Citi Trends(CTRN) - 2021 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the company's unaudited condensed consolidated financial statements and accompanying notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | October 31, 2020 | February 1, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $96,762 | $19,923 | | Total current assets | $229,741 | $201,207 | | Total assets | $481,921 | $459,145 | | Total current liabilities | $169,966 | $150,862 | | Total liabilities | $320,988 | $288,101 | | Total stockholders' equity | $160,933 | $171,044 | - Cash and cash equivalents significantly increased from $19.9 million to $96.8 million[14] - Total assets grew by approximately $22.8 million, while total liabilities increased by $32.9 million[14] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | 39 Weeks Ended Oct 31, 2020 | 39 Weeks Ended Nov 2, 2019 | 13 Weeks Ended Oct 31, 2020 | 13 Weeks Ended Nov 2, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $531,375 | $570,912 | $199,100 | $183,050 | | Income from operations | $8,234 | $7,295 | $9,340 | $(1,588) | | Net income (loss) | $5,940 | $7,081 | $6,965 | $(1,084) | | Basic net income (loss) per common share | $0.57 | $0.60 | $0.67 | $(0.09) | - For the thirty-nine weeks, net sales decreased by 6.9% YoY, and net income decreased by 16.1% YoY[17] - For the thirteen weeks, net sales increased by 8.8% YoY, and the company reported a net income of $7.0 million compared to a net loss of $1.1 million in the prior year[18] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | 39 Weeks Ended Oct 31, 2020 | 39 Weeks Ended Nov 2, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $63,043 | $21,111 | | Net cash provided by (used in) investing activities | $31,349 | $(1,998) | | Net cash used in financing activities | $(17,553) | $(13,245) | | Net increase in cash and cash equivalents | $76,839 | $5,868 | | Cash and cash equivalents, end of period | $96,762 | $23,731 | - Net cash from operating activities significantly increased to $63.0 million from $21.1 million, driven by inventory decrease and accounts payable increase[21] - Investing activities provided $31.3 million cash, primarily from sales/redemptions of investment securities, a reversal from cash used in the prior year[21] - Financing activities used more cash, $17.6 million, mainly due to increased common stock repurchases[21] Condensed Consolidated Statements of Stockholders' Equity Changes in Stockholders' Equity (in thousands) | Metric | February 1, 2020 | October 31, 2020 | | :--- | :--- | :--- | | Common Shares | 15,907,666 | 15,968,849 | | Common Stock Amount | $157 | $158 | | Paid in Capital | $93,180 | $94,101 | | Retained Earnings | $186,772 | $191,881 | | Treasury Stock Amount | $(109,065) | $(125,207) | | Total Stockholders' Equity | $171,044 | $160,933 | - Total stockholders' equity decreased from $171.0 million to $160.9 million, primarily due to increased treasury stock repurchases[24] - Retained earnings increased from $186.8 million to $191.9 million[24] Notes to the Condensed Consolidated Financial Statements 1. Significant Accounting Policies - Citi Trends, Inc is a value-priced retailer of fashion apparel, accessories, and home goods, operating 585 stores in 33 states as of October 31, 2020[27] - The condensed consolidated financial statements are unaudited and prepared in accordance with U.S. GAAP for interim reporting[28] - The company adopted ASU 2016-13 (Credit Losses) on February 2, 2020, with no material impact on financial statements[30] 2. Impact of the COVID-19 Pandemic - All retail stores and distribution centers were temporarily closed from March 20, 2020, and fully reopened by July 18, 2020[31] - Mitigation efforts included drawing $43.7 million from the credit facility, temporary furloughs, salary reductions, extended vendor payment terms, and suspending share repurchases[32] - The company deferred $3.5 million in employer social security tax deposits and recognized a $1.5 million benefit from the CARES Act employee retention credit[34] 3. Cash and Cash Equivalents/Concentration of Credit Risk - Cash equivalents are highly liquid investments with maturities of three months or less[35] - The company places cash and cash equivalents in high credit quality banks and institutional money market funds, maintaining accounts that exceed federally insured limits[35] 4. Earnings per Share - Basic EPS is calculated using weighted average common shares outstanding; diluted EPS includes potentially dilutive securities[36] - 150,000 and 139,000 shares of nonvested restricted stock were excluded from diluted EPS calculation for the thirty-nine weeks ended October 31, 2020 and November 2, 2019, respectively, due to antidilution[37] Weighted Average Shares Outstanding (in thousands) | Period | Basic | Diluted | | :--- | :--- | :--- | | 39 Weeks Ended Oct 31, 2020 | 10,420 | 10,444 | | 39 Weeks Ended Nov 2, 2019 | 11,831 | 11,842 | | 13 Weeks Ended Oct 31, 2020 | 10,365 | 10,401 | | 13 Weeks Ended Nov 2, 2019 | 11,636 | 11,636 | 5. Impairment of Assets - The company reviews long-lived assets and operating lease right-of-use assets for impairment based on projected undiscounted cash flows[40] Asset Impairment Charges (in thousands) | Type | 39 Weeks Ended Oct 31, 2020 | 39 Weeks Ended Nov 2, 2019 | | :--- | :--- | :--- | | Operating lease right-of-use asset impairment | $181 | $190 | | Store asset impairment | $105 | $282 | | Total asset impairment | $286 | $472 | 6. Revolving Credit Facility - The $50 million credit facility with Bank of America was amended to extend maturity to August 18, 2021, and includes a $25 million 'accordion' feature[41] - On March 20, 2020, $43.7 million was borrowed for liquidity due to COVID-19, and the full amount was repaid by September 11, 2020[41] 7. Income Taxes - Income taxes are accounted for under the asset and liability method, with deferred taxes recognized for temporary differences[42] - The effective income tax rate increased to 23.2% for the thirty-nine weeks ended October 31, 2020, from 15.6% in the prior year, primarily due to lower federal and state tax credits[43] 8. Commitments and Contingencies - The company is involved in various legal proceedings incidental to its business, establishing reserves when costs are probable and estimable[44] - No legal proceedings are expected to have a material adverse effect on financial condition, results of operations, or liquidity[44] 9. Stock Repurchase Program and Cash Dividends - A $25.0 million stock repurchase program was completed in February 2020[47] - A new $30.0 million repurchase program was approved on March 13, 2020, temporarily suspended on March 23, 2020, due to COVID-19, and reinstated on September 14, 2020[48] - During the thirteen weeks ended October 31, 2020, the company repurchased 375,803 shares for $9.9 million[48] - Cash dividends were suspended on April 28, 2020, due to economic uncertainty from COVID-19[49] 10. Revenue - Primary revenue source is from the sale of clothing and accessories, recognized when merchandise is paid for and control is transferred[50] - Revenue from gift cards is recognized upon redemption[50] Revenue Disaggregation by Major Product Line (Percentage of Net Sales) | Product Line | 39 Weeks Ended Oct 31, 2020 | 39 Weeks Ended Nov 2, 2019 | 13 Weeks Ended Oct 31, 2020 | 13 Weeks Ended Nov 2, 2019 | | :--- | :--- | :--- | :--- | :--- | | Accessories | 31% | 33% | 30% | 33% | | Ladies' | 22% | 23% | 20% | 21% | | Children's | 22% | 22% | 24% | 24% | | Men's | 17% | 16% | 18% | 16% | | Home | 8% | 6% | 8% | 6% | 11. Leases - The company leases retail store locations, office space, and equipment, typically for five-year terms with extension options[55] - The company negotiated rent concessions, recognizing rent abatement credits of approximately $0.8 million for the thirty-nine weeks ended October 31, 2020[56] Total Lease Costs (in thousands) | Type | 39 Weeks Ended Oct 31, 2020 | 39 Weeks Ended Nov 2, 2019 | | :--- | :--- | :--- | | Operating lease cost | $36,918 | $36,137 | | Variable lease cost | $6,458 | $6,164 | | Short term lease cost | $1,172 | $791 | | Total lease cost | $44,548 | $43,092 | Future Minimum Lease Payments as of October 31, 2020 (in thousands) | Fiscal Year | Lease Costs | | :--- | :--- | | Remainder of 2020 | $12,651 | | 2021 | $52,070 | | 2022 | $43,452 | | 2023 | $35,672 | | 2024 | $27,363 | | Thereafter | $42,789 | | Total future minimum lease payments | $213,997 | | Less: imputed interest | $(17,255) | | Total present value of lease liabilities | $196,742 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management discusses financial performance, condition, and liquidity, emphasizing the impact of COVID-19 Forward-Looking Statements - This section contains forward-looking statements subject to risks and uncertainties, including the ongoing COVID-19 pandemic, changes in consumer spending, and supply chain disruptions[60][61] - Readers are cautioned not to place undue reliance on these statements and are advised to review other SEC filings for further disclosures[62] Overview - Citi Trends is a value-priced retailer of fashion apparel, accessories, and home goods, primarily targeting value-conscious consumers, particularly African-Americans[63] - As of October 31, 2020, the company operated 585 stores across 33 states[63] COVID-19 Pandemic - All retail stores and distribution centers were temporarily closed from March 20, 2020, and fully reopened by July 18, 2020, with safety measures implemented[64] - The pandemic led to a $43.7 million credit facility drawdown, temporary furloughs, salary reductions, extended vendor payment terms, and suspension of share repurchases[66] - The company continues to monitor and evaluate the pandemic's impact on its business, customers, and vendors[67] Accounting Periods - Fiscal years 2020 and 2019 represent periods ending January 30, 2021, and February 1, 2020, respectively, both with 52-week accounting periods[68] Results of Operations - The business is seasonal, with higher sales in the first and fourth quarters[69] - Comparable store sales growth and average sales per store are key performance measures[70] Thirty-Nine Weeks Ended October 31, 2020 and November 2, 2019 - Net sales decreased by $39.5 million (6.9%) to $531.4 million, primarily due to store closures from COVID-19[72] - Cost of sales as a percentage of sales decreased to 61.6% from 62.6%, driven by an 80 basis point increase in core merchandise margin and a 20 basis point improvement in shrinkage[73] - Selling, general and administrative expenses decreased by $11.1 million (5.8%) due to payroll reductions from furloughs and CARES Act credits, partially offset by $1.7 million in COVID-19 related supplies[74] - Net income decreased by $1.2 million (16.1%) to $5.9 million[77] Thirteen Weeks