Q1 2025 Citi Trends Inc Earnings Call

Greetings and welcome to the Citi trends first quarter 2024 earnings conference call.

Operator: Greetings and welcome to the Citi Trends first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nitza McKee, Senior Associate at ICR. Thank you. You may begin.

Speaker Change: At this time all participants are in a listen only mode.

Speaker Change: Brief question and answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: It is now my pleasure to introduce your host meet the Mckee senior associate at ICR. Thank you you may begin.

Speaker Change: Thank you and good morning, everyone. Thank you for joining us on Citi trends first quarter 2024 earnings call on our call today is interim Chief Executive Officer, Ken Stifle and Chief Financial Officer, Heather protein out.

Nitza McKee: Thank you and good morning, everyone. Thank you for joining us on Citi Trends' first quarter 2024 earnings call. On our call today is Interim Chief Executive Officer, Ken Seifel, and Chief Financial Officer, Heather Plutino. Our earnings release was sent out this morning at 6.45 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

Speaker Change: 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 Companys website under Investor Relations section at Www Dot Citi trends Dot Com you.

Nitza McKee: You should be aware that prepared remarks made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and 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 more detailed discussion of the factors that can cause actual results to differ materially from those described in the forward-looking statement. I will now turn the call over to our Interim Chief Executive Officer, Ken Seipel. Okay, Ken?

Speaker Change: 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.

Speaker Change: Management may make additional forward looking statements in response to your question.

Speaker Change: 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.

Speaker Change: Described in the forward looking statements I will now turn the call over to our interim Chief Executive Officer, Ken cycle turn.

Speaker Change: Thank you Lisa and good morning, everyone I'm pleased to join you today to discuss the work ahead for city of Dreams.

Ken Seipel: Thank you, Nitza. Well, good morning, everyone.

Ken Seipel: I'm pleased to join you today to discuss the work ahead for Citi Trends. Heather will provide a review of the Q1 business results, and then I will give you a brief overview of my prior experiences and a high-level outline of the work that we are undertaking to increase shareholder value. Before we discuss the business, on behalf of the Board of Directors and the entire Citi Trends team, I'd like to thank our former CEO, David Makuen, for his hard work and leadership these past four years.

I'll provide you a review of the Q1 business results and then I'll give you a brief overview of my prior experiences and a high level outline of the work that we are undertaking to increase shareholder value.

Ken Seipel: David shaped and built our purpose-driven Citi Trends culture while leading the company through some of the most challenging consumer environments in recent history. And on a personal level, I'd like to thank David for his willingness to provide business advice to ensure a smooth transition, and we want to send him our very best wishes. I'd like to thank you for your time.

Speaker Change: Before we discuss the business on behalf of the board of directors and the entire Citi trends team I'd like to thank our former CEO, David Mckeon for his hard work and leadership. These past four years, David shaped and build our purpose driven Citi trends culture, while leading the company through some of the most challenging consumer environments in recent history and on a personal level I'd like to thank David.

Speaker Change: For his willingness to provide advice to ensure a smooth transition and we want to send him a very best wishes I would like to turn the call over now to Heather to review Q1 business results Heather.

Heather Plutino: Thank you Ken and good morning, everyone.

Heather Plutino: Thank you, Ken, and good morning, everyone. We are pleased with our first quarter performance, in which we registered and improved top line trends by delivering a positive comp store sales increase of 3.1%. The quarter was further highlighted by gross margin expansion of 160 basis points compared to last year. Both of these Q1 wins were assisted by our inventory rebuilds and targeted product categories combined with our buy team's continued focus on making wise inventory investments, maximizing markups, while also providing incredible values for our customers. Early in the quarter, we felt the impact of the slower start to the tax refund season, as well as unfavorable spring weather patterns.

Heather: We are pleased with our first quarter performance in which we registered an improved topline trend by delivering a positive comp store sales increase of three 1%.

Heather: There was further highlighted by gross margin expansion of 160 basis points compared to last year.

Ken Stifle: Both of these Q1 wins were assisted by our inventory rebuilds and targeted product categories combined with our buy teams continued focus on making wise inventory investments maximizing markup, while also providing incredible values for our customers.

Early in the quarter, we felt the impact from the slower start to the tax refund season, as well as unfavorable spring weather pattern. However, we posted positive comps in each month of the quarter.

Heather Plutino: However, we posted positive comps in each month of the quarter. We also experienced an improved trend in store traffic with basket size similar to last year and continued healthy in-store conversions. These key performance indicators are proof points that our unique assortment curated specifically for our African American and multicultural customers resonates. As mentioned on recent earnings calls, our teams remain committed to setting up key selling moments earlier, and it paid off in the first quarter.

Ken Stifle: We also experienced an improved trend in store traffic with basket size similar to last year and continued healthy in store conversion.

Speaker Change: These key performance indicators are proof points that our unique assortment of curated specifically for African American and multicultural customers resonated.

Speaker Change: As mentioned on recent earnings calls our teams remain committed to setting up key selling moments earlier and it paid off in the first quarter.

Heather Plutino: Our Q1 product offering included a healthy balance of exclusive trends, leading brands, year-round fashion, and, of course, basics for spring selling, the tax refund season, and the Easter holiday. From a category perspective, our performance was broad-based, with particular strength in home and lifestyle, impulse, also referred to as our Q line, big men's, and ladies plus, all areas positively impacted by our inventory rebuild effort. Across our largest categories, ladies, men, and kids apparel, quarterly comp sales were all positive, driven by trend right values and incredible brands that met the needs and wants of our customers for the spring season.

Speaker Change: Our Q1 product offering, including a healthy balance of exclusive trends, leading brands year round fashion and of course basics for spring selling the tax refund season, and the Easter holiday.

Speaker Change: From a category perspective, our performance was broad based with particular strength in home and lifestyle impulse also referred to as our key line big mens and ladies plus all area positively impacted by our inventory rebuild efforts.

Speaker Change: Cross our largest categories, ladies mens and kids apparel quarterly comp sales were all positive driven by trend right value and incredible brands that met the needs and wants of our customers for the spring season.

Speaker Change: We exited the first quarter with total inventory dollars up 4% inline with expectations.

Heather Plutino: We exited the first quarter with total inventory dollars of 4% in line with our expectations. We feel good about the quality, mix, and value proposition across our inventory as we entered the second quarter. We are positioned to capitalize on late spring and peak summer selling weeks with a robust assortment of made-for-Citi Trends coordinating shorts and T-sets, plenty of keys for the whole family.

We feel good about the quality mix and value proposition across our inventory as we entered the second quarter.

Speaker Change: We are positioned to capitalize on late spring and peak summer selling weeks with a robust assortment of made for Citi trends coordinating shorts and Tees that.

Speaker Change: Why does he have team for the whole family.

Heather Plutino: Fresh takes on Americana and Juneteenth, and all the goodies for summer barbecues, from outfits to audio, with a large portion of our fleet in areas that go back to school by mid-August. We will also be well positioned to capture demand in July, with a heightened focus on kids' apparel, accessories, and footwear. Lastly, our value proposition is showing up loudly on the sales floor with many new deal-priced offers that are driving strong sales.

Speaker Change: Fresh takes on Americana and juneteenth.

Speaker Change: And all the goodies for summer barbecues from outfit to audio.

Speaker Change: With a large portion of our fleet in areas. They go back to school by mid August we will also be well positioned to capture demand in July with a heightened focused on kids apparel accessories and footwear.

Speaker Change: Lastly, our value proposition is showing up loudly on the sales floor with many new deal priced offers that are driving strong sell throughs.

Speaker Change: In addition to the inventory rebuilds and targeted product categories that we've been discussing for the past several quarters in Q1, we leveraged our new ERP system to optimize Assortments in key African American neighborhoods, where we've identified significant sales opportunity.

Heather Plutino: In addition to the inventory rebuilds and targeted product categories that we've been discussing for the past several quarters, in Q1, we leveraged our new ERP system to optimize assortments in key African-American neighborhoods where we identified significant sales uptake. This initiative, using our improved planning and allocation methods, is impacting about 20% of the chain and had encouraging results in the quarter. We will continue to monitor results and refine our approach based on what we learn, with the potential to expand this effort as we move through the year. In the quarter, we continued testing radio and paid social marketing, turning the dials on market size, repeat markets, frequency of messaging, and combinations with other initiatives.

