Second quarter total sales increased 18.2%
to $216 million and comparable sales in reopened stores increased
32.2% exceeding expectations
Gross margin increased 390 bps to 41.2%
driven by full-priced sales
Operating margin expanded to 12.2% compared
to 0.1% in the prior year period
Earnings per share of $1.90 compared to
$0.03 in the second quarter of 2019
Strong liquidity with cash and investments
at $147 million at the end of the quarter
Citi Trends, Inc. (NASDAQ:
CTRN), the leading value retailer of apparel, accessories and home
goods primarily for African American families in the United States,
today reported results for the second quarter ended August 1,
2020.
Financial Highlights – 13-week second
quarter ended August 1, 2020
- Total sales increased 18.2% to $216.2 million compared to
$182.8 million in the second quarter of 2019
- Comparable store sales for reopened stores from their
respective opening dates increased 32.2%
- Gross margin increased 390 bps to 41.2% compared to 37.3% in
the second quarter of 2019, reflecting strong full-price selling
and fewer markdowns
- Selling, general and administrative expenses decreased 8.5%
year-over-year due to proactive actions taken by the Company in
response to COVID-19
- Operating income was $26.4 million compared to $0.2 million in
the second quarter of 2019, for an operating margin of 12.2%
compared to 0.1%
- Net income was $19.9 million compared to $0.4 million in the
second quarter of 2019
- Earnings per share was $1.90 compared to $0.03 in the second
quarter of 2019
- Cash and investments, inclusive of $41.6 million of borrowings
on the Company’s line of credit, of $146.7 million at the end of
the second quarter, compared to $82.2 million at the end of the
second quarter last year
- Quarter-end inventory decreased 28.4% compared to the end of
the second quarter of 2019
Chief Executive Officer
Comments
David Makuen, Chief Executive
Officer, commented, “While the operating environment was unlike
anything we’ve seen, I am very pleased with our team’s resiliency
and ability to adapt to changing conditions as we continue to
prioritize the health and safety of our employees and the
communities we serve. To that end, we safely reopened all of our
stores by July 18th, with customer response to our reopenings
exceeding our prior expectations, including a comparable store
sales increase for reopened stores of 32.2% and an impressive total
sales gain of 18.2%. Our performance was driven by full-priced
selling, resulting in record gross margin, operating income and
earnings per share, and is reflective of the loyalty of our
customers, the strength of our brand, our on-trend assortment and
our value proposition, combined with the federal government
stimulus that was present during the entire quarter. I want to
reiterate my appreciation for all of our associates in our stores
and distribution centers, as well as our home office teams, for
their dedication and commitment during these unprecedented
times.”
Makuen continued, “The
decisive actions we took at the height of the pandemic to bolster
our liquidity allowed us to act quickly and opportunistically
purchase sought-after goods and establish dozens of new vendor
relationships to further enhance our apparel, accessory and home
merchandise categories. These actions, coupled with the fact that
the majority of our highly appealing merchandise assortment was
sold at full price, resulted in strong second quarter cash
generation. Our liquidity is strong with $146.7 million in cash and
investments at quarter-end. We also exited the second quarter in a
very clean inventory position, down 28.4% compared to the prior
year. Looking forward, our teams are keenly focused on building
upon the success we experienced in the second quarter.”
Guidance
With two and half weeks into
the fiscal 2020 third quarter, the Company is navigating through
macro changes in the consumer landscape, including unpredictable
and non-traditional back-to-school timing and learning methods and
the ongoing uncertainties stemming from the COVID-19 pandemic. As a
result, the Company’s customer traffic as measured via comparable
store transactions in the first two weeks of August has been soft.
While it is still very early in the quarter, the Company is
encouraged by the stability of its non-back-to-school related
businesses and the increase in average basket size relative to the
same weeks of the prior year. The Company believes once it is
beyond the traditional back-to-school selling season that customer
traffic trends will normalize.
The Company is estimating a
fiscal 2020 third quarter comparable store sales range of negative
mid-single digits to flat with continued gross margin expansion
building on momentum from the second quarter. This estimate is
subject to potential consumer and marketplace volatility due to the
COVID-19 pandemic and changes to the consumer landscape described
above and therefore may change as the quarter
progresses.
Due to the uncertainty
surrounding the impact of the COVID-19 pandemic on the business
environment, consumer behavior and the Company’s business
operations, the Company is not providing any further guidance at
this time until the effects of the pandemic can be better
assessed.
