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Citi Trends Inc. (CTRN - Analyst Report), a value-priced retailer of urban fashion apparel and accessories, continued to post disappointing quarterly results for the second consequent quarter, which also weighed on the fiscal year 2011 results. The company’s fourth-quarter earnings dipped based on falling comparable store sales, coupled with rising operating expenses.

Citi Trends reported fourth-quarter adjusted loss per share of 18 cents, falling drastically from the year-ago quarter earnings per share of 64 cents. The results, however, bettered the Zacks Consensus Estimate of a loss of 20 cents per share.

Including non-cash impairment charges, the company’s fourth quarter net loss came in at $5.3 million compared with a net income of $9.4 million. Loss per share, on a GAAP basis, was 36 cents per share.

For fiscal 2011, Citi Trends’ adjusted loss per share of 42 cents lagged behind the earnings per share of $1.44 reported in fiscal 2011. Loss per share for the year spiked higher than the Zacks Consensus Estimate of a loss of 35 cents per share. On a GAAP basis, the company’s net loss was $10.0 million or 69 cents per share.

Turning to Numbers

During the quarter, Citi Trends recorded a 3.7% year-over-year growth in net sales to $178.4 million, almost in line with the Zacks Consensus Estimate of $178.0 million. Comparable store sales dropped 6.2% in the fourth quarter of fiscal 2011.

Net sales for fiscal 2011 rose 2.9% from last year to $640.8 million, marginally missing the Zacks Consensus Estimate of $641.0 million. The miss was driven by an 8.3% decline in comparable store sales for fiscal 2011.

In the fourth quarter, Citi Trends' gross profit plunged 19.5% from the prior-year quarter to $53.8 million, mainly due to higher cost of sales. Gross margin also contracted 870 basis points to 30.2% compared with 38.9% in prior-year quarter.

Selling, general and administrative expenses in the quarter increased 10.8% year over year to $52.2 million. Accordingly, the company's adjusted operating loss came in at $5.0 million compared with adjusted operating income of $41.1 million in the year-ago period.

Financials

Citi Trends ended the year with debt-free balance sheet and cash and cash equivalents of $42.0 million compared with $69.2 million at the end of fiscal 2010. At year-end, the company shareholders' equity totaled $196.4 million compared with $204.8 million at year-end 2010.

Stores Count

In the fourth quarter, Citi Trends further expanded its reach by opening 5 more stores, while it closed down one Citi Trends store. The company’s total store openings in fiscal 2011 were 55. Additionally, in fiscal 2011, the company relocated or expended 14 stores and shut down 5 stores.

Therefore, all this put together, brings the company’s total store count as of fiscal year-end 2011 to 511 stores. The company operates across 29 states in the Southeast, Mid-Atlantic and Midwest regions as well as in the states of Texas and California

Our Take

Citi Trends operates in a highly fragmented specialty retail sector and faces intense competition from larger off-price rivals, such as The TJX Companies Inc. (TJX - Analyst Report) and Ross Stores Inc. (ROST - Analyst Report).

Citi Trends has disappointed with its string of weak quarterly results in 2011 amid shrinking comparable store sales. As a result, Citi Trends currently has a short-term Zacks #5 Rank (‘Strong Sell’). We retain our long-term ‘Underperform’ recommendation on the stock.

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