Good day, and welcome to the Five Below First Quarter 2025 Earnings Conference Call. — Operator Instructions — Please note, this event is being recorded. I would now like to turn the conference over to Christiane Pelz, Vice President of Investor Relations. Please go ahead.

Thank you, Drew. Good afternoon, everyone, and thanks for joining us today for Five Below’s First Quarter 2025 Financial Results Conference Call. On today’s call are Winnie Park, CEO, Kristy Chipman, Chief Financial Officer and Treasurer; and Ken Bull, Chief Operating Officer. After management has made their formal remarks, we will open the call to questions. I need to remind you that certain comments made during this call may constitute to 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, 1 depreciation and amortization expense and other selling and administrative expenses. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP are 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 so much, Christiane. Hello, and thank you for joining us. As we announced last month, we had a strong first quarter with financial results that exceeded our expectations. I’m incredibly proud of the Five Below team for driving these results with a maniacal focus on delivering a great customer experience grounded in fun and extreme value. We remain committed to putting our customers first with a focus on product, value and store experience in order to achieve our vision to be the destination for the kid and the kid in all of us. We are the cool store for kids and the yes store for parents. What differentiated this past quarter was our heightened focus on the customer and working as a tight knit multidisciplinary team from merchandising, planning and allocations to marketing, store operations and supply chain. We made great strides on one, sourcing amazing product focused on Easter, spring break, trend-right beauty, novelty, food and candy as well as relevant cultural Five Guys moments like Minecraft; two, amplifying these products with end-to-end storytelling that started with social media through to compelling in-store floor sets; three, ensuring better in-stock positions with tight alignment between our teams at WowTown, our ship centers and the store fleet; and four, continuing to benefit from investment in labor hours and operating efficiencies, all while planning for the future within a dynamic tariff environment. The result was a strong first quarter led by product that resonated with our customers. 2 We had broad-based outperformance across the majority of our worlds, proving that our customer-centric strategies focused on product, value and experience are working. The Five Below team demonstrated that they can execute at a very high level in service of our customer and will carry this forward into the balance of the year. Our customers have validated our place in the market as a resource for fun and great value. Let me share a few highlights from our first quarter performance. Sales and comps exceeded our updated guidance with sales of $971 million and comparable sales increase of 7.1%. We were excited to drive these comps through increased transactions of 6.2%. Our sales outperformance led to strong fixed cost leverage, and we delivered adjusted EPS of $0.86. We continued our store growth during the quarter, opening 55 new stores across 20 states. 2 of these stores located in Victorville, California and Joplin, Missouri, were among the top 25 all-time grand openings. We supported our new stores with the return of grand opening marketing activities. This first quarter performance reinforces our belief that Five Below with the right product and value, combined with an incredible store experience is the destination for our customers, the kid and the kid in all of us. Our mission remains to offer the newest, best products at extreme value to help our customers throughout their life stages to play, live, give and celebrate. Now on to product. Providing fresh, trend-right and quality products at amazing value is what we are known for and what makes us special. In the first quarter, we featured great licensed product for customers to build their own special Easter baskets and we brought in our Easter candy offering. Our shelves were stocked with spring break must haves, including boogie boards, beach towels and the new assortment of on-trend totes. We drove sales by consistently flowing newness, most notably in beauty, style and novelty food. 3 In toys and games, we remain a key destination for collectibles. Finally, maintaining our in-stock positions in key areas like tech has grown sales and shown that we are the place for cables, chargers, phone cases and Bluetooth Audio. On store experience, we did a much better job wowing our customers compared to last year. The investments we made in our store experience, which began in the second half of last year, including increasing labor and simplifying and improving processes are paying off. Our crew is now in a much better position to assist customers while also ensuring our shelves are stocked with trend-right products our customers want and need. We remain committed to our crew and to making the store easier and more fun to shop for our customers. On to marketing. I continue to believe that there’s a big opportunity to better connect with our customers both in-store and digitally, and ultimately increase our brand awareness. On last quarter’s call, I mentioned 6 curtain-up moments to drive customers to our stores, which include the new year, Spring Break in Easter, summer, then back-to-school, Halloween and finally, holiday. We need to let our customers know that we’re a go-to des- tination as they celebrate those special moments in life. And we’ve just started to do that with our marketing. In the first quarter, we highlighted value and invested in creator content for social media with encouraging results. We have exciting plans in place for the remaining curtain-up moments throughout the year and look forward to sharing our progress. Now as we look forward, the tariff environment presents additional complexity and our teams have been working hard and moving swiftly on mitigation plans. Our plans include vendor negotiations, diversification of sourcing, continued investment in new value pack product as well as assortment and pricing adjustments with a focus on reducing the number of price points. In a relatively short period with a heavy lift by the teams, we were able to accelerate the 4 work that was planned for our assortment by quickly sourcing new products in different countries, expanding our vendor base and simplifying our approach to pricing. Our efforts have already resulted in a reduction in goods sourced from China by about 10 percentage points for the back half of the year. In conjunction with these changes, we are working very closely with our partners to optimize our inventory availability and receipt flow for the balance of the year. We remain committed to providing extreme value quality products for our customers. The teams are working incredibly hard to control the controllables and mitigate the risks that the current global trade environment presents. We are also laser-focused on continuing to drive sales through executional excellence. As always, we will act quickly and remain nimble and flexible in our approach as we react to macro news and find solutions to a changing environment. In summary, we’re excited to see early signs of success across our core strategies of product, value and experience. We look forward to building on this progress with an unwavering focus on our core customer and are confident we will continue to provide our customers with amazing value and a fun shopping experience. Now before I turn it over to Kristy to provide more details on our performance, I want to take a moment to discuss the announcement that Kristy will be leaving Five Below for personal reasons. I would like to personally thank Kristy for all that she has done during her time here. We’re truly grateful for her many contributions and her partnership. We’ve begun a national search for a new CFO. And in the meantime, I’m very thankful that Campbell will take on the additional role of interim CFO. Now on to Kristy.

