Wells Fargo Securities Initiates Market Perform on Citi Trends (CTRN)

Wells Fargo Securities is out with a research report this morning, where it initiates a Market Perform rating on Citi Trends CTRN; it has a valuation range of $31 to $33. The WFS analysts said that, despite flat same store sales growth over the past few years, comps have improved over the last few quarters driven by improvements in merchandising and marketing. They expect the momentum to continue. The analysts also noted that CTRN is testing a new store prototype that is “that is much improved from a store environment, visual merchandising, organization, décor, logo and category mix perspective, based on our store visit. The analysts believe CTRN’s store openings next year will likely be under this new format and longer term, they expect the company to remodel a few existing stores, which could provide a sales lift and an opportunity to advertise the store re-opening. As for valuation, they remarked, “We estimate $0.05 in EPS for Q2:10 based on 3% comp growth, slightly below consensus of $0.07 EPS. The slowdown in retail sales across the board since Q1 (including flat comps at AJ Wright for May & June after 7% in Q1) concerns us. In addition, the first two weeks of May were flat for CTRN and the removal of Georgia's tax holiday (14% of store base) could hurt the end of July. We note that the comparison is not as easy as it looks because the previous year (Q2:08) had benefited from stimulus checks. Lastly, SG&A was up only 6% last year because the company tightly managed payroll, therefore, the comparison is tougher.”