Financial Data and Key Metrics Changes - Total sales for Q3 2024 were $179.1 million, with comparable sales growth of 5.7% compared to the prior year [11][33] - Gross margin expanded by 160 basis points to 39.8%, with gross profit dollars increasing by 3.9% year-over-year [19][36] - Adjusted SG&A expenses totaled $74.6 million, an increase of $3.7 million versus last year, driven by strategic costs aimed at future growth [38][39] Business Line Data and Key Metrics Changes - Positive trends were observed across both apparel and non-apparel categories, with children's apparel performing particularly well due to improved product assortment and allocation tactics [12][13] - Non-apparel categories, especially home and lifestyle, also showed strength, benefiting from strategic inventory investments [13] Market Data and Key Metrics Changes - Comparable sales improved each month during Q3, culminating in high single-digit growth in October, indicating strong customer traffic and transaction growth [10][12] - The company noted a significant reduction in inventory aged 7 months or older, which made up only 3% of Q3 end-of-period inventory [35] Company Strategy and Development Direction - The company is focused on a core African American customer base, aiming to refine product assortments that resonate with this demographic [24] - A balanced product value proposition is being reinforced, with an increased selection of goods priced under $5 to attract lower-income customers [25] - The company plans to return to new store growth in 2025 and beyond, while also implementing a remodel and refresh program for existing stores [78][80] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the positive customer response to recent strategic changes, particularly in November [58][102] - The company expects second-half comparable store sales to increase low to mid-single digits year-over-year, with total sales expected to be flat to down slightly due to store closures [44][46] Other Important Information - The company has a strong balance sheet with no debt and $39 million in cash, allowing for share repurchases and funding of business initiatives [40][41] - Approximately $1.6 million in one-time strategic expenses were incurred in Q3, aimed at stabilizing operational practices for long-term growth [23] Q&A Session Summary Question: What is the guidance for Q4 sales given the strong start in November? - Management acknowledged the exceptional performance in November but noted caution due to tougher comparisons in December and January [58][60] Question: What portion of Q4 sales comes in December? - Management indicated that December accounts for about 50% of Q4 sales [63] Question: What is the current impact of shrink on margins? - Management estimated shrink is currently a drag of 50 to 70 basis points compared to historical levels, with improvement expected into 2025 [64][66] Question: What is the long-term EBITDA margin target for the business? - Management aims to return EBITDA margins to historical levels of 5% to 6% [88][90] Question: What is the expected long-term SG&A cost? - Management indicated that a quarterly SG&A of around $73 million is a reasonable target moving forward [93] Question: How does the current turnaround compare to past experiences? - Management highlighted the unique operational challenges faced and the quick positive customer response as key differences in this turnaround [100][102]

Financial Results - Citi Trends, Inc. announced preliminary financial results for Q3 fiscal 2024, with specific figures to be detailed in the attached press release[5]. Executive Appointments - Kenneth D. Seipel has been appointed as the permanent Chief Executive Officer, effective November 18, 2024, after serving as Interim CEO[7]. - The Board appointed Peter Sachse as Chairman of the Board, effective November 18, 2024, following Mr. Seipel's appointment[13]. Compensation and Incentives - Mr. Seipel's annual base salary is set at $725,000, with a potential annual cash incentive of up to 200% of a prorated target amount based on earnings performance[9]. - The company plans to grant Mr. Seipel 80,000 restricted shares of common stock, vesting over three years, and an additional performance-based grant of approximately 321,500 restricted shares[9]. - The performance-based shares will vest based on achieving specific stock price hurdles, each representing a 20% increase in stock price over a three-year period[9]. Press Release - The press release regarding the CEO appointment and preliminary financial results is incorporated into the current report[14].

