Citi Trends Inc: Form 10-Q for the period ended Nov 1, 2025

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, capital allocation expectations or statements regarding the outcome or impact of pending or threatened litigation. These, and similar statements, are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, 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,” “could,” “will likely result,” or “will continue” and similar words and expressions generally identify forward-looking statements, although not all forward-looking statements contain such language. 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: uncertainties relating to general economic conditions, including inflation, energy and fuel costs, unemployment levels, and any deterioration whether caused by acts of war, terrorism, political or social unrest (including any resulting store closures, damage or loss of inventory) or other factors; changes in market interest rates and market levels of wages; the imposition of new taxes on imports, new tariffs and changes in existing tariff rates; the imposition of new trade restrictions and changes in existing trade restrictions; impact of natural disasters such as hurricanes; uncertainty and economic impact of pandemics, epidemics or other public health emergencies; transportation and distribution delays or interruptions; changes in freight rates; the Company’s ability to attract and retain workers; 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; consumer confidence and changes in consumer spending patterns; competition within the industry; competition in our markets; the duration and extent of any economic stimulus programs; changes in product mix; interruptions in suppliers’ businesses; risks related to cybersecurity, data privacy and intellectual property; temporary changes in demand due to weather patterns; seasonality of the Company’s business; the results of pending or threatened litigation; delays associated with building, opening, remodeling 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 February 1, 2025 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.

Executive Overview

We are a highly differentiated off-price value retailer known for trendy fashions, great brands and amazing prices. We offer culturally relevant fashion – what we call “Cultural Cachet” – in apparel, accessories and home trends primarily for African American families in the United States. We curate a three-tiered mix of products featuring well-known brands, core products and opening price goods, with intermittent extreme value deals. Our core product styles are curated trend-right, high quality, value for the price. We offer an assortment of opening price products for the price conscious customer; all sold at competitive prices. Plus, for the treasure hunters, we often have “extreme value” product deals on well-known branded product at 50% to 75% off the manufacturer’s suggested retail price. Consumer insights research validates that our unique culturally relevant styling, and strong value for the price, fosters deep customer loyalty and high shopping frequency in the neighborhoods in which we operate.

As of November 1, 2025, we operated 593 stores in urban, suburban and rural markets in 33 states.

Uncertainties and Challenges

General Economic Conditions

We are monitoring trends in general economic conditions including inflation, tariffs, and changes in consumer sentiment. We also regularly monitor the impacts on our business of unemployment levels, wage inflation, interest rates, inflation rates, housing costs, energy costs, consumer confidence, consumer perception of economic conditions, costs to source our merchandise and supply chain disruptions.

Seasonality and Weather Patterns

The nature of our 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. In addition, sales of clothing are directly impacted by the timing of the seasons to which the clothing relates. While we have expanded our product offerings to balance discretionary with non-discretionary product, traffic to our stores is still influenced by weather patterns to some extent.

Basis of Presentation

Net sales consist of store sales and layaway fees, net of returns by customers. Cost of sales consists of the cost of products we sell and associated freight costs. Depreciation is not considered a component of cost of sales and is included as a separate line item in the consolidated statements of operations. Selling, general and administrative expenses are comprised of store costs, including payroll and occupancy costs, corporate and distribution center costs and advertising costs.

The following discussion contains references to fiscal years 2025 and 2024, which represent fiscal years ending or ended on January 31, 2026 and February 1, 2025, respectively. Fiscal 2025 and fiscal 2024 both have 52-week accounting periods. This discussion and analysis should be read with the unaudited condensed consolidated financial statements and the notes thereto contained in Part I, Item 1 of this Report.

Results of Operations

The following discussion of the Company’s financial performance is based on the unaudited condensed consolidated financial statements set forth herein. 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 as a result of the seasonality of our business, and the current economic uncertainty.

Key Operating Statistics

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 open for at least 14 full consecutive months without closure for more than seven days within the same fiscal month. Remodeled and relocated stores are included in the comparable store sales results if the selling square footage is not changed significantly, the store is not closed for more than five days in any fiscal month and the store remains in the same trade area.

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. In addition to sales, we measure cost of sales 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 the overall performance of each individual store. Finally, we monitor corporate and distribution center expenses against budgeted amounts.

Thirteen Weeks Ended November 1, 2025 and November 2, 2024

Net Sales. Net sales increased $18.0 million, or 10.1%, to $197.1 million in the third quarter of 2025 from $179.1 million in the third quarter of 2024. Comparable store sales increased 10.8%, resulting in an increase of $19.1 million in sales. Net store opening and closing activity resulted in a net decrease of $1.1 million in sales.

