10-Q 1 ctrn-20240504x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 4, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number  000-41886

CITI TRENDS, INC.

(Exact name of registrant as specified in its charter)

Delaware

52-2150697

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

104 Coleman Boulevard

Savannah, Georgia

31408

(Address of principal executive offices)

(Zip Code)

Registrants telephone number, including area code (912) 236-1561

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, $0.01 par value

CTRN

NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No 

As of May 25, 2024, the registrant had 8,595,297 outstanding shares of common stock, $0.01 par value per share.

CITI TRENDS, INC.

FORM 10-Q

TABLE OF CONTENTS

PAGE

NUMBER

PART I

FINANCIAL INFORMATION

Item 1

Financial Statements (unaudited)

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations

4

Condensed Consolidated Statements of Cash Flows

5

Condensed Consolidated Statements of Stockholders Equity

6

Notes to the Condensed Consolidated Financial Statements

7

Item 2

Managements Discussion and Analysis of Financial Condition and Results of Operations

11

Item 3

Quantitative and Qualitative Disclosures About Market Risk

15

Item 4

Controls and Procedures

15

PART II

OTHER INFORMATION

Item 1

Legal Proceedings

15

Item 1A

Risk Factors

15

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

16

Item 3

Defaults Upon Senior Securities

16

Item 4

Mine Safety Disclosures

16

Item 5

Other Information

16

Item 6

Exhibits

17

SIGNATURES

18

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Citi Trends, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share data)

    

May 4,

    

February 3,

    

 

    

2024

    

2024

    

 

Assets

Current assets:

Cash and cash equivalents

$

58,169

$

79,706

Inventory

 

119,014

 

130,432

Prepaid and other current assets

 

14,002

 

10,838

Income tax receivable

 

3,813

 

4,123

Total current assets

 

194,998

 

225,099

Property and equipment, net of accumulated depreciation of $288,437 and $276,446 as of May 4, 2024 and February 3, 2024, respectively

 

53,352

 

56,231

Operating lease right of use assets

226,918

231,281

Deferred income taxes

 

7,877

 

5,105

Other assets

 

957

 

1,005

Total assets

$

484,102

$

518,721

Liabilities and Stockholders Equity

Current liabilities:

Accounts payable

$

72,269

$

100,366

Operating lease liabilities

45,428

45,842

Accrued expenses

 

15,191

 

16,466

Accrued compensation

 

9,245

 

6,846

Layaway deposits

 

843

 

384

Total current liabilities

 

142,976

 

169,904

Noncurrent operating lease liabilities

 

184,463

 

188,810

Other long-term liabilities

 

1,831

 

2,301

Total liabilities

 

329,270

 

361,015

Stockholders equity:

Common stock, $0.01 par value. Authorized 32,000,000 shares; 16,340,729 shares issued as of May 4, 2024 and 16,354,714 shares issued as of February 3, 2024; 8,536,716 shares outstanding as of May 4, 2024 and 8,550,701 shares outstanding as of February 3, 2024

 

161

 

160

Paid in capital

 

106,237

 

105,686

Retained earnings

 

315,645

 

319,071

Treasury stock, at cost; 7,804,013 shares held as of May 4, 2024 and February 3, 2024

 

(267,211)

 

(267,211)

Total stockholders equity

 

154,832

 

157,706

Commitments and contingencies (Note 6)

Total liabilities and stockholders equity

$

484,102

$

518,721

See accompanying notes to the condensed consolidated financial statements (unaudited).

3

Citi Trends, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share amounts)

Thirteen Weeks Ended

May 4,

April 29,

    

2024

    

2023

 

Net sales

$

186,289

$

179,688

Cost of sales (exclusive of depreciation)

(114,254)

(113,659)

Selling, general and administrative expenses

(74,211)

(70,807)

Depreciation

(4,793)

(4,681)

Loss from operations

(6,969)

(9,459)

Interest income

849

1,023

Interest expense

(79)

(75)

Loss before income taxes

(6,199)

(8,511)

Income tax benefit

2,773

1,876

Net loss

$

(3,426)

$

(6,635)

Basic net loss per common share

$

(0.42)

$

(0.81)

Diluted net loss per common share

$

(0.42)

$

(0.81)

Weighted average number of shares outstanding

Basic

8,253

8,182

Diluted

8,253

8,182

See accompanying notes to the condensed consolidated financial statements (unaudited).

