Wait for my cue. All right, we're going to get started. Good morning, everyone. My name is Seth Sigman. I am the U.S. Hardline/Broadline Food Retail Analyst at Barclays. My pleasure to have the Five Below management team at our conference this year. Dan Sullivan, CFO. Also in the audience, we have Christiane Pelz, VP IR. Thank you guys for being here. Appreciate it. Five Below has delivered incredible top-line growth over the last 18 months, double-digit comps in 2025, record start to 2026. On the second quarter earnings, you also raised guidance again for 2026. There's a lot happening here. Seems to be a very different growth story in the last 18 months. Something is really changing here.
Dan, I'd love to hear from your perspective, key top-line drivers, what's driving the growth right now, what is new, what's different in the business, and ultimately, what do you think is having the most impact on these strong results?
Yeah. Good morning, Seth. Good to see you. Good morning, everyone. Thank you for spending the time with us. We've got a lot of great news and a lot of great things to share and talk about. I think for me, if I sort of unpack this, what you're seeing in the business right now is a very clear strategy that was put in place by Winnie Park, our CEO, when she joined just under two years ago. You're seeing proof points that that strategy is resonating quite well. Let me try to talk to you a little bit about that. I think first and most importantly, it is a strategy absolutely grounded in clear focus who the customer is, and I say that because I think that is super important.
We welcome all customers, obviously, to our brand and our franchise, but we are focused on Gen Alpha, Gen Z, and millennial moms and dads. When you have that clarity at your core, you start to design and execute a strategy that resonates with that set of cohorts. The strategy itself is sort of three-pronged. First and foremost, it is about a relentless focus on trend-right, new, interesting product. If you know Winnie's background and you tracked her career, you would certainly see CEO capabilities, but you would see at the heart a merchant and someone who lives for product and who really understands customer. I think the first thing that you would see that she did in her time over the last 18 months is reinvigorate the brand through the product lens.
That means new, that means different, that means trend right, and that has sort of been the guidepost for what we've been doing. I think the second element then is the in-store experience and how do we bring the product to life. How do we create for our customers the treasure hunt and the newness and the discovery that is so important to our brand. The third piece is how do we talk to our customers differently. The marketing muscles that we are building in the organization around better understanding, not only who that customer is, where do they live, and how do we continue to bring our brand to them in that space. All three of these are at different stages in their maturation. All three are contributing to what you are seeing in the results.
I would probably add a fourth piece, which is how we operate as an organization. It is all about collaboration, it is all about agility, and it is a relentless focus on executing against the strategy. We've got a very clear strategy, Seth. We've got a very clear customer we're trying to serve, and we are executing that strategy better. What you see then in the last 12 months to 15 months, and we just posted these results last week, it was our fifth straight double-digit comp quarter. I would argue you could look at it as almost our strongest quarter-to-date because it was a double-digit comp quarter while cycling a double-digit comp quarter, and in the quarter, we anniversaried pricing, so we didn't have that tailwind behind us.
We are seeing really clear proof points that this strategy is resonating and that this growth is durable.
We'll talk about some of the specific product drivers, but I think one of the other takeaways has been the breadth of the performance. Can you elaborate on that, maybe across the store base, across cohorts, across categories as a starting point?
Sure. This is perhaps one of the more exciting parts to the story is the breadth of growth that we are delivering. What we are seeing here is across all income cohorts, across all demos, across all geographies, across all vintages of stores, we are seeing this growth. It gives you an idea of how widely this strategy is resonating. This new focus on assortment and product and newness is resonating because you just do not see that level of growth across all of those dynamics. We are certainly encouraged with what we are seeing, and I will continue to say it is early in what we are doing. The proof points that we are delivering here, we still see as early proof points as we are starting to build capabilities and durability.
Okay, great. You talked a lot about this on the last call, but trend items. In this case it is squishy dumpling, which I think we have some here somewhere. That has played a large role in the strong comp growth. Can you talk about the trend, the impact it is having on your business, and how do you think about the contribution?
Look, we get this question a lot, and you probably are aware of this specific trend item that Seth is referencing, the squishy dumpling. We were very clear in the earnings call that it contributed about low-single-digits to our comp profile, and that was pretty consistent in Q1 and Q2. I think if I ladder back, though, I think it is important to understand we are a trend business. We have always been a trend business. We will continue to be a trend business. What is new and different, and this I think goes to the capabilities component I was speaking to, is we are better at detecting the trend earlier than we had been in the past, and we are far better at amplifying the trend when we see it.
