Citi Trends Q1 2027 Earnings Call Transcript

Quartr
Provided by Quartr
June 2, 2026

Key Takeaways

  • Positive Sentiment: Citi Trends reported an excellent Q1, with adjusted EBITDA more than doubling to $13.9 million and comparable store sales up 13.9% on broad-based strength across categories and regions.
  • Positive Sentiment: Management said momentum continued into early Q2, with high-single-digit comps so far, and raised full-year 2026 guidance for comps to 8%-10% and EBITDA to $35 million-$40 million.
  • Positive Sentiment: Gross margin improved by 40 basis points and SG&A leveraged by 250 basis points, reflecting better merchandise margins, disciplined cost control, and improved operating execution.
  • Neutral Sentiment: The company highlighted strong performance in footwear, men’s, children’s, and women’s accessories, while saying women’s apparel remains a major opportunity as it is repositioned toward more branded, trend-right product.
  • Positive Sentiment: Citi Trends remains debt-free with $81.1 million in cash and no revolver borrowings, and it plans to expand through approximately 25 new stores, around 50 remodels, and the launch of its Insiders Club CRM program in July.
AI Generated. May Contain Errors.
Earnings Conference Call
Citi Trends Q1 2027
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Greetings. Welcome to Citi Trends' first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Nitza McKee, Senior Associate at ICR. Thank you. You may begin.

Nitza McKee
Senior Associate at ICR

Thank you, and good morning, everyone. Thank you for joining us on Citi Trends' first quarter 2026 earnings call. On our call today is Chief Executive Officer, Ken Seipel, and Chief Financial Officer, Heather Plutino. Our earnings release was sent out this morning at 6:45 A.M. Eastern Time. If you have not received a copy of the release, it's available on the company's website under the investor section at www.cititrends.com. You should be aware that prepared remarks made today during this call may contain non-GAAP information and 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.

Nitza McKee
Senior Associate at ICR

We refer you to the company's most recent report on Form 10-K and other subsequent filings within the Securities and Exchange Commission for a more detailed discussion of the factors that can cause actual results to differ materially from those described in the forward-looking statements. I will now turn the call over to our Chief Executive Officer, Ken Seipel. Ken?

Ken Seipel
Ken Seipel
CEO at Citi Trends

Thank you, Nitza. Well, good morning, everyone, and thank you for joining us today for our first quarter 2026 earnings call. Simply stated, we had an excellent quarter. Building on the powerful momentum from 2025, nearly every metric accelerated during Q1 2026, and we're seeing strong momentum early in Q2 as well, with quarter to date comps in the high single digits, which is validating that our strategy is working and our execution is becoming increasingly consistent. As noted in our pre-release last week, in Q1, we generated $13.9 million of EBITDA, which is more than doubling last year's $6.4 million. Our profit improvement was driven by exceptional comparable store sales growth of 13.9%, representing a two-year stack of 23.8% and also marking 21 consecutive months of sales growth for the company. Our performance was broad-based.

Ken Seipel
Ken Seipel
CEO at Citi Trends

Sales increases across all product divisions and all store climate zones. While a portion of the quarter benefited from tax refund timing, I would like to highlight that our sales trends before and after the tax refund period on a two-year basis is in the upper teens, consistent with the momentum we delivered in Q3 and Q4 of 2025, and in the two-year upper teens growth trend has continued now in Q2. Our sales growth is being driven by refinements of trend, style, and value of our core merchandising assortment. Plus, we also utilize extreme value deals periodically to add excitement to the treasure hunt for our customers. The strong performance of our core merchandising strategy gives us confidence in the durability and sustainability of our top-line performance.

Ken Seipel
Ken Seipel
CEO at Citi Trends

Our gross margin rate expanded by 40 basis points, driven by improved merchandise margin rate, partially offset by increased fuel surcharge expense in the freight line. SG&A was well controlled and leveraged by 250 basis points versus last year. I was particularly encouraged by our transaction growth. Consistent with 2025 performance, nearly one half of our sales increase was driven by increased customer traffic, the key indicator that our product and brand are resonating. At the same time, we saw some meaningful improvement in our basket size, which demonstrating that our customers are responding to the strength of our assortment and the compelling value that we're delivering. From a merchandise perspective, we saw disciplined execution across the business. Family footwear continued its momentum from Q4, with customers responding enthusiastically to expanded branded offerings at exceptional value across all genders.