4

Citi Trends, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

Thirteen Weeks Ended

May 4,

April 29,

    

2024

    

2023

 

Operating activities:

Net loss

$

(3,426)

$

(6,635)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation

4,793

4,681

Non-cash operating lease costs

12,013

12,955

Loss on disposal of property and equipment

15

23

Deferred income taxes

(2,772)

(1,501)

Non-cash stock-based compensation expense

884

935

Changes in assets and liabilities:

Inventory

11,418

(8,528)

Prepaid and other current assets

(3,164)

(874)

Other assets

48

49

Accounts payable

(28,097)

9,179

Accrued expenses and other long-term liabilities

(14,494)

(19,982)

Accrued compensation

2,399

(2,337)

Income tax receivable/payable

310

(1,588)

Layaway deposits

459

568

Net cash used in operating activities

(19,614)

(13,055)

Investing activities:

Purchases of property and equipment

(1,590)

(950)

Net cash used in investing activities

(1,590)

(950)

Financing activities:

Cash used to settle withholding taxes on the vesting of nonvested restricted stock

(333)

(783)

Net cash used in financing activities

(333)

(783)

Net decrease in cash and cash equivalents

(21,537)

(14,788)

Cash and cash equivalents:

Beginning of period

79,706

103,495

End of period

$

58,169

$

88,707

Supplemental disclosures of cash flow information:

Cash paid for interest

$

41

$

39

Cash (refunds) payments of income taxes

$

(310)

$

1,213

Supplemental disclosures of non-cash investing activities:

Accrual for purchases of property and equipment

$

338

$

1,031

See accompanying notes to the condensed consolidated financial statements (unaudited).

5

Citi Trends, Inc.

Condensed Consolidated Statements of Stockholders Equity

(Unaudited)

(in thousands, except share amounts)

Common Stock

Paid in

Retained

Treasury Stock

Shares

Amount

Capital

Earnings

Shares

Amount

Total

Balances February 3, 2024

 

16,354,714

$

160

$

105,686

$

319,071

 

7,804,013

$

(267,211)

$

157,706

Vesting of nonvested shares

1

1

Issuance of nonvested shares

 

2,811

Forfeiture of nonvested shares

 

(5,178)

Stock-based compensation expense

884

884

Net share settlement of nonvested shares

 

(11,618)

(333)

(333)

Net loss

(3,426)

(3,426)

Balances May 4, 2024

 

16,340,729

$

161

$

106,237

$

315,645

 

7,804,013

$

(267,211)

$

154,832

Common Stock

Paid in

Retained

Treasury Stock

Shares

Amount

Capital

Earnings

Shares

Amount

Total

Balances January 28, 2023

 

16,158,494

$

160

$

102,445

$

331,050

 

7,804,013

$

(267,211)

$

166,444

Vesting of nonvested shares

1

1

Issuance of nonvested shares

1,500

Forfeiture of nonvested shares

 

(9,647)

Stock-based compensation expense

935

935

Net share settlement of nonvested shares

 

(33,432)

(1)

(782)

(783)

Net income

(6,635)

(6,635)

Balances April 29, 2023

 

16,116,915

$

160

$

102,598

$

324,415

 

7,804,013

$

(267,211)

$

159,962

See accompanying notes to the condensed consolidated financial statements (unaudited).

6

Citi Trends, Inc.

Notes to the Condensed Consolidated Financial Statements (unaudited)

May 4, 2024

1. Significant Accounting Policies

Basis of Presentation

Citi Trends, Inc. and its subsidiary (the Company) is a leading specialty value retailer of apparel, accessories and home trends for way less spend primarily for African American and multicultural families. As of May 4, 2024, the Company operated 599 stores in urban, suburban and rural markets in 33 states.

The condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim reporting and are unaudited. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The condensed consolidated balance sheet as of February 3, 2024 is derived from the audited financial statements in the Companys Annual Report on Form 10-K for the fiscal year ended February 3, 2024 (the 2023 Form 10-K). These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the 2023 Form 10-K. Operating results for the first quarter of 2024 are not necessarily indicative of the results that may be expected for the fiscal year as a result of the seasonality of the business and the current economic uncertainty.

Fiscal Year

The following contains references to fiscal years 2024 and 2023, which represent fiscal years ending or ended on February 1, 2025 and February 3, 2024, respectively. Fiscal 2024 has a 52-week accounting period, and fiscal 2023 had a 53-week accounting period.

