What happened
Youth-focused retailer Five Below (FIVE +2.24%) significantly outpaced the market last month by gaining 38% compared to a less-than-1% increase in the S&P 500, according to data provided by S&P Global Market Intelligence.
The rally pushed the stock to a new high, with shares up nearly 50% so far in 2018.
So what
Investors celebrated the retailer's fiscal first-quarter report that on June 6 revealed strong sales gains and improving profit margins. The top- and bottom-line growth has allowed Five Below to stand out from the broader retailing industry, which is struggling with customer traffic declines and reduced profitability.
Image source: Getty Images.
Now what
Despite the outperformance to start its fiscal year, Five Below still predicts only modest sales gains at existing locations in 2018, meaning most of its 20% revenue growth will come from a rising store base. CEO Joel Anderson and his team are predicting a slight drop in profitability, too, as they spend more heavily on wages. Another important trend to watch is customer traffic, which was slightly negative in the most recent quarter.
But investors are likely to continue looking past these slips -- as long as they don't get in the way of management's long-term plan to open as many as 2,500 locations across the U.S., compared to just 650 today.
