Good day and welcome to the Five Below First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Christiane Pelz, VP of Investor Relations. Please go ahead.

Thanks, Sarah and good afternoon, everyone. Thanks for joining us today for Five Below's first quarter 2023 financial results conference call. On today's call are Joel Anderson, President and Chief Executive Officer; and Ken Bull, Chief Operating Officer; Chief Financial Officer 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 our 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. If you do not have a copy of today's press release, you may obtain 1 by visiting the Investor Relations page of our website at fivebelow.com. I will now turn the call over to Joel.

Thank you, Christiane and thanks, everyone, for joining us for our first quarter 2023 earnings call. We were pleased to achieve first quarter results in line with our guidance, with sales growth of approximately 14% to $726 million and a transaction-driven 2.7% comp sales increase. It continues to be a challenging time for consumers with persistent inflation, lower tax refunds and fewer government-sponsored benefits compared to the stimulus fueled periods of the pandemic. However, being an extreme value trend-right retailer, we continue to attract and retain more customers and grow our comparable transactions in both converted and non-converted stores. Our transaction increase of 3.9% was the highest since 2017, excluding the stimulus fuel period during the pandemic and is a strong indicator that Five Below is a destination customers rely on even in tougher economic times. We are a resilient retailer with a flexible model and we continue to play offense, opening new stores and quickly reacting to customer needs to bring them the WOW products that they want at amazing values, while also executing against our strategic pillars to achieve our triple double growth. On product and trends, we saw continued popularity of a broad variety of trends across our worlds in Squish, Hello Kitty, Anime, Collectibles and our version of consumables, including candy, snacks and beverages in our Candy World and also beauty items and accessories in our style world. The new Super Mario movie released in April was a hit and we sold through tees, posters and other items and quickly procured more. It is nice to see licenses emerging again. For Easter, we had great baskets and candy at extreme value that resonated with our customers. The broad-based results of our worlds demonstrate the relevancy of our products. All through the quarter, we made progress across our 5 key strategic pillars that underpin our long-term triple double vision. As a reminder, we are looking at each of these 5 pillars through the lens of customer relevancy and are unleashing the power of data and analytics to drive results. The first pillar is store expansion. We are expanding our reach to put Five Below anywhere, as we said at our Investor Day. We now expect to reach a milestone of over 200 new stores this year, while building our pipeline for next year and beyond. In the first quarter, we opened 27 new stores across 19 states. Two of these stores were in the top 25 spring grand openings of all time. With our strong balance sheet, seasoned and nimble teams and focused execution, we acquired several leases from other retailers in bankruptcy, positioning us to exceed our original 200-store openings goal for this year. These negotiations took time and effort from our real estate, construction and design, legal and finance teams on top of their already busy jobs and we are very thankful for their commitment in achieving a great result. Moving to our second pillar, store potential. We are focused on growing our average unit volume through the addition of Five Beyond in the back of the store as well as new products and services such as ear piercing and fun snarky helium balloons. We converted approximately 250 stores into the new prototype in the first quarter alone and are on track to convert over 400 stores to the new Five Beyond prototype this year to achieve our goal of Five Beyond everywhere. These conversions continue to drive traffic and higher baskets and we see a large opportunity to grow Five Beyond from the current single-digit penetration of sales today. Our third pillar is product and brand strategy. We've discussed how Five Below is a merchandise-driven organization and how our merchants are relentless about scouring the globe to pursue trends while newness and value. In the first quarter, we were very pleased to officially incorporate and open our first global sourcing office in India. We are very excited to have a presence on the ground to work directly with our factories overseas and together develop and bring to market even more amazing products at disruptive and distorted value for our customers. This was a huge effort by so many people who supported our product development team in establishing this office. Thank you to those who went above and beyond to achieve this milestone. On brand strategy, our digital marketing investments continue to grow and reach more customers to build our brand awareness, drive customer traffic and position Five Below as a go-to destination for fun. We conducted a successful campaign in Q1 surrounding Easter, while continuing to push evergreen offerings of the brand. In doing this, we have successfully used data and analytics to understand audiences to segment and optimize our digital marketing investments. Complementing our paid digital marketing efforts, our social presence and customer fans are growing in terms of followers engagement across social media platforms. In addition to influencers creating content and posting about us, celebrities like Walker Hayes and Bethany Frankel shared the videos about their visits to Five Below on TikTok. Their post had high viewership and engagement. The fourth pillar is inventory optimization. The focus of this pillar is to further enable the scale required to achieve our Triple Double strategy. while continuing to leverage inventory as an asset to drive sales and maximize profits. Using technology and data analytics, we are focused on improving inventory forecasting, ordering, replenishment and flow with a goal of increasing turns and improving end-to-end visibility. We've already implemented a new vendor management platform that increases transparency and enhances real-time communications and we are beginning to work on both the new planning system and a replenishment forecasting tool. The fifth pillar is crew innovation which focuses on the critical pipeline and talent that we need to achieve our triple double. We will hire and train hundreds of thousands of crew members in the next several years in order to serve our customers, lead our teams, ship our product and support our strong growth. As you can see, we have been busy this first quarter. In summary, we are pleased with our financial results and operational accomplishments in the first quarter amid a challenging macro backdrop. With May actualized, we have a good perspective on Q2 in which we expect to see a continuation of transaction increases. As we look to the remainder of the year, we believe many of the headwinds of the pandemic era that impacted us will begin to emerge as tailwinds, we are accelerating our offensive playbook. We are opening 200-plus new stores and completing over 400 conversions. We're executing a focused marketing campaign to bring to life the new Five Beyond store format. And we are capitalizing on an improving supply chain, including favorability in freight costs and continuing to build our strong pipeline of new stores for 2024. With that, I will turn it over to Ken to review our financials and our outlook in more detail. Ken?

