Q4 2021 Citi Trends Inc Earnings Call
Yeah.
Greetings and welcome to the Citi trends for Q2, one 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 that time. If you have a question. Please press the one followed by the four on your telephone if at any time during the conference.
You need to reach an operator, please press star zero.
A reminder, this conference is being recorded Tuesday March 15th 2022, 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 fourth quarter 2021 earnings call on our call today is Chief Executive Officer, David Mcewen, 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 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.
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 with the Securities and Exchange Commission for a more detailed discussion of the factors that can cause.
Actual results could 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 Lisa.
Everyone.
Thanks for joining us today.
Quarter.
2021 earnings call.
I will begin by reviewing the continued actuation business.
Highlight our financial and operational results.
In fiscal 'twenty, one before updating you on our progress related to the evolution of our shipping basket.
In support of our strategic priorities.
Dan Edwards.
<unk> will elaborate on our financial results and a few other items related to our outlook.
Fiscal 2021 was a productive year for Citi trends with meaningful progress against our transformation strategies as we remain focused.
But our underlying goals of expanding the Citi trends brand.
Any more underserved African American Latinx communities.
We achieved strong.
2021 financial results of our highly differentiated specialty value store experience and continued discipline and focus on the execution of our strategic priorities.
For the year, we grew our topline 26, 8%.
Comparable stores plus 22%.
And increased our earnings per share by nearly 400%.
All of these data points are compared to 2019.
Highlights of our accomplishments for the year our relaunched.
We launched and market tested our revolutionized Chi Chi X new store formats.
We opened 27, new stores and remodeled 25 during the year.
We navigated and manage this challenging supply chain backdrop, while maintaining healthy and stocks and a high level of inventory freshness.
We successfully managed store in distribution labor headwinds with prudent leadership and effective staffing solutions.
We kicked off investments in infrastructure that includes system enhancements for our buy cheap and capacity upgrades for our move team.
We strengthened our diversity in leadership with two new additions to our board of directors.
And we returned value to shareholders through our share repurchase program.
And finally, something that I'm, probably most excited about is relaunched city light.
Calculates our brand purpose and values and represents the emotional connection that our customers and associates have the Citi trends.
Our purpose and true north is.
Life is best when you live bold live crowd respect all.
Dedicated to our neighborhoods Citi trends welcomes you like a friend and helps you show up for whatever comes your way.
Powering you to bring opportunities to life.
We make it fresh and fun.
Entire family at prices that don't break the bank.
I'm delighted to begin our journey as a purpose led brand and I am so proud of our bi move sell and support teams that executed at such a high level in 2021 in the face of what remains a dynamic operating environment.
With our current transformation is still in the early innings. It is clear that we are really driving positive change across the business.
In addition, we feel really good about the underlying health of our business. After a soft January stemming largely from a decline in traffic felt across retail attributed to the sharp spike in COVID-19 cases from the Omicron Barry.
In early March recovered nicely fueled by compelling product content and a continuously improving store experience across our fleet.
Our conversion remains high.
The average customer spend per visit continues at levels on par with 2021 and well above 2019.
As 22 unfolds. There's team is operating like a 75 year old startup with a modern and agile approach to executing the plan.
And along the way becoming excellent operators.
It means we are continuing exactly what I have consistently shared with you during every quarter.
Following the plan.
In accordance with four strategic priorities number one.
Our fleet and expanding our customer base.
Number two optimizing our product mix number three reinvesting in our infrastructure and number four.
A difference within the communities we serve.
I'll take a few moments and share some high level updates.
First growing our fleet and expanding our customer base is well underway.
The rollout of our new CTX store format is.
It's happening as we speak with H comp remodel stores going live this week.
We expect to open approximately 14, new CTX format stores during the first half of the year and approximately 35 remodels during the Schweppes task.
Why is this important well.
Well, it's a major driver of attracting a diverse multicultural customer by offering an upgraded experience that brings our purpose to life, while improving conversion.
To quote a portion of our new purpose.
We welcome you like a friend.
To help you show up for whatever comes your way.
Customers really do depend on us and appreciate a better experience.
One that quote gets me feels welcoming and respects me for who I am.
