Citi Trends(CTRN) - 2021 Q4 - Annual Report

Part I Business Citi Trends is a specialty value retailer operating 585 stores in 33 states, targeting African American and Latinx families with trend-right merchandise at low prices - The company operates 585 stores in 33 states as of January 30, 2021, and believes it has the potential to grow its store base to 1,000 stores over time[8][17] - The company's target customers are primarily African American and Latinx families with an average annual household income of approximately $40,000[8][11] Percentage of Net Sales by Merchandise Category (Citi) | Citis | Fiscal Year 2020 | Fiscal Year 2019 | Fiscal Year 2018 | | :--- | :--- | :--- | :--- | | Ladies | 26% | 26% | 27% | | Kids | 23% | 23% | 24% | | Mens | 18% | 16% | 17% | | Accessories & Beauty | 16% | 17% | 15% | | Home & Lifestyle | 9% | 7% | 7% | | Footwear | 8% | 11% | 10% | - The company's growth strategy focuses on four key areas: growing the store fleet, optimizing the product mix, investing in infrastructure for buying, moving, and selling goods, and making a difference in the communities it serves[17][18][19] - As of January 31, 2021, approximately 80% of the company's associates identify as African American or Latinx, and 83% of employees are female[14][35][50] Risk Factors The company faces significant risks from the COVID-19 pandemic, fashion trend shifts, intense competition, economic downturns, and supply chain disruptions - The COVID-19 pandemic poses a significant risk, with potential impacts on store operations, consumer spending, and the global economy. The full extent of the impact remains uncertain[58][59] - The company's success is highly dependent on its ability to anticipate and respond to rapidly changing fashion trends. Failure to do so could lead to lower demand, excess inventory, and higher markdowns[60] - The company does not sell products online, which could adversely affect sales as the retail industry experiences a continued shift towards e-commerce[66] - A significant portion of merchandise is imported, exposing the company to risks from trade restrictions, tariffs (especially with China), and political or labor instability in manufacturing countries[84][85] - The business is seasonal, with sales and earnings significantly higher in the first and fourth quarters. Adverse events during these periods have a disproportionately large effect on financial results[67][68] Unresolved Staff Comments The company reports that there are no unresolved staff comments - None[115] Properties As of January 30, 2021, the company operated 585 leased stores and owns its corporate headquarters and two distribution centers - The company operated 585 stores in 33 states as of January 30, 2021. The states with the highest number of stores are Georgia (64), Texas (57), and Florida (52)[117][118] - The company owns its 70,000 sq. ft. headquarters in Savannah, GA, a 550,000 sq. ft. distribution center in Darlington, SC, and a 565,000 sq. ft. distribution center in Roland, OK[120] Legal Proceedings The company is involved in various legal proceedings incidental to its business but is not aware of any pending or threatened litigation expected to have a material adverse effect on its financial condition, results of operations, or liquidity - The company is not aware of any legal proceedings that are expected to have a material adverse effect on its financial condition or operations[121] Mine Safety Disclosures This item is not applicable to the company - Not applicable[122] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ, suspended dividends due to COVID-19, and initiated two $30.0 million stock repurchase programs - The company suspended future cash dividends on April 28, 2020, to preserve financial flexibility amid the COVID-19 pandemic[126] - The Board of Directors approved two $30.0 million stock repurchase programs in March and December 2020. Repurchases were temporarily suspended but reinstated in September 2020[127][128] Share Repurchases in Q4 Fiscal 2020 | Period | Total Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | November (11/1/20 - 11/28/20) | 169,120 | 30.32 | | December (11/29/20 - 1/2/21) | 103,882 | 44.21 | | January (1/3/21 - 1/30/21) | 121,902 | 57.41 | | Total | 394,904 | N/A | Selected Financial Data The company has omitted the selected financial data previously required by Item 301 of Regulation S-K, in reliance on SEC Release No. 33-10890 - Selected financial data has been omitted in reliance on a recent SEC rule change[134] Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2020 saw net sales increase 0.2% to $783.3 million and net income rise to $24.0 million, driven by improved gross margin and strong liquidity with $123.2 million cash Fiscal Year 2020 vs. 2019 Operating Results (in millions) | Metric | Fiscal Year 2020 | Fiscal Year 2019 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $783.3 | $781.9 | +0.2% | | Gross Profit* | $311.7 | $297.2 | +4.9% | | Income from Operations | $31.9 | $18.5 | +72.2% | | Net Income | $24.0 | $16.5 | +45.3% | | Comparable Store Sales | (2.1)% | (0.1)% | -2.0 p.p. | *Gross Profit calculated as Net Sales - Cost of Sales. - Despite stores being closed for approximately 16% of total available days due to the pandemic, net sales increased 0.2% for fiscal 2020. Strong performance after reopening, particularly a 16.7% increase in comparable store sales in Q4, drove results[146] - Cost of sales as a percentage of net sales decreased by 180 basis points, from 62.0% in 2019 to 60.2% in 2020, due to a 140 basis point improvement in core merchandise margin and a 40 basis point improvement in shrinkage[146] - The company ended fiscal 2020 with $123.2 million in cash and cash equivalents and no borrowings on its revolving credit facility, demonstrating strong liquidity[151][153] Cash Flow Summary (in millions) | Cash Flow Activity | Fiscal Year 2020 | Fiscal Year 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $110.9 | $42.6 | | Net cash provided by (used in) investing activities | $26.7 | $(7.6) | | Net cash used in