Q1 2022 Citi Trends Inc Earnings Call

Ladies and gentlemen, please standby the conference will begin momentarily. We thank you for your patience and I said you. Please remain on the line.

[music].

Greetings and welcome to the C train, one Q 'twenty 'twenty to 'twenty two.

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 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.

As a reminder, this conference is being recorded Tuesday May 24 at 2022, I would now like to turn the conference over to Nitza Mckee Senior Associate. Please go ahead.

Thanks, Alicia and good morning, everyone. Thank you for joining us on Citi trends first quarter 2022 earnings call on our call today is our Chief Executive Officer, David Mccuin, and Vice President of Finance, Jason Master.

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 that prepared remarks today made during this call may contain forward looking statements within the meaning of the private Securities litigation.

And 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 detail.

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 Mccuin David.

Thank you Nita.

Good morning, everyone and thanks for joining us today.

First quarter fiscal 'twenty to 'twenty two earnings call.

This morning, I will begin by reviewing the ongoing transformation of our business.

And highlight our financial and operational results for the first quarter.

Let's go point to point you to.

Updating you on our focus on our highest priority.

<unk> for our customers and associates during tough times.

We are doubling down on helping them show up.

But whatever comes our way.

Then Jason Bhatia, our VP of finance and principal financial and accounting officer will elaborate on our financial results and a few other items related.

Before turning to our results I want to recognize that the macro environment.

For our customers given a number of factors, including ultra high inflation.

Driving high food prices.

And gas prices.

These factors, coupled with geopolitical instability and lapping the stimulus from last year disproportionately impact our core customers.

And also on our associates, who work tirelessly to operate 600 plus store fleets.

While it hasn't been easy for them.

They are resilient strong and able to weather this storm.

Just like that.

With so many other storms during the last 20 years.

Importantly, <unk> will always be dedicated to our neighborhoods and will always be there for our loyal and new customers.

Our unique ability to listen to the African American Latinx families, we serve and respond with the right trends fashion and essentials.

The right time in the White store has never been stronger.

No matter the headwinds.

It's our responsibility to keep it fresh and fun for the families each and every day.

To thank our associates throughout all functions and stores.

Keep Citi trends purpose.

And running the best way possible for our customers each and every day.

Now turning to our results our first quarter top line results were in line with expectations and our bottom line performance was better than our previously provided guidance.

Difficult economic backdrop, coupled with third party data, suggesting shifts and discretionary shopping behavior is negatively impacting traffic to our stores.

However, our core customer metrics are holding up well.

<unk> strong and consistent conversion and baskets.

With basket well above 2019.

And very close to 2021.

I have shared the stability of our conversion and basket trends now in three consecutive calls with you.

And I want to underline the following points.

Our content is resonating and our agile by T is reading reacting and executing at a high level.

Our team is more nimble than ever and in particular, we are chasing ample available trends.

We'll scoop up an offer at prices that don't break the bank.

Looking back on the quarter.

We successfully manage inventory levels and have newness and freshness, arriving in stores weekly.

Classic extreme value Chase.

Leon.

With the soft store traffic setup, our store management teams have been intensely focusing on conversion, while styling customers from head to toe and our specialty store experience to drive <unk> and healthy baskets.

We commenced the early phases of further optimizing our product mix with the gradual rollout with multiple incremental project.

Multiple incremental product initiatives across our six cities or categories.

We remodeled 20 legacy Citi trying to stores and our new <unk>.

T X format and they are off to a great start.

Customers are engaged with a revitalized neighborhoods trends spot.

We continue to navigate and manage the challenging supply chain backdrop, and labor challenges, while diligently managing expenses.

We completed the previously announced sale leaseback transaction of our distribution center located in Darlington South Carolina.

We are making substantial progress on our infrastructure initiatives to improve our buy and move teams' visibility.

Sure and move goods.

And lastly, we are making great progress on our search for a new CFO .

As we look to the remainder of 2022, we expect the macro factors continue to impact our customers and the broader discretionary shopping landscape.

Therefore, prudent that we plan conservatively.

And thus we are revising our growth targets for the rest of the year, while still comparing primarily to pre pandemic 2019 as a baseline.

Additionally, we believe the white step is to take a conservative approach to opening new stores and therefore, we now intend to open approximately 20 stores during fiscal 2022.

With that I'll turn the call over to Jason to discuss our first quarter results in detail as well as our updated guidance for the balance of the year Jason.

Thanks, David and good morning to everyone.

For the first quarter of fiscal 2022, the operating environment remains difficult with headwinds of extreme inflation freight pressures.

