Citi Trends Swings to Earnings - Analyst Blog

Citi Trends Inc. CTRN posted fourth-quarter fiscal 2013 earnings per share of 10 cents, marking a turnaround from the loss of 5 cents per share reported in the prior-year quarter. Moreover, the company's earnings were in line the Zacks Consensus Estimate.

We believe that the company's strategic initiatives such as better utilization of floor area, improvising merchandise margins and efficient inventory management have helped it make a significant turnaround.

Quarter in Detail

Citi Trends reported sales of $157.2 million, marking a decline of 10.5% from $175.7 million in the prior-year quarter, while it remained almost in line with the Zacks Consensus Estimate of $157 million. The decline was mainly due to the inclusion of an additional week in fourth-quarter fiscal 2012, which contributed $12 million to sales.

Comparable-store sales (13 weeks comparable basis) in the quarter declined 3.5% from the year-ago quarter, mainly driven by a 2% fall in average unit sale coupled with a marginal decline in  the number of transactions and the average number of items per transaction.

On the basis of merchandise category, comparable store sales of the Home Division and Accessories increased 9% and 12%, respectively. On the other hand, sales of the Children, Men's divisions were down 6% each, while the Ladies division was down 15%.

Citi Trends' gross profit for the quarter increased by a marginal 0.2% to $57.6 million from $57.5 million in the year-ago quarter, while gross margin expanded 390 basis points (bps) to 36.6%. The improvement in gross margin came on the back of lesser markdowns and strong inventory control that helped lower cost of sales.

Selling, general and administrative (SG&A) expenses in the quarter increased approximately 4.7% year over year to $50.2 million, while depreciation expense waned 8.6% to $5.3 million. As a percentage of sales, SG&A expenses increased 190 bps to 31.9% due to a decline in total sales.

Operating income on a reported basis was $1.9 million, improving significantly from a loss of $1.5 million reported in the comparable year-ago quarter.

Full-Year Synopsis

For fiscal 2013, the company's earnings came in at 3 cents per share, significantly improving from a loss per share of 15 cents in fiscal 2012 and the Zacks Consensus Estimate of a loss of 3 cents. Sales for the year dipped 5.0% to $622.2 million, while it was almost in sync with the Zacks Consensus Estimate of $622 million.

Financials

Citi Trends had no debt on its balance sheet at the end of fiscal 2013. Cash and cash equivalents were $58.9 million compared with $37.3 million at the end of fiscal 2012. Shareholders' equity totaled $198.9 million, as against $196.0 million in the prior-year period.

Store Count

Following a conservative store growth strategy in fiscal 2013, Citi Trends opened only 1 store throughout the year, while it relocated or expanded 6 stores. Moreover, the company shuttered 9 stores in the year, bringing the company's total store count to 505 at the close of fiscal 2013. At present, the company operates across 29 states in the Southeast, Mid-Atlantic and Midwest regions as well as in the states of Texas and California.

Outlook

Looking at fiscal 2014, the company anticipates some sales improvement as the company's strategies begin paying off. However, from the perspective of growth the company envisions another conservative year with plans to open only 5-10 new stores, relocate or expand 5–10 stores and remodel 20–25 stores.

Other Stocks to Consider

Citi Trends currently holds a Zacks Rank #3 (Hold). Better-ranked stocks in the retail space include Foot Locker Inc. FL, American Apparel Inc. APP and Burlington Stores Inc. BURL. All of these stocks have a Zacks Rank #2 (Buy).