# Citi Trends Inc: Form 10-Q for the period ended Apr 28, 2012

- Company: [Citi Trends Inc](/companies/ctrn.md) (CIK 1318484)
- Form: 10-Q
- Filed: 2012-05-30
- Accepted by EDGAR: May 30, 2012, 10:00 ET
- Period: 2012-04-28
- Accession: 0001104659-12-040596
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1318484/000110465912040596/a12-11388_110q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1318484/000110465912040596/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2012-04-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2012-01-29 to 2012-04-28 | $197.7m | us-gaap:SalesRevenueGoodsNet |
| Cost of revenue | 3 months, 2012-01-29 to 2012-04-28 | $123.0m | us-gaap:CostOfGoodsSold |
| Gross profit | 3 months, 2012-01-29 to 2012-04-28 | $74.7m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2012-01-29 to 2012-04-28 | $52.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2012-01-29 to 2012-04-28 | $15.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2012-01-29 to 2012-04-28 | $49.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2012-01-29 to 2012-04-28 | $5.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2012-01-29 to 2012-04-28 | $10.1m | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic |
| Diluted EPS | 3 months, 2012-01-29 to 2012-04-28 | $0.69 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2012-01-29 to 2012-04-28 | $0.69 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2012-01-29 to 2012-04-28 | 14,637,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2012-01-29 to 2012-04-28 | $24.6m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 3 months, 2012-01-29 to 2012-04-28 | $1.9m | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2012-04-28 | $64.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2012-04-28 | $198.4m | us-gaap:AssetsCurrent |
| Total assets | at 2012-04-28 | $305.1m | us-gaap:Assets |
| Current liabilities | at 2012-04-28 | $86.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2012-04-28 | $98.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2012-04-28 | $206.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 18,288 characters.

### Forward-Looking Statements

Except for specific historical information, many of the matters discussed in this Form 10-Q may express or imply projections of revenues or expenditures, statements of plans and objectives for future operations, growth or initiatives, statements of future economic performance, or statements regarding the outcome or impact of pending or threatened litigation. These, and similar statements, are forward-looking statements concerning matters that involve risks, uncertainties and other factors that may cause the actual performance of the Company to differ materially from those expressed or implied by these statements. All forward-looking information should be evaluated in the context of these risks, uncertainties and other factors. The words “believe,” “anticipate,” “project,” “plan,” “expect,” “estimate,” “objective,” “forecast,” “goal,” “intend,” “will likely result,” or “will continue” and similar words and expressions generally identify forward-looking statements. The Company believes the assumptions underlying these forward-looking statements are reasonable; however, any of the assumptions could be inaccurate, and therefore, actual results may differ materially from those projected in the forward-looking statements.

The factors that may result in actual results differing from such forward-looking information include, but are not limited to: transportation and distribution delays or interruptions; changes in freight rates; the Company’s ability to negotiate effectively the cost and purchase of merchandise; inventory risks due to shifts in market demand; the Company’s ability to gauge fashion trends and changing consumer preferences; changes in consumer spending on apparel; changes in product mix; interruptions in suppliers’ businesses; a deterioration in general economic conditions caused by acts of war or terrorism or other factors; temporary changes in demand due to weather patterns; seasonality of the Company’s business; delays associated with building, opening and operating new stores; delays associated with building, opening or expanding new or existing distribution centers; and other factors described in the section titled “Item 1A. Risk Factors” and elsewhere in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2012 and in Part II, “Item 1A. Risk Factors” and elsewhere in the Company’s Quarterly Reports on Form 10-Q and any amendments thereto and in the other documents the Company files with the SEC, including reports on Form 8-K.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. Except as may be required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements contained herein to reflect events or circumstances occurring after the date of this Form 10-Q or to reflect the occurrence of unanticipated events. Readers are advised, however, to read any further disclosures the Company may make on related subjects in its public disclosures or documents filed with the SEC, including reports on Form 8-K.

### Overview

We are a value-priced retailer of urban fashion apparel and accessories for the entire family. Our merchandise offerings are designed to appeal to the preferences of fashion conscious consumers, particularly African-Americans. We operated 511 stores in both urban and rural markets in 29 states as of April 28, 2012.

