Five Below Inc (FIVE) 2016 Q1 法說會逐字稿

Good day and welcome to the Five Below first-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.

Thank you, operator. Good afternoon, everyone, and thanks for joining us today for Five Below's first-quarter 2016 financial results conference call. On today's call are Joel Anderson, President and Chief Executive Officer; and Ken Bull, Chief Financial Officer and Treasurer. After management has made their formal remarks we will open the call to questions.

I need to remind you that certain comments made during this call may constitute forward-looking statements and are made pursuant to and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements.

Those risks and uncertainties are described in the press release and 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. 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 first-quarter earnings call. I will review the highlights of the quarter before handing it over to Ken to discuss our financials and our outlook. Then we will open up the call for questions.

We are very pleased with our first-quarter performance as our results continue to reinforce the strength and universal appeal of Five Below. We delivered sales and earnings ahead of our guidance range, with a sales increase of 25% to $193 million and EPS growth of 50% to $0.12.

During the quarter we opened 21 new stores and entered two new markets including South Florida and Louisiana. In fact, five of our new stores this past quarter made the all-time top 10 list for spring store grand openings at Five Below. Let me tell you where those stores are located: St. Joseph, Missouri; Lafayette, Louisiana; Owensboro, Kentucky; Morgantown, West Virginia; and Dover, Delaware. The five stores I just highlighted illustrate the broad universal appeal of Five Below and demonstrate how our brand awareness continues to grow across all markets.

Our new stores opened very strong and we could not be more pleased with the result. Already in the second quarter we've opened 13 new stores and have entered the new markets of Wisconsin and Oklahoma. And we're on track for the 85 planned store openings for 2016.

And when we look at the top quartile performance of our existing stores, the market characteristics of these stores are very diverse and includes stores from Detroit to Texas to rural Mississippi, as well as multiple stores from our traditional stronghold in the Northeast. With our continued and consistent success as we expand our store footprint, our conviction in the 2,000 potential for Five Below only grows.

Our Q1 comp of 4.9% exceeded the high end of our guidance range and marked our 40th consecutive quarter or 10th consecutive year of positive comps. This performance demonstrates the operating discipline that is an integral part of the Five Below culture.

We continue to make progress across each of our strategic priorities, with merchandising being key among these, as customers continue to responded to our trend-right assortment and the amazing value proposition we offer at $5 and below. Our carefully added assortment at tremendous values, combined with compelling marketing campaigns and exciting in-store experience continues to resonate with our customers and drive our performance.

Our eight worlds give us ample flexibility to introduce newness, respond to trends and shift categories up and down. This flexibility enables our merchandising team to ensure our assortment is infused with the necessary newness to continue to surprise and delight our customer, as well as adapt and react quickly to shifting customer preferences.

In Q1 we saw broad-based strength across our business, with our comp performance led by candy, style, and room worlds. Our merchandising team continues to drive newness and wow, both from a product assortment as well as from a visual merchandising standpoint.

One of the major benefits of our 20% sales growth is the scale we enjoy that enables us to keep getting better. This means improved sourcing and vendor relationships, better buying power and improved trend capabilities, all of which allow for our already great customer experience to get even better.

As we reap our growing scale benefits we will continue to utilize them for the benefit of our customer. I am pleased with the progress we are making on this front and continue to be very excited by the assortments that our buying teams are bringing into the stores.

As I said on the last call, we want Five Below to be the destination for summer. We have set our stores for summer and our merchandise is all about sun, water and fun -- key elements of the season. Five Below is your local summer surf shop, from sunscreen to boogie boards to beach towels, all at our incredible value price points of $5 and below.

Along with a focus on new stores and merchandising we continue to evolve our marketing mix. In Q1 we had relatively the same marketing cadence as last year. As we look to Q2, we plan to test digital in the form of mobile social campaigns and repeat our summer TV test. We will do this while maintaining our overall marketing spend rate year over year as we work to determine the optimal mix for this summer period.

