Citi Trends Inc. (CTRN), the U.S. based retailer of fashion apparel and accessories, posted its fourth-quarter 2011 results last week on Friday. Thus, the street analysts roughly had a week to ponder over and analyze the result. In the subsequent paragraphs, we will cover the recent earnings announcement, analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.
Quarterly Review
On March 9, 2012, Citi Trends reported its fourth-quarter 2011 results. Citi Trends reported a dismal quarter performance for a second time on the trot, which also weighed on fiscal 2011 results. The company’s fourth-quarter earnings dipped, dragged by falling comparable store sales, coupled with rising operating expenses.
Citi Trends reported fourth-quarter adjusted loss per share of 18 cents, falling drastically from the year-ago quarter earnings per share of 64 cents. The results, however, bettered the Zacks Consensus Estimate of a loss of 20 cents per share.
During the quarter, Citi Trends recorded a 3.7% year-over-year growth in net sales to $178.4 million, almost in line with the Zacks Consensus Estimate of $178.0 million. Comparable store sales dropped 6.2% in the fourth quarter of fiscal 2011.
(Read our full coverage on this earnings report: Citi Trends Trending Down)
Agreement of Analysts
Estimate revision trend for the upcoming first and second quarters of fiscal 2012 portrayed negative sentiment among most of the analysts covering the stock. Over the last 7 days, 3 out of 7 analysts revised their estimates downward for first-quarter 2012. As for the second-quarter 2012, 2 out of 7 analysts made a downward revision to their estimates, while only one analyst upwardly revised the estimate.
For fiscal 2012, estimate revision trends portrayed a negative sentiment among most of the analysts covering the stock. Over the last 7 days, 4 out of 7 analysts revised their estimates downward, while the rest made no change. Besides, none of the analysts revisited their estimates for fiscal 2013 in the last 7 days.
Magnitude of Estimate Revisions
As a result of the bearish sentiment evident among most of the analysts over the past one week, the Zacks Consensus Estimated earnings for first-quarter 2012 moved down by 6 cents to 50 cents per share. For second-quarter 2012, loss per share as projected by the Zacks Consensus inched up by a penny to 44 cents.
Similarly, the Zacks Consensus Estimate chopped fiscal 2012 and fiscal 2013 earnings per share by 5 cents and 7 cents, to 5 cents and 43 cents, respectively.
Our Take
With a string of weak quarterly results in 2011 amid shrinking comparable store sales, Citi Trends have mostly deterred investor sentiment. Further, Citi Trends’ business is seasonal in nature and typically generates stronger sales during the first and fourth quarters, which are characterized by the spring and holiday seasons. As a result, the company is exposed to significant risks if these seasons fail to deliver expected operating performance.
Moreover, the company sources a substantial portion of its merchandise from countries outside the U.S, such as China and the Far East. Accordingly, Citi Trends is vulnerable to political, social and economic risks associated with sourcing from these developing countries.
Above all, the company operates in a highly fragmented specialty retail sector and faces intense competition from larger off-price rivals, such as The TJX Companies Inc. (TJX) and Ross Stores Inc. (ROST), mass merchants including Wal-Mart Stores Inc. (WMT) as well as smaller specialty retailers, such as Rainbow and Dots. Additionally, the company also competes with local off-price specialty stores, regional chains as well as traditional department stores. Consequently, the company may find it difficult to maintain the profitability.
Currently, Citi Trends has a Zacks #5 Rank, implying a short-term ‘Strong Sell’ rating on the stock. Our long-term recommendation on the stock remains 'Underperform'.
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
CITI TRENDS INC (CTRN): Free Stock Analysis Report
ROSS STORES (ROST): Free Stock Analysis Report
TJX COS INC NEW (TJX): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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