If you look at this squishy dumpling item, which certainly has been a great catalyst for traffic driving and brand awareness, I make clear on that. What you see is an item that was in the assortment for a couple of years. This was not a new item that we discovered or someone else discovered and we bought into. It was there. Our ability to detect trend, our ability to scrape online, our ability to listen socially, pointed us in this direction in the fourth calendar quarter of last year. We saw some interesting things around how our customers were engaging with this product. Early detection was key, and then we amplified it. When I say amplified it, that means we, in a very unique Five Below way, brought this product to life.
We brought it to life in terms of the story around the product, which I think is important for us when we think about our brand. We brought it to life in store and how we executed against it. We brought it to life as we widened the assortment and brought newness and new interesting products, which we will continue to do over the back half of this year. Yes, there is an interesting trend item, but I think maybe unlike the past where we may have bought into something and sold through, we see this as an interesting catalyst because we detected it early and we've amplified it in a pretty meaningful way.
I'm sure it's top secret, but maybe you could shed some light on maybe the future trends that you see or how you're thinking about that.
Yeah. Top secret is a good way to describe it. We don't discuss the pipeline. We don't discuss what could be coming next. What I would say is because of this trend detection capability that we've always had, the merchants have always had a skill as we've worked with vendors and with partners. I think seeing trend early has been core to what we've done. We have now added science to that in some of the tools and the technology that we are building and deploying. If you know Winnie, you would know she spends a lot of her time on social. She is seeing things early. She is passing things along to the merchant team. So you've got this ecosystem now that is sort of historical muscles based on great experience and terrific relationships with vendors.
You've got new and emerging capabilities that are being enhanced with science and tech all coming together. We've got a pretty interesting and robust pipeline of things that we think could become something new and different down the road.
As you think about the growth profile of the business, I think you used the term durable in the past, right? How do you think about the growth rate of this business going forward?
Yeah, look, we're super excited. We're five quarters at double-digit. We've got an updated outlook, as you mentioned, Seth, for the back half of the year. We get the question a lot, how do you comp the comp? Candidly, we see that as a very narrow question. We think the better question is, how do we know this growth is durable? Our conviction that the growth is durable is based on two things, the strategy I described and the proof points that we are seeing in that strategy as it gets executed, but then also this realization we are so early in this journey. We are so early in building out our marketing capabilities. Our Chief Marketing officer has only been with us 15, 16 months, and he's certainly the first pure and proper chief marketing officer that we've had.
Winnie hasn't even yet hit her two-year work anniversary. As you see these results, which we certainly see through the lens of proof around the strategy, we're equally excited that it is early innings in each of these lanes that we're executing against. What that means as we go forward, time will tell, right? Whether that is a low-single-digit, mid-single-digit. Today is not the day for us to provide that update. We're simply staying focused on executing the strategy. We've got an exciting outlook for the balance of this year, and then certainly in March of next year, we'll talk about 2027. But I think more than the number that we attach to it, I hope you all take away, it's a really compelling strategy, and it's very early in our development.
Given the momentum that you have, especially around some of these product drivers, how do you think about getting that customer back? You mentioned marketing. It seems like it's very early innings. So talk about the approach today. What's different about what you've done historically? Because it seems like a big opportunity, a big unlock here.
Yeah, it sure is, Seth, you're right. Look, I think the encouraging piece is we are seeing accelerated growth against both retained and new customers. That as a macro data point is exciting. It sort of gives you confidence that we're driving that traffic to the store, admittedly in part fueled by our execution on the trend, but also that we're seeing really healthy retention rates. That customer, maybe they're being introduced to Five Below for the first time through that experience. They like what they're finding. They're coming back. We see that in the early reads and in the early data. Having said that, going back to sort of where we are in the marketing journey, we've really just begun. We're only a year into collecting email capture from our customers and starting to gain some insights on who they are and sort of when they shopped.
But we're still doing it through a very general lens. We don't yet have the data or the insights or even the capabilities to talk to that customer uniquely, to curate for that customer specifically, to personalize. The good news is we're starting on the journey to be able to speak to the customer. And what we do know is when we speak to that customer, that customer whose email capture we've successfully gathered, the LTV of that customer is bigger. The frequency of store visit is more, and the basket they build when they're with us is more. So that we know. Now we've got to start to build the capabilities and the infrastructure, the talent profiles internally to better talk to that individual. And it's going to take us some time. But again, you can sort of see in the journey here of where we've been.
