Citi Trends ((CTRN)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Citi Trends’ recent earnings call conveyed a generally positive sentiment, highlighting strong sales growth and customer engagement. The company demonstrated promising strategic expansions and technological advancements, although challenges in maintaining gross margins and controlling SG&A expenses persist. Efforts to address shrinkage issues were also discussed, reflecting a balanced view of both achievements and areas needing improvement.
Consistent Sales Growth
Citi Trends reported a remarkable 10.8% increase in comparable store sales for the third quarter, marking the fifth consecutive quarter and fifteenth straight month of strong comparable growth. Total sales rose by 10.1% compared to the previous year, underscoring the company’s consistent upward trajectory in sales performance.
Positive Customer Engagement
The company experienced increased customer traffic across all store volume groups and geographies. A continued focus on the African American demographic contributed to strong performance in children’s, men’s, and basic apparel categories, indicating effective customer engagement strategies.
Inventory and Supply Chain Efficiency
Citi Trends achieved a 3.1% reduction in inventory dollars compared to last year, thanks to improved supply chain processes that enhanced in-store inventory efficiency. This efficiency is expected to support future sales growth and operational effectiveness.
Strategic Store Expansion
In the third quarter, Citi Trends remodeled 24 stores and opened three new ones, bringing the total to 593 locations. The company outlined plans to open about 25 new stores in 2026 and 40 stores in 2027, signaling a robust expansion strategy.
Financial Performance and Outlook
For the third quarter, Citi Trends reported an adjusted EBITDA loss of $2.9 million, aligning with expectations and showing improvement over the previous year’s loss. The company raised its full-year EBITDA guidance to between $10 million and $12 million, reflecting a positive financial outlook.
Technological Advancements
The implementation of a new CRM and loyalty platform is underway, aimed at enhancing customer engagement and long-term value. These technological advancements are expected to play a crucial role in driving future growth and customer retention.
Gross Margin Challenges
The third-quarter gross margin decreased by 90 basis points compared to the previous year, attributed to inventory shifts and an unfavorable comparison to the prior year’s strategic inventory reset. Addressing these challenges remains a priority for the company.
SG&A Expense Increase
SG&A expenses rose to $79.5 million in the third quarter, driven by higher incentive compensation and store expenses. Despite this increase, SG&A leverage improved by 130 basis points, indicating some operational efficiency gains.
Shrink Mitigation Efforts Ongoing
Despite the introduction of new camera systems and technology, the shrink rate remains above the desired level, impacting gross margins. The company continues to focus on mitigating shrinkage to improve profitability.
Forward-Looking Guidance
CEO Ken Seipel provided robust guidance for Citi Trends, aiming for $900 million in sales and $45 million of EBITDA by 2027, a $60 million increase from 2024 levels. The guidance emphasized maintaining consistent comparable store sales growth and expanding the store base, with plans to open 25 new stores in 2026 and 40 annually from 2027. The company also aims to leverage operating expenses and expand its gross margin, projecting a gross profit rate of 42% and an SG&A leverage improvement by 200 basis points. Strategic use of AI-driven analytics for inventory management and store location decisions, along with investments in CRM and loyalty platforms, are expected to deepen customer engagement.
In summary, Citi Trends’ earnings call reflected a positive outlook with strong sales growth and customer engagement, supported by strategic expansions and technological advancements. While challenges in gross margins and SG&A expenses persist, the company’s forward-looking guidance and strategic initiatives indicate a promising path for future growth.