# Citi Trends Inc: Form 10-Q for the period ended May 4, 2024

- Company: [Citi Trends Inc](/companies/ctrn.md) (CIK 1318484)
- Form: 10-Q
- Filed: 2024-06-12
- Accepted by EDGAR: Jun 12, 2024, 15:16 ET
- Period: 2024-05-04
- Accession: 0001558370-24-009085
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1318484/000155837024009085/ctrn-20240504x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1318484/000155837024009085/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-05-04.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-02-04 to 2024-05-04 | $186.3m | us-gaap:Revenues |
| Selling, general and administrative | 3 months, 2024-02-04 to 2024-05-04 | $74.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-02-04 to 2024-05-04 | −$7.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-02-04 to 2024-05-04 | $79.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-02-04 to 2024-05-04 | −$2.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-02-04 to 2024-05-04 | −$3.4m | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2024-02-04 to 2024-05-04 | −$0.42 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-02-04 to 2024-05-04 | −$0.42 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-02-04 to 2024-05-04 | 8,252,556 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-02-04 to 2024-05-04 | −$19.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-02-04 to 2024-05-04 | $1.6m | us-gaap:PaymentsToAcquireProductiveAssets |
| Current assets | at 2024-05-04 | $195.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-05-04 | $484.1m | us-gaap:Assets |
| Current liabilities | at 2024-05-04 | $143.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-05-04 | $329.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-05-04 | $154.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 17,226 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, capital allocation expectations 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,” “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; 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; changes in consumer confidence and 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; the impact of the cyber disruption we identified on January 14, 2023, including legal, reputational, financial and contractual risks resulting from the disruption, and other risks related to cybersecurity, data privacy and intellectual property; the results of pending or threatened litigation; temporary changes in demand due to weather patterns; seasonality of the Company’s business; 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 3, 2024 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 leading specialty value retailer of apparel, accessories and home trends for way less spend primarily for African American and multicultural families. Our high-quality and trend-right merchandise offerings at everyday low prices are designed to appeal to the fashion and trend preferences of value-conscious customers. As of May 4, 2024, we operated 599 stores in urban, suburban and rural markets in 33 states.

### Uncertainties and Challenges

### General Economic Conditions

We expect that our operations in the short-term will continue to be influenced by general economic conditions, including on-going inflationary pressures, which are particularly impactful to the communities we serve. Given the macro-economic environment, we expect low-income families to remain under pressure and to tightly manage their discretionary spend through the majority of fiscal 2024. In addition, we continue to 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 become a one-stop-shop, traffic to our stores is still influenced by weather patterns to some extent.

### Cyber Disruption (January 2023)

As previously disclosed, in January 2023, we experienced a disruption of our back office and distribution center IT systems, (the “January 2023 cyber disruption”). In the first quarter of fiscal 2023, cyber disruption related costs net of an expected insurance receivable totaled $1.6 million, comprised of incremental inventory processing costs, third-party consulting services and legal counsel.

Several putative class action lawsuits have been filed against the Company and several inquiries have been made to the Company with respect to the January 2023 cyber disruption. As of May 4, 2024, we had an accrual of $0.7 million for estimated losses in connection with these matters recorded in Accrued expenses on our Balance Sheet. For additional information regarding these lawsuits, see Note 7 of the Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

### 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 2024 and 2023, which represent fiscal years ending or ended on February 1, 2025 and February 3, 2024, respectively. Fiscal 2024 has a 52-week accounting period and fiscal 2023 had a 53-week accounting period. 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. For 2024, we are updating our definition of a comparable store. We now 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 or relocated stores are considered a comparable store if the selling square footage is not changed significantly, the store is not closed for more than 5 days in any fiscal month and the store remains in the same trade area. This change aligns more with industry standards in regard to measuring “comp store” sales performance. This change is effective for fiscal year 2024 and go forward. For fiscal year 2024, the definition change results in 6 stores becoming comparable stores in 2024, which would not have become a comparable store until 2025 under the prior definition. The revised definition would result in no change to the full year 2023 comparable store sales results of 5.3%.

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 overall performance of each individual store. Finally, we monitor corporate and distribution center expenses against budgeted amounts.

### Thirteen Weeks Ended May 4, 2024 and April 29, 2023

*Net Sales.* Net sales increased $6.6 million, or 3.7%, to $186.3 million in the first quarter of 2024 from $179.7 million in the first quarter of 2023. The increase in sales was due to a 3.1% increase in comparable store sales.