A year ago, we didn't have email capture. 18 months ago, we didn't have a Chief Marketing Officer. Now we're starting to progress on a proper CRM journey. And as we build those skills and build those capabilities and are able to talk to our customer cohorts uniquely, we think that's a big unlock.
Okay, great. I want to shift to store growth. Obviously, the business is comping, but you also have still one of the biggest unit growth opportunities in the retail sector today. Previously, you've talked about over 3,500 store opportunities in the U.S., almost doubling where you are today. How do you think about that target? Why is that the right target? And if there's anything else you can tell us about how the new store economics are playing out, I think that would be helpful.
Sure. This is perhaps one of the underrepresented interesting facts around Five Below is the new store growth. We have committed to a high -single-digit growth profile for new units. Put that at 8%, 9%. It's 150 new stores this year. As that denominator grows, it'll be more next year. Admittedly, when I joined the company, it was probably one of the areas that I underappreciated and may have been a bit skeptical about because the comp story is so clear, and you see that. But we are actually growing units now at just over 2,000 stores with a really clear line of sight to 3,500+ stores. We just entered the Pacific Northwest. That was white space for us a year ago. Nine new stores in that space, in theory, to a cohort who'd never shopped us.
Every one of those nine stores would have set a record for a grand opening at Five Below, but they all opened at the same time. We just moved into our 47th state in Idaho in the quarter that we're in. We have a really, really strong line of sight and strong conviction to that 3,500+. The economics upon which we do it is simply astonishing. It is absolutely the best dollar return I can get by putting a dollar into new store growth. We are seeing 12-15-month return timelines, and really compelling growth profiles. Yes, we have this wonderful comp story. Equally, we're at 2,000+ stores today, and we have a clear line of sight that we can almost double that with a U.S.-focused deployment. That's the plan.
I think we're super encouraged, and if anything, over the last 12 months, you've seen better execution against our new stores. You've seen new store productivity now in the 90% range from it was in the 70s, even 18 months ago. We love all of the signs that we're seeing and highly convicted that that 3,500+ is there to be had.
That strong new store productivity, I assume, is also benefiting from some of the trends that existing stores are seeing. So maybe speak to where you think new store productivity can normalize. Then just related to that, it sounds like there has been a change in the real estate process under your leadership. Just walk us through what is actually changing there as you think about site selection.
Yeah. You are absolutely right. Listen, when you are comping double digits, rising tides are going to lift all boats. Your new store productivity is going to feel the effects of that and benefit from that. Your second point, Seth, I think is a really important one. Unrelated to that, we took a very different approach to real estate, a very different approach to how we deploy new stores. It was a bit informed by the learnings that maybe in the past we had gone too far, too fast. We had settled for less than A properties and were focused on quantity and needed to rebalance ourselves to also focused on quality. So we sort of re-engineered the process internally. We have held a much higher bar to the real estate team on everything from site selection, as you look at a market all the way through grand opening.
We have put a much stronger criteria on execution, inventory levels, labor in the store, just putting our best foot forward as a brand. That process predated me. That started probably 15, 18 months ago. It is not a coincidence that you are seeing this level of performance in the 2025 and 2026 vintages. Now, can we start to speed that up? I think we can over time. We are certainly not CapEx constrained, so we have the capital to deploy. We want to make sure that the muscles we are building across real estate, deal making, site selection, execution are structurally strong. We feel really good about that. Now you are left to the third variable of availability of properties, right? Sort of how do you think about new stores and inventory in the market? Which is mixed at this point. So we are pleased with the strategy.
We see the proof that it is working. We think over time we can accelerate that. But in the near term, I think that high -single-digit growth profile for new units is the right one for us.
Okay. At the same time, you are rolling out some new store prototypes and redesigns. Maybe walk through what you are changing there.
Yeah. This is something we discussed in our earnings call a week ago. I think it's a really important catalyst for that in-store experience element of our strategy. We know that's so important to our offer is the experience in store for our customers. How do we bring our brand to life? We have been studying this for the better part of 12 months, looking at shopping experience simplification. How do we yell and scream the brand and make the engagement with our customers stronger? We use the word immersion. We want our customers to be immersed in the Five Below world when they enter the store. So that has taken shape in a number of different prototypes. Where we have landed is a very clear answer where sight lines and signage are better end-to-end within the store.
