Farah Soi - IR Joel Anderson - CEO Kenneth Bull - CFO

John Heinbockel - Guggenheim Securities Dan Binder - Jefferies Michael Lasser - UBS Paul Trussell - Deutsche Bank Vincent Sinisi - Morgan Stanley Scott Ciccarelli - RBC Capital Markets Kelly Halsor - Buckingham Research Group Jeremy Hamblin - Dougherty & Company Stephen Grambling - Goldman Sachs

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

Thank you, Shannon, good afternoon everyone and thanks for joining us today for Five Below's fourth quarter 2015 financial results conference call. On today's call are Joel Anderson, President and Chief Executive Officer; and Kenneth 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 in 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 Joel.

Thank you, Farah. And thanks everyone for joining us for our year end conference call. I will review the highlights of our fourth quarter performance and the progress we have made against our key initiatives, as well as our priorities heading into 2016. Before I do, as I look back on my first full year leading the outstanding team of Five Below, I just want to reiterate how proud I am of their performance and accomplishments. It has been a great first year on all fronts. I'd like to start by acknowledging Tom Bellios, our Executive Chairman. He is a great partner, and has helped lead a successful transition from our co-founders to me as CEO. We have met or exceeded the goals we set for ourselves heading into the year. Our performance in 2015 once again illustrates the strength and consistency of this great company. 2015 marked the tenth consecutive year of positive comps for Five Below, and our new stores have consistently generated strong productivity in less than one year payback periods. Just as importantly, we have seen the strong performance across both new and existing markets which reinforces our confidence in the 2,000 store potential. Executing against this 2,000 store opportunity was strong and consistent new store result is by far our number one priority the teams delivered this past year. And if not more importantly we have consistently delivered very strong bottom line performance with our average annual EPS growth rate of 27% than schooling public in 2012. Now, with regards to the fourth quarter, we are very pleased with our results especially our performance during the all-important nine-week holiday period. For the fourth quarter, we delivered sales of $326 million, a year-over-year increase of about 24% and EPS increase of 26%, a $0.77. Once again, we saw a strong performance out of our new stores. In Q4, we opened 3 net new stores. For the year, we opened 71 net new stores in six new states including Florida, Kansas, South Carolina and Mississippi, Alabama and Kentucky, to end the year with 437 stores, an increase of 19% from 2014. In Q4, comp increase of 3.6 marks our 39th consecutive quarter positive comps, and demonstrates our strong performance during the key holiday selling weeks in which we achieve a 4.1 comp increase. From a merchandize standpoint, we saw strength in our license business driven by Shopkins and Star Wars. In addition, the adult coloring book trend gained steady momentum. Our candy business remained strong, and we performed well in games and toys. We are also particularly pleased with our Q4 results given the difficult end to the quarter which almost half our stores impacted by Winter Storm Jonas, and approximately 40% of our chain closed for at least one day and we had some stores that were closed for three days. Our strong performance was accompanied by slight gross margin improvement and SG&A leverage that drove a 26% increase in EPS for the quarter which is a great end to 2015. For the year, sales were $832 million, up 22% over last year, driven by a 19% increase in number stores and a 3.4% increase in same store sales. Operating income increased over 19% despite the cost we absorbed to open our new one million square foot East Coast distribution center, and we delivered EPS with $1.05, an increase of 18%, 2014. We believe our success in 2015 is attributed to the disciplined execution of our key strategic priorities of our new store growth, marketing, merchandising, systems infrastructure and talent. Now let me review some of our 2015 accomplishments against these priorities and discuss what we are focused on delivering further progress in 2016. Starting with new stores, as always, new store growth remains our top priority and you can see from 2015 sales results was another outstanding year for new store performance as the concept continues to resonate with customers. For 2016 we are on track to open 85 stores including our first entry into South Florida and South Texas as well as the four new states of Louisiana, Wisconsin, Minnesota and Oklahoma. I am also pleased to announce we will expand out west in 2017 with our first stores in California. We have seen great success in many new markets as we have expanded beyond the East Coast. Our planed entry into the State of California represents an opportunistic acceleration in our original timeline and is another example of our confidence in our 2,000 store opportunity as well as the broad appeal we enjoy across wide range income demographics. Our new stores generate consistently strong results across new and existing markets alike, and with each passing year we are building upon our track record of success with new stores. Number two; let me now discuss merchandising which remains a top priority. The key driver of our in store success is our merchandising