Thomas G. Vellios - Co-Founder, President and CEO Kenneth R. Bull - CFO, Secretary and Treasurer Farah Soi - ICR

Paul Trussell - Deutsche Bank Chris Weng - UBS Securities Matthew Nemer - Wells Fargo Securities Dan Binder - Jefferies & Company John Heinbockel - Guggenheim Securities Meredith Adler - Barclays Capital Charles Grom - Sterne Agee Jeremy Hamblin - Dougherty & Company Christian Buss - Credit Suisse Stephen Grambling - Goldman Sachs John Zolidis - Buckingham Research Group Patrick McKeever - MKM Partners

Good day, everyone, and welcome to the Five Below Second Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Ms. Farah Soi of ICR. Please go ahead, ma'am.

Thank you, operator. Good afternoon, everyone, and thanks for joining us today for Five Below's second quarter 2013 financial results conference call. On today's call are Tom Vellios, Co-Founder and Chief Executive Officer; and Ken Bull, Chief Financial Officer, Secretary and Treasurer. After management has made their formal remarks, we will open the call to questions. I need to remind you that certain comments made during this call may constitute forward-looking statements and are made pursuant to and within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in the press release and Five Below's SEC filings. The forward-looking statements made today are as of the date of this call and we do not undertake any obligation to update our forward-looking statements. Finally, we may refer to certain adjusted or non-GAAP financial measures on this call. A reconciliation schedule showing the GAAP versus non-GAAP financial measures is available in our press release issued today. 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 Five Below's Co-Founder and Chief Executive Officer, Tom Vellios. Thomas G. Vellios: Thank you, Farah, and thanks everyone for joining us for our second quarter earnings call. I'll begin by discussing the highlights of our second quarter results. Ken will then review our financial results in more detail, after which I'll provide some closing comments before we open the call for your questions. We are pleased with the results we delivered for Q2 both from a top line and a bottom line perspective. We believe the strong results continue to reflect the appeal of the Five Below concept as a merchandize, store experience and value price points once again resonated with our customers across both new and existing markets. Our second quarter sales of 170 million were up 35% over the prior year. Adjusted operating income increased by 55% and adjusted EPS more than doubled to $0.11. We opened 18 stores in the second quarter to end the quarter with 276 stores. The 2013 class is off to a terrific start and we continue to see strong performance of our new stores in both new and existing markets. We are very excited about our entry into Texas with four stores opened in Austin over the last weekend of Q2 and the largest grand opening in our history slated for this week when we will open 11 stores in Dallas. If any of you happen to be in the area, please join us and you will get a chance to enjoy our famous $0.05 hotdogs that are part of our grand opening celebration. We believe Texas will be a great new market for us and look forward to providing more color about these openings on our next call. We believe we are currently well positioned with our class of 2014 stores and are very pleased with our progress so far. As we typically do, we will share our 2014 store opening plans with you on our Q4 call. Our comp for the second quarter was 6.6%. This comp performance was driven by a broad based strength across most of our categories. As our summer business was soft due to cooler and wetter weather than last year. And while we did not sell as many boogie boards and beach toys as we had hoped, our customers were buying merchandize in other categories like fashion accessories, room décor, candy and electronic and accessories. In good times and bad, this positive customer response to our offering has driven a consistently in our performance. Q2 marks the 29th consecutive quarter of positive comps for the company. As we told you last quarter, we were up and running with our Olive Branch distribution center in May with a full quarter of operation on its belt, this facility continues to ramp up utilization and operations are running smoothly. While Q4 will be in a true test, we have the right people and systems in place and I believe we are well positioned to execute through any important holiday selling period. As we look ahead to Q3 and the all important four quarter, I feel really good about where the team and infrastructure are today. Our stores organization is executing well. Supply chain and IT functions are working smoothly. Distribution capacity has been significantly increased and our merchandizing team as you see from our results continues to deliver on our promise of units. We will continue to build our team, invest in product and infrastructure and strengthen our foundation to support the significant growth that we still have ahead of us. In addition to the most recent highs in merchandizing and product development, we have already hit the ground running. We have been initiated a search for a President to help me support and lead a team as we continue to grow. We will take the time necessary to find the most suitable candidate for this position. We believe this investment is necessary to support a growth opportunity that lies ahead. With that, I will now turn the call over to Ken. Kenneth R. Bull: Thanks, Tom, and good afternoon, everyone. I will begin my remarks with a review of our second quarter results and then discuss our outlook for fiscal 2013. We increased our sales in the second quarter by 34.9% to $117.1 million from the $86.8 million we reported in the second quarter last year. We ended the quarter with 276 stores, a net increase of 50 stores or 22% versus the 226 stores we had as of the end of the second quarter 2012. We have opened 32 net new stores through the end of the second quarter. Comparable store sales for the quarter increased by 6.6% versus an 8.6% increase in the second quarter of last year. This comp increase was largely driven by transactions. Gross profit increased 37.1% in the quarter to $39.4 million from the $28.7 million reported in the second quarter of fiscal 2012. Gross margin increased by 60 basis points to 33.7% from 33.1% reported in the year ago period. The increase in gross margin was driven by occupancy expense leverage, partially offset by the expected deleverage of distribution expenses driven by our new Olive Branch distribution center. We opened 18 new stores in Q2 as compared to 27 openings in the second quarter of fiscal 2012. This resulted in a lower preopening rent year-over-year and was a significant driver of the occupancy expense leverage. SG&A expense of $32.2 million increased 34.2% from the $24 million reported in the second quarter of fiscal 2012. As a percentage of sales, SG&A decreased to 27.5% from 27.7%. Excluding the $2.5 million in founders' transaction expenses and secondary public offering fees that were recorded in the second quarter of 2013 and $1.5 million of founders' transaction expense in the second quarter of 2012, adjusted SG&A in the second quarter of 2013 was $29.7 million or 25.4% of sales as compared to $22.5 million or 25.9% of sales in the second quarter of last year. The decrease in adjusted SG&A as a percent of sales was due to lower preopening expense as a result of fewer new store openings combined with some leverage of store-related expenses. This decrease was partially offset by public company costs when compared to Q2 2012. Our GAAP operating income was $7.2 million. Excluding the $2.5 million in founders' transaction expenses and secondary public offering fees that were reported in the second quarter of 2013 and $1.5 million of founders' transaction expense in the second quarter of 2012, adjusted operating income for the second quarter of 2013 was $9.7 million which was a 55.2% increase from last year's adjusted operating income of $6.3 million. As a