Q2 2025 Citi Trends Inc Earnings Call

August 27, 2024

Speaker Change: Greetings, welcome to City Trends, second quarter 2024 earnings call.

Speaker Change: At this time, all participants aren't a listen-only mode.

Speaker Change: The question and answer session will follow the formal presentation. If anyone wants to require operators distance during the conference, please press star 0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to you, Mr. McKee. Senior Associate at ICR. Thank you, you may be good.

Speaker Change: Thank you and good morning, everyone. Thank you for joining us on City Trends, second quarter, 2024 earnings call. On our call today is interim chief executive officer, Ken Seipel, and chief financial officer Heather Plutino.

Speaker Change: 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.citytrends.com.

Speaker Change: You should be aware that prepared remarks today may during this call may contain forward-looking statements within the meaning of the private securities' litigation reform act of 1995. Management may make additional forward-looking statements and response to your question.

Speaker Change: These statements do not guarantee future performance.

Speaker Change: Therefore, you should not place undue reliance on these statements.

Speaker Change: We refer you to the company's most recent report on Form 10K 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 report.

Speaker Change: I will now turn the call over to our interim chief executive officer, Ken Seipel. Ken?

Ken Seipel: Thank you, Nitza. We're all good morning, everyone, and thank you for joining our Q2 earnings called today.

Ken Seipel: Since our first quarterly call, I've had the opportunity to evaluate our business and chart corrective measures to enhance the long-term sales and profitability of city trends.

Ken Seipel: Today, we'll discuss the strategic actions, taking two to the prepare city trends for future growth, and outline important work underway to improve our near-term and long-term results.

Ken Seipel: You know what I must say, while there's a lot of work ahead still, I'm more energized and optimistic than ever about our company's future.

Speaker Change: So, friends of TUTE 2, and TUTE 2, we achieved growth in customer traffic versus last year, which indicates our core customer remains tightly engaged with the city trends brand and our unique store experience.

Speaker Change: Our home and impulse categories deliver double digit calls and our back-to-school children's categories got off to a good start.

Speaker Change: I'm pleased to report that we did for a continued momentum in the important back-to-school period with positive, single-digit, comparable store sales growth in Q3 today.

Speaker Change: Importantly, Nitra Andrew Mainz in a healthy financial position with strong liquidity and no debt, allowing us to execute the foundational work necessary for future growth and profit acceleration.

Speaker Change: In stepping into the business on duty first, I've made an evaluation of several key areas of our business, including an extensive review of our product assortment.

Speaker Change: Relatedly, I made this strategic decision to execute Markdowns in the second quarter.

Speaker Change: Quickly clear through 80s inventory and make a room for new products. This action will enable us to consistently offer pressure, balance the enormous of good, better and best products.

Speaker Change: At the same time, we're swiftly capitalizing on two distinct opportunities.

Speaker Change: versus enhancing the trail your hunch, experienced by securing branded goods at significant discounts. While also increasing the penetration of open price-loin goods.

Speaker Change: In second, we've identified specific opportunities to improve our preseason assortment planning process and product allocation processes.

Speaker Change: I am confident these actions are foundational for producing consistent, comfortable store sales growth and improved working capital efficiency.

Speaker Change: Inventory shrinkage has been an area of concern for city trains over the past several quarters. You've heard us discuss in prior calls, the actions we're taking to correct recent elevated strength transfer.

Speaker Change: In July, I made the decision to engage services of a firm to identify causal issues and assist us with fixing the problem.

Speaker Change: Working with our team, they are identifying several specific, correctable administrative and process actions that are expected to have a tangible impact on shrink results going forward.

Speaker Change: The team is also identified corrected measures to monitor and manage internal and external patch. We're in the process of implementing shrinkage improvement measures, and we expect to make a positive impact on shrinkage results going forward.

Speaker Change: As I mentioned on our prior call, we've identified opportunities to enhance the effectiveness of the Island Pacific ERP upgrade that occurred last year.

Speaker Change: Transitioning from Customize Legacy Software, the Standard Ice Software Platform, left a void in reports, processes, and monitoring capabilities that I view as fundamental for our leaders to guide the business.

Speaker Change: Our senior leadership team is highly engaged in which prioritize the business needs, and the work is now underway to make the necessary improvements.

Operator: Order 2024 Earnings Call. At this time, all participants are in a listen only mode. The question and answer session will follow the form of presentation.

Speaker Change: I want to emphasize that each of these actions I describe are foundational improvements that position city trains for profitable growth.

Operator: If anyone wants to require operators distance during the conference, please press star zero on your telephone key pad. Please note this conference is being recorded.

Speaker Change: After the fast couple of months, it's clear to me that the majority of the opportunities we face as a company are well within our control and really not dependent on external factors.

Nitza McKee: I will now turn the conference over to Nitza McKee, senior associate at ICR. Thank you. You may begin. Thank you and good morning, everyone. Thank you for joining us on City Trends 2nd quarter 2024 Earnings Call. On our call today is interim chief executive officer Ken Seipel and chief financial officer Heather Plutino. Our earnings release is 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.citytrends.com.

Speaker Change: You know, there's a company that's really nice to be in control of your own destiny.

Speaker Change: You know, knowing that if you get focused, hard work, determination will result in significantly and create out them for our shareholders.

Speaker Change: My optimism about city trans is really rooted in my belief of our core business model, which most of the considerable mode against competition. Where uniquely positioned in the marketplace as a value retailer, serving a largely underserved customer base.

Speaker Change: With our extensive network of retail locations, we're one of the largest national retailers focused on providing family apparel to lower-income customers.

Nitza McKee: You should be aware that prepared remarks today made during this call may contain forward looking statements within the meaning of the private securities litigation reform act of 1995. Management may make additional forward looking statements in response to your question. 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 10k 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.

Speaker Change: Our strength lies in our deep-rooted presence within the African American community, which continues to be at the cornerstone of our financial success.

Speaker Change: Our long-term neighborhood presence has fostered highly engaged and loyal customers who respond positively when we meet their needs.

Speaker Change: Now I'd like to say a few words about the groundwork that we're laying for the future.

Speaker Change: Our plan includes a clear focus on the core customer.

Ken Seipel: I will now turn the call over to our interim chief executive officer Ken Seipel. Ken? Thank you, Nita.

Nitza McKee: I will now turn the call over to our interim chief executive officer Ken Seipel. Ken? Thank you, Nita.

Speaker Change: A strong product value proposition.

Speaker Change: Trendy Fashions, with more trailers in the trailer.

Ken Seipel: Well, good morning, everyone, and thank you for joining our Q2 earnings call today. Since our first portal we call, I've had the opportunity to evaluate our business and chart corrective measures to enhance the long-term sales and profitability of city trends. Today, we'll discuss the strategic actions taken in Q2 to prepare city trends for future growth and outline important work underway to improve our near-term and long-term results. You know what I must say?

Kenneth Seipel: Well, good morning, everyone, and thank you for joining our Q2 earnings call today. Since our first portal we call, I've had the opportunity to evaluate our business and chart corrective measures to enhance the long-term sales and profitability of city trends. Today, we'll discuss the strategic actions taken in Q2 to prepare city trends for future growth and outline important work underway to improve our near-term and long-term results. You know what I must say?

Speaker Change: Consistent execution of our business model and disciplined expense management.

Speaker Change: The combination of which will contribute significantly to improve profit margins.

Speaker Change: Beginning with our core customers, we have narrowed our company's focus to our core African-American consumer who represents the majority of our trade area in nearly 90% of our stores.

Speaker Change: This targeting focus will allow us to deliver more precise assortments.

Ken Seipel: While there's a lot of work ahead still, I'm more energized and optimistic than ever about our company's future. So, for you to Q2, in Q2, we achieved growth in customer traffic versus last year, which indicates our core customer remains highly engaged with the city trends brand and our unique store experience. Our home and impulse categories delivered double-digit costs and our back-to-school children's categories got off to a good start. I'm pleased to report that we've experienced continued momentum in the important back-to-school period with positive single-digit comparable store sales growth in Q3 today.

Kenneth Seipel: While there's a lot of work ahead still, I'm more energized and optimistic than ever about our company's future. So, for you to Q2, in Q2, we achieved growth in customer traffic versus last year, which indicates our core customer remains highly engaged with the city trends brand and our unique store experience. Our home and impulse categories delivered double-digit costs and our back-to-school children's categories got off to a good start. I'm pleased to report that we've experienced continued momentum in the important back-to-school period with positive single-digit comparable store sales growth in Q3 today.

Speaker Change: While we acknowledge the presence of multicultural and Latinx customers our caterious, our core African American customer remains central to our business and is critical to our success.

Speaker Change: Our merchandise teams have embraced the narrow focus on our core customer, which is enabling them to create a more refined and targeted assortment.

Speaker Change: In addition, [inaudible]

Speaker Change: We have initiated a comprehensive consumer insight study to gain both quantitative and ethnographic insights into the drivers of purchase decisions.

Speaker Change: This study, expected to be completed by the fall, will be a critical factor in our decision-making process for 2025 and beyond.

Ken Seipel: Importantly, city trends remains in a healthy financial position with strong liquidity and no debt, allowing us to execute the foundational work necessary for future growth and profit acceleration. In stepping into the business on duty first, I've made an evaluation of several key areas of our business, including an extensive review of our product assortment. Relatedly, I made the strategic decision to execute markdowns in the second quarter to quickly clear through aged inventory and make room for new products.

Kenneth Seipel: Importantly, city trends remains in a healthy financial position with strong liquidity and no debt, allowing us to execute the foundational work necessary for future growth and profit acceleration. In stepping into the business on duty first, I've made an evaluation of several key areas of our business, including an extensive review of our product assortment. Relatedly, I made the strategic decision to execute markdowns in the second quarter to quickly clear through aged inventory and make room for new products.

Speaker Change: Next, our product is surveyed.

Speaker Change: In past years, the company reduced the style of choice count for opening price point goods under $5, which led to our value perception and created a void for commodity needs at value prices.

