Good day, and welcome to the Five Below Fourth Quarter 2025 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, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thanks for joining us today for Five Below's Fourth Quarter 2025 Financial Results Conference Call. On today's call are Winnie Park, Chief Executive Officer; and Dan Sullivan, 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 today are as of the date of this call, and we do not undertake any obligation to update our forward-looking statements. In this presentation, we will refer to our SG&A expenses. For us, SG&A means selling, general and administrative expenses, including payroll and other compensation, marketing and advertising expense, depreciation and amortization expense and other selling and administrative expense. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP are included in today's press release. 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 Winnie.

Thank you, Christiane. Hello, and thank you all for joining us this afternoon. We're excited to share our outstanding fourth quarter results that capped off a transformational year for Five Below, one that reaffirmed that Five Below is the destination for the kid and the kid in all of us. We are a unique brand and our incredible financial results in 2025 tell only part of the story because what made this year truly exceptional is how we achieved the results. We made a fundamental shift in how we operate, how we engage with our customers and how we strategize and deliver growth of the business and the brand. And our maniacal focus on our target customer has pushed us to be more agile in delivering newness at great value and as importantly, communicating with our customers in the social media channels they live in. In 2025, we invested in curated product stories bought with authority. Better in-stock position supported by a store labor model focused on replenishing product and serving customers during peak periods led to a better experience for our customers and drove sales. For the year, we delivered sales growth of 23% to over $4.7 billion, a comp of 12.8%, operating margin expansion of 70 bps to nearly 10% and adjusted EPS growth of 32%. We grew our store count by 8.5%, opening 150 net new stores with strong results, capped by 8 record-breaking grand openings in the Pacific Northwest in the fourth quarter. This performance was achieved during a challenging macro environment that required tremendous urgency and agility from our incredible crew, who are the real secret to our success in 2025. These results incorporate a better-than-expected end to the year with our strongest holiday performance since becoming a public company. We delivered fourth quarter sales…

Thanks, Winnie. Good afternoon, everyone. I'll begin my remarks with a review of our fourth quarter and fiscal 2025 results and then discuss our outlook for the first quarter and full year of fiscal 2026. My comments will refer to results on an adjusted or non-GAAP basis. As Winnie mentioned, we were very pleased to end the year on a strong note with sales and profit exceeding our expectations. In January, we saw stronger-than-expected traffic growth, which converted well and broad basket growth that was fueled by AUR expansion. For the fourth quarter, net sales increased 24% to $1.7 billion, supported by a strong comparable sales increase of just over 15%, which was driven by growth in comparable ticket of 8% and comparable transactions of 7%. Importantly, operating profit grew ahead of comp sales growth, further evidencing the strength and efficiency of our business model. We are operating in a highly dynamic environment, and the end-to-end execution of our crew was noteworthy. In the fourth quarter, we opened 14 net new stores across 8 states compared to 22 net new stores in the fourth quarter last year. In 2025, we grew our store count by 8.5% and ended the year with 1,921 stores in 46 states, including the 2 new states of Oregon and Washington. Adjusted gross profit increased 24% to $697 million or 40.3% in rate of sale, a decrease of approximately 20 basis points compared to the fourth quarter last year. This was primarily driven by transitory tariff costs of 160 basis points, which were mostly mitigated by fixed cost leverage on the strong comp sales and improved shrink results. For shrink, the results of the physical inventory accounts we conducted in January were actualized and trued up for all stores for a total benefit of 50 basis…

[Operator Instructions] The first question will come from Matthew Boss with JPMorgan.

Congrats on a great quarter and the continued momentum. So Winnie, could you help by breaking down the drivers behind the magnitude of comps that you're seeing near term, mid-teens comps the last 2 quarters? And if you could speak to the acceleration that you've seen in the first quarter or maybe even larger picture, if you could just walk through the structural changes to the organization and maybe some of the new customer acquisition metrics that support this as durable or drivers off of a higher revenue base from here?

