Shares of Citi Trends Inc. (CTRN) soared to a new 52-week high of $17.29 yesterday, after the company reported better-than-expected financial results for the second quarter of fiscal 2013. The company’s loss narrowed to 37 cents per share from a loss of 54 cents reported in the comparable year-ago quarter. Moreover, it fared better than the Zacks Consensus Estimate of loss of 43 cents per share.
Citi Trends’ strategic initiatives such as better utilization of floor area, improvising merchandise margins and efficient inventory management have helped it to make a significant turnaround.
Quarter in Detail
Citi Trends reported sales of $137.8 million, marking an increase of 4.2% from $132.3 million in the prior-year quarter, primarily driven by improved comparable store sales performance. The sales also came ahead of the Zacks Consensus Estimate of $137 million.
Comparable store sales in the quarter was up 1.7% compared with the year-ago quarter, mainly driven by an increase of 6% and 1% in the number of customer transactions and the average number of items per transaction, respectively. However, comparable store sales performance was negatively impacted by a 5% fall in average unit sale.
Citi Trends reported positive comparable store sales in every month of the second quarter. On the basis of months, the company’s comparable store sales were up 0.3% in May, 2.1% in June, and 2.6% in July. On the basis of merchandise category, comparable store sales of Accessories, Home Division and Kids increased 17%, 9% and 1%, respectively. On the contrary, sales of the Men and Ladies divisions were down 5% and 7%, respectively.
Citi Trends' gross profit for the quarter rose 11.5% to $49.5 million from $44.4 million in the year-ago quarter, whereas gross margin expanded 230 basis points (bps) to 35.9%. The improvement in gross margin came on the back of reduced markdowns and strong inventory control.
Selling, general and administrative (SG&A) expenses in the quarter increased 1.9% year over year to $51.9 million, while depreciation and amortization expenses waned 6.1% to $5.7 million. As a percentage of sales, SG&A expenses declined 80 bps to 37.7% due to higher sales and conservative management of costs.
Citi Trends had no debt on its balance sheet at the end of the second quarter. Cash and cash equivalents were $61.2 million compared with $51.7 million at the end of second quarter fiscal 2012. Shareholders' equity totaled $197.5 million compared with $199.0 million in the prior-year period.
Following a conservative store growth strategy in fiscal 2013, Citi Trends opened only 1 new store while remodeling 20 stores in the first half of the year. Furthering the strategy of streamlining its stores, the company shuttered 2 troubled stores in the second quarter. This brought the company’s total store count to 506 at the end of second-quarter fiscal 2013. The company operates across 29 states in the Southeast, Mid-Atlantic and Midwest regions as well as in the states of Texas and California.
Looking at fiscal 2013, the company expects to continue posting positive comparable store sales and improved gross margin with lower levels of inventory. Citi Trends intends to keep lesser inventory in the third and fourth quarters of this fiscal compared with the year-ago quarter’s level.
Other Stocks to Consider
Citi Trends currently carries a Zacks Rank #3 (Hold). Other apparel retail stocks that are worth a look include Express Inc. (EXPR), The Gap, Inc. (GPS) and Genesco Inc. (GCO), all of which have a Zacks Rank #2 (Buy).
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