Farah Soi – IR, ICR, Inc. Joel Anderson – President and CEO Ken Bull – CFO and Treasurer

Steve Forbes - Guggenheim Securities Dan Binder - Jefferies and Company John Parke - Sterne, Agee Meredith Adler - Barclays Taylor LaBarr - Stifel Michael Lasser - UBS Paul Trussell - Deutsche Bank Matt Nemer - Wells Fargo Securities Tom Filandro - Susquehanna Financial Vincent Sinisi - Morgan Stanley Matt McGinley - Evercore ISI Scot Ciccarelli - RBC Capital Markets Jeremy Hamblin - Dougherty & Company Christian Buss - Credit Suisse Kelly Halsor - Buckingham Research Group Patrick McKeever - MKM Partners

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

Thank you, operator, good afternoon, everyone and thanks for joining us today for Five Below's second quarter 2015 financial results conference call. On today's call are Joel Anderson, President and Chief Executive Officer; and Ken Bull, Chief Financial Officer. After management has made their formal remarks, we will open the call to questions. I need to remind you that certain comments made during this call may constitute 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 on our Web site at fivebelow.com. I will now turn the call over to Joel.

Thank you, Farah. And thanks everyone for joining our second quarter earnings call. I will review the highlights of the quarter before handing it over to Ken to discuss our financials and our outlook and then we will open the call up for questions. We are pleased to have delivered Q2 earnings per share of $0.13 at the high-end of our guidance range. Total sales grew 19.5% to about $182 million which is at the low-end of our guidance. Comp sales grew by 3% making this our 37th consecutive quarter of positive comps. I will discuss our sales performance in more detail in just a moment. During the quarter, we opened 32 new stores and entered three new markets with three stores in Kansas City, one store in South Carolina and 11 stores in the highly anticipated market of Florida. We are very pleased with the initial performance of these Florida stores and look forward to expanding our presence in this market as we believe it offers significant potential for future store growth in the years to come. While not evident from our overall sales results for Q2, we had a very strong start to the quarter in the month of May and also ended on a solid note in the month of July with customers responding positively to our summer product and overall offering. The weaker sales performance versus our guidance was concentrated in the latter half of June, which we believe was largely attributable to the following two one-time factors. As I shared with you on our Q1 call, we believe there is an opportunity to reduce our historical reliance on newspaper circulars and increase our digital mix to drive store traffic. As part of our test and learn strategy, we shifted one of our circulars in Q1 to a purely digital ad with minor sales impact. In June, we made a similar decision to remove another circular and test a digital only summer campaign ad that anniversaried a print ad last year. Unfortunately, the results were different this time and impacted our sales run rate. Our digital strategy is extremely important and we remain excited about the potential to harness the power of email, digital advertising and social media in order to expand the reach of the Five Below brand. However, out of this test, we learned that newspaper circulars will continue to be an important complement to our digital marketing efforts in key seasons like Easter, summer and holiday and we have incorporated these learnings into our plans for the second half of the year. Secondly, and unrelated to this marketing change but occurring at the same time, sales performance in the middle of Q2 was impacted by a brief and temporary delay in store receipts associated with the move out of our existing East Coast DC. We believe the combination of these two factors accounted for total Q2 sales coming in at the low end of our guidance and the comp sales shortfall versus our guidance. It has been a year since I joined Five Below. And I believe the fundamentals of our business are strong. Our associates and management teams are engaged and focused and the progress we have made on our strategic initiatives is on schedule and within budget. Let me give you an update on the short-term and long-term progress we are making on these initiatives. Number one, new store growth. Executing against our 2000 store opportunity in the United States remains our number one priority. Through Q2 we opened 51 stores in both new and existing markets on our way to our targeted 70 new stores for 2015. We have also made significant progress and are on track for the 85 new stores we have planned for 2016. We continue to be pleased with the performance of our new stores which will remain our biggest source of profitable growth. Number two, merchandising. Our summer set was well-received and was one of the key positive contributors to our Q2 sales performance. Other worlds that did well in Q2 were sports, candy and tech. I would also highlight that we are seeing our licensed product continue to gain momentum. We believe the merchandise you will see in the back half is fresh, compelling and trend right for the ample wow for our customers. I'm pleased with the progress our merchandise team is making as we head into the holiday season. Number three, our new East Coast distribution center. I'm very excited to announce that we are fully transitioned to our Pedricktown distribution facility and have ceased operations in our Newcastle facility. This new million square foot DC which replaced our 400,000 square foot facility will support our ongoing East Coast store growth for years to come and will enable us to move our product more quickly and efficiently than we have in the past. Number four, marketing. As part of our ongoing efforts to optimize our overall marketing efforts and to increase our digital marketing reach we conducted another TV advertising test. This test was a nine markets reaching about 15% of our store base, roughly equal to the reach of our Q4 test last year. We are pleased with the results which were similar to what we saw with the prior test last year. We plan to complete our TV test space this holiday season and expect to be in a position to discuss our go forward strategy early next year. And number five, systems. As I said to you at the beginning of the year, implementing new systems that will allow us to successfully scale our business is another key priority. This month we expect to install our new merchandising financial planning system, another key step in our phased system upgrade following the successful installation of our new merchandise allocation system last year. This system which is scalable to support our growth initiatives for both stores and eventually ecommerce will help enable our merchandise planning in the organization to make better informed inventory investment decisions in 2016. Looking ahead to the back half of the year, we are currently in the midst of our back-to-school campaign and we will be transitioning to our Halloween set later in September. Overall, I'm very pleased with the assortment we have planned for the remainder of Q3 as well as the key holiday season. Our merchant teams have worked hard to ensure that we have the right amount of newness and freshness in the stores and I think you are going to really like what you see in the stores this holiday season. So in summary, second quarter provided us with a good opportunity to further test and learn from our digital initiatives and fine tune how we reach our customers. We have factored these learnings into our go forward plans without impacting our full year outlook. Our new distribution center in Pedricktown is up and running extremely smooth. We are making progress on our other initiatives to allow us to continue scaling the Five Below business. I believe we are well-positioned to deliver on our goals for 2015 and beyond. Now to discuss our financial performance and outlook in more detail, I will hand it over to Ken.

