Citi Trends (CTRN) 22 Aug 232023 Q2 Earnings call transcript

Greetings, and welcome to the Citi Trends 2Q '23 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Tuesday, August 22, 2023.

I would now like to turn the conference over to Nitza McKee, Senior Associate. Please go ahead.

Thank you, Chris, and good morning, everyone. us Trend's joining earnings quarter for call. you on second Citi XXXX Thank today Executive our and our is On call Chief Officer, Plutino. Chief Heather Officer, Financial Makuen; David

a.m. out Our was this Eastern Time. morning earnings sent at release X:XX

If section it's website on release, of available www.cititrends.com. not you Investor the Relations received have the copy the a under at company's

XXXX. meaning undue a can statements during cause most place Management those forward-looking the of your Reform filings contain forward-looking may should aware reliance to with be described call Litigation forward-looking that additional that We You on make guarantee more should questions. you Securities the and within the may factors other prepared performance. to the recent of Commission Exchange the materially statements detailed this Act subsequent to not on Securities Private company's differ remarks from you in Therefore, discussion of for these do today Form statements. made actual response refer report XX-K future to results statements. and the statements in not These

I will call now Chief to Makuen. David turn Executive Officer, our the David? over

Good Nitza. today the call. and quarter thanks morning, for on earnings joining fiscal us XXXX everyone, second you, Thank

and open of Then questions. few I Financial outlook. Heather results up financial Plutino, our other begin Officer, on our our our items call to we'll will call will a with and for our financial highlights detailed Chief quarter related second operational performance. the then your elaborate

continued backdrop. quarter significant store first reflect line from gross both, sales top quarter. by with pleased and macro sequential positive results our The a momentum against acceleration are second for highlighted comparable the that We quarter was margin, the challenging

an are our As comp committed extreme productivity. store to with improving you've on driving heard, improved focus results operating we

sales our strong points delivered our quarter. and of with in better than gross increase assortments. summer XX.X% which sequential first agility momentum, amaze Coupled to last we direct a year our is point a the sales basis comp via basis XXX XXX compelling was above customers result of trend team's Our spring margin and

strong business signaling Importantly, strategic our with of and assortment, levels we experienced is product improved throughout by traffic customers. in resonating strengthened that areas our our the inventory key conversion rebuild quarter,

strategic mix inventory of business better our good, best Central is appeals to in rebuild a styles initiative on of primary Our assortment of to price areas points price to paying the dividends. is emphasis that entry rebuild a with key healthy definitely customers. the incorporating an balanced offering value-based and

the down X% at year. quarter versus the Compared down the end first prior end the Our of was quarter. total the to inventory XX% at of

primary right our to rest are where Cities. we across keeping our of assured, tight and newness ensuring amount we and reins And freshness we be. have We on right the want are inventory category

our mentioned During our year. trend on the focus for a and last we call, development lever as sharpening key

We our half first confident which moving direction. definitely minutes, clear work doubling the consistent are have in on speak the few down I'll seeing theme that With to a controllables. and books, in the the product do, front, sustainable some I'm are of to on in the we more controlling wins with right we

to so that that who pillars, move benefit much important and further we our many mean operational us. buy, across in initiatives initiatives business to our three are is note sell, fact, to customers have In primary our What's flight productivity. optimize designed

day. still inflationary pressures stores associates can are confirm many visiting and and very know anyone, tenured neighborhoods the who and After to population than cohort each for we that real interviewing that better our cater I customers every

$XX,XXX base $XX,XXX living bulk of year year, or per our makes work it on the customer per reminder, customers a half less As with on of our about