Ended October 31, 2020 and November 2, 2019 - Net sales increased by $16.0 million (8.8%) to $199.1 million, driven by a 6.3% increase in comparable store sales and 22 new store openings[78] - Comparable store sales increase was due to a 21% increase in average ticket size, partially offset by a 12% decrease in customer transactions[78] - Cost of sales as a percentage of sales decreased to 58.2% from 62.6%, due to a 390 basis point increase in core merchandise margin, and improvements in shrinkage and freight costs[79] - Net income was $7.0 million, a significant improvement from a net loss of $1.1 million in the prior year's third quarter[83] Liquidity and Capital Resources - Principal liquidity sources include cash and cash equivalents ($96.8 million), short-term trade credit, cash from operations, and a $50.0 million revolving credit facility (no borrowings as of Oct 31, 2020)[84] - Net cash provided by operating activities increased to $63.0 million from $21.1 million, driven by a $23.9 million decrease in inventory and a $7.7 million increase in accounts payable[85] - Investing activities provided $31.3 million, primarily from sales/redemptions of investment securities[87] - Financing activities used $17.6 million, mainly due to $16.9 million in common stock repurchases and dividends[88] Cash Requirements - Cash is primarily used for working capital, capital expenditures (stores, distribution, IT), and stock repurchases[90] - The $43.7 million drawn from the revolving credit facility due to COVID-19 was fully repaid by September 11, 2020[90] - The company expects to meet future cash requirements for at least the next 12 months through cash flow from operations, trade credit, existing cash, and the credit facility[91] Recent Accounting Pronouncements - Refer to Note 1 for discussion of recent accounting pronouncements[92] Critical Accounting Policies - No material changes to critical accounting policies outlined in the Annual Report on Form 10-K for the year ended February 1, 2020[94] Item 3. Quantitative and Qualitative Disclosures About Market Risk. No material changes in market risk were reported for the period - No material changes in market risk during the thirty-nine weeks ended October 31, 2020, compared to the Annual Report on Form 10-K[95] Item 4. Controls and Procedures. Management confirms the effectiveness of disclosure controls and procedures as of October 31, 2020 - Disclosure controls and procedures were evaluated and deemed effective as of October 31, 2020, providing reasonable assurance for information recording, processing, summarizing, and reporting[96] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended October 31, 2020[98] PART II OTHER INFORMATION Item 1. Legal Proceedings. The company reports no legal proceedings expected to have a material adverse effect on its financials - The company is involved in various legal proceedings incidental to its business[100] - No legal proceedings are expected to have a material adverse effect on financial condition, results of operations, or liquidity[100] Item 1A. Risk Factors. This section updates risk factors, highlighting the ongoing and uncertain impact of the COVID-19 pandemic - The ongoing COVID-19 pandemic has significantly impacted financial and operating performance, with the extent of future impact remaining highly uncertain[101][103] - Risks include potential re-closure of stores, negative impacts on global/regional economies, changes in consumer shopping patterns, and supplier/vendor operations[103] - Sales and store operations are susceptible to general economic factors (e.g., unemployment, consumer confidence) and regional factors, particularly in the southeastern United States[104][105][106] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. This section details stock repurchase activities following the reinstatement of the buyback program - A $30.0 million stock repurchase program, approved on March 13, 2020, was temporarily suspended on March 23, 2020, and reinstated on September 14, 2020[108] - During the thirteen weeks ended October 31, 2020, the company repurchased 375,803 shares at an aggregate cost of $9.9 million[108] Common Stock Repurchases (Third Quarter Fiscal 2020) | Period | Total Shares Purchased | Average Price Paid per Share (1) | Maximum Value Remaining (2) | | :--- | :--- | :--- | :--- | | August (8/2/20 - 8/29/20) | — | — | $30,000,000 | | September (8/30/20 - 10/3/20) | 149,831 | $24.60 | $26,317,994 | | October (10/4/20 - 10/31/20) | 225,972 | $27.44 | $20,123,067 | | Total | 375,803 | | | Item 3. Defaults Upon Senior Securities. This item is not applicable for the reporting period - Not applicable[113] Item 4. Mine Safety Disclosures. This item is not applicable for the reporting period - Not applicable[115] Item 5. Other Information. This item is not applicable for the reporting period - Not applicable[117] Item 6. Exhibits. This section lists all exhibits filed with the Form 10-Q - Includes Inline XBRL Document Set for financial statements and cover page[119] - Lists Third Amended and Restated Certificate of Incorporation and employment/severance agreements[121] SIGNATURES SIGNATURES The report is duly signed by the Principal Financial and Accounting Officer on December 8, 2020 - The report was signed by Jason B. Moschner, Vice President of Finance (Principal Financial and Accounting Officer) on December 8, 2020[124][126][128]