We measure performance using key operating statistics. One of the main performance measures we use is comparable store sales growth. We define a comparable store as a store that has been opened for an entire fiscal year. Therefore, a store will not be considered a comparable store until its 13th month of operation at the earliest or until its 24th month at the latest. As an example, stores opened in fiscal 2011 and fiscal 2012 are not considered comparable stores in fiscal 2012. Relocated and expanded stores are included in the comparable store sales results. We also use other operating statistics, most notably average sales per store, to measure our performance. As we typically occupy existing space in established shopping centers rather than sites built specifically for our stores, store square footage (and therefore sales per square foot) varies by store. We focus on overall store sales volume as the critical driver of profitability. The average sales per store has increased over the years, as we have increased comparable store sales and opened new stores that are generally larger than our historical store base. Average sales per store have increased from $0.8 million in fiscal 2000 to $1.3 million in fiscal 2011.

In addition to sales, we measure gross profit as a percentage of sales and store operating expenses, with a particular focus on labor, as a percentage of sales. These results translate into store level contribution, which we use to evaluate overall performance of each individual store. Finally, we monitor corporate expenses against budgeted amounts. All of the statistics discussed above are critical components of earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA (comprised of EBITDA plus non-cash asset impairment expense), which are considered our most important operating statistics. Although EBITDA and Adjusted EBITDA provide useful information on an operating cash flow basis, they are limited measures in that they exclude the impact of cash requirements for capital expenditures, income taxes and interest expense. Therefore, EBITDA and Adjusted EBITDA should be used as supplements to results of operations and cash flows as reported under U.S. GAAP and should not be used as a singular measure of operating performance or as a substitute for U.S. GAAP results. Provided below is a reconciliation of net income to EBITDA and to Adjusted EBITDA for the thirteen week periods ended April 28, 2012, and April 30, 2011:

|  | Thirteen Weeks Ended April 28, 2012 | April 30, 2011 |
| --- | ---: | ---: |
| Net income | $10,104 | $12,093 |
| Plus: |  |  |
| Interest expense | 49 | 4 |
| Income tax expense | 5,761 | 6,370 |
| Depreciation and amortization | 6,145 | 5,584 |
| Less: |  |  |
| Interest income | (62) | (54) |
| EBITDA | 21,997 | 23,997 |
| Asset impairment | — | — |
| Adjusted EBITDA | $21,997 | $23,997 |

### Accounting Periods

The following discussion contains references to fiscal years 2012 and 2011, which represent fiscal years ending or ended on February 2, 2013 and January 28, 2012, respectively. Fiscal 2012 has a 53-week accounting period and fiscal 2011 has a 52-week accounting period. This discussion and analysis should be read with the unaudited condensed consolidated financial statements and the notes thereto.

### Results of Operations

The following discussion of the Company’s financial performance is based on the unaudited condensed consolidated financial statements set forth herein. The nature of the Company’s business is seasonal. Historically, sales in the first and fourth quarters have been higher than sales achieved in the second and third quarters of the fiscal year. Expenses and, to a greater extent, operating income, vary by quarter. Results of a period shorter than a full year may not be indicative of results expected for the entire year. Furthermore, the seasonal nature of the Company’s business may affect comparisons between periods.

### Thirteen Weeks Ended April 28, 2012 and April 30, 2011

*Net Sales.* Net sales increased $8.5 million, or 4.5%, to $197.7 million in the thirteen weeks ended April 28, 2012 from $189.2 million in the thirteen weeks ended April 30, 2011. The increase in net sales was due primarily to the opening of 42 new stores since last year’s first quarter, partially offset by a 5.0% decrease in comparable store sales and the effect of closing four stores since last year’s first quarter. Comparable stores include locations that have been relocated or expanded. There were ten stores relocated or expanded since last year’s first quarter, all of which impacted comparable store sales. Sales in comparable relocated and expanded stores increased 6.6% in the first quarter of 2012, while sales in all other comparable stores decreased 5.4%. The 5.0% overall decrease in comparable store sales was reflected entirely in a decline in the average ticket, as the number of customer transactions was flat with last year. Comparable store sales changes by major merchandise class were as follows in the first quarter of 2012: Accessories +2%; Home -2%; Children’s -4%; Men’s -4%; and Women’s -11%.

The new stores opened in 2011 and 2012, net of closed stores, accounted for an increase of $17.8 million in total sales, while the 5.0% sales decrease in the 454 comparable stores totaled $9.3 million.

