Q1 2021 Citi Trends Inc Earnings Call

May 25, 2021

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Greetings and welcome to the Citi trends of first quarter 'twenty 'twenty 1 earnings conference call. During the presentation, all participants will be in a listen only mode.

Afterwards, we will conduct a question and answer session at.

At that time, if you have a question. Please press the 1 followed by the 4 on your telephone.

If at any time during the conference you need to reach an operator, Please press star zero.

As a reminder, this conference is being recorded Tuesday may 25th 2021.

I would now like to turn the conference over to Nitza Mckee Senior Associate. Please go ahead.

Thank you and good morning, everyone. Thank you for joining us on Citi trends first quarter 2021 earnings call on our call today is our Chief Executive Officer, David Mccuin, Chief Financial Officer, Pam Edwards, and Vice President of Finance, Jason Moss Shneur. Our earnings release was sent out this morning at 645.

A M. Eastern time, if you've not received a copy of the release, it's available on the company's website under the Investor Relations section at Www Dot Citi trends Dot Com you should be aware of 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 and 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 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, David Mcewan David.

Thank you Nita.

Good morning, everyone.

And thanks for joining us today, 1 of the first quarter fiscal 'twenty 'twenty 1 earnings call.

This morning, I will review, our stellar financial and operating results for the first quarter.

Then I will update you on our progress and go forward plans related to our strategic initiatives kind.

Edwards.

CFO will then elaborate on our financial results and provide details of our guidance for the remainder of the year.

I'm going to take a moment to express my heartfelt gratitude for your unwavering support.

Dedication across our stores distribution centers buying teams and leadership teams, who collectively with great pride and dedication of Kantar.

You need to service, our loyal and growing African American of lot next families of apparel accessories and home of lifestyle needs of value of prices.

Our first quarter results are a true testament to our team's dedication to our customers and the Citi trends Brett.

In fact, this was the first quarter in which we surpassed our record fiscal 2024th quarter sales by more than $30 million.

Pizza hut clearly indicates that our strategies are working at.

Teams are performing with excellence and our customers are love at Citi trends experience.

Now, let me discuss the key highlights of our first quarter performance.

Total sales increase of 146%.

Q1.2020.

And increased 39% compared to the first quarter of 2019.

This is a record first quarter in which you saw new records for sales gross margin operating income dollars end margin and EPS.

Comparable store sales increased 142% versus 2020.

At the seventh consecutive quarter of positive growth.

Compared to the first quarter of 2019 comparable store sales increased 35 per cent.

Our positive momentum was once again, driven primarily by frequent trips and spending.

By longtime loyalists.

<unk> comebacks.

And many of newbies.

Lastly, the federal government stimulus that started during the third week of March contributed to our momentum.

We are very encouraged by the broad based strength across our 6 cities or categories. There.

Our womens mens share.

You didn't accessories home and lifestyle and footwear at.

Customers excitement when shopping our cities can be attributed to the outstanding efforts of our buying planning and allocation of genes.

Our strong top line results were combined with meaningful margin expansion and disciplined expense management across our operational disciplines.

Earnings per share of earnings.

Earnings per share of $3.23.

Far exceeded our beginning of period expectations and the guidance range, we provided with our business back in mid April.

This was another well executed high performance quarter for Citi trends.

Our transformation is well underway and not only do we have strong momentum in the business, we are reading and reacting to the environment with great agility.

While uncovering new ways to elevate and amplify our unique specialty value brand positioning.

Let me now update you on the progress, we're making all of our core strategic initiatives that will drive accelerated sales and earnings growth.

As a reminder, they are number.

1 growing our fleet and expanding our customer base.

Number 2 at.

Optimizing our product mix.

Number 3.

Reinvesting in our infrastructure.

And number for May.

A difference within the communities we serve.

Up first is our opportunity to grow our fleet and expand our customer base.

We are on track to open at least 30, new stores. This year, coupled with approximately 20 of Remodels.

We remain extremely bullish about growing our footprint with our long term sights set on our fleet potential of a thousand locations.

Over 70% of growth from where we are today.

Our growth will remain focused on 3 distinct types of neighborhoods number.

African American centric.

Number 2 melting pot or a mix of African American and Latin next populations and number 3 Latin next century.

As I've mentioned in the past the role of the physical store is more important than ever as we develop relationships with customers in the heart of their communities.

Boston literally a stone's throw from wherever they live in.

And the experience of shopping at our stores is highly unique with the community culture by that.

That is unparalleled in retail today.

Also during the first quarter, we are thrilled to announce the launch of of Citi trends lab store, along with the second lab store opening this week at.

Of these labs represent a testing ground debt.

Amplifies and takes our intimate specialty store experience to the next level.

We will take a methodical share.

Yes.

Read and react approach to this initiative.

And like others, we've embarked on.

Will anchor our go forward rollout decisions utilizing dock space rigor.

We anticipate using these learnings to inform the new.

T X, which stands for Citi trends of experience.

And we will plan on rolling out CTX.

In 2022.

I'm, so very excited because it's initiative will truly bring to life and more compelling ways than ever before our exclusive trends.

After brands and head to low end head to toe look combined with a renewed focus on what we call customer care.

Our enhanced customer service in our stores I look forward to updating you want out of learners and progress on future calls.

Now for an update on our second strategic initiative.

Optimizing our product mix.

This is an area that is really starting to hubs to get it.

It's still in the early innings.

Our teams are embracing the concept of operating within the construct of 6 cities where categories at each lead buyer of assuming the role of mayor of their respective Citi with responsibility for bringing that Citi to life.

Within each city there are multiple zip codes that keep our city's vibrant and fresh.

For the first quarter, although our performance was exceptional across the board we were particularly pleased with the continued strength of our women's and men's apparel cities, coupled with outsized growth in our home lifestyle of Citi.

Quality of our assortment is stronger than ever before and gets better and better at every quarter.

We are uniquely qualified to meet the needs of under resource African American Latinx families.

Fashion and trends matter, so much to our heroes our customers and.

And I can assure you that our dedicated vendor and supplier ecosystem is delivering at a very high level to ensure we execute the right tied at the.

At the right bold graph at the right all over kind of.

Perhaps most importantly.

Determining the right time to pivot to the next trends by.

My favorite example of trends evolution is found in our mens city of which I am of shopper.

Early in the year. It was all about the paint splatter as an exclusive treatment on tops and bottoms and as the quarter progressed, it became more about of paint smear.

And then it became rhinestones and patchy.

The attention to these small but important details at what is what makes a trend brand of great trend Brad.

We're so excited.

Over the trends and Citi trends notebooks, freshness, and excitement for our customers, resulting in improved inventory turns and healthy gross margins.

Moving to our third strategic focus reinvesting at our infrastructure.

It's all about taking a strategic approach to reinvesting free cash flow from our strong and consistent operational results to make systems and infrastructure improvements.

<unk> bye.

Move and sell pillars of our operation.

I will first focus on the move or the supply chain pillar of our operations.

With our outsized performance, we've candidly run into some bottlenecks getting plenty of available products through our Dcs and into our stores fast enough to meet to meet consumer demand.

We quickly evaluated the situation and have engaged external partners at amped up our drop ship capabilities to meaningfully expand our ability to move goods to stores.

