Citi Trends Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 28, 2023

There are 8 speakers on the call.

Operator

Greetings, and welcome to the Citi Trends Third Quarter 2023 Earnings Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, this conference is being recorded on Tuesday, November 28, 2023. I would now like to turn the conference over to Ms.

Operator

Nitza McKee, Senior Associate. Please go ahead.

Speaker 1

Thank you, and good morning, everyone. Thank you for joining us on City Trend's Q3 2023 earnings call. On our call today is our Chief Executive Officer, David McEwen and Chief Financial Officer, Heather Platino. Our earnings release sent out this morning at 6:45 am Eastern Time. If you have not received a copy of the release, it's available on the company's website under the Investor Relations section at www.ciditrends.com.

Speaker 1

You should be aware that prepared remarks Today made during this call may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Management may make additional forward looking statements in response to your questions. These statements do not guarantee future performance. Therefore, you should not place undue reliance on these statements. We refer you to the company's most recent report on Form 10 ks and other subsequent from those described in the forward looking statements.

Speaker 1

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

Speaker 2

Thank you, Nitsa. Good morning, everyone, and thanks for joining us today on our Q3 fiscal 2023 earnings call. While navigating a very challenging selling environment and controlling the controllables like we always do. We successfully managed the middle of the With sales held back more than we expected by the ongoing challenging macroeconomic backdrop, Our primarily low income customer base consisting mostly of families earning $45,000 And less per year is being very selective and purchasing much closer to need as they navigate higher cost of living, that I referenced during our Q2 earnings call. In particular, rebuilds in home, men's, that showed up in one of our best assortments ever.

Speaker 2

As the quarter unfolded, we experienced strong and consistent in store conversion, signaling that many components of our TrendRight assortment for all ages continue to resonate with our customers. Our total sales were held back That rent, utilities, food and gas are still real issues for our customers who top out at about $55,000 annual household income, with 50% of customers earning $25,000 or less per year. Our back to school and back to college business felt this pressure as parents and students bought less During a volatile financial environment, coupled with persistent heat waves that kept kids in shorts and short sleeves far longer than normal, therefore curtailing historically strong selling of fall goods. Even though we fell Short of our quarterly expectations, we continue to play offense. We began testing a more robust marketing strategy in a few markets Strong sales lifts, more evidence that when we refresh our store experience in established markets, our customers' excitement translates to better traffic and basket trends.

Speaker 2

Lastly, our focus on inventory and margin management In the face of discretionary sales headwinds continues with a steady hand at the wheel, ensuring we flow to stores the appropriate amount Great toys, mega Bluetooth party speakers, the most amazing fragrance gift sets, all the cozy We are also ready with must have fits to help our customers show up to their holiday gatherings with style and confidence. We know for sure that our customers show up in stores for the big moments in their life and this holiday will be no Our stores and staff are energized and we feel really good about our jaw dropping prices and appropriate inventory Notably, this year's Extra Selling Day between Thanksgiving and Christmas and resulting super weekend is Perfect for last minute shopping, a hallmark of our customers. I'm confident we are well positioned to win the holiday season, and we look forward in our progress during our Q4 call. Importantly, the strength of our balance sheet with total liquidity of $135,000,000 To our teams for their unwavering dedication in serving our African American and multicultural families across the United States in the heart of their local neighborhoods, making them feel welcome each and every time they visit, particularly during the busy holiday season.

Speaker 2

Before I pass it on to Heather for a review of our Q3 results and a discussion of our outlook, I want to quickly review the Just to remind you, they are 1st, driving comp stores productivity 2nd, managing inventory In addition to these initiatives, we are taking decisive actions to drive Top line sales for the remainder of 2023 and into Q1 2024. Examples include, First, marketing testing. As I mentioned, during the Q3, we began testing a more robust marketing strategy in a few select markets. Early results are promising and we have advanced this marketing effort to approximately 20% of our fleet for the holiday season, the first time in Next up, optimizing inventory. We are still bullish regarding the ongoing benefits of building optimal inventory levels For specific categories that offer unique items and upsides at the best values around, many of these categories such Home, Big Men's and Beauty were not rebuilt during last year in spring.

