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Citi Trends(CTRN) - 2024 Q3 - Earnings Call Transcript
CTRNCiti Trends(CTRN)2024-12-03 16:36
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Financial Data and Key Metrics Changes - Total sales for Q3 2024 were 179.1million,withcomparablesalesgrowthof5.7179.1 million, with comparable sales growth of 5.7% compared to the prior year [11][33] - Gross margin expanded by 160 basis points to 39.8%, with gross profit dollars increasing by 3.9% year-over-year [19][36] - Adjusted SG&A expenses totaled 74.6 million, an increase of 3.7millionversuslastyear,drivenbystrategiccostsaimedatfuturegrowth[38][39]BusinessLineDataandKeyMetricsChanges−Positivetrendswereobservedacrossbothapparelandnon−apparelcategories,withchildren′sapparelperformingparticularlywellduetoimprovedproductassortmentandallocationtactics[12][13]−Non−apparelcategories,especiallyhomeandlifestyle,alsoshowedstrength,benefitingfromstrategicinventoryinvestments[13]MarketDataandKeyMetricsChanges−ComparablesalesimprovedeachmonthduringQ3,culminatinginhighsingle−digitgrowthinOctober,indicatingstrongcustomertrafficandtransactiongrowth[10][12]−Thecompanynotedasignificantreductionininventoryaged7monthsorolder,whichmadeuponly33.7 million versus last year, driven by strategic costs aimed at future growth [38][39] Business Line Data and Key Metrics Changes - Positive trends were observed across both apparel and non-apparel categories, with children's apparel performing particularly well due to improved product assortment and allocation tactics [12][13] - Non-apparel categories, especially home and lifestyle, also showed strength, benefiting from strategic inventory investments [13] Market Data and Key Metrics Changes - Comparable sales improved each month during Q3, culminating in high single-digit growth in October, indicating strong customer traffic and transaction growth [10][12] - The company noted a significant reduction in inventory aged 7 months or older, which made up only 3% of Q3 end-of-period inventory [35] Company Strategy and Development Direction - The company is focused on a core African American customer base, aiming to refine product assortments that resonate with this demographic [24] - A balanced product value proposition is being reinforced, with an increased selection of goods priced under 5 to attract lower-income customers [25] - The company plans to return to new store growth in 2025 and beyond, while also implementing a remodel and refresh program for existing stores [78][80] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the positive customer response to recent strategic changes, particularly in November [58][102] - The company expects second-half comparable store sales to increase low to mid-single digits year-over-year, with total sales expected to be flat to down slightly due to store closures [44][46] Other Important Information - The company has a strong balance sheet with no debt and 39millionincash,allowingforsharerepurchasesandfundingofbusinessinitiatives[40][41]−Approximately39 million in cash, allowing for share repurchases and funding of business initiatives [40][41] - Approximately 1.6 million in one-time strategic expenses were incurred in Q3, aimed at stabilizing operational practices for long-term growth [23] Q&A Session Summary Question: What is the guidance for Q4 sales given the strong start in November? - Management acknowledged the exceptional performance in November but noted caution due to tougher comparisons in December and January [58][60] Question: What portion of Q4 sales comes in December? - Management indicated that December accounts for about 50% of Q4 sales [63] Question: What is the current impact of shrink on margins? - Management estimated shrink is currently a drag of 50 to 70 basis points compared to historical levels, with improvement expected into 2025 [64][66] Question: What is the long-term EBITDA margin target for the business? - Management aims to return EBITDA margins to historical levels of 5% to 6% [88][90] Question: What is the expected long-term SG&A cost? - Management indicated that a quarterly SG&A of around $73 million is a reasonable target moving forward [93] Question: How does the current turnaround compare to past experiences? - Management highlighted the unique operational challenges faced and the quick positive customer response as key differences in this turnaround [100][102]