Citi Trends(US:CTRN)2023-08-23 04:47Financial Data and Key Metrics Changes - Total sales for Q2 2023 were $173.6 million, a decrease of 6.2% compared to Q2 2022, but an 880 basis point acceleration from Q1 2023 [50][26] - Gross margin improved to 38.2%, which is above last year and 150 basis points better than Q1 2023 [17][93] - Operating loss was $7.9 million for the quarter, compared to an operating loss of $3.3 million in Q2 2022 [52] Business Line Data and Key Metrics Changes - Comp store sales decreased by 5.3% compared to last year, but showed significant improvement from Q1 [26] - Notable outperformers included footwear, ladies and men's apparel, and beauty merchandise, benefiting from inventory rebuild efforts [43] Market Data and Key Metrics Changes - The customer base primarily consists of families earning $50,000 or less annually, with many living on $25,000 per year, indicating ongoing inflationary pressures [7] - Improved traffic levels and strong conversion rates were observed, signaling positive customer response to product assortment [6][9] Company Strategy and Development Direction - The company is focused on driving comp store productivity and managing inventory to maximize margins [10][29] - Strategic initiatives include rebuilding inventory in key areas and offering a balanced assortment of price styles to appeal to value-based customers [6][8] - The upgraded ERP system is expected to enhance planning and allocation, driving long-term productivity [24][47] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the second half of the year, anticipating modest improvement for customers despite ongoing economic pressures [40][68] - The company reiterated its guidance for the year, expecting total sales to be in the range of negative mid-single digits to negative low single digits compared to fiscal 2022 [29][53] Other Important Information - The company ended Q2 with liquidity of approximately $141 million, including $65 million in cash and no debt [8][25] - Five new stores were opened, including the first store in L.A. County, with early results being encouraging [51] Q&A Session Summary Question: How is the core customer feeling about managing inflationary pressures? - Management noted that while inflation remains a challenge, there are signs of gradual improvement in customer sentiment, particularly in apparel and footwear categories [34][60] Question: When can benefits from the ERP system be expected? - Management indicated that the ERP system will have a more significant impact in 2024, with some benefits potentially seen in Q4 2023 [36][64] Question: What is the outlook for the second half of the year given economic pressures? - Management acknowledged the impact of rising gas prices and rent but emphasized their focus on controlling internal factors to drive improvement [81] Question: How is the basket trending and what is the breakdown between AURs and units? - The basket has improved in Q2, primarily driven by an increase in units per transaction, indicating positive customer response to lower price points [82] Question: How are remodels performing compared to prior history? - The remodel program is performing well, with a mid- to high single-digit lift in sales observed post-remodel [88]