And lapping government stimulus to name a few.

Despite this we delivered total sales in line with our expectation.

<unk> gross margin well above the levels in 2019 and prior.

And applied rigorous discipline to controlling our expenses.

Resulting in earnings per share that exceeded the top end of our prior guidance.

We ended the quarter with a strong cash balance in a clean inventory position, leaving us poised as David said.

To chase trends within our six cities or categories.

Our powder dry so we can appropriately respond to our customers' needs based on the time of year and occasion.

Now, let's turn to the specifics of our Q1 financial results.

As mentioned in our earnings release, we are comparing select operating results for Q1 of 2022 relative to Q1 of 2019 in order to provide a more normalized comparison of performance.

In addition, certain.

Results are adjusted.

With 2022 figures adjusted to exclude the gain from filling in our distribution center in 2019 adjusted to exclude expenses related to a proxy contest.

Please see our earnings release for a reconciliation of these adjustments.

Total sales for the first quarter were $208 million.

An increase of one 6% compared to Q1 of 2019.

Comparable store sales declined 29% versus 2021.

On top of a 35% increase last year versus 2019, representing a stack of five 8%.

Our conversion of basket remains strong.

Which tells US our content is resonating.

Earnings per share was $3 59 compared to 65.

Or as adjusted <unk> 42, compared to 72 zones.

Gross margin was 39%.

150 basis points.

Higher than the first quarter of 2019.

Our continued improvement in quarterly gross margin rates versus 2019 and prior.

This is primarily the result of disciplined inventory management, starting with higher markups.

Stronger full price sell through.

Fewer markdowns.

And lower shrink rates.

Partially offset by 125 points of deleverage and freight costs due to the current supply chain headwinds.

Navigating the supply chain environment remains fluid, we have worked to increase the efficiency of our internal operations.

While also negotiating rates with our shipping partners to mitigate the elevated transportation costs.

Adjusted SG&A for the quarter was 34, 1% of sales.

Up from 39% in the first quarter of 2019.

On a dollars basis adjusted.

Adjusted SG&A was 13, 8% higher.

Adjusted operating income was $4 7 million versus $9 8 million.

Or on an adjusted basis.

The margin was two 3% compared to four 8%.

GAAP net income was $30 2 million compared to $7 8 million in the first quarter of 2019.

Or as adjusted.

$3 6 million compared to $8 7 million.

Now turning to our balance sheet.

Total inventory at the end of the quarter was lower.

One 2% compared to the end of Q1 2019.

Excluding our pack away inventory.

Inventory was down 13, 9%.

And our average in store inventory was 32, 5% lower than 2019.

Which reflects our continued focus on freshness and improved store turbines.

Yeah.

During the quarter, we completed the sale leaseback of our distribution center in Darlington South Carolina.

Resulting in gross proceeds of $46 million.

On a pre tax gain of $35 million.

The impact of rent expense in fiscal 2022 is expected to be approximately 40 basis points.

As it relates to our buyback program.

We repurchased approximately 170000 shares.

At an aggregate cost of $5 $3 million.

Leaving $54 $7 million remaining.

We ended the quarter and strong capital position with $61 7 million of cash and no debt.

As we stated in the past.

Capital allocation is a primary focus of our board and we will prudently balance.

Our use of cash between buybacks and investments in our growth strategy and ensuring adequate liquidity in this challenging environment.

Now turning to our guidance for the balance of the year.

With the expectation that macro factors continue to pressure our customer.

We believe it is prudent to plan conservatively.

We have revised our outlook as follows.

Full year sales of $860 million to $80 million.

On a comparable sales decrease of 14% to 16%.

On top of a 22% increase last year versus fiscal 2019.

At the midpoint of this range this implies a comp stack a positive 7%.

Full year operating income of 58, 8% to $65 3 million.

Or as adjusted $23 $8 million to $36 million.

At the midpoint of this adjusted range. This implies a 32% increase compared to fiscal 2019.

Full year diluted EPS, ranging from $5 59.

The $6 nine on a GAAP basis.

Or as adjusted.

$2 25 to $2 75 zones.

At the midpoint of this adjusted range. This represents an increase of 60% over adjusted EPS in fiscal 2019.

I'll note that our full year guidance includes $2 $3 million of incremental non cash SG&A expense related to the conversion of certain cash settled awards to restricted stock.

Which negatively impacts diluted EPS by approximately 22.

<unk>.

These converted awards will be fully vested during Q1 of 2023.

And therefore, they will no longer result, and the incremental expense after the first quarter of 2023.