Speaker Change: By mutaneously, we increased our offering of higher price products, which was a positive step. However, we did not keep pace for the consumer demands for grants, leading to disappointment among customers, seeking branded products and competitive crisis.

Ken Seipel: This action will enable us to consistently offer pressure, balanced assortments of good, better, and best products. At the same time, we're swiftly capitalizing on two distinct opportunities, versus enhancing the trade or hunch experience by securing branded goods at significant discounts, while also increasing the penetration of opening price point goods. And second, we've identified specific opportunities to improve our preseason assortment planning process and product allocation processes. I am confident these actions are foundational for producing consistent, comparable store sales growth and improved working capital efficiency.

Kenneth Seipel: This action will enable us to consistently offer pressure, balanced assortments of good, better, and best products. At the same time, we're swiftly capitalizing on two distinct opportunities, versus enhancing the trade or hunch experience by securing branded goods at significant discounts, while also increasing the penetration of opening price point goods. And second, we've identified specific opportunities to improve our preseason assortment planning process and product allocation processes. I am confident these actions are foundational for producing consistent, comparable store sales growth and improved working capital efficiency.

Speaker Change: Moving forward, our objective is to always offer balanced assortment of good, better and best products across all categories.

Speaker Change: For our low-income customers on a tight budget, we're going to offer increased selection of goods priced under $5, with visible and source signage to emphasize our value proposition.

Speaker Change: and even more significant group of opportunity for our business lives and expanding our sales of branded products.

Speaker Change: Our customers, our fashion coaches, have demonstrated that they're willing to trade up when the fashion is right. The brand is recognizable and the price value proposition is strong.

Speaker Change: We have identified dreamers, men's and family shoes as the categories of the grace potential for near-term top-line growth.

Ken Seipel: Inventory shrinkage has been an area of concern for city trends over the past several quarters. You've heard us discuss in prior calls, the actions were taking the correct recent elevated shrink trends. In July, I made the decision to engage services of a firm to identify causal issues and assist us with fixing the problem. Working with our team, they are identifying several specific, correctable administrative and process actions that are expected to have a tangible impact on shrink results going forward.

Kenneth Seipel: Inventory shrinkage has been an area of concern for city trends over the past several quarters. You've heard us discuss in prior calls, the actions were taking the correct recent elevated shrink trends. In July, I made the decision to engage services of a firm to identify causal issues and assist us with fixing the problem. Working with our team, they are identifying several specific, correctable administrative and process actions that are expected to have a tangible impact on shrink results going forward.

Ken Seipel: The team has also identified corrected measures to monitor and manage internal and external patch. We're in the process of implementing shrinkage improvement measures, and we expect to make a positive impact on shrinkage results going forward. As I mentioned on our prior call, we've identified opportunities to enhance the effectiveness of the Island Pacific ERP upgrade that occurred last year, transitioning from customized legacy software to a standardized software platform, left avoid in reports, processes and monitoring capabilities that I view as fundamental for our leaders to guide the business.

Kenneth Seipel: The team has also identified corrected measures to monitor and manage internal and external patch. We're in the process of implementing shrinkage improvement measures, and we expect to make a positive impact on shrinkage results going forward. As I mentioned on our prior call, we've identified opportunities to enhance the effectiveness of the Island Pacific ERP upgrade that occurred last year, transitioning from customized legacy software to a standardized software platform, left avoid in reports, processes and monitoring capabilities that I view as fundamental for our leaders to guide the business.

Speaker Change: and I want to recognize our merchant team for recently opening up relationships with well over 20 well known national brands that were previously inaccessible to city trends.

Speaker Change: Our merchants have noted our largest scale of nearly 600 stores, uniquely positioned in African American neighborhoods, is very attractive to brands looking to expand their reach into this important demographic.

Speaker Change: We've fixed some of this product to begin filtering into our story in Q4 with continued expansion in 2025.

Speaker Change: You know, I'm speaking at Brands. We're currently developing internal capacity to add more Tray from to the Tray Ranch.

Speaker Change: by securing branded deals from various sources as significant discounts to regular costs.

Speaker Change: and although the current economic climate is challenging, it presents an excellent opportunity for off-priced deal making with the stress defenders and retailers.

Speaker Change: We've added a highly regarded price buyer to our team to open new relationships, free off-priced deal flow, evaluate the sortment, fit and execute.

Ken Seipel: Our senior leadership team is highly engaged in prioritizing the business needs and the work is now underway to make the necessary improvements. I want to emphasize that each of these actions I've described are foundational improvements that position city trends for profitable growth. After these past couple of months, it's clear to me that the majority of the opportunities we face in this company are well within our control and really not dependent on external factors.

Kenneth Seipel: Our senior leadership team is highly engaged in prioritizing the business needs and the work is now underway to make the necessary improvements. I want to emphasize that each of these actions I've described are foundational improvements that position city trends for profitable growth. After these past couple of months, it's clear to me that the majority of the opportunities we face in this company are well within our control and really not dependent on external factors.

Speaker Change: Our buyers are in the market now, reviewing a seemingly endless amount of opportunistic deals to begin delivering in Q4. As we refine our capacity to execute this important growth initiative,

Speaker Change: In overtime, I expect this newly developed price treasure segment of our Sartiment to contribute an additional 10% or more incremental sales at a higher than average margin rate.

Ken Seipel: As a company, it's really nice to be in control of your own destiny. Knowing that if you get focused, hard work, determination will resolve and significantly improve out them for our shareholders. My optimism about city trends is really rooted in my belief of our core business model, which boasts a defensible mode against competition, where uniquely positioned in the market in place as a value retailer serving a largely underserved customer base. With our extensive network of retail locations, we're one of the largest national retailers focused on providing family apparel to lower income customers.

Kenneth Seipel: As a company, it's really nice to be in control of your own destiny. Knowing that if you get focused, hard work, determination will resolve and significantly improve out them for our shareholders. My optimism about city trends is really rooted in my belief of our core business model, which boasts a defensible mode against competition, where uniquely positioned in the market in place as a value retailer serving a largely underserved customer base. With our extensive network of retail locations, we're one of the largest national retailers focused on providing family apparel to lower income customers.

Speaker Change: so

Speaker Change: I'm confident that the changes in our product strategy will drive traffic to our stores, resulting in consistent, tough line and gross margin dollar performance in the future.

Speaker Change: That's learning to operations.

Speaker Change: and our supply chain, we are working to increase the speed of product delivery from vendor to store while reducing costs.

Speaker Change: Our objective is to shorten the number of product days in the supply chain, enabling us to respond more quickly to customer demands and reallocate inventory working capital to fuel cell growth opportunities.

Ken Seipel: Our strength lies in our deep rooted presence within the African-American community, which continues to be the cornerstone of our financial success. Our long-term neighborhood presence has fostered highly engaged and loyal customers who respond positively when we meet their needs.

Kenneth Seipel: Our strength lies in our deep rooted presence within the African-American community, which continues to be the cornerstone of our financial success. Our long-term neighborhood presence has fostered highly engaged and loyal customers who respond positively when we meet their needs.

Speaker Change: Our distribution teams have identified several tangible opportunities to increase speed and reduce operating costs.

Speaker Change: Our progress in supply chain was solved this summer when our primary outbound carrier only expected to shut down. And although we were able to react, the destruction caused a destruction for our teams and some delay in product flow.

Ken Seipel: Now, I'd like to say a few words about the groundwork that we're laying for the future. Our plan includes a clear focus on the core customer. A strong product value proposition, trendy fashions with more traders in the trade run, consistent execution of our business model, and disciplined expense management, a combination of which will contribute significantly to improved profit margins. Beginning with our core customer, we have narrowed our company's focus to our core African American consumer, who represents the majority of our trade area in nearly 90% of our stores.

Kenneth Seipel: Now, I'd like to say a few words about the groundwork that we're laying for the future. Our plan includes a clear focus on the core customer. A strong product value proposition, trendy fashions with more traders in the trade run, consistent execution of our business model, and disciplined expense management, a combination of which will contribute significantly to improved profit margins. Beginning with our core customer, we have narrowed our company's focus to our core African American consumer, who represents the majority of our trade area in nearly 90% of our stores.

Speaker Change: We are now refocusing on the supply chain of Pigeonship project and we'll provide updates on our progress in the near future.

Speaker Change: Now I'll turn the call to Heather to review the financial points from Q2, as well as our outlook for the second half of the year. Heather?

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

Heather: Let me start by saying that I, too, am excited about the growth opportunities that lie ahead for City Trend.

Speaker Change: and strongly believe that the definitive actions we are taking set us up for long-term success.

Heather: Before I review our second quarter results and update you on our outlook, I'd like to provide some additional color on two unique aspects of our second quarter. Our successful inventory reset and our shrink results.

Ken Seipel: This targeted focus will allow us to deliver more precise assortments, while we acknowledge the presence of multicultural and Latinx customers in our trade areas. Our core African American customer remains central to our business and is critical to our success. Our merchandise teams have embraced the narrow focus on our core customer, which is enabling them to create a more refined and targeted assortment. In addition, we have initiated a comprehensive consumer insight study to gain both quantitative and ethnographic insights into the drivers of purchase decisions.

Kenneth Seipel: This targeted focus will allow us to deliver more precise assortments, while we acknowledge the presence of multicultural and Latinx customers in our trade areas. Our core African American customer remains central to our business and is critical to our success. Our merchandise teams have embraced the narrow focus on our core customer, which is enabling them to create a more refined and targeted assortment. In addition, we have initiated a comprehensive consumer insight study to gain both quantitative and ethnographic insights into the drivers of purchase decisions.

Heather: I would characterize these two items, totaling 13.4 million dollars of expense in the quarter as one time in nature and not reflective of the underlying strength of the business or the long-term potential of the city trends brand.

Heather: Note, however, that they are included in our adjusted EBITDA results for the quarter.

Heather: As Ken mentioned, we made the strategic decision to quickly move through aged inventory to make room for new products.

