Release Date: December 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Citi Trends Inc (CTRN, Financial) reported strong third-quarter sales of $179.1 million, achieving a positive comparable sales growth of 5.7%.
- The company saw broad-based performance improvements, with increased customer traffic, single-digit transaction growth, and larger basket sizes.
- Citi Trends Inc (CTRN) experienced gross margin expansion of 160 basis points, driven by higher initial markups and lower shrink levels.
- The company has a strong balance sheet with no debt, $39 million in cash, and liquidity of approximately $114 million.
- Citi Trends Inc (CTRN) is focusing on foundational improvements, including supply chain efficiencies, which have reduced the time from vendor to store by nearly two weeks.
Negative Points
- The company incurred approximately $1.6 million in one-time strategic costs in Q3, impacting SG&A expenses.
- Shrinkage remains a challenge, with a headwind of 50 to 70 basis points compared to historical levels, requiring ongoing efforts to address.
- Despite improvements, the company still faces operational challenges, with foundational practices needing further refinement.
- Citi Trends Inc (CTRN) closed four stores in Q3 as part of its fleet optimization efforts, indicating ongoing adjustments in its store footprint.
- The company anticipates a mid-single-digit decline in total sales for the second half due to the 53rd week last year and store closures.
Q & A Highlights
Q: Congratulations Ken on the appointment and congratulations to the team on the improved results. I wanted to start by just coming back to the improved, you know, sales trends. So I think that I heard that the start of Q4 here in November was up high single digits on comps. You know, so I wanted to understand just in terms of the guidance for the quarter, if there's an element of conservatism in the low single to mid single digit guide for the quarter or if there are if there are some aspects to what you're going to lap in December and in January that that kind of lead to a bit more conservatism.
A: Thank you, Jeremy. I'll answer a little bit from high level and certainly my fill in any details. Yeah, first off November was really exceptional compared to what we were expecting, as we put new product and fresh product out. I mean, certainly, business took off and we're just really pleased with customer response in November. Now, to your point around the conservatism or the potential of that, there's a lot of holiday season ahead yet. And certainly through December, you might remember the company had a reasonably good December last year in terms of comp performance. And so we also are against a little bit tougher comp, as well as, we also appreciate the calendar shifts that are ahead. So we're being a little bit more cautious about what December might bring, but still very optimistic around the overall Q4 numbers.
Q: Great color. And, and just to clarify a little bit more color on December, what portion of your Q4 sales, you know, comes in December is that, roughly 40% of the quarter or maybe even slightly more.
A: It's slightly more Jeremy. It's about, I'd give it about 50.
Q: Just want to come back to the investments that you're making, you know, and, and, and maybe H1 in a little bit more on the shrink portion of those investments as well. So it sounds like you've, you've got a plan in place. You're getting a little bit of help from a third party, you know, on some strategy to improve that where is shrink, you know, in terms of kind of the impact or the drag on your your margin today versus let's say where it might have been five years ago. What's, what's that GAAP that we're looking to close, is it 50 basis points? Is it something more like 100 basis points? Any color you might be able to share on that and, and then the second part is just kind of the time line that you think is reasonable to get it back to what you would consider a normalized level.
A: Yeah. No, thanks for the question. I'll start and then can you can fill in where, I mean, this here, on your question about what's the, what's the headwind on a full year basis? I'd probably assign it somewhere between 5,070 basis points of drag compared to historical levels. On a quarterly basis. It's a little less than Q4, more like a, you know, compared to last year it was a 40% drag. I don't think I'm saying that. Right. Jeremy. Hold on. No, it was actually an improvement to last year. Sorry. So it depends like quarter to quarter. So, but on the full year again, a little less than a point, I think, the fact that we are mentioning as many initiatives as we are on these calls and have four quarters tells you how maniacal we are on attacking this issue, right? We are, we are leaving no stone unturned. We have teams within the company who have been looking for every opportunity to improve shrink. And then the addition of this consulting firm is really just to make sure that we aren't, we aren't missing something. So we are attacking all levels of whether it's, it's, it's, like I mentioned teams, is it using the systems that we have, like our aul system, which is the exception reporting that we use to be able to identify trends very quickly and address them very quickly in store signage, right? To back door, access, protocols. So we're really into the weeds and it's appropriate because this, this particular, issue shrink is going to take being in the weeds to be able to tackle it when we expect to see improvement. We're, we're modeling improvement into, into 2025 early days yet, not ready to, to reveal 2025 but it will be gradual throughout the year. Because this again, this is, this is a journey. I can tell you if I think about I'm going to keep going, Ken, if you don't mind if I think about Q3. Part of our improvement in Q3 was, was because of the 211 physical inventory counts that we did in the quarter and included in that were a number of stores that we were recounting because of a higher than acceptable shrink rates earlier in the year. Of those stores, a portion of them continued to have higher than acceptable shrink rates. So we're pleased with the progress, but there's still opportunity. That's why I call that out. There's still opportunity to make sure that we are addressing shrink at every level within the organization. It's a challenge.
Q: Let me shift gears here and talk about your store fleet and you know, Ken, as you've had a chance to, to really dive into the details a bit more. You had some, some closures here in Q4. You've still got some conversions to CCPX formats that are going to happen over coming years. How should we be thinking about, you know, kind of the store fleet on a go forward basis? Is this, you know, kind of a, do we expect the store fleet to continue to shrink? Until we feel confident that we've, kind of scuttled all the, maybe underperforming locations or, is there a time where you've got some momentum in the business? And we think about kind of reopening the growth, you know, path for, for this story. And, and potentially adds locations going forward. How are you thinking about the fleet?
A: Yeah, for sure. No good question. As we go forward, Jeremy, I'm really thinking about really the fleet in two ways. One that is in the refresh and the remodel. We've got about, I think about a third of our store is roughly not quite, remodeled into the new format, but we still have significant number of our higher volume stories that need to be remodeled. And so as we go into 2025 you can expect us to come out with a fairly aggressive remodel and refresh program, bringing our fleet up to standard across and where we've done. So we've, we've achieved higher than, than average comparable sales. So we're confident in the results and our customers response to a fleet refresh. So that'll be a big part of our repertoire going forward initially simultaneous to that, we are actually behind the scenes right now doing some studies in various markets and, and we will be returning to new store growth, part and parcel parcels. We had to fix our business model and get it
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