Financial Performance - Net sales for the twenty-six weeks ended August 3, 2024, were $362,841,000, compared to $353,242,000 for the same period in 2023, representing an increase of about 2.3%[8] - The net loss for the thirteen weeks ended August 3, 2024, was $21,839,000, compared to a net loss of $11,667,000 for the same period in 2023, indicating a worsening of approximately 87.1%[9] - Basic net loss per common share for the thirteen weeks ended August 3, 2024, was $(2.63), compared to $(1.42) for the same period in 2023, reflecting a significant increase in losses per share[8] - The company reported a loss from operations of $31,865,000 for the twenty-six weeks ended August 3, 2024, compared to a loss of $17,382,000 for the same period in 2023, indicating a deterioration of approximately 83.5%[8] - The net loss for the second quarter of 2024 was $18.4 million, compared to a net loss of $6.6 million in the same period of 2023[21] - The company reported an asset impairment of $1,261,000 for the twenty-six weeks ended August 3, 2024, compared to no impairment in the same period of 2023[8] Assets and Liabilities - Total assets decreased from $518,721,000 as of February 3, 2024, to $506,731,000 as of August 3, 2024, a decline of approximately 2.3%[5] - Total current liabilities increased from $169,904,000 as of February 3, 2024, to $185,483,000 as of August 3, 2024, an increase of approximately 9.1%[5] - Total current assets decreased from $225,099 thousand as of February 3, 2024, to $215,116 thousand as of August 3, 2024[5] - Total liabilities increased from $361,015 thousand as of February 3, 2024, to $370,141 thousand as of August 3, 2024[5] - Total stockholders' equity decreased from $157,706,000 as of February 3, 2024, to $136,590,000 as of August 3, 2024, a decline of approximately 13.4%[6] Cash Flow and Liquidity - Cash and cash equivalents decreased from $79,706,000 at the beginning of the period to $59,302,000 at the end, a decline of about 25.6%[9] - Total cash and cash equivalents at the end of the period were $59,302,000, down from $65,820,000 at the end of July 29, 2023, indicating a decrease in liquidity[9] - Cash used in operating activities for the twenty-six weeks ended August 3, 2024, was $(13,996,000), a decrease from $(29,961,000) in the same period of 2023, showing improved cash flow management[9] Inventory and Operating Costs - Inventory increased from $130,432,000 as of February 3, 2024, to $134,996,000 as of August 3, 2024, an increase of approximately 3.6%[5] - Operating lease liabilities increased from $45,842,000 to $49,071,000, reflecting a rise of about 4.9%[5] - Operating lease costs for the weeks ended July 29, 2023, totaled $18,921 thousand, while for the weeks ended August 3, 2024, they were $18,322 thousand, indicating a decrease[31] - Total lease costs for the first half of 2024 amounted to $37.047 million, compared to $37.965 million for the first half of 2023[31] Shareholder Information - The weighted average number of common shares outstanding (basic) for the second quarter of 2024 was 8,336,629, compared to 8,224,762 for the same period in 2023[17] - The weighted average number of basic shares outstanding increased to 8,295,000 for the twenty-six weeks ended August 3, 2024, from 8,203,000 in the same period of 2023[8] - The weighted average number of common shares outstanding (diluted) increased to 8,294,593 as of August 3, 2024, from 8,203,497 in the previous year[18] - There were no stock repurchases in the first half of 2024 or 2023, with $50 million remaining available under the stock repurchase authorization[27] Store Operations - As of August 3, 2024, the company operated 597 stores across 33 states[13] - The company’s retail operations represent a single operating segment, with similar products and processes across its stores[28] Tax and Deferred Assets - The company had approximately $13.7 million in net deferred tax assets as of August 3, 2024[23] - As of August 3, 2024, the company had approximately $13.7 million in net deferred tax assets (DTA), with $9.7 million related to net operating loss (NOL) carryforwards[23][24] Accounting and Reporting - The company is currently evaluating the impact of new accounting standards issued by the FASB regarding segment reporting and income tax disclosures[36][37]

Financial Data and Key Metrics Changes - Total sales in Q2 2024 increased by 1.7% compared to the previous year, while comparable store sales decreased by 1.7% [20] - Adjusted gross margin for Q2 was 31.1%, significantly lower than recent history due to inventory markdowns and shrink expenses [22] - The company ended Q2 with a strong balance sheet, including no debt and $59 million in cash, resulting in total liquidity of approximately $134 million [23] Business Line Data and Key Metrics Changes - The home and impulse categories delivered double-digit comparable sales growth, while back-to-school children's categories started strong [4] - Footwear continued to be a drag on the business, while home and impulse categories performed well [28] Market Data and Key Metrics Changes - The company reported strong customer traffic growth, indicating high engagement with the Citi Trends brand [4] - Approximately 80% of store markets returned to school by the end of Q2, compared to only 14% at the end of the previous quarter [20] Company Strategy and Development Direction - The company is focusing on refining its product assortment strategy to include a balanced mix of good, better, and best products, with an emphasis on opening price points and branded goods [19][12] - A targeted approach towards the core African-American consumer is being implemented to enhance product offerings and customer engagement [10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's future, citing control over internal opportunities and a strong financial position as key factors for growth [8] - The company expects second-half comparable store sales to be flat to up low single-digits, with total sales anticipated to decline mid-single-digits due to store closures [24] Other Important Information - The company incurred $13.4 million in one-time expenses related to inventory reset and shrink, which are not reflective of the underlying business strength [15] - Inventory was approximately flat compared to last year, with strategic packaway buys making up about 23% of the end-of-quarter inventory [23] Q&A Session Summary Question: What drove the decline in comparable store sales? - Management noted that while transactions were up, basket sizes were under pressure due to fewer items per transaction, with footwear continuing to be a drag on sales [28] Question: How will the increased shrink accrual impact future quarters? - The increased accrual will continue to be a drag on gross margin but is incorporated into the guidance for the second half of the year [29] Question: Can you elaborate on the aged inventory write-downs? - The company overpurchased inventory in Q1, leading to a backlog that required aggressive markdowns to clear [32] Question: How is the new ERP system performing? - The new ERP system has complexities that require simplification for better execution, with plans to enhance allocation processes [33] Question: What are the expectations for same-store sales trends in Q3 and Q4? - Management indicated that while comparisons may get tougher, they are focused on driving top-line growth through improved product offerings and customer engagement [39]