percentage of sales, adjusted operating margin was 8.3% compared to 7.2% for the same period last year with the increase driven by the gross margin and SG&A factors I just described. Our effective tax rate for the quarter was 37.7% compared to 40.3% in the second quarter of 2012. The decline was due to lower effective state tax rate resulting from our business restructuring which contributed a penny of adjusted EPS upside to our prior Q2 guidance. Before I discuss net income, I want to point out that for both the quarter and year-to-date periods I will be referring to adjusted net income in both periods that exclude the impact of the founders' transaction and secondary public offering fees. When I refer to EPS, it is EPS based on adjusted net income using adjusted diluted weighted average share calculation for the quarter. A reconciliation of GAAP net income and net income per share to these adjusted numbers on an adjusted weighted share basis can be found in the financial tables included in our earnings press release issued today. As a result of the factors I just described, adjusted net income for the quarter was $6.1 million or $0.11 per share based on 54.5 million adjusted diluted weighted average shares outstanding and it compared to $2.2 million or $0.04 per share based on 54.1 million adjusted diluted weighted average shares outstanding in the second quarter of last year. We ended the second quarter in fiscal 2013 with $21.1 million in cash and cash equivalent for our balance sheet, $19.5 million in outstanding term loan borrowings and availability of $19.1 million under our revolving credit facility. Our ending inventory balance was $83.5 million as compared to $63.6 million in ending inventory for the second quarter of 2012. Ending inventory on a per store basis increased approximately 11% year-over-year due primarily to the initial inventory build at our new distribution facility, as well as the support sales growth in our outperforming merchandize categories. As I noted last quarter, we expect total inventory to continue to increase at a faster pace than sales through the balance of the year and into next year as we ramp up utilization of our new distribution center. Looking at things from a year-to-date perspective, for the first half of fiscal 2013 net sales increased by 34.1% to $212.7 million. We opened 32 net new stores and comparable store sales increased 5.4% following a 9.4% comp increase in the first half of fiscal 2012. GAAP operating income was $10.4 million. Excluding the impact of the founders' transaction and secondary public offering fees, adjusted operating income increased by 36.7% to $14.4 million and adjusted operating margin increased approximately 20 basis points to 6.8% from 6.6% from the first half of last year. As a result of these year-to-date factors, adjusted net income increased by 79.5% to $8.5 million or $0.16 per share based on 54.5 million adjusted diluted weighted average shares outstanding versus $4.7 million or $0.09 per share based on 54.1 million adjusted diluted weighted average shares outstanding in the corresponding period in fiscal 2012. Now I would like to turn to our outlook. For the third quarter ending November 2, 2013, net sales are expected to be between $107 million and $109 million, assuming a mid single digit comparable store sales increase and the opening of 24 new stores. Keep in mind that the 53rd week in 2012 is often a calendar shift that causes week 4 of October this year to be compared to week 1 November last year that included Hurricane Sandy. Our Q3 comp forecast takes this benefit until last week of Q3 this year into consideration. GAAP net income is expected to be in the range of $600,000 to $1.2 million with the GAAP EPS of $0.01 to $0.02. Adjusted net income, which excludes expenses related to the founders' transaction, is expected to be $1.5 million to $2.1 million or an adjusted EPS of $0.03 to $0.04. I want to provide some color on certain Q3 income statement items that will help you for modeling purposes. First with respect to gross margin. As we mentioned previously, we expect the cadence of store openings by quarter in 2013 to be different than 2012. Specifically in Q3, we plan to open 24 new stores as compared to 17 new stores opened in the prior year period. This results in higher preopening rent which is included in cost of goods sold. In addition we will continue to see the drag from cost associated with our new distribution center. On the SG&A line, we will have higher preopening expenses associated with the increased store openings compared to the prior year period, which is expected to be partially offset by a shift in marketing spend into the fourth quarter. The net impact of all this is an expected year-over-year operating margin decrease of approximately 70 basis points in the third quarter. For the full fiscal year 2013, we are raising our guidance. Sales are expected to be in the range of $531 million to $536 million which assume 60 net new store openings and a full year comparable store sales increase of 5%. This compares to prior guidance for fiscal 2013 net sales in the range of $524 million to $529 million and a comparable store sales increase of 4%. Our revised sales outlook for 2013 compares to net sales of $418.8 million for fiscal 2012 representing a growth rate range of 27% to 28%. Our full year guidance assumes an effective tax rate of approximately 39%, driven by a lower effective tax rate resulting from the business restructuring we undertook in the second quarter. GAAP net income is expected to be in the range of $32.3 million to $34 million with the GAAP diluted income for common share of $0.60 to $0.63 as compared to prior guidance of $0.57 to $0.60. Adjusted net income is expected to be in the range of $37 million to $38.7 million or $0.68 to $0.70 per diluted share as compared to prior guidance of $0.65 to $0.68. This revised guidance represents a growth rate range for adjusted net income of 35% to 41% over last year. I also want to briefly discuss some important factors to note as you think about our fourth quarter. Our implied Q4 guidance takes into consideration the comparison against the hurricane impact in November in 2012. The fewer selling days between Thanksgiving and Christmas in 2013 as compared to 2012 and lastly the fact that 2012 had a small benefit from the 53rd week which contributed approximately $5 million in sales and less than a penny in EPS for the fourth quarter last year. For all other details related to our guidance, please refer to our press release. With that, I would like to turn the call back over to Tom to provide some closing comments before we open up the call to questions. Tom? Thomas G. Vellios: Thanks, Ken. To wrap up we feel great about the second quarter we just delivered and a consistent sales performance. While the key holiday selling season lies ahead, we're very excited about the fundamentals of our business and we believe we're well positioned for the remainder of the year. Our Five Below concept is performing well in both new and existing markets alike as evidenced by our continued strong new store performance and great existing store results that drove our sales growth up 35% in the quarter and adjusted EPS that more than doubled from the year ago period. As I said early on the call, we believe this reflects the strength of our concept and illustrates that our customer shops our stores broadly across categories. We'll continue to stay true to our customers and our mission that of delivering a wide assortment and high quality trend like merchandize, deliver in a unique store environment all priced at $1 to $5 price points. Our commitment to delivering the wow factor that drives repeat visits and customer loyalty is unwavering. As we look to the rest of the year, we're excited about the opportunities that continue to delight our customers. I want to thank the entire Five Below team for their continued hard work and dedication that helped drive our performance. Thank you for your support. With that, I would like to open the call up for questions. Operator?

