管理層發言
Thank you, operator. Good afternoon, everyone, and thanks for joining us today for Five Below's Fourth Quarter 2025 Financial Results Conference Call. On today's call are Winnie Park, Chief Executive Officer; and Dan Sullivan, Chief Financial Officer and Treasurer. After management has made their formal remarks, we will open the call to questions. I need to remind you that certain comments made during this call may constitute forward-looking statements and are made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in the press release and our SEC filings. The forward-looking statements today are as of the date of this call, and we do not undertake any obligation to update our forward-looking statements. In this presentation, we will refer to our SG&A expenses. For us, SG&A means selling, general and administrative expenses, including payroll and other compensation, marketing and advertising expense, depreciation and amortization expense and other selling and administrative expense. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP is included in today's press release. 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 Winnie.
Thank you, Christiane. Hello, and thank you all for joining us this afternoon. We're excited to share our outstanding fourth quarter results that capped off a transformational year for Five Below, one that reaffirmed that Five Below is the destination for the kid and the kid in all of us. We are a unique brand and our incredible financial results in 2025 tell only part of the story because what made this year truly exceptional is how we achieved the results. We made a fundamental shift in how we operate, how we engage with our customers and how we strategize and deliver growth of the business and the brand. And our maniacal focus on our target customer has pushed us to be more agile in delivering newness at great value and as importantly, communicating with our customers in the social media channels they live in. In 2025, we invested in curated product stories bought with authority. Better in-stock position supported by a store labor model focused on replenishing product and serving customers during peak periods led to a better experience for our customers and drove sales. For the year, we delivered sales growth of 23% to over $4.7 billion, a comp of 12.8%, operating margin expansion of 70 basis points to nearly 10% and adjusted EPS growth of 32%. We grew our store count by 8.5%, opening 150 net new stores with strong results, capped by 8 record-breaking grand openings in the Pacific Northwest in the fourth quarter. This performance was achieved during a challenging macro environment that required tremendous urgency and agility from our incredible crew, who are the real secret to our success in 2025. These results incorporate a better-than-expected end to the year with our strongest holiday performance since becoming a public company. We delivered fourth quarter sales growth of 24%, including a 15.4% comparable sales increase. Importantly, this growth was both broad and balanced as we further strengthened our position as a portfolio-driven product business. We saw strength across all our merchandising worlds, and we grew in all 170 districts, all vintages of stores and across all income cohorts. We drove both traffic and ticket growth resulting from improved marketing, amazing new product packed with compelling value, better in-store execution and positive customer response to our simplified pricing strategy. I'm so proud of our crew for their focus and dedication in producing these results. I'm equally grateful for their hard work and commitment as we united and embraced change. It was a year of transformation as we successfully delivered 6 hard nut moments with a new go-to-market process focused on storytelling and product newness. Tackled tariffs, overhauled our marketing to focus on social media, expanded our omnichannel capabilities with third-party delivery service and bolstered the executive team with new leaders in marketing, finance and merchandising, all of which has laid the foundation for continued growth. And most importantly, over the past year, we defined and executed our new strategy, which is underpinned by 3 pillars: a maniacal focus on the target customer, delivering a connected customer journey from social to in-store and collaborating cross-functionally to enhance execution throughout the year. Our strategy reinforces our position as the true destination for the kid and the kid in all of us. First, we further defined our target customers, sharpening our focus on Gen Alpha, Gen Z and millennial moms and ensuring our product, marketing and store experience resonate with their needs and more importantly, what is trending and what they are following. Second, we met our customers where they are, namely in social, where we can dynamically engage with creator content and amplify viral moments like the current Squishy Dumpling craze. Speaking to our customers in social channels and following up through targeted content and direct communications by capturing customer records will drive even more resonance and repeat visits as we develop our CRM capabilities. And third, changing how we work. We aligned merchandising, marketing, supply chain, IT and store teams around 6 curtain-up moments, operating with urgency and discipline to ensure a seamless flow of content and newness to our stores. This structural change through a disciplined cross-functional go-to-market process has activated our flywheel of delivering timely newness, compelling storytelling and great in-store experiences like events and curtain-up floor sets. The result is an improved customer experience, generating more visits from new and existing customers. On merchandise, we have systematically delivered relevant newness throughout our world with curated assortments at great value. We continue to focus on differentiating our offer through amazing price value for the quality we provide from the hottest license lines to viral trends in beauty, fashion, candy and collectibles. We've also launched exclusive licensed product for our old favorites like Stitch as well as newer franchises like Wicked. This holiday, we aspire to be the greatest little toy store in America. And to this end, we offered everything from LEGO to cracking kits and remote control cars, all at amazing value. In addition to compelling gifts from toys to beauty sets and yummy holiday PJs to gingerbread house kits, we offer customers a one-stop shop for holiday decor, gift wrap and party essentials. Value remains a critical linchpin for our offering, and we demonstrated that we can effectively provide exceptional value at $5 and below as well as at $7, $10, $15 and beyond. Customers recognize the compelling value across the assortment and at all price points and their receptivity to our expanded offering above $5 reinforces our belief in the tremendous relative value that our products provide. Moving to more rounded price points also helps simplify and improve the shopping experience for our customers and the