Good morning, everyone. Thanks for joining us. It is my pleasure to introduce Five Below and to moderate this fireside chat. Today we have with us Winnie Park, Chief Executive Officer of Five Below, and Dan Sullivan, Chief Financial Officer of Five Below. Thank you so much for joining us today. Thanks for having us. There is so much to talk about, and so this time is going to go very fast. But in the past two years, Five Below has undergone quite a bit of change, especially starting with both your new roles. So Winnie, I wondered if you could maybe, now that it has been a year, what has been your biggest learnings about the business? How has your perspective evolved compared to when you first stepped into the role? Thank you so much, Kate, and we are excited to be here and talk a little bit about the Five Below story, at least for the past two years. I think the biggest surprise I have had in the business is how quickly we were able to turn the business around. If anything, I think it is a testament to the strategy that we put in place, and it is really great to see customers respond to that strategy. But it really started with, one, a maniacal focus on the customer. For us, that meant going back to kids and zoning in on Gen Alpha, really understanding the needs of Gen Z and how they differ from Gen Alpha, and then finally, millennial parents, whom we love, and they are always looking for a quick and easy treat for their kids, and we are kind of a one-stop destination for that. I think that focus really set us up for success, and embedding that in everything we do. The other learning is if you get the product right, they will come. With product, we are really moving towards an approach of merchandising that is selling a full assortment as opposed to focusing on one key item. With that assortment approach, curated product storytelling has been so critical. You add product focus with a way to communicate with the customers via social media and our first-ever world Chief Marketing Officer. Being able to meet customers where they are in social has done tremendous things in terms of driving traffic, engagement, and interest. We've just begun the journey of actually capturing customer records so that we can get them to come back and communicate more directly with those customers. The last piece of this is investing in the store experience. We really have invested in terms of getting labor in the stores for kind of the basics of moving products from the back to the front, but also in terms of visual merchandising and making sure that our product stories and that curation of product is really clear. With that, we also simplified pricing. We went back to the good old fashioned whole price points, 1, 2, 3, 4, and 5 being 80% of the assortment. Stepping up and out, Five Beyond doesn't have to be in a corner of the store in a special area and start with $25. We can integrate those products in line. All of those things have been really terrific in terms of getting customers back in the store engaged with us. I think they're also the formula for a durable growth story in terms of how we sustain our comp growth, along with a ton of white space opportunity with new store growth. It's been really, really tremendous. Mm-hmm. You can see that in the stores and obviously in the results. Dan, I'm going to have kind of a similar question for you. It's two years, Winnie. One year for you, sorry, I misspoke before. What have been your biggest learnings and surprises and observations that you've made about the business in your role? Yeah, I was a huge fan of the business from the outside, both with a bit of jealousy as a competitor and then ultimately as a customer of as my kids grew up. So I thought I knew the business fairly well. Having said that, I think when you get into the organization and you learn the business, I think for me, three things became really clear. One is incredibly powerful business model. It is simplistic in terms of how it translates growth at the top efficiently into growth at the bottom. And that profit then converts to cash pretty seamlessly. I haven't seen many models that work this well with this simplicity. So that was one. I think the second thing is around store growth. From the outside, when I joined, we were just shy of 2,000 stores. We've said publicly we see a runway to 3,500 + here in the U.S., and certainly, I had a question on that. As I dug in and really got to know the business, spent time with the real estate team, I'm incredibly amazed at the line of sight the team had towards that 3,500+. In fact, if I were betting today, I'd bet on the plus. I think that's how convicted we are in terms of unit growth, which you just don't see, basically a business doing this well that has a clear line of sight to double its stores. Then the third piece, I think, for me, is around the uniqueness of this concept. I remember when I met with Winnie and we started talking to each other, I said to her, "Who's our competitive set? How do we think about that?" She laughed, and it wasn't out of arrogance or anything. It was just when you get this model right, when you do what Winnie and the team have done to the assortment, to the product, to the newness, we are simply a different concept. We are one of one, as Winnie likes to say. For me, you don't really expect that level of brand strength, and it creates a tremendous competitive moat for us. So those were my learnings. Great. If I can jump back to Winnie. I'm going to go back and forth a little bit. But one thing you had mentioned was the 80% of the $1, $2, $ 3, $4, and $5 price point, and then Five Beyond. But you have been, I don't know if aggressive is the right word, but you certainly have pushed towards what you think is appropriate from a higher price point. So could you maybe talk to what you saw that allowed you that confidence to move that direction, and where do you see price points going? Yeah. Great question. I