After all 70% of our stores represent the primary neighborhood destination for apparel, non apparel and home needs for our customers.
As we've always stated.
Intend to be the bridge reached alike in our strip center.
Positively affecting so many families on our journey from 600 to 1000 stores.
Combined with at least 150 Remodels in the next three years.
Our second area of focus optimizing our product mix is contributing directly to our 'twenty to 'twenty plan and long term growth.
<unk> of our cities or product categories are diligently developing and expand.
Sure rated assortments at values that don't break the bank.
Examples include offering Missy sizing for the first time in a decade.
Building, an expanded assortment of dresses after years of slow growth.
Developing new style choices for our expanding multicultural base in our melting pot markets and so much more.
Lastly, we are on the process of completing an upgrade of our buying planning and allocation systems dumped.
Something we haven't done in a decade.
With rich analytics and easy to use tools. This system will really advance our capabilities target specific products.
Store clusters in customers.
We can't wait.
Our third area of focus investing in infrastructure will play an important role in the scaling of our operations in France.
We are taking more seriously.
So at this point I am happy doing that after many years of consideration today, we announced that we will begin to monetize our owned distribution centers by completing a sale leaseback for one of our facilities with an option on the second pending additional diligence.
More to come from Pam, but the proceeds generated will provide for additional liquidity as part of our ongoing capital allocation decisions include share repurchases.
We are also on the way to completing upgrade both of our distribution facilities that will improve the speed of moving goods to stores and increase overall labor productivity.
Lastly.
Making a difference.
It's how we bring opportunities to life within our neighborhoods and example of our commitment as our celebration of Black history month, which was punctuated by our second at Black.
Black history.
Graham.
During which we received.
For a chance to receive one of 10 grants designated for blackout doors. This year's program garnered over 15000 applicants.
Double the amount from last year.
Just amazing I cannot wait.
Award the recipients and hear about their businesses.
Looking forward, we recognize that it is difficult to predict the first quarter and the full year of 2022.
We were up against last year's largest government stimulus in March and the lifting of COVID-19 restriction.
With the surge in consumer demand, particularly in the first quarter of fiscal 2021.
In mind that during Q1 'twenty to 'twenty, one we posted our best quarter, a very strong year with a positive 35% comparable store sales increase versus Q1 2019.
It's also important to note that the country is currently experiencing unprecedented inflationary pressures.
Especially artful to our core customers and neighborhoods they live it.
Recognizing that these factors will create phones and uncertainties regarding consumer demand we are issuing revised guidance.
The best reflects the tough lap of Q1, 'twenty, one combined with an anticipated material acceleration in sales in the second through fourth quarters of the year driven by a remodel program.
<unk> of 35, new stores and the launch of expanded and new product.
That will engage customers and drive comp store conversion.
With that I'll turn the call over to Pam to discuss our fourth quarter and full year results as well as a few details around our outlook Bam.
Thanks, David and good morning, everyone.
In fiscal 2021, we delivered exceptional financial results.
And bottom line growth.
Meaningful operational progress all of our core areas by mode.
Oh and support.
In addition, while we certainly saw a benefit from the extraordinary federal stimulus.
In the first quarter. We also saw underlying strength from the transformation initiatives will get put in place.
And while in the early innings.
Initiatives are changing how we operate.
Specifically, we have made significant improvement in our merchandise.
Inventory management.
Hi management.
And the efficiency in which we run the operation of this business.
Now onto our second and third quarter calls.
Before turning to our results I want to first address the top of my topic, which is supply chain.
We continue to successfully navigate the supply side environment, which as you know remains fluid we have strategically leverage opportunistic inventory buys from last season, and we have more effectively cured.
In response to customer demand.
As a result, we feel good about the quality and the quantity of our inventory heading into fiscal 'twenty two.
Help us remain agile in light of the macro volatility.
In addition.
Transportation costs are elevated continue to work diligently to what we can control.
Greenland and increasing the efficiency of our internal operation profit.
This allowed us sports humanity impact disruption to approximately 110 basis points versus 2019, we.
We will continue to monitor this closely in the current environment.
Second to persist through at least the remainder of 2022.
Now, let's turn to the specifics of our Q4 financial results.
