Citi Trends, Inc. Q3 FY2025 earnings call

• Transformation strategy is gaining momentum with a goal to achieve $45 million of EBITDA in 2027.
• Third quarter had strong comp sales growth driven by increased customer traffic, with broad-based growth across categories.
• Focused on the African American customer, with cultural relevance as a competitive advantage. Implemented a new CRM and loyalty platform.
• Three-tiered product strategy: city score (value basics), core (better tier), best (extreme value).
• Remodeled 24 stores and opened 3 new stores in the quarter. Plan to open 25 stores in 2026 and 40+ in 2027.
• Implemented AI-based allocation system, improved supply chain efficiency, and used KPIs/dashboards for visibility.

In the third quarter, total sales were $197.1 million, up 10.1% compared to Q3 2024. Comparable store sales increased 10.8%, with a 16.5% two-year stack. Gross margin was 38.9%, which was in line with expectations. Adjusted SG&A expense totaled $79.5 million, an increase from the prior year due to higher incentive compensation and store/DC expenses. Adjusted EBITDA for the quarter was a loss of $2.9 million. Year-to-date, comparable store sales increased 10% with a two-year comp stack of 12.3%, and adjusted nine-month EBITDA was a loss of $100,000, an improvement from the prior year.

• Full-year comp store sales growth is expected to be high single digits, at the high end of previous outlook.
• Full-year gross margin expansion is approximately 230 basis points versus 2024.
• SG&A is expected to leverage approximately 90 basis points versus last year.
• Full-year EBITDA is expected to be in the range of $10 million to $12 million, an increase from prior guidance.
• Q4 comps are expected to be up high single digits with a two-year stack in the mid-teens, gross margin in the range of 40% to 41%, and EBITDA in the range of $10 million to $12 million.

• Macro disruptions could impact off-price deal flow.
• Need for continued execution improvement in many areas of the business.
• Shrink rate is still higher than desired, which could impact margins if not mitigated.

Q: Michael Baker asked about merchandising opportunities and where incremental sales would come from.

A: Ken Seipel mentioned broad-based growth across categories, with opportunities in young men's, women's plus sizes, footwear, and continued growth in kids and extreme value deals.

Q: Michael Baker followed up on Q3 pace and government shutdown impact.

A: Ken Seipel and Heather Plutino stated no major impact from government shutdown, with consistent shopping patterns and strong performance in August and October.

Q: Jeremy Hamblin asked about extreme value deals, store fleet cadence, shrink mitigation, and CRM.

A: Ken Seipel discussed extreme value deals at 2-3% of business with potential to grow to 10%, store openings cadence in 2026, Heather Plutino talked about shrink mitigation with new camera systems and plans for 2026, and Ken Seipel mentioned CRM implementation in Q1 2026 with an 'insiders club' for loyalty and convenience.