We are also actively re imagining or move work processes sparked in part by current labor and freight cost headwinds that you've all heard flow across our and other industries.

These macro headwinds are similar in some ways to those we experienced throughout the pandemic as they have forced us to take a hard look at how we currently operate and how we find new ways to operate more effectively and efficiently.

Our culture is built on the premise of agility and working not only hard but smart at.

Let me assure you we are in the midst of attacking these opportunities head on.

Investment in our buy and sell pillars continues as well and buying power users of our cloud based systems are emerging.

It's confidence at applying data and analytics to our inventory planning buying and allocation decisions will reap many successes down the road.

And didn't sell in addition to new store growth or change of getting traction around using cloud based workflow tools as well as successfully rolling out of new Pos system that will speed up the checkout and eventually enable customer data capture.

Lastly, our fourth strategic focus, making a difference within the communities we serve.

As I mentioned at our last call our board of directors formed of corporate social responsibility Committee.

I mean, he is overseeing our initiatives around ESG and social responsibilities anchor.

Anchored by our Citi cares counsel, our future efforts will not only make Citi trends of better company.

Also help serve our melting pot of diverse employees and loyal customers.

Furthermore, we believe at a diverse and inclusive team is critical to our success.

We strive to foster an intentionally inclusive diverse and productive working environment, where our employees are valued and respected.

Continue to focus on attracting developing and retaining team number that reflects the diverse communities we serve.

I am proud to say that nearly 80% of our employees of African American Latinx.

At 83% of our employees are female and that more than 90% of our store management positions are filled by women.

Along these lines.

We announced today in our press release I have pledged on behalf of Citi trends to advance diversity and inclusion within the workplace by signing of CEO action for diversity inclusion pledge joining many other Ceos.

Joining this group will help us accelerate our continued dialogue on these matters.

And now I'd like to turn the call over to Pam Edwards of <unk>.

<unk> to discuss the first quarter results and our thoughts around the balance of fiscal 2021 and greater detail Sam.

Thank you David as mentioned, we are very pleased with our first quarter results and strong start to the year building on our momentum from last year. In addition, we are well on our way to achieving our 3 year strategic plan goals.

Before reviewing our results I, just wanted to echo David's comments and expressing sincere appreciation to our incredible teams we.

We delivered record results and at first quarter end could not have done so without the hard work and dedication of all of our associates.

Turning to of a review of our results.

First I would like to remind you that for comparison purposes at first quarter 2020 was significantly impacted by the COVID-19, pandemic, which caused the temporary closure of our store at the beginning March 20th 2020.

Therefore during today's discussion for certain line items I hope with you our performance versus the first quarter of 2019, which we view at the more comparable period.

Total sales in the first quarter with $285 million, an increase of 39, 2% compared to 2019.

Comp sales versus 2019 grew at 35%.

Growth in the quarter was driven primarily by a healthy increase in average basket size.

Sales were strongest in March and April which benefited from the earlier Easter gradual tax refund distributions.

Activation of pandemic related restrictions and government stimulus payments.

All categories saw double digit increases to 2019 with the exception of footwear, where we have strategically plan of the business down.

We achieved gross margin in the quarter of 42, 6%.

An increase of 1500.30 basis points compared to 27, 3% in the first quarter of 2020.

Gross margin versus 2019 increased 510 basis point.

The increase in our gross margin rate continues to be primarily the result of strong full price selling and fewer markdowns.

In addition included in the first quarter margin result is a favorable shrink credit of $2 million.

This is reflective of an inventory loss rate, which is trending lower than historical level.

Adjusting for this credit our margin would have been 41, 9% or 8.440 basis point increase compared to 2019.

SG&A leverage 1900, 30 basis points on the significant increase in sales versus 2020.

Compared to 2019, SG&A dollars increased 23% leveraging 365 basis points to 27, 3% from 39%.

Operating income of $39 million in the quarter with an increase of $67 million versus 2020, and the operating income rate was 13, 7%.

Compared to 2019, our operating income increased $33 million.

Our net income was $39 million per the quarter.

Per to a net loss of $20.9 million in the first quarter of 2020, and 7.8 million in 2019.

Earnings per diluted share was $3.23.

Compared to a loss of $2 per share in the first quarter of 2020.

And compared to 65.

In 2019, 4 at increase of 397 per ton.

Turning to the balance sheet.

Total inventories ended the quarter down 16, 5%.

Lastly, the company repurchased approximately 537500 shares of its common stock at an aggregate cost of approximately $45.5 million in the quarter.

Now turning to our second quarter and fiscal 2021 outlook.

We are encouraged by our fiscal 2021 second quarter to date sales performance, which is above our internal expectations.

As we continue to look forward to the remainder of at least fiscal year, we have tremendous optimism and are well on our way to achieving our strategic plan and achieving at earlier than our original plans suggest it.

Therefore, given our outstanding results to date, we are raising our full year guidance.

Specifically for full year 2021, we expect sales in the range of 970 to 919 million with earnings per share of $4.55.

At $4.75.

Versus our previous EPS guidance of 285 to 3.5 or an increase in our guidance of 56% to 60%.

This updated guidance reflects great top line momentum driven by structural improvements in our model, which helped offset some of the freight and labor pressures impacting retail today.

Similar to last year, there are dynamics that are playing out and we will continue to update our number its accordingly.

Lastly, as David will speak to shortly we are exploring new capital allocation strategy, specifically designed to accelerate our new store growth.

As a result, we're pausing our share repurchase program. After the completion of our current authorization in early June debt.

This will allow us to refocus our efforts in pursuing a more aggressive program of investing in our stores and our infrastructure.

Now I'll turn the call back over to David for closing comments David.

Thanks Pam.

This was another outstanding quarter for Citi trends, our transformative journey to position us for many years of profitable growth at.

I am truly grateful for our employees our customers.

And our leadership team at.

We look forward to amplify them at Citi trends brands and extending our reach to many more underserved communities across the country.

Looking to the rest of 2021 and beyond we.

We feel very good about of overall positioning as a differentiated specialty valuable.

Catering to underserved African American at last next communities as.

As we continue to enhance at Citi trends of experience for our customers and execute against our strategic priorities.

We're well ahead of our previously share of long term plan.

And we expect to exceed $1 billion in sales sooner than we originally expected.

We are confident that our growth strategies and the advantages of our business model will continue to fuel market share gains and drive long term sustainable growth.

We'll update you on future calls as details emerge.

Thanks for tuning in.

We are now ready to take your questions.

Thank you if you'd like to register a question. Please press the 1 followed by the store on your telephone you.

We'll hear of 3 Tom from Jordan I'll, let your request.

If your question has been answered and you would like to withdraw your registration. Please press the 1 followed by the 3.

Once again to register a question of is the 1 followed by the 4 on your telephone 1 moment. Please for the first question.

And our first question comes from Jeremy Hamblin with Craig Hallum Capital Group. Please proceed.

Thanks, and congratulations on the terrific results.

At the start.

David by coming back actually to the last comment around the share repurchase program.

And accelerating store growth. So you guys finished the quarter with over $130 million of cash $14 a share.

Based on our math roughly.

And in terms of thinking about.

Project are you generating positive free cash flow.