2. Cash and Cash Equivalents/Concentration of Credit Risk

For purposes of the condensed consolidated balance sheets and condensed consolidated statements of cash flows, the Company considers all highly liquid investments with maturities at date of purchase of three months or less to be cash equivalents. Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and cash equivalents. The Company places its cash and cash equivalents in what it believes to be high credit quality banks and institutional money market funds. The Company maintains cash accounts that exceed federally insured limits.

3. Earnings per Share

Basic earnings per common share amounts are calculated using the weighted average number of common shares outstanding for the period. Diluted earnings per common share amounts are calculated using the weighted average number of common shares outstanding plus the additional dilution for all potentially dilutive securities, such as nonvested restricted stock. During loss periods, diluted loss per share amounts are based on the weighted average number of common shares outstanding, because the inclusion of common stock equivalents would be antidilutive.

The dilutive effect of stock-based compensation arrangements is accounted for using the treasury stock method. The Company includes as assumed proceeds the amount of compensation cost attributed to future services and not yet recognized. For the first quarter of 2024 and 2023, there were 272,000 and 102,000 shares of nonvested restricted stock, respectively, excluded from the calculation of diluted earnings per share because of antidilution.

7

The following table provides the weighted average number of common shares outstanding used to calculate basic earnings per share to the number of common shares and common stock equivalents outstanding used in calculating diluted earnings per share:

Thirteen Weeks Ended

    

May 4, 2024

    

April 29, 2023

Weighted average number of common shares outstanding (basic)

8,252,556

8,182,231

Incremental shares from assumed vesting of nonvested restricted stock

Weighted average number of common shares and common stock equivalents outstanding (diluted)

8,252,556

8,182,231

4. Revolving Credit Facility

In October 2011, the Company entered into a five-year, $50 million credit facility with Bank of America. The facility was amended in August 2015 and May 2020 to extend the maturity dates. The facility was further amended in April 2021 to modify terms and extend the maturity date to April 15, 2026. In May 2023, the facility was amended to replace the London Interbank Offered Rate (LIBOR) with the Secured Overnight Financing Rate (SOFR). The amended facility provides a $75 million credit commitment and a $25 million uncommitted accordion feature that under certain circumstances could allow the Company to increase the size of the facility to $100 million. The facility is secured by the Companys inventory, accounts receivable and related assets, but not its real estate, fixtures and equipment, and it contains one financial covenant, a fixed charge coverage ratio, which is applicable and tested only in certain circumstances. The facility has an unused commitment fee of 0.20% and permits the payment of cash dividends subject to certain limitations. Borrowings under the credit facility bear interest (a) for SOFR Loans, at a rate equal to the SOFR Rate plus a SOFR adjustment equal to 0.10% plus either 1.25%, 1.50% or 1.75%, or (b) for Base Rate Loans, at a rate equal to the highest of (i) the prime rate, (ii) the Federal Funds Rate plus 0.5% or (iii) the Eurodollar Rate plus 1.0%, plus, in each case either 0.25%, 0.50% or 0.75%, based in any such case on the average daily availability for borrowings under the facility.

As of May 4, 2024, the Company had no borrowings under the credit facility and $1.4 million of letters of credit outstanding.

5. Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. If there is a change in tax rates, the Company would recognize the impact of such change in income in the period that includes the enactment date.

For the first quarter of 2024, the Company utilized the annual effective tax rate method to calculate income taxes. For the first quarter of 2023, the Company used the discrete effective tax rate method to determine its tax expense based upon interim period results. The Company determined that since small changes in estimated ordinary income would result in significant changes in the estimated annual effective tax rate, the annual effective tax rate method would not have provided a reliable estimate for the first quarter of 2023.

6. Commitments and Contingencies

The Company from time to time is involved in various legal proceedings incidental to the conduct of its business, including claims by customers, landlords, employees or former employees. Once it becomes probable that the Company will incur costs in connection with a legal proceeding and such costs can be reasonably estimated, the Company establishes appropriate reserves. While legal proceedings are subject to uncertainties and the outcome of any such matter is not predictable, the Company is not aware of any legal proceedings pending or threatened against it that it expects to have a material adverse effect on its financial condition, results of operations or liquidity.