Ken Seipel: This study, expected to be completed by the fall, will be a critical factor in our decision making process for 2025 and beyond. Next, our product assortment. In past years, the company reduced the style choice count for opening price point goods under five dollars, which led our value perception and created a void for commodity needs at value prices. But simultaneously, we increased our offering of higher price products, which was a positive step.

Kenneth Seipel: This study, expected to be completed by the fall, will be a critical factor in our decision making process for 2025 and beyond. Next, our product assortment. In past years, the company reduced the style choice count for opening price point goods under five dollars, which led our value perception and created a void for commodity needs at value prices. But simultaneously, we increased our offering of higher price products, which was a positive step.

Ken Seipel: The inventory reset resulted in $9.4 million of second quarter markdowns.

Speaker Change: In addition, and despite progress on several meaningful initiatives, we incurred higher than anticipated strength from physical inventory results in the quarter.

Speaker Change: As a result, we appropriately increased our accrual for shrink, which had an outside impact on the Q2 due to the catch-up nature of that adjustment.

Speaker Change: In total, we incurred $4 million of unexpected shrink expense in the quarter.

Ken Seipel: However, we did not keep pace for the consumer demands for brands, leading to disappointment among customers, seeking branded products at competitive prices. Moving forward, our objective is to always offer a balanced assortment of good, better, and best products across all categories. For our lower income customers on a tight budget, we would need to offer increased selection of goods priced under five dollars, with visible, in-store signage to emphasize our value proposition. And even more significant growth opportunity for our business lies in expanding our sales of branded products.

Kenneth Seipel: However, we did not keep pace for the consumer demands for brands, leading to disappointment among customers, seeking branded products at competitive prices. Moving forward, our objective is to always offer a balanced assortment of good, better, and best products across all categories. For our lower income customers on a tight budget, we would need to offer increased selection of goods priced under five dollars, with visible, in-store signage to emphasize our value proposition. And even more significant growth opportunity for our business lies in expanding our sales of branded products.

Speaker Change: As you know, there are three categories of shrink and retail. Internal Fest, Administrative, Class, Recordation Issues and either Swars or DCs, and External Fest.

Speaker Change: We are working hard to change the recent trend in each of these categories.

Speaker Change: International Seth has been our primary area focus, and we've identified in our implementing several mitigating tactics to improve impressions of control.

Speaker Change: Many of which we discussed last quarter.

Speaker Change: including updated in-store theft prevention equipment, increased use of exception reporting to identify and resolve problem areas and a new third-party restitution program.

Ken Seipel: Our customers are fashion conscious and have demonstrated that they're willing to trade up when the fashion is right. The brand is recognizable and the price value proposition is strong. We have identified juniors, men's, and family shoes as the categories with the greatest potential for near-term top-line growth. And I want to recognize our merchant team for recently opening up relationships with well over 20 well-known national brands that were previously inaccessible to city trends.

Kenneth Seipel: Our customers are fashion conscious and have demonstrated that they're willing to trade up when the fashion is right. The brand is recognizable and the price value proposition is strong. We have identified juniors, men's, and family shoes as the categories with the greatest potential for near-term top-line growth. And I want to recognize our merchant team for recently opening up relationships with well over 20 well-known national brands that were previously inaccessible to city trends.

Speaker Change: We are also upgrading sore talents as needed and are revising important policies to further tighten control.

Speaker Change: We're taking action on the administrative front to ensure accurate flow of inventory data, identifying and fixing any leaks in that flow.

Speaker Change: Finally, the external theft category will benefit from the initiatives I've mentioned, but there may be more to do here.

Speaker Change: and as mentioned earlier, we've engaged a well-regarded consulting firm to help further improve our strength management across all three categories.

Ken Seipel: Our merchants have noted our large scale of nearly 600 stores, uniquely positioned in African-American neighborhoods, is very attractive to brands looking to expand their reach into this important demographic. We expect some of this product to begin filtering into our stores in Q4 with continued expansion in 2025. You know, speaking of brands, we're currently developing internal capacity to add more trade to the trade route by securing branded deals from various sources as significant discounts to regular costs.

Kenneth Seipel: Our merchants have noted our large scale of nearly 600 stores, uniquely positioned in African-American neighborhoods, is very attractive to brands looking to expand their reach into this important demographic. We expect some of this product to begin filtering into our stores in Q4 with continued expansion in 2025. You know, speaking of brands, we're currently developing internal capacity to add more trade to the trade route by securing branded deals from various sources as significant discounts to regular costs.

Speaker Change: We remain focused, and our confidence that the steps we're taking will move us toward shrink results that are more in line with our historic performance.

Speaker Change: Disting back to our inventory reset.

Speaker Change: With Ken's leadership and vision, we are moving fast to refine our effort and strategy, anchored on a more balanced mix of good, better, and best products, as well as a higher penetration of opening price points, and exciting branded goods at incredible value.

Speaker Change: We enter the second half of fiscal 2024, comfortable with our inventory, level and composition. Please with the early progress on the refinement of our assortment strategy and optimistic about our ability to drive top line improvement.

Ken Seipel: And although the current economic climate is challenging, it presents an excellent opportunity for off-price deal-making with distressed vendors and retailers. We've added a highly regarded off-price buyer to our team to open new relationships, create off-price deal flow, evaluate the sortment, fit, and execute. Our buyers are in the market now, reviewing a seemingly endless amount of opportunistic deals to begin delivering in Q4. As we refine our capacity to execute this important growth initiative.

Kenneth Seipel: And although the current economic climate is challenging, it presents an excellent opportunity for off-price deal-making with distressed vendors and retailers. We've added a highly regarded off-price buyer to our team to open new relationships, create off-price deal flow, evaluate the sortment, fit, and execute. Our buyers are in the market now, reviewing a seemingly endless amount of opportunistic deals to begin delivering in Q4. As we refine our capacity to execute this important growth initiative.

Speaker Change: and Q3 is off to a solid start with single digit cops or sales increases through the first three weeks of August.

Speaker Change: Turning now to the details of our second quarter results.

Speaker Change: Foto sales in the quarter increase, 1.7% to last year, with cont source sales down 1.7%.

Ken Seipel: And over time, I expect this newly developed off-price-trasure segment of our start-men to contribute an additional 10% or more incremental sales at a higher than average margin rate. I'm confident that the changes in our product strategy will drive traffic to our stores, resulting in consistent, tough line, and gross margin dollar performance in the future.

Kenneth Seipel: And over time, I expect this newly developed off-price-trasure segment of our start-men to contribute an additional 10% or more incremental sales at a higher than average margin rate. I'm confident that the changes in our product strategy will drive traffic to our stores, resulting in consistent, tough line, and gross margin dollar performance in the future.

Speaker Change: In the second quarter, we saw sales momentum around the moments in our customers' lives with a particularly strong father's day and July 4th.

Speaker Change: The start of the back-to-school season was supported by strengths and branded children's apparel and uniforms got off to a good start.

Speaker Change: Our Layaway program, which helps our budget conscious customers manage their spend whilst carrying great gear for the kids, remains an important offering and was up to last year.

Ken Seipel: Now turning to operations. In our supply chain, we are working to increase the speed of product delivery from vendor to store while reducing costs. Our objective is to shorten the number of product days in the supply chain, enabling us to respond more quickly to customer demands and reallocate inventory working capital to fuel sales growth opportunities. Our distribution teams have identified several tangible opportunities to increase speed and reduce operating costs. Our progress in supply chain was solved this summer when our primary outbound carrier only expectedly shut down.

Kenneth Seipel: Now turning to operations. In our supply chain, we are working to increase the speed of product delivery from vendor to store while reducing costs. Our objective is to shorten the number of product days in the supply chain, enabling us to respond more quickly to customer demands and reallocate inventory working capital to fuel sales growth opportunities. Our distribution teams have identified several tangible opportunities to increase speed and reduce operating costs. Our progress in supply chain was solved this summer when our primary outbound carrier only expectedly shut down.

Speaker Change: It is important to note that only about 14% of our store markets return to school by the end of the second quarter.

Speaker Change: As of today, approximately 80% of our store markets have returned to school.

Speaker Change: We continue to our marketing efforts in the quarter with summer and early back to school radio and paid social in select markets.

Speaker Change: Our back-to-school marketing will continue into Q3 with a focus on learning and planning to maximize holiday advertising efforts.

Ken Seipel: And although we were able to react, the destruction caused a distraction for our teams and some delay in product flow. We are now refocusing on the supply chain efficiency project and will provide updates on our progress in the near future.

Kenneth Seipel: And although we were able to react, the destruction caused a distraction for our teams and some delay in product flow. We are now refocusing on the supply chain efficiency project and will provide updates on our progress in the near future.

Speaker Change: We look forward to updating you with our back-to-school marketing test results when we meet next quarter.

Speaker Change: Today we've touched about 188 stores with our marketing efforts and will increase that number throughout the year to drive traffic in key markets.

Speaker Change: We remodeled 15 sores in the second quarter, bringing the year to date total to 35.

Heather Plutino: Now I'll turn the call to Heather to review the financial points from Q2, as well as our outlook for the second half of the year. Heather?

Heather Plutino: Now I'll turn the call to Heather to review the financial points from Q2, as well as our outlook for the second half of the year. Heather? Thank you, Ken, and good morning everyone. Let me start by saying that I, too, am excited about the growth opportunities that lie ahead for city trends, and strongly believe that the definitive actions we are caking set us up for long-term success. Before I review our second quarter results and update you on our outlook, I'd like to provide some additional color on two unique aspects of our second quarter. Our successful inventory reset and our shrink results.

Speaker Change: We also opened one new store, and closed three stores as part of our ongoing fleet optimization efforts, bringing our quarter-end store count to 597 with CTX stores representing approximately 23% of our fleet.

Heather Plutino: Thank you, Ken, and good morning everyone. Let me start by saying that I, too, am excited about the growth opportunities that lie ahead for city trends, and strongly believe that the definitive actions we are caking set us up for long-term success. Before I review our second quarter results and update you on our outlook, I'd like to provide some additional color on two unique aspects of our second quarter. Our successful inventory reset and our shrink results.

Speaker Change: Turning to the details of Girls' Margin.

