After a splendid first-quarter fiscal 2014, Citi Trends Inc. (CTRN) is here with an even better second-quarter fiscal 2014 as it continues to gain from its ongoing turnaround initiatives. The company posted second-quarter loss per share of 17 cents, marking an improvement from a loss of 37 cents per share reported in the prior-year quarter and narrower than the Zacks Consensus Estimate of 29 cents.
The company’s second quarter was marked by the best comparable store sales (comps) performance in over four years, an improvement in gross margin and SG&A expenses as a percentage of sales, as well as higher profitability. We believe that the company’s strategic initiatives such as better utilization of floor area, improvising merchandise margins and efficient inventory management have helped it in making this significant turnaround.
Quarter in Detail
Citi Trends reported sales of $145 million, an increase of 5.2% from $137.8 million in the prior-year quarter and surpassed the Zacks Consensus Estimate of $140 million. Sales benefited from strong performance of its accessories and footwear businesses which contributed to a major share of total business in the second quarter.
Comparable-store sales (comps) in the quarter rose 5.3% from the year-ago quarter, driven by an approximate 7% increase in the number of transactions offset partly by a 2% decline in average unit sale.
On the basis of merchandise category, comps at the Home Division were up 28% versus a 9% rise last year while Accessories comps increased 24% on top of a 17% increase last year. Moreover, comparable sales of the Men’s division improved 1% against a 5% decline last year. On the other hand, both Children’s and Ladies divisions were down 1% and 4% respectively, compared with 1% increase and 7% decline reported last year.
By month, comps were up 5% in May, 7% in June and 3% in July. Moreover, the company continues to witness improved comps in the first two weeks of August, which is up nearly 5% so far.
Citi Trends' gross profit for the quarter increased 8.1% to $53.5 million from $49.5 million in the year-ago quarter, while gross margin expanded 100 basis points (bps) to 36.9%. The improvement in gross margin was attributed to lower markdowns due to rise in merchandise sales coupled with strong inventory control that helped lower cost of sales.
Selling, general and administrative (SG&A) expenses in the quarter increased 2.5% year over year to $53.2 million, while depreciation expense fell 10.5% to $5.1 million. However, as a percentage of sales, SG&A expenses declined 100 bps to 36.7% due to leverage on the fixed expenses from improved comps performance. On the other hand, a pullback in store growth caused depreciation expense to wane.
Operating loss came in at $4.9 million compared with loss of $8.7 million reported in the year-ago comparable quarter.
Financials
Citi Trends had no debt on its balance sheet at the end of second quarter fiscal 2014. Cash and cash equivalents were $70.7 million compared with $61.2 million at the end of second-quarter fiscal 2013. Combining cash and cash equivalents with short-term and long-term investment securities the company had about $102 million in hand. Shareholders' equity totaled $206.4 million, as against $197.5 million in the prior-year period.
Store Growth Strategy
In keeping with its conservative store growth strategy, the company opened only 4 stores toward the end of the second quarter. Looking ahead, the company has deals in place to open another 4 stores by fall 2014.
Additionally, store plans for the year include expansion or relocation of 8 stores and minor remodeling of nearly 20 stores.
Other Stocks to Consider
Citi Trends currently sports a Zacks Rank #1 (Strong Buy). Other stocks worth considering in the retail apparel-shoe space include The Men’s Wearhouse Inc. (MW), L Brands Inc. (LB) and Zumiez Inc. (ZUMZ). While Men’s Wearhouse carry the same rank as Citi Trends, L Brands and Zumiez hold a Zacks Rank #2 (Buy).
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