8

7. Stock Repurchases

The Company periodically repurchases shares of its common stock under board-authorized repurchase programs. Such repurchases may be made in the open market, through block trades or through other negotiated transactions. There were no stock repurchases in the first quarter of fiscal 2024 or the first quarter of fiscal 2023.

At May 4, 2024, $50.0 million remained available under the Companys stock repurchase authorization.

8. Revenue

Revenue Recognition

The Companys primary source of revenue is derived from the sale of clothing and accessories to its customers with the Companys performance obligations satisfied immediately when the customer pays for their purchase and receives the merchandise. Sales taxes collected by the Company from customers are excluded from revenue. Revenue from layaway sales is recognized at the point in time when the merchandise is paid for and control of the goods is transferred to the customer, thereby satisfying the Companys performance obligation. The Company defers revenue from the sale of gift cards and recognizes the associated revenue upon the redemption of the cards by customers to purchase merchandise.

Sales Returns

The Company allows customers to return merchandise for up to 30 days after the date of sale. Expected refunds to customers are recorded based on estimated margin using historical return information.

Disaggregation of Revenue

The Companys retail operations represent a single operating segment based on the way the Company manages its business. Operating decisions and resource allocation decisions are made at the Company level in order to maintain a consistent retail store presentation. The Companys retail stores sell similar products, use similar processes to sell those products, and sell their products to similar classes of customers.

In the following table, the Companys revenue from contracts with customers is disaggregated by CITI or major merchandise category. The percentage of net sales for each CITI with the merchandise assortment was approximately:

Thirteen Weeks Ended

May 4,

    

April 29,

2024

    

2023

Ladies

29

%

29

%

Kids

22

%

22

%

Accessories & Beauty

17

%

18

%

Mens

15

%

16

%

Home & Lifestyle

10

%

8

%

Footwear

7

%

7

%

9. Leases

The Company leases its retail store locations, distribution centers, and certain office space and equipment. Leases for store locations are typically for a term of five years with options to extend for one or more five-year periods.

The Company analyzes all leases at inception to determine if a right-of-use asset and lease liability should be recognized. Leases with an initial term of 12 months or less and leases with mutual termination clauses are not included on the condensed consolidated balance sheets. The lease liability is measured at the present value of future lease payments as of the lease commencement date.

9

Total lease cost is comprised of operating lease costs, short-term lease costs, and variable lease costs, which include rent paid as a percentage of sales, common area maintenance, real estate taxes and insurance for the Companys real estate leases. Lease costs consisted of the following (in thousands):

Thirteen Weeks Ended

May 4, 2024

April 29, 2023

Operating lease cost

$

15,391

$

15,791

Variable lease cost

 

2,622

 

2,860

Short term lease cost

 

712

 

393

Total lease cost

$

18,725

$

19,044

Future minimum lease payments as of May 4, 2024 are as follows (in thousands):

Fiscal Year

    

Lease Costs

 

 

Remainder of 2024

    

$

41,116

2025

54,565

2026

 

43,274

2027

 

32,453

2028

 

24,371

Thereafter

 

103,959

Total future minimum lease payments

299,738

Less: imputed interest

(69,847)

(1)

Total present value of lease liabilities

$

229,891

(2)

(1)Calculated using the discount rate for each lease.
(2)Includes short-term and long-term portions of operating lease liabilities.

Certain operating leases provide for fixed monthly rents, while others provide for contingent rents computed as a percentage of net sales and others provide for a combination of both fixed monthly rents and contingent rents computed as a percentage of net sales.

Supplemental cash flows and other information related to operating leases are as follows (in thousands, except for weighted average amounts):

    

Thirteen Weeks Ended

May 4, 2024

April 29, 2023

Cash paid for operating leases

    

$

15,302

$

20,820

Right of use assets obtained in exchange for new operating lease liabilities

$

7,651

$

8,195

 

 

Weighted average remaining lease term (years) - operating leases

 

7.47

 

7.75

Weighted average discount rate - operating leases

5.18%

4.60%

10. Subsequent Events

As previously disclosed in the Companys Form 8-K filed on May 7, 2024, the Company and Equiniti Trust Company, LLC (the Rights Agent) entered into the Second Amendment to the Stockholder Protection Rights Agreement, dated as of May 7, 2024 (the Amendment), which amended the Stockholder Protection Rights Agreement, dated as of December 6, 2023, by and between the Company and the Rights Agent, as amended by that certain Amendment to the Stockholder Protection Rights Agreement, dated as of February 28, 2024 (as amended, the Rights Agreement).