Cost of Sales (exclusive of depreciation). Cost of sales (exclusive of depreciation) increased $12.7 million, or 11.7%, to $120.5 million in the third quarter of 2025 from $107.8 million in the third quarter of 2024. Cost of sales as a percentage of sales was 61.1% in the third quarter of 2025 and 60.2% in the third quarter of 2024. The 90 basis-point increase was primarily driven by a 50 basis points increase in markdowns, a 20 basis points increase in shrink, and a 20 basis points increase in other cost of sales. Cost of sales as a percentage of sales in the third quarter of 2024 was positively impacted by low markdowns and shrink following the second quarter of 2024 strategic inventory reset.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $4.6 million, or 6.2%, to $79.3 million in the third quarter of 2025 from $74.7 million in the third quarter of 2024. The increase was driven by corporate expenses (primarily incremental incentive compensation) of $2.9 million and store expenses of $1.7 million. As a percentage of sales, Selling, general and administrative expenses decreased to 40.3% in the third quarter of 2025 from 41.7% in the third quarter of 2024, primarily driven by the aforementioned items.

Depreciation. Depreciation expense decreased $0.2 million, or 2.7%, to $4.6 million in the third quarter of 2025 from $4.8 million in the third quarter of 2024.

Impairment. We did not incur any non-cash impairment expense in the third quarter of 2025. Non-cash impairment expense related to underperforming stores totaled $0.6 million in the third quarter of 2024, comprised of $0.3 million for leasehold improvements and fixtures and equipment, and $0.3 million for operating lease right of use assets.

Income Tax Benefit. There was no income tax benefit in the third quarter of 2025 compared to a benefit of $1.3 million in the third quarter of 2024. For the third quarter of 2025 and the third quarter of 2024, we used the annual effective tax rate to determine income tax benefit based upon interim period results.

Net Income (Loss). Net loss was $6.9 million in the third quarter of 2025 compared to net loss of $7.2 million in the third quarter of 2024 due to the factors discussed above.

Thirty-Nine Weeks Ended November 1, 2025 and November 2, 2024

Net Sales. Net sales increased $47.7 million, or 8.8%, to $589.6 million in the first thirty-nine weeks of 2025 from $541.9 million in the same period of 2024. Comparable store sales increased 10.0%, resulting in an increase of $53.2 million in sales. Net store opening and closing activity resulted in a net decrease of $5.5 million in sales.

Cost of Sales (exclusive of depreciation). Cost of sales (exclusive of depreciation) increased $13.2 million, or 3.8%, to $356.9 million in the first thirty-nine weeks of 2025 from $343.7 million in the same period of 2024. Cost of sales as a percentage of sales decreased to 60.5% in the first thirty-nine weeks of 2025 from 63.4% in the same period of 2024. The 290 basis-point decrease was driven by a 150 basis points decrease in markdowns, an 80 basis points decrease in shrink, and a 60 basis points decrease in other cost of sales.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $10.4 million, or 4.7%, to $233.1 million in the first thirty-nine weeks of 2025 from $222.7 million in the same period of 2024. The increase was primarily driven by store expenses of $3.8 million, distribution center costs of $2.7 million, and corporate expenses (primarily incentive compensation) of $3.9 million. As a percentage of sales, Selling, general and administrative expenses decreased to 39.5% in the first thirty-nine weeks of 2025 from 41.1% in the first thirty-nine weeks of 2024, due to the aforementioned items.

Depreciation. Depreciation expense decreased $0.8 million, or 5.5%, to $13.5 million in the first thirty-nine weeks of 2025 from $14.3 million in the same period last year primarily due to the sale of the corporate office building.

Impairment. Non-cash impairment expense related to underperforming stores totaled $0.3 million in the first thirty-nine weeks of 2025, comprised of $0.2 million for leasehold improvements and fixtures and equipment, and $0.1 million for operating lease right of use assets. Non-cash impairment expense related to underperforming stores totaled $1.8 million in the first thirty-nine weeks of 2024, comprised of $0.9 million for leasehold improvements and fixtures and equipment, and $0.9 million for operating lease right of use assets.

Gain on sale of building. Gain on sale of the corporate office building was $11.0 million in the first thirty-nine weeks of 2025.

Income Tax Benefit. There was no income tax benefit in the first thirty-nine weeks of 2025 compared to $10.0 million in the first thirty-nine weeks of 2024. We used the annual effective tax rate to determine income tax benefit based upon interim period results.

Net Income (Loss). Net loss was $2.2 million in the first thirty-nine weeks of 2025 compared to net loss of $29.0 million in the same period of 2024 due to the factors discussed above.

