We are maintaining our long-term Underperform recommendation on
Citi Trends Inc.
(
CTRN
) based on the company's disappointing third-quarter 2011
results.
Citi Trends' falling comparable store sales, coupled with rising
input costs and operating expenses, battered the third-quarter 2011
results. The company witnessed a quarterly loss of 38 cents per
share that widened over 12 folds from the prior-period loss of 3
cents. The Zacks Consensus Estimate for the quarter was a loss of
37 cents per share.
Moreover, due to uncertainty hovering around sales, the company
rolled back its earnings guidance range of $1.25 to $1.35 per share
for fiscal 2011. The company decided not to provide any guidelines
unless it finds any near-term catalysts to drive sales.
Further, Citi Trends' business is seasonal in nature and
typically generates stronger sales during fiscal first and fourth
quarters, characterized by the spring and holiday seasons.
Therefore, the company is exposed to significant risks if the
seasons fail to deliver expected operating performance.
Additionally, the company sources a substantial portion of its
merchandise from countries outside the U.S, such as China and other
countries in the Far East. Accordingly, Citi Trends is vulnerable
to political, social and economic risks related to sourcing from
these developing countries.
Besides, the company operates in a highly fragmented specialty
retail sector and faces intense competition from larger off-price
rivals, such as
The TJX Companies
Inc.
(
TJX
) and
Ross Stores Inc.
(
ROST
), mass merchants including
Wal-Mart Stores Inc.
(
WMT
) as well as smaller specialty retailers, such as Rainbow and
Dots.
Additionally, the company also competes with local off-price
specialty stores, regional chains as well as traditional department
stores. Consequently, this may dent the company's future operating
performance.
Citi Trends is a leading value-priced retailer of urban fashion
apparel and accessories including nationally recognized brands,
private-label products and a limited assortment of home décor
items. The company primarily targets fashion conscious
African-American customers, offering branded merchandise at a
discount of 30% to 70% compared to the regular prices of department
and specialty stores.
Citi Trends currently has a Zacks #5 Rank, implying a short-term
Strong Sell rating on the stock.
CITI TRENDS INC (
CTRN
): Free Stock Analysis Report
ROSS STORES (
ROST
): Free Stock Analysis Report
TJX COS INC NEW (
TJX
): Free Stock Analysis Report
WAL-MART STORES (
WMT
): Free Stock Analysis Report
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