Speaker Change: This initiative using our improved planning and allocation methods is impacting about 20% of the chain and had encouraging results in the quarter.

Speaker Change: We will continue to monitor results and refine our approach based on what we learn with the potential to expand this effort as we move through the year.

Speaker Change: In the quarter, we continued testing radio and paid social marketing turning the dials on market size repeat market frequency of messaging and combinations with other initiatives we.

Heather Plutino: We've seen particularly strong results with the combination of remodels and marketing. To date, we've touched about 140 stores with our marketing efforts, and we'll increase that number throughout the year with back to school and holiday campaigns. We remodeled 20 stores in the first quarter and an additional 15 locations in May, quickly closing in on our fiscal year goal of 40 remodels.

Speaker Change: We've seen particularly strong results with the combination of Remodels and marketing to.

Speaker Change: To date, we've touched about 140 stores with our marketing efforts and we'll increase that number throughout the year with back to school and holiday campaigns.

Speaker Change: We remodeled 20 stores in the first quarter and an additional 15 locations in May quickly closing in on our fiscal year goal of 40 Remodels.

Heather Plutino: As we've discussed in prior calls, these refreshed stores saw positive results with mid to high single-digit sales and at half the prior cost. Including the May remodel, CTS stores represent approximately 21% of our. Turning to the details of growth margin, our first quarter adjusted growth margin expansion of 160 basis points was driven by the focus on markup I described earlier. Significant Freight Expense Improvement and Effective Markdown Management. Partially offsetting the growth margin benefits in the quarter was an unexpected shrink headwind as a result of the physical inventory count.

Speaker Change: As we've discussed in prior calls these refreshed stores. The positive result, with mid to high single digit sales lift and at half the prior cost.

Speaker Change: Including the rent may remodeled V T hat stores represents approximately 21% of our fleet.

Speaker Change: Turning to the details of gross margin our first quarter adjusted gross margin expansion of 160 basis points was driven by the focus on markup I described earlier.

Speaker Change: And if I can phrase expense improvement and effective markdown management.

Speaker Change: Partially offsetting the gross margin benefits in the quarter was an unexpected shrink headwind as a result of physical inventory counts as.

Heather Plutino: As we've discussed on prior calls, we count a portion of our store fleet each month and continue to see issues in very specific stores and very specific categories. We do not believe that this is a chain-wide problem.

Speaker Change: As we've discussed on prior calls we count as a portion of our store fleet each month and continue to see issues and very specific stores and very specific categories. We did not believe that this is a chain wide problem.

Speaker Change: At Citi trends, we are accustomed to managing shrink and although a headwind. This year. It remains a very small component of our margin structure internally, we havent gauged cross functional experts to reduce the impact of shrink with particular focus on internal fast we are ensuring that stores have well placed cameras and.

Heather Plutino: At Citi Trends, we are accustomed to managing shrink, and although a headwind this year, it remains a very small component of our margin structure. Internally, we have engaged cross-functional experts to reduce the impact of shrink, with particular focus on internal theft. We are ensuring that stores have well-placed cameras and are leveraging recently improved exception reporting to quickly identify root causes and take appropriate action. We're updating key loss prevention policies and are establishing a more robust restitution program.

Speaker Change: Leveraging recently improved exception reporting to quickly identify root causes and to take appropriate action. We're updating key loss prevention policies and are establishing a more robust restitution program and key to all of this we've been working to upgrade our store talent and our training programs.

Heather Plutino: And key to all of this, we've been working to upgrade our store talent and our training program. Next, we'll turn our attention to our supply chain, tightening controls and reporting to identify and resolve any additional causes of shrink. Importantly, we will continue to place the safety and well-being of our employees and customers at the center of our operational decisions to stem this headwind. Despite pressure from shrink, we remain confident in our ability to deliver continued growth margin expansion for the balance of 2024, driven by incremental markup improvement and reduced freight rates. Moving to SG&S

Speaker Change: Next we will turn our attention to our supply chain tightening controls and reporting to identify and resolve any additional causes a strike importantly, we will continue to place the safety and wellbeing of our employees and customers at the center of our operational decision to stem this headwind.

Despite pressure from shrink we remain confident in our ability to deliver continued gross margin expansion for the balance of 2024, driven by incremental mark up improvement and reduced freight rates.

Speaker Change: Moving to SG&A.

Heather Plutino: Adjusted SG&A expenses increased about $3 million in the quarter compared to last year, in line with our expectations and reflecting our previously discussed reset of the SG&A budget. The increase, as expected, was driven by merit increases in stores and corporate and a modest increase in advertising. During the quarter, we closed three stores as part of our ongoing suite optimization effort, ending the period with 599 locations. Now turning to the balance.

Speaker Change: Adjusted SG&A expenses increased about $3 million in the quarter compared to last year in line with our expectations and reflecting our previously discussed reset of the SG&A base.

Speaker Change: The increase as expected was driven by merit increases and stores and corporate and a modest increase in advertising spend.

Speaker Change: During the quarter, we closed three stores as part of our ongoing fleet optimization effort ending the period with 599 locations.

Speaker Change: Now turning to the balance sheet at the end of the quarter. We remained in a healthy financial position with a strong balance sheet, including no debt no drawings on our $75 million revolver and $58 million in cash.

Heather Plutino: At the end of the quarter, we remained in a healthy financial position with a strong balance sheet, including no debt, no drawings on our $75 million resolver, and $58 million in cash. With a liquidity of approximately $133 million, we can more than sufficiently fund our business initiatives, building on our foundational strength for future profitable growth. Before I turn the call back to Ken, I want to reiterate that we are encouraged by our first quarter results.

Speaker Change: With the liquidity of approximately 133 million, we can more than sufficiently fund our business initiatives building on our foundational strength for future profitable growth.

Speaker Change: Before I turn the call back to Ken I want to reiterate that we are encouraged by our first quarter results.

Heather Plutino: Our strategic initiatives are driving improved performance, and we are playing offense while controlling what we can control. This approach is particularly important as our customer continues to face inflationary pressures and is carefully managing their discretionary spend.

Speaker Change: Our strategic initiatives are driving improved performance and we are playing offense, while controlling what we can control.

Speaker Change: This approach is particularly important as our customer continues to face inflationary pressures and is carefully carefully managing their discretionary spend.

We still believe in the overall approach to the annual outlook, we shared in March however, with one quarter under our belt. We felt it was prudent to make a few adjustments to our 'twenty 'twenty four outlook as follows.

Heather Plutino: We still believe in the overall approach to the annual outlook we shared in March. However, with one quarter under our belts, we felt it was prudent to make a few adjustments to our 2024 outlook, as follows. Full-year comp store sales are expected to grow by low to mid-single digits compared to fiscal 2023, a range slightly below our previous outlook. We expect full-year growth margin to expand by approximately 75 to 100 basis points, consistent with our previous outlooks.

Speaker Change: Full year comp store sales are expected to grow by low to mid single digits compared to fiscal 2023, a range slightly below our previous outlook.

Speaker Change: We expect full year gross margin to expand by approximately 75 to 100 basis points consistent with previous outlook.

Heather Plutino: We are now planning an SG&A dollar increase of 1.5% to 2.5% over 2023, slightly better than what we discussed during our last earnings call, driven by streamlining costs in a variety of areas. Consistent with our previous outlook, resulting full-year EBITDA is expected to be in the range of $4 million to $10 million. As we share the march, we plan to open up to five new stores, remodel approximately 40 locations, and close 10 to 15 underperforming stores, ending fiscal 2024 with approximately 595 stores. Finally, we continue to expect full-year capital expenditures to be approximately $20 million. With that, I will turn the call back to Ken. Ken?

Speaker Change: We are now planning in SG&A dollar increase of one 5% to two 5% over 2023.

Speaker Change: Lately better than what we discussed during our last earnings call driven by streamlining costs in a variety of areas.

Speaker Change: Consistent with our previous outlook, resulting full year EBITDA is expected to be in the range of 4 million to $10 million.

Speaker Change: As we shared in March we plan to open up to five new stores remodel approximately 40 locations and close 10 to 15 underperforming stores and.

Speaker Change: Ending fiscal 2024 with approximately 595 stores.

Speaker Change: Finally, we continue to expect full year capital expenditures to be approximately $20 million.

With that I will turn the call back to Ken Ken.