The Amendment terminated the Rights Agreement by accelerating the expiration time of the Companys preferred share purchase rights (each, a Right and, collectively, the Rights) to 5:00 P.M., New York City time, on May 7, 2024. At the time of the termination of the Rights Agreement, all of the Rights, which were previously distributed to holders of the Companys issued and outstanding common stock, par value $0.01, pursuant to the Rights Agreement, expired. In deciding to accelerate the expiration time to May 7, 2024, the Company's Board of Directors determined that an active Rights Agreement is no longer needed to protect stockholder value.

10

As previously disclosed in the Companys Form 8-K filed on May 31, 2024, the Companys Board of Directors appointed Kenneth D. Seipel as interim Chief Executive Officer (CEO), effective June 2, 2024. In connection with the appointment, David Makuen has stepped down as CEO and a member of the Companys Board of Directors.  The Boards independent members will commence a search for a new permanent Chief Executive Officer and plan to retain a nationally recognized executive search firm to support the process. The Board will consider external candidates, as well as Mr. Seipel, in the search.

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Except for specific historical information, many of the matters discussed in this Form 10-Q may express or imply projections of revenues or expenditures, statements of plans and objectives for future operations, growth or initiatives, statements of future economic performance, capital allocation expectations or statements regarding the outcome or impact of pending or threatened litigation. These, and similar statements, are forward-looking statements concerning matters that involve risks, uncertainties and other factors that may cause the actual performance of the Company to differ materially from those expressed or implied by these statements. All forward-looking information should be evaluated in the context of these risks, uncertainties and other factors. The words believe, anticipate, project, plan, expect, estimate, objective, forecast, goal, intend, could, will likely result, or will continue and similar words and expressions generally identify forward-looking statements, although not all forward-looking statements contain such language. The Company believes the assumptions underlying these forward-looking statements are reasonable; however, any of the assumptions could be inaccurate, and therefore, actual results may differ materially from those projected in the forward-looking statements.

The factors that may result in actual results differing from such forward-looking information include, but are not limited to: uncertainties relating to general economic conditions, including inflation, energy and fuel costs, unemployment levels, and any deterioration whether caused by acts of war, terrorism, political or social unrest (including any resulting store closures, damage or loss of inventory) or other factors; changes in market interest rates and market levels of wages; natural disasters such as hurricanes; uncertainty and economic impact of pandemics, epidemics or other public health emergencies; transportation and distribution delays or interruptions; changes in freight rates; the Companys ability to attract and retain workers; the Companys ability to negotiate effectively the cost and purchase of merchandise; inventory risks due to shifts in market demand; the Companys ability to gauge fashion trends and changing consumer preferences; changes in consumer confidence and consumer spending patterns; competition within the industry; competition in our markets; the duration and extent of any economic stimulus programs; changes in product mix; interruptions in suppliers businesses; the impact of the cyber disruption we identified on January 14, 2023, including legal, reputational, financial and contractual risks resulting from the disruption, and other risks related to cybersecurity, data privacy and intellectual property; the results of pending or threatened litigation; temporary changes in demand due to weather patterns; seasonality of the Companys business; delays associated with building, opening, remodeling and operating new stores; delays associated with building, opening or expanding new or existing distribution centers; and other factors described in the section titled Item 1A. Risk Factors and elsewhere in the Companys Annual Report on Form 10-K for the fiscal year ended February 3, 2024 and in Part II, Item 1A. Risk Factors and elsewhere in the Companys Quarterly Reports on Form 10-Q and any amendments thereto and in the other documents the Company files with the SEC, including reports on Form 8-K.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. Except as may be required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements contained herein to reflect events or circumstances occurring after the date of this Form 10-Q or to reflect the occurrence of unanticipated events. Readers are advised, however, to read any further disclosures the Company may make on related subjects in its public disclosures or documents filed with the SEC, including reports on Form 8-K.

Executive Overview

We are a leading specialty value retailer of apparel, accessories and home trends for way less spend primarily for African American and multicultural families. Our high-quality and trend-right merchandise offerings at everyday low prices are designed to appeal to the fashion and trend preferences of value-conscious customers. As of May 4, 2024, we operated 599 stores in urban, suburban and rural markets in 33 states.

