Bruce Smith - President Chief Executive Officer Tom Filandro - Managing Director, ICR.

Patrick McKeever - MKM Partners.

Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2018 earnings release conference call. During this presentation, participants are in a listen-only mode, and afterwards we will conduct a question and answer session. At that time, if you have a question please press the one followed by the four on your telephone.

If at any time during this conference you need to reach an operator, press star, zero. As a reminder, this conference is recorded on Wednesday, May 23, 2018. I would now like to turn the conference over to Tom Filandro, Managing Director at ICR. Please proceed, sir..

Thank you, Fima. Our earnings release was sent out this morning at 6:45 am 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 this 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 and other subsequent filings with the Securities and Exchange Commission for a more detailed discussion of these factors that can cause actual results to differ materially from those described in the forward-looking statements.

I will now turn the call over to our President and Chief Executive Officer, Bruce Smith.

Bruce?.

Thanks Tom. Good morning everybody and thank you for joining us today. Also on the call to participate in the question and answer session are our two merchandising Senior Vice Presidents, Christina Short and Brian Lattman, and our Chief Financial Officer, Stuart Clifford.

With an earlier Easter and a later spring, sales within the quarter were a bit inconsistent, but by the end of the quarter we were pleased with the results. Importantly, the second quarter has started out very strong as the later spring is now driving sales of shorts, sandals and other warm weather merchandise.

Total sales in the first quarter increased 5.5% to $211 million, including a comparable store sales increase of 2.1%. Thus far in the second quarter, comp store sales are up 10%.

The positive comp store sales during the first quarter reflected a 3% increase in the average number of items per transaction, an average unit sale that was flat with last year, and a decrease of less than 1% in the number of customer transactions.

In looking at comp store sales for the individual merchandise categories, the home division again led the way with a 19% increase on top of a strong 26% increase in last year’s first quarter. We have now had double-digit comp increases in home for 19 consecutive quarters.

Ladies sales were up 3% after being up just slightly in the first quarter of 2017, and men’s sales were up 2% this year and up 4% last year. Accessories were up 2% in this year’s first quarter and up 2% in the first quarter of 2017. Sales of accessories have increased nine consecutive years and are off to a good start in 2018.

With these consistent sales gains in accessories and home, the non-apparel side of the business continues to be a very beneficial complement to our apparel assortments. Comp store sales in the children’s division were down less than 1% after declining 6% in last year’s first quarter.

Although children’s was down slightly in the quarter, it is now positive year-to-date on very strong sales thus far in May. First quarter gross margin was almost identical to last year, down just 10 basis points due to higher freight costs.

SG&A expenses adjusted to remove the impact of last year’s proxy contest cost increased 40 basis points as a percentage of sales to 29.9% from 29.5%.

Most of the increase as a percentage of sales relates to higher stock compensation expense, including the effect that a much higher stock price has on the quarterly revaluation of unvested stock grants made to employees.

Depreciation expense increased almost $700,000 due primarily to an acceleration in our store opening pace relative to five years ago. Since we depreciate most store assets over five years, the depreciation being added for new stores is not being offset by the depreciation expense rolling off from stores opened in the past.

Income tax expenses benefited from the enactment of the Tax Cuts and Jobs Act as shown by an effective tax rate of 19% in the first quarter of 2018 compared to 32% in last year’s first quarter. Net income for the first quarter of 2018 increased to $11.3 million compared with $8.9 million in last year’s first quarter.

Last year’s net income was $10 million when adjusted for proxy contest expenses. Earnings per share increased 38% to $0.83 in this year’s first quarter compared to $0.60 last year. When adjusting last year for the proxy contest expenses, earnings per share improved 22% over 2017’s first quarter.

In other first quarter developments, we successfully opened five new stores and we repurchased 86,000 shares at a total cost of $2.7 million under our current $25 million share repurchase authorization. As for earnings guidance, in last quarter’s press release, we indicated an expected 2018 earnings per share range of $1.55 to $1.70.

We still expect our EPS to fall within that range for the year. As a reminder, fiscal 2017 was a 53-week year and fiscal 2018 is a 52-week year. In addition to 2018’s fourth quarter having one fewer week, each fiscal quarter this year starts one week later than in 2017.