Thanks, Joel and good afternoon, everyone. I will begin my remarks with a review of our first quarter results and then provide guidance for the second quarter and the full year. Our sales for the first quarter of 2023 increased 13.5% to $726.2 million from $639.6 million reported in the first quarter of 2022. On a 4-year basis since 2019, total sales for the first quarter this year increased by an approximate 19% compounded annual growth rate. Comparable sales increased by 2.7% with a comp transaction increase of 3.9%, partially offset by a comp ticket decline of 1.2%. We opened 27 new stores across 19 states in the first quarter compared to 35 new stores opened in the first quarter last year and continue to be very pleased with the productivity of our new locations. We ended the quarter with 1,367 stores, an increase of 142 stores or approximately 12% versus 1,225 stores at the end of the first quarter of 2022. Gross profit for the first quarter of 2023 increased 13.6% to $234.8 million versus $206.8 million in the first quarter of 2022. As expected, gross margin of 32.3% was flat versus the first quarter of 2022. As a percentage of sales, SG&A for the first quarter of 2023 increased approximately 80 basis points to 26.5% versus last year's first quarter, driven primarily by a planned increase in marketing expense as well as higher costs and certain store-related expenses. As a result, operating profit finished at $42.4 million versus $42.3 million in the first quarter of 2022, while operating margin decreased approximately 80 basis points to 5.8% as expected. Net interest income was $3.65 million as compared to a net other expense of $237,000 in the first quarter of 2022 as our investment income benefited from rising interest rates. Our effective tax rate for the first quarter of 2023 was 18.6% compared to 22.3% in the first quarter of 2022. This decrease was due primarily to a higher benefit from share-based accounting this year versus last year. Net income for the first quarter of 2023 was $37.5 million versus net income of $32.7 million last year. Earnings per diluted share for the first quarter was $0.67 compared to last year's earnings per diluted share of $0.59. Diluted EPS included a share-based accounting benefit of approximately $0.06 this year compared to an approximate $0.03 benefit in the first quarter of 2022. We ended the first quarter with $424 million in cash, cash equivalents and investments and no debt, including nothing outstanding on our $225 million line of credit. Inventory at the end of the first quarter was $534 million as compared to $504 million at the end of the first quarter last year. Average inventory on a per-store basis decreased approximately 5% versus the first quarter last year as we strategically ordered inventory earlier last year to ensure healthy in-stock positions. We are pleased with the current level and quality of our inventory going into the summer season and expect to be well positioned for the second quarter. Now, I'd like to turn to our guidance. For the second quarter of 2023, net sales are expected to be in the range of $755 million to $765 million, an increase of 12.9% to 14.4%. At the midpoint of this guidance, total sales are expected to show an approximate 16% compounded annual growth rate for the 4-year period since 2019. We plan to open approximately 40 new stores in the second quarter this year as compared to 27 stores opened in the second quarter last year and are assuming a second quarter comp sales increase in the range of 2% to 3%. As a reminder, the slower cadence of opening 1/3 of our annual new stores in the first half of this year, was due primarily to permitting and landlord