Five Below, Inc. is raising concerns as a result of a possible increase in tariffs announced by the Trump administration, indicating such decision would take a toll on the company’s retail prices.

During an earnings call held on Thursday by president and CEO Joel D. Anderson, he acknowledged that if the administration begins to implement higher tariff rates on Chinese imports, they are prepared to make selective price increases within its inventory of sold products.

“This is a fluid situation and we have been aggressively exploring all options to mitigate the impact,” said Anderson. “We will continue to closely monitor developments and prepare for all contingencies.”

Five Below surpassed analyst expectations as the company reported increases in same-store sales as well as earnings-per-share during its fiscal third quarter. Yet, despite delivering strong results, the retailer still failed to recapture its stock price like many other U.S. companies.  

Prior to the closing bell, Five Below reported a 4.8% increase of $8.1 million in same-store sales. Along with it, the company also demonstrated a diluted EPS increase of 33% to $0.24 per share from $0.18 back in 2017. Both numbers driven from the results of new store openings.

“Third quarter comp sales growth outpaced our mark,” said Zain Akbari, equity analyst at Morningstar. “We have a favorable view of the firm’s growth prospects, given its strong management team and prudent expansion strategy.”

But despite a favorable outlook, the company’s stock price saw a 2.67% decrease to $101.79 per share as the overall S&P 500 market fell due to ongoing tension-related fears of a possible trade war between the U.S. and China.

Five Below, Inc. is discount retail company based in Philadelphia. It currently operates slightly over 750 stores in a range of 30-plus states, offering various merchandise across a number of categories including style, room, sports, tech, toys, party supplies, and seasonal items – all priced between $1 and $5. Unlike competitors such as Dollar Tree and Dollar General that focus on necessities like laundry detergent and toothpaste, it caters to teen and preteen customers.

As a result of the current tariff rate remaining at 10%, Five Below has been quite successful at mitigating its impact through annual freight contracts made in accordance with various merchants and vendor partners such as disney. According to CEO Anderson, they have all been working closely together to lower costs without the need to sacrifice product quality.

“At a 15% tariff rate, it will not impact margins whatsoever. 45% would be a different story,” said John Steger, equity research analyst at the Buckingham Research Group, who agrees that if the rates continue to rise, Five Below profit margins will be affected.

This year, Five Below continues to experience robust results in revenue. Sales in the third quarter were $312.8 million, up 22% from $257.1 million reported back in 2017 due to opening of  35 new store locations across the nation.

However, despite the drop in stock price, analysts believe Five Below will continue to carry on its growth momentum towards the fourth quarter. Goldman Sachs indicates their estimates will increase due to the impressive third quarter results.

“Given the pullback in shares over the past month, we believe shares will react positively to this news,” said Christopher Prykull, analyst at Goldman Sachs.