Citi Trends Inc Q1 FY2025 earnings call

Strategic Phases - Repair phase: Focused on reestablishing fundamental practices, 3-tiered product plan, and foundational retail process improvements. - Execute phase: Focused on consistent execution capabilities, improving product selection and supply chain speed, leveraging SG&A expenses, and implementing KPIs/dashboards. - Optimize phase: Preparing for business acceleration with new systems, efficient sales to EBITDA flowthrough, and new store expansion. ### Product Initiatives - Significant progress on strategic product initiatives, including off-price deals and extreme value branded product. Strong performance across apparel and home categories, plus size business improvement, footwear rebuild. - Accessory business in transition, with merchants refining assortment. Future initiatives include broader plus size and Big Men's assortments, improving trend relevancy, and enhancing children's team assortment. ### Operational Highlights - Improved preseason product planning and in-season execution. Store improvements with new wayfinding signage. Distribution center performance below expectations, but AI-based allocation system testing exceeded expectations. - Fleet optimization with 36 store refreshes. Data-driven expansion strategy with third-party expert for site selection, leveraging transactional and geographical intelligence.

Total sales for the first quarter were $201.7 million, an increase of $15.4 million or 8.3% over the prior year. Adjusted EBITDA increased $6.2 million. Comparable store sales grew 9.9% over the prior year, with a 2-year stack of 13%. Gross margin was 39.6%, a 90 basis point expansion. Adjusted SG&A expense totaled $74.4 million or 36.9% of revenue, a 220 basis point improvement. Adjusted EBITDA for the quarter was $5.4 million. Total inventory dollars at quarter end decreased 7.6% compared to last year, with average in-store inventory down 4.9%.

• Full year comp store sales growth expected mid single-digits (high end of previous low to mid single-digit). - Full year gross margin expansion approximately 200 basis points vs 2024 (slightly below previous outlook). - SG&A is expected to leverage in the range of 60 basis points to 80 basis points vs 2024. - Full year EBITDA expected in the range of $6 million to $10 million, a $20 million to $24 million improvement vs fiscal 2024. - Plan to open up to 5 new stores, close up to 5 stores, remodel approximately 50 locations, and full year capital expenditures remain in the range of $18 million to $22 million.

• Distribution center performance below expectations with room for improvement. - Macro environment uncertainty affecting product flow and forecasting.

Q: Michael Baker asked about merchandising and closeout strategy, change in closeout strategy, and quantification.

A: Ken Seipel explained off-price categories, distinguishing end-of-season closeouts from extreme value product, stating the goal to make extreme value portion 10% of top line.

Q: Jeremy Hamblin's team asked about category performance, Q2 trends, and remodel performance uplift.

A: Ken and Heather discussed broad-based category growth, plus size and footwear strength, Q2 trends continuing, and early remodel performance but expressing satisfaction with results.