crew. In terms of marketing, we redirected spend towards social and creator content so that we could be faster and more agile in communicating newness and amplifying viral moments that customers were generating on their own. We have just begun building a customer database, which will sharpen our ability to direct personalized social and direct marketing content to better engage with our customers and develop a relationship with them. While we're still in very early innings with the strategy, we are very pleased with how it drove traffic and sales growth, both online and in stores throughout the year. On to the store experience. We bought into newness and trend with conviction, delivering improved in-stock levels. We also invested in labor at peak periods to ensure that our shelves were restocked and customers' needs were met. We made our store easier to shop for our customers by beginning to move Five Beyond products in line with the categories where they logically belonged. As we simplified operations and improved communication and collaboration, our crew was even more engaged, leading to better execution and attentiveness to our customer, the boss. Providing a terrific experience for our customers while also driving greater productivity in our stores remains a priority. We also became more planful in our approach to new stores. We dialed back the pace of unit expansion to sharpen focus on the quality of locations and ensure that grand openings were brilliantly executed. With our customer-centric strategy well underway, strong comp performance and accelerating new store productivity, we're confident in the long runway of growth ahead. The results of 2025 offer clear proof points that our transformation is gaining traction, and we have more runway. As we enter 2026, we believe the business is well positioned for consistent, durable top and bottom line growth. Continuing to execute on our customer-centric strategy provides us great opportunity to further strengthen the Five Below brand and deepen the competitive moat that our unique retail concept provides. With our growing scale, we are focused on expanding our brand and customer reach across our communities, bringing joy to kids, adults and parents as we help them to play, live, give and celebrate. As we evolve, I am confident that we will retain our strong customer-focused and entrepreneurial culture and remain unrelenting in our commitment to provide unmatched value to our customers. With that, I'll turn it over to Dan.
Thanks, Winnie. Good afternoon, everyone. I'll begin my remarks with a review of our fourth quarter and fiscal 2025 results and then discuss our outlook for the first quarter and full year of fiscal 2026. My comments will refer to results on an adjusted or non-GAAP basis. As Winnie mentioned, we were very pleased to end the year on a strong note with sales and profit exceeding our expectations. In January, we saw stronger-than-expected traffic growth, which converted well and broad basket growth that was fueled by AUR expansion. For the fourth quarter, net sales increased 24% to $1.7 billion, supported by a strong comparable sales increase of just over 15%, which was driven by growth in comparable ticket of 8% and comparable transactions of 7%. Importantly, operating profit grew ahead of comp sales growth, further evidencing the strength and efficiency of our business model. We are operating in a highly dynamic environment, and the end-to-end execution of our crew was noteworthy. In the fourth quarter, we opened 14 net new stores across 8 states compared to 22 net new stores in the fourth quarter last year. In 2025, we grew our store count by 8.5% and ended the year with 1,921 stores in 46 states, including the 2 new states of Oregon and Washington. Adjusted gross profit increased 24% to $697 million or 40.3% in rate of sale, a decrease of approximately 20 basis points compared to the fourth quarter last year. This was primarily driven by transitory tariff costs of 160 basis points, which were mostly mitigated by fixed cost leverage on the strong comp sales and improved shrink results. For shrink, the results of the physical inventory accounts we conducted in January were actualized and trued up for all stores for a total benefit of 50 basis points year-over-year. Adjusted SG&A expenses totaled $385 million in Q4 or 22.3% in rate of sale, which was consistent with last year's fourth quarter rate. The benefit of fixed cost leverage fully offset increased incentive costs and the incremental investment in labor hours that we made in the stores during the peak holiday period. Adjusted operating income grew 23% in the fourth quarter to $313 million, and adjusted operating margin decreased approximately 10 basis points to 18.1%. Net interest income was about $6 million for the fourth quarter or approximately $2 million higher than last year due primarily to a higher average cash balance throughout the quarter. Adjusted net income grew 25% to $240 million and adjusted earnings per share increased 24% to $4.31 per share. For the full year, net sales increased 23% to $4.8 billion, driven by a strong comparable sales increase of nearly 13% that was largely equally driven by both transactions and ticket growth. Adjusted gross profit for the year increased 25% to $1.7 billion or 36.1% in rate of sales, an increase of approximately 50 basis points compared to last year. Adjusted gross margin accretion was primarily driven by fixed cost leverage and improved shrink results, partially offset by the net impact of unmitigated transitory tariff costs. Adjusted SG&A totaled $1.2 billion in fiscal '25 or 26% in rate of sale, which represented a 20 basis point decrease compared to last fiscal year. This was driven by fixed cost leverage on the strong comp sales, largely offset by higher incentive costs and investments in store labor during the holiday. Adjusted operating income grew 33% for the year to $472 million and adjusted operating margin increased 70 basis points to approximately 10%. Net interest income was about $23 million for fiscal 2025 or approximately $8 million above last year due mostly to a higher average cash balance throughout the year. Adjusted net income for fiscal 2025 grew 33% to $370 million, and adjusted earnings per share increased 32% to $6.67 per share. We ended the year in a strong cash position with approximately $932 million in cash, cash equivalents and investments. Inventory was approximately $847 million at the end of the year, an increase of 28% with a commensurate 18% increase in units versus last year. The increase in inventory reflects both the higher store count and the impact of tariffs on average unit costs. Average per store units were up about 9% at year-end, reflecting the pull forward of inventory and our commitment to driving higher in-stock positions in-store in support of our growth objectives. Capital expenditures, excluding the impact of tenant allowances, were approximately $175 million or 3.7% of net sales, which includes 115 net new store openings and investments in technology and