Finally, given our revised plans for opening 20, new stores during the year.

We project capital expenditures of approximately $32 million.

To wrap up.

Our teams are executing disciplined cost controls.

Optimizing our operations and.

And diligently managing the balance sheet.

We recognize the challenging environment and therefore, we are laser focused on controlling the controllable.

While we work to maximize our top line sales and amaze our customers each and every day.

With that I'll turn the call back to David for closing comments David.

Sure.

Thanks, Jason.

Before we take your questions.

I want to provide some additional beliefs and our customers and business model that gives us the confidence to navigate current unpredictable times and make the ongoing improvements to our model to maximize profitability in the years ahead.

First about our customers.

Our associates make it personal and often noted our customers on a first name basis and even what's happening on in their lives.

Across our fleet and playing a central role in the neighborhood, where we quite literally helped bring opportunities to life.

I'd suggest going value outfits for her and him and the kids for both work and play.

Suggesting value choice and accessories.

For the little ones.

Suggesting new value beauty items tailored towards black and Latino women.

And so much more.

But the crux of this relationship is a high level of loyalty and dedication our customers and associates.

With our brands.

It's a special bond.

That is not easily eroded by tough times.

Our customers know tough times.

And they are equipped to muscle through.

Its characteristics.

Also an indelible strand of arguing that we.

We will leverage to help solve the current times.

While laying the groundwork for future growth.

Regarding our business model when I take a step back and look at how we manage the business through an incredibly challenging period.

We are definitely behavior.

75 year old startup.

The modernization of the Citi trends brand is unfolding as planned.

It can be felt in <unk>.

Our people our culture and.

Our operations are.

Our 75 year history is critical.

Understanding how durable are modeling.

From where we are uniquely sit in the neighborhood to the queue.

We're rated assortment we offer.

<unk>.

That takes respect all to a new level.

If you walk away with one thing today.

It's the power of an underlying foundational strength of our legacy value brand built by and for the.

The neighborhoods.

For many decades in the past and for many decades in the future.

I am humbled to be a member of the team that shares my passion for growing and building something really special for the customers and associates that care deeply about the success of Citi trends.

But this year and beyond as you have heard before we remain focused on four strategic priorities number one growing our fleet and expanding our customer base number two optimizing our product mix number three reinvesting in our infrastructure.

Before making a difference within the communities we serve.

In closing I want to again, thank the entire Citi trends team for their dedication and all of our efforts towards making a difference in the communities we serve.

Their passion to live our purpose.

Life is best when you live bulb proud and respect all.

It's definitely shining bright.

With that.

We are now ready to take your questions Malika.

Thank you, ladies and gentlemen on the phone line and see if you wish to ask a question. Please press. The one followed by the four on your telephone you will hear a three pronged 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 if you have a question.

One moment please.

Our first phone question is from the line of Dana Telsey with Telsey Advisory Group. Please go ahead. Your line is open.

Good morning, everyone, Hello, David and Jason as you think about the current environment and state of the consumer with inflationary headwinds with your customer.

How are you managing on price, what how much pricing you passing on to them.

Have you seen be accepted not be accepted by category and how you're managing the inflationary headwinds internally in terms of labor costs, and then lastly, any update on how the CTX stores are performing versus the base.

And the 20, new stores versus the prior guide for 35.

It was pushed off into 2023, and if some of that because it's just hard to get the goods to the stores, whether it's HVAC equipment or other things. Thank you.

Hi, Dana good morning, nice to hear from you and thanks for your questions I'll try to tick through some of those from the from the start.

On price I will tell you that we've really not changed our stance versus what we've shared prior even dating back into 2021, we have maintained that we can nudge price up in the case of improving value features and benefits and that's been working consistently up until today and we expect it to work.

Throughout the rest of this year into the future we have maintained value on sort.

The essential band within our cities call that underwear socks with things that you kind of need less trend driven more basic driven we've maintained those prices and really not passed on any increases to customer and then thirdly, a lot of our newness, so not like Super Skus, but newness in the area.

Trends, we really managed not only.

The price in relationships and kind of resiliency of our customer, but also manage the ability for us to price the trend right and and bring it in at lower than maybe you know 19 in prior inventory levels, which you've heard us talk about and celebrate the trend selling out and moving onto the next one so I think we've met.

<unk> kind of pricing assortment really successfully and where we're going to stay the course on all those points on the labor headwinds.

I think at the end of the day.

Similar answer to price, we're going to stay the course as you've heard me speak in the past.

We haven't had to do drastic wage increases, but rather we've done very surgical and strategic and tactical wage increases where needed.

