Citi Trends Inc (CTRN) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Citi Trends' first-quarter 2015 conference call.

(Operator Instructions)

As a reminder, this conference is being recorded Wednesday, May 20, 2015. I would now like to turn the conference over to Pat Watson. Please go ahead.

Thank you, operator. 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 is available on the Company's website under the Investor Relations section at www.CitiTrends.com.

You should be aware that prepared remarks made during the 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-K filed with 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'd now like to turn the call over to Bruce Smith, Chief Operating Officer and Chief Financial Officer. Please go ahead, Bruce.

Thanks, Pat. Good morning, everybody. Thank you for joining us today. Also on the call is Jason Mazzola, President and Chief Executive Officer. First, I will provide you with details related to the quarterly results, and then Jason will discuss further the results and our business outlook, after which we will address any questions you may have.

Total sales in the first quarter increased 3.7% to $195 million with comparable store sales increasing 1.8%. The higher comp store sales reflected an increase of 4% in the number of customer transactions and a slight increase in the average number of items per transaction, partially offset by a decrease of more than 2% in the average unit sale.

By merchandise category, first quarter sales and comparable stores were as follows. The home division was up 13% on top of a 22% increase last year. Ladies' sales were up 7% this year after being down 7% in last year's first quarter. Accessories were up 2% on top of a 22% increase in last year's first quarter. Men's sales were down 1% this year and down 2% last year. And children's sales were down 3% after being up 1% in last year's first quarter. Sales of nationally recognized brands represented 24% of total sales in the quarter compared with 26% last year.

Comparable store sales by month in the first quarter were down 2% in February, up 13% in March, and down 6% in April. As mentioned on our fourth-quarter earnings call, the decrease in February was due to extraordinarily cold weather and a shift of approximately $3 million of tax refund-driven sales from February to January due to the earlier distribution of tax refunds by the IRS this year. The shift in the timing of Easter resulted in much of the variability in sales between March and April.

Cost of goods sold as a percentage of sales improved 70 basis points in the first quarter due to continued improvement in inventory management by our merchandising group. SG&A expenses increased $1.8 million, or 3.4%, decreasing 10 basis points as a percentage of sales on a 1.8% comp store sales increase. Depreciation expense declined by over $300,000 as a result of opening fewer stores than in the past.

First-quarter net income in 2015 increased 24% to $11.3 million, or $0.74 per share, compared to $9.1 million or $0.61 per share last year. Now I'll turn the call over to Jason.

Thank you Bruce, and good morning everyone. We are very happy to report a 1.8% comp store sales increase for the first quarter of 2015. This is our fifth consecutive positive comp quarter, and it is on top of a 4.2% increase delivered in the first quarter last year.

The positive comp for the first quarter is encouraging, given that we started the first five weeks of the quarter down 3% due to earlier tax refunds and weather issues. In the last eight weeks of the quarter sales rebounded to a 6% increase.

One of the highlights of the quarter was the continued strength of the ladies business. The ladies area delivered a 7% comp store sales increase for the quarter. This is the third quarter in a row that ladies has delivered positive comp store sales. The ladies team has done a great job reinventing this area and delivering exciting fashion at extremely compelling values.

We continue to drive nice sales in the home area, delivering a 13% increase on top of a 22% increase delivered in the first quarter last year. Home is still an under-penetrated business for us, so we will continue to focus on growing it, in particular the functional home, beauty and the [Q-line] businesses.

The growth in accessories slowed to a 2% increase as we were up against a 22% increase last year and a 14% increase from 2013. We still believe there is continued opportunity for growth in accessories.

Now, I will provide an update on sales to date for the second quarter. Sales for the first two weeks of the second quarter in comparable stores have increased 13%. Sales for the same two weeks last year were up 3%.

Our merchandise offerings in store were positioned nicely for when the weather turned warmer, and over the last two weeks we have seen a nice uptick in sales across all categories in the store as the country warmed up. Looking forward into the balance of 2015, our goal is consistent comp store sales increases. We believe that we are well positioned to do that. Our product offering across all areas of the Company is on solid footing. Our values are very strong, and the merchants get more confident in their ability to drive sales each and every day.

Additionally, we have made continued progress on our new inventory planning and allocation system. This system, as mentioned before, gives us the capability to plan inventory by class, by weather zone, by store. We are very happy with the progress to date and our ability to manage our inventory better.

Over the next three quarters, we believe we can deliver positive comp store sales with flat to slightly less comp store inventories. However, due to an abundance of desirable merchandise available in the marketplace at close-out prices, we intend to increase our next season buys, or pack-and-holds. We expect this, together with the additional new stores, should result in total inventories being up 4% to 6%.

We opened four stores in the past quarter, including two stores in new states: Brockton, Massachusetts and Hartford, Connecticut. We are extremely happy with the performance of all four stores so far and are excited about their potential. We now operate 515 stores in 31 states. In 2015 we plan to open a total of 10 to 15 new stores, remodel 20 to 25 stores, and expand or relocate 7 to 10 stores.

Our balance sheets remain -- our balance sheet remains strong. Our inventories are in great shape, and all of our businesses are delivering solid results. We are pleased to report another positive comp quarter accompanied by strong earnings growth. And we look forward to a successful 2015. Now operator, we will take any questions.