$XX,XXX a on customers $XX,XXX are just is rent whose being extended who members I it with customers their live have Incomes met year really utilities year. family work XX%, and a on up stretched. higher making paying

in sit we the are. what also neighborhood, families the of As how I heart resilience observe lower-income is

to in environment to that trends Our suited means a assure and to provide and everyday is about this these model high-energy everything as times families us, pleasant fresh and access friendly, is Getting thrive our fun respect. better. to you to I mission can is right all well get

detail Now more during for little our quarter. performance a the on

best in than Buoyed that showed months the part July. the by the in were pent-up after trend our sales first of portion our better up northern the weather quarter fleet. trends all While on abated month comp line, demand was cooler

were assortment an broad-based. Day, family-centric Day, strong, moments seasonal Mother's Memorial perspective, in positive the momentum From including Our was July X. quarter

apparel, and Notable values. our beauty voting benefited men's Line footwear, from outperformers to customers ladies categories These trends and merchandise. inventory had amazing Q rebuild and yes efforts at included

hydration ready are stocked and store our As our backpacks, more. are And needs into fashion stores we basic teams head the to third with across apparel, the quarter, latest tech, and home, deliver. trends,

many show comes title merchandising They a job delivering service to tailored helping have way. their of that managers, customers. them for do connection feel our store seen value store examples I great, our specialty up great customers, so our experience customer experience with for reflects wonderful their good look their whatever managers, and regular our

the high-value process, up team holiday a for and along well the our ripe remains for With goods. setting merchandising in fall with the Buy marketplace season, successful ongoing season high-quality,

the excellent balance flexible Our to our us strong to agile the an puts with buy operating right position continue price. in goods and at sheet, combined right model,

in asset-based borrowings inclusive facility of Importantly, we million and $XX lending no with liquidity second ended quarter million $XXX debt. the no on our approximately of cash, million, $XX

environment earnings the priorities. how take our a strategic the our reflect while maintaining on deep team focus connection actions of first with our proud incredibly customers. laser business were decisive am during call in managed would clear we I We that this our that quarter

of line context we of sales this In priorities me four our vein, would within Our the top performance during you moment of positive the the quarter the update to momentum course fuel rest take to driving year. that the said let profitable boiled on year. our sequential to strategic execution the over a the down directly during the of priorities, tied improvement

number and comp store up, one, productivity. First driving

The headline aligning customers, multicultural outsized all the decades-long and our includes of and families, changing assortment Latinx the of combined build to traction the our needs about our American our African to efforts commitment here which awareness growth within populations. with wants rapidly to is neighborhoods, thanks with recent

the towards and essentials the While QX, direction. accessories, are half and and in tilted seeing apparel surprise delight pickups moving we and footwear right demand in first

for in our strong healthy $X.XX sharp This indicating kiddos. less. up our her, really are responding customers of and our of penetration at and of shows and to offering Our our trend, him value customers conversion potent quality are pointed lower-income price goods appreciative

season. Timing stores newness a presentation given of for in a also in customers our that in playing goods is of role value our high-quality fresh store and the setup

We have of worked hard seasonal the trends changes to to in product timing and flow really the product refine early assortment. this of adoption our order new year satisfy in

drive confident from there adding sales business wallet the productivity. than store deploying Lastly, by are top to line. am our we more significant and believe muscle I talent the the incremental opportunities to to comp ever in are drive people within promoting areas where of share of we

priority is and second inventory maximizing Our strategic managing margin.

our to that control on are to with think controlling we what store. where inventory we I our you can the from respect areas while targeted stats in can rebuild delivering promise of levels tell the appropriate

adoption. is primary consumer right that results in Our satisfaction which strong and the right approach adding categories, in the breadth show and stores yielding is

applying lot along a healthier inventory. learning team process is calibrating we the excited in are We most go. the as way the response reaction earlier to analytics in I'm that consumer our and to

maintaining focus sell-throughs in Looking order to turns merchandise on margin. and forward a margin maximize we the front, on maniacal are

demand. inbound the large positioned news to market We is domestic and help freight In also feel in are And optimization gross embedded costs well total, recruit will our a capitalize that the potential include us quarter, already future margin. deliver initiative we during on share freight we here I guidance. that to freight reduced outbound in and good completed

expenses leveraging priority our sheet. controlling third SG&A is Our balance and