Thanks, Winnie, and good afternoon, everyone. I want to thank you, the Board and the team at Five Below for their support. I am proud of what we’ve accomplished during 5 my time here, and I’m confident in the management team and the growth opportunities that lie ahead for this company. I will begin my remarks with a review of our first quarter results, and then Ken will discuss our outlook for the second quarter and full year of fiscal 2025. My comments will refer to results on an adjusted GAAP basis, excluding the impact of nonrecurring or noncash items, as outlined in our earnings press release. Please refer to our earnings press release for GAAP results and all reconciliations. Total sales in the first quarter of 2025 increased 19.5% to $970.5 million from $811.9 million in the first quarter last year. Comparable sales increased 7.1%, driven by an increase in comp transactions of 6.2% and comp ticket of 0.9%. On a 2-year stacked basis, comparable sales increased 4.8%, driven primarily by comparable transactions, which increased 3.4%. These results reflect better-than-expected performance in the key selling weeks leading up to Easter, and this momentum continued through the end of the quarter. We opened 55 new stores compared to 61 new stores in the first quarter last year. We ended the quarter with 1,826 stores, an increase of 221 stores or 13.8% over last year. We were pleased with the productivity of our new stores at 87%, slightly above our targeted percentage range of the mid-80s. Adjusted gross profit for the first quarter of 2025 was $328.4 million, an increase of 24.6% over the first quarter of 2024. Adjusted gross margin increased by approximately 140 basis points to 33.8%, driven primarily by improved inventory health, requiring less reserves for aged inventory and fixed cost leverage on the strong comp sales. As a percentage of sales, adjusted SG&A for the quarter of 27.7% was slightly lower as a percentage of sales compared to last year’s first quarter. This was driven by fixed cost leverage on the strong comp sales results, offset by investments in store labor. As a result, adjusted operating income was $59.6 million versus $38.1 million in the first quarter last year, and adjusted operating margin increased approximately 140 basis points to 6.1%. 6 Net interest income was $5.6 million for the first quarter, better than planned due to a higher average cash balance throughout the quarter. Adjusted net income for the first quarter was $47.5 million versus $33.0 million last year. This resulted in adjusted earnings per diluted share for the first quarter of $0.86 compared to last year’s adjusted earnings per diluted share of $0.60. We ended the quarter with approximately $624 million in cash, cash equivalents and investments and no debt including nothing outstanding on our $225 million line of credit. Inventory at the end of the first quarter was approximately $702 million as compared to approximately $630 million at the end of the first quarter last year. Average inventory on a per-store basis decreased approximately 2% versus the first quarter last year, primarily due to the write-down from fiscal 2024. We are pleased with the inventory levels and health of our inventory position. As we adjust to the shift in the global trade environment and position ourselves for the back half of the year by accelerating receipts, we expect our inventory levels at the end of the second quarter will be significantly higher than last year. Now I’ll turn it over to Ken to discuss our outlook.

