Citi Trends Beats, Profit Dips

Citi Trends Inc. ( CTRN - Analyst Report ) , a value-priced retailer of urban fashion apparel and accessories, posted better-than-expected first-quarter 2012 results. Quarterly earnings of 69 cents per share comprehensively beat the Zacks Consensus Estimate of 47 cents per share.

However, quarterly earnings declined 16.9% year over year from 83 cents, primarily due to a significant fall in comparable-store sales coupled with rising operating expenses.

Turning to Numbers

During the quarter, Citi Trends recorded a 4.5% year-over-year growth in net sales to $197.7 million compared to $189.2 million in the comparable prior-year quarter. However, the total revenue surpassed the Zacks Consensus Estimate of $195 million. Comparable store sales dropped 5% in the first quarter of fiscal 2012.

In the first quarter 2012, Citi Trends' gross profit inched down 0.54% to $74.7 million from $75.1 million in the year-ago quarter, mainly due to higher cost of sales. Consequently, gross margin contracted 190 basis points to 37.8% from 39.7% in the prior-year quarter.

Selling, general and administrative expenses in the quarter increased 3.1% year over year to $52.7 million. Accordingly, the company's operating profit came in at $15.9 million compared with $18.4 million in the year-ago period. Operating margin during the quarter contracted 170 basis points to 8.0% compared with 9.7% in the prior-year period.

Financials

Citi Trends had no debt on its balance sheet at the end of the quarter. Cash and cash equivalents were $64.0 million compared with $76.8 million at the end of first quarter of fiscal 2011. At the end of the quarter, the company shareholders' equity totaled $206.3 million compared with $217.8 million in the prior-year period.

Stores Count

In the first quarter, Citi Trends further expanded its reach by opening two new stores, and closed down two Citi Trends store. Additionally, in first-quarter 2012, the company relocated one store.

Therefore, all this put together brought the company’s total store count at the end of the quarter 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 - Snapshot Report ) .

Citi Trends currently has a short-term Zacks #3 Rank which translates into a short-term Hold rating. However, we retain our long-term Underperform recommendation on the shares.