Michael Lasser: Hi. In three years prior to the pandemic, follow had a 12% operating margin on average. Now after the 20 basis point reduction to your guidance on the heels of the increased shrink, you’re probably going to have around an 11% operating margin despite having $2 billion of incremental sales. So, what needs to happen in order to get back to the 12%? You mentioned that you’re going to be targeting operating margin expansion next year, but is it simply a function of generating comp growth to leverage the fixed expenses to drive the margin expansion? Or are there other strategies you can put in place that would restore the profitability back to where it was prior to the pandemic? Thanks.
Joel Anderson: Yes. Hey. Look, Michael, certainly, the increased shrink was something we didn’t think was going to continue this year over last year. And we’re working hard now to mitigate that. But let’s not lose sight of that aside and you said 11%. So, you’re taking — you’re assuming we’re going to be closer to our low end of our guide, not the high end of our guide. So, — and I think as we continue to find things to mitigate it, that’s going to improve that. But there’s two big things that are coming. We’re going to start to get the leverage off of these Five Beyond stores that we put a lot of money into spend a lot of time converting. Those are going to lever for us. And then we’re also, we’ve really accelerated our new stores.
And that’s been a setback for — we’re about three years behind where we wanted to be back in 2019 due to the pandemic. And so our new stores are really going to come online here. We’ve got 130 coming on in the next four months, a huge stack coming on the beginning of next year. We haven’t back close to a 50-50, and that all contributes towards fixed. And then Ken and his focus on all the investments we’ve made are really going to help the leverage. We’re not opening any distribution centers in the next two years here. We’ll lever off those DCs. We’re going to lever off the systems we invested in. So, there’s a lot of leverage that’s coming from all those. I think it’s our job to come back to you all towards the end of the year here to quantify that exactly and so you can put those into your models.
But I see nothing but upside as we get past this shrink, put mitigation efforts in for that and then take advantage of new store growth and the Five Beyond strategy working. Thanks Michael.
Operator: Our next question comes from Joe Feldman with Telsey Advisory Group. Please go ahead.
Joe Feldman: Yes. Hey, guys. Thanks for taking my question. Why don’t I go back to inventory for a minute? And how are you guys planning inventory for the second half? And how does the shrink impact your plan, meaning presumably, you’re finding there’s stuff that’s not there. And so now it’s like you have to maybe order more. And I’m wondering how we should expect inventory to look either on a per store or on a total basis at the end of each quarter? Thanks.
Joel Anderson: Yes. Thanks Joe. Yes, if we look out in terms of inventory levels, we speak normally to the average inventory on a per store basis. I think if you roll this forward, end of Q3, end of Q4, similar to what we saw at the end of this quarter, we were down double-digits, about 15%. I expect it to be down probably more single-digits. Again, I think that’s a reflection, first of us improving our inventory management disciplines there. And then your — the second part of your question around the shrink, yes, those are we would obviously be allocating more product out to the stores in response to these higher shrink levels. I mean, obviously, we made estimates of what shrink would be, and we’re coming in higher than that and then we make the adjustments to make sure the stores are in an appropriate inventory position going forward.
Joe Feldman: Got it. Thanks guys. Good luck.
Joel Anderson: Thanks Joe.
Kenneth Bull: Thanks Joe.
Operator: The next question comes from Michael Montani with Evercore. Please go ahead.
Michael Montani: Hey, guys, thanks for taking the question. First, I just wanted to see if there was any call out in terms of geography on the comp and/or if you started August in the comp range? And then I just had a margin follow-up.
Joel Anderson: Yes. Mike, if you could just get on next for a margin follow-up. We’re trying to get through rest of these calls, but no real geography change. We see it for a week here, a week there when there’s like storms that rolled through California a week ago and obviously, Florida right now. But if you look — put the whole quarter together, pretty consistent across all geographies. And really pleased with the start to Q3 here and yes, absolutely within the range. Thanks. Appreciate that talk there Mike.
Operator: Our next question comes from Brad Thomas with KeyBanc Capital Markets. Please go ahead.
Brad Thomas: Hey. Thanks for taking my question and welcome, Kristy. I’ll ask another category and merchandising question to stay off of shrink for now. You mentioned Barbie performing well. I guess the question we’ve gotten is, was it material here? And any sense that may fade here as Barbie-mania dies down? Maybe this back-to-school, kind of partly underway here, not pulling it away across the whole country. any early trends that you’re seeing that may help to drive some acceleration? Thanks.
Joel Anderson: Yes. Look, I think I called out Barbie, less of it impacted our quarter and more as a shout-out to Barbie and Mario Bros, just that we’re starting to see licenses emerge. And — but it’s — I don’t think Barbie is going to — it’s not going to be near as big as Frozen or a couple of the other movie releases, but really pleased that it’s there. It’s a great example of our merchants staying on trend and really chasing something. Back-to-school, it was all about backpacks. We had a great backpack season, and that’s really the sign for there. It is wrapping up here in the Northeast here. I think licenses even in backpacks were pretty relevant. But nothing else to call out there and actually, you’ll be seeing us set Halloween in the stores next week. Thanks Brad.
Brad Thomas: Great. Thanks Joel.
Operator: The next question comes from Jason Haas with Bank of America. Please go ahead.
Jason Haas: Hey good afternoon and thanks for taking my question. I know it’s a small portion of your business, but I was curious if you could talk about what you’ve seen with online sales recently? And I’m also curious if you’ve seen any increased competition from online-only competitors, both to your online business and also the store? And if not, can you just remind us what insulates the Five Below model from online competition? Thanks.
Joel Anderson: Yes. Look, online has been good for us. Just to remind everybody, it is low single-digit of our total business, which is a very different profile from everybody else. And certainly, what insulates it is it’s a small piece of the business, for starters. So, even if it had a material impact, it’s a very small impact on our total business. But having said all that, online is great for us. It helps us get an early read. We already have a good sense of what’s going to sell in Halloween here because it’s been online for about four weeks now. And we do that every — with every seasonal change, we get it up online first and it more helps us prepare and set the stores. But no impact from — that we can tell from pure online retailers. Thanks. Appreciate it Jason.
Jason Haas: Thank you.
Operator: The next question comes from Daniel Silverstein with Credit Suisse. Please go ahead.
Daniel Silverstein: Hey there. Thanks for squeezing me in. Just a quick question on conversions. So, given that transaction growth has driven the comp this year and Five Beyond conversions have help that along. Is the shift in focus to store openings in the back half factored into comp guidance, particularly thinking about 4Q, which potentially embeds the sequential comp acceleration but, no incremental benefit of more conversions? Thank you.
Joel Anderson: Yes, Dan. It doesn’t factor in any incremental conversions at all. And I don’t think it was intentional at all that the back half was towards new stores. This is more a factor of the hangover from COVID and the shutdown of supply chains and getting it back open. So our class of 2023 will be back closer to 50-50 and the class of 2023–
Kenneth Bull: 2024 will be back to 50-50.
Joel Anderson: 2024 will be back to 50-50. So, this is just the last remains of it. By next year, we’re back to a normal cadence of openings, but it doesn’t play much into a comp change.
Daniel Silverstein: Okay. Thanks. And if I could, just really quickly, can you speak to the availability of potential crew members in how many stores are opening in 2H?
