Five Below - Earnings Call - Q4 2020
March 18, 2020
Transcript
Operator (participant)
Good day, and welcome to the Five BelowFourth Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Christiane Pelz, Vice President of Investor Relations. Please go ahead.
Christiane Pelz (VP of Investor Relations)
Thank you, Operator. Good afternoon, everyone, and thank you for joining us today for Five Below's fourth quarter and fiscal year 2019 financial results conference call. On today's call are Joel Anderson, President and Chief Executive Officer, and Ken Bull, 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 Five Below's SEC filings.
The forward-looking statements made today are as of the date of this call, and we do not undertake any obligation to update our forward-looking statements. If you do not have a copy of today's press release, you may obtain one by visiting the investor relations page of our website at fivebelow.com. I will now turn the call over to Joel.
Joel Anderson (President and CEO)
Thank you, Christiane, and thanks, everyone, for joining us for our fourth quarter and year-end earnings call. I will review the highlights of the quarter and fiscal year, as well as thoughts on 2020, before handing it over to Ken to discuss our financials in more detail, and then we will open the call for questions. Before I speak to our results, I want to offer our thoughts on COVID-19. This outbreak has impacted the world and reminds us how truly we are a global community. Our thoughts and prayers are with everyone impacted. Our priority is the health and well-being for our associates and customers, and earlier today we announced the closing of all stores effective tomorrow evening at 7:00 P.M.
It is very difficult to determine the extent and duration of this rapidly evolving situation, so we will not be providing specific first quarter or full-year guidance at this point. We continue to be focused on managing the business with great discipline and maintaining our financial strength. Now, turning to the fourth quarter, our Q4 results were in line with the revised expectations announced in conjunction with our holiday sales release. Our results were driven by strong performance from new stores, which remain our most significant growth opportunity. We opened 150 new stores in 2019, of which six opened in the fourth quarter. We ended the year with 900 stores, which represents a little over a third of the 2,500-plus potential we see in the United States.
As previously stated at the January ICR conference, the periods between Thanksgiving and Christmas were relatively on plan, while the period from Thanksgiving leading up to Christmas was impacted by the shortened holiday selling season. Our key selling periods were positive on a shifted comp basis, but were not enough to make up for the lost holiday selling days. From a merchandise perspective, we saw strength in our create, candy, and seasonal, or what we call now world, and other trends like journaling. Lime, gaming continued to be strong. As expected, the large trend for the fourth quarter was Frozen 2. Our lineup of Frozen 2products was amazing and included many items exclusive to Five Below. On the marketing front, we continued to shift towards digital, and we increased our TV reach to approximately 60% of our stores.
Overall, 2019 was a transformative year for Five Below, considering the impact that tariffs had on our business and our decision to break the $5 threshold for the first time. The tariffs were a fluid situation throughout 2019 and required a multi-pronged response with significant changes on many fronts, including vendor negotiations, pricing, and corporate efficiencies, as well as making sourcing changes for 2020 and beyond. I want to acknowledge the support we got from our vendors and thank them once again for their collaboration. The pricing changes above $5 required extensive testing and analysis before implementation, and I am pleased that the results were in line with our expectations. I want to thank the many teams throughout the organization for all the work they did to make sure these changes were well executed.
Regarding new sources of production, our merchant and sourcing teams diligently researched new opportunities and successfully made and continue to make changes on that front. We enter 2020 expecting to fully mitigate all known tariffs. Turning to 2020, we are focused on successfully managing Five Below through these unusual times associated with COVID-19. To say this is a once-in-a-lifetime event would be an understatement. I remind you that we are an extremely healthy company with no debt and strong cash reserves. In addition, our extreme value offering will be even more important to our customers when we reopen as they seek ways to spend even more wisely. While not our usual practice, I'd like to share an update on our quarter-to-date performance so you better understand the underlying base of the business.
Our comps through Wednesday, March 11, the day the World Health Organization declared COVID-19 a pandemic, were up 2.9%. Through yesterday, they were up 0.4%. I'd also like to give a shout-out to our associates. They have been amazing and have rapidly adjusted to a new working environment. As we navigate through this period, we also remain focused on three strategic areas: experience, product, and supply chain. Through innovation, we will continue to elevate the experience for our customers and associates, and as a merchant-driven organization, we will continue to deliver even better while trend-right products. Our supply chain is key to ensuring products are in the stores and on the shelves in a timely and cost-efficient basis, and we are building out our DC infrastructure to make these enhancements possible.