Thanks so much, Matt. It has been a tremendous quarter, and we're excited to see that momentum continue. And really, I would say that there is one word that characterizes our success, and that is our crew. And I say that because what we've done is we have basically taken a year of pretty significant change and driven amazing results of that change and that transformation. The change started with a real focus on the customer and getting back to our roots and focusing on the kid and specifically Gen Alpha, Gen Z and millennial parents, who love to reward their kids with the trip to Five Below. The second piece is really focusing in on how our customers basically become aware of us and how they get to us and how we announce newness to them and creating what we're calling a connected customer journey. And we're meeting our customers where they live, which is in social media. So we redirected our marketing to focus on social media. We've also just begun the journey of actually capturing their records so that we can continue a dialogue with them and invite them back, which we think is going to be a major lever for growth in the future, just driven off of repeat visits and again, engagement on new content. The last piece is the team pulled together and executed brilliantly. And I call this the flywheel effect, and it really was about cross-functional collaboration across the organization. We honed in on the 6 curtain-up moments or new floor sets. But instead of just passing the baton between the merchants and marketers and stores, we basically start the season together, really hindsighting together what just happened. And then as we move forward through the season, being connected throughout. And that culminates in a call with our 1,900 stores to really tell them what is, number one, the newness that we're bringing forth. Two, what is the marketing message, what are we going to be activating in stores and beyond and then staying really connected in terms of how we drive the product into the stores and ensuring that they've got, honestly, good in-stock positions. So it is a bit of retail 101, but executed really, really well. And I think that moving forward, this is early innings. I joined a year ago, so we've just started executing against the strategy, and the team has executed very well. But we've got more growth ahead of us that I think is incredibly durable. And one of the things that makes it so relevant is the fact that we've got a unique retail concept. So we're operating as a differentiated specialty store for kids, but with the discipline of an extreme value retailer. So all very good. Thank you so much, Matt.

The next question will come from Edward Kelly with Wells Fargo.

I'd like to add my congratulations. I would like to ask you about just the comp momentum, and there's a lot of excitement about what you've been seeing so far in Q1. And I was hoping that you could maybe talk about what you think is driving that, particularly from a trend standpoint. And then as you take a step back and think about the Q1 comp guidance versus the full year comp guidance, can you just sort of help us bridge the way you're thinking about full year given the robust start out of the gate?

Thanks so much, Ed. I'm going to kick us off and talk to you about like the business that we're seeing now and then also have Dan lean in and talk about how we're going to bridge quarter-to-quarter. So we're really excited. I think what we saw in consecutive quarters last year continues this year. We really do have right now in Q1, broad-based growth. And it's across our entire assortment. We're excited that our worlds are all comping, and we have been very intentional to take more of an assortment approach as opposed to relying on a single item. So what you do is you take that growth across all of our worlds that's being kind of driven by great traffic, great transactions, also AUR. But then you layer on top of that some compelling trends that are happening right now. And in the past, when those trends happened, we weren't communicating directly with the customer vis-a-vis the channels that they live in like social. Today, we can engage directly. We see something pop on social like the squishy trend. And what's really nice is that we can amplify that through, honestly, what we say and do, but also watch it carefully. And we've got a whole community of stores that's also engaging as well as brands. So it's been really nice to see that, and we're enjoying that in this quarter in particular. And I'm going to let Dan step in and just help us bridge a bit.

Yes. Thanks for the question. You're right. We're off to a good start here in the quarter that we're in, and I think you all see the same data that we see. There's great momentum coming out of the holiday, which we're super excited about. And the midpoint of our Q1 guide on comps puts us right smack in line with run rate trend, which we think is appropriate. As we go to sort of the balance of the year and to give you a little bit of the thinking on how we constructed the guide, I think the most important thing that I would highlight is what we're up against as we think about Q2, 3 and 4. We're going to start comping some really, really tough growth quarters. And I think just pure math, when you think about a Q2 last year at plus 12%, all the way up to plus 14% in Q3 and plus 16% in Q4, that's real, right? That's math and that matters. And so that obviously factors in. I think the second thing I would highlight is just the state of the consumer and the macro environment in which we're operating. And we just don't think it gets easier from here, whether it's the prices at the pump or this sticky inflation that seems to be hanging around or a job market that is somewhat sluggish. We think the environment here is going to continue to be challenging. And so we sort of factored that in as we thought about the plans that we have, the execution and the newness and the strategy that Winnie referred to and then ultimately, what we're up against in terms of back half of the year and trend. The last thing I'll say is when you look at Q2, 3 and 4 of our business on a 2-year stack, which is, I think, really important because it takes the noise out of a moment in time. Over those quarters, you're seeing mid-double-digit growth consistently Q2, Q3, Q4. So that tells us we're still in a real strong growth position, and I think we've put the guide together in a pretty constructive way.

