Discount retailer Five Below (US:FIVE) – which earned its name for offering products between the $1 to $5 range – delivered its earnings result for the second quarter on Aug. 31. Notably, the company generated net sales of $668.9 million, representing a 3.5% lift from the year-ago tally of $646.6 million, according to Five Below’s press release.

As well, the retailer opened 27 new stores, ending the quarter with 1,252 stores in 40 states. This metric represented an 11.7% year-over-year increase.

However, the profitability angle is where challenges became conspicuous for market observers. Management reported operating income of $56 million, comparing unfavorably to the $86.2 million posted in Q2 2021. Net income came out to $41.3 million, compared to $64.8 million one year ago.

Diluted income per common share was 74 cents, slipping below the $1.15 posted in Q1 of last year. Per Five Below’s press release, Q2 2021 “included a $0.01 benefit from share-based accounting.”

According to data provided by Zacks Equity Research, both the top and bottom lines missed covering analysts’ expectations. Ahead of the Q2 disclosure, Wall Street anticipated earnings per share to hit 77 cents. For revenue, analysts pegged the consensus target at $679.8 million.

Moving forward, Five Below estimates Q3 2022 net sales to range between $600 million to $619 million, compared with $607.6 million in the year-ago period. This guidance missed Wall Street’s consensus target of $631.8 million.

“We delivered earnings per share within our guidance range despite lower than expected sales, which we believe were largely driven by the impact of accelerated inflation on our customers’ purchasing behavior during the quarter,” stated Five Below president and CEO, Joel Anderson. “We have revised our guidance for the year to reflect our year-to-date performance and updated second half outlook.”

A day after the earnings report, FIVE stock bounced higher. However, it incurred a loss of around 5% to close out the Friday session before the Labor Day weekend.

The challenged results come amid broader weakness in the equities sector. According to Federal Reserve chair Jerome Powell in his Aug. 26 speech at the annual economic symposium at Jackson Hole, Wyoming, the central bank is committed to attacking multidecade highs in inflation. Indeed, Powell acknowledged that the scope of the mitigation efforts will bring “some pain to households and businesses.”

The market generally reacted poorly to the Fed chair’s statement because a higher borrowing cost environment disincentivizes commercial growth initiatives. However, with Five Below’s management team citing “accelerated inflation” as a critical headwind to its retail business, FIVE stock may have the potential to recover some of its earlier losses as purchasing power rises.