Strong liquidity with cash and investments
of $108.1 million at the end of the first quarter
First quarter sales $116 million and loss
per share ($2.00), or ($1.94) on an adjusted basis*
Safely reopened 498 stores from April 24,
2020 to date that have registered strong comparable store sales
growth, substantially exceeding expectations
Citi Trends, Inc. (NASDAQ:
CTRN), the leading value retailer of apparel, accessories and home
goods primarily for African American families in the United States,
today reported results for the first quarter ended May 2,
2020.
COVID-19 Business Actions
Highlights
- Due to “stay-at-home” and “shelter-in-place” orders to serve
the health and safety needs of all associates and customers, on
March 20, 2020 temporarily closed all 574 stores across 33
states
- Temporarily closed both corporate offices and both distribution
centers
- Furloughed substantially all store and distribution center
personnel, as well as about 40% of corporate staff starting April
3, 2020, while providing eligible associates with benefits at no
cost
- Temporarily reduced cash compensation for Chief Executive
Officer, senior executives and Board members by 15% to 25%
- Created a “COVID-19” response team focused on business
continuity that developed new protocols and action plans to limit
and reduce operating expenses, address forward looking health and
safety requirements and prepare the business for reopening
- Proactively drew down $43.7 million on our credit facility to
have the financial flexibility to manage through the crisis and
stages of recovery during the remainder of 2020
- Substantially reduced capital expenditures to a limited number
of store projects under contract, as well as minimal maintenance
capital spending
- Temporarily suspended any repurchases of shares under the stock
repurchase program
- Temporarily suspended quarterly cash dividend beginning in the
second quarter
Financial Highlights – 13-week first
quarter ended May 2, 2020
- For the first quarter through March 7, 2020 and prior to the
country-wide store traffic and sales deceleration resulting from
COVID-19, comparable store sales increased 3.1%
- With the chain substantially closed for the last two weeks of
March and all of April, total sales decreased 43.4% to $116.1
million compared with $205.0 million in the first quarter of fiscal
2019
- Gross margin contracted 1,011bps to 27.3% compared to 37.5% for
the first quarter of 2019 reflecting permanent markdowns on
merchandise receipts that would have normally sold during the first
quarter and into the first month of the second quarter
- Selling, general and administrative expenses declined 14.8%
year-over-year due to proactive actions taken by the Company in
response to COVID-19
- Operating loss was $27.6 million compared to an operating
profit of $8.7 million in the first quarter of fiscal 2019 on a
GAAP basis, or an operating loss of $26.7 million* when adjusted
for CEO transition expenses and asset impairment expenses compared
to an operating profit of $9.8 million* for the first quarter of
fiscal 2019 on an adjusted basis
- Operating margin was (23.7)% compared to 4.3% in the first
quarter of fiscal 2019
- Net loss was $20.9 million compared to net income of $7.8
million in the first quarter of fiscal 2019 on a GAAP basis, or a
net loss of $20.2 million* when adjusted for CEO transition
expenses and asset impairment expenses compared to $8.7 million* in
the first quarter of fiscal 2019 on an adjusted basis
- Net loss per share was $(2.00) compared to earnings per share
of $0.65 in the first quarter of fiscal 2019 on a GAAP basis, or a
net loss per share of (1.94)* when adjusted for CEO transition
expenses and asset impairment expenses compared to earnings per
share of $0.72* in the first quarter of fiscal 2019 on an adjusted
basis
- Cash and investments of $108.1 million at the end of the first
quarter of fiscal 2020, compared to $80.4 million at the end of the
first quarter of fiscal 2019
- Quarter-end inventory was down 7.1% compared to the end of the
first quarter of fiscal 2019
Chief Executive Officer
Comments:
David Makuen, Chief Executive
Officer, commented, “We are in unprecedented times and COVID-19 has
had a tremendous human impact, as well as an impact on our economy
and the retailing landscape. Throughout this crisis, our top
priority has been, and continues to be, the health and safety of
our employees, our customers and the communities we serve.
Throughout this pandemic, we have made some difficult but prudent
decisions to ensure that Citi Trends remains in a strong financial
position and is poised to exit this crisis well-positioned for a
safe recovery and long-term growth.”
