What happened

Shares of Five Below Inc. (NASDAQ:FIVE) were climbing today as the discount retailer posted a strong first-quarter earnings report, beating estimates across the board. As a result, the stock was up 19.8% as of 10:51 a.m. EDT.

The entrance to a Five Below store

Image source: Five Below.

So what 

The retailer, which sells only products for $5 or less, said that comparable-store sales in the quarter increased 3.2%, which -- combined with aggressive store openings -- led revenue up 27.2% to $296.3 million, easily topping expectations of $290.9 million. The company opened 33 stores in the quarter, as the store base has expanded by 19% over the past year.  

Thanks to strong performance from new stores and the comparable-sales growth, gross margin increased 110 basis points to 32.8%. And the company gained operating leverage on the selling, general, and administrative line, as operating income nearly doubled to $24.7 million. Adjusted earnings per share surged 133% to $0.35, aided in part by a lower tax rate due to the new tax law. That result also beat analyst estimates of $0.32.

CEO Joel Anderson said he was very pleased with the performance and added: "Our consistent performance continues to reinforce our confidence in the 2,500-plus nationwide store opportunity we see for Five Below. We are making disciplined investments to support that future growth and are excited to announce our plans to build a new distribution center just south of Atlanta, which will provide us with capacity and flexibility as we continue to grow in the Southeast."

The company has just 658 stores today, meaning it still sees a long growth path ahead.

Now what 

Looking ahead, management offered strong guidance, saying it expects revenue for the current quarter of $332 million to $335 million, or 17.7% growth from a year ago, on flat comparable-sales growth. It also sees EPS of $0.36 to $0.38.

For the full year, it expects revenue to increase about 18% to a range of $1.502 billion to $1.517 billion, on comparable-sales growth of 1% to 2%. And it projects EPS of $2.42 to $2.48. Those numbers are generally ahead of analyst forecasts.

Selling low-priced items like toys, home goods, and candy has given Five Below insulation against the e-commerce threat, allowing it to aggressively open new stores. With that unique business model, the stock should continue to thrive as long as the economy is strong.