Ken Seipel
Ken Seipel
CEO at Citi Trends

In footwear, off-price and extreme value strategy continues to gain momentum, driving both traffic and basket growth. Men's also delivered a very strong quarter, driven by increased relevance in streetwear trends for young men. Our updated strategy successfully balances trend-forward product for the younger customer while continuing to serve the style and preferences of our core male customer with updated styling, compelling values, and improved in-stocks. Children's had another strong quarter, benefiting from improved in-stock levels and attention to detail in product selection, which creates stronger value positioning. As I mentioned on the Q4 call, our children's business has become both a cornerstone of our company and a model of consistent, disciplined execution. The team continues to deliver highly desired styles, consistent value, and improved inventory and stock positioning.

Ken Seipel
Ken Seipel
CEO at Citi Trends

Women's accessories also posted meaningful gains, which is reflecting early success in our assortment adjustments to a more branded, trend-right product. We were encouraged by customer response to improvements of our women's apparel business, especially in Missy. Women's apparel represents a significant opportunity as we continue to reposition our women's business to fully capture the style, trend, and sizing opportunities that we do see in the market. This product momentum is a result of continued refinement of our three-tiered good, better, and best strategy across all merchandising divisions. What's important to note here is that we're serving customers across a wide range of income levels, including a meaningful portion of middle and higher income consumers. This creates a significant opportunity for us to expand our offering of recognizable brands at compelling prices that align with their style and trend expectations.

Ken Seipel
Ken Seipel
CEO at Citi Trends

At the opening price point, we continue to deliver strong value through our Citi Score offering for budget conscious customers. The foundation of our business remains the better tier, which is typically priced between $7 and $12, where we provide a broad assortment of trend right product that drives consistency and loyalty. At the top end, we're continuing to expand our best tier through both fashion forward product and branded extreme value opportunities, often with extreme discounts up to 75% off MSRP. These product strategies, combined with improved discipline in our open to buy process and continued benefits from our AI-driven allocation systems, are driving stronger inventory productivity and improved margin performance. In marketing, our objective is to really deepen the connection with our customers and reinforce the role in communities that we serve.

Ken Seipel
Ken Seipel
CEO at Citi Trends

In Q1, we extended the momentum from our highly successful holiday Joy Looks Good On You campaign by inviting customers to help modernize the Citi Trends jingle. Engagement exceeded expectations, generating strong social reach and viral moments, while also driving incremental store traffic. By quarter end, we had received a meaningful volume of customer submissions, and in Q2, we will select a finalist from the submissions, with the winning jingle expected to be deployed in the second half of the year. Turning to operations. The SG&A leverage we delivered in the quarter reflects more consistent execution across the organization. As we improve execution, we're able to better leverage the fixed portion of our cost structure without adding commensurate expense as the business grows. I'm pleased with the progress across our stores, headquarters, and our distribution centers in controlling costs and improving overall operating disciplines.

Ken Seipel
Ken Seipel
CEO at Citi Trends

From a store growth point of view, we opened two new stores during the quarter, one in St. Louis and one in Baltimore. These two locations, along with the three new stores from last fall, are serving as test stores for us as we refine our processes and prepare for accelerating store growth. I'm very pleased to report that our new stores are all performing above expectations. As a reminder here in stores, one of our primary points of differentiation is our neighborhood store locations, which are embedded in communities where we built trust over many, many years. The combination of these convenient proximity and strong word-of-mouth recommendations creates sustainable, powerful traffic drivers.

Ken Seipel
Ken Seipel
CEO at Citi Trends

Now I'll turn the call over to Heather to walk through the Q1 financial results in more detail, as well as our updated 2026 outlook, and then I'll return after her remarks to discuss our priorities for the remainder of 2026. Heather?

Heather Plutino
Heather Plutino
CFO at Citi Trends

Thanks, Ken. Good morning, everyone. I'm pleased to walk you through our first quarter results and our updated and improved outlook for 2026. We delivered a strong first quarter driven by top line growth, gross margin expansion, and disciplined expense management, resulting in adjusted EBITDA of $13.9 million, a $7.5 million increase over last year's Q1 adjusted EBITDA of $6.4 million. These results reflect the continued progress of our strategic transformation and the strength of our operating model. Total sales for the first quarter were $230.9 million, a 14.4% increase to Q1 2025. Comparable store sales increased 13.9% ahead of our expectations, driven by both increased transactions and higher average basket. On a two-year stack basis, comps increased 23.8%. Q1 2026 marks our seventh consecutive quarter and 21st straight month of comp sales growth.

