Citi Trends(US:CTRN)2022-06-08 16:00markdown [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)