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Uncertainties and Challenges

General Economic Conditions

We expect that our operations in the short-term will continue to be influenced by general economic conditions, including on-going inflationary pressures, which are particularly impactful to the communities we serve. Given the macro-economic environment, we expect low-income families to remain under pressure and to tightly manage their discretionary spend through the majority of fiscal 2024. In addition, we continue to monitor the impacts on our business of unemployment levels, wage inflation, interest rates, inflation rates, housing costs, energy costs, consumer confidence, consumer perception of economic conditions, costs to source our merchandise and supply chain disruptions.

Seasonality and Weather Patterns

The nature of our business is seasonal. Historically, sales in the first and fourth quarters have been higher than sales achieved in the second and third quarters of the fiscal year. In addition, sales of clothing are directly impacted by the timing of the seasons to which the clothing relates. While we have expanded our product offerings to become a one-stop-shop, traffic to our stores is still influenced by weather patterns to some extent.

Cyber Disruption (January 2023)

As previously disclosed, in January 2023, we experienced a disruption of our back office and distribution center IT systems, (the January 2023 cyber disruption). In the first quarter of fiscal 2023, cyber disruption related costs net of an expected insurance receivable totaled $1.6 million, comprised of incremental inventory processing costs, third-party consulting services and legal counsel.

Several putative class action lawsuits have been filed against the Company and several inquiries have been made to the Company with respect to the January 2023 cyber disruption. As of May 4, 2024, we had an accrual of $0.7 million for estimated losses in connection with these matters recorded in Accrued expenses on our Balance Sheet. For additional information regarding these lawsuits, see Note 7 of the Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

Basis of Presentation

Net sales consist of store sales and layaway fees, net of returns by customers. Cost of sales consists of the cost of products we sell and associated freight costs. Depreciation is not considered a component of cost of sales and is included as a separate line item in the consolidated statements of operations. Selling, general and administrative expenses are comprised of store costs, including payroll and occupancy costs, corporate and distribution center costs and advertising costs.

The following discussion contains references to fiscal years 2024 and 2023, which represent fiscal years ending or ended on February 1, 2025 and February 3, 2024, respectively. Fiscal 2024 has a 52-week accounting period and fiscal 2023 had a 53-week accounting period. This discussion and analysis should be read with the unaudited condensed consolidated financial statements and the notes thereto contained in Part I, Item 1 of this Report.

Results of Operations

The following discussion of the Companys financial performance is based on the unaudited condensed consolidated financial statements set forth herein. Expenses and, to a greater extent, operating income, vary by quarter. Results of a period shorter than a full year may not be indicative of results expected for the entire year as a result of the seasonality of our business and the current economic uncertainty.

Key Operating Statistics

We measure performance using key operating statistics. One of the main performance measures we use is comparable store sales growth. For 2024, we are updating our definition of a comparable store. We now define a comparable store as a store that has been open for at least 14 full consecutive months without closure for more than seven days within the same fiscal month. Remodeled or relocated stores are considered a comparable store if the selling square footage is not changed significantly, the store is not closed for more than 5 days in any fiscal month and the store remains in the same trade area. This change aligns more with industry standards in regard to measuring comp store sales performance. This change is effective for fiscal year 2024 and go forward. For fiscal year 2024, the definition change results in 6 stores becoming

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comparable stores in 2024, which would not have become a comparable store until 2025 under the prior definition. The revised definition would result in no change to the full year 2023 comparable store sales results of 5.3%.

We also use other operating statistics, most notably average sales per store, to measure our performance. As we typically occupy existing space in established shopping centers rather than sites built specifically for our stores, store square footage (and therefore sales per square foot) varies by store. We focus on overall store sales volume as the critical driver of profitability. In addition to sales, we measure cost of sales as a percentage of sales and store operating expenses, with a particular focus on labor, as a percentage of sales. These results translate into store level contribution, which we use to evaluate overall performance of each individual store. Finally, we monitor corporate and distribution center expenses against budgeted amounts.

Thirteen Weeks Ended May 4, 2024 and April 29, 2023

Net Sales. Net sales increased $6.6 million, or 3.7%, to $186.3 million in the first quarter of 2024 from $179.7 million in the first quarter of 2023. The increase in sales was due to a 3.1% increase in comparable store sales.