*Cost of Sales (exclusive of depreciation).* Cost of sales (exclusive of depreciation) increased $0.6 million, or 0.5%, to $114.3 million in the first quarter of 2024 from $113.7 million in the first quarter of 2023. Cost of sales as a percentage of sales decreased to 61.3% in the first quarter of 2024 from 63.3% in the first quarter of 2023. The change was due to a decrease in freight costs, along with a decrease in markdowns, offset by an increase in shrink expense.

*Selling, General and Administrative Expenses.* Selling, general and administrative expenses increased $3.4 million, or 4.8%, to $74.2 million in the first quarter of 2024 from $70.8 million in the first quarter of 2023. The increase was primarily due to a $1.9 million increase in corporate payroll related expense, a $0.7 million increase in store marketing and advertising expense and a $0.9 million increase in store selling expenses. As a percentage of sales, selling, general and administrative expenses increased to 39.8% in the first quarter of 2024 from 39.4% in the first quarter of 2023.

*Depreciation.* Depreciation expense increased $0.1 million, or 2.4%, to $4.8 million in the first quarter of 2024 from $4.7 million in the first quarter of 2023.

*Income Tax Benefit/Expense.* Income tax benefit was $2.8 million in the first quarter of 2024 compared to a benefit of $1.9 million in the first quarter of 2023. For the first quarter of 2024, we used the annual effective tax rate to determine income tax expense, and for the first quarter of 2023 we used the discrete effective tax rate method to determine income tax expense based upon interim period results.

*Net Income/Loss.* Net loss was $3.4 million in the first quarter of 2024 compared to net loss of $6.6 million in the first quarter of 2023 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 shareholders through our repurchase programs. Our quarter-end cash and cash equivalents balance was $58.2 million compared to $88.7 million at the end of the first quarter of 2023. 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 $119.0 million, compared with $114.3 million at the end of the first quarter of 2023. The increase was primarily due to a strategic increase in our average in-store inventory.

### Capital Expenditures

Capital expenditures in the first quarter of 2024 were $1.6 million, an increase of $0.6 million from the first quarter of 2023 as we invest in more existing store remodels. We anticipate capital expenditures in fiscal 2024 of approximately $20 million, primarily for opening up to five new stores and remodeling approximately 40 stores, combined with ongoing investments in our systems.

### Share Repurchases

We did not repurchase any shares of our common stock in the first quarter of fiscal 2024 or fiscal 2023. See Part II, Item 2 of this Report and Note 7 to the Financial Statements for more information.

### Revolving Credit Facility

We have a revolving credit facility that matures in April 2026 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 first quarter of 2024, we had no borrowings under the credit facility and $0.6 million in letters of credit outstanding.

### Cash Flows

*Cash Flows From Operating Activities*. Net cash used in operating activities was $19.6 million in the first quarter of 2024 compared to cash used of $13.1 million in the first quarter of 2023. Sources of cash in the first quarter of 2024 resulted from a net loss adjusted for non-cash expenses totaling $11.5 million (compared to a net loss adjusted for non-cash items of $10.5 million in the first quarter of 2023), and a decrease of $11.4 million in inventory (compared to an increase of $8.5 million in 2023).

Significant uses of cash during the first quarter of 2024 included (1) a $28.1 million decrease in accounts payable (compared to an increase of $9.1 million in the first quarter of 2023) due primarily to timing of vendor payments; and (2) a decrease of $14.5 million in accrued expenses and other long-term liabilities (compared to a decrease of $20.0 million in the first quarter of 2023) due primarily to payments of operating lease liabilities.

*Cash Flows From Investing Activities.* Cash used by investing activities was $1.6 million in the first quarter of 2024 compared to $1.0 million in the first quarter of 2023. Cash used in the first quarter of 2024 and 2023 consisted of purchases of property and equipment.

*Cash Flows From Financing Activities.* Cash used in financing activities was $0.3 million in the first quarter of 2024 compared to $0.8 million in the first quarter of 2023. Cash used in the first quarter of 2024 and 2023 was 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 May 4, 2024, our contractual commitments for operating leases totaled $229.9 million (with $41.1 million due within 12 months). See Note 9 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 3, 2024.

## Market risk

As filed, 224 characters.

There have been no material changes in our market risk during the thirteen weeks ended May 4, 2024 compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

## Controls and procedures

As filed, 1,554 characters.

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 May 4, 2024 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 May 4, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 185 characters.

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 3, 2024.

Filed Jun 12, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-009085. Last ingested by Listed: Oct 27, 2026, 17:26 ET. No prices; not investment advice.