The retail business has been extremely challenging in recent years, but some niches of the business have been more successful than others. Even though Five Below (NASDAQ:FIVE) hasn't been entirely immune from the retail downturn, the tween and teen audience that it serves has continued to have ample disposable income in a strong economic expansion, and that's helped the company outperform some of its adult-oriented peers.

Coming into Wednesday's fiscal first-quarter financial report, Five Below shareholders were hoping that the retailer would keep generating the strong gains they've come to expect from the tween and teen retailer. Five Below's numbers were truly exceptional, and investors responded favorably by sending the stock to new record highs after the report.

Five Below logo in front of pictures of $1 bills.

Image source: Five Below.

Five Below gets off to a fast start in 2018

Five Below's fiscal first-quarter results were even better than the ambitious expectations the market had for the retailer. Sales soared 27% to $296.3 million, outpacing the 25% growth rate most investors were expecting to see. Net income soared 160% to $21.8 million, and that worked out to earnings of $0.39 per share. Even after making allowances for a $0.04 per share benefit, adjusted earnings of $0.35 per share were still stronger than the consensus forecast for $0.32 per share among those following the stock.

Five Below's fundamentals remained solid. Comparable sales rose by 3.2%, slowing from their pace of gains in the fiscal fourth quarter of 2017 but still maintaining a steady upward trajectory. Operating income jumped by 93%, as the company did a good job of reining in its costs, keeping rises in overhead expenses to just 19% compared to the year-ago quarter. Tax reform also provided a sizable benefit, as income tax expense was actually down from year-ago levels despite the near-doubling in pre-tax income for Five Below.

Historically, expansion has played a key role in Five Below's growth, and after a brief lull last quarter, store openings were back in force during the latest period. With 33 new store locations opened during the period, Five Below now boasts 658 stores in 32 different states. That helped to maintain a consistent growth rate over the past 12 months, with Five Below sporting 19% more stores than it did this time in 2017.

CEO Joel Anderson celebrated the news. "We are very pleased with the strong start to fiscal 2018," Anderson said, "as we delivered both sales and earnings above our guidance ranges for the first quarter." The CEO also noted that both existing and new store performance was favorable, and impressive strength in gross margin also helped the company move forward.

What's ahead for Five Below?

Looking ahead, Five Below sees the good times continuing. In the long run, Anderson sees a lot more potential, and in his words, "our consistent performance continues to reinforce our confidence in the 2,500-plus nationwide store opportunity we see for Five Below." Plans to build a new distribution center in the Atlanta area should fit in well with strategic visions to expand in the Southeastern U.S., which has been a demographic hotbed of growth in recent years.

Guidance for the immediate future was equally optimistic. For the fiscal second quarter, Five Below expects revenue to come in between $332 million and $335 million, with 33 new store locations helping to support sales gains. Earnings should be between $0.36 and $0.38 per share, and both the top-line and bottom-line figures are better than the consensus forecast among those following the stock.

For the full year, Five Below also has high hopes. Revenue of $1.502 billion to $1.517 billion is consistent with investor expectations, and the company expects 125 new stores to open throughout the year. Earnings of $2.42 to $2.48 per share would be higher than the $2.40 consensus forecast, although comparable sales gains of 1% to 2% seem like the only potential blemish on what would otherwise be exceptional performance from the retailer.

Five Below shareholders were excited about the news, and the stock soared 10% in after-hours trading following the announcement, to rise to a new record high. As long as teen shoppers continue to show up with money in their pockets, Five Below looks ready to keep serving them the products they want at prices they can afford. That value proposition is exactly what shoppers and investors can be happy to see right now.

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.