What: Specialty clothing retailer Five Below's (NASDAQ:FIVE) stock jumped 17% higher during the month of June, according to S&P Capital IQ data. The bounce put shares at about where they started 2015, although they're up 35% from the 52-week low set in March.
So what: The stock rose in response to better-than-expected quarterly results. On June 3, Five Below announced that its first-quarter sales jumped 22% higher as earnings improved to $0.08 per share from $0.07 per share a year ago. Those top- and bottom-line figures both edged Wall Street's targets.
Investors shouldn't read too much into Five Below's sales gain, though. That 22% improvement mainly came from new locations added to the store base, as opposed to extra customer traffic at existing shops. The company tacked 19 new locations onto its 365-store footprint, but comparable-store sales only increased by 1.7%. The good news is that the retailer sees comps improving at a healthier 5% pace in the current quarter.
Now what: In the meantime, Five Below's management is focused on dramatically expanding its store footprint over the next few years. It plans to launch 70 new shops in 2015, followed by 85 openings next year. "Our number one priority remains store growth," CEO Joel Anderson said in the June press release.
Those store additions will be the biggest driver behind expected revenue of $824 million this year, which would translate into a 21% sales boost over 2014. Five Below is also looking forward to adding several entirely new markets to its portfolio. Last month, for example, it entered the state of Florida with nine stores across the Jacksonville, Orlando, and Tampa metro areas. The retailer now has a physical presence in 25 states.
While the march toward full U.S. coverage shows solid sales growth opportunities, investors should watch comps figures closely over the next few quarters. They are expected to improve from last quarter's weak pace to average 3% for the full year. But if comps stay soft instead, or drift negative, that might force management to scale back its aggressive expansion plans -- making strong overall sales growth that much harder to achieve.
Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Five Below. The Motley Fool is short Five Below. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.