Citi Trends, Inc. (NASDAQ:CTRN) Q3 2022 Results Conference Call November 28, 2022 9:00 AM ET Company Participants Nitza McKee - Senior Associate-ICR, LLC David Makuen - Chief Executive Officer Heather Plutino - Chief Financial Officer Conference Call Participants Jeremy Hamblin - Craig-Hallum Capital Group Chuck Grom - Gordon Haskett Dana Telsey - Telsey Advisory Group John Lawrence - Benchmark Operator Greetings and welcome to the Citi Trends 3Q 2022 Earnings Conference Call. During the presentation, all p ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 000-51315 CITI TRENDS, INC. (Exact name of registrant as specified in its charter) Delaware 52-2150697 (State or other jurisdiction of (I.R.S. Employ ...

Citi Trends, Inc. (NASDAQ:CTRN) Q2 2022 Earnings Conference Call August 24, 2022 9:00 AM ET Company Participants Nitza McKee - Senior Associate-ICR, LLC David Makuen - Chief Executive Officer Heather Plutino - Chief Financial Officer Conference Call Participants Jeremy Hamblin - Craig-Hallum Capital Group Dana Telsey - Telsey Advisory Group Chuck Grom - Gordon Haskett John Lawrence - Benchmark Operator Greetings, and welcome to the Citi Trends Second Quarter 2022 Earnings Conference Call. During the present ...

```markdown [PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the Company [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for Citi Trends, Inc. for the period ended April 30, 2022, including balance sheets, statements of operations, cash flows, and stockholders' equity, along with accompanying notes detailing significant accounting policies, financial instruments, and other relevant disclosures [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the Company's financial position, detailing assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheets (in thousands) | Metric | April 30, 2022 | January 29, 2022 | | :-------------------------------------- | :------------- | :--------------- | | **Assets** | | | | Cash and cash equivalents | $61,657 | $49,788 | | Inventory | 129,715 | 123,835 | | Total current assets | 207,726 | 192,607 | | Property and equipment, net | 68,213 | 75,282 | | Operating lease right of use assets | 241,686 | 201,827 | | Total assets | $523,228 | $474,025 | | **Liabilities and Stockholders' Equity** | | | | Accounts payable | $87,857 | $98,879 | | Total current liabilities | 176,038 | 187,474 | | Noncurrent operating lease liabilities | 203,856 | 168,304 | | Total liabilities | 382,049 | 357,882 | | Total stockholders' equity | 141,179 | 116,143 | | Total liabilities and stockholders' equity | $523,228 | $474,025 | - Total assets increased by **$49.2 million** from January 29, 2022, to April 30, 2022, primarily driven by an increase in operating lease right-of-use assets and inventory[9](index=9&type=chunk) - Total stockholders' equity increased by **$25.0 million**, from **$116.1 million** to **$141.2 million**, reflecting net income and other equity changes[9](index=9&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the Company's financial performance over a period, showing revenues, expenses, and net income Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Thirteen Weeks Ended April 30, 2022 | Thirteen Weeks Ended May 1, 2021 | | :----------------------------------- | :---------------------------------- | :------------------------------- | | Net sales | $208,215 | $285,381 | | Cost of sales (exclusive of depreciation) | (127,011) | (163,791) | | Selling, general and administrative expenses | (71,026) | (77,892) | | Depreciation | (5,445) | (4,697) | | Gain on sale-leaseback | 34,920 | — | | Income from operations | 39,653 | 39,001 | | Income before income taxes | 39,577 | 38,958 | | Income tax provision | (9,374) | (8,061) | | Net income | $30,203 | $30,897 | | Basic net income per common share | $3.59 | $3.27 | | Diluted net income per common share | $3.59 | $3.23 | - Net sales decreased by **27.0%** year-over-year, from **$285.4 million** in Q1 2021 to **$208.2 million** in Q1 2022[12](index=12&type=chunk) - Despite lower net sales, income from operations increased slightly from **$39.0 million** to **$39.7 million**, primarily due to a **$34.9 million** gain on a sale-leaseback transaction in Q1 2022[12](index=12&type=chunk) - Net income decreased marginally from **$30.9 million** in Q1 2021 to **$30.2 million** in Q1 2022[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the cash inflows and outflows from operating, investing, and financing activities over a period Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Thirteen Weeks Ended April 30, 2022 | Thirteen Weeks Ended May 1, 2021 | | :------------------------------------------ | :---------------------------------- | :------------------------------- | | Net cash (used in) provided by operating activities | $(18,879) | $61,739 | | Net cash provided by (used in) investing activities | $38,192 | $(5,745) | | Net cash used in financing activities | $(7,444) | $(47,895) | | Net increase in cash and cash equivalents | $11,869 | $8,099 | | Cash and cash equivalents, end of period | $61,657 | $131,276 | - Operating activities shifted from providing **$61.7 million** in cash in Q1 2021 to using **$18.9 million** in Q1 2022, largely due to changes in working capital and the absence of prior year's stimulus-driven demand[16](index=16&type=chunk) - Investing activities provided **$38.2 million** in Q1 2022, a significant increase from cash used in Q1 2021, primarily due to **$45.5 million** in proceeds from a sale-leaseback transaction[16](index=16&type=chunk) - Cash used in financing activities decreased substantially from **$47.9 million** in Q1 2021 to **$7.4 million** in Q1 2022, mainly due to lower common stock repurchases[16](index=16&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in the Company's equity, including net income, stock repurchases, and other comprehensive income Condensed Consolidated Statements of Stockholders' Equity (in thousands, except share amounts) | Metric | Balances — January 29, 2022 | Balances — April 30, 2022 | | :----------------------------------- | :-------------------------- | :------------------------ | | Common Shares | 16,090,365 | 16,159,393 | | Common Stock Amount | $159 | $159 | | Paid in Capital | $101,037 | $101,187 | | Retained Earnings | $272,158 | $302,361 | | Treasury Shares | 7,473,155 | 7,643,591 | | Treasury Stock Amount | $(257,211) | $(262,528) | | Total Stockholders' Equity | $116,143 | $141,179 | - Total stockholders' equity increased by **$25.0 million** from January 29, 2022, to April 30, 2022, primarily driven by net income of **$30.2 million**, partially offset by common stock repurchases[19](index=19&type=chunk) - The company repurchased **170,436 shares** of common stock for **$5.3 million** during the period[19](index=19&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [1. Significant Accounting Policies](index=8&type=section&id=1.%20Significant%20Accounting%20Policies) This section outlines the key accounting principles and methods used in preparing the financial statements - Citi Trends, Inc. is a specialty value retailer of apparel, accessories, and home trends, operating **614 stores** in **33 states** as of April 30, 2022[21](index=21&type=chunk) - The condensed consolidated financial statements are unaudited and prepared in accordance with U.S. GAAP for interim reporting, reflecting all normal and recurring adjustments[22](index=22&type=chunk) - Operating results for the first quarter are not necessarily indicative of the full fiscal year due to business seasonality, economic uncertainty, and potential COVID-19 impacts[22](index=22&type=chunk) [2. COVID-19 Pandemic](index=8&type=section&id=2.%20COVID-19%20Pandemic) This section discusses the ongoing impact of the COVID-19 pandemic on the Company's operations and financial performance - The COVID-19 pandemic continues to cause significant volatility and disruptions, particularly in fiscal 2020 and 2021, and the extent of future impact remains unpredictable[24](index=24&type=chunk) [3. Cash and Cash Equivalents/Concentration of Credit Risk](index=8&type=section&id=3.%20Cash%20and%20Cash%20Equivalents/Concentration%20of%20Credit%20Risk) This section defines cash equivalents and addresses the Company's management of credit risk related to its cash holdings - Cash equivalents include highly liquid investments with maturities of three months or less at purchase date[25](index=25&type=chunk) - The Company places cash and cash equivalents in high credit quality banks and institutional money market funds, maintaining accounts that may exceed federally insured limits[25](index=25&type=chunk) [4. Earnings per Share](index=8&type=section&id=4.