And then secondly in terms of the merchandise with Mike Romanko now at the helm for the last year or so, how have you been able to elevate the product?

Any merchandise you could call out in particular?

And then also with a lot of the trends work in your favor currently, how do you guys play defense, if you will, as you start to lap the strength in your business last year?

Do these trends have longer tails than maybe we are anticipating currently?

Great question, Kelly.

And as I said in my notes, we are a merchandise-led Company.

But quite honestly if you look at Michael in his first year with us, while he certainly jumped into merchandise on day one, and I think several of you on the call have met Michael and spent time in the stores with him and know how much he loves and bleeds merchandise, he spent a large part of his year building out the team, onboarding and training team members, ensuring alignment and, candidly, building out his DMM structure.

I'm happy to sit here on this call and say that entire team is in place.

They are aligned with Michael's vision.

The benefit you see in it is it gives us more arms and legs and everybody marching towards the same vision.

Michael is great at chasing trends.

That's what Five Below is known for.

We consciously seek new trends and one world emerge, and then dissipate in a different world.

It's those eight worlds that really work to Five Below's advantage and allow us to ebb and flow the concept as the trends emerge.

Great, thanks.

You bet, Kelly.

Jeremy Hamblin, Dougherty & Company.

Congrats to you and your team on a great first year at the helm.

Thanks, Jeremy.

Wanted to ask a question about the early Easter.

And as I recall from 2013, there was some impact in terms of the promotional calendar in the first half of the year I think as it relates to both Q1 and Q2.

But can you discuss that at all?

Are you going to change any of your circulars that you are going to do, let's say, in May?

Are you going to add any because Easter is so early this year?

Any color you can provide on that would be helpful.

For Q1 you can expect pretty much a consistent promotional calendar from us, give or take a week or so.

And while Easter is early, it's only a week earlier than last year.

So it's not that big four-week jump that happens.

In Q2 I think it's safe to say you will see us bring back the circular that we eliminated last year around the summer timeframe close to the Fourth of July holiday.

But other that, don't expect really any differences from us in Q1 or Q2.

Great.

And then Ken, I wanted to see if I clarify.

In terms of the new unit openings, did you say 50%, 5-0, in the first half of the year, or 60%, 6-0?

6-0, 60% in the first half of this year.

And that's up against about 70% last year in the first half.

Okay.

And then last thing.

We talked about weather having an impact at the end of Q4.

Are you getting any benefit, do you think, in terms of Q1 from the warmer than certainly last year weather and fewer storms in February, particularly in your core Mid-Atlantic and Northeast market?

Certainly the Q1 weather has been very favorable.

And I think that plays nicely into the Q1 and ties in with an early Easter set.

But weather's been very much good first quarter for us.

Okay, great.

Thanks, and best of luck this year.

Thanks, Jeremy.

Stephen Grambling, Goldman Sachs.

Good afternoon.

Thanks for taking the question.

Thanks, Stephen.

Just to follow up on some of the questions on California.

I realize it's still a little bit early for this, but Ken had mentioned some higher costs there.

And I think you had mentioned taking advantage of some of the locations.

As we think about you moving in there, is there any differences to think through as it relates to either leasing versus owning those locations and how the cost to operate these will compare to the rest of the chain?

No different strategy on lease versus owned.

We are 100% leased, and we would foresee that continuing in that trend going forward, as our strategy is largely in strip or power centers.

But no change on that piece of it.

In terms of operating them, we are not new to operating in higher rent areas, dense areas like the Northeast largely is.

And I think California will perform very similar to that as we go out West there.

So this isn't a new model for us at all.

That's helpful.

And from the 3PL standpoint, is there anything you can do, or is there anything that you're thinking about doing, to mitigate potential changes to the supply chain or potential issues with supplying some of these stores?

I would have always thought that being fast to market because of the ability to get in and out of hot products would be a pretty important factor in your model.

We have a lot of options that we are honestly in the early stages of vetting out in terms of what will be the best way to supply these stores.

I would remind everybody that a large percentage of our goods comes from Asia and most of those goods come through West Coast ports.

So we don't see it being any disadvantage having a 3PL or location based out there on the West Coast at some point in time.

It will certainly not slow up our ability to get into stores.

In fact, it might do just the opposite and be quicker over time.

But that is as we get our infrastructure built out out there.

Great.

That's also helpful.

Thanks so much.

I'll jump back in the queue

Thanks, Stephen.

Have a good day.

Ladies and gentlemen, that is all the time we have for questions today.

I'd like to turn the conference back over to management for any closing remarks.

Thank you operator.

Thanks everyone for joining us today.

We look forward to speaking with you again on our first-quarter call.

Have a great evening.

And appreciate the support.

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.