Heather Plutino
Heather Plutino
CFO at Citi Trends

As Ken mentioned, our comp sales growth trend on a two-year basis before and after the tax refund season has been consistently in the upper teens, including Q2 performance to date. In the quarter, gross margin increased 40 basis points versus last year to 40%, driven by improved merchandise margins, fueled by our strategic investments in allocation and loss prevention systems and updated processes. These tailwinds were partially offset by higher freight expense. Freight in the quarter was higher than planned due to rising fuel surcharges. We expect that headwind to continue throughout the year, and we've incorporated its impact into the updated outlook I'll walk you through shortly. First quarter adjusted SG&A expenses totaled $78.3 million compared to $73.4 million a year ago. The increase to last year was mainly driven by expenses to support higher sales.

Heather Plutino
Heather Plutino
CFO at Citi Trends

In addition, we had higher store and corporate bonus accruals from improved performance. As a rate of sales, adjusted SG&A for the quarter was 33.9%, leveraging 250 basis points versus last year, demonstrating our ability to leverage our cost structure with higher sales. As I mentioned earlier, Q1 adjusted EBITDA grew $7.5 million over last year to $13.9 million, with adjusted EBITDA margin, EBITDA as a rate of sales, expanding 280 basis points to 6%. During the quarter, we opened two stores and closed one location, ending the quarter with 591 stores. We remodeled 25 stores, completing a significant portion of our full year program in time for the important Q1 tax refund season, or Taxmas, as we call it. In early Q2, we remodeled an additional 26 locations, completing our remodel program. Now turning to the balance sheet.

Heather Plutino
Heather Plutino
CFO at Citi Trends

I'm pleased to say that we drove our 13.9% Q1 comp with quarter end total inventory up only 4.8% to last year, reflecting our ongoing inventory efficiency initiative. Our balance sheet remains healthy, with $81.1 million in cash at the end of the quarter, no debt, and no drawings on our $75 million revolver. As we've said in several prior investor presentations, we expect our year-end cash balance to be approximately flat to last year's $66 million, reflecting investments in inventory and capital projects, particularly new stores and remodels, over the balance of the year. Throughout the year, we expect to remain in a strong financial position, affording us the flexibility to pursue strategic alternatives. Turning to our guidance. With the results of our first quarter, we are updating our outlook for fiscal 2026 as follows. We expect comparable store sales growth of 8%-10% for the year.

Heather Plutino
Heather Plutino
CFO at Citi Trends

With our Q1 comp results, this implies high single digit comps for the balance of the year. Total sales are expected to grow in a range of 9%-11%. Gross margin is expected to expand approximately 50-70 basis points compared to 39.6% in fiscal 2025, as we continue to leverage new systems and processes to drive improvements in markdowns and shrink, partially offset by higher freight expense due to the fuel surcharges I mentioned earlier. Our revised expectation for freight expense drove the decrease from our prior outlook of 100 basis points of margin rate expansion. We now expect adjusted SG&A leverage in the range of 140-160 basis points versus fiscal 2025, higher than previous outlook of 70-100 basis points of leverage due to the impact of higher sales as well as ongoing disciplined expense control.

Heather Plutino
Heather Plutino
CFO at Citi Trends

Adjusted EBITDA is expected to be in the range of $35 million-$40 million, with adjusted EBITDA margin expected to expand approximately 200 basis points over fiscal 2025. Our real estate plans are unchanged from previous outlook, with plans to open approximately 25 new stores, to close four locations, and to remodel approximately 50 locations. Finally, full year capital expenditures are expected to be in the range of $35 million-$40 million, consistent with previous outlook. In closing, Q1 represents a strong start to 2026, reflecting the operational foundation we built last year and the continued execution of our strategic priorities. We remain focused on driving sustainable, profitable growth through disciplined inventory management, operational efficiency, and targeted investments in our business. We are confident in our long-term trajectory and our ability to deliver meaningful value for our shareholders.

Heather Plutino
Heather Plutino
CFO at Citi Trends

I want to thank our teams across the organization for their continued dedication and hard work, which is enabling this transformation. We look forward to updating you, our investors, on our progress next quarter. With that, I'll hand the call back over to Ken. Ken?

