Citi Trends, Inc. (NASDAQ:CTRN) is a leading specialty value retailer of apparel, accessories, and home trends, primarily serving African American and multicultural families. With a network of 599 stores across 33 states, the company has established a strong presence in urban, suburban, and rural markets. However, Citi Trends has faced its share of challenges in recent years, navigating a dynamic retail landscape and macroeconomic headwinds.

In the fiscal year 2023, Citi Trends reported annual revenue of $747.9 million, a decrease from the previous year. The company's net income for the year was a loss of $12.0 million, and its operating cash flow was negative $9.6 million, with free cash flow reaching negative $24.5 million. These financial results reflect the ongoing pressures faced by the business.

The first quarter of fiscal 2024 saw a glimmer of hope, with Citi Trends reporting a 3.1% increase in comparable store sales and a 160 basis point expansion in gross margin compared to the same period in the prior year. However, the company also faced a 3.4 million increase in selling, general, and administrative (SG&A) expenses, leading to a net loss of $3.4 million for the quarter.

Despite the challenges, Citi Trends remains committed to its core strategies and is now under the leadership of interim CEO Ken Seipel, who brings a wealth of experience in value-oriented retail. Seipel's focus is on driving profitable sales, sharpening the product assortment, streamlining costs, optimizing the supply chain, and leveraging the company's recent IT upgrades.

Business Overview

Citi Trends operates as a specialty value retailer, offering a wide range of apparel, accessories, and home products at everyday low prices. The company's target customer base is primarily African American and multicultural families, who are drawn to Citi Trends' unique merchandise assortment and value proposition.

The company's merchandise mix is diversified across several key categories, including men's, ladies, kids, footwear, home and lifestyle, and accessories and beauty. In the first quarter of fiscal 2024, the company's performance was broad-based, with particular strength in the home and lifestyle, impulse (Q Line), big men's, and ladies plus categories.

Citi Trends' store footprint is strategically located in urban, suburban, and rural markets, with a focus on underserved communities. As of May 4, 2024, the company operated 599 stores across 33 states, making it one of the largest national retailers catering to the lower-income consumer segment.

Risks and Challenges

Citi Trends has faced several challenges in recent years, including the impact of the COVID-19 pandemic, inflationary pressures, and changing consumer preferences. The company has also grappled with operational issues, such as supply chain disruptions and elevated shrink levels.

Despite these headwinds, Citi Trends sees opportunities to drive growth and improve profitability. The company's recent implementation of a new enterprise resource planning (ERP) system has enabled more accurate store-level product allocations and enhanced data analytics capabilities. This, in turn, has allowed Citi Trends to make more informed merchandising decisions and optimize its markdown strategies.

Furthermore, the company's successful store remodel program has demonstrated the potential to drive mid- to high-single-digit sales lifts in refreshed locations. Citi Trends plans to continue this initiative, with the goal of remodeling approximately 40 stores in fiscal 2024.

Liquidity

As of May 4, 2024, Citi Trends maintained a strong balance sheet, with no debt and $58.0 million in cash and cash equivalents. The company also has access to a $75 million revolving credit facility, providing ample liquidity to fund its business initiatives.

Citi Trends' capital allocation strategy focuses on investing in growth opportunities, such as new store openings and remodels, while also returning excess cash to shareholders through its share repurchase program. In the first quarter of fiscal 2024, the company did not repurchase any shares, and $50.0 million remained available under its existing authorization.

Outlook

For the full fiscal year 2024, Citi Trends expects comparable store sales to grow in the low to mid-single digits compared to fiscal 2023. The company also anticipates gross margin expansion of approximately 75 to 100 basis points, driven by continued improvements in freight costs and markup management.

On the SG&A front, Citi Trends now expects a 1.5% to 2.5% increase in SG&A dollars over fiscal 2023, a slight improvement from its previous guidance. This reflects the company's efforts to streamline costs and improve operational efficiency.

Overall, Citi Trends is targeting full-year EBITDA in the range of $4 million to $10 million. The company plans to open up to five new stores, remodel approximately 40 locations, and close 10 to 15 underperforming stores, ending fiscal 2024 with approximately 595 stores.

Conclusion

Citi Trends is navigating a challenging retail landscape, but the company's new leadership, strategic initiatives, and strong financial position provide a foundation for potential growth and improved profitability. By focusing on driving profitable sales, optimizing its operations, and delivering a compelling value proposition to its customers, Citi Trends aims to unlock its full potential and create value for its shareholders.

As the company continues to execute its turnaround plan under the guidance of interim CEO Ken Seipel, investors will closely monitor Citi Trends' ability to drive consistent top-line growth, streamline expenses, and position the business for long-term success in the value retail segment.