Thank you. (Operator Instructions). We'll take our first question today from Paul Trussell with Deutsche Bank. Paul Trussell - Deutsche Bank: Good afternoon. Impressive quarter. Congratulations. Thomas G. Vellios: Thanks, Paul. Paul Trussell - Deutsche Bank: So just on the top line, the comps certainly accelerated from the first quarter results. Could you just speak about the cadence of the comp throughout the quarter? And then also just speak to the trends that you've experienced here through this back-to-school period? And lastly, just remind us what the impact of that hurricane was to your results last year? Kenneth R. Bull: Paul, I'll just take the first part of that which was I think the cadence throughout the quarter. Like I said, we don't really speak to ensure a quarter performance but I think we just mentioned earlier on our last call that we did see some challenges in the beginning of the quarter due to the cooler and wetter weather. So we did see – and price improvement has been moved through the quarter for this year. And then with regards to the merchandize, I'll hand it over to Tom. Thomas G. Vellios: I think what was interesting about our business Ken mentioned without getting into the specifics for each of the months, we are – I think as I mentioned early on if you look at beach and pool, that part of our business did not perform according to our plan. But what was really impacted for us was the fact that customers as we got into the season were still paying into the stores. And while they may not be going to the beach, I think it speaks volumes to the concept. People were buying across the categories, so we saw the categories that I mentioned really performed quite well and maybe people were going to the movies and they were buying candy from our stores or they were buying fashion accessories or they were buying stuff for their room. So what we saw was almost a shift which again I think speaks to the strength of the concept. We saw a shift where the customer was standing and when you look at those categories, I think we more than offset any loss in sales and what we will define as beach and pool merchandize. Kenneth R. Bull: And I think Paul for the last part of your question was with regard to Sandy, the hurricane – the actual impact of the hurricane itself took place in week 1 November because of that calendar shift the last week of the third quarter simply going up against that week next year or from last year. We factored that in to our guidance considerations, but again I think we mentioned even on the last call that that performance was impacted in the beginning of the week and then we all just saw an impact through the remainder of November. Paul Trussell - Deutsche Bank: Thank you. That was helpful. And just in terms of the store growth opportunity ahead, you're on track to successfully open up 60 stores this year. If we go back a few years ago, I think you opened up 40. Four years ago, you only opened up 20. How should we think about store growth plans from here especially given your new distribution capacity? Should we continue to see acceleration in the count of new store openings so that you can maintain your 20% to 25% growth cadence? Thomas G. Vellios: Yes, I think as we've been fully consistent – we think the opportunities for growth at Five Below we believe is quite essential. We have an opportunity here to build out eventually a business that could be 2,000 customers. As we see that foreseeable – for the foreseeable future our commitment of really what our belief is that we can deliver a unit growth of approximately 20% and that's really what we want to shoot for. And if we change that obviously we'll let you guys know. We'll get into more detail on our next call, probably the Q4 call when we will discuss our 2014 program. But I think we believe that we can deliver as we have in the past a 20% unit growth and a 25% to 30% bottom line growth which really is made for the concept of how to attract it. Paul Trussell - Deutsche Bank: Thank you.