Thanks, Joel, and good afternoon everyone. I will begin my remarks with a review of our second quarter results and then discuss our outlook for the third quarter and full year. Our sales in the second quarter of 2015 were $182.2 million up 19.5% from the $152.5 million reported in the second quarter of 2014. We ended the quarter with 417 stores an increase of 64 new stores or 18.1% versus the 353 stores at the end of the second quarter of 2014. Comparable store sales increased by 3% for the second quarter of fiscal 2015 as compared to 3.2% comp increase in the second quarter of 2014. This comp increase was driven by an increase in comp transaction. Gross profit increased 17.5% to $59.8 million from the $50.9 million reported in the second quarter of fiscal 2014. Gross margin decreased by approximately 50 basis points to 32.8% in line with our expectations and driven primarily by increased expenses associated with the start-up and relocation of our new distribution center. As a percentage of sales SG&A for the second quarter of fiscal 2015 increased to 26.5% from 24.6% in the second quarter of fiscal 2014 due primarily to the TV advertising test Joel discussed as well as compensation expense related to the leadership investments we have made since mid-2014. Our operating income decreased 13.3% to $11.6 million or 6.3% of sales from $13.3 million or 8.7% of sales last year. Our effective tax rate for the second quarter of 2015 is 37.1% compared to 37.6% in the second quarter of 2014. Net income decreased 15.1% to $7.1 million or $0.13 per diluted share from $8.3 million or $0.15 per diluted share last year. We ended the second quarter of fiscal 2015 with $60.9 million in cash and cash equivalents, availability of $20 million under our revolving credit facility and no debt. Inventory at the end of the second quarter was $123.8 million as compared to $106.7 million at the end of the second quarter of last year. Average per store inventory at the end of the second quarter of fiscal 2015 decreased to 1.8% as compared to the end of the second quarter last year. This slight year-over-year decline was due primarily to the later shift in this year's back-to-school selling season. Now, I would like to turn to our guidance. For the third quarter ending October 31, 2015, net sales are expected to be $164 million and $167 million assuming a 3% to 4% comparable store sales increase and the opening of approximately 16 net new stores. This comp outlook takes into consideration the comparison against the healthy Frozen-license business in Q3 last year, which came on the heels of a strong 9% comp in Q3 of 2013. As we said last quarter, we expect Q3 operating margins to be down slightly year-over-year driven primarily by depreciation related to our new distribution center transition which is included in SG&A expenses. Earnings per share are expected to be $0.06 to $0.07. For the full year 2015, we are reiterating the guidance we provided on our Q1 call. Sales are expected to be in the range of $820 million to $828 million with a comparable store sales increase of approximately 3%. This full year comp outlook continues to assume that our comparable store sales increase in the fourth quarter will be approximately 3%. This full year sales guidance compares to net sales of $680.2 million for fiscal 2014 representing a growth rate of 21% to 22%. In 2015 we plan to open 70 net new stores and expect to end the year with a store count of 436 as compared to our 2014 ending store count of 366. For the full year we continue to expect operating margins to be down slightly versus 2014 given the new distribution center and leadership investments that we have made since mid-2014. Both of these investments will be partially offset by leveraging other areas of gross margin and SG&A. For the full year, the incremental distribution center cost will show primarily in SG&A due to an increase in depreciation of the larger facility, which represents approximately 30 basis points in SG&A drag or approximately $0.03 in EPS. We expect the full year effective tax rate to be approximately 37.5% and GAAP net income is expected to be in the range of $56.4 million to $58.2 million or an approximate 18% to 21% increase over 2014 with GAAP diluted earnings per share of $1.03 to $1.06. Net income is expected to increase by approximately 16% to 20% over fiscal 2014 adjusted net income. We are still planning CapEx at approximately $56 million for the year reflecting the opening of 70 net new stores, investing in distribution centers, system upgrade and corporate infrastructure. Included in our fiscal 2015 CapEx forecast is approximately $20 million for the new East Coast distribution facility. For more details related to our results and guidance please refer to our earnings press release. And with that, I would like to turn the call back over to Joel to provide some closing comments before we open it up for questions.

