Five Below Inc. (FIVE) - Get Report shares fell sharply Thursday after it posted stronger-than-expected first quarter earnings and an improved 2019 outlook as the looming threat of tariffs on China-made imports continues to hang over the discount retailer.

Five below said earnings for the three months ending on May 4 came in at 46 cents per share, up 18% from the same period last year and firmly ahead of the Street consensus forecast of 35 cents per share. Group revenues, the company said, rose 23% to $364.8 million, bumping past analysts' forecasts of a $362.3 million tally.

Looking into 2019, Five Below said is expects full year net sales in the region of $1.865 billion ti $1.885 billion and earnings of between $3.11  and $3.18 per share, with both the top and bottom line forecasts coming in ahead of estimates compiled by Refinitiv. The threat of tariffs on $300 billion worth of China-made goods, however, alongside an increased levy on $250 in imports put in place last month, likely means price increases and offsets that could trim earnings potential.

  • Five Below is Jim Cramer's Real Money Stock of the Day

"As a value-driven retailer we are concerned about higher tariffs as they will be impactful to our business and lead to higher prices," CEO Joel Anderson told investors on a conference call late Wednesday. "With the current $250 billion of products imported from China subject to tariffs, about 15% of our total receipts for 2019 are impacted including both directly and indirectly imported products."

"As we previously discussed we were able to fully mitigate both the dollar and the margin rate impact of the 10% tariff," he added. "We expect to mitigate the jump to 25% and are working on a number of options to do so including vendor negotiations, price increases on our $1 to $4 items, process efficiencies and overtime moving production to other countries."

Five Below shares were marked 4% lower Thursday to change hands at $118.06 each, a move that would trim stock's year-to-date gain to around 17% and value the Philadelphia, Pa.-based retailer at just over $6.6 billion.

"Regarding tariffs, 15% of FIVE's purchases are exposed to list 3 tariffs. Management believes it can mitigate this impact through vendor negotiations and selective price increases in its $1-$4 items," said KeyBanc Captial Markets analyst Bradley Thomas. "Additionally, FIVE will be testing some >$5 price-points (up to $5.55) to mitigate ongoing tariff risk."

"While the potential of a list 4 tariff looms heavy over FIVE, management is executing admirably in its merchandising, marketing, store remodels, and new store productivity." Thomas added.

"This dire situation has been so fluid," Anderson told investors Wednesday. "I mean look at the last 72 hours we've had potential tariffs announced in India and Mexico. At one point in time, we thought China was going away. And so the bottom line (is that) we are focused on what's been placed into law, it tranches one, two, three."

"And like we have mitigated those, we'll then focus on four. But I think it's too early to speculate as we assume there's going to be lots of exceptions just like there were in groups one, two, three," Anderson said. "But at this point, we're fully focused on mitigating one, two, three."