As we have said before, e-commerce is also part of our broader digital initiative. In Q1 we began work on our initial e-commerce platform and expect a soft launch with a small percentage of our assortment in the second half of this year or the beginning of next year. The minimal P&L impact from the soft launch is already embedded in our outlook for FY16.

In summary, we are very pleased with our first-quarter performance and I could not be prouder of our teams who are responsible for delivering these results. We remain firmly focused on the remainder of the year and continue to deliver against our goals.

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 first-quarter FY16 results and then discuss our outlook for the second quarter and the rest of the year.

Our sales in the first quarter of 2016 were $192.7 million, up 25.4% from $153.7 million in the first quarter of 2015. We ended the quarter with 458 stores, an increase of 73 net new stores or 19%, versus the 385 stores at the end of the first quarter of 2015.

Comparable-store sales increased 4.9% for the first quarter of 2016 as compared to a 1.7% comp increase in the first quarter of 2015. This comp increase was driven by an increase in average ticket and transaction.

Gross profit increased 27.8% to $60.3 million from the $47.2 million reported in the first quarter of 2015. Gross margin increased by approximately 60 basis points to 31.3%, driven by freight leverage as well as overall fixed cost leverage resulting from our strong 4.9% first-quarter comp and new store performance. You will recall in Q1 last year we incurred higher freight costs and associated deleverage driven in large part by the West Coast port issues.

As a percentage of sales SG&A for the first quarter of 2016 decreased to 25.7% from 26.1% in the first quarter of 2015, as we leveraged expenses on the 4.9% comp and strong new store performance. Our operating income increased 53.1% to $10.8 million or 5.6% sales from $7 million or 4.6% of sales last year.

Our effective tax rate for the first quarter of 2016 was 37.6% compared to 39% in the first quarter of 2015. The decrease in the effective tax rate for the first quarter of 2016 was the result of a change in our average day tax rate.

Net income increased 58% to $6.8 million or $0.12 per diluted share from $4.3 million or $0.08 per diluted share last year. We ended the quarter with approximately $25.8 million in cash and cash equivalents, $55.9 million in short-term investment securities, availability of $20 million under our revolving credit facility, and no debt.

Inventory at the end of the first quarter was $156.3 million as compared to $119.8 million at the end of the first quarter of last year. And the inventory on a per store basis was up 9.7% year over year driven primarily by higher import penetration versus last year. 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 second quarter ending July 30, 2016, net sales are expected to be between $216 million to $219 million. We plan to open approximately 28 new stores in Q2 this year as compared to 32 stores opened in the second quarter last year, and are assuming a Q2 comp sales increase of approximately 3%. Diluted earnings per share for the second quarter of FY16 are expected to be $0.16 to $0.17.

For the full-year 2016 we are reiterating our previously provided outlook. 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. For the full year we continue to expect operating margins to be up slightly versus 2015 driven by improvement in gross margin and offset by modest deleverage in SG&A. As a reminder, our guidance takes into consideration benefits from our 2015 investment, as well as costs associated with our launch of e-commerce and our 2017 entry into California.

We continue to 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 continue to 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 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, I want to thank the entire Five Below team for their hard work that has driven our strong first-quarter results. We have had a great start to the year with an outstanding first quarter, delivering strong top-line results as well as a 50% increase in earnings per share.

I am encouraged by our continued momentum as our teams work diligently to deliver exciting assortments, compelling marketing campaigns, and in engaging in-store experience for our customers. The start to 2016 reinforces the five-year vision I outlined on our recent year-end call.

We believe we are well-positioned to deliver on our goals for this year, as well as our long-term vision that we call our 20-20 through 2020 plan. As a reminder, these goals include 20% average annual sales growth with greater than 20% average annual net income growth through 2020.

We are just coming off a great Memorial Day weekend that traditionally marks the kick off to the summer season. We have our big summer weeks ahead of us and we've worked hard to deliver an assortment that makes Five Below the go-to destination for all things summer.