Thank you, Ken. So in summary, we are pleased with our earnings performance for the quarter and so proud of our associates and the great job they continue to do day in and day out. We continue to make great progress against all of our strategic priorities including store growth, talent, merchandise, systems and infrastructure as we position this great business for the long run way of growth that lies ahead. I believe, we are ready for the holiday season and we are extremely focused on executing against our plans. As I look at the core fundamentals of the business, I'm energized and excited about the future of Five Below. Let me conclude by reiterating what I said earlier, I believe the merchandise you will see in the back half is fresh, compelling and trend right with ample wow for our customers. Thank you for joining us today and we look forward to speaking with you again in December. Now, I will turn it back over to the operator for open up for questions. Operator?

Thank you. [Operator Instructions] We will go first to John Heinbockel with Guggenheim Securities.

Hey, guys. It's actually Steve Forbes on for John today.

Hi, Steve. How are you?

Very good. As it relates to the licensed merchandise, I believe the Star Wars SKUs hit the stores in early September, I guess is that right? And then can you provide any color on the assortment will be across the various worlds and should we expect to see a display like we did last year for Disney's Frozen?

As I said earlier in my remarks, we like the trend we are seeing overall with licensed merchandise Steve and certainly Star Wars is going to be part of that assortment. It is just now coming into the stores in fact none of the new assortment is in there yet and is not even allowed to be sold yet. So that will be coming in early September here. And as I said, our overall assortment for license looks really good for the back half.

Okay. Thank you.

You bet.

We will go next to Dan Binder with Jefferies and Company.

Hi. It's Dan Binder. Just on the marketing test, I'm just curious if you could -- maybe you just give us a little bit more insights or thoughts on why you think the cut in the circular didn't have an impact on Q1 but did in Q2? And then as a result of that how does your marketing spend look for the balance of the year versus what you originally thought, and are there shifts that we should consider in that?

Thanks Dan. I’ll let Ken comment on the overall shifts. As I have been saying to all of you for the last several times on the call, we are going to keep testing and learning as we go through this marketing transition of our strategy and how we communicate with our customers. And the first step we took at that was in the first quarter and we did eliminate a circular there and as I said we saw very little decline in sales. And certainly we then tested that with another circular here in the second quarter. I think the learnings we got out of that is, we understand clearly now that there are certain times of the year in key holiday periods namely Easter, summer and certainly the fourth quarter that it's important to us that we continue to communicate with those circulars. And I think the one we cut out in the summer time was in one of those key periods and that was really the difference between the two and first quarter and second quarter.

Right, okay. Thanks. I was just wondering –

Oh, and then you were asking about the shifts and stuff, Ken you what to –

Sure. Dan just on an overall basis total marketing we expect to be similar to what we planned for the full year. So on a full year basis we don't see any change there. And again, we had always planned to have circulars in that back part of the year especially Q4. So there is some slight shifts in Q3 and Q4 but not really that material. So we are able to execute to this end still under our -- the guidance that we had provided in terms of total marketing spend for the year.

Did I cut you off on something there Dan?

I was just going to -- just ask you just as a follow up question on the new store productivity, was there anything about the timing of the store openings year-over-year just look like the new store productivity might have been a little bit lower than where you had been in recent quarters, –did that had to with the product delays or the timing of the openings but any color on that would be helpful?

Sure. As Joel mentioned Dan, we were really pleased with the performance of the new stores and I think there is a couple of things there, you hit on one of them, we did open up a number of stores towards the end of the quarter in Q2 if you recall we guided to 25 and opened up 32. So some of those additional ones came on late in the quarter. But also the new stores were not immune to the two one-time factors that Joel had called out around marketing and distribution. So that also impacted their productivity in the Q2.

Great. Thank you.

Thanks Dan.

We will go next to Charles Grom with Sterne, Agee.

