Citi Trends, Inc. reported mixed results for the second quarter ended August 3, posting a small total sales increase but a small decline of equal value on the comparable store sales line..

Total sales amounted to $176.6 million in the second quarter, a 1.7 percent increase versus the corresponding quarter in 2023. Comparable store sales, calculated on a shifted 13-week to 13-week basis, decreased 1.7 percent compared to Q2 2023.

Gross margin was 31.1 percent of net sales in Q2, including $9.4 million markdowns from strategic inventory reset and $4.0 million of shrink from physical inventory results and accrual rate adjustment, versus 38.2 percent of sales in Q2 2023.

The net loss was $18.4 million, or a loss of $16.2 million as adjusted, compared to a net loss of $5.0 million, or $4.9 million as adjusted, in the 2023 second quarter

Adjusted EBITDA was negative $17.2 million, including $13.4 million of transition expenses, compared to Adjusted EBITDA of negative $3.1 million in the year-ago period.

The retailer opened one new store, closed three stores, and remodeled 15 stores to end the quarter with 597 locations, with 23 percent of the fleet in CT format.

Balance Sheet and Cash Management

Inventory was flat year-over-year to end the quarter.

“Following an evaluation of several key areas of our business, including an extensive review of our product assortment, we made the strategic decision to execute an inventory reset to quickly clear through slow-selling and aged inventory. This action enables us to consistently offer fresher, more balanced assortments of good, better, and best products,” explained Ken Seipel, interim CEO, Citi Trends, Inc.

Cash was $59.3 million at quarter-end, with no debt and no borrowings under a $75 million credit facility.

Second Quarter Actions
During the second quarter, the company took strategic and definitive action to reset its inventory makeup, marking down slow-selling and aged inventory. This inventory reset sets the stage for the company’s refined merchandise strategy to offer fresher, more balanced assortments of good, better and best products with a higher penetration of opening price point products and branded “treasure hunt goods at incredible value for our customers.”

Seipel continued, “We are also swiftly capitalizing on two distinct opportunities: enhancing the ‘treasure hunt’ experience by securing branded goods at incredible values while also increasing the penetration of opening price point goods. Additionally, we have identified specific opportunities to improve our product allocation process, shrinkage controls and preseason assortment planning process, all of which will improve our operational efficiency and execution. These are the first of several foundational improvements we are pursuing to position Citi Trends for profitable growth.”

The company continued controlling and mitigating shrink throughout the quarter, including upgrading store talent, updating in-store theft prevention equipment, leveraging reporting to identify problem areas early, and establishing a third-party restitution program. Important policies, such as the return and employee discount policies, were updated to tighten controls. Additionally, a consulting firm was engaged to help identify and fix other root causes of shrink.

The company believes the $13.4 million in actions taken in the quarter, detailed above in gross margin, will improve business results in the second half of fiscal 2024 while positioning the business for future profitable growth.

First Half Summary

  • Total sales of $362.8 million increased 2.7 percent versus 2023; comparable store sales, calculated on a shifted 26-week to 26-week basis, increased 0.7 percent compared to 2023;
  • Gross margin of 35.0 percent versus 37.5 percent, or 37.6 percent as adjusted in 2023;
  • Net loss of ($21.8) million, or ($18.8) million as adjusted, compared to net loss of ($11.7) million, or ($10.4) million as adjusted in 2023; and
  • Adjusted EBITDA loss of ($18.0) million versus adjusted EBITDA loss of ($6.3) million in 2023.

Outlook

“I am pleased to report that Q3 is off to a solid start with positive low-single-digit comparable store sales growth through the first three weeks of the quarter. We remain in a healthy financial position with strong liquidity and no debt, allowing us to execute the foundational work necessary for future profit acceleration. While there is still much work ahead, I am energized and optimistic about our company’s future. I would like to thank our entire Citi Trends team for their high level of engagement as we chart a new path to execute a winning strategy for all of our stakeholders,” Seipel concluded.

Second Half 2024 Outlook
The company’s outlook for the second half of fiscal 2024 is as follows:

  • Expecting second half comparable store sales to be flat to up low-single-digits compared to the second half of fiscal 2023; total sales expected to be down mid-single-digits due to the 53rd week last year and store closures;
  • Second half gross margin is expected to be approximately 39 percent;
  • Second-half EBITDA is expected to be positive, in a range of $0.5 million to $2.5 million, a significant improvement to first-half results;
  • The company completed plans for store openings and remodels for the year with one new store and 35 remodels; planning to close 10 to 15 underperforming stores in the year, including the 6 closures completed year-to-date, as part of its ongoing fleet optimization, expecting to end fiscal 2024 with approximately 590 stores; and
  • Year-end cash balance is expected to be in the range of $60 million to $70 million; and
  • Full-year capital expenditures were reduced by 35 percent from prior outlook to approximately $13 million.

Image courtesy Citi Trends