infrastructure. We continue to allocate capital in support of growth with a clear view towards delivering the best return on that investment and with each dollar we deploy competing for the highest return. We generated strong free cash flow and plan to continue to focus on reducing our working capital in fiscal 2026 as we cycle the impact of tariffs. Overall, 2025 proved to be a year of transformation for our business and the successful execution of our strategy delivered outsized top and bottom line growth. In a challenging and dynamic macro environment, we operated with both urgency and discipline and with maniacal focus on the needs of our customers. Now on to our outlook for fiscal 2026. We're operating in a highly dynamic and increasingly complex macro environment with significant geopolitical uncertainties and difficult to predict implications for the consumer. We believe this backdrop provides the rationale for a measured, prudent outlook. This year also has a few nuances, primarily related to the cadence of sales and the impact of tariffs. With respect to tariff rates specifically, for 2026, we have assumed that the global tariff rates that were in place as we entered this fiscal year will remain in place all year. Our outlook, therefore, does not contemplate the impact of the recently enacted Section 122 tariffs, which are only in place for 150 days. Now with respect to our outlook for the year. Sales are expected to be in the range of $5.2 billion to $5.3 billion, an increase of 10% at the midpoint and comparable sales growth is expected to be between 3% and 5% or approximately 17% on a 2-year stack basis at the midpoint. Adjusted operating margin at the midpoint is expected to increase 100 basis points to 10.9%, driven by gross margin expansion, net of increased marketing investments. Adjusted diluted earnings per share is expected to be $8 at the midpoint or growth of 20% versus 2025 on 55.7 million shares outstanding. As a reminder, our outlook does not include the impact of share repurchases. We expect net interest income of approximately $26 million and a full year effective tax rate of approximately 26%. Capital expenditures are expected to be between $230 million and $250 million, excluding the impact of tenant allowances, which reflects approximately 150 net new store openings and increased investments in technology and infrastructure. On to the guidance for the first quarter of 2026. We expect total sales in the range of $1.18 billion to $1.2 billion or growth of 23% at the midpoint versus last year's first quarter, with comparable sales growth of between 14% and 16%. The first quarter is expected to be our highest comping quarter of the year, in part due to the un-anniversaried benefits of the rounded price simplification strategy that we implemented last year. We expect to open approximately 45 net new stores across 24 states in the quarter. Gross margin in the first quarter is benefiting primarily from fixed cost leverage on the strong comps, higher merchandise margins related to the net benefit of pricing and lower shrink. Adjusted operating margin at the midpoint is expected to be 9.7% versus 6.1% in the first quarter last year, with the majority of the 360 basis point increase driven by gross margin expansion and to a lesser degree, leverage over SG&A expenses. Adjusted diluted earnings per share at the midpoint is expected to be $1.63 per share or growth of 90% versus last year. In summary, we're very pleased with the underlying performance of the business and the continued execution of our customer-centric strategy underpins our confidence in this outlook for 2026. We remain focused on executing at a high level and continuing to deliver on our top and bottom line growth for the business. With that, I'll hand the call back over to the operator to start the Q&A session.
分析師問答
The first question will come from Matthew Boss with JPMorgan.
Congrats on a great quarter and the continued momentum. So Winnie, could you help by breaking down the drivers behind the magnitude of comps that you're seeing near term, mid-teens comps the last 2 quarters? And if you could speak to the acceleration that you've seen in the first quarter or maybe even larger picture, if you could just walk through the structural changes to the organization and maybe some of the new customer acquisition metrics that support this as durable or drivers off of a higher revenue base from here?
Thanks so much, Matt. It has been a tremendous quarter, and we're excited to see that momentum continue. And really, I would say that there is one word that characterizes our success, and that is our crew. And I say that because what we've done is we have basically taken a year of pretty significant change and driven amazing results of that change and that transformation. The change started with a real focus on the customer and getting back to our roots and focusing on the kid and specifically Gen Alpha, Gen Z and millennial parents, who love to reward their kids with the trip to Five Below. The second piece is really focusing in on how our customers basically become aware of us and how they get to us and how we announce newness to them and creating what we're calling a connected customer journey. And we're meeting our customers where they live, which is in social media. So we redirected our marketing to focus on social media. We've also just begun the journey of actually capturing their records so that we can continue a dialogue with them and invite them back, which we think is going to be a major lever for growth in the future, just driven off of repeat visits and again, engagement on new content. The last piece is the team pulled together and executed brilliantly. And I call this the flywheel effect, and it really was about cross-functional collaboration across the organization. We honed in on the 6 curtain-up moments or new floor sets. But instead of just passing the baton between the merchants and marketers and stores, we basically start the season together, really hindsighting together what just happened. And then as we move forward through the season, being connected throughout. And that culminates in a call with our 1,900 stores to really tell them what is, number one, the newness that we're bringing forth. Two, what is the marketing message, what are we going to be activating in stores and beyond and then staying really connected in terms of how we drive the product into the stores and ensuring that they've got, honestly, good in-stock positions. So it is a bit of retail 101, but executed really, really well. And I think that moving forward, this is early innings. I joined a year ago, so we've just started executing against the strategy, and the team has executed very well. But we've got more growth ahead of us that I think is incredibly durable. And one of the things that makes it so relevant is the fact that we've got a unique retail concept. So we're operating as a differentiated specialty store for kids, but with the discipline of an extreme value retailer. So all very good. Thank you so much, Matt.
