Release Date: June 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Citi Trends Inc (CTRN, Financial) reported a positive comp store sales increase of 3.1% for Q1 2024.
- Gross margin expanded by 160 basis points compared to the previous year.
- The company has no debt and a strong liquidity position with $133 million available.
- Successful inventory rebuilds and targeted product categories contributed to positive performance.
- The company is leveraging a new ERP system to optimize assortments and improve planning and allocation.
Negative Points
- The company experienced an unexpected shrink headwind due to physical inventory counts.
- SG&A expenses increased by about $3 million compared to last year.
- The company closed three stores as part of its fleet optimization effort.
- Full-year comp store sales growth outlook was adjusted to low to mid-single digits, slightly below previous expectations.
- Shrink remains a concern and is expected to be a headwind for the remainder of the year.
Q & A Highlights
Q: How long does it typically take to achieve a turnaround, and what is the target EBITDA margin for Citi Trends?
A: The timing for a turnaround varies greatly depending on the company's situation. Initial evaluation and listening take about 30 days, after which themes emerge, and some improvements can be enacted quickly. The target EBITDA margin is mid-single digits, similar to historical levels, and the goal is to get back to that range.
Q: What are the current trends in the business, and how do you expect seasonality to play out this year?
A: May is less impactful compared to June and July, which are crucial for summer and early back-to-school sales. The company is set up well for these periods. Q4 is expected to be stronger than Q1, with inventory and product compelling for customers. The ERP system and marketing efforts will support achieving the top-line target for the year.
Q: What is the magnitude of potential SG&A savings, and how will you achieve them?
A: The exact magnitude is TBD, but the company is conducting a deep review of expense centers to find efficiencies. Immediate savings are expected in areas like transportation and DC processing. The goal is to lower the SG&A rate over time through continuous improvements.
Q: What gross margin is needed to achieve mid-single digit operating margins?
A: The target is to have gross margins starting with a four, driven by improvements in freight rates, supply chain efficiencies, markup expansion, markdown management, and reducing shrink. The ERP system will aid in achieving these improvements.
Q: Can you provide an update on shrink and its impact on financials?
A: Shrink remains a concern and was an unexpected headwind in the quarter. The company is focusing on internal theft and implementing controls to mitigate shrink. Improvement is expected in the second half of the year, with significant progress anticipated in the following year.
Q: How does your experience at Games inform your approach at Citi Trends?
A: At Games, the focus was on operational excellence, engaging the team, and refining the value proposition. Similar principles will be applied at Citi Trends, with a focus on understanding what's working and accelerating those areas while addressing opportunities for improvement.
Q: How significant is the performance of remodeled stores with marketing spend?
A: The combination of remodels and marketing has shown particularly exciting results. While specific details are not disclosed, the company is looking to replicate this success in other stores.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