prowess. Our talented and disciplined teams across merchandising, product development and planning and allocation help insure that our customers were met with a compelling array of great product and amazing values when they shop Five Below throughout the year. We are a merchandise-driven company, and I am excited with the momentum we have going into 2016. Our head merchant, Michael Romanko, who now have been here a year with much of his first year spent filling up the team, onboarding and training team members and insuring clarity and alignment with respect to our priorities. Today, our go for structure is in place at the DMM and buyer levels positioning us well to continue to provide our customer with a great trend-right product they have consistently found at incredible values at Five Below. The teams are constantly chasing trends and bringing amazing products to the Five Below customer. Strategically, merchandise teams are focused in three areas for 2016; first, delivering even more wow and value to our customers across the entire spectrum of $1 to $5 price point. Second, taking learnings from our 2015 successes and implementing them in our 2016 opening as we further evolve and improve the Five Below store experience. And third, emphasizing our appeal as a summer go to destination. If you've been in one of our stores lately you can see that we are already well underway in building upon our merchandise success in 2016. Number three, moving on to marketing, another key priority for us. In 2015, we continue to test and learn as we involve our marketing mix. As part of this effort we conducted another TV test in Q4. This test covered more stores including some larger markets, and we are again pleased with the results we saw which were similar to those from our previous tests. In addition to this expand to TV test, we were also more aggressive and more effective with our digital marketing, including e-mail and mobile social that together with great product and compelling merchandising grew over a strong Q4 results. Given the strong results from the multiple TV tests we performed this past year, we plan to expand TV in Q4 2016. For the more effective mix or marketing and a better reach, we believe we have made good progress with regards to addressing the opportunity we have to improve our brand awareness and drive Five Below to be a top of mind shopping destination for customers throughout the year. In 2015, we saw meaningful increases in brand awareness across many markets. We believe this means our overall marketing campaigns are reaching our customers wherever they are and in windows when the marketing message has a potential to be most impactful, whether that be online, on TV or in the newspaper. Additionally, based on the success of our digital test, we will also be shifting more of our mix towards digital advertising mediums in 2016. Let me also quickly touch on our thoughts on e-commerce. As I said on our fourth quarter and yearend call last year at this time, e-commerce is part of our overall digital strategy and we had a two-year timeline in place. So you can expect an update on our e-commerce plan over the next 12 months. Number four, let me now touch on our systems, infrastructure and talent priority. We did a lot of heavy lifting in 2015, and I am pleased with our accomplishments on so many major priorities at once. This past year we opened our Pedricktown, New Jersey distribution center which represents a big step forward in securing the total distribution capacity we need to support 750 stores. We also completed the migration and planning to new financial systems and completed our overseas container consolidation program. In 2016, our focus will be on gaining leverage from these 2015 investments to consistently deliver on our goal of 20% top line growth, we have to ensure our foundation is strong and we must continue to re-enforce it as we grow in scale. This means the right systems and infrastructure along with the right teams but also means the right processes. Implementing scale initiatives to gain leverage out of our infrastructure and making our people as efficient as they can be, our key is to delivering repeatable, sustainable results. 2016, there will be a lot of process as we benefit from investments made today and position ourselves in consistent execution as we continue to scale the business. This focus and discipline execution against our key priorities of newspaper growth, merchandizing and marketing as well as talent an infrastructure helped to enable our strong 2015 performance and we believe we will build upon this track record of success in 2016. So in summary, there are many accomplishments the FIVE Below team should be proud of but key among them to me is the consistency of performance this company has delivered. Internally e refer to this as the 1N100 phenomenon which means our new stores consistently deliver a payback f under 1 year we have achieved 10 executive years of positive comp growth and 100% of our stores are profitable. As impressive as this past has been, I want to reinforce how excited I am about the future of this company. We are focused on our 2020 of 2020 plan. Said another way, we are outlining for you our growth vision where we believe we will deliver 20% average annual sales growth with greater than 20% average annual and income growth. I have great confidence in our team and the team that I continue to attract to FIVE Below and I look forward to updating you on our progress throughout the year. With that, I will turn it over to Ken. Ken?