think never waste a crisis would be my motto for the tariff. For us, it pushed us to really re-look at every item in the line and relative value. What we discovered is that we could do a lot at Five Below, but we could pack a ton of value in price points like $7. It allowed us to do things we couldn't do before, like a really compelling lounge and PJ program. Five Beyond really stepped all the way up to $20, $25. But what we've discovered is you can do a lot of great things at $10, $15. We've taken a very careful approach, and this is really, I think, Five Below's magic, is everyone thinks about value and how much cheaper can I get it than the competition. If there's an animatronic ghoul that is 6 f t tall and it's $60 elsewhere, how can we get that at $25, $30 at Five Below? That's really the approach that we take. So we start with the customer, what is it they want, and then how do we go after the things they want that deliver that amazing relative value. I think we've got a lot of opportunity given the fact that the response has been tremendous to things that are above $5, as long as that relative value is packed in. Dan, you had mentioned unit growth and the 3,500 +. Can you share a little bit more about some of the changes maybe that you've made internally in terms of the real estate process and how we should think about the pace of that growth to get to the 3,500+? Sure. Look, we've always been bullish on white space and fill-in opportunities and store growth. The conviction level that we've had towards how we can grow units has always been quite high. I think in the past, we may have let a focus on quantity of stores outpace a little bit of quality of locations. A little over a year ago, I think the team made the decision to sort of pull back, put a little bit more rigor into all aspects of real estate, from site selection all the way through to grand opening. And focusing the team on a bit of a higher threshold, so we wanted great sites, we wanted great economics. We wanted to put our best foot forward as a brand when those doors opened, whether it was fill-in or white space, and really set a higher bar of what really good looks like. That admittedly meant we were going to slow down unit growth at the exact same time that we're seeing tremendous results from that. So the two are very much related. If you look at what we've done in terms of opening new stores, 2025, 2026, we're talking about a new store productivity level that's in the upper 90% range. Last year, we went into the Pacific Northwest, which was white space for us, nine new stores. Every one of those stores would have set a record for a grand opening, except they happened together. We have real confidence that the model we've put in place, the rigor we've put in place, what we've asked the teams to deliver is paying off for us. So we like that. In terms of the pace from here, I think high single digit unit growth is still the right algorithm for us. So whatever it is, 7%, 8%, 9%, that number will increase in terms of boxes we open simply as the denominator gets bigger. We're not capital constrained, so that's the good news. This is all about us continuing to operate and execute at a really high level, and obviously subject then to market availability and inventory. Great. Thank you for that. I think you mentioned the Pacific Northwest would not have been an area that you thought you could open in the past. Again, what is giving you the confidence that entering these new markets is going to be so successful? It is really interesting. I was always bullish on the Pacific Northwest. I just look at the simple fact that we are a destination for kids. Are there kids there? Can we be a resource? We wanted to find the right real estate and had our eyes on the right real estate. We were opportunistic with Party City going out of business in terms of claiming real A locations. With the openings being so amazing and sustained business momentum, we are going to go after and fill in that white space in that market. I see so much opportunity for us in general. In my home of Chattanooga, Tennessee, the two Five Belows are about 45 minutes apart. There are a lot more kids to be served. Just a lot of opportunity for the brand if we can execute well and if we are choiceful about where we land the stores. Winnie, you had mentioned in your recent earnings call some changes you are making to the store layout and the design, including the back of the store and creating a dedicated World of Play. Could you maybe provide a little bit more detail on this specific initiative and strategic rationale? Absolutely. Kate, this journey started last year as we started to move the Five Beyond items in line in the respective homes. Five Beyond was created to be a walled garden in the back of store. It literally was walled off and had its own signage and fixture package. As we moved those items out, it presented an opportunity to make that area much more productive and also to make the shopping experience easier. What happened is inadvertently with that big wall in the back of store, customers actually cannot snake through the store. Their shopping journey actually stops at Five Beyond. You hit the middle aisle, and you have to go back. What we want to do is detach those walls, take the heights down so you have clear line of sight. We also generally had our tech section in the back, and we decided that that should be moved forward because it is not only a trip driver, we think it will reduce shrink. But the real customer-facing idea here is to create a World of Play in the back. It is definitely our strong suit, is an area that I think we win and we dominate, is in play. By creating that world, you put your best foot forward, and you get customers to penetrate the store from the front to the back. We have started that work in terms of looking at renovating and testing within stores, as well as most of our new stores are actually built with