Thanks, Kristy. Echoing Winnie’s words, I am grateful for your contributions to Five Below. Your dedication to the company for the past 2 years and your passion for developing our people will have long-lasting benefits. Since issuing full year fiscal 2025 guidance last quarter, there have been changes in the tariff rate environment. Our updated guidance provided today reflects the impact of tariff rates that are currently in place. This guidance also reflects the outperformance we delivered in the first quarter and a better than originally planned sales outlook for the second quarter. And as Winnie noted, our customer-centric strategy and focus on product, value and store experience are driving 7 the desired outcomes. For the second quarter of 2025, we expect total sales in the range of $975 million to $995 million or growth of 18.7% at the midpoint versus last year’s second quarter. Comparable sales are expected to increase between 7% and 9% compared to a negative 5.7% comp in the second quarter of last year and we expect to open approximately 30 net new stores in the second quarter. Adjusted operating margin at the midpoint is expected to be 3.9% versus 4.5% in the second quarter of last year. This decline is being driven primarily by SG&A deleverage related to higher incentive compensation costs and our investments in store labor. The majority of tariff-related costs in the second quarter will impact gross margin. And these costs are largely expected to be offset by fixed cost leverage resulting in only slight gross margin pressure year-on-year. Net interest income is expected to be approximately $4 million for the second quarter and taxes are expected to be approximately 26%. Adjusted net income for the second quarter is expected to be between $28 million and $34 million versus $29.7 million in the second quarter last year, with adjusted diluted earnings per share expected to be between $0.50 to $0.62 compared to $0.54 in the second quarter of 2024. For the full year of fiscal 2025, we are increasing our sales guidance to reflect the betterthan-expected performance in the first half of the year. Our sales expectations for the sec- ond half of the year are largely unchanged from last quarter. Full year sales are expected to be in the range of $4.33 billion to $4.42 billion, with a comparable sales increase of 3% to 5%. The midpoint of our full year operating margin guidance is unchanged from our prior outlook at approximately 7.3% or a decline of almost 200 basis points versus last year. While the full year sales and comp guidance has increased given expected first half per8 formance, the associated flow-through of operating profit dollars are largely offset by the impact of absorbing incremental tariff-related costs, net of all our mitigation work. Adjusted diluted earnings per share is expected to be in the range of $4.25 to $4.72. For fiscal 2025, gross capital expenditures, excluding the impact of tenant allowances, continue to be between $210 million and $230 million, which reflects approximately 150 net new store openings and investments in systems and infrastructure. And with that, I will turn the call over to the operator to start the Q&A session. Operator?

The first question comes from Michael Lasser with UBS.

There’s been a pretty remarkable pivot in the comp cadence of the business over the last – this quarter and last quarter. How much of it would you attribute to actions that Five Below has taken versus other factors? And what would need to happen in the back half of the year in order for the momentum to slow as it is embedded in your guidance currently?

Thank you so much, Michael, for your question. So I think starting with the first question in terms of the momentum in sales and how much is attributed to action versus other factors, I think that the teams have worked incredibly hard and the actions that we’ve taken are definitively paying off. We’ve seen sequential improvement in the business from the back half of last year, Q3 9 through Q4 to Q1. And specifically, what is really resonating is the selections we’ve made for product and the assortment. I think that the team has done a terrific job of identifying relevant trends and distorting them. We also had the benefit of great storytelling that started again in social and walked its way through to the site, all the way through to instore execution with our floor sets that were really terrific. We also refocused on value and ensured that we had really great outstanding value and relevant value – and relative value in the marketplace that the customers have definitely reacted to. I will say also that the teams have worked very hard to ensure that we’ve got the appropriate flow of inventory and product. We’ve added labor to the stores. But what we’ve also done is really worked very tight – in tight formations between merchandising, cleaning, our ship centers as well as allocations in the stores to ensure that everyone was aware of when that inventory was coming. They move quickly from the back to the front. And we improve processes in the stores so that our associates could actually engage with customers at a higher and better level than they have in the past. So I think a lot of action really added up to the current results. And I think the second part of your question is what would need to happen for the back half of the year. We’re just looking at the back half of the year with great prudence. We are looking at 2-year stack comps across the next upcoming quarters of plus 2%. And certainly, every action we’ve taken thus far will apply to the back half of the year. With that said, we acknowledge that there still is a macroeconomic uncertainty. And so we wanted to take a very prudent approach to how we guided for the back half of the year.

The next question comes from Matthew Boss with JPMorgan. 10

And congrats on a really nice quarter. So Winnie Park or Ken, maybe just on the magnitude of comp strength in the first quarter and the momentum across worlds that you’re seeing in the second quarter, are you seeing new customer acquisition? Are you seeing a basket build from existing customers? Just trying to explain the magnitude of comps that you’re producing in the first half of the year. And then for the back half, I guess, maybe could you just walk through the incremental opportunities that you see across product, value and marketing as potential improvement in the back half as well?

