Leading value-priced retailer, Citi Trends, Inc. CTRN is an appealing choice for customers looking for cheap alternatives, as it offers merchandise at about 20%–70% discount compared to other department and specialty stores’ regular prices. Also, the company’s niche market is focused on African-Americans, which along with inviting store formats provides an edge over other off-price retailers and mass merchants.
However, in the recently reported third-quarter fiscal 2015 results, Citi Trends’ top and bottom lines fell short of the respective Zacks Consensus Estimate. While the company is benefiting from continued progress on its strategic initiatives, its third-quarter results were impacted by soft comparable store sales (comps) and sales.
The company’s aggressive transition strategy from spring to fall merchandise undertaken during the quarter negatively impacted sales of some spring classes that were lost due to an early shift to fall merchandise. Also, management indicated that Citi Trends witnessed a soft start to the fourth quarter, with comps for the first three weeks reflecting a decline due to warmer-than-normal weather.
Though weather conditions normalized moving further into the quarter, management’s projection of flat-to-slightly-down comps for the fourth quarter instills a negative sentiment. The Zacks Consensus Estimate for fiscal 2015 has also been trending downward since the earnings release.
However, results improved year over year, backed by enhanced margins and tough inventory management. Also, the company’s strong balance sheet and cash flow generation ability highlight its commitment toward shareholders, and bode well for growth.
Nevertheless, Citi Trends’ business is heavily dependent on the tastes and preferences of consumers that keep changing with time. Hence, the failure to identify consumer needs and act accordingly may reduce demand for the company’s products and weigh on its financial performance.
Zacks Rank
Citi Trends currently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the Retail- Apparel/Shoe industry include Abercrombie & Fitch Co. ANF, with a Zacks Rank #1 (Strong Buy), American Eagle Outfitters, Inc. AEO and Foot Locker, Inc. FL, each carrying a Zacks Rank #2 (Buy).
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