In addition, let me give you a further update on Ten Below and the overall impact it will have on our store experience going forward. We finished 2019 with 25 Ten Below test stores and learned a lot from the holiday Ten Below gift shop that was displayed throughout the chain. We have decided to move forward with an enhanced store prototype that expands our offering in the tech and room worlds to include new products in the $6-$10 range. This new prototype allows us to provide all the benefits of our previous fresh format without having to increase our total square footage or reallocate space from other worlds. The rest of the store will remain priced at $5 and below. We expect nearly all of our new stores and remodels to open in this format.
In addition, on the IT front, we are working on several strategic initiatives to support our growth, including modernizing our supply chain technology with new distribution and transportation management systems, digitizing vendor transactions, implementing our core merchandising platform, and rolling out a cloud-based data and analytics platform for demand forecasting to drive inventory optimization. Additionally, we are migrating to the Holler e-comm platform, which will accelerate our digital capabilities. Holler.com is a digitally native brand with better technology capabilities and lower customer fulfillment costs than we have. Having these robust systems, as well as our DC configuration in place, will serve us well and support our future growth. In summary, we are pleased with our 2019 performance. These are unprecedented times, and we are navigating them with our customers and team members at the center of our decision-making.
At the same time, we continue to work on a number of strategic initiatives across experience, product, and supply chain as we further innovate and support our future growth. With that, I'll turn it over to Ken to provide more color on the financials. Ken.
Ken Bull (CFO and Treasurer)
Thanks, Joel, and good afternoon, everyone. As Joel said, we are operating in an environment that is rapidly changing, and we are adapting quickly. With regard to our financial health, we have the benefit of a strong balance sheet, and we are managing the business and our assets with discipline. Now, I will review our fourth quarter and fiscal 2019 results and then discuss fiscal 2020. Our sales in the fourth quarter of 2019 were $687.1 million, up 14% from the fourth quarter of 2018. We ended the quarter with 900 stores, a year-over-year increase of 150 new stores, or 20%. Comparable sales decreased 2.2% for the fourth quarter of 2019 versus a 4.4% comp increase in the fourth quarter of 2018. The comp decrease for the fourth quarter was driven by a 3.6% decrease in comp transactions, partially offset by a 1.4% increase in comp average ticket.
Gross profit increased 18.5% to $289.1 million from $244 million reported in the fourth quarter of 2018. Gross margin finished at 42.1%, increasing 160 basis points from 40.5% last year. The improvement in gross margin was due to improvement in merchandise margins, lower incentive compensation, and distribution efficiencies, partially offset by deleverage and store occupancy costs on the negative comp. SG&A as a percentage of sales for the fourth quarter of 2019 decreased to 21.1% from 21.2% in the fourth quarter of 2018, as lower incentive compensation was offset by deleverage of fixed costs. Our operating income increased 23.7% to $144.1 million. Operating margin increased approximately 165 basis points to 21% of sales. Our effective tax rate for the fourth quarter of 2019 was 23.6%, compared to 24.4% in the fourth quarter of 2018.
The decrease in the effective tax rate was driven by discrete items, which included a benefit from share-based accounting. Net income for the fourth quarter increased 23.7% to $110.4 million, or $1.97 per diluted share, from $89.3 million, or $1.59 per diluted share last year. Diluted earnings per share included a one-penny benefit from share-based accounting in both years. For fiscal 2019, total net sales were $1,847 million, an increase of 18.4%. Comparable sales increased 0.6% versus a comparable sales increase of 3.9% in 2018. This comparable sales increase was driven by a 1.1% increase in comp average ticket, partially offset by a 0.5% decrease in comp transactions. Gross profit for the full year increased 19.3% to $674 million.
Gross margin increased by approximately 30 basis points to 36.5%, driven primarily by increased merchandise margins in the fourth quarter, partially offset by deleverage of occupancy expenses on the lower-than-expected comp. SG&A as a percentage of sales for the year increased 50 basis points to 24.7% from 24.2% in 2018, due primarily to deleverage of fixed costs, depreciation on the new Southeast Distribution Center, and the new lease accounting rules, all of which were offset in part by lower incentive compensation. Operating income of $217.3 million increased 16.1% in 2019. Operating margin of 11.8% decreased approximately 20 basis points from last year's operating margin of 12%. Our effective tax rate for the year was 21%, compared to 22% in 2018. The decrease in the effective tax rate for the year was due primarily to the benefit of share-based accounting.
Earnings per share was $3.12 for fiscal 2019, an increase of 17.3% versus earnings per share of $2.66 for fiscal 2018. Diluted earnings per share included a $0.14 benefit from share-based accounting in 2019 and a $0.09 benefit in 2018. Excluding the impact of share-based accounting on the tax rate in both periods, EPS for fiscal 2019 grew approximately 16% to $2.98 versus last year. EPS included an approximate $0.01 negative combined impact from both the Nerd Street Gamers and Holler investments. We ended the year with approximately $262 million in cash, cash equivalents, and short-term investment securities, and no debt, with $50 million available under our revolver. For fiscal 2019, we made share repurchases of approximately $37 million, or 338,000 shares, which contributed approximately $0.01 to EPS. Inventory at the end of the year was $324 million, as compared to $243.6 million at the end of fiscal 2018.
