Why Specialty Value Retailer Citi Trends Shares Are Plunging Today

Citi Trends Inc CTRN shares are plunging after the company reported third-quarter earnings and updated its FY23 guidance.

The specialty value retailer reported a third-quarter sales decline of 6.7% year-on-year to $179.52 million compared to $192.32 million last year. Comparable store sales decreased 6.2%.

The gross margin of 38.2% contracted 160 basis points Y/Y. The operating loss for the quarter was $(6) million compared to an income of $31.6 million a year ago.

In Q3, the company closed 5 stores, remodeled 7, and ended the quarter with 606 stores.

Adjusted EPS loss for the quarter was $(0.56) compared to an adjusted EPS of $0.24 last year.

The company held $59.7 million in cash and equivalents as of October 28, 2023.

"That said, our third quarter topline performance did not meet our expectations, with sales held back more than we expected by the ongoing challenging macroeconomic backdrop," said CEO David Makuen.

"Our primarily low-income customer base is being more selective and purchasing much closer to need as they navigate higher costs of living, a buying pattern further impacted by unseasonably warm weather throughout the quarter."

At the end of the third quarter of 2023, $50.0 million remained available under the company's share repurchase program. The company did not repurchase any shares of its common stock in the quarter.

Outlook: Citi Trends sees FY23 sales to be down mid-single digits (prior view: negative mid single-digits to negative low single-digits).

CTRN sees FY23 EBITDA of $1 million - $7 million (previously $5 million-$20 million). Full-year gross margin is still expected to be in the high thirties.

For Q4, the company expects total sales to be approximately flat to up low-single digits vs. Q4 2022, with EBITDA of $9 million-$15 million.

Price Action: CTRN shares are trading lower by 15.22% at $22.37 on the last check Tuesday.

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