We'll move next to Michael Lasser with UBS. Chris Weng - UBS Securities: Hi. This is Chris. Thank you for taking my question. I was wondering if you guys could talk about how you're positioned to take advantage of the popularity of rubber band bracelets. We were wondering how big would you say that opportunity is and do you think it could be as big as Silly Bandz? And also do you think at some point you could get your own version of the Loom in stores? Thomas G. Vellios: A great question. Chris Weng - UBS Securities: Thanks. Thomas G. Vellios: [indiscernible] look, three things. No question about it I think this whole rubber band and Looming for like of a better term is a trend out there. I should also mention that it really did not have any material impact whatsoever in our Q2 results. It really has very, very recent. We have put some of the rubber bands accessories in our stores. We'll see how big it becomes the business. It certainly is a trend today. Will it become as big as Silly Bandz I think time will tell? The actual Loom itself I think as it is out there is today's price – we've changed today's price on a price point that's higher than what we carry, but at Five Below we're all about being trend right and when we see an opportunity and a trend, I think we feel really good about our changeability to be able to get behind a trend and provide the service for our customers. How big it's going to be time will tell. At this point it hasn't been a material number for us, but it is a trend out there. Chris Weng - UBS Securities: Great. Thanks. That was helpful. Congrats on the good quarter. Thomas G. Vellios: Thank you.

Moving next to Matt Nemer with Wells Fargo Securities. Matthew Nemer - Wells Fargo Securities: Good afternoon, everyone. I just wanted to start with sort of a bigger picture question, which is it's been a pretty volatile back-to-school environment particularly in the teen fashion space. And that doesn't seem to be impacting you as you called out fashion as one of your stronger categories, so just wondering what you think is going on out there and why you guys seem to be pretty immune from it? Thomas G. Vellios: Well, to clarify I think you should call it fashion accessories and some that we are in. I think what makes Five Below unique is as we saw off a little bit out of teen, pre-teen trend without the physical pre-teen fashion risks that come and associated with most of those businesses. We have really [indiscernible] business, so what we've seen and where we see the strength is across the accessory categories would be part of a beauty business, will it be the leg wear business, cards, et cetera. And we've seen that across the board in our fashion accessory business. The back-to-school business without getting into a lot of specifics, it's not a huge business for us. It's a nice business but again we've seen right through Q2 and the fact that in our guidance that we put forth for Q3, we've seen that pretty consistent performance across some of our categories. Matthew Nemer - Wells Fargo Securities: And then in terms of the categories that were a little bit softer due to weather like the pool accessories, is all that cleared out or is there any overhang of that or any impact from that on the current quarter? Thomas G. Vellios: I think I mentioned this actually in the last call but some carryover. We always have some carryover but we apply a very strict – but here's the rule for carryover in Five Below coming out of the season. If it's product that we believe we will buy the identical, the same product the following year, we'll carry it over. So there's no reason to really liquidate any boogie boards that may be left over. With regard to any product that doesn't move forward, we mark that product out and take it out of the system and all that has happened already. Not to mention the fact that I think the team did a pretty good job really scrambling when we saw early on that the business really wasn't trying to [indiscernible] and we were also able to get out some goods as well and really the team – I should commend the team. The team did a fantastic job managing through that big summer business. Matthew Nemer - Wells Fargo Securities: And then just lastly in terms of the implied guidance for Q4, does the hurricane and the fewer selling days essentially – the easier comp for the hurricane and the fewer selling days essentially offset each other or is one more powerful than the other? Thomas G. Vellios: Great question. I'll tell you and Ken mentioned, I'll tell you again how we look at it and we'll see how it plays out. As Ken mentioned we saw the hurricane took place last year in the beginning of November but this year impacts the last week of Q3, so that will be actual storm itself. We also saw impact in the weeks that follow and we've taken that into consideration as we look at our November sales. Now you may also recall that last year when we went through the quarter and this is coming off a comp in 2011 that I think was 12%, as we went through the quarter we saw our sales improve as we went into December and January resulting in a pretty good quarter for us last year. So we think there maybe some opportunity in November which we sort of put into a number as a result of the hurricane affect we had last year which was obvious. What happens in December between a shorter selling period that we have and any shift in spending that may have occurred last year from one through the other, hard to tell. We think we looked at it objectively. We adjusted November accordingly and the shorter selling season we think reflects where we are today and I'm thinking for Q4. Matthew Nemer - Wells Fargo Securities: Okay, great. Congratulations on a great quarter. Thomas G. Vellios: Thank you.

