Citi Trends, Inc.
Q1 2019 Earnings Call Transcript

Published: 23 May 2019

[Operator:]

Greetings and welcome to the Citi Trends CTRN First Quarter 2019 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session . As a reminder, this conference is being recorded Thursday, May 23, 2019. I would now like to turn the conference over to Michelle McKee, Senior Associate. Please go ahead.

[Unidentified Company Representative:]

Thank you. Our earnings release was sent out this morning at 6

[Bruce Smith:]

Thanks, Nicha . Good morning everybody and thank you for joining us today. Also on the call is our Chief Financial Officer, Stuart Clifford; and our two merchandising Senior Vice Presidents, Christina Short and Brian Lattman. First quarter sales results were challenging during the period of income tax refund activity and in particular our apparel business was disappointing. Historically, tax refunds have provided a substantial benefit to our first quarter sales, however this year that benefit was tempered by a daily in refunds as well as a 3% decline in the overall level of tax refunds. During the four-week period in which tax refunds typically benefit our sales, we experienced a decline in comparable store sales up 10% while comp store sales were flat for the other nine weeks of the quarter, much like we had seen in the last two quarters of 2018. The challenges during the period around tax refunds were compounded by weakness in our apparel merchandise categories. Sales of accessories and home merchandise continue to grow, but were not enough to offset the decreases in our apparel business. We have work to do to make the changes in apparel fashion that are needed for the back half of the year, but we are confident that we can execute these corrections particularly as we start to compare against the period of time when the weakness in apparel began in last year's third quarter. At the same time, we're in the process of reallocating inventory dollars to home and accessory lines that have consistently resonated with our customers. Now I'll turn the call over to Stuart to provide additional details on the results before I discuss future plans and expectations.

[Stuart Clifford:]

Total sales in the first quarter decreased 2.8% to $205 million including a comparable store sales decrease of 4.5% The decline in comp store sales during the first quarter was reflected almost entirely in a reduction in transaction counts, as a slight increase in the average unit sale was offset by a slight decrease in the number of items per transaction.

[Bruce Smith:]

Thanks Stuart. And looking forward as we implement the corrections to apparel fashion and make shifts in the overall mix between apparel and non-apparel, we've been working with a retail consulting firm to analyze each critical part of our merchandising, planning and allocation processes and strategies. Also, as part of our efforts to address the current sales challenges in our apparel business, we are establishing a merchandising task force which will operate under the oversight of two directors with extensive merchandising experience. In other areas of the company we continue to work on a number of strategic initiatives. Just recently, we completed implementation of a new warehouse packing system at one of our distribution centers that we believe will result in savings of $500,000 on an annualized basis.

[Operator:]

Thank you Our first question comes from the line of DeForest Hinman with Walt Huston and Company. Please proceed. Your line is open.

[Unidentified Analyst:]

Hey, thanks for taking my questions. Can you just give us a little bit more color on ladies wear, and a miss there, what went wrong, what went right, and a little bit more color on what we're going to do to improve results in that category?

[Bruce Smith:]

Sure. Thanks for your question. When we look back, we had a really strong 2017 where we were squarely hitting the fashion trends and I think importantly there were some trends out there to be had. Everything from distressed denim, to add two T-shirts, Pink splatter, gold foil things like that, that were really clicking for us. Then we came into the first half of 2018 and we still had comp increases 2% to 3% overall on top of 2017 strong results. And then as we got into the back half of 2018, it did become more challenging to do more on top of the 2017 levels in apparel, although our overall comp store sales were still slightly up less than 1% during the back half of last year.

[Unidentified Analyst:]

Okay, that's helpful. Can you give us some color on the collaboration between some members of the board and the merchandising team, what we hope to achieve with that structure?

[Bruce Smith:]

Yes. So in addition to normal board responsibilities, these two directors will be spending more time with upper management within the company. So me as well as the top people in merchandising and planning and allocation in order to make sure that we're focused on the right things and have the right strategies in place.

[Operator:]

Thank you for those questions. One moment please. Mr. Smith, I'll turn it back to you for any closing remarks.

[Bruce Smith:]

Okay. Thank you everybody for joining us today and as always I'm available for one-on-one calls to the extent you want to call me later today or any other time. Thank you.

[Operator:]

Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation and ask that you please disconnect your lines.