Citi Trends Inc. 10-K Summary: Fiscal Year Ended January 29, 2011
Business Context and Reporting Period
This filing covers the fiscal year ended January 29, 2011 (Fiscal 2010). Citi Trends Inc. is a rapidly growing, value-priced retailer of urban fashion apparel and accessories for the entire family, with a focus on African-American consumers. As of the reporting date, the company operated 461 stores across 27 states. The company pursues an aggressive growth strategy, having opened 60 new stores in Fiscal 2010 and entering new markets in Las Vegas, Pittsburgh, and upstate New York.
Key Financial Metrics
| Metric | Fiscal 2010 | Fiscal 2009 |
|---|---|---|
| Net Sales | $622.5 million | $551.9 million |
| Gross Profit | $239.2 million | $213.0 million |
| Gross Margin | 38.4% | 38.6% |
| Operating Income | $31.4 million | $29.4 million |
| Net Income | $20.9 million | $19.7 million |
| Diluted EPS | $1.44 | $1.36 |
| EBITDA | $52.0 million | $47.8 million |
| Cash and Cash Equivalents | $69.2 million | $63.0 million |
| Total Debt | $0 (No borrowings under credit facility) | $0 |
| Comparable Store Sales | -1.8% | +0.6% |
Material Changes vs. Prior Period
- Sales Growth: Net sales increased 12.8% to $622.5 million, driven primarily by 60 new store openings. This growth was partially offset by a 1.8% decline in comparable store sales.
- Comparable Store Sales Decline: The decrease in comparable store sales was attributed to a 2.0% reduction in the average customer purchase, despite a slight increase in transaction volume. Sales declines were noted in Women's (-5%), Children's (-5%), and Men's (-4%) categories, while Accessories (+13%) and Home (+8%) saw growth.
- Profitability: Net income rose 5.8% to $20.9 million. Gross margin decreased slightly by 20 basis points to 38.4%. Operating expenses as a percentage of sales increased to 30.1% from 29.9%, largely due to the deleveraging effect of lower comparable store sales on fixed costs.
- Liquidity: Cash and cash equivalents increased to $69.2 million. The company did not utilize its $20 million revolving credit facility during the year.
Guidance, Outlook, and Risks
- Store Expansion: Management expects to open approximately 65 to 70 new stores in Fiscal 2011. More than 90% of these will be in existing states.
- New Store Format: The company is rolling out a new store prototype featuring a new color palette, layout, and expanded footwear department. This new design requires capital expenditures approximately $50,000 per store higher than previous years.
- Capital Expenditures: Anticipated capital expenditures for Fiscal 2011 are estimated between $40 million and $45 million, funded by cash flow from operations and existing cash balances.
- Risks: Key risks include the company's dependence on anticipating fashion trends, competition from larger off-price retailers and mass merchants, and the impact of general economic conditions on consumer spending. The company also faces risks related to supply chain disruptions and the success of its new store format.
Investor Verification Checklist
- Verify the sustainability of the new store format's performance, as it incurs higher initial capital costs.
- Monitor the trend in comparable store sales, which declined for the first time in recent years, specifically in core categories like Women's and Children's apparel.
- Assess the impact of the 1.8% decline in average customer purchase on future revenue growth.
- Confirm the company's ability to maintain gross margins while expanding into new markets and implementing higher-cost store designs.
- Review the status of the new distribution center in Roland, Oklahoma, expected to be operational in late spring 2011.