We'll move onto Dan Binder with Jefferies. Dan Binder - Jefferies & Company: Hi. It's Dan Binder. Two questions for you. First with regards to Texas and the opening, can you tell us if you've done anything different in opening that market versus other markets? And then my second question was regarding sourcing. Given the new talent and the global sourcing skill sets that they have, I was curious if you have any plans of increasing overseas sourcing? Thomas G. Vellios: Sure. Texas – we love moving there in Texas. One of the calls I'm sure we mentioned if you recall we opened in Chicago, we opened 10 stores in one day. And what a great learning we had there because it really pushed the envelope for us, it allowed us to really leverage marketing, resources, people, outreach the community, et cetera, as well as weekend long events that we do from a $0.05 hotdogs, free T-shirts, coupons, entries to win shopping sprees, and I think all that really helps shape our perspective and our point of view. So you're going to expect the same to happen out in Dallas this week and we look forward to that market. As you know, Texas is a big market for us and it will have – as we look at the store growth in that market for the years to come, we have to do well. We believe that's going to be a great market for us. But having done enough of these new market entries let it be Chicago, Detroit, St. Louis, I think we really feel good. The theme is – I will tell you the theme is energize. We're excited about it. All the people are in place and I should also mention that our regional manager who wants that region as well as some other stores is someone who has been with the company for quite a few years and has been promoted from within the company. So we feel really good about the [indiscernible] and what we're doing to get ready for the market. And sorry, with regard to sourcing the team's up and running but again we call it sourcing of development. And we will continue to add to that team over time, we'll continue to build out the merchandizing team over time. Our goal hasn't changed one bit and that is to look anywhere and everywhere to make sure that we find the best and newer possible product at the best possible price that we get in front of our customers. So we continue to drive that wow factor, increase traffic, increase visits and drive top line growth. Do I expect our overseas sourcing to increase? I think it will. As you know today probably our direct sourcing is probably somewhere in the range of about 15% plus or minus – less than 20%. So I think you can see it increasing a bit from there, but it will increase as we see necessary and as it fits. We will do the right things for the business first. We're not really just [indiscernible] to go out and increase our imports just to try and leverage merchandize margin or otherwise. This is a team that is going to work hand in hand with the merchandizing team to continue to deliver amazing product for our customers. We're very excited. I will tell you I feel good about how the groups are working together already. Dan Binder - Jefferies & Company: Great, thank you.