play in the back, and we are seeing tremendous results. That is giving us courage to push that thought process further. We are also looking at, with that change, how do we make the worlds more contiguous for customer segments? Gen Alpha gets to shop the back in play. Gen Z may want a world of style contiguous with beauty as well as room decor. Those thoughts are all percolating. My final ambition is also have a line queue that is super shoppable, so we get the benefit of an additional unit in the basket before you check out. Great. Dan, is there a potential cost to these changes? How should we think about the deployment of that and the timeline? Yeah. It's largely a modest level of capital, about $40,000-$45,000 per store to achieve all of the benefits that Winnie discussed. We have already been deploying this sort of new design, new concept as we roll out new stores. We have to go back and think about from a remodel perspective, what's the pace and the cadence for touching the fleet. We are going to, first of all, want to do it in the most efficient way that we can, meaning when we are already in the store for resets or PIs, Physical Inventories, we will use that opportunity. In about a month's time, we will be knocking on the door of holiday, where we would obviously sort of shut this program down and pick it up again in January. Long story short, I think it's a reasonable level of capital given the benefits that we expect to see. We are going to execute at a really high level, and ultimately the pace will be sort of marked to what the store and the fleet can digest as we work through, obviously, other business priorities. The question I think that we get the most, is just the strength of the top line has been so solid. How do you think about your ability to continue to grow, to lap the strong growth, and just what makes you confident that the business can continue to grow from here? Great question. We've had five consecutive quarters of double-digit comps, and we feel like, again, it's a testament to the strategy and the operating model that we've built. We think it's got real legs and durability, and the secret to Five Below is to sustain comp growth along with new unit growth. I think that what we have built on the comp front is a merchandising approach that is fueled by newness, curated product storytelling, and there's always something new, and there's always a new trend. Being able to attack that the way we do with great agility, speed, and also do it in a way that the customers know about it because we have a tool we never had in the toolbox before, which is called marketing. For us, social and engaging in social is not only about storytelling, it's about engaging with customers in terms of what they see, they love, they like. I think the second piece of that is we just started capturing customer records, and that is powerful. The ability to build a relationship with a customer over time is super powerful. We still don't have a CRM system. We still don't have leadership in the marketing team to lead that initiative. So really early innings in terms of what we can truly do with marketing, because beyond that, there's a question of how do we attack loyalty. There's a lot left for us to do on that front in terms of driving our own traffic and engagement. I think the last piece is there's still a lot of opportunity in our stores. There's opportunity in terms of making that customer experience more compelling, in terms of getting people to shop the full range of what we offer. Also we've got, finally, a new head of stores. My team is finally complete, and I think there's a lot of opportunity in terms of consistency of standards and practices so that the experience can be that much more consistent every time a customer visits. So a lot of runway ahead of us. In that context, Dan, as Five Below continues to grow, how are you thinking about the long-term algorithm of this business? Yeah, that is the interesting question, right? I think historically, we've talked about this business certainly prior to Winnie or my arrival as a low single-digit comping growth business. That gets harder to defend certainly when you talk about five straight quarters of double-digit comp growth. In fact, I would argue the quarter we just exited was our strongest of the five because it was double-digit growth on top of double-digit growth and as we anniversaried price actions from the year before. So there's certainly a very compelling point that says this business is getting stronger here as we continue. What does that lead to then in terms of algorithm top and bottom? Today's not the day for us to get into that. We're certainly focused on all of the areas Winnie discussed in terms of how do we execute against this runway, because while we're super proud of what we've done to get here, we're actually more convicted on what lies in front of us to deliver sustainable growth for the business. What I would say is two things as far as how we think about this business going forward. One is the role of growth, unmistakable in terms of both comp and new unit. We see ourselves as a high-growth retailer, and our investments are disproportionately geared to continue that. So that's one. Then secondly, with a growth profile at the top, we also run this business to deliver increased growth at the bottom. So said another way, it's not unreasonable to think that profit growth will continue to outpace top-line growth. Part of that is the magic of this model that I talked about earlier, and part of it is the way that we balance both investing to deliver the growth and also leverage and productivity to deliver profit. So that's how we run the business. In terms of putting a number and a name to that and the algorithm, not for today, but certainly at some point down the road, we will. Okay. Dan, with regards to capital allocation, can you maybe walk through that too? There has been a shift, I think, regarding your