Good afternoon. This is actually John Parke on for Chuck. Thanks for taking my question. I guess my first -- how the back-to-school categories performed thus far in 3Q?

So back-to-school, we are still in the midst of it as I said on my earlier comments. With the later Labor Day this year and clearly us continuing to see our customer buying closer to need we are still in the midst of our back-to-school campaign and I think we will have much more color on that as we get through the end of next week.

Got it. And then just switching gears a little bit, I guess what kind of increase did you guys see on your brand awareness scores where you guys did a TV tests here in 2Q?

Yes. Yes. You are right. I mean the two things we are really tracking on the TV test that we are doing is the ability to move our brand awareness as well as to move comp. And like our Q4 test, we saw similar movements in both of those. We really need to get through this Q4 test John before we can really kind of lay it all out for you and spell out the exact trend we are seeing. But it's safe to be said that the results we saw in Q2 were positive and in line with what we saw in Q4 enough so that you will see an expanded TV test from us in Q4.

Great. Best of luck.

Thanks John.

Thanks John.

We go next to Meredith Adler with Barclays.

Hi, Meredith.

Hey, how are you? So I was wondering if you could talk a little bit about container consolidation. I know that is now in effect and I'm wondering whether given how much time containers are on the water, whether that has had any impact yet or sort of how you see those benefits playing out?

Yes. We did just complete that here in the second quarter and we really need through the back of the year to quantify the benefits. Clearly, it will give us flexibility to manage our inventory and as we continue to increase our overseas penetration that will be a go forward benefit for us. And it's just too early to think about quantifying those yet at this point Meredith.

Okay. And then just real quickly on the openings you did in Florida, which you said were very good. Is there something about having opened in the summer or the fact that you have such a nice assortment of summer seasonal merchandise you think that had an impact, did you talk to customers, what were they are saying about the product offering?

Yes. I don’t think it was necessary because we opened in the summer. If anything it, I think our customer base knows us a little bit more in Florida from having such a great presence in the East Coast. We have some good marketing to get off to a good start and I think overall -- it's a big-big opportunity for growth for us as we haven’t even penetrated the South Florida yet. But, I don’t think it had really had anything to do specifically with the season.

Okay, great. Thank you.

Thanks Meredith.

Thanks Meredith.

We go next to Taylor LaBarr with Stifel.

I'm sorry who?

This is Taylor LaBarr with Stifel. Thank you and good afternoon. I just wondering if you think about the holiday quarter in the marketing test you have been doing and how they will continue to evolve, you are hitting about marketing last year versus this year, what are some of the key differences that will be in place for this year obviously next year you will have a more robust strategy maybe from just a timing perspective, nothing else.

Yes. I think it's little too early for us to unveil the specifics of the marketing this far and advance for competitive reasons. Having said that, you should expect to see our digital marketing efforts really continue to grow year-over-year from where we were last year. The teams have made great progress on that. As I said, a few minutes ago, TV will be expanded from last year. And at the same time, we are still in the TV test mode. I think one of the things we need to test is TV in a larger market. And you will see us do that for the first time this holiday season.

Great. And then as you look into next year, print circulars turn out to be more valuable than maybe you have originally had guessed, if the answer is print circular as well as increased exposure to TV and digital, would you be open to increasing your marketing spend as opposed to shifting from one medium to the other?

Yes. Certainly we are open to it. But, I'm more inclined to say let's keep print circulars focused on those key holiday times and remember from a -- we said we are going to hold marketing from an absolute percent basis. But with our growth, absolute dollars will continue to expand and that will allow us to continue to fund digital strategy at the rates we need to do. But, to the specific you asked I think as we get to this Q4 test, we will come back to you with details specifics next year.

Great. And then just one last question on the new distribution center, depreciation will pressure that a little bit short-term but how should we think about the cadence of the cost of good sold efficiencies out of that facility, is that something that will continue to mature and give incremental efficiencies as more and more stores are added, or is it more of a one-time step up?

Yes. Ken you want to go ahead?

Yes. I think we would expect to see that as we continue to utilize the distribution center more fully and ramp up and see improvements in productivity in other areas from a leverage stand point. But, again, we just opened that up and it's now fully operational but as we continue to move forward, I think we should expect to see some leverage on the DC.

You can understand and Taylor we remind everybody, I think we said to you before the two DCs now give us a capabilities servicing upwards of 700 Five Below store. So it does give us some great growth capacity. Thanks Taylor.

And we will go next to Michael Lasser with UBS.

Hi, Michael.

Hi, Joel. How are you?

Hi. How are you?