Speaker 2

So we're excited to see continued momentum during holiday and continued traction when we turn the corner into 2024. 3rd, delivering a differentiated store experience. We are laser focused on improving our in store experience. This includes heightened attention towards visual merchandising, accentuating newness and putting together head to toe looks, in essence, creating a specialty store vibe with an everyday emphasis on style, quality and affordability. Our customers think of us as a guide Quick decisive actions improve spring 'twenty four setup.

Speaker 2

We are looking forward to the spring selling season and from a product standpoint, we are highly focused on flowing newness on a regular basis, while delivering our spring assortments to our warmer weather stores Earlier than last year, our decision to launch spring assortments earlier was influenced in part by our new ERP system launched in the early portion of Q3. This is a significant upgrade from our previous ERP system and allows for more dynamic analytics, product allocation and assortment planning. Our teams functions and lead to more precise allocations of the right product to the right store at the right time. As you can hear, We are not standing still. We have highly engaged loyal customers that shop us frequently for curated made for them trends, Fashion and basics for way less spend and lots of complementary accessories, home and impulsive items that they just can't resist.

Speaker 2

I have met with During the last quarter in the heart of our most important neighborhoods, from Jackson, Mississippi to Birmingham to Our job is to deliver goods aligned to their trend based wants and needs at values that fit within their needs. It's what we know how to do for our core African American customer base. With that, I'll turn the call over to Heather. She will discuss our Q3 results in detail as well as our outlook. Heather?

Speaker 3

Thank you, David, and Good morning, everyone. As David mentioned, our 3rd quarter results were softer than expected given the difficult macro environment that continued to pressure our customers, coupled with unseasonably warm weather. The quarter was highlighted by healthy gross margin of 38.2%, flat to the 2nd quarter, continued expense control and inventory that remained in good shape throughout the quarter as we made progress on improving in stocks that will continue to drive our business forward as we focus on driving profitable growth ahead. Turning to the specifics of our Q3 financial results. Total sales for the quarter were $179,500,000 a decrease of 6.7% versus Q3 2022.

Speaker 3

Strong shopper conversion throughout the quarter once again served as proof that our assortment is resonating with our customers. Basket, while still under pressure versus last year, showed trends consistent with the Q2. 3rd quarter Comp sales decreased 6.2% compared to last year. Gross margin remained strong in the 3rd quarter at 38.2%. While flat to prior quarter, we did see contraction versus prior year, driven primarily by higher freight expense as we moved more cartons through the network.

Speaker 3

The decline to last year was Also impacted by higher shrink with a small group of stores accounting for most of the impact. Through cross functional collaboration, We remain keenly focused on minimizing the impact of shrink. SG and A expense dollars remained well controlled and flat to prior year at $69,700,000 for the quarter or $70,800,000 as adjusted. Lower sales in the quarter drove adjusted SG and A deleverage to a rate of 39.5 percent of total sales. Operating loss was $6,000,000 in the quarter or 7 point Compared to operating income of $31,600,000 or $2,400,000 as adjusted for the impact of a sale leaseback Transaction in Q3 2022.

Speaker 3

Net loss per share was $0.47 or $0.56 as adjusted versus diluted earnings per share of $3.02 or $0.24 as adjusted in the Q3 of fiscal 2022. During the Q3, we closed 5 stores and remodeled 7 stores, bringing our total store count at the end of the quarter to 606 and our year to date remodel count to 15 stores. Now turning to the balance sheet. Total inventory dollars at quarter end increased 0.9% versus Q3 2022 as we stock the 4th for the holiday season and continue to rebuild certain categories. We remain comfortable with the level and makeup of our inventory as we enter the holiday gift giving season.