Financial Performance - Total sales increased by 1.7% to $176.6 million in Q2 2024 compared to Q2 2023, while comparable store sales decreased by 1.7%[2] - Gross margin decreased to 31.1% in Q2 2024 from 38.2% in Q2 2023, impacted by $9.4 million in markdowns and $4.0 million in shrink[2] - Net loss for Q2 2024 was $18.4 million, compared to a net loss of $5.0 million in Q2 2023[2] - Adjusted EBITDA loss was $17.2 million in Q2 2024, including $13.4 million of transition expenses, compared to a loss of $3.1 million in Q2 2023[2] - Net sales for the quarter ended August 3, 2024, were $362,841 thousand, an increase from $353,242 thousand for the same period last year, representing a growth of approximately 4.5%[14] - Gross profit margin decreased to 35.0% in Q2 2024 from 37.5% in Q2 2023, indicating a decline in profitability[21] - The net loss for the quarter was $21,840 thousand, compared to a net loss of $11,667 thousand in the same quarter last year, reflecting a worsening of approximately 87.5%[14] - Adjusted net loss for the quarter was $16,202 thousand, compared to $4,916 thousand in the prior year, indicating a significant increase in losses[17] - Basic and diluted net loss per share for the quarter was $(2.63), compared to $(1.42) in the same quarter last year, showing a decline of approximately 85.4%[14] Store Operations - The company opened 1 new store, closed 3 stores, and remodeled 15 stores, ending the quarter with 597 locations[2] - The company plans to close 10 to 15 underperforming stores in fiscal 2024, expecting to end the year with approximately 590 stores[8] Future Outlook - The outlook for the second half of fiscal 2024 includes expectations for comparable store sales to be flat to up low-single digits, with total sales expected to decline mid-single digits[8] - Second half gross margin is expected to be approximately 39%, with EBITDA projected to be positive in the range of $0.5 million to $2.5 million[8] - Cash balance at year-end is expected to be between $60 million and $70 million, with capital expenditures reduced by 35% to approximately $13 million[8] Asset and Liability Management - Total assets decreased to $506,731 thousand as of August 3, 2024, down from $526,507 thousand as of July 29, 2023, a reduction of about 3.7%[15] - Total liabilities remained relatively stable at $370,141 thousand compared to $370,554 thousand in the previous quarter[15] - Cash and cash equivalents decreased to $59,302 thousand from $65,820 thousand in the previous quarter, a decline of approximately 8.5%[15] Operational Challenges - The company has engaged a consulting firm to address shrinkage issues and improve operational efficiency[3] - The company incurred asset impairment expenses of $1,261 thousand related to a cyber incident during the quarter[17] - Cyber incident expenses amounted to $36 million, down from $1,723 million in the previous quarter[23] - Other non-recurring expenses totaled $3,009 million, with no expenses reported in the prior quarter[23] Interest and Tax Expenses - Interest income decreased to $(1,460) million from $(1,910) million[23] - Interest expense slightly increased to $158 million from $152 million[23] - Income tax benefit expense was $(8,724) million, compared to $(3,957) million in the previous quarter[23] Depreciation and Impairment - Depreciation increased to $9,576 million, compared to $9,389 million in the prior quarter[23] - Asset impairment charges were $1,261 million, with no charges reported in the previous quarter[23]

Financial Performance - Net sales for the thirteen weeks ended May 4, 2024, were $186.3 million, an increase of 3.6% compared to $179.7 million for the same period in 2023[34]. - The company reported a net loss of $3.4 million for the first quarter of 2024, improving from a net loss of $6.6 million in the first quarter of 2023[34]. - Basic and diluted net loss per common share for the first quarter of 2024 was $0.42, compared to $0.81 for the same period in 2023[34]. - The company experienced a loss from operations of $7.0 million for the first quarter of 2024, an improvement from a loss of $9.5 million in the first quarter of 2023[34]. Equity and Liabilities - Total stockholders' equity decreased to $154.8 million as of May 4, 2024, from $157.7 million as of February 3, 2024[32]. - Total liabilities and stockholders' equity amounted to $484.1 million as of May 4, 2024, down from $518.7 million as of February 3, 2024[32]. - The company had no borrowings under its credit facility as of May 4, 2024, with $1.4 million in letters of credit outstanding[43]. - The company reported a decrease of $14.5 million in accrued expenses and other long-term liabilities in Q1 2024, compared to a $20.0 million decrease in Q1 2023[46]. Expenses - Selling, general and administrative expenses increased to $74.2 million in the first quarter of 2024, compared to $70.8 million in the first quarter of 2023[34]. - Interest income for the first quarter of 2024 was $849,000, down from $1.0 million in the first quarter of 2023[34]. - Significant uses of cash included a $28.1 million decrease in accounts payable compared to an increase of $9.1 million in the first quarter of 2023[46]. - Significant cash uses in Q1 2024 included a $28.1 million decrease in accounts payable, contrasting with a $9.1 million increase in Q1 2023[46]. Shareholder Information - As of April 29, 2023, the company reported net income of $(6,635) million, with retained earnings at $324,415 million[38]. - The company had 16,116,915 common shares outstanding as of April 29, 2023, reflecting a decrease from 16,158,494 shares at the beginning of the year[38]. - The company excluded 272,000 shares of nonvested restricted stock from the diluted earnings per share calculation for Q1 2024[40]. Cash Requirements and Commitments - The company’s cash requirements primarily consist of inventory purchases, capital expenditures, and operational needs[47]. - Contractual commitments for operating leases totaled $229.9 million, with $41.1 million due within the next 12 months[47]. Accounting and Reporting - The condensed consolidated financial statements are prepared in accordance with U.S. GAAP and reflect all necessary adjustments for fair presentation[39]. - The operating results for Q1 2024 may not be indicative of the full fiscal year due to seasonality and economic uncertainty[39].

