Greetings. Welcome to Citi Trends Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Nitza McKee, Senior Associate, ICR.

Thank you. You may begin..

Thank you, and good morning, everyone. Thank you for joining us on Citi Trends' fourth quarter and fiscal year 2024 earnings call. On our call today is Chief Executive Officer, Ken Seipel, and Chief Financial Officer, Heather Plutino. Our earnings release was sent out this morning at 06:45 AM Eastern Time.

If you have not received a copy of the release, it's available on the company's website under the Investor Relations section at www.cititrends.com. You should be aware that prepared remarks today 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 within 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 will now turn the call over to our Chief Executive Officer, Ken Seipel.

Ken?.

high, average and low. This foundational improvement has already yielded measurable results, but we're now moving beyond these basics toward a more advanced technique. The new AI system enhances our ability to accurately place product based on localized demand, driving sales, while simultaneously reducing [maintenance] (ph).

Early test results are encouraging, with the system demonstrating superior accuracy in predicting store level demand. We expect this technology to impact our business in 2025 and beyond, creating what we believe will be game-changing improvement in inventory efficiency.

This initiative, combined with our supply chain enhancements, will significantly reduce time from vendor to store and position us to respond more quickly to sales trends, while improving our inventory turns and working capital efficiency.

Turning to our real estate strategy, we're making good progress in our remodel program and are planning to remodel at least 50 stores in 2025 to continue bringing our fleet up to our current standards. In fact, we've already remodeled 18 stores since the start of 2025.

In total, this investment is showing solid returns and we're seeing strong customer response to refreshed environments. Looking at our longer-term growth, we're conducting detailed market studies to identify priority MSAs for expansion.

Our strategy will include both backfilling existing markets with new locations, alongside remodels of current stores to maximize market share, as well as entering new select markets. We expect to ramp up new store growth in 2026 and beyond.

I'd like to highlight our strong financial position, which provides us significant flexibility to execute our strategic initiatives. As of quarter-end, Citi Trends maintains a healthy balance sheet with $61 million of cash, no debt and no drawings on our $75 million revolver.

This debt-free structure with ample liquidity allows us to take advantage of opportunities in the marketplace while navigating any potential macro disruptions. In fiscal 2025, we are focusing on working capital improvements, particularly in the area of inventory efficiency.

For the first time in recent history, we are anticipating positive free cash flow generation in the upcoming year, which is a critical milestone in our financial transformation. As we announced last quarter, our Board approved the resumption of our $50 million share repurchase program.

Since mid-December, we have invested $10 million in share repurchases, which includes 395,793 shares at an average price point of $25.23. Share repurchase will remain an option in our overall balanced capital allocation strategy. Going forward, our primary objective with capital allocation will be in strategic investments to drive growth.

Turning to the first quarter sales performance, I am pleased to report that midway through our first quarter, we are achieving mid-single-digit comp performance.

And although we've had our share of temporary store closures due to the weather and so forth, in addition to delayed tax refunds and other macro uncertainties, our customers have continued to validate our strategy.

As you all know, the new administration has introduced many potential changes in tariffs, taxes and government programs that create a good deal of uncertainty for the economy. At this time, it's hard to gauge the specific impact or non-impact to our business and our customers.

But to address the changing environment, we are closely monitoring and anticipating changes we need to make to ensure that we hit our financial objectives. In regards to tariffs, our off-price business model limits our exposure to the impact of tariffs.

However, we're also actively working with our vendors to monitor the situation and we're finding ways to make sure that we keep cost changes on product to a minimum. In addition, I see the improved operational process that I've outlined earlier as another avenue for helping us achieve our gross margin targets this year.

Plus, the addition of off-price to our business model gives us significant opportunity to make high-margin deals on surplus product brought on by this disrupted macro environment. This year, at Citi Trends, we plan to stay aggressive and flexible.

We are aggressively driving sales, leveraging our cost base and maintaining a healthy open to buy for flexibility. As I mentioned earlier, we're fortunate to have a healthy balance sheet that allows us to stay aggressively driving sales and gives us the flexibility we need to react.

Our customers are showing resiliency, our strategies are resonating and, as I mentioned earlier, we are pleased that we're maintaining solid mid-single-digit comp sales quarter-to-date. With that, I'll turn it over to Heather for a review of our fourth quarter and full year results along with our outlook for fiscal 2025.

Heather?.

expecting full year comp sales growth of low- to mid-single digits; full year gross margin expected to expand a minimum of 220 basis points versus 2024, consistent with our stated goal of gross margin dollar growth outpacing sales growth; SG&A is expected to leverage in the range of 30 basis points to 50 basis points versus 2024 in spite of inflationary pressures and the reset of incentive compensation accruals with the new fiscal year; full year EBITDA is expected to be in the range of $5 million to $9 million, a $19 million to $23 million improvement versus fiscal 2024; effective tax rate in 2025 is expected to be approximately 0% as any tax expense or tax benefit in the year will result in adjustments to our valuation allowance as described earlier; we plan to open up to five new stores and close up to five stores; we plan to remodel approximately 50 locations in the year, and as Ken noted, have already remodeled 18 stores in the beginning of fiscal 2025; finally, full year CapEx is expected to be in the range of $18 million to $22 million.