Speaker 3

As David mentioned, As we procure attractive merchandise for spring 2024 for our value seeking customers. Finally, We ended the quarter with $135,000,000 of liquidity made up of approximately $60,000,000 of cash, no borrowings under our $75,000,000 Our previous guidance assumes improvement in the second half of the year, driven primarily by our initiatives, slight economic relief for our customers. While we still believe in our initiatives, what we've learned is that our customers remain under more pressure than our expectations assumed, are shopping closer to need and are reducing their average spend per basket. We now believe that this dynamic will continue for the low income families that we serve through the balance of the fiscal year. As a result, we are updating our outlook as follows for fiscal 2023.

Speaker 3

Total sales for the year are expected to be down mid single digits as compared to fiscal 2022. Full year gross margin is still expected to be in the high 30s. Full year EBITDA is expected to be in the range of $1,000,000 to $7,000,000 is expected to be in the range of $80,000,000 to $90,000,000 While we don't give quarterly guidance, given where we are in the year, Let me help clarify what this revised annual guidance implies for the 4th quarter. 4th quarter total sales are expected to be approximately flat to up low single digits versus Q4 2022. As a reminder, the Q4 this year includes 14 weeks compared to 13 weeks last year.

Speaker 3

Comp sales for the quarter, which is measured on a 13 to 13 week basis, are expected to be in the range of down mid single digits to flat to last year. EBITDA is expected to be in the range of $9,000,000 to $15,000,000 in Q4. In closing, there is no doubt that this is a difficult selling environment and that our customer is under pressure. While we aren't satisfied with our top and bottom line results in the Q3, we remain focused on our strategic initiatives while carefully managing our expenses and inventory investments. Doing so will allow us to continue navigating the current environment alongside our loyal customer base.

Speaker 3

And in the longer term, we'll fuel our ability to drive the full earnings potential of this important brand. With that, I'll turn the call back to David for closing comments. David?

Speaker 2

Thanks, Heather. As a brand and a We're really proud of our connection to our neighborhoods, employing and serving true locals with a high quality experience. During our 77 years of operation, Importantly, our strong and expanding partnerships with our vendors continue to supply our customers with Live proud, respect all. Perhaps most vital is our ability to help our customers show up for whatever comes their way, Bring opportunities to life at prices that don't break the bank. We continue to be excited to drive the full potential of our brand I want to again extend my gratitude and appreciation to our City Trends team.

Speaker 2

It is their execution that drives forward and reinforces my confidence and excitement in our future. Happy holidays to all. We are

Operator

Our first question comes from Jeremy Hamblin with Craig Hallum Capital Group. Please proceed.

Speaker 4

Thanks for taking the questions. So I wanted to start by getting an understanding of the cadence of comps that you Saw throughout the quarter. You noted on the August call that July was the best month that you had in Q2. 2, and wanted to get a sense, given that you missed your own expectations, Does that imply that, was September worse than you expected or October worse than you expected? Can you provide a little bit more color?

Speaker 4

And then also just to get a sense for what you're seeing thus far in

Speaker 3

This is Heather. I'll take at least part of that question. Cadence of comp in the quarter in Q3, it was really consistent. The range between the months was fairly tight, and just really in line with full Q2. So You're right.

Speaker 3

July was our strongest month in the Q2, but that's what I'll say about Q3, right? Tight band more in line with The full quarter of Q2 results. So when you peel it back and you look underneath the cover of those months, It's really a story of weather was abnormally warm, comps are down, Whether it's not back, comps or up. And I will say that we thought we used the word stubborn, stubborn traffic basket trends throughout the quarter as well for all the reasons that we talked about in the call, right? Continued pressure, buying closer to need.

Speaker 3

And we've talked about this in many earnings release calls, right, that need equals weather changes for our customer as well, right, not Gifting moments, but the weather changes. Back to school is a good example. The mom and dad were only buying that they were wearing during the summer, as we mentioned in the prepared remarks, right? So that had an impact on fall selling for sure throughout the quarter.

Speaker 2

And Jeremy, it's David. Thanks. Yes. Jeremy, it's David. Thanks for calling.