Ken Seipel: Thank you Heather. I appreciate it. First, I'd like to share my appreciation for the Citi Trends team for their hard work that generated a 3.1 comp store sales increase and gross margin rate growth of 160 basis points compared to last year. The board remains committed to the core strategies of the business, and as I take the reins, I'm focused on ensuring that the business consistently executes those strategies to improve top-line sales and even dog profit.

Ken Stifle: Thank you Heather I appreciate it.

Ken Ken: First I'd like to share my appreciation to the Citi trends team for their hard work generated a 3.1 comp store sales increase and gross margin rate growth of 160 basis points compared to last year.

Ken Ken: The board remains committed to the core strategies of the business and so I think the range. So I'm focused on ensuring that the business consistently executing strategies to improve topline sales and EBITDA growth.

Speaker Change: Now if I may I'd like to briefly introduce myself and discuss the near term road ahead with Citigroup.

Ken Seipel: Now, if I may, I'd like to briefly introduce myself and discuss the near-term road ahead for Citi Trends. I joined the Citi Trends Board in late 2019 and have recently served as chair of the Nominational Governance Committee and also as a member of the Audit and Finance Committee. The majority of my 40-year professional career has been in value apparel retailing, the first half of my career was with JC Penney in the 1980s.

Speaker Change: Joining the Citi trends board in late 2019, and recently served as chair of the nomination and Governance Committee and also members of the audit and Finance Committee.

Speaker Change: The majority of my 40 year professional career hastening value apparel retailing. The first half of my career was with JC Penney.

Ken Seipel: I was with Target in the 1990s during their brand development and rapid growth, and with Old Navy in the 2000s where I led explosive store growth and eventually became the largest specialty store retailer in the world. During my time at Fortune 100 companies, I held a number of executive roles in most company functions, including merchandise buying and operations. In 2010, I entered the second phase of my career, focused on working in private equity-backed retail companies, where I assumed the role of CEO and co-investor in all business engagements.

Speaker Change: Targeted in the Ninety's during their brand development and rapid growth.

Speaker Change: Old Navy in the two thousands were alerted sports it's supposed to be stored roof, and eventually becoming the largest specialty store retailer in the world.

Speaker Change: During my time in the Fortune 100 companies I held a number of executive roles in most company functions, including merchandise buying and operations.

Speaker Change: And Tony can I ended the second phase of my career focused on working in private equity backed retail companies, where I assumed the role of CEO and co investor in all business engagements I found that owning a financial stake in each business created strong alignment with shareholders and really helped to reinforce an acute focus on increasing shareholder value.

Ken Seipel: I found that owning a financial stake in each business created strong alignment with the shareholders and really helped reinforce an acute focus on increasing shareholder value. As co-owner, entrepreneur, and leader, I was able to generate three successful business turnarounds, which resulted in returns of three times, in some cases over six times, the initial investment for our shareholders. I've been fortunate to have a wide variety of retail experiences.

Kona: Kona entrepreneur and leader I was able to generate three successful business turnarounds, which resulted in returns of three times and in some cases over six times the initial investment for our shareholders.

I've been fortunate to have a wide variety of retail experiences. However, my time as CEO games and off price apparel store, serving a low end consumer is the most relevant to city of dreams.

Ken Seipel: However, my time as CEO of Gabe's... an off-price apparel store serving a low-end consumer is the most relevant to Citi Trends. My experiences in both public and privately held companies have taught me there are just a few critical and foundational points to restoring company profit and setting it on the path to long-term sustainability. First, successful companies need to clearly understand their core customer and how to best serve their needs. And as this core customer evolves in response to their environment, it's critical for that organization to be nimble and adaptable as well.

Kona: My experiences in both public and privately held companies have taught me. There are just a few critical foundational points for restoring company profit and selling it on the path to long term sustainability.

Kona: First successful companies need to clearly understand the core customer and how to best serve their needs and is a sport customer evolves in response to their environment. It is critical for that organization to be nimble and adaptable as well.

Ken Seipel: Next is a compelling and differentiated value proposition that distinguishes the business from competition and generates increasing market share in a highly competitive environment. Also critical to success is operations. This is the ability for a company to consistently execute the business model with profitable, cost efficient. Nix is a compelling growth plan that allows a company to continually expand and capture market share.

Kona: Next is a compelling and differentiated value proposition that distinguishes our business from competition and generates increasing market share in a highly competitive environment.

Kona: Also critical to success is operational excellence.

Kona: This is the ability for a company to consistently execute the business model with profitable cost efficiencies.

Kona: Next is a compelling growth platform that allows the company to continue expand and capture market share.

Ken Seipel: And last but not least, our well-trained, highly engaged people who are dedicated to bringing the strategies to life. I have found in my past that a balanced focus on the core customer, a compelling value proposition, strong operational excellence for growth avenues, and engaged people creates unstoppable momentum for a company. Oh yeah, and by the way, all of this has to be done very fast.

Kona: Last but not least our well trained highly engaged people who are dedicated to bringing the strategy to life.

Kona: I have found in my past a balanced focus on our core customer.

Kona: Compelling value proposition strong operational excellence.

Speaker Change: Roof avenues and engage people.

Speaker Change: Unstoppable momentum for our company.

Speaker Change: Oh, yeah and by the way all of this has to be done very fast.

Speaker Change: I'm really looking forward to bringing my past retail experiences and learnings to lead.

Ken Seipel: I'm really looking forward to bringing my past retail experiences and learnings to LEAD, the next chapter for Citi Trends. I'm optimistic about Citi Trends because of its unique position in the marketplace as a value retailer serving a largely underserved consumer. With nearly 600 retail locations, we're one of the largest national retailers focused on lower-income consumers. Our company relies on the strength that we have in the African-American community, which to this day accounts for the majority of our financial success. Because of our long-term neighborhood presence, our customers are highly engaged and loyal to Citi Trends.

Speaker Change: The next chapter for Citi trends.

I'm optimistic about some trends because of its unique position in the marketplace and without your retailer serving a largely underserved consumer with nearly 600 retail locations, where one of the largest national retailers focused on lower income consumers. Our company is really on the strength that we have in the African American community, which to this day accounts.

Speaker Change: The majority of both financial success.

Speaker Change: It goes over a long term neighborhood presents our customers are highly engaged and loyal to the Citi trends when we get it right our customers respond.

Ken Seipel: When we get it right, our customers respond. Another positive trait of our company is the balance sheet, which gives us a big competitive advantage today in today's world of higher interest rates, also allowing us the flexibility to take advantage of growth opportunities to increase our market position. And although an appointment of an interim CEO could be viewed as a transitional period.

Speaker Change: Another policy of our company as the balance sheet, which gives us a big competitive advantage today in today's world of a higher interest rates also allowing us the flexibility to take advantage of real opportunities to increase our market position.

Speaker Change: Although an appointment of an interim CEO it could be viewed as a transitional period.

Ken Seipel: I want to assure you there will be minimal disruption because I am familiar with Citi Trends, which will aid me in a quick transition into the day-to-day work. My objective is to deliver consistent top-line growth, streamline expenses, and lay the groundwork for long-term store expansion. And it all begins with really getting back to the basic blocking and tackling of a good retail company. My goal is to first clearly understand what's working and find ways to accelerate that work, as well as remove obstacles so our team can perform their jobs more efficiently.

Speaker Change: I want to assure you there'll be minimal disruption because I am familiar with city of Dreams, which will aid me in the transition into the day to day work.

The objective is to deliver consistent top line growth.

Speaker Change: Streamline expenses.

Speaker Change: The groundwork for long term store expansion.

Speaker Change: And it all begins with really getting back to the basic blocking and tackling of a good retail capital.

Speaker Change: My goal is to first really understand whats working and find ways to accelerate that work as well as remove obstacles. So our teams can perform their jobs more efficiently.

Speaker Change: Does that and we're going to focus on the following initiatives.

Ken Seipel: To that end, we're going to focus on the following initiatives. Number one, driving profitable sales. Number two, sharpening our product assortment decisions and improving inventory returns. Number three, string lining costs. 4.

Speaker Change: One driving profitable sales.

Speaker Change: The opening of our product assortment decisions and improving inventory turns number three streamlining costs.

Ken Seipel: Optimizing our supply chain, and 5. Leveraging benefits from recent IT upgrades, as Heather mentioned a moment ago.

Speaker Change: Four optimizing our supply chain and five leveraging benefits from recent Ikea upgrades, Heather mentioned a moment ago.