The next question will come from Simeon Gutman with Morgan Stanley.

This is Pedro Gil on for Simeon. Great quarter, fantastic momentum. Congratulations. My first question is for Winnie. In your prior roles, have you experienced a period of such strong growth as you're seeing right now? And what are the learnings that you take from those positions, from those roles that you can apply to comp the comp here into 2026? And then I have a follow-up.

Thanks so much for the question. So I actually have seen strong growth in my past life, especially when I was engaged in international and in international luxury. What's nice though about Five Below is that we really think we've got I guess, a toolkit for durable growth as we move forward. And we think the strategy is compelling. I mean you really start with the fact that we have a unique retail concept that's focused on kids. And I think that, that's compelling here in other places. The second piece of this is our execution is really, really strong. And I think you can have a brilliant strategy, but if you can't execute, and with our teams and our crew, the execution is about collaboration and being really one team, one dream, being very close in terms of the trends that we're seeing and reacting quickly. And I would say the last piece of this is we're just really excited to be able to engage directly with the customer. The customer is responding well, I think, in part because we're talking to them. And it's not a one-way dialogue, traditional advertising where you just put it out there. We're engaging with them constantly. And through our new marketing efforts through social media, we can be incredibly agile. If something is popping, we can immediately react. And the other piece of it is we've got a rich source of information because we can see what's trending out there and again, react. So I would say that all of those things give us a lot of confidence. And I do think this growth is special, but it's also durable. Thanks so much for your question.

The next question will come from Michael Lasser with UBS.

It's really on investments that you can make in order to sustain this momentum moving forward, and it comes in 2 parts. First, Dan, you mentioned that you're expecting 100 basis points of gross margin expansion this year. How would you break that down from factors that are unique to this year versus letting more of the goodness flow to the bottom line rather than reinvesting in? And does that create some tension over the long term if Five Below is not reinvesting all of the scale and other benefits it gets from being a bigger organization? And then as part of that, if you could just talk about how we should be modeling the contribution margin if indeed you are able to sustain this comp momentum above and beyond your guidance, would you choose to reinvest some of this outperformance back to be able to sustain this comp beyond 2026?

Michael, thank you very much for the thoughtful question. So look, if you look at 2026 as a whole, we've got actually 130 basis points of gross margin accretion year-over-year and about 100 basis points of operating profit accretion. That's the model that we've built, and that's on the 3% to 5% comp that we put together. The way we get there, to answer your first question on sort of what's driving that margin, taking away sort of the leverage point and the shrink point, I think you've got 3 fundamental drivers. You've got price, which we won't anniversary until late in 2Q. You've got the cycling of the transitory tariff headwinds of a year ago. and you've got a structurally lower tariff rate versus a year ago, mostly related to the reduction in the fentanyl tariff in China. Those are the predominant drivers of the gross margin accretion, and they'll play differently between half 1 and half 2. I think to your second question on the investment stance of this business, look, we feel really good that we are remaining committed to a growth stance for the business. That growth stance shows up, in my opinion, in a few different ways. We are incrementally investing in marketing this year, and you've heard Winnie talk a lot about the vision for how we want to engage, how we want to build awareness for this beautiful brand and talk to our customers in a different way. That's about 20 to 25 basis points of incremental year-over-year investment. We are continuing to invest in labor. We have seen the benefit of what happens when we put the right profile on the shop floor at our busiest times. And so we're committed to getting that model continue to be optimized. And then thirdly, we're going to continue to lean in on capital and support the growth of this business, both in new stores, but also in capacity within our distribution network to make sure that we're ready not only for 2026, but beyond. So I think we've got the right balance here of fueling and funding this growth, but also being thoughtful about what flows to the bottom line. Look, to your second question, what happens if we outperform this? That's a long way away for us. We would love to entertain that. We're certainly thinking about that every day, but we'll have more to say about that should that situation arise.

The next question will come from Scot Ciccarelli with Truist Securities.

Dan, I think you mentioned you're seeing the same data that we're seeing on the outside. But I think what we're seeing on the outside would suggest you're providing a relatively conservative guide, at least at this point for the first quarter. Is that based on just conservatism? Is it because we still have Easter ahead, et cetera? If you just could provide more clarity around kind of the thinking on that.