Speaker 2

On the Q4 question, yes, I mean, the headline really is like We stated in our release, improved momentum has been really encouraging, driven by a Really timely setup of our gift presentation kind of within the context of our Ready, Set, Gift holiday campaign. We were in boxes by late October, meaning in our stores with the right assortment that's driving the Throughout some, not all of November. And so that's all contributing to the improved momentum, giving us a nice run

Speaker 4

So just coming back then to what you So on Q3, so if comp trends were relatively steady, then you were expecting more of an acceleration on comps Then what you got and you think maybe that didn't happen because of weather, or maybe Was a macro maybe more of a factor? Just trying to understand the difference between your expectation and

Speaker 2

They were both important factors, Jeremy. And as we stated in the Q2 call, We entered BTS setup really well similarly to the setup that I just mentioned for Q4. So we were confident in Our offering and our values and in the mix across all ages. And what really bamboozled The quarter in our view was weather and the macro impact being far more pressurized And we anticipated, right? As we've often said, we can't predict the macro.

Speaker 2

We do our best to estimate Whether it gets worse or better, but in this case, it really presented a lot of pressure. And I think one of the telltale metrics, Jeremy, that we've shared before is our Our conversion remains incredibly good. So for those who come in and have the means to shop, we convert So consistently, I mean, it's been 24 months of consistent conversion. But what we see, as Heather pointed out in remarks is the stubborn traffic excuse me, the stubborn basket pressure is just Presenting more of a fight for every dollar in the basket. We're getting the conversion.

Speaker 2

We're getting the transactions. It's just the basket pressure. So And it's both, right? It's abnormally hot weather. It's the macro.

Speaker 2

So can't give you exact percentages, but it's They're both being felt for sure.

Speaker 4

That's helpful clarity. And just coming back to Q4 because I want to make sure that On the guidance, is it implying like a down 1 to a down 4 comp? Is that kind of what your expectations are? There's some noise around it, obviously, with the extra week in in Q4.

Speaker 3

Well, comp again is on a 13 to 13 week basis. So that's the cleanest way to look at it, Jeremy. And as I mentioned in Prepared remarks, we are expecting down mid single digits to flat in the quarter from a comp perspective.

Speaker 4

Okay. All right. Just and then moving on, I want to understand a little bit about the gross margin impact, so down 160 basis points, year over year. Conversion remains strong. And if there was anything else that might have contributed to it given Where you were in Q2, which was also at the 38.2% gross margin, but on a year over year basis, certainly It was a bit more of a step back, I think, than expected.

Speaker 3

Yes. It's, as you mentioned, the 2 components really are freight And shrink heavily more heavily weighted towards freight. And the issue there is that, As I mentioned, we've got more cartons going through the system. And if you think about some of the rebuilds that David called out, big men's, home, Footwear, those are bulkier items, right? So in the weeds here, Jeremy, forgive me, but the units per carton are lower.

Speaker 3

So in order to get That 1% increase in inventory that we reported at the end of the quarter, you're moving a lot more cartons through the system. So higher volume higher freight expense. As we expect that to mitigate in Q4, as we as the rebuild, the bulk of the rebuild So for the shrink line, which is a smaller component, but still a component, As I mentioned, and I think you know this, we talked about this in the past, our cadence is to Take physical inventories in a section of our stores every month as opposed to other retailers who do it maybe one time a year, two times a year. So we're testing our results every month, but it is subject to how those particular stores are performing from a shrink perspective. So in Q3, we had a group of stores, a Class of stores, if you will, who had higher shrink than the balance of the chain, which was driving the majority of that Increase in shrink expense.

Speaker 3

So, bummer for sure. As I mentioned, We're really focused on controlling shrink. We've got a cross functional team, loss prevention, field HR, field leadership That are really, really focused on controlling shrink, whether it's from a talent perspective, from a reporting perspective, from a Local law enforcement perspective, we are all over it. So hopefully, I'm giving you the feel That we are all over both shrink and freight and don't expect those same level of headwinds going forward.

Operator

Our next question comes from Mike Baker with D. A. Davidson. Please proceed.