Treated our people well from a cultural standpoint and from a benefit standpoint. So that's kind of the total package is working well for us and we expect that to continue.

For the future without any big disruptions and we've had great loyalty from our teams and our distribution centers as well as in our stores and of course in our headquarters.

That indicate a passionate team ready to serve the customer in no matter what function or a part of.

From a CTX perspective, we are really pleased with the results. So far we're seeing lifts higher than we did in 19 and prior remodels.

And we've shared that we expect to see high single digit lifts and we're right on plan.

For the initial class really exciting we'll have basically 20 open by tomorrow.

And that's something that we're pretty pumped about and we will do another tranche here in the Q2 period to up that number to close to 30 by the end of Q2. So we're excited about where that's going and then the.

<unk>.

Refresh me on your last question, if you don't mind.

On the number of store openings going to 20 from 35 is that because it pushes into 'twenty three or is it the headwinds of getting supplies to get a store open.

It's actually you know.

Not necessarily either one right now let me answer the first piece of your question, we expect to grow stores and hit our 1000 store target. We have no question in that number that we shared with everybody prior.

Pace of which we do that we're just kind of slow down a little bit. This year, we expect to return to a faster pace in 'twenty, three and four and beyond.

And we'll move so we'll move that 15 for sure in fact, most of the deals are already in flight are done we'll move those into 'twenty three in respect to lowering it it's really just a more prudent measure on our part we want to make sure that we're able to spread our resources throughout the company around not only managing the current business, but getting new stores off to a.

Great start managing the Remodels in an effective way and running our core business in these in these times of challenges. So that's kind of really how we thought about it but we've got tons of deals in the pipeline. We're excited about upping the number in 'twenty three and upping it from there in 'twenty four and so on.

Got it just one last thing cadence of the quarter. What did you see in terms of cadence through the quarter, whether it's lapping stimulus tax refunds and how is the exit rate in what's happening so far Q2 to date. Thank you.

Sure. Good question the cadence of the quarter. The short answer is it got better by months. So from February through April we saw sequential improvement and our transaction counts, we saw a consistent and strong conversion level and then consistent with strong basket.

That was encouraging throughout the quarter and then as we've entered the early parts of Q2, we've seen a continued improvement off of the improvements we saw month to month in Q1, and I'll take a quick plug in for some of our incremental initiatives that we've talked about the last couple of calls.

<unk>.

Are taking hold there and sort of test learn some are in rollout gradual over Q2 and Q3, but we're liking the traction we're seeing and that's contributing to the improved momentum.

Thank you.

You're welcome have a great day.

You too.

Thank you. Our next question is from the line of Jeremy Hamblin with Craig Hallum Capital Group. Please go ahead. Your line is open.

Thanks, I wanted to start.

Just following up on that last question and great to hear that there is some improved sequential.

Results I wanted to clarify so historically there has been the typical seasonality where Q1 on an absolute dollar basis is significantly stronger than Q2 and Q3.

I wanted to understand if you.

Just maybe a little bit more color on expectations around Q2 because of how.

Tax refunds didn't play out as typical are you are you expecting Q2 sales to be up from Q1.

Jeremy Hello, Thanks for calling in and asking some questions.

While today, we're not disclosing any guidance related to the individual quarters of the year, what I can tell you is that the.

Q2 to Q4 trend run rate is very similar in our projections and guidance to what we stated earlier, meaning it gets better over the queues.

And with the numbers that we've guided as of today. So while we're not sharing their relationship with every single quarter. What I can tell you is that sequential improvement offers us a confidence that we will we will accomplish that bill from quarter to quarter.

The the order and the way I'd think about it is.

We expect to have a strong remaining summer inclusive of July 4th which is an important time period for the brand that we roll into a more normalized in the past three years that is back to school season, we're well positioned from a current and pack away standpoint to feed back to school and then.

As you can imagine we're.

Putting the right emphasis and priority is around winning the gifting season in Q4, So that's kind of some color around how the rest of year shapes up in our minds.

Well, let me ask it just didnt slightly different context than I am.

Apologize, but you you cut the full year guidance by roughly $60 million for Q1 played out kind of bright right down the pipe of where youre expecting it. So I'm just trying to understand you know.

Versus your prior expectations in March.

Is that $60 million change kind of coming equitably over the course of the remaining three quarters.

Are you just having a little bit lower expectation in Q4 or is it more in the near term, where we thought we might get a little more balance.

Balance in Q2 Q3 previously.

Previously and now we're thinking it's.

Seasonally you're going to play out a little bit more.