(Operator Instructions)

Our first question comes from Pam Quintiliano of SunTrust.

Hi, this is David Kwon on for Pam. How are you doing?

Good, thank you. How are you?

Good. So, the increasing pack-and-hold -- is that related to port disruptions or just generally more attractive goods in the marketplace?

Yes, I can give you a little bit more color on that. Next season buy merchandise, or what some off-price retailers call pack-and-hold merchandise, for us has the highest gross margin and quickest in-store inventory turns because of the incredible value that it offers to our customer. For those reasons, we're always on the lookout for compelling next season buys.

Recently, with the West Coast port opening back up, and actually combine that with the struggles of some of the other retailers, we have seen a sizeable increase in these large close-out deals that are right for Citi Trends. So, as we have seen more of these deals, we plan on taking advantage of them.

Additionally, in terms of store growth, is there any changes to your CapEx expectations, and the cost of the build-out of these new stores and remodels?

There's no real change in the cost of the build-out. The CapEx that we're forecasting for the current year is $20 million.

Okay. And any general comments in terms of the health of the core consumer for you guys? Any shift that you've noticed recently?

Yes, I can give you more detail on that, as we believe. I believe the overall macro environment for our customer is better than it was a year ago.

Unemployment for African-Americans has improved over the same time last year. In addition to that, low income employment has improved as well. Further, gas prices are still low compared to last year, and that is a positive for our customer as well; so, overall, a little bit better.

Okay, great. Thank you very much.

You're welcome.

Thank you. Our next question comes from Patrick McKeever of MKM Partners.

Thanks. Good morning, Jason. Good morning, Bruce. So, on the average ticket being down just a bit -- just wondering if you could just talk about the national brand penetration? I think you said 24% in the quarter, down from 26% a year ago. Do you think it's gotten to the point where it's -- brands are as low as they're going to get as a percentage of total sales?

And how do you see -- I mean, traffic continues to be very strong. How do you see ticket acting as we move forward into the year? And I mean, presumably, you've pretty much cycled the deliberate transition of the mix from brand to fashion. But could brands continue to slip as a percentage of total sales?

Sure, I can answer those questions. I think you're right. Brands at that 24% mark -- I think we're at a pretty good level right now. If anything, I see some opportunity for some more brands appearing, especially in men's and boys right now. So, I think we're at the right level. If anything, that could tick up a small amount.

And as that relates to ticket -- as you mentioned, AUS was down 2%. This slight increase was due in part to the strength of the home area. Home, which includes the impulse items on the Q-line, grew nicely in the first quarter. And that has a lower AUS than the other categories in the Company.

And while growth in home will put some pressure on AUS for the balance of the year, we have some nice offsets in apparel, specifically denim. As we work our way into back-to-school and the holiday, we see denim coming on strong this year. So, for the balance of 2015, we see AUS as basically flat to slightly down.

Okay. And then, on the new stores that you mentioned, including the one in Connecticut and the one in Massachusetts, which are new states for the Company -- I mean, it's been a while, I guess, since you've talked positively about new store openings and new store performance. And it sounds like you're more excited than you've been in a while about new stores -- even though the plan is pretty conservative for the year in terms of new store openings.

So, the question is: Are you doing something differently with the new stores? Has there been any change in the prototype? And do you think it's perhaps more a function of just the better and more constructive macro environment for your core customer -- maybe just a few comments on that area?

Sure. Overall, Patrick, we haven't done anything dramatically different with our new store concept or theme. But what I will tell you is that the overall health of our Business and the merchandise mix is much, much better. We're offering better value across the store. We're more on point in fashion trend. Our values, quite frankly, have never been better at Citi Trends.

There is much more breadth in the store than there ever has been in the past. So, I think these new openings are capturing a broader customer. I think there's a little bit more excitement there because Citi Trends is on better footing than it has been in the past. So, we have seen four very good openings, and we're excited about it, and especially in two new markets. So, that was very encouraging to see.

And are the stores opening in that -- I guess it was called the Citi Lights prototype? Is that the sign package and all?

Yes, it's interesting; we've tweaked a little bit of that. It's still sort of the Citi Lights; however, we have reverted these stores -- if you go into either one of them -- back to the original colors of teal, yellow and white versus the Citi Lights package, which was black, orange and white.

So, we have tweaked the color story a little bit. But it's still the core Citi Trends colors, just with a little bit of an update. And it's a racetrack format, not a center aisle.

Okay. All right. Thanks very much, Jason.

You bet.

Thank you.

(Operator Instructions)

Our next question comes from David Berman of Berman Capital.

Hey, well done, guys.

Thank you.

Most of the questions have been answered; just curious what the Board's plan is with the cash balance?

Sure. Bruce?

Yes. Thanks for the question, David. We really haven't changed our position on that, at this point. It is something that we discuss regularly with the Board, at every quarterly meeting. And in fact, we have another meeting coming up in June, and it will be a topic of discussion at that point. But, once again, nothing to report at this time.

Okay. Thanks for that, guys; keep it up.

Thank you.

Thank you. We have no further questions at this time. Mr. Mazzola, I'll turn the call back over to you for any closing remarks.

Okay. Thank you, operator. Thank you, everybody, for listening to the call, and everyone have a great day.

Thank you, ladies and gentlemen. That does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect all lines. Thank you, and have a good day.