Before I turn the call back to Ken, let me reiterate how pleased we are with the improvement we've seen in the business throughout the back half of fiscal 2024. Ken's leadership, strategies and the resulting foundational improvements have reinvigorated Citi Trends and positions the company for continued improvement into 2025.

While there is much work and much uncertainty ahead of us, I am confident that the continued execution of our refined strategy will serve us and you, our shareholders, well in the months and years ahead. With that, I'll turn the call back to Ken.

Ken?.

Thank you, Heather. Before we open the call for questions, I wanted to take a moment to express my sincere gratitude to our dedicated team members across the organization. Your tireless efforts in implementing our renewed strategy have just been instrumental in the progress that we're seeing today.

I'm particularly impressed by how quickly our teams have embraced the fundamental changes we introduced from our improved allocation practices to enhanced merchandising strategies.

With our focus on the African-American customer, our strength in product value proposition, our expanding branded assortment and our operational excellence initiatives, we have a very clear path to restoring EBITDA into the $40 million to $50 million range long-term.

We have a line of sight to achieving these targets and we're excited about the substantial upside potential. The combination of these strategies position Citi Trends to generate meaningful free cash flow and drive significant shareholder returns. And with that, I'd like to turn it over to the operator to open the lines for questions..

Thank you. [Operator Instructions] Our first question is from Jeremy Hamblin with Craig-Hallum Capital Group. Please proceed..

Thanks, and congratulations on the impressive momentum here. I wanted to start by talking about sales trends. You guys on a two-year stack basis, you've seen about 2,000 basis points of improvement over the last year on your two-year stack trends.

And I wanted to just get a little bit more color on what you see as Citi Trends doing different from the industry that's allowing you to kind of sustain that momentum here into 2025, while you've seen a lot of other retailers reporting softening results..

Thanks, Jeremy. Appreciate your questions. A couple of things I'd say about what we're doing a little bit differently.

First, as you know and probably have heard me talk a lot about because I do speak about it quite often, the addition of off-price to our business model and really sharpening up the overall price value equation across the board in our core product has been really one of the key unlocks for the business.

And our customers really have resonated quite well. And I believe that we are -- well, in fact, there's no question, we're gaining market share as a result of this sharper improved assortment pricing strategies.

And the other piece that I believe and I mentioned at the very beginning of the call, our competitive position in the marketplace, we have 591 stores, very strategically positioned in neighborhoods and literally around our customers. And so, we become kind of their first alternative. And, once we get it right, they are clearly responding.

So, there's more work ahead for sure. We're just really in early innings of this, but I think it's pretty crystal clear that our positioning in neighborhoods along with our price value equation being sharper is really resonating and will be an opportunity for us to continue to get shareholder -- excuse me, market share advances for sure..

Great.

And as a follow-up to that, on the off-price portion of the business you noted as a key driver, where was off-price, let's say, a year ago? Where is it today? And where do you expect off-price as a kind of portion of your inventory, let's say, maybe a year from now or at some point in 2026?.

Yeah. I'm trying not to cut this with [indiscernible] of a scalpel, Jeremy, because off-price is a large term that has been used in a lot of different ways. Like for example, sometimes it's referred to as end-of-season closeouts. And in that regard, the company has always participated in end-of-season closeouts.

What we're doing now, when I'm defining off-price is really looking at more in-season, pretty aggressive deals in fact, where we're getting extreme value. And right now, we're doing about between 1% and 2% of our business in these extreme value items. We're really just getting started.

It's adding a lot of energy to the business and a lot of energy to our customer base for sure. I see long-term, that growing to around 10% of what we do, and that will be all additive. That's not a replacement business, so just this one extreme value portion.

Then, on top of that, the other portion that I mentioned earlier, which is end-of-season type deals, which the company has historically done, our entire merchant team is more acutely aware of those opportunities and are getting sharper at their negotiations. And we expect that in addition to the end of the growth avenue.

I don't really have a firm number on that, but it's pretty clear that, that will be the two ways that we attack off-price, extreme value and then end-of-season closeout type deals, both of which will be additive to the overall business..

Great. And I want to follow-up. You're also pursuing a bit more kind of brand name deals, which is a strong motivator for your customer. I think probably looking at maybe footwear and apparel is two areas to attack.

And any color you might be able to share on the types of brands that you might be looking at? I think you had some new brands in stores in Q4, but any color you can share there?.

For sure. Because of other relationships that we're developing with some of these larger brands, I'm prohibited to really speak directly about the brand names externally.

But I would say this, that we are paying very close attention to your favorite brands, the brands that you would know, as top of mind across the board, whether it's in shoes or outerwear or denim or what have you. Think about your top-selling brands. Those are the brands that we're focusing on.