Like it might typically I know youre going after that summer season, though.

Yeah, Yeah, no no a good question Yeah, I think we can give you some directional insights that the.

The inflationary pressures are certainly lingering and as we know from.

All the news expected to linger a little longer than we all hope and so you can take it away that Q2 has got a little more of that $60 million decline than Q3 and four.

I think that's a fair takeaway, but they all as you can imagine we sliced away a bit from each quarter to appropriately respond to the pressures from inflation and such.

Great. That's helpful. And then just wanted to get into the inventory so.

You have some pack away.

Inventory levels on a year over year basis are up about 27%.

<unk> came in maybe a little bit higher than I expected, but consistent with what we're hearing from a lot of retailers.

In recent weeks that inventory levels for a variety of reasons are higher than expected in.

In terms of thinking about your gross margins, which I think probably came in pretty close to where you might have been expecting in Q1.

On a go forward basis.

Do you have some concerns at all about the risk of maybe markdown rates being a little bit higher not just because like I want I wanted to understand if your inventory levels, where we are or where you expected them to be.

You know two three months ago.

And then two given that there's a lot of competitors also with higher inventory levels certainly than they expected are.

Are you starting to see any incremental pressure from slightly higher promotions are you.

Thinking that maybe clearance rates are going to be up a tick.

Certainly from where they were a year ago.

Good questions Jeremy first off we are.

Pleased about where we sit inventory wise.

If I can I'll give you a little bit of color versus LOI in our script and release, we talked about versus 19, but obviously 'twenty. One data is out there. So it's an important thing to remember about our business model is that we spend considerable effort and devotion towards capturing forward season buys from.

Roughly in November of 'twenty, one through even as late as March of 'twenty, two and we pack away those goods for eventual selling and really back to school and later.

And so when you look at our end of quarter inventory levels against last year up like you said kind of mid twenties.

We really believe we need to pull forward season buys out of there. So we're really up when you do that up 5%.

Because that forward season by amount is sitting in the rafters in our distribution centers and we pull it out starting in back to school and then continue through holiday and we really basically drain it depleted in a good way.

That's a good margin and their unbelievable deals in that.

Bucket so to speak so that's important color to understand the other thing is our average store inventory against last year.

It is.

Only up a couple of points and that's important to know because we were extremely depleted last year. During the stimulus fueled Q1 period and so to be only up 6% on an average store that's literally what's in our four walls.

Is just a testament to the team's focus on not getting over our skis, keeping the powder dry and managing inventory levels across all of our cities and a really effective manner. So long story short, we're not terribly concerned yet.

We're extremely maniacal about keeping it this way.

And then on your point around risk around markdowns and margins.

So you can assume that that's all built in to what we shared today, we spent a lot of time modeling that.

And we feel comfortable with what we shared today.

Great. Thanks, one for me real yes, absolutely. Thanks, that's great color last one for me is just around the SG&A understanding also the $2 million to $3 million.

Noncash stock charge, so presumably that's that's going to be.

Spread over the next few quarters I wasn't sure if it's all hitting in Q2.

Or not but then in terms of your absolute spend in Q1 have just $71 million.

Down.

From where you were in Q2 and Q3 of last year, so managing that.

Really well.

My guess is it sounds like that's kind of like a sustainable level, but wanted to just.

Kind of get a little more detail around that SG&A spend.

Then also specific to that $2 $3 million.

Award if that was hitting all in one quarter or if that was spread over multiple quarters here.

Throughout 2002.

Sure Yeah, you bet I'll.

I'll take the part one and then Jason can chime in on part two but on part one relative to the $2 3 million dollar kind of <unk>.

One time events that will impact.

And Jim our EPS about 'twenty two cents for this year it is spread across the year.

It's probably more like 30% in Q1, and then the rest of it's spread by quarter end.

As Jason pointed out it runs out as of the end of Q1 of 'twenty, three and no longer becomes a quote unquote noncash charge to the EPS number. So that's a that's a good thing.

I'll give you a high level on SG&A I think we do feel confident about it in terms of how we forecasted and how we're managing it.

I'll turn it over to Jason for a minute or two on that one.

Yeah and quickly to clarify on those awards that was a conversion.

Disclose that in the footnotes to our 10-K as well that it was in the fourth quarter of 2021 and we converted.

Certain cash settled awards that were for mid level managers and to restricted stock and.

The nature of the accounting rules around that.

Take on the fair market value at the conversion price, which.

With an elevated value relative to their initial grant date price so that.

At that price gets locked in and then the expenses straight line until their best so there'll be fully vested in March of 2023.