related delays. We expect operating margin of 7.5% to 7.9% in the second quarter of 2023 or deleverage of approximately 70 basis points at the midpoint as a shift in marketing spend and more normalized incentive compensation costs this year are only partially offset by lower freight expenses. Net interest income is expected to be approximately $4 million for the second quarter and taxes are expected to be approximately 26% which does not include any potential impact from share-based accounting. Diluted earnings per share for the second quarter of fiscal 2023 are expected to be $0.80 to $0.85 versus $0.74 in diluted earnings per share in the second quarter of 2022. Now on to the full year; we are tightening the range of our EPS guidance with the midpoint consistent with our previous guidance and we still expect that at this midpoint, we would generate slight operating margin expansion. Our total sales for the second half of the year are still expected to grow in the high teens on a 4-year CAGR basis, similar to the first half with a comparable sales increase in the second half of the year currently assumed in a low single-digit range. Fiscal 2023 includes a 53rd week which is expected to add approximately $40 million in sales and approximately $0.08 in EPS. My remarks on full year guidance will refer to the 53-week year unless otherwise noted. For 2023, sales are expected to be in the range of $3.5 billion to $3.57 billion, an increase of 13.8% to 16.1%. The comparable sales increase is expected to be in the range of 1% to 3%. We now plan to open over 200 new stores and to end the year with over 1,540 stores or unit growth of approximately 15%. For the full year, the slight leverage in operating margin at the midpoint of our guidance is driven by lower freight costs, offset in part by lapping lower incentive compensation and certain onetime cost management strategies we put in place last year. With our strong cash balance and healthy free cash flow generation, combined with higher year-over-year interest rates, we are still assuming a significant increase in net interest income this year. We expect a full year effective tax rate for 2023 of approximately 25% which currently assumes a higher effective tax rate for the second half of the year of approximately 26% and does not include any potential future impact from share-based accounting. Net income is expected to be in the range of $297 million to $319 million, representing a growth rate of approximately 13.5% to 22.1% over 2022. Diluted earnings per share are expected to be in the range of $5.31 to $5.71, implying year-over-year growth of 13.2% to 21.7%. On a 52-week comparative basis, growth for diluted earnings per share is implied to be 11.5% to 20%. This guidance does not include any potential future impact from share repurchases. With respect to CapEx, we now plan to spend in total approximately $335 million in gross CapEx, excluding the impact of tenant allowances. This reflects the opening of over 200 new stores, including those recently acquired from bankrupt retailers, converting over 400 store locations, commencing expansions to our distribution centers in Georgia and Arizona and investments in systems and infrastructure. In summary, we delivered first quarter results within the range of our outlook and against the difficult macro backdrop. As Joel mentioned, we also made important operational progress against key strategic objectives. This once again is a testament to the executional capabilities and focus of our teams and I am extremely grateful for their efforts. 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 the operator for the question-and-answer session. Operator?