Ending inventory on a per-store basis increased approximately 11% year-over-year due to the lower-than-expected sales and the timing of receipts, as we pulled forward tower-related merchandise. In Q4, we had a high sell-through on our seasonal Now World merchandise, and we are pleased with the level and quality of our inventory going into 2020. With respect to CapEx, we spent $212 million in gross CapEx in fiscal 2019, excluding tenant allowances. This reflected the cost of opening the new Southeast Distribution Center and payments on the new Texas Distribution Center, opening 150 new stores, completing 50 remodels, and investments in systems and infrastructure. Now, I would like to turn to 2020. As Joel mentioned, given the uncertain nature of the future events and financial impacts of COVID-19, we are unable to provide first-quarter and full-year sales and earnings guidance for 2020.
However, I will discuss what our outlook for fiscal 2020 was prior to the COVID-19 situation. Until last week, we were prepared to provide an outlook for fiscal 2020 that was in line with our longer-term 2020 until 2020 vision, with top and bottom-line growth of 20%. We assumed the current tariffs would remain in place throughout 2020, the impact of which we expected to fully mitigate as we did in 2019. Excluding the future financial-related impact to COVID-19, our sales and income outlook was as follows: 20% sales growth based on approximately 180 new store openings and comparable sales in the low single-digit range. Included in our comp estimate was accountabilization impact from new stores of approximately 100 basis points. Our full-year effective tax rate was expected to be approximately 24.5%, excluding the impact of share-based accounting.
As you know, our practice is to update the tax rate outlook quarterly with actual results when we report earnings. Diluted earnings per share was estimated in the range of $3.33-$3.47, which included $0.08 related to Holler.com integration costs in the first half of the year and the accounting impact from the Nerd Street Gamers investment. Excluding the impact of share-based accounting in 2019, as well as the impact of the Holler.com integration and the Nerd Street Gamers investment, EPS growth for 2020 was approximately 20%. Finally, we expected gross capital expenditures of approximately $270 million, excluding the impact of tenant allowances. This reflected approximately 180 new stores and 45 remodels, opening a new distribution center in Texas, making initial payments on distribution centers in the Midwest and West, and investing in systems and infrastructure.
Again, this discussion was designed to give you some additional information about 2020, but it is not our guidance. For all other details related to our results, please refer to our earnings press release. With that, I would like to turn the call back over to Joel to provide some closing comments before we open it up for questions. Joel?
Joel Anderson (President and CEO)
Thanks, Ken. 2019 was a very productive year for Five Below, as our team successfully mitigated tariffs while advancing our strategic objectives around experience, product, and supply chain. Across the world, people are living through a very challenging period right now. Here at Five Below, we are drawing inspiration and strength from our favorite customer, kids. We're embracing their unmatched resiliency and ability to grow from challenge. We are certain that together, we will come out of this a stronger community. I want to thank all of our associates for their hard work and dedication to making Five Below what it is today, and for their commitment to our customers. Even as we make decisions to adapt to the rapidly changing environment, our long-term focus and goals are still to continue to innovate, be relevant, deliver wow products at incredible value, and provide an amazing, differentiated experience to our customers.
We believe we are well-positioned and capitalized to continue our growth in the future. With that, I'd like to turn the call back over to the operator for questions. Operator?
Operator (participant)
We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Please limit yourself to one question. If you have further questions, you may re-enter the question queue. At this time, we will pause momentarily to assemble our roster. The first question is from Paul Lejuez with Citi Research. Please go ahead.
Paul Lejuez (Analyst)
Hey, thanks, guys. Appreciate the comments. Wondering if you can maybe talk about how you're going to change your marketing efforts, any stepped-up e-comm efforts now that you're going to be dealing with some store closures for a while, and also how does that change how you manage your TV marketing in this sort of environment, customer outreach in general. Also curious about the number of store openings. I think you laid out what your plan was going to be, and then kind of said that that was no longer in place. I didn't know if that applied to your store openings and CapEx as well, or if you were going to pull back on that. Thanks.
Joel Anderson (President and CEO)
Right. Paul, thank you. Let me just discuss the marketing efforts. As it relates to first quarter, and that is really the only place we have made any changes at this time, we have pulled back on TV and the circular that will not run for Easter this year. We are leaving in place our digital efforts and are focused on our e-comm in that case. We are seeing an increase in e-comm business and are having no problems keeping up with it. As for the 180 stores, that is still our plan. Although at this time, you certainly should expect a change in cadence on those stores, and it is too early for us to give you guidance on what that new cadence would look like. Thanks, Paul.