Absolutely, Scot. Thanks for the question. Look, we're seeing the same data. You're seeing -- we're thrilled with what's happening out there. I think we've got to put context here, though, as well. We're 7, 8 weeks into the quarter. These are relatively low volume weeks. And I think that's important to note. It doesn't take away from the performance. But I think this quarter is going to be delivered based on what's in front of us, not what's behind us. Easter is a big deal. Those are 2 really important selling weeks for us. It's an early Easter this year, which is not ideal, but survivable. And we've got to get that right, and we know we will. I think the second thing I'll go back to Winnie and I both talked about it is, look, the state of the consumer is not as strong as when we exited the year. And I think we have to be thoughtful about that as well. There's a threshold here in terms of wallet and the consumer is under a lot of pressure. And so I don't think we're trying to be conservative. It's not our intent. I think we're trying to be thoughtful halfway through the quarter, knowing we've got a lot left to do, particularly around Easter to land the quarter. So hopefully, that answers your question.

The next question will come from Paul Lejuez with Citi.

Can you talk about your AUR and ticket assumptions for the first quarter versus transactions? And then I'm curious, as we think about 2Q to 4Q, are you looking at those quarters as being consistent on a 1-year basis as you move throughout the year? Or are you looking at them as being consistent on a 2-year basis? Or are you building in a stronger second quarter coming down a little bit, decelerating as we move throughout? Anything you could share on that second quarter to fourth quarter cadence and the AUR ticket and transaction assumptions?

Great. Thanks for the question, Paul. Yes, look, let's start at the macro level. We've got comp growth built into every quarter in the year. So I want to reinforce that point. I think we made it in the opening remarks, but I think that's important to note. Obviously, yes, you're right, the sequential growth will slow as the cycling effect is more pronounced. And '25 got stronger as the year went on. which means the cycling challenge is harder in '26 as the year goes on. In terms of how we thought about sort of ticket and AUR, I would sort of maybe ladder up and just think about it in terms of half 1 and half 2. We've modeled very consistent trends that we saw coming out of the year, particularly in Q1 around ticket growth and AUR-driven ticket growth. It's what we saw in the fourth quarter. It's what we expect to see in Q1. That will obviously moderate as we move into Q2 and we anniversary the price increase. And then over the back half of the year, yes, you're going to see a little bit more balanced, a little bit more moderated growth between both ticket and transaction. We do expect growth in both, but it will be more modest given what we're cycling against.

The next question will come from Robby Ohmes with Bank of America.

I was just curious on the first quarter and the strength you have there, and it might be hard to see behind it. But is there any -- was there any storm impact coming in the first quarter? Does early Easter mean anything for you guys? And maybe to call out historically, how has tax refunds helped or not helped Five Below's business? And are they helping right now?

Yes. So all that certainly went into how we thought about the first quarter. There is certainly tax proceeds in the market. They came a bit earlier than what we've seen previously. We think that's a bit behind what we're seeing in the early results in the quarter. That's been favorable. Look, I think in general, an early Easter is less advantageous than a late Easter. It sets up that post-Easter time line where it's still unfortunately a bit cold and you don't get the full spring/summer sets going. But that's de minimis. That's probably on the rounding. I think at the end of the day, Easter is still a pronounced piece of the quarter for us earlier or later. It's a big piece of how we think about the quarter. And so yes, you've got a bit of tax funding that's worked its way through earlier than maybe we would have expected. You've got Easter out there. I think all of that has factored into how we constructed the first quarter comp guide.

The next question will come from Chuck Grom with Gordon Haskett.

Can you guys unpack the traffic between new and existing customers? And then separately, on store growth, what it would take to accelerate unit expansion from here in '26 -- sorry, in '27 and '28? I guess what are you guys looking for given how strong NSP has been over the past year?