[Operator Instructions] Our first question comes from Simeon Gutman with Morgan Stanley.

My one question with no extra parts is every -- literally every company across the retail landscape that we follow, whether they're selling to lower income or higher income, guided strain on the consumer basket pressure, some weakness. So I'm curious, Joel, if you can give us some insight into your quarter, the cadence of it, seeing if we're over a hump in terms of your customer and an insight on how your customer is sort of handling it in terms of basket and visits just as a way to sort of gauge if we can expect the steadiness going forward.

Yes. Simeon and it's a great question. I don't know that I could say that our customers over it but I would say that the indication of such a strong transaction-led quarter for us, probably indicates that like we've seen multiple times, when times are tough for our customer, they have to rebalance their balance sheet, figure out their spending patterns again and Five Below becomes part of their new routines. And so clearly, that showed up in transactions. Look, as far as the quarter goes, we were really pleased with Easter and like many called post Easter was a softening. So I think we're seeing trends get back to more normal pre-pandemic where the customer buys closer to the events. We certainly saw that with Easter. We've seen it with Mother's Day. That trend happened last year with things like Halloween and there's no reason that, that wouldn't continue to happen. We see the end of the month cycle with -- at the end of the month, the sales get softer, then they really pick up in the beginning of the month. So all that, we've got many, many years of following that and we're really kind of getting back to trends that we saw closer to last year. Look, we're trend right, we're extreme value, we believe that the last place customers cut out are their kids. And so all that should bode well in tough times as well as in really strong times. So quarter was on the soft end of it but we've definitely seen an improvement here. And I think that the peak of the headwinds are behind us.

Our next question comes from Scot Ciccarelli with Truist.

Scot Ciccarelli. I guess my question is, we've had declines in average ticket for several quarters now. Just given the growth in Five Beyond, I guess the question is, at what point would you expect average ticket to shift into positive territory given the current environment?

Thanks, Scot. You've seen declines but they've been pretty small. And I think it's important to remind everybody, post-pandemic, we saw extreme increases in ticket. And so while there's been some declines, they still are much higher than they were pre-pandemic and double-digit increases. So it has ticked down. I think that's a sign that customer is being very discerning in what they put in their basket. But at the same time, I think where the positivity for Five Beyond really is proving to play out is on trips. So that shows up in transactions. We're just 1 more reason to come visit Five Below, there's another reason. I don't know, Ken, anything else to add?

No. I think you hit it on the Five Beyond, Scot. Early on, we've talked about this and we're still seeing it. It's really driving an increase in transactions. I think it's somewhat in the newness of the store when the customer comes in and they see that. That may change because we're still early in this but at least out of the gate, we're seeing that increase on the transaction side versus ticket.

Next question comes from Matthew Boss with J.P. Morgan [ph].

Congrats on a nice quarter. So Joel, could you expand on the broad-based performance that you're seeing across world and just the drivers behind the material improvement in transaction count? And then, Ken, with store productivity, the best in 2 years, could you just elaborate on the performance of some of the new builds and speak to the acceleration decisions that you made around new stores and conversion?

Yes. Look, Matt, the performance was really 7 out of our 8 worlds where extremely strong, all positive. Really the only world that's running negative comps is tech and I think that's pretty much across the marketplace. But really led by our version of consumables. I mean, candy, snack, beverages, HPA [ph] those were the leaders of the quarter. But the fact that 7 out of our 8 worlds were positive, it shows you the customer really shopped our entire offering.

Yes. And then, Matt, on the store productivity, you're right. We've seen in some recent quarters back to that kind of 90, 90-plus store productivity performance which we're happy to see. Joel actually called out this quarter a couple of stores, again, hitting [ph] records for spring grand opening performance. And if you look at our guidance, if you do the math around that, we do expect that to continue as we move forward to get back to that 90% productivity as we move through the year.

Our next question comes from David Bellinger with ROTH MKM.

On the leases you recently acquired, it looks like you picked up maybe 18 of those from a home furnishings retailer no longer in operation. And those store sizes look to have a little more square footage than your typical box looks like most of them are in excess of 10,000 square feet. So is there any thought or testing around maybe a slightly larger store format and including not just a wider selection of product but maybe some additional space for Five Beyond?

Yes. Thanks, David. The majority were picked up from Tuesday morning. And whether it's 10,000, 11,000, it's an immaterial difference to us. We've got plenty of stores out there that have a little extra square footage. What I would tell you about the prototype is we continue to innovate with our prototype. I mean the original Five Below prototype was only 4,000 to 5,000 square feet. Then we create the 7,500 square foot which was when I got here and we've slowly grown it now close to 10,000. And the way we've set up Five Beyond, David, is we can continue to grow Five Beyond. All we have to do is keep pushing that back wall back. And so it's only limited by our merchants coming up with rituals and milestones are growing up that they think we can build a classification out of. I think pet [ph] is a great example, one that we've built over the last few years. But as of this point in time, we are really more focused on these next couple of years of massive conversions to the current prototype that we shared with all of you down in Pembroke in Florida. But it's not to say down the road, there's an opportunity to keep growing the prototype.

