Citi Trends, which is increasing its emphasis on gift-giving merchandise and away from apparel, reported a loss in the third quarter as comps increased 2.6 percent while increasing its full-year outlook. The retailer also said it plans to annually grow store base by 25 to 30 stores and remodel 50 stores and named Peter Sachse as interim CEO.

Total sales in the third quarter ended November 2, 2019 increased 4.4 percent to $183.1 million, compared with $175.4 million in the third quarter ended November 3, 2018. Comparable store sales increased 2.6 percent in the quarter.

The company had a net loss of $(1.1) million, or $(0.09) per diluted share, in the third quarter of 2019, compared with a net loss of $(0.5) million, or $(0.04) per diluted share, in last year’s third quarter. Selling, general and administrative expenses in this year’s third quarter included approximately $0.7 million of costs associated with the planned CEO transition and Board changes that were reported previously. Such expenses had an adverse impact on loss per diluted share of $0.05 during the quarter.

During the third quarter, the company opened six new stores, relocated or expanded two stores and closed two stores, ending the period with 566 stores in operation.

Financial Highlights – First three quarters ended November 2, 2019

Total sales in the first three quarters of fiscal 2019 increased 0.4 percent to $570.9 million, compared with $568.4 million in the first three quarters of fiscal 2018. Comparable store sales decreased 1.2 percent in the first three quarters of this year.

In the first three quarters of 2019, the company had net income of $7.1 million on a GAAP basis, or $8.0 million when adjusted for proxy contest-related expenses*, compared with net income in last year’s first three quarters of $14.0 million. Earnings per diluted share in the first three quarters of 2019 were $0.60 on a GAAP basis, or $0.67 when adjusted for proxy contest-related expenses*, compared with earnings per diluted share of $1.06 in the first three quarters of 2018.

Strategic Initiatives Update

Bruce Smith, President and Chief Executive Officer, commented, “In the third quarter, we continued to make meaningful progress with our strategic initiatives. Our ongoing efforts to shift the merchandise mix more towards the growing accessory and home categories contributed to our best comparable store sales result since last year’s second quarter. In addition to the strength in non-apparel sales in the third quarter, we were also encouraged to see positive comparable store sales in our Ladies’ and Men’s apparel categories with a significantly leaner inventory investment.”

Smith further noted, “Comparable store sales increased 2.6 percent in the quarter, with October registering the largest increase, benefiting from an accelerated shift towards our non-apparel merchandise. Importantly, the sales gains were achieved on inventories in comparable stores that were 7 percent lower than at the end of last year’s third quarter. Given the high quality of our inventory, coupled with the recent sales momentum, including solid trends thus far in the fourth quarter, we are optimistic about the upcoming holiday season.”

Smith continued, “Lisa Powell, our new Chief Merchandising Officer, has now been with the company for almost two months and is keenly focused on continuing our positive momentum in the areas of merchandising, planning and allocation, while Peter Sachse, Special Advisor to the CEO, has continued to work with management on the strategic initiatives that were outlined last quarter.

In connection with that work, we have prepared a roadmap to implement these strategies, which includes a plan for the organizational structure, resources and systems needed to achieve our goals related to the profitable growth of comparable store sales and new stores.

A critical portion of this roadmap involves the accelerated shift in our merchandise mix towards non-apparel, which includes moving aggressively to more gift-giving merchandise during the holiday season and expanded home assortments throughout the year. Fixtures have been added to our stores to accommodate this shift, and we are encouraged by the early results.

In addition, the roadmap contemplates the optimization of our real estate opportunities over the next three years, as we aim to open 25 to 30 new stores annually and complete major remodels in 50 existing stores each year. We have already approved 14 new store locations to be opened in 2020 and expect to perform major remodels in 20 stores in January 2020, followed closely by 30 more stores in the second quarter of 2020.”

Guidance

The company is increasing the lower end of its full year fiscal 2019 earnings per diluted share guidance, resulting in a range of $1.40 to $1.50 when adjusted for proxy-contest related expenses*, which includes an assumption that comparable store sales will increase in a range of 2 percent to 4 percent in the fourth quarter of 2019.

Leadership Transition

The Board of Directors announced that Peter Sachse, a member of the company’s Board of Directors and the current Special Advisor to the CEO, has been appointed as the Interim Chief Executive Officer of the company effective as of December 9, 2019. The Board is continuing its search for a permanent CEO. Mr. Smith intends to remain with the company as its President until February 1, 2020 and will assist Mr. Sachse in all matters that relate to the implementation of the company’s strategic plan.

“We are pleased that Peter has accepted the role of Interim CEO to continue the momentum that he and Bruce have helped create since Peter stepped into the role of Special Advisor to the CEO in June of this year,” said Citi Trends’ Board Chairman, Brian Carney. “It allows us to continue to execute on the strategic initiatives within our three-year roadmap while being very thoughtful about finding the right permanent CEO for Citi Trends. And, we are very pleased that Bruce will continue to assist Peter in those duties through the end of our fiscal year, creating a smooth transition as we capitalize on the positive changes that are occurring in our business.”

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