Paul Lejuez (Analyst)
Thank you, Joel.
Joel Anderson (President and CEO)
I just remind everyone, if we try and keep it to one question, that'd be great so we can get through everybody here. Thank you. Next?
Operator (participant)
The next question is from Edward Kelly with Wells Fargo. Please go ahead.
Edward Kelly (Analyst)
Yeah. Hi, Joel. So question for you first just is, what would you need to see to open stores again? And then beyond that, as we think about the cost structure, help us out with what's fixed, what's variable, and if stores are closed for an entire quarter, how much of the cost structure is going to stick with you?
Joel Anderson (President and CEO)
Yeah. Ed, what was that question about the closed stores?
Edward Kelly (Analyst)
Just initially, what would you need to see to open stores again?
Joel Anderson (President and CEO)
Oh, yeah.
Edward Kelly (Analyst)
Then beyond that, the cost structure and how much stays with you.
Joel Anderson (President and CEO)
Yeah. Look, we're shutting stores down this week. While it'll be customer-facing tomorrow, our associates will remain in the stores Friday, not open to the customers, as you can imagine, had a lot of freight en route to the stores. We're taking all that in so it doesn't get trapped in any supply chain disruptions, should there be any, and preparing the stores to open. To that point, we'll be able to open at a moment's notice. It's honestly too early, Ed, to speculate what it'll look like. I mean, I think at this point, we'll turn to take guidance from local, state, and national as far as when it's safe to start to resume opening stores back up. We want to stay in compliance with that. Ken, I'll turn to you.
Ken Bull (CFO and Treasurer)
Yeah. Ed, just around the cost structure, as you would guess, a majority of cost of goods sold is obviously variable related to merchandise cost. There is some fixed cost in there because we record occupancy cost up in cost of goods sold and some buying costs there too. When you look at SG&A, about 40% of our SG&A costs are fixed. Again, just to give you kind of an idea of the cost structure based in our P&L.
Edward Kelly (Analyst)
Thanks. Very good.
Joel Anderson (President and CEO)
Thanks, Ed.
Ken Bull (CFO and Treasurer)
Thank you.
Operator (participant)
The next question.
Ken Bull (CFO and Treasurer)
Thanks.
Operator (participant)
Excuse me. The next question is from Matthew Boss with JPMorgan . Please go ahead.
Matthew Boss (Equity Research Analyst)
Great. Thanks for all the color so far on the call, guys. Joel is joining in.
Paul Lejuez (Analyst)
Yeah. Hey, thanks, Matt.
Matthew Boss (Equity Research Analyst)
Look, while there's not really a compare for the near-term closures, maybe if you took a step back, can you just speak to how the model has held up during times of past economic stress, trying to get a sense as we maybe come out of this on the other side if unemployment is higher or there's changes to your core consumer, just how you see your value proposition positioned today relative to peers and anything you could do to bolster that coming out on the other side of this?
Joel Anderson (President and CEO)
Yeah. I might let Ken give a little more color as he was actually here back in 2008 and 2009. As you look back to my prepared remarks, certainly if you speculate that customers might tighten their belt initially coming out of this, as it was in 2008 and 2009 during the financial recession, we were very successful coming out of that. I think this will be a place where customers are going to turn to us as they look for value and stretch their dollar until things get back to a more normal type of period. I do not know, Ken, if you had anything to add real-time of back in 2008.
Ken Bull (CFO and Treasurer)
No, Matt, I think Joel answered it. I was here during that time period going through 2008 and 2009. Obviously, there was that initial shock from a traffic perspective. I think all retailers were impacted right out of the gate. We did see ourselves come back. It felt quicker than other retailers. I think to Joel's point, it was customers out there who really discovered the value that we were able to offer because we were another choice at the end of the day. It ended up being somewhat positive for us as we came out on the other end of that and came out relatively quickly.
Matthew Boss (Equity Research Analyst)
Best of luck.
Joel Anderson (President and CEO)
Thanks, Matt. Yeah, you bet. Thank you.
Operator (participant)
The next question is from Simeon Gutman with Morgan Stanley. Please go ahead.
Simeon Gutman (Stock Analyst)
Good afternoon. My question is the decision to close, and you gave out those numbers, which was helpful, which I think means business was down somewhere close to 20% ish. Can you tell us, was that getting progressively worse each day, or was it leveling off? Ken gave some helpful numbers on the cost, fixed costs in SG&A and gross margin. I do not know if you have done this math, but how long can you record no revenue without needing any liquidity? Do you know the number of days? I guess you are going to get us to the conclusion of doing that math quicker than we could do it ourselves.