Our next question comes from Jeremy Hamblin with Craig-Hallum Capital Group.

This is Jack Cole [ph] on for Jeremy. So similar to the first question, we've also heard widely across retail pressure from shrinkage but you guys saw your GMs flat year-over-year as you expected. So just any comments on any impacts you guys saw from shrink in the quarter? And if so, could you quantify it just in terms of bps?

Yes. Look, shrink is definitely something that's impacted retail. We're no exclusion to it. We trued that up last year and it had an impact on our fourth quarter we are accruing at the higher rates this year and doing things on our part to mitigate shrink. We've changed our return policy as an example. I don't know, Ken, anything else on shrink?

No, I think, Jack, we're -- as Joel mentioned, we're focusing on preventative measures around shrink. I mean at this point, we're not experiencing anything materially different than what we saw at the end of last year when we did a lot of our physical inventories. And as Joel mentioned, that higher rate that we came out of last year with has been included in the guidance that we provided for the quarter.

It's all baked into this year's guidance at a higher rate.

Our next question comes from Michael Lasser with UBS.

This is Atul [ph] on for Michael Lasser. We have a question on Five Beyond. Are you still getting a mid-single-digit lift from the Five Beyond remodels? And is there any risk that the lift moderates from here given the macro backdrop?

That lift has been consistent and we're seeing that continue in the stores that we first converted and in the stores that have just recently converted. So we see that lift almost immediately and it has continued throughout. But that's -- we're extreme value and the customer loves what they're seeing in Five Beyond and that mid-single digit continues to be the forecast we expect.

The next question comes from John Heinbockel with Guggenheim Securities.

Joel, 2 quick things. Number one, the acceleration of the Five Beyond conversions, can you accelerate it further meaning do more than $400 million this year and accelerate it next year? And then secondly, your current thoughts on the tech world reset how you feel about that and the ability because you called that out, can that now move us back into positive territory in that category?

Yes, John. Great question. Technically, we could accelerate conversions. However, I would tell you, the people that do our conversions are also the same team that does our new stores. And so it was purposeful this year that we front-end loaded our conversions. As you can tell, our new stores are back-end loaded this year. And so that team is really planning to wrap up conversions here by the end of Q2 to really focus on the back half new stores. I mean, this is a record back half opening for us. It's going to be about 1/3, 2/3 front half and the back half. And so that's probably the primary reason we're not accelerating them. But we've got a -- we feel the 400 are getting done. We feel really strong about them and then we'll pick those right back up starting in the beginning of the year. And as far as TechWorld goes; yes, we've seen some improvement from that. We've got an even bigger reset coming early this fall. I think there's a lot of rumors out and some changes happening with the Apple release. It will be positive for us. And I think you'll really see the improvements as we get into the second half of Q3 and certainly, the all-important fourth quarter.

Our next question comes from Edward Kelly with Wells Fargo.

I wanted to ask you about the comp cadence. The Q2 comparison seemed like it was going to be your easier comparison of the year on a multiyear basis. Based upon how you're guiding, I think it implies a little bit of an acceleration in the back half; so just thoughts around that. And then, as we think about holiday, generally; Joel, in terms of like product standpoint, things that you're excited about from a holiday perspective and I know it's early but sort of like what you're expecting for the season?

Ed, on the comp, I think the acceleration, I think you've got to really look at it more on the 4-year geo stacks. And if you look at the 4-year total sales CAGR, the first half comp is very similar to the second half comp. And I think what we forecasted for Q2 is very in line; take the midpoint of that is dead on in line with where we came out of Q1. And then, the back half of the year, I'm not ready at this point to really talk about trends we're chasing, things that we're really excited about. That's something that we -- at this point in time, you can appreciate we want to keep that a little closer but we're pretty excited about some things we're seeing for the back half.

Our next question comes from Jason Haas with Bank of America.