Speaker Change: I plan to lead the company through a fresh review of our current business performance of each of these areas. Our goal is to lie on the facts.

Ken Seipel: I plan to lead the company through a fresh review of our current business performance in each of these areas. Our goal is to align on the facts, focus on the opportunities to accelerate areas of success, and course-correct areas of opportunity. The strategy themes are pretty familiar, and I believe many of the answers already exist.

Speaker Change: With so many opportunities for accelerated areas of success and course correct areas of opportunity.

Speaker Change: The strategy things are pretty familiar and I believe many of the answers already exist. The difference will be laser focused on initiatives to significantly improve our execution and speed on all fronts.

Ken Seipel: The difference will be a laser focus on initiatives to significantly improve our execution and speed on all fronts. Regardless of external factors, we will control what we can control. And we're going to fight hard to significantly improve our top line sales results. As I enter the business, there are a few questions on my mind that I want to quickly answer.

Speaker Change: Regardless of external factors, we will control, what we can control and we're going to fight hard to significantly improve our top line sales results.

Speaker Change: Yeah.

Speaker Change: As I entered the business there are a few questions on my mind, but I wanted to quickly answer.

Ken Seipel: First, are we offering enough exciting brands at compelling prices? Increasing frequency and enticing new customers begins with putting more treasure in the treasure hunt of product choices. You know, the thrill of finding unexpected deals is the reason customers love to shop off-price and value retail formats.

Speaker Change: First are we offering enough exciting brands and compelling prices.

Increasing frequency and enticing new customers begins with putting more treasurer and the treasure hunt of product choices.

Speaker Change: Thrilled with finding unexpected deals as the reason customers love to shop off price and value of retail formats. It's also the key reason our business has a defensible moat around external competition and online retailers. We will review all product categories and adjusting assortments as needed to ensure that we have compelling treasure throughout the store if you're excited.

Ken Seipel: It's also the key reason our business has a defensible moat around external competition and online retailers. We will review all product categories and adjust the assortments as needed to ensure that we have compelling treasures throughout the store to excite our customers. The next question is really our product assortment breadth of offering and value price value equation strong enough for all of our categories. You know, we know that many of our product categories are doing well, and they offer us opportunities to study and replicate their success.

Speaker Change: Festivals.

Speaker Change: Next question it was really our product assortment breadth of offering and value price value equation strong enough in all of our categories. We know that many of our product categories are doing well and they offer us opportunities to study and replicate their success.

Ken Seipel: We can capitalize on these early positive results in our Keyline product, for example, and successful apparel departments, plus continue expanding our Reach at Home category. However, there is an opportunity in some categories to sharpen the value equation and improve customer choice counts.

Speaker Change: Can capitalize on these early positive results and our Q1 product for example, and successful apparel departments post to continue expanding our reach and home categories. However, there is an opportunity in some categories to sharpen the value equation and improve customer choice guess all in all I see a good deal of opportunity to consistently grow our top line sales.

Ken Seipel: All in all, I see a good deal of opportunity to consistently grow our top-line sales. Also, in support of our sales initiatives, we have an opportunity to ramp up business analytics and product allocation. As previously reported, the company installed a new enterprise resource system, and we had the opportunity to realize efficiency savings from the new technology, which included driving sales through more accurate store-by-store product allocations and the ability to more accurately analyze markdown.

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Speaker Change: Also in support of our sales initiatives, we have an opportunity to ramp up business analytics product allocations as previously reported the company installed a new enterprise resource system, and we have the opportunity to realize the efficiency savings from the new technology, which include driving sales through more accurate store by store product allocations.

Speaker Change: Any ability to more accurately analyze smart gas.

Speaker Change: Another area to reviews, our supply chain costs, which impacted gross profit work is already underway in the supply chain, where our distribution teams are beginning to uncover ways to reduce our transportation cost and the cost of processing product. An example is vendor direct to store shipments that can be reduced and resulting in significant savings. We also have line of sight.

Ken Seipel: Another area to review is our supply chain costs, which impacts our gross profit. Work is already underway in the supply chain where our distribution teams are beginning to uncover ways to reduce our transportation costs and the cost of processing product. An example is vendor-direct-to-store shipments that can be reduced and result in a significant savings. We also have line-of-sight with savings in transportation by renegotiating inbound shipping.

Speaker Change: The savings in transportation by renegotiating and inbound shipping rates.

Speaker Change: Both business analytics and supply chain efficiency initiatives will have a positive impact on our gross profit.

Ken Seipel: Both business analytics and supply chain efficiency initiatives will have a positive impact on our gross profit. We also need to lower our SG&A expense rates. Over time, our total sales have decreased, while our SG&A has steadily increased. Clearly, this relationship is untenable, and it must be reversed.

Speaker Change: We also need to lower SG&A expense base.

Speaker Change: Our total sales have decreased while our SG&A has steadily increased literally this relationship is untenable and it must be reversed increasing sales will help but we also need to find cost efficiencies to offset inflationary pressures, we intend to deep dive review every cost center to ensure that the FCA is tough.

Ken Seipel: Increasing sales will help, but we also need to find cost efficiencies to offset inflationary pressures. We intend to deep-dive review every cost center to ensure that the SGA is cost efficient and supports our go-forward strategy. I expect we're going to find a lot of smaller expenses that are going to add up to significant SG&A savings. We will find ways to lower our expenses and improve our operational execution. I also want to dig into our new stores. Our recent performance in new stores has been a divergence from our long, successful new store strategy.

Speaker Change: Efficient and supports our go forward strategies.

Speaker Change: I expect we're going to find a lot of salary expenses, that's going to add up to significant SG&A savings, we will find ways to lower our expenses and improve our operational execution.

Speaker Change: I also want to dig into our new stores, our recent new stores performing so it's been a divergence from our long successful new store strategy. We're embarking on a detailed review of our performance to understand root cause issues and what's driving the underperformance. Nonetheless, the company has a long history of successful new stores and our demographics.

Ken Seipel: We're embarking on a detailed review of our performance to understand root cause issues and what's driving the underperformance. Nonetheless, the company has a long history of successful new stores, and our demographic market white space data tells us we have a sizable opportunity to grow our square footage. We are a growth company, and we will return to industry standards, return on investment, and restore growth. And an issue that we can accelerate is also our successful store remodel program that Heather touched on. She outlined the remodel count and our success so far this year. But with a little over 20% of our store base remodeled, we have an opportunity to bring more stores current over time.

Speaker Change: Market White space data tells us we have a sizable opportunity to grow our square footage. We are a growth company and we will return to industry standard return on investment for new store growth.

And the initiatives that we can accelerate also as we're successful store remodel program that other touchdown.

Speaker Change: The remodel account and our success so far this year, but with a little over 20% of our store base remodeled we have an opportunity to bring more stores current overtime.

Ken Seipel: We're going to continue this good work and combine current store remodels with top market growth initiatives to ensure that we capture top-line sales available to us in each marketplace. Another big question we're going to work on is getting a fresh view of the quantitative characteristics and qualitative desires of our customer base. As new shopping alternatives have emerged, they have likely shifted our customers' perception of value and selection; we need to clearly understand our customers' current needs and understand our recently lapsed customers so we can more able and accurately focus strategic efforts on remaining or becoming their store of choice.

Speaker Change: To continue this good work and combined current store remodels with top market growth initiatives to ensure that we capture topline sales available to us in each marketplace.

Speaker Change: And the other big question, we're going to work on is getting a fresh view of our quantitative characteristics and qualitative desires of our customer base.

As a new shopping alternatives have emerged has likely shifted our customer's perception of value and selection.

Speaker Change: We need to clearly understand our customers' current needs and understand our recently lapsed customers. So we can more able and accurately focused strategic efforts on remaining or becoming their store of choice. We use differential analysis to determine how to implement measured and meaningful steps the sharpening our overall value proposition.

Ken Seipel: We use differential analysis to determine how to implement measured and meaningful steps to sharpen our overall value proposition, investments in categories of products to fulfill consumer demand, and service and convenience options that might be expected in a neighborhood store.

Speaker Change: Investments in categories of product you can feel consumer demand and servicing convenience options that might be expected in a neighborhood store.