Thanks Joel, and good afternoon everyone. I will begin my remarks by review of our fourth quarter and 2015 results and then discuss our outlook for the first quarter and full year 2016. Our sales in the fourth quarter of 2015 were $326.4 million up 23.7% from $263.8 million reported in the fourth quarter of 2014. We ended the quarter with 437 stores, an increase of 71 net new stores or 19.4% versus the 366 stores at the end of 2014. As Joel said, we continue to be very pleased with the performance of our new stores with class of 2015 on track to deliver $1.9 million in year one sales performance generating a less than one year payback on our new store investment. Comparable sales increased 3.6% for the fourth quarter of 2015 as compared to 3.2% of comp increase in fourth quarter of 2014. This comp increase was driven by an increase in both comp transaction and comp average ticket. Gross profit increased 24.3% to a $132.2 million from $106 million reported in 2014. Gross margin increased by approximately 20 basis points by 40.5% in line with our expectation and driven by leveraging certain fixed components cost of sales including occupancy and buying cost. As a percentage of sales, SG&A for fourth quarter of 2015 increased to 19.9% from 20.2% in the fourth quarter of 2014 as we leveraged expenses on a 3.6% comp. Our operating income increased 27.3% to $67.4 million or 20.6% of sales or $52.9 million or 20.1% last year. Our effective tax rate for the fourth quarter 2015 was 37.7% compared to 37% in the fourth quarter 2014. Increase in the effective tax rate in the fourth quarter 2015 was due to certain discrete items. Net income increased 26.1% to $42 million or $0.70 per diluted share from $33.3 million or $0.61 per diluted share last year. For the full year fiscal 2015, total net sales increased by 22.3% to $832 million. Comparable store sales increased 3.4% compared to a 3.4% comp store sales increase in fiscal 2014. Operating income of $92.9 million increased 20.7% or 19.4% on an adjusted basis. In line with our expectations, operating margin of 11.2% decreased approximately 20 basis points from last year adjusted operating margin of 11.4%. This performance is inclusive of the total drag of our new distribution center of approximately 30 basis points in 2015. Net income increased 20.1% or 18 with 8% on adjusted basis to $57.7 million. Earnings per share was $1.05 per share for fiscal 2015, an increase of 18% versus adjusted earnings per share of $0.89 in fiscal 2014. We ended the year with approximately $100 million in cash, cash equivalent and short term investment securities, availability of $20 million under our revolving credit facility and no debt. Inventory at the end of the year was $148.4 million as compared to $115.7 million at the end of 2014. Ending inventory on a per store basis was up 7% year-over-year driven primarily by higher in-transit inventory due to higher import penetration versus last year. And earlier receive certain spring products based on the earlier Easter holidays. As a reminder we take ownership of these direct imported goods earlier as we recorded in-transit inventory on our balance sheet as soon as the goods leave the overseas port. Now I will like to turn to our guidance. The full year 2016 sales are expected to be in the range of $995 million to $1.5 billion with the comparable stores sales increase of approximately 3%. This compares to net sales of $832 million for fiscal 2015 representing a growth rate of 20% to 21%. 2016 we plan to open 85 new stores and expect to end the year with the store count of 522 as compared to our 2015 ending store count of 437. We expect to open approximately 60% of our new stores in the first half of 2016 as compared to approximately 70% opened in the first half of 2015. This expected difference in timing of new store openings in 2016 versus 2015 resulted in an expected increase in store operating reap in 2016 approximately 18% and a store count increase of 19.5%. For the full year, we expect operating margins to be up slightly versus 2015 driven by freight favorability year-over-year of several benefit gross margins. Our plans for 2016 assume we realize some benefits from our 2015 investments but also take into consideration our plans for e-commerce as well as initial cost for our 2017 entry into California. We expect a full year of effective tax rate of approximately 37.5% and net income is expected to be in the range of $69.9 million to $72.2 million representing a growth rate of approximately 21% to 25% over 2015. With diluted earnings per share in the range of $1.27 to $1.31. With respect to CapEx, we plan to spend in total approximately $44 million in 2016. Reflecting the opening of 85 new stores, testing and distribution centers and corporate infrastructure including system. For the first quarter ending April 30, 2016 that sales are expected to be between $186 million to $189 million, the plan to open approximately 20 new stores in Q1 this year as compared to 19 stores opened in the first quarter last year and are assuming a Q1 comp sales increase of approximately 4%. Diluted earnings per share for the first quarter of fiscal 2016 are expected to be $0.09 to $0.10. For all other 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 open it up for questions. Joel?