The next question will come from Edward Kelly with Wells Fargo.
I'd like to add my congratulations. I would like to ask you about just the comp momentum, and there's a lot of excitement about what you've been seeing so far in Q1. And I was hoping that you could maybe talk about what you think is driving that, particularly from a trend standpoint. And then as you take a step back and think about the Q1 comp guidance versus the full year comp guidance, can you just sort of help us bridge the way you're thinking about full year given the robust start out of the gate?
Thanks so much, Ed. I'm going to kick us off and talk to you about the business that we're seeing now and then also have Dan lean in and talk about how we're going to bridge quarter-to-quarter. So we're really excited. I think what we saw in consecutive quarters last year continues this year. We really do have right now in Q1, broad-based growth. And it's across our entire assortment. We're excited that our worlds are all comping, and we have been very intentional to take more of an assortment approach as opposed to relying on a single item. So what you do is you take that growth across all of our worlds that's being kind of driven by great traffic, great transactions, also AUR. But then you layer on top of that some compelling trends that are happening right now. And in the past, when those trends happened, we weren't communicating directly with the customer vis-a-vis the channels that they live in like social. Today, we can engage directly. We see something pop on social like the squishy trend. And what's really nice is that we can amplify that through, honestly, what we say and do, but also watch it carefully. And we've got a whole community of stores that's also engaging as well as brands. So it's been really nice to see that, and we're enjoying that in this quarter in particular. And I'm going to let Dan step in and just help us bridge a bit.
Yes. Thanks for the question. You're right. We're off to a good start here in the quarter that we're in, and I think you all see the same data that we see. There's great momentum coming out of the holiday, which we're super excited about. And the midpoint of our Q1 guide on comps puts us right smack in line with run rate trend, which we think is appropriate. As we go to sort of the balance of the year and to give you a little bit of the thinking on how we constructed the guide, I think the most important thing that I would highlight is what we're up against as we think about Q2, 3 and 4. We're going to start comping some really, really tough growth quarters. And I think just pure math, when you think about a Q2 last year at plus 12%, all the way up to plus 14% in Q3 and plus 16% in Q4, that's real, right? That's math and that matters. And so that obviously factors in. I think the second thing I would highlight is just the state of the consumer and the macro environment in which we're operating. And we just don't think it gets easier from here, whether it's the prices at the pump or this sticky inflation that seems to be hanging around or a job market that is somewhat sluggish. We think the environment here is going to continue to be challenging. And so we sort of factored that in as we thought about the plans that we have, the execution and the newness and the strategy that Winnie referred to and then ultimately, what we're up against in terms of back half of the year and trend. The last thing I'll say is when you look at Q2, 3 and 4 of our business on a 2-year stack, which is, I think, really important because it takes the noise out of a moment in time. Over those quarters, you're seeing mid-double-digit growth consistently Q2, Q3, Q4. So that tells us we're still in a real strong growth position, and I think we've put the guide together in a pretty constructive way.
The next question will come from Pedro Gil Garcia Alejo with Morgan Stanley.
This is Pedro Gil on for Simeon. Great quarter, fantastic momentum. Congratulations. My first question is for Winnie. In your prior roles, have you experienced a period of such strong growth as you're seeing right now? And what are the learnings that you take from those positions, from those roles that you can apply to comp the comp here into 2026? And then I have a follow-up.
Thanks so much for the question. So I actually have seen strong growth in my past life, especially when I was engaged in international and in international luxury. What's nice though about Five Below is that we really think we've got I guess, a toolkit for durable growth as we move forward. And we think the strategy is compelling. I mean you really start with the fact that we have a unique retail concept that's focused on kids. And I think that, that's compelling here in other places. The second piece of this is our execution is really, really strong. And I think you can have a brilliant strategy, but if you can't execute, and with our teams and our crew, the execution is about collaboration and being really one team, one dream, being very close in terms of the trends that we're seeing and reacting quickly. And I would say the last piece of this is we're just really excited to be able to engage directly with the customer. The customer is responding well, I think, in part because we're talking to them. And it's not a one-way dialogue, traditional advertising where you just put it out there. We're engaging with them constantly. And through our new marketing efforts through social media, we can be incredibly agile. If something is popping, we can immediately react. And the other piece of it is we've got a rich source of information because we can see what's trending out there and again, react. So I would say that all of those things give us a lot of confidence. And I do think this growth is special, but it's also durable. Thanks so much for your question.
The next question will come from Michael Lasser with UBS.
It's really on investments that you can make in order to sustain this momentum moving forward, and it comes in 2 parts. First, Dan, you mentioned that you're expecting 100 basis points of gross margin expansion this year. How would you break that down from factors that are unique to this year versus letting more of the goodness flow to the bottom line rather than reinvesting in? And does that create some tension over the long term if Five Below is not reinvesting all of the scale and other benefits it gets from being a bigger organization? And then as part of that, if you could just talk about how we should be modeling the contribution margin if indeed you are able to sustain this comp momentum above and beyond your guidance, would you choose to reinvest some of this outperformance back to be able to sustain this comp beyond 2026?
