Citi Trends Earnings Call: Optimism Amidst Challenges

Citi Trends ((CTRN)) has held its Q4 earnings call. Read on for the main highlights of the call.

Citi Trends’ Latest Earnings Call Reflects Optimism Amidst Challenges

The recent earnings call for Citi Trends exuded a positive sentiment, underscored by notable improvements in sales, margins, and inventory management. The company is in a robust financial position, anticipating positive free cash flow, bolstered by strategic initiatives and a share repurchase program. Despite these advancements, challenges persist in certain product categories and operational execution, highlighting areas that require ongoing attention.

Comparable Store Sales Growth

Citi Trends reported a 6.4% growth in comparable store sales for the fourth quarter, indicating a sequential improvement from the third quarter and a strong acceleration on a two-year basis. This growth was driven by increased customer traffic and larger basket sizes, showcasing the company’s ability to attract and retain customers effectively.

Gross Margin Expansion

The company achieved a gross margin rate of 39.7%, representing a 60-basis-point expansion compared to the fourth quarter of 2023. This improvement reflects Citi Trends’ successful efforts in managing costs and optimizing pricing strategies to enhance profitability.

Inventory Efficiency

Citi Trends demonstrated improved inventory efficiency, with inventories down 6% compared to the previous year. The focus on quickly liquidating aged inventory and maintaining fresher stock has contributed to this positive outcome, ensuring better inventory turnover and reduced holding costs.

Strong Financial Position

The company maintains a healthy balance sheet with $61 million in cash, no debt, and no drawings on a $75 million revolver. This strong financial footing provides Citi Trends with the flexibility to invest in growth initiatives and navigate potential market challenges.

Positive Free Cash Flow Anticipation

For the first time in recent history, Citi Trends anticipates generating positive free cash flow in fiscal 2025. This expectation is a testament to the company’s strategic financial management and operational efficiencies.

Share Repurchase Program

Since mid-December, Citi Trends has invested $10 million in share repurchases, resuming a $50 million share repurchase program. This move reflects the company’s confidence in its financial health and commitment to returning value to shareholders.

Expansion Strategy

Citi Trends plans to remodel at least 50 stores in 2025 and is conducting market studies for new store expansion. This strategy aims to enhance the shopping experience and expand the company’s footprint in key markets.

Plus-Size Apparel Miss

The company faced a significant miss in its plus-size apparel segment, attributed to internally-controlled execution issues. However, improvements are expected by the second quarter of 2025, as Citi Trends addresses these challenges.

Valuation Allowance on Deferred Tax Assets

A non-cash valuation allowance of approximately $15.5 million was recorded, impacting the company’s tax expense. This adjustment reflects a cautious approach to managing deferred tax assets amidst changing market conditions.

Weather Disruption Impact

Weather disruptions in January posed a 250-basis-point headwind to comparable store sales for the month. Despite this setback, Citi Trends remains focused on mitigating such impacts through strategic planning.

Need for Operational Improvements

Citi Trends acknowledges the need for operational improvements, with significant opportunities ahead. The company is in the early stages of these enhancements, aiming to optimize processes and drive long-term growth.

Forward-Looking Guidance

Looking ahead, Citi Trends projects low- to mid-single-digit comparable sales growth for 2025. The company plans to remodel at least 50 stores and open up to five new locations, focusing on key product areas such as big men’s, women’s plus size, family footwear, consumables, and extreme value off-price deals. These initiatives are expected to drive growth and enhance the company’s market position.

In conclusion, Citi Trends’ earnings call highlighted a positive outlook, driven by strong sales growth, margin expansion, and a solid financial position. While challenges remain in specific areas, the company’s strategic initiatives and forward-looking guidance underscore its commitment to growth and shareholder value.