Citi Trends (CTRN, Financial), a value-priced retailer of urban fashion accessories and apparel, reported a better second quarter after having grim past quarters, and analysts are now expecting more from the company in the pursuant quarters. As the company is turning around strategies for improving its top and bottom line, it seems that the bright days are soon to be back for the retailer that had been trailing in quite a few quarters, even though it did post good figures in the first quarter of 2014 when compared to last year. Let’s dig in further to find out what strategies the company is adopting to grow both its sales and profits in the future quarters. But let’s also give a recap of the second quarter results that were posted on August 20. Here we go.
The second quarter recap
After a good first quarter for fiscal 2014, Citi Trends posted a much better second quarter earnings as the company’s second-quarter loss stood at $0.17 per share marking an improvement from the loss of $0.37 per share reported in the year-ago quarter. The company’s comparable sales was the best over the past four years in the quarter, an improvement of gross margin as percentage of sales was noticed and profits were on the higher side.
Sales of $145 million were reported in the quarter, up 5.2% from last year. It even crossed the Zacks analysts’ estimate of $140 million for the second quarter. The jump in sales could be attributed to strong performance noticed in the accessories and footwear business lines which contributed to the core of the revenue earned in the quarter.
As number of transactions rose by 7% in the quarter, comps in the quarter rose 5.3% from the year-ago quarter. On the basis of merchandise categories, comps in the home division rose 28% and accessories comps improved 24% compared to last year similar period.
Gross margins improved by 100 basis points driven by lower markdowns due to rise in merchandise sales coupled with strong inventory growth that aided in keeping the cost of sales at a lower end. The operating loss came to $4.9 million compared to a loss of $8.9 million reported in the year-ago comparable quarter.
Let’s find out the major reasons why the financials of Citi Trends is gradually picking up in this fiscal year, and whether it has anything to do with the company strategies. Let’s check that out.
Growing store count
As the company has been highly conservative in its approach to opening new stores, it had opened only 4 stores towards the end of the second quarter. The company has shared plans to open another 4 stores by the fall of 2014.
Additionally, the company has decided on the expansion or relocation of 8 stores and is also initiating minor remodeling of nearly 20 stores to further improve its comp sales in the forthcoming quarters.
Also, by better utilization of the floor area, Citi Trends hopes to survive in a highly challenging and promotional industry backdrop.
Offering greater discounts
To compete with rivals like Walmart (WMT, Financial) and TJX Companies Inc. (TJX, Financial), the company is ready to offer 30% to 70% discount on its products. This serves as the pull factor for the merchandise which gets sold easily and aids in reducing the inventory buildup.
Besides the company is focusing on the African-Americans who are usually left unnoticed by mass retailers –Â thus they are serving as the company’s niche focus group. The discount approach serves well in the current sluggish economy when customers have become value conscious and are looking for cheaper alternatives while buying merchandise.
Final thoughts
Citi Trends seems to be on a fabulous growth path with accessories such as footwear contributing phenomenally to its sales surge this fiscal year. As the third quarter results should be around the corner in a month or so, it can be concluded that its clear customer value proposition, offering heavy discounts on a range of merchandise and strong turnaround strategies linked to store openings are helping in comparable sales taking its peak which is expected to reach newer heights in the upcoming quarters.