The good for delivered on second across the expectations expense organization, approach and entire expense consistent. headline disciplined the and management instilled prudent on news our internal remains we a is quarter. the to We've management

Although highly leverageable important, opportunities believe to we for cost potential efficiencies, incremental And our look to we consistent. flow to our will cost look more drive relatively as fuel operating continue structure providing we through. will significant line, remain top

of us liquidity Additionally, environment a for high-quality to product allows goods. take rich advantage

executing enhancements. shortly. this is for our main upgraded technology The fourth go our live which system, highlight will priority ERP initiative Lastly, is

changers We are excited and are ready that enhancements functionality for driving and added major game long-term productivity. and

based tool new with organization, to stores dynamically replenishment benefit analytics allocate providing to right plan will over teams boost climate, The system upgraded set, right to and right time, and a team, the ERP will our ability trend on our the leveraging and system this smarter the our get a to at goods enhance Buy time. particular data needs. Essentially, the throughout

win-win Ultimately the top bottom while and a reducing fueling markdowns, for both, sell-through improved full-price line. line

as team pleased are centerpiece will and our more which proactive living margin, specialty by Citi Life, customers primary second plans the that respect top the attributed are line as our live to purpose, the gross value fresh for our all quarter families we we live serving is momentum both, break of local to and to that the positive local means reflect with ever proud summary, In efforts to for never trends strategy, our our fun and that the known and results both, important enjoy execute bank. neighborhood responding stated than store is

outlook. the She With turn our Heather Heather? items our will that, as quarter to our in second related well few to a I'll as results detail discuss CFO. call Plutino, over

everyone. good Thanks, David, and morning,

Before or more a in grateful. I of our take Each to associates buy, I dedication. moment walk our performance contributed thank many move, their more want couldn't hard through support teams work big the results, be to quarter a second way to sell I and our and improved proud in and our quarter, for second

environment control. strategic against priorities uncertain, base, core particularly with to our for while While continued remained the teams customer cost selling disciplined execute remaining our our

the given and million credit $XX environment, line no continue balance revolving to challenging sheet of we debt. with well-controlled $XX.X strong our Additionally, million cash, an inventory, leverage undrawn of

X.X% quarter a Turning versus of to our financial specifics $XXX.X sales were QX the quarter million, decrease XXXX. of the for results. second Total

remained As earlier, well with strong assortments customers. the resonated as quarter throughout conversion mentioned shopper our David

build sequentially the first We as efforts result to basket seen have and assortment. good, pleased from inventory our rebalance best are a our of traffic improved better, and our rebuild initiative quarter to

sales basis to points compared last acceleration comp X.X% QX. from decreased quarter and Second year XXX

radio including end We marketing in five including openings a first store new spots have We at and with Early our multicultural the new store across mix locations. these store in L.A. openings. been opened radio marking County the five grand our California, Spanish of of stores proper. results for July, Inglewood, a digital supported encouraging

eight we comp stores improved During the quarter, productivity. sales remodeled drive also to

XX.X%, of margin freight in slightly primarily and than quarter. the second our than Gross and due higher markdowns to moderation last quarter significantly This lower for stronger was sequential was improvement first expense QX. year

David basis or down $XX.X million mentioned, in sales. second points of As approximately of deleverage quarter further last QX SG&A in sales dollars expense half for to adjusted to SG&A totaled XXXX of the as moderate rate to drove XX% XXX adjusted, freight X% expect quarter total $XX.X year. about of million year. we versus Lower the the a the

$X.X to $X.XX in QX an versus share of quarter million Operating loss compared as in adjusted per $X.X QX adjusted was million was XXXX. $X.XX share XXXX. million loss of or or the operating Net loss in loss $X.X per $X.XX as

carefully key Total end compared comfortable at the to level and decrease the to our demand. dollars areas drive quarter end sheet. to of inventory first year decreased X.X% turning in makeup last and of We inventory are remain Now the XX% of to at a quarter. the with balance investing