Thanks for taking my question. I just still -- I have got a focus on the marketing, why do you think circulars are more effective at certain time of the year, is it because you are lining up some products that are seasonal relevant it resonates for the consumer along those lines. Is it that commercial or not as immediately productive as circulars and they will be over the long-term or make they just not be as productive at all as before as circulars --

You know there is a lot in there Michael. Let me tell you couple of things. First of all, you got to remember the TV is still in a test mode. So you can't never expect a chain-wide circular to compete with a TV test that's only in 15% of your market. So that's one thing to keep in mind. So it's not whether one is more effective than the other, you are comparing apples and oranges. The second one is, let's forget that -- not forget that the circular is still relevant for mom, and Five Below is a destination at certain key seasons. And that's probably where the traditional circular works when you are thinking about the destination and that's where Five Below is that Easter, at summer and certainly the -- all important fourth quarter.

And then on the expense side, I think you are expecting 300 basis points of margin deleverage in the second quarter, the comp is a little light, but even so outperformed your expectation. So what came in better than anticipated?

Yes, Michael, so we have those delevers that we spoke about around the DC around leadership investments and marketing in that SG&A area. They did come in a little bit lighter the deleverage offset by some corporate expense savings.

Okay. Merch margin, how do they trend in the period?

Again, excluding all the other puts and takes the merch margin was relative consistent year-over-year.

Thank you so much. I appreciate it.

Thanks Michael.

Thanks Michael.

And we will go next to Paul Trussell with Deutsche Bank.

Well, good afternoon. Joel, I think it certainly been determined that same-store sales is really not the most important contributing factor to Five Below's P&L algorithm. But, it certainly is important to investors just to make sure they have to handle on the same-store sales and the goal -- the look via go forward period, how to forecast it? So if you can just help us feel more comfortable with the 3% to 4% comp guidance for 3Q and roughly 3% for 4Q that will be helpful whether there is any shifts or changes that we should be aware of which products and categories perhaps you are most excited about and in particular just -- how are you coming to market for back-to-school and holiday?

Yes. Clearly, Paul, we don't take same-store sales lightly. And try to give you a really clear guidance where we are going to be. But you are right; the growth of Five Below for the next several years is largely going to come out of new store growth. And we see that not changing at all. Clearly, when we give you guidance on comp store sales we expect to be within that guidance. Remember my comments to you, we had a very strong start to the second quarter and we finished very solid in July. Those combinations and then obviously looking at our trend in June is really what allowed us to guide to a 3% to 4% comp in the third quarter. And it's also important to remember Paul; this is our 37th consecutive quarter of positive comp. So in all cases, I think you should remain very confident on the positive comp guidance that we are going you. And I think 3% to 4% is reasonable and is grounded in past trends that we are seeing and then forward-looking at which departments are trending appropriately.

And Paul, I will just add to that. I know there is always the look back in terms of the prior year comp and that 3% to 4% is up against the 1.5% comp from last year's Q3. That was coming off of a very strong quarter in third quarter in 2013 of nine comp we had that rubber band trend. So I think if you also look at it on a multi-year level, again, it make sense give where we trended so far this year.

Got it. And early this year you spoke to 2016 being a year in which I believe the margins could expand especially as you cycle the opening of the distribution center and some of the other investments that you made. Do you continue to see that opportunity as we look forward what would be the comp needed to have margin expansion? And what are the buckets that would drive it?

We will get into more detail on 2016 as we get through this year obviously on our Q4 call and we will be able to provide that. But as it stands right now and you are right, we said that we would expect to see the margin expansion and a certain increase in bottom line net income as we go into 2016 as we come off of these investments that we have made. And they could come from various areas, but we are not in a position at this point to talk about where they will come from and around the comp. I also think and we said, since the IPO we have spoken about that 4% comp as the tipping point. And I think we are in a position now to say that we would expect to see some leverage below that point whatever that point maybe. But again, all those details, let's get through 2015 and we will be able to speak to those more clearly as we get to the end of 2015 and give your guidance for 2016.

Thanks Paul.

We will go next to Matt Nemer with Wells Fargo Securities.

Hi, Matt.

Good afternoon.

Hi, Matt.

Thanks for taking my questions. So first, it seemed to us like you were more active and I guess in some ways a bit more promotional on email this year. For example you ran a 2 for 1 dollar school supplies promotion that we did see last year. I'm just wondering if you can kind of help us read that -- read that that was planned and it's part of your move to digital or is it more of a tactical move in the quarter to drive traffic and whether or not it worked?

You shouldn't read into it anymore than that was planned. We continue to use digital especially when we are really highlighting our new seasons and what's going on in a while. And there was nothing overly tactical about that.

Okay. That's helpful. And then just a quick follow-up, given your excitement about the Florida stores. I'm just wondering if those stores are set-up in their pro forma has to be much higher average unit volume stores over time. And I realize that will probably vary kind of store-by-store. But, just in general, for those markets where the occupancy is a little higher. There are going to be some of the big volume stores from your standpoint.