And John Heinbockel with Guggenheim has our next question. John Heinbockel - Guggenheim Securities: Hi, guys. As a follow-up to that last one, when you think about Dallas and somewhat intrigued by the Dallas Cowboy related promotions you guys are doing. Is that sort of unique or do you think that these openings will become greater and greater events and thus the volumes you've been at continue to build over time? Thomas G. Vellios: Well, certainly I think if you look at the last few years in the class of '09, '10, '11, '12 or '10, '11, '12, we've been very pleased that we saw from the numbers and we've got – I would say this is pretty similar to what we did in Chicago, John. The cheerleaders just happened to be there. It's not unusual for the marketing team to try and look at a local event of some sort that would coincide with the opening. But I would say this probably mimics Chicago I would think more than any other event. John Heinbockel - Guggenheim Securities: So you think the performance out of the box more likely to be similar in Chicago not significantly greater because you've made it a bigger event? Thomas G. Vellios: I think the performance out of the box more likely I would like it to be equal to or greater than the model which is the 1.5 million to 1.6 million which we believe is a 20% plus contribution which has a payback of less than a year and we have the potential to build out over a couple of thousand stores. And I think it's important if anything we're probably being a little conservative even in our assumptions for the new store performance for the balance of the year more important than anything else for us is that consistency and performance in the market, make sure we open the stores right. And if they beat the numbers, great; but again we do really well when we open stores in that 1.5 to 1.6. And anything over that is gravy. John Heinbockel - Guggenheim Securities: And then as you think about the shorter holiday season, so what do you think about doing attacking that, doing differently in terms of marketing merchandizing operations and is that the reason for the shift in marketing spent into the fourth quarter? Kenneth R. Bull: Well, I'll speak to the marketing spent. Just a little bit of a smaller understanding in Q3 that we just moved into Q4 for guidance purposes. But I'm going to speak to the specifics ads. Thomas G. Vellios: I think [indiscernible] Q4, I think we need to be realistic. I think we need to be realistic and say that when you had a shorter period you got to see what everybody else or what other retailers are doing is necessary, be able to react – we just need to be ready and I believe that we will. In the end I like to think judging from history that our customer will still shop us. Will they shop us last minute or they'll shop us in a shorter period we believe we're very well positioned from a product end point of view. Certainly the market I think will be a bit more concentrated. That's already reflected in our numbers because it is a shorter period. The rest will play out and as I'm sure – you know it's way too early to really peg where Q4 is going to come in. John Heinbockel - Guggenheim Securities: All right, thanks.

We'll go on to Meredith Adler with Barclays. Meredith Adler - Barclays Capital: Thanks for taking my question. A lot of my questions have been answered. I thought maybe you could talk a little bit about real estate and one of the questions I have is at the new stores and you've opened your date or the end of last year, was there any particular kind of real estate that seems to be performing better, power center, I think you even have a couple of stand-alone stores or is it continuing what you said in the past and you said everything seems to do well. Just wondering whether that changed at all? Kenneth R. Bull: Yes, I think just from a performance standpoint, Meredith, I think we still continue to see a broad base, positive performance across the class. We will see and we have seen every once in a while [indiscernible] out there in terms of store productivity, but again it's been relatively consistent in terms of the performance here up against prior years. Meredith Adler - Barclays Capital: And it's not giving you any particular information about how you should target the openings in the future in terms of the kind of real estate? Thomas G. Vellios: No, although maybe I think Meredith sort of same as always where people shop and we will do a lot of business. So I think co-tenancy, being around the nationals, being in the right centers of good axis, parking. It's just the simple stuff – presence in the center, all of which I think has made us what we are today and continues to be. What's great about the concept that we still continue to see which really give us a lot of confidence and that continues to perform well across a broad range of social economic groups. So we do well in markets in the 50 and under, we do well in 75 and we do well in markets that are even higher than that from an income side point of view. So nothing really that would give us any cause or concern at this point. Meredith Adler - Barclays Capital: And are you still getting more – sorry, go ahead. Thomas G. Vellios: No, and as I mentioned earlier we really feel good about the 2014 class. We'll talk about it when we do our Q4 call, but we think we're making great progress against that class. Meredith Adler - Barclays Capital: I was just going to ask whether you were seeing any changes in the real estate environment, any more competition for sites or rents going up and it sounds like very high quality shopping centers? Thomas G. Vellios: I think my partner David Schlessinger would say and he spends quite a bit of time in the real estate, it hasn't been 2009 and those days. We came out of that recession issue, but since then I think what you see is more and more people obviously going out there. A lot of our stores have come from existing real estate, but as demand increase I think you'll see probably more development. So I don't think it's the 2009 days but while there is certainly an increase from a retail perspective, a lot of retailers are back in the expansion mode building stores and from time to time we will compete for a site with others. Landlords love us and they want to defend us, and there's so much opportunity given the number of space and markets that we've been already and the number of stores that we're finding that we just don't see it as an issue in the foreseeable future. Meredith Adler - Barclays Capital: Great, thank you very much. Thomas G. Vellios: You're welcome.