%20Earnings%20per%20Share) This section details the calculation of basic and diluted earnings per share, including factors affecting share count - Basic EPS is calculated using the weighted average number of common shares outstanding, while diluted EPS includes potentially dilutive securities like nonvested restricted stock[26](index=26&type=chunk) - For Q1 2022, **222,000 shares** of nonvested restricted stock were excluded from diluted EPS calculation due to antidilution, compared to **38,000 shares** in Q1 2021[27](index=27&type=chunk) Weighted Average Shares Outstanding for EPS Calculation | Metric | Thirteen Weeks Ended April 30, 2022 | Thirteen Weeks Ended May 1, 2021 | | :-------------------------------------------------- | :---------------------------------- | :------------------------------- | | Weighted average number of common shares outstanding | 8,407,284 | 9,449,792 | | Incremental shares from assumed vesting of nonvested restricted stock | — | 121,044 | | Weighted average number of common shares and common stock equivalents outstanding | 8,407,284 | 9,570,836 | [5. Revolving Credit Facility](index=10&type=section&id=5.%20Revolving%20Credit%20Facility) This section describes the Company's revolving credit facility, its terms, and current utilization - The Company has a **$75 million** revolving credit facility, with a **$25 million** uncommitted 'accordion' feature, maturing on April 15, 2026[30](index=30&type=chunk) - As of April 30, 2022, there were no borrowings under the credit facility, and **$0.6 million** of letters of credit were outstanding[31](index=31&type=chunk) [6. Income Taxes](index=10&type=section&id=6.%20Income%20Taxes) This section explains the Company's income tax accounting policies and the effective tax rate for the period - Income taxes are accounted for using the asset and liability method, recognizing deferred tax assets and liabilities for future tax consequences[32](index=32&type=chunk) - The effective income tax rate for Q1 2022 was **23.7%**, an increase from **20.7%** in Q1 2021, primarily due to a favorable tax impact from restricted stock vestings in the prior year[33](index=33&type=chunk) [7. Commitments and Contingencies](index=10&type=section&id=7.%20Commitments%20and%20Contingencies) This section discloses potential future obligations and legal matters that could impact the Company's financial position - The Company is involved in various legal proceedings incidental to its business but is not aware of any expected to have a material adverse effect on its financial condition, results of operations, or liquidity[34](index=34&type=chunk) [8. Stock Repurchases](index=11&type=section&id=8.%20Stock%20Repurchases) This section details the Company's common stock repurchase activities and remaining authorization Common Stock Repurchases (in thousands, except per share data) | Metric | Thirteen Weeks Ended April 30, 2022 | Thirteen Weeks Ended May 1, 2021 | | :------------------------------------------ | :---------------------------------- | :------------------------------- | | Total number of shares purchased | 170 | 537 | | Average price paid per share | $31.20 | $84.60 | | Total investment | $5,317 | $45,470 | - On March 15, 2022, the board approved an additional **$30 million** stock repurchase program, leaving **$54.7 million** available under authorization as of April 30, 2022[36](index=36&type=chunk) [9. Revenue](index=11&type=section&id=9.%20Revenue) This section describes the Company's revenue recognition policies and disaggregates revenue by merchandise category - Primary revenue source is from the sale of clothing and accessories, recognized when merchandise is paid for and control is transferred to the customer[37](index=37&type=chunk) - Revenue from gift cards is recognized upon redemption, and sales taxes are excluded from revenue[37](index=37&type=chunk) Disaggregation of Revenue by Merchandise Category (Percentage of Net Sales) | Category | Thirteen Weeks Ended April 30, 2022 | Thirteen Weeks Ended May 1, 2021 | | :------------------- | :---------------------------------- | :------------------------------- | | Ladies | 28 % | 29 % | | Kids | 21 % | 20 % | | Accessories & Beauty | 18 % | 17 % | | Mens | 16 % | 18 % | | Home & Lifestyle | 9 % | 8 % | | Footwear | 8 % | 8 % | [10. Leases](index=11&type=section&id=10.%20Leases) This section outlines the Company's lease arrangements, including lease costs and future payment obligations - The Company leases retail store locations, office space, and equipment, typically for five-year terms with extension options[41](index=41&type=chunk) - In April 2022, the Company completed a sale-leaseback of its distribution center for **$45.5 million**, resulting in a **$34.9 million** gain and recording a new operating lease right-of-use asset and liability[43](index=43&type=chunk) Total Lease Cost (in thousands) | Lease Cost Type | Thirteen Weeks Ended April 30, 2022 | Thirteen Weeks Ended May 1, 2021 | | :-------------------- | :---------------------------------- | :------------------------------- | | Operating lease cost | $13,861 | $12,953 | | Variable lease cost | 2,333 | 2,981 | | Short term lease cost | 346 | 316 | | Total lease cost | $16,540 | $16,250 | Future Minimum Lease Payments as of April 30, 2022 (in thousands) | Fiscal Year | Lease Costs | | :------------------------ | :---------- | | Remainder of 2022 | $41,190 | | 2023 | 56,306 | | 2024 | 48,025 | | 2025 | 37,547 | | 2026 | 27,194 | | Thereafter | 100,676 | | Total future minimum lease payments | 310,938 | | Less: imputed interest | (60,172) | | Total present value of lease liabilities | $250,766 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=14&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance and condition for the first quarter of 2022, highlighting key operational results, liquidity, capital resources, and the impact of external factors like inflation and supply chain disruptions. It also outlines the Company's strategic initiatives and capital allocation priorities [Forward-Looking Statements](index=14&type=section&id=Forward-Looking%20Statements) This section cautions readers about statements regarding future events, which are subject to risks and uncertainties - The report contains forward-looking statements regarding future revenues, expenditures, operational plans, and economic performance, which involve risks and uncertainties[47](index=47&type=chunk) - Factors that could cause actual results to differ include general economic conditions, the ongoing COVID-19 pandemic, inflation, supply chain disruptions, competition, and changes in consumer behavior[48](index=48&type=chunk) [Executive Overview](index=14&type=section&id=Executive%20Overview) This section provides a high-level summary of Citi Trends' business model, market position, and operational scope - Citi Trends is a growing specialty value retailer of apparel, accessories, and home trends, primarily serving African American and Latinx families[50](index=50&type=chunk) - As of April 30, 2022, the Company operated **614 stores** across **33 states**, offering high-quality, trend-right merchandise at everyday low prices[50](index=50&type=chunk) [Uncertainties and Challenges](index=14&type=section&id=Uncertainties%20and%20Challenges) This section discusses key external factors and operational challenges impacting the Company, including the pandemic, inflation, and supply chain issues - The COVID-19 pandemic continues to cause significant volatility and disruptions, with unpredictable future impacts, despite recent improvements[51](index=51&type=chunk) - Inflationary pressures, particularly on food, fuel, and energy, are impacting operations and core customers, with expectations for persistence in the near term[53](index=53&type=chunk) - Supply chain disruptions, including production delays and transportation issues, have led to increased costs, prompting actions like earlier merchandise ordering and expanded direct shipping[54](index=54&type=chunk) - The business is seasonal, with higher sales in the first and fourth quarters, and sales are influenced by weather patterns[55](index=55&type=chunk) [Basis of Presentation](index=16&type=section&id=Basis%20of%20Presentation) This section clarifies how key financial metrics like net sales, cost of sales, and SG&A expenses are defined and presented - Net sales include store sales and layaway fees, net of returns. Cost of sales covers product costs and freight, excluding depreciation[56](index=56&type=chunk) - Selling, general, and administrative expenses comprise store costs (payroll, occupancy), corporate, distribution center, and advertising costs[56](index=56&type=chunk) [Results of