In terms of wrapping up that buyback program does this suggest that you are at a path to accelerate your unit growth here, maybe beyond that mid single digit.

Unit growth level.

Certainly seems like with average.

Average investment of only 350 K per store it seems like something that you clearly could do.

If you want to any color you can share around that.

Sure Jeremy Thanks for thanks for tuning in and nice to hear from you know Youre really on the Mark for US capital allocation is going to take on a broader definition in terms of how we best use our free cash flow generated by positive operations and so at this point we are looking at the.

Advantageous real estate market that we see ahead of us.

Bullish on bringing this new.

<unk> ex experience that I referenced in the call to more neighborhoods and towns around the country and we are very much in the throes of of.

Figuring out how do we do that at the.

Right pace, but certainly at a potentially quicker pace. So we'll update you more.

Kind of months and quarters unfold, but you're on the Mark. We are we're excited about accelerating store growth and I'll add 1 more color commentary, which is we also want to start accelerating some of our infrastructure investments because in order to scale. This business as we've mentioned in prior toxin calls.

We do need to invest in some systems of infrastructure needs within our bi move and sell of pillars and so that's also part of the conversation in terms of how we deploy our cash.

That makes sense.

Absolutely understood.

Let me shift gears here and talk about a couple of the headwinds you noted.

And I think some.

Some labor shortage in terms of thinking about the at.

Impact of at 1 P.

Pam I wanted to get a sense of for free.

<unk> impact in Q1, maybe the basis point impact on gross margin.

And then 2 can.

Can you give us a sense of the impact of expected here Q2, and maybe second half of the year.

Let's just start with that.

Okay. Thanks, Jeremy.

Overall free for the first quarter wasn't as significant as we see.

Net going for the rest of the year.

For the Q2 of your Q4 for example, we think that freight is deleveraging about 170 to 190 basis point, that's where the balance of the year first quarter wasn't at an impactful because it really didn't start towards the end of the quarter.

So that's going forward, we think will impact the gross profit number.

The D C expense.

All in our SG&A and we believe that due to the incremental processing capacity as well as some of the 3 pls, it's going to negatively impact our SG&A rate by 20 to 30 basis points.

But as a reminder, all of that's included in our.

Our higher guidance that we've given that we've already incorporated that into our forecast.

Great that's helpful.

Just Tony in at a little more on the SG&A.

So in thinking about as you called out sales up 39% from 2019 levels of SG&A of 23%.

From 2019 levels, so in store counts up 4%.

In terms of thinking about the the total dollars of SG&A I wanted to get a sense for how much of that was coming from.

DC expense.

I havent backed into the math or on the of the.

The implied 20 to 30 basis points.

But just in terms of thinking about the leverage here.

At the remarkable sales performance.

How much of this is embedded corporate costs that are higher versus 2019 levels.

Versus we had a huge sales with and we need more staffing at our stores at or at our D. C.

Okay can you break that down at the component.

Yeah. So just as a reminder, I'm comparing to 2019, so that you keep that in mind as well at 2020 comparisons of our net comparable.

So when I look at the composition of the SG&A increase.

From a dollar perspective, so that's what we quoted in our.

Hum in the script versus 'twenty.

2019.

You know the majority of the increase with in stores and that's primarily due to the sales increase and so that's driving the leverage overall.

Across the SG&A is just the pure increase in the first quarter of sales versus 19, which was up $80 million. So.

You know I think that end.

And some corporate overhead associated with equity and bonus round out the overall increase from a basis point of standpoint.

I appreciate your questions Jeremy Oh, let's go on to the next.

Color.

Our next question comes from Chuck Grom with Gordon Haskett. Please proceed.

Hey, good morning. Thanks.

You look at the first quarter end compared to 19 like you do on your sales per store recovered nicely.

Over 33%, which is true ex.

What you did in the fourth quarter.

So I guess I'm curious if you could help us understand why do you think your business accelerated so much and then.

As a follow up when we look ahead of the balance of the year.

Embedded in that $972.990 million sales outlook, how we should think about the sales cadence.

Throughout the year relative to <unk> 19.

Hey, Chuck David Thanks for calling in a day. Good question I'll take the first 1 pass of Japan, I think the first 1 really.

A couple of factors I think most importantly, the quality of our assortment across our cities and the growth in particular of our home lifestyle Center.

Home lifestyle Citi, which as you know of is that.

And the last couple of years of growth trajectory that all contributed to some really nice lifts comparing with 21% to 19 sort of.

Team led by at least the power of our head merchant is really dialed into what our customers want in particular on the trends side of delivering on the basics and of consistent manner, and then filling in with kind of everyday fashion.

I would give that a lot of credit.

And then I think the other thing is we're building brand awareness and some of Thats coming from the the nature of of what 2020 look like meaning we drew a lot of movies into the fold during 2020, and what we're hearing and seeing so some of our research as they are coming back and there was sort of folks who weren't in the fold of course of <unk>.

And then lastly, there's labs come back effect is it was almost equal to the newbie effect and it's great to see so we're basically bringing people back in the fold who had traded in 17 and 18 EBIT and they came back in 2020 and they've stayed in the franchise in 'twenty, 1 again, helping provide that left to go.

19, so I think I pointed towards products and customer attraction.

And then.

I don't if you don't mind can you repeat your second question.

Yeah I'm just curious when we think about your guide for the full year, how we should think about the sales per store or.

Comp recovery, however, you want to frame it.

From <unk> through to the second half.

Yes. Good question. Thank you, yes, we see Q2 moderating a bit from a run rate that we experienced in Q1.

Then I'd say that we're up against pretty good Q3, and Q4 I'll start with Q4 were up against a 17 comp in Q4.

So we've got I think plans incorporate at that kind of reflect going up against that and then our Q3 of last year's accomplish at plus 6 and as you know was clouded by a strange and weird back to school season.

So we think if I were you I'd think about it at like Q3 is a little more upside in Q4.

And that's kind of how we're flowing at both against 2019.

Okay, Great. Thank you and then my second question would just be on the gross margin performance on Pam just relative to 19, obviously way above 19 levels. Do you think you can continue that momentum.

Like basically better than 19, even with that.

At that freight headwind that you just called out the roughly 180 basis points give or take.

Yeah, I mean, our goal is to maintain in the high <unk> low fourteens.

So even with the rates, where we're definitely looking to continue in the high Thirty's.

Hum.

Right.

No.

Perspective, so I think at.

On a corporate at.

Okay, and then just a bunch of just 1 bigger picture question at you know it sounds like you are ready to accelerate stores I'm curious.

And hopefully disclose of from the past, but just your current D C capacity today.

How much kind of kind of system hole youre talking about accelerating store growth put up but also comes with a cost. So I'm just curious the capacity and how.

How much do you think you can actually grow within what you what you have today.

2 question Chuck Thanks for asking yeah.

Cash at under are reinvesting in our infrastructure of strategic initiative with a big focus on investing in our move capabilities and the short answer is we're good for 2.3 years and then we really start to taxes of system. After that so we're in the middle of deploying some capital against it.

<unk> in both our owned distribution centers and.

Confident that we'll put in the right infrastructure physical plant kind of stuff as well as some system improvements, but yes, we do.

Bulge in the past, we've got to get on that.

And given our accelerated sales growth.

It's even more important that we do so.

Great. Thank you.

Thanks Chuck.

As a reminder to register for a question. Please press the 1 followed by the 4 on your telephone.

And our next question comes from Dana Telsey with Telsey Advisory group.

Please proceed with your question.

Morning, everyone and congratulations on the terrific results as you think about the second quarter and you mentioned that you're still above internal above internal plan how much of the improvement in the first quarter would you say came from stimulus and was there anything regional to note about the performance and then I have a follow up.

Hi data at <unk>.

Hi.

Thanks for your kind words.

Last 1 did you say regional.

Yes, exactly right. Thank you no I appreciate that so.

Overall as you know, it's hard to break out the impact of everything thats going on in our business because we're going through such a transformation even on the foundational kind of structural level and then you layer on the stimulus you later on at very different tax season that occurred this year of et cetera. So it's tough to kind of gauge.

But what I would tell you is.

The monies that flowed into our customers' hands, where definitely was definitely meaningful end made a difference in our momentum.

And it also I think changed the lives of a lot of our customers in the sense that some of them saved more than they used to and some of them I think deployed their quote unquote open to buy against things they really need it and in this case they needed to buy bigger close for their kids and often when they came for their kid of Boston stuff with themselves and so on.

So I think it's a combo of of all the factors in terms of looking forward. What we're most bullish about is the improvement in the product and this idea of new customer capture and laughs come docs and look if we do our job and execute against what they want and need.

I think we've got a nice bright future ahead of us at how we look at it.

And the stimulus call at a 1 time event that certainly helped the quarter.

And probably have some halo impact into future quarters, but far more important to us is just how much we've improved.

Our product assortment and as you know getting that right is.

At the high majority of the Battle. So we're excited about that.

And from a regional perspective, not really you know I mean more of the region out he might've been from weather and as you know we have some abnormally cold weeks mixed in with some now hot weeks that frankly.

At bringing back some of the business that we maybe kind of loss in the cold weeks, but from an overall at kind of macro Q1 perspective, all stores roads for us just like all of our cities or categories wells and.

In particular, we saw markets worthy of noting that had lower awareness that grew phenomenally well and that gets back to that previous answer I gave you know, we're clearly growing brand awareness and expanding our customer base, which is a really really nice thing to see in the underlying fundamentals of the business.

Yeah, and then at $39 million that you had previously talked about Capex, how does that adjust now and when you're thinking of accelerating store growth.

Just thinking about like a 50.50 stores at this year and do you of the labor and store managers to staff the stores given the growth ahead of you.

Yeah. Good question, let me, let me kind of sequence that out a little bit to make it super clear.

This year, we really wont impact our capex spend much.

We're going to we're going to open as we've announced at least 30 new stores this year coupled with <unk>.

<unk> 20 of our so Remodels and then a lot of that 39 million spent at going against some of our investments in our Dcs and investments across our buy and sell pillars really what will will work on now and we have an announcement because we're still in the middle of evaluating it is what is <unk> 22, and 'twenty 3 look like end market to your question.

Of store count and other investments, we'll make in the business. So we're not quite ready to announce that but in terms of the number. We also said over the course of 'twenty, 1.2 and 3 that we would open at least of 100 new stores. That's the number that we're really studying which gets back to my answer.

Earlier in the Q&A here, where we're going to study that really intently.

And and maximize the real estate opportunities so not quite ready to say what's out of 100 goes to but we.

We're definitely keen on understanding where we could take it.

And what represents the greatest opportunities market by market and demographic by demographic based on our 3 buckets, which types of stores.

So more of them all of them.

And lastly, just on inventory, which I think was down around 16 of half, 17%, where do you expect inventory to be as we go through the balance of the year and any changes to how you're planning back to school given that it'll be a more important back to school. This year since the kids will go back to school.

Sure.

From an inventory of perspective, we think it's absolutely the right thing that.

We continue at the levels, we are I think the getting fresh new trends in the business is important and therefore, we want to continue to turn fast and it's at its just an important element of our overall strategy.

So given that we will meet the customers' demand. So we will monitor the forecast and making sure that we've got the right trends as well at the right levels of inventory in our stores.

In order to meet the sales demand overall that the customers are asking for so that's inclusive of you know expectations for back to school this year.

So overall I think you know again continue to manage the inventory at a reasonable at all but down to previous years.

Right.

Thank you.

Thanks Dana.

Our next question is from Jeremy Hamblin with Craig Hallum Capital Group. Please proceed.

Thanks, 1 of the also just follow up on the Remodels..1 can you give us a sense for the.

The comp lift that youre seeing out of the Remodels and then again given that Youre looking at.

Higher potentially higher unit growth.

Are you also thinking about potentially doing more aggressive remodels.

Walk away I know you said that you're expecting 20 for this year, but is that also something where that could become.

40 or 50 at.

2022.

Thanks, Jeremy Good question certainly at a part of the Formula of what we plan to execute against and on the remodel of thus far this year, we're seeing pretty much what we expected kind of mid single digit lifts.

Edging up a little higher than mid here and there and that's what we've modeled.

Cost of 3 years that Youre at your AR and then go on and then the second thing.

We're focused on is the role of the rollout of our new experience, which I referred to of CTX that kicks in in 2022 in Europe.

Your gut reaction is right.

If that works in the early innings of 2022.

There's a high likelihood that we would accelerate and get some more stores at our fleet that would benefit from.

Past experience I think the key thing I would leave with you is this idea of enhancing our experience is of tremendous opportunity for us as we seek to better understand what the customer expects from us what they like from an adjacency and floor set lay out perspective.

And all of that matters as you know in our brick and mortar of world. So we're really really big of it on that in our 2 lab stores will inform that experience.

And if it works.

To your point will.

We will start to open up the numbers of stores that get at.

Great. Thanks last 1 from me and appreciate you taking the extra questions.

Just in terms of the promotional environment that youre seeing out there. It seems like your inventories, obviously very clean I think across the inventory inventories seem pretty clean, but as we start getting into these reopening period end.

People start lapping some tougher comps.

1 of them being out there from the competition you feel like it's starting to get back to a more normalized promotional environment or still relatively benign and therefore, we should think product margins continued to be pretty strong here.

First of the year.

Good question, Yeah, I think I, probably directed towards your words of clean inventory so for the Citi trends environment So to speak.

Don't anticipate having to use promotional levers at any great stretch of any big difference versus prior year end in fact, as you know we've been trending quite a bit down in terms of having to use the markdown lever.

Of course at it sits there and we're able to use it strategically to exit goods that debt of <unk>.

There are end of life, but from a macro perspective, we don't see any promotional reliance popping up and I think competitively.

I think it's getting back more and more to normal.

You know at our space of everyday value at.

Not really a lever that we need to use all of that much and in our case are competitive.

With our competitive circle, if you will is more limited perhaps than others.

Given where our stores set and given the customers that we cater to so I think for us its just kind of staying very focused.

Turning fast.

Buying smart not getting over our skis.

The newer trends getting out of a trend moving on and creating this freshness and newness factor that I think if we keep our eyes on that price and not worry too much about the noise around us.

I think it really bodes well to speed, our specialty store life of environments.

Thanks for taking the questions.

Best of luck of us here.

Thank you some of you.

Our next question comes from Alex Silverman with AWS of investments. Please proceed.

Hi, Good morning, our questions were all asked and answered thank you.

Thanks, Alex Inc.

Mr. Mcewan, then turn the call back to you for your closing remarks.

Very good thanks, Silvana, thanks, everybody for tuning in and listening and great to hear from you have a great summer and we'll see at the next 1 take care of stay safe and healthy.

That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your line.

Yeah.

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Sure.

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Thanks.

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Okay.

[music].

Thanks Bruce.

Okay.

[music].

Greetings and welcome to the Citi trends first quarter 'twenty 'twenty, 1 earnings conference call. During the presentation, all participants will be in a listen only mode.

The words, we will conduct a question and answer session.

At that time, if you have a question. Please press the 1 followed by the 4 on your telephone at.

If at any time during the conference you need to reach an operator, Please press star zero.

As a reminder, this conference is being recorded.

Tuesday may 25th 2021.

I would now like to turn the conference over to meet some of key senior Associate. Please go ahead.

5 a M. 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 Dot Citi trends dotcom at.

It should be aware of 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.

All of 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 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, David Mcmullen David.

Thank you Nita.

And good morning, everyone.

Thanks for joining us today, 1 of our first quarter fiscal 2021 earnings call.

This morning, I will review, our stellar financial and operating results for the first quarter net.

I will update you on our progress and go forward plans related to our strategic initiatives kind.

Kind of Edwards.

Our CFO will then elaborate on our financial results and provide details of our guidance for the remainder of the year.

I want to take a moment to express my heartfelt gratitude for your unwavering support and dedication of across our stores distribution centers buying teams and leadership teams, who collectively with great pride and dedication.

Continued to service, our loyal and growing African American of lot next families apparel accessories and home of lifestyle needs at value prices.

Our first quarter results are a true testament to our team's dedication to our customers and the Citi trends Brad.

In fact, this was the first quarter in which we surpassed our record fiscal 2024th quarter sales by more than $30 million.

<unk> got clearly indicates that our strategies are working our teams are performing with excellence and our customers love at Citi trends experience.

Now, let me discuss the key highlights of our first quarter performance.

Total sales increased 146% versus Q1.2020.

And increased 39% compared to the first quarter of 2019.

This is a record first quarter and what you saw new records for sales gross margin.

Operating income dollars end margin and EPS.

Comparable store sales increased 142% versus 2020.

Seventh consecutive quarter of positive growth.

Compared to the first quarter of 2019 comparable store sales increased 35 per cent.

Our positive momentum was once again, driven primarily by frequent trips and spend at <unk>.

By longtime loyalty.

Lapsed comebacks.

Many of movies.

Lastly, the federal government stimulus that started during the third week of March contributed to our momentum.

We are very encouraged by the broad based strength across our 6 cities or categories. They are.

Women's men's and kids.

Eating and accessories home and lifestyle in footwear are.

Of our customers excitement when shopping our cities can be attributed to the outstanding efforts of our buying planning and allocation of genes.

Our strong top line results were combined with meaningful margin expansion and disciplined expense management across our operational disciplines.

Earnings per share of <unk>.

Earnings per share of $3.23 far exceeded our beginning of period expectations and the guidance range, we provided with our business back in mid April.

This was another well executed high performance quarter for Citi trends.

Our transformation is well underway and not only do we have strong momentum in the business, we are reading and reacting to the environment with great agility.

While uncovering new ways, elevate and amplify our unique specialty value brand position.

Let me now update you on the progress we are making all of our core strategic initiatives that will drive accelerated sales and earnings growth.

As a reminder, they are number.

Growing our fleet and expanding our customer base.

Number 2 optimizing our product mix.

Number 3 reinvesting in our infrastructure.

And number 4 making a difference within the communities we serve.

Up first is our opportunity to grow our fleet and expand our customer base. We are on track to open at least 30, new stores. This year, coupled with approximately 20 remodels.

We remain extremely bullish about growing our footprint with our long term sights set on our fleet potential of a thousand locations.

Over 70% of growth from where we are today.

Our growth will remain focused on 3 distinct types of neighborhoods.

Number 1 at.

Approach at American centric.

Number 2 melting pot or a mix of African American and a lot of next populations and number 3 Latin next century.

As I've mentioned in the past the role of the physical store is more important than ever as we develop relationships with customers and the heart of their communities.

Often literally a stone's throw from where they live and.

And the experience of shopping at our stores is highly unique with the community culture by.

That is unparalleled in retail today.

Also during the first quarter, we are thrilled to announce the launch of of Citi trends lab store, along with the second lab store opening this week at.

These labs represent a testing ground debt.

Amplifies and takes our intimate specialty store experience to the next level.

We will take a methodical share.

Yes.

Read and react approach to this initiative.

And like others, we've embarked on.

Anchor our go forward rollout decisions utilizing back space vigor.

We anticipate using these learnings to inform the new store.

T X.

Which stands for Citi trends of experience.

And we'll plan on rolling out CTX.

In 2022.

I'm, so very excited because of its initiatives will truly bring to life in more compelling ways than ever before our exclusive trends.

After brands and had to low end head to toe looks combined with a renewed focus on what we call customer care or enhanced customer service in our stores I look forward to updating you on of our learners and progress on future calls.

Now for an update on our second strategic initiative.

Optimizing our product mix.

This is an area that is really starting to Hum you got it.

It's still in the early innings.

Our teams are embracing the concept of operating within the construct of 6 cities or categories and each lead buyer of assuming the role of mayor of their respective Citi with responsibility for bringing that Citi to life.

Within each city there are multiple zip codes that keep our city's vibrant and fresh.

Quality of our assortment is stronger than ever before and gets better and better at every quarter.

We are uniquely qualified to meet the needs of under Resourced African American Latinx families.

Fashion and trends matter, so much to our heroes our customers.

I can assure you that our dedicated vendor and supplier ecosystem.

Delivering at a very high level to ensure we execute the right time at the right bold graph at the right all over kind of.

And perhaps most importantly the.

Determining the right time to pivot to the next trends might.

My favorite example of trend evolution, that's found in arm man city of which I am of shopper.

Early in the year. It was all about the paint splatter as an exclusive treatment out of tops and bottoms and as the quarter progressed it became more about of paint smear.

And then it became rhinestones and patchy.

The attention to these small but important details at what is what makes a trend brand a great trend but.

We're so excited.

Over the trends and Citi trends notebook freshness and excitement for our customers, resulting in improved inventory turns and healthy gross margins.

Moving to our third strategic focus.

Investing in our infrastructure.

It's all about taking a strategic approach to reinvesting free cash flow from our strong and consistent operational results to make systems and infrastructure improvements.

<unk> bye.

Move and sell pillars of our operation.

I will first focus on the move or the supply chain pillar of our operations.

With our outsized performance, we've candidly run into some bottlenecks getting plenty of available products through our Dcs and into our stores fast enough to meet consult to meet consumer demand.

We quickly evaluated the situation and have engaged external partners at amped up our drop ship capabilities to meaningfully expand our ability to move goods to stores.

We are also actively re imagining or move work processes sparked in part by current labor and freight cost headwinds.

You've all heard from across our and other industries.

These macro headwinds are similar in some ways to those we experienced throughout the pandemic as they have forced us to take a hard look at how we currently operate how we find new ways to operate more effectively and efficiently.

Our culture is built on the premise of agility and working not only hard but smart.

Let me assure you we are in the midst of attacking these opportunities head on.

Investment in our buy and sell pillars continues as well and buying power users of our cloud based systems are emerging.

That's confidence at applying data and analytics to our inventory planning buying and allocation decisions will reap many successes down the road.

And didn't sell in addition to new store growth. Our teams are getting traction around using cloud based workflow tools as well as successfully rolling out of new Pos system that will speed up the checkout and eventually enable customer data capture.

Lastly, our fourth strategic focus, making a difference within the communities we serve.

As I mentioned at our last call our board of directors formed of corporate social responsibility Committee.

He is overseeing our initiatives around ESG and social responsibilities anchor.

Anchored by our Citi cares counsel, our future efforts will not only make Citi trends of better company.

Also help serve our melting pot of diverse employees and loyal customers.

Furthermore, we believe at a diverse and inclusive team is critical to our success.

We strive to foster and of intentionally inclusive diverse and productive working environment, where our employees are valued and respected.

Continue to focus on attracting developing and retaining 2 numbers that reflect the diverse communities we serve by.

I am proud to say at nearly 80% of our employees of African American all of that mix.

At 83% of our employees are female and that more than 90% of our store manager positions are filled by women.

Along these lines.

Now today in our press release I have pledged on behalf of Citi trends to advance diversity and inclusion within the workplace by signing the CEO action for diversity inclusion pledge joining many other Ceos.

Joining this group will help us accelerate our continued dialogue on these matters.

And now I'd like to turn the call over to Pam Edwards of <unk>.

<unk> to discuss the first quarter results and our thoughts around the balance of fiscal 2021 and greater detail Sam.

Thank you David as mentioned, we are very pleased with our first quarter results at a strong start to the year building on our momentum from last year. In addition, we are well on our way to achieving our 3 year strategic plan goals.

Before reviewing our results I, just wanted to echo David's comments and expressing sincere appreciation to our incredible team we.

We delivered record results in at first quarter end could not have done so without the hard work and dedication of all of our associates.

Turning to of a review of our results.

Therefore during today's discussion for certain line items I hope with you our performance versus the first quarter of 2019, which we view at the more comparable period.

Total sales in the first quarter with $285 million, an increase of 39, 2% compared to 2019.

Comp sales versus 2019 grew at 35%.

Growth in the quarter was driven primarily by a healthy increase in average basket size.

Sales were strongest in March and April which benefit from the earlier Easter gradual tax refund distributions.

Station of pandemic related restrictions and government stimulus payments.

All categories saw double digit increases to 2019 with the exception of footwear, where we have strategically plan of the business down.

We achieved gross margin in the quarter of 42, 6%.

An increase of 1500.30 basis points compared to 27, 3% in the first quarter of 2020.

Gross margin versus 2019 increased 510 basis point.

The increase in our gross margin rate continued to be primarily the result of strong full price selling and fewer markdowns.

In addition included in the first quarter margin result is a favorable shrink credit of $2 million.

This is reflective of an inventory loss rate, which is trending lower than historical level.

Adjusting for this credit our margin would have been 41, 9% or a 440 basis point increase compared to 2019.

SG&A leverage 1900, 30 basis points on the significant increase in sales versus 2020.

Compared to 2019, SG&A dollars increased 23% leveraging 365 basis points to 27, 3% from 39%.

Operating income of $39 million in the quarter with an increase of $67 million versus 2020, and the operating income rate was 13, 7%.

Compared to 2019, our operating income increased $33 million.

Our net income was $39 million per the quarter.

Per to a net loss of $29 million in the first quarter of 2020 and 7.

7.8 million end 2019.

Earnings per diluted share was $3.23.

Compared to a loss of $2 per share in the first quarter of 2020.

And compared to 65.

2019, 4 at increase of 397 per day.

Turning to the balance sheet.

Total inventories ended the quarter down 16, 5%.

Lastly, the company repurchased approximately 537500 share of its common stock at an aggregate cost of approximately $45.5 million in the quarter.

Now turning to our second quarter and fiscal 2021 outlook.

We are encouraged by our fiscal 2021 second quarter to date sales performance, which is above our internal expectations at.

We continue to look forward to the remainder of the fiscal year, we have tremendous optimism and are well on our way to achieving our strategic plan and achieving at earlier than our original plans suggest it.

Therefore, given our outstanding results to date, we are raising our full year guidance.

Specifically for full year 2021, we expect sales in the range of $970 million to $919 million with earnings per share of $4.55.

At $4.75.

Versus our previous EPS guidance of 285 to 3.5 or an increase in our guidance of 56% to 60%.

This updated guidance reflects great top line momentum driven by structural improvements in our model, which helped offset some of the freight and labor pressures impacting retail today.

Similar to last year, there are dynamics that are still playing out and we will continue to update our number its accordingly.

Lastly, as David will speak to shortly we are exploring new capital allocation strategies, specifically designed to accelerate our new store growth.

As a result, we are pausing our share repurchase program. After the completion of our current authorization in early June.

This will allow us to refocus our efforts in pursuing a more aggressive program of investing in our stores and our infrastructure.

Now I'll turn the call back over to David for closing comments David.

Thanks Pam.

This was another outstanding quarter for Citi trends, our transformative journey to position us for many years of profitable growth at.

I am truly grateful for our employees our customers.

And our leadership team at.

We look forward to amplify them at Citi trends brands and extending our reach to many more underserved communities across the country.

Looking to the rest of 2021 and beyond we.

We feel very good about of overall positioning of the differentiated specialty valuable.

Catering to underserved African American and loss of X communities.

As we continue to enhance each of your trends of experience for our customers and execute against our strategic priorities. We are well ahead of our previously share of long term plan.

And we expect to exceed $1 billion in sales sooner than we originally expected.

We are confident that our growth strategies and the advantages of our business model will continue to fuel market share gains and drive long term sustainable growth.

Well update you on future calls as details emerge.

Thanks for tuning in.

We are now ready to take your questions.

Thank you.

Like to register a question. Please press the 1 followed by the 4 on your telephone.

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Once again to register a question of is the 1 followed by the 4 on your telephone 1 moment. Please for the first question.

And our first question comes from Jeremy Hamblin with Craig Hallum Capital Group. Please proceed.

Thanks, and congratulations on the terrific results.

At the start.

David by coming back actually to the last comment around the share repurchase program.

And accelerating store growth. So you guys finished the quarter with over $130 million of cash $14 a share base.

Based on our math roughly.

And in terms of thinking about.

Project are you generating positive free cash flow.

In terms of wrapping up that buyback program does this suggest that you are at a path to accelerate your unit growth here, maybe beyond that mid single digit.

Unit growth level.

Certainly seems like with average.

Average investment of only 350 K per store it seems like something that you clearly could do it.

If you want to any color you can share around that.

Sure Jeremy Thanks for thanks for tuning in and nice to hear from you know Youre really on the March for US capital allocation is going to take on a broader definition in terms of how we best use our free cash flow generated by positive operations and so at this point we are looking at the.

Advantageous real estate market that we see ahead of us.

Bullish on bringing this new.

<unk> ex experience that I referenced in the call to more neighborhoods and towns around the country and we are very much of the throes of of <unk>.

Figuring out how do we have debt to do that at.

White space, but certainly at a potentially quicker pace. So we'll update you more.

Kind of months and quarters unfold, but you're on the Mark we are we're excited about.

Accelerating store growth and I'll add 1 more color commentary, which is we also want to start accelerating some of our infrastructure investments because in order to scale this business.

As we've mentioned in prior toxin calls, we do need to invest in some systems of infrastructure needs within our by moving sell pillars and so that's also part of the conversation in terms of how we deploy our cash.

That makes sense.

Absolutely understood.

Let me shift gears here and talk about a couple of the headwinds you noted.

And I think some.

At some labor shortage in terms of thinking about the at.

Impact of that 1 Pam.

Pam I wanted to get a sense for.

<unk> impact in Q1, maybe the basis point impact on gross margin.

And then 2 can.

Can you give us a sense of the impact expected here Q2, and maybe second half of the year.

Let's just start with that.

Okay. Thanks, Jeremy.

Overall free for the first quarter wasn't as significant as we see.

Net going for the rest of the year.

For the Q2 to Q4 for example, we think that freight is deleveraging about 170 to 190 basis point, that's where the balance of the year first quarter wasn't as impactful because it really didn't start towards the end of the quarter.

So thats going forward, we think will impact the gross profit number.

The D C expense.

All in our SG&A and we believe that due to the incremental processing capacity as well as some of the 3 pls, it's going to negatively impact our SG&A rate by 20 to 30 basis points.

But as a reminder, all of that's included in our.

Our higher guidance that we've given so we've already incorporated that in our force.

Great that's helpful.

Just Tony of at a little more on the SG&A.

So in thinking about as you called out sales up 39% from 2019 levels of SG&A up 23%.

From 2019 levels, so in store counts up 4%.

In terms of thinking about the the total dollars of SG&A I wanted to get a sense for how much of that was coming from.

<unk> expenses.

I havent backed into the math there on the of the.

The implied 20 to 30 basis points.

But just in terms of thinking about the leverage here.

At the remarkable sales performance.

How much of this is embedded corporate costs that are higher versus 2019 levels.

Versus we had a huge sales with and we needed more staffing at our stores and at our D. C.

Can you break that down into components.

Yeah. So just as a reminder, I'm comparing to 2019, so that you keep that in mind as well of 2020 comparison of our net comparable.

So when I look at the composition of the SG&A increase.

From a dollar perspective, so that's what we quoted in.

In the script versus 'twenty.

2019.

The majority of the increase within stores and that's primarily due to the sales increase and so that's driving the leverage overall.

Across the SG&A is just the pure increase in the first quarter of sales versus 19, which was at $80 million. So.

I think that end.

And some corporate overhead associated with equity and bonus round out the overall increase from a basis point standpoint now of course.

State your questions Jeremy lets go onto the next.

Color.

Our next question comes from Chuck Grom with Gordon Haskett. Please proceed.

Hey, good morning. Thanks, if we look at the first quarter end compared to 19 like Youre doing your sales per store recovered nicely.

Over 33%, which is true.

What you did in the fourth quarter.

So I guess I'm curious if you could help us understand why do you think your business of accelerated so much and then.

As a follow up when we look ahead of the balance of the year.

Embedded in that $972.990 million sales outlook, how we should think about the sales cadence.

Throughout the year relative to the <unk> 19.

Hey, Chuck David Thanks for calling in today at good question I'll take the first 1 pass of Japan, I think the first 1 really I'll give you a couple of factors I think most importantly, the quality of our assortment across our cities and the growth in particular of our home lifestyle et cetera.

Home lifestyle, Citi, which as you know in debt.

And the last couple of years of growth trajectory that all contributed to some really nice lifts comparing of 21% to 19 sort of.

A team led by at least of how our head merchant is really dialed into what our customers want in particular on the trends side delivering on the basics of consistent manner, and then filling in with kind of everyday fashion.

I think I'd give that a lot of credit.

And then I think the other thing is we're building brand awareness and some of Thats coming from.

The nature of of what 2020 look like meeting we do a lot of movies into the fold during 2020, and what we're hearing and seeing so some of our researches theyre coming back and there was a focus of award in the fold of course of 19, and then lastly, just labs come back of effect is is almost equal to the newbie effect.

And it's great to see so we're basically bringing people back in the fold who had tried it in 17 and 18 EBIT and they came back in 2020 and they've stayed in the franchise in 'twenty, 1 again, helping provide that lift against 19, So I think I pointed towards products.

End customer attraction.

And then.

If you don't mind can you repeat your second question.

Yeah I'm just curious when we think about your guide for the full year, how we should think about the sales per store or comp recovery. However, you want to frame it.

From <unk> through to the second half.

Yes. Good question. Thank you, yes, we see Q2 <unk>.

Moderating a bit from a run rate that we experienced in Q1.

Then I'd say that we're up against pretty good Q3, and Q4 I'll start with Q4 represents the 17 comp in Q4.

So we've got I think plans incorporate at that kind of reflect going up against that and then our Q3 last year comp was up plus 6.

And as you know was clouded by a strange and weird that school season.

So we think if I were you I think about it at like Q3 is a little more upside in Q4.

And that's kind of how we're flowing at.

Both against 2019.

Okay, Great. Thank you and then my second question would just be on the gross margin performance on Pam just relative to 19, and obviously way above 19 levels. Do you think you can continue that momentum.

Like basically better than 19, even with that debt.

<unk> had 1 that you just called out the roughly 180 basis points give or take.

Yes, I mean, our goal is to maintain in the high.

High <unk> low fourteens.

So even with the rates where we're.

We're definitely looking to continue in the high 30.

Yeah.

Perspective, so I think at.

Cooperated.

Okay, and then just the practice of about 1 bigger picture question at you know it sounds like you are ready to accelerate stores I'm curious.

Hopefully disclose this in the past, but just your current DC capacity today.

Much kind of kind of system hole youre talking about accelerating store growth put up but also comes with a cost. So I'm just curious the capacity in line.

How much do you think you can actually grow with them.

Today.

Good question, Chuck Thanks for asking yeah.

Cash at under are reinvesting in our infrastructure of strategic initiative with our <unk>.

Big focus on investing at our move capabilities end.

Short answer is we're good for 2 to 3 years and then we really start to tax of the system. After that so we're in the middle of deploying some capital against improvements in both our owned distribution centers.

And I'm confident that we will put in the right infrastructure of physical plant kind of stuff as well as some system improvements, but yes, we of Divulgence of past, we've got to get on that end.

Given our accelerated sales growth.

It's even more important that we do so.

Great. Thank you.

Thanks Chuck.

As a reminder to register for a question. Please press the 1 followed by the 4 on your telephone.

And our next question comes from Dana Telsey with Telsey Advisory group.

Please proceed with your question.

Everyone and congratulations on the terrific results as you think about the second quarter and you mentioned that you're still above internal above internal plan how much of the improvement in the first quarter would you say came from stimulus and was there anything regional to note about the performance and then I have a follow up.

Hi, Dave.

Hi.

Thanks for your kind words.

Last quarter did you say regional yes, exactly right. Thank you no I appreciate that so.

Overall as you know, it's hard to break out the impact of everything that's going on in our business because we're going through such a transformation even on the foundational kind of structural level and then you layer on stimulus you later on at very different tax season that occurred this year of et cetera. So it's tough to kind of gauge.

But what I would tell you is the.

Monies that flowed into our customers' hands, where definitely was definitely meaningful end made a difference and our momentum and it also I think changed the lives of a lot of our customers in the sense that some of them saved more than they used to and some of them I think deployed their quote unquote open to buy against things they really need it and in this case they needed to.

By bigger close for their kids and often when they came for their kids day, Boston start with themselves and so on so I think it's a combo of of all the factors in terms of looking forward. What we're most bullish about is the improvement in the product and this idea of new customer capture and labs come back and look at.

We do our job and execute against what they want and need.

I think we've got a nice bright future ahead of us that's how we look at it.

And the stimulus call at a 1 time event that certainly helped the quarter.

And probably have some halo impact into future quarters, but far more important to us is just how much we've improved.

Our product assortment and as you know getting that right.

At the high majority of the Battle. So we're excited about that.

And from a regional perspective not really.

More of the region out he might've been from weather and as you know we have some abnormally cold weeks mixed in with some now hot weeks that frankly.

At bringing back some of the business that we maybe kind of loss of Nicole weeks, but from an overall at kind of a macro Q1 perspective, all stores rose for US just like all of our cities or categories wells and.

In particular, we saw markets worthy of noting that had lower awareness that grew phenomenally well and that gets back to that previous answer I gave we're clearly growing brand awareness and expanding our customer base, which is really really nice thing to see at the underlying fundamentals of the business.

Yes, and then at $39 million that you had previously talked about Capex, how does that adjust now and when you're thinking of accelerating store growth.

Just thinking about like a 50.50 stores at this year and do you of the labor and store managers.

Staff the stores given the growth ahead of you.

Yes. Good question, let me, let me kind of sequence that out a little bit and make it super clear.

This year, we really wont impact our capex spend much.

We're going to open as we've announced at least 30 new stores this year coupled with <unk>.

<unk> 20 of our so Remodels and then a lot of that $39 million spend at going against some of our investments in our Dcs and investments across our buy and sell pillars really what will work on now and we have an announcement because we're still in the middle of evaluating it is what is 22 and 'twenty 3 looked like end market to your question.

Of store count and other investments, we'll make in the business. So we're not quite ready to announce that but in terms of the number. We also said over the course of 'twenty, 1.2 and 3 that we would open at least 100 new stores. That's the number that we're really studying which gets back to my answer.

Earlier in the Q&A here, where we're going to study that really intently.

And maximize the real estate opportunities, so not quite ready to say what's out of 100 goes to but we.

Definitely keen on understanding where we can take it.

And what represents the greatest opportunities market by market and demographic by demographic based on our 3 buckets, which types of stores.

So more of them.

And lastly, just on inventory, which I think was down around 16, 517%, where do you expect inventory to be as we go through the balance of the year and any changes to how you're planning back to school given that it'll be a more important back to school. This year since the kids will go back to school.

Sure.

From an inventory perspective, we think it's absolutely the right thing that.

We continue at the levels, we are I think the getting fresh new trends in the business is important and therefore, we want to continue to turn fast and at.

Is it just an important element of our overall strategy.

So given that we will meet the customers' demand. So we will monitor the forecast and making sure that we've got the right trends as well at the right levels of inventory in our stores.

In order to meet the sales demand overall, but at the customers asking for so that's inclusive of expectations for back to school this year. So.

Overall, I think you know again continue to manage the inventory at a reasonable level, but down to previous years.

Right.

Thank you.

Thanks Dana.

Our next question is from Jeremy Hamblin with Craig Hallum Capital Group. Please proceed.

Thanks, 1 of the also just follow up on the Remodels..1 can you give us a sense for the comp lift that youre seeing out of the Remodels and again given that youre looking at.

Higher potentially higher unit growth.

Are you also thinking about potentially doing more aggressive remodels along the way I know you said that youre expecting 20 for this year, but does that also something where that could become.

40, or 50 end.

2022.

Thanks, Jeremy Yeah. Good question certainly at a part of the Formula of what we plan to execute against and on the remodel of thus far this year, we're seeing pretty much what we expected kind of mid single digit lifts.

Hedging up little higher than mid here and there and that's what we've modeled.

Our cost of 3 years that youre that youre in the know on and then the second thing.

What I would focus on is the rollout of the rollout of our new experience, which I referred to of CTX that kicks in in 2022 in Europe.

Your gut reaction is right.

If that works in the early innings of 2022.

At a high likelihood, we would accelerate and hit some more stores at our fleet that would benefit from an enhanced experience I think the key thing I would leave with you is this idea of enhancing our experience is of tremendous opportunity for us as we seek to better understand what the.

Customer expects from us what they like from an adjacency and floor set lay out perspective.

And all of that matters as you know.

And more of a world. So we're really really digging in on that in our 2 lab stores will inform that experience yes. It works.

Your point will.

Starting to open up the numbers of stores that get at.

Great. Thanks last 1 from me at appreciate Youre, taking the extra question.

Just in terms of the promotional environment that youre seeing out there it seems like your inventories obviously very clean.

I think across the inventory inventories seem pretty clean, but as we start getting into these reopening periods end.

People start lapping some tougher comps.

1 of them being out there from the competition you be awake at starting to get back to a more normalized promotional environment or still relatively benign and therefore, we should think product margins continue to be pretty strong here the rest of the year.

Good question, Yes, I think I, probably directed towards your words of clean inventory. So for the Citi trends environment. So to speak we don't anticipate having to use promotional levers at any great.

Stretch or any big difference versus prior year and in fact as you know we've been trending quite a bit down in terms of having to use the markdown lever end of <unk>.

Of course, it sits there and we're able to use it strategically to exit goods that have reached their end of life, but from a macro perspective, we don't see any promotional reliance popping up and I think competitively.

I think it's getting back more and more of a normal and as you know.

What our space of everyday value, it's not really a lever that we need to use all of that much.

In our case, our competitive our competitive circle. If you will is more limited perhaps than others.

Given where our stores sit and given the customers that we cater to so I think for US. It's just kind of staying very focused.

Turning fast.

Buying smart not getting over our skis, we're getting into a trend of getting out of the trends moving on and creating this freshness and newness factor that I think if we keep our eyes on that price and not worry too much about the noise around us.

I think it really bodes well to feed our specialty store life of environments.

Thanks for taking the questions.

Best of luck of us here.

Thank you so much.

Our next question comes from Alex Silverman with AWS of investments. Please proceed.

Hi, Good morning, our questions were all asked and answered thank you.

Thanks, Alex Thank you.

Mr. Mcewan, and then turn the call back to you for your closing remarks.

Very good thanks, Silvana, thanks, everybody for tuning in and listening and great to hear from you have a great summer and we'll see at the next 1 take care of stays safe and healthy.

That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.

Q1 2021 Citi Trends Inc Earnings Call

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