Joel Anderson (President and CEO)
I think on your initial math there, you're in the right ballpark. It might be a little high in terms of what it was down, but it was pretty consistent through that period of time. I think it was important for us, while we can't give you guidance, to be, as we always try to do, extremely transparent on how the quarter was shaking up. As many of you expressed concern about our negative comp during the holiday and whether it was true to the shorter days, I think this return to low single digits on the upper end of it, to that matter, is what we really wanted to share with you. Simeon, it's too early to do that scenario planning. Obviously, that's where we'll focus right now. Ken gave you a lot of color commentary on our balance sheet. It's very strong.
We will start to look at that. At this point in time, it is too early to kind of lay out every scenario. Ken, do you have anything to add?
Ken Bull (CFO and Treasurer)
Sure. I agree with what Joel mentioned, Simeon, in terms of the go-forward. I will remind everyone, I mean, we are an extreme value retailer. One of our core values has always been around operating discipline and cost efficiency. It is really who we are. As we even, and as Joel mentioned in this call, we were faced with a similar situation with mitigating tariffs in terms of the challenge that was put in front of us. We were successful in doing that. We will take the appropriate actions across the business as the situation evolves, obviously, to maintain our financial health and our future growth.
Joel Anderson (President and CEO)
Yeah. I honestly think.
Ken Bull (CFO and Treasurer)
Thanks, Joel.
Joel Anderson (President and CEO)
Yeah. Thanks, Simeon. Some of that that we went through with tariffs last year probably made us a better, stronger company. As that number approached $100 million, we had to get pretty creative to manage and mitigate all those tariffs. That discipline will serve us well as we go through this as well. Next question.
Operator (participant)
The next question is from Chuk Grom with Gordon Haskett. Please go ahead.
Chuck Grom (Managing Director)
Hey, guys. We're hanging in there. If you think about the quarter progression on comp, and if we assume business is going to be closed for the next two or three weeks, it's probably realistic you're going to comp down, say, close to 50% in the first quarter. It sounds like to your question earlier that the SG&A cost structure, 40% is going to be fixed. It seems like earnings are probably going to be probably close to flat, maybe up a nickel in the first quarter. Ken, just roughly speaking, are we way out of left field with that type of math? Thanks.
Ken Bull (CFO and Treasurer)
Thanks, Chuck. Listen, appreciate the question, but as I had mentioned before in my prepared remarks, I mean, we gave you a little bit of the indication of what we were thinking before the situation here with the COVID-19. It's really difficult for us to take a look forward like that. We really want to kind of avoid making any of those statements in terms of what the potential will be, especially in terms of specific financial results. Yeah, on that question, I think we're just going to say that we'll leave it where we talked about for the full year. As I mentioned before, we're going to continue to react appropriately to the situations that are put in front of us.
Joel Anderson (President and CEO)
Yeah. I would just add, I mean, as I shared with you, having said that, when we do reopen, the supply chain is fully stocked, and there's really not a lot of hurdles we got to go through to reengage our stores and associates and get the doors back open.
Thanks, Chuck.
Ken Bull (CFO and Treasurer)
Thanks, Chuck.
Chuck Grom (Managing Director)
Thank you.
Operator (participant)
Thank you. The next question is from Karen Short with Barclays. Please go ahead.
Karen Short (Store Equity Research Analyst)
Hi. Thanks for taking my question. I guess what I want to focus on, one clarification, is with respect to the store closures, are you going to make a blanket decision to open all stores at once when this lifts, or will it be maybe a state-by-state or region-by-region basis? The bigger question I had was, in terms of inventory, how much inventory can you really pack away, I guess, from a DC perspective? What part is seasonal and kind of has more of a shelf life to the extent that you're dealing with an excess inventory situation?
Joel Anderson (President and CEO)
Yeah. No problem. If you go back and kind of study the last few calls we've had, strategically, the single biggest initiative we've been focused on for the last several years has been distribution center expansion. We're in a fortunate spot that we've got plenty of DC capacity. In fact, our Texas DC has just gotten its certification. We are now, while we're not open for business and shipping out, we've got all the racks in place and are starting to receive inventory. That's a brand new DC with a lot of capacity. We're not at all worried about that side of things at all.
As far as how we're going to reopen stores, it's a little speculative on our part, but I would guess it would be more regional or local rather than all at once, just given the way things have transpired and how we've watched stores shut down or states react. I'm completely speculating there, Karen, and I think we'll watch how this unfolds and take some guidance from state and national officials.
Karen Short (Store Equity Research Analyst)
Great. Thanks.
Joel Anderson (President and CEO)
Thank you.
Operator (participant)
Simeon, the next question is from Michael Lasser with UBS. Please go ahead.