Thanks, Ken. In closing, 2015 was a great year on all fronts for Five Below. Marked by progress against our strategic initiatives which helped enable us to deliver on our financial and operational goal. We could not have achieved this success without the talent and dedication of our outstanding team. The people who I want to thank for their hard work and commitment to our company and all that we stand for. We look forward to another strong year in 2016. We remained focused on our strategic priorities and believe we will build upon our successes across new stores, merchandising, marketing and infrastructure. Most importantly, we have given you a look at our five-year vision 20-20 until 2020. I will now turn the call over to the operator to start the Q&A Session. Operator?

Yes sir, thank you. [Operator Instructions] First question comes from John Heinbockel with Guggenheim Securities.

Hey, how are you? So a few things. What's the plan for initially supplying the California stores and when and where would you think you would put a West Coast DC?

Yes. Thanks, John. Certainly the initial plan, we're still working through but it's safe to say that don't expect us on the initial wave to be opening up our own distribution center. A more likely scenario would be that we would utilize a three PO [ph] out in California which is a common way of doing a startup out in the West Coast, and we'd expect Southern California to be the location of our first wave of stores.

Okay. And then secondly maybe for Ken, so when do you think the benefits from Chinese currency start to flow into product cost? Is that really more '17 and would the assumption be correct if you will invest that in quality of product and not flow that to the bottom line?

Yes. Thanks, John. I think you really answered by the second part of your question. As we see it now, we'll continue to invest any of those benefits that we get from a cost perspective back into product to make sure we continue to deliver the newness and the wow.

And to you, is that more '17 than '16 you think?

Well, we're always doing that. I mean don't forget we get benefits related to scale also which we continue to grow. Yes, we've always done that and we'll continue to do that.

John, we're seeing those benefits now as purchases are being made for this year, but it's really opening an opportunity to other products, and as Ken said improving the quality.

Okay. Thank you.

Thank you.

Thanks, John.

Next question comes from Dan Binder with Jefferies.

Hi, thank you. I have two questions. First is on the case of the quarter and it sounds like probably a decent start to Q1. You know that January had some storm issues. I know we had some weather last year. Just trying to reconcile that, was it worse this year? I mean year-over-year basis. And then your surprisingly strong comp here it sounds like for Q1 in the plan, just curious if you're tracking to that currently?

For sure, Winter Storm Jonas was significantly larger than last year. I'll remind everybody the storms in last year were largely concentrated further north up in the Boston area where this was pretty widespread impacting over half our chain. But we had a very strong, as you know nine-week holiday selling period and continue into January going into that storm and it was a significant storm in that period. Q1, we're excited about the start of the year. As you know this is a big week and leading into Easter but we feel really confident on where we sit for the quarter.

My second question is around the investment spending you have planned for this year on e-commerce in California. Just wondering around numbers if you can give us a sense of what that drag looks like on EPS and obviously a little bit of a teasy here with e-com. Just wondering if anything is changed in how you think about that business and how you want to be in that business from profitability standpoint.

I'll just comment on e-commerce and let Ken take you on the number side of things. Dan, nothing's really changed. We just want to be transparent and tell you we're still on the two-year road map. As I've said a number of times, e-commerce is part of our overall digital strategy and we also believe e-commerce is the icing on the cake for Five Below. We don't believe we're going any different direction and the stores remain our number priority. We like what we're seeing as we expand further and further beyond East Coast and at the same time we're going to add e-commerce into the mix of offering that we have. But nothing's changed strategically from that perspective, and we'll certainly share more as we continue to get down in the path on it. But our number priority stays with stores and continuing to expand that. Ken, do you want to salute on the numbers?

Yes, Dan. Just on the cost, any cost around e-commerce in California, we're obviously contemplated in the guidance that I've provided but we didn't break those out. We don't the feel the cost for significant, they're really towards the back half of the year. We're talking more in the tens of basis point in terms of a full year.

Great. Thank you.

Thanks, Dan.

Thanks, Dan.

Next question comes from Michael Lasser with UBS.

Thanks a lot for taking my question. It's on the full year comp, you got into a four in the first quarter, in the second quarter you're in anniversary, the lack of a flyer leading up to the fourth of July, and then in the fourth quarter your anniversary, that Joel has discussed in this year. So why was the business not perform better in the pre-comp for the full year?