So in the front half in terms of the comp strength from a customer point of view, we did see a really nice lift in terms of transactions. They are up 6.2%, and we’re actually seeing a nice growth, both in terms of new customers and comp stores as well as existing customers returning to us. And so all of that has really buoyed the business. And I will say that to get the traffic across the threshold is one thing and to get them to convert as a second. And we’ve also seen really nice progress in terms of conversion. And customers are greeted with fresh new products that they can see, especially with some of the cleanup we did in the latter part of last year and the beginning of this year. And again, execution in terms of what the customers agreed to with at store level is – has been a key to our success. In terms of the back half of the year, in terms of what we anticipate, we will continue to drive some of this positive momentum we’re seeing in the business. The majority of our merchandising world actually saw really great comp increases. And we are seeing some trends now that kind of began at the beginning of the year that we will actually continue to distort through the back half of the year. Those trends include 11 some of the new beauty product and the flow of new beauty product the really great flow of new relevant food product in novelty candy has been terrific for our business. And then we also are seeing really great progress in terms of – and growth in terms of our style business that’s been buoyed by our focus on lounge and lounge pants, along with our great graphic tees. So all of those things have been nice additions to the business. And then finally, I will say that in the younger segments of the business like toys and games, it’s just been terrific to see collectibles take off. The last piece of this is our in-stock positions are so much better this year than last year. We will continue to drive that. We have – because of the great success of Q1 pulled forward receipts and continue to ensure that we’ve got great in-stock specifically in tech and that’s been a really nice win in terms of some of the comps we’ve achieved. So again, applying the same set of actions and distorting trends that we’re seeing right now through the back half of the year is what we intend to do.

And just – and Matt, just to add to that, too, Winnie mentioned the store experience piece of it, which is important. We’re going to continue to invest in the stores as we mentioned before. We started that last year. That’s continued through this quarter, whether it’s in hours for the stores or the simplification and reduction of workloads, so they can focus on those – more of those customer-facing activities. And to Winnie’s point, keeping the stores fresh and those in-stocks high. .

The next question comes from Chuck Grom with Gordon Haskett.

Kristy, best of luck. Ken, just on the guide, can you unpack the annual compression in 12 operating margins, it looks like it’s roughly the same, down about 180 to 200 basis points relative to your prior guide. But it sounds like your tariff expectation might be up another maybe 60 basis points to about 160 basis points of pressure. Can you talk to that? And then if you’re embedding any shrink improvement in the back half of the year?

Yes. Thanks, Chuck. And you’re pretty close there, Chuck. In terms of the – on a full year basis in terms of the impact of tariffs, net of any mitigation activities. We see it as about 150 basis points for the full year. And you’re right, we’re pretty much maintaining that 200 basis point operating margin deleverage for the full year. About 60% of that resides in gross margin, and the remainder, about 40% is in SG&A. Relative to shrink, we’ve continued to maintain our reserves at the same level that we exited last year. So we haven’t changed that yet. We’ve got inventories coming up in August. So in the third quarter, we’re going to be able to see if we’ve made improvement. If you recall, we did see improvement in – at the January inventories last year, but decided to maintain our accrual level at the same rate until we see more of that consistent performance. And we should see that later in the year, but we’ve maintained that same shrink rate through the year from – consistent with our last guide.

The next question comes from Scot Ciccarelli with Truist.

I guess just kind of a follow-up to Chuck’s question. When we kind of think about the tariff impact that you just outlined, Ken. Can you help us kind of think about it on a go-forward basis? Like how much is kind of – this is a hit now you’re able to mitigate, as Winnie 13 referenced earlier, our able – you’re already expecting the back half to source a lot fewer products from China. So like what’s the right way to think about this as we kind of like try to model out the following year?

Yes. Thanks, Scott. Yes, I’ll try to – I’ll walk you through it here to give you a little bit of help. Based on what I mentioned in my prepared remarks around the second quarter guidance, again, on an overall basis, we are looking for about 60 basis points of deleverage on operating margin. A significant portion of that is coming from higher incentive compensation and also about 150 basis points embedded in Q2 of tariff-related costs net of mitigation. Again, the majority of the deleverage that’s occurring in Q2 is going to be in SG&A, again, with a higher incentive cost and investments in store labor. Again, a lot of that’s going to be offset by some fixed cost leverage and then up in gross margin for Q2, just slight deleverage there, where the majority of any impact in Q2 for tariff costs are embedded in gross margin. And that, too, is going to be almost fully offset by leverage on fixed costs. Now when we move through the rest of the year, just looking at what we’ve provided so far through Q2 and then you look at what we did for the full year, we’re looking at pretty significant deleverage in the back half of the year. It’s about 350 basis points of deleverage in the back half of the year and about 70% of that is in gross margin, obviously driven by the tariff costs and about 30% of that is in SG&A. So just to give you a sense kind of how it flows as we go from the second quarter through to the end of the year.