Michael Lasser (Equity Research Analyst)
Good evening. Thanks a lot for taking my question. Your model is.
Joel Anderson (President and CEO)
You thought you went underwater there, Michael. Go ahead.
Michael Lasser (Equity Research Analyst)
Can you hear me okay?
Joel Anderson (President and CEO)
Yeah. We got you now. Yep.
Michael Lasser (Equity Research Analyst)
Thank you. Joel, your model is very traffic-dependent. Even once you open your stores, it's likely that we're going to see social distancing and overall engagement with physical locations by the consumer. The consumer is likely to be much more hesitant and resistant to go out and freely traffic in physical locations. I think your comps were down low to mid-teens in that week before or in the last week or so. Do you think that's a good indication of how social distancing might impact your traffic overall, even in a kind of steady-state environment? How do you manage through that, even putting aside the economic ramifications of what the current situation might cause?
Joel Anderson (President and CEO)
Yeah. A lot of that, Michael, I'd have to speculate on. I will tell you, part of the reason we've stayed open, the fact that we've only been down in the teens, it just shows you how much the customer needed us, especially as they were kind of preparing to hunker down and be with their kids that were suddenly off school. During that 10-day period, we instituted, as did a lot of retailers, a new way of working. We opened every other register. We brought in lots of hand sanitizers, etc., etc. That kind of procedures will continue afterwards, I'm sure. The store ops team is way more than prepared to kind of handle that. We'll be prepared as the customers get comfortable and come back.
Michael Lasser (Equity Research Analyst)
Okay. Can I clarify something?
Joel Anderson (President and CEO)
Yeah.
Michael Lasser (Equity Research Analyst)
Can I clarify something, Joel?
Joel Anderson (President and CEO)
Go ahead.
Michael Lasser (Equity Research Analyst)
You said 100 basis points of cannibalization. I think that's much higher than what you've experienced historically. What's driving that?
Joel Anderson (President and CEO)
Sure. Honestly, Michael, we actually have never really shared that number specifically. Part of the reason is we are ramping up stores. We also want you all to understand, and again, it's in the vein of transparency, how that comp multiple is built. Know that that cannibalization is planned for and is built into as we're kind of building our stores out. While we might go into fewer new markets, our focus on densification is a good thing. We've really started to see ourselves picking up some market share in some great areas. Those stores tend to bounce back after we cycle the year. I just wanted you to have, again, some transparency of what's built into the whole comp multiple. Thanks, Michael.
Michael Lasser (Equity Research Analyst)
Thank you. Be safe. Thank you.
Joel Anderson (President and CEO)
Yeah. Thank you. You too.
Operator (participant)
The next question is from Scott Ciccarelli with RBC Capital Markets. Please go ahead.
Scott Ciccarelli (Analyst)
Hi, guys. Scott Ciccarelli. Joel, I know you said earlier that your current plan is to maintain your 180 store openings for the year, but with negative, call it mid to upper-teen comps, that can be pretty spooky. I guess the question is, how much flexibility do you guys have on your prior CapEx plan?
Joel Anderson (President and CEO)
Sure. We actually have quite a bit of flexibility there. I would tell you, as I think I might have said, first of all, we'll certainly come back after things get back to normal and give you specific guidance if we stay at 180. For sure, our cadence will change. We feel really good about those stores and communities that we need to go into. Built into that CapEx plan was also distributions that we'd purchase. We have some flexibility there, whether we would go forward with purchases or not. That makes up for quite a bit of the overall CapEx from that perspective. I don't know, Ken, any others on CapEx?
Ken Bull (CFO and Treasurer)
No. I think you mentioned it. Again, there's probably going to be some flexibility for us down the road. I think at this stage of the game, it's still a little bit too early to tell. Just to get back to the comment that these are all things that we're going to look at as we move forward here and as the events evolve.
Joel Anderson (President and CEO)
Yeah. We'll be looking at everything. Scott, go ahead.
Scott Ciccarelli (Analyst)
I guess my question was just about if you don't get the volume back and social distancing does remain a thing for quite a while, you're potentially not going to need as much of the distribution. I'm just wondering if there's an ability to maybe put off some of those expenses and kind of defer that to the future. Thanks.
Joel Anderson (President and CEO)
Absolutely. I mean, that's what I was talking about on the DC. We don't have to make those decisions in the next 30 days here. The timing works out nice. I mean, look, we're a growth company. That doesn't change. I think our customers are going to need us even more when you come through this with our value-based model.
Ken Bull (CFO and Treasurer)
Right. Joel, just to add to that too, Scott, just to add to that, I think I mentioned it before, again, related to go forward, our financial position, liquidity, whatever it may be, we're going to look at all the potential actions across the business and see what makes sense for us as we move forward.