Can you talk about how May is running to date versus the 2% to 3% comp guide that you gave for 2Q? And then can you just remind us what the compares look like as you move through 2Q. I think May was one of the softer months last year. So, declares [ph] get harder through the quarter?

Sure. Thanks, Jason. Normally, we don't provide intra-quarter activity. But I can tell you that when we prepare our guidance for current quarter, we consider where we are and then we look forward to see if there's anything, any changes in the business or expectations or anomalies anniversaries from last year. So relatively in line with what we're guiding to in terms of that 2% to 3%. You mentioned the kind of changes in the business last year as we moved through the quarter, it was relatively consistent, possibly a slight deceleration last year based on some of the things that were going on around the customer and inflation. But that's kind of what we're thinking now in terms of the guidance for Q2.

But pretty much all 3 quarters -- all 3 months in Q2 last year were relatively in line with each other from a comp perspective.

Yes, from a comp perspective.

Our next question comes from Brian Nagel with Oppenheimer.

Nice quarter. Just -- not to be nitpicking but as you look at the guidance, you did take the, I guess, the top end of the annual comp guidance down by 1 point. So what's behind that? Is it something you're seeing now some new expectation in the back half of the year is something more mechanical?

Yes, Brian, when you look at the full year comp guidance, our previous guidance was a 1% to 4% comp. And then we moved to a 1 to 3 sort of right we brought the high end of that comp down. That really just reflects the expected performance, if you look out in the first half of the year. And as I mentioned in my prepared remarks, the second half comps imply a range of low single digits. And somewhat similar to what we had talked about on our first call earlier in the year, that low end for the second half would assume some type of deterioration in the say the macro consumer environment and then the high end would assume some slight acceleration on some of those tailwinds that Joel mentioned in his prepared remarks around increased conversions that we're doing, more effective marketing and things like that.

Our next question comes from Kate McShane with Goldman Sachs.

A lot of our questions have been answered already. But we wonder to the extent that you can, is there any way to quantify maybe a trade down or just what if he had any more higher-end consumer shopping Five Below in the first quarter?

Yes, Kate. And I thought since all the questions were answered, you were going to ask how I was doing or something. But I'll answer the trade-down question instead. No, honestly, we haven't seen anything that is significant on that one. We continue to see our lower-end customer spending more with us. But we are seeing transaction increases across the board. But it's still -- like our core customer is still really dependent on us. And I think if anything, they're probably spending more of their discretionary dollars with us but nothing significant yet on the trade downside.

Our next question comes from Karen Short with Credit Suisse.

This is Dan Silverstein [ph] on Karen's team. Just 2 really quick ones; first, on the strong transaction growth. Are you able to assess how much of the contribution is from new customers versus existing customers shopping more frequently? I know you guys have done a lot of work on leveraging customer data. So any comments on your consumer behavior would be helpful. And then really quickly, can you just qualitatively speak to what you're planning to in terms of margins for 3Q versus 4Q? Just to get some help with the timing of lapping freight.

Look, on the transaction side and then, Ken, you can talk about margins. It's actually Dan both. We're seeing it both in the form of new customers and existing customers coming in more often. So that's really nice to see both an improvement in new customers as well as our existing customers visiting us more often. Ken, do you want to take it.

And Dan, yes, on the operating margin leverage, I'll just kind of start with in my prepared remarks. On the full year, so just we expect slight operating margin leverage. We're guiding the second quarter to about a 70 basis point deleverage. So the back half of the year will be operating margin leverage that we're going to see Q4 is going to be from what we're looking at now, slightly more operating leverage than Q3. And when you get into the numbers there, the third quarter gross margin leverage is probably going to be double that of the operating margin leverage for that quarter. And when you get into Q4, again, with the freight cost benefit and some of these other things going on, the deleverage around in SG&A, we're probably going to see gross margin leverage in excess of 150 basis points in Q4 and SG&A deleverage probably just a little bit less than 150 basis points.

Our next question comes from Paul Lejuez.