Michael, thank you very much for the thoughtful question. So look, if you look at 2026 as a whole, we've got actually 130 basis points of gross margin accretion year-over-year and about 100 basis points of operating profit accretion. That's the model that we've built, and that's on the 3% to 5% comp that we put together. The way we get there, to answer your first question on sort of what's driving that margin, taking away sort of the leverage point and the shrink point, I think you've got 3 fundamental drivers. You've got price, which we won't anniversary until late in 2Q. You've got the cycling of the transitory tariff headwinds of a year ago, and you've got a structurally lower tariff rate versus a year ago, mostly related to the reduction in the fentanyl tariff in China. Those are the predominant drivers of the gross margin accretion, and they'll play differently between half 1 and half 2. I think to your second question on the investment stance of this business, look, we feel really good that we are remaining committed to a growth stance for the business. That growth stance shows up, in my opinion, in a few different ways. We are incrementally investing in marketing this year, and you've heard Winnie talk a lot about the vision for how we want to engage, how we want to build awareness for this beautiful brand and talk to our customers in a different way. That's about 20 to 25 basis points of incremental year-over-year investment. We are continuing to invest in labor. We have seen the benefit of what happens when we put the right profile on the shop floor at our busiest times. And so we're committed to getting that model continue to be optimized. And then thirdly, we're going to continue to lean in on capital and support the growth of this business, both in new stores, but also in capacity within our distribution network to make sure that we're ready not only for 2026 but beyond. So I think we've got the right balance here of fueling and funding this growth, but also being thoughtful about what flows to the bottom line. Look, to your second question, what happens if we outperform this? That's a long way away for us. We would love to entertain that. We're certainly thinking about that every day, but we'll have more to say about that should that situation arise.
The next question will come from Scot Ciccarelli with Truist Securities.
Dan, I think you mentioned you're seeing the same data that we're seeing on the outside. But I think what we're seeing on the outside would suggest you're providing a relatively conservative guide, at least at this point for the first quarter. Is that based on just conservatism? Is it because we still have Easter ahead, et cetera? If you just could provide more clarity around kind of the thinking on that.
Absolutely, Scot. Thanks for the question. We're seeing the same data you're seeing, and we're excited about what's happening out there. However, it's important to consider that we're just 7 to 8 weeks into the quarter, and these weeks typically have lower volumes. This doesn't diminish our performance, but I believe this quarter will depend on current data, not past performance. Easter is significant for us, with two crucial selling weeks ahead. Although this year's Easter is early, which poses some challenges, we are confident we will manage it well. Additionally, both Winnie and I have mentioned that the consumer's situation isn't as strong as it was at the end of last year. We need to be mindful of this, as consumers are facing financial pressures. Our intention isn't to be overly cautious; rather, we want to be prudent as we progress through the quarter, especially with Easter approaching, to ensure we finish strong. I hope that clarifies your question.
The next question will come from Paul Lejuez with Citi.
Can you talk about your AUR and ticket assumptions for the first quarter versus transactions? And then I'm curious, as we think about 2Q to 4Q, are you looking at those quarters as being consistent on a 1-year basis as you move throughout the year? Or are you looking at them as being consistent on a 2-year basis? Or are you building in a stronger second quarter coming down a little bit, decelerating as we move throughout? Anything you could share on that second quarter to fourth quarter cadence and the AUR ticket and transaction assumptions?
Great. Thanks for the question, Paul. Yes, look, let's start at the macro level. We've got comp growth built into every quarter in the year. So I want to reinforce that point. I think we made it in the opening remarks, but I think that's important to note. Obviously, yes, you're right, the sequential growth will slow as the cycling effect is more pronounced. And '25 got stronger as the year went on, which means the cycling challenge is harder in '26 as the year goes on. In terms of how we thought about sort of ticket and AUR, I would sort of maybe ladder up and just think about it in terms of half 1 and half 2. We've modeled very consistent trends that we saw coming out of the year, particularly in Q1 around ticket growth and AUR-driven ticket growth. It's what we saw in the fourth quarter. It's what we expect to see in Q1. That will obviously moderate as we move into Q2 and we anniversary the price increase. And then over the back half of the year, yes, you're going to see a little bit more balanced, a little bit more moderated growth between both ticket and transaction. We do expect growth in both, but it will be more modest given what we're cycling against.
The next question will come from Robert Ohmes with Bank of America.
I was curious about the first quarter and the strength you have there, though it might be hard to see behind it. Was there any storm impact in the first quarter? Does early Easter mean anything for you? Historically, how have tax refunds helped or not helped Five Below's business? Are they helping right now?
Yes. So all that certainly went into how we thought about the first quarter. There is certainly tax proceeds in the market. They came a bit earlier than what we've seen previously. We think that's a bit behind what we're seeing in the early results in the quarter. That's been favorable. Look, I think in general, an early Easter is less advantageous than a late Easter. It sets up that post-Easter timeline where it's still unfortunately a bit cold and you don't get the full spring/summer sets going. But that's de minimis. That's probably on the rounding. I think at the end of the day, Easter is still a pronounced piece of the quarter for us earlier or later. It's a big piece of how we think about the quarter. And so yes, you've got a bit of tax funding that's worked its way through earlier than maybe we would have expected. You've got Easter out there. I think all of that has factored into how we constructed the first quarter comp guide.
