Five Below Q2 profit falls 44% on debt expenses; drops 7% after hours

Five Below Inc.'s (FIVE) fiscal second-quarter profit fell 44% as the teen discount retailer logged heavy debt-related expenses, masking an increase in sales.

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 ** weekly **

Shares fell 7.6% in after-hours trading to $32.16. Through the close, the stock had more than doubled from its July initial offering price of $17.

Targeting teen and pre-teen shoppers, Five Below offers everything from headphones to nail polish, priced at $5 or less. The company's quickly revolving merchandise is intended to draw in repeat customers, helping it book 25 straight quarters of same-store sales growth.

The latest quarter included a loss of $1.59 million on the extinguishment of debt. Interest expense reached $1.32 million, up from $5000 a year ago. The interest expenses were related to a term loan of $100 million taken in the second quarter, of which $65.3 million was repaid after the company's public launch.

For the quarter ended July 28, the company posted a profit of $1.25 million, down from $2.21 million a year earlier. On a per-share basis, which includes the effects of dividend payments, the company reported a loss of $3.41, compared with a year-ago loss of 10 cents. Excluding dividend payments and expenses related to founders' stock compensation, per-share earnings were flat at four cents.

Sales increased 40% to $86.8 million.

Analysts polled by Thomson Reuters expected a per-share profit of a penny on sales of $82 million.

Gross margin widened to 33.1% from 32.3%.

Same-store sales grew 8.6%.

Five Below opened 27 stores in the second quarter, ending with 226 stores.

For the current quarter, the company expects to report per-share income of breakeven to a penny, excluding tax-related expenses, on revenue of $79 million to $81 million. Analysts polled by Thomson Reuters recently expected per-share earnings of breakeven on revenue of $80 million.

For the year, Five Below expects adjusted per-share earnings of 45 cents to 47 cents, with sales of $402 million to $407 million. The Street expected per-share earnings of 44 cents on revenue of $399 million.