The next question comes from Simeon Gutman with Morgan Stanley.

14 So it’s a little bit related to the prior question. The question is regarding pricing and the approach. I think Winnie, you talked about simplifying pricing and understanding some prices going up, some going down. So now you have tariffs part of the picture, how much more complex is it? Do you feel confident on the elasticity? And then, Ken, to the point you just made, I guess it doesn’t sound like there’s mitigating activities built into the guidance for the back half. So you – it sounds like you’re not changing price that much? Or you’re absorbing costs if you can connect those thoughts, if you can?

Yes. Thanks so much, Simeon. Great question. So the mitigation activities that we got include, as I mentioned earlier, vendor diversification. And the other piece of this is actually assortment mix. And then as you mentioned, price adjustments. What we have done is modeled out the entire year. We’ve actually gone SKU by SKU product by product to just look at what we should and would price things at. And we are looking at touching about 15% in terms of price, both up and down. And it’s not just for tariffs. It’s really looking at relative value in the marketplace. What we wanted to hold to was this notion of delivering value. And so we will still have 80% of the units that we offer in store at $5 and below. So a lot of this was a rounding exercise in terms of getting rid of the some of the scent endings. We are going to be holding on to the heritage price point of $5.55, $5.55. But outside of that, we’re really looking at just simplifying the shopping experience for customers and also simplifying workload for the crew. So – and I’ll turn it over to Ken to help you with the answer.

Yes, Simeon, just around kind of the assumptions based on what Winnie mentioned in terms of the mitigation activities. Relative to pricing, as we mentioned, we’re going to 15 maintain the same level of sales guidance that we provided on our last call. And the assumption there is that any benefit that we would get from pricing adjustments would be offset by unit degradation. So that – when you do the math, that would lead to some margin erosion, and that’s what – in one of the prior questions that I responded to, that 150 basis points of operating margin drag, a big portion of that is due to the margin erosion from that assumption related to pricing.

And so the tariff mitigation efforts and initiatives are embedded in the guidance. So just to be – just to double down on that point.

Yes.

The next question comes from Edward Kelly with Wells Fargo.

I wanted to ask, I guess, sort of a similar question but bigger picture. Obviously, a lot of headwinds in the business from a margin perspective, particularly this year, but you’ve seen over the last couple of years, I guess. I’m curious, as you take a step back and think about tariff mitigation, changes in vendor sourcing geographies, that type of stuff and some pricing, where you think margin recapture could be moving forward? And what you think is the appropriate level of EBIT margin for the business to the extent that you have some decent visibility on that.

So one of the things I’ll just say upfront is we’ve been really focused on driving sales and growth at the top line and which actually does a lot of great things. I said sales solve 16 problems. And so that’s 1 of the key pieces in this in terms of the future. The second piece of it is, I will say that, that some of the challenges we faced with the tariffs have accelerated work that we’re doing on the merchandising front, both in terms of vendor mix and diversifying our vendors, and that’s domestic vendors as well as factories that we work with abroad and really looking at price through the lens of relative value. And I really think that we’re going to deliver great value pound for pound versus competition for the product that we offer. We’re also in a super lucky place in that, our as- sortments change constantly and so we’re able to bring new things in and really test at different levels of price and value. And so those things are, I think, very unique to Five Below. And again, great acceleration in the work that we were going to do based on tariffs in the recent news.

And then, Ed, I’ll add to that. I mean what Winnie mentioned there around the acceleration of our efforts around product and value that was definitely accelerated. I mean that’s going to present opportunities for us down the road. And as Winnie mentioned also, our focus is on this year, right? This is a pretty challenging environment for us. So we’re staying close to that. However, if we were to look longer term in a more normalized environment, I think I would see operating margin expansion. As we reap more of the benefits around the work that we’re doing now, and then we maintain those disciplines in the business that we’ve always had that we feel that would drive operating margin expansion for us.

Yes. And leveraging off of great sales, strong sales?

17 Yes. Yes.

The next question comes from Seth Sigman with Barclays.

I’m curious if you could speak a little bit more about some of the operational changes you’ve made. You talked about adding labor hours. Where are we there? You also mentioned some other operating efficiencies things that do seem to be improving the cus- tomer experience in the stores. And I guess related, if you step back and think about the level of investment you’re making this year, can you just remind us on that? And I guess given the early success, is there a thought that you could actually increase the level of investment at some point?

