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Analyst Blog

On Jul 8, 2013, we reiterated our long-term recommendation on Citi Trends Inc. (CTRN - Analyst Report) at Underperform with a target price of $14.00, based on the sluggish macroeconomic environment.

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. (GPS - Analyst Report), Lululemon Athletics Inc. (LULU - Analyst Report) and Foot Locker, Inc. (FL - Snapshot Report). All these carry a Zacks Rank #2 (Buy).
 

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