Speaker Change: Our second quarter adjusted growth margin of 31.1% was considerably lower than recent history, and well below expectations.

Speaker Change: Due to the inventory and brief that.

Speaker Change: and shrink expense I described earlier.

Speaker Change: On a positive note, I am pleased to report that despite the unexpected shutdown of one of our largest outbound carriers.

Heather Plutino: I would characterize these two items totaling $13.4 million of expense in the quarter as one time in nature and not reflective of the underlying strengths of the business or the long-term potential of the city trends brand. Note, however, that they are included in our adjusted EBITDA results for the quarter. As Ken mentioned, we made the strategic decision to quickly move through aged inventory to make room for new products. The inventory reset resulted in $9.4 million of second quarter markdown.

Speaker Change: We delivered freight expense improvement over last year. A direct result of our supply chain teams ongoing efforts to improve overall supply chain efficiency while reducing cost.

Speaker Change: Moving to FGNA.

Speaker Change: Adjusted FGNA expenses increased $2.7 million in the quarter compared to last year in line with our expectations.

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

Heather Plutino: In addition, and despite progress on several meaningful initiatives, we incurred higher than anticipated shrink from physical inventory results in the quarter. As a result, we appropriately increased our accrual for shrink, which had an outsized impact on Q2 due to the catch-up nature of that adjustment. In total, we incurred $4 million of unexpected shrink expense in order. As you know, there are three categories of shrink and retail, internal theft, administrative class, recreation issues, and either stores or DCs, and external theft.

Speaker Change: Now turning to the balance sheet.

Speaker Change: We remain in a healthy financial position at the end of the quarter where they strong balance sheet, including no debt, no drawings under $75 million revolver, and $59 million in cash.

Speaker Change: With liquidity of approximately $134 million, we can more than sufficiently fund our business initiatives designed to position the company for future profitable growth.

Speaker Change: We exited the second quarter with total inventory dollars approximately flat to last year.

Heather Plutino: We are working hard to change the recent trend in each of these categories. Internal theft has been our primary area focus, and we've identified and are implementing several mitigating tactics to improve impressions of control, many of which we discussed last quarter, including updated in-store theft prevention equipment, increased use of exception reporting to identify and resolve problem areas, and a new third-party restitution program. We are also upgrading store talent as needed and our revising important policies to further tighten controls.

Speaker Change: Strategic Packaway buys made up approximately 23% of the end-of-quarter inventory, up about 20% to the last year, reflecting our buyer's success on securing opportunistic buys of exciting branded goods to drive future sales.

Speaker Change: Excluding the pack of weekdays, inventory would down 4% to last year.

Speaker Change: Now turning to our outlook for the balance of the year.

Speaker Change: Because of the unique aspect of our second quarter results, we believe it is most helpful to provide outlook for the second half of the fiscal 2024, which is as follows.

Heather Plutino: We're taking action on the administrative front to ensure accurate flow of inventory data. Identifying and fixing any leaks in that flow. Finally, the external theft category will benefit from the initiatives I've mentioned, but there may be more to do here. And, as mentioned earlier, we've engaged a well-regarded consulting firm to help further improve our shrink management across all three categories. We remain focused and are confident that the steps we're taking will move us towards shrink results that are more in line with our historic performance.

Speaker Change: We expect second half comparable for sales to be flat up low single digits.

Speaker Change: Foto sales for the second half are expected to be down mid-single digits due to the 53rd week last year and store closures.

Speaker Change: 2nd half growth margin is expected to be approximately 39%.

Speaker Change: Second half Eva Dawg is expected to be positive in a range of 0.5 million to 2.5 million, a significant improvement to first half results.

Heather Plutino: Gifting back to our inventory reset. With Ken's leadership and vision, we are moving fast to refine our equipment strategy anchored on a more balanced mix of good, better, and best products, as well as a higher penetration of opening price points and exciting branded goods at incredible values. We enter the second half of fiscal 2024, comfortable with our inventory level and composition, pleased with the early progress on the refinement of our assortment strategy, and optimistic about our ability to drive top line improvement. And Q3 is off to a solid start with single-digit comp store sales increases through the first three weeks of August.

Speaker Change: We've completed our plans for store openings and remodels for the year with one new store in 35 remodels.

Speaker Change: As part of our ongoing fleet optimization, we are planning to close 10 to 15 underperforming stores in 2024, including the six closures that we completed through Q2.

Speaker Change: We expect to end fiscal 2024 with approximately 590 stores.

Speaker Change: Finally, we expect to end the year with $60 million to $70 million of cash, reflecting full-year capital expenditures of approximately $13 million, which is down about 35% to our previous outlook.

Speaker Change: Before I turn the call back to Ken, I want to reiterate that our second quarter results, while disappointing, represent a reset for city trends.

Heather Plutino: Turning now to the details of our second quarter results. Total sales in the quarter increased 1.7 percent to last year, with comp store sales down 1.7 percent. In the second quarter, we saw sales momentum around the moments in our customers' lives with a particularly strong father's day and July fourth. The start of the back to school season was supported by strengths and branded children's apparel and uniforms got off to a good start.

Ken Seipel: The actions we took in the quarter will set us up for improved financial performance in the second half of 2024 with stronger sales fueled by our refined merchandise strategy.

Ken Seipel: A return to high 30s margin rates on cleaned up inventory and efforts to control shrinks.

Speaker Change: Positive EBITDA.

Speaker Change: and importantly, a strong financial position with a healthy cash balance.

Heather Plutino: Our layaway program, which helps our budget conscious customers manage their spend while securing great gear for the kids, remains an important offering and was up to last year. It is important to note that only about 14 percent of our store markets return to school by the end of the second quarter, as of today approximately 80% of our store markets have returned to school. We continued our marketing efforts in the quarter with summer and early back to school radio and paid social in select markets.

Ken Seipel: with that, I'll turn the call back to Ken Ken.

Ken: Thank you, Heather.

Ken: You know, in summary, our plan is a clear focus on our core customer.

Speaker Change: Drone Carot Value Profession.

Speaker Change: Trendy Fashions with more traders in the Traeger hunt.

Ken: Consistent execution of our business model.

Ken: and Discipline Expense Management, the combination of which contribute significantly improved profit margins.

Heather Plutino: Our back to school marketing will continue into Q3 with a focus on learning and planning to maximize holiday advertising efforts. We look forward to updating you with our back to school marketing test results when we meet next quarter. Today we've touched about 188 stores with our marketing efforts and will increase that number throughout the year to drive traffic in key markets. We remodeled 15 stores in the second quarter, bringing the year-to-date total to 35.

Ken: Executing this amount of change in a short period of time can be challenging. But I'd like to take this opportunity to thank our entire city trends team for their high level of engagement and driving the success of our business.

Heather Plutino: We look forward to updating you with our back to school marketing test results when we meet next quarter. Today we've touched about 188 stores with our marketing efforts and will increase that number throughout the year to drive traffic in key markets. We remodeled 15 stores in the second quarter, bringing the year-to-date total to 35. We also opened one new store and closed to three stores as part of our ongoing fleet optimization efforts, bringing our quarter-end store count to 597 with CTX stores representing approximately 23% of our fleet.

Ken: I spoke earlier in the work of our merchandise and distribution teams, but I also like we like to extend my sincere appreciation to all of our store and corporate teams for their extra effort and hard work these past couple months.

Ken: I am confident that our entire internal team is excited about our direction and eager to execute a winning year of strategy for our shareholders.

Heather Plutino: We also opened one new store and closed to three stores as part of our ongoing fleet optimization efforts, bringing our quarter-end store count to 597 with CTX stores representing approximately 23% of our fleet. Turning to the details of growth margin, our second quarter adjusted growth margin of 31.1% was considerably lower than recent history and well below expectations due to the positive note, I am pleased to report that despite the unexpected shutdown of one of our largest outbound carriers, we delivered freight expense improvement over last year. A direct result of our supply chain teams ongoing efforts to improve overall supply chain efficiency while reducing cost.

Ken: I also want to express my appreciation to our long-term shareholders.

Ken: You know, in turnaround situation, the initial road can be a little bumpy as we repair, replace, or implement new processes that enable consistent execution and profit flow further.

Heather Plutino: Turning to the details of growth margin, our second quarter adjusted growth margin of 31.1% was considerably lower than recent history and well below expectations due to the positive note, I am pleased to report that despite the unexpected shutdown of one of our largest outbound carriers, we delivered freight expense improvement over last year. A direct result of our supply chain teams ongoing efforts to improve overall supply chain efficiency while reducing cost.

Speaker Change: The shareholders rest assured, your patients will be rewarded.

Speaker Change: A CEO of my interest are fully aligned with our individual and institutional investors and I really look forward to enjoying success with all of you.

Speaker Change: I will now return to call us to our operator Darrell to facilitate questions, Darrell.

Darrell: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue.

Heather Plutino: Moving to SGNA. Adjusted SGNA expenses increased 2.7 million dollars in the quarter compared to last year in line with our expectations. The increase as discussed in previous calls was driven primarily by merit increases in stores and corporates and a modest increase in advertising spend.

Darrell: Participants using speaker equipment and maybe an assertive pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. One moment please will we pull for your questions.

Speaker Change: Our first questions come from the line of Michael Baker with DA Davidson. Please proceed with your questions.

Heather Plutino: Now turning to the balance sheet. We remained in a healthy financial position at the end of the quarter with a strong balance sheet including no debt, no drawings on our $75 million revolver and $59 million in cash. With liquidity of approximately $134 million, we can more than sufficiently fund our business initiatives designed to position the company for future profitable growth. We exited the second quarter with total inventory dollars approximately flat to last year.

Speaker Change: [inaudible]

Michael Baker: The Society of the Transaction was down, was that fewer items per basket just...

Heather Plutino: Strategic pack-away buys made up approximately 23% of the end of quarter inventory up about 20% to last year, reflecting our buyer success and securing opportunistic buys of exciting branded goods to drive future sales. Excluding the pack-away goods, inventory was down 4% to last year.