Speaker 5

Okay. A little bit of follow-up and some new questions. I guess For the Q4, does that guidance of down mid single digits to flat, what does that Does that imply a pickup throughout the rest of the quarter or not? And I guess maybe another way to ask that, can you remind us what you're up against by month From the Q4 of last year, the comparisons get easier, harder, etcetera. And if you are expecting a pickup, I presume if people are shopping closer to need Then last year, you're assuming that sales get better as you get closer to the holidays, but just wanted to confirm that.

Speaker 3

Yes, Mike, thanks for the questions. Good to hear you. So the Q4 guidance does Assume improvements, right, down mid single digits to flat, versus the down 6% that we produced in Q3 for sure. As I look at the I'm speaking slowly as I find the numbers. As I look at The forecast throughout the month, I mean, it won't surprise you.

Speaker 3

It's really about the moment within the quarter, right? So, November, It's about the lead into Thanksgiving. That's where we see strong sales, Right. And we expect because of all of the merch initiatives that David laid out, we expect to have stronger performance Their events, right? And then as we get closer to the holiday the actual Christmas holiday later December that becomes important as well.

Speaker 3

So it's really about the moments within, but yes, improvement throughout. And then as I look at versus last year, I would say, David, I might ask for a bailout here. I would say that there's we had softer than expected holiday season last year as well. So I don't think there's anything that I would say is a headwind, tailwind, it was there's room to improve for sure. David, anything you'd add?

Speaker 2

Yes, yes. Mike, I think the last thing I'd ask to hear from you is these rebuilds that we've been talking about give us some added fuel for the quarter. So there's nothing really abnormal from a lapping perspective I'd call out, but I would give you confidence and it gives us confidence that there's a bunch of I call added firepower to Q4 that weren't kind of in the mix last year as strong as we would have wanted them to be. Position in that very high indexing holiday category because we embedded in that category our gifts and our toys and our And all the things that people gift. So that's what gives us good confidence in being

Speaker 5

Okay. Fair enough. A couple more questions. One, within the gross margin commentary, nothing on markdowns or clearance or anything like that. Can Give us a sense as to full price selling or if with sales being a little bit weaker this quarter, is there any kind of markdown risk or how that may

Speaker 2

We've got a handle on, as you can hopefully hear from her past answer, were really the big reasons for the Slight deleverage in gross margin versus LY. From a markdown perspective, the team has done a really good job managing our inventory And trying to in the moment make adjustments and all that good stuff. It is a little bit of fancy footwork, especially when the fall goods, as I pointed out in Comments are selling a little slower than we like or did sell a little slower than we like in Q3. But we're taking appropriate When it matters the most, which is in the time period itself, not waiting too long and all that good stuff. So we're on it, but there was No newsworthy item in Q3 to call out.

Speaker 2

It was pretty much as we expected.

Speaker 3

And in line with prior year.

Speaker 5

Okay, that's good. One more if I could. The new marketing initiatives, Any more color on that? What kind of sales lift is it driving? And what's the cost associated with that?

Speaker 5

Your SG and A has been Pretty consistent around $70,000,000 a quarter. Does that go up because of the marketing initiative? Or do you have to see the comps You don't work out before you invest in that. Just how should we think about that dynamic?

Speaker 2

Yes, it's a great question. Well, first off, Mike, On the test base for Q3 that I comment on, it's too small. It's a rounding error in SG and A, so you don't need to worry about that. But what the test Customers back into the fold. And so our ability to kind of see lifts in traffic and conversion, which was nice to see and even a little bit in basket per These tests were not in new markets where capturing new customers, you could argue is easy.

Speaker 2

These are in long time legacy City Trend markets, very African American and Sac markets where we wanted to test the waters. So we're seeing some I would couch it as healthy lifts, Encouraging lifts and that what drove us to drive into about 20% of the chain for Q4. Again, that number is not huge. It's embedded in our SG and A. And really what's exciting is, and I'll give a little Sneak peek, we're going to figure out how to do more of this in Q1, and more to come on that.