Scott Ciccarelli (Analyst)
Thanks, guys. Thank you.
Ken Bull (CFO and Treasurer)
Thanks, Scott.
Joel Anderson (President and CEO)
Thanks, Scott.
Operator (participant)
The next question is from Brian Nagel with Oppenheimer. Please go ahead.
Brian Nagel (Analyst)
Hi. Good afternoon.
Thanks for taking my question. [Speech Overlap] Thanks for all the calling.
Ken Bull (CFO and Treasurer)
Yeah.
Brian Nagel (Analyst)
The question I have, we've talked even through the holidays about just the online effort and maybe pushing that further. As you look at what's happening now with the virus and shutting down the stores, is pushing online further becoming more of a topic? I guess a couple of parts. I mean, to what extent could your existing online operation help to offset these store closures in the nearer term? As you look beyond that, are you now more focused on building out a larger online offering?
Joel Anderson (President and CEO)
Yeah. Look, Brian, do not forget that we made the investment in Holler long before this came along. Our belief in enhancing our digital capabilities for the long term and being able to accelerate that were necessary and was the right thing to do strategically. That was done independent of COVID-19 and the ramifications associated with that. As far as looking at it in the short term, as we have said on every call, our e-commerce business is still a very, very small piece of the business. This is not a short-term fix for Five Below, but it has seen a significant uptick on the business. It just ties right into why we made the investments we did last year. Long term, I think that strategy is even smarter than it seemed when we made the decision back in 2019.
Do not look for it as suddenly the business model for Five Below changed here in the next three months. Thanks, Brian.
Ken Bull (CFO and Treasurer)
Thank you.
Operator (participant)
The next question is from John Heinbockel with Guggenheim. Please go ahead.
John Heinbockel (Managing Director)
Joel, it's obviously pretty fluid, but how is this impacting the stuff that Michael is, not long term, but when you think about plans sort of beyond Easter, receipts, changes he's making given the fluidity of this?
Joel Anderson (President and CEO)
Yeah. I mean, look, it'll obviously have an impact on Easter. Putting that aside, Michael's team's probably never been better staffed, prepared. We brought in two GMMs last year, very senior, capable people, and really to beef up that organization and continue to invest in our merchandising organization. What we've got in the pipeline, especially when you think of the opportunities Michael now has at his disposal because of Ten Below, and then you couple that with the scale benefits of how much of a bigger company we are now than we were a couple of years ago, I see nothing but upside for what the merchants have in store as we move forward and get back to a more normal situation once we move past this. There's great opportunities in front of them.
John Heinbockel (Managing Director)
Okay. Thank you.
Joel Anderson (President and CEO)
Thanks, John. Appreciate it.
Operator (participant)
The next question is from Paul Trussell with Deutsche Bank. Please go ahead.
Paul Trussell (Analyst)
Good afternoon. You just spoke to some of this. Joel, you outlined in the release your strategic priorities for this year were experience, product, and supply chain. Maybe kind of putting the virus to the side to some extent, talk to us a bit about what goals you wanted to achieve and what actions you're taking to push forward on those strategic priorities.
Joel Anderson (President and CEO)
Yeah. Great question, Paul. Thanks for looking past it, right? I think as we get back to more normal calls, we'll certainly go into it in more depth. Let me just give you a little color quickly because it is important. On the supply chain front, the path we're heading down by holiday of 2021 is that we will be able to distribute to all of our stores in less than two days. That has not been the case for us. You'd have to go back to our old days when we were just a regional player in the Northeast. That's a significant change. That's been a multi-year strategy. That all comes together nicely by next year. We're close to getting there. This spring, we'll open up the Texas facility, which will really help us out west significantly.
On the experience and product, without getting into it in detail, let me just lump those together for a second here because I think the single biggest change we're making is in the new prototype. That new prototype really touches the experience coupled with a real enhancement in product. Some of the stuff I was just talking to John Heinbockel about as we were able to now take all the learnings from Ten Below, from the gift shop we did, and bring that into one new prototype without having to expand the size of the footprint. You talk about leverage and really getting efficiencies coupled with then unleashing the merchants, especially in tech and room, to explore extreme value, price $6-$10. Just a little color commentary on those three as it comes together.
Certainly, as we get back to quarters to come, we'll continue to spend more time on that. Hopefully, that gives you a little color. Thanks, Paul.
Operator (participant)
The next question is from Judah Frommer with Credit Suisse. Please go ahead.
Judah Frommer (Senior Equity Research Analyst)
Hi. Thanks for taking the question. I just wanted to follow up on the variable cost within SG&A. Ken, is there any way you can help us kind of size what could actually be pulled out kind of depending on the timeline, how much of that is store or DC labor? If you did cut some of that variable cost, would you have to rehire? Is there expense tied to that as stores reopen and volumes come back online?