In general, Matt, that they're really consistent with the rest of the chain and there is nothing unique about them that we are setting them up to be higher than our other markets.

Okay, great. Thank you so much.

Yes. Thanks Matt.

We will go next to Tom Filandro with Susquehanna Financial.

Hey, thanks gentlemen. Just on the DC delays, I just want to be clear, are you experiencing any delays in the back-to-school set because you have actually witnessed some out of stock in stores that could be some outsize performance? And I hate to hop in this marketing but I just want to circle back, if could you help us better understand maybe the plans in the second half for paper versus digital circular so we can think about framing what the likely impact might be on that comp trend. And then the final piece, just to be clear, are you saying that the comp guidance that you provided for the third quarter is reflective of what you are currently seeing in the business? Thank you.

Mouthful in that one question there. Let me see if I can tackle that. We start with the DC and be really clear. The new Pedricktown DC, I have seen a lot of DCs come up life time. It is doing extremely well and I'm pleased with how well and smooth it's running. So any out of stock shoes maybe seen are isolated and would be one-off for that particular store. We are not seeing any chain wide outages or things related to the DC. But I talked about in my prior remarks was strictly responding to -- when we went through the transition from the old distribution center into the new facility. But, the new one has been up and running for well over a month now. And we are not experiencing any delays associated with the DC. In terms of marketing, I want to repeat what you are asking there.

So the question I'm trying -- I think we are all trying to understand since you have eliminated you went to a full digital circular, what we looking at comparisons in the second half were you have I don’t know five circulars at a paper this year, last year and four of them will be digital this year. What's the year-over-year comparison?

Yes. The year-over-year comparison let me specifically focus on the fourth quarter because that's really the important quarter. We will have the same amount of circulars this year as we did last year. And in fact that goes so far as to say we really weren’t contemplating cutting circulars in the holiday season that’s an important season for us and we hadn’t expected to cut those. And certainly what happened in the second quarter confirmed that was right strategy to step with. The second quarter performed differently. We might have look to do in a different strategy but that was built into our original plan and that's where we are staying.

Very helpful. And then just on the third quarter our comp to-date comment?

We put a lot of factors in when we give you comp guidance. And it's obviously looking at where we are at as we sit here today. And then forecasting what we see for the rest of the quarter based on the trends of our business. And both of those factors played into the guidance that we got coming for you. Obviously, with the shift Of Labor Day this coming weekend is -- will be significantly above our comp guidance range, while our last weekend would have been below netting together that's factored in as we give you the overall comp for the fourth quarter -- third quarter.

Very helpful. Best of luck.

Yes. Thank you.

Thanks Tom.

[Operator Instructions] We will go next to Vincent Sinisi with Morgan Stanley.

Hi. Thanks very much for taking my question. Good afternoon. I wanted to ask I know you said that the Florida stores have been doing well but can you give us any further details around was there anything new to go to class from a geographic performance perspective and/or from within the given worlds within the story?

Yes. I think it seems like certainly in my short-term tenure here we always had the pleasure of announcing a new state or market to you. And the announcement of this Florida opening is consistent with other ones. So I think what that means for the Five Below brand is, as we continue to expand 26 states now. We see consistency in our performance across new states, new markets as well as we continue to infill. I call out Florida specifically because it like our entry into Texas a couple of years ago, will be a large market for us as we go forward in the years to come and I want to reassure that we didn't see any concerns going into Florida.

Okay. And then, just on the world's part of that question was there anything from your category standpoint that stood out in one way or another?

Nothing that stood out. Clearly, you would expect summer to last longer there as we kind of go into the fall here and remain tight down there. But we opened in the summer as you know it's a strong season for us across our entire chain and certainly Florida echoed that. I think as we go through a full year with it, we will probably see different performance in the worlds as winter will be less meaningful, we will have a different assortment in those stores but nothing of note at this point in time because we really are just been open through the summer season.

Okay. Thanks, Joel. And if I could just slide one fast one in here, I am sure we all have our own calculations but new store productivity by your calculations what was it this quarter?

Depending on whether you do it averages or end of year, it's awe from obviously is 100% which probably in that 80% to 90% -- 88% to 90% range, sorry.

Okay. Great. Thanks Ken.

Yes. You bet. Thanks Vinnie.

We will go next into Matt McGinley with Evercore ISI.

Good evening. My first question is on the balance sheet one that you said your inventory growth was light driven by the back-to-school shift and that caused the inventory per store to drop but at the same time you had a big surge in payables in the quarter what caused that inventory growth to drop but the payable to go up so significantly?

