Pat Watson - SVP and Principal at Corporate Communications Bruce Smith - Chief Operating Officer and Chief Financial Officer Jason Mazzola - President and Chief Executive Officer.

Pam Quintiliano - SunTrust Tom Filandro - Susquehanna Financial Group Patrick McKeever - MKM Partners.

Ladies and gentlemen, thank you for standing by. Welcome to the Citi Trends' Second Quarter 2015 Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder this conference is being recorded, Wednesday, August 19, 2015.

I would now like to turn the conference over to Pat Watson. Please go ahead, sir..

Thank you, Suzie. 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 the 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 filed 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 would now like to turn the call over to Bruce Smith, Chief Operating Officer and Chief Financial Officer. Please go ahead, Bruce..

Thanks, Pat. Good morning, everybody. Thank you for joining us today. Also on the call is, Jason Mazzola, President and Chief Executive Officer. First, I will provide you with details related to the second quarter and year-to-date results.

Then Jason will further discuss the results and our business outlook, after which we will address any questions you may have. Total sales in the second quarter increased 6.1%, to $154 million, with comparable store sales increasing 3.9%.

The higher comp store sales were reflected entirely in an increase in the number of transactions as the average number of items per transaction and average unit selling price were virtually unchanged. Comparable store sales by month in the second quarter were up 6% in May, up 8% in June and down 3% in July.

As we have entered August, comp store sales have been up 6% for the first two weeks on top of a 5% increase in the same two weeks last year. As expected, some sales moved from the end of July, into August as a result of a shift in the tax free holiday and State is where 40% of our stores are located.

By merchandise category, sales in the second quarter in comparable stores were as follows. Home was up 17% on top of 28% increase in 2014 second quarter. Ladies sales were up 7% this year after being down 4% last year, accessories, including footwear were up 6% in this year's second quarter and up 24% last year.

The men's division was down 1% this year after being up 1% in the second quarter of 2014. Children sales were down 1% in the second quarter of both years. Sales of nationally recognized brands represented 21% of total sales in the quarter, compared with 24% last year.

For the first half of the year, total sales were up 4.7% and comparable store sales were up 2.7%. Cost of goods sold as a percentage of sales improved 250 basis points in the second quarter. This was due to fewer markdowns, reflecting the benefits of a new inventory planning and allocation system that began last year.

For the year-to-date cost of sales as a percent of sales has improved 160 basis points. SG&A expenses were well-controlled in the quarter with expenses as a percent of sales declining 50 basis points to 36.2% on a comp store sales increase of 3.9%.

For the year to date, SG&A expenses as a percent of sales have decreased 20 basis points to 32% on a 2.7% comp sales increase. Depreciation expense declined $500,000 during the quarter as a result of opening fewer stores than in the past.

Net income in the second quarter was $200,000 or $0.01 per share compared with a loss of $2.6 million or $0.17 per share last year. Year-to-date, the Company has net income of $11.4 million or $0.75 per share compared with $6.5 million or $0.43 per share earned in last year's first half. Now I will turn the call over to Jason..

Thank you, Bruce. Good morning, everyone. We are pleased to report a profitable second quarter for the first time since 2008 and first half earnings that were 76% higher than last year. Additionally, we delivered a 3.9% comp store sales increase for the second quarter of 2015.

This marks our sixth consecutive positive comp quarter and it is on top of a 5.3% comp increase delivered in the second quarter last year. Also we are very excited to initiate our first cash dividend and share repurchase program.

The $0.24 dividend on an annualized basis and the $15 million share repurchase are a reflection of both, our strong balance sheet and our confidence in the business. At the same time, we remain committed to growing our store base in the future. A highlight of the quarter was the strength in the ladies business.

The Ladies area delivered a 7% comp store sales increase for the quarter. This is the fourth quarter in a row that Ladies has delivered positive comp store sales. The Ladies team continues to offer great urban fashion with compelling value. We drove nice sales in the Home area, delivering a 17% increase on top of a 28% increase last year.

We still see nice runway in the Home business as we move throughout the balance of 2015. The growth in Accessories, which includes footwear continued with a 6% increase. This is encouraging given that we were up against the 24% increase from the last year and a 17% increase from 2013.

Accessories have now increased for 16 consecutive quarters 10 of which were double-digit increases. As Bruce mentioned, we had a nice start to the third quarter. This is important because the first two weeks in August represents the two biggest weeks of the quarter from a dollar perspective.