As mentioned in our earnings press release, we reported operating results for Q4, 'twenty one relative to Q4 2019 to provide a more normalized comparison our performance due to the uniquely challenging operating environment in Q4 of 2020.
Sales of $241 million in the fourth quarter.
14, 2% compared to Q4 2019.
In terms of the cadence of the quarter and then in January at the ICR Conference. We said strong nine week holiday sales results and included a comparable store sales increase of 14, 8% when compared to 2019.
However.
Following strong holiday selling period, we experienced a decline in traffic attributed to the sharp spike in COVID-19 cases from the other prime there.
So our sales softened our conversion basket and minutes per transaction all of that.
Thanks to the strength of our assortment our store experience.
Specifically growth in the quarter versus 2019.
That's driven by increase in the average basket size could result in both unit retail selling price and higher units per transaction.
We achieved gross margin in the quarter up 44%.
The 70 basis points compared to $39 seven in the fourth quarter of 2019.
Solid increase in our quarterly gross margin rate was primarily the result of strong.
Full price selling and fewer markdowns offset partially by increased freight expense.
SG&A Deleveraged 140 basis points versus 2019 to 33, 2%.
Primarily due to increased performance based compensation related to our outsized performance.
Increased insurance premiums.
And increased professional fees.
In support of our seasonality investments in cloud subscription.
Operating income $12 6 million grew by $1 3 million versus Q4 of 2019.
Net income of $9 8 million compared to $9 4 million in Q4 of 2019.
Earnings per diluted share of $1 16 increased from 38% compared to 84% in Q4 2019.
Tony.
A review of our strong fiscal 'twenty, one adult which are also being compared to the full year fiscal 2019.
Total sales for the year were 90 91 six.
An increase of 26, 8% compared to fiscal 2019.
<unk> delivered very strong comparable sales for the year at 22% versus 2019.
Gross margin was 41, 1%.
Increased 310 basis points over fiscal 2019.
Operating income $79 5 million compared to $18 5 million in 2019.
Operating margin expanded to 8% compared to two 4% from 2018.
Earnings per diluted share.
91 grew 390%.
$2 41.
<unk> 2019.
Turning to our balance sheet.
So year end inventory decreased 10% versus year end 2019.
Inventory increased versus year end 2020 by 19% largely in fact for the depleted inventory levels experienced at the end of Q4 last year.
And we'll be opportunistic durbin inventory buys made during the fourth quarter.
We continue to experience record churn as our inventory management has improved markedly year on here, giving us agility and resulting in a record level of product fastener.
The company repurchased approximately 95000 shares of its common stock.
Aggregate cost of approximately $8 1 million in the fourth quarter.
In total for the year, we repurchased close to one 4 million shares at an aggregate cost of $115 million. We ended the year with approximately $30 million remaining on the existing buyback authorization.
Absolutely.
They we announced in our earnings release that the company has undergone.
Review of its owned real estate.
As a result.
<unk> into an agreement to execute a sale leaseback.
Garlington, South Carolina distribution center for a purchase price of approximately $45 million.
Due diligence and other customary closing condition.
In addition, we also retained an option to enter into a similar agreement for our Roseland, Oklahoma distribution Center.
The purchase price.
$35 million.
And then the result of a network optimization study.
Is the company's intent to use net proceeds from these transactions to provide additional liquidity, including share repurchases as determined by our board.
And action would be sale leaseback transaction.
The board announced the authorization.
Additional $30 million per share repurchases.
Our total authorization outstanding 60 million.
As it relates to our outlook, we remain confident in the underlying health of the business as we're seeing our transformation initiatives take hold.
However, as mentioned in our press release.
We're up against last year's extraordinary government stimulus, particularly in the first quarter of 2021 as well as current unprecedented inflation.
Specifically inflation is the highest it's been in 40 years with soaring food prices historically high gasoline prices.
Significant increases.
The macro factors disproportionately impact our core customer.
As a result, we are providing updated guidance.
Which exclude the impact from the aforementioned sale leaseback event and to be determined share repurchases.
Great.
We are planning for it first quarter total sales decreased 25% to 30% compared to the significant increase of 39%.
Q1 of last year versus 2019.
This translates to an expected first quarter EPS for.