Speaker Change: Hey Mike, good morning. Good to hear you. So from a, from a retail metrics perspective, transactions were often the quarter, which can mention, back it has been under pressure.

Speaker Change: and we've seen UPT declines pretty consistently, but AUR remains up so it's really, it's the number of units that our customers choosing to put in the basket is really causing the pressure.

Heather Plutino: Now turning to our outlook for the balance of the year. Because of the unique aspects of our second quarter results, we believe it is most helpful to provide outlook for the second half of the fiscal 2024, which is as follows. We expect second half comparable for sales to be flat to upflow single-digit. Total sales for the second half are expected to be down mid single digits due to the 53rd week last year and store closures.

Speaker Change: from a category perspective we mentioned, children's off to a good start, uniforms off to a good start, back to cool to a good start.

Speaker Change: I mentioned that father's day in July 4, in particular, were strong, they really responded to the Americana that we had on the floor and getting ready for some rubber barbecues. So that was that was off to a good start.

Heather Plutino: Second half growth margin is expected to be approximately 39 percent. Second half, either does, is expected to be positive in a range of 0.5 million to 2.5 million, a significant improvement to first half results. We've completed our plans for store openings and remodels for the year with one new store and 35 remodels. As part of our ongoing fleet optimization, we are planning to close 10 to 15 under performing stores in 2024, including the six closures of the completed through Q2.

Speaker Change: This will sound repetitive from what we've talked about in prior quarters because it has been a trend. Footwear continues to be a drag on the business. Home continues to perform well because of the inventory rebuilds that we've done.

Speaker Change: So, still continuation of theme, there, impulse also, which we formally call Qline, also performing well with our customers. So, it's really a continuation of theme from prior quarters on what worked, what didn't work.

Speaker Change: but with a particular focus in the latter part of the quarter on the success of the children's business.

Heather Plutino: We expect to end fiscal 2024 with approximately 590 stores. Finally, we expect to end the year with $60 million to $70 million of cash, reflecting full-year capital expenditures of approximately $13 million, which is down about 35 percent to our previous outlook.

Speaker Change: Okay, I understood, thank you.

Speaker Change: If I could ask a follow-up on just on the shrinking.

Speaker Change: and more just the way the accounting works on that. So I understand you took a big step up this quarter to catch up on the accrual. But does this still remain a drag over the coming quarters until you cycle that step up?

Heather Plutino: Before I turn the call back to Ken, I want to reiterate that our second quarter results, while disappointing, represent a reset for Citi Trends. The actions we took in the quarter will set us up for improved financial performance in the second half of 2024, with stronger sales fueled by our refined merchandise strategy, a return to high 30s margin rates on cleaned up inventory and efforts to control shrink, positive EBITDA, and importantly, a strong financial position with a healthy cash balance.

Speaker Change: because now you are growing at a higher rate than you were presumably a year ago. So, is it a drag in the gross margin and presumably that's incorporated in the 39% back cap all look? Is that fair to say?

Speaker Change: You are correct. The drag versus last year lessons in the fall season, but it's still there. And then absolutely, it is the increase the cruel is incorporated into that 39% guide.

Speaker Change: Okay, thank you.

Ken Seipel: With that, I'll turn the call back to Ken. Ken? Thank you, Heather.

Kenneth Seipel: With that, I'll turn the call back to Ken. Ken? Thank you, Heather. You know, in summary, our plan is a clear focus on our core customer, strong product value proposition, trendy fashions with more treasures and the trigger on, consistent execution of our business model, and disciplined expense management. The combination of which contributes significantly improved profit margins. Executing this amount of change in a short period of time can be challenging, so I'd like to take this opportunity to thank our entire Citi Trends team for their high level of engagement in driving the success of our business.

Speaker Change: Thanks Mike!

Speaker Change: Thank you, our next questions come from the law and of John Lawrence with the Benchmark Company. Please proceed with your questions.

Ken Seipel: You know, in summary, our plan is a clear focus on our core customer, strong product value proposition, trendy fashions with more treasures and the trigger on, consistent execution of our business model, and disciplined expense management. The combination of which contributes significantly improved profit margins. Executing this amount of change in a short period of time can be challenging, so I'd like to take this opportunity to thank our entire Citi Trends team for their high level of engagement in driving the success of our business.

John Lawrence: Yeah, good morning, guys.

John Lawrence: Good morning, John. Yeah, yeah, I can't could you spend a little time and just tell me.

John Lawrence: Just that rationalization, when you look at that, when you talk about age inventory and just dig in down another level on the right-down sort of what?

John Lawrence: What factors go into that? How old is some of this inventory? Was it something that you tried to clear and just didn't get through? If you can sort of walk through the nuts and bolts of that if you will, please.

Ken Seipel: I spoke earlier of the work of our merchandise and distribution teams, but I also would like to extend my sincere appreciation to all of our store and corporate teams for their extra effort and hard work these past couple months. I am confident that our entire internal team is excited about our direction and eager to execute a winning strategy for our shareholders. I also want to express my appreciation to our long-term shareholders.

Kenneth Seipel: I spoke earlier of the work of our merchandise and distribution teams, but I also would like to extend my sincere appreciation to all of our store and corporate teams for their extra effort and hard work these past couple months. I am confident that our entire internal team is excited about our direction and eager to execute a winning strategy for our shareholders. I also want to express my appreciation to our long-term shareholders.

Speaker Change: Yeah, happy to. Yeah, a couple things that I've done. So when I first looked at the inventory for the business, the company is you probably remember from Q1 at a reasonably aggressive sales plan in place.

Speaker Change: and Miss That Plan. Although we had a pump increase for Q1, so the inventory was actually over purchased of that quarter. And you begin to see from there, and a little bit of the softness in the Q2, a lot of the inventory near to to sell in that important Q1 time frame just was backing up and certainly not turning up the rate that it needed to.

Ken Seipel: You know, in a turnaround situation, the initial road can be a little boppy as we repair, replace, or implement new processes that enable consistent execution and profit flow through. So, shareholders rest assured your patience will be rewarded. As CEO of my interest are wholly aligned with our individual and institutional investors, and I really look forward to enjoying success with all of you.

Kenneth Seipel: You know, in a turnaround situation, the initial road can be a little boppy as we repair, replace, or implement new processes that enable consistent execution and profit flow through. So, shareholders rest assured your patience will be rewarded. As CEO of my interest are wholly aligned with our individual and institutional investors, and I really look forward to enjoying success with all of you.

Speaker Change: This blocking room for new receipts, which is the life of our business.

Ken Seipel: Thank you.

Kenneth Seipel: Thank you.

Speaker Change: But I'm looking at it. It was pretty clear that we needed to take more aggressive action to take the markdowns. Get a moving and I am happy to report actually. We've sold through better part of 40-50% of that inventory already And it looks like it's going to be clear and out of our stores here very soon.

Operator: I will now return the call to our operator, Darrell, to facilitate questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question cue. You may press star two to remove yourself from the cue. Participants using speaker equipment and maybe necessarily picked up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. One moment please, will we pull for your questions?

Operator: I will now return the call to our operator, Darrell, to facilitate questions. Thank you.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question cue. You may press star two to remove yourself from the cue. Participants using speaker equipment and maybe necessarily picked up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. One moment please, will we pull for your questions?

Speaker Change: in terms of the Netsum Bowl Savod.

Speaker Change: I think an opportunity that we identified and actually was being implemented literally next week after Labor Day is to improve our overall Markdown process.

Speaker Change: and what we're doing now is taking the much more thorough look at age inventory and age is defined by not so much a time that should take slow selling inventory and making sure that we've reduced the price of that on a regular basis to take advantage of that in season selling of a mark down and move that slow seller out quickly.

Michael Baker: Our first questions come from the line of Michael Baker with DA Davidson.

Michael Baker: Our first questions come from the line of Michael Baker with DA Davidson. Please proceed with your questions. Okay, thanks. First, just wanted to focus on the comp, the top line. Just a little bit more color on what was below plan. So obviously, the size of the transaction was down. Was that fewer items per basket or is that due to the lower price points, due to the mark downs? Just a little bit more color on what drove that. And then what categories missed? What was, I guess you said in the press list, what was good, but what missed I guess in terms of categories?

Speaker Change: and in behind that we also have all of our process for second markdowns.

Ken Seipel: Please proceed with your questions. Okay, thanks. First, just wanted to focus on the comp, the top line. Just a little bit more color on what was below plan. So obviously, the size of the transaction was down. Was that fewer items per basket or is that due to the lower price points, due to the mark downs? Just a little bit more color on what drove that. And then what categories missed? What was, I guess you said in the press list, what was good, but what missed I guess in terms of categories?

Speaker Change: The teams are also in the process of updating our in-store presentation and making it much more easy for the consumer to shop and and access that product. I think the combination of both the cleanup and then actually our new actions that are in place now to prevent this from happening in the future should make this a non-issue as I go forward. And most importantly, you'll keep our inventory clean and ready to receive new product, which will, in fact, help us fuel our top line sales.

Speaker Change: Thank you for that, and the second one is just to follow up. Can you talk about the results of the new system and how is it working on the allocation side as far as new products and categories, et cetera, from an ordering standpoint?

Ken Seipel: Okay, Mike, good morning. Good to hear you. So from a, from a repo metrics perspective, transactions were up in the quarter, which can mention basket has been under pressure. And we've seen UPT declines pretty consistently, but AUR remains up. So it's really, it's the number of units that our customers choosing to put in the basket is really causing the pressure. From a category perspective, we mentioned children's off to a good start, uniforms off to a good start, back to cool to a good start.

Kenneth Duane Seipel: Okay, Mike, good morning. Good to hear you. So from a, from a repo metrics perspective, transactions were up in the quarter, which can mention basket has been under pressure. And we've seen UPT declines pretty consistently, but AUR remains up. So it's really, it's the number of units that our customers choosing to put in the basket is really causing the pressure. From a category perspective, we mentioned children's off to a good start, uniforms off to a good start, back to cool to a good start.

Speaker Change: Yeah, the new system, I will Pacific ERP system we installed, this has, as you point out, an allocation module in it.