Ken Seipel
Ken Seipel
CEO at Citi Trends

All right. Well, thank you, Heather Plutino. As we look ahead to the balance of 2026, we are firmly in the execute phase of our growth plan, focused on delivering against our customer brand promise. Our customers are discerning. They understand that value is more than just price, and they're willing to spend more when the style is right, the trend is relevant, and quality meets their expectations. In short, value is not just price. Our brand promise is very clear. Styles that see you, prices that amaze you, and trends that tell your story. Our teams are focused every day on bringing that promise to life for our customers. To support this, we've established three clear priorities in 2026. Consistent Execution, Strong Sales Flow-Growth to Profit, and Accelerated Growth. First, Consistent Execution.

Ken Seipel
Ken Seipel
CEO at Citi Trends

As I mentioned earlier, our sales growth is being driven by refinements in trend, style, and value of our everyday core merchandising assortment. Consistent execution of our merchandise strategy gives us confidence in achieving upper single digit comparable store sales growth this year and in the foreseeable future. A key focus will be repositioning our women's business to fully capture the style, trend, and sizing opportunities in the market across juniors, plus, and Missy. We're updating our product offerings to ensure trend-right merchandise is front and center for all female customers. This represents a meaningful opportunity to drive both traffic and sales. Throughout 2026, we'll maintain our disciplined focus on improved style, trend, and value across all product categories, and we'll continue to apply the learnings from our strongest performing categories, like men's and children's, to elevate execution company-wide.

Ken Seipel
Ken Seipel
CEO at Citi Trends

Our product team has sharpened focus on trend identification, brand curation, and style development. From opening price points to premium branded fashion, our merchant team translates these trends into compelling styles that deliver exceptional value to our customers and meaningful margin to the business. Each season, we're improving our product trend and style execution while leveraging AI to optimize product allocation to the correct store. This creates a long runway of growth as we continue to develop and refine product execution. We've also had continued opportunity to expand off-price and extreme value buying capabilities, ensuring a steady flow of compelling brands and products at exceptional value. Extreme value product is driving both traffic and basket growth while supporting margin performance. The off-price market remains robust, allowing us to be highly selective, which is a key advantage for our model and core to our competitive advantage.

Ken Seipel
Ken Seipel
CEO at Citi Trends

We've already secured several strong deals that will support continued momentum into the back half of the year. On the marketing front, we're focused on consistent execution throughout the year. This includes expanding our social and influencer presence, deepening community engagement, and ensuring that our brand is authentically represented in everything we do. As I said earlier, this is not just about visibility. It's about deepening relationships and reinforcing Citi Trends to the communities we proudly serve. Our second priority is ensuring strong sales growth through flow-through to profit. Incremental sales have got to translate into accelerated profit growth. Our plan in 2026 calls for about a 10% sales growth while more than doubling EBITDA, making this a pivotal year in the evolution of our profit profile. Foundational to profit flow-through is leveraging our highly fixed expense base as we grow.

Ken Seipel
Ken Seipel
CEO at Citi Trends

Best practices implemented during the repair phase in operational areas of the business are beginning to have a positive impact on our cost structure, enabling us to grow sales more efficiently. In addition, we have several tangible initiatives supporting this objective, including our AI-based allocation systems, enhanced store technologies to reduce shrink, and our ongoing supply chain improvements to increase capacity and efficiency. As I've highlighted on prior calls, we continue to leverage KPI dashboards across all functions to ensure we have disciplined execution. A benefit of our improved execution is our ability to absorb macroeconomic challenges, like increased fuel charges into our business, while still achieving our profit flow-through objectives. Our third priority is accelerated growth, which will be disciplined, return-focused, and strategic. First, beginning in July, we're going to launch our customer relationship management platform that we're calling the Insiders Club.

Ken Seipel
Ken Seipel
CEO at Citi Trends

The Insiders Club turns traffic into loyalty into frequency, and frequency into EBITDA. We're making a deliberate investment in owning our customer relationship and building a sustainable, data-driven growth engine that compounds over time. The objective is to invest early to build customer relationships, and then as the CRM system learns and scales, it becomes a meaningful contributor to long-term shareholder value. The Insiders Club transforms Citi Trends from a transaction-based retailer into a relationship-driven brand. It allows us to know our customer, reward our customer, and grow with our customer while reinforcing the treasure hunt excitement that makes shopping with us an experience. We'll begin activation of the Insiders Club this July and expect the program to build momentum rapidly. We also remain on track with our store growth plans.

