8-K: Citi Trends Reports Mixed Q4 and Full Year 2023 Results, Provides Optimistic 2024 Outlook

Citi Trends reported a slight increase in fourth-quarter sales but a decrease in full-year sales for 2023, while also providing a positive outlook for 2024.

Summary

• Citi Trends announced its financial results for the fourth quarter and full year ended February 3, 2024, which included an extra week compared to the previous year.
• Fourth-quarter total sales reached $215.2 million, a 2.7% increase year-over-year, with the extra week contributing $11.2 million.
• Comparable store sales for the fourth quarter decreased by 1.5% on a 13-week to 13-week basis.
• The company's gross margin for the fourth quarter was 39.1%, slightly down from 39.5% in the same period last year.
• Diluted earnings per share (EPS) for the fourth quarter were $0.42, or $0.53 as adjusted, compared to $0.81, or $0.83 as adjusted, in the prior year.
• Full-year 2023 total sales were $747.9 million, a 5.9% decrease compared to 2022, with comparable store sales down 6.8% on a 52-week to 52-week basis.
• The full-year gross margin was 38.1%, or 38.2% as adjusted, compared to 39.1% in 2022.
• The company reported a net loss of $12.0 million for the full year, or $10.5 million as adjusted, compared to a net income of $58.9 million in 2022, or $9.4 million as adjusted.
• Adjusted EBITDA for the full year was $1.5 million, significantly down from $32.0 million in 2022.
• Citi Trends ended the year with $155 million in liquidity, including $80 million in cash and no debt.
• The company expects mid-single-digit comparable store sales growth for fiscal year 2024 and a gross margin expansion of approximately 75 to 100 basis points.
• They plan to open up to 5 new stores, remodel approximately 40 stores, and close 10 to 15 underperforming stores in 2024.

Sentiment

Score: 5

Explanation: The document presents a mixed picture with positive future outlook but negative current results. The company is facing challenges but is taking steps to improve performance. The sentiment is neutral to slightly negative.

Positives

• The company's fourth-quarter sales saw a 2.7% increase year-over-year, reaching $215.2 million.
• Citi Trends has a strong liquidity position with $155 million, including $80 million in cash and no debt.
• The company is projecting mid-single-digit comparable store sales growth for fiscal year 2024.
• Gross margin is expected to expand by approximately 75 to 100 basis points in fiscal year 2024.
• The company is actively optimizing its store fleet by opening new stores and remodeling existing ones.

Negatives

• Full-year 2023 total sales decreased by 5.9% to $747.9 million compared to 2022.
• Comparable store sales for the full year decreased by 6.8% compared to 2022.
• The company reported a net loss of $12.0 million for the full year 2023.
• Adjusted EBITDA for the full year was significantly down at $1.5 million compared to $32.0 million in 2022.
• Fourth quarter comparable store sales decreased by 1.5% on a 13-week to 13-week basis.

Risks

• The company faces risks related to general economic conditions, including inflation and unemployment.
• There are risks associated with transportation and distribution delays or interruptions.
• The company is exposed to risks related to shifts in market demand and changing consumer preferences.
• Competition within the industry and in their markets poses a risk.
• The company is still assessing the impact of a cyber disruption from January 2023.
• The company is exposed to risks related to cybersecurity, data privacy and intellectual property.
• The company is exposed to risks related to weather patterns and seasonality of the business.

Future Outlook

The company expects mid-single-digit comparable store sales growth for fiscal year 2024 and a gross margin expansion of approximately 75 to 100 basis points. They also plan to open up to 5 new stores, remodel approximately 40 stores, and close 10 to 15 underperforming stores.

Management Comments

• David Makuen, Chief Executive Officer, stated that fourth quarter and annual results were in line with guidance.
• Mr. Makuen noted that the company delivered a solid holiday season with their Ready. Set. Gift! campaign.
• Mr. Makuen mentioned that the company's focus on rebuilding inventories drove improved comps in targeted product categories.
• Mr. Makuen said that the company enters 2024 in a strong financial position with total liquidity of $155 million.
• Mr. Makuen stated that the company is pleased to establish their 2024 outlook which represents healthy top line growth and improved profitability.
• Mr. Makuen noted that the company is encouraged by positive comp results and sequential improvement versus prior quarters driven by traffic growth and strong conversion.

Industry Context

Citi Trends operates in the specialty value retail sector, which is sensitive to economic conditions and consumer spending patterns. The company's focus on African American and multicultural families positions it within a specific niche of the market. The company's performance is being impacted by the current economic pressures and the company is taking steps to improve its performance.

Comparison to Industry Standards

• Citi Trends' full-year sales decline of 5.9% is worse than some of its competitors in the value retail space, such as Dollar General and Dollar Tree, which have shown more resilience in the current economic climate.
• The company's adjusted EBITDA of $1.5 million for the full year is significantly lower than industry benchmarks, indicating a need for improved operational efficiency.
• The planned store openings and remodels are in line with industry trends of optimizing store fleets, but the number of store closures suggests potential challenges in certain markets.
• The company's focus on inventory rebuilding is a positive step, but the 23% increase in year-end inventory may pose a risk if not managed effectively.
• The company's projected mid-single-digit comparable store sales growth for 2024 is a positive sign, but it will need to be closely monitored against actual performance.

Stakeholder Impact

• Shareholders may be concerned about the full-year losses and decreased profitability, but encouraged by the positive outlook for 2024.
• Employees may be impacted by store closures and remodels, but also by the company's focus on growth and improvement.
• Customers may benefit from store remodels and improved product offerings.
• Suppliers may be impacted by changes in inventory levels and store locations.
• Creditors may be concerned about the company's losses but reassured by its strong liquidity position.

Next Steps

• The company plans to open up to 5 new stores in fiscal year 2024.
• The company plans to remodel approximately 40 stores in fiscal year 2024.
• The company plans to close 10 to 15 underperforming stores in fiscal year 2024.
• The company will leverage ERP-driven analytics and operational improvements to further advance assortment optimization and store experience upgrades.
• The company will monitor economic pressures and pull multiple levers in support of their 2024 outlook.

Key Dates

Keywords

retail, apparel, accessories, home trends, value retailer, financial results, sales, gross margin, EBITDA, comparable store sales, liquidity, store expansion, store remodeling, cybersecurity