Ken Seipel: This work will take us a few minutes to complete, but I expect the insights will be a key driver of a long-range growth plan. Well, as I just outlined, we have a lot of work to do. I plan on spending the first few weeks listening and learning from the internal team. My goal is to clearly understand what's working and accelerate that work, as well as remove obstacles so our team can perform their jobs more efficiently.

Speaker Change: This work will take us a few months to complete but I expect the insights will be a key driver of our long range growth plans.

Speaker Change: Yeah.

Mike: Well as I just outlined we have a lot of work to do I plan on spending in the first few weeks listening and learning from the internal team Mike.

Mike: My goal is to clearly understand whats working and accelerate that work as well as remove obstacles or team can perform their jobs more efficiently.

Ken Seipel: And some of the themes mentioned on today's call may sound familiar to those of you that have been tracking our business for the past few years. As I mentioned at the beginning of the call, Operational Excellence is one of the five tenets of a successful company. I plan to lead the team through deep, thorough analysis, narrowing focus on opportunities that have the most significant impact on sales and EBITDA. Relentless tracking of results and course corrections as needed.

Speaker Change: Some of the things mentioned on today's call May sound familiar to those of you that's been tracking our business for the past few years as I mentioned at the beginning of the call operational excellence is one of the five tenths of a successful company I plan to lead the team through deep Pearl analysis narrowing focus on opportunities that have the most significant impact on sales and EBITDA.

Speaker Change: Relentless tracking of results and course corrections as needed in short we will execute we will achieve operational excellence and we will move fast.

Ken Seipel: In short, we will execute, we will achieve operational excellence, and we will move fast. Citi Trends is really fortunate to have such a talented team of people who are highly invested in our company's success, and I feel fortunate to work with the Citi Trends team. We will analyze together, we will learn together, and we will execute initiatives together to significantly improve our shareholder value. I look forward to updating you on our progress. I'd like to return the call to our operator to facilitate questions. Christine, back to you. Thank you.

Speaker Change: Oh Citron is really fortunate to have such a talented team of people who are highly invested in your company success and I feel fortunate to work with the Citi trends team.

Speaker Change: We will analyze together, we will learn together, we will execute initiatives together to significantly improve our shareholder value I look forward to updating you in the future on our progress I'd like to now return the call to our operator to facilitate questions Christy back to you.

Operator: Thank you. We will now be conducting a question and answer session. We ask that all callers limit themselves to one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Christy: Thank you we will now be conducting a question and answer session.

Operator: We ask that all callers limit themselves to one question and one follow up.

Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.

Operator: A confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Michael Baker with D.A. Davidson. Please proceed with your question.

Speaker Change: Please while we poll for questions.

Speaker Change: Thank you. Our first question comes from the line of Michael Baker with D. A Davidson. Please proceed with your question.

Michael Allen Baker: Okay, great. Hopefully, you can hear me okay. What seems to me, you guys were heading in the right direction, but maybe speed was the issue, trying to get there a little bit faster. You mentioned that a couple times, Ken.

Michael Allen Baker: Okay, Great hopefully you can hear me okay. What it seems to me that you guys are heading in the right direction, but maybe speed was if you tried to get there a little bit faster you mentioned that a couple of times Ken.

Michael Allen Baker: Your past experiences in the three turnarounds you referenced how long does it take to get you know typically two to where you want to go.

Ken Seipel: In your past experiences, in the three turnarounds you referenced, how long does it take to get, you know, typically to where you want to go? And then I'll ask my follow-up question, which is, where do you want to go? What do you think the right margin is for this business? I think you said you got there in 2019 on the board, and EBITDA margins were close to foreign exchange. What do you think they should get back?

Speaker Change: And then I'll have a follow up which is where do you want to go what do you think the right margin is for this business. I think you said you got there in 2019 on the board EBITDA margins were close to the foreign change what do you think they should get back to you. Thanks.

Ken Seipel: Yeah, thanks for your question, Mike. I appreciate it.

Mike: Yeah. Thanks for your question Mike I. Appreciate it you are in terms of turnaround and turnaround timing I mean, the answer to that question varies greatly on each company situation and depending upon the depth and breadth of some of your initiatives.

Ken Seipel: Yeah, in terms of turnaround and turnaround timing, I mean, the answer to that question varies greatly depending upon each company's situation and depending upon the depth and breadth of some of the initiatives. You know, my thoughts are to take a few moments, as I mentioned earlier, really kind of evaluate what's going on, do a lot of listening and learning. It's a little bit of a go slow to go fast philosophy.

Speaker Change: My fault sorry, so just take a few moments as I mentioned earlier really kind of evaluate what's going on and do a lot of listening and learning it's a little bit of a goes go slow to go fast philosophy.

Ken Seipel: And then by the point of getting into about 30 days of learning and listening, you know, themes really do emerge. And what I've found is that there's often some low-hanging fruit that can be enacted right away. And you'll start to see some improvement in some areas of the business. You know, I touched briefly on transportation as a good example of something that can be done, and we can see some results of that sooner than later.

Speaker Change: And then by by the point of getting into about 30 days of learning and listening themes really do emerge and what I found is that there's often some low hanging fruit that can be enacted right away and you'll start to see some improvement in some areas of the business.

Speaker Change: I'll touch briefly on transportation is a good example of something that can be done and we can see some results of that sooner than later, whereas when you get into some of your assortment decisions on some of those things it takes a little bit longer for the training to take effect and for those who are really going back to the marketplace. So the answer to your question is I view our business a journey.

Ken Seipel: Whereas when you get into some of the assortment decisions and some of those things, it takes a little bit longer for the training to take effect and for those to really impact the marketplace. So the answer to your question is I view it a bit as a journey, and it's difficult to give an exact timeframe on that, but that's essentially where I would go.

Speaker Change: And it's difficult to give an exact time frame on that but that's essentially.

Speaker Change: That would be where I would go.

Ken Seipel: I think in terms of your second question, which was EBITDA margin rates. You know, as you go back and you look at the history of the business, I think we've been kind of in that. We should be in that mid-single-digit range for sure. And I do think that as you look at the industry, particularly in value and off-price, the market actually sometimes will pay for a better EBITDA margin rate. But I certainly see an opportunity for us to get back into the mid-single-digits. And that is certainly a goal and focus we have. Hopefully, that answers your question, okay? Yeah, thank you.

Speaker Change: I think in terms of your second question.

Speaker Change: Which was an EBITDA margin rates you know as you go back and you look at the history of the business and I think we've been kind of in that we should be in that mid single digit range for sure and I do think that as you look at the industry, particularly in value in off price and you're in the market actually sometimes will pay for a better EBITDA margin.

Speaker Change: But I certainly see an opportunity for us to get back in the mid single digits and that is certainly a goal and focus we have.

Speaker Change: Does that answer your question Okay.

Speaker Change: Yeah. Thank you I appreciate that thank you.

Michael Allen Baker: Yeah, thank you. I appreciate that. Thank you.

Michael Allen Baker: Thanks, Mike.

Speaker Change: As a reminder, if you would like to ask a question press star one on your telephone keypad.

Operator: As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Again, we ask that all callers limit themselves to one question and one follow-up. Our next question comes from the line of Jeremy Hamblin with Greg Hallam. Please proceed with your question.

Speaker Change: We ask that all callers limit themselves to one question and one follow up.

Speaker Change: Our next question comes from the line of Jerry Jeremy Hamblin with Craig Hallum. Please proceed with your question.

Speaker Change: Thanks, and congrats Ken looking forward to working with you I wanted to first start with.

Jeremy Scott Hamblin: Thanks and congrats, Ken. I'm looking forward to working with you. I wanted to first start with, you know, some sense of what you're seeing in terms of current trends. In the business, you're lapping up, you know, comparisons that are not as easy in Q2 as you saw in Q1. And just in terms of, you know, with the performance in Q1, $186 million and change in total sales, you know, there's a kind of typical or historical seasonality to the business in which, you know, Q1, and Q4 are your strongest quarters.

Speaker Change: Some sense of what you're seeing in terms of current trends.

Speaker Change: In the business you're lapping you know compares that are not as easy in Q2 as you saw in Q1.

Speaker Change: And just in terms of you know with the performance in Q1 $186 million and change.

On total sales you know, there's a kind of a typical or historical seasonality to the business in which you know Q1 Q4 are your strongest quarters.

Speaker Change: You noted that tax season was a little bit slower than normal you know this year because the filings started a week late but wanted to get a sense are you know Ken and Heather in terms of you know what you were expecting.