Next, I'll our turn to outlook.

and expect quarter. the the we discretionary low-income are under second spending our controllables impact incorporates momentum initiatives on families of in for year expected the reiterating While of half guidance the during the pressure controlling second we experienced the to the building remain which we our for key serve,

to XXXX outlook Total single follows. digits fiscal XXXX. to mid-single Our for low reiterated the compared are negative of expected to fiscal is be as sales for the as digits in year range negative

range the EBITDA the million Full to margin year expected be be is Full XXs. in is to in high million. expected to year $XX of $X gross

And expected XX to underperforming remodel $XX year, the XX During range new stores stores. close XX open to finally, the year and range of plan is we stores, million. million. to to five the balance to cash be expenditures million capital $XX of in year-end Full $XXX be $XX are to to million XX expected in

to actions The are drive growth are quarter top Overall, in taking our This our second and while combined approach, our in the expense initiatives, line confidence approach gives standing our not ability maintaining structure, drive still results results. embedded guidance. with growth aggressive deployment. pleased capital to improved with a our teams are to we to disciplined continue to and strategic us

to With that, closing David I'll for turn call the back David? comments.

Thanks, Heather.

you I XX-year-old our foundation can brand the strong. that of tell is

company, As a brand our neighborhoods, a connection our we're and employing proud and high-quality a really true locals to serving of experience. with

the in core heart of within customers with operating and of area. less X competition the or miles Our neighborhoods, or our immediate homes XXX stores these from are no little in located the

on rely for base Citi for customer the well accessories way and family home less trends Trends apparel, can that is Our loyal spend. and aware whole

a We decades. vendor offering curate from base partnerships some partners lasting product multiple with of these strong our of

result, I potential. -- share large unlike of brand believe making the the in. about we unlock of growth-minded top investments our fuel through to will with line flow remain we're will our this that and foundation, we earnings are a coupled the important the enjoy excited potential markets a As strong

are turn moment in hard one their Trends day them. the and want each job Citi to over for and day I and call thank business a They of excellent and every dedication, of entire in a I the take for the the manage thankful environment operator, have Before difficult to out. an helping done team work so we to

Thank we take questions. are to to ready and Chris, you. your you, now back

first Our from Craig-Hallum question with Instructions] line Jeremy Hamblin is [Operator Group. go Please the of ahead. Capital

And for morning. thanks Good question. taking the

we for just on bit more So see you continuing little on you're thus and that you're here. little we improvement QX. start what share by as I you've like the what thought to asking see color sequential traffic more could assume seeing encouraged sounds start wanted with to It I you're front, far a might bit that color a of if kind but on seen quarter-to-date that

Jeremy, Thanks from you. good it's question. to Heather. I'll that much, so hear take

we in to we early, perspective. that our how entered working team will inventory in is the hard it's look, we're right? quantity from I pleased and early make but have our the say Buy Both customers. So We're QX quality, with assortment delight days, an sure to

to improvement. starting back-to-school, So we with believe that the quarter another building of blocks, comp sequential place are year-over-year in have

first And now can more Does And then more as And are two, that wanted then habits? sense spending they've customer as maybe to like footwear? their shift? you it. -- half Anything I a year second and you're footwear drivers. well in shift better essentials performing in in of pressures terms it where types also first types on see sense essentials. being to feeling noted, categories in Got they gross get a about have the managing impact that of like tilted the might of that think, share the your maybe best, a you give shift and seeing core it shift, margins is better terms those from of towards on the half as inflationary apparel that shift A, that shifted they're that more a you you sounds of apparel just what were and to half I as something with

would hear apparel. And happening the of talked me was to David. Jeremy, a clarify I during kind And shift QX, and not mentioned, all trend back sharper it we we you, It price saw question. of some getting tell what entry the goes you. because the The towards clear Good as it let really been been. it's first as rebuilds, footwear tilting to resulted points and to I about. have first what nicely directly inventory gradual Good was, to development. QX was might on of stated, from I on our as as half sharper it could so half. have And accessories

speak, QX might we've things we all things bit there, QX. role. apparel, point, that a think showed definitely in was to playing needed to up out and customer she And we I difficult have of that so your more coming invest, a that's to thirdly, willing And have better the and in not do and headwinds filled here as into seen the news, a the think small think little little gotten