Cost of Sales (exclusive of depreciation). Cost of sales (exclusive of depreciation) increased $0.6 million, or 0.5%, to $114.3 million in the first quarter of 2024 from $113.7 million in the first quarter of 2023. Cost of sales as a percentage of sales decreased to 61.3% in the first quarter of 2024 from 63.3% in the first quarter of 2023. The change was due to a decrease in freight costs, along with a decrease in markdowns, offset by an increase in shrink expense.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $3.4 million, or 4.8%, to $74.2 million in the first quarter of 2024 from $70.8 million in the first quarter of 2023. The increase was primarily due to a $1.9 million increase in corporate payroll related expense, a $0.7 million increase in store marketing and advertising expense and a $0.9 million increase in store selling expenses. As a percentage of sales, selling, general and administrative expenses increased to 39.8% in the first quarter of 2024 from 39.4% in the first quarter of 2023.

Depreciation. Depreciation expense increased $0.1 million, or 2.4%, to $4.8 million in the first quarter of 2024 from $4.7 million in the first quarter of 2023.

Income Tax Benefit/Expense. Income tax benefit was $2.8 million in the first quarter of 2024 compared to a benefit of $1.9 million in the first quarter of 2023. For the first quarter of 2024, we used the annual effective tax rate to determine income tax expense, and for the first quarter of 2023 we used the discrete effective tax rate method to determine income tax expense based upon interim period results.

Net Income/Loss. Net loss was $3.4 million in the first quarter of 2024 compared to net loss of $6.6 million in the first quarter of 2023 due to the factors discussed above.

Liquidity and Capital Resources

Capital Allocation

Our capital allocation strategy is to maintain adequate liquidity to prioritize investments in opportunities to profitably grow our business and maintain current operations, then to return excess cash to shareholders through our repurchase programs. Our quarter-end cash and cash equivalents balance was $58.2 million compared to $88.7 million at the end of the first quarter of 2023. Until required for other purposes, we maintain cash and cash equivalents in deposit or money market accounts.

Our principal sources of liquidity consist of: (i) cash and cash equivalents on hand; (ii) short-term trade credit arising from customary payment terms and trade practices with our vendors; (iii) cash generated from operations on an ongoing basis; and (iv) a revolving credit facility with a $75 million credit commitment.

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Inventory

Our quarter-end inventory balance was $119.0 million, compared with $114.3 million at the end of the first quarter of 2023. The increase was primarily due to a strategic increase in our average in-store inventory.

Capital Expenditures

Capital expenditures in the first quarter of 2024 were $1.6 million, an increase of $0.6 million from the first quarter of 2023 as we invest in more existing store remodels. We anticipate capital expenditures in fiscal 2024 of approximately $20 million, primarily for opening up to five new stores and remodeling approximately 40 stores, combined with ongoing investments in our systems.

Share Repurchases

We did not repurchase any shares of our common stock in the first quarter of fiscal 2024 or fiscal 2023. See Part II, Item 2 of this Report and Note 7 to the Financial Statements for more information.

Revolving Credit Facility

We have a revolving credit facility that matures in April 2026 and provides a $75 million credit commitment and a $25 million uncommitted accordion feature. Additional details of the credit facility are in Note 4 to the Financial Statements. At the end of the first quarter of 2024, we had no borrowings under the credit facility and $0.6 million in letters of credit outstanding.

Cash Flows

Cash Flows From Operating Activities. Net cash used in operating activities was $19.6 million in the first quarter of 2024 compared to cash used of $13.1 million in the first quarter of 2023. Sources of cash in the first quarter of 2024 resulted from a net loss adjusted for non-cash expenses totaling $11.5 million (compared to a net loss adjusted for non-cash items of $10.5 million in the first quarter of 2023), and a decrease of $11.4 million in inventory (compared to an increase of $8.5 million in 2023).

Significant uses of cash during the first quarter of 2024 included (1) a $28.1 million decrease in accounts payable (compared to an increase of $9.1 million in the first quarter of 2023) due primarily to timing of vendor payments; and (2) a decrease of $14.5 million in accrued expenses and other long-term liabilities (compared to a decrease of $20.0 million in the first quarter of 2023) due primarily to payments of operating lease liabilities.

Cash Flows From Investing Activities. Cash used by investing activities was $1.6 million in the first quarter of 2024 compared to $1.0 million in the first quarter of 2023. Cash used in the first quarter of 2024 and 2023 consisted of purchases of property and equipment.

