Investors have sent Five Below (NASDAQ:FIVE) shares soaring in the past year in response to strong operating results from the youth-focused retailer. Sales and earnings rebounded quickly from their early pandemic slump, and the momentum suggests the chain could easily add hundreds of additional locations to its store base in the next few quarters.

That optimistic outlook might be tested when the company reports its holiday season earnings results in a few days. While we already have some clues about sales and profits during that critical period, the announcement might still set the course for the stock heading deeper into 2021.

So let's take a look at a few metrics to watch out for in the report set for Wednesday, March 17.

Two women shopping together.

Image source: Getty Images.

Growth details

Management's midquarter announcement removed some of the mystery around sales and earnings. Investors already know from the holiday update, for example, that sales had jumped 21% in the two-month period that ended in early January. That increase likely translated into comparable-store sales gains of roughly 11%, or just a small slowdown from Q3's 13% spike.

This week's report will explain how Five Below kept that momentum going. Look for CEO Joel Anderson and his team to highlight their seasonal merchandise offerings as well as the chain's deeper push into products priced at higher than $5 each. Success on this latter initiative could pave the way for a wider selling assortment -- and higher margins -- over time.

Inventory levels

Executives suggested in January that earnings will be strong to close out fiscal 2020. Gross profit margin was "in line with our expectations," they said in a press release, even as expenses were slightly below their plan. These wins should combine to push earnings to between $2.08 per share and $2.12 per share, compared to $1.97 per share a year ago.

That success means Five Below likely didn't have to resort to much discounting during the traditionally competitive holiday shopping period. But keep an eye on inventory levels heading into 2021, since a slim holding there would point to further profit margin expansion ahead.

Looking forward

The highlight of Wednesday's report will be Five Below's updated outlook for 2021 and beyond. Management should issue a bold forecast for store growth, for example, after COVID-19 slowed the expansion strategy last year.

Five Below likely ended the year with 120 new launches, compared to 150 in 2019 and 125 in fiscal 2018. That would put it at just over 1,000 locations spread out across most of the country while leaving room for a record year of openings ahead.

The retailer had been predicting a long-term store footprint as high as 2,500 before COVID-19 scrambled demand in the industry. But a strong finish to 2020 might have management confirming -- if not raising -- that optimistic outlook.

Hitting their latest forecast would mean that sales rose 5% this past year compared to nearly 20% in 2019. But Five Below's 2021 forecast should skew much closer to its 2019 performance, especially since sales are booming at existing stores and the chain is gearing up for a big expansion to its selling footprint over the next few quarters.

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