Over the past year, Citi Trends Inc. (CTRN) has made a significant turnaround in its operating performance benefiting from strategies such as better utilization of floor area, improvisation of merchandise margins and efficient inventory management. Despite a challenging and highly promotional industry backdrop, these strategies have led the company to report better-than-expected earnings results over the past few quarters.
Citi Trends posted better-than-expected results for second-quarter fiscal 2014 marked by the best comparable-store sales (comps) in over four years, an improvement in gross margin and SG&A expenses as a percentage of sales. Comps in the quarter rose 5.3% from the year-ago quarter, driven by an increase in the number of transactions offset partly by a decline in average unit sale.
The company anticipates that these turnaround initiatives will drive sales improvement in fiscal 2014. Such strong performance along with a positive future commentary has raised the Zacks Consensus Estimates for fiscal 2014 and 2015 upwards in the last 60 days.
Other factors that justify our positive stance on the stock include better cost management, a debt-free balance sheet and strong cash position. This provides the company with ample liquidity as well as the flexibility to fund its turnaround strategies.
Citi Trends, which competes with The TJX Companies Inc. (TJX), Ross Stores Inc. (ROST) and Wal-Mart Stores Inc. (WMT), offers merchandise at about 30% to 70% discount compared with the regular prices of other department and specialty stores, and hence appeals more to the value-conscious customers looking for cheaper alternatives in the current sluggish economy. Furthermore, the company’s niche focus group are the African-Americans, which along with its inviting store formats provide an edge over other off-price retailers and mass merchants.
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