So we've seen growth in both new and existing at equivalent levels and actually at really, really great levels that we haven't seen in the past. As I mentioned before, I think that the marketing strategies that we've deployed are -- they're very effective. They're working. And as we gather customer records, I think that we'll be able to see further growth, especially with that existing customer base and hopefully, growth in that customer lifetime value, especially as kids enter and they grow up, see us at college and maybe one day become parents and come back to us. So really, really good potential out there. In terms of store growth, I think overall, we've taken a position of being incredibly disciplined. I think that's the difference in the past year. And that discipline means evaluating the best locations and more importantly, opening with maximum impact. So ensuring that we've got the right level of inventory, ensuring that we've got a crew who are well trained and really, I think, bringing back grand opening marketing and shouting to the community that we're there has worked. And so we really want to focus on the number of stores. I think there's a lot of white space out there for us, but it's more important that we get the right ones and the right level of execution against them. Thanks so much, Chuck.

The next question will come from Zhihan Ma with Bernstein.

Winnie, I wanted to follow up on your comment about pricing and various price points above $5 to $7, $10, $15. Now it's not the first time that Five Below is going beyond the $5 price point. What do you think has changed in terms of you seeing the customers giving you the permission to realize more pricing power this time around beyond the $5 point?

Thanks so much, Zhihan. So a couple of things have changed fundamentally. One thing remains the same. We remain very committed to delivering as much value and as much assortment at $5 and below. It represents about 80% of our business in terms of units sold. We're very excited about that number. We're proud of it. We want to be a resource for customers where the price of entry is $1. And so building in great value is always going to be central to what we do. We took a very different approach to pricing above $5. A couple of things. One, we evaluated every single product and really looked at if you're going to bring in a price point above $5, does it deserve to be at $7, $10 or $15. And so an example over holiday was really compelling gift sets and bundled products that were at $10. That makes a big difference. And again, focus on relative value and also making sure that we are honestly priced better than competition. So that all goes in the mix. The other aspect of how we think we've gotten permission from the customer is we basically merchandise the store the way they shop. In the past, all of these goods would be in the back of store in the Five Beyond area. And we work very hard to actually try and expand that and actually put these really compelling wow value items in the zones where the customer is shopping. So I'll give you the example of a great speaker and the speaker table. You don't need that to be in the back of store. If you put it in the tech section with the other speakers, the customer sees the value in it. And so I think really leaning into how the customer shops, ensuring that they're getting great relative value and remaining very, very focused on what the competition is pricing at versus what we price at has been tremendous. The last thing I'll say about Five Below that's really great is we're about newness. And so as we introduce new products at higher price points, they're not comped to old products that were in the price -- in the line. So we can really step out and do something unique. And the customer has responded well and is giving us permission to do more at different price points. Thanks for your question.

The next question will come from Brian Nagel with Oppenheimer.

Great quarter. Congratulations. So the question I want to ask, focusing on sales, and look, we have laid out the guidance. I mean you talked about continued strength through the year, but really in the first quarter. But as we think about 2026, how should we -- are there factors that are beyond what you're already doing, new factors that should amount to key sales drivers for the year that we maybe did not see in 2025?

So Brian, thanks so much for your question. Honestly, I would say that in 2025, we planted a lot of seeds for growth, and we see a lot of green shoots. And so our intention during the course of the year is actually to amplify what we've already planted and started to read. And I will give you the example of our ability to actually react to trends as one of those ideas. So in the past, there could be trends that were really hot, especially for kids. And we were passive. We were able to provide the product, but we weren't able to engage with the customer and amplify those trends. Today, we've got a different toolkit. So we really can actually build community and engage with the customer about what's hot and also react much faster than in the past at addressing that trend. We also are going to take permission to look at those trends and introduce new trends along with that. So I think that, that is something we're beginning to exercise and we'll exercise throughout the year. We also -- honestly, last year, we had the tariffs hit us. And so we weren't able to actually buy or attain all the products that we wanted to fill out some of our worlds. And this year, that is not an object. We've worked very hard to diversify our store space to negotiate. We do have the benefit of being able to price at great value above $5. All of this is going to lead to greater range and greater growth in certain categories that we weren't able to really service last year. I hope that answers your question.

The next question will come from Jeremy Hamblin with Craig-Hallum Capital Group.

And I'll add my congratulations on the success. First, just a clarifying question on the embedded tariffs in guidance. So I think what you said was that you're modeling actually like, for example, for China, what the ending 2025 tariff rate would be like 20% for China and not the 10% for the current global tariff rates. So just a clarification on that. And then my other question is, if you think about the long-term model here, and you guys for a very long time, for a decade did roughly an 11% to 12% EBIT margin every year. And you've been building back towards that through a combination of improved operations and clearly higher AUVs. Where do you think you would need to comp at? Or what do you think the average unit volumes would need to get to get back to that 11% to 12% EBIT margin?