Operations](index=16&type=section&id=Results%20of%20Operations) This section analyzes the Company's financial performance, focusing on sales, costs, and profitability drivers for the period - The Company measures performance using comparable store sales growth and average sales per store, focusing on overall store sales volume as a key profitability driver[59](index=59&type=chunk) - Net sales decreased by **$77.2 million** (**27.0%**) to **$208.2 million** in Q1 2022, driven by a **29.2%** decrease in comparable store sales due to outsized sales in Q1 2021 (government stimulus) and current inflationary pressures[61](index=61&type=chunk) - Cost of sales as a percentage of sales increased to **61.0%** in Q1 2022 from **57.4%** in Q1 2021, primarily due to increased markdowns and deleveraging effects of lower sales[62](index=62&type=chunk) - Selling, general and administrative expenses decreased by **$6.9 million** (**8.8%**) to **$71.0 million**, mainly due to a **$5.9 million** decrease in incentive-based compensation[63](index=63&type=chunk) - A **$34.9 million** gain on a sale-leaseback transaction for the distribution center significantly impacted income from operations in Q1 2022[64](index=64&type=chunk) - Net income was **$30.2 million** in Q1 2022, a slight decrease from **$30.9 million** in Q1 2021[66](index=66&type=chunk) [Liquidity and Capital Resources](index=18&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the Company's ability to meet short-term obligations and fund operations, including cash position, inventory, and capital expenditures - The capital allocation strategy prioritizes investments in profitable business growth and current operations, followed by returning excess cash to shareholders via repurchase programs[67](index=67&type=chunk) - Quarter-end cash and cash equivalents were **$61.7 million**, down from **$131.3 million** in the prior year[67](index=67&type=chunk) - Inventory increased to **$129.7 million** from **$101.8 million** year-over-year, due to opportunistic purchases of packaway inventory and depleted levels in the prior year[69](index=69&type=chunk)[71](index=71&type=chunk) - Capital expenditures in Q1 2022 were **$8.0 million**, an increase of **$2.1 million**, supporting new store openings, remodels, and system/distribution center upgrades. Fiscal 2022 capital expenditures are projected at **$32 million**[72](index=72&type=chunk) - Cash used in operating activities was **$18.9 million** in Q1 2022, a significant shift from **$61.7 million** provided in Q1 2021, primarily due to changes in accrued compensation, accounts payable, and inventory[75](index=75&type=chunk)[76](index=76&type=chunk) - Cash provided by investing activities was **$38.2 million** in Q1 2022, largely from **$45.5 million** in proceeds from the sale-leaseback transaction[77](index=77&type=chunk) - Cash used in financing activities decreased to **$7.4 million** in Q1 2022 from **$47.9 million** in Q1 2021, mainly due to lower share repurchases[78](index=78&type=chunk) [Critical Accounting Policies](index=20&type=section&id=Critical%20Accounting%20Policies) This section highlights accounting policies requiring significant management judgment and estimates, which could materially affect financial results - The preparation of financial statements requires management to make estimates and assumptions that affect reported asset and liability amounts, and actual results may differ[80](index=80&type=chunk)[82](index=82&type=chunk) - There have been no material changes to the critical accounting policies outlined in the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2022[82](index=82&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=22&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no material changes in the Company's market risk during the thirteen weeks ended April 30, 2022, compared to previous disclosures - No material changes in market risk occurred during the thirteen weeks ended April 30, 2022, compared to disclosures in the Annual Report on Form 10-K[83](index=83&type=chunk) [Item 4. Controls and Procedures](index=22&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the principal executive and financial officers, concluded that the Company's disclosure controls and procedures were effective as of April 30, 2022, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely. No material changes to internal control over financial reporting occurred during the quarter - Management concluded that disclosure controls and procedures were effective as of April 30, 2022, ensuring timely and accurate reporting of information[84](index=84&type=chunk) - No material changes in internal control over financial reporting occurred during the fiscal quarter ended April 30, 2022[86](index=86&type=chunk) [PART II - OTHER INFORMATION](index=22&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section includes disclosures on legal proceedings, risk factors, equity sales, and other miscellaneous information [Item 1. Legal Proceedings](index=22&type=section&id=Item%201.%20Legal%20Proceedings) The Company is periodically involved in various legal proceedings incidental to its business but is not aware of any pending or threatened legal actions that are expected to have a material adverse effect on its financial condition, results of operations, or liquidity - The Company is involved in various legal proceedings but expects no material adverse effect on its financial condition, results of operations, or liquidity from any pending or threatened actions[87](index=87&type=chunk) [Item 1A. Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes to the risk factors previously described in the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2022 - No material changes to the Risk Factors described in the Annual Report on Form 10-K for the fiscal year ended January 29, 2022[88](index=88&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=23&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's common stock repurchase activities during the first quarter of 2022, including the number of shares purchased, average price paid, and the remaining authorization under its stock repurchase programs Information on Share Repurchases (in thousands, except per share data) | Period | Total number of shares purchased | Average price paid per share | Total investment | | :-------------------------------- | :------------------------------- | :--------------------------- | :--------------- | | April (4/3/22 - 4/30/22) | 170,436 | $31.20 | $5,317 | - As of April 30, 2022, **$54.7 million** remained available under the Company's stock repurchase authorization, following an additional **$30 million** program approved on March 15, 2022[36](index=36&type=chunk)[91](index=91&type=chunk) [Item 3. Defaults Upon Senior Securities](index=23&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there are no defaults upon senior securities to report - Not applicable; no defaults upon senior securities to report[93](index=93&type=chunk) [Item 4. Mine Safety Disclosures](index=23&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the Company's operations - Not applicable; no mine safety disclosures are relevant to the Company[95](index=95&type=chunk) [Item 5. Other Information](index=23&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to report - Not applicable; no other information to report[97](index=97&type=chunk) [Item 6. Exhibits](index=24&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including XBRL documents, corporate governance documents, and certifications - Exhibits include Inline XBRL Document Set for financial statements and cover page, Third Amended and Restated Certificate of Incorporation, Restricted Stock Unit Award Agreement, Agreement for Purchase and Sale of Real Property, and various certifications[100](index=100&type=chunk)[102](index=102&type=chunk) [SIGNATURES](index=25&type=section&id=SIGNATURES) This section contains the required signatures, certifying the accuracy and completeness of the financial report - The report was signed on June 9, 2022, by Jason B. Moschner, Vice President of Finance, on behalf of Citi Trends, Inc[104](index=104&type=chunk)[105](index=105&type=chunk) ```

Citi Trends, Inc. (NASDAQ:CTRN) Q1 2022 Earnings Conference Call May 24, 2022 9:00 AM ET Company Participants Nitza McKee - Senior Associate-ICR, LLC David Makuen - Chief Executive Officer Jason Moschner - Vice President, Finance and Principal Financial/Accounting Officer Conference Call Participants Dana Telsey - Telsey Advisory Group Jeremy Hamblin - Craig-Hallum Capital Group Chuck Grom - Gordon Haskett John Lawrence - Benchmark Operator Greetings, and welcome to the Citi Trends 1Q 2022 Earnings Conferen ...

