Citi Trends (CTRN) Stock Dips Despite Solid Q1 Earnings
Citi Trends Inc. CTRN reported solid results for first-quarter fiscal 2017, wherein earnings and sales improved year over year.
The company posted earnings of 68 cents per share in first-quarter fiscal 2017, up 13.3% from the year-ago quarter. Results gained from stringent progress on the company’s strategic initiatives that focus on diversifying offering into contemporary product lines. Further, its focus on delivering trend-right and value-priced merchandise to customers bodes well.
On a GAAP basis, including proxy contest-related expenses, the company reported earnings per share of 60 cents, in line with the prior-year quarter.
Citi Trends, Inc. Price, Consensus and EPS Surprise
Citi Trends, Inc. Price, Consensus and EPS Surprise | Citi Trends, Inc. Quote
However, shares of the company to dipped 2.2% yesterday. Overall, Citi Trends shares declined 7.2% year to date, much narrower than the Zacks categorized Retail – Apparel/Shoe industry’s fall of 17.9%.
Quarter in Detail
Sales of this leading apparel retailer, which competes with names like Abercrombie & Fitch Co. ANF, Buckle Inc. BKE and The Childern’s Place Inc. PLCE, climbed 3.2% year over year to $200 million. Sales benefited from comparable store sales (comps) growth of 1%, despite the soft start to the quarter due to delayed tax refunds. Comps growth can be attributed to 2% increase in the number of customer transactions and 1% rise in the average number of items per transaction, partly negated by 2% drop in average units sold.
On the basis of merchandise category, comps gained from solid performance of the company non-apparel businesses, like the Accessories and Home divisions that make for 37% of its merchandise mix. In the first quarter, the Accessories division posted comps growth for the 28th time in 31 quarters, while the Home division comps improved for the 19th straight quarter.
Comps at the Home division marked a 26% surge compared with 22% rise in the year-ago period. Meanwhile, comps at Accessories, which includes footwear, were up 2% compared with 4% increase in the year-ago period. The Men’s division’s comps jumped 4% against 2% drop in the year-ago period. Comps at the Ladies’ division was slightly positive compared with 9% fall recorded in the year-ago quarter, while Children’s division comps dipped 6% compared with 8% decline in the prior-year period.
Cost of goods sold, as a percentage of sales, expanded 40 basis points (bps) in the fiscal first quarter, owing to higher freight charges.
Selling, general and administrative (SG&A) expenses went up 3.7% year over year to $60.5 million, mainly due to proxy contest related expenses. As a percentage of sales, SG&A expenses escalated 20 bps to 30.3%. However, excluding proxy contest related expenses, SG&A expense as a percentage of sales declined 60 bps driven by tight expense management. Depreciation dipped about 2.3% to $4.3 million.
Financials
As of Apr 29, 2017, cash and cash equivalents were nearly $73 million compared with $53 million as of Apr 30, 2016. Shareholders' equity totaled approximately $231 million compared with $219.8 million in the prior-year period.
The company recently announced a quarterly dividend of 8 cents per share, marking a 33% increase from the previous dividend rate as was intended in the recently announced expanded capital return program. The dividend is payable on Jun 13, 2017, to shareholders on record as of May 30.
Store Update
During the quarter, the company introduced six new stores, relocated or expanded two stores, and shuttered one store. As of Apr 29, 2017, the company operated 538 stores in 31 states.
Outlook
Management remains impressed with the performance of the Home and Accessories businesses and expects to continue growing these divisions. At the same time, the company remains focused on attracting customers with fashionable merchandise in its Men’s, Ladies and Kids sections.
Further, the company is awaiting the roll-out of the next stage of enhancements for its merchandise planning and allocation systems, which a likely in midyear. These enhancements will fabricate the company’s merchandise mix on a store by store basis and form an integral part of its plans to boost sales, gross margin and inventory turns.
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