What happened

Shares of cheap chic retailer Five Below (NASDAQ:FIVE) jumped as much as 10.5% or so in the first hour of trading on Sept. 3. Following right along was "hands-on" lifestyle retailer Duluth Holdings (NASDAQ:DLTH), which rose about 11.5%. Bucking the trend here was Sportsman's Warehouse Holdings (NASDAQ:SPWH), which fell nearly 12%. 

All of the dramatic moves had waned by 11 a.m. EDT. At that point in the trading day gains at Five Below and Duluth had been pared to around 7%. Sportsman's Warehouse, meanwhile, had clawed back some of its losses and was down by roughly 10%. The key driver in all of these moves, meanwhile, was earnings.

Two people with shopping bags standing in a mall

Image source: Getty Images.

So what

Five Below reported earnings after the market closed on Sept. 2. Investors clearly liked what they saw, with the teen-focused retailer beating on both the top and bottom lines. Revenue increased 2.1% year over year in the second quarter with earnings up roughly 4%. These are pretty impressive results given the COVID-19 related headwinds retailers faced through the first six months of the year, suggesting that Five Below's brand is still going strong. In fact, the company opened 63 new stores in the quarter, while also undertaking the reopening of the locations it was forced to shutter because of coronavirus-related mandates. More new store openings are on the way, according to the company. All in, it's pretty clear that Five Below continues to thrive even during these difficult times.   

Duluth Holdings, which also beat on the top and bottom lines, had an even better second quarter. The retailer's sales were up roughly 12.5% year over year in the quarter, with net income rocketing to $0.18 per share compared to $0.06 in the same period of 2019. Investors were understandably pleased with the results. Of note, the company's online sales in the quarter jumped by 66%, more than offsetting a 40% drop in sales at physical locations. Duluth's customer base appears to be pretty loyal to the brand. Duluth noted that all of its physical stores had reopened by June 15.   

SPWH Chart

SPWH data by YCharts

On the other end of the ledger today was Sportsman's Warehouse, which reported after the close on Sept. 2. Despite it beating both revenue and earnings estimates, investors pushed the stock lower in early trading today. When you look at the numbers Sportsman's Warehouse put up it's hard to understand Wall Street's dour view. For example, revenue was higher by an incredible 80% year over year in the second quarter, with earnings jumping to $0.73 per share from just $0.13 in the same period of 2019. That said, when you step back and look at the big picture, the reason for the price drop becomes a little more understandable. Sportsman's Warehouse has been benefiting from materially increased demand in the face of COVID-19. Realizing this, investors have pushed the shares up more than 90% so far in 2020 (including the day's decline, they were up nearly 120% not too long ago). By comparison, Five Below and Duluth are down 1% and up 7%, respectively so far in 2020. Sportsman's Warehouse investors appear to be locking in some gains. That's not an unreasonable decision.  

Now what

The news at Five Below and Duluth speak to the notable underlying strength of each of their brands. Long-term investors should be impressed with how well both are executing in the face of material headwinds. Sportsman's Warehouse is a tougher call. Yes, the retailer is doing very well today, but that's partially because of the boost it's gotten from COVID-19-related demand. In other words, at least some part of its recent success, and perhaps a lot of it, could prove temporary. With so much good news priced into the shares so far this year, investors might want to tread carefully.

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.