Jeremy Scott Hamblin: You know, you noted that tax season was a little bit slower than normal this year because the filing started a week late. But I wanted to get a sense, you know, Ken and Heather, in terms of what you were expecting in terms of how that seasonality plays out this year. And to get to your low single-digit comp guide, you know, how you might see that kind of flowing throughout.

Speaker Change: You know in terms of how that seasonality plays out this year and to get to your your low single digit comp guide you know, how you might see that kind of flowing throughout the year.

Speaker Change: Yeah, Jeremy Thank Oh go ahead.

Jeremy Scott Hamblin: Yeah, Jeremy, thank you. Thank you. Sorry.

Speaker Change: Yeah. Thank you, sorry, I'm, Ken and I are doing airplane signals to each other Jeremy you can't see it but we are thank you for the question always good to hear from you as far as the the lap them in Q2 look.

Ken Seipel: Ken and I are doing airplane signals to each other. Jeremy, you can't see us, but thank you for the question. It's always good to hear from you. As far as the lapse in Q2, look, May is a tough one to say that is a read for the full quarter. It is the least important month of the quarter, early back-to-school, and very important seasons, as you know. So, yeah, maybe a little bit more difficult lap, but as I mentioned in my prepared remarks, we're set up. We're ready.

Speaker Change: <unk> made the tough one to say that is the read for the full quarter. It is the least important month of the quarter June and July are by far more more impactful as we get into the summer and we get into.

Speaker Change: Our early back to school very important seasons as you know so yeah, maybe a little bit more difficult lap, but as I mentioned in my prepared remarks, we're set up we're ready are we.

Heather Plutino: We know that our earlier set works. Our customers need some time to plan out their spend for important timeframes, like the ones that are coming up, so we feel good about that. As far as how the balance of the year looks, I hear you that Q1 is usually looking like Q4. Our intent is that Q4 this year will be stronger than Q1 from a dollar sales perspective. The builds are based on history, but with some breaking in there because it's our challenge to break the build, right, build more sales quarter to quarter.

Speaker Change: No that our earlier set work our customer needs. Some time to play it out there are there are there spend for important an important timeframe like the ones that are that are coming up so we feel good about that as far as <unk>.

Speaker Change: As a how the balance of the year looks I hear you that Q1 is usually looking like Q4. Our intent is that Q4 this year will be stronger than Q1.

Speaker Change: From a dollar sales perspective, the builds are based on our history, but with some breaking in there.

Speaker Change: Because of their challenge is break the bill right build more sales quarter.

Speaker Change: Quarter to quarter and then let's remember there are some we've talked about this before with the calendar shift.

Heather Plutino: And then let's remember there are some, we've talked about this before with a calendar shift, there are some sales that move into Q2 out of Q3, so it's going to be a little bit different throughout the year, but we're planning, we're watching. The most important thing is that our inventory is right and that it's set up correctly in the store. We've got products that are compelling, and our customers will respond. All of the initiatives that we have in place will support that as well.

Speaker Change: There's some sales that moved into Q2 out of Q3, so it's gonna be it's gonna be a little bit different throughout the year, but where we're planning we're watching the most important thing is that our inventory is right and that is set up.

Speaker Change: It correctly in the store, we've got product that is compelling and our customer will respond.

Speaker Change: All of the initiatives that we have in place will support that as well you've heard us talk about it remodels.

Heather Plutino: You've heard us talk about it, remodels, marketing, and the testing and learning that we've been doing that have been enhanced with our ERP system and our ability to better analyze data and to react and act much more quickly. So we feel good about hitting our target top line. Ken, do you want to add anything? Yeah.

Speaker Change: Marketing and the testing and learning that we've been doing and have been enhanced with our ERP system and our ability to better analyze our data and to react and act much more quickly. So we feel we feel good about hitting our.

Speaker Change: Our target top line for the year.

Speaker Change: Do you want to add anything.

Heather Plutino: Yeah, thank you. Yeah, Jeremy, thank you.

Jeremy Scott Hamblin: Yes. Thank you you know Jeremy. Thank you. It's a good question and certainly had a.

Ken Seipel: It's a good question, and I'll certainly add everything that Heather said there. Your central question is, what are we seeing in the current trends? And it kind of goes back to what I said earlier in the script.

Speaker Change: Everything that Heather said there your your central question was what are we seeing in the current trends.

Speaker Change: And then kind of goes back to what I said earlier in the script I mean, there are certainly some things going into the business right now that looks good and we have a lot to build on them that we can accelerate those results.

Ken Seipel: I mean, there are certainly some things going on in business right now that look good, and we have a lot to build on, and we can accelerate those results. And I mentioned earlier the remodels. We're just getting those completed, so you'll see some momentum in those moving forward, which is exciting. We have a handful of categories that have had a reasonably good start to the year and appear to be continuing, and we can accelerate those things. So, from my desk, I have a good deal of confidence that we can continue to accelerate our business going forward.

Jeremy Scott Hamblin: Got it. That's helpful.

Speaker Change: And earlier the resource the Remodels, we're just getting those completed and Youll see some momentum in those moving forward, which is exciting we have a handful of categories you sort of had a reasonably good start for the year and appears to be continuing and we can accelerate those things. So from my guess that a good deal of confidence that we can continue to accelerate our business going forward.

Speaker Change: Sure.

Speaker Change: Got it that's helpful.

Jeremy Scott Hamblin: And then I wanted to come back to the point that you made on your SG&A and expense management. So it looks like, I think, by my math, your SG&A dollar guide for the year is about two million less than what you were previously expecting. It sounds like you feel like there is more opportunity than that, you know, over time here over the next year or two. Can you give us a sense of what you think? Obviously, you're not new to the business, but can you give us a sense of what, you know, the magnitude of the range might be on that opportunity? I mean, are we talking about something that's on the order of $10 million in annualized savings or something bigger than that? Any way to square that?

Speaker Change: And then wanted to come back to the point that you made on your SG&A.

Speaker Change: And expand expense management, so it looks like I think by my math Your SG&A dollar guide for the year, you have about $2 million lower than what you were previously expecting.

Speaker Change: It sounds like you feel like there is more opportunity than that you know over over time here over the next year or two can you give us a sense of what you think I mean, obviously, you're you're not new to the business.

Speaker Change: But can you give us a sense for what you do.

Speaker Change: Do you think the magnitude of range might be.

Speaker Change: Hum on that opportunity I mean are we talking about.

Speaker Change: Something that's on the order of $10 million and annualized savings or something bigger than that.

Any way to square it up.

Speaker Change: Yeah, I'll start with that and it certainly give it to Heather for a follow up on that I think in a couple of things I'd say about that obviously as you mentioned have lowered our guidance for the back half in terms of expenses, which is a good start.

Ken Seipel: Yeah, Jeremy, I'll start with that and certainly give it to Heather for follow-up on that. I think a couple of things I'd say about that. Obviously, we, as you mentioned, have lowered our guide to the back half in terms of expenses, which is a good start. As I mentioned in my script, the answer to your question is TBD. We're going to be going through each of our expense centers, taking a really deep look at where we are and looking for opportunities for efficiencies, and I think that there are some things that will unfold over time that we'll be more equipped to give a solid answer to your question in the future here.

Speaker Change: As I mentioned in my script.

Speaker Change: Your question is TBD.

Speaker Change: We need to be going through each of our expense centers, taking a really deep look where we are at and looking for opportunities for efficiencies and I think that there's going to be some things that will unfold over time.

Speaker Change: Be more equipped to better sure you know a solid answer to your question in the future here, we have some immediate line of sight in some areas as I mentioned in transportation that we're encouraged about in D. C processing, but theres a whole lot more of their so we definitely know that as we step back and think about our SG&A rate.

Ken Seipel: We have some immediate line of sight in some areas, as I mentioned, in transportation that we're encouraged about and DC processing, but there's a whole lot more there. So we definitely know that as we step back and think about our SG&A rate, it needs to be lowered. It's certainly untenable, as I mentioned in the script earlier, and we're going to continue to work on it. I believe the answer to your question will be just in time here. We're going to find bits and pieces here that will make this a much more efficient organization. Heather, if you'd add anything to that, yeah.

Speaker Change: It used to be lowered its certainly untenable as I mentioned in the script earlier and we're going to continue to work on it but I believe the answer your question will be just over time or we're gonna find bits and pieces.

