On January 9, we upgraded value-priced retailer of urban fashion apparel and accessories, Citi Trends, Inc. (CTRN) to ‘Outperform’ based on its improved results in the third quarter of fiscal 2012.We are impressed with Citi Trends’ turnaround efforts, where the company registered growth in its top line and narrowed its loss despite reporting weaker comps.
Why the Upgrade?
Citi Trends marked an improvement in its third quarter 2012 results by reporting a loss per share of 25 cents, which fared better than both the prior-year quarter’s loss of 38 cents as well as the Zacks Consensus Estimate of a loss of 41 cents per share. During the quarter, Citi Trends’ net sales improved 4.1% to $149 million, and surpassed the Zacks Consensus Estimate of $142 million.
Following the release of Citi Trends’ third-quarter results, the Zacks Consensus Estimate of earnings for 2012 has shot up 83.3% to 22 cents per share. Apart from the better-than-expected third-quarter results, the company’s store-growth initiatives, efficient inventory management and healthy financial position underline its strength. We believe that these factors are also the reasons behind the rise in earnings estimate.
In our point of view, Citi Trends’ extensive focus on store-expansion strategy may drive its top-line growth. Further, the company has taken prudent steps towards inventory management, such as enhanced supervision and installation of sophisticated surveillance systems in high-shrinkage stores. We expect these initiatives to help the company improve its operational performance.
Other Stocks to Consider
Besides Citi Trends, other stocks in the retail-apparel/shoe sector that are currently performing well include DSW Inc. (DSW) and Foot Locker Inc. (FL). All these companies carry a Zacks Rank #1 (Strong Buy).
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