Speaker Change: As we look into the module a little bit more closely while we've discovered is there's a lot of complexity with executing the particular system.

Speaker Change: It actually has that every ball on whistle one can ever imagine when it comes to allocation.

Speaker Change: Unfortunately, what we need to do is to make it a little bit simpler and easier for our teams to execute and implement.

Ken Seipel: I mentioned that fathers say in July 4th, in particular, were strong. They, they really responded to the Americana that we had on the floor and getting ready for summer barbecue. So that was, that was off to a good start. This will, this will sound repetitive from what we've talked about in prior quarters, because it is, it has been a trend. Footwear continues to be a drag on the business. Home continues to perform well because of the inventory rebuilds that we've done.

Kenneth Seipel: I mentioned that fathers say in July 4th, in particular, were strong. They, they really responded to the Americana that we had on the floor and getting ready for summer barbecue. So that was, that was off to a good start. This will, this will sound repetitive from what we've talked about in prior quarters, because it is, it has been a trend. Footwear continues to be a drag on the business. Home continues to perform well because of the inventory rebuilds that we've done.

Speaker Change: So we're underway right now, I'm doing a couple things. One, we're trying to think about ways that we can find tuned the use of the system. One of the things that we've asked our teams to do.

Speaker Change: is to reduce the number of overall store clusters that we're trying to allocate to. That will help them be a little bit more focused on dividing up the inventory of appropriate route between our low volume, mid volume and high volume stores.

Speaker Change: and that'll help us earn the energy to get better with allocation. And in longer term, we do believe that there's a bolt on opportunity and we're highly investigating currently the couple AI solutions that we believe can help us with future forecasting.

Ken Seipel: So, so still continuation of theme there, impulse also, which we formerly called queue line, also performing well with our customers. So it's, it's really a continuation of theme from prior quarters on what worked, what didn't work, but, but with a particular focus in the latter part of the quarter on the success of the children's business. Okay, understood. Thank you.

Kenneth Seipel: So, so still continuation of theme there, impulse also, which we formerly called queue line, also performing well with our customers. So it's, it's really a continuation of theme from prior quarters on what worked, what didn't work, but, but with a particular focus in the latter part of the quarter on the success of the children's business. Okay, understood. Thank you.

Speaker Change: and if I were to be critical of our current system, it's probably the one big deficit that we have, because it doesn't have a real robust future forecasting module with it.

Speaker Change: and certainly an opportunity for us as we go forward in a certain kind of anticipating consumer needs and more importantly, as this business continues to grow, we need to be really crisp and clear about the trends going forward and so I think the combination of kind of some interim steps to make our current system better and the idea that we may need to bolt on an AI solution will make our vacation one of our competitive strengths actually.

Michael Baker: If I could ask a follow up on, just on the shrink and, and more just the way the accounting works on that. So I understand you took a big step up this quarter to catch up on the accrual, but does this still remain a drag over the coming quarters until you cycle that step up, because now you are accruing at a higher rate than you were presumably a year ago. So, so is it a drag in the gross margin and presumably that that's incorporated in the 39% back half outlook, is that fair to say?

Operator: Thank you.

Clay: Clay, thanks. Good luck.

Clay: Good, thank you John.

Speaker Change: Thank you. Our next questions come from the line of Jeremy Hamblut with Craig Hallum. Please receive with your questions.

Jeremy Hamblut: Thanks for taking the question. So I wanted to come back to what you're seeing on theme stores sales trends. First question would be in terms of the remainder of Q3 and in Q4. Can you help us understand one?

Michael Baker: You are correct. The drag versus last year lessons in the fall season, but it's still there. And then absolutely, it is the increase the cruel is incorporated into that 39% guide. Okay, thank you. Thanks, thanks. Thank you.

Speaker Change: You know, if the compares get easier from here or if they get a little bit tougher. And then secondly, is just in terms of taking a high level look. You know that you've got traffic growth.

John Lawrence: Our next questions come from the line of John Lawrence with the benchmark company.

John Lawrence: Our next questions come from the line of John Lawrence with the benchmark company. Please proceed with your questions. Yeah, good morning, yes. Morning, John. Yeah, yeah, I can't could you spend a little time and just tell me just that rationalization when you look at that when you talk about age inventory and just digging down another level on the on the right down sort of what? What factors go into that? How old is some of this inventory was was it something that you tried to clear and just didn't get through if you can sort of walk through the nuts and bolts of that if you will, please.

John Lawrence: Please proceed with your questions. Yeah, good morning, yes. Morning, John. Yeah, yeah, I can't could you spend a little time and just tell me just that rationalization when you look at that when you talk about age inventory and just digging down another level on the on the right down sort of what? What factors go into that? How old is some of this inventory was was it something that you tried to clear and just didn't get through if you can sort of walk through the nuts and bolts of that if you will, please.

Speaker Change: and that sounds like that sustained here to start Q3.

Speaker Change: But, you know, your same store sails down on top of a, you know, pretty easy compare from last year when you have a lot of larger players in extreme value, a parallel category that are reporting, you know, fairly strong same store sails on top of.

Speaker Change: Strongfaint Source Hills from last year, given that you kind of juxtaposition with traffic.

Speaker Change: Do you sense that the bigger problem here is the merchandise assortment itself or the price value equation?

John Lawrence: Yeah, happy to. You know, a couple of things in a John. So when when I first looked at the inventory for the business, the company, as you probably remember from from Q1 had a reasonably aggressive sales plan in place and missed that plan, although we had a comp increased for Q1 so the inventory was actually over purchase to that quarter. And you begin to see from there and a little bit of the softness in the Q2, a lot of the inventory here to sell in that important Q1 timeframe just was backing up and certainly not turning at the rate that it needed to.

Speaker Change: that is causing some customers maybe to not buy as much from you and potentially to go from over to some competitors.

Speaker Change: Yeah, during the thanks for the question, you know, I'm going to take the last part of your question first and then I'll let Heather talk to you a little bit about the go-forward comparison.

Heather: You know, I think essentially what you said is a really big problem is that we've identified coming into the business, ultimately we believe in a sort of itself and I'm speaking in terms of Q2. I had become a little bit stale and a little bit out of sync of our consumer demands.

John Lawrence: This blocking room for new receipts, which is the lifeblood of our business, but I'm looking at it. It was pretty clear that we need to take more aggressive action to to take the mark downs. And I am happy to report actually we've sold true better part of 45% of that inventory already and it looks like it's going to be clear and out of our stores here very soon. In terms of the nuts and bolts of it, you know, I think an opportunity that we identified and actually is being implemented literally next week after Labor Day is to improve our overall mark down process.

Heather: As I mentioned, we were missing some opening price point portions of the business and then we actually didn't have a brand in the mix so that we're appealing to our consumers.

Heather: The part of the action that we took to take from Markdowns was to clear out some of that product that we knew was not working.

Heather: and then we're in the process of implementing the new things that I mentioned earlier, but most notably, I've been really, really pleased with the work on emergency done so far in your term to react for example.

Speaker Change: If you look at what's happening right now in August, our children's department is having a very robust period right in the middle of a peak, they've really done a nice job of growing the business

John Lawrence: And what we're doing now is taking a much more thorough look at aged inventory and aged is defined by not so much a time that should say slow selling inventory and making sure that we've reduced the price of that on a regular basis to take advantage of that in season selling of a mark down and move that slow seller out quickly. And then behind that, we also have a follow-up process for second mark downs.

Speaker Change: and that's actually coming as a result of going into market and getting some additional branded product in place that the consumers reacting to.

Speaker Change: Our Uniform Business has been excellent as well, and that's a recovery of an open opportunity for the past year, as well as our home business has been strong, and that's actually an inventory step up itself that business kind of wrote substantially. And those are our reversals of trends that we saw coming out of Q2, a home and being okay in Q2, but certainly it was accelerated.

John Lawrence: The teams are also in the process of updating our in store presentation and making it much more easy for the consumer to shop and and access that product. I think the combination of both the cleanup and then actually our new actions that are in place now to prevent this from happening in the future should make this a non-issue as I go forward. And most importantly, you'll keep our inventory clean and ready to receive new product, which will in fact help us fuel our top line sales.

Kenneth Seipel: I think the combination of both the cleanup and then actually our new actions that are in place now to prevent this from happening in the future should make this a non-issue as I go forward. And most importantly, you'll keep our inventory clean and ready to receive new product, which will in fact help us fuel our top line sales. Thank you for that. And second one is just a follow-up. Can you talk about the results of the new system and how is it working on the allocation side as far as new products and categories, et cetera, from an ordering standpoint.

Speaker Change: But I think if I could start back and just say that.

Speaker Change: The challenges, the reason we're lagging consumer sales, as you point out against the other competitors, is our Sermon plant has just not been dialed in correctly. And part of it is the price value equation, but more awesome, it's the offering, which we're adjusting and serving you see some results with, and I expect we'll get significantly better as we go forward.

Ken Seipel: Thank you for that. And second one is just a follow-up. Can you talk about the results of the new system and how is it working on the allocation side as far as new products and categories, et cetera, from an ordering standpoint. The new system, the ERP system we installed does have, as you point out, an allocation module in it. As we look into the module a little bit more closely, what we've discovered is there's a lot of complexity with executing this particular system.

Speaker Change: In terms of the compares, I'll let Heather talk a little bit about the road ahead on our compares.

Heather: Yeah, hey, Jeremy, good to hear you.

Heather: As I look at it, spring last year, we had a negative 10% call.

Ken Seipel: It actually has about every bell and whistle one could ever imagine when it comes to allocation. But unfortunately, what we need to do is to make it a little bit simpler and easier for our teams to execute and implement. So we're underway right now of doing a couple things. One, we're trying to think about ways that we can fine tune the use of the system. One of the things I've asked our teams to do is to reduce the number of overall store clusters that we're trying to allocate to.

Kenneth Seipel: The new system, the ERP system we installed does have, as you point out, an allocation module in it. As we look into the module a little bit more closely, what we've discovered is there's a lot of complexity with executing this particular system. It actually has about every bell and whistle one could ever imagine when it comes to allocation. But unfortunately, what we need to do is to make it a little bit simpler and easier for our teams to execute and implement.