Citi Trends, Inc. (NASDAQ:CTRN) Q1 2024 Earnings Conference Call June 4, 2024 9:00 AM ET Company Participants Nitza McKee - Senior Associate, ICR Ken Seipel - Interim CEO Heather Plutino - CFO Conference Call Participants Michael Baker - D.A. Davidson Jeremy Hamblin - Craig-Hallum Capital Group John Lawrence - Benchmark Operator Greetings, and welcome to the Citi Trends First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session ...

[First Quarter Fiscal 2024 Overview](index=1&type=section&id=First%20Quarter%20Fiscal%202024%20Overview) Citi Trends reported improved financial performance in Q1 Fiscal 2024, with positive sales growth and gross margin expansion, alongside a strong balance sheet with ample liquidity and no debt [Key Performance Highlights](index=1&type=section&id=1.1%20Key%20Performance%20Highlights) Citi Trends reported improved financial performance in Q1 Fiscal 2024, with positive sales growth and gross margin expansion, alongside a strong balance sheet with ample liquidity and no debt. The company also continued its store optimization efforts Key Performance Highlights (Q1) | Metric | Q1 2024 | Q1 2023 | | :-------------------------------- | :------ | :------ | | Total Sales ($M) | $186.3 | $179.7 | | Comparable Sales Growth | 3.1% | N/A | | Gross Margin | 38.7% | 36.7% (reported) / 37.0% (adjusted) | | Operating Loss ($M) | ($7.0) | ($9.5) | | Adjusted Operating Loss ($M) | ($5.6) | ($7.9) | | Adjusted EBITDA Loss ($M) | ($0.8) | ($3.2) | | Net Loss Per Share | ($0.42) | ($0.81) | | Adjusted Net Loss Per Share | ($0.32) | ($0.66) | | Cash at Quarter-End ($M) | $58.2 | N/A | | Inventory Increase (YoY) | 4% | N/A | - Closed **3 stores** and remodeled **20 stores** in Q1 2024, ending the quarter with **599 locations**. An additional **15 stores** were remodeled in Q2 2024 to date, bringing **21% of the fleet** to the CTx format[6](index=6&type=chunk) - The company maintains ample liquidity with **$58.2 million in cash** at quarter-end, no debt, and no borrowings under its **$75 million credit facility**[1](index=1&type=chunk)[6](index=6&type=chunk) [Interim Chief Executive Officer's Remarks](index=1&type=section&id=1.2%20Interim%20Chief%20Executive%20Officer's%20Remarks) Interim CEO Ken Seipel highlighted Q1 performance improvements, strategic initiatives for profitable growth, and financial discipline, while acknowledging the challenging economic environment and the departure of former CEO David Makuen - The company registered a **3.1% comparable sales increase** and a **160 basis point gross margin expansion**, aided by inventory rebuild in targeted product categories and improved in-store experiences[4](index=4&type=chunk) - Strategic focus areas include driving profitable sales, sharpening product assortment, streamlining costs, optimizing the supply chain, improving inventory returns, and leveraging recent technology investments[4](index=4&type=chunk) - The balance sheet has ample liquidity and no debt, providing flexibility to fund business opportunities, despite a challenging economic environment for lower-income consumers[4](index=4&type=chunk) - David Makuen stepped down as CEO on May 31, 2024, after **four years of leadership**, during which he shaped the company's culture through challenging consumer environments[4](index=4&type=chunk) [About Citi Trends](index=1&type=section&id=1.3%20About%20Citi%20Trends) Citi Trends, Inc. is a prominent specialty value retailer catering primarily to African American and multicultural families in the United States, offering apparel, accessories, and home trends at competitive prices - Citi Trends is a leading specialty value retailer of apparel, accessories, and home trends[2](index=2&type=chunk)[11](index=11&type=chunk) - The primary target demographic is African American and multicultural families in the United States[2](index=2&type=chunk)[11](index=11&type=chunk) - The company operates **599 stores** across **33 states**[6](index=6&type=chunk)[11](index=11&type=chunk) [Financial Results - First Quarter Fiscal 2024](index=1&type=section&id=Financial%20Results%20-%20First%20Quarter%20Fiscal%202024) Citi Trends reported an increase in net sales year-over-year but continued to experience a net loss, albeit a reduced one compared to the prior year, with improved operating loss [Condensed Consolidated Statements of Operations](index=5&type=section&id=2.1%20Condensed%20Consolidated%20Statements%20of%20Operations) For the first quarter of 2024, Citi Trends reported an increase in net sales year-over-year but continued to experience a net loss, albeit a reduced one compared to the prior year. Operating loss also improved Condensed Consolidated Statements of Operations (Q1, in thousands) | Metric | Q1 2024 | Q1 2023 | Q1 2022 | | :--------------------------------------- | :------ | :------ | :------ | | Net sales | $186,289 | $179,688 | $208,215 | | Cost of sales | ($114,254) | ($113,659) | ($127,011) | | Selling, general and administrative expenses | ($74,211) | ($70,807) | ($71,026) | | Depreciation | ($4,793) | ($4,681) | ($5,445) | | (Loss) Income from operations | ($6,969) | ($9,460) | $39,653 | | Net (loss) income | ($3,426) | ($6,635) | $30,203 | | Basic net (loss) income per common share | ($0.42) | ($0.81) | $3.59 | | Diluted net (loss) income per common share | ($0.42) | ($0.81) | $3.59 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=2.2%20Condensed%20Consolidated%20Balance%20Sheets) As of May 4, 2024, Citi Trends maintained a healthy balance sheet with no debt, a decrease in cash and cash equivalents, and a slight increase in inventory compared to the prior year Condensed Consolidated Balance Sheets (as of, in thousands) | Metric | May 4, 2024 | April 29, 2023 | | :-------------------------- | :---------- | :------------- | | Cash and cash equivalents | $58,169 | $88,707 | | Inventory | $119,014 | $114,322 | | Total assets | $484,102 | $534,430 | | Total liabilities | $329,269 | $374,468 | | Total stockholders' equity | $154,832 | $159,962 | - The company reported **no debt** at quarter-end[1](index=1&type=chunk)[6](index=6&type=chunk) [Capital Return Program Update](index=1&type=section&id=2.3%20Capital%20Return%20Program%20Update) Citi Trends did not repurchase any shares of its common stock during the first quarter of fiscal 2024, with a significant amount remaining available under its existing share repurchase program - No shares of common stock were repurchased in the first quarter of fiscal 2024[5](index=5&type=chunk) - **$50.0 million** remained available under the Company's share repurchase program at the end of Q1 2024[5](index=5&type=chunk) [Fiscal 2024 Outlook](index=3&type=section&id=Fiscal%202024%20Outlook) Citi Trends has updated its fiscal 2024 outlook, slightly adjusting comparable store sales growth expectations while maintaining previous guidance for gross margin expansion and EBITDA [Full Year Guidance](index=3&type=section&id=3.1%20Full%20Year%20Guidance) Citi Trends has updated its fiscal 2024 outlook, slightly adjusting comparable store sales growth expectations while maintaining previous guidance for gross margin expansion and EBITDA. The company continues its fleet optimization strategy and capital expenditure plans Fiscal 2024 Outlook | Metric | Outlook | Change from Previous Outlook | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Comparable Store Sales Growth | Low to mid-single digits | Slightly below previous outlook | | Gross Margin Expansion | Approximately 75 to 100 basis points | Consistent with previous outlook | | SG&A Dollars Increase | Approximately 1.5% to 2.5% | Slightly better than previous outlook | | Full Year EBITDA* ($M) | $4 million to $10 million | Unchanged from previous outlook | | New Stores | Up to 5 | Unchanged | | Remodeled Stores | Approximately 40 | Unchanged | | Underperforming Stores Closed | 10 to 15 | Unchanged | | Expected Stores at Fiscal Year-End | Approximately 595 | Unchanged | | Full Year Capital Expenditures ($M) | Approximately $20 million | Unchanged | [Non-GAAP Financial Measures](index=3&type=section&id=Non-GAAP%20Financial%20Measures) Citi Trends provides reconciliations for several non-GAAP financial measures, including adjusted operating income, adjusted diluted EPS, adjusted EBITDA, and adjusted gross margin [Reconciliation of Non-GAAP Measures](index=7&type=section&id=4.1%20Reconciliation%20of%20Non-GAAP%20Measures) Citi Trends provides reconciliations for several non-GAAP financial measures, including adjusted operating income, adjusted diluted EPS, adjusted EBITDA, and adjusted gross margin. These adjustments aim to offer a clearer view of ongoing operating performance by excluding non-recurring items like cyber incident expenses and other non-recurring expenses - Non-GAAP measures are used to reflect operating results more indicative of ongoing performance and improve comparability, but are not a substitute for GAAP measures[10](index=10&type=chunk)[19](index=19&type=chunk) Reconciliation of Adjusted Operating (Loss) Income (Q1, in thousands) | Metric | May 4, 2024 | April 29, 2023 | | :-------------------------- | :---------- | :------------- | | Operating loss | ($6,969) | ($9,460) | | Cyber incident expenses | — | $1,560 | | Other non-recurring expenses | $1,380 | — | | Adjusted operating loss | ($5,589) | ($7,900) | Reconciliation of Adjusted Diluted EPS (Q1) | Metric | May 4, 2024 | April 29, 2023 | | :-------------------------- | :---------- | :------------- | | Diluted loss per share | ($0.42) | ($0.81) | | Cyber incident expenses | — | $0.19 | | Other non-recurring expenses | $0.17 | — | | Tax effect | ($0.07) | ($0.04) | | Adjusted diluted loss per share | ($0.32) | ($0.66) | Reconciliation of Adjusted EBITDA (Q1, in thousands) | Metric | May 4, 2024 | April 29, 2023 | | :-------------------------- | :---------- | :------------- | | Net loss | ($3,426) | ($6,635) | | Interest income | ($849) | ($1,023) | | Interest expense | $79 | $75 | | Income tax benefit | ($2,773) | ($1,876) | | Depreciation | $4,793 | $4,681 | | Cyber incident expenses | — | $1,560 | | Other non-recurring expenses | $1,380 | — | | Adjusted EBITDA | ($796) | ($3,218) | Reconciliation of Adjusted Gross Margin (Q1, in thousands) | Metric | May 4, 2024 | April 29, 2023 | | :-------------------------- | :---------- | :------------- | | Gross profit | $72,035 | $66,029 | | Gross margin | 38.7% | 36.7% | | Cyber incident expenses | $0 | $513 | | Adjusted gross profit | $72,035 | $66,542 | | Adjusted gross margin | 38.7% | 37.0% | [Additional Information](index=3&type=section&id=Additional%20Information) This section provides details on the investor conference call, forward-looking statements, and contact information for investor relations [Investor Conference Call Details](index=3&type=section&id=5.1%20Investor%20Conference%20Call%20Details) Citi Trends hosted a conference call to discuss its first quarter fiscal 2024 results, providing both live access and replay options for investors - A live conference call was held on **June 4, 2024**, at **9:00 a.m. ET**[7](index=7&type=chunk) - The live broadcast was available online at cititrends.com under the Investor Relations section[7](index=7&type=chunk) - A replay of the conference call was available until **June 11, 2024**, via dial-in, and an online replay will be available for **one year**[7](index=7&type=chunk)[8](index=8&type=chunk) [Forward-Looking Statements](index=4&type=section&id=5.2%20Forward-Looking%20Statements) The report includes a standard disclaimer regarding forward-looking statements, emphasizing that such statements are subject to material risks and uncertainties that could cause actual results to differ significantly from projections - All statements regarding future financial results, business policy, plans, objectives, and expectations are forward-looking and subject to material risks and uncertainties[13](index=13&type=chunk) - Risks and uncertainties include general economic conditions (inflation, energy costs, unemployment), market interest rates, natural disasters, pandemics, transportation delays, changes in freight rates, ability to attract/retain workers, merchandise inventory risks, consumer confidence, competition, cyber disruptions, and seasonality[13](index=13&type=chunk) - The company does not undertake to publicly update any forward-looking statements unless required by applicable law[13](index=13&type=chunk) [Contact Information](index=4&type=section&id=5.3%20Contact%20Information) Contact details are provided for investor relations inquiries - For investor inquiries, contact Tom Filandro at ICR, Inc. via CitiTrendsIR@icrinc.com[14](index=14&type=chunk)

PART I [Business Overview](index=3&type=section&id=Item%201.%20Business) Citi Trends is a specialty value retailer operating 602 stores across 33 states, serving multicultural families with a strategy focused on store productivity, inventory, and community impact - The company operates **602 stores** in **33 states**, primarily serving African American and multicultural families in low-income neighborhoods[99](index=99&type=chunk)[75](index=75&type=chunk) - The business strategy focuses on four pillars: Driving Comparable Store Productivity, Managing Inventory and Maximizing Margin, Investing in Infrastructure, and Making a Difference in the community[135](index=135&type=chunk)[136](index=136&type=chunk)[138](index=138&type=chunk) Net Sales Percentage by 'Citi' (Product Category) | Citis | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Ladies | 27% | 26% | 26% | | Kids | 23% | 23% | 22% | | Accessories & Beauty | 17% | 18% | 18% | | Mens | 17% | 17% | 18% | | Home & Lifestyle | 9% | 8% | 9% | | Footwear | 7% | 8% | 7% | - The company believes it has the potential to grow its store fleet to approximately **1,000 locations** over time, a **65% increase** from its current size[106](index=106&type=chunk) - As of February 3, 2024, approximately **15% of the store fleet** has been updated to the new CTx format, which features a redesigned layout and enhanced visual merchandising[132](index=132&type=chunk) [Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including fashion trend anticipation, intense competition, lack of e-commerce, economic sensitivity of its customer base, and cybersecurity threats - Business success is highly dependent on anticipating and responding to rapidly evolving fashion trends, and failure to do so could lead to lower demand and excess inventory[161](index=161&type=chunk)[192](index=192&type=chunk) - The company faces intense competition from a diverse group of retailers, including national chains and mass merchants, many of which have greater resources and name recognition[193](index=193&type=chunk)[163](index=163&type=chunk) - The company does not sell products online, which could adversely affect sales as the retail industry sees continued growth in e-commerce[164](index=164&type=chunk) - The low-income consumer, which is the company's core customer, is especially sensitive to economic downturns, inflation, and changes in government stimulus, which could adversely affect spending patterns[202](index=202&type=chunk)[227](index=227&type=chunk) - Cybersecurity failures, such as the January 2023 ransomware incident, could expose the company to costly fines, litigation, and reputational damage[219](index=219&type=chunk)[241](index=241&type=chunk) [Cybersecurity](index=32&type=section&id=Item%201C.