Makuen continued, “I would
like to thank our leadership team and associates for their
unwavering dedication to the business throughout this crisis. Our
people are the heart and soul of Citi Trends, and alongside many
other priorities in their personal lives, they rose to the
challenge of balancing life needs with the needs of the business.
As we hunkered down in our respective homes, we both maximized the
strengths of our model and identified opportunities to improve in
nearly every operating function. I am so incredibly proud of their
efforts and all that we have collectively accomplished."
“Under the guidelines of state
and local authorities, as of today we have safely reopened 498
stores across 26 states and I am pleased to report that just shy of
four weeks into our fiscal second quarter the reopened stores are
registering comparable store sales growth that has substantially
exceeded our expectations. The strong results have been driven by
healthy transaction trends and an increase in the average number of
items per transaction. While still very early in the recovery from
this pandemic, our results prove that our customers in the
communities we serve are voting on the style, quality and extreme
value of our mix of basics, fashion, trends and sought-after brands
as they fulfill many of their apparel, accessories and home
needs.”
Makuen concluded, “The health
of our balance sheet pre-COVID-19 helped us to manage through this
uncertain period, and along with the prudent actions we have taken,
we believe we are in a strong financial position to weather the
current environment. I am confident in our leadership team’s
ability to execute our long-term strategy and that our unique
position in the market place presents many opportunities for the
long-term growth of the business.”
Guidance
At roughly four weeks into the
fiscal 2020 second quarter, comparable store sales are
substantially above expectations and plan, benefiting from a
combination of the strength of the Company’s brand, the Company’s
value proposition and the Federal government stimulus dollars
received by customers beginning in early April. Based on the
Company’s quarter-to-date performance, the Company is estimating a
fiscal 2020 second quarter comparable store sales increase of mid
to high single digits and meaningful margin expansion. This
estimate is subject to potential consumer and marketplace
volatility during the early stages of the post-COVID-19 economic
recovery and therefore may change as the quarter
progresses.
Due to the continued
uncertainty surrounding the COVID-19 impact on consumer behavior
and on the Company’s business operations, the Company is not
providing any further guidance at this time.
Long-Term Strategic Plan
Update
As the Company navigates the
current times and returns to a version of normal, its vision
remains the same – Citi Trends aspires to be a leader in the value
retailing space, one of few multi-category, off-price retailers
focused primarily on the African American market. The Company
provides a differentiated assortment of basics, fashion, trends and
sought-after brands at amazing prices.
The Company’s team, values and
culture are stronger than ever. With a strong balance sheet,
liquidity to manage through a chain closure and a high-energy team
with a growth mindset, the Company is prepared to return to
executing on many initiatives that will build a stronger foundation
and set it up for scaling its unique model in the years to come.
The Company is continuing to make meaningful progress on its
long-term strategic plan, including:
- Maximizing real estate opportunities, including opening three
new stores during the first quarter of fiscal 2020 and three new
stores in the second quarter
- Making improvements in supply chain freight costs and four-wall
efficiencies
- Reducing inventories, increasing margins and increasing turns
of an appealing assortment of always-fresh merchandise
- Addressing select technology enhancements to improve
efficiencies and productivity
The Company anticipates that as the country normalizes, and
assuming no further complications from the COVID-19 pandemic, that
it will return to executing on its three-year strategic plan to
increase earnings per share at a compounded annual growth rate of
20% to 25%.
Investor Conference Call and
Webcast
Citi Trends will host a
conference call today at 9:00 a.m. ET. The number to call for the
live interactive teleconference is (303) 223-2680. A replay of the
conference call will be available until June 4, 2020, by dialing
(402) 977-9140 and entering the passcode, 21961443.
The live broadcast of Citi
Trends' conference call will be available online at the Company's
website, www.cititrends.com, under the Investor Relations section,
beginning today at 9:00 a.m. ET. The online replay will follow
shortly after the call and will be available for replay for one
year.
During the conference call,
the Company may discuss and answer questions concerning business
and financial developments and trends that have occurred after
quarter-end. The Company’s responses to questions, as well as other
matters discussed during the conference call, may contain or
constitute information that has not been disclosed
previously.