Great. Thanks, Seth. Yes, it’s one of the things, if you recall, that we really kind of shifted in the middle of last year and focus more on the in-store experience. And one of the things that we did, we added on some additional labor hours when we looked at the work that needed to be done. We put some more hours out there for the stores that they could complete those jobs, getting the product to the floor and any customer engagement and interaction. That’s continued on into this year. But there’s also the other side of the equation and to the extent that we’re able to make work easier for them, more efficient and actually eliminate any work that creates more time for them even within the same number of labor hours. So we continue to do that. I think we did some things last year around making it easier for them to close out on the registers. If you recall, we updated shrink procedures where we moved from checking out cus18 tomers to just to being up there and monitoring what the customers were doing from a shrink perspective, but it actually gives them more focus on the customer too and it ended up being a benefit for customer service. Those, we feel can continue. We’re going to continue to get more efficient as we move forward and again, continue to push on the experience for the customer.

The next question comes from Kate McShane with Goldman Sachs.

The strength of your business sounds more category-led than maybe trend led, i.e. strengthened like beauty and apparel than 1 specific trend like Squishmallows. Would you agree with that? And our follow-up question is just can you talk about what’s sustaining the comp into May given April mostly have the benefit of Easter.

Thanks, Kate. Thanks for your question. It’s actually both trend as well as category that we’re seeing really when in terms of the strong comps that we’ve seen. And I’ll point to 1 trend, which is this notion, again, with the younger segment of customers and collectibles, and we’ve seen a really great lift in terms of games and toys in our business there because of collectibles, which is definitively a trend business, also novelty candy, so much of the growth that we’ve seen is in specific items like peelers and squashies. And so we’re very excited about some of the trends. And again, taking a trend from ground level and just making sure we chase it and maximize it and being very, very specific about what we represent when you cross the threshold. So I would say that it is actually both that’s helped us. And I think it’s always going to be a balancing act between the 2. 19 We’re also seeing some really nice trends right now in the business. We’ll speak to next quarter that are specific to license business. and some of the cultural Five Guys moments like Minecraft and Stitch that we really went after in a big way and represented in-store. And again, told the customer about in advance, drove traffic to the store so that they had this great presence on the floor.

The next question comes from John Heinbockel with Guggenheim.

Can you talk about – I think when you talked about chasing some trends, but chasing inventory this holiday. And right because obviously you don’t want too much. How long can you wait, right, in terms of trying to assess demand, can you reduce – compress the door-to-door time from Asian factories, which I think is like 8 weeks. And then what role do you think close out could or should play this year?

John, thanks so much for your question. So first of all, closeouts have been very important to us, and they will continue to be important, if not more important as we move forward. And so we have actually amplified the team with some specific additions that we’re exactly focused on closeouts and going after business and going after existing trends and making them even bigger. But also just taking advantage of available product. In terms of inventory flow, I would say this year is a little unusual given the tariff situation and kind of the stop starts and the pauses that we’ve seen. We specifically pause when the 145% tariff hit on China. And we have re-upped that the pause at 30 and our booking product in. We’re actually ahead of time in terms of ordering product and just ensuring we’ve got the right flow. 20 On a go-forward basis, it goes back to diversification of the sources and the vendors, both domestically as well as what we get from partners and vendor partners abroad. And so that’s been a big push for us. We are looking. We’ll be adding, for instance, we’ve got a great global sourcing office out of India that we’re finally really able to leverage. The team was on the ground in India within days of the tariffs going up. And so for us, it’s about how many different sources we have, both domestically and abroad to basically provide ample product but also give us agility in terms of getting that product in shorter periods of time.

And John, the other piece there, too, Winnie mentioned kind of the accelerating the shipments and making sure we’re doing everything we can to kind of move that product as quickly as possible. The capacity that we have from a container perspective. And with our distribution centers, we’ve made sure that we have ample capacity to handle this because there is, to Winnie’s point, there are shifts that have taken place here where it was a pause for a while now we’re kind of moving a lot faster. And we’re making sure we’ve got the capacity there to handle all this activity.

The next question comes from Brian Nagel with Oppenheimer. .

Kristy, thanks for – it’s been nice working there. I appreciate it. So the question I have, and I apologize, I’m going to bounce back to, I think, where the Q&A started, but just the acceleration we saw what we’ve seen here in the business in Q4 to Q1 and now into Q2. And sorry about this will be repetitive. But can you just maybe explain that? I mean is there – what drove actually if you look at the numbers, it’s almost like a flip the switch moment where the business has got stronger 21 quickly and stayed that way. And this has all happened if you look at across retail at a time when retail spending seems to be generally more sluggish. So kudos, but is there anything more you can explain really what happened in the business?