The next question will come from Chuck Grom with Gordon Haskett.
Can you explain the traffic between new and existing customers? Also, what would be required to speed up unit expansion in 2027 and 2028? What are you looking for considering how strong NSP has been over the past year?
We have observed growth in both new and existing customers at similar and impressive levels that we haven't experienced before. I believe that our marketing strategies are very effective and are yielding results. As we continue to collect customer data, I anticipate further growth, particularly in our existing customer base, and an increase in customer lifetime value, especially as children grow up, attend college, and potentially return to us as parents. The potential is very promising. Regarding store growth, we have adopted a disciplined approach, which has been a significant change over the past year. This discipline involves carefully selecting the best locations and prioritizing impactful openings. It is crucial for us to have the right inventory and a well-trained team in place. Our revival of grand opening marketing and reaching out to the community has proven successful. We are focused on the number of stores, as there is ample opportunity for us, but it is more important that we choose the right locations and execute effectively. Thank you, Chuck.
The next question will come from Zhihan Ma with Bernstein.
Winnie, I wanted to follow up on your comment about pricing and various price points above $5 to $7, $10, $15. Now it's not the first time that Five Below is going beyond the $5 price point. What do you think has changed in terms of you seeing the customers giving you the permission to realize more pricing power this time around beyond the $5 point?
Thank you, Zhihan. A few fundamental changes have taken place, but one thing remains constant: our commitment to providing value and variety for items priced at $5 and under, which accounts for around 80% of our sales volume. We're excited and proud of this achievement. Our goal is to be a go-to option for customers with entry prices starting at $1, and delivering great value will always be central to our operations. We've adopted a new approach for pricing items above $5. We've thoroughly assessed each product to determine if it justifies a higher price point of $7, $10, or even $15. For instance, during the holiday season, we offered appealing gift sets and bundled products priced at $10, which made a significant impact. We emphasize relative value and ensure our prices are competitive. Moreover, we've changed how we merchandise our store to align with customer shopping behaviors. Previously, many of these items were located in the back of the store, but now we've made an effort to showcase compelling value items in areas where customers are actively shopping. For example, placing a standout speaker in the technology section lets customers easily see its value. We're committed to understanding customer shopping patterns, ensuring they receive great value, and focusing keenly on competitive pricing. Another exciting aspect of Five Below is our emphasis on introducing new products at higher price points without relying on previous offerings for comparison. This strategy allows us to innovate and create unique products, and customer response has been positive, granting us the freedom to explore more pricing options. Thank you for your question.
The next question will come from Brian Nagel with Oppenheimer.
Great quarter. Congratulations. I want to focus on sales and refer to the guidance we've provided. You mentioned continued strength throughout the year, especially in the first quarter. As we look ahead to 2026, are there any new factors that could be key sales drivers for the year that we might not have seen in 2025?
Thank you for your question, Brian. In 2025, we established a foundation for growth and are noticing positive developments. Our plan this year is to enhance what we’ve already initiated. One example is our improved ability to respond to trends. In the past, we noticed trends particularly appealing to kids but remained passive, only offering products without actively engaging customers or amplifying these trends. Now, we have a better approach to build community and engage customers around what is popular, allowing us to respond more effectively and quickly to these trends. We’ll also look to identify new trends as we go along. This is something we are starting to implement and will continue throughout the year. Additionally, last year we faced tariff challenges that limited our ability to stock all the products we needed. Fortunately, that won’t be an issue this year. We have worked hard to diversify our store offerings, and we are able to provide great value products above $5. All of this should lead to a broader range of options and increased growth in categories we couldn't effectively serve last year. I hope this addresses your question.
The next question will come from Jeremy Hamblin with Craig-Hallum Capital Group.
And I'll add my congratulations on the success. First, just a clarifying question on the embedded tariffs in guidance. So I think what you said was that you're modeling actually like, for example, for China, what the ending 2025 tariff rate would be like 20% for China and not the 10% for the current global tariff rates. So just a clarification on that. And then my other question is, if you think about the long-term model here, and you guys for a very long time, for a decade did roughly an 11% to 12% EBIT margin every year. And you've been building back towards that through a combination of improved operations and clearly higher AUVs. Where do you think you would need to comp at? Or what do you think the average unit volumes would need to get to get back to that 11% to 12% EBIT margin?
Thanks, Jeremy. Let me take the tariff question first, and then we'll talk about the business model. And maybe I'll just take a step back and confirm for the group, how have we thought about tariffs in total in this outlook. First of all, and I think you were in the right place to start. We have essentially assumed that the tariff rates that were in place as we started the fiscal year on February 1, remain in place. So in rough terms, that means that the IEEPA tariffs that were eventually struck down later in February, we have assumed those are still in place for the year. We think that's the best proxy in a very, very uncertain world given the comments that we've seen from the administration to get back to that level. So that's what's embedded in our outlook. Equally, we have not contemplated the impact in our guidance of this 150-day 10% global tariff rate, the infamous Section 122 tariffs. We have not factored that into our guidance. We don't believe that, that impact is material to the guidance. So that's how we thought about tariffs. On the business model question that you're asking, look, I think we're not running this business to achieve a certain number, 12%, 13% op profit. What we're doing is designing a model that provides durable growth. And I think this year is a great example of that. The ability to comp on top of 2025 speaks to the durable growth. We're going to be super smart and drive margin accretion and that margin accretion is going to balance reinvestment and bottom line operating profit growth. How that model plays out and over time, what does that balance look like between reinvest versus grow the bottom line? I think that's what we will ultimately decide as we engage over the years. But I think it all starts with a trusted, durable growth profile that based on the strategy and to Winnie's comments, the way we're executing the strategy, we feel really, really good about our ability to do that. And then I think over time, we will get the mechanism right and the balance right of reinvest to continue to fuel that growth versus grow the EBIT margin line. And that's what we will do over time.