Dan, I think you looked at two-year stocks especially over the last three of four quarters, you'll see us consistently in that six-ish, 6.2 year stock and I think what we've set up for you falls right in line with that. I think as we get closer to the fourth quarter, start to identify the trends for the year, what emerges, we're conversely up against Shopkins and some of the other things I outlined for you. But I think 3% is consistent with where we set this business has been tracking and we'll continue to update that as we get further information on the trends of the year. We feel very confident in what we've given you as an outline for sure.

Okay. And then on the new school productivity in fourth quarter as we calculated it, it looks like it would fall 100%. So is that a pure number or are there any timing benefits that you saw?

That's a good calculation. That was a relatively clean number that you're calling out there for Q4.

And then, my last question is on California. What's the rush? Are you seeing something on the competitive landscape, change that's prompting you to forego your contiguous state strategy and jump out to California?

Yes, on California, this is a disciplined plan on our side that there was some opportunistic opportunity with the closing of Anna's Linens out there and you know present an opportunity for us to make sense. Our expertise is in the growth of stores and going out west was always part of our plan, this opportunity presented the right time for us to begin to make the jump in 2017 and its consistent with what we did a few years ago when we made the leap to Texas and backwards from there and we are using the same logic as we are moving west. But we don't think of it as a rush, we think of it as opportunistic and took advantage of it.

Thank you so much and good luck with the year.

Thanks Michael.

Thanks Michael.

Next question comes from Paul Trussell with Deutsche Bank.

Hey good afternoon, you mentioned, how you know obviously as we look back over the year you had strong results from the multiple TV tests, maybe if you could speak quantitatively as well as qualitative summarizing for us what exactly were the benefits gained, what should we be looking up to as you ramp up the overall TV roll out in Q4 of 2016? And then lastly, you mentioned the shift towards the digital marketing, the advertising, how should we think about overall advertising spend? Thanks.

Yes, I think in terms of overall advertising spend, you should think of it on a percent basis that it's going to be relatively consistent with the year's passed, plus or minus end basis points or so, but no real step change in the percent that we are dedicated to marketing. Obviously the dollars go up as we continue to grow our top line sales. But we are most excited with the performance of TV and we think what it does is allows in our mature market to grow top of line. We saw that in the TV tests in fourth quarter. Roughly we had TV in 25% of the chain in the fourth quarter as we continue to densify and find opportunities where we have enough stores in our market, we will continue to grow that percentage of stores that we will add TV to. But TV has been a nice addition to circulars, to our social mobile strategy, our e-commerce strategy. I think when Paul put them all together it collectively have a pretty strong arsenal of different means with which we can communicate with our customers online, in circulars on TV. We have been consistent now with the three TV tests we have done, we are seeing lift in awareness, we are seeing change in top of mind and it's resulting in comp store sales growth, so we are excited with the progress we have made.

And just one quick follow up, as we think about you entering new states, which obviously you have continued to do year-after-year, can you just clarify how you go to market in those new states from a circular versus broader advertising strategy using social media or will TV ads be in all those new markets? Thanks.

Yes, we typically won't use TV in the new markets. On one hand TV can be an expensive medium when you have very few stores in a market but it's a very effective medium once you kind of cross that threshold in fact, I think one of most exciting performances in TV test was in one of mature markets, call it Philadelphia, where we have a strong awareness and we have a lot of stores and we took advantage of that with the TV being an effective way to really change top of mind. But largely going into new stores, it will be more circular based, and our social mobile strategy rather than TV.

Thanks, good luck.

Thank you, Paul.

Next question comes from Vincent Sinisi with Morgan Stanley.

Hey good afternoon guys, thanks very much for taking my question. Just building on that last comment, can you give us a little bit better sense of first kind of, what do you think is more or less the right kind of mature threshold where TV is worth doing and is effective and then also from an awareness perspective, any updated numbers around that and when you may be doing more of a comprehensive awareness check-in?

On the first part of your question, it's really hard to answer that question as it truly varies by markets, there are markets out there that are very expensive and there are markets that are relatively cheap. I will tell you also that this being an election year that really plays into the mix and the cost of TV advertising and in terms of awareness, what was the question on awareness?

Yes, so if you guys have any stats around any awareness statistics and then if you are planning on doing a full blown kind of customer study to see in your different markets in how that has improved versus with a year ago?