With that, I'd like to turn the call over to the operator for questions. Operator, if you'd open it up for questions. Thank you.

(Operator instructions)

John Heinbockel, Guggenheim Securities.

Joel, a couple things. The summer TV test, how is that going to compare to a year ago in terms of number of markets, stores, intensity? And where are you with the email acquisition effort in terms of how many you have and what type of growth you're seeing in that?

Thanks, John. On the first one, the summer TV, we currently, as I shared before, for fourth quarter, are preparing for more of a rollout. As it relates to Q2, we're still in the test mode for summer TV. This will be our second summer of doing TV.

Last year was in the mid teens for the number of stores. This year will be in the low 20s for the number of stores. So, a slight increase over last year but certainly not in a rollout phase for it. We are pleased with the results last year and we're going to repeat that this year, like we did with fall with things like testing larger markets, testing repeat markets, so we can understand what happens the second year you do it, you can understand what happens in new and different larger markets.

Your second question was on email. Email is alive and well. Our stores do a fantastic job collecting emails. And we're fast approaching the 5 million number for emails in our database.

And then just as a follow-up to that, obviously you've got terrific momentum, and let's assume that continues. What are the kinds of things that may not be in your plan or budget right now that you'd like to invest in as we go through the rest of the year and particularly into the holiday season? Is it a larger fourth-quarter marketing push in terms of markets or intensity? What would you like to do on that front if you're capable of?

John, strategically, as I've said many times, our shift over time to a more digitally oriented marketing campaign is probably the biggest area you're seeing us make investments. And we need to do that methodically and we need to do it with rigor and really study the results. So, I think that's an area you will see us continue to look at -- would we do more TV, would we do more social mobile. And I think, if anything, those would be the areas you'd see us invest more.

Okay. Thank you.

Michael Lasser, UBS.

Good evening. Thanks a lot for taking my question. How should we think about the 3% comp guide for the second quarter in light of the fact that you just put up a really strong first quarter, and last year in the second quarter you pulled back on that circular, which you indicated had some impact on your trends during that period. Presumably you're going to bring that back this year, so should we interpret it as trends to start the period have been pretty slow and that's why you're guiding as you are?

I think every time we guide -- well, let's back up and start with, we've guided for the year at approximately 3%. And we remain focused on that approximately 3%. While it was a great number for first quarter and it gives us great momentum, it's still a very small part of our overall number.

And when it comes down to then translating that approximately 3% for the year, for the quarters we certainly look at the quarter-to-date trend and then we look forward to the balance of the year. And I think in first quarter we had the trends of Easter in our line of sight, as we guided for you. And I think as we look at Q2 the big weeks of summer are still in front of us.

So, we see 3% as a really solid number. And I think if summer turns out bigger than that then there's probably some upside to that.

And do you plan on bringing back that circular that you had removed last year?

Our overall marketing cadence year over year, Michael, from a percent of sales will be the same as last year. Summer is an important marketing quarter for us. We are continuing to tweak our marketing spend until we get it right.

What we're doing from that one is we will have two summer circulars like we did last year. However, we are shifting our summer circular from the end of July into that all-important Fourth of July period. I think I shared with you before there are certain times of year that the circulars really matter for our business -- Easter, holiday, and certainly in that key summer period, the month of June. So, you will see us bring that circular forward into the Fourth of July period.

And, Joel, let me ask you one quick follow-up question. On the five stores that you said were amongst the most productive starts that the Company has seen, as you reflect on those, is there anything unique about those locations? Historically you've said what determines the ultimate productivity of a unit is the vibrancy of the local retail trade area. So, is it that those doors were just in very vibrant retail locations? Or were there other elements such as pretty high existing brand recognition in that area combined with solid execution that drove such a great start in those five locations?

I certainly called out those five. They are in our top five all-time for spring openings, grand openings. I think what we learned from all those, what's unique in about all of those is the broad reach throughout the United States that those five states represent. And, coincidently, none of them are in the upper Northeast where we started this concept. I think it demonstrates for you and gives us more confidence in this 2,000 store opportunity for Five Below.