Heather: In the spring and in the fall, we delivered a negative 3.7% cough. So that tells me that the compares are actually getting a little bit harder in the fall. But we're not worried about the compare. We're worried about what are we doing to drive the top line.

Heather: and so all of the things that we've talked about this morning.

Heather: and Venturi Reset.

Kenneth Seipel: So we're underway right now of doing a couple things. One, we're trying to think about ways that we can fine tune the use of the system. One of the things I've asked our teams to do is to reduce the number of overall store clusters that we're trying to allocate to. That'll help them be a little bit more focused on dividing up the inventory appropriately between our low volume, mid volume and high volume stores.

Heather: and a new focus approach on our customer and new focus approach on our product.

Speaker Change: Good Better Best Disortment, Opening Price Point, Real Strong Value Statement, and I've got to say for me personally the most exciting piece is the branded good approach that can is bringing to the table, right? That will bring the excitement.

Ken Seipel: That'll help them be a little bit more focused on dividing up the inventory appropriately between our low volume, mid volume and high volume stores. That'll help us in the interim to get better with allocation. And in longer term, we do believe that there's a bolt on opportunity and we're highly investigating currently the couple of AI solutions that we believe can help us with future forecasting. And if I were to be critical of our current system, it's probably the one big deficit that we have because it doesn't have a rural robust future forecasting module with it.

Speaker Change: Back into our stores, we'll cause our customers to pick up the phone and call their friends.

Kenneth Seipel: That'll help us in the interim to get better with allocation. And in longer term, we do believe that there's a bolt on opportunity and we're highly investigating currently the couple of AI solutions that we believe can help us with future forecasting. And if I were to be critical of our current system, it's probably the one big deficit that we have because it doesn't have a rural robust future forecasting module with it.

Speaker Change: The strongest marketing arm in the history of city trends is when that word of mouth marketing kicks in. So because of that, I would say, I hear you on the compares that actually gets a little harder in the fall of your business.

Speaker Change: Just stare at the numbers, but we're not letting that slow us down and we're going after all the levers that we've described this morning to make sure that we are creating the excitement around products that our customers expect from Cititron to drive foot traffic drive-trop.

Ken Seipel: And certainly an opportunity for us as we go forward to certain kind of anticipate consumer needs. And more importantly, as this business continues to grow, we need to be really crisp and clear about the trends going forward. And so I think the combination of kind of some interim steps to make our current system better, and the idea that we may need to bolt on an AI solution will make allocation one of our competitive strengths, actually.

Kenneth Seipel: And certainly an opportunity for us as we go forward to certain kind of anticipate consumer needs. And more importantly, as this business continues to grow, we need to be really crisp and clear about the trends going forward. And so I think the combination of kind of some interim steps to make our current system better, and the idea that we may need to bolt on an AI solution will make allocation one of our competitive strengths, actually. Great. Thanks. Good luck. Thanks, John.

Operator: Thank you.

Speaker Change: Bob, and helpful color. And then just coming back to the shrink for a second. So, you know, I think...

Bob: It seems like the, at least in Q2, the $4 million impact is.

John Lawrence: Great. Thanks. Good luck. Thanks, John.

Bob: You know, over 50 basis points, you know, on an annualized basis.

Operator: Thank you.

Jeremy Hamblin: Our next question has come from the line of Jeremy Hamlet with Craig Hallum. Please proceed with your questions. Thanks for taking the question. So I wanted to come back to what you're seeing on the theme store sales trends. And you know, first question would be in terms of, you know, the remainder of Q3 and in Q4. Can you help us to understand one, you know, if the compare is get easier from here or if they get a little bit tougher.

Speaker Change: made silver 230 basis points relative to Q2 impact.

Speaker Change: But I think in total it's maybe about double what you had previously expected and just wanted to understand if shrink is being, you know, if you're identifying more of a problem with internal shrink issues or if this is more of a customer shrink issue.

Speaker Change: and I appreciate that. I promise you that I promise you that I'll be there.

Jeremy Hamblin: And then secondly is just in terms of taking a high level look, you know that you've got traffic growth. And that sounds like that sustained here to start Q3. But you know, your same store sales down on top of a pretty easy compare from last year, when you have a lot of larger players in extreme value apparel category that are reporting, you know, fairly strong same store sales on top of, you know, strong same store sales from last year.

Speaker Change: This is a very frustrating topic for a lot of us at Cititron. It gets a lot of focus. We are pulling a lot of levers. It always takes time and frankly, I think we can't move fast enough, or work hard enough on this trinkline because it is...

Speaker Change: It feels like it's...

Speaker Change: [inaudible]

Speaker Change: made an adjustment to the accrual because the data didn't support it.

Jeremy Hamblin: You know, given that you kind of juxtaposition with traffic, do you sense that the bigger problem here is the merchandise assortment itself or the price value equation that is kind of causing some customers maybe to not buy as much from you and potentially to go from over to some competitors? Yeah, during the thanks for the question, you know, I'm kind of take the last part of your question first. And then I'll let Heather talk to you a little bit about the go forward compares.

Kenneth Seipel: You know, given that you kind of juxtaposition with traffic, do you sense that the bigger problem here is the merchandise assortment itself or the price value equation that is kind of causing some customers maybe to not buy as much from you and potentially to go from over to some competitors? Yeah, during the thanks for the question, you know, I'm kind of take the last part of your question first. And then I'll let Heather talk to you a little bit about the go forward compares.

Speaker Change: Right, we, the, the counts that we took up until that, that time supported the accrual that we had in place. Unfortunately, with with with with Q.

Speaker Change: 2, we did another big chunk of stores, you know, we count our stores every month. We counted over 200 stores in the second quarter and at that point looking at the data, it did support and increase in the accrual.

Speaker Change: We're working hard at it. I will say though that, and I recently learned that this is consistent with the broader industry Jeremy, that internal theft is our primary area of focus, right? And that is our primary.

Jeremy Hamblin: You know, I think essentially what you said is that you're really the problems that we've identified coming into the business. Ultimately, we believe the assortment itself and speaking in terms of Q2 had become a little bit stale and a little bit out of sync of our consumer, as I mentioned, we were missing some opening price point portions of the of the business and then we actually didn't have enough brands in the mix so that we're appealing to our consumers.

Kenneth Seipel: You know, I think essentially what you said is that you're really the problems that we've identified coming into the business. Ultimately, we believe the assortment itself and speaking in terms of Q2 had become a little bit stale and a little bit out of sync of our consumer, as I mentioned, we were missing some opening price point portions of the of the business and then we actually didn't have enough brands in the mix so that we're appealing to our consumers.

Speaker Change: First place that we're looking to to increase impressions of control, all the things that you've heard me talk about for two quarters now are absolutely happening starting to turn the tide.

Speaker Change: The other piece that is in our control, I talked about the three buckets in my prepared remarks. The other piece that is in our control is the administrative or the recordation, right, where how is the flow of inventory-related data?

Jeremy Hamblin: So part of the action that we took to take the mark downs was to clear out some of that product that we knew was not working. And then we're in the process of implementing the new things that I mentioned earlier. But most notably, I've been really, really pleased with the work on merchants have done so far in your term to react, for example, if you look at what's happening right now in August, our Children's Department is having a very robust period right in the middle of the peak.

Kenneth Seipel: So part of the action that we took to take the mark downs was to clear out some of that product that we knew was not working. And then we're in the process of implementing the new things that I mentioned earlier. But most notably, I've been really, really pleased with the work on merchants have done so far in your term to react, for example, if you look at what's happening right now in August, our Children's Department is having a very robust period right in the middle of the peak.

Speaker Change: I was that working throughout the supply chain or the data supply chain, if you will.

Speaker Change: and making sure that we don't have any leaks and that we are correctly reporting at the store level and at the DC level, what the on-hand inventory is, so that's another place that we're attacking.

Speaker Change: Externals Act, always a concern. It's just a part of City Trend History, a part of City Trends Makeup.

Jeremy Hamblin: They've really done a nice job of growing the business and that's actually coming as a result of going into market and getting some additional branded product in place that the consumers reacting to are uniform business has been excellent as well. And that's a recovery of a missed opportunity for the past year, as well as our home business has been strong and that's actually an inventory step up itself that business can grow substantially.

Kenneth Seipel: They've really done a nice job of growing the business and that's actually coming as a result of going into market and getting some additional branded product in place that the consumers reacting to are uniform business has been excellent as well. And that's a recovery of a missed opportunity for the past year, as well as our home business has been strong and that's actually an inventory step up itself that business can grow substantially.

Speaker Change: Probably more to come there.

Speaker Change: A lot of the things that we're doing on the internal test side will also provide some help on the external test.

Speaker Change: but this third party consultants that we've talked about throughout the morning is really looking to help us accelerate across all three categories. So we're excited to continue to learn from them and see what we can do to move it forward.

Jeremy Hamblin: And those are our reversals of trends that we saw coming out of Q2 at home had been OK and Q2 but certainly is accelerated. So I think if I could step back and just say that the challenges, the reason we're lagging in consumer sales as you pointed out against the other competitors is a sort of a client has just not been dialed in correctly. And part of it is the price value equation but more often it's the offering which we're adjusting and certainly see some results with and I expect we'll get significantly better as we go forward in terms of the compares all that whether talk a little bit about the road ahead on our compares.

Kenneth Seipel: And those are our reversals of trends that we saw coming out of Q2 at home had been OK and Q2 but certainly is accelerated. So I think if I could step back and just say that the challenges, the reason we're lagging in consumer sales as you pointed out against the other competitors is a sort of a client has just not been dialed in correctly. And part of it is the price value equation but more often it's the offering which we're adjusting and certainly see some results with and I expect we'll get significantly better as we go forward in terms of the compares all that whether talk a little bit about the road ahead on our compares.

Speaker Change: Got it.

Speaker Change: Just really quick last one to sneak in here. In terms of the comment around the shifted 13 week to 13 week basis, just wanted to understand for as a relates to Q2 and then Q3 or Q4. You know, what's there of...