%20Cybersecurity) The company maintains a cybersecurity program with oversight from the VP of Information Systems and the audit committee, continuously investing in system fortification despite no material incidents in Fiscal 2023 - The company's cybersecurity program is led by the Vice President of Information Systems, with oversight from the audit committee, which receives bi-annual updates[251](index=251&type=chunk)[252](index=252&type=chunk) - The company experienced a cybersecurity disruption in January 2023 but states it did not have a material impact on business, operations, or financial condition. No material incidents occurred in Fiscal 2023[250](index=250&type=chunk) - Cybersecurity risk management includes regular network monitoring, vulnerability scanning, penetration testing, and partnerships with external cybersecurity firms[249](index=249&type=chunk) [Properties](index=33&type=section&id=Item%202.%20Properties) Citi Trends operates 602 leased stores averaging 11,000 sq ft, owns its Savannah headquarters, and leases two distribution centers in South Carolina and Oklahoma - The company operates **602 stores**, all of which are leased, with a typical lease term of five years plus extension options[253](index=253&type=chunk)[276](index=276&type=chunk) - The company owns its **70,000 sq. ft. headquarters** in Savannah, GA, and leases two distribution centers in Darlington, SC (**550,000 sq. ft.**) and Roland, OK (**565,000 sq. ft.**)[277](index=277&type=chunk) Top 5 States by Store Count | State | Number of Stores | | :--- | :--- | | Georgia | 63 | | Texas | 59 | | Florida | 52 | | North Carolina | 47 | | South Carolina | 41 | [Legal Proceedings](index=34&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal proceedings, but management does not anticipate a material adverse effect on its financial condition or operations - The company is subject to various legal proceedings but does not expect them to have a material adverse effect on its business[279](index=279&type=chunk) - In connection with a January 2023 cyber disruption, four putative class action lawsuits were filed against the company and have been consolidated. The company has accrued **$0.8 million** for estimated losses related to these matters[18](index=18&type=chunk) PART II [Market for Common Equity and Related Matters](index=34&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Citi Trends' common stock trades on NASDAQ (CTRN), with dividends suspended since 2020 and $50.0 million remaining for share repurchases - The company's common stock trades on The NASDAQ Stock Market under the symbol "**CTRN**"[307](index=307&type=chunk) - The company suspended quarterly cash dividends in **2020** and has not reinstated them[281](index=281&type=chunk) - No shares were repurchased in fiscal 2023. As of February 3, 2024, **$50.0 million** remained available under the company's share repurchase programs[308](index=308&type=chunk) [Management's Discussion and Analysis (MD&A)](index=36&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal 2023 saw a 5.9% sales decrease to $747.9 million and a $12.0 million net loss, impacted by inflation and the absence of prior year's sale-leaseback gains, yet the company maintained strong liquidity [Results of Operations](index=37&type=section&id=Results%20of%20Operations) Fiscal 2023 net sales decreased to $747.9 million due to lower comparable store sales, increased cost of sales, and higher SG&A, resulting in a $12.0 million net loss Consolidated Statement of Operations Highlights (in thousands) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net sales | $747,941 | $795,011 | $991,595 | | (Loss) income from operations | ($19,454) | $75,305 | $79,517 | | Net (loss) income | ($11,979) | $58,892 | $62,240 | | Diluted net (loss) income per share | ($1.46) | $7.17 | $6.91 | Store Activity and Comparable Sales | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total stores open, end of year | 602 | 611 | 609 | | Comparable store sales (decrease) increase | (6.8)% | (22.1)% | 25.1% | - The decrease in fiscal 2023 net sales was driven by a **6.8% decrease** in comparable store sales, attributed to continued inflationary pressures on the company's core customers[296](index=296&type=chunk) - In fiscal 2022, the company recognized a **$64.1 million gain** from the sale-leaseback of its distribution centers, which significantly impacted year-over-year comparisons of operating and net income[67](index=67&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains liquidity through cash and a $75 million credit facility, ending fiscal 2023 with $79.7 million cash and projecting $20 million in capital expenditures for fiscal 2024 - The company ended fiscal 2023 with a cash and cash equivalents balance of **$79.7 million**, compared to **$103.5 million** at the end of fiscal 2022[85](index=85&type=chunk) Cash Flow Summary (in millions) | Activity | Fiscal 2023 | Fiscal 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($9.6) | $5.8 | | Net cash (used in) provided by investing activities | ($13.4) | $60.2 | | Net cash used in financing activities | ($0.9) | ($12.2) | - Year-end inventory increased to **$130.4 million** from **$105.8 million** in fiscal 2022, reflecting targeted rebuilds and an earlier set for the spring season[79](index=79&type=chunk) - Capital expenditures for fiscal 2024 are anticipated to be approximately **$20 million**, primarily