But overall, Michael, there was nothing overall unique in those five centers. In fact, I was at the Dover, Delaware one and we're the only store open in that center. It just shows you that our brand awareness is building, our merchandise assortment is getting better, our operators are improving the store experience, and the momentum of the brand is building.

Edward Kelly, Credit Suisse.

Hi. It's actually Judah on for Ed. I was wondering if you could help us with some color on the cadence of the comp in Q1. It seems like weather is in a mixed bag for different types of retailers and specifically in the Northeast. Any color there would be helpful.

First of all, we usually don't get into the monthlies and weekly cadence. If you go back to my prepared remarks, I just want to remind everybody, this is our 40th consecutive quarter of positive comps. And I think the way you've got to think about it, or the way we think about weather is every quarter is going to have puts and takes and we recognize those strong periods and the weak periods.

Our job is to make sure we have great merchandise and to have the store experience ready for when the customer comes. So, there are times we benefit from weather and there are times we don't benefit. But when you look at it overall for the quarter, I think the overall puts and takes are relatively the same year over year. It just comes at different time periods.

Okay, great. And then switching gears a little bit, related to SG&A as you come into 2017, obviously not looking for guidance but you're going to be moving into California, which is likely a higher cost to operate market, and you have these new overtime rules. Do you have any directional commentary you can give us on those two pieces?

Sure, I will answer that one. Again, just to start there, I guess you're referring to the FLSA rules that have just been enacted. Just as some color, in our stores we have one salaried employee who is the general manager. Our chain average right now is in line with the threshold -- the chain average of their salary is in line with the threshold of the FLSA rules.

So, as you look at that for the current year, if it's enacted there and starts in December 1 of this year, really a minimal impact for this year. It's been factored into our guidance. And if you look out into 2017 -- and, again, we'll still stay on top of this and any rule changes -- but our current estimates at this stage, it would probably have about a $0.01 impact for us in 2017 for a full-year basis.

Great. Thank you.

Dan Binder, Jefferies.

This is [John Goliuze] on for Dan. Congrats on a great quarter, guys. I'd just like to ask a little bit about gross margin. It sounds like freight was a lot of the upside in that. And I know there's also some sourcing gains in China. I know that you guys have previously spoken to these levers as basically gains that would be mostly invested back into product.

First, can you just speak to the degree whether these talons are accelerating or decelerating. And then just talk about whether it is still being reinvested into product the way that you expected or if there's something you're seeing in the buying opportunities that's allowing you to have the level of newness that you want with product while still capturing some of the upside.

Yes, thanks, John. Again, when you look at the first quarter and where we landed, and you look at the operating margin leverage of about 100 basis points, as you can see that's really split evenly between gross margin and SG&A. And as you dig a little bit deeper into the gross margin side, as I mentioned in my prepared remarks, a good portion of that benefit and leverage in gross margin was coming from the benefit of coming off the freight expenses in last year's Q1 under the West Coast port issues. And then the remainder was really leveraging of the fixed cost components that are included in cost of goods sold.

And then when you jump down into SG&A, which, again, was about half of that total operating margin leverage, that, again, was driven by the fixed cost leverage. But your point that you made before around reinvesting in merchandise and product is true. So, any benefits we're getting there we continue to put them back into product.

And then just one other question, if you can just talk a little bit about licensed product, how that's been doing and if there's anything significant on the horizon there.

Our license business has continued to be solid. As I've said before, what's been great to see is the transition from it really being frozen only to now really being multi-dimensional and several licenses carrying our business in a license area. But we're pleased with the license trend we continue to see.

Okay. Great. Thank you.

Jeremy Hamblin, Dougherty & Company.

Good afternoon, guys. Congratulations on the really strong results given the challenging environment. First, I wanted to start with making sure I understood, Ken, the commentary around the puts and takes on operating margins for Q2. I think what I heard was that your guidance assumes a little bit of leverage on gross margin and maybe a little bit of drag on SG&A. Did I hear that correctly?