And then going forward when we have no cash settled awards, so no mark to market fluctuations in our equity awards and.

All future equity awards will just be straight line expense based on grant date fair value.

SG&A expense for the balance of the year.

We do feel confident in our ability to control expenses and generally speaking.

We think we can keep it around the levels that we kept it in Q1 of 'twenty two with.

With the caveat that we generally do have some fluctuations through the quarters, we generally have slightly higher SG&A spend through Q2 through Q4, just as it relates to the variable expenses.

With our sales, particularly in Q4, so I think it will we expect will follow.

Directionally, along the same path, but.

21, followed.

And even as 19, followed.

And staying around the levels, starting point being where we where we were in Q1 of 2022.

Great. Thanks for that that context and color best wishes.

Thanks, Jeremy have a great day.

Thank you. Our next question is from the line of Chuck Grom with Gordon Haskett. Please go ahead. Your line is open.

Hey, Thanks, a lot good morning.

Just wondering if you guys could speak to how you arrived at the comp guidance down 14% to 16% for you guys.

We are fortunate up to come in line with the <unk> view that you've provided.

And if I, if I run the three year stacks out over the next few quarters. It does imply.

A pretty big uptick sequentially throughout the year.

So just was wondering if you could just unpack how you got to that number for us and if you'd be willing to give us a little bit of help on the second quarter.

Hey, Chuck nice to hear from you.

Let me give a little bit of color on kind of how.

The year unfolds and it is pretty consistent methodology.

Methodologically with our prior talk on this in the March <unk>, meaning we expect sequential improvement from Q2 to three to four larger driven by as I mentioned, a few minutes ago, the seasonal patterns in the business winning back to school winning holiday, but importantly also tied to that.

The gradual rollout and incremental volume initiatives so to speak within many of our cities as I've spoken about in the March call. The addition of our Missy size range for example.

Expansion.

And rollout of a more intense Q line lap last <unk> stopped before you check out a portion of our store.

The further traction of our CTX Remodels, which go into comp so all of those inputs and assumptions remain in our model really.

As I'm sure you thought about it we just kind of tamped down the lifts that we thought we would potentially achieve based on a personal level of the.

The inflationary impact impacting our lower income customer.

So it definitely improves sequentially and is bolstered by these incremental interested so I thought I'd share a little bit of color on current product trends, which which is relevant and that we're seeing some really good trend shifts within some of our cities regarding the change in <unk>.

Habits of our own customer, mainly driven by greater wear to work trending.

Activities that is benefiting us. So we're we're kind of if you will.

Way more business than last year and the prior year.

Here to work clothing from Black and White simple pieces that you can put together with the trends layer and so forth and then we're also seeing a continued strong trend in.

I guess, the flip side the at home portion still remote worker slash remote caretaker and the matriarch of the household who is still wearing lounge meets street wear and a casual sense and we're seeing that boom. In fact are seeing both those businesses really surprises every single day.

Feeding them.

We can so all of that kind of like some base things that are happening well some incremental things that are happening well.

Our bolstering our confidence in the bill so to speak quarter to quarter over over the year in terms of Q2, not at Liberty to share much more than that I shared in the previous answer.

But maybe the other thing I'd add and emphasize is our our our confidence in that basket and conversion metrics.

We're in well over 100 stores now with conversion and traffic meters or I should say traffic meters, and therefore able to compute conversion.

And we're just seeing this really.

Wonderful consistent high conversion level that is just simply not wavering.

With inflationary pressures so it points to the fact that the consumer who has the funds are then he still due to come into our stores are converting at the same rate and met their basket. It's really interesting I mean, our basket is similar to 2000.

One levels never mind, well above 19, and so all of those as it pertains to Q2, specifically and the rest of the year, but just component on your point about Ctrip, we feel really good we're seeing incredible take rates on memorial day goods as we speak for.

It's going to be a banger in then we have a very early back to school.

Season, because of where our stores are located and so we're already seeing some good traction on things like uniforms and back to school.

Good so all of that gives us a.

Certainly good feelings about how Q2 unfolds.

Okay. That's very helpful. And then just to build off that I was hoping that you could you could talk about the evolution of your of your basket since 2019 in terms of the.

The overall, but dollar size.

And I guess like what what's actually changed within the basket how much more discretionary that basket has become as it or has it stayed mainly in the apparel area.

Yes, great great questions, Let me give you.

Some high level.

Thoughts on that.

First off what is being driven by its being driven by both the basket that is both by <unk> gains.

I'm talking now versus 19 and AUR improved.

