We recently upgraded our long-term recommendation on
Citi Trends Inc.
) to Outperform, mainly on the back of the company's
better-than-expected first-quarter 2012 results.
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The value-priced retailer of urban fashion apparel and accessories
posted positive earnings of 69 cents per share in the first quarter
of 2012, after facing losses for three consecutive quarters.
However, quarterly earnings fell 16.9% from prior-year period,
primarily due to increased cost of goods sold. Furthermore, despite
a 5% decline in comparable store sales, Citi Trends net sales
increased 4.5% from prior-year quarter. The company's earnings and
sales for the quarter smoothly surpassed the Zacks Consensus
We remain impressed with Citi Trends turnaround efforts due to the
fact that despite of declining comps, the company reported
increased top line and positive earnings, resulting from effective
cost control and inventory management.
On an ongoing basis, Citi Trends continues to take prudent steps to
reduce inventory shrinkage, which includes enhanced supervision by
the operations and loss prevention departments as well as
installation of sophisticated surveillance systems in high
shrinkage stores. Consequently, we expect a steady improvement in
operational performance for Citi Trends in the future.
Moreover, we believe Citi Trends' extensive focus on store
expansion strategy would help to drive top-line growth in future.
During fiscal 2011, the company increased its store strength by
approximately 12% with the opening of 55 new stores, and bringing
the total store count at the end of fiscal to 511 stores. We expect
the company's debt-free balance sheet along with cash and cash
equivalents of $64 million as of April 28, 2012 to offer it the
financial flexibility to enhance its store counts.
Dealing in nationally recognized brands, private-label products and
a limited assortment of home décor items, Citi Trends has a niche
focus on African-Americans and inviting store formats, which
provides an edge over other off-price retailers like
The TJX Companies Inc.
Ross Stores Inc.
), and mass merchants like
Wal-Mart Stores Inc.
Citi Trends offers merchandise at about 30% to 70% discount
compared to regular prices of department and specialty stores.
Therefore, the company appeals more to the value-conscious
customers, who are looking for cheaper alternatives in a sluggish
economy. The company operates in 29 states in the Southeast,
Mid-Atlantic, and Midwest regions of the U.S. as well as in Texas
Keeping pace with our upgraded long-term recommendation, Citi
Trends currently retains a Zacks #2 Rank, indicating a short term
'Buy' rating on the stock.