Yes, we will be in market in the month of April look at awareness and what I would tell you in 2015, the beginning of the year leading into the holiday, we moved our overall awareness about 9 points. And previously in 18 months before that we moved it about 6 points so in half the time 9 months versus 18 we moved at 9 points instead of 6 points so about 50% faster in half the time. So you can really see our overall digital marketing strategy has given us a lot more weapons to use, talk to our customers, communicate with them and it is resulting in significant movement in awareness for us. And we will continue to measure that year-over-year as continue to measure it in 2016 and beyond. That's the most recent study we have is at the end of 2015 there.

That's helpful color, thanks Joel.

Yes, you bet.

Next question comes from Scott Ciccarelli from RBC Capital Markets.

Hey guys, Scott Ciccarelli, two questions in terms of the longer term outlook. First, with an average, let's call it 20% sales growth, is there embedded an expectation there with some moderation in unit growth after 2016?

No, there's not. I have said to all of you since I sat in this seat here. FIVE Below is a long term growth story. Last year we gave you kind of an outlook of 18 months out and I think what was intended by this is really to help paint a vision for you, more of a five year horizon and give you some guidance, how we are thinking about both the top line and the bottom line and what's more implied in there is you see the vision outlining some moderate leverage as we continue to go through the next five years.

And we should be thinking close to 20% footage growth and whatever comes to do?

What we really should be thinking about as we get into the specific years, we will give you guidance on the exact number of stores we want to do, but I wouldn't focus on an absolute number on that. What it really says here is about 85% of our growth comes from new stores and that's something that is nearly 100% in our control. And I think this growth vision shows you a model that we really can control 85% of growth there and as you said comps will in line but its good range for you.

Okay, that's good for me. And just kind of follow up, for 2015 you guys obviously carried investment growing number of fronts from senior leadership in the new DC, it sounds like you do special average on these investments in '16 but is there a point in time over the next few years where you can envision another investment boats, like when a new DC goes up, etcetera, where it's going to like noticeable hit to the P&O? Thanks.

Yes. Thanks, Scott. I think what you called out as appropriate is we'll always be investing the business but it will be different when we open the next DC versus where we were at '15 as the size of the company, and it will be easier for us to absorb those investments. Back in '15 it was a significant investment for the size of the company on both people, systems and infrastructure all hitting at the same time, and I think we've laid out a pretty good plan that while there will be times that it will be a little bit bigger than other years. On a CAGR basis we feel very, very strong about the plan we laid out for you.

Okay. All right, thanks a lot guys.

Thanks.

Next question comes from Kelly Halsor with Buckingham Research.

Hi, thank you for taking my question and congrats on a great quarter. So thanks for the visibility into store growth. It's great to see your plans on entering California. Could you just highlight for us how your stores have performed across your current market? Have you seen any disparities in performance in urban versus rural, high income versus low income, how did that differ when you enter a new market versus back filling? If you could just put some context around this for us by highlighting how your stores are performing in your most mature market. Perhaps just any of you give us to help us frame the opportunity in the West Coast and just the longer term opportunity going forward. Thanks.

Thanks, Kelly. Let me take that, and Ken, if you have any other color to add please jump in. I think the two ways we really look at our overall store base without getting into specifics is we look at class of service and we also look at geographic. From both perspectives we see a pretty tight consistency of comps across classes and consistency of performance across geography. And, as we continue to move further and further out from the East Coast and see that continue whether it was in South in Florida last year or going out continuing into Texas. It gives us confidence as we enter more and more new states and markets that we should the same type of performance. I think I called out on the last call, we opened a store in Mississippi and it was consistently in our top 20 stores. So we're seeing high performing store emerge in second tier markets as well as in our home market tier back in Philadelphia. Ken, anything to add?

Yes, just to reiterate what you all mentioned. Again, we continue to see that consistent range and performance, whether we're looking at comps or whether we're looking at the average volumes out there. One call out which would be expected as we go into urban areas and we have higher density, it wouldn't be unusual for us to see higher productivity coming out of stores like that. But on an overall basis, again still within a consistent range of performance.

Great, and then just secondly just in terms of the merchandise with Micro Mega [ph] now at the helm for the last year. So how have you been able to elevate the product, any merchandise you can call our in particular? And then also a lot of trends work in your favor currently, how do you guys play defense if you will as you start to last the strength in your business last year. Do these trends have longer tails than maybe we are anticipating currently?