Improvements so similar to how we've reported.

They're frankly, frankly, the resiliency and the acceptance of better quality value slightly better and higher price points or the brand. The customer is not really balk at those and that combined with higher you could see US call. It 50 50, Chuck to the basket is contributing to that trend.

Up significantly against 19 neighborhood of almost.

And eight to 10 bucks higher than 19.

And.

Relative to 'twenty one.

Almost flat to 'twenty, one which is encouraging as you know given what was in the market in terms of stimuli in such during 'twenty one.

As we look at the complexion of that basket.

It really hasnt changed much because of the fact, we're a trend driven brand the balance between sort of what I'd call needs and wants has stayed relatively consistent.

The only sort of aberration in a good way to that is the queue line impact we're seeing.

Contribution in <unk>.

Two the basket incremental for sure from the Q, but everything else apparel to non apparel.

Kind of holding its own kind of in the same way. It did in 19, which I think bodes well I think it shows us that the merchants are keeping up with the times on both the needs and wants.

And kind of all boats arrived.

Incremental addition of the incremental Q lot activities.

Okay, that's actually really yeah, no. That's great color. Thank you. My last question is just I'm just trying to.

I understand you talked about business getting better.

Each month of the quarter to David's question earlier, and a continued improvement into may.

Yet you're more guarded on the on the consumer.

Curious if you could just maybe just speak to what work you guys have done internally to understand.

The concerns that your consumer has in terms of the food rent and gas inflation.

Just like what's changed has it gotten incrementally.

How do you become incrementally more concerned and I guess, if that's the case then why do you think your business has gotten a little bit better.

Trying to understand I guess as much.

Details you have on the on your consumer right now.

Yes, no good Greg Great question.

I think what we've done primarily today Chuck is hold a series of <unk>.

Internal focus groups.

Primarily led by the field and getting direct input from our associate base, who often mirrors, our customer base, we trade back and forth in fact on a regular basis in the neighborhood and I'll give you some direct color a little more of it in the call so to speak.

We are hearing.

A disproportionate amount of pressure on gas.

And hearing things like Hey, I filled up my tank with a portion of my paycheck.

I buy my driving time, so they don't have to fill it up again a week later and that's you know that's a real.

From the heart and it makes it hurt because.

That's curtailing some of there.

Certainly distance driving and probably pleasure driving choices and it's keeping them local now that in many respects is most likely benefiting our traffic a bit because they are staying closer to home and we are near home for them. So there is probably a put and take there again. This is qualitative data on that.

Quad <unk>.

Second thing we're hearing is Rex.

Our customer often.

Rents in a way over index versus the average population and even a slight higher cohort of income you guys are renters, and they're feeling the pressure of landlord rents going up utilities.

My rental going up then those utility costs, obviously being passed onto the rents are.

Some are facing things like evictions and and this is certainly more on the lower income shock trumps think 'twenty thing below they're facing some really really tough times.

So those are the two that are showing up the most crude is coming and number three.

But not.

Not certainly not as high as gas and rent. So we're watching that carefully and we're talking frequently to our associate base and theyre talking to customers just to kind of keep tabs on that at the end of the day I'll go back to some of that shop, the local commentary that I was talking about.

We do think that there is a kind of a benefit so to speak or being dedicated to our neighborhoods and being there because over 50% of our volume is literally within a three mile or less range.

And around the store and as you know and in roughly three quarters of our chain there really arent a lot of options shop for the family there might be a female option in the neighborhood once in a while but theres not a lot of options to shop for a guy.

Women and a kid and even a baby.

In the neighborhood. So I think there are some respects like I talked about durability of our model and the sheer fact that where we're located and how we curate for our audience. That's.

Really I think four to five frankly, our basket and conversion levels and then lastly, the loyalty, which I've talked about the loyalty of our customer is frankly, boundless and those who can't covenants frequent if you've talked to feel terrible, but theyre managing their reduced.

Yeah, I guess available disposable income as it work and.

And they're coming in a little less frequently but when they do you know they they shop in a healthy way and they love it and they wish that can come in more so.

And I think all of that.

<unk> is going to unfold over the rest of the year.

And I think short term, we like like most of retail.

Do some more digging in research and that's what we're going to do actually in the next couple of weeks doing more research quantitatively to figure out what are we missing if anything but that's what we know to date and then lastly like.

Like I mentioned earlier in the call. We're just doubling down shotgun, what we do best and I find that that's the best way to lead in these situations and so we are staying true to our purpose and to our mission of providing trends basics and fashion to this audience and as long as we keep doing that I think I think it is.