Thanks, Jeremy. Let me take the tariff question first, and then we'll talk about the business model. And maybe I'll just take a step back and confirm for the group, how have we thought about tariffs in total in this outlook. First of all, and I think you were in the right place to start. We have essentially assumed that the tariff rates that were in place as we started the fiscal year on February 1, remain in place. So in rough terms, that means that the IEEPA tariffs that were eventually struck down later in February, we have assumed those are still in place for the year. We think that's the best proxy in a very, very uncertain world given the comments that we've seen from the administration to get back to that level. So that's what's embedded in our outlook. Equally, we have not contemplated the impact in our guidance of this 150-day 10% global tariff rate, the infamous Section 122 tariffs. We have not factored that into our guidance. We don't believe that, that impact is material to the guidance. So that's how we thought about tariffs. On the business model question that you're asking, look, I think we're not running this business to achieve a certain number, 12%, 13% op profit. What we're doing is designing a model that provides durable growth. And I think this year is a great example of that. The ability to comp on top of 2025 speaks to the durable growth. We're going to be super smart and drive margin accretion and that margin accretion is going to balance reinvestment and bottom line operating profit growth. How that model plays out and over time, what does that balance look like between reinvest versus grow the bottom line? I think that's what we will ultimately decide as we engage over the years. But I think it all starts with a trusted, durable growth profile that based on the strategy and to Winnie's comments, the way we're executing the strategy, we feel really, really good about our ability to do that. And then I think over time, we will get the mechanism right and the balance right of reinvest to continue to fuel that growth versus grow the EBIT margin line. And that's what we will do over time.

The next question will come from Krisztina Katai with Deutsche Bank.

Congrats on a great quarter. So Winnie, I wanted to ask on the 6 pertinent moments that delivered newness and the great in-store experience that you talked about. Just how many curtain-up moments are planned for 2026? If you could talk about the expected percentage of newness within the assortment that you aim to achieve through these? And then just lastly, some of the key categories that you anticipate driving the most excitement in the coming year.

Krisztina, so we will also feature 6 curtain-up moments this year like we did in 2025. And they really are the seasonal moments that our customers focused on, be it New Year's, followed by Valentine's through to spring, Easter, et cetera. So it really is their moments. And what's really nice is that between those moments, we can always layer in newness. And we actually have newness in each of our worlds that occurs between those moments, and we have the ability to now talk to the customer about when those moments deliver. The key to our business success this past year has been getting the right product at the right price. And I think that, again, it begins and ends with the focus on the customer. And when we talk about key categories that we think are important, we set off last year with a mission to really be the destination for the kid and the kid and all of us. And with that, really doubling down on games, toys and crafting those thought processes that we really stand out, both in terms of our position but also in terms of our unique concept. We've got 9,000 square feet on average. It's a fun place to shop, and it's a fun place to host kids. And then beyond that, really looking at teens and tweens. And so we continue to fuel our businesses like beauty as well as our lounge business and accessories. And so -- and then this year, I think we are really excited about doing more in terms of room and dorm. And so lots of great newness throughout our categories and our worlds. But again, with that focus on the kids and what they care about.

The next question will come from Anthony Chukumba with Loop Capital.

I guess I have a quick one for Winnie. This has just been such an amazing first year. Are you sure your first name is Winnie and not Winning?

Anthony, that's very kind. It's Winnie, like the Pooh. Which is also a great product in the line right now.

The next question will come from David Bellinger with Mizuho.

I don't really know how to follow that one. But my question is on social media. I mean, Winnie, you mentioned some of the influencer, TikTok, Instagram marketing. Are you looking at those sales as truly incremental at this point? And just can you help us think through any of the economics around that? Do you pay for a post to the influencers, participate in any upside? Just help us understand the economics and the incrementality at this point.