PART I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Citi Trends is a specialty value retailer targeting African American and Latinx families with apparel and home goods - Citi Trends operates as a specialty value retailer, primarily serving African American and Latinx families with apparel, accessories, and home trends at low prices[8](index=8&type=chunk) Store Operations Overview (as of January 29, 2022) | Metric | Value | | :--- | :--- | | Total Stores | 609 | | States Operated | 33 | | Average Store Size | 11,000 sq ft | - The company's growth strategy focuses on expanding its store fleet to **over 1,000 locations**, optimizing product assortment, investing in infrastructure (buying, moving, selling), and enhancing community involvement[18](index=18&type=chunk)[19](index=19&type=chunk)[20](index=20&type=chunk)[21](index=21&type=chunk) Net Sales Percentage by Product Category (Fiscal Years 2019-2021) | Citis | 2021 (%) | 2020 (%) | 2019 (%) | | :--- | :--- | :--- | :--- | | Ladies | 26 | 26 | 26 | | Kids | 22 | 23 | 23 | | Mens | 18 | 18 | 16 | | Accessories & Beauty | 18 | 16 | 17 | | Home & Lifestyle | 9 | 9 | 7 | | Footwear | 7 | 8 | 11 | - The company sources merchandise from thousands of domestic manufacturers and importers, with a buying team in New York City, focusing on both exclusive products and customized national brands[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) - Store associates are primarily African American or Latinx (**over 80%**) and store management positions are mostly filled by women (**over 90%**), fostering strong community connections[14](index=14&type=chunk)[34](index=34&type=chunk) - The company utilizes two distribution centers in Darlington, South Carolina (550,000 sq ft) and Roland, Oklahoma (565,000 sq ft), and has expanded a drop-shipment program to expedite merchandise delivery[40](index=40&type=chunk)[41](index=41&type=chunk) - Citi Trends competes with national chains, mass merchants, discount stores, and specialty stores, differentiating itself through fashion, assortment, pricing, and an inviting store format focused on its core customer base[44](index=44&type=chunk) - The business is seasonal, with higher sales in the first and fourth fiscal quarters due to spring and fall selling seasons, including holidays[46](index=46&type=chunk) - The company launched a new purpose and values culture platform, 'Citi Life,' in fiscal 2021, emphasizing community connection, respect, career development, customer service, and a fun shopping environment[50](index=50&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk) - Citi Trends is committed to diversity and inclusion, with **over 80% of team members being African American or Latinx** and **84% female** as of January 29, 2022[54](index=54&type=chunk) - The CITIcares Council, formed in August 2020, focuses on community involvement and includes the Black History Makers program which provides grants to Black business owners[59](index=59&type=chunk)[60](index=60&type=chunk) [Item 1A. Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from the COVID-19 pandemic, competition, supply chain disruptions, and strategic execution - The COVID-19 pandemic continues to pose significant risks, including potential store closures, reduced customer traffic, and supply chain disruptions, impacting financial results and liquidity[64](index=64&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk) - Success is highly dependent on the ability to anticipate and respond to rapidly evolving fashion and home trends; failure to do so could lead to sales declines, excess inventory, and higher markdowns[68](index=68&type=chunk) - The retail apparel and home fashion markets are highly competitive, with larger competitors having greater resources and brand recognition, potentially leading to pricing pressures and loss of market share[69](index=69&type=chunk)[70](index=70&type=chunk) - The company **does not sell products online**, making it vulnerable to the increasing shift in consumer shopping habits towards e-commerce[72](index=72&type=chunk)[73](index=73&type=chunk) - Sales and earnings are seasonal, with higher performance in the first and fourth quarters, making the business more susceptible to adverse events during these periods[75](index=75&type=chunk)[76](index=76&type=chunk) - Reliance on third-party suppliers for merchandise manufacturing and delivery exposes the company to risks such as shipping delays, quality issues, and non-compliance with laws, potentially impacting sales and reputation[79](index=79&type=chunk)[83](index=83&type=chunk)[94](index=94&type=chunk)[96](index=96&type=chunk) - Failure to attract, motivate, and retain sufficient store personnel and management, coupled with increasing labor costs, could adversely affect customer service and financial condition[86](index=86&type=chunk)[87](index=87&type=chunk)[89](index=89&type=chunk) - General economic downturns, inflation, and changes in consumer spending patterns, particularly in the southeastern United States, could negatively impact sales and operations[90](index=90&type=chunk) - Disruptions to distribution centers or transportation, including natural disasters or increased freight costs, could impair the ability to stock stores and negatively affect profitability[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) - The growth strategy, including opening new stores and expanding into new demographics, carries risks related to market acceptance, real estate availability, and execution challenges[99](index=99&type=chunk)[102](index=102&type=chunk) - Dependence on strong cash flows from operations to fund growth and stock repurchases means an inability to generate sufficient cash could adversely affect financial performance[105](index=105&type=chunk)[106](index=106&type=chunk) - Failure to comply with legal requirements or changes in government regulations could result in fines, increased costs, and reputational harm[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) - Reliance on management information systems for core business functions means any failure or interruption could impair inventory management and overall operations[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) - Failure to maintain the security of employee, customer, or vendor information could lead to litigation, fines, and reputational damage[119](index=119&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) - The company's stock price is subject to volatility due to fluctuations in operating results, changes in customer preferences, analyst estimates, and broader economic conditions[123](index=123&type=chunk)[124](index=124&type=chunk)[126](index=126&type=chunk) [Item 1B. Unresolved Staff Comments](index=30&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[132](index=132&type=chunk) [Item 2. Properties](index=31&type=section&id=Item%202.%20Properties) The company operates 609 leased stores and owns its headquarters and two distribution centers Store Locations by State (as of January 29, 2022) | State | Number of Stores | | :--- | :--- | | Alabama | 34 | | Arkansas | 15 | | California | 8 | | Connecticut | 5 | | Delaware | 3 | | Florida | 55 | | Georgia | 65 | | Illinois | 26 | | Indiana | 18 | | Iowa | 2 | | Kansas | 2 | | Kentucky | 7 | | Louisiana | 33 | | Maryland | 8 | | Massachusetts | 4 | | Michigan | 22 | | Minnesota | 2 | | Mississippi | 30 | | Missouri | 8 | | Nebraska | 1 | | Nevada | 3 | | New Jersey | 2 | | New York | 11 | | North Carolina | 50 | | Ohio | 30 | | Oklahoma | 7 | | Pennsylvania | 10 | | Rhode Island | 2 | | South Carolina | 43 | | Tennessee | 18 | | Texas | 59 | | Virginia | 20 | - The company owns its 70,000 square foot headquarters in Savannah, Georgia, and two distribution centers: Darlington, South Carolina (550,000 sq ft) and Roland, Oklahoma (565,000 sq ft)[137](index=137&type=chunk) - An agreement was entered into on March 14, 2022, for a sale and leaseback transaction of the Darlington distribution center, with an option for the Roland facility, expected to provide approximately **$37 million** and **$32 million** in net proceeds, respectively[137](index=137&type=chunk)[179](index=179&type=chunk)[285](index=285&type=chunk) [Item 3. Legal Proceedings](index=33&type=section&id=Item%203.%20Legal%20Proceedings) The company is not aware of any legal actions expected to have a material adverse effect on its financials - The company is involved in various legal proceedings but does not expect any to have a material adverse effect on its financial condition, results of operations, or liquidity[140](index=140&type=chunk)[279](index=279&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are not applicable[141](index=141&type=chunk) PART II [Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=34&type=section&id=Item%205.