Yes. That the payable side of it was just a timing of some of the merchandise payments that took place at the end of the quarter. So just a timing issue there. You are seeing that increase in accounts payable. And again, for the inventory piece of it that slight decline I think was about 1.8% due to the later shift in the back to school season.

Okay. And on the DC, you have a lot of moving pieces within the second and third quarter as it relates to that the one in the second quarter you had all these startup costs associated with getting it set up and running and for a while having two open at the same time, but then you have the ongoing cost of running this DC going forward. So my question is into the third quarter, should we expect the dollar dropped in SG&A sequentially? And would that EBIT margins still be down in the third quarter?

Yes. I think we did say that EBIT margin should decline slightly and primarily driven by the distribution center and really it’s the depreciation that's embedded in SG&A. So that's really the key driver that we look at that's driving that slight operating margin decline in Q3.

Slight. Okay. Thank you.

Thank you.

Thank you.

We will go next to Scot Ciccarelli with RBC Capital Markets.

Hey, guys, Scot Ciccarelli. Can you help quantify the impact of the one-time items that you have already outlined?

I think what I said to you during my earlier remarks those two one-time probably represented why we came in roughly at the low end of our guidance as supposed to being closer or above the high-end. And was the difference between our comp store guidance and where we actualized the 3%.

Okay. So it's first to high-end, the quarter is 3 million plus impact?

Roughly.

Okay. Got it. And then there are some other companies that kind of experience a bit of a funky slowdown in the month of June and also the rebound in July. Do you think you were impacted by any of that in -- of course, the broader macro environment, or you comfortable with the sale impact was from the three items that you mentioned?

Clearly, if we got impacted by some of those broader macro, it was buried at the same time of when we know we made a couple of self-inflicted changes to the way we ran the business with the own nation of the summer circular. But, I would say we believe it was largely these two that contributed to the June sales run rate change that we explained to you.

Got it. Thank you very much.

You bet.

We will go next to Jeremy Hamblin with Dougherty & Company.

Good evening, guys. Thanks for taking my questions. Sorry to harp on these issues, but just if we could maybe hone in on this difference in the comps in Q2, with the -- let's call it a two week period with the change in the circular add -- what kind of discrepancy did you have in those two weeks versus the rest of your quarter on your comps? Could you quantify that?

Yes. Jeremy I guess the way I will quantify just to reiterate to you. Army trend was very, very strong. And I guess take away as above our guidance and we finished in July very, very strong. And so you can take that away what the impact would had needed to be in that time period. I think we have given you -- I tried to be as transparent with all of you as much as I can. And we have gone into a lot of detail and I hate getting down to the weeds and where we are at and but we want to be transparent with you and share the time period and which something happen. And at the same time reiterate these are one-time events and those are behind us and it's what allows us to be back guiding in the 3% to 4% range for the third quarter here.

Okay. And then just similar type of question, but in terms of the East Coast stores that may have been or that probably were impacted by the delays in inventory receipts, Ken, could you call out, how did the stores that are serviced by your Olive Branch DC do in terms of comp performance? What was the disparity between those sets of stores versus the one serviced by the new DC?

Yes. I think Jeremy the -- obviously, the stores that were being serviced by the East Coast facilities during the transition, those are the ones that would have been impacted by the issue. I don't think we are going to give out any kind of comp details between regions or distribution center performance. But needless to say, obviously, it was the stores that were serviced by the East Coast that were impacted in that one-time at brief and temporary store delay and receipt.

Okay. And then just one other quick one here, on your guidance for the year and what you are guiding to on new unit openings, it looks like, by my math, you're going to have three units open in Q4. My assumption is that that's going to be -- they're going to be opened early on in Q4 which I think you typically have and in the prior few years you really haven't been opening stores in Q4. As we look forward, is there likely as you -- the total number of stores increases, are you still going to have most of the openings, the vast majority, in the first three quarters, or should we be thinking about Q4 now having -- let's say a handful or maybe even more than a handful of openings?

Yes. I think as you have seen from us in the past the overwhelming majority of our stores opened in the first three quarters. I mean we have always -- we want to stay away from Q4 given all the activity around the holiday season. Store opening is always depend on the timing of construction and some other things. So there are always plans to open up in the third quarter and prior. But things can slip. So we may have a few that happen in the early part of Q4. And when we do open in Q4, it's always within like the first week or two. But, go forward again; the majority of store openings are still going to be in Q1 through Q3.

Thanks guys. Best of luck.

Thanks Jeremy.

Thanks Jeremy.

And we will go next to Christian Buss with Credit Suisse.

Yes. Looks like you had a fairly tight control of inventories coming out of the quarter could you talk about your comfort with comp position of inventories and is there any shortness of inventories in the stores right now?