for opening up to **5 new stores** and remodeling **40 stores**[348](index=348&type=chunk) [Critical Accounting Estimates](index=43&type=section&id=Critical%20Accounting%20Estimates) Critical accounting estimates involve significant judgments in inventory valuation using the retail inventory method and operating lease accounting requiring incremental borrowing rate determination - Inventory valuation relies on the retail inventory method, which involves management judgments on merchandise markups, markdowns, and shrinkage[328](index=328&type=chunk) - Inventory shrinkage as a percentage of sales was **1.0%** in fiscal 2023, up from **0.7%** in 2022 and **0.4%** in 2021[328](index=328&type=chunk) - For operating leases, the company determines an incremental borrowing rate to calculate the present value of future lease payments, as an implicit rate is not readily available[305](index=305&type=chunk)[4](index=4&type=chunk) [Financial Statements and Supplementary Data](index=45&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for fiscal years 2023-2021, including balance sheets, statements of operations, cash flows, and stockholders' equity, with accompanying notes [Notes to Consolidated Financial Statements](index=52&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, property and equipment, tax expenses, stock compensation, lease and purchase commitments, and a February 2024 Cooperation Agreement with an investor Property and Equipment, net (in thousands) | Category | Feb 3, 2024 | Jan 28, 2023 | | :--- | :--- | :--- | | Leasehold improvements | $131,143 | $128,522 | | Furniture, fixtures and equipment | $138,980 | $137,464 | | Computer equipment | $56,666 | $50,457 | | **Total** | **$332,677** | **$322,631** | | Accumulated depreciation | ($276,446) | ($262,525) | | **Property and equipment, net** | **$56,231** | **$60,106** | Total Lease Cost (in thousands) | Component | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Operating lease cost | $62,163 | $60,167 | $52,737 | | Variable lease cost | $11,070 | $9,911 | $10,938 | | Short term lease cost | $1,598 | $1,395 | $1,091 | | **Total lease cost** | **$74,831** | **$71,473** | **$64,766** | - As of February 3, 2024, the company had total future minimum lease payments of **$307.3 million** and open merchandise purchase obligations of **$132.8 million**[426](index=426&type=chunk)[423](index=423&type=chunk) - In February 2024, the company entered into a Cooperation Agreement with an investor, agreeing to nominate certain individuals to the Board of Directors at the 2024 Annual Meeting[456](index=456&type=chunk) [Controls and Procedures](index=63&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective as of February 3, 2024, with an unqualified auditor opinion - Management concluded that the company's disclosure controls and procedures were effective as of the end of fiscal 2023[458](index=458&type=chunk) - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of February 3, 2024[27](index=27&type=chunk) - No changes occurred in the fourth quarter of fiscal 2023 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[432](index=432&type=chunk) PART III [Directors, Executive Officers, Compensation, and Corporate Governance](index=65&type=section&id=Items%2010-14) Information for Items 10-14, covering directors, executive officers, compensation, security ownership, and corporate governance, is incorporated by reference from the 2024 proxy statement - Information regarding Directors, Executive Officers, and Corporate Governance (Item 10) is incorporated by reference from the 2024 proxy statement[464](index=464&type=chunk) - Information regarding Executive Compensation (Item 11) is incorporated by reference from the 2024 proxy statement[437](index=437&type=chunk) - Information regarding Security Ownership (Item 12), Certain Relationships and Director Independence (Item 13), and Principal Accountant Fees (Item 14) is incorporated by reference from the 2024 proxy statement[465](index=465&type=chunk)[49](index=49&type=chunk)[33](index=33&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=65&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements and exhibits, including corporate governance documents, credit agreements, incentive plans, and CEO/CFO certifications for the Form 10-K report - The financial statements from Part II, Item 8 are filed as part of this report[34](index=34&type=chunk) - Exhibits filed include corporate governance documents, credit agreements, incentive plans, and various management contracts and severance agreements[51](index=51&type=chunk)[469](index=469&type=chunk)[37](index=37&type=chunk) - Certifications by the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act are included as exhibits[37](index=37&type=chunk)

Citi Trends, Inc. (NASDAQ:CTRN) Q4 2023 Earnings Call Transcript March 19, 2024 9:00 AM ET Company Participants Nitza McKee - Senior Associate David Makuen - CEO Heather Plutino - CFO Conference Call Participants Mike Baker - D.A. Davidson Jeremy Hamblin - Craig-Hallum Capital Group John Lawrence - Benchmark Operator Greetings and welcome to the Citi Trends Fourth Quarter 2023 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-a ...