Citi Trends Inc (CTRN) 2017 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Citi Trends Second Quarter 2017 Earnings Conference Call. (Operator Instructions)

As a reminder, this conference is being recorded today, Wednesday, August 16, 2017.

I would now like to turn the conference over to Mr. Tom Filandro, Managing Director at ICR. Please go ahead, sir.

Thank you, Leila. Good morning, everyone.

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 this 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 and other subsequent filings 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 will now turn the call over to Bruce Smith, acting Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. Bruce?

Thanks, Tom. Good morning, everybody, and thank you for joining us today. Also on the call to participate in the question-and-answer session are our 2 general merchandise managers, Christina Short and Brian Lattman.

We are pleased to report that the sales momentum that we saw in the first quarter accelerated in the second quarter. As I will discuss in more detail later, our second quarter sales performance was broad-based, with all 5 major merchandise categories contributing to the sales increase as we continue to focus on delivering fashion merchandise at great values to our customer base.

Now for details on the second quarter results.

Total sales in the second quarter increased 7% to $166 million, including a comparable store sales increase of 4.6%. The positive comp store sales in the second quarter reflected an increase of 3% in the number of customer transactions and a 2.5% increase in the average number of items per transaction, partially offset by a 1% decrease in the average unit sale. After experiencing higher customer transaction counts in each of the past 5 years, we are off to another excellent start in 2017 in our efforts to continue increasing the number of visits from our existing customer base while also attracting new customers to Citi Trends. The average number of items per transaction has also increased in 5 consecutive years leading up to 2017, driven largely by the expansion of our Accessory and Home categories.

In looking at comp store sales for the individual merchandise categories, the Home division again led the way with a 25% increase on top of a strong 30% increase in last year's second quarter. We have now had comp increases in Home for 20 consecutive quarters, 17 of which were double-digit increases.

Accessories were up 7% in this year's second quarter after increasing 4% in the second quarter of 2016. Going back 5 years, Accessories have increased in 18 of the last 20 quarters.

The consistent improvement in the Accessory and Home businesses over a number of years has enabled us to offer a greater breadth of merchandise selection, providing our customers a reason to shop Citi Trends for more than just apparel needs.

Targeting our customers' broader lifestyle needs has resulted in nonapparel sales increasing to 37% of total sales from 22% just 5 years ago.

In addition to increasing the average number of items sold per transaction as a result of the wider selection, nonapparel merchandise provides a slightly higher gross margin, further helping our profitability.

The Ladies business continued to perform well, increasing 4% in comp stores during the quarter after being down 6% in last year's second quarter. Men's comp store sales increased for the third straight quarter, increasing 2% this year after being flat last year. And within our Children's division, we were pleased with a 1% comp sales increase after decreasing 8% last year. The boys' business has been strong, and the newborn infant and toddler portion of the Children's category has improved as a result of our efforts to drive better values there.

Comparable store sales by month in the second quarter were up 4% in May, up 1% in June and up 10% in July. Thus far, 2 weeks into the third quarter, we are off to a good start in our back-to-school season with a 5% increase in comp store sales.

In the first half of the year, total sales increased nearly 5%, while comparable store sales were up 2.6%.

Cost of goods sold as a percentage of sales increased 20 basis points in the second quarter and 30 basis points in the first 6 months of 2017 due primarily to higher freight costs.

Second quarter SG&A expenses, adjusted for the costs of the proxy contest, increased 5%, reflecting the impacts associated with a 3% increase in store count, normal inflation and the strong sales results. As a percent of sales, SG&A expenses dropped 10 basis points to 36% in the quarter, and it is important to note that the SG&A ratio decreased 70 basis points when adjusted for the proxy contest expenses.

Year-to-date, SG&A expenses as a percent of sales have increased 10 basis points to 32.9% while declining 60 basis points after adjusting for costs related to the proxy contest.

Net loss in the second quarter was $200,000 or $0.01 per share compared with a loss of $100,000 or $0.01 per share last year. However, adjusting for the proxy contest expenses, we did earn $400,000 of net income in the second quarter, equivalent to $0.03 per share.

Year-to-date, the company has net income of $8.7 million or $0.59 per share compared with $8.6 million or $0.59 per share earned in last year's first half. However, this year's first half net income was $10.4 million when adjusted for the contest expenses, representing a 21% increase over last year.

In other second quarter developments, we successfully opened 7 new stores. Also, in connection with our expanded capital return program, during the quarter we repurchased nearly all $25 million of stock under the share repurchase program authorized by our board earlier this year. And we paid an $0.08 dividend per share, representing a 33% increase over last year's dividend rate.

By quarter-end, the outstanding share count had declined to 13.7 million, which should be a reasonable guide to use in computing estimates of earnings per share for the second half of 2017.

Looking forward, we plan to continue growing the Home and Accessories businesses that have been so productive for us in recent years while maintaining our focus on providing our customers with highly fashionable apparel at great values in Ladies, Men's and Children's.

We are also close to beginning the rollout of the next stage of enhancements to our merchandise planning and allocation systems, which are designed to improve our ability to better tailor the merchandise mix on a store-by-store basis. This represents a key strategic initiative to support our efforts to continue the sales momentum and improve our gross margin and inventory turns.

Leila, now we'll now take any questions.

(Operator Instructions)

And our first question comes from the line of Patrick McKeever with MKM Partners.

Just a question on the -- I mean, I think the state of Georgia eliminated the tax holiday, the back-to-school tax holiday this year. Wondering -- since that's a pretty important state for you, I'm wondering if that had any impact on -- it doesn't sound like it -- in July since comps were up 10. But any impact on the month of July? And I think it kind of straddles -- the impact would straddle both the very end of the second quarter and the very beginning of the third quarter. So wondering if there's been any impact August month to date. And then just a question on the CEO position. Wondering if you have an update on the search process and if there's any news there.

Thanks for the questions, Patrick. As far as the shift in the tax-free holiday in Georgia, it was not a significant impact for us. The last week of July was still up. It was just not up as much as the other weeks during the month. And so whatever impact we got -- had there, it did flow over to the first week of August, but it was not significant. Georgia stores are a little over 10% of our base, and, therefore, it just was not significant. As far as the CEO search goes, the board has been working with a search firm, as we talked about last quarter. They are continuing the process of evaluating and interviewing candidates. However, at this point, there's still nothing to report.

And then a question on the -- all the store closures across particularly specialty apparel and the department store space, I guess, as well. Are you feeling any impact one way or the other there? Do you think the liquidation sales have had any impact on your business, hurt your business, for example? And just, I guess, on the other end, on the merchandise opportunity side of things, I mean, do you feel like you're getting better merchandise buying opportunities at -- just from some of the dislocation that's occurring across the apparel space?

As far as the liquidation sales go, those really don't have much impact on us, if any, at all. It'd be very difficult to measure, but it's not something that has ever impacted us to any great extent. And even what little bit it might impact us, it's very short in terms of the term that it runs. And then -- so the other question was about, oh, the -- whether we have opportunistic buys as a result of the dislocation. There is plenty of merchandise out in the market. I would not say that there's any more now than there has been in the past year or 2. But then again, in the past year or 2, there have been a number of store closings just like there are right now. So merchandise availability has not been an issue for us.

(Operator Instructions)

Mr. Smith, there seems to be no further questions on the phone lines, so I'll turn the call back to you.

Okay. Thank you, Leila. And thank you, everybody, for joining us today.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and we ask that you please disconnect your line.