Citi Trends Inc Q3 FY2024 earnings call

• Ken Seipel accepted the permanent CEO role and discussed strategies to drive business improvement and shareholder value. - Q3 sales were $179.1 million with 5.7% comp growth, driven by increased customer traffic, transaction growth, and larger basket size. - Improved product allocation by limiting store clusters to high, average, and low volume stores, leading to better allocation accuracy. - Supply chain team improved transportation and distribution center efficiency, reducing time from vendor to store by nearly two weeks. - Gross margin expanded by 160 basis points due to improved product cost negotiations and better shrinkage management. - SG&A had strategic costs for a Customer Insights Study, operational process improvements, and customer shopping pattern evaluations, totaling approximately $1.6 million in Q3.

Total sales in the third quarter were $179.1 million with comparable sales increasing 5.7%. Apparel and non-apparel categories showed positive trends. Children's apparel was strong due to enhanced product assortment and improved allocation tactics. Non-apparel categories, particularly home and lifestyle, performed well, with family basics and sleepwear benefiting from better in-stock levels. The absolute performance was $179.1 million in total sales with a 5.7% comp sales increase, but revenue contribution percentages for segments were not explicitly stated.

• Second half comparable store sales expected to be up low to mid-single digits. - Q4 comps expected to be up low to mid-single digits, total sales down mid-single digits due to 53rd week last year and closed stores. - Q4 gross margin expected to be in the range of 39% to 40%. - SG&A in Q4 expected to be approximately $76 million. - Q4 EBITDA expected to be in the range of $5 million to $7 million. - Resumption of share repurchase program leveraging existing $50 million authorization, with plans to begin in Q4.

• Shrinkage risks remain, with efforts ongoing to improve shrink measures, but it will take time to return to historical levels. - Calendar shifts and tougher comps in December could impact Q4 results.

Q: Jeremy Hamblin asked about the conservatism in Q4 guidance, the portion of Q4 sales in December, shrink impact on margin, and timeline to normalize shrink.

A: Ken Seipel and Heather Plutino discussed November's strong performance, December being about 50% of Q4 sales, shrink drag between 50-70 basis points, and gradual improvement expected in 2025.

Q: Michael Baker asked about long-term EBITDA margin, long-term quarterly SG&A, and comparison of this turnaround to others.

A: Ken Seipel and Heather Plutino responded that long-term EBITDA margin aims to return to historical 5%-6% range, long-term quarterly SG&A expected to be around $73 million, and common theme in turnarounds is refocusing on core customer, with uniqueness here in operational fixes and quick customer response.