Christian, we feel good about that. I think that's just another good example of the discipline approach Five Below takes towards everything. And you saw that with our ability to still deliver at the high-end of our guidance at $0.13 but no concerns over inventory outages or overages for that matter.

Thanks. And does the lack of response to the marketing campaigns shift the way you think about giving guidance on a go forward basis because it lets a little more conservatism here?

Well, certainly if we are planning to do any extreme cutting like we to expand what we did in the second quarter. But, I think for where we are guiding right now, this is inline with what we said to you earlier approximately 3% for the fourth quarter. And that hasn’t changed. So we gave you that guidance before the second quarter of event or given it you now. So it's roughly the same thinking.

Okay. Thank you very much and best of luck.

Thanks Christian.

Thanks Christian.

We will go next to Kelly Halsor with Buckingham Research Group.

Hi. Thanks for taking my question. Could you help us understand a little bit more about the cadence of 3Q as it relates to back-to-school? How big is August as a percent of the quarter and just given the calendar shifts that have occurred this year with the later back-to-school, and then also some tax-free holiday shift out of July and into August and did you have -- do you see any impact of that under store traffic this year?

The impact in Q2 versus Q3 was very, very minimal for us. We have always been later and closer to the event. And there was a couple of states where our states are that moved out of Q2 and into Q3 but had a very minor impact and hence we didn’t even call out the difference in Q2 versus Q3. As I said to you earlier, we are seeing the trend of buying later and later and closer to the event and then clearly with Labor Day also being later. We are still in the midst of our back-to-school period and we will be through the balance of this week and into September.

And just any color around how big back-to-school is or August or how you quantify that as it relates to the entire quarter?

No. Not specifically I'm at Kelly. Back-to-school is another season for us but it's not overall more meaningful than any other category of world we got going in the third quarter here.

Okay. And then just secondly, just broader picture here, just in terms of attachment rates that you observed historically when you have had discernible traffic driving trends, I mean it seems like there are some things that are working for you. So in the past when you've seen trends kind of play out and people coming to store to seek out items, do you have any quantification around particular attachment rates and how it relates to comp growth?

None that I'm willing to share I would tell you what's great about this concept is the engaging compelling exciting experience our customers having when they come to the store. Our associates are always greater engaging with our customers. I get letters everyday that customer is talking about a great experience with that. And certainly as part of that our associates are focused on units per transaction and but overall large percentage of our comp this past quarter was transaction driven.

Okay. Thank you very much.

You bet.

And we will go next to Patrick McKeever with MKM Partners.

Thank you. Just on the Star Wars products, I know it hasn't hit the stores yet, but as you think about the licensed business and the product that you'll have available, do you think you'll have enough to -- enough in terms of just particular items and breadth of assortment to offset. The Frozen strength last year and then, there was the question earlier about whether or not you are planning to have sort of a dedicated area, some dedicated space for that merchandise. I was just curious on that one, too. And then just third part of the same question, if that's -- if the whole Star Wars thing is a lot stronger than your expecting, do you think you'll be able to chase the business into the holidays by obtaining more product?

Sure. As I said earlier, we really liked the trend Patrick licensed overall. In fact, while Frozen peaked in fourth quarter last year it still [8th peak] [ph] in our stores today and will continue to be in our stores. Star Wars will play into that and you will see a dedicated area for it. The ability to chase merchandise has always been a strength of Five Below. And if we need to do that with Star Wars, we will, but we believe we certainly bought it appropriately based on prior trends we have seen with licensed goods and that's what we are using to build our assortment going into the holiday season here.

And then just sticking with merchandising, I know you don't like to talk too much about specific products or many trends but there were some call outs earlier in the year, shop and selfie sticks and so I'm just wondering if there's anything going on with the various many trends that you've seen anything any up and coming trends or anything diminishing any call outs there?

Yes. I think the comment I will make for you Patrick is, many trends hot items has always been a part of what Five Below is about. And I think since Five Below began it's been about these many trends and having great unique items and allowing our customer with newness and how do they ever deliver that for Five Below. Certainly in recent times the selfie stick was one of those. It was a great item of for us this summer and so that trend is continued. And I'm not about to predict the trends for the back half of this year. But like we did with selfie stick and many other items, the rubber bands and balloons a couple of years ago as those emerge we are very fast forward and you can rest assure will be on trend with it.

Great. Thank you, Joel.

Thanks Patrick.

And this does conclude our question-and-answer session. I'd like to turn the conference back over to management for any additional or closing remarks.

Thank you, operator. Thanks everybody for spending the time with us on the call. I would just reiterate the focus we have on third quarter and balance of the year. We are excited and hopefully we have been really transparent with you on where we have been and more importantly where we are heading. Thanks and have a great day.

This does conclude today's conference. We thank you for your participation.