Ken Bull (CFO and Treasurer)
Yeah. Thanks for the question, Judith. As we mentioned before, we're at the beginning stages of this. This is something that we're going to look at and dig into. At this stage of the game, no specifics to provide on a go-forward basis aside from saying, again, that we'll take the appropriate actions across the business. As I called out, there are a certain volume of fixed costs and obviously some variable costs that we'll look at as we move forward.
Joel Anderson (President and CEO)
I hope you can understand why we're not there. Our first priority, as I said in the call, has been taking care of our associates. We have had several conference calls in the last 24 hours with the crew out in the field, reassuring them that they work for a strong company and we will be there for them. That is now behind us. They understand how they are going to close down the stores. We will start to turn to answering some of your questions. We enter this with a really strong balance sheet and a lot of liquidity and access to additional capital should we need it. Thanks, Judith.
Operator (participant)
The next question is from Jeremy Hamblin with Craig-Hallum Capital Group. Please go ahead.
Jeremy Hamblin (Wall Street Analyst)
Yeah. Thanks. Thank you, guys, for the transparency and all the color you're sharing. I wanted to ask a supply chain question. Just flashing back to maybe where things were, let's say, 10 days ago, can you give us a sense for you're obviously dependent on a lot of imported goods from Asia. I know this is a time of year where typically you're getting to trade shows, a lot of which take place in Asia, where you're making plans for, frankly, the holiday period and for the fall season. Have you felt like the supply chain from Asia has started to come back up? Has it had any impact in terms of the assortment that you have and can offer to your customers?
It seems like you've had maybe an uptick in things like candy and snacks and maybe a little bit of a downtick in things like tech accessories. Any color that you could share on those items?
Joel Anderson (President and CEO)
Yeah. I mean, great question, Jeremy. I will tell you, and for everybody, honestly, probably our import supply chain has probably never been stronger since this began four or five months ago. I can tell you that we did see a big decrease in containers, and they were significantly behind. Even just in the last two to three weeks, the number of our factories, almost every one of them is back working, products flowing, bookings are starting to happen. We are actually starting to see a catch-up in a lot of stuff that was behind. I feel really strong about the import supply chain side of it. Beyond that, I think it just starts to get a little too speculative. We are in great shape from that perspective. Thanks, Jeremy.
Operator (participant)
The next question is from Michael Montani with Evercore. Please go ahead.
Michael Montani (Research Analyst)
Hi, guys. Just following up on the sourcing front, just wanted to see you had mentioned, obviously, some efforts that you all had made, I think, on the diversification front. I was thinking in the past, maybe 60% of the goods were imported from China. Can you provide us some sense of what that's kind of run rating to now, given the efforts that you've put in?
Joel Anderson (President and CEO)
Thanks, Michael. The majority of our goods still are from China. As I said in my prepared marks, the team's been doing a great job starting to move countries. We're starting to see the ramp-up of some lines we moved out of China last year and into Vietnam. In fact, those first orders were just shipped a few weeks ago. We will have to go back and kind of reassess that now and kind of understand what the mix is. When it all does settle, it will still be the majority out of China, but we are significantly less dependent than we were before. You would expect us to continue to see that decrease. It is a little fluid right now, but I would just tell you it is still in the majority. Thanks, Michael.
Operator (participant)
The next question is from Anthony Chukumba with Loop Capital Markets. Please go ahead.
Anthony Chukumba (Managing Director, Senior Research Analyst, and Consumer Sector Head)
Good evening, and thanks for all the color. I just had one quick question. You mentioned the Dallas Distribution Center is supposed to open this spring. I was wondering, will this current situation, is there any risk in delaying the opening of that Dallas facility? Thank you.
Joel Anderson (President and CEO)
Thanks, Anthony. Look, I don't want to in this situation, I don't want to say 100%, but we have received our certificate of occupancy. We are starting to receive goods. And we're moving ahead as usual. I mean, obviously, if there's shutdowns in the city that prevent us from continuing to take goods in or something like that, there could be a delay. But the building's basically done, and we're just putting the finishing touches on it. Just one clarification. I think you said Dallas, it's in Houston. It's outside of Houston and Conroe, but no delays expected.
Thank you.
Thanks, Anthony.
Operator (participant)
This concludes our question-and-answer session. I would like to turn the conference back over to Joel Anderson for any closing remarks.
Joel Anderson (President and CEO)
Thank you, operator. Thank you, everybody, for joining us today. Obviously, not our normal call. We look forward to speaking to you again after the first quarter call. We will commit to keeping you informed as situations develop. Thank you for getting on the call with us. Have a great evening. Thank you.
Operator (participant)
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.