Help us get through this.

Got it thanks a lot.

Thanks, Chuck type a good day.

Thank you.

Our last question is from the line of John Lawrence with Benchmark. Please go ahead. Your line is open.

Yes, good morning, guys.

Good morning, John .

Hi, David would you.

Sort of take Chuck's last question just one step further.

When you look at those.

Those pressures on your customer base.

For Italy.

When you're in these inflation periods and I guess, you somewhat answered that but just go one step further about.

What is that trade effect or the trade down effect for some of your customers as they see this.

This pressure around them and then maybe some customers find you than that.

In that neighborhood for back to school or July 4th.

That where may be may be shopping a little upstream or whatever what have you seen in years past there.

Yes, it's a great question, John I think if you go back to historical trends.

We have definitely shown resilience and strength in coming out of the kind of the post.

Post period of a recessionary time, you could see that know eight or nine for the brand.

As an example, I think these times are as we've all read are a little different.

And have some different characteristics associated with what we're going through today, but for us I'll key off of what I suggested to Chuck which is this idea of shopping local and what we know about our customer is back in 'twenty, one they were reaching a bit outside of the immediate local trading area.

A K a driving they're going on a trip.

And spending some of their wallet.

Our I'll call it in the regional shopping pad or zone trading area and there were shopping out so they were doing both.

I think in these times, what we're seeing is a little a little less.

Less trips out to that sort of regional slash 30 minute away hub and they're staying in the local hub.

And a local grocer at a probably a dollar player and maybe a beauty store. They are staying in that area and they are patronizing and thats whats I think continuing to support the brand and our current reported trends and what we believe will be our year for the rest of the year. So.

That's our belief we have in the business and it's something that for a local shopping base affords.

Portable and so back to your word of trade down.

Maybe it's some of that or maybe it's it's it's it's still shopping value, but instead of going out to the to the regional ring, they're going to shop value in their local rig and save on gas and stay closer to home. So again, a lot of that is qualitative but.

It holds together in terms of how our metrics are posting up and we're.

We're going to continue to key in on this notion and offer.

Credible values.

What I call a drop ins of great stuff at prices that don't break the bank. For example, this week are dropping in three different programs that are just blow out great values that we happen to have it.

Forward season by bucket and where.

Sure the customer is going to go. Thank you. We appreciate you like we always do because youre thinking about us and you're dropping and greatly value. So I think we've always done that we'll continue to do it it's a hallmark of who we are and the customer response.

From us doing that.

Makes sense great great. Thanks for that and you mentioned the new stores I'm.

Onto missed it but did you comment on how many more remodels youre going to do it.

I did not specifically because there was no change we still have on the books.

Totalled 50, Remodels and I did mention that we're going to zero in on completing approximately 30.

By the end of Q2, so we're on pace to what we've disclosed prior meaning well over half.

Within the first half of the year.

And no no no real difference between the performance of a remodel or new store as far as the lift.

Well, we measure that a little differently.

The new stores coming out of the gate, new obviously, the remodel we're measuring it against.

Control group of comp stores, but.

We're pleased with what we're seeing.

And we're feeding we're feeding each of those store groups, new and Remodels the appropriate fresh of games to feed back into sales.

And it's yes, it's going as planned great last question for me is we've heard from other companies to talk about the availability of merchandise is pretty robust out there can you comment on that.

What you see as far as.

Maybe deals in the pipeline.

Sure do that as I mentioned in the call. The chase for our business model is definitely on their is needless to say unfortunately for the industry, but for us. It's a it's a good thing and that we're seeing good come across our desk on a daily that I represent terrific.

I'll use across branded goods and private label goods that represents cancellations from other brands that unfortunately don't need it anymore, but becomes something that we can pick up.

On an attractive basis and so it is a very.

<unk> environment, which Citi trends intends to take advantage of in the right strategic manner and like I mentioned in the call. We look to do that or bolstering our bts to somewhat although we're pretty good on VTS and now it's more about bolstering fall and holiday.

With.

Looking at those opportunistic.

Buying opportunities so we're out there.

I've been out there.

We love it and we do it in a very strategic smart way and most importantly, that's right for our customers. We don't go out and just do any Willy Nilly great deal, we make sure that that product that will pick it up what's right for our African American Latinx families.

Yeah.

Great. Thanks for the color good luck.

Thanks, John have a great day.

Yes.

Thank you there are no further question at this moment on the phone lines.

Thank you Blake and thanks, everybody for joining the Citi trends first quarter of 2022 earnings call.

Have a great week and upcoming Memorial day Bye bye.

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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