About Citi Trends
Citi Trends, Inc. is a
value-priced retailer of fashion apparel, accessories and home
goods for the entire family. The Company operates 577 stores
located in 33 states. Citi Trends’ website address is
www.cititrends.com. CTRN-G
*Non-GAAP Financial
Measures
The non-GAAP financial
measures discussed herein are reconciled to their corresponding
GAAP measures at the end of this press release.
Forward-Looking
Statements
All statements other than
historical facts contained in this news release, including
statements regarding the Company’s future financial results and
position, business policy and plans, objectives of management for
future operations and our intentions and ability to pay dividends
and complete any share repurchase authorizations, are
forward-looking statements that are subject to material risks and
uncertainties. The words "believe," "may," "could," "plans,"
"estimate," "continue," "anticipate," "intend," "expect,"
“upcoming,” “trend” and similar expressions, as they relate to the
Company, are intended to identify forward-looking statements,
although not all forward-looking statements contain such language.
Statements with respect to earnings, sales or new store guidance
are forward-looking statements. Investors are cautioned that any
such forward-looking statements are subject to the finalization of
the Company’s quarter-end financial and accounting procedures, are
not guarantees of future performance or results and are inherently
subject to risks and uncertainties, some of which cannot be
predicted or quantified. Actual results or developments may differ
materially from those included in the forward-looking statements as
a result of various factors which are discussed in the Company’s
filings with the Securities and Exchange Commission, including
those set forth under the heading “Item 1A. Risk Factors” in the
Company’s Form 10-K for the fiscal year ended February 1, 2020.
These risks and uncertainties include, but are not limited to,
uncertainties relating to economic conditions, the impact of
potential global health emergencies such as COVID-19 (coronavirus),
including potential negative impacts on the global economy and
foreign sourcing, the duration of the COVID-19 outbreak, actions
that may be taken by governmental authorities to contain the
COVID-19 outbreak or to treat its impact, the impacts of COVID-19
on the Company's financial condition, business operation and
liquidity, including the reopening of the Company’s retail stores
and distribution centers, growth risks, consumer spending patterns,
competition within the industry, competition in our markets and the
ability to anticipate and respond to fashion trends. Any
forward-looking statements by the Company, with respect to
guidance, the Company’s intention to declare and pay dividends, the
repurchase of shares pursuant to a share repurchase program, or
otherwise, are intended to speak only as of the date such
statements are made. Except as required by applicable law,
including the securities laws of the United States and the rules
and regulations of the Securities and Exchange Commission, the
Company does not undertake to publicly update any forward-looking
statements in this news release or with respect to matters
described herein, whether as a result of any new information,
future events or otherwise.
CITI TRENDS, INC. CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (unaudited) (in thousands, except per share
data) Thirteen Weeks Ended Thirteen Weeks
Ended May 2, 2020 May 4, 2019 (unaudited)
(unaudited) Net sales
$
116,124
$
205,032
Cost of sales (exclusive of depreciation shown separately
below)
(84,370
)
(128,238
)
Selling, general and administrative expenses
(54,076
)
(63,447
)
Depreciation
(4,946
)
(4,614
)
Asset impairment
(286
)
-
Income (loss) from operations
(27,554
)
8,733
Interest income
217
379
Interest expense
(163
)
(38
)
Income (loss) before income taxes
(27,500
)
9,074
Income tax benefit
6,608
(1,286
)
Net income (loss)
$
(20,892
)
$
7,788
Basic net income per common share
$
(2.00
)
$
0.65
Diluted net income per common share
$
(2.00
)
$
0.65
Weighted average number of shares outstanding Basic
10,443
11,976
Diluted
10,443
12,006
CITI TRENDS, INC. CONDENSED CONSOLIDATED BALANCE
SHEETS (unaudited) (in thousands) May 2,