Speaker 2

But we're bullish on basically reawakening lapsed customers and convincing even some existing ones to shop a little more often during and even post the advertising exposure window. So more to come, but we're pretty pumped about what we're seeing and What can it do for top line improvement?

Speaker 5

Understood. But just to be specific, so any reason do we bump Will SG and A just in the marketing be higher than it has been? What kind of dollar investment is embedded in SG and A, in that marketing.

Speaker 2

We don't release it at

Speaker 6

that level detail, Mike, but

Speaker 2

I can tell you we're I'll call it, we're self funding Out of our expected and what you have expected in our SG and A budget for Q4. It's not a big enough number To unsettle that overall SG and A.

Speaker 5

Got it.

Speaker 3

70 range is still fine.

Speaker 5

Got it. With a 5.9,

Speaker 3

that's Mike. 70 range is still fine. Yes, Our

Operator

next question comes from Chuck Grom with Gordon Haskett. Please proceed.

Speaker 6

Hey, guys. Hope you're well and nice Thanksgiving. I just wanted to follow-up on Mike's question just on the quarter to date, you talked about a lot of improvement and you're not alone. A lot of retailers have called that out at this point. I'm just curious if you guys are in that range, The down mid single digits to flat and I believe your holiday comp last year was down 17.5%.

Speaker 6

So I just wonder if you

Speaker 2

Yes. Good Thanksgiving. Hope you did too. Yes, we won't divulge an exact number, but what I can leave you with Chuck is that It is within the negative 5% to negative 1%. So it's certainly shown improvement versus our run rate for both Q2 and Q3.

Speaker 2

And we're cautiously optimistic about December being a strong month Based on some of the answers I provided, more firepower from the inventory quality and availability standpoint, even better values than last year. And this phenomenon that we've seen largely all year long where our customers are so tied to these family moments. So we're excited for what's to come. I think the one wild card, which I know you study a lot, Chuck, is weather. We've definitely seen, as you've heard and can ascertain to our Q3 comments, that our customers are more Then they used to be sensitive to the weather in part tethered to their economic status.

Speaker 2

They're just holding off until they really need something. So I would asterisk Q4 a little bit with if weather goes the wrong way. They'll have an impact. But at the same token, we know that So, that's how I describe kind of the backdrop for the rest of the quarter.

Speaker 6

Okay, great. That's very helpful. Thanks, David. And then just looking ahead to spring and I wanted to see if you guys could talk about the opportunity from the new ERP system and the product In the inventory product, you're going to be rolling out in terms of the newness that you referenced as one of the 4 sales drivers for next year. So if you could maybe just dive into that a little bit

Speaker 2

Yes, for sure. I think, A, our ERP system went live end of August as we told everybody it would. And we've been learning and using and adapting to the new system, which is pretty normal, call it change management. And at the end of the day, what we're discovering is It's going to deliver on many of the commitments we made to all of you starting back in last Q1 of this year. And I'll highlight a couple, Chuck, because it relates directly to your spring question.

Speaker 2

First off, we've got much deeper analytics. I've been touting this ever since we announced our plans to do a new ERP system and the analytics are powerful and insightful and enable far better action. 2nd, we're able to Really dissect and define our chain differently. I've mentioned in this call prior that we've been more accustomed to peanut buttering A lot of our allocations across the chain and our chain is pretty dynamic. We've got Uber hot, we've got warm, we've got kind of Cool and then we got cold within our 600 plus stores and they all need a little bit of love from an allocation standpoint based on And so this system allows us to get at a much finer level of detail around all of that and allow us to better allocate back into the demand that we see in those different climates, as an example.

Speaker 2

So our allocation would be number 3, being more precise and accurate about where things go at what time. And so that's a perfect lead into setting up our warm and Hot stores, which we have a lot of, it's well over 40% of our fleet. We can be more accurate in sending them the right goods that they'll more likely adopt in as early as late December or during as early as late December and certainly in January and Feb. So what this all leads to is Set this up for the tax refund season in mid to late Feb. And we're excited to comment on that because We're pretty bullish on all of things we're doing across that list of 4 items, Chuck.