As a result, a strong back-to-school week that falls at the beginning of August shifts from the third quarter last year to the second quarter in fiscal 2018. This will likely cause a sales benefit of approximately $5 million in the second quarter with a similar offset in the third quarter.

We will continue to separately disclose comparable store sales on a same weeks basis, effectively ignoring the shift in the weeks so that you have a true read on comp stores; however, total sales in the P&L must be recorded based on how the fiscal calendar falls. Now we’ll open it up for questions..

[Operator instructions] Our first question comes from the line of Patrick McKeever with MKM Partners. Please proceed..

Thanks, good morning everyone. Just a question, Bruce, on the SG&A. You mentioned that stock compensation expense was, I think you said, the majority of the year-over-year increase. Wondering if you could just quantify it, even in dollars.

Then outside of that impact, how is SG&A trending? Are you seeing any pressure on wages, or is SG&A growing still more? I mean, over time I think it’s been maybe a little faster than inflation. Just wondering if you can make a comment around that. Then the other thing is just on the new store performance.

Now that you are opening more stores, wondering if you could give us some details on how the new stores are performing and how the, just from a high level even, the model is looking, the new store model..

Yes, thanks Patrick. Let’s start with the question about stock comp expense.

It was about $500,000, and it relates to the fact that our stock price went up from roughly $23 at the beginning of the quarter to $30 at the end of the quarter, and when that happens you have to re-value the accruals that you have on the books for compensation expense related to grants of restricted stock type compensation, so that was almost all of the 40 basis point increase in SG&A expense for the quarter.

Other SG&A items, incentive comp was just a little bit of a change, maybe $300,000 higher this year because first quarter last year was by far our most challenging quarter, so we had a little bit of a higher bonus accrual this year than last year, that actually would be expected to come back to us in the back half of the year because the incentive comp accruals were much higher in the back half of 2017.

That’s really when our comp store sales were clicking on all cylinders - we were up 6 or 7% both quarters in comp store sales, so there’s probably a gain back in relation to last year in the back half of the year. You also asked about pressure on wages. That really has not stopped for four years now. That’s been a pressure point for some time.

You really haven’t seen it in our numbers because we’ve done a good job of managing it, particularly with some productivity improvements to try to offset some things we did to enhance our pay structure for our store associates, in particular our store management ranks.

It will continue, there’s no question about it, but we’ll continue to try to do the things that we have in the past to effectively manage that expense.

Let’s see--oh, the other question was about new stores, right?.

Right, new store performance. .

Yes, they continue to perform like they have the last several years - sales right around the company average of $1.2 million to $1.4 million, with cash-on-cash ROI in the neighborhood of 40% to 60%. .

Then on the comp acceleration the second quarter to date, the 10%, I think as far as the full year, the prior guidance was 2% to 3%, right?.

Right..

How should we think about just the acceleration, the 10% as it relates to the second quarter? Is there anything notable from a month to month comparison standpoint, one month of the quarter being particularly--actually, I think I’ve got them, so they were up 4% in May last year, 1% in June, and 10% in July, so that’s the cadence.

So the easiest comparison is in June, which is the five-week month, so how should we think about that? And just as it relates to your--I don’t know if you want to give a quarterly comp guide for the second quarter or just stick to the annual, but maybe just digging in away at it a little bit more, how much of the 10% do you think might have been pent-up demand following some of the weather issues in the month of, probably, April?.

I think the best way to look at it is that year-to-date right now, we are now up 3% and we were up 10% in the first quarter, and so I think you could probably get from that, that maybe the later spring cost us a percentage point in the first quarter, so a couple million dollars in sales is the most likely result, although we are still early in this streak of warm weather that we’ve had recently.

So I don’t want to try to give separate guidance by quarter in terms of sales, but we said in our guidance that we thought 2% to 3% for the year seems reasonable, and we are now at 3% even after what was a somewhat challenging first quarter.

We kept waiting and waiting for the weather, it actually finally came the last week and has now continued into the first two weeks, two-plus weeks of May, so I think that kind of tells you where we are..

Yes, okay. Thank you, Bruce..

Thank you. Mr. Smith, I’ll turn the presentation back to you once again for your concluding remarks. Thank you. .

Okay. Thank you everybody for joining us today, and have a good day..

Thank you, sir. Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines. Thank you once again, and have a great day..