Ken Seipel
Ken Seipel
CEO at Citi Trends

As Heather mentioned, we've completed 51 remodels so far this year, and we expect to open a total of 25 new stores the remainder of the year while preparing to accelerate our expansion in 2027. Our approach is grounded on data-driven site selection, local market expertise, and disciplined financial criteria. Using AI tools, we've analyzed three years of actual transaction data from every store location, combined with comprehensive geolocation studies to understand the specific customer and market characteristics that drive success. This AI data-driven approach has demonstrated approximately a 90% accuracy in sales prediction, helping us to identify and replicate our most successful store profiles while minimizing risk as we expand our footprint. Beyond the analytics, we're applying strict financial criteria to every new store, decisioning targeting mature store averages of approximately $1.5 million in sales and mid-teens four-wall contribution margins.

Ken Seipel
Ken Seipel
CEO at Citi Trends

Our early results from our newest stores are exceeding expectations, giving us the confidence in accelerating to approximately 40 new stores in 2027. Equally important to our growth initiatives is the growth of our people. We're a company that facilitates the continuous learning and development of all employees to transform, adapt to changes, and improve performance, positioning us to maximize growth opportunities as they arise. As a part of that initiative, we're focusing on succession planning for our key leadership roles to ensure continuity of the transformation plan while strengthening our bench talent. Our strong, debt-free balance sheet enables us to explore multiple avenues of growth beyond our current three-year plan. Our strategy is to build a strong organic growth foundation, accelerate expansion where the economics are compelling, and selectively pursue transformational opportunities. We're beginning to evaluate synergistic acquisition opportunities that align with and complement our strategic priorities.

Ken Seipel
Ken Seipel
CEO at Citi Trends

We're committed to applying the same disciplined approach to our customer focus, product execution, and financial returns that has driven our turnaround so far and has generated significant shareholder value creation. In closing, progress at Citi Trends is well underway. Our track record of consistent comparable store sales increases shows our strategy is working, our execution is more consistent, and our customer connection is stronger than ever. We're debt-free, disciplined, and positioned for growth. We have a clear path to profitable expansion, stronger earnings, and lasting shareholder value. We are clearly focused on our customer. The foundation is stronger and the opportunity ahead is significant. We still have a lot of processes to refine, product categories to optimize, systems to build, and growth opportunities to maximize. We're more than a retailer.

Ken Seipel
Ken Seipel
CEO at Citi Trends

We are a neighborhood destination for Black families, delivering style, trend, value, and trust that no one else can deliver. I'm confident in our strategy and our team's ability to execute. The foundation we've built positions us well for growth throughout 2026 and beyond. Thank you all for your continued support. I'll turn it to the operator now for any questions.

Operator

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit to one question and one follow-up question. One moment while we poll for questions. Our first question is from Michael Baker with DA Davidson. Please proceed.

Michael Baker
Michael Baker
Analyst at DA Davidson

Okay. Thanks, guys. You kind of alluded to the impact of tax refunds. It sounds like it probably helped, but certainly more to it than that. You talked about the period before and after. What do you consider the tax refund period? Maybe some other way to ask is, can you just tell us your monthly trends?

Ken Seipel
Ken Seipel
CEO at Citi Trends

Mike, probably the best way to think about the tax refund trend for us is really from about mid-February up to, in this year, kind of right up to Easter period. For the most part, about six to seven weeks there is what we would account for the majority of the tax refunds that flowed into the market. When we talk about sales trends prior, that includes a little bit of the January performance as well. Going into February 15 and then coming out after Easter, and even into really even through last week, our trends have remained very consistent with what we experienced, as I mentioned, in Q3 and Q4. We've been very encouraged about the overall underlying health of the business.

Ken Seipel
Ken Seipel
CEO at Citi Trends

As we noted in Q1, obviously our sales spiked up to 23.8% on a two-year, which is better than we had been performing. We believe that gap between our baseline and that upside is probably attributed dominantly to the tax refunds in that period. Very encouraged about the health on either side.

Michael Baker
Michael Baker
Analyst at DA Davidson

Yeah. Okay. That makes sense. I guess I'll keep it to one question and one follow-up, and this does follow up on that. I think, Ken, I heard you say high single digits for the quote, "foreseeable future." Did I hear that right? What to you is foreseeable future?