Reiterates Long-Term Strategic
Plan
As the Company navigates the
current times and returns to a version of normal, its vision
remains the same – Citi Trends aspires to be a leader in the value
retailing space, one of few multi-category, off-price retailers
focused primarily on the African American market. The Company
provides a differentiated assortment of basics, fashion, trends and
sought-after brands at amazing prices.
The Company’s second quarter
results demonstrated its ability to significantly improve core
operational metrics. Citi Trends is now stronger than ever and is
excited to execute on its long-term strategic plan by focusing on
the following four core areas:
- Merchandise: Optimizing the apparel and non-apparel assortment
with newness, trends, brands and extreme value, resulting in
increased margins, faster turns and lower inventories
- Supply Chain: Improving supply chain throughput with a focus on
lowering processing costs and speeding up deliveries to stores
- Stores: Pursuing real estate and fleet improvement
opportunities driven by new store growth and remodels
- Data: Leveraging data and technology to create a culture of
insights-driven decision-making centered on the customer and key
operational functions to drive enterprise performance
The Company anticipates that as the country normalizes, and
assuming no further complications from the COVID-19 pandemic, that
it will return to executing on its three-year strategic plan to
increase earnings per share at a compounded annual growth rate of
20% to 25%.
CitiCARESSM Council
Update
Operating stores predominantly
in Black communities, Citi Trends has a special interest in doing
its part to address the indelible racism in our communities across
the country and advance the cause of justice and racial equality.
The Company has a long-standing commitment to provide a safe and
welcoming space for customers and associates where their
differences and diversities are respected and celebrated. It prides
itself on being a good neighbor. Now more than ever, the Company
recognizes that it is time to speak up for our neighbors and stand
together with others to support the fight against
racism.
As previously announced, in
June 2020, Citi Trends formed the “CitiCARESSM Council” made up of
a diverse set of individuals that will create and oversee
initiatives of change. This council will define how Citi Trends
will move forward, together with communities across the country, to
contribute to elevating humanity to a place of peace and inclusion
so that families of color experience equality wherever they may
walk, work, shop and carry out their lives. Most recently, Citi
Trends visited with Mayor Jacob Frey of Minneapolis to plan a
successful rebuilding of the Company’s Lake Street store. We will
provide further updates on the activities of the council in the
coming months.
Investor Conference Call and
Webcast
Citi Trends will host a
conference call today at 9:00 a.m. ET. The number to call for the
live interactive teleconference is (212) 231-2902. A replay of the
conference call will be available until August 27, 2020, by dialing
(402) 977-9140 and entering the passcode, 21967245.
The live broadcast of Citi
Trends' conference call will be available online at the Company's
website, www.cititrends.com, under the Investor Relations section,
beginning today at 9:00 a.m. ET. The online replay will follow
shortly after the call and will be available for replay for one
year.
During the conference call,
the Company may discuss and answer questions concerning business
and financial developments and trends that have occurred after
quarter-end. The Company’s responses to questions, as well as other
matters discussed during the conference call, may contain or
constitute information that has not been disclosed
previously.
About Citi Trends
Citi Trends, Inc. is a
value-priced retailer of fashion apparel, accessories and home
goods for the entire family. The Company operates 579 stores
located in 33 states. Citi Trends’ website address is
www.cititrends.com. CTRN-G
Forward-Looking
Statements
All statements other than
historical facts contained in this news release, including
statements regarding the Company’s future financial results and
position, business policy and plans, objectives of management for
future operations and our intentions and ability to pay dividends
and complete any share repurchase authorizations, are
forward-looking statements that are subject to material risks and
uncertainties. The words "believe," "may," "could," "plans,"
"estimate," "continue," "anticipate," "intend," "expect,"
“upcoming,” “trend” and similar expressions, as they relate to the
Company, are intended to identify forward-looking statements,
although not all forward-looking statements contain such language.
Statements with respect to earnings, sales or new store guidance
are forward-looking statements. Investors are cautioned that any
such forward-looking statements are subject to the finalization of
the Company’s quarter-end financial and accounting procedures, are
not guarantees of future performance or results and are inherently
subject to risks and uncertainties, some of which cannot be
predicted or quantified. Actual results or developments may differ
materially from those included in the forward-looking statements as
a result of various factors which are discussed in the Company’s
filings with the Securities and Exchange Commission, including
those set forth under the heading “Item 1A. Risk Factors” in the
Company’s Form 10-K for the fiscal year ended February 1, 2020.