Approximately 15 to 40.
Find second through fourth quarter total sales are expected to increase low to mid single digits on top of the 22% increase in the same period in 2021 versus 2019.
At the midpoint this represents a 25% increase.
2019.
EPS for the second through the fourth quarter combined is it.
Expect it to be 390 420.
That brings our fiscal 'twenty, two EPS expectation to $4 <unk> to.
$4.60 per dollar 41 center in 2019.
Summary.
With our 2021 financial and operational performance.
While we are currently operating under many uncertainties.
Confidence in the strategy and the initiatives we have put in place.
And we're so proud of the excellent execution by the entire Citi trends team.
Main agile and nimble.
The dynamic backdrop.
With that I'll turn the call back to David for closing comments David.
Yeah.
Thanks Pam.
You can hear from today's call the city Master plan is really getting traction.
With change maker initiatives in flight you will not only excited our customers, but also importantly evolve our diverse organization to be excellent operators.
Turning our attention to our longer term opportunities I can assure you that our three year growth plan and assumptions are fully intact.
23, and 24, we are confident that the business will generate low single digit annual comp growth and double digit operating income and EPS growth.
Once again, we are very proud of our team's execution in 2021 and very pleased with the results for the year.
In 2022 in a strong position and we are confident in our ability to continue to execute against our transformation strategy.
We look forward to building on our progress in capitalizing on the opportunity we see for our brand this year and beyond.
Before I close I would like to acknowledge the announcement made on February 2nd Pam Edwards has decided to retire and leave the company on April one I want to thank Pam for her commitment and dedication distributions over the past 15 months. She has built a strong and capable finance organization and help to drive our retail trends.
Formation, we wish Pam all the best in her future endeavors.
We're knee deep in a search for pans replacements.
In closing I want to reiterate my gratitude to the entire Citi trends team.
Their hard work and dedication to our brand purpose and mission of driving long term profitable growth, while continuing to make a difference in the communities we serve.
We appreciate your interest in our exciting growth story.
Joining us to bring our purpose to life live bold live crowd and respect all.
With that Malika, we're ready to take questions.
Thank you, ladies and gentlemen on the phone lines. If he would like to register for a question. Please press. The one followed by the four on your telephone you will hear a three ton pump technology request. If your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three once again, ladies and gentlemen on the phone lines you can press one.
Four on your telephone.
Our first question is from the line of Jeremy.
Hamblin with Craig Hallum. Please go ahead your line is open.
Thank you so I wanted to start by getting and a little bit more details around the Q1 guidance.
So in terms of the same store sales figure.
That's embedded within that.
I don't know if youre kind of looking at.
Kind of down 30%.
Type of figure, but I wanted to see if you could clarify that as well as <unk>.
The share count that's implied in that Q1 EPS guidance range.
And then.
We also note that in Q4, your gross margins came in significantly better than.
You know, what you had guided to and where the street was and it was up about 70 basis points versus 2019, I wanted to get an understanding of what was implied in your Q1 guide them from a gross margin perspective, and your outlook for 'twenty two as a whole.
Thanks.
Hey, Jeremy Thanks for joining a great questions.
I'll take a kind of a 50% crack of things and then I'll turn it over to Pam.
From a high level guidance standpoint on the top and comp line.
You are right in the zone, we guided negative 25% to 30 for Q1 on a total sales basis and that would equate to roughly a 28% to 33 range for comp store sales, so youre right there.
And then I'll turn it over to Pam to highlight our share count and a little bit of knowledge and background around the better margin for Q4, our Pam.
Yes, as far as for the share count.
We ended the year at roughly eight 6 million shares outstanding.
And as we mentioned we purchased.
We repurchase shares at the beginning of the quarter for the Q1 perspective, I'm, sorry, Q4 perspective on on what.
That better we stand to our high thirties forties.
Guidance for our overall gross profit and margin and really be they.
You know that that came through being able to manage the freight expenses to that low end of the range that we've given out before.
You know around that 110 basis points result.
Also had fewer markdowns than what we had expected in the quarter that also helped drive the gross profit margin.
Gross profit better as well so yeah.
Really as we started to see that quarter evolved.
And come out a little bit lighter than expected starting December week five.
And.
Through the beginning of the.
January and started to lap up against that first stimulus from last year. We just started managing the business, we were nimble with our inventory management.
Whatever expenses, we could manage at that point in time, we did and just.
We just manage the business accordingly to account for what we were seeing in the market. So just really maintaining agility across the entire business in light of the slowdown that we saw again in that last month of the quarter.
And as a follow up to that point. So it looks like your inventories are down about 11% versus 2019 levels to end the year.
Do you feel like you know obviously your customer base is really being impacted by inflationary pressures and just.
The rapid spikes that we've seen in whether its utilities or gas prices or food prices.
Do you feel like you've.
You've managed your inventories.
To the point here for the next couple of quarters that you can maintain that.
Lower Mark down certainly versus where you were.
A couple of years ago in 2019 is.
Is that fair assumption.
That's a that's a good assumption Jeremy and let me give a little context as you know in a lot of the group knows we started getting really good in inventory management coming out of the Gulf.
With me in the summer of 2020.
So I think you might remember one of my quotes we're never going to look back and so the team is really pressed hard on how to best manage inventory in good times and tough times.
Pam mentioned that word agility.
We're getting better and better at theaters.
Thanks, guys when it comes to making sure that we're reading the tea leaves and that we have enough dry powder in our open to buy and that we can work. The best we can with our vendors to move things around and occasionally cancel things in and yet still look for opportunities and so on so it's a.
It's a multi variable game if you will in terms of how we manage all of that but we're really pleased with how it's going and it's our job to give the customer what they want but not get over our skis and manage down markdowns and make sure that when it's out of the box and looking good that we sell through it and bringing the next trend. So the last point I'd make is.
This idea of.
The lifecycle of trend management.
It's just getting better and better I talked about that's why I joined the company I talked about it in 'twenty, one and I'll tell you about it today.
Getting better and better our mayors are truly becoming masters of trend Madison and that helps mitigate.
Perhaps falling in any you know rabbit holes when it comes to too much inventory. So we're excited about what the numbers are telling us and we'll maintain our normal ammo which is <unk>.
Gross margin of high <unk> low <unk> as.
As we look forward here.
The only thing I would.
Jeremy just the only thing I would add to that just from a quarterly cadence standpoint.
We do expect that Q1 will be our most difficult comparison from a margin perspective, and so you know of that we were planning high <unk> for the first quarter with sequential improvement in the rate from Q2 to Q4 and again.
That's largely an exam.
A.
Last year, we also had.
Prior year shrink favorability in our Q1 number that we're not seeing this year and then.
Also.
Just additional markdown.
Versus last year.
Great last one for me is just the change in the unit development for the year 35 store openings versus <unk> 45 in your prior guidance. It seems like a prudent change given the way the environment has changed wanted to understand the cadence of the openings.
Expected for the year.
You know whether or not how many are you thinking about in Q1.
First half versus back half and then.
As a follow on to that how are your CTX stores and I know you only have a handful, but how are those stores performing versus the rest of the chain. Thanks.
Thanks, so much.
Thanks for your questions Jeremy Yeah.
The $45 to 35 I appreciate your point, we think it is prudent it it's just a little breather this year.
You get everything in order in terms of rolling out our CTX store format that required a lot of heavy lifting and importing of fixtures from.
China and the good news that it came in right on time, which is an amazing callout to our real estate and construction teams. So kudos to those guys, but we just thought you know what back office you will catch up in 'twenty, three and 'twenty four thats not an issue and most importantly, if I can go through the quick cadence, we went from saying in that.
November of last year 40, Remodels in 'twenty two to January of 45 to <unk> 50, So we actually put a little more emphasis I wanted to make sure you didn't lose that factoid into the remodel program, which I'll end with your question about how they're doing it's too early to report on the H that are going live as we speak.
But I can tell you the ones that we went live with last year continue to outperform the chain.
At a healthy margin. So we're we're excited about it.
It is really representing.
Our revolution, and our experience and I hope you and others can get into some of these because they're gonna start popping around the country pretty quick here.
Thanks for your questions to that Jeremy.
Thanks, so much best wishes.
Thank you. Our next question is from the line of Dana Telsey with Telsey Advisory Group. Please go ahead. Your line is open.
Good morning, everyone and Tim Best of luck on your retirement.
In terms of installation and stimulus to if obviously the macro topics.
That's current of current events.
Think about stimulus David you had called out stimulus each quarter of last year and what the impact was anything to remind us of as we go forward this year and the upcoming quarters of how youre thinking of the framework.
And the impact given that you are looking for low to mid single digit sales gains Q2 to Q4 anything we should might be mindful of and then next just on inflation what have you.
Are you seeing in your average price increase how is that helping or to offset wage increases and does it differ by category and how pricing is occurring.
Hi, Dana Thanks for your questions I'll take the first one.
To elaborate on the second one yeah.
From an overall stimulus impact across the year, we look at it almost like a curve that kind of stuff right. Let me, let me describe it more as a ski hill it starts pretty high in March even into a little bit of April meeting the impact of that March drop, but then it really drops pretty quick on that slow.
And we look at the impact of CTC or child tax credit that started dropping in July through December .
So really the lion's share is what youre hearing reflected in our Q1 guidance and then it gets I won't say easier, but it gets a lot lower.
In Q2 through Q4, and then importantly, I want to make sure that you hear this point many of our initiatives impact 2020 to begin to go live in Q2, we've got couple of cooking in Q1, but they really start to pumped in Q2 and forward for example, that's when our <unk>.
Missy assortment starts to take hold that's win.
Our multicultural assortment to capture for example, more latinx market share starts to pop into stores. That's when we start to work and show up with a better address assortment, which is a significant volume offering and then most importantly, our remodels start kicking in you know we're gonna do almost half if not more of the 50 <unk>.
Models by the end of Q2.
They provide some really nice comp benefit for the rest of the year and then obviously on the total topline building, our new stores will start to kick in and what we think will build just shy off of those by the end of two as well so lots of moving good parts coming for the Citi trends business.
Pam do you want to comment on our pricing.
Sure.
As we've previously shared our AUR has been steadily increasing due to improvements in quality trend duration of assortment and also the lower markdowns due to our tighter inventory management and so we just continue to monitor it closely and look at it very surgically from our business.
Hum.
By category to make sure that we're measuring the elasticity as well as providing that.
<unk> value equation for our customers and so while we are seeing a higher AUR out the door price some of that is due to lower markdowns.
What we've seen historically, but it's also due to where we have it.
First up the quality and the value in the assortment.
To match, a higher price level that our customer.
Can can match.
Got it.
And then on the supply chain side, the 110 basis point impact in this fourth quarter does that hold similar throughout the rest of the year or is there differences in the upcoming quarters that youre looking at.
We're we're pretty much holding cash at the end of there's so much uncertainty with transportation costs right now and.
The rising fuel costs and David mentioned, we do have some initiatives that will start to take hold in.
The back half of this year as it relates to our <unk>.
Supply chain, you know, but at this point given the level of uncertainty, where we're pretty much holding at that 110 to 120 basis points versus 2019 as that as the increase at least until we get out of 2022 and can see some ability hopefully.
Got it and then just lastly, Dave.
David You had mentioned dresses I think you had been also looking at other categories like the Big Boys sizing the Missy size into junior tops or branded collaborations what are you thinking about product wise as we move through 2022 to drive excitement for your core customer.
Great question, Dana and great memory all of those things that you cited are also on the list in terms of how we look at our customer and frankly, the improving and changing landscape for how theyre going out.
They are returning to the office in some cases.
They're coming out of this without a mask and being more social and more free and so on we think those are all really great tailwind for the Citi trends business, but I also think we have an opportunity to open up some new windows. We have this incredible story with our loyal and deep customer connections.
On the casual side of life, but what we haven't done as much and certainly the last two years, but even the last three to five is dabble and ensure into the more sort of I'll call. It dress casual and opportunities to kind of have those data evening.
And we will still do it in a Citi trends way it'll still be full of trend and it will still represent live in bold and live and proud in the ways you present yourself, but it's our belief and I strongly support this from lease our head of product allocation planning.
Is this happening and we're testing the waters with a number of initiatives right now and many of them are flying off the shelves and off the hangars. So we're encouraged by the changing consumer landscape in terms of their apparel needs and then on the non apparel fronts, our business remains stronger than ever and as you may remember a lot of our.
Addition of categories or expansion of categories was on the non apparel side. So I can tell you that our Q wide initiative is expanding into more stores.
Keep the thing from growing leaps and bounds.
And then we're working on really interesting stuff like.
Jewelry for the plus size women with a bigger footprint. If you will on her neck or either that's blowing out I mean, there's just so many things under the covers it trends.
We're excited about and we believe to your point, we will engage the customer and last but not least generate strong performance with higher store conversion and higher basket.
Thank you.
Thank you have a great day.
Jim.
Thank you. Our next question is from the line of Chuck Grom with Gordon Haskett. Please go ahead. Your line is open.
Hey, Thanks, good morning.
You know you guys have called out that conversion and in basket have stayed relatively the same so I guess I'm curious what you're seeing from a from a footfall or traffic perspective over the past 100 days really since the middle of December .
Hey, Chuck Good question, Yes, you're right we were encouraged about our conversion levels and in our basket levels driven by healthy increases in both our AUR selling price as well as our units per transaction.
Kind of pull back and answer your question comes from you know Q4 holiday to now it's.
Definitely saw.
We typically have really strong with our December because our customer tends to shop more last minute and so we ended December with three and four you know holding really nicely against 19 still not positive against 19, but but better than we had seen throughout the year. Prior and then as we know January .
Got sucked in by people being sucked in from the Covid Omicron variants and and we saw a pretty big deceleration in our traffic. However, as I reported back then what we didn't see was any decay in conversion or basket.
Was just amazing to see so what that tells US is our content really strong and the stories that were presenting to our customers are strong and then as we entered early fab. As we also suggested would happen we saw a pretty nice recovery meeting our traffic levels started to recover and our basket and conversion stayed true and high.
We're still not above 19.
We have some you'll see selling weeks based on the in.
The cadence of tax refunds and such but.
Overall, we're pleased with the progression that we're seeing in the business and we have that planned to get as soon as we lap Q1 to get better and better between Q2 and Q4.
Okay. Because you know January was down I think around 32% and it looks like you're guiding the first quarter to be down about 30%. So I'm just trying to understand the degree of conservatism in the guide or if you're if you're trending kind of in this down 30%. So far quarter to date is there any way you can ship it out for us.
I think I can give a little high level I think what you're hearing is mainly the margins a little bit of April downturn that'll kind of you know if.
If you will <unk> some of the increases or improvements, we've seen and said in March to date.
As a reminder, the stimulus really started hitting last weekend and it hits last year, meaning.
Hit lap here this week and the following week.
So so what I've said is true we've seen some recovery in southern in early March we will give some of that back when we lap the relapses stimulus. So that's the that's the color I can Brian I hope that helps.
Okay.
I am on for Pam.
Last year in 'twenty, one your EBITDA ratio was over 10%, which is I think consistent with the long term guide that you guys provided.
Earlier in January .
It looks like your EBITDA guide for this year was around call. It in the low 7% range. Just wondering you know when you think of when you think about it over the next several years how long do you think it's going to take for you guys to get back to the level that you were able to produce in 2021.
Yeah, Great question, Chuck I do believe that.
The underlying.
Conditions of the business once we get past stimulus.
And then just lapping that we're doing now and some of this inflation, we're going to start to see the business get back on track to where we projected in our long range goals and we can see.
A double digit EBITDA by 2024, so yeah again I think.
We believe that this is.
No temporary from what we're seeing in all stimulus related and feel that that's still a good measurement of our transformation.
Okay and then my.
Last question is if you think about the $80 million and potential proceeds from the monetization.
On the D CS.
I guess has the board doesn't any consideration to get more aggressive on buybacks you know if your if your guidance holds and you could do north of $5 and earnings per share in 'twenty three.
Stocks really really cheap here and there.
Time to execute that buyback, maybe now but I'm just wondering if you know what the consideration I guess would be.
With those proceeds.
Yeah, I mean, it's an ongoing and active conversation and certainly share repurchase remains an important part important pillar of our capital allocation strategy.
The board ounces and is actively looking at that as part of that considerations for the proceeds of the sale leaseback.
Okay. Congrats again.
Thank you.
Thank you. Our next question is from the line of John Lawrence with Benchmark. Please go ahead. Your line is open.
Great. Thanks first of all congrats Pam thanks for all the help.
Thank you.
Secondly.
David would you talk a little bit about you talked about some of these investments in the systems and.
You've talked about those for several quarters could you go a little deeper and talk about what.
What do you really expect to achieve on the merchandising side.
With these investments and planning systems might be that.
You know you realize you need to have more efficiency there.
Hey, John sure happy to do that and Youre right Ive been previewing this new system and site.
Citing it now kind of restaurants.
We've got many individuals but our teams across by a move in cell working hard on testing and developing what the ultimate solution will be come later in the summer and the benefits are vast truly this represents.
Really the backbone of our bi team.
Both places all the way through to how they plan and allocate based on the types of stores.
Climate of the store the location of the store the store, whether it's an African American primary store or an African American Latinx store and so forth. So if you call the <unk>.
Let us back a bit it really says to you gosh. This brand has been operating at.
Pretty high level.
Without this system, which is a testament unto itself.
And with this new system.
We're going to give these guys kind of a race race car to be able to go and chase opportunities spend less time in a manual.
Our system more time in our system that will provide the right kpis the right dashboards and the right tool set to go in and say, Hey, I want to allocate.
This particular product to these 72 stores because I know that's the right thing to do and that's how I'll probably maximize shelf.
Markdowns and most importantly make the customer happy so the age old I need more shorts in Florida, which happens almost every year will largely go away because we'll have the smarts and the analytics to say this is when shorts should arrive in Florida. This has been short term peak in Florida and this has been short should go away in Florida and <unk>.
All of those conversations we tend to do very manually today and a little bit of cross fingers. If you know what I mean so.
Glad you asked this system enhancement is it is a change maker for Citi trends.
And David when would you expect to have that fully implemented and operating.
We are expecting to have that are in play late summer early fall.
Yeah.
I think it has an immediate impact for the rest of 'twenty, two but really when it kicks in is for 'twenty three and four as the teams.
Get really good at using it.
Right.
Can you tell me digging into the new stores I know you commented on the on the.
The new format stores.
Can you can you go into just a little bit of a deeper dive.
All of those new presentations the way non apparel was.
Sort of as presented in those new stores that we've seen.
Can you give them a sense of are these stronger then are they really leading the charge into those.
Solid comps.
But you've presented that merchandise in a different way.
Good question and I think youre, referring to are really.
Large phase the layout on our new CTX store format or is that we'll put into all of our 35, new these tier and 50 Remodels I would tell you John that what pleasantly surprised us is that really all boats rose we expected.
The material or products excuse me that we move to the center of the store to be off the charge. The truth is most of the box is up.
It's hard to find a business that's not up and so it just really presented this whole new.
Good well lit dynamic easy to shop specialty store experience that we werent upholding we werent respecting those that vision in our in our legacy and older stores Nobody's fault. It just wasn't something on the agenda for Citi trends for so long.
Until the team got after it last last fall or excuse me fall of 'twenty into into luxury in spring of 'twenty. One so at the end of the day were loving what we're seeing.
I've highlighted a little bit in the past what we're seeing in the lift out of these stores is what we call a proxy for conversion, meaning we're seeing transactions rise coupled with some nice little gains in <unk> and in the basket, but most of the increase is coming from conversion, which tells us.
You might have come in and have not been as gauged are as excited about the experience and now you are at and our goal and job is to just become really good operators in operating these stores filling them up with bright stuff using that new system. When it comes alive to get even better in the stores and I think.
The performance will follow.
Yeah.
Thanks, and good luck.
Thanks, John take care.
Thank you and no further question ill turn it back over to David Mclean. Please go ahead.
Thanks, Malika. Thanks, everybody I think we can conclude the call for today. Thanks for joining US we look forward to seeing you next time have a great day and week and a great spring Bye bye.
Thanks, everyone.
Thank you, ladies and gentlemen that does conclude today's call. We thank you for your participation and ask that you. Please disconnect your lines have a good day.
Yes.
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