Ken Seipel
Ken Seipel
CEO at Citi Trends

You actually did. That's a pretty good nuance in the script, Michael. That's a good catch. Yes, we did say that. What we're talking about in the foreseeable future right now is our merchandising plans that we have in place all the way through the balance of this year through 2026. We're taking a hard look at 2027 right now, and that may moderate a little bit and get into more of the mid-singles as we go forward. The point here is that we see a long runway of continued increases. I'm often asked by investors, can we continue to comp the comp, right? We have a great deal of confidence in that. There are so many merchandising opportunities that we have on the table.

Ken Seipel
Ken Seipel
CEO at Citi Trends

We can kind of go store by store, category by category, and take a look at various ways that we can continue to get better executing our three-tiered assortment and delivering better value to the consumer. We see a big ramp-up this year, and that'll continue, and then we do see continued success beyond. Yeah, to be more clear, I was speaking very specifically about the foreseeable future being through the end of this year.

Michael Baker
Michael Baker
Analyst at DA Davidson

Perfect. Appreciate the color. I'll turn it over to someone else.

Operator

Our next question is from Jeremy Hamblin with Craig-Hallum Capital Group. Please proceed.

Jeremy Hamblin
Jeremy Hamblin
Analyst at Craig-Hallum Capital Group

Thanks, and congrats on the strength of the business. As a follow-up question in terms of you noted men's category, very strong, children's very strong, women's accessories, footwear. In terms of thinking about where you see the biggest opportunities, not just the remainder of 2026, but as we get into 2027, what are the categories where you feel that you can really attack and improve? What are the drivers of that? Is it more consistency of the merchandise? Is it more national brands or kind of closeout off-price deals? Any color you might be able to share in terms of the merchandising strategy.

Ken Seipel
Ken Seipel
CEO at Citi Trends

Yeah, for sure. We have done a good deal of analytics to really kind of think about what is a long-term opportunity for store productivity and which categories inside of our box really have an opportunity to provide outsized growth along that continuum. You can kind of go through literally department by department and find significant opportunity across the board. For example, I called out our shoe department, who has done a nice job the last two quarters. Very pleased with their results. They're at the very beginning. I think if you were to get the team around the table, they'd say, "We're just getting started." We actually see a path there to probably more than double that department over time, and we've got quite a bit of work to do to get that done. There's certainly significant growth there.

Ken Seipel
Ken Seipel
CEO at Citi Trends

I can kind of go around the store and do that same sort of thing. I would also step back and say that the other area of growth that's probably the most significant is just more broadly appealing to our higher income consumers. They've been responding extremely well. As we continue to reposition fashion and trend, we were getting good response. You might remember in Q4 last year, we launched Young Men's Trend, highly successful, and it's continued into today, and we're just beginning to kind of understand how large that business could be. There's a significant opportunity there just to continue to mature what is a fairly new business for us. The same is true in our women's division. As I mentioned briefly on the call, we're just launching some trend I'm very excited about. The team's work for Q3, we've looked at it.

Ken Seipel
Ken Seipel
CEO at Citi Trends

The styles are right on, the trends are right on. We're making some different investments there, and there'll be a little bit of a breaking out moment, I think, for our women's fashion team. Complementary to that, right behind that, we're just exploring the implementation and now ultimately the expansion of Missy category of product. I don't mean to take up the entire call going through here, but the point here is that there's a lot of significant opportunity just getting better, doing what we're doing in our three-tiered strategy, good, better, best around the store. I speak from time to time about extreme value, and I like to talk about it because it's fun to talk about. The reality is it's actually the icing on the cake for us.

Ken Seipel
Ken Seipel
CEO at Citi Trends

That's the stuff that drives the excitement, the treasure hunt, and is really kind of compelling. It will drive traffic for us, but we're not reliant on that as our growth engine. That's complementary to our overall core merchandising strategy.

Jeremy Hamblin
Jeremy Hamblin
Analyst at Craig-Hallum Capital Group

Got it. Switching gears to talk about unit growth. You're starting to really exercise that muscle, accelerating to mid-single digit and potentially beyond as we get into 2027. I wanted to understand the cadence of openings. You opened two in Q1. How should we be thinking about the remainder of the year? As you get into a more consistent unit growth algorithm, how should we be thinking about the timing of unit openings throughout the year?