Speaker Change: Positive Benefit and Q2, and then how does that relate to Q3?

Speaker Change: Yeah, you'll recall we talked about this a few quarters ago that from a calendarization perspective, let's just...

Ken Seipel: Yeah, hey Jeremy good to hear you. As I looked at it spring last year we had a negative 10% comp in the spring and in the fall we delivered a negative 3.7% comp so that tells me that the compares are actually getting a little bit a little bit harder in the fall. But we're not worried about the compare we're worried about what are we doing to to drive the top line right and so all of the things that we've talked about this morning inventory reset.

Kenneth Seipel: Yeah, hey Jeremy good to hear you. As I looked at it spring last year we had a negative 10% comp in the spring and in the fall we delivered a negative 3.7% comp so that tells me that the compares are actually getting a little bit a little bit harder in the fall. But we're not worried about the compare we're worried about what are we doing to to drive the top line right and so all of the things that we've talked about this morning inventory reset.

Speaker Change: Lots of moving pieces of parts, but the bottom line is that in Q2, we moved in important back to school week into the second quarter.

Speaker Change: So, it had a little bit of a positive impact, Q3, it's minimal, that week moves out, but then a pay week moves in. So, kind of neutral, in Q3.

Speaker Change: and David, helpful color, thanks and good luck the rest of the year.

David: Thanks Jeremy.

Ken Seipel: A new focused approach on our customer a new focused approach on our product with better best assortment opening price point real strong value statement and I've got to say for me personally the most exciting piece is the branded good. And the next one approach that can is bringing to the table right that will bring the excitement back into our stores will cause our customers to pick up the phone and call their friends that is the strongest marketing arm in the history of city trends is when that that word of mouth marketing kicks in so because of that I would say I hear you on the compare that actually gets a little a little harder in the fall if you just stare at the numbers.

Kenneth Seipel: A new focused approach on our customer a new focused approach on our product with better best assortment opening price point real strong value statement and I've got to say for me personally the most exciting piece is the branded good. And the next one approach that can is bringing to the table right that will bring the excitement back into our stores will cause our customers to pick up the phone and call their friends that is the strongest marketing arm in the history of city trends is when that that word of mouth marketing kicks in so because of that I would say I hear you on the compare that actually gets a little a little harder in the fall if you just stare at the numbers.

David: Thank you. We have reached the end of our question and answer session. I will now let turn the floor back over to Ken Seipel for any closing remarks.

Ken Seipel: Alright, thank you, Darrell. Well, again, thank you, everybody for joining us today and we look forward to updating you on some exciting results as we continue to go through and execute our strategies. Thank you.

Speaker Change: Thank you and this does conclude today's teleconference. We appreciate your participation. You may just connect your lines at this time. Enjoy the rest of your day.

Ken Seipel: But we're not letting that slow it down and we're going after all the levers that we've described this morning to make sure that we are creating the excitement around products that our customer expects from city trends to drive foot traffic drive. And then just coming back to the shrink for a second so you know I think it seems like the at least in Q2 the $4 million impact is you know over 50 basis points you know on an annualized basis it's over 230 basis points relative to Q2 impact.

Kenneth Seipel: But we're not letting that slow it down and we're going after all the levers that we've described this morning to make sure that we are creating the excitement around products that our customer expects from city trends to drive foot traffic drive. And then just coming back to the shrink for a second so you know I think it seems like the at least in Q2 the $4 million impact is you know over 50 basis points you know on an annualized basis it's over 230 basis points relative to Q2 impact.

Speaker Change: [inaudible]

Ken Seipel: But I think in total it's maybe about double what you had previously expected and just wanted to understand if shrink is being you know if you're identifying more of a problem with internal you know shrink issues or if this is more of a customer shrink, issue. No, thanks, Jeremy. I appreciate that. And I promise you that this is a very frustrating topic for a lot of us at Citi Trends. It gets a lot of focus.

Kenneth Seipel: But I think in total it's maybe about double what you had previously expected and just wanted to understand if shrink is being you know if you're identifying more of a problem with internal you know shrink issues or if this is more of a customer shrink, issue. No, thanks, Jeremy. I appreciate that. And I promise you that this is a very frustrating topic for a lot of us at Citi Trends. It gets a lot of focus.

Speaker Change: The End.

Ken Seipel: We are pulling a lot of levers. It always takes time. And frankly, I think we can't move fast enough or work hard enough on this shrink line because it feels like it's it's it's it's it's it's the electric right when we talk about shrink. Last course. When we when we discussed it, we felt like we had around it. We were pulling those all the levers. We had not made an adjustment to the accrual because the data didn't support it.

Kenneth Seipel: We are pulling a lot of levers. It always takes time. And frankly, I think we can't move fast enough or work hard enough on this shrink line because it feels like it's it's it's it's it's it's the electric right when we talk about shrink. Last course. When we when we discussed it, we felt like we had around it. We were pulling those all the levers. We had not made an adjustment to the accrual because the data didn't support it.

Ken Seipel: Right. We the counts that we took up until that that time supported the accrual that we had in place. Unfortunately with with with Q. We did another big chunk of stores. You know, we count our stores every every month. We counted over 200 stores in the second quarter. And at that point, looking at the data, it did support an increase in the accrual. So that we're working hard at it. I will say, though, that and I recently learned that this is consistent with the broader industry, Jeremy, that internal theft is our primary area of focus.

Kenneth Seipel: Right. We the counts that we took up until that that time supported the accrual that we had in place. Unfortunately with with with Q. We did another big chunk of stores. You know, we count our stores every every month. We counted over 200 stores in the second quarter. And at that point, looking at the data, it did support an increase in the accrual. So that we're working hard at it. I will say, though, that and I recently learned that this is consistent with the broader industry, Jeremy, that internal theft is our primary area of focus.

Ken Seipel: Right. And that is our primary first place that we're looking to to increase impressions of control. All the things that you've heard me talk about for two quarters now are absolute. Absolutely happening. Starting to turn the tide on the other piece that is in our control. I talked about the three buckets in my prepared remarks. The other piece that is in our control is the administrative or the recordation right where our how is the flow of inventory related data.

Kenneth Seipel: Right. And that is our primary first place that we're looking to to increase impressions of control. All the things that you've heard me talk about for two quarters now are absolute. Absolutely happening. Starting to turn the tide on the other piece that is in our control. I talked about the three buckets in my prepared remarks. The other piece that is in our control is the administrative or the recordation right where our how is the flow of inventory related data.

Ken Seipel: How is that working throughout the supply chain or the data supply chain, if you will, and making sure that we don't have any leaks and that we are correctly reporting at the store level and at the DC level, what the on hand inventory is. So that's another place that we're attacking external theft always a concern. It's just a part of city trend history, part of city trends makeup, probably more to come there.

Kenneth Seipel: How is that working throughout the supply chain or the data supply chain, if you will, and making sure that we don't have any leaks and that we are correctly reporting at the store level and at the DC level, what the on hand inventory is. So that's another place that we're attacking external theft always a concern. It's just a part of city trend history, part of city trends makeup, probably more to come there.

Ken Seipel: A lot of the things that we're doing on the internal theft side will will also provide some help on the external theft. But this third party consultants that we've talked about throughout the morning is really looking to help us accelerate across all three categories. So we're excited to continue to learn from them and see what we can do to move it forward.

Kenneth Seipel: A lot of the things that we're doing on the internal theft side will will also provide some help on the external theft. But this third party consultants that we've talked about throughout the morning is really looking to help us accelerate across all three categories. So we're excited to continue to learn from them and see what we can do to move it forward. Got it just really quick last one to sneak in here in terms of, you know, the comment around the shifted 13 week to 13 week basis.

Speaker Change: Music

Jeremy Hamblin: Got it just really quick last one to sneak in here in terms of, you know, the comment around the shifted 13 week to 13 week basis. Just wanted to understand for, you know, as it relates to Q2 and then into Q3 or Q4, you know, was there a positive benefit in Q2 and then how does that relate to Q3? Yeah, you already talked about this a few quarters ago that from a calendarization perspective lots of lots of moving pieces parts but the bottom line is that in Q2, we moved and important back to school week into the second quarter.

Kenneth Seipel: Just wanted to understand for, you know, as it relates to Q2 and then into Q3 or Q4, you know, was there a positive benefit in Q2 and then how does that relate to Q3? Yeah, you already talked about this a few quarters ago that from a calendarization perspective lots of lots of moving pieces parts but the bottom line is that in Q2, we moved and important back to school week into the second quarter.

Jeremy Hamblin: So it had a little bit of a positive impact Q3 is minimal that that week moves out but then a pay week moves in. So kind of neutral in Q3. David, helpful color. Thanks, and good luck the rest of the year. Thanks, Jeremy. Thank you.

Kenneth Seipel: So it had a little bit of a positive impact Q3 is minimal that that week moves out but then a pay week moves in. So kind of neutral in Q3. David, helpful color. Thanks, and good luck the rest of the year. Thanks, Jeremy.

Jeremy Hamblin: Thank you.

Operator: We have reached the end of our question and answer session.

Kenneth Seipel: We have reached the end of our question and answer session. I would now like to turn the floor back over to Ken Seipel for any closing remarks. All right. Thank you, Dale. Well, again, thank you everybody for joining us today, and we look forward to updating on some exciting results as we continue to go through and execute our strategies. Thank you. This doesn't include today's teleconference. We appreciate your participation. You may just connect your lines at this time.

Ken Seipel: I would now like to turn the floor back over to Ken Seipel for any closing remarks. All right. Thank you, Dale. Well, again, thank you everybody for joining us today, and we look forward to updating on some exciting results as we continue to go through and execute our strategies. Thank you. This doesn't include today's teleconference. We appreciate your participation. You may just connect your lines at this time. Enjoy the rest of your day. Thank you.

Operator: Enjoy the rest of your day. Thank you.

Speaker Change: Music

Speaker Change: The

Speaker Change: and a lot of people who are watching this video are watching this video.

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