Great question, Kelly. And as I said in my notes, we are a merchandise-led company, but quite honestly if you look at Michael in his first year with us, I mean while he certainly jumped into merchandise on day one, I think several on the call have met Michael and spent time on the store with him and know how much he loves and believes merchandise. He spend a large of part of his year building out the team, onboarding and training team members, insuring alignment and candidly building out his DMM structure and I'm happy to sit around this call and tell you that entire team's in place. They're aligned with Michael's vision. The benefit you see in it is it gives us more arms and legs and everybody marching towards the same vision. But, Michael's great at chasing trends, that's what Five Below's known for, and we constantly see new trends and one world emerge and then dissipate in a different worlds, and it's those eight worlds that really worked Five Below's advantage and allow us to kind of even flow the concept as the trends emerge.

Great, thanks.

Next question comes from Jeremy Hamblin with Dougherty & Company

Congrats to you and the team on a great first year at the helm. Wanted to ask a question about the early Easter and as I recall from 2013 there was some impact in terms of the promotional calendar in the first half of the year I think as it relates to both Q1 and Q2. But can you discuss that at all, are you going to change any of your circulars that you're going to do, let's say in May, are you going to add any because Easter is so early this year? Any color you can provide on that would be helpful.

For Q1 you can expect pretty the consistent promotional calendar from us. Give or take a week or so. While Easter is early it is only a week earlier than last year so it's not big four week jump that happens. In Q2 I think it's safe to say you'll see us bring back the circular that we eliminated last year around summer time frame close to the Fourth of July holiday but other than that don't expect really any difference from us in Q1 or Q2.

Great. And then, Ken, I wanted to see if I clarify. In terms of the new unit openings, did you say 50% in the first half of the year or 60%?

60% in the first half this year and that's up against about 70% last year in the first half.

Okay. And then last thing, we talked about whether having an impact at the end of Q4, are you getting any benefit do you think in terms of Q1 from kind of warmer than certainly last year weather and fewer storms in February particularly in your core mid-Atlantic and Northeast market.

Certainly the Q1 weather has been very favorable and I think that plays nicely into the Q1 and ties in with an early Easter set, but the weather has been very much good first quarter for us.

Okay, great. Thanks and best of luck this year.

Thanks, Jeremy.

Next question comes from Stephen Grambling with Goldman Sachs.

Hey, good afternoon. Thanks for taking the question.

Thanks, Stephen.

Just a follow-up on some of the question on California, I realize it's a little bit early for this. But Ken had mentioned some higher cost there and I think you had mentioned taking advantage of some of the locations. I guess as we think about you moving in there, is there any differences to think through as it relates to either leasing versus owning those locations and how the cost to operate these will compare from the rest of the chain?

Yes. No different strategy on lease versus own. We're 100% lease and we would foresee that continuing in that trend going forward as our strategy is largely strip or power centers but no change on that piece of it. In terms of operating, we're not new to operating in higher rent areas, denser areas, like the Northeast largely is, and I think California will perform very similar to that as we go out West there. So this isn't kind of a new model at all.

That's helpful. And then from the 3PL standpoint, is there anything that you can do or is it there anything that you're thinking about doing to mitigate potential changes to the supply chain or potential issues with supplying some of these stores. I guess I would've have always thought that being fast to market because of the ability to get in and out of hot products would be pretty important factor in your model.

Yes, we have a lot of options that we are honestly in the early stages of vetting out in terms of what's going to be the best way to supply these stores but I would remind everybody that a large percentage of our goods comes from Asia and most of those goods comes through West Coast ports so, we don't see it being any dis-advantage having a location based out there in the West Coast at some point in time. It will certainly not slow up our ability to get into stores. In fact, it might be the opposite and be quicker overtime but that's as we get our infrastructure built out, out there.

Great, that's all so helpful. I will jump back in the queue.

Thanks Steven. Have a good day.

And ladies and gentlemen, that is all the time we have for questions today. I would like to turn the conference back over to the management for any closing remarks.

Thank you, operator. Thanks everyone for joining us today, we look forward to speaking with you again on our first quarter call, have a great evening and appreciate the support. Good night.

That does conclude today's conference. We do thank you for your participation. And you may now disconnect, have a great rest of your day.