Speaker 2

It's going to have marketing,

Speaker 3

It's going to have different inventory optimization.

Speaker 2

It's going to have better experience and it's going to have more appropriate product for the climates that we serve. So A lot of that will be additive, we believe, in contributing to a strong Q1 of 'twenty four as we look Does that make sense?

Speaker 6

Yes, no, totally does. It seems like a big opportunity. My last question is for Heather. I'm just looking at the 24, And just in the scenario that comps stay, call it flat to down, just the opportunity to get EBIT margins, not EBITDA, EBIT margins back into positive territory. Can you just maybe speak to that opportunity?

Speaker 6

And then as a follow-up, How should we be thinking about new store growth in 2024, the number of CTX remodels, which are clearly good? That's my final question.

Speaker 3

Yes, Chuck, thanks. We're not revealing anything really about 24 right now, but in the spirit of being helpful, It really is all about top line, right? So, I know you asked that we say that comp performance stays the same, But that's not our plan. Our plan is that top line improves. And as we've talked about many times in the past, that's the real juice here.

Speaker 3

You get the top line going, the flow through to get that EBITDA margin and EBIT margin is there. We have very limited variable expenses relative to other retailers. We believe we have a healthy margin. So the flow through is really strong. So I'm going to tell you that it's really it's all about the top line.

Speaker 3

And that's why driving comp store productivity always is number 1, when we talk about our strategic initiatives. And then new stores, It's too soon to say what we're going to do with new stores in 2024. So, but I will say that remodels, you know that we like our Remodel cadence, we like what we see from remodels. We get a nice lift mid to high single digit lift after the remodel. It's important to us.

Speaker 3

It's important to our store associates and it's important to our customers, right? They get excited about what have we done to Refresh their City Trend store and that buzz is real and it shows up in top line again our most important lever Top line. So more to come on 24, but that's what we're thinking right now.

Speaker 6

Great. Thanks, Heather. Thank you.

Speaker 1

Thanks, Buck.

Operator

Our next question comes from John Lawrence with Benchmark. Please proceed.

Speaker 2

Good morning, guys.

Speaker 3

Good morning, John.

Speaker 2

Good morning, John.

Speaker 7

David, not to beat a dead horse here on the weather, etcetera. But the stores here in the South, I mean, the weather situation, am I correct that if you looked at the planogram with the weather, you only In the

Speaker 2

quarter. John, you're referring to kind of an estimate on the number of days, weeks in the quarter that was And we made this comment in the prepared remarks. The weather impact was felt across the entire quarter. I mean, we had stores in the heart of our generally right, John. It was a couple of weeks max that snapped and we saw an appropriate almost immediate bounce back to a much better trend than the quarterly trend.

Speaker 2

And that's what prompted me to share that comment in the last Question from Chuck and that the sensitivity is even more heightened. But I really believe that's brought on by a

Speaker 7

Briefly hear that my checks in stores saw, for instance, the NBA hoodies or the NFL hoodies Really didn't fly until that obviously to that 1st November, 1st week of November. And once it was weather correct, they flew off the shelf and was the hottest item in the store. Can you

Speaker 2

John, thanks for being in our stores. And then secondly, second question in a row, You're right on. Yes, I mean, I don't have a lot to add to your findings. We are really Confident in our assortment. I mentioned our ladies assortment being on trend better than anything I've ever seen in my tenure here.

Speaker 2

I can probably ditto that for some of the other businesses. Men's is another example. We are just we're nailing it So we're out there with the right inventory. And you're right, when the weather snaps, boy, oh boy, they come on in and flow into Our stores, our conversion goes up in those weeks, up from already a high, high level. And you're absolutely right.

Speaker 2

Generally, all boats rise. It's not They come only in for the guy's stuff if I'm a guy and I walk out. They're walking around getting other stuff, building a basket, same for Mom, I'm saying for the young singles that come into our stores, Gen Z and young millennials, etcetera. So, we watch it like clockwork. Maybe dovetail your November comments.