We have taken down the Five Beyond element of the store. We've been on this journey for about 12 months, because we just didn't think that was how our customers shopped the store. This program you're referencing, Seth, was sort of in search of what do we do with this space. So better signage, better flow through the store, better sight lines for both our crew and our customers. Then it ultimately lands in a better immersion within the Five Below brand for our customers, with a really clear play world or world of play anchor now in the back of the store. So you've got better synergies and alignment and adjacencies among categories, and you've got a really compelling in-store experience for our Gen Alpha and Gen Z around toy and around play. These prototypes are starting to be deployed. We're super excited about it.
I think the early reads are encouraging and it'll just be a question of the pace at which we can do this efficiently.
There have been a few iterations of the front-end experience in the stores over time. Where does that stand today as you think about that checkout process?
Yeah, I think it's important, right? How you merchandise the front of the store, how the customer experiences you when you walk in the store is part of this new redesign. As too is simplifying and improving the checkout experience, the line queue. How do we bring product into that experience? How do we make sure that the throughput is there for our customers? How do we also make sure that the service and our employees and our crew are engaging the customers? So all of that from the in-store experience, the product assortment, the line queue, and bringing interesting items to the customer through that queue, all the way through the checkout experience is all part of this new experience that we are designing and running with.
Okay, great. I wanted to ask about price points. What are you seeing from customers that gives you confidence in the Five Beyond strategy, which is clearly evolving, your ability to sell product above that typical $5 price point, and what's different than prior attempts to grow that business?
Yeah. I think this has been a super interesting part of the last 12-18 months. Partly a catalyst from the tariff experience where all bets were off, right? You had to really look at the assortment end-to-end. I think what the team did incredibly well through that lens was reestablish the importance of value within the offering. Winnie operates with a very clear direction on two levels. One is items need to be new and interesting and trend right for the customer. That's a non-negotiable. Two is they need to be stuffed with, as she calls it, value. They need to scream relative value. When you get those two elements right, the thesis was, we have the license to go above $5. Over the last 18 months, we've proven that. Now, we are still a value retailer. That is our core.
80% of the items in a given store will be at $5 or less. That is unlikely to change. That is who we are and how we operate. Having said that, this insight, and equally this requirement of newness, trend right, and value, has demonstrated we can go above $5. We think probably the sweet spot is in $7-$10, and that's where we have disproportionately focused. But equally, you will have seen items in the store that go above $15, $20, $25 selectively. All of that sort of fits into how we think about the assortment. Even look at the quarter we just exited. You actually saw AUR growth without price, as we had fully anniversaried the price. That's mix, right? That's coming from how we mix out this assortment at the $5 price point and above the $5.
We're super excited that our strategy has real proof behind it. We're super excited the customer has given us license to play in this space, but we're equally committed to staying true to who we are, both as a value retailer, but committed to relative value for the customer.
We'll talk about your favorite topic, tariffs. Tariff refunds came up a lot on the last call. How are you deploying those dollars today? Any other context on how you're thinking about tariff rates?
Yeah, it's been an interesting journey for all of us, right? We did disclose in the second quarter that we have received almost entirely all of our expected refunds. It was $165± million , plus another $6 million-ish of interest income on those proceeds. We think that is the lion's share of what we will receive. Now, the question is, what do you do with those proceeds? Our focus has always been and will continue to be, we're going to invest in the customer, we're going to invest in the customer experience, and we're going to invest in this growth profile that I talked about earlier. The refund proceeds haven't shifted our thinking at all. What they have given us is an opportunity to accelerate that. Those items play out, or that strategy plays out in three distinct ways.
One is investing in the customer experience that I talked about earlier, and how do we think about redeploying this capital in store to augment and transform the stores, that's one. I think equally or secondarily is around our online platform and how do we make sure that the shopping experience online is commensurate with the shopping experience in store and represents the brand the way that we want to make sure we're representing the brand. So you'll see the investment there digitally. The third is continuing to reinvest behind the product. That is around newness, that is around trend, that is around price-value equation. Those are our three primary focus areas. The IEEPA refunds have allowed us or will allow us to accelerate that. I think it'll disproportionately be seen in CapEx, and obviously, it'll play out over time.
As far as the second part of your question, Seth, tariff environment, it's changing for sure. I think we have to recognize that what we think we know today might be different 90, 100, 120 days from now. But as it sits today, our back half of the year outlook includes a bit of tariff tailwinds as the rates that have come along now with the new Section 301 are slightly lower than what we had previously expected. So on a tariff front, a bit of a tailwind to our outlook. We think that'll get largely absorbed by higher fuel costs, by the way, in the back half of the year, but that's a separate topic.