And Charles Grom with Sterne Agee has our next question. Charles Grom - Sterne Agee: Thanks guys and great quarter. Just a follow-up to the last question, as you guys continue to expand, anything changing from a competitive dynamic for you guys? Kenneth R. Bull: You mean as far as competition. Charles Grom - Sterne Agee: Yes, just increased competition. I mean you're obviously – the model has been very successful with the comps you've delivered in the store, returns that you speak about. I'm just wondering if there's anybody looking to emulate you guys. Thomas G. Vellios: We've not seen anything that looks and feels like a Five Below. I think as retailers as I'm sure many of you have seen it that for years now I have opted to do price point merchandize whether it's the $1, $2, $5, but we've not seen any competition in the markets that we were in, and we are now in $0.80 [ph]. Charles Grom - Sterne Agee: Okay. And then just a couple of questions on the margins, could you quantify the leverage impact of the distribution centers here in the second quarter? And then just remind us from a fixed cost hurdle perspective, is it still about 4% and for every comp point above or below that say 15 to 20 basis points of leverage and is that why it was roughly 60 basis points of leverage here in the second quarter? Kenneth R. Bull: Yeah, I think just the piece on the margins. I think we spoke before relative to the distribution center and the deleverage we were seeing here with adding the new Olive Branch DC where we were in that 16 to 18 basis point range in the first three quarters, we would expect it here. Full year about 50 basis points that would moderate Q4 given the increases to utilization in the DC and the increased sales. And then what was the second part, Chuck, of your question? Charles Grom - Sterne Agee: Just on the SG&A, what's your – is the fixed cost hurdle rates typically it's been about 4%, is that still the case? Kenneth R. Bull: Yes, I mean we see that as kind of tipping point where once we get over that from a comp perspective, we will see some of that slight leveraging in the fixed component in both cost of goods sold and SG&A. Charles Grom - Sterne Agee: Okay, awesome. And then the last question would be just on the guidance for the third quarter, you're speaking to mid single digits. Just wondering if that is an indication of August being off to a strong start because of these Rainbow Looms or is it more of your expectation for the last week in the quarter because of the shift in the Halloween benefit that you guys are going to get which I guess in essence gets double amplified because of the weakness that you guys experienced last year. Thomas G. Vellios: That's exactly right for most quarters. Kenneth R. Bull: Yes, I think the last piece is accurate. I think the other piece – every time we look at guidance, we always look at kind of the recent trends and where we are coming off the last quarter. So it's really a combination of those two things and leading us to that mid single digit guidance. Charles Grom - Sterne Agee: Okay, great. Thanks very much. Kenneth R. Bull: Thanks, Chuck.

(Operator Instructions). We'll move on to Jeremy Hamblin with Dougherty & Company. Jeremy Hamblin - Dougherty & Company: Hi, guys. Wanted to just get into a little bit more detail, you mentioned a little something about your 2009 to 2012 vintages of stores. Can you give us a sense for how those vintages are comping versus, let's say, your older vintages of stores or are you seeing just very consistent performance across the board? Kenneth R. Bull: Yes, I think Jeremy two things there. We still continue to see consistent performance when you look at the class relative to comps. That's kind of the initial response to your question. But then keep in mind that we do and continue to open up new stores in existing markets, so we would feel the impact of cannibalization. To date it has not been material but as we continue to open up stores in the existing markets, it wouldn't be a surprise for us to see a cannibalization impact as we move forward. Jeremy Hamblin - Dougherty & Company: Got you. And then just one follow-up on the facility. In terms of the deleverage that you're seeing at this point, how many stores are you servicing out of that facility currently? Are you above 50 stores and is the deleveraging at this point kind of on plan or a little bit better than you were expecting, let's say, in the springtime? Kenneth R. Bull: Yes and relative to the service and the servicing of stores for the D.C. and so less than 50 stores that it's servicing currently. And then with regard to the deleveraging that we've seen so far and that we expect is pretty much in line with what we've spoke about before. Jeremy Hamblin - Dougherty & Company: Thank you. Kenneth R. Bull: Thanks.

We'll take our next question from Christian Buss with Credit Suisse. Christian Buss - Credit Suisse: Yes. Hello. I was wondering if you could talk about some of the system investments you're making and what we should expect over the next 12 months. Kenneth R. Bull: Well, I think and Tom may want to add to this. We mentioned it before, as we grow we're going to continue to put investments in infrastructure, people, process and systems. With regards to systems there will be ongoing investments there, so we'll be looking at merchandizing systems, we'll be looking at financial systems, also HRA things like that. But you can expect ongoing investments there from an IT perspective as we move forward. Christian Buss - Credit Suisse: That's helpful. Thank you. And new stores have been opening at much higher productivity than they have in the past. Can you talk a little bit about what you think you've been doing differently and how sustainable that is? Thomas G. Vellios: Good question. The interesting thing is really – if you look at sort of recent past, we have been doing many things differently. If anything I think our openings – the opening events, the marketing for the stores over the course of the first full year of operation has been pretty consistent. I think it's fair to say that maybe over the years we have gotten better which is really what I think has strengthened our business and why we continue to grow in some of the earlier classes because the team I think [indiscernible] from the business now that we've been able to scale ourselves. We'll have 300 plus stores at the end of the year. The team has really – our merchandizing team has really grown in. We have a great team out there. We have 700, 800 vendors now eager to do business with us each and every day. So I think it's all those pieces that have made us a better company across the board and maybe it sort of indirectly it's helped the new stores. But the new store performance has done well and if you look at recent classes of stores, it's not that we've done anything that's unique to that class that's really driven the performance, I think it's just really – it's been nothing but the response for the consumer to the stores once we open them. Christian Buss - Credit Suisse: That's helpful. Thank you and best of luck. Thomas G. Vellios: Thank you. Kenneth R. Bull: Thanks.

