MKM: Expect A Tough Quarter At Citi Trends

Small-cap retailer Citi Trends, Inc. CTRN has seen its stock rise over the last several months, but shares are down on both a year-to-date and 52-week basis. Compared to last month, Citi Trends has fallen better than 22 percent compared to a small gain for the Nasdaq.

Overall, this has been a fairly sleepy stock and according to analysts at MKM Partners, this trend may not change in the near-term.

On Tuesday, MKM put out a note ahead of Citi Trends's fiscal Q2 earnings results which are due out prior to the opening bell on Wednesday. The firm reiterated its Neutral rating on the stock and 12-month price target of $16, which represents roughly 9 percent downside from the current $17.66 share price. The analysts "continue to expect a fourth consecutive quarter of negative same-store sales and a third quarter of down earnings."

MKM cited perceived weakness in the retailers women's and children's segments, which account for nearly 50 percent of Citi's sales, but was more optimistic on the outlook for the home category. In the first quarter, women's segment sales declined 9 percent while children's sales were down 8 percent. Look for investors to react to a continued sales slowdown in Q2 negatively.

Overall, MKM said, "We expect better results in 2H16 against easier comparisons, but remain generally cautious on the fundamental outlook." One of the primary overhangs for investors looking to own this stock has been inconsistent top-line sales in recent years, and there is little to suggest that this will change in the near-term. Citi reported annual revenue of just under $655 million in fiscal 2013, and by fiscal 2016 that number had grown to just $684 million.

"Going forward, it would seem that Citi will need to figure out a way to generate more aggressive sales growth in order to materially move its share price," the analysts said.