*Gross Profit.* Gross profit decreased $0.4 million, or 0.5%, to $74.7 million in the first quarter of 2012 from $75.1 million in last year’s first quarter. The decrease in gross profit is the result of a decline in the gross margin to 37.8% from 39.7% in last year’s first quarter, partially offset by the effect on gross profit of the increase in sales discussed above. The lower gross margin was due primarily to a decline in the core merchandise margin (initial mark-up, net of markdowns) of 160 basis points resulting from the need to be more price competitive in the challenging sales environment.

*Selling, General and Administrative Expenses.* Selling, general and administrative expenses increased $1.6 million, or 3.1%, to $52.7 million in the first quarter of 2012 from $51.1 million in last year’s first quarter. The increase in these expenses was due primarily to additional store level, distribution and corporate costs arising from the opening of 42 new stores since last year’s first quarter, partially offset by the effect of a reduction-in-force that eliminated 40 positions in our corporate office, distribution centers and store organization. As a percentage of sales, selling, general and administrative expenses decreased to 26.6% in the first quarter of fiscal 2012 from 27.0% in the first quarter of fiscal 2011, due primarily to the decrease in expense related to the reduction-in-force.

*Depreciation and Amortization.* Depreciation and amortization expense increased $0.5 million, or 10.0%, to $6.1 million in the first quarter of 2012 from $5.6 million in the first quarter of 2011, as the result of capital expenditures incurred for new and relocated/expanded stores since the first quarter of 2011 and the new distribution center in Roland, Oklahoma which became fully operational in April 2011.

*Income Tax Expense.* Income tax expense decreased $0.6 million, or 9.6%, to $5.8 million in this year’s first quarter from $6.4 million in the first quarter of 2011 due to a decrease in pretax income, partially offset by an increase in the effective income tax rate to 36.3% from 34.5%. The effective income tax rate for the first quarter of fiscal 2012 was higher than the rate for last year’s first quarter, because of the expiration of the Work Opportunity Tax Credit (WOTC). It is possible that Congress will retroactively reinstate the WOTC back to the beginning of 2012; however, due to the uncertainty involved, no WOTC benefits were recorded in the first quarter of fiscal 2012. Such benefits would be recorded if and when the legislation is enacted. If the WOTC had been extended as of the beginning of 2012, the effective income tax rate would have been 25.6% in the first quarter of fiscal 2012, with the decrease in such rate from last year resulting from tax credits being higher as a percentage of pretax income in fiscal 2012.

*Net Income.* Net income decreased 16.4% to $10.1 million in the first quarter of 2012 from $12.1 million in the first quarter of 2011 due to the factors discussed above.

### Liquidity and Capital Resources

Our cash requirements are primarily for working capital, expansion of our distribution infrastructure, opening of new stores, remodeling of our existing stores and the improvement of our information systems. In recent years, we have met these cash requirements using cash flow from operations and short-term trade credit. We expect to be able to meet future cash requirements with cash flow from operations, short-term trade credit, existing balances of cash and investment securities and, if necessary, borrowings under our revolving credit facility.

*Current Financial Condition.* As of April 28, 2012, we had total cash and cash equivalents of $64.0 million compared with $42.0 million as of January 28, 2012. Additionally, we had $1.6 million and $18.1 million of short-term and long-term investment securities, respectively, as of April 28, 2012, compared with $0.9 million and $18.8 million, respectively, as of January 28, 2012. These securities are comprised of bank certificates of deposit and obligations of the U.S. Treasury, states and municipalities. Inventory represented 37.7% of our total assets as of April 28, 2012. Management’s ability to manage our inventory can have a significant impact on our cash flows from operations during a given interim period or fiscal year. In addition, inventory purchases can be seasonal in nature, such as the purchase of warm-weather or Christmas-related merchandise.