Speaker Change: Since here that will make us a much more efficient organization.

Anything to that yeah, and and not surprising Jeremy your math is spot on right. It's about one point for the 2.8 on my math are in the range that the amount that we've reduced SG&A in our guide we were able to do that because you know, we're showing our Citi trends chops, whereas we're nimble agile team, we're able to find savings.

Ken Seipel: Yeah, and not surprising, Jeremy, your math is spot-on, right? It's about 1.4 to 2.8 on my math in the range, the amount that we've reduced SG&A in our guide.

Heather Plutino: We were able to do that because... You know, we're showing our Citi Trends chops. We're a nimble, agile team. We're able to find savings across the board on discretionary spend.

Speaker Change: Things across the board on discretionary spend nothing that will harm our ability to achieve our initiatives nothing that would harm our ability to achieve our financial goals for the year. So ken's point longer term. This is a moment of you know he talked about let's let's get the data study and analyze so.

Heather Plutino: Nothing that will harm our ability to achieve our initiatives; nothing that will harm our ability to achieve our financial goals for the year. So, to Ken's point, longer term, this is a moment of, you know, he talked about, let's get the data, study, and analyze. So, that's what we will be doing with Ken's leadership and more to come as we learn and uncover things. But I think we've proven that we are able to control our SG&A and can make the adjustments that need to be made in order to bring that line down. That is something that we'll partner with Ken on over time. It's gonna be great.

Speaker Change: That's that's what we will be doing with Ken's leadership and more to come as we learned and uncover but I think we've proven that we are able to control our SG&A and Ken can make the adjustments that need to be made in order to bring that line down is something that we will partner with Ken on AUM.

Speaker Change: Time is going to be great.

Speaker Change: Great last one for me in terms of Ah you know getting back to a.

Jeremy Scott Hamblin: Great, last one for me. In terms of, you know, getting back to, let's say that, well, to get to a mid single-digit operating margin or even just to get to that 4%. Where do you think your gross margin needs to be to get there? You know, I think as you look at it, there's been some, some nice improvements that have been made versus where the business was, let's say, in 2018 or 2019. You know, and obviously, you just made the implementation of systems upgrades that are creating some opportunity. But really, to get to that, that plan, I mean, are you targeting, you know, 40%, something higher than that?

Speaker Change: Let's say that.

Speaker Change: Well to get to a mid single digit operating margin or even just to get to that 4% where.

Speaker Change: Where do you think your gross margin needs to be to get there you know I think as you look at it there's been some some nice improvements that have been made versus where the business was let's say in 2018 or 2019.

Speaker Change: You know what and obviously you just made are the implementation on the systems upgrades that are is creating some opportunity but.

Jeremy Scott Hamblin: Any color that you might be able to share would be helpful.

Speaker Change: Oh really to get to that that plan. I mean are you targeting a 40% something higher than that any color that you might be able to share would be helpful.

Speaker Change: Yeah for sure Jeremy you know we've been in the high 30 right.

Heather Plutino: Yeah, for sure, Jeremy. You know, we've been in the high 30s, right? We're very proud of our growth margin rate, but we think we've got room to grow. We're shooting to have that start with a four over time.

Speaker Change #100: Proud of our gross margin rate, but we think we've got room to grow.

Speaker Change #101: We're shooting to have that start with a four overtime on the backs of a freight rate and improvements our supply chain team shout out to them, our tireless and being able to find opportunities to improve that line a mark up in expansion, we've been talking about that throughout the call.

Heather Plutino: On the back of freight rate improvements, our supply chain team, shout out to them, is tireless in being able to find opportunities to improve that line. Markup and expansion, we've been talking about that throughout the call. Plus markdown management, right? And that's where the ERP system comes in. And then, you know, finally, of course, getting shrunken back to nice low levels. It's all in the mix. So certainly, starting with a four, and we're gonna keep pushing to make that happen.

Speaker Change #102: Mark down management, right and that's where the ERP system comes in and then you know finally of course getting shrink back to a nice low levels. It is but it's all in the mix. So certainly starting with a four and we're going to keep pushing them to make that happen.

Speaker Change #103: As a follow up on that that shrink comment I think previously because you had noted on the last call in March that there there was some elevated shrink.

Jeremy Scott Hamblin: As a follow-up on that shrink comment, I think previously, because you had noted on the last call in March that there was some elevated shrink, and it sounds like maybe that's... not only remained elevated, but maybe even a little bit worse than you had expected. So I think previously, Heather, you quantified it as maybe a 25 to 30 basis point impact for FY24, which is what you had expected. Can you give us an update on where that expectation is for shrink?

Speaker Change #103: And it sounds like maybe that's that's.

Speaker Change #104: Not only remained elevated but maybe even a little bit worse than you had expected. So I think previously Heather you'd quantified it as maybe a 25 to 30 basis point impact.

Heather: For FY 'twenty for US what you you had expected can you give us an update on where that expectation is on shrink and you know that I I gather that that's probably not something that can be cured you know incredibly quickly, but you know how how long do you think how many quarters.

Jeremy Scott Hamblin: And I gather that that's probably not something that can be cured incredibly quickly, but how long do you think, how many quarters or possibly longer than that, do you think before we can see significant improvement and get it to a level where you're content?

Speaker Change #105: Or possibly longer than that do you think before we can see significant improvement and get it to a level where you're content.

Jeremy Scott Hamblin: Thanks, Jeremy, and I'm going to have to make this the last question so we can move on to our next analyst, but thanks for the question. I really appreciate it, as always.

Speaker Change #105: Yeah, Thanks, Jeremy and I'm I'm going to have to make this the last question. So we can move on to our.

Speaker Change #106: Next analyst, but thanks for the call or the questions really appreciate it as always.

Heather Plutino: Look, Shrink is continuing to be a... So was it another surprise in the quarter? A disappointing surprise. Yeah, it was.

Speaker Change #107: Shrink is is continuing to be a.

Speaker Change #108: Our concern right I I will say and remind you that this is not new for city trials.

Speaker Change #109: We have managed shrink well over our history, but it is it is a bit of a sign of the time, it's a bit of of some we can't control like turtle, we do what we can it's all about safety when it comes to external theft. So we've been very much focusing on internal theft as I mentioned in my prepared remarks.

Speaker Change #110: Was it a another surprise in the quarter disappointing surprise yeah. It was a we expect it to come down over time, but this takes time right because shrink as a as a function of physical inventory count we do as you know our accounts a portion of our fleet each month.

Heather Plutino: We expect it to come down over time, but this takes time, right? Because shrink is a function of physical inventory count. We do, as you know, count a portion of our fleet each month. So I expect this to still be a headwind, but we'll start to see it mitigated in the second half of the year as we are lapping the beginning of what I would call our surprise period, right? And then into the following year, we'll start to see it improve even more based on all of the levers that we're pulling to put controls in place and get ahead of it. So wish us luck.

Speaker Change #110: So I expect this to still be a headwind, but we'll start to see it mitigating in the second half of the here as we are lapping the beginning of what I would call our surprise period right and then into the following year, we will start to see it improve even more based on all of the levers that we're pulling to put controls in place.

Speaker Change #110: And and to to get ahead of it so well.

Speaker Change #111: With that as well please.

Jeremy Scott Hamblin: Thanks for taking all my questions. Good luck. Thank you. Go ahead, Chris.

Heather: And Heather and thanks for taking all my questions.

Speaker Change #112: Yeah. Thank you go ahead and add to that a little bit yeah, just going to say on the back side of that and I know you guys are have been really really focused on shrink which is good and certainly would appear that you have taken the right steps to get there shrink freedom accommodated in the accrual rate going forward and is contained inside of our guidance and so it's an opportunity for us to continue to improve.

Ken Seipel: I'm just going to add to that a little bit. Yeah, I'm just going to say on the back side of that, I know you guys have been really, really focused on shrink, which is good, and certainly it would appear that you've taken the right steps to get the shrink rate accommodated in your growth rate going forward and is contained inside of our guidance. So it's an opportunity for us to continue to improve, but you should feel confident that it has been accounted for appropriately by the business.

Speaker Change #112: But you should feel confident that has been accounted for appropriately rubber business.

Ken Seipel: Good point, Ken. Thank you so much. Christine, do we have any other questions?

Speaker Change #112: Yeah, Good point, Ken Thank you so much.