%20Market%20for%20the%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on NASDAQ, dividends are suspended, and share repurchases are ongoing - Common stock is traded on The NASDAQ Stock Market under the symbol "CTRN"[144](index=144&type=chunk) - Cash dividends were suspended on April 28, 2020, due to economic uncertainty from the COVID-19 pandemic, with no current intention to reinstate them[145](index=145&type=chunk)[127](index=127&type=chunk) Common Stock Repurchases (Q4 Fiscal 2021) | Period (Fiscal 2021) | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | November | 77,325 | $86.13 | | December | 17,994 | $78.82 | | January | — | — | | **Total** | **95,319** | | - The board approved a **$30 million** stock repurchase program on November 30, 2021, and an additional **$30 million** program on March 15, 2022, both without expiration dates[147](index=147&type=chunk)[273](index=273&type=chunk) Cumulative Total Stockholder Return (January 2017 - January 2022) | Index | 1/17 | 1/18 | 1/19 | 1/20 | 1/21 | 1/22 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Citi Trends, Inc. | 100.00 | 148.73 | 131.32 | 151.97 | 386.58 | 319.22 | | Russell 2000 Index | 100.00 | 117.18 | 113.05 | 123.47 | 160.72 | 158.78 | | NASDAQ Retail Trade Index | 100.00 | 152.24 | 161.79 | 187.53 | 298.48 | 281.88 | [Item 6. [Reserved]](index=35&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information - Item 6 is reserved[151](index=151&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal 2021 saw significant sales growth and improved margins despite pandemic and supply chain challenges - Fiscal 2021 business highlights include the launch of new 'CTx' store formats, opening 27 new stores and remodeling 25, managing supply chain and labor challenges, and initiating infrastructure investments[156](index=156&type=chunk) Fiscal 2021 Financial Highlights | Metric | Value (in millions) | | :--- | :--- | | Total Sales | $991.6 | | Operating Margin | 8.0% | | Diluted EPS | $6.91 | | Cash (year-end) | $49.8 | | Debt | None | | Shares Repurchased | $115.3 | - The company's strategy focuses on growing its fleet to **over 1,000 stores**, optimizing assortment, investing in infrastructure, and making a difference in communities[158](index=158&type=chunk)[159](index=159&type=chunk)[161](index=161&type=chunk) - Key uncertainties and challenges include the evolving COVID-19 pandemic, inflationary pressures, wage inflation, and persistent supply chain disruptions leading to increased costs[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) Consolidated Statements of Operations Data (Fiscal Years 2019-2021, in thousands) | Statement of Operations Data | 2021 ($) | 2021 (%) | 2020 ($) | 2020 (%) | 2019 ($) | 2019 (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $991,595 | 100.0 | $783,294 | 100.0 | $781,925 | 100.0 | | Cost of sales | (584,063) | (58.9) | (471,618) | (60.2) | (484,740) | (62.0) | | SG&A expenses | (307,622) | (31.0) | (260,198) | (33.2) | (259,629) | (33.2) | | Depreciation | (20,393) | (2.0) | (19,259) | (2.4) | (18,535) | (2.3) | | Asset impairment | — | 0.0 | (286) | (0.0) | (472) | (0.1) | | Income from operations | 79,517 | 8.0 | 31,933 | 4.1 | 18,549 | 2.4 | | Interest income | 31 | 0.0 | 238 | 0.0 | 1,577 | 0.2 | | Interest expense | (306) | (0.0) | (776) | (0.1) | (158) | (0.0) | | Income before income taxes | 79,242 | 8.0 | 31,395 | 4.0 | 19,968 | 2.6 | | Income tax expense | (17,002) | (1.7) | (7,417) | (1.0) | (3,465) | (0.5) | | Net income | $62,240 | 6.3 | $23,978 | 3.1 | $16,503 | 2.1 | Store Activity and Comparable Store Sales (Fiscal Years 2019-2021) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total stores open, beginning of year | 585 | 571 | 562 | | New stores | 27 | 18 | 16 | | Closed stores | (3) | (4) | (7) | | Total stores open, end of year | 609 | 585 | 571 | | Comparable store sales (decrease) increase | (2.1)% | (0.1)% | 1.6% | - Net sales **increased by $208.3 million (26.6%) to $991.6 million** in fiscal 2021, primarily due to temporary store closures in fiscal 2020 and a surge in demand from government stimulus[173](index=173&type=chunk) - Cost of sales leveraged by **130 basis points to 58.9%** of net sales in fiscal 2021, driven by improved core merchandise margin and shrinkage, partially offset by higher freight costs[173](index=173&type=chunk) - SG&A expenses leveraged by **220 basis points to 31.0%** of net sales in fiscal 2021, despite a $47.4 million increase[174](index=174&type=chunk) - Net income **increased by $38.2 million to $62.2 million** in fiscal 2021, compared to $24.0 million in fiscal 2020[177](index=177&type=chunk) - Year-end cash and cash equivalents were **$49.8 million**, down from $123.2 million last year, with **no debt**[178](index=178&type=chunk) - Inventory increased to **$123.8 million** from $103.8 million, primarily due to depleted levels in the prior year and opportunistic purchases of packaway inventory[181](index=181&type=chunk) - Capital expenditures in fiscal 2021 were **$29.7 million**, an increase of $12.7 million, with fiscal 2022 expenditures projected at **$40 million to $45 million**[182](index=182&type=chunk) - Cash provided by operating activities was **$74.3 million** in fiscal 2021, down from $110.9 million in fiscal 2020[185](index=185&type=chunk) - Cash used in investing activities was **$29.5 million** in fiscal 2021, primarily for capital expenditures[186](index=186&type=chunk) - Cash used in financing activities increased to **$118.2 million** in fiscal 2021, mainly due to **$115.3 million in common stock repurchases**[187](index=187&type=chunk) - Critical accounting estimates include inventory valuation (retail inventory method, markdowns, shrinkage) and operating leases (right-of-use assets, lease liabilities, incremental borrowing rate)[191](index=191&type=chunk)[192](index=192&type=chunk) [Item 7A. Quantitative and Qualitative Disclosure About Market Risk](index=43&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) The company sources products in U.S. Dollars, mitigating direct foreign currency exchange rate risk - The company sources all products in U.S. Dollars, avoiding direct exposure to foreign currency exchange rate fluctuations[195](index=195&type=chunk) - Fluctuations in currency exchange rates could indirectly affect purchasing power with vendors who import merchandise[195](index=195&type=chunk) - No forward contracts are used to hedge against foreign currency price fluctuations[195](index=195&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=44&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements and supplementary data for the company - The section includes consolidated financial statements: Balance Sheets, Statements of Operations, Cash Flows, and Stockholders' Equity[199](index=199&type=chunk)[200](index=200&type=chunk) - Deloitte & Touche LLP issued an **unqualified opinion** on the financial statements and internal control over financial reporting for the year ended January 29, 2022[202](index=202&type=chunk)[203](index=203&type=chunk)[294](index=294&type=chunk) - KPMG LLP served as the company's auditor from 2002 to 2021, auditing the consolidated financial statements for the years ended January 30, 2021, and February 1, 2020[219](index=219&type=chunk) - A critical audit matter identified was the **valuation of inventory** under the retail inventory method, specifically the reasonableness of judgments and estimates related to markdowns and shrinkage[207](index=207&type=chunk)[208](index=208&type=chunk) Consolidated Balance Sheets (as of January 29, 2022 and January 30, 2021, in thousands) | Assets | January 29, 2022 ($) | January 30, 2021 ($) | | :--- | :--- | :--- | | Cash and cash equivalents | 49,788 | 123,177 | | Inventory | 123,835 | 103,845 | | Prepaid and other current assets | 14,997 | 17,420 | | Income tax receivable | 3,987 | — | | **Total current assets** | **192,607** | **244,442** | | Property and equipment, net | 75,282 | 63,514 | | Operating lease right of use assets | 201,827 | 179,673 | | Deferred income taxes | 2,992 | 6,195 | | Other assets | 1,317 | 769 | | **Total assets** | **474,025** | **494,593** | | | | | | Liabilities and Stockholders' Equity | | | | Accounts payable | 98,879 | 84,832 | | Operating lease liabilities (current) | 47,803 | 46,983 | | Accrued expenses | 14,532 | 16,592 | | Accrued compensation | 25,896 | 29,315 | | Income tax payable | — | 4,623 | | Layaway deposits | 364 | 500 | | **Total current liabilities** | **187,474** | **182,845** | | Noncurrent operating lease liabilities | 168,304 | 145,828 | | Other long-term liabilities | 2,104 | 2,286 | | **Total liabilities** | **357,882** | **330,959** | | Stockholders' equity | 116,143 | 163,634 | | **Total liabilities and stockholders' equity** | **474,025** | **494,593** | Consolidated Statements of Operations (Fiscal Years 2019-2021, in thousands, except per share data) | | 2021 ($) | 2020 ($) | 2019 ($) | | :--- | :--- | :--- | :--- | | Net sales | 991,595 | 783,294 | 781,925 | | Cost of sales (exclusive of depreciation) | (584,063) | (471,618) | (484,740) | | Selling, general and administrative expenses | (307,622) | (260,198) | (259,629) | | Depreciation | (20,393) | (19,259) | (18,535) | | Asset impairment | — | (286) | (472) | | Income from operations | 79,517 | 31,933 | 18,549 | | Interest income | 31 | 238 | 1,577 | | Interest expense | (306) | (776) | (158) | | Income before income taxes | 79,242 | 31,395 | 19,968 | | Income tax expense | (17,002) | (7,417) | (3,465) | | Net income | 62,240 | 23,978 | 16,503 | | Basic net income per common share | 6.98 | 2.33 | 1.41 | | Diluted net income per common share | 6.91 | 2.32 | 1.41 | Consolidated Statements of Cash Flows (Fiscal Years 2019-2021, in thousands) | Operating activities: | 2021 ($) | 2020 ($) | 2019 ($) | | :--- | :--- | :--- | :--- | | Net income | 62,240 | 23,978 | 16,503 | | Adjustments to reconcile net income to net cash provided by operating activities | | | | | Depreciation | 20,393 | 19,259 | 18,535 | | Non-cash operating lease costs | 50,455 | 48,242 | 45,463 | | Asset impairment | — | 286 | 472 | | Loss on disposal of property and equipment | 201 | 39 | 23 | | Deferred income taxes | 3,203 | 474 | (130) | | Insurance proceeds related to operating activities | 804 | 1,042 | 1,012 | | Non-cash stock-based compensation expense | 4,776 | 2,912 | 2,121 | | Changes in assets and liabilities: | | | | | Inventory | (20,381) | 33,564 | 1,216 | | Prepaid and other current assets Other assets | 2,011 (278) | (7,718) (14) | (1,588) (10) | | Accounts payable | 12,833 | 5,083 | 5,560 | | Accrued expenses and other long-term liabilities | (53,187) | (38,346) | (45,282) | | Accrued compensation | (5) | 16,302 | 267 | | Income tax payable/receivable Layaway deposits | (8,610) (136) | 5,809 (54) | (1,581) 28 | | **Net cash provided by operating activities** | **74,319** | **110,858** | **42,609** | | | | | | | Investing activities: | | | | | Sales/redemptions of investment securities | 35,272 | 43,759 | 59,836 | | Purchases of investment securities | (35,272) | (522) | (43,840) | | Purchases of property and equipment | (29,707) | (16,956) | (24,175) | | Insurance proceeds related to investing activities | 192 | 416 | 573 | | **Net cash (used in) provided by investing activities** | **(29,515)** | **26,697** | **(7,606)** | | | | | | | Financing activities: | | | | | Borrowings under revolving credit facility | — | 43,700 | — | | Repayments of revolving credit facility | — | (43,700) | — | | Payment of debt issuance costs | (270) | — | — | | Cash used to settle withholding taxes on the vesting of nonvested restricted stock | (2,638) | (608) | (733) | | Dividends paid to stockholders | — | (832) | (3,765) | | Repurchase of common stock | (115,285) | (32,861) | (28,445) | | **Net cash used in financing activities** | **(118,193)** | **(34,301)** | **(32,943)** | | **Net (decrease) increase in cash and cash equivalents** | **(73,389)** | **103,254** | **2,060** | | Cash and cash equivalents: | | | | | Beginning of year | 123,177 | 19,923 | 17,863 | | End of year | 49,788 | 123,177 | 19,923 | Consolidated Statements of Stockholders' Equity (Fiscal Years 2019-2021, in thousands, except share amounts) | | Common Shares | Common Stock Amount | Paid in Capital | Retained Earnings | Treasury Shares | Treasury Stock Amount | Total Stockholders' Equity | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Balances — February 2, 2019 | 15,827,713 | $157 | $91,794 | $176,094 | 3,669,476 | $(80,620) | $187,425 | | Adoption of lease accounting standard | — | — | — | (2,060) | — | — | (2,060) | | Vesting of nonvested shares | 18,851 | 1 | — | — | — | — | 1 | | Issuance of nonvested shares under incentive plan | 122,816 | — | — | — | — | — | — | | Forfeiture of nonvested shares | (24,359) | — | — | — | — | — | — | | Stock-based compensation expense | — | — | 2,121 | — | — | — | 2,121 | | Net share settlement of nonvested shares and units | (37,355) | (1) | (735) | — | — | — | (736) | | Repurchase of common stock | — | — | — | — | 1,404,056 | (28,445) | (28,445) | | Dividends paid to stockholders ($0.08 per common share) | — | — | — | (3,765) | — | — | (3,765) | | Net income | — | — | — | 16,503 | — | — | 16,503 | | Balances — February 1, 2020 | 15,907,666 | $157 | $93,180 | $186,772 | 5,073,532 | $(109,065) | $171,044 | | Vesting of nonvested units | — | 1 | — | — | — | — | 1 | | Issuance of nonvested shares under incentive plan | 127,880 | — | — | — | — | — | — | | Forfeiture of nonvested shares | (15,218) | — | — | — | — | — | — | | Stock-based compensation expense | — | — | 2,912 | — | — | — | 2,912 | | Net share settlement of nonvested shares | (38,934) | — | (608) | — | — | — | (608) | | Repurchase of common stock | — | — | — | — | 1,030,961 | (32,861) | (32,861) | | Dividends paid to stockholders ($0.08 per common share) | — | — | — | (832) | — | — | (832) | | Net income | — | — | — | 23,978 | — | — | 23,978 | | Balances — January 30, 2021 | 15,981,394 | $158 | $95,484 | $209,918 | 6,104,493 | $(141,926) | $163,634 | | Vesting of nonvested units | — | 1 | — | — | — | — | 1 | | Conversion of nonvested cash-settled units to nonvested shares under incentive plan | 123,478 | — | 3,415 | — | — | — | 3,415 | | Issuance of nonvested shares under incentive plan | 23,539 | — | — | — | — | — | — | | Forfeiture of nonvested shares | (9,166) | — | — | — | — | — | — | | Stock-based compensation expense | — | — | 4,776 | — | — | — | 4,776 | | Net share settlement of nonvested shares | (28,880) | — | (2,638) | — | — | — | (2,638) | | Repurchase of common stock | — | — | — | — | 1,368,662 | (115,285) | (115,285) | | Net income | — | — | — | 62,240 | — | — | 62,240 | | Balances — January 29, 2022 | 16,090,365 | $159 | $101,037 | $272,158 | 7,473,155 | $(257,211) | $116,143 | - Inventory is valued at the lower of cost or net realizable value, with estimates for markdowns and shrinkage. **Shrinkage as a percentage of sales was 0.4% in fiscal 2021**, down from 0.8% in fiscal 2020 and 1.2% in fiscal 2019[191](index=191&type=chunk)[242](index=242&type=chunk) - The company is largely self-insured for workers' compensation, general liability, and employee medical claims, with liabilities based on estimated costs of claims[246](index=246&type=chunk) - Revenue is primarily from clothing and accessories sales, recognized at the point of sale[248](index=248&type=chunk) - The company leases all retail store locations and certain office space, classifying them as operating leases[192](index=192&type=chunk)[259](index=259&type=chunk)[280](index=280&type=chunk) Total Lease Costs (Fiscal Years 2020-2021, in thousands) | Lease Cost Type | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Operating lease cost | 52,737 | 50,446 | | Variable lease cost | 10,938 | 8,159 | | Short term lease cost | 1,091 | 1,459 | | **Total lease cost** | **64,766** | **60,064** | Future Minimum Lease Payments (as of January 29, 2022, in thousands) | Fiscal Year | Lease Costs ($) | | :--- | :--- | | 2022 | 53,317 | | 2023 | 50,918 | | 2024 | 42,114 | | 2025 | 31,622 | | 2026 | 21,246 | | Thereafter | 34,818 | | **Total** | **234,035** | [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=64&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reported no changes in or disagreements with its accountants - There are no changes in or disagreements with accountants on accounting and financial disclosure[285](index=285&type=chunk) [Item 9A. Controls and Procedures](index=65&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective - Management concluded that disclosure controls and procedures were **effective** as of January 29, 2022, providing reasonable assurance for information disclosure[287](index=287&type=chunk) - Internal control over financial reporting was assessed as **effective** based on COSO criteria as of January 29, 2022[290](index=290&type=chunk) - Deloitte & Touche LLP issued an **unqualified opinion** on the effectiveness of the company's internal control over financial reporting[291](index=291&type=chunk)[294](index=294&type=chunk) - No material changes in internal control over financial reporting occurred during the fourth quarter of fiscal 2021[292](index=292&type=chunk) [Item 9B. Other Information](index=67&type=section&id=Item%209B.%20Other%20Information) The company announced the retirement of its CFO and the appointment of an interim successor - Pamela J. Edwards, EVP, CFO, and Principal Financial Officer, retired effective April 1, 2022[298](index=298&type=chunk) - Jason B. Moschner, VP, Finance and Principal Accounting Officer, was appointed Principal Financial Officer effective April 8, 2022, on an interim basis[298](index=298&type=chunk) - Mr. Moschner has served in various finance and accounting roles at the company since 2017 and is a Certified Public Accountant[299](index=299&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=67&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable[301](index=301&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=67&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information is incorporated by reference from the 2022 Annual Meeting proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[303](index=303&type=chunk) [Item 11. Executive Compensation](index=67&type=section&id=Item%2011.