priorities just because you have just announced a $600 million share purchase authorization. How should we think through that? Yeah, I do not think it is necessarily a shift in strategy or focus as more of the optionality that our balance sheet has offered us. So our primary focus in terms of capital allocation is investing in the growth of this business. That is what we are geared to do. It is where our priorities lie. This year, over 75% of the capital we will deploy will go in support of and service of that growth. It could be in new stores, which we have talked about the runway there and high single-digit growth. It certainly will be in support of the new store experience and a revised format in store that Winnie talked about earlier. We are investing in our supply chain and our DC network to make sure that we are being as efficient and as productive as we can be while supporting from a capacity standpoint, this continued growth. So no shift there in terms of what is most important and what we are going to continue to feed. Having said that, I think two things have happened here, both in a positive way, that have given us some interesting optionality. One is we have been very careful stewards of the balance sheet, and we have built up a very healthy liquidity position. Two is we have meaningfully changed the profit profile of this business in the last 18 months. So the two of those have put a lot of cash on the balance sheet and have given us great optionality. We leaned into that optionality in the second quarter. We bought the remainder of the authorization that was in place, about $60 million. Through our board support, we have announced a new $600 million authorization, which I think speaks very clearly to the confidence we and our board have in terms of our ability to continue to deliver these results. So I think what we are moving into, Kate, is not a strategic shift, but it is the notion of having a capital allocation strategy that does both, that has great optionality and breadth to it that allows us to absolutely continue to invest in growth while finding a really good alternative for excess liquidity. That is what we are executing. Great. Maybe to jump around from P&L to balance sheet, now back to the P&L. Obviously, there are some headwinds that the whole industry is facing with regards to higher costs with oil and freight, and tariffs are still in this conversation as well. Could you maybe talk about the second half of the year from a cost standpoint, how you are managing it, what you expect? Sure. Yeah, look, I will start with tariffs. Based on the environment we understand today, the new Section 301 tariffs, we have a slight headwind in the back half of the year. Sorry, slight tailwind in the back half of the year versus our previous outlook. Said simply, these rates are lower than what we had contemplated previously under IEEPA. So there is a bit of a tailwind there, which we have reflected in our updated outlook. Having said that, the flow-through of that tariff savings is somewhat mitigated to your second point on inflation and predominantly it is in fuel. The good news is we are not yet seeing significant pressure on the ocean side of transportation. We have contracts locked in place. We haven't seen any movement on those contracts, so we feel reasonably comfortable there. Where we see the challenge and the pain is on the inland side, the trucking side. When you see diesel costs at the $6 a gallon rate versus $3.50, $3.75 a year ago, we, like everyone else, feels that pain. So our back half of the year has a tariff tailwind and a fuel headwind that are almost identical, so don't provide much of a put or take. Here is the really good news, though, and I think it is an exciting part of the evolving muscles we are building in the company. We are not seeing pressure on the cost side of the business, and that is because we have great relationships with our vendors, supplier partnerships. There is a real willingness and desire to work with us given our growth profile. So back half of the year, I anticipate on the product side a reasonable stability despite obvious pressures in resin, other chemicals, and commodities. Okay, great. Before we go into the four questions we are asking every company that sits with us today, I just wondered, Winnie, if you wanted to wrap all of this up. Again, there is a lot to chew on when it comes to your story. So how would you like to wrap the story up today? For those of you who have known Five Below, we are a new Five Below. We are a new Five Below in terms of our focus, our value proposition, our mission to be the destination for the kid and the kid in all of us. We're a new Five Below in terms of the way we operate, merchandising, marketing, store experience, in our agility, our speed. I would say finally, the last piece of this is we have tremendous growth ahead, and we feel very convicted in the opportunity ahead of us. Being a one-of-one concept focused on kids, I hate to say it, the last guy standing in the United States that's focused on kids puts us in a really unique place. I'm super excited about what we offer and what we're doing, and super grateful to the crew for really bringing a lot of heart into delivering our mission. Great. Thank you. I wondered if I could maybe just sneak in one more because we had dinner last night. We talked about just the toy category being very healthy. Yeah. It's one of probably the only areas of retail right now from a unit standpoint. We heard a lot about all the self-help and execution that you guys are doing, but could you maybe just level set the category and why you think there is such strength right now? It's such an interesting category. I think for Five Below, our mission to become America's greatest little toy store started in January of 2025 when I joined. There's a huge opportunity to serve kids, and what that meant was bringing together all of our vendors in a fun summit