Yes. So David, what we've done is basically redirect what used to be spent on traditional TV commercials into social media. And it's a whole range. It's both engagement in terms of creator content with creators and influencers. But it's also just ensuring that if you're watching -- if you're on social and your Gen Alpha and you're watching a great video about Stitch and your interest in Stitch product, we're serving up the right content to you. And so it's a multipronged strategy. It's not as simple as just going out and paying for influencers. I think that what's been really, really great, especially this year as we look at the first quarter is that it's less about influencer content, and it's much more about our ability to amplify what is user-generated that's out there. People are talking about these products. We're able to lean in and say, we've got those products, we've got you. Even our stores are engaged and talking about like this product just landed. So I think it just gives us access to a remarkable channel that, again, is agile, incredibly effective in terms of return on ad spend. And honestly, the last piece of this is compelling. It's something that the customers want to engage in. And so all those pieces give us courage to do more, but we always have a test, learn and ramp approach on anything we do. And so I've been really excited by what we've seen thus far.

The next question will come from John Heinbockel with Guggenheim.

Winnie, a quick question. I know in the past, you guys would run events in stores on the weekends. Your thought on that, the labor required for that? And then could you do birthday parties and other related parties or that's too complicated labor-wise?

Yes. John, great question. So first of all, on events, we continue to host events. We just had an amazing Pokémon event. We've been really pleased. And I think part of it is those events are incredibly sticky and create community. And it's something that certainly our brands and vendors want to help activate. So it's a 1 plus 1 equals 3 equation. And the sales that we generate in general, really do fund -- more than fund any labor that we put towards the events. I do think it's an interesting and compelling question with regards to birthday parties and other activations. We haven't contemplated that really fully. However, what we are trying to lean into is try to be a one-stop destination for your birthday needs. And so we're excited about our balloon business. We don't aspire to be all of balloons, but the best of balloons and really think about our target customer and then offering really great party celebration items that complement what we've always done, which is party favors and gifts. So those are some thoughts. But certainly, as we focus in on kids, we look at all avenues of potential growth and what that could do for us.

The next question will come from Michael Montani with Evercore ISI.

I was going to ask, could you just summarize for the year where tariff headwinds ended up falling out for you? And then I believe in the first round of tariffs, it was roughly 1/3, 1/3, 1/3 offset from pricing, cost out and then vendor leverage. So I'm just wondering if you could provide an update on how that has played out so far.

Yes. Thanks, Mike. So we ended up largely where we thought we would a quarter ago, about 90 basis points full year headwind in 2025. In terms of sort of what we -- how we addressed those impacts, I go back to what I think is like a really important point with this business, which is we offset tariffs penny for penny at the item unit level. And that's obviously super important to the economics, and you see the benefit of that in 2026. because some of the gross margin tailwinds that we are getting right now is as tariffs have eased, we've got unit economics in a great place, and we've got margin accretion. So I think it's noteworthy that the team was able to offset all of the tariff headwinds at the item level. How they did it, I think you've got the 3 buckets, right, in terms of the pricing benefit, the ability to negotiate and the ability to reengineer and redesign product. I think all of that factored in. I don't know that I would size it 1/3, 1/3, 1/3. I think pricing was probably a bit more, but I'll leave it at that for now because I think you've got all 3 of the right levers.

The next question will come from Brad Thomas with KeyBanc Capital Markets.

What a great year. Question on the step-up in CapEx, Dan, just what's that going towards? Any interesting technology or supply chain opportunities? And how are you thinking about perhaps getting back into some of the store refresh store remodel programs that have been in the past?

Yes. Thanks for the question. And you're right, it is a bit of a step-up year-over-year in CapEx. We plan to be somewhere just over 4% of net sales in capital, which is slightly higher than where we ended 2025. I think the capital is largely going to continue to be focused on the network and the stores and building out the next round of 150-ish new stores. That's obviously the priority. The second piece, and you're right, we are making investments in the distribution network. We've got to build for more capacity to support this growth. And so that process begins in 2026, and we've allocated capital for that. And then we are putting a bit more capital behind technology. We're seeing real opportunity here structurally to enhance technology. We talked earlier about our digital business and the website. We've talked about how do we make the merch teams more efficient and optimize end-to-end management of this business. So there's a technology investment. And so you've got the new stores, you've got investments in the network and in capacity, and you've got a bit more going towards technology to support the growth.

The next question will come from -- sorry, go ahead.

I was just thinking, Brad.

The next question will come from Phillip Blee with William Blair.