%20Executive%20Compensation) Information is incorporated by reference from the 2022 Annual Meeting proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[304](index=304&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=67&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information is incorporated by reference from the 2022 Annual Meeting proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[304](index=304&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=67&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information is incorporated by reference from the 2022 Annual Meeting proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[304](index=304&type=chunk) [Item 14. Principal Accounting Fees and Services](index=67&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information is incorporated by reference from the 2022 Annual Meeting proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[305](index=305&type=chunk) PART IV [Item 15. Exhibits, Financial Statement Schedules](index=68&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all exhibits filed as part of the report and references the financial statements - Financial statements are filed as part of this report and referenced from Part II, Item 8[308](index=308&type=chunk) - The section includes a comprehensive list of exhibits, such as the Third Amended and Restated Certificate of Incorporation and By-laws, Credit Agreements, Incentive Plans, and various Employment and Severance Agreements[308](index=308&type=chunk)[310](index=310&type=chunk)[312](index=312&type=chunk) - Certifications from the Principal Executive Officer and Principal Financial Officer, pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, are included as exhibits[312](index=312&type=chunk) [Item 16. Form 10-K Summary](index=72&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company indicated that there is no Form 10-K Summary - There is no Form 10-K Summary[313](index=313&type=chunk)

Financial Data and Key Metrics Changes - For fiscal 2021, total sales reached $991.6 million, a 26.8% increase compared to fiscal 2019, with comparable sales up 22% [27] - Gross margin improved to 41.1%, an increase of 310 basis points over fiscal 2019 [27] - Operating income was $79.5 million, compared to $18.5 million in 2019, with operating margin expanding to 8% from 2.4% [27] - Earnings per diluted share increased by 390% to $6.91 compared to $1.41 in 2019 [27] - In Q4 2021, total sales were $241 million, growing by 14.2% compared to Q4 2019 [24] Business Line Data and Key Metrics Changes - The company opened 27 new stores and remodeled 25 during the year, launching the new CTx store format [7] - Comparable store sales increased by 14.8% during the holiday season compared to 2019 [24] - Average basket size increased due to higher unit retail selling prices and more units per transaction [25] Market Data and Key Metrics Changes - The company experienced a decline in traffic in January due to the Omicron variant but saw recovery in February and early March [10] - The company noted that 70% of its stores serve as primary neighborhood destinations for apparel and home needs [13] Company Strategy and Development Direction - The company aims to grow from 600 to 1,000 stores, with at least 150 remodels planned over the next three years [14] - Focus areas include expanding the customer base, optimizing product mix, reinvesting in infrastructure, and making a difference in communities [11] - The company plans to monetize its owned distribution centers to improve liquidity and support share repurchases [16][31] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges from inflation and uncertainties regarding consumer demand, particularly in Q1 2022 [20][32] - The company expects a total sales decrease of 25% to 30% in Q1 2022 compared to the previous year, with a projected EPS of $0.15 to $0.40 [33] - Management remains confident in the underlying health of the business and the effectiveness of transformation initiatives [34] Other Important Information - The company repurchased approximately 95,000 shares at a cost of $8.1 million in Q4, totaling close to 1.4 million shares for the year at a cost of $115 million [29] - Pam Edwards, the CFO, announced her retirement effective April 1, 2022 [36] Q&A Session Summary Question: Can you clarify the Q1 guidance regarding same-store sales and share count? - Management indicated a total sales decrease of 25% to 30% for Q1, equating to a 28% to 33% range for comparable store sales [40] Question: How do you expect gross margins to trend in Q1? - Management expects gross margins in the high-30s for Q1, with improvements anticipated in subsequent quarters [48] Question: How are you managing inventories in light of inflation? - Management expressed confidence in inventory management, aiming to maintain lower markdowns compared to previous years [44][45] Question: What is the expected cadence for store openings this year? - The company plans to open approximately 35 new stores, with a focus on remodeling existing locations [50] Question: How do you view the impact of stimulus on sales moving forward? - Management noted that the impact of stimulus will decrease significantly in Q2 through Q4, with new initiatives expected to drive sales [56] Question: What are the expectations for EBITDA recovery? - Management anticipates returning to double-digit EBITDA by 2024 as underlying conditions improve [70] Question: How will proceeds from the sale-leaseback transactions be utilized? - The board is actively considering share repurchases as part of the capital allocation strategy [71]

PART I FINANCIAL INFORMATION [Item 1 Financial Statements (unaudited)](index=3&type=section&id=Item%201%20Financial%20Statements%20(unaudited)) The unaudited consolidated financial statements highlight a significant increase in net income and a substantial decrease in cash due to stock repurchases [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to **$467.6 million** due to reduced cash, while liabilities increased and equity declined from **$163.6 million** to **$109.3 million** due to stock repurchases Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Oct 30, 2021 | Jan 30, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $12,023 | $123,177 | | Inventory | $126,899 | $103,845 | | Total current assets | $193,776 | $244,442 | | Total assets | $467,569 | $494,593 | | **Liabilities & Equity** | | | | Total current liabilities | $192,916 | $182,845 | | Total liabilities | $358,309 | $330,959 | | Total stockholders' equity | $109,260 | $163,634 | | Total liabilities and stockholders' equity | $467,569 | $494,593 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q3 2021 net sales increased **14.5%** to **$228.0 million**, with year-to-date net sales growing **41.3%** to **$750.6 million** and net income surging to **$52.4 million** Thirteen Weeks Ended Performance (in thousands, except per share data) | Metric | Oct 30, 2021 | Oct 31, 2020 | | :--- | :--- | :--- | | Net sales | $227,959 | $199,100 | | Income from operations | $11,577 | $9,340 | | Net income | $9,014 | $6,965 | | Diluted net income per common share | $1.03 | $0.67 | Thirty-Nine Weeks Ended Performance (in thousands, except per share data) | Metric | Oct 30, 2021 | Oct 31, 2020 | | :--- | :--- | :--- | | Net sales | $750,621 | $531,375 | | Income from operations | $66,940 | $8,234 | | Net income | $52,401 | $5,940 | | Diluted net income per common share | $5.71 | $0.57 | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow decreased to **$54.9 million**, while investing activities used **$56.1 million** and financing activities used **$109.9 million**, primarily for stock repurchases Cash Flow Summary for Thirty-Nine Weeks Ended (in thousands) | Activity | Oct 30, 2021 | Oct 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $54,853 | $63,043 | | Net cash (used in) provided by investing activities | $(56,078) | $31,349 | | Net cash used in financing activities | $(109,929) | $(17,553) | | **Net (decrease) increase in cash** | **$(111,154)** | **$76,839** | | Cash and cash equivalents, end of period | $12,023 | $96,762 | [Notes to the Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, COVID-19 impact, revenue disaggregation by category, significant stock repurchases, and an undrawn **$75 million** revolving credit facility - The company is a specialty value retailer with **600 stores** in **33 states** as of October 30, 2021, primarily serving African American and Latinx families[20](index=20&type=chunk) - The company has actively repurchased its stock, spending **$85.3 million** under its programs and an additional **$21.9 million** in a block repurchase during the first thirty-nine weeks of 2021. A new **$30 million** repurchase program was authorized on November 30, 2021[43](index=43&type=chunk)[44](index=44&type=chunk) Revenue Disaggregation by Merchandise Category (% of Net Sales) | Category | Thirteen Weeks Ended Oct 30, 2021 | Thirty-Nine Weeks Ended