Speaker 2

We've got a bunch of really important moments. We just got through Black Friday and Black we call Black Wednesday. And Now we're going into massive stuck up on gifts mode and make sure you got enough under the tree. And we've taken our prices down, John, So we've got like for like items, QI versus NOI, they're down $3.5 $10 So the team has done just an amazing job, frankly, responding to the pressure that the customer is under and offering important Garner engagement and continues to fuel our conversion and shouldn't fuel the basket we hope in the rest of the quarter.

Speaker 7

All right. Just the tough subject and I'll leave it alone. But the shrink situation, I know As you're indicating, you're all over it. But is there any parts or any stores that have gotten Significant or difficult enough that you might consider closing?

Speaker 3

Yes. We're not there yet, John. I appreciate the question. We're not there yet from a shrink perspective. I know other retailers have made the difficult decision Based on the environment, that is a it's not if we close the store, it's there are bigger Going into it, shrink for us, as you know, particularly in the market that you know very well, Memphis, right, is something that We're very keenly aware of and are managing closely.

Speaker 3

It's for us, the external theft We're not I feel like I shouldn't say this out loud because I'm going to tempt the universe, right? But we're not subject to Some of this smash and grab that you've seen in headlines that you see for others, knock on wood that that doesn't come to us, but it's more small. It happens on occasion, you know that, you've seen that, but it's not like broad based. So we're really focusing on what can we control, Right. And we say that a lot, right?

Speaker 3

Control the controllable. True to and shrink. What can we control? We make sure we have the right people on the team, That we've got solid citizens who are looking out for the Citi Trends family, that we've got reporting that helps If we start concerns that need to be addressed, we partner with local law enforcement to make sure that we're aware of what the environment is,

Speaker 7

Great. Thanks. And last question for me. David, you've mentioned about the rebuilds. I mean, back several months ago, you were talking about and I think toys is one of those areas that there were Opportunities for freshness, new brands, etcetera, I assume across the platform, I assume that continues to be the case.

Speaker 2

Yes, great. Last question, John, love talking about gifts. And you're absolutely right, good memory. We Saw an opportunity to get into the toys business earlier like I mentioned in my comments, set it up earlier for the customer to But what the customer does is they come in, in Octobereven 1st couple of weeks November and they go, oh, That's a pretty cool African American Barbie play set as an example or that's a really cool remote control Race car, I'm going to put that and a bunch of other stuff on layaway and come back and get it in December. And so we rely pretty importantly on that, I'll call it pre consideration.

Speaker 2

I'm going to put it in layaway. I'm going to put a little down payment on it and I'm going to pay it off, Pick it up in time to put it under the tree in December. So you're absolutely right. Rebuilding and getting those, I'll call it layaway friendly businesses out on the floor earlier is really germane part of The intentional rebuilds that we've been doing. So we're looking forward to a good toy selling season as a result.

Speaker 6

Great. Thanks.

Operator

Mr. McEwen, there are no further questions At this time, I will now turn the call back to you.

Speaker 2

Thanks, Frank. Thanks, everybody, for joining us today. Have a great holiday. See you at the next one. Bye bye.

Operator

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.

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Key Takeaways

  • In Q3, total sales fell 6.7% to $179.5 M and comparable store sales declined 6.2%, driven by macro headwinds, unseasonably warm weather and reduced basket size.
  • Gross margin remained strong at 38.2% with disciplined expense control and the company ended Q3 with $135 M in liquidity.
  • Expanded marketing tests in select markets delivered strong sales lifts, prompting a rollout to about 20% of stores for the holiday season.
  • A new ERP system launched in Q3 is enabling deeper analytics, precise product allocation and improved inventory optimization ahead of spring 2024.
  • Updated FY 2023 guidance now calls for total sales down mid-single digits and EBITDA of $1–$7 M, reflecting ongoing pressure on its primarily low-income customer base.
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Earnings Conference Call
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