2020 May 4, 2019 (unaudited) (unaudited) Assets: Cash
and cash equivalents
$
108,130
$
29,484
Short-term investment securities
5
43,135
Inventory
121,885
131,254
Prepaid and other current assets
10,138
14,018
Property and equipment, net
64,847
54,921
Operating lease right of use assets
166,749
149,125
Long-term investment securities
-
7,777
Deferred tax assets
14,334
7,085
Other noncurrent assets
755
749
Total assets
$
486,843
$
437,548
Liabilities and Stockholders' Equity: Accounts payable
$
94,249
$
64,201
Accrued liabilities
19,056
22,004
Current operating lease liabilities
50,834
41,027
Other current liabilities
1,050
2,808
Revolving credit facility
43,700
-
Noncurrent operating lease liabilities
133,167
115,121
Other noncurrent liabilities
1,729
1,838
Total liabilities
343,785
246,999
Total stockholders' equity
143,058
190,549
Total liabilities and stockholders' equity
$
486,843
$
437,548
CITI TRENDS, INC. RECONCILIATION OF GAAP
BASIS OPERATING RESULTS TO ADJUSTED NON-GAAP OPERATING
RESULTS (unaudited) (in thousands, except per share
data) The Company makes reference in this release to net
income adjusted for CEO transition expenses and asset impairment
expenses, earnings per diluted share adjusted for CEO transition
expenses and asset impairment expenses, and operating income
adjusted for CEO transition expenses and asset impairment expenses
for the thirteen weeks ended May 2, 2020. Further, the Company
makes reference to net income adjusted for proxy contest-related
expenses, earnings per diluted share adjusted for proxy
contest-related expenses, and operating income adjusted for proxy
contest-related expenses for the thirteen weeks ended May 4, 2019.
The Company believes that excluding CEO transition expenses, asset
impairment expenses and proxy contest-related expenses, together
with their related tax effects, from its financial results reflects
operating results that are more indicative of the Company's ongoing
operating performance while improving comparability to prior and
future periods, and as such, may provide investors with an enhanced
understanding of the Company's past financial performance and
prospects for the future. This information is not intended to be
considered in isolation or as a substitute for net income or
earnings per diluted share prepared in accordance with generally
accepted accounting principles (GAAP).
Thirteen Weeks
Ended May 2, 2020 As Reported Adjustment (1)
Adjustment (2) As Adjusted (unaudited) (unaudited)
(unaudited) (unaudited) Net sales
$
116,124
$
-
$
-
$
116,124
Cost of sales (exclusive of depreciation shown separately
below)
(84,370
)
-
-
(84,370
)
Selling, general and administrative expenses
(54,076
)
560
-
(53,516
)
Depreciation
(4,946
)
-
-
(4,946
)
Asset impairment
(286
)
-
286
-
Income from operations
(27,554
)
560
286
(26,708
)
Interest income
217
-
-
217
Interest expense
(163
)
-
-
(163
)
Income before income taxes
(27,500
)
560
286
(26,654
)
Income tax expense
6,608
(135
)
(69
)
6,405
Net income
$
(20,892
)
$
425
$
217
$
(20,249
)
Basic net loss per common share
$
(2.00
)
$
(1.94
)
Diluted net loss per common share
$
(2.00
)
$
(1.94
)
Weighted average number of shares outstanding Basic
10,443
10,443
Diluted
10,443
10,443
(1) CEO transition expenses and related tax effects (2) Asset
impairment expenses and related tax effects
Thirteen Weeks Ended
May 4, 2019 As Reported Adjustment (1) As
Adjusted (unaudited) (unaudited) (unaudited) Net sales
$
205,032
$
-
$
205,032
Cost of sales (exclusive of depreciation shown separately
below)
(128,238
)
-
(128,238
)
Selling, general and administrative expenses
(63,447
)
1,042
(62,405
)
Depreciation
(4,614
)
-
(4,614
)
Income from operations
8,733
1,042
9,775
Interest income
379
-
379
Interest expense
(38
)
-
(38
)
Income before income taxes
9,074
1,042
10,116
Income tax expense
(1,286
)
(148
)
(1,434
)
Net income
$
7,788
$
894
$
8,682
Basic net income per common share
$
0.65
$
0.72
Diluted net income per common share
$
0.65
$
0.72
Weighted average number of shares outstanding Basic
11,976
11,976
Diluted
12,006
12,006
(1) Proxy contest expenses and related tax effects
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200528005187/en/
Investor Contact: ICR, Inc. Tom Filandro, 646-277-1235
Tom.Filandro@icrinc.com
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