Christine: Christine do we have any other questions. Our next question comes from the line of John Lawrence with the Benchmark Company. Please proceed with your question.

Operator: Our next question comes from the line of John Lawrence with The Benchmark Company. Please proceed with your question.

John Russell Lawrence: Thank you. Good morning.

John Russell Lawrence: Thank you good morning.

Speaker Change #115: Kim can you can you talk a little bit about when you were at games and looked at that transition I know, it's a smaller store base et cetera.

Ken Seipel: Ken, can you talk a little bit about when you were at Gabe's and looked at that transition? I know it's a smaller store base, etc. Comparing and contrasting a little bit when you got there, you know the business, what's happened, and I sure assume that that's how some of these business cases are coming about. Can you talk about that and what you were able to adjust to? to get that business back to the level you wanted it, and what were some of the major steps to make that happen?

Speaker Change #115: Compare and contrast, a little bit when you got there.

Speaker Change #116: You know the business, what's happened to that sure I assume that that's how some of these business cases are coming about.

Speaker Change #116: Can you talk about that and what you were able to adjust to.

Speaker Change #116: To get that business back to the level you wanted it in and what were some of the major steps to make that happen.

John Russell Lawrence: Yeah for sure John Happy to talk about that yeah.

Ken Seipel: Yeah, for sure, John. Happy to talk about that.

When I came into the business as you might remember was a private equity firm and in capital purchases.

Ken Seipel: When I came into the business, as you might remember, a private equity firm, A&M Capital, had purchased it, and they had bought it from the family themselves. And so, as with a family business at times, you run into a situation where some things are good, but not everything. And so, I mentioned earlier the five-balanced approach that I take in the business and actually applied all of those principles there, and I found that, as with every business, there are some things that are going quite well. Engaged, they have to be quite good at deal-making, and they were amazing at putting treasure in the treasure hunt.

Speaker Change #117: They had bought it from the family of themselves and so it was with a family business at times, you run into a situation where.

Speaker Change #118: Some things are good, but not everything and so I mentioned earlier, the five balanced approach that I've taken the business and actually apply it all of those principles there and found it.

Speaker Change #118: With every business there are some things that are growing quite well engage they have to be quite good of deal, making in labor amazing you're putting treasurer in the treasury. However, the replication and accuracy that was what it was.

Ken Seipel: However, the replication and accuracy were not there. So, what we embarked upon was really, first and foremost, getting operational excellence. And I really find that to be the foundation of a great company, which is, and you hear the old saying, retail is detail, right? You have to get in there, just make sure that everything you do is replicatable and consistent and shows up for the consumer in that way.

Speaker Change #119: There so what we embarked upon was really personal kormos, there was getting operational excellence that I really felt like find that to be the foundation of a great company, which as you heard the old saying retailers detailed right you have to get in there just to make sure that everything you do is replicate Abel.

Speaker Change #119: And consistent and shows up to the consumer in that way. So that's really kind of stuck in one and then step two actually is helping them.

Ken Seipel: So, that's really kind of step one. And then step two, actually, is helping you know, get the teams really fully engaged. And what that means, basically, is really getting people excited about winning. Sometimes, when you are working in turnarounds, people get kind of used to seeing negative numbers, and it can kind of wear on individuals over time.

Speaker Change #119: The teams are really fully engaged and and what that means basically is really getting people.

Speaker Change #120: Excited about winning.

Speaker Change #121: Sometimes when you are working in turnarounds people who've been kind of used to seeing negative numbers and you kind of can wear on individuals over time. So there's a key ingredient youre about creating some little wins and getting folks excited.

Ken Seipel: So, there's a key ingredient here about creating some little wins and getting folks excited. And the more that tends to kind of breed higher engagement. So, that was kind of the next piece of the puzzle. And then, as I mentioned earlier, dialing in on and getting the branding and the value proposition right. Marketing is a key piece of this. Now, it's not necessarily a marketing spin, but it's actually the voice of the company and making sure that it's crystal clear so that the consumer can see and understand it.

Speaker Change #121: And the more that that tends to kind of be higher engagement, but that was kind of the next piece of the puzzle.

Speaker Change #122: And then as I mentioned earlier I'm dialing in.

Speaker Change #123: And then getting the branding and the value proposition right.

Speaker Change #123: Marketing is a key piece of this so most of them necessarily marketing standard essentially a voice of the company and making sure that it's crystal clear interest in the consumer can see and understand it.

Ken Seipel: So, I can kind of go on a little bit, but you kind of get the idea here that we are really working through those five tenets that I mentioned earlier, really in a sequential order. Now, I am still evaluating city trends to decide which and what we need to be focused on. I would not presume for one minute to walk in with all the answers, but I do have a lot of questions.

Speaker Change #124: Can you kind of go on a little bit, but just kind of get the idea here that really working through those five tenants that I mentioned earlier are really in a sequential order.

And still yet evaluating Citi trends to decide which and what we need to be focused on it I would not suppose for one minute to walk in with all the answers, but I do have a lot of questions and then couple that with my past experience I think we're gonna fine and the internal teams knowledge, we're going to find the right formula for Citi trends, what I'm incredibly confidence.

Ken Seipel: And then, coupled that with my past experience, I think we're going to find, and with the internal team's knowledge, we're going to find the right formula for city trends. And I'm incredibly confident that we can replicate some of these past experiences that I've had and perhaps even beyond.

Speaker Change #124: So we can replicate some of his past experiences that I've had and perhaps even beyond.

Speaker Change #125: Great. Thanks for that and just a quick follow up can you give the Heather can you give any kind of.

John Russell Lawrence: Great, thanks for that. And just a quick follow-up, can you give Heather, can you give any kind of... little deeper dive into those stores that have been remodeled, that might have had that marketing spend as well in the right categories, and how significant were some of those better stores' performance? The average was a three, but how well did some of those successful stores really perform?

Speaker Change #126: The deeper dive into those stores that have been remodeled all.

Speaker Change #127: Oh that might've had that.

Speaker Change #128: Marketing spend as well are in the right categories and how significant are where some of those better store performance.

Speaker Change #129: The average there was a three but.

Speaker Change #129: But how well that some of those successful stores really performed in the quarter.

Heather Plutino: Yeah, thanks, John, for the question. I appreciate it.

Speaker Change #130: Yeah. Thanks, John for the question I appreciate it I know you are a big supporter of our C. T X format.

Heather Plutino: I know you're a big supporter of our CTX format. I won't disclose the exact details, but what I will tell you is that, as you know, with these, we're calling them our incremental initiatives, right? Marketing, remodels, inventory rebuilds, et cetera, et cetera. I mean, we're tweaking the dials, as we learn, and that combination of remodel and marketing has had a particularly exciting result that we're looking at and saying, as we always do, "How do we replicate that?" Where do we replicate that? So it's small yet, it's a learning process, but it's an exciting one, and we'll apply it going forward, in a measured manner, but yeah, I mean, it's helping lift for sure.

Speaker Change #131: I wont disclose exact details, but what I will tell you is that as you know with with these are we're calling them are incremental initiatives right marketing remodels inventory.

Speaker Change #131: Inventory rebuilds et cetera, et cetera, I mean, where where we're at.

Speaker Change #131: We're tweaking the dial as we learn and and that combination of remodel and marketing has had a particularly exciting results that we're looking at and saying yes.

Speaker Change #131: Always do.

Speaker Change #131: How do we replicate that where do we replicate that so it's it's small yet it's a it's a learning, but its an exciting one and and well.

Well apply it going forward.

Yeah.

Speaker Change #131: In a in a measured manner, but yeah I mean, it's it's it's a it's helping lift for sure.

Speaker Change #132: Great. Thanks, Good luck.

Mr cycle: Thanks, Tom. Thank you we have reached the end of the question and answer session. Mr cycle I will now turn the floor back over to you for closing comments.

Ken Seipel: Thank you. We have reached the end of the question and answer session. Mr. Seipel, I will now turn the floor back over to you for closing comments.

Ken Seipel: Thank you. I certainly appreciate everyone joining us today on our call. Thank you for the good questions and your time and attendance here. We look forward to updating you on our progress. Thank you very much.

Mr. Cycle: Okay. Thank you well I certainly appreciate everyone joining us today on our call. Thank you for the good questions and your time and attendance here, but we look forward to updating in the future on our progress. Thank you very much.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Speaker Change #135: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.