Congrats on a great quarter. So Winnie, you've spoken a lot about the contribution of the crew and incremental investments in labor over the past few quarters, how that's led to better conversion and in-stock levels. Do you think stores are appropriately staffed now? Or do you think that there's room for further increases in either hours or headcount, particularly as you ramp up omnichannel efforts? And then if so, how do you think about the opportunity to make additional gains in conversion? What kind of contribution could that have? Or has most of the low-hanging fruit been taken already here now?

Yes. Thanks for your question, Phillip. Great question. It's interesting because I think last year, we made an initial investment in terms of labor to ensure that we could do kind of the basics, which is to get product -- move product from the back to the front and to drive the conversion. And as the quarters progressed and we started to hit peak periods like holiday, we took a really thoughtful approach to match up peak traffic, peak days with recovery in our stores and ensuring that not only did the customer see the product on the shelf, but they got a better level of service. And so we will continue with that model. And as it relates to kind of future endeavors like omnichannel, we are very much in a test, learn and ramp mode. We have initiated buy online, pick up in store. We've seen actually big, big growth with third-party delivery. And so we're going to continue to look at those avenues because we've got to meet the customer where they are. And I think particularly for the younger customers, specifically Gen Z, convenience is critical. And we think there's -- it's actually an opportunity to acquire new customers who may not have considered us or walk away just because it's not convenient. And so we'll take a test, learn and ramp approach in terms of how we look at that. But we think that turning on omnichannel is just going to actually lead to greater acquisition and greater conversion moving forward. Thanks for your question.

The next question will come from Spencer Hanus with Wolfe Research.

Just curious what you're seeing in terms of growth from like new and then existing customers. And then any change in how the recent results are just impacting your view on where this business can comp like durably out in the future? Like has your expectations moved up about sort of where comps land sort of in '27 and '28?

So Spencer, in terms of new and existing customers, we actually had what I would call a banner year in terms of both acquisition as well as repeat visits. And I would attribute that to more effective marketing and really, again, meeting customers where they are. I talked about the fact that we've just started collecting records for customers. And we think that our ability to, again, get additional repeat and to drive our current customer base in terms of their value is much higher as we move through the year, and that's one of our major initiatives for the year. We will also continue to focus on new customers and driving our brand awareness. So all really, really good stuff. And then I'm going to pass it on to Dan to talk about comp in the future.

Yes. Look, we're super bullish on the growth profile of this business, right? You have to be -- you look at the comp growth that we have delivered, you look at the new store growth. We haven't talked about it on this call, but what we've seen in 8 new stores in new markets in the Pacific Northwest. So we've got a business that we think has an optimal opportunity to comp strongly with a lot of white space. And that is a very, very unique concept within retail. And so that's how we feel about it. I think going back to Winnie's earlier comments, we've got a compelling strategy. We're executing at an incredibly high level with a talented crew, and there are so many things left to do here. We have not scratched the surface on what's possible. And so you put all that together, I'm going to stop short of putting a number to it. But certainly, we are bullish with the growth aspects that this business offers us, particularly with this strategy. Thanks for the question.

The next question will come from -- and the final question will come from Joe Feldman with Telsey Advisory Group.

I pressed late, I guess. But I did want to ask you guys because I know you've talked about with maybe thinking about a new format for the store now that you've brought out the Five Beyond items back into the aisles and have a more fluid merchandise flow, I was just wondering if you guys have been playing around with a newer format and what you're thinking there.

Joe. I think we're always looking at ways to make the shopping experience that much more inspiring and frankly, just easier. And certainly, with the evolution, I would say, of the Five Beyond area, we have opportunity to take the back of store and make it even that much more productive. And so we are looking at how to create better flow within the store without that Five Beyond area in the back and testing how we honestly convert stores in the network, but then also looking at new format work that allows us to really truly bring to life this idea of these worlds that customers can shop in and move from. And we are serving some distinct customer groups, the youngest customers with Gen Alpha, Gen Z, more teens, tweens and young adults and millennial moms, and they have very different needs. And so we're thinking through how do we optimize the experience for each of those cohorts. So more to come on that, but thanks for your question.

This will conclude our question-and-answer session. I would like to turn the conference back over to Winnie Park for any closing remarks.

First and foremost, thank you all so much for your support, and we hope to see everyone in our stores for all your spring break and Easter essentials. We appreciate you. Please convert with us, and thank you for your attention on the call.

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