in Philadelphia to really talk about the opportunity ahead. We have been very focused on the value proposition for kids and what it means to be a great toy store today, which is really different. I would also broaden that definition of who's engaged. It's not just Gen Alpha and young kids. It's Gen Z as well. The components of what we see is everyone is engaged in certain trends, and it's agnostic of generation. Squishy dumplings, squishy things are a viral social moment. That's definitely helped us generate really engaged traffic, which we've been able to convert into our full assortment of toys, games, and collectibles. The second component of this is we're seeing a lot of resonance with collectibles and blind boxes, and again, multigenerational impact there. I think that it's very, very interesting for me to watch my Gen Z daughter, who started shopping at Five Below when she's 10, she's 21 now, and legal. To see her really engage in all the things that she used to love as a kid. You'll see the rise of certain toy brands like L.O.L. Surprise! and Littlest Pet Shop because people want those things again. They want to go back to the innocence and fun that they used to have. I think that is why toys is having a real moment right now. I would also say that, regardless of what's happening in the broader landscape and the macroeconomic landscape, you want to shop for your kids. When the price of entry at Five Below is a buck, we can make it democratic for anyone to shop with us. Great. Helpful. Thank you so much. The four questions we are asking are just kind of meant to be rapid fire questions. We kind of talked about it a little bit. It is really not necessarily the key to your story because, again, the price of entry is $1. But the health of the consumer, because you are a retailer, I feel like we should ask, just in your opinion, do you have any expectations of any differences in the second half of this year in terms of consumer behavior versus what you saw in the first half? If backwards looking data would support forwards, I would say we feel confident that the customer will be with us in the back half of the year, primarily because of what we offer in terms of value starting at a buck. We pack tremendous value into our product. We have seen really nice growth across all of our socioeconomic cohorts, all of our demographic cohorts, every geography, and in fact, every world. I feel like more and more we are becoming a resource for desirable things that are I always say we are in a business of desire, not of need. I think that we feel like the back half will bode well for us for that reason. Okay. With regards to pricing, again, it's not completely applicable to your model, but do you expect your AUR to be higher, lower, or the same in the second half of this year versus the first half? We have a very different business in the back half of the year Yeah because of the predominance of holiday and the role that plays. I think the shape of our AUR year-on-year will be pretty similar. And with holiday AUR being lifted because of the multitude of things that you buy in any given trip, and the fact that we are intentional about offering higher retail, real wow product, but we think it's going to be fairly consistent. Great. And then with regards to margins, this is more of a 2027 and 2026 question, but do you see more margin headwinds or tailwinds next year? Yeah. So I think you have to look at it through two levels. One is sort of our business model and what we control, and then the second is the macro environment and inflation and what environment are we operating in. I suspect these fuel rates are here to stay, and so until the point we anniversary what we saw this year in the late spring, I suspect fuel and other related cost pressures will represent a bit of a headwind. Having said that, I think you go back to how we operate this model. We've got tremendous opportunities still within our own gross margin profile. Winnie talked about our ability to continue to drive above the $5 price point, to continue to push on AUR without the need for like for like pricing. I think that certainly is a tailwind. We continue to be incredibly productive in the margin profile around things like supply chain distribution, shrink, good operating environment, good operating controls. That likely is a tailwind. And then I think there's this piece in our business, and Winnie talked about the importance of marketing and where we are in this journey. We're going to continue to invest and feed that growth lever. In fact, that's, in my opinion, arguably the biggest growth lever that we have. As we gain better understanding of the customer, as we then build out the capabilities internally that Jacob and team are building, we're going to feed that. And so like we saw this year, where marketing investment is about a 25 basis point investment headwind year-over-year, I think it's a pretty good proxy for how we're thinking about it heading into 2027 because we're seeing the results we love and the returns we love on traffic driving. So at the end of the day, I think there's probably some macro headwinds. There's a lot of great work being done internally to offset and drive productivity and efficiency, and we'll continue to intentionally invest in incremental marketing. Okay. Thank you. Our last question is with regards to AI. Do you expect a significant increase in efficiency as a result of AI in 2027 versus 2026? We're being very mindful of how we leverage AI. I do think for us, it gives us an opportunity to look at it as a tool for bridging some of the tech debt that we have and working between systems on more complex issues. But we're being very mindful about how we do it and thoughtful. We always talk about fewer, bigger, better bets as opposed to kind of like throw it out everywhere and see what happens. Well, thank you so much for joining us today. Thank you, Kate. Thanks. Appreciate it. Thank you.