Yes. I would expect to see from any of the operating margin leverage in Q2 that we would get that, the majority of that would come through in gross margin versus SG&A.

Can you just help me understand that because last year, as I look back through the notes, there was about 50 basis points of deleverage associated with the new distribution center and about 100 basis points of deleverage because you were lapping some comp expense from the leadership investments made on most of your executive team. Just help me understand, then, why would you assume that there would be a little bit more deleverage in that line item this year? Is that because of the e-commerce investments? Or are there other things that are causing that?

Jeremy, let me go back just to recast Q2 of last year. If you remember, we had, I think it was 240 basis points of deleverage. About half of that was driven by moving marketing expenses into Q2 for that initial Q TV test. So, that was half of it, which we won't get that back and that was all embedded in SG&A.

And then we are seeing some slight leverage from a distribution standpoint in Q2. And then we will probably see some slight leverage in SG&A. But, again, we've had ongoing investments, that we discussed before. So, that's really how it is shaking out. The majority of that delever in SG&A last year was really driven by marketing, which we're not going to see that come back because of the repeat of the TV test.

Okay. And that gross margin leverage, that's also primarily because of the port impacts? Or is that also because I think you had 20 or 30 basis points of start up and relocation costs also associated with the new DC?

Exactly. There's really two things coming there. We do have a little bit of the tail left in the West Coast port issues in terms of freight in. And then we are seeing some slight leverage from a distribution standpoint coming off those initial startup costs that we incurred last Q2.

Okay. And then a question on some of the merchandising categories in Q2. Given that in the Northeast/Mid-Atlantic you have seen some cooler and wetter weather, certainly through most of May with the exception of that last week, has that impacted your seasonal category at all? As I visit stores it looks like the merchandise is pretty clean and moving through nicely. Have you had any negative impact from that weather on your seasonal, your now category?

As I said, we're coming off a strong Memorial Day weekend here. We saw really nice warm temperatures and everything. But I think at the end of the day we've got to look at summer in total and not by weeks.

So, certainly, while May was cool, our big summer seasonal weeks really kick in as Memorial Day gets here and as kids across the country get out of school. If that cold weather continued all the way through June and July, that might be a different story, but the teams really manage for the big weeks in June and July as it relates to the seasonal categories. And overall we look at things, as I shared in my commentary earlier, there's going to be puts and takes in the weather and I think when we put it altogether and look at it quarter by quarter, the relative differences are pretty minor.

Okay. And, Ken, one last quick one here. In terms of your working capital, there was about a $25 million, $26 million drag in Q1 on working capital. And you saw it, really, on both sides, both on your prepaids -- we knew inventories would obviously grow -- but also your income taxes payable, your accounts payable, those were all drags. Is that something that's just specific timing Q1? Is there anything else underneath that? Should we expect to see some recapture in Q2? Can you just provide any additional color on that, Ken?

Sure. If you really called it out, Jeremy. The one piece is taxes and just timing of a tax payment. We'll actually see that coming back to us in Q2. And then from an accounts payable standpoint, you're looking at the timing of certain payments around things like rent and things like that. Both of those things are really timing related as it pertains to Q1.

Great. Thanks for taking the questions. Congrats and best of luck and the continued success.

Yes, we really appreciate it. It was a great first quarter.

Vincent Sinisi, Morgan Stanley.

Great and congrats, guys, as well. Thanks for taking my question. I just wanted to ask, to make sure that we are calculating in the same way, unless I missed it did you give a new store productivity number for this quarter? And then just within that, anything to call out in terms of any geographic differences, variances there?

Will, I did not give a specific productivity number but if you do the math it's in advance or it's above 100%.

Yes, so roughly pretty similar to 4Q, Ken?

Correct. A piece of that is related to the timing of stores and a piece of that is related to outperformance.

