On Wednesday, Craig-Hallum adjusted its outlook on Citi Trends (NASDAQ:CTRN), reducing the retailer's price target from $27.00 to $25.00 while retaining a Hold rating on the stock. The decision comes after Citi Trends posted first-quarter results that aligned with preliminary figures announced on May 31st, albeit with minor shortfalls in sales and adjusted EBITDA.
The company's performance was perceived as slightly disappointing, considering it was compared against the weakest comparable quarter of fiscal year 2024, and due to the traditionally significant impact of tax refunds on first-quarter results. Although specific quarter-to-date comparables were not provided, sales in May fell short of management's expectations, despite it being the easiest month for comparison in the second quarter.
Citi Trends has updated its guidance for fiscal year 2024, lowering same-store sales (SSS) projections while reaffirming its adjusted EBITDA outlook. The management plans to implement cost-saving measures to maintain profitability. The ongoing concern for Citi Trends is the contrast between the decline in total sales by approximately $40 million since fiscal year 2019 and the $20 million increase in selling, general, and administrative (SG&A) expenses during the same period.
The analyst highlighted the challenge posed by higher structural costs, including rent increases following sales-leaseback transactions on distribution centers and wage inflation at both the store and corporate levels. These factors make it improbable for SG&A expenses to revert to a $250 million base. However, the analyst emphasized the need for stricter cost control to achieve a mid-single-digit adjusted EBITDA margin. The updated price target reflects these considerations.
In other recent news, Citi Trends has reported a promising first quarter, with comparable store sales rising by 3.1% and a significant expansion in gross margin by 160 basis points from the previous year. The company exhibited strong performance in various categories and plans to continue its upward trajectory through strategic initiatives and store optimization. With no debt and a solid liquidity position, Citi Trends is gearing up for further expansion while addressing operational challenges.
The retailer, known for its value-priced apparel, is planning up to five new store openings, approximately 40 remodels, and 10-15 closures. The company's interim CEO, Ken Seipel, stressed the importance of understanding their core customer and delivering value. Citi Trends anticipates low to mid-single digit growth in comparable store sales and a 75-100 basis points expansion in gross margin.
However, the company acknowledges ongoing challenges from shrink, primarily due to theft, which is expected to continue as a headwind. Despite these challenges, the company maintains a strong financial position with no debt, $58 million in cash, and $133 million in liquidity.
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