On Jul 8, 2013, we reiterated our long-term recommendation on
Citi Trends Inc.
) at Underperform with a target price of $14.00, based on the
sluggish macroeconomic environment.
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Why the Reiteration?
Operating in the consumer-driven retail industry, we believe Citi
Trends remains significantly impacted by the macroeconomic
issues, wherein its customers continue to feel the pinch of
increased payroll tax, higher fuel prices, high unemployment rate
and delayed tax refunds.
Moreover, the seasonal nature of the company's business exposes
it to significant risks if the seasons fail to deliver the
expected operating performance.
Additionally, the highly fragmented specialty retail sector
compels Citi Trends to compete with larger off-price rivals, mass
merchants as well as smaller specialty retailers on the basis of
fashion, quality and service. To retain its existing market
share, the company may have to reduce its sales prices, which
could affect its margins.
These have been reflected in Citi Trends' performance as it saw
negative earnings surprise for first-quarter fiscal 2013. The
company reported first-quarter fiscal 2013 earnings per share of
42 cents, missing the Zacks Consensus Estimate of 57 cents and
down 39.1% from 69 cents earned in the year-ago quarter.
Consequently, over the last 60 days, the Zacks Consensus Estimate
for fiscal 2013 has moved down to a loss of 3 cents per share
from a profit of 6 cents per share. Similarly, the Zacks
Consensus Estimate of loss of 47 cents for the second quarter
widened by a penny over the same time frame.
However, prudent steps taken by Citi Trends such as store
expansion strategy as well as endeavors to reduce inventory
shrinkage can steadily improve the operational performance of
this Zacks Rank #3 (Hold) stock in the future. Nevertheless, we
believe that amid the absence of near-term growth catalysts and
persistent unsettling economic issues, Citi Trends' performance
is likely to remain strained in the near future.
Other Stocks to be Considered
Besides Citi Trends, other retail stocks worth a look include
The Gap, Inc.
Lululemon Athletics Inc.
Foot Locker, Inc.
). All these carry a Zacks Rank #2 (Buy).