And in many cases, we have deals either in the pipeline or in store or about to head to stores, that would be a composite of those particular brands. And what makes them unique and special for us is the fact that they're often done at extreme pricing, that is very unique to the marketplace.

Because of our size of company, we have the ability to access these deals, and we're a little bit more nimble, and we can get some pretty good preferential opportunities that way. But from a from a brand portfolio, we're fairly flexible, but just know that we're only going after the big names and we're only going after the great deals.

We're pretty selective. We frankly probably pass on more than we can even look at right now. There's so many out there. But certainly that is the focus is to be really, really high aware brands..

Great. Last one for me. So, you noted this kind of longer-term adjusted EBITDA target $40 million to $50 million. That's obviously pretty significant uptick from where you're looking at in '25.

Wanted to get a sense to get even to the low end of that range, the $40 million, what's the sales level that you need to achieve you think to kind of get the business up towards that, let's say, $40 million range on EBITDA?.

Yeah. We're working through our long-range plan right now, Jeremy, to get more [indiscernible] in front of the Board for their approval. So, I'll speak a little bit more generically. But if you can think about it this way, the EBITDA margin of our business is really below industry standard right now.

And I'm thinking about getting it north of 5% in that 5% to 7% EBITDA margin range, and that kind of would be essentially the top-line sales, if you can kind of think about it in that regard. That's generally the range that we're going to.

And obviously, we have to go beyond that, but that's step one is to restore that $40 million to $50 million, and I want to do that at a rate that's in that 5% to 7% margin rate initially..

Great. Thanks so much for the color, and best wishes on the continued success..

Thanks, Jeremy. Appreciate it..

Our next question is from Michael Baker with D.A. Davidson. Please proceed..

Okay. Thank you. I'll ask one question and one follow-up.

Question is, can you just walk us through the building blocks of the EBITDA increase of $19 million to $23 million? I mean, you get $15 million just by showing up because of cycling the one-time issues and low- to mid-single-digit comp, let's say, that's going to add $25 million, $30 million in sales.

So, what's the flow-through of that incremental sales? And are there any sort of givebacks or investments such that the $15 million one-timers, the flow-through from the sales increase minus something? Thank you..

Yeah. I'll give you a little bit of a high level, Mike, on how we're approaching this in terms of turnaround, then I'll let Heather fill in some of the specific numbers that you're asking about there where we can.

A couple of things that we've taken a look at this year to kind of get started is we set up an operating budget that's fairly low base of -- cost for a low base of sales, cost for a low base of expenses. And that really is really just truly a foundational number that we have basically bare-bones operate the business.

And then, from there, we've put together a sales plan that we believe is higher than that, which actually is higher than that, that will generate something in the neighborhood of about a 25%-ish flow-through once we hit those numbers. And then, we have a stretch plan that's above that even, that has a much higher flow-through rate.

So, the point here, as you've heard us talk a lot about is that the handicap of the business, maybe in this case, it'll be our advantage now because we have a fixed cost base. And so, as we are starting to grow the business, we can get pretty substantial flow-through. And so, part of the math kind of works that way.

It's really a generation of the top-line. And I'll turn it over to Heather to fill in any facts there..

driving sales, expanding margin and leveraging SG&A..

Okay, great.

Well, I guess the perfect follow-up then, I'll just hit on that, so that low base of sales, low base of SG&A, is that the comp guidance that you gave of low- to mid-single digit? Is that the sort of baseline? And then, the sales above that 25% flow-through, is that needed to comp above that low to mid? Or does that sort of added sales and then the stress plan, is that within the low- to mid-single digits, if that makes sense?.

It kind of does. Let me tell you how I'm going to think about that, and then, again, I want Heather to fill in anything there that I may have missed.

But in terms of the guidance that you have out there, we're seeing low- to mid-single and that really kind of encompasses that portion that I mentioned earlier, we're seeing a fairly low sales base to make sure that we can achieve that number. We don't get our expenses overboard.

That's really kind of the point is we've got a point here where we have a business SG&A base that can handle that minimum sales.

And then, we have a little bit of that range that we have in EBITDA is based upon, the flow-through, right? It's not all of it, but that's how you go from low to kind of a high on our range is just simply looking at that second tier of sales that I mentioned earlier. And then, we have available to us another tier of sales above that.

And I don't want to get too over our skis yet. I mean, it's early stages. The business is looking really, really good. But as we talked about earlier, there's some uncertainties.

So, I'll have more confidence as we go -- as the year progresses, but we are hopeful that we'll see that range for sure that we've put out there and then there's a potential that we could outperform that if business continues to move at its current pace..

Got it. Thank you..

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Ken for closing remarks..

Well, I just want to simply say thank you everybody. We really appreciate your continued interest and support of Citi Trends. We look forward to talking with you next quarter. Bye-bye..

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation..