Citi Trends Narrows Loss

Value-priced retailer of urban fashion apparel and accessories, Citi Trends Inc. ( CTRN - Analyst Report ) reported better-than-expected fourth quarter and fiscal 2012 results. The company posted loss per share of 5 cents, narrowing substantially from a loss per share of 36 cents reported in the year-ago quarter. Moreover, the company’s quarterly loss compared favorably with the Zacks Consensus Estimate of a loss of 7 cents per share.

For fiscal 2012, Citi Trends’ loss per share of 15 cents narrowed compared with a loss of 69 cents reported in fiscal 2011, while it also bettered the Zacks Consensus Estimate of a loss of 17 cents per share.

Turning to Numbers

We note that Citi Trends’ fourth-quarter and full-year sales results include one additional week as compared with the prior-year periods.

For the fourth quarter (14 weeks ended Feb 2, 2013), Citi Trends reported preliminary sales of $175.7 million, down 1.5% from $178.4 million in the prior-year quarter (13 weeks ended Jan 28, 2012). The additional week made for nearly $8.8 million of net sales in fourth-quarter 2012. The fourth-quarter sales missed the Zacks Consensus Estimate of $186 million.

The decline in sales results for the quarter were mainly attributed to the loss of tax refund driven sales in the last two weeks of January this year, as the Internal Revenue Service pushed back the 2012 tax refund date to Jan 30 instead of the usual refunds date of Jan 13. This delay in refunds impacted the company’s fourth-quarter comparable store sales by 7.5%. As a result, the company’s comparable store sales for the fourth quarter (14 weeks ended Feb 2, 2013) plummeted 11.8% compared with the year-ago 14 weeks period ended Feb 4, 2012.

By month, the company’s comparable store sales inched up 1% in November, while it declined 10% in December and 28% in January. Barring the sales decline in the last two weeks of January, comparable sales in the first three weeks of January rose 10%.

However, for fiscal 2012 (53 weeks ended Feb 2, 2013), the company’s net sales rose 2.2% to $654.7 million from $640.8 million reported in fiscal 2011 (52 weeks ended Jan 28, 2012). The fiscal 2012 sales missed the Zacks Consensus Estimate of $665 million. Comparable store sales for the 53 weeks ended Feb 2, 2013 were down 5.6% compared with the 53 weeks ended Feb 4, 2012.

Citi Trends' gross profit for the quarter augmented 6.8% to $57.5 million from $53.8 million in the year-ago quarter, whereas gross margin expanded 250 basis points to 32.7%. The growth in gross margin was attributed to a substantial decline in clearance markdowns versus last year.

Selling, general and administrative expenses in the quarter increased 0.9% year over year to $52.7 million, while depreciation and amortization expenses waned 11.8% to $5.8 million. The company's loss from operations came in at $1.5 million, significantly below the year-ago period loss from operations of $9.2 million.

Financials

Citi Trends had no debt on its balance sheet at the end of fiscal 2012. Cash and cash equivalents were $37.3 million compared with $42.0 million at the end of fiscal 2011. Shareholders' equity totaled $196.0 million compared with $196.4 million in the prior-year period.

Stores Count

During fiscal 2012, Citi Trends slightly paced up its stores with the opening of 4 new stores and relocation or expansion of 4 stores. Simultaneously, the company shuttered 2 stores. This brought the company’s total store count to 513 at the end of fiscal 2012. The company operates across 29 states in the Southeast, Mid-Atlantic and Midwest regions as well as in the states of Texas and Calif.

Outlook

Looking into fiscal 2013, the company remains stringently focused on improving its sales via enhancing the variety of its ladies business. Though the significance of the company’s Urban Brands continues to decline and non-branded business is not poised to make loss from the branded business, the company expects to gain from better focus on its ladies business in 2013.

Though the company has made significant progress on resolving pricing issues and remains on track to resolve fashion issues in 2013, the company expects its first and fourth quarter of fiscal 2013 to be impacted by the shift of one week of fiscal 2013 in fiscal 2012, due to the additional week that was accounted for in fiscal 2012. Nevertheless, the company is expected to benefit from the movement of the tax refund related sales into fiscal 2013.

A Look at Zacks Rank

Citi Trends currently holds a Zacks Rank #5 (Strong Sell). Stocks that are performing well among apparel-shoe retailers include New York & Company Inc. ( NWY - Snapshot Report ) , which has a Zacks Rank #2 (Buy), Gap Inc. ( GPS - Analyst Report ) and Abercrombie & Fitch Inc. Inc. ( ANF - Analyst Report ) , both of which carry a Zacks Rank #3 (Hold).