Citi Trends' Strategic Initiatives Drive Sales Growth and Profitability
2023-09-08
Citi Trends held a call meeting to discuss the company's remodel program and its impact on financial performance. During the meeting, positive feedback from associates and customers was addressed, along with a year-over-year comparison and gradual decrease in performance delta. The CEO, David Makuen, concluded the meeting with closing remarks.
One of the most important topics discussed was the second quarter financial and operational performance of Citi Trends. The company reported positive momentum in sales and gross margin, improved comp store productivity, and the success of their product assortment and inventory rebuild.
A particularly interesting topic discussed was the impact of upgrading the ERP system on the company's gross margin and expense line. According to Makuen, the upgraded ERP system will drive improved top-line sales by ensuring the right product is in the right stores at the right time. This indicates that the company is focused on aggressive sales growth.
Although it is too early to determine the exact impact on gross margin, Makuen expects the ERP system to have a positive effect over the next few years. The system is also likely to impact expenses, such as markdown and potentially freight expenses, as it improves planning and allocation processes. The CEO emphasized that the primary focus of the ERP system is driving sales, but it is expected to bring benefits to various functions within the organization, including the finance team.
In summary, the discussion highlighted the significance of the ERP system upgrade and its potential to positively impact the company's gross margin and expense line.
The market outlook for Citi Trends is cautiously optimistic. Despite the pressure on discretionary spending for low-income families, the company is reiterating its guidance for the year. They anticipate a decline in total sales compared to the previous year but remain confident in their ability to drive improved results. The company plans to open new stores, remodel existing ones, and close underperforming stores. They expect gross margin to be in the high 30s and EBITDA to range from $5 million to $20 million for the full year. Overall, the company is focused on maintaining a disciplined approach to expenses and capital deployment.
The key drivers of the business discussed during the meeting were comp store productivity, inventory management and margin maximization, and SG&A expense control and balance sheet leverage.
Comp Store Productivity, which measures the performance of stores that have been open for at least a year, was highlighted as an important KPI. The company discussed aligning their assortment with customer needs, particularly focusing on African American families and multicultural neighborhoods. They also mentioned the positive response to their affordable price-pointed goods and the importance of timing fresh goods to meet customer demand.
Inventory Management and Margin Maximization was another crucial KPI discussed. The company emphasized controlling inventory levels and rebuilding in targeted areas of the store. They mentioned adding breadth in the right stores and categories, which resulted in strong consumer satisfaction and adoption. The focus on analytics helped them respond to consumer reactions and maintain healthy inventory levels. Maximizing merchandise margin through sell-throughs and turns was also highlighted.
SG&A Expense Control and Balance Sheet Leverage was the third key KPI discussed. The company highlighted their disciplined and prudent approach to expense management across the organization. This KPI focuses on controlling operating expenses and leveraging the balance sheet to optimize financial performance.
Overall, these KPIs demonstrate the company's focus on driving sales growth, managing inventory effectively, and controlling expenses to maximize profitability.
During the meeting, the company's outlook for the year was also discussed. Total sales are expected to decline compared to the previous fiscal year, with a negative mid-single digits to negative low-single digits range. The gross margin is expected to be in the high 30s, and EBITDA is projected to be between $5 million to $20 million. The company plans to open five new stores, remodel 10 to 20 stores, and close 10 to 15 underperforming stores. Capital expenditures for the year are expected to be between $15 million to $20 million, and the year-end cash balance is anticipated to be between $85 million to $105 million. The company is reiterating its guidance and remains confident in its ability to drive improved results.
The company has made progress on its strategic initiatives, focusing on driving comp store productivity, managing inventory and maximizing margin, controlling SG&A expenses, and leveraging the balance sheet. They have seen positive momentum in apparel and footwear demand, refined product flow timing, controlled inventory levels, and added breadth in the right stores and categories. They have also applied analytics to respond to consumer reactions and have completed a freight optimization initiative. The company has instilled a disciplined and prudent approach to expense management and has delivered on their internal expectations for the second quarter.
In conclusion, the call meeting provided valuable insights into Citi Trends' financial and operational performance. The company's satisfaction with their remodel program and the positive response from associates and customers were highlighted. The expected lift in sales after the remodel and the company's ongoing efforts to refresh their stores were also discussed. The participants of the call, including Nitza McKee, David Makuen, Heather Plutino, Jeremy Hamblin, Greg Sommer, and John Lawrence, were acknowledged for their contributions to the meeting.