Image source: Five Below.

Despite a troublesome retail environment overall, the discount end of the spectrum has fared better than the high-end of the industry. In particular, discount teen retailer Five Below (NASDAQ:FIVE) has held up quite well even under challenging conditions, and coming into Wednesday's fiscal second-quarter financial report, shareholders were expecting that Five Below would be able to keep up a healthy pace of growth. Five Below's results for the quarter were solid, but comments it made about the current quarter weren't quite as upbeat as most of those following the stock had hoped. Let's look more closely at the latest from Five Below to see why shareholders are responding negatively to the report.

Five Below's growth remains impressive

Five Below's fiscal second-quarter results didn't have any negative surprises for investors. Sales were up almost 21% to $220.1 million, which was just a bit faster than most investors had expected to see. Net income climbed by almost two-fifths to $9.8 million, and that produced earnings of $0.18 per share. That bottom-line figure was a penny per share ahead of the consensus forecast among those following the stock, and it was up in line with overall net income.

Nevertheless, a closer look at Five Below's report reveals some cross-currents, not all of which were positive. Comparable-store sales grew, but the 3.1% rate was slower than the nearly 5% that it posted during the first quarter. Still, operating income was up by more than a third from the second quarter of 2015. Gross margin figures also improved, rising half a percentage point to 33.3%.

New store openings continued to accelerate. Five Below opened 33 new locations during the quarter, finishing with 491 stores as of July 30. Yet even with the big rise in store counts, Five Below's overhead expenses have remained relatively modest, and even with a 23% rise in selling, general, and administrative costs, the faster rise in revenue helped boost the teen retailer's bottom line.

CEO Joel Anderson was pleased with the combination of success that Five Below gave investors. "Continued strength in new store performance and our 41st consecutive quarter of positive comp growth were accompanies by operating margin expansion," Anderson said, "resulting in a 38% increase in earnings per share." The CEO also noted that consistent performance has become the retailer's hallmark even under stressful industry conditions.

What's ahead for Five Below?

Five Below also believes that it has the ability to keep performing well in the future. As Anderson put it, "We have also made good progress against our strategic initiatives," and he expects "the initial launch of our e-commerce platform and the hiring of key team members to further strength Five Below's capabilities for the long runway of growth that lies ahead."

However, the specific numbers that Five Below gave investors weren't entirely satisfying. For the fiscal third quarter, net sales are expected to come in between $199 million and $202 million, and those figures are both less than the $204 million that most investors were looking to see. Similarly, earnings of $0.09 to $0.10 per share could potentially underperform current expectations among those following the stock.

Even a minor increase in full-year guidance wasn't enough to inspire a bullish reaction. Five Below now believes that sales will be between $1 billion and $1.009 billion, up between $4 million and $5 million from its previous guidance. Earnings of $1.28 to $1.32 per share would be a penny better than it had forecast before. Yet the changes don't really go far beyond the level of outperformance Five Below reported in the second quarter, suggesting that the company isn't all that comfortable predicting further acceleration in growth.

Perhaps as a result, Five Below investors reacted negatively to the report, sending the stock down more than 5% in after-hours trading following the announcement. Despite the downward move, if Five Below can defy its own forecasts and continue delivering the impressive growth that it has shown in the recent past, then any share-price drop is likely to be short-lived and an opportunity for bargain hunters to take a closer look at the stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.