The next question will come from Krisztina Katai with Deutsche Bank.
Congrats on a great quarter. So Winnie, I wanted to ask on the 6 pertinent moments that delivered newness and the great in-store experience that you talked about. Just how many curtain-up moments are planned for 2026? If you could talk about the expected percentage of newness within the assortment that you aim to achieve through these? And then just lastly, some of the key categories that you anticipate driving the most excitement in the coming year.
Krisztina, so we will also feature 6 curtain-up moments this year like we did in 2025. And they really are the seasonal moments that our customers focused on, be it New Year's, followed by Valentine's through to spring, Easter, et cetera. So it really is their moments. And what's really nice is that between those moments, we can always layer in newness. And we actually have newness in each of our worlds that occurs between those moments, and we have the ability to now talk to the customer about when those moments deliver. The key to our business success this past year has been getting the right product at the right price. And I think that, again, it begins and ends with the focus on the customer. And when we talk about key categories that we think are important, we set off last year with a mission to really be the destination for the kid and the kid in all of us. And with that, really doubling down on games, toys and crafting those thought processes that we really stand out, both in terms of our position but also in terms of our unique concept. We've got 9,000 square feet on average. It's a fun place to shop, and it's a fun place to host kids. And then beyond that, really looking at teens and tweens. And so we continue to fuel our businesses like beauty as well as our lounge business and accessories. And then this year, I think we are really excited about doing more in terms of room and dorm. And so lots of great newness throughout our categories and our worlds. But again, with that focus on the kids and what they care about.
The next question will come from Anthony Chukumba with Loop Capital.
I guess I have a quick one for Winnie. This has just been such an amazing first year. Are you sure your first name is Winnie and not Winning?
Anthony, that's very kind. It's Winnie, like the Pooh. Which is also a great product in the line right now.
The next question will come from David Bellinger with Mizuho.
I don't really know how to follow that one. But my question is on social media. I mean, Winnie, you mentioned some of the influencer, TikTok, Instagram marketing. Are you looking at those sales as truly incremental at this point? And just can you help us think through any of the economics around that? Do you pay for a post to the influencers, participate in any upside? Just help us understand the economics and the incrementality at this point.
Yes. We've shifted our spending from traditional TV commercials to social media, focusing on a variety of strategies. This includes engaging with creators and influencers, as well as ensuring that if a Gen Alpha viewer is enjoying a video about Stitch, they're shown relevant content about our products. Our approach is multifaceted; it's not simply about paying influencers. Notably, this year, especially in the first quarter, we’ve seen a shift from reliance on influencer content to boosting user-generated content. People are naturally discussing our products, and we can connect with them by promoting our available offerings. Our stores also contribute by sharing updates about new arrivals. This gives us access to an effective channel that is agile and shows a strong return on ad spend. Moreover, it's appealing to customers, encouraging us to expand our efforts. However, we always follow a test, learn, and ramp methodology in our initiatives. I’m genuinely excited about what we've experienced so far.
The next question will come from John Heinbockel with Guggenheim.
Winnie, a quick question. I know in the past, you guys would run events in stores on the weekends. Your thought on that, the labor required for that? And then could you do birthday parties and other related parties or that's too complicated labor-wise?
Yes, John, that's a great question. We continue to host events, and we just had a fantastic Pokémon event that we were really pleased with. These events foster strong community engagement, which is something our brands and vendors are eager to support. It's like a harmonious relationship where the sales generated help cover the costs of the labor we dedicate to these events. Your question about birthday parties and similar activities is quite intriguing. We haven't fully explored that yet, but we aim to be a go-to destination for all your birthday needs. We're excited about our balloon business; while we don’t want to cover the entire market, we do want to offer the best balloons and great party items that go along with our traditional offerings of party favors and gifts. We're considering all potential avenues for growth, especially as we focus on kids.
The next question will come from Michael Montani with Evercore ISI.
I was going to ask, could you just summarize for the year where tariff headwinds ended up falling out for you? And then I believe in the first round of tariffs, it was roughly 1/3, 1/3, 1/3 offset from pricing, cost out and then vendor leverage. So I'm just wondering if you could provide an update on how that has played out so far.
Yes, thanks, Mike. We ended up largely where we expected a quarter ago, facing about 90 basis points of headwind for the full year in 2025. To address those impacts, it's important to highlight that we offset tariffs at the item unit level. This is crucial for our economics, and we will see the benefit in 2026 as we experience some gross margin tailwinds due to eased tariffs, improved unit economics, and margin accretion. It’s noteworthy that the team managed to offset all the tariff headwinds at the item level. They accomplished this through three main strategies: pricing benefits, negotiation skills, and product reengineering and redesign. While I wouldn't break it down exactly into thirds, I believe pricing played a slightly larger role, but I think all three factors were significant.