Oct 30, 2021 | | :--- | :---: | :---: | | Kids | 26% | 22% | | Women | 25% | 27% | | Men | 17% | 18% | | Beauty & Accessories | 17% | 17% | | Home & Lifestyle | 8% | 8% | | Footwear | 7% | 8% | - The company amended its revolving credit facility in April 2021, increasing the commitment to **$75 million** with a maturity date of April 15, 2026. There were no borrowings under the facility as of October 30, 2021[36](index=36&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=14&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses significant sales growth driven by comparable store sales and pandemic recovery, gross margin impacts, and strong liquidity despite substantial stock repurchases [Results of Operations](index=14&type=section&id=Results%20of%20Operations) Q3 2021 net sales increased **14.5%** to **$228.0 million** driven by comparable store sales, while year-to-date net sales grew **41.3%** to **$750.6 million** due to pandemic recovery - Q3 2021 net sales increased **14.5%** to **$228.0 million**, driven by a **13.1%** increase in comparable store sales[67](index=67&type=chunk) - The **13.1%** increase in Q3 comparable store sales was due to a **12%** increase in average basket size and a **1%** increase in customer transactions[68](index=68&type=chunk) - For the first thirty-nine weeks of 2021, net sales increased **41.3%** to **$750.6 million**, primarily due to the temporary closure of all stores in the first half of 2020[74](index=74&type=chunk) - Cost of sales as a percentage of sales for Q3 2021 increased to **59.7%** from **58.2%** YoY, mainly due to a **110 basis point** increase in freight costs[69](index=69&type=chunk) [Liquidity and Capital Resources](index=15&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is supported by **$12.0 million** cash, **$35.5 million** investments, and an undrawn **$75 million** credit facility, despite significant cash usage for stock repurchases - Principal sources of liquidity include **$12.0 million** in cash, **$35.5 million** in short-term investments, and an undrawn **$75 million** revolving credit facility as of October 30, 2021[80](index=80&type=chunk) - Cash used in financing activities was **$109.9 million** in the first thirty-nine weeks of 2021, primarily consisting of **$107.2 million** for common stock repurchases[85](index=85&type=chunk)[86](index=86&type=chunk) - Cash used in investing activities was **$56.1 million**, consisting of **$35.5 million** for purchases of short-term investment securities and **$20.8 million** for capital expenditures[84](index=84&type=chunk) - Management believes that existing sources of liquidity will be sufficient to fund operations for at least the next 12 months[87](index=87&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=17&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes in market risk have occurred during the thirty-nine weeks ended October 30, 2021, compared to prior disclosures - There have been no material changes in market risk during the thirty-nine weeks ended October 30, 2021[91](index=91&type=chunk) [Item 4. Controls and Procedures](index=17&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of October 30, 2021, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures are effective as of October 30, 2021[92](index=92&type=chunk) - No material changes to internal control over financial reporting occurred during the fiscal quarter[94](index=94&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=18&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings but expects no material adverse effect on its financial condition or operations - The company is not aware of any pending or threatened legal proceedings that are expected to have a material adverse effect on its financial condition, operations, or liquidity[96](index=96&type=chunk) [Item 1A. Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) No material changes have been made to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes have been made to the Risk Factors disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 2021[97](index=97&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=18&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **521,086** shares in Q3 2021 and authorized a new **$30 million** stock repurchase program on November 30, 2021 Share Repurchases in Q3 2021 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | August 2021 | 67,233 | $77.59 | | September 2021 | 361,706 | $84.94 | | October 2021 | 92,147 | $74.77 | | **Total** | **521,086** | - | - On November 30, 2021, the board of directors approved a new stock repurchase program authorizing up to **$30 million** in share repurchases[99](index=99&type=chunk) [Item 6. Exhibits](index=19&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - Exhibits filed include CEO and CFO certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act[110](index=110&type=chunk)

Financial Data and Key Metrics Changes - Total sales for Q3 2021 reached $228 million, an increase of 14.5% compared to Q3 2020 and 24.5% compared to Q3 2019 [8][19] - Comparable store sales grew by 13.1% versus Q3 2020, building on a positive 6.3% from the previous year [8][19] - Gross margin improved to 40.3%, up 290 basis points from 37.4% in Q3 2019, driven by strong full-price selling and fewer markdowns [19][20] - Operating income increased to $11.6 million, a rise of $2.2 million compared to Q3 2020 and $13.2 million compared to Q3 2019 [20] - Net income was $9 million, compared to $7 million in Q3 2020 and an operating loss of $1.1 million in Q3 2019 [20] Business Line Data and Key Metrics Changes - Strong double-digit growth was observed across five of the six categories, including women's, men's, kids, beauty and accessories, and home and lifestyle [10] - Footwear was noted as lagging slightly due to supply chain disruptions, but momentum is improving as issues abate [32] Market Data and Key Metrics Changes - The company opened 11 new stores during the quarter, bringing the total store count to 600, with plans to end the year with approximately 611 stores [9] - Inventory at the end of the quarter increased by 10.9% compared to Q3 2020 but decreased by 6.3% compared to Q3 2019, reflecting improved inventory management [21] Company Strategy and Development Direction - The company is focused on four strategic priorities: growing the store fleet, optimizing product mix, reinvesting in the business, and making a difference in communities served [25][26] - Plans to open approximately 40 new stores and remodel 40 existing stores in fiscal 2022, reflecting the elevated CTX store upgrade [26] - The company aims for total sales growth of low to mid-single digits and at least low double-digit EPS growth in fiscal 2022 [26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating supply chain challenges and highlighted strong inventory positioning for the holiday season [17][18] - The company raised its full-year 2021 sales outlook to a range of $1 billion to $1.15 billion and EPS guidance to $6.95 to $7.10, reflecting nearly 400% growth at the EPS midpoint compared to fiscal 2019 [23] Other Important Information - The company repurchased approximately 521,000 shares at a cost of $42.8 million in Q3, with a total of 1,273,000 shares repurchased for $107.2 million in the first nine months of the year [22] - Two new independent directors were appointed to the Board, enhancing the company's commitment to diversity, equity, and inclusion [27] Q&A Session Summary Question: Insights on Q4 performance and category performance - Management indicated strong performance across most categories, with footwear lagging due to supply chain issues but showing improvement [32] Question: Staffing trends and wage increases - The company is addressing staffing challenges on a store-by-store basis, including wage adjustments where necessary, but reported little to no issues with labor during recent weekends [34] Question: Confidence in FY'22 growth - Management expressed confidence in achieving low to mid-single digit sales growth and low double-digit EPS growth in FY'22, driven by strong underlying business performance and the impact of CTX store upgrades [36][60] Question: CTX store performance and CapEx implications - CTX stores are showing improved conversion rates, and while CapEx for new and remodeled stores is slightly higher, the sales increases associated with these changes are expected to offset costs [41][42] Question: Customer health and regional performance - Management noted resilience in customer spending despite changes in unemployment benefits, with a positive outlook for consumer liquidity into 2022 [52] Question: Consistency in November sales performance - November sales were consistent, supported by improved inventory levels and early holiday product placements [55]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 000-51315 CITI TRENDS, INC. (Exact name of registrant as specified in its charter) Delaware 52-2150697 (State or other jurisdiction of (I.R.S. Employer incorporation o ...