financing activities | $(34.3) | $(32.9) | Quantitative and Qualitative Disclosure About Market Risk The company's market risk exposure is primarily to interest rate changes on investments, with no direct foreign currency risk as all products are sourced in U.S. Dollars - The company's primary market risk exposure is to interest rate changes on its investments, which is not considered material[173] - All products are sourced in U.S. Dollars, so there is no direct foreign currency exchange rate risk. However, currency fluctuations can indirectly impact purchasing power with vendors[174] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal years 2019-2021, including balance sheets, income statements, cash flows, and equity statements Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable[176] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of January 30, 2021, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year[177] - No material changes were made to the internal control over financial reporting during the fourth quarter of 2020[178] Part III Directors, Executive Officers and Corporate Governance The information required for this item, including details on directors, executive officers, and corporate governance, is incorporated by reference from the company's definitive proxy statement for its 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the company's definitive proxy statement[181] Executive Compensation The information required for this item, concerning executive compensation, is incorporated by reference from the company's definitive proxy statement for its 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the company's definitive proxy statement[182] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required for this item, regarding security ownership and equity compensation plans, is incorporated by reference from the company's definitive proxy statement for its 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the company's definitive proxy statement[183] Certain Relationships and Related Transactions, and Director Independence The information required for this item, covering related party transactions and director independence, is incorporated by reference from the company's definitive proxy statement for its 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the company's definitive proxy statement[184] Principal Accounting Fees and Services The information required for this item, detailing fees paid to the principal accountant, is incorporated by reference from the company's definitive proxy statement for its 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the company's definitive proxy statement[185] Part IV Exhibits, Financial Statement Schedules This section provides an index of all exhibits filed with the Form 10-K, including financial statements, schedules, and corporate governance documents - This section provides an index of all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and certifications[188][189] Form 10-K Summary This item is noted as "None," indicating no summary is provided in this section of the report - None[207] Financial Statements Report of Independent Registered Public Accounting Firm KPMG LLP issued unqualified opinions on the consolidated financial statements and internal control over financial reporting, noting lease accounting as a critical audit matter - KPMG LLP provided an unqualified (clean) opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting[219][229] - A critical audit matter was identified related to the accounting for operating lease renewals and modifications, which increased in volume and complexity during fiscal 2020[222][224] - The report notes the company changed its method of accounting for leases as of February 3, 2019, due to the adoption of the new lease accounting standard (Topic 842)[220] Consolidated Financial Statements The consolidated financial statements show total assets of $494.6 million, net sales of $783.3 million, and net income of $24.0 million for fiscal 2020 Consolidated Balance Sheet (in millions) | | Jan 30, 2021 | Feb 1, 2020 | | :--- | :--- | :--- | | Total Current Assets | $244.4 | $201.2 | | Total Assets | $494.6 | $459.1 | | Total Current Liabilities | $182.8 | $150.9 | | Total Liabilities | $331.0 | $288.1 | | Total Stockholders' Equity | $163.6 | $171.0 | Consolidated Statement of Operations (in millions, except EPS) | | Fiscal Year 2020 | Fiscal Year 2019 | Fiscal Year 2018 | | :--- | :--- | :--- | :--- | | Net Sales | $783.3 | $781.9 | $769.6 | | Income from Operations | $31.9 | $18.5 | $25.1 | | Net Income | $24.0 | $16.5 | $21.4 | | Diluted EPS | $2.32 | $1.41 | $1.64 | Consolidated Statement of Cash Flows (in millions) | | Fiscal Year 2020 | Fiscal Year 2019 | Fiscal Year 2018 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $110.9 | $42.6 | $30.4 | | Net Cash from Investing Activities | $26.7 | $(7.6) | $(15.3) | | Net Cash from Financing Activities | $(34.3) | $(32.9) | $(45.7) | | Net Change in Cash | $103.3 | $2.1 | $(30.6) | | Cash at End of Year | $123.2 | $19.9 | $17.9 | Notes to Consolidated Financial Statements The notes detail accounting policies, including revenue recognition and lease accounting, with total lease cost of $60.1 million in fiscal 2020 and $209.7 million in future minimum lease payments - The company adopted the new lease accounting standard (ASU 2016-02) on February 3, 2019, resulting in the initial recognition of operating lease right-of-use assets of $133.6 million and lease liabilities of $141.0 million[278] Total Lease Cost (in millions) | Component | Fiscal 2020 | Fiscal 2019 | | :--- | :--- | :--- | | Operating lease cost | $50.4 | $51.2 | | Variable lease cost | $8.2 | $5.8 | | Short term lease cost | $1.5 | $1.1 | | Total lease cost | $60.1 | $58.1 | - In response to COVID-19, the company negotiated rent concessions, recognizing rent abatement credits of approximately $1.0 million in fiscal 2020[303] - The company repurchased common stock at an aggregate cost of $32.9 million in fiscal 2020 and $28.4 million in fiscal 2019[157]