We think we transitioned better from spring to fall than we have in the past and that we are positioned to deliver positive comp store sales increases in the third and fourth quarter. The gross margin for the quarter at 39.4% and for the first half of the year at 39.6% was very strong.

The new planning and allocation system allows us to better align our inventory with sales and reduce markdown risk throughout the company. Based on these benefits, we now believe that a gross margin of 39% on an annual basis is sustainable. We successfully opened five new stores in the quarter.

That brings the total of new stores opened in 2015 to nine stores. We are happy with the performance of the nine stores to-date. Since one store closed during the quarter, we now operate 518 stores in 31 states. In 2015, we planned to open 13 new stores, remodeled 20 to 25 stores, expand or relocate 13 stores and closed 3.

Our balance sheet remains very strong. Our inventories are in great shape and all of our businesses are delivering solid results. We are pleased to report another positive comp quarter accompanied by strong earnings growth, a cash dividend and a share repurchase program. Thank you all for your time. Operator, we will now take any questions..

Thank you. [Operator Instructions] Our first question comes from the line of Pam Quintiliano with SunTrust. Please proceed with your question..

Great, thanks so much guys for taking my question. Well, congratulations. That is really amazing in this environment. A few things, I just was wondering if you could talk a little bit about just the general health of your consumer and then I have a few follow-ups there..

Sure. Thanks. Pam. Overall, we believe that macro environment for our customers does seem better than last year this time. African-American unemployment is down 9.1%, which is the lowest that it has been in quite some time. In addition, gas prices should remain low as the price of oil has fallen lately.

Both of these trends are good for our customers, therefore we think the macro environment for the customer is actually better..

Great.

Then in terms of that commentary regarding expecting positive comps for 3Q and 4Q, can you provide any type of brackets or granularity on that or is it too early?.

Yes. Pam, I do not generally want to give out guidance, per se, except to say that we believe and we are confident that we can deliver positive comps as we do move into the third and fourth quarter.

I think one of the big drivers of that is the better transition from spring to fall, so I will leave it at that, but I feel very good about the direction that we are going..

If I could just squeeze in a few more..

Sure..

I do not know if you will answer this one, either, but fashion trends.

Jason, given kind of in your DNA, are there any callouts on the women's non-branded products that she is really has been responding to?.

Yes. I will give you some color there. I would tell you probably the very strongest trend for back-to-school has been really fashion denim. That denim with Rips & Tear's novelty washes, prints. That has been just terrific for us. We have talked about that before and we are seeing that materialize, which we are thrilled about.

Also, core denim, at price point the denim is selling very well, so at both, both high fashion and core and denim as well. In addition to that actually joggers have been terrific. Not actually just in ladies, but in men's ladies and kids.

I would tell you the strongest are in Princeton patterns, but those are some of the nice things that we are seeing for back-to-school right this minute..

Then my very last one, just performance of some of those locations in the New England area, is there any update on how those stores are doing?.

Yes. We continue to be very pleased with what is going on in Brockton and Hartford. The team and I are actually looking for other sites up in that area, because we have been very, very happy with the results. We are excited about sort of our first two stores in the Northeast and I am hopeful of more to come there..

Excellent. Well, congratulations again on a really great quarter. Best of luck..

Thanks Pam..

Thank you. [Operator Instructions] Our next question is coming from the line of Tom Filandro with Susquehanna Financial Group. Please proceed with your question..

Hi. Thanks for taking my question, and let me add my congratulations. Amazing performance, guys.

Jason, can you expand a little bit maybe on the mass Hartford comments? What are you seeing, what have you learned from those stores and then does that change your sort of fleet profile going forward? Then if I could also ask a question, you noted that the planning and allocation when it comes to sports, I think you said a sustainable 30% gross margin.

You obviously achieved that this quarter. Does that give you confidence that you can continue to achieve that in the second half of this year and well into 2016? Then I have one more follow-up please..

Sure. I will start with sort of the Northeast stores.

Certainly my background, I am a Northeast guy and where I came from I have a bias to the Northeast, so I was thrilled to actually see the performance, but it is also encouraging these were terrific markets sort of in the past life and so far the Citi Trends customer is responding very well to these markets, so definitely we are spending a lot of time in the Northeast looking at stores so we are encouraged by that and maybe, Bruce, I will turn it over to you for a little bit of commentary on gross margin..

Yes. Thanks for your question, Tom.