I think reason that by we far, is the bigger control. the can things

keenly the I of focused we're footwear of paying in some mentioned, strategic our dividends. apparel. as on and store, those I areas rebuilds, And And mentioned, as are targeted

customers, of to into is I and the I'd probably our with has and thing, towards be there did communities might more the impress what the their the shift. a agree year. that some And over weight continues, by that say, that hopefully, So been finding improvements great excite we're of that But little that's probably you caused the As that little. of some we right? the way in course rest

margin. of portion impact second on gross Yes,

markup in put "You managing job in doing the it. a and we team pretty by great price evenly we tremendous As margin sell With I balanced, points say, non-apparel, price through item on it and I in example. and stores. I know, say, our the it got from think for should right gross to that timing to Really, the And it got our think keeping doesn't by we're our is buy to meaning are all blender meaning right, our swing you right", margin item. apparel keen said, gross a or and we directions eye point

high the XXs. then ship all gross we right, line. in margin got to it our freights see And works, that we've When

tell when just cranking, up gets -- the pie it's shows XXs. I there's So it more reason no in that high whole It's could you. one

quantify better might to I us able even half see if Heather, little the to freight bit in you then should of noted And here it. the characterize in magnitude sequentially get back be impact you of for wanted Would to and a points terms the kind then you what able basis back of the the that you be here year? year. half of expect in would of QX, Got kind of QX

Jeremy, in I'll second last to assumes here's the outlook for So point year. the is that improves that freight what the in year for approximately say, full freight with the our is line year that half

last That freight is in year? with line

year basis. on Yes, full yes, approximately in line a

quick Okay. And real here. last one then just

Your ERP turn like and track on system update, which sounds here on. to about that's

when terms a expect in that see -- through begin of more you we to flowing by see of QX? is benefit, might impact? of to In of Do potentially terms expect in some benefit that financial XXXX kind

will see nailed new It's it's impact. it, 'XX learning obviously. great you system the way much forward the forward functionality, deliver it into eventually really our looking. new all will benefit benefit. The of But it. traction getting 'XX and around do Jeremy, with And pretty in some take if and that a we'll be some baking rest we're we our more 'XX, crazy, and

summed you size if you that's well kind kind we of live go you of an up throughout on-ramp it of have planned. the it these and kind organization, to upgrades, But gain sort of got with and have traction what

changer. stated, we're going And as to be So with it. forward real faces looking upgrade users. it's the and I greeted smiling to is of It's lots game a

wishes. for progress Thanks questions. best congrats Well, on Cool. the taking the and

one. a Have good Jeremy. Thanks,

Jeremy. Thanks,

of question Please with line next Gordon Grom Chuck Our go ahead. the from is Haskett.

Sommer just kind Obviously, consumer we've outlook? debt of couple to the I confidence prices. what factored hitting And I your for wanted rent gives and improve. your in even months, potentially student kind dig a of Greg is to guess or under-indexed is higher of into half of to that can Chuck. I prices on debt. Hi, is this second seen you probably gas then, kind are rising wanted gas just student confirm into

Greg, hear good to from Yes. you.