The next question will come from Brad Thomas with KeyBanc Capital Markets.
What a great year. Question on the step-up in CapEx, Dan, just what's that going towards? Any interesting technology or supply chain opportunities? And how are you thinking about perhaps getting back into some of the store refresh store remodel programs that have been in the past?
Yes. Thanks for the question. And you're right, it is a bit of a step-up year-over-year in CapEx. We plan to be somewhere just over 4% of net sales in capital, which is slightly higher than where we ended 2025. I think the capital is largely going to continue to be focused on the network and the stores and building out the next round of 150-ish new stores. That's obviously the priority. The second piece, and you're right, we are making investments in the distribution network. We've got to build for more capacity to support this growth. And so that process begins in 2026, and we've allocated capital for that. And then we are putting a bit more capital behind technology. We're seeing real opportunity here structurally to enhance technology. We talked earlier about our digital business and the website. We've talked about how do we make the merch teams more efficient and optimize end-to-end management of this business. So there's a technology investment. And so you've got the new stores, you've got investments in the network and in capacity, and you've got a bit more going towards technology to support the growth.
The next question will come from - sorry, go ahead.
I was just thinking, Brad.
The next question will come from Phillip Blee with William Blair.
Congrats on a great quarter. So Winnie, you've spoken a lot about the contribution of the crew and incremental investments in labor over the past few quarters, how that's led to better conversion and in-stock levels. Do you think stores are appropriately staffed now? Or do you think that there's room for further increases in either hours or headcount, particularly as you ramp up omnichannel efforts? And then if so, how do you think about the opportunity to make additional gains in conversion? What kind of contribution could that have? Or has most of the low-hanging fruit been taken already here now?
Thank you for your question, Phillip. It's an interesting topic. Last year, we initially invested in labor to handle the basics and ensure we could effectively move product to the front and enhance conversion rates. As we progressed through the quarters and approached peak periods like the holidays, we carefully aligned peak traffic days with store recovery to ensure customers not only found products on the shelves but also received improved service. We will continue with this approach. Regarding future initiatives like omnichannel, we are currently in a testing and learning phase. We have launched buy online, pick up in store, and have experienced significant growth with third-party delivery. We will keep exploring these options to meet customers where they are, especially for younger customers like Gen Z, for whom convenience is essential. We believe this presents an opportunity to attract new customers who may have overlooked us due to lack of convenience. Our strategy will be to test and learn as we develop this further, as we expect that adopting omnichannel will lead to increased customer acquisition and conversion in the future. Thank you again for your question.
The next question will come from Spencer Hanus with Wolfe Research.
Just curious what you're seeing in terms of growth from like new and then existing customers. And then any change in how the recent results are just impacting your view on where this business can comp like durably out in the future? Like has your expectations moved up about sort of where comps land sort of in '27 and '28?
So Spencer, in terms of new and existing customers, we actually had what I would call a banner year in terms of both acquisition as well as repeat visits. And I would attribute that to more effective marketing and really, again, meeting customers where they are. I talked about the fact that we've just started collecting records for customers. And we think that our ability to, again, get additional repeat and to drive our current customer base in terms of their value is much higher as we move through the year, and that's one of our major initiatives for the year. We will also continue to focus on new customers and driving our brand awareness. So all really, really good stuff. And then I'm going to pass it on to Dan to talk about comp in the future.
Yes, we are very optimistic about the growth potential of this business. When you consider the comparable store growth we've achieved and the expansion with new stores, there's a lot to be excited about. We've opened eight new stores in the Pacific Northwest, which highlights our ability to perform strongly in areas with untapped potential. This presents a unique opportunity in the retail sector. As Winnie mentioned earlier, we have a solid strategy in place, and our team is executing it exceptionally well. There is still so much we can accomplish, and we haven’t even begun to explore all the possibilities. Overall, we are confident in the growth opportunities this business can provide, especially with our current strategy. Thank you for your question.
The next question will come from - and the final question will come from Joe Feldman with Telsey Advisory Group.
I pressed late, I guess. But I did want to ask you guys because I know you've talked about with maybe thinking about a new format for the store now that you've brought out the Five Beyond items back into the aisles and have a more fluid merchandise flow, I was just wondering if you guys have been playing around with a newer format and what you're thinking there.
Joe. I think we're always looking at ways to make the shopping experience that much more inspiring and frankly, just easier. And certainly, with the evolution, I would say, of the Five Beyond area, we have opportunity to take the back of store and make it even that much more productive. And so we are looking at how to create better flow within the store without that Five Beyond area in the back and testing how we honestly convert stores in the network, but then also looking at new format work that allows us to really truly bring to life this idea of these worlds that customers can shop in and move from. And we are serving some distinct customer groups, the youngest customers with Gen Alpha, Gen Z, more teens, tweens and young adults and millennial moms, and they have very different needs. And so we're thinking through how do we optimize the experience for each of those cohorts. So more to come on that, but thanks for your question.
This will conclude our question-and-answer session. I would like to turn the conference back over to Winnie Park for any closing remarks.
First and foremost, thank you all so much for your support, and we hope to see everyone in our stores for all your spring break and Easter essentials. We appreciate you. Please convert with us, and thank you for your attention on the call.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.