Liquidity and Capital Resources

Capital Allocation

Our capital allocation strategy is to maintain adequate liquidity to prioritize investments in opportunities to profitably grow our business and maintain current operations, then to return excess cash to stockholders through our repurchase programs. Our quarter-end cash and cash equivalents balance was $51.1 million compared to cash and cash equivalents of $38.9 million at the end of the third quarter last year. Until required for other purposes, we maintain cash and cash equivalents in deposit or money market accounts.

Our principal sources of liquidity consist of: (i) cash and cash equivalents on hand; (ii) short-term trade credit arising from customary payment terms and trade practices with our vendors; (iii) cash generated from operations on an ongoing basis; and (iv) a revolving credit facility with a $75 million credit commitment.

Inventory

Our quarter-end inventory balance was $123.5 million, down 3.1% compared to $127.5 million at the end of the third quarter last year.

Capital Expenditures

Capital expenditures in the first thirty-nine weeks of 2025 were $15.5 million, an increase of $7.9 million over the first thirty-nine weeks of 2024, as we increased our investments in new stores and remodels. We anticipate capital expenditures in fiscal 2025 to be approximately 23 million, primarily for the opening of three new stores and remodeling existing stores, combined with ongoing investments in our systems.

Share Repurchases

In the first thirty-nine weeks of fiscal 2025, we returned $6.3 million to stockholders through share repurchases. See Part II, Item 2 of this Report and Note 8 to the Financial Statements for more information.

Revolving Credit Facility

We have a revolving credit facility that matures in April 2030 and provides a $75 million credit commitment and a $25 million uncommitted “accordion” feature. Additional details of the credit facility are in Note 4 to the Financial Statements. At the end of the third quarter of 2025, we had no borrowings under the credit facility and $2.2 million in letters of credit outstanding.

Cash Flows

Cash Flows From Operating Activities. Net cash provided by operating activities was $1.5 million in the first thirty-nine weeks of 2025 compared to net cash used in operating activities of $32.3 million in the same period of 2024. Significant sources of cash for the first thirty-nine weeks of 2025 included net loss adjusted for non-cash items totaling $40.4 million (compared to net loss adjusted for non-cash items of $16.1 million in the first thirty-nine weeks of 2024) and an increase in accrued compensation of $7.5 million in the first thirty-nine weeks of 2025 (compared to an increase of $2.9 million in the first thirty-nine weeks of 2024).

Significant uses of cash from operating activities in the first thirty-nine weeks of 2025 included (1) a $37.0 million decrease in accrued expenses and other long-term liabilities (compared to a $35.9 million decrease in the first thirty-nine weeks of 2024) due primarily to payments of operating lease liabilities; (2) a $5.9 million increase in prepaid and other current assets (compared to a $2.3 million dollar increase in the first thirty-nine weeks of 2024); and (3) a $5.1 million decrease in accounts payable (compared to a $17.9 million increase in the same period last year).

Cash Flows From Investing Activities. Cash used in investing activities was $4.3 million in the first thirty-nine weeks of 2025 compared to $7.6 million in the same period last year. Source of cash of $11.2 million in the first thirty-nine weeks of 2025 was from the sale of a building. Cash used of $15.5 million in the first thirty-nine weeks of fiscal 2025 and $7.6 million in the first thirty-nine weeks of fiscal 2024 consisted of purchases of property and equipment.

Cash Flows From Financing Activities. Cash used in financing activities was $7.1 million in the first thirty-nine weeks of 2025 compared to $0.9 million in the same period last year. Cash used in the first thirty-nine weeks of fiscal 2025 was $0.8 million to settle withholding taxes on the vesting of restricted stock and $6.3 million for share repurchases, compared to $0.9 million used in the first thirty-nine weeks of fiscal 2024 to settle withholding taxes on the vesting of restricted stock.

Cash Requirements and Commitments

Our principal cash requirements consist of (1) inventory purchases; (2) capital expenditures to invest in our infrastructure; and (3) operational needs, including salaries, occupancy costs, taxes and other operating costs. We may also use cash to fund any share repurchases, make any required debt payments and satisfy other contractual obligations. Historically, we have met these cash requirements using cash flow from operations and short-term trade credit. As of November 1, 2025, our contractual commitments for operating leases totaled $218.0 million (with $64.1 million due within 12 months). See Note 11 to the Financial Statements for more information regarding lease commitments.

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 our Annual Report on Form 10-K for the fiscal year ended February 1, 2025.

There have been no material changes in our market risk during the thirty-nine weeks ended November 1, 2025 compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended February 1, 2025.

We have carried out an evaluation under the supervision and with the participation of management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of November 1, 2025 pursuant to Rules 13a-15 and 15d-15 of the Exchange Act. Based on that evaluation, the principal executive officer and the principal financial officer 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 November 1, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the Risk Factors described under the section “ITEM 1A. RISK FACTORS” in our Annual Report on Form 10-K for the fiscal year ended February 1, 2025.