Ken Seipel
Ken Seipel
CEO at Citi Trends

Yeah, perfect. I want to talk a little bit about the last part of your question, and I'll ask Heather to kind of fill in on the balance of 2026 for you. How we're thinking about unit growth going forward, we're going to put our new store cycle on three cycles a year. Our goal here is to kind of open new stores up into peak periods so that we have our best foot forward in merchandising. We can invite new customers in and really kind of get the new stores off to a good start. In our model, that would mean we're going to open up a block of stores in February in advance of the Taxmas period. We're going to open up a block of stores in the summer, mostly mid-July, in advance of back to school.

Ken Seipel
Ken Seipel
CEO at Citi Trends

We're going to open up again another block of stores in October in advance of going into holiday. Those three opening cycles will allow us to, A, number one, improve our execution and discipline of opening new stores. Secondarily, it will allow us to make sure that when we open up a store, that we have our very best foot forward on new product going into a peak season, and that we believe that we can use that as a springboard then to mature those stores at a much more rapid rate. In 2026, we're just getting started, obviously. Our opening cadence is a little bit irregular in 2026. I would not use that as a proxy. 2027 will be and beyond is what I just described.

Ken Seipel
Ken Seipel
CEO at Citi Trends

Heather, would you be able to fill in the blanks there for Jeremy relative to the remainder of the year opening cadence?

Heather Plutino
Heather Plutino
CFO at Citi Trends

For sure. We did the two in February in time for Taxmas. We're thinking three to five in July period, the balance in October this year. Again, that speaks to Ken's 2026 is not what we consider kind of a quote, unquote, "normal" for go forward periods, that's us getting our legs under us.

Jeremy Hamblin
Jeremy Hamblin
Analyst at Craig-Hallum Capital Group

Great. That's helpful. If I could just sneak one more in, just on some of the margin color. You noted the fuel surcharges that we're seeing across the industry. Can you speak a little bit to your inventory shrink performance? Given the really strong comps you're doing and comping the comp, can you give us some color on incentive compensation and whether or not accrual for that also went up for the year given the strong performance?

Heather Plutino
Heather Plutino
CFO at Citi Trends

Yeah. Ken, I'll grab the mic, if you don't mind. Two things. I'll start with the gross margin question. No doubt, fuel surcharges were not in our initial guide. Certainly an industry issue. We're not alone. That caused our change in our outlook for gross margin from an expansion of 100 basis points to our updated guide. That is entirely due to those fuel surcharges. Okay, we're seeing positive movement, as expected, from both markdowns and shrink. Those are the tailwinds I spoke about in my script. Then the offset is these fuel surcharges. Shrink is getting better, markdown's getting better because of the investments that we've made. You've heard us speak about quite a bit in these calls about AI-based allocation systems, AI-based camera systems. Both of those are driving goodness in the gross margin line.

Heather Plutino
Heather Plutino
CFO at Citi Trends

Fuel surcharges are real, and as I said, we expect that to continue for the balance of the year, and it's all incorporated in the guide. Your second question, Jeremy, I'm sorry.

Jeremy Hamblin
Jeremy Hamblin
Analyst at Craig-Hallum Capital Group

On incentive comp, given the strong comp performance and profitability.

Heather Plutino
Heather Plutino
CFO at Citi Trends

Yeah, we did something a little bit different this year, and we adjusted the incentive comp accrual in quarter one. You'll recall last year we were chasing quite a bit throughout the year, and it caused catch-up accrual adjustments. We decided we were going to take a hard look at it in the first quarter, which is much earlier than usual. Yes, we did adjust up the incentive comp accrual. We were at 100% when we started the year. Right now, we're at about 128%. Not mad about that, and I'm sure the whole team is pretty happy about that too.

Jeremy Hamblin
Jeremy Hamblin
Analyst at Craig-Hallum Capital Group

No doubt well earned as well. Thanks so much for taking the questions, and best wishes.

Heather Plutino
Heather Plutino
CFO at Citi Trends

Thanks, Jeremy.

Ken Seipel
Ken Seipel
CEO at Citi Trends

Thank you.

Operator

There are no further questions at this time. I would like to turn the floor back over to Ken for closing remarks.

Ken Seipel
Ken Seipel
CEO at Citi Trends

All right. Well, thank you again, everyone, for joining us for our call. We appreciate your continued support of our brand. Look forward to talking to you next quarter. Thank you.

Operator

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.

Executives
Analysts
Powered by Quartr