This is Kelly [ph] on for Paul. Just on the first just want to first ask on the licensing business that they hear you're seeing that category improved. Just curious how big that business is for you today versus maybe peak or even pre-COVID levels? And what is kind of coming down the pipeline that's got you excited? And then just to I can circle back -- just as a follow-up on the back half guidance. Just curious if there's any difference in 3Q to 4Q? Or we just sort of plugging in that 2%-ish comp in the fourth quarter as well?

Look, I think the -- Kelly, the comment on license, it's really been nonexistent for 3 years. And some of that's because movies has been pretty much nonexistent since COVID. It's still very small. It was really nice to, I think, Super Mario surprised us but it still wasn't -- it didn't have a material impact on the business. But it does give us hope that some of the movies coming out this year are going to turn into licenses. It's just an example of another trend that's back as they appear, we'll take advantage of them. And Ken, on the back half?

Yes. And on the Kelly, on the back half, if you're looking at the modeling, the -- from a comp perspective, the way we're seeing it now really in both Q3 and Q4, we're assuming a low single-digit positive comp for both of those quarters. And then from an operating margin perspective, again, we would expect to see leverage in both Q3 and Q4. And the way we're looking at it now, Q4 is -- looks like it's achieving slightly more leverage than Q3.

Our next question comes from Steve McManus with BNP Navis.

So on gross margins, we recognize that Five Below version of consumables is unique but is there any mix shift impacts working through the P&L that's worth noting?

I don't think anything material worth noting. We've seen this shift now for over a year and it continues to tick up. But it's -- it's not a material shift a point here, a point there. And like we always do, I mean, we chase trends and so you see one area go up and another area go down. But it's not so significant that it's moving 1,000 basis points or something like that.

Thanks, Steve. Our next question comes from Chuck Grom with Gordon Haskett.

Most of my questions have been answered. So I guess, how you do and Joel will be my first one. And the second would be I guess just bigger picture. You guys have been talking about tokenization for a while. I guess at what point do we take that to a loyalty program? And just maybe some observations on what you've learned so far.

Just trying to lighten the mood a little bit. Thanks, Chuck. No, look, tokenizations firmly implemented now I think we are at the point of starting to explore loyalty. Some of that probably just got put on hold because we for 3 years, it's just been COVID and then supply chain and then inflation and the teams have just been so busy dealing with mix shifts and product changes and all that. But the next logical step, Chuck, is really to -- now that we've got some of the base in place to start looking at putting in a loyalty program, I think you got to look at it as '25, not '24 and we'll certainly keep you all updated as we start to put that in place. But the groundwork has been laid and as we continue to see more normalization of our business and we're back to playing offense as I called out for several reasons. That's one that is on the pipeline.

Our next question comes from Krisztina Katai with Deutsche Bank.

Just a quick follow-up to some of the strength that you're seeing in traffic. Are you doing anything differently, I guess, merchandise either price point wise? I know you picked candy snacks and HVA performed, particularly the best. But how do you view the opportunity to further capitalize on a potentially weaker consumer environment now that you're doing a lot more data analytical work?

Yes. Thanks, Krisztina. Look, the one thing that's been consistent since the beginning and is something we're really probably even more focused now is really delivering value and specifically in the $1 to $3 range. You walk in our stores now, there's a 16-foot wall. It's all a buck. And I think that is really resonating with the customers. And so while we talk a lot about the growth opportunity and Five Beyond on these calls, the core behind Five Below is not only the $5 WOW product but right now, the customer is really resonating with the $1, $2, $3 product. And certainly, candy and snack we have a larger majority in that price point but take a look at the 16-foot wall we got in our stores now that's all priced at $1. And that is value at its extreme and it's really resonating well with the customer. Thanks, Krisztina.

This concludes our question-and-answer session. I would like to turn the conference back over to Joel Anderson for any closing remarks.

Thank you, everybody, for joining us today. Let me just close by reiterating what I said earlier in my closing prepared remarks. We truly are accelerating our offensive playbook I'll reiterate, we are going to open 200-plus new stores this year. We will complete over 400 conversions. We will capitalize on an improved supply chain. We already have a strong pipeline of new stores for 2024. And as you've heard today from both Ken and I, our growth prospects at Five Below are strong. I hope you all have a great summer and make sure you visit our stores and for all your summer fun. Thanks very much and have a great night.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.