Citi Trends, Inc. Falls Short of Expectations in Q1 with -$2.21 EPS
Citi Trends, Inc. (NASDAQ: CTRN), a leading specialty value retailer, reported its financial results for the second quarter of fiscal 2024, which ended on August 3. The company saw a total sales increase of 1.7% to $176.6 million compared to Q2 2023. Despite this growth, comparable store sales declined by 1.7% on a shifted 13-week to 13-week basis.
The gross margin for the quarter was 31.1%, significantly impacted by $9.4 million in markdowns from a strategic inventory reset and $4.0 million from shrinkage due to physical inventory results and accrual rate adjustments. This was a decrease from the 38.2% gross margin reported in Q2 2023.
Citi Trends reported a net loss of $18.4 million, or $16.2 million as adjusted, compared to a net loss of $5.0 million, or $4.9 million as adjusted, in the same period last year. Adjusted EBITDA also showed a loss of $17.2 million, including $13.4 million in transition expenses, a significant drop from the adjusted EBITDA loss of $3.1 million in Q2 2023.
Citi Trends Falls Short of EPS and Revenue Expectations in Q2
When comparing the company’s performance against market expectations, Citi Trends fell short. Analysts had forecasted an earnings per share (EPS) of -$0.52 and revenue of $178.99 million for the quarter. However, the company reported a net loss per share of $2.21, significantly higher than anticipated, and total sales of $176.6 million, slightly below the expected revenue.
The gross margin reduction to 31.1% from 38.2% in Q2 2023 can be attributed to the markdowns and shrinkage, which were part of the company’s strategic actions during the quarter. These actions were aimed at resetting inventory composition to offer fresher and more balanced assortments.
Additionally, while total sales did increase by 1.7%, the comparable store sales decline of 1.7% reflects underlying issues in driving traffic and conversion in existing locations. This discrepancy between expectations and actuals underscores the need for Citi Trends to refine its operational strategies and improve store performance.
Guidance
Looking ahead, Citi Trends has provided its outlook for the second half of fiscal 2024. The company expects comparable store sales to be flat to up low-single digits compared to the second half of fiscal 2023. However, total sales are anticipated to decline mid-single digits due to the 53-week fiscal year in 2023 and planned store closures.
The company projects a second-half gross margin of approximately 39% and expects EBITDA to be positive, ranging from $0.5 million to $2.5 million, marking a significant improvement from the first half’s results. This guidance suggests that Citi Trends anticipates better financial performance and operational efficiency in the coming months.
Additionally, Citi Trends has completed its plans for store openings and remodels for the year, with one new store and 35 remodels. The company also plans to close 10 to 15 underperforming stores, including six closures completed year-to-date, as part of its ongoing fleet optimization. The year-end cash balance is expected to be between $60 million and $70 million, and full-year capital expenditures have been reduced by 35% from the prior outlook to approximately $13 million.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
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