I think that on a 2-year stack comp basis, we did have easier compares in the front half of the year. And there is definitely underlying strength in the business, and we’re excited for it. But on a 2-year stack basis and on a last year basis, we actually had easier compares. And so that gets a little harder in the back half of this year, notably. I will say that I think the thing that has made the biggest difference for us is just us maniacally focusing on our strategy, which is product, value and experience. So ensuring we’ve got the right and relevant trends, ensuring that we’ve got a clear point of view in terms of what we stand for with the product, ensuring that we’ve got valuepacked product. And again, it’s all about relative value. We did roll back prices on key items for our spring and summer sets, and with really great reactions from the customers. And then the last piece is just a much better store experience, where we were able to clean up debt inventory, the newness really is able to show through. And we’ve got the right level of hours to move the product from the back to the front and greater coordination between our teams in terms of flowing product from D.C. all the way through to the stores. So it’s a bit of retail blocking and tackling, but we’re in better fighting position, and we’re doing much better and exercise a lot of muscles across the last few quarters. And that will not stop.

The next question comes from David Bellinger with Mizuho.

Another 1 on tariffs and reducing your reliance on China. So 10% reduction for sourcing in 22 the back half. What’s the end goal there? Could you get to something materially below 50% over time? And which countries are you pivoting that volume to now? What what country is the most capacity for the back half.

So we are down 10%, and it really is 10 percentage points. And so the important piece there is, again, we were able to leverage our global sourcing office and hit the ground running. That had been established a year ago, and we are actively leveraging that resource. We’re also looking at broadening and have added a lot of vendors across domestic as well as looking outside of China, in particular. So all of those things have helped us. We also have a lot of flexibility built up in terms of how we drive business and chase trends. And in the back half of the year, the trends that are really working right now are less reliant on purely coming from a single source in a single country of origin. So all of those things are working in our favor, but it was very intentional by the teams. And when I say that we sprung into action, we literally sprung into action. We have been working actively on mitigation. It is a daily cross-functional meeting and literally a hit list of things that we’re going to do and target. And that’s all come – we’re manifesting all of that now through the back half of this year.

The Next question comes from Paul Lejuez with Citi.

Two quick ones. I just wanted to understand what happened when China tariffs were at 145%. You said that you put a pause. But what ended up happening with that product? Did you eventually take it once the rates were reduced or did you end up having to cancel a bunch. And then second, I’m just curious if you could give us any color about income cohort and any performance difference that you might have seen versus a lower versus 23 upper income folks.

Yes, absolutely. Thanks, Paul. When the tariffs hit 145%, which I think was around April 9, we basically just paused shipment of the product so we could let things settle and understand better what the environment would be. And since then, we’ve released that product. They were absolutely – we weren’t canceling product. We let it go, and it’s flowing now. So – and we – because we had good business in the first quarter of the year, we actually were actively pulling forward receipts, especially for our replenishment products. So I feel like we took the right actions to ensure that we didn’t get hit with outsized tariffs in this quarter and in Q2. But that product is now flowing. And then in terms of income cohort, we actually saw growth evenly across all of our cohorts. And so it’s been nice to see not only great growth across the majority of our product worlds, but also across our customer base, agnostic at socioeconomic level.

The next question comes from Jeremy Hamblin with Craig Hallum Capital Group.

Congratulations on the exceptional results and best wishes Kristy. I wanted to come back to sourcing here and ask a little bit of a follow-up. It would appear like based on typical seasonality in your Q1 performance that kind of the underlying EPS for the business is about $6 a share. So a fairly significant tariff drag here even as you make that kind of 10 percentage point reduction in sourcing from China. As you look ahead to 2026, how much further do you think that you can get that sourcing down if tariffs at an elevated level should persist? And then kind of as a related ques24 tion, I wanted to understand whether or not you’ve seen any notable change as kind of the de minimis exemption has gone away, whether or not that’s changed some of the competition?

So in terms of – I’m going to actually start with your last piece which is de minimis. It’s unclear whether or not de minimis has had any impact on our business. I will say that Five Below is an interesting business. It’s pretty unique in terms of its focus on kids. And so I think just less impact overall from de minimis. And then in terms of going for 2026 with sourcing, really what we do is try and chase the best trends and get the most relevant assortment of products. And so a lot of what we’ve done, some part of it is intentional in terms of really looking at what’s out there outside of China. But the other piece of it is ensuring that we get more vendors into the mix. And we’ve been working on that actually since the back half of last year and ensuring that we’ve got really, really great product. And we’re finding really great domestic sources, for instance, and we’re exploiting that. We’re definitely going after closeouts. So it’s a combination of all things. And then I’ll let Ken speak to the last question.

