Joel Anderson: Thanks Matt. Appreciate it.
Operator: The next question is from John Heinbockel with Guggenheim Securities. Please go ahead.
John Heinbockel: So Joel, what do you think when you pull out Five Beyond right? You sort of referenced the flat comp. What do you think the stores can combat below the $5 price point? I know Michael has always challenged the merchants right to find good $1 items and $2 items. Where is that opportunity? Is that a low single-digit comp? And is it really new product innovation?
Joel Anderson: Yes. Are you talking about in the convergence first, John?
John Heinbockel: No, I’m just saying, overall, right? Stores beyond the $5 price point, right, should probably comp low single-digits or no?
Joel Anderson: Yes. No, absolutely. And we continue to see that. And I called out toys, that was largely a Five Below business in Q3. Our candy business has been really strong, that’s almost 100% Five Below business. And I think the thing we’ve been most pleased with on the conversion stores, we’re not getting all that comp from Five Beyond, we’re getting it from the box and we’re getting it from the box in the form of more transactions. And so look, I’ll take footsteps all day long. And I think we have the opportunity for our penetration in Five Beyond to continue to grow. But it’s still kind of a mid-single-digit number for our Five Beyond stores. so there’s a lot of upside to that. And in the meantime, the Five Below businesses are really driving the business.
And Michael and the merchants, I think this Q4, as any of you get out in the stores, the value message is probably as strong as we’ve ever been in there. That seasonal wall all Five Below, which is a change for us. We took the Five Beyond off the seasonal wall this year. We’ve got a whole $1 statement in there for holiday. So, we’ve really screened value and that’s all driving it at Five Below. Thanks John.
Operator: The next question is from Simeon Gutman with Morgan Stanley. Please go ahead.
Simeon Gutman: Hi, good afternoon everyone. Joel, just a quick follow-up to John’s question. Are the units per trip in the Five beyond – in those stores that are doing mid-single, are those trending up towards all traffic? And then the real question – another stab at 2024, and I’m going to paraphrase the way you answered the question earlier, you mentioned shrink. If you do comp algo is two to three or maybe a little bit better, what are the puts and takes? And you laid out shrink to something that could be a good or a bad guide to the P&L. Are there any other ones, investments, distribution center, anything on SG&A that we should think about?
Joel Anderson: Yes. Look, we – Simeon, real quick on the units per trip, that is still negative. We are just seeing more transactions, our proxy for traffic and we would expect that to continue the better part into next year. And that’s just a sign that the customer is being very discerning on what they’re buying. But we expect with the increased trips, that’s going to more than make up for it because our total basket is still very healthy compared to where it was pre-COVID. And then the puts and takes for next year, Simeon, I’m going to punt on that one a little bit in that we’re not ready here that we are all focused on Q4 and everything and not ready to give guidance on 2024. But in general, I don’t see a lot of headwinds next year unless something changes macro-wise.
We think we’ve pretty much got shrink in the mix for it. And with the continuation of COVID – I mean if conversion is not COVID, we should – that should all help well in terms of providing more leverage. I expect 2024 to be a more normal year. We’ll welcome that.
Operator: The next question is from Paul Lejuez with Citi. Please go ahead.
Paul Lejuez: Hi, thanks, guys. Curious what you think are the biggest areas of opportunity for this holiday, something maybe that didn’t go according to plan, maybe it wasn’t executed perfectly last year, just where you have opportunity to improve this year? And then just second, as you look out to the first half, I’m curious what you’re seeing in terms of product costs, input costs, is it a tailwind? Is it a headwind as you look into the first half, just as we think about the gross margin line for next year? Thanks.
Joel Anderson: Yes. I mean you asked what didn’t go well. I’d like to reflect on what did go well. And I’ll tell you, our inventory in-stocks are significantly better than what they’ve been in the last two years. So I think we’re really set up nicely from an inventory perspective. In terms of inputs for next year, if we do see significant inputs, Paul, I hope we get back to reinvesting that gross margin benefits back into product. That is something we pause for the last couple of years due to all the headwinds of supply chain challenges and inflation and that type of thing. But I think what we’re seeing is the inputs being tailwinds, not headwinds, both in freight, both in raw materials, labor overseas, but don’t expect us to take a material increase in gross margin as we will start to reinvest some of that again, which hasn’t happened in a couple of years. Thanks, Paul.
Operator: The next question is from Jeremy Hamblin with Craig-Hallum Capital Group. Please go ahead.
Jeremy Hamblin: Thanks, and I’ll add my congratulations. I wanted to ask about the Five Beyond section and with the success that you’re seeing in that, you’ve used it really as an opportunity to expand the WOW factor in your stores. I think largely, you’ve stated $25 and below price point, but you guys have a history of kind of testing and learning and wanted to just understand, is there a price point where you feel like it just doesn’t make sense given the history of the store and the value offering. Is this something where we could start seeing $50 product that’s in that Five Beyond section?
Joel Anderson: Yes. Thanks, Jeremy, for the shout out. But I would tell you, we are not even contemplating anything above 2025 at this point in time. And in fact, if anything, should I was with Michael, just a couple of hours ago, and he’s already got so many new ideas for next year based on what he’s seeing success in this year. And I think I’ve said on a couple of calls it took us three to five years to perfect Five Below, this is all pretty public. It’s taking Mike on the merchants a few years to perfect Five Beyond. And we’re learning classifications that excel. We’re learning times a year, those classifications will work. And so we haven’t earned the right or have the need to go above $25. There are so many great items they’ve got in that $6 to $25 range, and that’s where the focus is.