for economists that anticipate We've So half. customer a And modest while third-party in second here's been now the that will say. for that our improvement what I talking still some we've with confirmed holds. we

there's focus You no harm student we can on increases we what is our really customer, we that what doubt. under-index Gas But here's need controlling control. to are on right debt. price

the adjusting half; stores; out, in margin, with the wallet; voting right, sure right So sure that -- expected that way if that about improvement we've and right being the driving are what expenses better, making has think best; you customer our is as we second we before, the that mix laid making the to product initiatives in in known of the managing agile to our our be four their got David are we good, leveraging is heard have as controlling technology. our is you've

some really gets that. not we're love we're we waiting and for So -- but hopeful that consumer, it's relief, much our sitting back who very

We levers going the are being all pretty pull. we after aggressive in of that can

of follow-up. a had just that between direction also I is trending comment was quick the units? AURs wondering I basket and your if basket of could Great. the kind on you breakdown then and

Thanks, sure. Yes, Greg.

happy in basket the UPT the quarter we're has driven and say So second primarily. really it's first improved versus to quarter, by that

our that move store, filling in telling opening customer basket points us our price is to their put more responding they're accordingly. that's our to and So

Great. Thank you.

Thank you.

ahead. next question Lawrence line from with Our Benchmark. go of Please the John is

lot Thanks. Good talk bit David, the little system. talked about a Congrats, we've morning. ERP would a about -- you guys.

really hard margin work line. you gross and XXs, high to that maintain doing You're

little obviously, the bit? that XX-plus spend And I and Can of forward, see help little a of do and the leverage We've time expense what in that a system possibility on benefits Looking about all gross that does gets is all line? that. a you mean, reasonable? a on you line for the I 'XX talked it does it you 'XX return. margin,

good from to John, hear you.

smarter the upgrading towards right product time, of right and adds drive planning will, ERP stores what catered and it functionality I'd The following and in meaning new the I the the into the summarize first the way. right think significant foremost, say better system impact allocations. at

we're Trends cost the line and as top model. a So really around fixed high, within I always aggressively what frankly, structure which, relatively benefit know, Citi want to sales, is given improving the chasing you anchor

around system line. I we to talks anchor always it's top all sure about be want So that our impacts the that ERP

definitely it gross next we the way yet, margin, little Now or think early here, too how business in, run to differently will of kind hit we'll to can't couple over about in provides whether the point. us your a game course you in number impact of not the the point, just we it comment mentioned but years, believe, the compelling a from minutes planning a really interesting few kicks and and a I allocation of like mentioned ago, 'XX. way That

From our kind an expense that, might inform a we we're us how -- you you which DCs. expense expense to about it it yes, and as theory, Still, distribute side, tough it in of holistically. if we're should, even freight consider we looking might expense", of can answer, which It really "markdown should, impact impact very early, thinking tell better but my little bit again, by out because forward.

First it's and driving. sales foremost,

It in the world. But different functions I throughout benefit of benefits including see, well. a finance organization, kind others then sprinkled believe, has as we'll team

looking all and we kind event, these forward phase just make a bit it any into take Does as time on, come of So of it. impacts little we're sense? to will that as they

thanks. that. for Yes, Thanks

year comp you give us you prior Just The before, a of history? on how get, those are the against against how is, they doing remodels comping the are I'm sure update as and never-ending can some follow-up. an question

to still we've like XX% look, associates our in like they in like like their And after mid- We a to high got perform and see period we the our now, a I'll John, customers right? CTX of program. with range kind take look remodel year-over-year fleet Right market, single-digit Yes, the start to of remain then that. We format. pleased the our our look. to a time remodel of comp lift on basis, for

And perform used So down mean, refresh for love because and are right? really opportunities bit time, said. the something looking still they about. that to excited starts comping We we're keep over stores. like I to delta our but to our better, a we're that look, I of over store, getting customers our we'll degree it, come

Great. Thanks. Congrats.

Thank John. you,

There back are on to turn for call at this remarks. questions I'll no the closing time. further David line the

for see Have Thanks, of next care. you we'll on a everyone, Chris. remainder Thanks, great the summer, us today. and joining call. the Take

conclude does for today. you please conference disconnect ask the lines. you thank and We your for That participation your that call