Citi Trends Inc. (CTRN), a leading value-priced retailer of urban fashion apparel and accessories, with its strategic initiatives, such as better utilization of floor area, improvisation of merchandise margins and efficient inventory management, has made a significant turnaround in its operating performance.
This is evident from the company’s robust sales growth, positive comparable-store sales and improved gross margin in the recently reported third-quarter 2014 results. Moreover, these strategies have led the company to narrow its year-over-year loss over the past few quarters despite a challenging and highly promotional industry backdrop.
In third-quarter fiscal 2014, the company’s adjusted loss per share came in at 8 cents, marking a significant improvement from a loss of 17 cents per share reported in the prior-year quarter.
With regard to its inventory management the company has taken prudent steps to reduce inventory shrinkage, which includes enhanced supervision by the operations and loss prevention departments as well as installation of sophisticated surveillance systems in high shrinkage stores that improved gross margins by 9.1% from the year-ago quarter.
We are also impressed with the Citi Trends’ appeal to the value-conscious customers looking for cheaper alternatives in the current sluggish economy as it offers merchandise at about 20% to 70% discount compared with other department and specialty stores’ regular price. Furthermore, the company’s niche market is focused on the African-Americans, which along with inviting store formats provide an edge over other off-price retailers and mass merchants.
This Zacks Rank #3 (Hold) company also enjoys a healthy financial status as it ended the quarter with a solid cash position and no debt, reflecting a strong balance sheet. This will help the company provide ample liquidity as well as the flexibility to fund its turnaround strategies.
However, we remain worried about the competitive retail environment and seasonal nature of the company’s business along with sluggish store growth plan, which may weigh on its performance going forward.
Other Stocks to Consider
Other better-ranked retail stocks include Bebe Stores Inc. (BEBE) and Shoe Carnival Inc. (SCVL), both carrying a Zacks Rank #1 (Strong Buy), and Foot Locker Inc. (FL) sporting Zacks Rank #2 (Buy).
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