We did mentioned earlier that we expect on an annualized basis that we can maintain the 39% gross margin, which would be the highest that we ever had and what we were really trying to say in our earlier comments was that the improvement in our capability of controlling inventory has substantially reduced our need for markdowns.

Therefore, we think that we have the opportunity to pass our historical peak in gross margin. Tom, I will say that individual quarters will vary upper or down from that as you saw the first two quarters, but we think on an annualized basis that 39% is a reasonable expectation..

Thank you, Bruce.

Just one follow-up, just a general question, did the port slowdown that had, obviously, negative impact on a lot of other retailers with deliveries coming much later, did you guys benefit meaningfully from that, Jason?.

Yes. We actually did. In the last call I mentioned that the inventories were going to be up 4% to 6%, we fell right in that range.

Quite frankly, the majority of that came from overly compelling NSB buys and a lot of those terrific NSB deals that we found in the market came from the port delays, so when the port opened back up, we were able to take advantage of a lot of those deals, because a lot of vendors did not have room in their warehouse or they needed to turn that product into cash, so it was a nice benefit for us..

Congratulations and best of continued success there..

Just a clarification, NSB in our vernacular is next season buys, so sometimes when using the acronym, if so NSB means next season buys, so buys [ph] as we back away..

Thank you..

Thank you. Our next question is coming from the line of Patrick McKeever with MKM Partners. Please proceed with your question..

Thanks. Good morning everyone. Just wondering what is new and different if anything on the marketing front, particularly as it relates to social media and digital, the online business, wondering if you might give us some update in those areas..

Sure. Patrick, I will give you two updates there. One, on marketing, and then I will comment on e-commerce. I will tell you there has been one significant change that we have made in marketing and that we have shifted some of our dollars from actual radios spend into what I would consider mobile advertising and social media.

We definitely feel that we can create brand awareness and drive people to our stores. That is our main goal of marketing is drive people the stores, and we feel we can do that better with mobile advertising and social media versus radio. During 2015, we have made that shift, so I tell you that has been our main shift.

As far as e-commerce goes, we continue to view 2015 as really like a test pilot year, we are learning about what our customer wants to see on the site, how it worked, so far it has been very good. We have not spent a lot of money there. We have done it strategically and intelligently and we look at 2016 for growth based on the learnings of 2015.

With that has [ph] a lot of classifications and still sort of in the learning process, but we are hopeful and we see actually our e-commerce side as a pretty good marketing tool to present what is in the stores and the great value that we have..

On e-commerce, as you look geographically, at where the orders are coming from.

Is there any kind of a pattern there? I mean, you are not in that many states, you are not a national retailer, are you getting orders from states where you do not have the stores?.

Right. We are getting some orders, but we do not have stores right now. We are in 31 states and what you are seeing, when you sort to do the heat map of the states, you are seeing good reaction in places where we are strong like Florida and Georgia and Texas of course, but you are seeing a little bit traction some of the other states.

I would tell you though it is more in line with our stores than not, but we like what we are seeing so far with a limited offering that we have. I think as we expand the breadth, I think we will get more traction there too..

Then just a last question from me just on the dividend and the share buyback, in talking about just capital allocation and use of cash and some of these other things with the board.

Just wondering how reaccelerating or accelerating the store growth factored into the conversations and what you might be thinking for next year and beyond as it relates to new store growth?.

Sure. I can give you that. We strongly believe in delivering shareholder value and think that the dividend and the share repurchase program support that belief. We also believe that the dividend and the share repurchase program will not impact our store growth prospects.

We are committed to store growth in the future and think we have a nice runway head of us. Based on our strong balance sheet, I think, we can do all three effectively.

Then just to give you a little bit of color on where we see growth in the future right this minute, as I mentioned we definitely will open, we feel very good about 13 new stores in 2015. In 2016, we think, we can open between 15 and 20 new stores and that number could increase as we move through 2015.

We still believe there can be 800 stores in the U.S. However, the next 300 will be slightly more difficult to open than the first 500 were. For this reason, we are being selective and strategic as we always have been in our new store growth. Overall, we are very committed to store growth in the future..

Great. All sounds good. Thank you very much..

Thank you..

Thank you. Mr. Mazzola, there are no further question at this time. I will turn the call back to you. Please continue with your presentation or closing remarks..

Thank you very much from everybody and that concludes the call. Thanks and have a great day..

Ladies and gentlemen, that does conclude the conference for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day..