Five Store
Image source: Five Below.

Retailers have generally had a tough time during the current earnings season, as major companies like Nordstrom (NYSE:JWN) have struggled to get shoppers to spend as much as they have in the past. For teen-oriented discount retailer Five Below (NASDAQ:FIVE), a fashion-fickle customer base always introduces an element of uncertainty into its financial performance, and coming into Thursday's fiscal third-quarter report, Five Below investors had seen shares slump to their worst levels of the year on concerns that it wouldn't be able to avoid retail's woes. Yet Five Below's results told a different story, with impressive gains in sales and net income. Let's take a closer look at how Five Below did last quarter and whether it can carry positive momentum into the holiday season.

How Five Below bounced back
Five Below's third-quarter numbers were solid from top to bottom. Revenue jumped 23% to $169.7 million, outpacing the roughly 21% growth pace that investors had wanted to see. Similarly, net income soared 31% from year-ago levels, and that produced earnings of $0.08 per share. That topped the consensus forecast among investors by a penny per share.

Looking more deeply at Five Below's numbers, the discounter saw growth in comparable-store sales accelerate to 4.8% for the quarter. Operating income jumped almost 28%, and the company opened 17 net new stores during the quarter, finishing the period with a network of 434 locations and representing growth of 19% in the past year alone. Gross margins climbed by a full percentage point from year-ago figures, but overhead expenses grew at a slightly faster rate than revenue, offsetting much of the gain in operating margins over the past 12 months.

CEO Joel Anderson was happy about how Five Below did during the quarter. "Continued strength in the performance of our new stores and above-plan comp results were driven by our compelling assortment of trend-right products at a great value," Anderson said. The CEO was pleased to see the company's value proposition resonating well with its core customer base. That was also good news for investors, especially given some of the problems that Nordstrom has seen even at its popular Nordstrom Rack discount chain.

What's ahead for Five Below?
At the same time, Five Below recognizes that the most important time of the year is here for the retailer. "We have been in preparation mode for the fourth quarter all year," Anderson said, "and believe we are well-positioned for the peak holiday weeks that lie ahead." The CEO pointed to new marketing campaigns that the company hopes will build excitement and make Five Below a destination for holiday shoppers.

Five Below also delivered some small changes to its guidance, with adjustments in both directions. For the full 2015 fiscal year, Five Below boosted the lower end of its expected range of revenue, now anticipating sales between $823 million and $828 million. Yet on the company's earnings guidance, Five Below reduced the higher end of its previous range, with current projections for between $1.03 and $1.05 per share.

In the short run, Five Below sees a fourth quarter that is roughly consistent with current expectations among investors. The retailer expects sales of $318 million to $323 million, with comparable-store sales growth of 2% to 3% and two new stores opening during the period. Net income of between $40.8 million and $41.9 million should produce earnings of $0.74 to $0.76 per share, all of which is in line with the current forecasts among those investors following the stock.

Five Below investors were extremely relieved at seeing the company avoid the fate that Nordstrom and other retail peers have seen following their respective releases. In after-hours trading following the announcement, Five Below stock quickly jumped to gains of nearly 8%. With the company having rosy outlooks for the holiday quarter, investors hope that Five Below will deliver performance above their expectations well into 2016.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool is short Five Below. The Motley Fool recommends Five Below and Nordstrom. 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.