As we look to next year, I think it's reasonable to assume a slight headwind simply because the rates that are in place today now under 301 are slightly higher than the temporary rates that were put in place that expired July 24th. Do I anticipate a meaningful issue next year? I do not, and I don't want to signal that we think there's a cost challenge coming. I think this organization has shown a great skill at solving for any potential tariff headwinds, but just on the math right now, it could be a slight headwind as we work our way into next year.
Okay, thanks for that. I wanted to ask about the long-term growth profile of the business. So there's been a lot of debate in the past about whether Five Below can get back to that 13% operating margin that it had a few years ago. This year, you'll be around 12.5% if you hit the guidance. So how do you think about the long-term profile of the business?
Yeah, certainly super excited about how we have built this model, and let me explain that to you all and how we're running this business. We obviously think this growth is durable. You've heard me talk about that, and this model is uniquely dependent on growth, and so our commitment is to continue to drive sustainable comp growth at the core. Equally important, though, we have a mindset and an algorithm that says profit growth will outpace top-line growth. So that is our model, that is our mindset, that is how we run this business. That comment holds true whether we're seeing double-digit comp growth or high-single-digit or mid-single -digit. That is how we run this business. Now, to get there, you have to think about our business on two distinct levels.
There is an element of our business where you would expect us to continue to drive productivity, efficiency, and leverage. Supply chain, as a great example. Shrink, as a great example. Fixed costs in our overhead structure. We're going to continue to be ruthless on costs, we're going to continue to drive the organization to be more and more productive, and we're going to lever as we grow this business. On the other side, we want to continue to invest. We want to continue to feed all of the elements that I'm talking about today. Predominantly through the marketing lens, I think, is how you can expect us to do that. But also, I think store labor and store payroll will play an important part because, again, back to that store experience, they're not unrelated, right?
We want to make sure we got the right labor complement serving the customer, delivering on that great experience. So if you put the two of those together, what can you expect from us? You can expect profit growth to continue to outpace top-line growth. You can expect us to be incredibly rigorous and diligent on driving productivity at the core, and you can expect us to continue to invest in the growth of this business. We're going to feed this. We think we're at a super interesting time here with a compelling strategy that we're going to leverage. So at the end of the day, op profit margin will continue to expand. At what pace, how fast, how far? We'll see as we work our way through this, but the model will continue to deliver accretion.
As you think about capital allocation, how is that changing? You announced a $600 million authorization recently. Any shift in focus or priorities?
Yeah, the priority has not shifted, which is disproportionately investing capital in growth. That was maybe largely a new store conversation previously. As we've talked today, we've added now more committed capital against the in-store experience. We're going to continue to build out our supply chain, our DC network, to handle the growth. But first and foremost, we're going to deploy capital against growth. That is unchanged. That is consistent with where we've been. I think the situation that we are in with tremendous excess liquidity, the team has done an unbelievable job of managing the balance sheet with care. And obviously, when you grow the way we have over the last two years and you deliver the profit levels we have, and that throws off tremendous cash flow, we're sitting today with a really interesting excess liquidity.
That led us to announce a new share repurchase program that has led us to find alternatives to redeploy excess liquidity to deliver better returns. We think we have struck that balance with the new authorization. We think both of these work together. This is an and capital allocation strategy, not an or. I think the board, with following the confidence that management has to continue to grow this business durably, supported that authorization.
Okay, great. Just a couple of minutes left here. Obviously, it's been a great turnaround story, transformation story over the last several quarters. Any final messages that you want to leave with the audience here?
Yeah, thank you, Seth. Look, I probably would like to go back to where we started, which is while the last 12-18 months and the growth and sort of the magnitude of that growth has been simply amazing, I think what excites the team and I think what Winnie is holding us accountable to, is the durability of that growth. The list of things that we haven't yet done, or the capabilities that we are building, or the catalyst that we see to continue this growth is long. While we're super excited about what we have seen, we're equally confident in the path forward. Our job is obviously to continue this growth, to build the capabilities, to continue to execute at a high level.
Hopefully, if we leave you with no other message today, it's not just the excitement of what you have seen looking back over the last 12 months, it's the durability that this strategy that we're deploying allows us. So that would be the message I would leave you with.
Okay, great. And congrats on all the progress, and thank you for being here. Appreciate it.
Thank you. Thanks, everyone.
Thanks, everybody.
Appreciate it.