Cash Flows From Financing Activities. Cash used in financing activities was $0.3 million in the first quarter of 2024 compared to $0.8 million in the first quarter of 2023. Cash used in the first quarter of 2024 and 2023 was to settle withholding taxes on the vesting of restricted stock.

Cash Requirements and Commitments

Our principal cash requirements consist of (1) inventory purchases; (2) capital expenditures to invest in our infrastructure; and (3) operational needs, including salaries, occupancy costs, taxes and other operating costs. We may also use cash to fund any share repurchases, make any required debt payments and satisfy other contractual obligations. Historically, we have met these cash requirements using cash flow from operations and short-term trade credit. As of May 4, 2024, our contractual commitments for operating leases totaled $229.9 million (with $41.1 million due within 12 months). See Note 9 to the Financial Statements for more information regarding lease commitments.

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Critical Accounting Policies

The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

There have been no material changes to the Critical Accounting Policies outlined in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our market risk during the thirteen weeks ended May 4, 2024 compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

Item 4. Controls and Procedures.

We have carried out an evaluation under the supervision and with the participation of management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of May 4, 2024 pursuant to Rules 13a-15 and 15d-15 of the Exchange Act. Based on that evaluation, the principal executive officer and the principal financial officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information has been accumulated and communicated to our management, including the officers who certify our financial reports, as appropriate, to allow timely decisions regarding the required disclosures.

Our disclosure controls and procedures are designed to provide reasonable assurance that the controls and procedures will meet their objectives. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended May 4, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings.

We are from time to time involved in various legal proceedings incidental to the conduct of our business, including claims by customers, landlords, employees or former employees. Once it becomes probable that we will incur costs in connection with a legal proceeding and such costs can be reasonably estimated, we establish appropriate reserves. While legal proceedings are subject to uncertainties and the outcome of any such matter is not predictable, we are not aware of any legal proceedings pending or threatened against us that we expect to have a material adverse effect on our financial condition, results of operations or liquidity.

Item 1A. Risk Factors.

There have been no material changes to the Risk Factors described under the section Item 1A. RISK FACTORS in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Information on Share Repurchases

The Company did not repurchase any shares in the first quarter of 2024. At May 4, 2024, $50.0 million remained available under the Companys stock repurchase authorization.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

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Item 6. Exhibits.

3.1

Third Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed with the SEC on June 7, 2018).

3.2

Fourth Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Companys Current Report on Form 8-K filed with the SEC on October 31, 2022).

3.3

Certificate of Designation of Series A Junior Participating Preferred Stock of Citi Trends, Inc. (incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed with the SEC on December 8, 2023).

3.4

Certificate of Elimination of the Series A Junior Participating Preferred Stock of Citi Trends, Inc. (incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed with the SEC on May 7, 2024).

4.1

Amendment to the Stockholder Protection Rights Agreement, dated as of February 28, 2024, between Citi Trends, Inc. and Equiniti Trust Company, LLC, as Rights Agent (incorporated by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K filed with the SEC on February 29, 2024).

4.2

Second Amendment to the Stockholder Protection Rights Agreement, dated as of May 7, 2024, between Citi Trends, Inc. and Equiniti Trust Company, LLC, as Rights Agent (incorporated by reference to Exhibit 4.3 to the Companys Current Report on Form 8-K filed with the SEC on May 7, 2024).

10.1

Cooperation Agreement, dated February 28, 2024, by and between Citi Trends, Inc. and Fund 1 Investments, LLC (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the SEC on February 29, 2024).

10.2

Separation Agreement, dated May 31, 2024, to be effective as of June 1, 2024, between David N. Makuen and Citi Trends, Inc. (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the SEC on May 31, 2024).*

31.1

Certification of Principal Executive Officer, Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.+

31.2

Certification of Principal Financial Officer, Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.+

32.1

Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.+

101

Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1, Financial Statements of this Quarterly Report on Form 10-Q.+

104

Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.+

+      Included herewith.

*        Indicates management contract for compensatory plan or arrangement

       Pursuant to Securities and Exchange Commission Release No. 33-8238, this certification will be treated as accompanying this Quarterly Report on Form 10-Q and not filed as part of such report for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of Section 18 of the Securities Exchange Act of 1934 and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, and the undersigned also has signed this report in her capacity as the Registrants Principal Financial Officer.

CITI TRENDS, INC.

Date: June 12, 2024

By:

/s/ Heather Plutino

Name:

Heather Plutino

Title:

Chief Financial Officer

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