Okay. Great. Thank you. And pretty consistent geographically?

Yes, with the exception obviously of weather. And we've seen this historically. The range of performance when you look across the regions is still in a pretty reasonable range.

Okay. Great. And maybe just one quick follow up regarding the 2Q advertising. Obviously from a competitive standpoint you can't say too much but in terms of the overall message from the TV that will be launching in some more stores, as well as I think you called out more before, should we expect it to be pretty similar messaging versus last year? Any changes that you can discuss at this point?

I would cage it as you just said. It will be pretty similar to last year in the sense that it's going to be all about summer, Five Below being your summer destination. Our stores are alive and they're vibrant and it's your go-to place for all things summer. That's the message we want to communicate and the marketing team is doing a great job of getting that across in traditional network TV, cable TV, on the Internet, and really trying to reach our core teen and tween customers.

Great. Thanks, Joel. Good luck going forward, guys.

Kelly Halsor, Buckingham Research Group.

Hi. Thanks for taking my question. Congrats on a great quarter. Could you just talk a little bit more about your sales guidance for the year? With the comp being strong, new store productivity in 1Q, you maintained full-year comp sales guidance. So, is there just any way you're thinking differently about the comps by quarter in the back half of the year?

And, also, could you help us marry your guidance with the clear strength you're seeing in new store productivity? What is the new store productivity assumption we should be using to get us to the full-year sales guidance?

I'll take the big picture on that and Ken can talk about new store productivity a little bit. It sounds like people on the call are trying to read into things. We see this as 3% comp concept. We are really pleased with the first quarter and we're really pleased with the outlook for the back half of the year. We go into the summer, which is an important time for us.

I think as all of you start to see the TV commercials, you'll like what you're seeing. The merchandise is strong. Michael and his team have really put together a great summer cadence. And now we're getting ready for holiday from a merchandising perspective.

While first quarter was strong, you've got to still remember it's less than 10% of our overall business. It gives us the momentum we need and want but we also want to keep in perspective where we're at in terms of the whole year. Ken, anything on new stores?

Yes, on the new store productivity, Kelly, as you look at the full year, when you do the calculation, it's north of 90%. But keeping in mind, though, the timing of new store openings. If you remember last year through the mid point of the year we opened up about 70% of our stores. And this year based on timing it's closer to 60% based on what we've opened in Q1 and what we've guided to in Q2. So, that's a piece of it that rolls into the productivity calculation for the full year.

Okay. That's helpful. Thanks. And then you called out a few categories of strength -- candy, style and room. But could you elaborate a little bit more for us on some of the trends? I think adult coloring was strong in 4Q, Star Wars, Shopkins. Has that continued into 1Q? Any callouts of notable trends you're seeing in the business and just how we should be thinking about that going forward?

Yes, Kelly, certainly adult coloring has remained strong. I think the way you've got to continue to think about this business and what makes Five Below so unique is the eight worlds. The merchants do a great job of plussing up or down a world as the trends change. The emergence of the room world is a recent change for us and that continues to get stronger, as you get in our stores and see the new merchandise in the room world.

But as far as license goes, as I said earlier, it remains strong for us. Shopkins is certainly one of those properties that we like and we continue to see the trend. Series 5 just came out a few weeks ago and that continues to be a strong license for us.

So, we're pleased with license, pleased with adult coloring, but in terms of the broader worlds, this past quarter was really led by candy, style and room.

Great. Thank you.

Patrick McKeever, MKM Partners.

Great. Thanks. E-commerce now, it sounds like second half of this year, perhaps early next year, and you're pushing forward, coming off of 4.9% comp and 40 consecutive quarters of positive same-store sales. My question is, just on e-commerce maybe you could give us a little taste of what might be to come there. You said it was going to be a limited number of SKUs. But anything more than that as we look to the back half of the year?

Patrick, I'd just rather start by reiterating your opening comment -- 4.9% comp, 40 consecutive quarters. That is the consistency of this business. When I started a year and a half ago, I think our timeline we outlined for you in March of 2015 is that we planned to launch e-commerce within two years. We're still on that track.