*Cash Flows From Operating Activities*. Net cash provided by operating activities was $24.6 million in the first thirteen weeks of fiscal 2012 compared to $26.4 million in the same period of fiscal 2011. The main source of cash provided during the first thirteen weeks of fiscal 2012 was net income adjusted for noncash expenses such as depreciation and amortization, loss on disposal of property and equipment, deferred income taxes and stock-based compensation expense, totaling $16.5 million (compared to $19.2 million in the first thirteen weeks of fiscal 2011). Other significant sources of cash in the first thirteen weeks of fiscal 2012 were (1) a $16.5 million decrease in inventory (compared to $8.1 million in the first thirteen weeks of fiscal 2011) due to apparel retail seasonality which typically results in having more inventory at the beginning of the spring selling season than at the end; (2) a $9.6 million change in the income tax receivable/payable (compared to $5.6 million in the first thirteen weeks of fiscal 2011) due to income tax refunds totaling $3.5 million in the first thirteen weeks of fiscal 2012 and due to income tax expense being accrued on first quarter pretax income while first quarter estimated tax payments are not due until after the end of the quarter; and (3) a $1.4 million increase in layaway deposits (compared to $1.5 million in the first thirteen weeks of fiscal 2011) due to the seasonality of layaway transactions, which are low at the end of our fiscal year because all balances have to be redeemed by customers or they are cancelled by the middle of December each year. Significant uses of cash consisted primarily of an $18.9 million decrease in accounts payable (compared to $8.9 million in the first thirteen weeks of fiscal 2011) as the result of the inventory reduction discussed above. The decrease in accounts payable was more than would typically be expected in relation to a $16.5 million decrease in inventory because of a decline in inventory turns, as reflected in the negative comparable store sales. Other uses of cash included a $1.3 million decrease in accrued compensation (compared to $1.6 million in the first thirteen weeks of fiscal 2011), as our year-end balance sheet included accrued payroll for two weeks and our first quarter balance sheet included accrued payroll for only one week due to the timing of paying our bi-weekly payroll.

*Cash Flows From Investing Activities.* Cash used in investing activities was $1.8 million in the first thirteen weeks of fiscal 2012 compared to $18.9 million in the first thirteen weeks of fiscal 2011. Cash used for purchases of property and equipment totaled $1.9 million and $11.9 million in the first thirteen weeks of fiscal 2012 and 2011, respectively, with the decrease resulting from opening two stores in the first quarter of fiscal 2012 compared with 15 in the same quarter a year ago. In addition, the equipping of the new distribution center in Roland, Oklahoma occurred in the first quarter of fiscal 2011. Other uses of cash in the first thirteen weeks of 2011 consisted of purchases, net of sales/redemptions, of investment securities totaling $7.0 million.

*Cash Flows From Financing Activities.* Cash flows from financing activities were insignificant in the first thirteen weeks of both fiscal 2012 and 2011.

### Cash Requirements

Our principal sources of liquidity consist of: (i) cash and cash equivalents (which equaled $64.0 million as of April 28, 2012); (ii) short-term and long-term investment securities (which equaled $1.6 million and $18.1 million, respectively, as of April 28, 2012); (iii) short-term trade credit; (iv) cash generated from operations on an ongoing basis as we sell our merchandise inventory; and (v) a $50 million revolving credit facility. Trade credit represents a significant source of financing for inventory purchases and arises from customary payment terms and trade practices with our vendors. Historically, our principal liquidity requirements have been for working capital and capital expenditure needs.

We believe that our existing sources of liquidity will be sufficient to fund our operations and anticipated capital expenditures for at least the next 12 months.

### Critical Accounting Policies

The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. There have been no material changes to the Critical Accounting Policies outlined in the Company’s Annual Report on Form 10-K for the year ended January 28, 2012.

## Market risk

As filed, 220 characters.

There have been no material changes in our market risk during the thirteen weeks ended April 28, 2012 compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the year ended January 28, 2012.

## Controls and procedures

As filed, 1,549 characters.

We have carried out an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of April 28, 2012 pursuant to Rules 13a-15 and 15d-15 of the Exchange Act. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer each concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information has been accumulated and communicated to our management, including the officers who certify our financial reports, as appropriate, to allow timely decisions regarding the required disclosures.

Our disclosure controls and procedures are designed to provide reasonable assurance that the controls and procedures will meet their objectives. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended April 28, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 189 characters.

There are no material changes to the Risk Factors described under the section “ITEM 1A. RISK FACTORS” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

Filed May 30, 2012.
Source: SEC EDGAR, the filing index for accession 0001104659-12-040596. Last ingested by Listed: Oct 27, 2026, 17:26 ET. No prices; not investment advice.