We'll hear next from Stephen Grambling with Goldman Sachs. Stephen Grambling - Goldman Sachs: Good afternoon and thanks for taking my question. To change gears a little bit, maybe if you can just discuss the President position that you're looking to fill, how the position's responsibilities will be different than a COO role? And maybe any sense of the timeline? Thanks. Thomas G. Vellios: Obviously we've decided to really bring in a President position, we wanted a seasoned senior executive to come in to help me and the renovation – to get the company to the next level. I think most important for us is to make sure that we find a talented and we believe is suitable to help lead the company as we move forward, move ahead. So that's really the position. We just started the process. I will tell you I feel really good with the team in place across each and every one of our categories which gives us the opportunity of taking the time, if we have to, to find the most suitable candidate. So for today that's basically and I think we'll continue to update you. Our goal is to really bring in someone that can help the organization and help me as we scale the business, as we scale the company and we try and get the company to the next level. Stephen Grambling - Goldman Sachs: And just a very quick follow-up, so are there different positions that will be reporting into that new position and the old COO role? Thomas G. Vellios: Again, I don't want to get into a lot of specifics. The candidate what we want to hire is a great athlete and if we find the right candidate to help the company, we have enough strength in the organization, we can align the categories or the areas of responsibility to meet the expertise of the individual coming in at least in the beginning. So that's one of the great things I think about the way we are as a company and as a team, we have that flexibility to do that which really opens up the – gives us a lot of canvas to really go out and find a great executive. Stephen Grambling - Goldman Sachs: Okay, great. Thomas G. Vellios: Well, we haven't decided – it doesn't need to be A, B and C. I think we can decide which areas are best suited for the individual. Stephen Grambling - Goldman Sachs: Understood, good luck. Thomas G. Vellios: Thank you.

And John Zolidis with Buckingham Research has our next question. John Zolidis - Buckingham Research Group: Hi. Good morning. Great results. Thanks for taking my question. I was wondering if you could talk about – I don't think I've heard the answer to a previous question about whether there was any difference in the comp performance by vintage or age of store, so that's question number one. And then my second question is a follow-up to Dan Binder's earlier question on offshore sourcing. If I put this way, if you look out five years what percentage of your product do you expect to be sourced overseas compared to today? Thank you. Kenneth R. Bull: John, I'll just take the first part of that with the comp by vintage or by class again, we fall relative and consistent [ph] across all the classes. Thomas G. Vellios: Well, I am not from the school of tying into a number that you need to increase your so-called sourcing which broadly translate and increase your input from one number to another over any period of years. I believe that for our business and our concept, it's a matter of just trying the best of all customers. And if that means that we get our sourcing in the foreseeable future to the 20% or the 30% range, I think it wouldn't be unrealistic number to get to. But conversely you may see a shift of production to other places. For example, if you had said to me five, six years ago that the majority of our nail polish would be produced domestically here in the states, I will say well but potentially that is cheaper in China. The fact is our nail polish for the most is produced here in the states and it's the best place to buy that nail polish. So I think our focus needs to be on product, our PD, product development team and the merchandizing organization under Jack's leadership I think has and will continue to make the best decision of where we think the product can be sourced from and we'll get there. Naturally I believe that the penetration from overseas sourcing will continue to increase as it has over the past years, but we really do not have an internal goal that we want to get to. John Zolidis - Buckingham Research Group: Thanks for that answer.

We'll move next to Patrick McKeever with MKM Partners. Patrick McKeever - MKM Partners: Thanks. Hi, everyone. Another question on margins and if you look at the benefit from the lower preopening rent and preopening expense on both gross margin and SG&A, could you quantify that impact on those two line items? And then just kind of a second follow-up question or related question, how about mechanized margins in the quarter, how did those look compared [ph] to last year? Did you see any pressure on merchandize margins from the relative weakness in some of the summer seasonal categories? Kenneth R. Bull: Patrick, I'll start with the merch margins first. As we said in the past as per our expectations going forward that the merch margins we would not expect to see significant improvements in that even as we scale our purchases and get that benefit I think Thomas spoke into reinvesting that into better products, better quality, better value products. So we didn't see anything significant from a merch margin perspective. On the preopening costs rent and other expenses, they were really the key drivers overall on both the gross margin line and the SG&A line that drove year-over-year operating margin leverage. Patrick McKeever - MKM Partners: So if you were to exclude those with adjusted operating margin have still been higher then? Kenneth R. Bull: Well, again we had some other items going back and forth in there but there were really the key items for us. We did see some fixed cost leveraging also both in SG&A and in the gross margin area or cost of goods sold area. Patrick McKeever - MKM Partners: Okay, got it. Thank you very much.

And everyone, I'll turn the conference back to you for closing remarks. Thomas G. Vellios: Thank you, everyone. I appreciate your support and look forward to our next call.

And that will conclude today's conference. Thank you all for your joining us.