What's nice about this concept is that we don't need e-commerce to rebuild our model. E-commerce will be part of our larger digital strategy. E-commerce is icing on the cake. It's another way for us to communicate with our customers -- ratings and review, research on our products, be more relevant with SEM and SEO. So, we will participate but we see commerce as convenience. We see it as an opportunity for bulk purchases.

But our stores continue to remain our number one priority. And as I shared with you in my prepared remarks, we're just seeing better and stronger results across multiple markets, multiple states throughout the country, and we'll continue to emphasize stores. But we will be prepared and are beginning to build out e-commerce. I think it's just too early to speculate as we haven't even launched the site yet on that. It will certainly remain on track and I wanted to share with everybody we're still on track within the two years I originally outlined.

Got it. Okay. So, it's offensive and not defensive. Clearly, you don't appear to be losing share to any of the online retailers.

It's certainly offensive. We're not in a situation where we need that to change our model. But, at the same time, Five Below is continuing to get broader and the appeal is getting bigger, and there are certain customers that want to take advantage of an online channel and we need to be there for them, too.

Okay. And a couple quick ones. I think you had given some numbers around brand awareness in the past, so I was just wondering if you had any update there. And then are you seeing any performance variants in some of your stores, in places like Texas where you've got some of the issues with the energy economy? A lot of retailers have called out Texas and some other places, the energy-dependent areas, as being weaker.

As far as the brand awareness we will probably be prepared to talk about that on the next call. We are in-flight right now with our spring brand awareness study. Early reads are that it continues to move positive. I think all the steps we've taken digitally in improving our merch assortment, improving the in-store experience are really helping that move forward.

As far as Texas goes, outside of weather, I think they were floating away there this week, we really aren't seeing Texas perform any differently than the rest of our chain.

Got it. Okay. Thanks.

Stephen Grambling, Goldman Sachs.

Thanks for taking the questions and good afternoon. First, are there any specific products driving the outperformance in room and style that you would be able to call out? And could these offer a positive read as gift-giving items going into the back half?

No. I think when we call out areas that are outperforming, take as the assumption better than how the overall chain did. But it really wasn't any specific items or that. I think it's just a great demonstration of the progress the merchant team led by Michael has made. We've seen those areas really evolve and they're continuing to get better, and they're resonating with the customer. It's incredible value.

Thanks. And I know it's still early for this soft e-commerce launch but is there any detail you can provide on how you're thinking about the potential product that would go on the website, even as you think about potential break evens for the basket?

Yes. It's really, Stephen, way too early for that. Certainly we created a budget. It's embedded in our overall guidance for the year. As I've said several times, though, we're going to do this with discipline and prudence. Do not expect to see a big drag on earnings or anything like that due to e-commerce.

This is additive and a benefit to our customers. It's not the core driver of our future sales. It's too early on the assortment.

Okay. And then as we see some of the other online players pop up, whether it's Hollar or wish.com, what percentage of the products that you carry now are exclusive to Five Below?

Off the top of my head, Stephen, I don't know that piece. I would say it's less than half but it's certainly probably in the 20% to 30% range, if you're just talking purely exclusive. You get into the candy category -- Hershey's and Baby Ruth and all that -- that can be bought anywhere. But in some of our other worlds, we source it and it's exclusive to us. It's probably in the one-third range.

Okay, thanks so much. Great start to the year and good luck in the back half.

I appreciate it, Stephen We'll take all the luck we can get.

And that does conclude the question-and-answer session. I'll now turn the conference back over to you for any additional or closing remarks.

Thank you, operator. And thank you, everyone, for joining us today. Have a great summer. And don't forget to visit Five Below to stock up for all your summer needs. Thanks for joining us on the call and allowing us to share our first-quarter results with you. Have a great day.

Thank you. That does conclude today's conference. We do thank you for your participation today.