Yes. Jeremy, I think you mentioned kind of the tariff impact for this year and kind of rolling that forward. Yes, you’re probably just under $1 based on the 150 basis points of that net tariff impact. And again, we’re going to focus on 2025 for now. But given a lot of the benefits that’s coming out of this work based on this tariff challenge, and as Winnie mentioned, kind of accelerating a lot of these activities that were strategies for us, but we’ve really pulled that forward. We do feel, again, in a more normalized environment that we should be able to deliver operating margin expansion as we move forward. 25

The next question comes from Brad Thomas with KeyBanc Capital Markets.

Congrats on the results here. My question is around store openings and store actions. We know that you’ve slowed growth and paused remodels as you focused on stabilizing the business, presuming the consistency in comps continues. Is this still the right level of store growth to think about going forward?

Thanks for your question, Brad. I think that we will accelerate store growth as we move forward. We – this year, we’re going to be entering markets where frankly, we have a lot of white space. We have stores in the Pacific Northwest. And so we’ve got a lot ahead of us in terms of potential and white space in the market. And with improvements in terms of our execution and our ability to deliver consistently both sales and profit, we will be looking at further expansion or more assertive expansion of our stores moving forward.

Yes. And Brad, we’re – we mentioned a while ago, what we see as the opportunity in the United States of like the 3,000 stores. We still feel really good about that. And as you can see from these results, we’re also seeing improvement in the productivity of these new stores. So that’s a good thing to see and a little bit more consistency in terms of performance. So that gives us even more confidence as we move forward. Thanks, Brad.

The next question comes from Anthony Chukumba with Loop Capital.

I guess my question is just around the cadence of comps during the first quarter, if there 26 was any sort of noticeable difference between the different months and if you saw any sense of like acceleration in April post liberation day with folks may be trying to get in front of potential price increases?

Anthony, we saw a really nice improvement in comps month and month out. I think we had a couple of interesting nuances to the quarter. Number one, February, we had bad weather throughout the country, which definitely impacted traffic in comp. And then we have a shift in Easter timing we consider kind of March and April together in terms of a year-on-year comparison. But again, coming out of the holiday, we have continued to see nice growth. And actually, our comp performance has been very good and — indiscernible — So it’s been continuing to accelerate week in, week out, and that’s really great testament to everything that the teams have done.

The next question comes from Michael Montani with Evercore.

I was just going to ask on the EBIT margin pressure, I think, $150 million of tariffs. So then should we take the other $50 million and kind of allocate it evenly between incentive comp, marketing spend and then store labor hours? Or is there any extra kind of clarity you can provide on that?

Yes, Michael, on the – you’re right, on a full year basis, as we mentioned, 150 basis points in op margin deleverage. Again, about 60% of that is going to be up in gross margin. Again, that’s where the overwhelming majority of any tariff costs are going to be. And 27 about 40% of that deleverage for the year is going to be sitting in SG&A. . And again, you’ve got the higher incentive comp for the year, the investment in labor hours and it’s offset slightly by some fixed cost leverage on a full year basis so that gives you a little bit of the geography of that full year.

And the last question will come from Joe Feldman with Telsey Advisory Group.

Congrats on a very good quarter. Again, I know you’ve been asked a lot about this. And I understand all the changes you’ve made in the stores, and I can see them we’re in the stores, it does look like the assortment is better, tighter, everything you’ve described. But how did customers know like – I mean, did marketing step up measurably. I don’t recall hearing you say anything too much about the marketing. But – it’s like – it seems like customers would have had to have known that things got better to then start to come back more frequently and the traffic was great. So was there more stimulus? Or was it social? Or maybe you could just share some color there?

Thanks, Joe. I – we didn’t increase our level of spend. But what we did do was actually look at the channels and we did really invest in social media and greater content. And with that investment and redirecting the spend in that direction, we thought we were doing the right thing by the customer in terms of starting their journey where most customers start today, which is on social and in digital and connecting that journey through to what they saw in stores. We were very specific about where we invested. We invested in trends that we were seeing that we thought were relevant, be it beauty, be it novelty candy, we did a lot in 28 social around building your own Easter basket, and I’ll just take that example of the Easter basket, what you saw in social connected to what you saw on the site in terms of literally built it, one, choose a vessel; two, what goes in it and you saw that all the way through to the store. So it is that end-to-end and looking at the storytelling and starting with social and stepping up our creator content.

This concludes our question-and-answer session. I would like to turn the conference back over to Winnie Park for closing remarks.

Thank you so much for joining us. We’re so excited by the progress we’ve made across product, value and experience, and I want to thank all of our teams for their hard work and dedication to delivering our results. Five Below continues to be a destination for our customers for fun trend-right products at amazing value, and we’re committed to continuing to provide the magic that is Five Below. In summary, we feel really good about where the business is today, and we’re excited for the future. We wish everyone a great summer and hope to see you all in our stores. Thank you so much.

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