These risks and uncertainties include, but are not limited to,
uncertainties relating to economic conditions, the impact of
potential global health emergencies such as COVID-19 (coronavirus),
including potential negative impacts on the global economy and
foreign sourcing, the duration of the COVID-19 outbreak, actions
that may be taken by governmental authorities to contain the
COVID-19 outbreak or to treat its impact, the impacts of COVID-19
on the Company's financial condition, business operation and
liquidity, including the potential closure of any of the Company’s
retail stores and distribution centers, growth risks, consumer
spending patterns, competition within the industry, competition in
our markets and the ability to anticipate and respond to fashion
trends. Any forward-looking statements by the Company, with respect
to guidance, the Company’s intention to declare and pay dividends,
the repurchase of shares pursuant to a share repurchase program, or
otherwise, are intended to speak only as of the date such
statements are made. Except as required by applicable law,
including the securities laws of the United States and the rules
and regulations of the Securities and Exchange Commission, the
Company does not undertake to publicly update any forward-looking
statements in this news release or with respect to matters
described herein, whether as a result of any new information,
future events or otherwise.
CITI TRENDS, INC. CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (unaudited) (in thousands, except
per share data) Thirteen Weeks Ended
Thirteen Weeks Ended August 1, 2020 August 3,
2019 (unaudited) (unaudited) Net sales
$
216,151
$
182,830
Cost of sales (exclusive of depreciation shown separately
below)
(127,147
)
(114,612
)
Selling, general and administrative expenses
(57,623
)
(62,989
)
Depreciation
(4,933
)
(4,607
)
Asset impairment
-
(472
)
Income from operations
26,448
150
Interest income
14
414
Interest expense
(377
)
(40
)
Income before income taxes
26,085
524
Income tax expense
(6,218
)
(147
)
Net income
$
19,867
$
377
Basic net income per common share
$
1.90
$
0.03
Diluted net income per common share
$
1.90
$
0.03
Weighted average number of shares outstanding Basic
10,451
11,882
Diluted
10,458
11,882
Twenty-Six Weeks Ended Twenty-Six Weeks
Ended August 1, 2020 August 3, 2019 (unaudited)
(unaudited) Net sales
$
332,275
$
387,862
Cost of sales (exclusive of depreciation shown separately
below)
(211,517
)
(242,850
)
Selling, general and administrative expenses
(111,699
)
(126,436
)
Depreciation
(9,879
)
(9,221
)
Asset impairment
(286
)
(472
)
Income (loss) from operations
(1,106
)
8,883
Interest income
231
793
Interest expense
(540
)
(78
)
Income (loss) before income taxes
(1,415
)
9,598
Income tax benefit (expense)
390
(1,433
)
Net income (loss)
$
(1,025
)
$
8,165
Basic net income (loss) per common share
$
(0.10
)
$
0.68
Diluted net income (loss) per common share
$
(0.10
)
$
0.68
Weighted average number of shares outstanding Basic
10,447
11,929
Diluted
10,447
11,944
CITI TRENDS, INC. CONDENSED CONSOLIDATED BALANCE
SHEETS (unaudited) (in thousands) August 1,
2020 August 3, 2019 (unaudited) (unaudited) Assets: Cash
and cash equivalents
$
146,741
$
27,425
Short-term investment securities
5
37,776
Inventory
94,545
132,050
Prepaid and other current assets
17,902
17,719
Property and equipment, net
61,923
54,843
Operating lease right of use assets
171,711
152,932
Long-term investment securities
-
16,976
Other noncurrent assets
7,997
7,927
Total assets
$
500,824
$
447,648
Liabilities and Stockholders' Equity: Accounts payable
$
77,679
$
71,303
Accrued liabilities
28,938
25,327
Current operating lease liabilities
46,777
41,976
Other current liabilities
724
1,671
Revolving credit facility
41,600
-
Noncurrent operating lease liabilities
139,877
118,102
Other noncurrent liabilities
1,772
1,869
Total liabilities
337,367
260,248
Total stockholders' equity
163,457
187,400
Total liabilities and stockholders' equity
$
500,824
$
447,648
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200820005198/en/
Tom Filandro ICR, Inc. (646) 277-1235
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