What happened

Shares of Five Below (NASDAQ:FIVE) popped last month following a solid earnings report that saw net sales surge 23%. Even better was the 50% growth in earnings per share, which beat expectations. Investors cheered the news, sending the shares up 11.7% for the month, according to data provided by S&P Global Market Intelligence.

FIVE Chart

FIVE data by YCharts.

So what

The company's strategy of selling merchandise priced at $5 or less to teenagers has proven very resilient against cutthroat competition. The store has been on fire over the last few years as it grew sales 24% annually between fiscal 2015 and 2017 despite sluggish traffic throughout the industry. 

Speaking about the second quarter, CEO Joel Anderson said, "We saw broad-based strength across our worlds as our high-quality, trend-right products at incredible values continued to resonate with customers." 

Teenage girls shopping

Image source: Getty Images.

One reason for the strong results appears to be management's marketing efforts. The company has been ramping up ads across more TV markets, in addition to testing ads on mobile and social media platforms. Management reported that brand awareness continues to grow across the same 56 markets they have tested for several years.

Now what

The strong quarter has management feeling confident in its ability to grow the store base to 2,500 over the long term, up from 692 at the end of the quarter. Anderson said, "With our increasing scale, digital marketing expansion, and store densification strategy, our brand awareness is growing, and we are seeing great opportunities for product, real estate, and talent." 

The retailer's store count increased 18.5% from the year-ago quarter, which is a brisk rate. And positive growth of 2.7% in stores open at least a year, as well as strong growth on the bottom line, suggest that older stores are generating good returns on investment.

As long as Five Below continues to report positive comps and blistering growth rates on the top and bottom lines, this should continue to be a rewarding growth story over the long term. 

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